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Money Buzz 4/04

Tracking insider selling and recover tax overpayments

Insider Scoop

If you've been tracking insider sales to time your own transactions, watch out. Monitoring corporate insiders' stock selling as a market signal is growing less reliable as an investing strategy, according to H. Nejat Seyhun, a finance professor at the University of Michigan, Ann Arbor, and author of Investment Intelligence From Insider Trading (MIT Press).

While insider selling is on the rise-higher now than it's been since 1986, according to Vickers Stock Research-that trend is misleading, says Seyhun. The huge number of options granted to insiders over recent years has, in turn, increased the ratio of insider sales to purchases in the open market.

What's more, the recent market recovery has prompted a flurry of insider selling on the part of insiders who held back during the downturn.

The upshot? A rash of insider selling is no longer the indicator of internal pessimism about a company's prospects that it once was. "It's still a valuable investment tool," says Seyhun, "but it cannot be used by itself to make investment decisions."

Taxing Poetic

How does an influx of cash from a rich uncle sound? If your business has paid taxes over the past three years, Uncle Sam likely owes you some loot, says Darren Oliver, chairman of the board and COO of Colorado Springs, Colorado-based Tax Recovery Group Inc. Thanks to the tax-season crunch, says Oliver, small businesses routinely overpay their taxes.

"Accountants typically do 480 returns between February 1 and April 15, and there's no way to do all that work in that time period," says Oliver, who reports typical overpayments of $80,000 to $100,000 over a period of three years. "CPAs ask clients what deductions they had, but clients are not always aware of what they can deduct." To recover overpayments, businesses re-examine their returns in search of commonly missed deductions. Often, for example, a business owner will launch a company with a sum of money, then draw a taxable salary instead of having the company repay that money as a loan.

No time for that kind of overhaul? Tax Recovery Group provides a guaranteed tax return review service-there's no fee if there's no refund, and the company will pay fines or penalties associated with its calculations. But the price tag takes a 50 percent bite out of any refund. "People say, 'Wow, that's expensive,'" shrugs Oliver. "But you can allow us to keep half or the IRS to keep it all."


2/3
of employers who sponsor contribution plans understand the mutual fund scandal and its impact on their plans.
SOURCE: Blue Prairie Group and 401khelpcenter.com LLC

Total VC investment was
$18.2
BILLION
in 2003,down from
$21.4
BILLION
in 2002.
SOURCE: National Venture Capital Association

Jennifer Pellet (jpellet5@aol.com) is a freelance writer in New York City specializing in business and finance.

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This article was originally published in the April 2004 print edition of Entrepreneur with the headline: Money Buzz 4/04.

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