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Thursday, May 3rd, 2012

Told You So; Proposal on Changes to Revenue Recognition for Long Term Contracts to be Reworked

Both US and International Standards Boards are going back to the drawing board to rework their proposal to change the way many companies recognize revenue. As with other controversial proposals, the standard setters did not think clearly about the ramifications of complying with the standard on those required to comply and users of financial statements. Out cry from industry as well as the public sectors were significant and diverse based upon the sheer volume of comments received.

The proposal would have primarily required Companies involved in long term contracts to only recognize revenue when the contract was complete ( or C.O. obtained for commercial contractors) instead of as earned over the term of the contract ( ie percentage of completion based on actual costs incurred to date to total contract costs). The intention was to streamline revenue recognition across industries and avoid inconsistencies. Companies defined contract terms, determined cost estimates and other factors differently, which could cause disparity between similar companys’ revenues and possibly confuse users of the financial statements.

Comments suggested the proposed method was neither practical nor operational. Also sited by commentators was the cost to employ. The AICPA’s Financial Reporting Committee agreed with many of the comments. The Boards agreed to rework the standards, taking into consideration the many comments and suggestions received and introduce a “new and improved” proposed standard and take all possible steps to avoid unintended consequences. Expect the “new and improved” version to be released toward the end of 2011.

Written by: Steve Bierbrunner, Audit Partner


Tuesday, April 3rd, 2012

Florida Unemployment Excess Wage Changes

 

Beginning January 1, 2012, the first $8,000 in wages paid to each employee during a calendar year is taxable. Any amount over $8,000 for the year is excess wages and is not subject to tax. This is an increase of $1,000 in taxable wages per employee as the prior taxable wages were limited to $7,000 per employee prior to 2012. As a result, employers will see an increase in unemployment tax expenses ranging from $15.10 to $54.00 per employee depending on the company’s tax rate.

 

 



Friday, March 30th, 2012

Are You Managing Your Company’s Tax Compliance?

In a world of ever changing economic transactions, it’s becoming increasingly more difficult to keep up with all of the new and various business tax compliance and reporting demands. So how do you reduce your company’s potential risk for noncompliance and manage its income tax liabilities?

  • Be aware of your company’s major compliance and reporting requirements. This is best achieved by ensuring that your accountant understands your business and is kept informed about any new developments in the services or products your company offers.
  • Keep your accountant informed of any international operations or transactions. There are many tax saving strategies for companies with subsidiaries and other business connections located internationally.
  • For multi-state companies, ensure that your accountant is aware of your operations in the various states. Inform them if your company has any employees, tangible personal property, inventory or offices in multiple states. Furthermore, ensure that your accountant is aware of your sales tax obligations as this is becoming an area of increased audits by the state departments of revenue.
  • Consult with your accountant before corresponding with the federal or state revenue departments directly. Many states have begun to “fish” for information by mailing questionnaires to company’s inquiring about its operations in their state. The wording in these questionnaires can be tricky, therefore, forward them to your accountant for guidance on how to respond.
  • Ensure that your accountant is constantly monitoring the latest tax developments. Make it a regular practice to monitor your accountant’s website for any new or changing tax laws and regulations.
  • If you are not in constant communication with your accountant, I highly recommend that you engage in year-end tax planning with your accountant during the last 3 months of the company’s calendar or fiscal year. This is the time in which you can get in some great tax savings ideas.
  • Owners should openly communicate with their accountants to keep them abreast of any significant business transactions. These transactions can have a major impact on your tax liability. Therefore, speak with your accountant before restructuring your business, beginning operations in a new state or foreign county, changing your company’s ownership structure and so on.

Overall, everyone, including your accountant, is interested in keeping your company in compliance and limiting its federal and state income tax liabilities. Therefore, communicating with your accountant to ensure that they understand your business and keeping them engaged in your business transactions throughout the year is the most effective way to manage your company’s reporting responsibilities and current and future tax liabilities.

Written by: Alacia Wilson


Thursday, March 8th, 2012

More 2011 Tax Developments

Regulations would toughen tax rules for owners of bankrupt disregarded entities. A taxpayer whose debts are forgiven generally has cancellation of debt (COD) income subject to exceptions including one for bankruptcy and one for insolvency. Some taxpayers have taken the position that the bankruptcy exception is available if a grantor trust (trust used in family or business planning) or disregarded entity (e.g., a single-member limited liability company taxed directly to owner) is under the jurisdiction of a bankruptcy court, even if its owner is not. Similarly, some taxpayers have contended that the insolvency exception is available to the extent a grantor trust or disregarded entity is insolvent, even if its owner is not. The IRS has issued proposed regulations that would clarify that the bankruptcy exception is available only if the owner of the grantor trust or disregarded entity is subject to the bankruptcy court’s jurisdiction, and the insolvency exception is available only to the extent the owner is insolvent. They would apply to COD income occurring on or after the date they are published as final regulations.

Trust’s investment advice fees. The Supreme Court has held that investment advisory fees paid by a trust were deductible only to the extent that they exceeded 2% of the trust’s adjusted gross income (AGI). Thus, such expenses didn’t qualify for the exception to the 2% of AGI limit in the tax law for costs paid or incurred in connection with the administration of a trust or estate that wouldn’t have been incurred if the property weren’t held in the trust or estate. However, for the sake of administrative convenience, the IRS has provided that, until final regulations are issued, nongrantor trusts and estates will not have to “unbundle” a fiduciary fee (i.e., separate the fee into components that are subject to the deduction limit and those that aren’t). As a result, until the regulations are issued, affected taxpayers can deduct the full amount of a bundled fiduciary fee without regard to the 2% floor.

IRA trustees weren’t liable for Madoff losses. A district court has dismissed all claims brought by holders of self-directed individual retirement accounts (IRAs) against the IRA trustees for losses incurred by the IRAs for investments with Bernard Madoff’s firm. A number of individuals owned self-directed IRAs with IRA agreements that clearly stated that they were solely responsible for making investment decisions in connection with the funds in their IRAs, and that the IRA trustees would not provide any investment advice. Pursuant to instructions given by these IRA owners, the IRA trustees sent IRA funds to Bernard Madoff’s brokerage firm, Bernard L. Madoff Investment Securities LLC, for investment in securities. These funds were ultimately lost in Madoff’s ponzi scheme. The IRA owners sought to hold the IRA trustees responsible for their role in the losses that the IRAs sustained. The action asserted claims under federal common law based on Internal Revenue Code sections governing IRAs, and state law negligence, contract, and unjust enrichment claims. However, the court rejected all such claims.

Another Appeals Court upholds IRS’s time limit on spousal relief requests. Married joint return filers are jointly and severally liable for the tax arising from their returns. Innocent spouses may request relief from this liability in certain circumstances. An IRS regulation states that a request for equitable innocent spouse relief must be no later than two years from the first collection activity against the spouse. The Tax Court had found this regulation invalidly imposed a time limit. However, the Court of Appeals for the Fourth Circuit has reversed the Tax Court and upheld the regulation (as have the Courts of Appeals for the Third and Seventh Circuits).

Nonspouse real estate transfers under scrutiny. A recent court case reveals that the IRS has discovered a pattern of taxpayers failing to file gift tax returns for real property transfers between nonspouse related parties. As a result, it launched a compliance initiative to capture data from states and counties regarding real property transfers taking place between nonspouse family members for little or no consideration during the period of Jan. 1, 2005, through Dec. 31, 2010. While the IRS has faced hurdles in attempting to force California to release the data, a number of states have voluntarily done so. These include Connecticut, Florida, Hawaii, Nebraska, New Hampshire, New Jersey, New York, North Carolina, Ohio, Pennsylvania, Tennessee, Texas, Virginia, Washington, and Wisconsin. Thus, individuals who transferred real property to nonspouse family members should make sure that required gift tax returns were filed and file amended returns if they weren’t.


Monday, February 27th, 2012

What is Unclaimed Property and Do I Own It?

There have been many articles about something called unclaimed property. What is it and could this be property that your company possesses?

Unclaimed property or abandoned property is not a tax but an outstanding liability that a company owes to an entity or an individual for a specified period of time determined by state law. Companies are required by law to send funds from lost accounts to the state of the owner’s last known address.

Common forms of unclaimed property include customer overpayments, uncashed vendor payments, uncashed dividend or payroll checks, refunds, savings or checking accounts, unredeemed money orders, insurance payments or refunds, life insurance policies, annuities, utility security deposits and many more.

State treasurers and other officials in charge of the state’s unclaimed property committees are using websites and cross-referencing public databases to locate companies that have not reported unclaimed property. A majority of companies have some amount of unclaimed property in their accounts, which has caused many states to become increasingly aggressive in auditing companies that have been found to have not report unclaimed property.

So what should your company do to ensure that it is reporting any unclaimed property?

1. Review your checking accounts for uncleared transactions that are six months or older.

2. Contact the entity or individual about the uncleared transaction.

3. If you are not able to make contact with the owner, then contact your accountant for guidance on each state’s laws for reporting unclaimed property.

Also, don’t forget to contact your accountant first if you ever receive a letter from a state department of revenue regarding an unclaimed property audit.

Written by: Alacia Wilson, Senior Accountant


Monday, February 20th, 2012

Consumer Alert- Compliance Services

Please be aware that COMPLIANCE SERVICES (not to be confused with the Florida corporation, Compliance Services, Inc.) is mailing notices to business entities requesting that “Annual Minutes” and a fee of $125.00 be sent to them for filing. These notices are NOT from the Dept. of State, Division of Corporations. “Annual Minutes” are NOT required to be filed with any agency. They are to be kept by the business entity itself. Do NOT confuse these notices with the messages sent by the Division of Corporations reminding each business entity to file its 2012 Annual Report.

Ross Whitley, Audit Partner & Heather McDonough, Tax Partner



Friday, February 10th, 2012

2012 CHANGES TO TAX BENEFITS

For tax year 2012, many tax benefits will increase due to inflation.

The personal and dependent exemption is $3,800, up $100 from 2011.

  •  The new standard deduction is $11,900 for married couples filing a joint return, up $300, $5,950 for singles and married individuals filing separately, up $150, and $8,700 for heads of household, up $200.
  •  Tax-bracket thresholds increase for each filing status. For a married couple filing a joint return, for example, the taxable-income threshold separating the 15-percent bracket from the 25-percent bracket is $70,700, up from $69,000 in 2011.
  •  The maximum earned income tax credit (EITC) for low- and moderate- income workers and working families rises to $5,891, up from $5,751 in 2011. The maximum income limit for the EITC rises to $50,270, up from $49,078 in 2011.
  •  The foreign earned income deduction rises to $95,100, an increase of $2,200 from the maximum deduction for tax year 2011.
  •  The modified adjusted gross income threshold at which the lifetime learning credit begins to phase out is $104,000 for joint filers, up from $102,000, and $52,000 for singles and heads of household, up from $51,000.
  •  The $2,500 maximum deduction for interest paid on student loans begins to phase out for a married taxpayers filing a joint returns at $125,000 and phases out completely at $155,000, an increase of $5,000 from the phase out limits for tax year 2011. For single taxpayers, the phase out ranges remains at the 2011 levels ($60,000 to $75,000).
  •  For an estate of any decedent dying during calendar year 2012, the basic exclusion from estate tax amount is $5,120,000, up from $5,000,000 for calendar year 2011.
  •  The annual exclusion for gifts remains at $13,000.

Written by: Alacia Wilson, Senior Accountant


Wednesday, February 1st, 2012

Take a look at Newt, Romney, and Obama’s Tax Returns

 There is so much out there about the tax returns for Romney, Gingrich and Obama that sometimes you wonder, what is the real story? What do their tax returns really say? Are they playing by the rules, or is there some obscure loophole that they are all using to lower their tax that the regular taxpayer is not entitled to?

 Jim Laham, Senior Tax Partner, has analyzed each of these returns and provided a one page summary on them. Mitt Romney’s by far is the most complicated and interesting one, but each one tells a very interesting story.

 Newt Tax Analysis                                     Romney Tax Analysis                                     Obama Tax Analysis


Tuesday, January 24th, 2012

New Foreign Bank Account Reporting Form TD F 90-22.1

    Taxpayers that have signature authority and/or a financial interest in a foreign bank account are required to file each year by June 30 what is commonly known as an FBAR Form (Foreign Bank Account Reporting Form TD F 90-22.1). This form allows the taxpayer to report specific details about such foreign accounts.

   In order to continue to enforce tax compliance and monitor international taxpayers, a new form is being developed by the IRS. Form 8938, “Statement of Specified Foreign Financial Assets.” Form 8938 will be used by individuals to report an interest in one or more specified foreign financial assets. The instructions indicate that under a transitional rule most taxpayers won’t have to file the form until 2012.

    If this applies to you, please do not hesitate to call us.  We can provide you with more information and directions on filing the form and send you the form itself.

 Tax Partner, Peter Hilera


Wednesday, January 18th, 2012

2011 New Tax Developments

Here are a few important tax developments from 2011 that may affect you, your family, your investments, and your livelihood. Please call us for more information about any of these developments and what steps you should implement to take advantage of favorable developments and to minimize the impact of those that are unfavorable.

Standard mileage rates increase for last half of 2011. The IRS has announced that the optional mileage allowance for owned or leased autos (including vans, pickups or panel trucks) is increased 4.5¢ from 51¢ to 55.5¢ per mile for business travel from July 1, 2011 to Dec. 31, 2011 to better reflect the real cost of operating an auto in this period of rapidly rising gas prices. This rate can also be used by employers to reimburse tax-free under an accountable plan employees who supply their own autos for business use, and to value personal use of certain low-cost employer-provided vehicles. The rate for using a car to get medical care or in connection with a move that qualifies for the moving expense also increases 4.5¢ for the last half of 2011 from 19¢ to 23.5¢ per mile.

FUTA surtax is no longer in effect. Beginning July 1, 2011, the 0.2% federal unemployment tax (FUTA) surtax is no longer in effect. Thus, the FUTA tax rate, before consideration of state unemployment tax credits, is now 6.0%. Employers need to separately track FUTA taxable wages paid before July 1, 2011, and FUTA taxable wages paid after June 30, 2011, since the FUTA tax rates are different during those two periods. Employers whose FUTA tax is more than $500 for the calendar year need to make quarterly FUTA deposits. The next quarterly payment is due on Aug. 1, 2011, but that payment is based on taxable wages paid through June 30, 2011, so it will be computed using the 6.2% FUTA tax rate. However, the payment after that is due on Oct. 31, 2011, and it will be computed using the 6.0% FUTA tax rate if legislation is not enacted to retroactively reinstate the FUTA surtax beginning July 1, 2011.

Two bonus depreciation deductions for one expenditure. Under IRS regulations, businesses that trade in machinery or equipment for which they claimed bonus depreciation may qualify for another bonus depreciation deduction on the remaining depreciable basis if they swap for like-kind property that also is eligible for bonus depreciation. In effect, the business gets two bonus depreciation deductions for its expenditure on the traded-in property.

Real estate professionals allowed late election to aggregate rental real estate interests. The IRS has provided guidance that allows certain real estate professionals to make a late election under the regulations to treat all interests in rental real estate as a single rental real estate activity for purposes of the passive activity loss (PAL) rules. This election can make it easier to currently deduct losses from real estate activities. As a general rule, the election is made by filing a statement with the taxpayer’s original income tax return for the tax year. However, under new guidance, a taxpayer meeting certain conditions can make a late election on an amended return.

More courts treating basis overstatements as triggering 6-year limitations period. Late last year, the IRS issued final regulations under which an understated amount of gross income reported on a return resulting from an overstatement of unrecovered cost or other basis is an omission of gross income for purposes of the 6-year period for assessing tax and the minimum period for assessment of tax attributable to partnership items. The 6-year limitations period applies when a taxpayer omits from gross income an amount that’s greater than 25% of the amount of gross income stated in the return. Several courts had held that a basis overstatement is not an omission of gross income for this purpose. In response to these decisions, the IRS issued the new regulations to clarify that an omission can arise in that fashion. Recently, two Courts of Appeals (the Tenth Circuit and the District of Columbia Circuit) have upheld the regulations. While the momentum clearly is in favor of the IRS on this issue, others courts have rejected the regulations. Ultimately, the Supreme Court will have to resolve the dispute.


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