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NEW CPA CYBERSECURITY TAX EXEMPT RENTAL INCOME CHARITABLE CONTRIBUTIONS TAX IMPLICATIONS OF DISASTERS PRESIDENT TRUMPâ&#x20AC;&#x2122;S TAX PROPOSAL HOW TO STOP PUSHING TALENT AWAY BANKRUPTCY, SEPARATION, DIVORCE CROWDSOURCE FUNDING TO HELP VICTIMS OF THE LAS VEGAS MASSACRE DEBT COLLECTORS AND PASSPORT DENIALS SOCIAL SECURITY BENEFITS FOR EX-SPOUSES CLIENTS ASK CPAS FOR A CUSTOM APPROACH DEATH OF AN EMPLOYEE: TAX RAMIFICATIONS CROWDFUNDING OVER $100,000 REQUIRES CPA SEC WARNS INITIAL COIN OFFERINGS MAY BE SECURITIES Using Technology to Empower Your Practice | Vol. 17, No. 4

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THE MOST TRUSTED MAN IN AMERICA

lmost 20 years ago I ran a story about an accountant asking, “Is this the most trusted man in America?” after learning CPAs are the most trusted advisor beyond all other professionals, notably bankers and attorneys. The integrity and independence of CPAs remains strong. After working with Sidney Kess for 13 years and talking with CPAs regularly all across this great country of ours, I am convinced; Sidney Kess is the best known, most respected and hence, the most trusted of the most trusted advisors in America. Sidney Kess, Esq., CPA, JD, LLM was the winner of the Gold Medal for Distinguished Service from the AICPA in 2011 and the AICPA’s Personal Financial Planning Distinguished Service Award in 2015. Kess received the AICPA Special Recognition Award in 2003 acknowledging his 40-year career lecturing to more than 700,000 practitioners and writing 25 books on tax-related subjects. In 2010, the AICPA created the Sidney Kess Award for Excellence in Continuing Education in honor of Kess, “a nationally renowned tax expert, to recognize individual CPAs who have made significant and outstanding contributions in tax and financial planning and whose public service exemplifies the CPA profession’s values and ethics.” Referred to as the Einstein of tax law and a guiding light, CPA Jim Metzler, past AICPA VP of Small Firm Interests probably said it best in the Foreword of the 2012 AICPA Book, The Sid Kess Approach: “Sid Kess was a CPA rock star. He still is.” So, to the most trusted man in America, Sid, we salute you. To introduce a new generation of CPAs to this icon of integrity and love for the profession, I refer you to the The Bottom Line’s video interview with Sid Kess at CPAMagazine.com.

USING TECHNOLOGY TO EMPOWER YOUR PRACTICE

t’s coming. Are you ready? The 2018 tax season is just around the corner. It’s time to go though your software, staff, facility and client list looking for flaws, opportunities and anything that needs to be addressed before the season is underway. You also need to honestly assess your knowledge of the recent developments in tax and technology. This issue of CPA Magazine will help you. This issue Sidney Kess discusses the tax ramification in the event of the untimely passing of an employee. Kathleen M. Lach covers the IRS’ actions in collecting delinquent taxes and what it can do to prevent you from leaving the country. Tom Barry discloses what tax staff is looking for in a job these days and what you need to do to keep them with your firm. Adam Fayne covers President Trump’s tax proposal and provides information you should know to help navigate the rest of 2017. As one of the goals of CPA Magazine, we will keep you technologically savvy with articles on time and billing, payroll processing and write-up software. These roundtable articles feature ideas from thought leaders in software for CPAs about how to avoid pitfalls and exploit opportunities. The aforementioned articles not only keep you up to speed in the current world of tax and technology but are also the content for the CPE course on page 29. Once you have finished this issue of CPA Magazine, you can take the CPE quiz for three CPE credit hours. More CPE credit over articles by Sidney Kess and Martin M. Shenkman can be found at www.CPE.CPAMagazine.com.

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ADVISORS

Charitable Contributions for High-Income Taxpayers

TAX ADVISOR

Death of an Employee: Tax Ramifications Sidney Kess, CPA, J.D., LL.M

Volume 17, No. 4

FEATURES

The Bottom LINE Series Social Security Benefits for Spouses and Ex-Spouses Donated Time-Off Not Included in Income for Hurricane Relief

TAX ADVISOR

IRS Issues Ransomware Attack Warnings SEC Warns Initial Coin Offerings May Be Securities

Taxpayer Advocate Focuses on Private Debt Collectors and Passport Denials Kathleen M. Lach 12

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Crowdsource Funding to Help Victims of the Las Vegas Massacre Martin M. Shenkman, CPA, MBA, PFS, J.D. with Bernard A. Krooks, Esq., and Jonathan G. Blattmachr, Esq.

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Tax Implications of Disasters Equifax Breach and New CPA Cybersecurity Risk Examination

Clients Ask CPAs for a Custom Approach Crowdfunding Over $100,000 Requires CPA Electric Car Tax Ramifications

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Tax Exempt Rental Income and Collecting and Paying Occupancy Tax

ADAM FAYNE

How You Should Handle Your Clients’ Bankruptcy, Separation, Divorce and Debt

What Firms Can Do to Stop Pushing Talent into Competitors’ Hands

STEVEN MELNICK

20 21 # 24

TOM BARRY

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Trump’s Tax Proposal

Social Security Benefits for Spouses and Ex-Spouses

ven if you never worked a day in your life, you can collect a portion of your employed spouse’s social security benefits. If you wait until both of you are full retirement age, 66 for most people, you get 50% of the benefit of the higher earning spouse. If you are divorced but were married for at least 10 years you can get up to 50% of the amount of Social Security benefits your ex receives. If you live in one of the 15 states that recognize common-law marriage (Alabama, Colorado, Georgia, Idaho, Iowa, Kansas, Montana, New Hampshire, Ohio, Oklahoma, Pennsylvania, Rhode Island, South Carolina, Texas, Utah and Washington, D.C.), you may be “considered married” as long as you were living together and most people thought you were married. A person could feasibly have five ex-spouses, from any marriage lasting over 10 years, with all of the ex-spouses receiving benefits. Here are some other facts regarding exes collecting a spouse’s Social Security benefits: • When a person goes from a divorced spouse to a surviving divorced spouse, the benefit amount will increase. If a surviving spouse is over full retirement age, they could generally expect to receive the full payment amount of the deceased ex-spouse. • If your ex-spouse is still living, you must be age 62 or older to receive Social Security benefits. But if he or she is deceased, you may be able to start taking benefits at age 60, or age 50 if you are disabled. • If you were married to a higher-earning spouse for over a decade and then had a brief but unsuccessful marriage to someone else, one consolation is that at least you haven’t permanently lost

your Social Security benefits from the first marriage. • You cannot take benefits on an ex-spouse’s record while you are married to someone else. But if you remarry and then you divorce again, after two years you are eligible to apply for benefits from the prior spouse again. • If you have more than one ex for over a decade you can receive the higher benefit. • The other ex-spouses are not affected by the decision of whose record on which to claim Social Security benefits. • It doesn’t matter if your ex hasn’t started taking benefits yet, as long as you have been divorced at least two years. • A higher-earning spouse may think it affects how much they receive in benefits. It doesn’t. A spouse who is entitled to benefits based on his or her ex’s earnings may not want him or her to know they are taking benefits based on his or her record. An ex-spouse is not affected by the benefits you receive and is not notified. However, if your ex is really curious, they are entitled by law to know the names and benefit amounts of anyone receiving benefits off of his or her record. However, they are not entitled to mailing address or other identifying information. • Your worker benefits aren’t ever reduced by how much your spouse gets. • When a spouse dies, the survivor receives his or her widow’s benefit first as early as age 60 (50 if disabled). He or she can switch over to their own worker’s benefit as soon as he or she is eligible. And remember this: If a spouse takes his or her worker benefits first and the widow/er benefit second, there is no penalty for taking early worker benefits. • The length of marriage calculation is exactly from the day the marriage ceremony begins to the day the divorce is finalized. • There are different rules if the ex-spouse is alive or deceased. • If you take benefits before your full retirement age, you’ll get less, depending on how soon you take them.

- Video on CPAMagazine.com

Donated Time-Off Not Included in Income for Hurricane Relief

he IRS is encouraging leave-based donation programs to help victims of Hurricane Harvey. Employees may forgo their time-off in exchange for cash payments the employer makes to charitable organizations who provide relief for victims of this recent disaster. The donated cash, instead of vacation, sick or personal leave, will not be included in the income or wages of the employees. While their employers can deduct these charitable contributions as business expenses, they must be made before Jan. 1, 2019. The IRS provided similar programs following Hurricane

Katrina in 2005, Hurricane Sandy in 2012, the Ebola outbreak in West Africa in 2014, and last year’s Hurricane Matthew to help with the severe flooding in Louisiana. Details of this relief are in Notice 2017-48, posted this week at IRS.gov. Information on other tax relief available to victims of Hurricane Harvey can be found at www.irs.gov/hurricaneharvey. For information on government-wide relief efforts, visit www.usa.gov/hurricane-harvey. - Video on CPAMagazine.com USING TECHNOLOGY TO EMPOWER YOUR PR AC TICE I 5

Death of an Employee: Tax Ramifications

“

As a general rule, the receipt of insurance proceeds payable on account of the death of the insured is tax-free.

When an employee dies, family members, co-workers and others may experience profound loss. For the family and the company, there are important tax considerations that arise. Here are some of the issues of note.

”

Retirement Benefits If a deceased employee was a partici-

pant in a company’s qualified retirement plan, benefits are paid to the designated beneficiary. This is usually a surviving spouse if there is one. If an employee had wanted benefits to be payable to someone other than a surviving spouse, the surviving spouse would have had to consent in writing to this arrangement (Code Secs. 401(a)(11)(F) and 417(a)). The plan administrator should have a record of who was designated as the beneficiary or what happens if there is no such beneficiary (e.g., the beneficiary predeceased the employee). The person inheriting retirement benefits is not immediately taxed on the inheritance (Code 102). However, when benefits are distributed to the beneficiary, they become taxable to the same extent that they would have been taxable to the employee. A surviving spouse can roll over the benefits to his/her own account. This allows the surviving spouse to name his/her own beneficiary and to postpone required minimum distributions until age 70½. A non-spouse beneficiary may direct the trustee of the plan to transfer inherited funds directly to an IRA set up for this purpose. The account should be titled: [Beneficiary’s name], a beneficiary of [employee’s name]. While the non-spouse beneficiary must take distributions over his/her life expectancy (Table I in the appendices to IRS Publication 590-B), this avoids an immediate distribution of the entire inheritance. Generally, distributions must begin by the end of the year following the year of death. However, under a five-year rule, no distributions are required until the end of the fifth year following the year of death, at which time the entire account must be withdrawn. If the deceased employee’s estate paid federal estate tax, then a beneficiary can claim a miscellaneous itemized deduction for the portion of this tax when benefits are included in his/her income (Code Sec. 691(c)). It is not subject to the 2%-of-adjusted-gross-income floor that applies to most miscellaneous itemized deductions; it is subject to the phase-out for high-income taxpayers.

COBRA Coverage Under federal law, if the employer has 20 or more full- and part-time employees for at least half of the business days during the previous year and has a group health plan, COBRA coverage (a continuation of the company health plan)

Tax Advisor

Sidney Kess, CPA, J.D., LL.M must be offered to a surviving spouse and a dependent child (Consolidated Omnibus Budget Reconciliation Act of 1985). A number of states have “mini-COBRA,” which requires the offer of continuing coverage by smaller firms. The employer must notify the qualifying beneficiary (spouse/dependent child) within 14 days the plan received notice of the qualifying event (the death of the covered employee) about COBRA. This notice of election must spell out what it means and how to make it. What it means is that the qualifying beneficiary can continue the same or reduced coverage for up to 36 months. This election is voluntary, so if the spouse has access to better or less costly coverage elsewhere (e.g., through the Medicare for the spouse; through the children’s health insurance program [CHIP] for the child), making the election may not be advisable. The qualifying beneficiary must pay the cost of coverage, plus an administrative fee up to 2% (unless the company voluntarily pays for some or all of this coverage). COBRA does not apply to: • Health savings accounts (HSAs) (discussed later), even though coverage under a company’s high-deductible health plan (HDHP) is subject to COBRA • Disability insurance for short-term or long-term disability • Long-term care insurance

Life Insurance Insurance on the life of an employee is payable at death to the beneficiary of the policy. Depending on the type of coverage, this may be the surviving spouse, the company, or anyone else. As a general rule, the receipt of insurance proceeds payable on account of the death of the insured is tax-free (Code Sec. 101). Group-term life insurance. Typically proceeds are payable to the surviving spouse or the employee’s child. If the employee has not designated a beneficiary, proceeds are payable according to state law. In order of precedence, this is usually a current spouse, but

6 I U S I N G T E C H N O L O G Y T O E M P O W E R Y O U R P R A C T I C E www.CPAmagazine.com

“The receipt of [Workmen’s Compensation Death] benefits is tax-free.“

if there is none, then to children or descendants. If none, then to parents, and then to the employee’s estate. Key Person Insurance. This is coverage owned by the company and is designed to provide a financial backstop needed during a replacement period for the deceased employee. Insurance Under Buy-Sell Agreements. If the deceased employee is an owner and there is a buy-sell agreement that has been funded by life insurance, the proceeds are paid out to the company if the company owned the policy (an entity purchase buy-sell agreement), or to co-owners if they owned the policy (a cross purchase buy-sell agreement).

Workers’ Compensation If an employee dies because of a work-related injury or illness, a death benefit is payable to eligible dependents (usually a surviving spouse and minor children, but to others if there is no spouse or minor child). The receipt of these benefits is tax-free (Code Sec. 104(a)(1)). The amount of the benefit varies from state to state. For example, in New York the death benefit is two-thirds of the deceased spouse’s average weekly wage for the year before the accident (but not more than a maximum amount adjusted

annually), or less if there is no surviving spouse, children, grandchildren, grandparents, siblings, parents, or grandparents. In addition, there may be a payment for funeral expenses. When there is a work-related death covered by workers’ compensation, this usually becomes the sole remedy against the employer. However, an action against the employer may not be barred in some situations (e.g., death because of toxic substances, defective products, intentional actions by the employer).

FSAs

If the deceased employee had been contributing to a flexible spending account for health care or dependent care costs, contributions cease at death.

This article is continued on www.CPAmagazine.com.

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Executive Editor Sidney Kess is CPA-attorney, speaker and author of hundreds of tax books. The AICPA established the Sidney Kess Award for Excellence in Continuing Education in his honor, best-known for lecturing to over 700,000 practitioners on tax. Kess is senior consultant for Citrin Cooperman, consulting editor to CCH and Of Counsel to Kostelanetz & Fink.

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Taxpayer Advocate Focuses on Private Debt Collectors and Passport Denials

The office of the IRS National Taxpayer Advocate Service (TAS) in its June 2017 report to Congress focused on two provisions embedded within the Fixing America’s Infrastructure (FAST) Act, signed into law in December 2015. Directly effecting taxpayers is the requirement that the IRS use private collection agencies to try to collect “inactive tax receivables.” In addition, the Act provides that the State Department may deny or revoke the passport of a taxpayer with a “seriously delinquent tax debt.” These provisions immediately raised concerns at the Taxpayer Advocate’s office. The mid-year report provides a status on the developments in these areas.

Private Debt Collectors

The IRS has been pushed by Congress to “do more with less”, and within the FAST Act, Congress thought it would help its cause by mandating that the IRS use private collection agencies (PCAs) to go after accounts that are “inactive.” This strategy has been tried twice in the past, and failed both times. No additional funds were collected over the course of the last experiment with PCAs, which was shut down in 2009. It is interesting to note that the bill was sponsored by Senators Schumer (New York) and Grassley (Iowa). Of the four approved PCAs, two are in New York, and one is in Iowa. The section of the Internal Revenue Code on this enactment requires the IRS to assign PCAs to all inactive receivables. A “tax receivable” is defined as “any outstanding assessment which the IRS includes in potentially collectible inventory.” The statute does not define “potentially collectible inventory.” The IRS is to identify such accounts, and initiate this process by sending a letter to the taxpayer informing them that the account is going to be assigned to a PCA. It will then send a second letter confirming the case transfer. TAS raised concerns immediately on the target cases, pointing out that hardship cases are the ones most likely to be affected. If a taxpayer has a delinquent account, and has hired a representative, it is doubtful that his case is “inactive.” Further, most representatives are aware of the Fair Debt Collection Practices Act which provides that with written notice, a taxpayer does not have to deal with an outside collection agency. The concern is for taxpayers who are unable to pay, and vulnerable to being harassed into paying. There is statutory relief for taxpayers who are unable to pay their tax debts, such as offers in compromise, installment agreements, and placing an account in “currently not collectable” status. These tools are available to the IRS. They are not available to the private

receivable’ is defined "A ‘tax as ‘any outstanding

assessment which the IRS includes in potentially collectible inventory.’

Tax Planning Advisor

Kathleen M. Lach

collectors. PCAs make money when they collect. They have no incentive to consider the personal circumstances surrounding the debt they are trying to collect, and in any case, they do not have access to the same tools as the IRS. TAS has begun its review of the cases assigned to the PCAs during the first half of 2017. It reviewed the assigned accounts of delinquent taxpayers, whose returns were filed in 2014 and later. The results found that 23% of the taxpayers reported income below the federal poverty level, and 53% reported incomes below 250% of the federal poverty level, which is the threshold set by Congress to receive assistance from a low income tax clinic. Keep in mind the following numbers that constitute household income below and proportionate to poverty level (relative to how many persons per household): 1 person - $12,060 3 persons - $20,420 2 persons - $16,240 4 persons - $24,600

Computed at the 250% rate equates as follows: 1 person - $30,1503 2 persons - $40,600 3 persons - $50,050 4 persons - $61,500

The TAS report states that among the elderly, the median income on returns for taxpayers who received social security benefits in 2016 was $13,200. The difficulty arises in that the PCAs are not authorized to collect financial information in order to make a determination on collectability. Again, they are collection agencies whose job it is to collect a debt. There is no negotiation. Based on the preliminary data gathered by TAS, economically challenged individuals and families will be adversely affected by the actions of the PCAs. TAS has indicated that it will monitor this process closely, and we will look for additional information on the activities of the PCAs as the year goes on. Continued on page 9

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Trump’s Tax Proposal BY ADAM FAYNE

t the time this article was published, Donald Trump’s Unified Framework For Fixing Our Broken Tax Code (UFFOBT) has been known to the public for only a few weeks. The main principals are as follows:

Adam Fayne

Individual Taxes The UFFOBT reduces

the number of tax rates to three (from the seven in place today). The proposed rates are 12%, 25% and 35%. It is unknown what income will fall into each rate structure.

Increased Standard Deduction UFFOBT

increases the standard deduction for married couples to $24,000 and for single filers to $12,000. This increase will reduce the number of people who itemize their deductions on Schedule A.

Increased Child Tax Credit It is unclear

(to avoid shifting income to low tax jurisdictions). UFFOBT would also propose a one-time “tax holiday” whereby companies may repatriate their foreign profits at a very what this increased credit will be. UF- low tax rate. FOBT requires the lawmakers to determine what amount this credit will provide. It will 2017 Tax Planning likely be higher than the $1,000-per-child It is difficult to plan around the UFFOBT since it is unclear what, if anything, will becredit provided today. come final law. We anticipate this proposal to be very fluid and it is highly unlikely that Limit or Eliminate Deductions, AMT, and the Estate Tax UFFOBT proposes to any tax reform will be identical to what is eliminate the state and local tax deduction, proposed today under UFFOBT. With personal exemption allowances, abolish the that said, we all know there will not be any Alternative Minimum Tax, and abolish the change for the worse in 2018. As a result, our advice is to sit-tight and hope for the best. Estate Tax. The one item to be delicate with is Business Tax Changes Corporate rates estate planning. We certainly want to plan would be reduced from today’s 35% rate to to take advantage of yearly allowances and 20%. Pass-through entity profits would be exemptions in planning, but we would be taxed at a rate of 20%, reduced from high- reluctant today to establish any long term vehicles, unless absolutely necessary, since est individual rate today of 39.6%. there is the chance that the estate tax will Foreign Earnings United States business, be abolished. today, pay a 35% tax on overseas profits Related CPE Quiz on Page 29 when they repatriate them to the United States. UFFOBT would reduce this rate Adam Fayne is an attorney with the law firm of to equal the tax rate where the funds are Arnstein & Lehr LLP. He may be reached at earned abroad with a minimum foreign tax 312-876-7883 or asfayne@arnstein.com.

Passports Another enactment within the FAST Act being closely monitored by TAS is the restriction it placed on passports, and consequently travel. The code provision requires the State Department to deny an individual’s application for a passport if they have a “seriously delinquent tax debt.” It may limit the reapplication approval as well, as long as the IRS certifies the debt. At this time, the threshold for certification is a tax debt above $50,000. The concern here is that certain taxpayers will be taken by surprise when they are faced with an inability to travel, or if they are in another country planning to return to the U.S. The “certification” process, and a final determination, is not necessarily disclosed to the taxpayer. There is also some concern as to whether this is a constitutional violation in placing restrictions on an individual’s right to travel There are provisions for exceptional circumstances within the code section. These primarily deal with family emergencies. It remains to be seen how the IRS will handle requests for exceptions, and under what circumstances they will be allowed. The issue of restricted passports and travel is a significant restriction on taxpayers, of which clients should be made aware. This is another area closely monitored by TAS, and we are certain to hear more about it as it is implemented this year. The Taxpayer Advocate The office of the Taxpayer Advocate is a part of the Internal Revenue Service that operates

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completely independently, and is an advocate and protector of taxpayers’ rights. A taxpayer’s first course of action if an IRS issue occurs is to quickly respond to any IRS contact letter or notice she receives. However, if continuing efforts are made to resolve a matter with field personnel or the Service Center (ACS), and the taxpayer (or you as a representative of the taxpayer) reaches an impasse, the TAS office is there to assist you in working with field personnel or ACS to resolve your matter. Each state has a local TAS office. Contact information including local telephone and fax numbers may be found on the IRS website. Generally, assistance from TAS is initially requested by filing Form 911, Request for Taxpayer Assistance Order. This may be faxed to the local office, which is the avenue for the quickest response. TAS is a valuable resource in assisting with taxpayer issues that are not easily resolved, as well as monitoring actions such as the above legislation recently passed, which directly impacts taxpayers, and may impact taxpayers’ rights.

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Kathleen M. Lach is a Partner in the Tax and Litigation Departments of Arnstein & Lehr LLP. She represents clients before a variety of different tax authorities, including the Internal Revenue Service, the Illinois Department of Revenue, and the Illinois Department of Employment Security. USING TECHNOLOGY TO EMPOWER YOUR PR AC TICE I 9

Tax Exempt Rental Income and Collecting and Paying Occupancy Tax

rental income tax break known as the “Masters exemption,” permits homeowners to rent their homes for less than 14 days and not report that income to the IRS. The exemption was named after residents near the Masters Golf Tournament at the Augusta National Golf Club renting their homes out during the event earning as much as $20,000. You need to know, however, these rentals are not exempt from city or state lodging tax. Some states and cities impose occupancy taxes on short-term rentals and the host is required to collect the tax directly from renters and submit the money to the tax authority. The host is responsible for remitting the tax whether it is collected or not. Some companies, like Airbnb, collect and submit the taxes

in San Francisco, Chicago and 34 states. In other locations the owner is responsible for the occupancy tax which may be up to 15% and it may need to be filed monthly. Ideally, the occupancy tax should be shown as a line item on the bill submitted to the guest as the host is responsible for remitting the tax whether it is collected or not. In some areas, private home rentals are exempt from occupancy tax — but owners should check with their state. Shortterm in most states is less than 30 days. In Hawaii and Florida, short-term is up to six months. Penalties typically range from 10 to 25% of the tax due, plus interest and late fees.

- Video on CPAMagazine.com

IRS Issues Ransomware Attack Warnings

he IRS issued tips to prevent ransomware attacks warning they are on the rise stating a handful of tax practitioners who have been victimized. Ransomware is used to lock users out of their files until they pay a ransom. The most common method is using emails to lure you or your employees to open a link or an attachment. In May the infamous ransomware, WannaCry, targeted computers running older unsupported systems such as Windows XP demanding $300 in Bitcoin. If you are attacked: 1. Don’t pay the ransom. “Remember, you’re dealing with criminals,” according to Christopher Budd, a global threat communications manager with the digital security firm Trend Micro. 2. Disconnect from the network. 3. Save all important files you’ve been working on. 4. Reboot your computer in safe mode. You run a system restore from safe mode by choosing Advanced Boot Options and se-

lecting Repair Your Computer. Choose the option for System Restore to restore your system back to a previous period, prior to the ransomware attack. 5. Once you’ve rebooted, download a copy of the Microsoft Safety Scanner using a clean, non-infected PC. Copy the downloaded file to a blank USB drive or CD, and then insert it into the infected PC. 6. Reinstall your files from a backup. If none of that works, you may need to consider your files gone forever. Reformat your hard drive, reinstall your operating system and set up an automatic backup. Going forward, make sure your operating system and anti-virus software is automatically updated and verify the integrity of regularly data backups. Tax professionals should immediately report attacks to their IRS stakeholder liaison and to the FBI at the Internet Crime Complaint Center, www.IC3.gov. - Video on CPAMagazine.com

SEC Warns Initial Coin Offerings May Be Securities

ndefeated boxer Floyd Mayweather may be more famous for defeating MMA fighter Conor McGregor but he is so busy endorsing initial coin offerings, or ICOs, on his Instagram and Twitter accounts he has dubbed himself Floyd “Crypto” Mayweather. Mayweather has now promoted three ICOs: Hubii Network, Stox and now Centra, a cryptocurrency debit card. While an initial public offering, or IPO, offers shares of ownership in a company to the public, an ICO is a cryptocurrency which represents a percentage of ownership in the currency based on its business described in the ICO’s documentation. In an IPO and ICO, investors expect the value of their

ownership to increase in value. While few regulations existed worldwide for ICOs before July, it is changing. The SEC decided ICOs are securities and subject to SEC registration in most cases while China is forbidding them as illegal. Buying “coins” in an ICO is buying a token issued on a distributed computer ledger referred to as a blockchain which can be traded on a digital currency exchange. A Blockchain is a continuously growing digital file of encrypted transactions distributed or copied to a peer-to-peer (P2P) network of computers. Their stability is based on the data being replicated on thousands or millions of different computers worldwide. - Video on CPAMagazine.com

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Crowdsource Funding to Help Victims of the Las Vegas Massacre

One of the authors just received a call to assist those helping one of the hundreds of victims of the Las Vegas shooting with some questions concerning a crowdfunding effort. What initially seemed like a simple question, which might help one victim struggling with unfathomable challenges, following an equally unfathomable mass shooting, grew into something more. The questions grew and it became clear that they may affect the hundreds of victims of the Las Vegas shooting and thousands of others, e.g. those devastated by the recent hurricanes, for whom crowdfunding sites have or are being created. The issues are numerous and complex. Some of the challenges to better help those that have used crowdfunding sites may well be dealt with by guidance from the IRS or perhaps Congress. Perhaps the magnitude of the tragedy, and the need for common sense guidance illustrated throughout this article, will motivate quick and compassionate action. The needs of so many are great. In addition to providing technical guidance to help victims and their advisers, hopefully this article will alert readers of the existence of crowdfunding campaigns they might contribute to, in order to directly help victims. Despite the substantial sums of money raised annually by crowdfunding sites there seems to be little law, and even less guidance, for those using this vehicle. Some of the issues identified may at least put advisers, the public, and those creating crowdfunding campaigns on notice of steps that might help them achieve their goals with greater success, and some of the questions they should at least consider asking. The comments following should be viewed at most as “preliminary” because to circulate this quickly to help the many in need, there simply was not time to properly research and evaluate what appear to be a rather considerable number of issues involved.

Crowdfunding

“Crowdfunding is the practice of funding a project or venture by raising many small amounts of money from a large number of people, typically via the Internet.1 Crowdfunding is a form of crowdsourcing and of alternative finance. In 2015, it was estimated that worldwide over US$34 billion was raised this way.”

Help Las Vegas Massacre Fund Raising Efforts

Clark County Commission Chair Steve Sisolak set up a GoFundMe page or campaign, a private crowdfunding platform, to request charity for those injured in the massacre.[1] The description on

Tax Planning Advisor Martin M. Shenkman CPA, MBA, PFS, J.D., Esq.

with Bernard A. Krooks, Esq., and Jonathan G. Blattmachr, Esq.

the GoFundMe platform stated: “I’m Steve Sisolak, Clark County Commission Chair from Las Vegas. We are raising funds to assist the victims of the tragic Las Vegas shooting. Funds will be used to provide relief and financial support to the victims and families of the horrific Las Vegas mass shooting.”2 Anyone seeking to help victims can use the link in the footnote to donate, which may not be tax deductible and may have minor but perhaps adverse gift tax consequences, as explained later. In addition to the above effort, and likely other crowdfunding efforts, to aid all victims of the Las Vegas shooting, crowdfunding campaigns have been created for individual victims as well. For example, there are campaigns on GoFundMe, YouCare, and likely other sites, targeted to help individual victims severely injured in the Las Vegas shooting. Many other campaigns exist to help those devastated by recent hurricanes, as well as other emergencies and disasters.

Enhance Crowdfunding Campaign Results Clearly the priority for victims, those creating the various campaigns, like Steve Sisolak, the victims’ families and loved ones is raising funds to assist in meeting the unanticipated financial challenges they all face, in addition to the unfathomable human and personal difficulties that has befallen them. This article is continued on www.CPAmagazine.com.

Martin M. Shenkman is the author of 35 books and 700 tax related articles. He has been quoted in The Wall Street Journal, Fortune, and The New York Times. He received his BS from the Wharton School of Pennsylvania, his MBA from the University of Michigan, and his law degree from Fordham University.

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Tax Implications of Disasters

n light of the devastating flooding in Houston and fires in California, we provide this special report on the tax implications of disasters. When a “federally declared disaster area” is established, disaster relief payments from the Red Cross, churches or neighbors are excluded from gross income. This includes money for necessary personal expenses, family expenses, living expenses, funeral expenses, food, medical supplies, as well as housing or transportation expenses and repairs to a personal residence not covered by insurance. If you lose your tax return, you may file IRS Form 4506 to request a copy of your prior year’s tax return. In this instance, writing “Houston Flood” on top of the form expedites the process and waives the $50 fee. You also can request IRS transcripts for the previous three years at no cost. Individuals and businesses will have until Jan. 31, 2018, to file returns and pay any taxes for the Sept. 15, 2017 and Jan. 16, 2018 quarterly estimated tax payments deadlines. This includes

2016 income tax returns extended until Oct. 16, 2017 but not the tax payments which were due on April 18, 2017. The IRS automatically provides filing and penalty relief to any taxpayer with an IRS address of record located in the disaster area. If you’re located in a federally declared disaster area, you may be spared from penalties for not paying estimated taxes in a timely manner; and, the IRS may abate interest for the related window of time. Taxpayers can deduct travel expenses if forced to temporarily reside and work in another area as long as they expect to return to the affected area within one year. If your employer relocates to another location due to natural disaster, you can deduct costs associated with temporary relocation, including travel to and from the temporary workplace, 50% of meals and any overnight lodging required. There may also be a casualty loss, which is the lesser of the adjusted basis of the property or the decrease in fair market value (FMV) due to the casualty reduced by the insurance proceeds. The tax deduction amount must be reduced by 10% of adjusted gross income and $100. A casualty loss is taken as a miscellaneous itemized deduction if property is destroyed, and if you receive other property or insurance payment any taxable gain to be deferred. The old property must normally be replaced within two years of the involuntary conversion but you have four years if it’s in a federally declared disaster area. These expenses are taken as a miscellaneous itemized deduction on Schedule A of Form 1040. - Video on CPAMagazine.com

Equifax Breach and New CPA Cybersecurity Risk Examination

he largest ever breach of sensitive information which occurred by way of Equifax may have affected 143 million people, or as many as 50% of Americans. In response, Equifax is selling their TrustID service to consumers. Signing up for the service also acts as an agreement to not participate in a lawsuit. One such class action suit has been filed by OlsenDaines in Oregon. With cyberattacks becoming more common, all companies’ cybersecurity risk programs could benefit from an independent validation from a CPA. The AICPA released a new cybersecurity risk program examination, as part of its redefined SOC reports. SOC previously stood for Service Organization Controls; now the term stands for System and Organization Controls. SOC for cybersecurity has been added to the SOC 1, SOC 2, and SOC 3 reports. The new SOC for cybersecurity examination offers a structured approach to implementing security controls to protect information and systems from compromise and to detect and recover from security events that are

not prevented. While the SOC 2 report is a general use report for service organizations who provide services to other organizations the cybersecurity examination is not limited. It is also broader allowing no carve out. Organizations are responsible for all controls within the risk management program regardless of who is responsible for performing the controls. The cybersecurity risk management engagement does not include details on the operating effectiveness of controls over a period of time. The SOC 2 report includes the following components: a description of the cybersecurity risk management program created by the organization and presented to the auditor, a management assertion letter vouching for the description of the program and an audit opinion on the organization’s cybersecurity program from the auditor.

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Clients Ask CPAs for a Custom Approach

eterinarian Dr. Deseree Brown was asked what she expects from her CPA. “I expect my CPA to be available,” said Dr. Brown. “I expect them to be accountable when I ask them questions and not to always direct me to their assistants. “It would help me and my veterinary practice if a CPA were able to give us estimates whenever we’re about to make big purchases, to not just tell us which one they think would be the best but to actually show us on a spreadsheet which purchases can help the most at the end of the year. “It could always be better, in my opinion. I feel like

accountants, for the most part, are very numbers driven people and very detail oriented and they don’t have a lot of relationship experience. I feel like if they would take a little bit of time to get to know where we live, what we do, what other kinds of accounts we have besides just our business, they would be able to make better recommendations on how we should handle certain situations.” - Video on CPAMagazine.com

Crowdfunding Over $100,000 Requires CPA

rowdfunding comes in three flavors. It’s important to know the difference between Kickstarter, GoFundMe and Wefunder. Kickstarter is reward crowdfunding, GoFundMe is charitable crowdfunding and Wefunder is equity crowdfunding. Kickstarter allows contributions to projects in exchange for a reward like a T-shirt or product. GoFundMe allows doners to give money to a good cause. Wefunder allows patrons to contribute to a company in exchange for equity at that company. The U.S. Securities and Exchange Commission (SEC) refers to equity crowdfunding as Regulation Crowdfunding. Startups may now raise up to $1,070,000 from non-accredited as well as accredited investors per year effective May 16th, 2016. Fundraising over $100,000 requires at least a review of GAAP financial statements by an independent CPA for the past two years. If the issuer has previously relied on Regulation Crowdfunding, a capital raise of more than $535,000 will require an audit. Remember, Form C, which is estimated to take 49 hours to complete, must be filed with the SEC before fundraising can begin. In addition to the disclosure of GAAP financials, the number of employees, officers & directors, stakeholders with more than 20% voting power, past fundraising rounds, use of funds and all material risks must also be disclosed. With a Regulation Crowdfunding offering, you need to file an annual report once a year with financial statements and a discussion of your business, self-certified by the CEO as well as a business discussion. This must be done no later than three months after the end of the fiscal year. Investors are also limited in the amount of capital they may invest in Regulation Crowdfunding startups per year. To calculate your investment limit, first choose either your net income or net worth - whichever is lower. If the lower number

is over $107,000, you are allowed to invest 10% of it each year. Otherwise, only 5%. For instance, if your income is $96,000 and your net worth $200,000, you’d be legally allowed to invest $4,800 per year in startups. By law, all Regulation Crowdfunding investments must be made through a funding or a broker/dealer. If you have more than 2,000 shareholders or 500 unaccredited shareholders, and more than $25 million in assets, you could be subject to burdensome SEC reporting requirements. If you have an S corp, you are limited to under 100 shareholders unless you convert to a C corp or LLC. Investors confirm that startups and small businesses are very risky and they can afford a 100% loss of all investments. They also confirm they understand crowdfunded securities are not easily resold. There is no secondary market. It could take years for a return. - Video on CPAMagazine.com

Electric Car Tax Ramifications

id you know you can get up to $7,500 in Federal tax credits for buying a new electric car? That explains why we have seen all those Teslas on the road lately. Not only that, electric cars don’t pay any of the 18.4 cents per gallon Highway Trust Fund. Not to mention the 31 cents, on average, each state adds per gallon of gas. However, it may be coming to an end. Each car manufacturer can only offer a tax credit on 200,000 cars and Tesla is reaching its limit. At least five states have special fees on electric vehicles: Colorado, Nebraska, North Carolina, Virginia and Washington. However, they’re minimal. Just remember, the tax credit is only available to the buyer if the electric vehicle is purchased. If you lease an electric vehicle, the leasor receives the tax credit, typically causing them to reduce the leasee’s monthly payments. - Video on CPAMagazine.com

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Charitable Contributions for High-Income Taxpayers

BY SIDNEY KESS, CPA, J.D., LL.M

he government views those with income of $200,000 or more as “high-income taxpayers,” and charitable contributions are a popular Sidney Kess write-off for this group of individuals. For 2015 (the most recent year for which statistics are available), the average charitable contribution deduction for those with adjusted gross income (AGI) of $200,000 to under $250,000 was $11,370. For those with AGI of $250,000 or more, the average deduction was $16,580. In this period of tax uncertainty resulting from Congressional goals of tax reform, what can highincome taxpayers do to maximize their tax-advantaged giving opportunities?

Tax Rules for Charitable Contributions High-income taxpayers

should understand the basic charitable contribution rules for federal income tax purposes, which are fairly straightforward (Code Sec. 170): • A taxpayer must itemize deductions. No above-the-line deduction for non-itemizers is allowed. • Donations must go to an IRS-recognized charity, which can be found in Publication 78 online (https:// www.irs.gov/charities-non-profits/ organizations-eligible-to-receive-taxdeductible-charitable-contributions). • A taxpayer must follow substantiation rules, with may include obtaining written acknowledgments from the charity and qualified appraisals from outside appraisers. • Cash donations are limited to 50% of adjusted gross income. Donations of appreciated property usually are limited to 30% of AGI (with the exception of donations of conservation

easements explained later). Deductions in excess of these limits can be carried forward for up to five years. • The deduction for charitable contributions is subject to the phase-out of itemized deductions for high-income taxpayers. This means that the tax write-off for contributions can be reduced by as much as 80%.

cated conservation easements a reportable transaction that must be disclosed on a taxpayer’s return and may invite IRS scrutiny (Notice 2017-10, IRB 2017-4, 544). For more details about conservation easements in general, see the IRS’s Conservation Easement Audit Technique Guide (https://www.irs.gov/pub/irs-utl/conservation_easement.pdf).

Conservation Easements

Qualified Charitable Distributions

Conservation easements are a type of special arrangement to let taxpayers have their cake and eat it too. Property owners can give away interests, take a tax deduction, and continue to enjoy the property. To be deductible, the donation must be a contribution of a qualified real property interest (i.e., a restriction granted in perpetuity on the use which may be made of the real property) to a qualified organization exclusively for conservation purposes (Code Sec. 170(h) and Reg. §1.170A-14). The types of conservation contributions include: • Preservation of land areas for outdoor recreation by, or the education of, the general public. • Protection of a relatively natural habitat of fish, wildlife, or plants, or similar ecosystem. • Preservation of open space (including farmland and forest land). • Preservation of a historically important land area or a certified historic structure (such as a building façade). Donations of conservation easements are limited to 50%of AGI minus the deduction for other charitable contributions. Any excess amount can be carried forward for up to 15 years. For donations by farmers and ranchers, the AGI limit is 100%, rather than the usual 50%, with the same 15-year carryover. However, the IRS has made syndi-

An IRA owner who is at least age 70½ has an additional way to give to charity. They can make a qualified charitable distribution (QCD) of up to $100,000 annually from the IRA (Code Sec. 408(d)(8)). The distribution is not taxed, and can be counted toward a required minimum distribution (RMD). But no charitable contribution deduction can be taken; no double tax break is allowed. QCDs are restricted to regular IRAs. They cannot be made from IRAtype accounts, such as SEP-IRAs or SIMPLE-IRAs.

Donor-Advised Funds

A donor-advised fund is a fund or account in which a donor can advise but not dictate how to distribute or invest amounts held in the fund (Code Sec. 170(f)(18)). This article is continued

on www.CPAmagazine.com.

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How You Should Handle Your Clients’ Bankruptcy, Separation, Divorce and Debt BY STEVEN MELNICK

et’s face it–events happen that you can’t control. Sometimes you’ve exhausted all means to get your financial life back in order – for you personally and/or your business. Bankruptcy now Steven Melnick becomes an option, a legal process in which bad debts are either extinguished or a plan may be implemented for repayment depending on which chapter of bankruptcy you file your petition. On the personal side, a bankruptcy filing only discharges income tax debt – it does not discharge other types of taxes including payroll taxes, trust fund recovery penalties, etc. Filing for a bankruptcy places an automatic stay on collection action by the IRS, but extends the IRS collection statute expiration date so that it has more time to collect on any remaining tax debt that was not discharged. Seldom is bankruptcy a better option than trying to negotiate directly with the IRS for moneys owed it. The exception would be if aggressive collection action is being taken against you, filing for bankruptcy will obtain a stay on the collection process. Depending on which chapter you file, you may force the IRS to accept a payment plan, which would include some or all of your income tax debt being reduced, or having it completely discharged.

Bankruptcy and Your Credit The downside to filing a bankruptcy petition is that this action will last on your credit report for 10 years. This may prevent you from qualifying for various loans, as well as jobs. Prior to filing bankruptcy, you should weigh the pros and cons and determine whether it would cause more harm than good. Differences Between Chapter 7 and Chapter 13 Bankruptcies The two most common forms of bankruptcy that

provides some assistance in resolving an IRS tax debt are Chapter 7 and Chapter 13 bankruptcy. It is important to understand that each form resolves IRS tax debt differently. Chapter 7 is the only bankruptcy option that may discharge some or all of your IRS tax debt, while Chapter 13 may either reduce a portion of your debt, and establish a payment plan to repay the remaining balance, or simply establish a repayment plan for paying off your IRS tax debt. In a bankruptcy proceeding, it is important to know that only income tax debt can be discharged. All other tax debts cannot be discharged by filing bankruptcy.

Chapter 7 Bankruptcy In a Chapter 7 Bankruptcy, the court may either discharge all or a portion of your IRS income tax debt. However, in order for the income tax debt to be discharged, it must meet the following guidelines: • The tax debt must have been due at least three years prior to your bankruptcy filing. This is called the Three-Year Rule. • The tax return must be filed at least two years prior to your bankruptcy filing. This is called the Two-Year Rule. • The taxes owed must have been assessed against you at least 240 days prior to your bankruptcy filing. This is called the 240Day Rule. • The tax debt cannot be the result of tax fraud or tax evasion. • The tax debt must be income tax debt only. If approved, a Chapter 7 discharge of income taxes will remove your obligation to pay back the taxes owed. However, if any tax liens were filed against you prior to bankruptcy, the tax lien will remain in effect up to the value of your equity in assets. For example, if a tax lien of $50,000 has been filed against you, but your remaining assets are valued at $10,000, the tax lien will remain in effect up to $10,000. A Chapter 7 filing is not recommended

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for individuals who may have substantial assets, as some assets may be exempt while others are not. All assets not exempted will be included in the bankruptcy and may be used to satisfy outstanding debts. Chapter 7 Bankruptcy can only be filed once every six years, but is the only bankruptcy option for discharging IRS income tax debt.

Chapter 13 Bankruptcy

The most common form of a bankruptcy filing is a Chapter 13. It is used for resolving IRS income tax debt within a repayment plan that will be determined by a court trustee. It does not discharge the income tax debt but will require that you make monthly payments for a specified amount and for a specified length of time which may be a minimum of three years to five years maximum. The court trustee may also reduce the amount of the income tax debt if four conditions are met: 1. The debt must be income tax debt. 2. The Three-Year Rule must be met. 3. The 240-Day Rule must be met. 4. No liens were filed by the IRS, or if a lien was filed, there is no property upon which the lien may be applied. If these conditions are not met, the tax debt must be paid in full, and the payment plan established in the bankruptcy proceeding will be adjusted in order for the tax debt to be paid in full within the allotted time.

This article is continued on www.CPAmagazine.com. This is an excerpt from Tax Relief and Resolution by Steven Melnick, CPA. Melnick is a licensed attorney, LLM in Taxation. He is also a professor of tax law, and a Chairman of Continuing Education Programs for Tax Professionals at the City University of New York.

What Firms Can Do to Stop Pushing Talent into Competitors’ Hands

BY TOM BARRY, CPA

ur industry’s workforce is changing rapidly and is skewing younger than ever. Retaining this workforce requires changing our mindset and introducing innovative programs that allow for balanced Tom Barry lives. CPA firms must be aware that individuals have needs and wants that go beyond work. Firms that have a legacy of long hours and weekend schedules and don’t allow for balance will undoubtedly have retention issues. Younger workers do not want that kind of work environment and are aware they have other choices. It is also wise to pay attention to evolving generational attitudes, as younger workers do not feel tied to a single firm. They have a different mindset on what loyalty means, and can be quick to move to another opportunity. In order for a firm to successfully retain talented people, it needs to acknowledge that each employee is a whole person and give employees the opportunity to take care of all aspects of their lives. At my firm, we allow employees opportunities for regular self-care and give them the opportunity to spend quality time with their families. Most importantly, recognizing that “family” may be different for everyone and doesn’t always look like two - three kids and a dog – it’s important to give equal weight to any relationships that provide a valuable emotional support system. To be successful, our talent needs to be in balance in all aspects of their lives for their overall well-being and success; firms need to incorporate a “be more” philosophy. This philosophy pushes a firm to encourage employees to be the best they can be and enjoy life to the fullest. Why? Healthy people create a healthy firm, and a healthy firm attracts and retains the best and the brightest. Firms should consider a commitment to anytime/anywhere work, support of a flexible work environment and financial encouragement towards individual health and wellness, so that

employees can live their best lives. I have put this philosophy to work in my own life. I’m a father of four kids, and my life at home is often busier than life at the office. “Work-life balance” and “flex schedule” are two phrases that have been thrown around and are overused in the accounting profession. In concept, they are great. They provide the opportunity for me to fit more things into my day. In reality, work life balance and flex programs have just made us all busier. Finding ways to do the important things in life with intention, at both work and home, becomes something leaders must model and share to influence firm culture.

Creating New Career Paths Another reason firms can lose employees to the competition is career paths tend to get narrower, choking off opportunity to grow and develop. That is only true if there is a rigid system in place. Firms need to look for ways to help people customize their careers and have the goal to give people the opportunity to do more things — which they traditionally might not get the opportunity to do. In my own career, I had the opportunity to sit on the executive committee early on, which has been invaluable to my new role as managing partner. I also have headed the information technology strategy and planning for the firm for the past 10 years, which reflected one of my personal passions and turned out to be another key contributor to my future success. As a firm, we have an ongoing process to define, execute, and refresh our firm’s vision, and we encourage everyone to get involved with the firm’s long-term strategy much earlier in their careers than most firms would. This encourages buy-in and retention, as well as develops some great ideas. Getting People Involved in Innovation A firm that has a passion for innovation can also retain talent. Most firms that are successful find ideas to innovate not only outside but also from within the firm. One way

we express that is through our Innovation Incubation Lab. Our employees submit ideas about ways the firm can start to do things in a more innovative way. There is a $5,000 prize, and ideas can be for any area, such as talent management, technology, billing, timekeeping, new service offerings or internal efficiency processes. For example, we incorporate this idea by asking that any ideas submitted reflect one of the three central parts of our firm’s vision: 1) our success is driven by retaining the best, diverse talent; 2) we invest in our people and technology to deepen firm expertise and fuel sustainable growth; and 3) we partner with our clients locally and globally to deliver innovative solutions. The process is transparent throughout but the only caveat is that the employee submitting the idea must be willing to spend the time necessary to help bring the idea to fruition, if chosen.

We Are in This for the Long Haul If a firm wants to retain talent, then it’s essential to view these strategies as long-term and work toward them every day. One of our core values is to grow great people. By being able to really promote and execute on a healthy work/ life philosophy, any firm will allow people to break out of the traditional confines of work and expand things in their personal lives and with themselves. By far, the most important thing is to embrace a “be more” philosophy and make it a central part of how to treat each other. It has a direct correlation with retention; your firm will see lower turnover and more productive individuals in serving clients and developing other people. Allowing people to have success in life will translate to success at the firm and gives them a tangible reason to stay and grow with your firm. Tom Barry, CPA is a partner at Green Hasson Janks, a Los Angeles accounting firm that specializes in nonprofit, food and beverage, health and wellness, and entertainment and media companies. Barry can be reached at tbarry@ greenhassonjanks.com.

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Write-Up Software Roundtable

WHAT YOU SHOULD NEVER DO WITH WRITE-UP SOFTWARE BY JOSHUA FLUEGEL

UBCC Thomson Reuters AccountantsWorld

rite-up software is all about bringing together all the information. Making a mistake when selecting the software that is right for your firm can be exasperating. For this reason, CPA Magazine asked the leading minds in write-up software how to avoid these problems and provide recommendations to assure a perfect meeting of man and machine.

WHAT IS A MISTAKE YOU HAVE SEEN CPAS MAKE WHEN SELECTING A WRITE-UP SOLUTION? CHANDRA BHANSALI Co-Founder and CEO of AccountantsWorld The biggest mistake CPAs make is to run their write-up practice on desktop-based accounting systems created for small businesses. These systems introduce a tremendous amount of inefficiencies and that’s one reason why most write-up practices are low-margin services. KEN GAREN President of UBCC Not finding out how performance will be as they add data and not finding out how easy it is to construct a financial statement.

LOUIE CALVIN  Product Manager, Accounting & Payroll of Thomson Reuters Any top-grade professional solution will integrate with many SMB (small to medium business) products and financial institutions, and have generic importing capabilities. Fortunately, the newest software can all but eliminate manual information gathering and data entry by using a single, online platform that is accessible to both the accountant and the client through a secure, online meeting place. When the client enters data as part of day-to-day bookkeeping, that data is immediately available to the accounting firm. Many applications also offer advanced security features and the ability to tailor the software to fit each client’s

business needs and level of sophistication. Accounting software must be flexible enough to handle diverse client needs in a variety of industries. Technology should facilitate quick client setup so that you can move on to revenue-generating activities and valued deliverables. Client setup can be a lengthy process that requires a significant amount of data entry, a fact that is often surprisingly overlooked when making a major software investment. Firms should verify that there are features for automated setup and ways to maintain consistency within your firm across clients.

WHAT IS A RECOMMENDATION YOU WOULD GIVE CPAS WHO ARE SELECTING A WRITE-UP SOLUTION? CHANDRA BHANSALI Co-Founder and CEO of AccountantsWorld Make sure that the system offers a simple method for clients to upload invoices using their smartphone and also has workflow capabilities to help staff perform at peak efficiencies. Bank feed is a must to reduce data entry by 70-80% for those clients who still write manual checks in their business. To help you offer virtual CFO services, the system you select should include tools like cash flow manager, alerts, dashboards, performance analysis, financial ratios, and fully customizable financial statements. KEN GAREN President of UBCC Talk to your peers to find out the pluses and minuses of the software that they

use. Run the software on a trial basis for at least a month or two to see how it fits with their practice. Find out how easy it is to import and/ or export information. Find out if all of their data (including PDF files) can be exported and used by other software programs they may use now or in the future. LOUIE CALVIN  Product Manager, Accounting & Payroll of Thomson Reuters Automated information gathering can be an immense timesaver for clients, as well as the firm, so convincing them to make the switch may not be as difficult as you think.

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Sophisticated accounting applications can accept source documentation from a wide variety of third-party software applications, banks and financial institutions, and even fetch credit card transactions. Here is a checklist I recommend – today’s most progressive write-up software, for professional accountants, will accept data from a wide range of small business software, including: • QuickBooks (versions, editions, including QuickBooks Online) • Chart of accounts, transactions, customers, vendors and more from Microsoft Excel • Bank and credit card statement information • Real-time financial datafeeds

PAYROLL SOFTWARE FOCUSED ON COMPLIANCE

Payroll Processing Roundtable

UBCC ADP

BY JOSHUA FLUEGEL

Adaptasoft

any things must be considered when selecting payroll processing software for your firm. One of the more prevalent is compliance. CPA Magazine gathered the thoughts of industry leaders in payroll processing on what pitfalls CPAs should avoid.

Thomson Reuters

AccountantsWorld Red Wing Software

WHAT IS A MISSTEP YOU HAVE SEEN CPAS MAKE WHEN USING PAYROLL PROCESSING SOFTWARE? CHANDRA BHANSALI Co-Founder and CEO of AccountantsWorld A common misstep is that many CPAs don’t have the proper internal processes needed to run an efficient payroll practice. Another thing is that many accountants are still using desktop solutions, and it’s costing them a lot of time and lost profits that they could realize by using a cloud-based professional payroll solution. CONNIE MARTIN President and CEO of Adaptasoft One particularly common misstep that we see CPAs make when using payroll processing software is underestimating the flexibility of the payroll software and the vast complexity of payroll rules. When working with payroll, there are often multiple paths to a solution, with very specific rules that apply. The key is knowing precisely which path is correct in a given instance while still adhering to the rules of the payroll software. In order to get the greatest benefit out of your business’s payroll processing software, it is vital for every employee to be sufficiently trained and informed. This way, you can mitigate errors, avoid frustration, and equip your business for success. CHRIS RUSH   Division Vice President of Strategy & Business Development, ADP Small Business Services of ADP One common misstep is failing to

integrate a payroll solution with other service offerings. Advancements in technology not only are enabling accounting professionals to efficiently handle more payroll clients, they also are transforming how accounting firms integrate payroll with other services they provide their clients. Accounting firms may benefit from presenting the entire scope of their capabilities as a comprehensive offering. This may help them enhance and deepen their client relationships, as well as position the firm to capture more of their client’s business as they continue to add relevant, valuable services. Integrating payroll with other services can produce a steady, reliable stream of revenue and potentially lower general operating costs. It also may help smooth out revenue and staff workload throughout the year. KEN HILTON President of Red Wing Software While CPAs are very good at processing payroll for their clients, it can be difficult for CPAs to keep up with all the changes that take place in their clients’ businesses with regard to employee status, pay rate changes, vacation/PTO pay, etc. This can inadvertently lead to payroll errors. One misstep I’ve seen is the lack of a good communication plan between the client and the CPA. With a solid communication plan, this can be avoided.

JAMES PAILLE Director, Chief Compliance Officer, Corporate Secretary myPay Solutions of Thomson Reuters • In-house processing approach, staffing for payroll, but only providing payroll as a courtesy to 10-20 clients. It’s a loss leader without building the client base beyond 70-80 clients. New opportunities exist to keep control of the client, yet not have to be invested in the dayto-day tasks and still make money. • Know your niche; do not elephant hunt or take on clients outside of your expertise or comfort zone. Properly qualify your prospects in the sales process. Assuming that current bookkeeping and tax staff can perform the payroll service needs with accuracy. Hire payroll experts for your operations. KEN GAREN President of UBCC • Not factoring in how much computer infrastructure is needed to run the software. • Not considering if the software is designed to allow for multiple users to be in the same cli ent at the same time. • Not considering if the software will have performance degradation as historical information is added. • Not considering how easy is it to import and export information.

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Time and Billing Software Roundtable

NOT WASTING TIME WITH TIME AND BILLING SOFTWARE

Journyx

BY JOSHUA FLUEGEL

Chrometa BQE Software ImagineTime HMS Software

ime is money for every CPA. Not utilizing your time and billing software to it’s full potential is a waste of that time. CPA Magazine approached creators of time and billing software to get their thoughts on how best to utilize your time and software.

WHAT IS AN UNDERUTILIZED ASPECT OF TIME AND BILLING SOFTWARE? SHAFAT QAZI CEO and Founder of BQE Software Project management and the employee performance data that is obtained when time and expenses are tracked regularly are often not utilized by managers, principals and partners. In addition to that, the ability to assign tasks with allocated hours to employees—and have them track their time against them—helps keep project costs under budget. These functionalities are often underused. BRETT OWENS CEO & CoFounder of Chrometa Making more money! Time and billing software must help drive earnings higher. It can do this by helping us find more billable time that otherwise would have been lost, by encouraging clients to pay electronically (and hence faster and more reliably) and showing how firms are spending time between profitable and moneylosing activities. CHRIS VANDERSLUIS CEO of HMS Software The most underutilized aspect of time and billing software is the integration with other aspects of the organization. People often select time and billing

software to solve a very narrow challenge of getting invoices generated, but when other aspects of the organization are not involved this is likely to cause more than one timesheet to be selected. Time and billing will have one, HR will have another, payroll yet a third. Perhaps Finance needs tracking for R&D tax credits, and so on. Looking to see how the selection of time and billing software can integrate into other corporate processes before selection and deployment might be a huge benefit. FRED LINDSLEY President of ImagineTime Not reviewing managerial reports on a monthly or quarterly basis to analyze staff performance, as well as, pinpoint profitable and non-profitable clients. Resistance to change. Some firms want their new software to work very much like the old. Backward compatibility with established practices has its place, but must be balanced with the adoption of new habits and ideas that improve efficiency and profitability using today’s technology. For example, it is more efficient for staff to enter their

24 I U S I N G T E C H N O L O G Y T O E M P O W E R Y O U R P R A C T I C E www.CPAmagazine.com

own time. Some firms continue to insist on centralized time keeping. It is gratifying to see these firms adopt and benefit from using new methods. Oftentimes these changes must be gradual in order to allow adoption. CURT FINCH CEO of Journyx The highest ROI is when project time is measured. Automating payroll and billing is great, but understanding where you’re profitable or not is transformative. This can only come from understanding the cost of expensive labor and where it is being aimed. Imagine you have 100 expensive engineers working on hundreds of projects - some big, some small. You cannot guess, in any useful way, what project costs are. Your intuition will almost always be wrong. Our research shows that about 12% of these employees will be working on projects that have no hope of ever moving your company forward. Redirecting those people successfully will release over a million dollars per year in lost productivity, even more in revenue and profit.

This article is continued on www.CPAmagazine.com.

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Construction Accounting Foundation Software, Inc. FOUNDATION ® Construction Accounting Software www.foundationsoft.com info@foundationsoft.com 800-246-0800 FOUNDATION ® is a job cost accounting and project management software for contractors. It’s available traditionally installed or on the cloud and offers integrated mobile applications.

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Payroll 24Hour Payroll, Inc. 24/7 Service Provider Payroll Software www.24hourpayroll.com sales@24hourpayroll.com 844-667-2424 Payroll software for Service Providers. Intuitive, comprehensive, affordable. No maintenance or per check fees! Installs on a cloud, network server or stand alone PC.

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presents AccountantsWorld PR Payroll Relief ® Payroll Relief www.PayrollRelief.com contactus@accountantsworld.com 888-999-1366 The key to highly profitable payroll processing? Automation. With Payroll Relief, you can automate compliance tasks and eliminate data entry for a more profitable, no-hassle payroll service. Call for a live demo.

TPS Software, Inc. TPS Time & Billing www. tpssoftware.com sales@tpssoftware.com 888-877-2231 TPS- trusted by more than 16,000 accountants in small and mid-sized firms to look after time tracking, billing and provide management tools.

CheckMark, Inc. CheckMark Payroll Service www.checkmark.com/payroll.php sales@checkmark.com 800-444-9922 We take pride in bringing world class Payroll and Accounting solutions at a fraction of what other popular manufacturers cost. Take a Free Trial.

Accounting Practice Sales, Inc. Practice Sales www.accountingpracticesales.com garyh@apsleader.com 888-847-1040 We are the largest marketer of CPA firms in North America, helping both buyers and sellers find the right opportunity to suit their needs.

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Professional Liability Herbert H. Landy Insurance Agency Professional Liability Insurance www.landy.com | johnt@landy.com 800-336-5422 Insuring accounting professionals since 1962. Coverage for firms of all sizes and practices. Exceptional service, competitive pricing and coverage provided by an A+ rated insurer. The Landy Difference. Mitchell & Mitchell Insurance Agency, Inc. Professional Liability Insurance www.mitchellandmitchell.com pmorris@mitchellandmitchell.com 800-562-4272 We represent the AICPA Professional, Cyber and Employment Practices Liability Programs. Experts in business, personal and medical lines of insurance, tailored to the accounting industry. Continued on page 28

CPA Magazine’s weekly video news broadcast, The Bottom Line, keeps you up to date with news impacting you and your clients: • IRS Updates • Tax Tips • Practice Alerts • Client Acquisition Methods

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HMS Software TimeControl www.timecontrol.com 647-478-8332 | info@hms.ca TimeControl is the multi-purpose timesheet system from HMS Software. TimeControl’s flexibility has made it one of the most popular timesheet systems in the world. TPS Software, Inc. TPS Time & Billing www. tpssoftware.com sales@tpssoftware.com 888-877-2231 TPS- trusted by more than 16,000 accountants in small and mid-sized firms to look after time tracking, billing and provide management tools.

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28 I U S I N G T E C H N O L O G Y T O E M P O W E R Y O U R P R A C T I C E www.CPAmagazine.com

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Using Technology to Empower Your Practice Volume 17, No. 4 Editor T. Steel Rose, CPA, ACG cpa@cpamagazine.com Managing Editor Joshua Fluegel josh@cpamagazine.com Copy Editor Myrna Nelson Advisory Board/Columnists Sidney Kess, CPA, J.D., LL.M Kathleen M. Lach Martin M. Shenkman, CPA, MBA, PFS, J.D. The opinions given by contributing authors are their own and are not necessarily the opinion of our staff and management. All trademarks used are the property of their respective owner. CPA Magazine (ISSN# 2378-7481) is published four times a year by CPA Magazine, P.O. Box 92342, Southlake, TX 76092, 817-4166650 and 888-610-1144 Standard Mail postage paid at Sussex, WI 53089 ©2017 All Rights Reserved Magazine Publishing Group, Inc. Printed in the U.S.A.

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Self-study Taxes (3 hours) A basic understanding of tax preparation 3 hours December 2018 Charitable Contributions and IRS Action

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Answer the following 15 questions and complete the answer sheet on page 31. 1. Which of the following tax rules for charitable contributions is false? A. Donations must go to an IRS-recognized charity, which can be found in Publication 78 online. B. A taxpayer must follow substantiation rules, with may include obtaining written acknowledgments from the charity and qualified appraisals from outside appraisers. C. Cash donations are limited to 60% of adjusted gross income. D. The deduction for charitable contributions is subject to the phaseout of itemized deductions for high-income taxpayers.

2. Which of the following does not qualify as a real property interest that can be donated and deducted as a conservation easement? A. Preservation of land areas for outdoor recreation by, or the education of, the general public. B. Protection of a relatively natural habitat of fish, wildlife, or plants, or similar ecosystem.

4. Under federal law, if the employer of a recently deceased employee has _____ or more full and part-time employees for at least half of the business days during the previous year and has a group health plan, COBRA (Consolidated Omnibus Budget Reconciliation Act of 1985) coverage must be offered to a surviving spouse and a dependent child. Continued on page 30

C. Preservation of open space (not including farmland). D. Preservation of a historically important land area or a certified historic structure (such as a building façade).

3. A fund or account in which a donor can provide input but not dictate how to distribute or invest amounts held in the fund is a: A. IRA-type account B. Donor-advised fund C. Free invested fund D. Charitable distribution trust

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Continued from page 29

A. B. C. D.

20 25 28 40

5. COBRA (Consolidated Omnibus Budget Reconciliation Act of 1985) does not apply to: A. Health savings accounts, even though coverage under a company’s high-deductible health plan (HDHP) is subject to COBRA. B. Long-term care insurance. C. Disability insurance for short-term or long-term disability. D. All of the above. 6. Which of the following concerning different types of life insurance for a deceased employee is true? A. If a beneficiary is not designated for a group-term life insurance policy, the order of precedence for proceeds is spouse, descendants, employee’s estate, parents. B. Key person insurance is coverage owned by the company and is designed to provide a financial backstop needed during a replacement period for the deceased employee. C. Proceeds from insurance under buy-sell agreements can go to a sole owner of the policy. D. All are false. 7. The three tax rates of the proposed Unified Framework For Fixing Our Broken Tax Code are: A. 10%, 18% and 34% B. 11%, 27% and 31% C. 12%, 25% and 35% D. 14%, 27% and 38% 8. The proposed Unified Framework For Fixing Our Broken Tax Code proposed tax plan would increase the standard deduction for married couples to _______. A. $ 12,000 B. $ 16,500 C. $ 18,000 D. $24,000

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9. What does the proposed Unified Framework For Fixing Our Broken Tax Code not eliminate/abolish? A. Alternative Minimum Tax B. Estate Tax C. Expenditure Tax D. Personal exemption allowances 10. What is the household income threshold for a household of three to receive assistance from a low income tax clinic for inactive tax receivables? A. $50,050 B. $20,420 C. $30,150 D. $24,600 11. What must State Departments deny an individual if his or her delinquent tax debt is above $50,000? A. Passport application B. Drivers license renewal C. Government loan D. State park access 12. What must be filled out to request assistance from the IRS National Taxpayer Advocate Service (TAS) on delinquent tax issues? A. Tax Assistance Form (TAF) B. Form 911 C. A “Request for Assistance” on the TAS website D. Form 860 13. To be successful, employees need to be in balance in all aspects of their lives for their overall well being and success. It is recommended firms incorporate what philosophy? A. Be more B. Be driven C. Be balanced D. Be outside the box 14. What is recommended CPA firms must do concerning employee career paths to prevent losing employees to competition? A. Arrange appointments with career counselors on site. B. Provide a structured and rigid accomplishment system. C. Advise employees on retirement plans right for their needs. D. Help employees customize their careers and have the goal to give employees the opportunity to do more things. 15. What is something recommended a CPA firm have to accept input from employees? A. Suggestion Listserve B. Innovation Incubation Lab C. Renovation Panels D. Quarterly Meets

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