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The Internal Revenue Service wants radio personality McGraw Milhaven to pay a $500,000 fine. His offense: avoiding less than $1,000 in taxes.

Milhaven, the morning show host on KTRS, has been caught up in the government’s war against abusive tax shelters. He, and others in the same position, say the IRS is levying giant fines meant to punish millionaires and big corporations on people who aren’t rich and didn’t intend to break the law.

"I don’t have it. I could sell everything I own, and I doubt that I’m worth $500,000. It depends on how much I could get for my Sandy Koufax signed baseball," said Milhaven, 42.

Milhaven has been a fixture on St. Louis radio for a decade and formerly worked at KMOX. He revealed his tax problems on his KTRS show this week. "I’m being persecuted," he adds.

The IRS publishes a list of suspected tax shelters. A taxpayer with such a shelter, or something "substantially similar," must report it at tax time. If not, the tax law makes big fines almost automatic: $200,000 per year for a corporation and $100,000 per year for an individual.

It doesn’t matter how much money was sheltered or whether the taxpayer knew about the IRS list.

Milhaven says he had no idea the IRS frowned on his tax maneuver. "My accountant tells me it’s legal," he said. "I wasn’t taking a midnight flight to the Cayman Islands."

An IRS spokesman declined to comment, saying the agency can’t comment on an individual taxpayer’s situation.

Milhaven says his trouble began when his accountant, Douglas Mueller of MPP&W PC, recommended a way to lessen his taxes. The plan went like this:

Milhaven would create a corporation. Into that corporation would go the money he makes from speeches, appearances and endorsements outside of his KTRS pay.

He would also open a Roth Individual Retirement Account. Money in a Roth IRA can grow tax free, and its owner can spend it without penalty once he turns 59 1/2. That makes it a popular — and legal — way to avoid taxes. However, a taxpayer Milhaven’s age can only contribute $5,000 a year to a Roth.

Milhaven’s IRA would invest in Milhaven’s corporation. The corporation could then pay out its profits into the IRA, avoiding the $5,000 contribution limit.

The IRS has been going after Roth IRA tax shelters since at least 2003, when the Grant Thornton accounting firm in Kansas City drew the tax agency’s ire over shelters marketed to its clients get a free credit report. That year, the agency added to its prohibited list the practice of using a Roth to invest in a taxpayer-owned company unless the Roth pays a fair price.

In papers given to Milhaven, the IRS argues that his shelter violated that warning. The tax agency proposed $400,000 in fines for Milhaven’s corporation, and $100,000 against Milhaven himself. The case is now in the IRS appeals process.

Cases like this have been popping up around the country, said Alex Brucker, an employee benefits lawyer and director of the Small Business Council of America, which is campaigning to change the law.

There are roughly one thousand cases involving the Roth IRA scheme and other tax shelters that fall under the severe penalties, he estimates.

"Of course it’s not fair," Brucker said. "The penalty is disproportionate to the crime."

Last month, the Los Angeles Times reported that the owners of a local commercial printer faced $1.3 million in penalties for a tax-shelter scheme that helped them avoid only $8,385 in taxes.

The large fines were designed to punish big corporations and major tax cheats, not small fries like Milhaven, Brucker said.

Sen. Ben Nelson, D-Nebraska, has proposed a bill that would let the IRS lower the fines if a taxpayer had an acceptable excuse and make fines proportionate to the amount of taxes evaded.

Others are less sympathetic. "The IRS is especially looking at Roths because they are a breeding ground for hanky panky," says Ed Slott, a certified public accountant and publisher of Irahelp.com. "Once money is in a Roth it’s tax-free forever, so people find all kinds of schemes and scams to put money in Roths."

Milhaven says his tax shelter, which was created in 2004, never really worked. After a couple of years, his accountant discovered that one of Milhaven’s largest employers was making out checks to Milhaven, not his new corporation. So, Milhaven dismantled the corporation and filed in 2007 amended tax returns — in effect reversing the whole effort — before the IRS learned of it.

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Pickups, SUVs and passenger cars that have been orphaned under the federal government’s cash for clunkers program have started to trickle in to St. Louis-area auto salvage yards.

And operators are preparing for a bigger wave of castoffs.

"We are actually getting an influx of cars," said Joe Heiman, president of Al’s Foreign Auto Salvage and Sales in Pagedale,

While the cash for clunkers program will send thousands of used cars to salvage and recycling operators, visions of huge profits for such companies are being kept in check.

Some vehicles will yield usable parts, but others will fetch only what someone will pay for scrap metal.

For salvage companies, clunkers have limited value compared to vehicles from other sources. The engines in clunkers must be disabled almost immediately — a process that involves replacing the engine oil with a sodium silicate solution and running the engine until it seizes.

The car itself must be crushed within six months, then shredded.

Those vehicles going directly to scrap generate little cash, however, likely $100 to $125 per unit, Heiman said.

Steel mills are paying about $245 to $250 a ton for recycled car metals, said Bruce Savage, vice president of communications for the Institute of Scrap Recycling Industries. Last summer, the metals were going for about $550 a ton.

"The question is: Is there domestic demand for these materials?" Savage said.

Under cash for clunkers, tens of thousands of American motorists have traded in their cars for vehicles promising better gas mileage. Qualifying car owners can receive a credit worth up to $4,500 toward the purchase or lease of a new car.

The program proved so popular that Congress stepped in to authorize another $2 billion after the original $1 billion fund began to run dry two weeks ago. By Thursday morning, dealers had submitted 338,659 transactions with a combined value of $1.4 billion, according to the National Highway Traffic Safety Administration.

There is currently a backlog of vehicles that dealers are holding on to until they are sure they are getting paid for them, said Jan Daniels, contract vehicle purchasing manager for Pick-N-Pull Auto Dismantlers, which is based in Rancho Cordova, Calif payday loan lenders., and has a facility in St. Louis.

"The mass volume of the cars coming to our facilities hasn’t happened yet, but we are anticipating that the numbers should pick up," said Michael Wilson, executive vice president of the Automotive Recyclers Association.

Under the program rules, dealers have to turn the cars over to a salvage yard or to a scrap processor. Vehicles can be sent to salvage pool auctions, but ultimately must end up with a recycler.

"These are all cash for clunkers here," Heiman said recently, as he approached a batch of cars on his 4 1/2-acre lot. "We’re scrapping them as fast as we can, pulling the converter, the gas tanks (and draining) the transmission fluid."

Al’s has received about 35 clunkers from local auto dealers with an additional 70 to 80 promised. Heiman said the clunker program helped him branch into the sale of domestic car parts. Without clunkers, he would have had to pay more for the domestic vehicles he is now getting from dealers.

Salvage operators say they have been struck by the quality of some so-called clunkers.

Under the federal program, the cars must get less than 18 miles per gallon combined city and highway, must be drivable and must have been owned and insured by the same person for the previous year.

"We somewhat expected more beat-up vehicles. Rusty vehicles. Older vehicles. The term ‘clunker’ brings an image to mind," said Brad Schwartz, president of Liberty Auto Parts & Salvage in St. Louis whose clunker inventory included a Pontiac Trans Am with a T-top and even a 1990s Jaguar.

"Clunker is the wrong word to use to describe a number of these vehicles."

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The total value of distressed-debt deals, where creditors use their debt positions to take ownership of troubled companies, has touched $84.4 billion this year, the Wall Street Journal said, at a pace close to double that of 2008.

The newspaper, citing data compiled by data provider Dealogic, said 140 distressed-debt deals have been struck during 2009, compared with 102 for all of 2008.

It said the deals involved every sector of the U.S. economy from auto parts maker Delphi Corp to retailer Eddie Bauer and included corporate takeovers, covering several kinds of transactions related to bankruptcies, restructurings, recapitalizations or liquidations payday loan online.

The total value of distressed-debt deals in 2008 was about $20 billion, according to the paper.

(Reporting by Ajay Kamalakaran in Bangalore; Editing by Valerie Lee)

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In April 2008, as the "credit crunch" was becoming a "financial meltdown" and Bear Stearns had just collapsed on Wall Street, a new bank quietly opened in the St. Louis suburbs.

The timing appeared to be all wrong. Signs of distress were everywhere. And there was no celebration that first day at Parkside Financial Bank & Trust, situated on the first floor of a Clayton office tower. Too much to do — from opening new accounts to reassuring worried shareholders.

"It was a little nerve-wracking," bank CEO Jim Wagner said.

But now, more than a year later, no regrets.
"It turned out to be a good time to open a bank," Wagner said.

"Fabulous time," corrected his brother, bank president Matthew Wagner.

The struggles of the nation’s banking sector have received plenty of attention — and bailouts — in this Great Recession. Already, 64 banks in the United States have failed this year, the most since 1992. But some new players are seeing opportunity in the chaos.

Last year, in the grips of the banking crisis, 89 new banks opened nationwide, according to the Federal Deposit Insurance Corp. That is a drop of nearly half from the go-go, good times of 2007. And 2009 is going even more slowly: 20 banks so far, on pace for just 35 all year.

"It’s tailed off dramatically," said Bob Turicchi, a new bank consultant with the American Bankers Association. "Who is going to purchase stock in a brand-new bank in this environment?"

But if they can find funding, some of those new banks — called de novo institutions, new banking charters that are not subsidiaries or branches of current banks — are reporting good times.

Parkside, which raised $21 million before opening, now has 165 clients, $130 million in assets and $100 million in loans, Jim Wagner said. No loans are past due, according to the FDIC.

"To be able to say that in this market is just unusual," said Jim Wagner, 44.

LEARN FROM MISTAKES

New banks might lack name recognition and multiple branches, but they also do not have ledgers full of soured real estate and auto loans. They have learned from the lending mistakes of the recent past. Turicchi said he suspected few new banks would make commercial loans backed only by real estate — a common and costly problem in the boom years. And with the Federal Reserve Bank offering funds at rates approaching zero, new loans promise a good return.

"It is quite an opportunity to not have the pressures of your existing portfolio going bad," Matthew Wagner, 37, said.

Parkside is not your typical bank. No giant bank vault, just a hidden safe. No ATM or drive-through lanes. Bank tellers sit at desks, not counters. The bank does not dream of being the next Bank of America, although people can walk in and open an account fast cash advance. Parkside is aimed at a niche: commercial banking for privately held companies, and wealth management for what is termed "the mid-tier millionaire," people with a net worth of $5 million to $50 million.

(When the Wagners and a partner left jobs at other banks to start a new bank, they decided on the name Providian Bank. Just a few months before opening day, they got a letter telling them the name Providian, a now-defunct bank, was still registered. In a rush, they held an internal name-that-bank contest. And Parkside was born.)

COMPLICATED PROCESS

Opening a new bank is not a simple process, even in the best of times. It can take months. Success is not guaranteed. State and federal regulators pick apart applications for bank charters and set strict requirements for FDIC backing on consumer deposits. Turicchi said he had recently heard of banks’ withdrawing applications because shareholders had backed out. That could help explain why so few banks are seeking new charters this year.

In Missouri, not a single new charter application is in the pipeline, state regulators said. In Illinois, three banks have pending charter applications — all in the Chicago area — and one new bank opened in April: Burr Ridge Bank and Trust, which lists former sports star Bo Jackson on its board, is situated in the Chicago suburbs.

Parkside was one of just two new banks in Missouri last year.

The other was Springfield First Community Bank — which managed to open at an even worse time than Parkside.

In just the one month between getting its charter and the bank’s first day of business late last October, the stock market crashed. The government had seized Fannie Mae and Freddie Mac. Lehman Brothers and Washington Mutual had vanished. AIG was teetering. The government had just set up TARP to infuse banks with cash.

And then Springfield First opened in two plain modular units where a motel once stood in Springfield.

"Our timing, as it turned out," said bank CEO Brian Straughan, "couldn’t have been much better for us."

All 22 employees at the start-up bank used to work at Signature Bank, a Springfield-based company that was bought by an out-of-state bank in 2006. Straughan said the desire to again work at a locally managed institution led to the establishment of the new bank.

Springfield First is full-service bank, offering the familiar mix of free checking, senior checking and commercial lines of credit. It is expected to move into new offices in October. The bank now has $135 million in assets — and, with just nine months in business, no bad loans.

"We’re cooking right along," Straughan said.

It’s an assessment many established banks would love to share.

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Belgian financial investor RHJ International has offered 275 million euros ($387.6 million) for a 50.1 percent stake in General Motors’ Opel business, according to RHJ’s takeover offer for the German carmaker obtained by Reuters.

The offer, which envisions production cutbacks and pay cuts for staff, sees Opel posting a positive cash flow before funding of 1 faxless payday loans.0 billion euro by 2011.

Apart from RHJ, Canadian auto parts maker Magna is in talks about taking a stake in Opel, as is Chinese carmaker Beijing Automotive (BAIC).

(Reporting by Gernot Heller, Writing by Nicola Leske)

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PARIS–There will be no rebound in car markets in Europe and Japan before 2011, the head of car makers Renault and Nissan says.

In comments reported by the French daily Le Monde, Carlos Ghosn said the end of scrapping deals in Europe that encourage car buyers to trade in older cars for new ones would hold back any rebound in the car market. The deals have helped limit the decline in car purchases.

He predicted no pickup in Europe’s car industry until at least the first quarter of 2011. He said Japan too would have to wait until 2011 to see improvement business

The U.S. office market vacancy rate reached 15.9 percent in the second quarter, its highest in four years and rent fell by the largest amount in more than seven as demand from companies and other office renters remained weak, real estate research firm Reis said Inc.

“It’s bad,” Reis director of research Victor Calanog said. “It’s decaying and getting worse. Given the depth and magnitude of the recession, you can argue that we are facing a storm of epic proportions and we’re only at the beginning.

The weak demand helped push up the average weighted U.S. office vacancy rate 0.70 percentage points during the quarter and 2.7 percentage points compared with a year ago, according to the report released on Tuesday.

Asking rent during the quarter fell 1.4 percent to $28.43 per square foot. Factoring in rent-free months and improvement costs to landlords, effective rent — the net amount of cash landlords take in — fell 2.7 percent in the quarter to $23.42 per square foot. The second-quarter drop was more severe than the first quarter’s 2.3 percent, dampening hopes the office market is bottoming out, Reis said.

Year over year, rent was down 6.7 percent, the largest one- quarter decline since the first quarter 2002.

“This is really only the third quarter that we’ve experienced negative effective rent growth,” Calanog said. “Last time, the office sector had four years of negative effective rent growth.”

Although the sector has experienced downturns before, the current one may be lethal for lenders and investors who bought property during the boom years of 2005 from 2007 cashadvance. Many of them based the price and the loan on the belief that rents would continue to post strong growth and occupancy increases.

“It’s like taking on a lot of debt as an individual and now suddenly earning 10 percent 20 percent 30 percent less,” he said.

The dwindling cash flow resulting from higher vacancy and lower rent weakens the ability to repay financing and pushes a borrower closer to defaulting on a loan.

The weak second-quarter performance prompted Reis to maintain its February forecast calling for the U.S. office vacancy rate to top out at 18.2 percent in 2010 and for rent to continue to fall through 2011. It also sees the commercial real estate default rate to reach 4.2 percent by the end of the year and peak at 5.2 percent in 2011.

The U.S. vacancy rate was at 12.5 percent in the third quarter of 2007, but has since risen 3.4 percentage points, Reis said.

Of the 79 markets that Reis tracks, vacancy rose in 65 and effective rent fell in 72, indicating the weakness is widespread.

Vacancy in the New York area, which includes all the New York City boroughs except Staten Island, rose 1.2 percentage points to 10.8 percent, the highest since 1996, and effective rent slid 5.2 percent

“As far as we can tell for New York, the next two years will be murder,” Calanog said.

Boston and Orange County and San Jose California saw rent fall more than 5 percent. 

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MONTREAL–Air Canada is on the runway to achieving labour peace after reaching a tentative deal with flight attendants to extend their contract by 21 months.

The agreement with the Canadian Union of Public Employees means the cash-strapped airline has reached "cost-neutral" agreements with all of its unionized employees.

The contract extensions and moratorium on pension contributions are subject to employee ratification.

The Canadian Auto Workers’ union representing service agents were the first to approve their agreement last week.

Air Canada CEO Calin Rovinescu said the deals were achieved in the backdrop of the current economic context and financial crisis facing the airline industry.

"These tentative agreements will allow us to move forward to the next milestones: obtaining the necessary governmental measures and approvals for the pension funding arrangement and raising new financing," he said in a statement.

Discussions are ongoing with several potential lenders affordable health insurance massachusetts.

The airline has approached federal agencies for up to half the $600 million it is looking to raise. Majority owner ACE Aviation Holdings is believed to be willing to lend about $100 million.

The contract extensions include no increases to wage rates or pension benefit for 21 months.

Air Canada’s unions will share a 15 per cent equity stake in the airline and obtain one seat on its board of directors in exchange for their agreement on a moratorium on past service pension contributions.

The parties said the deal with flight attendants was aided by federally appointed mediators Jacques Lessard and former Ontario Superior Court justice James Farley.

David Newman, of National Bank Financial, stated in a research note that "the fundamentals remain poor, with Air Canada particularly impacted given its operating leverage."

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Boeing Co. leaders say that the U.S. military’s airlift needs are growing and that a Pentagon proposal to halt future orders for the C-17 Globemaster III cargo plane is premature.

Boeing, whose defense unit is headquartered in St. Louis, is trying to rally support for the C-17 on multiple fronts — arguing that ceasing production would erode the U.S. industrial base, costing thousands of jobs at Boeing plants and those of its main suppliers. But Boeing officials also emphasize the plane’s strategic value.

"Right now, since 9/11, the airplane has been flying at about a 15 percent higher rate than was anticipated," said Donald A. Anderson, Boeing’s C-17 program manager in St. Louis. "In addition, they’re talking about rebasing troops in the United States. They’re talking about an increase in the size of the Marines Corps and the Army.

"So it seems like the airlift requirements are growing. And you need airlifters to meet those needs."

Starting with Secretary of Defense Robert Gates’ announcement in early April and continuing through last week, the Pentagon has said it can get by with the 205 C-17s that are either in service or on order. The Air Force also uses the Lockheed Martin C-5 Galaxy to transport weapon systems, cargo and personnel to overseas locations.

Republican Sen. Christopher "Kit" Bond and Democratic Sen. Claire McCaskill, both of Missouri, have written letters supporting more orders of the C-17, and Machinists Union officials have traveled to Washington to show their support for a program that supports 900 jobs in St. Louis.

"This is high political theater," said analyst Richard Aboulafia of The Teal Group in Fairfax, Va. "The bottom line is I don’t think the line is threatened. But it is up to everybody from Department of Defense to Congress to Boeing to the unions to make it look as though it were."

The Defense Department has not sought funding for the C-17 in the last three years. But Congress has stepped in to add funding for more of the $202 million planes through supplemental defense appropriations bills.

Bond and Boeing officials have asked why Gates would halt C-17 orders while there is a study under way into the military’s future air-mobility needs. The results are expected this fall.

"But yet we’re making that decision now to stop the airplane," Anderson said. "So it seems somewhat premature freecreditscore."

Bond said shutting down production of the C-17 is a "dangerous gamble" and warned that the U.S. can’t afford to "lose the capability to transport safely our troops and equipment to anywhere in the world."

In a letter to President Barack Obama, McCaskill said the U.S. is "literally flying the wings off these planes," and added "this is not the time to end its production, especially in light of projected global mission sets for the U.S. military."

Both legislators also have gone to bat for Boeing’s St. Louis-built F/A-18 Super Hornet, whose future was placed in limbo under the latest Pentagon spending plan.

The C-17 is assembled at a plant in Long Beach, Calif. But the cargo door, cargo ramp, landing-gear pods, nose and engine pylons are built in St. Louis.

A November 2008 report by the Government Accountability Office recommended "careful planning to avoid shutting down the C-17 line prematurely." Both Boeing and the Air Force believe shutting down and restarting production "would not be feasible or cost effective," the report found.

The GAO cited the high costs of hiring and training a new work force, reinstalling equipment to proper working condition and re-establishing a supplier base.

Boeing has delivered the C-17 to other countries, including Australia, Canada and the United Kingdom. The United Arab Emirates has announced its intent to buy four of the planes, and Qatar has ordered two and exercised an option on two additional C-17s.

But Anderson said international sales alone are not enough to sustain the C-17 line. Boeing officials say maintaining C-17 sales to the U.S. Air Force is necessary to keep the price of the planes competitive in the international market.

Defense analyst Loren Thompson of the Lexington Institute in Arlington, Va., said the C-17 is the best strategic airlifter ever built and "a very cogent case" can be made that terminating production at 205 planes would be too early. At the moment, he said, its future will be dictated by Congress.

"Here’s the bottom line to C-17," Thompson said. "If Congress doesn’t add money, there won’t be any more."

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A sign that jobs likely will remain scarce through next year emerged Thursday in a report showing a record number of Americans receiving unemployment aid.

And plant shutdowns by Chrysler and General Motors could further harm the economy in coming months. Economists are just starting to assess the full impact of the auto industry’s woes, which affect thousands of suppliers and dealers.

The number of people who are continuing to receive jobless benefits rose to nearly 6.7 million from about 6.6 million, the Labor Department said. That’s the highest total on records dating to 1967 and the 16th straight weekly record.

New jobless claims fell to a seasonally adjusted 631,000 last week, down from a revised figure of 643,000 the previous week. First-time claims, which had dropped to 605,000 earlier this month, reflect the pace of layoffs.

Factory closings by Chrysler and GM, most of them temporary, probably will boost the number of claims into the summer, economists said. The closings also are likely to cause layoffs at the nation’s 5,000 auto suppliers, which employ about 3 million workers.

Even with the auto industry’s woes, many analysts expect the economy to recover and start growing slightly by the fall.

Abiel Reinhart, an economist at JPMorgan Chase & Co., said the auto sector "won’t be a big enough drag to really change the big picture," particularly since many of the layoffs are temporary personal health insurance.

But economists also acknowledged uncertainty about the impact.

Joel Naroff, president of Naroff Economic Advisors, said the most critical decisions will come after the temporary shutdowns.

Namely: Will GM and Chrysler ramp up production or hold back?

Overall, while the pace of layoffs may slow, hiring remains weak, and the unemployment rate will keep rising, economists said. Based on Thursday’s data, Reinhart predicts the jobless rate could hit 9.2 percent or higher this month, up from 8.9 percent last month.

But the economic news was not all bad. In a separate report, a private research’s group forecast of economic activity rose more than expected last month. It was the first gain in seven months.

And the Conference Board says its index of leading economic indicators rose 1 percent last month. Economists surveyed by Thomson Reuters had expected a 0.8 percent increase in the index, which is designed to forecast economic activity in the next three to six months.

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