AZ CPA June 2011

AZ

CPA JUNE 2011

The Arizona Society of Certified Public Accountants

Financial Planning Issue

www.ascpa.com

• Long Term Care Insurance

• Occupational Fraud

• Section 79 Plans

• Alternative Investments

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AZ

CPA JUNE 2011

Volume 27 Number 5

Deliver Value with a Section 79 Plan

15

Section 79 Plans can deliver tremendous value to specific business owners.

by Brian D. Hartstein

Features

The Limits of Flower Power for Client Funerals

Financial Planning Theme Issue The “Non-Tangibles” in a Long Term Care Insurance Policy

9

A Long Term Care Insurance policy may have greater value than most people believe.

by Maryglenn Boals

Is Your Financial Plan Susceptible to Occupational Fraud?

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Alternative Investments

20

In these uncertain economic times, people are examining alternative ways of making investments.

by Jason E. Washo, CPA

13

Our own company is usually our single biggest investment and our single biggest risk for fraud.

by Robert Minniti, CPA

Arizona Society of Certified Public Accountants 4801 E. Washington St., Suite 225-B Phoenix, Arizona 85034-2021 www.ascpa.com

18

Take a look at this traditional response and examine if it is the best way to support a grieving client.

by Amy Florian

Columns & Departments 6

Chair’s Message by Mark Anderson, CPA

7

Focus on Members

21

Board Highlights

22 Classifieds

AZ

CPA

Confidential Business Sales

The Arizona Society of Certified Public Accountants

President & CEO

Cindie Hubiak

Editor

Patricia Gannon

Locally Serving CPAs & Businesses in Arizona

• CPA Practice Specialty

Copy & Advertising Deadline The first of the month one month prior to publication date.

Board of Directors Chair Chair-Elect Secretary/Treasurer Directors

Mark Anderson Armando Roman Karen Abraham Anita Baker Rob Dubberly Megan Faust Barb Muller Julie Norton David Richardson Craig Robb Elva Vivas David Walser Corrine Wilson Neal Young Kevin Yeanoplos

Immediate Past Chair Julie Klewer AICPA Council Members George Cohen Layne Simmons Chapter Presidents Southern Chapter Northern Chapter Southwest Chapter North-Central Chapter

• Business Sales & Acquisitions • Exit Planning • Business Valuation Ryan Gipple (602) 614-3583 r.gipple@murphybusiness.com www.murphybusiness.com/tempe Murphy Business & Financial Corporation Southwest, Inc.

MBFC_Arizona_CPA_Assoc-RGipple.indd 1

3/21/2011 2:29:52 PM

Flo Zenblu CW Payne Jayne Wright Alyx Cohan

AZ CPA is published by the Arizona Society of Certified Public Accountants (ASCPA) to provide information, news and trends in the profession of accounting. It is distributed 10 times a year as a regular service to members of the Society. The ASCPA, its members, board of directors and administrative staff assume no responsibility for advertisements herein. The ASCPA and the above people also assume no liability for business decisions made by readers in reference to statements and/or claims in advertisements within this publication. Opinions expressed by correspondents and contributors are not necessarily those of the ASCPA.

We All Benefit From a Larger ASCPA

Arizona Society of CPAs 4801 E. Washington St., Suite 225-B Phoenix, AZ 85034-2021

We are asking for your help to spread the word about the rewards of being part of the ASCPA. If you know of a CPA who is not a member, please encourage them to join.

Telephone (602) 252-4144 AZ Toll-Free (888) 237-0700 Fax (602) 252-1511

www.ascpa.com

As a token of our appreciation, you will receive two movie theater tickets for every CPA who you refer who joins. We thank you for all you do for the profession. Please contact José at (602) 324-4741 or jherrera@ascpa.com for more information.

JUNE 2011 y AZ CPA

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Chair’s Message

by Mark Anderson, CPA

Preserving the Integrity of the CPA Designation I had the opportunity to meet with some of the recent top CPA exam scorers.

I was thrilled to see the diversity of this group as they introduced themselves and described their path to becoming a CPA. Each spoke passionately about his or her sacrifice as they prepared for and took the CPA exam. I was proud to welcome each of these fine individuals into our profession. It reminded me of my own pursuit of this lofty goal many years ago as a new accountant working at Miller Wagner & Co. Like most of you, since that triumphant day when I received my Certified Public Accountant license from the Arizona State Board of Accountancy (State Board), my interaction with the State Board has been mostly limited to the biennial renewal of my license. However, at our last ASCPA board meeting, we were presented with a brief overview of the functions of the State Board by Debbi Fitzgerald, board president, and Monica Petersen, executive director.

I gained a greater appreciation for the responsibilities of the State Board and for the many hours donated by board and committee members who work together to protect the public’s welfare. More than 45 CPAs give back to the profession by volunteering on advisory committees to the State Board, all working toward the main directive of: ensuring that only qualified persons and firms are licensed or registered, and that appropriate standards of competency and practice are established and enforced. These committees consist of Tax, Accounting and Auditing, Peer Review, Certification, Continuing Professional Education, and Law Review.

Most committees meet at least 11 times each year to provide the State Board

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with sound recommendations in each respective area.

Monica Petersen described the major business functions of the State Board as: Examinations; Certification (the State Board currently regulates approximately 10,300 CPAs and approximately 3,000 firms); Compliance and Education.

I was surprised to hear that one of the top reasons for discipline included failure to timely respond to State Board correspondence. Other common reasons can be grouped into the following areas: • Failure to exercise due care • Failure to cooperate with the State Board or its investigative committees • Unlawful use of the CPA designation • Failure to comply with current disciplinary order • Failure to return client records The levels of discipline also vary according to the findings of fact and conclusions of law and can result in one of the following outcomes: Administrative Letter of Concern; Decree of Censure; and Consent or Board Orders. Board Orders can include, but are not limited to, things

like probation, suspension and license revocation.

The Society’s board learned that a recent focus of the State Board is a modernization initiative which will, among other things, include online renewal and online CPE tracking between renewals. The long-term vision of modernization includes an online account that will include a personalized profile that will reduce mailings and real-time updates that will allow for electronic information exchange between the State Board and its constituents.

I look forward to these and other initiatives that will streamline the renewal process in the future. I also look forward to attending the State Board’s annual meeting on August 25-26, where I, and others from the Society, will represent the interests of our members. I believe it is critically important that the Society maintains a healthy relationship with the State Board as the regulating entity for our profession. I look forward to working with the State Board’s incoming president, Gary Fleming, and Monica Petersen this year.

AZ CPA

Focus on Members Doug Diehl has joined Clifton Gunderson as the firm’s regional director of business development.

Lance Monahan, CPA, of Goodwill of Central Arizona, played the parts of John Adams and James Madison in the play, The Miracle of America.

Sunergy appointed Mark Shelley, CPA to the position of corporate secretary and treasurer on their board.

Jeff Anderson, CPA, of Ernst & Young, was elected to the board of the Greater Phoenix Chamber of Commerce.

Fellow CPAs pictured with Dr. William Huizingh at the Desert Botanical Garden’s Dinner on the Desert fundraiser in April. Pictured from left to right: Sue Landy, Mark Landy, Ken Udenze (and his wife, Angela), Dr. Huizingh, Tony Astorga, Mark Feldman, Diana Feldman and Lee Baumann Cohn.

Huizingh Recieves Desert Research Fellowship The Desert Botanical Garden honored Dr. William Huizingh, CPA, with the creation of the Huizingh Desert Research Fellowship. The Fellowship honors Huizingh, former ASU accounting professor and long-time Desert Botanical Garden supporter, for his values exemplifying dignity, responsibility, integrity and an energetic view of life. The Huizingh Desert Research Fellowship will enhance the Garden’s research efforts by providing advanced training of graduate and postdoctoral students and opportunities for collaboration with visiting senior researchers from other countries. One of Huizingh’s former students dedicated the first $50,000 of the more than $110,000 fund. Huizingh is an ASCPA life member and recently celebrated his 50th anniversary as an ASCPA member.

Jordan Taylor, CPA, joined the Capital Review Group as director of taxation.

Newsworthy Members ...

Cindie Hubiak, CPA, president & CEO of the ASCPA, and Mitch Speen, CPA, recently appeared on the radio program—Breakthrough Thinking and Breakthrough Sports with host Dave Isaac, CPA, on KXXT 1010 AM. They were joined by Jim Dubé, deputy director of the Arizona State Board of Accountancy.

Financial Planning Conference June 9, 2011 Black Canyon Conference Center

Megan Faust Reappointed to ASCPA Board Megan Faust, CPA, vice president and corporate controller of Amkor Technology Inc., will continue to serve on the board of directors of the Arizona Society of CPAs through 2012. She fills the term for Greg Padilla, CPA, who is no longer able to serve.

Gain new tools to deliver better results for your clients.

Attend the conference and receive a copy of Roadmap to Developing and Managing a CPA Personal Financial Planning Practice. The AICPA will also furnish in the electronic materials: A Checklist to Analyze a Tax Return for Personal Financial Planning.

Register at www.ascpa.com JUNE 2011 y AZ CPA

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Arizona Society of Certified Public Accountants Members may be eligible to

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Call to see if you’re currently receiving the Association Discount.

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Financial Planning Issue

The “Non-Tangibles” in a

Long Term Care Insurance Policy

by Maryglenn Boals, CLTC

When is insurance more than just insurance? Sounds like a strange question, but, in the world of Long Term Care Insurance (LTCi), the policy contract really has a much greater value than most people believe. This is not to discredit the valuable financial protections that an LTCi policy provides to a person’s preservation of their estate, but have you considered the other “non-tangible” protections that a person creates when having an LTCi policy in place?

Defining When to Seek Help It is a tough decision for families and friends –when do you introduce outside care for your loved one? Many times the spouse, children, or friends are the first-line caregivers. The process of seeking care usually happens in two ways—

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gradually or with a sudden event. The natural progression of aging may cause a slow physical or mental decline leading to care being needed by a loved one. Maybe it begins with you checking in by phone more frequently or stopping by before and after work.

Then, it becomes giving up your lunch hour to make sure your Dad is eating enough and you fear him being alone all day. Eventually, you are talking with your spouse and family about staying overnight once in awhile due to Dad’s neighbors noticing him walking around in the yard at night. I like to call it “caregiving creep”—it sneaks up on you and erodes your lifestyle. One day you are talking with a friend and even you can’t believe how this “caregiving” has consumed your life.

For others, a traumatic event may cause a sudden situation where family or friends quickly assess that their loved one is no longer able to care for themselves. Usually these events include falls, hospitalizations, strokes, or dangerous behaviors. The family and friends are suddenly thrust into the world of rehabilitation care, home health care, assisted living, or home modification. Most people do not have prior caregiving experience and, sadly, it can be a disjointed, confusing health care system that they are trying to navigate during an emotional time.

So how would an LTCi policy help with these two situations? Remember that LTCi policies are “triggered” by a deficit in your 2 of 6 Activities of Daily Living (ADLs) or a Cognitive Impairment. Basically, an LTCi policy TELLS you when you should get help.

It is like someone pointing out to you, “Hey, this is really more than you can handle!” This becomes very important in the “caregiving creep” scenario and those with a dementia or Alzheimer’s diagnosis. Many times, family members become so enmeshed in the caregiving for a loved one that they neglect themselves. An older couple may find that one of them gets sick first, but the healthier one may die first due to caring for the ill party. Women are particularly at risk for this situation

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due to their longevity.

In a sudden traumatic event, the LTCi carrier can quickly offer the family and friends their expertise of working with various facilities, home health care agencies, or other services across the country. Streamlining this process can be important as hospitals and skilled nursing facilities usually don’t give you much notice at discharge. You will need to make other care arrangements quickly. Not every carrier offers the same level of service in these areas, so it is important to understand how each company views this as a part of their overall service to the policy holder.

Care Management Care management is the professional assessment of a person’s level of care and the development of an anticipated plan of care for the loved one. It can encompass much more, but for this conversation, we will just look at those two features. Care management services can be very helpful as levels of care can shift over time. Maybe your loved one had a stroke and had to go through weeks of rehabilitation, but is now hoping to return home with help. The level of care required in the beginning may be more intense, the family may need some training to help with the care, and the home needs to be modified to accommodate the new limitations.

Eventually the level of care stabilizes.

This is where an LTCi policy can benefit a family beyond the dollars to pay for the care. Most carriers offer a degree of care management services. They will help you identify appropriate facilities and agencies in your community that they have previously worked with and had good experiences. There is often an established period of time regarding the frequency of a carrier monitoring the appropriateness of the level of care. If family members are involved in providing the ongoing care, they may qualify for respite care services defined in the policy. This would allow them annual breaks with a paid caregiver. Carriers differ on the number of days allowed.

The home modifications mentioned may also be covered—the benefits are

in the details of the contract and understanding how to use it.

One carrier even extends a level of this service to policy holders as they may be trying to help coordinate care for other family members. For example, Sue has an LTCi policy with said carrier and she is trying to help her widowed aunt in another state. Sue can call her carrier and talk with a support person regarding her aunt’s care. This does not take any value from Sue’s policy, but helps her to streamline the outof-state care planning process for her aunt. How can you really measure this value just added to Sue’s life? As our population continues to age and we are living further and further apart from our families, this will become a very valuable service. Many other carriers will offer this service when you inquire.

Typically, they do not advertise it, but are generally willing to share their expertise if asked.

Many non-medical home care agencies do a great job of setting their own standards, monitoring their caregivers, and delivering exceptional care—but the challenge for the family is—which ones?

Helping Family and Friends Another non-tangible benefit of an LTCi policy is that by putting a policy in place, you are essentially giving your family and friends permission to seek outside help should you become unable to care for yourself. For many spouses and children, they need this type of confirmation. Too often out of loving a parent or spouse, we take on more caregiving duties than we are capable of handling. This also goes back to the earlier comments on “areas of expertise.” Your wife/husband/son/ daughter may be an expert in their chosen field of employment, but does that make them an expert in navigating the world of providing long term care?

Not usually.

Without an LTCi policy, you are virtually left searching the internet, phone books, asking friends, etc… when it comes to seeking care services. Some of the people offering “assistance” in these areas are under very little federal or state regulation. Here are just a few things to be aware of—assisted living and group home placement agencies are frequently paid by the facilities that they recommend. Are they providing

you information on the best options or just the ones which pay them the highest fee? Home health care agencies are routinely inspected by the state, while non-medical home care agencies are not regulated in many states. This makes it more difficult for the consumer to compare them. With home health care agencies, you at least have standardized state inspection reports to compare. Many non-medical home care agencies do a great job of setting their own standards, monitoring their caregivers, and delivering exceptional care—but the challenge for the family is—which ones?

Consumers are usually in a vulnerable position at the time they are seeking many of these services. Their loved one is ill and they need to move quickly to put together a plan of care.

Not knowing some of these issues can lead to additional changes in caregivers, facility moves, and wasted finances. By involving the LTCi carrier, you have a team of people who work with these issues every day. Plus, they have experience with agencies and facilities across the country.

Doing the Math So consider the “non-tangible” part of the LTCi value proposition. Do the people surrounding you (or your clients) need these “value added” services? Would they benefit from this type of help in a care crisis? Your LTCi policy is still a valuable “checking account” to pay for care, but it also provides a “care concierge” for your family and friends who will be your caregiving team. And as they say ...

AZ CPA that’s “priceless!”

Maryglenn Boals, CLTC, is the president of MgBoals & Associates, LLC, an independent insurance agency that specializes in long term care planning, insurance products, and services. Beyond selling insurance, they help clients and families understand LTCi policy benefits, navigate the long term care system, and maximize all the value in their LTCi policies. For further information, please contact her at mgboals@mgboals.com or (602) 418-5069.

JUNE 2011 y AZ CPA

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Financial Planning Issue

Is Your Financial Plan Susceptible to Occupational Fraud?

By Robert K. Minniti, CPA, CFE, Cr.FA, CVA, CFF, DABFA, MBA

When we consider our financial plan for the future, we use diversification as a way to reduce the risk of fraud in our portfolio. We understand the risks of financial statement fraud such as Enron and Ponzi schemes like the one conducted by Bernie Madoff. What we sometimes fail to remember is that our company is usually our single biggest investment and it is difficult to diversify our investment in the firm as a partner or sole proprietor. Therefore, we need to consider the risk of fraud affecting the companies we own.

CPAs, like many business owners, concentrate on the external operations of the business—obtaining new clients and providing services to existing clients—and often pay less attention to the internal “non-client directed” operations. Over time, management gets complacent on enforcing the internal controls of the organization and puts excessive trust in their employees. These trusted employees then have the opportunity to

JUNE 2011 y AZ CPA

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commit occupational fraud and misappropriate the assets of the business. Employees are also often allowed to be in a position to make business decisions when their personal interests are in conflict with the company’s interests.

The Association of Certified Fraud Examiners (ACFE) reported in its 2010 Report to the Nation on Occupational Fraud & Abuse that, on average, an occupational fraud is perpetrated for 24 months before being discovered.

Further, the median loss due to occupational fraud for private companies was $231,000 in 2009. They also noted that smaller organizations of less than 100 employees are the most frequently victimized and suffered the highest median losses from fraud.

The report indicated that the five most frequently perpetrated fraud schemes discovered at small businesses are: billing schemes, check tampering, corruption, skimming and expense reimbursement fraud.

In another study, Occupational Fraud: A Study of the Impact of an Economic Recession, the Association of Certified Fraud Examiners reported that over 55 percent of organizations had seen an increase in employee fraud and 48 percent had seen an increase in the amount of losses due to fraud since the start of the current recession.

The report further stated that employees pose the biggest risk of fraud to an organization and, with the current economic conditions, employees are under more pressure to commit fraud and, due to layoffs, reduced hours, pay cuts, furloughs, and benefit reductions, it is easier for

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... the five most frequently perpetrated fraud schemes discovered at small businesses are: billing schemes, check tampering, corruption, skimming and expense reimbursement fraud. employees to rationalize the decision to defraud their employer.

A generally accepted concept for occupational fraud is the Fraud Triangle, which indicates that three conditions must be present for an employee to commit fraud against their employer.

First, the employee must have some form of economic pressure on them that requires a need for more money than they currently have. This could be the result of medical bills, a home in foreclosure, past due loans, drug addiction or gambling problems. Because of the current economic recession, the pressures on employees are extremely high. The second thing necessary for fraud to occur is rationalization. The employee needs to be able to rationalize that their behavior is necessary or that they had no other choice but to commit the fraud. The final condition is opportunity. The employee must have the ability and opportunity to commit the fraud.

Although firms can do nothing to affect the pressures placed on an employee, and little to affect an employee’s ability to rationalize their behavior, employers do have the ability to control the employee’s opportunity to commit fraud. This can be accomplished by having good internal controls that are enforced and frequently monitored.

The Association of Certified Fraud Examiners study shows that some of

the best internal controls for reducing occupational fraud are: appropriate segregation of duties, surprise audits, fraud training for managers and employees, job rotation and mandatory vacations, a fraud hotline, employee support programs, internal audits, a written anti-fraud policy and a written code of conduct.

With this in mind, even the best financial plans can go awry if the business owner has neglected to install and monitor a proper set of internal controls over his or her business.

Therefore, it is recommended that business owners take stock of their current procedures and beef up those areas where little or no internal controls exist to reduce the opportunity that employees have in committing fraud. This will help ensure that their financial planning efforts have a better AZ CPA chance of succeeding.

Robert Minniti, CPA, CFE, Cr.FA, CVA, CFF, DABFA, MBA, is the president of Minniti CPA, LLC and is an adjunct professor at several universities where he teaches graduate and undergraduate classes in accounting, fraud, and forensic accounting. He is a Certified Fraud Examiner, Certified Forensic Accountant, Certified Valuation Analyst, and is Certified in Financial Forensics. He is also currently serving on the Executive Advisory Board of the American Board of Forensic Accounting. He can be reached by email at rminniti@minnitiaccounting.com or by calling (602) 953-5198.

Financial Planning Issue

Section 79 Plan

Deliver Value with a Section 79 Plan

by Brian D. Hartstein, MSFS, CLU, ChFC In the current business and economic climate, the value of being a proactive tax and financial advisor for your business owner clients cannot be understated. The more options, or arrows, we can have in our tax and retirement planning quiver, the better value we can deliver to our clients.

Due to legislative changes over the past decade, we have seen our arrows in the non-qualified plan arena dramatically reduced. One time-tested arrow that can still deliver tremendous value to specific business owner clients is the Section 79 Plan.

JUNE 2011 y AZ CPA

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These plans can be utilized in place of qualified plans or stacked on top of qualified plans as Section 79 Plan benefits do not impact the benefits provided under qualified plans. An employer may find they have maxed out or capped out of their existing defined contribution plan. They may have too many employees, or perhaps, the employees are highly paid and/or older and, therefore, a defined benefit pension plan does not make economic sense. The cost to provide substantial benefits to the employees will diminish or even negate the business owner’s tax savings.

Most CPAs and tax advisors are familiar with IRC Section 79 in regard to a group term plan. This code section sets forth the rules for employer-sponsored group life, health, and medical insurance in which an employer may provide up to $50,000 of group term life insurance for its employees without any cost to the employee. The employer can deduct the cost under Section 162. However, the employee does not have to include the cost as taxable income in that year.

What is not as well-known is the ability for the owners and the employees to purchase permanent insurance through this plan. This option gives the owners and employees who choose to participate multiple advantages: • They enjoy a tax deduction, or reduction, as not all of the monies contributed under the Section 79 Plan to permanent insurance have to be included as taxable income in the year each contribution is made.

• They can utilize the tax-deferred saving feature of the policy.

• There is the ability to generate taxfree income through policy loans.

• There is a significant amount of long-term life insurance protection.

• Contribution amounts can be adjusted annually, if needed, to provide flexibility for the business owner.

To understand how valuable these benefits can be, let us take a look at Section 79 in action. Dr. Casey, age 45, has an established medical practice.

He offers his staff of 9 employees a

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Section 79 Plan

complete benefit package, including health insurance, group term insurance, and a 401(k) plan. He would like to put more money away on a tax-advantaged basis for his retirement, and considered switching to a defined benefit plan. However, the contributions he would need to make on behalf of his employees significantly reduced the tax advantages of the plan.

Instead, he chose to adopt a Section 79 Plan. His employees all elected to decline permanent coverage offered by the plan—several because they did not need additional life insurance and others who did not want to report additional taxable income, or may have had insurability issues. So, assuming a 40 percent combined tax rate, what are the benefits to Dr. Casey for the $100,000 annual contribution from his practice over the next 5 years?

• A $100,000 business tax deduction at a net cost to the company of $60,000 annually – Total: $300,000.

• A personal tax savings of approximately $14,000 a year – Total: $70,000.

• Projected tax free income of $154,000 annually starting at 65 for 20 years – Total: $3,080,000 (Taxable equivalent: $5,133,333).

• A permanent life insurance policy with an initial death benefit in excess of $2,000,000.

There are specific requirements that must be met when utilizing permanent life insurance to fund benefits under Section 79. There must be a general death benefit excludable from gross income under Section 101a.

Also, the benefits must be based on a formula that precludes individual selection. The policy itself must be one in which you can calculate, by utilizing the formula under Section 79, the pure insurance cost or term cost, and the permanent cost of the policy.

The permanent cost must be included as ordinary income and is taxable to the participant as well as any Table I cost for the death benefit in excess of $50,000. In most cases, this is reported on the participant’s W-2 in box 12C. The pure group term element, or term cost, does not have to be included as ordinary income and this is what is considered the tax deduction or reduction. This is usually between 20 to 40 percent of the annual contribution —a significant amount.

As Section 79 Plans do not have the same minimum participation rules as qualified plans, there is an ability to tailor the plan for companies with multiple owners and/or highly compensated employees in which not all may participate or may participate at different funding levels. While in a non-discriminatory plan, ancillary employees are entitled to receive permanent insurance funded by the employer, most will chose to not participate on this level. The long-term benefits must be adequately explained to the employees; however, due to the fact the will have to include “phantom income” in each year a contribution is made and pay taxes on that income as well as go through medical and possibly financial underwriting, most will elect to opt out. If they choose to opt out, they receive a group term benefit

up to $50,000 which is the “free” benefit. Thus, the employee cost for these plans is usually extremely low. Furthermore, the employer can use this plan as a recruiting and retention tool for highly compensated employees.

One planning area to note is the corporate entity structure. For an owner’s contribution to be deductible at the corporate level, the sponsoring entity must be a C corporation, or an LLC that files as a C corporation. If the entity is a pass-through entity, such as an S corporation, the owner must own less than two percent of that entity. In many cases, where the main company is a pass-through entity, a second entity that is a C Corporation can be utilized as the sponsoring entity, as long as it is a real and viable entity with a distinct business purpose. Unlike the pension area where brother-sister control group rules and/or affiliated service group rules could make this type of planning problematic, for Section 79 plans this is a non-issue, as the employees in the main entity will be covered not excluded.

One area of confusion is in regard to Section 79 Plans and Listed Transactions under 6707A. I have seen one publication in where it was grossly misreported that Section 79 Plans may be considered a listed transaction. At the time of the writing of this article, Section 79 Plans have never been, nor are currently considered, an item on that list. For a complete listing of transaction covered under 6707A please refer to the IRS website at www.irs.gov.

A Section 79 Plan is a powerful option for providing tax savings at the corporate and personal level, significant tax-free supplemental retirement income, and substantial survivor benefits for the successful business owner or AZ CPA professional.

Brian D. Hartstein, MSFS, CLU, ChFC, is the CEO of Economic Concepts, Inc. and is an expert in executive benefits and retirement planning for successful business owners. He can be reached at (480) 248-2200 or at brianh@ecico.com.

Bigger is Better

Call 1.800.584.4595 Ext. 05 www.accountingpracticesales.com

Gary Hankins, CPA Member Arizona Society of CPAs

Too Busy to Escape the Office for CPE? Take CPE when it is convenient for you with ASCPA self-study partners: • AICPA CPExpress Select • Becker Professional Education • SmartPros • Surgent McCoy CPE LLC Find more information at www.ascpa.com and go to Self-Study

JUNE 2011 y AZ CPA

17

Financial Planning Issue

The Limits of Flower Power for Client Funerals

by Amy Florian It’s automatic: There is a death in a client’s family, so the firm or company sends flowers to the funeral home. Yet we rarely stop to think whether it’s a good idea. Remember that after a death, your goal is to be truly supportive to the grieving family. So let’s look more closely at whether an impressive floral arrangement accomplishes that goal.

Does it help the family?

In the long run, a flower arrangement will likely be perceived as a neutral gesture because that’s what everyone does. In practical terms, however, the family has little or no use for the overflowing mass of flowers. They may even feel guilty if they can’t take them home. Despite your best intentions, you may be creating a problem for the family at a time when they have enough other problems.

Do flowers convey meaningful support?

In addition to the points made above, giving flowers runs the risk of leaving a negative impression if clients feel this was an automatic response. No one wants to feel the act required no more than a general instruction to your administrative assistant to send flowers whenever a client is affected by death.

Are the flowers an effective marketing tool?

Some advisors send flowers because they want other people to see the firm going out of its way to acknowledge a client’s loss. Hopefully, those people will be convinced enough to give the firm their business. However, that means the focus of the act is not the family but the others who attend the services, which negates your purpose. In addition, isn’t it easier to keep current clients than to gain new ones? Keep the goal of family support uppermost instead of using this situation to expand your reach.

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What is the best alternative?

VA LU E D B Y T H E C O M PA N I E S W E VA LU E

Nothing is better than personal presence. Always attend the wake, visitation, shiva or other service if at all possible. You can’t go wrong by being there; you can easily offend a client by failing to show up. If it is impossible to attend, send someone else who will express your condolences for you.

How can you use the money you currently spend on flowers in ways that make a better impact and offer true care?

• Make a donation in the name of the deceased to a charity the family supports.

• Send several follow-up cards throughout the first year and beyond.

• Give a gift certificate for coffee, chocolates, a massage or lunch at a restaurant.

• Give one or two helpful books on grief, especially if they directly relate to the client’s situation.

• Offer to pay for a session with a grief coach.

Perhaps you decide you still wish to send flowers after a death. If so, don’t let it substitute for personal presence, and consider adding in some of the alternative expenditures. More than flowers, they provide genuine support while truly distinguishing you as an advisor who cares. Be assured, the family will spread the word of your thoughtful, individualized attention more effectively than a AZ CPA banner across a bouquet.

2800 N. Central Ave. Suite 1725 Phoenix, AZ 85004 602-544-3550 www.kotzinvaluation.com

Provided financial reporting valuation consulting services

Provided valuation consulting services in accordance with ASC Topic 718 and Internal Revenue Code 409A

Provided financial reporting valuation services in accordance with ASC Topic 815

Provided financial reporting valuation consulting services

Provided purchase price allocation services in accordance with ASC Topic 805

Provided purchase price allocation services in accordance with ASC Topic 805

Provided valuation consulting services in accordance with ASC Topic 718 and Internal Revenue Code 409A

Provided purchase price allocation services in accordance with ASC Topic 805

Tucson Metropolitan Chamber of Commerce 2010

Man of the Year

Bruce Beach

Amy Florian is CEO of Corgenius, Inc.. She will be speaking at the ASCPA Financial Planning Conference on June 9 on the topic of working with clients in loss and transition.

The shareholders and employees of BeachFleischman PC and Pinnacle Plan Design, LLC proudly congratulate our CEO, Bruce Beach, for being named Tucson Metropolitan Chamber of Commerce 2010 Man of the Year.

A special thanks, Bruce, for your vision, passion, and inspiration to each of us at BeachFleischman PC and Pinnacle Plan Design, LLC. BeachFleischman PC 1985 E River Road, Suite 201 Tucson, AZ 85718-7176 beachfleischman.com 520.321.4600

Pinnacle Plan Design, LLC 1985 E River Road, Suite 111 Tucson, AZ 85718-7176 pinnacle-plan.com 520.618.1305

JUNE 2011 y AZ CPA

19

Financial Planning Issue

Alternative Investments

by Jason E. Washo, CPA, PFS, CFP Alternative investments come in many shapes and sizes and are often best described as high risk. More information is collected and analyzed for these investments today vs. 10 years ago, but access to this information is limited.

Limitations created by the SEC on who these can be presented to makes finding information difficult for most clients who do not work with investment professionals. The information presented here is for educational purposes only. This is not an offer or solicitation to sell any of these products. Only certain investors are allowed to participate in these types of programs and the two classes of investors are known as Accredited and Qualified Investors.

The SEC defines Accredited Investors as individuals whose personal net worth, or joint net worth with that person’s spouse, exceeds $1,000,000 (excluding personal residence). Or, an individual’s income was in excess of $200,000 in each of the two most recent years, or whose joint income with that person’s spouse was in excess of $300,000 in each of those years and who has a reasonable expectation of reaching the same income level in the current year.

The Qualified Investor is an individual who owns at least $5,000,000 of investments and Institutions must own at least $25,000,000.

These requirements are stringent and intended to protect the public. Many of these types of investments have limited or no liquidity and the risk of loss of principal is high. Since the requirements to own these are stringent, few people are educated on these types of offerings. Even investors who have professional advisors may not be able to present these types of investments to them due to the requirements just defined. While there are many more categories or descriptions of Alternative Investments, I tried to create a short list of what I believe most

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practitioners will see in their clients’ holdings: • REITs (Real Estate Investment Trusts) • Physical Commodities • Managed Futures • Equipment Leasing • Private Equity Private Equity Real Estate Investment Trusts (REITs) provide a way for smaller investors to obtain interests in larger commercial real estate projects.

The types of properties can include multi-family apartments, industrial, office, hospitality/leisure, hospitals, and long term care facilities. Some are hybrids consisting of equity and debt in the form of loans. Tax reporting is typically on 1099s and the income normally consists of some tax preferential distributions. REITs must pay out 90 percent of their taxable income making them attractive to investors seeking income. The law that created REITs was The Real Estate Investment Trust Act of 1960, which was updated in the Tax Reform Act of 1986 to eliminate abuse tax shelters and, once again, revised in the REIT Modernization Act of 1999.

It was the last one that restored the 90 percent payout requirement.

Precious metals have received a lot of attention in the past few years. This category is not regulated and has attracted a wide range of people dealing in these assets. A quick drive around town reveals that pawn shops, barbers, gas stations, and even convenience stores are now dealing in metals. Precious metals need no explanation, but one area of confusion is the eligibility of owning these items in IRAs. It is possible to own these items in IRAs and you don’t need a special IRA such as the “Gold IRAs” advertised on the radio and news stations. Many conclude metals cannot be held in IRAs due to a limited reading of only one paragraph of IRC §408(m), which addresses investments in collectibles for IRAs and, specifically, §408(m)(2)(D) which identifies stamps or coins as being ineligible for IRA holdings. If you don’t read any further, you may conclude that they are not allowed.

However, if you read further to §408(m)

(3) subsections (A)(i-iv) and subsection (B), you will note a definition of what is acceptable. It is important to understand that only certain items are allowed and purity standards must also be considered to comply with government standards. And, these items are taxed at Collectibles Capital Gains rates of 28 percent, if held outside of qualified accounts. Unfortunately, the Accredited and Qualified Investor rules do not apply to this investment, as metals are unregulated.

Many people with concerns over inflation have been seeking exposure to commodities through the use of precious metals and another method known as managed futures. These are managed accounts or funds in which professional money managers trade futures and forward contracts. Futures and forward contracts may represent agricultural products, bonds, cattle, currencies, financial instruments, gold, hogs, oil, silver, stock indexes, and so on. They are actually contracts of delivery or receipt for a particular commodity between the seller and buyer of the contracts.

Congress created the Commodity Futures Trading Commission (CFTC) in 1974 to provide regulation of the industry. Their mission is to protect the public and participants from fraud, manipulation, and abusive tactics.

Another self regulatory body is the National Futures Association (NFA).

Tax reporting will be found on K-1s or 1099s, depending on whether it is a private or public offering. It is very important to understand that these types of investments are very volatile and, while liquidity is high, the risk of loss of principal is extremely high.

Equipment leasing is often sought for the potential income that the investment can provide. The investor should always be aware that the investment itself lacks liquidity and very well may be a depleting asset, meaning the final value of the investment itself may diminish greatly over time and possibly be worth $0 at project termination.

Programs of this nature will invest in properties including locomotives, rail

equipment such as freight cars, maritime assets, aviation equipment, such as jet engines, road transportation assets, manufacturing equipment, mining and construction equipment, information technology and semi conductor equipment, communications, and utilities equipment. These are made available through public and private offerings, but should only be considered for Accredited Investors with a need for tax benefits. Due to the tax benefits of these programs, it would not be suitable for use in IRAs. Private equity investments are almost always reserved for qualified investors.

These investments seek to invest in nonpublic, less efficient markets, uncover companies with operational and pricing inefficiencies, improve the acquired company’s intermediate and longer term performance, and ultimately execute an exit strategy such as an IPO, recapitalization, or outright sale of the acquired company. The reporting of these is almost always on late filings of K-1s.

Investors should consider a minimum of 10 years when acquiring these assets and realize initial investments may lose considerable value in the early years, with a potential for positive returns later. This is known as the J-Curve of investment returns. Remember the potential for positive returns is not a given.

The J-Curve may never materialize.

The items above are only a few of the types of Alternative Investments available in the marketplace. Few people will ever be shown these types of investments as the regulatory requirements for presenting these are considerable.

Please remember these items are not suitable for everyone, the SEC specifically provides definitions limiting who these types of investments can be presented to. As such, this article is in no way intended to be an offering or solicitation of these types of investments. This short article is intended to be educational to help the reader gain a better understanding of items they may encounter in their tax practices. AZ CPA

by Jason E. Washo, CPA, PFS, CFP

Highlights of Board of Directors’ April Meeting Among other actions at its April 27, 2011 meeting, the ASCPA Board of Directors reviewed the following:

Consent Agenda—The consent agenda, which included the minutes, financial statements and the 2011-2012 budget for the Foundation, were approved.

Accountancy Board Update — Debbi Fitzgerald, president of the Arizona State Board of Accountancy, and Monica Petersen, executive director, updated the board on modernization and other business processes designed to improve communication between the Accountancy Board and its registrants. They also highlighted the importance of CPAs responding to Accountancy Board communications in a timely manner.

2011-12 Society Budget Approval—Mark Anderson, treasurer, presented the budget. The budget was approved as presented.

Board Vacancy—The board voted to vacate the position held by Greg Padilla.

Megan Faust was elected to serve on the board through 2012.

Strategic Plan Update—All measurements were achieved. Cindie Hubiak updated the board on legislative activities and several Society events.

A Day in the Life—Board members appreciated hearing from fellow board members Megan Faust, Neal Young and Jim Buhr on the challenges and joys they experience in their day jobs.

Year-End Wrap-Up—Outgoing board members had an opportunity to share their overall experience and Julie Klewer, chair, thanked them for their contributions If you have questions or would like additional information, please contact Cindie Hubiak at (602) 324-2888; AZ toll free at (888) 237-0700, Ext. 203; or chubiak@ascpa.com.

JUNE 2011 y AZ CPA

21

Classifieds Business Opportunities BUYING OR SELLING A PRACTICE? Let me make it happen for you.

• Integrity • Confidentiality • 44 years selling Arizona businesses. Call Allan Jeffryes, the Jeffryes Company at (602) 279-4988.

WANT TO SELL OR BUY AN ACCOUNTING PRACTICE? Make it easy on yourself. Call Gary Hankins, CPA (800) 584-4595, ext. 05. hankins@ apsleader.com. www.accountingpracticesales.com.

OWN YOUR OWN TAX PRACTICE —New to Arizona. Looking for professionals interested in owning their own Tax Preparation and Financial Services practice? Easy and affordable to get started, with training and great support.

You choose your location, we provide the system to attract premier clientele.

Confidential. Reply to Box 100, Arizona Society of CPAs, 4801 E. Washington St., Suite 225-B, Phoenix, AZ 85034.

CPA WITH PART-TIME TAX and bookkeeping practice out of an office in home seeks to upgrade to a traditional commercial space. Possibilities include office-sharing or long-term buyout in exchange for full-time work. Call (602) 765-0567.

CPA SEEKS TO PURCHASE Scottsdale Tax Practice—Successful, experienced CPA interested in purchasing existing accounting/tax practice in the Scottsdale area. Please reply to maazcpa@msn.

CPA SEEKS TO ACQUIRE TAX PRACTICE.Experienced and well qualified CPA seeks to acquire central Phoenix/Scottsdale/Tempe accounting & tax practice with gross revenues between $300,000-$500,000. Please send confidential inquiries to: azcpataxpractice@gmail.com.

OUR CPA FIRM IS SEEKING TO BUY CLIENTS in the Scottsdale and Phoenix Metropolitan area. Our staff

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has been practicing in public accounting for more than 30 years and specializes in the small to medium size business needs. We emphasize on business accounting and tax. We are located in North Scottsdale with a satellite office in Northwest Phoenix. If you are downsizing or retiring and want an easy transition, please call us today. Ask for Kara at (480) 990-2727.

Employment Opportunities TEMPE CPA FIRM seeks to replace retiring manager. 6+ years CPA firm experience required: proven client handling skills a must. Reviews, compilations, loads of tax and closely held business consulting – no audits. Our 11-member firm offers great benefits, flexibility and personal growth opportunity. Please send a resume and description of your recent experience to: tempecpa2011@gmail.com.

TAX MANAGER—Established Scottsdale CPA firm seeks a Tax Manager for its busy practice. Outstanding work environment and partnership potential through client growth are available.

The firm is paperless, offers state-ofthe-art software and computer equipment, has flexible hours and work/ life balance. Easily accessible from the 101 expressway. Position requires CPA, Masters in Tax, and 8+ years of experience in a CPA firm. Word, Excel and QuickBooks proficiency required; Lacerte software knowledge preferred.

Salary is dependent on experience.

Send resume and salary requirements to mcminnhrrecruit1@cox.net; use Tax Manager as subject on your email.

CPA, AUDIT MANAGER, part time, assist with compilations and reviews in Phoenix. auditmanager2@yahoo.com.

GOVERNMENTAL/NPO SPECIALISTS—Heinfeld, Meech & Co., P.C., recognized leaders in governmental and non-profit accounting and auditing, seeks ambitious and motivated individuals with at least 8 years experience specializing in governmental or

nonprofit accounting and/or auditing for our offices in Phoenix, Tucson and Flagstaff. Nationally recognized on the “25 Best Small Companies to Work for in America” list for the past four years, our firm is committed to providing a superior work environment and career opportunities for our staff. Competitive salaries and benefits offered. BS in accounting and at least 8 years accounting or auditing experience specializing in governments/nonprofits required.

CPA or CPA candidate preferred. Travel required Email resume and salary requirements to info@heinfeldmeech.com.

CPA - 3+ YEARS CPA FIRM EXPERIENCE, accounting and/or tax. Old established Tucson CPA firm. Please send resume to rogers@roberthrogerscpa.com.

Miscellaneous ENTREPRENEURIAL CPA NETWORK (eCPAn)—Wednesday, June 1st. Speakers: Don Scher and Brendan Kennedy, “Exit Strategies for a Closely Held Business Owner.” Regular luncheon meetings are 11:30-1:30; all meetings located at DoubleTree Suites, 320 N. 44th St. For information call (602) 468-0281 or e-mail us at meeting@ecpan.org.

Office Space GILBERT OASIS AT ISLANDS OFFICE FOR RENT. CPA or other professional. Month-to-month OK. Two offices 14x14 and 12x12. $700 to $900 Month (480) 539-2600.

CUT $$$$$$—Move into the “ACCOUNTING ANNEX”—Tenant sought. Office space to rent. Suitable for a dynamic CPA or CPA firm. Share phenomenal resources. On light rail and next to a station. Two conference rooms, included. 3,687 ft. to 4,210 ft. Unique property next to the heart of downtown, walk to baseball and basketball stadium. Short-term lease is welcome.

Call Lance at (602) 741-7876 cell.

PROFESSIONAL ACCOUNTING OFFICE AVAILABLE—16th Street & Glendale Avenue, 3,000 SF of prime office space now available. 8 private offices, large open bullpen for cubicles, conference, utility/workspace area, and employee break room. Email jason@ azcre.biz for more information.

Services ESTATE/GIFT/GST TAX RETURNS AND PLANNING ISSUES POSE A CHALLENGE FOR YOU? I can work with you or your client. Estate planning/ compliance is not a science; it’s an art.

Let’s make a better plan for your client.

Ira Feldman, CPA/CVA/CEP (602) 8505101 or ira@felco.biz or www.felco.biz.

One- and Two-Hour Seminars Quick Programs at a Minimal Cost to You

Below is a list of our upcoming one- and two-hour programs recommended by your fellow CPAs. These programs are meant to provide valuable information and insight, as well as give you an opportunity to network with other business professionals while earning CPE. Things I Think I Think... the Ins and Outs of Intellectual Property

Securing Electronic Communications and Client Expectations

June 30 ASCPA Offices, Phoenix 11:30 a.m. to 1:30 p.m.

Peter Goldman and Kevin R. Yeanoplos

June 9 11:30 a.m.-1:30 p.m.

CFO Panel—June 16 Panel:Tim Kaehr, CPA - DMB; Greta Newell, CPA-Harkins; Peter Hathaway-JDA Software

Register today at http://bit.ly/1-2seminars

Problem with the Board?

Reach our Members!

Contact: Former Accountancy Board Member

ASCPA Members Receive a Discount

D. Jay Ryan Attorney at Law City North 5415 E. High St., #200 Phoenix, AZ 85054 (623) 937-3737 or (602)840-8075 (fax) Free Telephone Consult

The Arizona Society of CPAs offers a variety of ways for companies to get their name, service or product noticed by our members.

Call us and we can show you how to reach our members.

Call José Herrera at (602)324-4741or e-mail: advertise@ascpa.com

Mr. Ryan is a former Assistant Attorney General who represented the Board from 1970-72.

The Board’s first lay member/ President (1974-79); Law Committee (1983-1998) ASCPA Honorary Member OTHER LICENSING AGENCY EXPERIENCE

JUNE 2011 y AZ CPA

23

PRSRT STD U.S. Postage PAID Phoenix, Arizona Permit No. 952

Arizona Society of Certified Public Accountants 4801 E. Washington St., Suite 225-B Phoenix, AZ 85034

ADDRESS SERVICE REQUESTED

ASCPA Webcasts CPE where you want it ...

Enjoy the convenience of live webcasts and earn CPE from the comfort of your home or office with the ASCPA’s new live interactive webcasts.

For more information or to register, go to www.ascpa.com

24 AZ CPA y JUNE 2011