Accountant and Acccounting News

Offers in Compromise Now Easier

noreply@blogger.com (DataGuard) — Thu, 24 May 2012 16:29:00 +0000

The IRS has announced that they are changing the terms for accepting offers in compromise. The changes are to make the system more flexible. Offers in compromise are used by taxpayers to clear up due taxes but need to set up a payment plan.

The biggest change is how the IRS determines the eligibility of the taxpayer. They will now use just one year of estimated income if the total will be paid off in less than five years. Previously the analysis was based on four years of estimated income. If the payments will be paid over six months then the calculation moves from five years of income to two years.

These changes are part of the Fresh Start program. The program is to offer relief to taxpayers who owe taxes and are under financial distress. It benefits everyone to get some taxes collected in a reasonable way. As my mom always liked to tell me, "you catch more flies with honey."

If you are a delinquent taxpayer and need to get an offer of compromise then an accountant experienced with the IRS is your best option. They can get a reasonable offer that you can pay. The penalties and interest only increase when back taxes are ignored. It is much better to take care of the problem when it arises.

Become a Problem Solver

noreply@blogger.com (DataGuard) — Mon, 21 May 2012 18:31:00 +0000

Businesses hire employees or outsource for only one reason; they have a problem. The help is needed to solve that problem. A good hire is someone that can continue to solve the problems of the business. If the problem is the phone is ringing and not getting answered then a receptionist will be the job open. At this level the problem is well defined and the solution straight forward. But as you move up the company the problems get harder to define and the solutions must be designed from scratch.

There is no difference with accountants. If all you are doing is providing monthly financial reports then that is not solving problems. An accountant is a valuable member of the financial team for the business. They should be identifying ways to increase revenue, decrease costs, and improve security.

Kim Nilsen has it correct when she writes about accountants growing into the role of strategic partner. Whether the accountant is an employee or outsourced the needs are the same. Many accounting functions that were once do by a person have been moved to accounting applications. What can't be moved over is the knowledge, insight, and advice that an accountant can yield.

Local Lodging Tax Allowance

noreply@blogger.com (DataGuard) — Thu, 17 May 2012 18:26:00 +0000

There are new proposed regulations from the Internal Revenue Service concerning local lodging expenses.They will cover lodging expenses when not travelling away from the home for business.

Historically, any lodging expenses were not allowed as a deduction when the employee was not travelling. The proposed change allows an expense to be deducted if it is appropriate and helpful for the development of a business. It is not allowed if the primary benefit is the personal or social one and only secondarily as a benefit to the business.

Some examples of lodging that would not apply are: 1) lodging as a part of a benefit or compensation (weekend stay at a luxury hotel as a bonus). 2) Allowing an employee to avoid a long distance commute. 3) Because the employee is required to work overtime. 4) Lodging for a relocated employee as they look for a permanent residence. 5) If the employee will be using the lodging indefinitely.

An example of what may apply is requiring employees to stay at a local hotel to improve training or team building.

Under the proposed rule the employer could deduct the expense as a business expense or the employee could deduct it from their income if the cost were paid by the employee.

The tax code is an ever evolving set of rules. We highlight some of the changes here that may apply to you. But there is no way we can get to them all. When you are filing your taxes there is no solution better than hiring a tax professional. They have the annual training to help you out.

Will SEC Adopt IFRS

noreply@blogger.com (DataGuard) — Tue, 15 May 2012 18:30:00 +0000

The longer the Securities Exchange Commission (SEC) goes without announcing a decision on International Financial Reporting Standards (IFRS) the louder the questions become. Timothy Geithner, the Treasury Secretary has been arguing for adoption of the rules but it SEC chairwoman Mary Schapiro has made no announcement.

There has been a push for international standards to make it easier for regulators and investors. The hope is that it would have been approved by the end of last year. But they delayed a decision until the beginning of 2012. Now that deadline has also passed. The speculation is that chairwoman Schapiro is just biding her time until the presidential election this fall. She said she would not serve another term and can leave the decision to her successor.

The counterargument has been that the new standards are of a lower quality than the generally accepted accounting principles (GAAP) currently in use. The Financial Accounting Standards Board (FASB) would like a slower adoption rate.

My biggest problem with the SEC is making no decision at all. They are paid by taxpayers to make decisions. If they can't choose anything they should resign immediately and hand the job over to someone who can. It is the uncertainty that is most damaging to the markets. Waiting another six months for a new administration to start the process over is an embarrassment to the SEC, chairwoman Schapiro, and ultimately the President.

Higher Fines for Fraudulent Tax Preparation

noreply@blogger.com (DataGuard) — Wed, 09 May 2012 17:44:00 +0000

Representative Erik Paulsen of Minnesota has introduced legislation to increase the fines for preparers who file fraudulent returns for personal benefit. The bill is called the Fighting Tax Fraud Act and is currently in the House Ways and Means Committee. The bill is in response to recommendation from Nina Olson, a taxpayer advocate.

These fraudulent returns are most commonly from tax preparers who use their clients information to file false returns. In effect it is just another form of identity theft. But there are also schemes that alter the return after the client reviews it. An amendment is filed but the refund goes to the tax preparer.

These are already crimes but the bill would increase the fines. Rep. Paulsen believes increased fines will act as a deterrent to future criminals. It is impossible to prevent all fraud but it seems like a better solution would be to reduce the ability of tax preparers to file without authorization for the filer. No one would argue that fraud should be weeded out and the perpetrators sent to jail. But increased fines rarely have a deterrent effect on crime.

Fair Value Accounting for RBS

noreply@blogger.com (DataGuard) — Mon, 07 May 2012 20:59:00 +0000

The Royal Bank of Scotland Group (RBS) has issued a quarterly loss of $2.46 billion. This is compared to a loss of $854 million for the same period last year. The loss is largely from its fair value accounting of its $4 billion in debt. Without the accounting change the bank would have posted a pre-tax profit of $1.78 billion.

The bank is complaining about the new accounting rules in the International Financial Reporting Standards (IFRS). The rule requires the bank to adjust earnings to show the cost to buy back their debt. The say this leads to poor performing banks to have an decrease in the value of the debt and thus decreases the expense. The opposite is true of a well performing bank.

This rule as lead to large quarterly swings in the profits reported by banks. But it is expected that the swings will even out over time based on the accounting models. The International Accounting Standards Board (IASB) has approved the new rule but is has not been put into effect in every European country.

While it may be a change for the executive team of the bank it is poor to blame the accountant. Accounting is designed to illuminate the truth. This reveals how volatile the market for bank debt is. A good manager should learn to mitigate the volatility for their investors and shareholders.

Groupon Accounting Problems

noreply@blogger.com (DataGuard) — Thu, 03 May 2012 16:35:00 +0000

Since its IPO, shares of couponing site Groupon have nosedived. One of the reasons has been questions about their accounting. They were forced to restate their fourth quarter earnings that resulted in an increase in operating expenses and a decrease in revenues. The SEC is also investigating the accounting practices of the company.

Groupon has now announced new members to its board and audit committee.. Daniel Henry and Robert Bass are the two new members. Both have experience in finance and Bass is a vice President at Deloitte.

It is crucial to have a strong financial and accounting presence on every board of directors. They have the experience to make sure the financial statements issued by the company are complete and follow GAAP. Whether there are serious problems at Groupon or not, investors get very uncomfortable when earnings have to be restated. But some blame must also go the auditors who allowed the no-standard accounting to be used.

Shakeup at AAOIFI

noreply@blogger.com (DataGuard) — Mon, 30 Apr 2012 17:56:00 +0000

Khaled Al Fakih is the new secretary-general of the Accounting and Auditing Organisation for Islamic Financial Institutions (AAOIFI). He is proposing some great changes for the organization that oversees the accounting standards for Islamic financial assets. These assets are currently at $1.3 trillion and growing at 150% per year.

Fakih is interested in reforming how standards are established. Currently that is done by a group of Islamic scholars. There is conflict of interest in the current system because the scholars are often paid up to $1,000 per hour from the same institutions who have business before the group.

There is a great deal of resistance to Fakih's plans. While many people support the changes to more transparency and accountability, there are entrenched parties who benefit from the current system. The plan is to release several draft proposals over the next year to get widespread support.

While accountants is the United States are focused on IRFS and if the IRS will adopt the standard there is still a substantial amount of money that will not be covered even if it is adopted. It would be useful if there could be an international standard for all financing but with the challenges that the come up between just the US and Europe it might be a dream for another century.

Supreme Court Accounting Ruling

noreply@blogger.com (DataGuard) — Thu, 26 Apr 2012 18:34:00 +0000

Yesterday the Supreme Court got involved in an accounting question. The question was whether the statute of limitations for a taxpayer who omits gross income that is properly includible in was in excess of 25% of gross income based on property sold. The Fourth Circuit has ruled that the extension does not apply.

In a split decision the Supreme Court upheld the Fourth Court ruling. The decision was written by Justice Breyer who based the decision on stare decisis {not overturning settled principles of law). Justice Breyer was joined in the decision by Chief Justice John Roberts and Justices Clarence Thomas and Samuel Alito, and Justice Antonin Scalia. Justice Anthony Kennedy wrote the dissenting opinion stating that the statutes had been changed since the prior ruling was issued.

While it might not make the nightly news this demonstrated the importance that accounting rules have in this country. This is a very specific case that will only matter to tax accountants. They have the yearly training and experience that help them understand what changes impact each of their clients.

Effect of Accounting Standards

noreply@blogger.com (DataGuard) — Tue, 24 Apr 2012 17:55:00 +0000

Bloomberg BNA has a good interview with Robert Laux, the senior director of financial accounting at Microsoft Corporation. He spoke about how the integration of accounting standards will affect international companies domestically and abroad.

He believes that the biggest short term impact will be what standards the SEC recognizes. The standards boards have not finished their work and even some items that have been agreed upon allow for revenue recognition to be grandfathered.

While the integration of financial standards seems a dry topic to many business owners the impact is greater than they recognize. A dual set of standards make it more difficult to raise capital on public markets in other countries. With increased business integration more and more businesses have foreign components.

But the integration brings with it a new set of problems. Will it materially impact the financial statements of multi-nationals? It is the correct direction but bumps are going to be a part of the process.

Pulse of the Internal Auditor

noreply@blogger.com (DataGuard) — Mon, 23 Apr 2012 15:51:00 +0000

The Institute of Internal Auditors (IIA) surveyed 461 auditors to take a pulse of the industry. The respondents came from a variety of organizations in North America.One sixth of the responses came from fortune 500 companies with the majority coming form smaller businesses.

The survey found a discrepancy between what management saw as risks and what was being audited. The chief concerns for management are:

Operation risk
Compliance risk
Financial risk
Strategic risk
Human capital risk

The problem is audit plans did not always place the same emphasis on these risks. This could lead to a divergence in expectations and reporting. Management should take more interest in the audit plan to give all stakeholders the information they need.

The top priorities for 2012 of the internal auditor are:

Financial risk
Operational risk
Compliance risk
Fraud risk
Strategic risk

While many of the items are the same they are not in the same priority level. The goal of the senior auditor should be to work to align the priorities. The challenge is that not all stakeholders have the same priorities. In some cases they are even working against each other.

Over the next few days we will continue to investigate what challenges and opportunities face the internal audit staff.

Two New Agreements on Accounting Standards

noreply@blogger.com (DataGuard) — Thu, 19 Apr 2012 16:58:00 +0000

At a meeting on April 17th, the IASB and FASB and tentatively agreed on two classifying models for financial assets.

The first is agreement was on business model assessment for amortized cost classification for financial assets. The financial assets would qualify for amortized cost if the assets are held within a business model whose objective is to hold the assets in order to collect contractual cash flows.

The second agreement was on bifurcation of financial assets.The agreed that financial assets that contain cash flows that are not solely principal and interest would not be eligible for bifurcation. Rather, they would be classified and measured in their entirety at fair value through net income.

Meeting are ongoing so we expect more agreements going forward.

Tax Day Schadenfreude

noreply@blogger.com (DataGuard) — Tue, 17 Apr 2012 16:59:00 +0000

We have finally made it to tax day 2012. There are still about 30% of the people that are waiting till today to file. The reason is there is no benefit to file early, only a penalty if you file late. So the IRS has incented everyone to wait until the last minute if you owe taxes. But with interest rates as low as they are hopefully the money hasn't been sitting in a passbook account.

So for all the accountants great work on making it to summers. For everyone still waiting to file get that check in the mail before the post office closes tonight. And we can all enjoy the tax day specials that many businesses offer today.

For everyone writing a check today I give you a bit of schadenfreude. At least you don't owe $1.1 million like Lionel Ritchie. The 62 year old artist had a lien filed on his home for the back taxes. Ritchie blamed his last past business team for the problem. He says his new accountant is in the process of correcting the problem.

Be Careful on April 17th

noreply@blogger.com (DataGuard) — Thu, 12 Apr 2012 17:49:00 +0000

Tax day is not only a day that is dangerous to your car, it may be dangerous to your health. And we are not talking about eating the 2nd free big mac that McDonalds is giving out. According to a study by the University of Toronto, the rate of fatal car crashes increases on tax day. There are 13 more fatal car crashes on that day than any other day. This is a six percent increase over the average day.

Researchers Donald Redelmeier and Christopher Yarnell theorize that it might be a combination of factors leading to the increase. Those might be rushing to the post office or lack of sleep from completing the 1040.

Save yourself and your sanity. A good accountant can do all the heavy lifting for you. They will prepare your return, file it, and even have the refund deposited directly into your account.

Islamic Accounting Standards

noreply@blogger.com (DataGuard) — Tue, 10 Apr 2012 16:10:00 +0000

The Financial Accounting Standards Board (FASB) and the International Accounting Standards Board (IASB) have been working diligently for years to consolidate their two accounting standards. In a global economy it is much more efficient to have one accounting standard. That makes it easier to share financial data for investing or mergers and acquisitions.

It may be time for the two accounting boards to look at the third largest accounting standard. That is accountants using Islamic finance. Islamic finance is estimated to have $1.3 trillion globally in 2011. Most is in the Middle East and Malaysia.

The problem is that the integration between western accounting to Islamic ones come with several pitfalls. The most obvious is working between secular principles and ones based on religion. Another issue is a lack of a governing board. The laws are different in every country that Islamic finance is practiced.

A solution would be to have separate rules for Islamic transactions. But this works against the FASB and IASB goal of a standard system over all industries. Exceptions, even standardized ones, increase the overall complexity to the accounting.

At this time it doesn't appear as if there is any traction to tackle this issue. As the world economy continues to integrate it is likely not a question of if but how the standardization of accounting standards will take place.

Last Minute Tax Help

noreply@blogger.com (DataGuard) — Thu, 05 Apr 2012 17:04:00 +0000

The tax deadline this year is April 17th. It is fast approaching for people who have not yet started. But it isn't time to panic. If you don't think you will get it done in time then you still have options. You can file a tax extension with the IRS. The easiest way to do that is with free file. This give every tax payer until October 15th the file their taxes. But don't think that you can avoid paying your taxes for an additional six months. All estimated taxes are still due on April 17th.

A second option is to hire an accountant to prepare your tax return. They have the expertise to quickly perform the work. But as with anything the better organized you are the faster it will go. It takes time to sort through a shoe box that is stuffed full of receipts that may or may not be applicable.

CRG Partners Acquired

noreply@blogger.com (DataGuard) — Tue, 03 Apr 2012 17:48:00 +0000

CRG Partners has been acquired by Deloitte. The company helps clients with turn around management and bankruptcy. They won the Turnaround Management Association's Mega Company Turnaround of the Year Award in 2010. They also helped Major League Baseball's Texas Rangers through their bankruptcy and sale.

CRG Partners will join the Reorganization Services Group at Deloitte Financial Advisory Services. The group has more then 1000 employees providing restructuring services to clients.

Deloitte is currently the largest accounting company according to 2010 revenue.

Lottery Tax Burden

noreply@blogger.com (DataGuard) — Mon, 02 Apr 2012 20:36:00 +0000

Since you are at work reading a blog about accountants this Monday morning it is probably safe to assume that you didn't win the $540 million lotto drawing last Friday. The three winners will each get $213 million if they take the lump sum. That would create a tax bill of $107.5 million for each winner.

We may not be able to live a life a luxury now but at least we don't have to pay the $100 million in taxes. It seems like the big winners are the stores that sold the winning tickets. Two stores got a bonus of $500,000 while the third will get a bonus of $100,000. And they didn't even have to pay the $1 for the ticket.

Tax Scam Mastermind Guilty

noreply@blogger.com (DataGuard) — Tue, 20 Mar 2012 14:25:00 +0000

Ronald L. Brekke has been found guilty of conspiracy and wire fraud. He helped almost 1,000 people file fraudulent claims for $14 million. Most of the people filing for the refunds were Canadians. Most of the fraudulent claims were caught before being paid out but they think two percent did get through.

Brekke committed what is called 1099 OID fraud. It is the false belief that you can get a refund for interest expected from financial instruments that won't mature for at least year. He told his clients that US citizens were entitled to a refund to pay off debts.

It is not surprising that people were caught committing the fraud. They were claiming refunds of $350,000 and more. These amounts will always trigger audits. Brekke is now facing up to 65 years in prison.

The Accounting Aisle can help you only pay what you owe on your taxes. If you are looking for someone to break they law you will have to look up Brekke in Federal prison.

Charity Follow Up

noreply@blogger.com (DataGuard) — Thu, 15 Mar 2012 20:33:00 +0000

We recently talked about how to pick a charity for clients. One suggestion was to review their status with the IRS. Right on queue the IRS has released a new website to help you out. The site allows users to find an exempt organization and check its federal tax status and filings. The site includes:

Whether the organization is eligible to receive tax-deductible donations.
If their tax-exempt status has been revoked
If they have filed their annual form 990-N

The one thing left to improve is the speed of the data. It is currently only updated monthly.

Passports Tied to Taxes

noreply@blogger.com (DataGuard) — Tue, 13 Mar 2012 15:41:00 +0000

The Senate has passed a provision that would allow the State Department to deny passports to citizens with "seriously" delinquent taxes. They define seriously as more than $50,000 but that amount would adjust for inflation in future years. There would also be exceptions when the tax payer has a payment plan with the IRS or a hearing is pending.

The provision is part of the highway transportation bill. That bill is expected to go for a final vote later this week. The house is planning on taking up the bill next week. So this provision has several steps before it can become law.

This comes on the heals of the decision to allow deportation for unpaid taxes. It appears that the IRS will use all the levers at their disposal to ensure payment.

Forclosures, Short Sales, and Taxes

noreply@blogger.com (DataGuard) — Wed, 07 Mar 2012 21:38:00 +0000

As the housing bubble continues through the system we are still seeing a tremendous amount of questions about what are the tax implications for a short sale or a foreclosure. The problem is there are no easy answers. Here are some guidelines but make sure you work with a tax CPA to get the full answer for your situation.

The first thing that will affect the tax implications is whether the house is a primary residence, investment, or business. The Mortgage Debt Relief Act of 2007 lets tax payers exclude income for discharged debt on your primary residence for foreclosures. In other terms, if you sell your home for less than the mortgage owed you do not need to declare the difference as income as would have been the case before 2007.

Some key exceptions. You can only deduct the first $2 million. The mortgage must also be for the home. If you have a home equity line of credit or a loan you took out on the house but was not used for home improvements then it is forgiven debt and subject to taxation. A form 982 must be filed for any forgiven debt. Your mortgage company should give you a 1099-C if debt was forgiven over $600.

Short sales are a different matter. Any debt that was forgiven must be reported as income on form 982. The biggest exception is if this is part of a title 11 bankruptcy.

IRS Refund Delay Update

noreply@blogger.com (DataGuard) — Mon, 05 Mar 2012 21:59:00 +0000

The IRS has issued an update on their problems with issuing refunds. The problem was disclosed to tax prepares back in January and we last reported on the issue on 2/21. WTOL has reported that the IRS is two million refunds behind schedule.

The IRS says the problems have been resolved and they are no longer experiencing delays. Tax returns filed after 2/13 should get their refunds on schedule. They say they have sent out 45.2 million refunds this year; slightly more than the 45.1 million sent over the same period last year.

So there are no more excuses to getting your taxes filed. Accountants are ready to help you out. Remember that as we approach April 17 their time will fill up and may push you into an extension.

NYC Tax Preparers in Sweep

noreply@blogger.com (DataGuard) — Fri, 02 Mar 2012 18:11:00 +0000

The New York City of Department of Consumer Affairs recently did a sweep of tax preparers. They inspected 850 locations and wrote 1,000 violations for around $1 million in fines. Around one third of all locations visited had at least one violation.

The biggest source of the fines was from refund anticipation loans and client fees. In general the loans have very high interest rates. Many locations failed to disclose the actual interest rates. The second area of fines was for not disclosing the total cost of the return.

It would be interesting to know how much of the problem was from EAs or CPAs. I would wager that the problems were largely from the tax preparation industry that survives on the high interest refund loans that come close to usury. They can charge less than a CPA but make it up on the loan.

When you are ready for an accountant to handle your taxes then we are ready to help you out.

Choosing a Charity

noreply@blogger.com (DataGuard) — Wed, 29 Feb 2012 16:29:00 +0000

There are hundreds of charities with noble missions. They can provide a great deal of help to people who desperately need it. However, not all non-profits are created equal. It can simply be that you don't support their mission. Or they can be poorly run and spend too much of their donations on overhead and marketing. A good accountant can help their clients choose charities that match their clients goals with well run organizations.

Here are some tips from Betsy Brill and Susan Winer of Strategic Philanthropy on how to choose better non-profits to support.

Check with the IRS that they are tax-exempt and in good standing.
Review their financials. Make sure their expenses are reasonable based on their size and their work.But low overhead does not always mean effective use of the money. Make sure they are using it wisely to advance their goals.
Consider where they get their funding. Make sure they have a diverse source of revenue.
Investigate their investing policies. They should have confilict-of-interest policies in place.
Go and visit them. This might be a prudent step if it is a sizable donation.