Money Buzz 4/04 Tracking insider selling and recover tax overpayments

Insider Scoop

If you've been tracking insider sales to time your owntransactions, watch out. Monitoring corporate insiders' stockselling as a market signal is growing less reliable as an investingstrategy, according to H. Nejat Seyhun, a finance professor at theUniversity of Michigan, Ann Arbor, and author of Investment Intelligence From InsiderTrading (MIT Press).

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

What's more, the recent market recovery has prompted aflurry of insider selling on the part of insiders who held backduring the downturn.

The upshot? A rash of insider selling is no longer the indicatorof internal pessimism about a company's prospects that it oncewas. "It's still a valuable investment tool," saysSeyhun, "but it cannot be used by itself to make investmentdecisions."

Taxing Poetic

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

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

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

Jennifer Pellet (jpellet5@aol.com) is a freelancewriter in New York City specializing in business andfinance.