by Amanda O'Brien | Accounting News, Bookkeeping, CPA, Tax Consulting, Tax Planning, Tax Planning - Individual
Many American families are struggling to make ends meet and save for their future needs, according to a report from the Consumer Federation of America (CFA) and Certified Financial Planner Board of Standards, Inc. (CFP Board), but those with a financial plan do better and are more confident about meeting their goals.
But only 36 percent of the 1,508 household financial decision makers who participated in the CFA/CFP Board 2012 Household Financial Planning Survey have ever prepared a comprehensive financial plan. Respondents with higher annual incomes and older respondents were more likely than middle-income families to have a financial plan.
Survey responses reflected the effects of the recession that began in 2008. Nearly 38 percent of households said they live paycheck to paycheck. Less than 30 percent indicated they felt comfortable financially, and only 34 percent think they can afford to retire by age 65. The survey was conducted by Princeton Survey Research Associates International (PSRAI).
Regardless of income, decision makers with a financial plan, whether it is one they have prepared on their own or with a professional, are more likely to feel they are on pace to meet all of their financial goals by a margin of 50 percent to 32 percent. By an even larger margin (52 percent to 30 percent), and across all income brackets, families with a financial plan are more likely to feel “very confident” about managing money, savings and investments.
What Is a Comprehensive Financial Plan?
The survey assumes that a comprehensive financial plan will identify a family’s financial goals, and a plan for savings and investments that will help them meet those goals. For most families, those goals will be income in retirement, college education for children, insurance needs, emergencies, and other expenses (e.g., assisting parents). The plan should include paying off credit card debt.
Most Americans have spending plans, the report says, but few have savings plans except for employer-sponsored retirement plans. Many respondents say that they do not earn enough money to save. “Advances in technology have made accessing and analyzing financial information much easier, but a lack of understanding about savings and investment options and how to best manage household finances remains a serious obstacle to Americans’ financial preparedness,” the survey reported.
Comparison with 1997 Survey
The CFA/CFP Board survey utilized a number of questions asked by a 1997 CFA-NationsBank survey, also developed with and administered by PSRAI. This made possible a comparison of consumer attitudes and habits in the more optimistic, low unemployment year of 1997, with attitudes and habits in 2012, in the aftermath of the recent severe recession.
The number of Americans who reported living paycheck to paycheck rose from 31 percent to 38 percent from 1997 to 2012, and the percentage who indicated they felt comfortable financially fell from 38 percent in 1997 to 30 percent in 2012.
Other comparisons include:
- In 1997, only 38 percent felt [they were] behind in saving for retirement compared to 51 percent this year.
- In 1997, half (50 percent) said they thought they could retire by age 65 compared to only 34 percent this year.
- In 1997, more families with college-bound children were saving for higher education (56 percent) compared to this year (48 percent).
- However, the proportion of those who say they have a retirement investment plan in place is about the same (51 percent in 1997 and 49 percent this year).
Getting Help When Preparing a Financial Plan
The 2012 survey revealed that slightly more than half of respondents said “it’s hard for me to know who to trust for financial advice” (55 percent); “to me, investing seems complicated” (52 percent); and “I’m worried about losing my money if I invest it” (55 percent), a significant increase from the 45 percent who expressed this worry in 1997.
Kevin R. Keller, CEO of CFP Board said, “Consumers understandably are more nervous about investing their money given recent revelations about financial fraud, manipulation, and abuse of clients. This doesn’t mean that people shouldn’t create a financial plan and be prepared. We encourage consumers to do their homework and find a financial professional who always puts the clients’ best interests first and abides by a fiduciary standard of care.”
Both the CFA and CFP Board recommend that consumers begin by assessing their own financial condition and develop a plan. One useful tool is the website LetsMakeaPlan.org, where interested consumers can learn more about preparing a financial plan. The site also lists questions an individual might ask of a financial planner and some red flags.
CFA executive director Stephen Brobeck said that financial planning is an important component of financial literacy. Financial planners need to get the message out.
Full Article: http://www.accountingweb.com/article/personal-financial-plans-saving-future/219569
by Daniel Kittell | Accounting News, Bookkeeping, Business Consulting, CPA, News, Tax Consulting, Tax Planning - Individual
The true cost of public employee pensions will become clearer under changes approved June 25 by the accounting standards-setter for state and local governments ? the Governmental Accounting Standards Board (GASB).
The GASB has approved two new standards that mark a major departure in the way pension costs are accounted for and described in financial statements today.
The major difference is that liabilities will be reported on the balance sheet for the first time. The net pension liability is the difference between the total pension liability (the present value of projected benefit payments to employees based on their past service) and the assets (mostly investments reported at fair value) set aside to pay current employees, retirees, and beneficiaries. Currently, governments must only report as a liability the difference between the contributions they are required to make to a pension plan in a given year versus what is actually funded.
Many states and municipal governments have not fully funded their pensions. In fact, the gap between the promises states have made for public employees’ retirement benefits and the money they have set aside to pay these bills was at least $1.38 trillion in fiscal year 2010, according to the Pew Center on the States.
Some observers believe the changes will help users of financial statements more clearly see the consequences of future proposed benefit increases.
Note Disclosures and Supplementary Information
Governments must also “comprehensively and comparably” measure the annual costs of pension benefits under the new standards.
The new statements are:
Statement No. 67, Financial Reporting for Pension Plans, which changes the existing guidance for the financial reports of most pension plans. The standard is effective for periods beginning after June 15, 2013.
Statement No. 68, Accounting and Financial Reporting for Pensions, establishes new financial reporting requirements for most governments that provide their employees with pension benefits. Provisions are effective for fiscal years beginning after June 15, 2014.
Early implementation is encouraged for both statements.
The American Institute of CPAs (AICPA) came out in favor of the new rules. AICPA President and CEO Barry C. Melancon said in a statement, “The new GASB standards will benefit users of these financial statements as well as taxpayers, since state and local governments for the first time will have to report unfunded pension liabilities on their balance sheets providing a clearer view of pension obligations.”
Statements 67 and 68 can be downloaded from the GASB website early August. Bound copies of the statements and a plain-language description of the new requirements also will be available.
Full Article: http://www.accountingweb.com/article/new-accounting-standards-pension-costs/219421
by Stephen Reed | Accounting News, Bookkeeping, Construction, CPA, IRS, Resources, Tax Consulting, Tax Planning - Individual, Technology
In response to the new requirements imposed by the Foreign Account Taxpayer Compliance Act (FATCA) and the proposed regulations promulgated thereunder, the IRS has prepared two new withholding certificates:
Form W-8BEN, Certificate of Foreign Status of Beneficial Owner for United States Tax Withholding (Individual).
Form W-8BEN-E, Certificate of Status of Beneficial Owner for United States Tax Withholding (Entities).
While the withholding forms provide a first look at the actual new reporting requirements that FATCA ultimately will impose on virtually all non-US persons receiving passive income from US sources, the IRS has not yet published draft instructions for the new certificates. As a result, certain important implementation issues raised under the Proposed Regulations and FATCA generally remain unanswered.
For now . . .
Until the new withholding forms are released in final form by the IRS in December, you should continue to use the existing Form W-8BEN where required under current law.
The new withholding certificates effectively divide the information reporting requirements between two classes of payees: nonresident alien individuals and all foreign entities other than individuals.
New W-8BEN will simplify the declarations required to be made by foreign individuals. It will only require basic identifying information, declarations with respect to treaty status (as relevant), and a general certification as to foreign status.
New W-8BEN-E will require each foreign entity to make two distinct declarations:
The foreign entity’s status for purposes of the US outbound withholding tax regime (e.g., the 30 percent withholding tax generally imposed on US-source dividends paid to non-US persons unless reduced by an applicable income tax treaty). This will be the same as the declaration required in the current IRS Form W-8BEN, as last revised in 2006.
The FATCA-related declaration, which will require an entity to provide substantial detail by declaring its overall status for FATCA purposes from among twenty-four different categories (all described in detail in the Proposed Regulations).
In addition, new W-8BEN-E will require a foreign entity to provide its Foreign Financial Institution Employer Identification Number and FATCA ID, as applicable (both are discussed in the Proposed Regulations).
Full Article: http://www.accountingweb.com/article/irs-posts-draft-revised-withholding-forms-conforming-fatca/219273
by Amanda O'Brien | Accounting News, Bookkeeping, Tax Planning, Tax Planning - Individual, Technology
A new survey conducted by Rasmussen Reports for the Consumer Federation of America ? the COUNTRY Financial Security Index – shows a gap between what Americans think they’re spending and what’s happening in reality.
Only 9 percent of the 3,000 respondents of the survey said their lifestyle is more than they can afford, yet 21 percent say they spend more than they make at least a few months every year.
The survey suggests the so-called “perception gap” could shrink if more people used a household budget. Those who budget are more likely to set monthly savings goals (61 percent) than those who don’t (30 percent), COUNTRY Financial says.
Other tips:
Review your spending behavior. Take a look at where the money goes every month and make adjustments where needed, Brannan says.
Start a spending and savings plan. Put money in jars or envelopes or start a Christmas fund. When the money’s gone, stop spending. Some people are even stashing their extra cash under their mattress or in a bedframe outfitted with a safe. In fact, safe sales are up 40 percent from a few years ago, SmartMoney reported.
Rethink expenses. When Joe Mihalic earned an MBA from Harvard Business School that resulted in more than a $100,000 debt, he vowed to repay his debt quickly. He blogged about giving up dinner dates and movies, missing parties and weddings, ending 401(k) contributions, and staying home for Christmas. He stopped buying clothes, sold a second car and motorcycle, rented a spare bedroom, and started a side business. He told Fortune magazine, “A lot of people in this country – regardless of socioeconomic status – have an unhealthy obsession with things and experiences and statuses. We shop brands; we drop names. We try to keep up with the Joneses. We comfortably tolerate an unhealthy level of debt.”
Involve your children in your financial plan. Explain your goals for retirement savings and other things you value, Laura Scharr, principal of Ascend Financial Planning LLC in Columbia, South Carolina, told Fox Business. “Be honest and upfront with your children,” she said.
The COUNTRY Financial survey says budgeters and those who don’t budget do have one thing in common: They miss the mark on their savings goals. Of budgeters, 57 percent achieve their savings goals half the time or less, while the number is 54 percent for the non-budgeters.
How are Americans making ends meet when the budget runs out?
- 36 percent raid their savings accounts.
- 22 percent use credit cards.
- 14 percent adjust their spending next month.
Full Article: http://www.accountingweb.com/topic/cfo/survey-shows-americans-need-spend-less-save-more-set-budget
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 Amanda O'Brien | Accounting News, Bookkeeping, IRS, Tax Planning - Individual, Tax Preparation - Individual
To commemorate National Financial Literacy Month, a national telephone poll of 1,005 adults was conducted by Harris Interactive on behalf of the American Institute of CPAs (AICPA). The purpose of the survey was to find out what Americans would most likely forego in a financial pinch as well as their overall feelings about their finances.
Here is what the survey revealed:
- 41 percent said they would cut back on eating out, making it the most popular money-saving action.
- 21 percent said they would cut off cable TV.
- 8 percent said they would end cell phone service.
- 8 percent said they would stop downloading songs and digital products.
The survey also found, however, that Americans are still amazingly frugal and farsighted when it comes to planning for their financial futures. Only a small number would take actions that could hurt their long-term financial well-being:
- 2 percent said they would stop contributions to retirement accounts.
- 1 percent said they would skip utility payments.
- 1 percent said they would put paying rent or mortgage payments.
“Financial success depends on setting clear goals and priorities and sticking with them in good times and bad,” said Jordan Amin, chair of the National CPA Financial Literacy Commission. “While it’s clear that Americans’ priorities are changing, these results suggest that in tight times, they won’t jeopardize tomorrow to deal with the financial challenges.”
Since 2007, the AICPA has conducted an annual survey of Americans to determine their top financial concerns and assess their financial well-being. In 2011, 29 percent of Americans said they were “worse off” than “better off,” compared to the prior year’s 16 percent. Today, 24 percent say they are better off, while 23 percent say they are worse off.
This year, 94 percent of survey participants said they have financial concerns of one sort or another. Interestingly, for the first time in three years, the price of gas – not retirement – is the top financial concern in America.
Addition survey findings include:
- 41 percent said basic living expenses, including the cost of gas, uninsured medical expenses, and lack of emergency savings, as their top financial concern.
- 27 percent said their main concerns are related to long-term goals, such as paying for education and saving for retirement.
- 53 percent reported they are in the same financial position as they were the prior year.
- 35 percent of those aged 18 to 44 say their financial situation has improved over the past year, compared with 13 percent of older adults.
- 31 percent of college graduates say they are better off today, compared with 22 percent of those who have not completed college.
The CPA profession has a comprehensive financial literacy program – 360 Degrees of Financial Literacy – to help Americans achieve long-term financial success. The website is the centerpiece of the program, with tools, calculators, and advice to help Americans understand and manage their financial needs during the ten life stages, from childhood to retirement.
The site is a rich resource for small and mid-sized CPA firms, giving them tools and information to help explain key issues, not only to their clients, but to members of their communities and the media. The AICPA regularly hears stories from CPAs who find that their clients go on to use Feed the Pig.org, to educate their children about financial issues.
Harris Interactive conducted the telephone survey on behalf of the AICPA within the United States between March 8 and March 11, 2012, reaching a nationally representative sample of 1,005 adults eighteen and older by landline and mobile phone.
Full Article: http://www.accountingweb.com/topic/cfo/aicpa-survey-reveals-americans-concerns-about-finances-and-saving
