by Tiffany Evans | Accounting News, Audit and Accounting, Business Consulting, Financial Statement Reporting, IRS, News, QuickBooks, Resources, Retail & Distribution, Tax Consulting, Tax Planning, Tax Planning - Individual, Tax Preparation - Individual
The Financial Accounting Standards Board (FASB) has issued for public comment a proposed Accounting Standards Update (ASU) that is intended to improve the presentation of reclassifications out of accumulated other comprehensive income. The proposed amendments balance the benefits to users of financial statements without imposing significant additional costs to preparers, according to FASB’s In Focus documents. The proposed update would apply to all public and private organizations that issue financial statements in conformity with US GAAP and that report other comprehensive income.
The ASU Comprehensive Income (Topic 220), Presentation of Items Reclassified Out of Accumulated Other Comprehensive Income, would require a tabular disclosure of the effect of items reclassified, which presents, in one place, information about the amounts reclassified and a road map to related financial disclosures. This information is currently presented throughout the financial statements under US GAAP.
Other comprehensive income includes gains and losses that are initially excluded from net income for an accounting period. Those gains and losses are later reclassified out of accumulated other comprehensive income into net income.
Some items of other comprehensive income that are reclassified after a reporting period, and which FASB uses in its presentation examples, include cash flow hedges, unrealized gains and losses on available-for-sale securities, and foreign currency translation adjustments. US GAAP disclosure requirements already require this information to be disclosed, the Exposure Draft (ED) of the amendments states.
The ED provides examples of tabular formats and addresses the needs of life insurers. It also refers to US GAAP requirements for defined benefit pension costs.
“Stakeholders raised concerns that certain requirements about the reclassification of items out of accumulated other comprehensive income would be costly for preparers and add unnecessary complexity to financial statements,” said FASB Chairman Leslie F. Seidman. “Based on this new feedback, the Board is proposing a revised approach that will present information about other comprehensive information in a useful way that is more cost-effective.”
No decision has been made regarding an effective date. Stakeholders are asked to provide their written comments on the proposed ASU by October 15, 2012.
Full article: http://www.accountingweb.com/article/fasb-proposes-changes-presentation-reclassified-income/219733
by Amanda O'Brien | Accounting News, Audit and Accounting, Bookkeeping, Community, CPA, IRS, News, Tax Consulting, Tax Preparation - Individual
Nearly three years ago, the IRS launched the tax return preparer oversight program and seeds were planted in the landscape of tax return preparation services. Today, those seeds are starting to sprout.
In June, the IRS estimated there are 717,161 PTIN holders, many of which (212,975, or 29.7%) are CPAs, outnumbering Enrolled Agents (42,895) and attorneys (31,189) combined. While CPAs have dominated the regulated tax preparation arena, that landscape is about to change. More and more people are completing the final step to becoming a Registered Tax Return Preparer, or RTRP (they have until 12/31/13 to pass the competency exam). Currently, there are 4,893 RTRPs. That leaves an estimated 338,127 “provisional preparers” who may join the RTRP ranks.
That means more competition is coming and it will influence the public perception of tax return preparers. Unfortunately, the public doesn’t really understand the difference between a CPA and other tax return preparers. We have all seen the advertisements by the big box tax preparation and software chains that inflate the qualifications of their employees. They often compare them to CPAs or perhaps they feature a CPA in the ad, implying that every customer representative will have similar qualifications.
Some believe that RTRPs will leverage their new designation as some form of implied association with or endorsement by the IRS, thus giving them an advantage in the marketplace. While the IRS has put in restrictions on advertising that leverage the RTRP designation (thanks to AICPA advocacy), they cannot possibly enforce them completely. And they can’t police informal or non-commercial promotions. If CPAs wait to counter such marketing efforts, they may find themselves in the same position as a political candidate trying to counteract a negative ad: while the ad may be false, it is hard to change someone’s mind after the fact.
That’s why it is important for CPAs to start telling their stories better, more often and everywhere they can think of. And they need to start now. Clients need to hear messages about the value of a CPA directly from their CPA. They also need to understand how they are more than just a tax return, that their CPA is available year-round and can help them plan for life’s significant milestones such as buying a house, planning for retirement, saving for college and much, much more. If we don’t start tooting our own value horn louder and longer, who will?
When do you need to start building your new value proposition? Yesterday. And how do you do this? Start by developing a value-centric firm culture, then educating your staff on the importance of value based client communications.
The AICPA has developed the Tax Practitioner Toolkit (available free) to help members better define their value and communicate it to current and prospective clients. A Toolkit Implementation Checklist is included, so you can get started right away.
Once your firm masters its story so it is infused in every client contact, networking presentation, or prospective client meeting, it will become part of who you are and what your firm represents for its clients. Once you know your value and live it every day, clients will never have to guess. They’ll automatically know that their CPA is the premier provider of tax services and they would never trust their finances to anyone else.
by Pete McAllister | Accounting News, Audit and Accounting, IRS, NonProfit, Tax Consulting, Tax Planning - Individual
Understanding the Educational Institution and Nonprofit Audit Landscape
June 30, the day on which many educational institutions and nonprofits end their fiscal year, is fast approaching. This brings “joy” to many internal accountants because they know that an annual visit from the auditors is just around the corner.
While it is our experience that auditors are not always greeted with open arms by an organization’s staff, we have seen an evolution in these relationships over the past few years. In previous years, auditors were frequently seen as a necessary evil, but now the disdain has diminished. Audits and auditors are now viewed less and less as a commodity or a frustrating interruption to the regular work schedule. Instead, we are more often than not viewed as professionals handling an independent confirmation of the organization’s financials. It has also become a common perception that auditors seek solutions that can help an educational institution or nonprofit improve policies and procedures.
Through the years, accounting and audit technologies have improved, which in turn has bettered audit efficiencies and lowered costs. In an era when enrollment, funding, government grants, and other forms of income are down, hiring an established and proven independent audit firm that provides fair fees (as perceived by the staff and board) is imperative.
Audit Efficiencies
Audit efficiency comes from different areas, such as technologies, documentation, analytical analysis, secondary reviews, and advance preparation. Understanding how to maximize on these efficiencies can cut down significantly on the costs to an organization.
Documentation: A best practice for audit efficiency is documentation. Documenting the whats, whys, and whens associated with accounts or procedures incurs less work for those charged with reviewing the financial data – inevitably reducing the amount of work handled by an auditor. Generally, auditors find that things are done properly but are lacking documentation. It is important to reinforce documentation procedures with your staff because it will save time and money in the long run.
Analytical Analysis: Another preferred practice is to have a member of the auditee perform the analytical work that the audit firm will be doing. This will help in several ways: the analytics will highlight the results that were not expected and/or expected, but had a large variance with a previous period; and the analytics “force” the analyzers to learn more about the organization’s financials.
Issues that arise can be reviewed and discussed internally prior to the auditors’ arrival. Having done the analytical analysis in advance will equip the organization with the answers the auditors will be seeking. This will increase the efficiency connected with the audit, along with providing the staff and other parties with fiduciary duties to the organization more knowledge about its financials.
Secondary Review: Another step that can be taken is to have someone in the organization look at the final financial analysis schedules that were internally prepared. As we know, mistakes happen. A second set of eyes to review the final work product prior to sending it off to the auditors limits mistakes found in schedules, enhances efficiency, and decreases the time an auditor spends at your office.
Advance Preparation: All organizations know when their audits are coming and dread the audit request list. Rather than responding reactively, take a proactive attitude by preparing in advance. Then, respond to the audit request list as completely as possible – keeping the information in the same chronological order as requested.
Leaving a few unanswered requests can really slow down the auditors’ work. Not only does efficiency go out the window, but the final report date gets later and later. The quicker the auditors receive the information, the quicker they will get started. The more time an organization spends on preparing a “tight” package for the auditors, the less time the auditors need to spend on the audit. This equates to lower auditing fees and earlier delivery dates.
Everybody wins when the organization incorporates efficiency into its audit preparation.
Full Article: http://www.accountingweb.com/topic/accounting-auditing/educational-institution-and-nonprofit-audits-fast-approaching-june-30-fisc
Click here to read more on MKR CPAs & Advisors nonprofit accounting services.
by Jean Miller | Accounting News, Audit and Accounting, Bookkeeping, Business Consulting, Financial Statement Reporting, IRS, News, Tax Consulting, Tax Planning
In a recent decision that considers the authority of the IRS to issue retroactive regulations, the Supreme Court ruled in United States v. Home Concrete that the IRS may not apply an extended six-year limitations period in certain tax shelter cases. The extended limitation period applies under IRC 6501(e) when a taxpayer “omits from gross income an amount properly includible” in excess of 25 percent of gross income. The court’s decision in Home Concrete has reversed cases where the government won in lower courts.
In 2009, the IRS issued temporary and final regulations that reinterpreted the established precedent for IRC 6501(e), Colony Inc. v. Commissioner, where the court had ruled on the language of the Code. The IRS regulation claimed that an overstatement of basis in property was an “omission” of gross income under the statute. The regulation would apply to any taxpayer whose statute of limitations remained open at the time the regulation was issued. The IRS then used this regulation as the basis for challenges to certain taxpayers. The Supreme Court rejected the 2009 IRS interpretation and reaffirmed its ruling in Colony.
In a recent exchange with AccountingWEB, Todd Welty, a partner in the Tax Litigation practice of SNR Denton in Dallas, reviewed the facts of United States v. Home Concrete and discussed its significance for the IRS and accountants. In 2007 through 2009, Welty, along with Senior Managing Associate Laura Gavioli, achieved rare taxpayer victories under the IRS’s six-year statute of limitations, including Grapevine Imports, Ltd. v. United States and MITA Partners v. Commissioner. These cases – like Home Concrete – test the boundaries of an agency’s authority to issue retroactive regulations, and the consequences have broad-reaching effects beyond tax law.
Q: What were the facts of the Home Concrete case? What was the government’s argument? What did the court conclude?
A: These cases began because the government alleged that the taxpayers had engaged in Son of Boss transactions, which the IRS has characterized as abusive tax shelters. Most taxpayers at issue disputed this characterization. Despite the IRS’s claim that failing to audit these taxpayers would result in massive losses of government revenue, the IRS had failed to open examinations against these taxpayers within the normal three-year window for examination and assessment under IRC 6501. According to a Treasury Inspector General report, the IRS “deliberately delayed” examining these taxpayers and allowed the three-year statutes to lapse, citing a need for further issue development.
The IRS instead sought to rely on a statutory exception under IRC 6501(e), which gives the IRS six years to pursue taxpayers who “omit” items of income exceeding 25 percent of the amount shown on the return. According to the IRS, since the taxpayers substantially underreported their taxable income due to the alleged Son of Boss transactions, the taxpayers met the statutory test, and the IRS argued it was entitled to three additional years to audit them.
Q: What was the problem with this view?
A: The IRS’s position was in direct conflict with the Supreme Court’s interpretation of the predecessor statute to IRC 6501(e) in Colony Inc. v. Commissioner, 357 U.S. 28 (1958). In that case, the Supreme Court had examined the exact same language relied on by the IRS and reviewed the legislative history of the statute. The court concluded that the statute was designed to give the IRS additional time to examine returns not just because the amount at issue was large. Rather, the statute gave the IRS this additional time only when the taxpayers’ reporting left the IRS at a “special disadvantage” in detecting errors. Thus, the focus was not on the size of the amount at issue, but on what the IRS could have known or should have known from looking at the return.
Consequently, the Supreme Court in the Colony case held that the term “omits” in the statute should have its plain meaning, that is, to “leave out” entirely. Since the taxpayer in the Colony case had adequately disclosed the disputed transaction and his tax position – even though that position disagreed with the IRS’s view – the IRS had no recourse in the extended statute of limitations. At the end of Colony, the court noted that the predecessor statute had been recently replaced with the current IRC 6501(e) and that the court’s result was “in harmony” with the current statute.
The present taxpayers further argued that Colony was directly on point because, like the taxpayer in Colony, all of the present taxpayers were alleged to have underreported their income due to an overstatement of their basis in property. In Colony, the property was a series of residential lots. In the present cases, the property usually was a short position in Treasury notes. Many of the taxpayers’ disclosures on their returns met or exceeded the disclosures that the taxpayer had made in Colony.
In 2009, after the IRS had lost numerous high-profile cases on this issue, the IRS issued temporary and final regulations that purported to reinterpret IRC 6501(e) in a manner that directly conflicted with the central holding of Colony. The regulations explicitly held that an overstatement of basis in property was an “omission” of gross income under the statute. This regulation purported to apply to any taxpayer whose statute of limitations remained open at the time the regulation was issued. In other words, the regulation was intended to apply to any pending cases that had not become final following an appeal, even if the IRS had already litigated and lost these cases. Essentially, the regulation was meant to undo unfavorable judicial decisions that the IRS had received.
The Supreme Court decision in Home Concrete soundly refused to deviate from Colony. The regulation at issue was an act of overreaching on the government’s part. In particular, the majority noted that it would be difficult to distinguish between the predecessor statute and IRC 6501(e) because they use identical language, the term “omits.” Further, because the court in Colony found the language of IRC 6501(e) to be “unambiguous” on this issue, the court held that the IRS had no discretion to issue a regulation that contradicted a prior controlling interpretation from the court.
Q: On May 1, CCH published a list of cases: Supreme Court Docket: Cert Granted and Cases Remanded Due to Home Concrete. Does this mean that the cases are no longer before the court?
A: This means that the cases are no longer before the court and that the IRS has effectively lost all of the cases. The Supreme Court has reversed any cases where the government won in lower courts and has sent instructions to the lower courts to enter judgment for the taxpayers.
Q: How should accountants use this case in their practice?
A: This case has several important consequences for accountants. First, it is an important reminder that when the IRS intends to rely on an exception to the statute of limitations to audit your client beyond the normal three-year window, the IRS must have a sound argument for relying on that exception and must be able to back that up with solid proof. Accountants should seriously scrutinize any late-received audit notices and carefully consider whether to advise their clients to consent to extending any statutes of limitations in this situation.
Further, this case will have implications for the proper deference to give any Treasury Regulation or other administrative regulation. Under the court’s decision last year in Mayo Foundation v. United States, 562 U.S. (2011), Treasury Regulations are generally entitled to heightened deference. However, Home Concrete shows that not all regulations are created equal and not all are infallible. A regulation issued much later than its originating statute (here, more than fifty years later) may be subject to greater scrutiny. Also, a regulation motivated by an improper purpose (here, interfering with unfavorable judicial decisions) may also be subject to challenge.
Full Article: http://www.accountingweb.com/topic/tax/irs-cannot-extend-three-year-limitation-due-overstatement-basis
by Jean Miller | Accounting News, Audit and Accounting, CPA, IRS, QuickBooks, Tax Consulting, Uncategorized
Gina Noy offers her clients stress-free tax preparation.
It’s not often you find “stress-free” and “tax” in the same sentence, especially during busy season, but for Noy, it’s a philosophy that carries through her Manhattan-based CPA firm.
Noy, who offers tax planning, budget advice, and bookkeeping services, works with a variety of different clients – from individuals and small businesses to start-ups and medium-sized companies. However, she said her sweet spot tends to be start-ups and companies in their second or third year of business – those moving toward a big growth stage.
According to Noy, many new businesses will experience a net loss in their first year – especially in the start-up phase – and she said that’s not necessarily a bad thing.
“If you have other income (such as W2), losses from your business can offset it, reducing your overall tax burden,” she said. “In other words, losses don’t have to be a total loss. However, they can impact your cash flow, your ability to grow your business, and attract investors and financing.”
She said many of her clients – especially those just starting a business – have to deal with correctly identifying whether they’ve hired an employee or a contractor. In the case of an employee, the business owner will be responsible for self-employment tax and keeping and filing additional documentation. Incorrectly identifying an employee’s status may expose the business owner to potential audits and penalties.
“My role in my clients’ business is to educate them,” Noy said. “Spending extra time, especially with new clients . . . educating them, helps them to succeed. I give my clients baby steps in tax, finance, and budgeting.”
It may only be a part, but for Noy, if her clients don’t understand the importance of tax in their business, they’re most likely not going to understand the importance of other financial matters.
“Especially with people who make a transition from working with a company and being self-employed, you feel like you’re floundering in the ocean. The income you earn isn’t always yours to keep, and you have to be responsible enough and realize that with the freedom of being a freelancer, you get a lot of responsibility.”
Noy recommends individuals just starting out to wait on incorporating and operate as a sole proprietor. She suggests saving the money on those start-up fees by purchasing insurance instead, and perhaps incorporating later on.
Many small business owners underestimate the responsibilities of running their business, and simply providing good service isn’t enough, Noy said.
“It’s very important to bill your clients, it’s very important to collect money from those clients and pay your bills on time. One thing leads to another. I find a lot of business owners will work extremely hard but will take a back seat to the financial part.”
And often, entrepreneurs and those just starting out will listen to advice from their friends and family rather than a professional, and they start making decisions, such as forming an LLC, without really having the information they need.
In January, Noy was a presenter at the Reboot Workshop in New York City, a networking event and “unconference” for freelancers and entrepreneurs. She said 90 percent of attendees’ questions were about incorporation and how entrepreneurs should move forward – “Should I incorporate, what type of incorporation should I be, when should I incorporate,” she recalled. “A lot of people incorporated but didn’t know what to do with it.”
Most new business owners are misinformed about write-offs as well. Noy said there are several that aren’t taken advantage of, including setting up a business retirement plan.
“Many clients don’t realize that they can put away as much as $49,000 for 2011 or $50,000 in 2012. Instead of looking for small deductions, business owners should start thinking big. By putting away money for retirement, they can save on taxes and provide for their future.”
Noy also added that many freelancers and entrepreneurs think health insurance is unapproachable and too expensive; therefore, they just put it to the side.
“There’s a way to offset a high deductible – put away pretax money into a Health Savings Account (HSA),” she said. “Tax savings are there. A little planning can go a long way.”
Cash flow management is vital to the successful operation of a small business. Noy says that once she walks her clients through their financial records, figures out how the money is flowing in and out, helps them value their business, and discusses how to price their services, the stress for the client goes away.
For many small business owners, especially freelancers, coming up with rates for services is often a trying and daunting process. Noy said she doesn’t figure out the rates for them, but she does walk them through their expenses and overhead to do some budgeting.
“A lot of people ask me what they should be charging. Of course, it really depends on what the industry expectations are, but it also depends on what their costs are,” she said.
If business owners’ costs are high due to their industry or overhead, then they may need to target corporate clients or more high net worth individuals. On the flip side, if business owners or entrepreneurs have low overhead and work out of a coffee shop on a laptop for the first two years, they can keep their pricing low and target a higher volume of clients – as many as they can service – and grow their business. They can raise their rates later.
The other piece, Noy points out, is knowing your market and pricing competitively. A business or entrepreneur charging too little, say $75 an hour for a service where everybody else is charging $125, could actually deter potential clients.
“I’m going to think something is wrong with your service because it’s too cheap,” she said. “I advise clients that you might want to offer $125, but offer a discount and say ‘I love your business, I really want to do work with you and I can give you a 20 percent discount.'”
Noy stresses that the most important thing for a small business owner or freelancer to remember is to learn how to budget and realize that money management is the key to their success.
“Without managing what’s coming into their business and what expenses have to be paid to come out of their business, it will be harder for them to grow.”
Full Article: http://www.accountingweb.com/topic/tax/making-taxes-less-taxing
by Jean Miller | Accounting News, Audit and Accounting, CPA, IRS, QuickBooks, Tax Consulting, Uncategorized
Beginning this year, IRS Taxpayer Assistance Centers (TAC) generally will not accept bulk returns for processing and mailing, particularly when it affects taxpayer services. The IRS hopes to eliminate the practice of taxpayer representatives dropping off completed returns for processing, especially during peak operating periods.
The intent of this policy change is not to limit assistance to taxpayers or their authorized representatives. Nor is it intended to limit taxpayer representatives’ visits to support their clients, particularly in situations where the taxpayer is facing financial harm or undue hardship, such as delinquent returns or to start or stop an installment agreement. It is designed, primarily, to stop the practice of dropping off returns solely for processing and mailing when the returns can be mailed directly to the IRS processing center. The TACs will accept returns with imminent statute implications, with remittances or other situations where it’s in the best interest of the taxpayer and the Service to accept them.
Local TAC managers have the authority to make exceptions to this policy and will accept drop-off returns if, in their opinion, tax preparation and other customer account services are not impacted.
The IRS encourages all tax preparers to take advantage of available e-file options to file returns electronically to avoid the need to have returns accepted and mailed at the local Taxpayer Assistance Center.
Full Article: http://www.accountingweb.com/topic/tax/irs-discourages-tax-return-drop-offs-taxpayer-assistance-centers
