January/February 2018 by New Jersey Society of CPAs

J A N U A R Y/ F E B R U A R Y 2 0 1 8

NAVIGATING TAX: HOW TO SMOOTH THE RIDE Page 4

TAX SEASON â&#x20AC;&#x201D; A DIFFERENT KIND OF BOOT CAMP

Page 8

TAX SOFTWARE: THE GOOD, THE BAD AND THE UGLY

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UNDERSTANDING TAX RETURN IDENTITY THEFT

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contents J A N U A R Y/ F E B R U A R Y 2 0 1 8

THE MAGAZINE OF THE NEW JERSEY SOCIETY OF CERTIFIED PUBLIC ACCOUNTANTS

4 Tax Season — A Different Kind of Boot Camp RALPH ALBERT THOMAS RALPH RALPH ALBERT ALBERT THOMAS, THOMAS, CGMA CGMA Chief Executive Officer Chief Executive Officer & Executive Director & Executive Director rthomas@njcpa.org rthomas@njcpa.org ELLEN ELLEN ELLEN C. C. McM SHERRY, C. cSHERRY, McSHERRY CGMA CGMA Chief Chief Operating Operating Officer Officer emcsherry@njcpa.org emcsherry@njcpa.org DON DON MEYER MEYER Chief Chief Marketing Marketing Officer Officer dmeyer@njcpa.org dmeyer@njcpa.org RACHAEL RACHAEL BELL BELL Managing Managing Editor Editor rbell@njcpa.org rbell@njcpa.org KATHLEEN KATHLEEN HOFFELDER HOFFELDER Content Content Editor Editor khoffelder@njcpa.org khoffelder@njcpa.org MARC MARC L. L. REIN REIN Multimedia Multimedia Specialist Specialist mrein@njcpa.org mrein@njcpa.org

Surviving tax season can be somewhat of an art, but when it’s over, individuals tend to feel a great sense of accomplishment. From the intern to the accomplished professional, tax season conjures up different emotions. CPA firms have developed many novel approaches during this time to keep staff happy and clients coming back.

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What is tax return identity theft and how can you tell if your client has fallen prey to it? Find out who to notify if the worst has occurred, how long will it take to have a tax return processed and what are some proactive best practices your clients can take before a fraudulent incident happens.

8 Tax Software: The Good, the Bad and the Ugly

There are many tax software products out there, but finding the right one for your staff can be daunting. NJCPA members were asked to weigh in on what they like best about their software, what needs to be upgraded and why they are keeping the one they have.

2 CLOSE UP

Giving Back Through Volunteering THE THE NEW NEW JERSEY JERSEY SOCIETY SOCIETY OFOF CERTIFIED CERTIFIED PUBLIC PUBLIC ACCOUNTANTS ACCOUNTANTS 425 425 EAGLE EAGLE ROCK ROCK AVENUE AVENUE SUITE SUITE 100, 100, ROSELAND ROSELAND NJNJ 07068 07068 973-226-4494 973-226-4494 | NJCPA.ORG | NJCPA.ORG #NJCPAMAG #NJCPAMAG

10 Understanding Tax Return Identity Theft

12 ACCOUNTING, AUDITING & ATTEST

Fee Disclosures and Fiduciary Responsibilities Under ERISA 13 ADVOCACY & LEGISLATIVE ISSUES

Taxes, Infrastructure and Pensions Should Be Top Focus for Governor-Elect Murphy 14 BECOMING A CPA

How to Obtain 150 Credit Hours and Stand Out from the Competition

15 BUSINESS ADVISORY SERVICES

Considerations for Mergers and Acquisitions — Your Clients Need to Know What to Expect 16 FIRM & PRACTICE MANAGEMENT

A GPS for Staff Success 17 FORENSIC ACCOUNTING, LITIGATION SERVICES & BUSINESS VALUATION

The Forensic Accountant’s Role in Litigation 18 GOVERNMENTAL & NONPROFIT

Trust is Not an Internal Control

19 LAW & ETHICS

Maintaining Independence During the Client Lifecycle 20 TAX

The Section 179 Deduction: It Has Come a Long Way 21 TECHNOLOGY & INFORMATION MANAGEMENT

Using Excel to Harness the Power of Data 22 NJCPA NEWS

yy NJCPA to Relaunch Find-A-CPA yy Get Involved 23 CLASSIFIEDS 24 MEMBER STORY

Lynn Petrovich, CPA

CLOSE UP

Giving Back Through Volunteering BY KATHLEEN HOFFELDER, NJCPA CONTENT EDITOR

When asked by organizations to donate time, expertise or financial support, no one stops to think about how one person can actually make a difference. But, in reality, a single volunteer can do a lot. NJCPA works to create a culture that not only recognizes a member’s time but also tries to match up the right cause or opportunity with each member. From talking to students at NJCPA’s annual scholarship awards ceremony or CPA professionals at chapter events to manning the phone lines of our tax call-in program, every effort counts. MEANINGFUL MENTORING Take Gary Fare II, CPA, audit manager at KPMG. A scholarship recipient himself, Fare loves explaining to students how he landed his first job and chose a career in accounting through the NJCPA Mentor Program. Volunteering is an “overall positive experience,” according to Fare. “I get a lot of enjoyment out of it.” When he is not answering questions about his own career path, he is guiding students on what their best approach should be. “In accounting, there are so many routes you can take. Many students are confused,” said Fare, who is currently mentoring three students. “The most important part of the program is the vetting process,” said Fare, who noted that “some students take to the mentor program more than others.” Though it depends on how often the students want to connect, Fare tends to reach out via phone or email a few times a year to make sure they are on track. Theresa Hinton, member engagement manager at NJCPA, noted that the best

way for members to participate in NJCPA’s Mentor Program and other volunteering efforts is to update their profile on the NJCPA website (njcpa.org/profile). This way the most appropriate mentor, whether he or she is working in a small, mid-sized or large accounting firm or in a corporation or nonprofit, can be matched with the student who may be interested in that area of specialty, she said. Students typically have the same mentor for the duration of their time at college, but last year the NJCPA recognized a need to also add on a shorter timespan for mentors, so a one-year mentor program was established. Members are asked to apply to be a mentor by March 1 at njcpa.org/getinvolved. MAKING A CONNECTION Becoming a CPA Career Awareness presenter similarly offers benefits to both NJCPA members and students alike. Christopher Petermann, CPA, partner at PKF O’Connor Davies, LLP, who spent years on NJCPA’s Nonprofit and Accounting & Auditing Standards interest groups, decided to be a CPA Career Awareness presenter (previously dubbed Pay It Forward) in 2005. At that time there was an “extreme shortage” of accountants in the profession, and students were not overwhelmingly warming to the idea. Fast forward a few years later to 2008, when the Great Recession made accounting popular again. Though companies may have had difficulties at this time, suddenly accountants, as trusted advisers, were in high demand, he said.

As Petermann noted, the best way to reach out to students is to visit a school to which you have a personal connection. For example, he finds it easy to speak at his alma mater, Rutherford High School, and at Verona High School in the town where he resides now. “The challenge is connecting with them and to connect in a way that will resonate with them.” Teachers are much more engaged today, which also helps, he added. “My first real dividend came when one of the kids I spoke with later received one of NJCPA’s scholarships,” said Petermann, who was also able to present the award to the student at the awards ceremony. “You feel like a mini rock star. How often do accountants get to feel like that?” Sign up for volunteer opportunities at njcpa.org/getinvolved

New Jersey CPA (ISSN 1534-6692) is published six times per year by the New Jersey Society of Certified Public Accountants, 425 Eagle Rock Avenue, Suite 100, Roseland, NJ 07068. Issue No. 67 Copyright © 2018 New Jersey Society of Certified Public Accountants. Annual membership dues include $9 for a one-year subscription to New Jersey CPA magazine. Members may not deduct subscription price from dues. Periodicals postage paid at Roseland, NJ, and at additional mailing office. POSTMASTER: Send address changes to New Jersey CPA, 425 Eagle Rock Avenue, Suite 100, Roseland, NJ 07068-1723. The materials and information contained within New Jersey CPA are offered as information only and not as practice, financial, accounting, legal or other professional advice. The opinions expressed herein are those of the authors and not necessarily those of the New Jersey Society of CPAs. Publication of an advertisement in New Jersey CPA does not constitute an endorsement of the product or service by the New Jersey Society of CPAs.

JANUARY/FEBRUARY 2018 | NEW JERSEY CPA

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11/13/15 10:33 AM

TAX SEASON — A DIFFERENT KIND OF BOOT CAMP By KATHLEEN HOFFELDER

NJCPA CONTENT EDITOR

How one survives tax season at a public accounting firm is often personal and cannot be explained — or even shared — with people outside of the accounting profession who would not understand the demands on time.

Some tax professionals prep before their “call of duty” by resting up days before the busy season. Others make a point of going to more social events than usual in advance of tax time since they shut down from January to April, and for some, an additional extension to October, on everything remotely related to family and friends. With long hours and countless demands, senior management has come to offer innovative services to boost morale and keep clients coming back. LOOSENING UP Accounting firms who are decidedly more traditional in their style of management often demand a certain amount of facetime in the office, which only increases at tax time, while others use a more modern

approach to surviving the long hours at this time of year. Offering everything from work-at-home arrangements to free massages and laundry service can bring a sense of balance to busy lives — and keep employees trudging along. Kelly Fantasia, PHR, SHRM-SCP, director of human resources at Untracht Early LLC, says her firm’s activities are often selected for their “silly quotient” this time of year. Perks, according to Fantasia, have included such innovative ideas as a contest to guess which Crayola crayon was removed from the traditional 64 count box. The “treats,” as she notes, have “the unique ability to generate buzz and conversation while contributing to the strong sense of community that is one of the firm’s most defining characteristics.”

CONTRIBUTORS (In order of appearance)

KELLY FANTASIA, PHR, SHRM-SCP Director of Human Resources Untracht Early LLC

SHIVANI JAIN, CPA

SYLVIA J. ZOZULIA, CPA

Partner and Tax Leader Sax LLP

Audit Director Citrin Cooperman & Company LLP

JANUARY/FEBRUARY 2018 | NEW JERSEY CPA

MARCIA A. GELTMAN, CPA Tax Partner Nisivoccia LLP

The activities also carry some practical value too. “We strive to find ways that our busy season perks can bridge the gap between work and home. To help keep employees engaged, we incorporate frequent stress-busting activities designed to give our professionals fun ‘brain breaks’ that foster comradery.” These include Football Friday, where people are encouraged to don their favorite sports jersey and gather at lunchtime to share six-foot subs, as well as Summer Solstice and Lunar Eclipse celebrations. Shivani Jain, CPA, partner at Sax LLP and leader of the firm’s tax practice, also

sees value in perks meant to engage staff. “We provide catered food for those in the office on the weekends and coordinate visits from a masseuse, a shoe repair and shining vendor, and a dry cleaning service. We work to hold more ‘let your hair down’ type of events like themed parties with prize giveaways and a post-tax season happy hour event to celebrate the close of tax season,” she says. And connecting with staff members’ families in a nontraditional way also goes over well with employees during tax time, adds Fantasia. “Some of the treats we’ve issued to ensure that we remember to con-

nect our employees and their family members include our annual Valentine’s Day family-oriented gift (which has included a box of four designer cupcakes, a theater-goer movie tickets/popcorn/soda package, and wine) and care packages of doggie treats in recognition of National Dog Day and our professionals’ favorite four-legged friends,” she says. SIMULATING BOOT CAMP While it’s necessary to keep one’s staff in the loop over new tax laws or regulations, it’s becoming equally important — especially with different generations in the

NEW JERSEY CPA | JANUARY/FEBRUARY 2018

workforce — to discuss expectations of employees at this busy time of year too. For Sax, a balance of mandatory hours along with some flex time works. “During tax season, we start with a mandatory 53hour work week beginning the third week in January, and as our workload ramps up moving into February, that increases to a 56-hour work week. The overall firm has a 37.5-hour work week, so tax team members have the flexibility to work the additional hours from home or in the office, at the times most convenient for them

(earlier mornings, weekends, etc.),” notes Jain. “We have seen that this makes working longer hours easier, and in the same vein, we have seen this extended flexibility to team members only aid productivity.” Staffers preparing for tax time attend tax focus sessions and study groups, according to Jain. But these programs are not initiated in a vacuum, she notes, since the firm’s audit and accounting department works sideby-side with its tax department in the tax training programs. “The biggest advantage is that our A&A team members are able

to help the tax team in preparing basic to moderate tax returns, thereby allowing for a more efficient workflow and alleviating pressure on the tax staff,” she says. Interns, too, are not immune to tax boot camp training. At Citrin Cooperman & Company, LLP, interns are called in at tax time and go through a 12-week regimen. During their stay, Sylvia Zozulia, CPA, audit director at Citrin Cooperman, says “the interns discover more about the firm’s culture, people and different practice areas, but they also discover more about themselves and gain valuable insight about their career aspirations.” The training also provides a good dose of reality. “This gives interns the opportunity to experience firsthand the workings of a CPA firm during the busiest time of year. The interns go through a full week of intensive training on various computer programs, office procedures and tax return and auditing basics,” says Zozulia. The routine may, indeed, be worth it, she notes, since at the end of the internship, several offers are typically made for full-time staff positions. Zozulia also believes in educating staff in the off-season so they are adequately prepared for the busy season. “Our firm strongly believes that you don’t have to work harder, you need to work smarter. The firm provides seminars on various topics, such as analytic procedures, sampling and running effective planning meetings to the audit staff prior to busy season.” That goes for all staff, too. “The seminars are given by individuals at various levels so everyone is learning the particular topics while improving their presentation skills,” she says. RETHINKING CLIENT CONTACT Preparing clients ahead of tax time is important for smooth-running operations when tax season finally comes. Some accounting firms have methodical preparation in place, while others prefer to make contact on a case-by-case basis. Whichever method works, one thing is clear — more contact is better than less. Marcia Geltman, CPA, tax partner at Nisivoccia LLP, for one, says written communication with clients begins in December. “We send out engagement letters in December and organizers in January,”

JANUARY/FEBRUARY 2018 | NEW JERSEY CPA

she explains, noting that clients also have to do their part in the process. “We request that most information be provided at least 10 days before the filing deadline. We hold fast to this date and put returns on extension if significant information is received after the deadline.” As Geltman puts it, client contact is most important during tax season, and forgetting that often results in a visit from senior management. “Our top priority is client service. Our founding member, Raymond Nisivoccia, instilled this concept into our staff from the beginning. He required all staff to call their clients back within the same day, or else you were invited to have a one-on-one chat in his office,” she says. “We prepare over 2,500 tax returns each year and make an effort to call each client to discuss the return. This is a great opportunity to continue developing client relationships.”

And those client conversations need to be thorough and holistic in nature, according to Geltman. “While discussing the tax return, we ask whether their will needs to be updated or whether they have any concerns about retirement planning. Being able to offer these services is appealing to many of our clients.” Good communication with clients doesn’t stop after tax time either. “During the year, we continue developing relationships by providing useful newsletters and offering seminars on various topics to our different client segments,” she adds. Sax’s Jain agrees, noting that periodic meetings with clients throughout the year are most useful. Having open dialogue, for example, ensures the firm receives the full scope of information on their clients for tax planning, succession planning and any other issues they may have. This includes

holding a CFO Focus event every November, which emphasizes relevant tax changes pertinent to CFOs and other financial managers. READ MORE FIRM & PRACTICE MANAGEMENT ARTICLES AND RESOURCES njcpa.org/topics/firm

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TAX SOFTWARE: THE GOOD, THE BAD AND THE UGLY By KATHLEEN HOFFELDER

NJCPA CONTENT EDITOR

Fast, reliable tax software during the busy season makes life for tax accountants, senior managers and even the interns in a public accounting firm a more pleasurable experience — that is, when things work smoothly.

If clients are satisfied, there can even be some sort of a Feng Shui that exists in the office — albeit just for a short time. But, inevitably, at tax time, tempers flare, systems shut down and files get locked. And accounting professionals look to their tax software for help. More than 40 NJCPA members with a tax specialty responded in September and October 2017 to a series of questions to gauge the effectiveness of their current tax software, what works well, what are the disadvantages and what is noteworthy about the products. Table 1 is a summary of the most common tax software used by respondents. Overall, survey respondents have used their current tax software for more than three years, with some boasting upwards of 10 to 20+ years with the same product. And once a tax professional liked a particular software, they tended to use it again at another firm if they switched jobs. For example, several respondents noted multiple uses of the same product at different firms. This is attributed to their ease in using the product and whether a company upgraded from desktop versions to online versions. Cost is always an issue with tax accountants. Many respondents noted that the more sophisticated products do come with a hefty price tag; some still would choose those products, however, just because of their performance. A high price seemed to be acceptable only with exceptional specialty offerings.

JANUARY/FEBRUARY 2018 | NEW JERSEY CPA

Accountants, as with any professionals using a specialized software, demand a certain amount of technical support from their software company. For the most part, respondents generally had a positive connection with the software maker, which kept them using the product. Online chats were cited as a double-edged sword, however, since users often received a quick answer to a specific question but then found out about other changes to the software of which they were not aware. AUTOMATING AND EFFICIENCY As more mundane accounting tasks go paperless, respondents cited automation as something that will change the day-today functions of accounting and free up more time for those tasks that are more forward thinking. Tax accounting itself may not get more automated, but the data entry side is likely to be more automated, says Joseph C. Maida, CPA, MBA, CGMA, principal with Maida Mackler LLC. “There will be more electronic data interchange to capture taxpayer data, so that will speed up the process.” “Many have tried optical character recognition [OCR] to speed up or even import tax documents into software,” he explains. But without a 100-percent guarantee, Maida notes that a firm can spend just as much time reviewing and fixing imported data as if it was entered manually in the first place. To him, “some areas work better, such as brokerage im-

Table 1 — Tax Software Used by NJCPA Members SOFTWARE

ADVANTAGES

DISADVANTAGES

COMMENTS

ATX™ Wolters Kluwer cchsfs.com/atx

Simplicity

Lack of speed; lacks customer support

Upgraded its platform which was challenging for some

CCH® Prosystem fx® Tax cchgroup.com/ProSystemTax

Does well with carryforwards, such Expensive; long learning curve; not user friendly as NOLs; easy to use; integrates with other software; state instructions; diagnostics; can do complex returns

Drake Tax Drake Software drakesoftware.com

Cost; customer service; product quality

GoSystem Tax RS ThomsonReuters tax.thomsonreuters.com/ cs-professional-suite/ gosystem-tax-rs

Fast; treats income and deductions Lacks customer support correctly; user friendly

Lacerte Intuit proconnect.intuit.com/lacerte

Good use of tracking items by years; carryover of losses and credits; accuracy; easy to use; logical; can handle complex returns; offers all states

High cost; does not do state inheritance and estate taxes; speed

Customer support is sometimes lacking; too expensive compared to peer software packages

ProConnect Tax Online Intuit proconnect.intuit.com/tax-online

Easy to understand and maneuver through forms

Long wait for chat help online

They need to respond with actual people

ProSeries Intuit proconnect.intuit.com/proseries

Fast and accurate; great job with error checking; simplicity

Expensive; poor customer service; not cloud-based

Not many enhancements; suggestions are not considered

TaxAct taxact.com

Forms-driven

Some data entry problems; counterintuitive for K-1 entry

Tech support is very good

UltraTax ThomsonReuters tax.thomsonreuters.com/ cs-professional-suite/ultratax-cs

Integrates with accounting software; comprehensive; easy to use; multiple states

Expensive; lacks good customer support

User friendly and more comprehensive than some others

ports as they use a standard data structure, but bank and wage information is in too many formats.” Automating staff schedules also helps during tax season. “One of the ways we’ve best streamlined our busy season workflow is by using a scheduling system that has the ability to integrate both the calendar budgeting and the scheduling of jobs along with the workflow of the deliverables,” says Colleen Luzaj, CPA, controller at Untracht Early. This also helps gauge actual versus budgeted time. “We find that it’s essential to be able to extract information from your scheduling system that helps you determine your firm’s capacity and project what your staffing needs will be.”

Excellent technical support

Learning curve can be challenging; Great customer service no overrides are available and tech support

SOFTWARE WISH LIST So what’s needed? In a word, “better” software. As Trina Weingarten, CPA, principal at Weingarten Associates, notes, “I am still waiting for a truly cloud-based version. I have searched, and there is no exact match for what I am looking for.” She also would like a better way to download information from W-2s and 1099s as well as a truly online tax organizer. “Once clients can fill in online and it populates pieces of the tax return, the tax organizer should allow the client to view last year’s numbers next to the numbers they are entering, for point of reference,” Weingarten adds.

Wait times to receive help can be excessive

Other kinds of innovation would be useful for Maida. “If we could design better software, we would like to have more than one user in a client’s file at the same time. While I understand the need to lock changes, sometimes things are so complex that having two people doing data entry would really be a time saver,” he says. “Most of our other software allows a collaborative approach to data entry and problem solving.” Similarly, Walter E. Ramick, Jr, CPA, principal at Zweig, Ramick & Associates, also would like software to keep up with the changing needs of accountants. He prefers the “ability to drill down to the specific input(s) for any particular item.”

NEW JERSEY CPA | JANUARY/FEBRUARY 2018

UNDERSTANDING TAX RETURN IDENTITY THEFT By RAQUEL ARRECHEA, CPA

UNTRACHT EARLY LLC

The tax return has been completed and reviewed. Upon submitting the return to the government, a message appears reflecting that a tax return with the name and social security number entered has already been filed with the U.S. government. Unfortunately, this is quickly becoming a more common situation.

So, what exactly is tax identity theft and how can you tell if your client has fallen prey to it? Tax return identity theft occurs when an individual utilizes a taxpayer’s name and social security number to file a fraudulent tax return and obtain a refund. Taxpayers may be made aware of tax return identity theft upon attempting to file their own return or may be alerted when the IRS issues a notice to the taxpayer that it suspects that tax return identity theft has occurred. In either scenario, the suggestion is the same. Your best course of action is to immediately alert the three main credit bureaus — Equifax, Experian and TransUnion — that you suspect your client has been the victim of tax identify theft, and obtain a credit report from one of these three bureaus so that you can confirm and monitor any fraudulent behavior. NOTIFY THE IRS If you receive notification of identity tax fraud when you are attempting to file your client’s tax return, you should also inform your client of the issue. Your client can either call the IRS or, with Power of Attorney Form 2848, you can contact the IRS on their behalf. When notifying the IRS, you should explain that you received the already submitted tax return message. You should also complete and submit an Identity Theft Affidavit (IRS Form 14039). A PIN will be issued to your client. Once your client receives the PIN, he or she

JANUARY/FEBRUARY 2018 | NEW JERSEY CPA

must call the IRS to confirm receipt of the PIN which verifies to the IRS that he or she is the true owner of that identity. One word of caution: Obtaining a replacement PIN requires much leg work so it is imperative that you communicate to the client the importance of not misplacing the PIN. NOTIFY THE FTC After calling the IRS to inform it of the possible theft, it is recommended that you file a formal complaint with the Federal Trade Commission (FTC) via a phone call or by utilizing the website identitytheft.gov. The site also offers valuable resources such as sample letters you can use to communicate to your client’s credit card companies to dispute charges, the three credit bureaus and their financial institutions. NOTIFY THE CREDIT BUREAUS One of the most helpful pieces of advice you can offer a client in this situation is for them to contact one of the credit monitoring organizations. They are accessible online: equifax.com, experian.com, and transunion.com. These sites provide step-by-step guidance for completing the credit alert application. The credit alert is normally valid for 90 days. In alerting one credit bureau of the identity theft, the other two will also be notified. When you have contacted one of the three credit monitoring agencies, your client will gain access to any financial accounts opened with their “authorization.” Your client will want to

carefully review that activity and close any accounts which they have not authorized. ADDITIONAL STEPS Financial institutions must also be contacted to be made aware of the fraudulence. Victims should notify banks that their identity has been compromised. Upon notification, most taxpayers are given a password that is required for each bank transaction to verify the taxpayer’s identity. If you provide your client with family office services, you may contact the financial institutions on behalf of the taxpayer. These institutions may require a police report. The report verifies that the taxpayer was, in fact, a victim of identity theft. The report should list all accounts with suspected fraudulent activity. Although the thief who filed the fraudulent tax return may only have had the stolen name and social security number of his or her victim and no actual financial information, in some cases the name and social security number of your client may be all that is required for a would-be fraudster to steal funds. It is not uncommon for fraudulent tax returns to show requests for substantial dollar amounts that are not necessarily in the victim’s financial realm. For clients who find themselves in

a financial transaction after experiencing identity theft, what once was considered run-of-the-mill can now be quite frustrating. Mortgage refinancing, for example, becomes a process of additional steps. During a mortgage refinance, the taxpayer’s finance records are required. A client may be required to provide a copy of the police report concerning his tax return identity theft. In many instances, it will take up to a year to have the tax return in question processed. For those taxpayers receiving a refund, it may take a few attempts on the accountant’s part to follow up with the IRS. For those whose overpayment was to be applied to the following year, it is more common than not that the overpayment will not be applied, but rather refunded upon the close of the matter. Should this occur, it is recommended that the refund check be marked void and returned to the IRS. The overpayment being refunded versus applied to the following tax year can cause your client to receive an IRS interest and penalty notice since the IRS’ records may reflect a tax underpayment. The IRS has notified that this type of matter cannot be resolved via telephone calls, but rather in writing only.

Whether your clients find themselves victims of tax return identity theft or not, it is a good idea to suggest proactive best practices to them. Remind them to enroll in credit monitoring and/or identity theft protection programs. Checking their credit report frequently can assist them in catching the issue early and remedying it quickly. Raquel Arrechea, CPA, MST, is the executive director of the individual tax practice at Untracht Early. She specializes in tax services including high net worth individual taxation, tax consulting, tax controversy and international tax. Raquel is a member of the NJCPA Federal Taxation Interest Group and can be reached at rarrechea@untracht.com. READ MORE TAX FRAUD/ID THEFT ARTICLES AND RESOURCES njcpa.org/topics/idtheft LEARN MORE JAN. 12, ISELIN THE BEST INDIVIDUAL INCOME TAX UPDATE COURSE BY SURGENT Register at njcpa.org/events

NEW JERSEY CPA | JANUARY/FEBRUARY 2018

ACCOUNTING, AUDITING & ATTEST

Fee Disclosures and Fiduciary Responsibilities Under ERISA BY SARAH KALISH, CPA, MAZARS USA LLP

The Employee Retirement Income Security Act (ERISA) Section 401(a)(1) requires fiduciaries of retirement plans to make decisions that are in the best interests of the participants of the plan. To assist fiduciaries in selecting and monitoring service providers, the Department of Labor passed regulations under ERISA Section 408(b) (2) that have been effective since July 1, 2012. Under these regulations, prior to entering into a contract with a covered plan, covered service providers must make certain disclosures in writing to the plan’s fiduciaries regarding the service provider’s compensation and potential conflicts of interest. These disclosures enable fiduciaries to understand the services to be provided, evaluate the reasonableness of the compensation paid and determine whether the service providers have any conflicts of interest. An entity that provides services to a plan is considered a party in interest to the plan, and any compensation received would be considered a prohibited transaction under ERISA Section 406(a)(1)(C). In order to not be a prohibited transaction, three requirements must be met: yy The contract must be reasonable. yy The services must be necessary for the operation of the plan. yy The compensation paid must be reasonable. In order for a contract to be reasonable, the service provider must disclose certain information to the plan fiduciaries. By following the regulations in Section 408(b) (2), the transaction will not be a prohibited transaction and the plan fiduciaries will be able to make informed decisions regarding the selection of service providers. Under Section 408(b)(2) a “covered service provider” is any service provider that expects to receive direct or indirect compensation of $1,000 or more for services provided to the plan. A covered service provider must disclose: yy The nature of the services to be provided. yy Whether the service provider will per-

form services as an ERISA fiduciary, a registered investment adviser or both. yy Direct and indirect compensation expected to be received. yy The services that will be provided in exchange for the indirect compensation and the payer of such compensation. The arrangement between the payer and the covered service provider must also be disclosed. These disclosures are intended to assist the plan fiduciaries in determining whether any conflicts of interest exist from the indirect compensation. yy The compensation to be paid between related parties of the service provider that is transaction based, such as commissions, and any compensation that is charged directly to the investments in the plan. The services related to such compensation must be described along with the payer and recipient of this compensation. yy The compensation expected to be received upon termination of the contract and how any prepayments will be calculated and refunded. yy The cost of recordkeeping services to be provided to the plan. Even when there is no explicit compensation for those services, an estimate of costs to the plan must be disclosed. Detailed explanations of the recordkeeping services to be provided must also be disclosed. yy How compensation for services will be received. For example, whether the plan will be billed or whether the fees will be deducted from the plan’s investments. yy Any other information requested in writing to enable the plan fiduciaries or plan administrator to comply with reporting and disclosure requirements of ERISA. Additionally, a service provider that is “a fiduciary to an investment contract, product or entity that holds plan assets and in which the covered plan has a direct equity investment” must disclose the following for each investment offered by the plan:

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yy Compensation that is expected to be charged directly against investments. yy Annual operating expenses if the return on the investment is not fixed, and any additional continuing expenses. yy For designated investment alternatives, the total annual operating expenses and any information that is required for the plan administrator to comply with its disclosure obligations. Compliance with Section 408(b)(2) is crucial since non-compliance will most likely cause the contract to be considered unreasonable and the transaction to be a prohibited transaction. Plan fiduciaries will have violated ERISA and the service provider will be considered a “disqualified person” and will be obligated to pay excise taxes ranging from 15 percent to 100 percent of the amount of the prohibited transaction. Compensation arrangements with service providers can be complex. The disclosures required under Section 408(b) (2) help plan fiduciaries compare service providers, evaluate the reasonableness of compensation and determine whether conflicts of interest exist. This will enable plan fiduciaries to make decisions that are in the best interests of the plan participants and beneficiaries. Sarah Kalish, CPA, is a manager with Mazars USA LLP. She provides audit and review services to a variety of clients, primarily those in the manufacturing and distribution, healthcare and employee benefit plan sectors. Sarah can be reached at sarah.kalish@mazarsusa.com.

ADVOCACY & LEGISLATIVE ISSUES

Taxes, Infrastructure and Pensions Should Be Top Focus for Governor-Elect Murphy BY JEFFREY T. KASZERMAN, NJCPA GOVERNMENT RELATIONS DIRECTOR

More than 70 percent of the 1,031 NJCPA members who were surveyed in August and September said New Jersey’s next governor should make reducing property taxes a top-five priority, and 31 percent ranked it as the number-one priority. The remaining top-five priorities in order consisted of improving the state’s infrastructure; converting public pensions to 401(k)s; auditing state agencies and programs for overspending and waste; and combining municipalities or increasing the use of shared services. “Taxes, whether for one’s house, business, income or in regards to exemptions or other incentives, are key concerns for New Jersey residents and businesses,” said Ralph Albert Thomas, CEO and executive director at NJCPA. “Similarly, the state’s pension debt, at close to $50 billion, is on every member’s mind. CPAs, in particular, understand what these issues mean to the future of New Jersey.” The results of the survey are shown in Table 1. After ranking the issues, members were asked to provide specific, actionable ideas based on those priorities. As a result of that effort, a task force of NJCPA members will be working on building out a solid plan for addressing New Jersey’s high property taxes. BUSINESS COALITION LAYS OUT PLAN TO MAKE STATE AFFORDABLE In September, New Jersey residents and business, education and nonprofit leaders came together at the Affordability Summit, hosted by Opportunity New Jersey, to discuss the challenges and opportunities facing the state. Opportunity New Jersey is a coalition comprised mostly of business groups including the NJCPA, New Jersey State Chamber of Commerce, New Jersey Business & Industry Association and at least a dozen regional chambers of commerce. NJCPA CEO and Executive Director Ralph Albert Thomas is the Treasurer for the group.

A key refrain heard at the summit was that although progress has been made, New Jersey has fallen behind most other states, and a sense of urgency is needed to create and advance a comprehensive strategic state plan that will provide a pathway to a more affordable New Jersey. In a statement, the group called on public policymakers to “come together to establish a comprehensive strategic plan for responsible economic growth that will result in making New Jersey more affordable and more competitive.” They added that “New Jersey needs a long-term sustainable plan as opposed to simply operating year to year. New Jersey has a tremendous opportunity to leverage its best-in-class assets and create a strategic plan to move New Jersey forward on January 1, 2018.” Four pillars were identified as key to making New Jersey affordable and economically vibrant: Tax Reform and Economic Development; Infrastructure Improvement; Workforce Development; and Regulatory/Policy Making Reform. Below is a summary of the coalition’s objectives for the Tax Reform and Economic Development component.

Tax Reform and Economic Development

We must reform New Jersey’s tax structure to be fair, equitable and competitive with states within our region and those looking to attract our companies and our residents. yy New Jersey residents cannot afford their property taxes. Instead we must acknowledge and address the cost drivers for property tax: • Funding education equitably and with taxpayers in mind; • Too many levels, costs and services of government; • The current state pension crisis. yy New Jersey businesses cannot afford taxes that are increasing the costs of doing business. Instead we must: • Not allow any new taxes without equitable tax fairness in exchange;

TABLE 1 CPAs' RECOMMENDATIONS FOR IMPROVING NEW JERSEY'S ECONOMY 1

Reduce property taxes

Improve the state’s infrastructure — roads, bridges, tunnels, public transportation

Convert public pensions to 401(k)s

Audit state agencies and programs for overspending, waste and revenue allocation

Combine municipalities and/or school districts or increase use of shared services

Reduce NJ personal income tax rates

Modify the school funding formula

Increase tax exemptions and incentives for retirees to keep them in NJ

Eliminate inheritance tax or increase exemption amount

Evaluate corporate tax levels to create level playing field compared to other states

Create more tax incentives for businesses

Make NJ colleges/universities more affordable

Legalize and tax recreational marijuana

Implement tort reform to limit frivolous lawsuits

Expand gambling opportunities to increase tax revenue and tourism

Improve income tax policies/ agreements with neighboring states

• Advance responsible economic incentives to stimulate the economy. yy The state’s economic incentives should be retooled to: • Provide more support to business incubators and small/mid-market sectors; • Cultivate micro-enterprises and entrepreneurial veterans. READ MORE AFFORDABILITY SUMMIT WHITE PAPER bit.ly/ONJwhitepaper

NEW JERSEY CPA | JANUARY/FEBRUARY 2018

BECOMING A CPA

How to Obtain 150 Credit Hours and Stand Out from the Competition BY MITCHELL FRANKLIN, PH.D., CPA, MADDEN SCHOOL OF BUSINESS AT LE MOYNE COLLEGE

As an educator, I have witnessed that students too often assume that they must obtain a Master’s Degree in Accounting or an MBA to satisfy the 150-hour requirement. It is important to note that one can earn 150 hours to qualify for licensure through means other than the traditional MBA/ MSA paths. The education requirements for New York1 and New Jersey2, like many states, clearly do not require a graduate degree, but simply require 150 credit hours with a minimum number of accounting and business courses that can be taken at the graduate or undergraduate level to meet requirements. The 150-hour requirement has been significantly debated as to the value added it provides to firms. In many cases, academic research has shown that typical pathways to satisfy the requirement have not added significant value to firms and have not provided graduates with the salary differential to justify the increased cost of the additional schooling. When one explores non-traditional routes to earn 150 hours, there is data to show that a student can earn a degree that has increased earnings potential and can add value to a firm from the start. Most firms also do not have a preference for how a student earns the 150 hours; they simply want a college graduate with 150 hours. The following are two alternative ways that a student can earn 150 hours and present a strong resume to future employers other than the traditional MBA or MS: STUDY ABROAD AND TAKE A MARKETABLE MINOR As we are in a more globalized society, more firms are placing value on international experience. Spending a semester abroad can be a great way to demonstrate an understanding of globalization. But this can make satisfaction of BSA and MBA requirements in a five-year timeframe challenging due to tight program requirements and overseas course work

that cannot count towards many of these requirements. Though the courses abroad may not count towards 150-hour program requirements, they will count towards the license as long as business and accounting credit hour requirements are satisfied for the respective state. A great solution is to earn a Bachelors in Accounting, combined with a minor in a related field such as information systems or analytics. The minor is not 30 credits, but the minor will typically, with proper planning, satisfy the business requirements, and, in conjunction with the credits abroad, satisfy the 150-hour requirement. The student does not have a graduate degree, but has international experience that can significantly outweigh the benefit of a graduate degree, as well as a background in analytics or another business related field3. GET A GRADUATE DEGREE IN A TRENDY FIELD Firms and companies have an increasing need for professionals with a background in both accounting and information systems, and projected growth is significant through 20244. As an alternative to the MBA or MSA, earning a graduate degree in a field such as information systems not only opens significant long-term opportunities, but also can increase the marketability out of college beyond the typical entry-level accounting positions in the private and public sector. As is the case

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with information systems, master’s degrees in other fields such as data analytics can also have a similar positive impact on graduates. The student can earn their 150 hours with a specialty that can increase marketability, and later in their career return to school to earn an MBA when they possess experience to maximize value from the courses. Educators need to work with firms, as well as states, to discuss ways in which the 150-hour requirement can increase the value added of graduates to the profession, not just show that the graduate has more credits than a traditional bachelor’s degree recipient. op.nysed.gov/prof/cpa/cpalic.htm#edu njcpa.org/educationrequirements 3 roberthalf.com/blog/salaries-and-skills/businessanalytics-in-accounting-boost-your-skills-and-yourcareer 4 study.com/articles/Accounting_Information_ Systems_Career_and_Salary_Information.html 1 2

Mitchell Franklin, CPA, Ph.D., is program director and assistant professor of accounting at the Madden School of Business at LeMoyne College. He is a member of the NJCPA Content Advisory Board and can be reached at franklma@lemoyne.ede. READ MORE EDUCATION REQUIREMENTS TO BECOME A CPA njcpa.org/educationrequirements

BUSINESS ADVISORY SERVICES

Considerations for Mergers and Acquisitions — Your Clients Need to Know What to Expect BY ANAND MADHUSUDANAN, CPA, CITRIN COOPERMAN & COMPANY, LLP

When selling, buying or merging two or more businesses, there are various complex tax and legal issues that must be addressed, including financing structures, purchase price allocation and various tax implications. The tax impact of properly structuring the disposition and acquisition can have a very material impact to both parties. CPAs can play a vital role in helping clients make critical decisions before, during and after a merger or acquisition. PURCHASE PRICE ALLOCATION Allocation of purchase price is extremely important to both the buyer and seller. The buyer will want to allocate as much of the purchase price to short-lived assets as possible in order to obtain a greater, immediate tax benefit. The buyer is allowed to record the assets purchased on the books at the fair market value of what was paid, which allows a higher tax deduction for depreciation or amortization of those particular assets. Conversely, the seller would want to allocate as much of the purchase price to assets that will create capital gain treatment, such as goodwill, customer list, non-compete agreements and land. The IRS requires the seller to recognize the sale of these assets at ordinary income rates rather than capital gains rates on items such as cash basis accounts receivable, depreciation recapture and certain inventory items. While parties must generally report the transaction on a consistent basis, there are numerous tax planning opportunities that allow each party to obtain its specific tax and economic objectives without harming the other party. COMMON CONSIDERATIONS The more common issues that should be considered when acquiring or disposing of a business entity or the underlying assets include: yy Financing structure: How will the transaction be financed? Does the

yy yy

company have enough buying power to obtain financing? Legal status of the target: Is the acquired entity an S corporation, LLC or partnership? Ordinary vs. capital gain: If the assets being sold include inventory, depreciated assets or other ordinary income assets, ordinary tax rates will apply to net gains allocated with the prior depreciation allowed (or allowable). Sales and other transfer taxes: Since these taxes are generally applied to the gross allocations, they can often raise the cost of asset sale transactions. Post-transaction filing requirement/ elections: Generally, a taxable asset purchase will allow the new owner to make new tax elections of accounting periods and methods, while a stock purchase or reorganization will require the new owner to continue to use the former entity’s tax elections.

TAX-FREE MERGERS A tax-free merger occurs when one company acquires a controlling interest in the other company in exchange for at least 80 percent of its stock. The main premise of Internal Revenue Code (IRC) Section 368(A) transactions is that the acquiring corporation (the “acquirer”) uses its own stock as the main form of consideration when purchasing the asset or stock of the selling corporation (the “target”). To the extent the target received no cash, gain will not be recognized and instead will be deferred. In order to qualify as a tax-free reorganization, the transaction must fall within one of the following categories: yy A statutory merger or consolidation (an “A” reorganization) yy A stock-for-stock acquisition — an acquisition by one corporation of a controlling interest in another corporation, solely in exchange for all or part of its voting stock (a “B” reorganization) yy A stock-for-asset acquisition — the

acquisition by one corporation of substantially all the properties of another corporation, solely in exchange for its voting stock (a “C” reorganization) yy A reorganization in which a corporation transfers all or a part of its assets to another corporation and, immediately after the transfer, one or more of its shareholders is in control of the corporation to which the assets are transferred (a “D” reorganization) yy A recapitalization, which includes reshuffling of a corporation’s capital structure (e.g., the exchange of bonds for preferred stock) (an “E” reorganization) yy A mere change in identity, form or place of organization (an “F” reorganization) yy A bankruptcy reorganization under Title 11 of the U.S. Code or under similar laws (a “G” reorganization) In order to qualify for any of the above, the following requirements must be met: yy There must be continuity of ownership interest. yy There must be continuity of business enterprise. yy There must be a bona fide business purpose, and not for the purpose of tax avoidance. yy The transaction must not fall under the step transaction doctrine. yy There must be a plan of reorganization. The process of buying or selling a business can involve an extremely complex series of transactions and can greatly impact a company’s long-term financial stability. It is vital that business owners consult with their CPA or other appropriate professional during the early stages of the process in order to predict, address and solve these various issues in a timely manner. Anand Madhusudanan, CPA, MST, is a director at Citrin Cooperman & Company, LLP. He is a member of the NJCPA Federal Taxation Interest Group and can be reached at amadhusudanan@ citrincooperman.com.

NEW JERSEY CPA | JANUARY/FEBRUARY 2018

FIRM & PRACTICE MANAGEMENT

A GPS for Staff Success BY ROBERT J. TRAPHAGEN, CPA, CGMA, TRAPHAGEN FINANCIAL GROUP LLC

Retaining qualified talent is one of the topfive issues affecting CPA firms according to a 2017 AICPA survey. Recent surveys also show that the new and upcoming workforce comprised of Millennials (ages 24-35) and Generation Z (ages 18-23) seek a sense of purpose within a transparent workplace that focuses on continued growth as a member of the team, with a performance timeline that allows them to envision their success. Establishing a clear career progression will allow employees to be engaged, motivated and eager to stay at the firm. Firms should be focusing on effectively setting staff expectations. This will also help build trust and retain staff. Firms should consider investing in upand-coming leaders as early as they can. From the moment an employee begins his first day on the job, a clear sense of purpose should be established. Job descriptions and expectations should be communicated and tied into the firm’s mission. It is important to create a shared vision of success. Employees should feel that their work is meaningful and that their firm is willing to support and invest in their personal and professional potential. At our firm, we have adopted the AICPA CPA Firm Competency Performance Management model (CPM model) for our career development program. The model provides definitions of the five roles within our firm — associate, senior, manager, senior manager and partner — as well as the core knowledge, skill sets and abilities required to reach the next level. Each role is clearly defined by the type of work performed; the model identifies competencies that associates, seniors, managers and senior managers need to advance to the next level as they master their required competencies. The CPM model is structured around five core competencies identified below: yy Performance Measures/Productivity yy Technical Knowledge/Relevant Technology yy Client Service yy People Development and Teamwork

yy Business Development These competencies explained in detail give staff a clear diagram of career progression. It provides objective criteria for all client development activities, sends clear messages to the team about what is expected of them, and allows for identification of individual and firm learning needs. At our firm, we foster an entrepreneurial culture based on education beyond credentials. Our learning environment includes a firm library stocked quarterly with the top 10 non-fiction and fiction New York Times bestsellers, as well as other business resources. It fosters a friendly, fun and focused environment. As part of our orientation program, each new team member is given our CPM model. We discuss their personal and professional goals, and expectations are communicated for every level and aligned with their skill sets. We create a roadmap for where they want to go and where we would like to see them go within our firm. Each team member has their own personal plan and performance summary which is monitored and discussed on a continuous basis throughout the year to ensure expectations are being met. Ongoing feedback sessions are the most important part of the process. The following should be used when crafting a good career plan:

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yy Include two-way communication. yy Establish a baseline of measurement for future performance. yy Empower associates to act independently. yy Provide a foundation for accountability. Since the implementation of the career development program, our employees have shared their enthusiasm and feeling of support as one of the most important perks our firm has to offer. “Traphagen has helped me to develop professionally as well as personally. In addition to technical seminars, I had the opportunity to attend Strictly Business: The Dale Carnegie Immersion Seminar; this helped me gain confidence with one-on-one client sessions and group meetings,” says Craig Sikora, senior accountant. Increasingly, firms are implementing programs that focus on employees’ personal and professional development. We believe this is the pathway…the roadmap… the “GPS for Success!” Robert J. Traphagen, CPA, CGMA, is the managing partner at Traphagen Financial Group LLC. He is a past president of the NJCPA and a member of the Accounting & Auditing Standards Interest Group and Volunteer Relations Committee. Robert can be reached at robert@ tfgllc.com or 201-262-1040 x225.

FORENSIC ACCOUNTING, LITIGATION SERVICES & BUSINESS VALUATION

The Forensic Accountant’s Role in Litigation BY NOËL J. CAPUANO, CPA, FRIEDMAN LLP

The accounting profession is a dynamic and constantly changing field that opens the door to vast opportunities. The specialized field of forensic accounting in particular provides those who possess the proper skill set the opportunity to be an integral part of a team of professionals in both criminal and civil law engagements. Forensic accountants are often called upon to assist in fraud and embezzlement investigations. As such, a forensic accountant’s client base is very often comprised primarily of attorneys. The forensic accountant’s role within the context of a fraud investigation may include assistance with the formulation of deposition questions, interviews with various individuals, investigation of various financial documents, communication of findings in both oral and written form, and potential testimony at depositions, arbitration and/ or trial. While many of these skills are enhanced by an accountant’s audit and/ or tax experience, additional training and certifications are typically desirable and provide the forensic accountant with specialized knowledge. Communication among members of the professional team is critical to the success of any investigation. While the attorneys are well versed in the legal aspects of their client’s case, the forensic accountant must be cognizant of both the legal and accounting aspects of the case, as the former may have an impact on the methods and assumptions used in the investigative process. Publicity surrounding corporate malfeasance and high profile cases such as Enron, Worldcom, Tyco and Bernie Madoff certainly helped the field of forensic accounting to be viewed as a more interesting and dynamic profession, however, these cases are more the exception than the norm. In reality, a forensic accountant will more than likely be involved in engagements such as economic damages, bankruptcy, shareholder disputes and very often divorce. Depending on the demand for these types of services, many forensic

accountants will actually specialize further and focus their practice on one of these types of engagements. Divorce work, for example, is a popular specialization, as the demand tends to be steady. Within the context of a divorce engagement, there are numerous ways that a forensic accountant can assist the parties to reach a mutually agreeable settlement. Many forensic accountants are skilled business valuation professionals, with credentials such as an ABV (Accredited in Business Valuation) or CVA (Certified Valuation Analyst). In cases involving ownership in a closely held business, it is typically advisable for a forensic accountant to review the financial records to ascertain whether the business represents a marital asset subject to distribution. A review of the business records will also be necessary for purposes of determining the business owner’s cash flow available for support purposes. The form of business can often cause confusion with regard to an owner’s true cash flow. In the case of a pass-through entity, such as a partnership or S corporation, an owner is taxed on his or her proportionate share of the entities’ income. That income may bear no relation, however, to his or her true cash flow, which is more accurately determined by the distributions paid. That said, the forensic accountant will also look at the entity’s cash flows to determine whether distributions may have been unnecessarily withheld. Another common request of forensic accountants involved in divorce work is the preparation of a spending, or lifestyle, analysis. This service helps to establish the marital standard of living

and is also used to determine support. In cases where one or both spouses hold an ownership interest in a business, a lifestyle analysis can prove to be critical in establishing the existence and amount of unreported income and/or perquisites paid by the business. This is the tip of the iceberg in terms of what the forensic accountant can offer in a divorce engagement. There are tax implications of settlements, identification of hidden assets and liabilities, quantification of dissipation, and the list goes on. Experienced experts add value not only with their analysis, but in their ability to assist attorneys to help their clients understand and negotiate their issues. Whether in a divorce setting, fraud investigation, bankruptcy or damage assessment, forensic accountants possess the knowledge and skills that enhance the team of professionals’ ability to resolve their cases and, ultimately, achieve closure for their clients. Noel J. Capuano, CPA, CVA, CFF, is a senior manager with Friedman LLP. He is a member of the NJCPA Business Valuation Forensic Litigation Services Interest Group and can be reached at ncapuano@friedmanllp.com. READ MORE FORENSIC ACCOUNTING ARTICLES AND RESOURCES njcpa.org/topics/forensic

LEARN MORE JAN. 9, KENILWORTH FORENSIC/VALUATION Register at njcpa.org/events

NEW JERSEY CPA | JANUARY/FEBRUARY 2018

GOVERNMENTAL & NONPROFIT

Trust is Not an Internal Control BY JAIME CAMPBELL, CPA, TIER ONE SERVICES

The three sides of the fraud triangle are incentives/pressures, rationalization and opportunity. When these three lights switch to green for a nonprofit, it’s just a matter of time before funds or in-kind donations disappear, donor funds never show up or the organization’s funds are used to buy personal liquor (true story). Segregation of duties plays a significant role in preventing fraud because collusion is then required in order to perpetrate the fraud, and that is both risky for the would-be perpetrator and more difficult to pull off. In the context of fraud prevention, the three types of duties being segregated are authorization, recordkeeping and custody. Those with authorization duties decide if a vendor invoice is legit, how much to charge a member and when to write off an unpaid donor balance. Those with recordkeeping duties enter transactions into the accounting system, and those with custody duties move money and other assets. PEOPLE Make sure there are enough people to cover the three segregated duties. Even in a startup nonprofit, there are at least three people, if only to legally open the organization. Consider that two of the three functions do not require any accounting knowledge: authorization and custody. This opens up the ability for your startup team to develop internal controls. Make sure there are backup people in case someone isn’t available. Segregation of duties is about the opportunity side of the fraud triangle. It’s not about having two executive directors. It’s about a plan B in case something happens, temporarily or permanently, to the person in charge of that function. With documented processes, this can be seamless. Make sure your team members know where their duties end. Even in a high-collaboration environment, don’t let the waters get muddied. Overstepping happens in organizations with too few people, but it also happens in larger organizations in which people have been promoted from

within; it can be tempting for people to lend a hand with a function they used to handle. They shouldn’t. PROCESSES Fluid communication is key, especially if you’re moving your organization from one person trying to handle it all to a full accounting team with segregated duties. Evaluate how clear everyone is about the flow of financial information. Then consider: how seamlessly could a new team member start performing those duties? Process documentation can include flowcharts, screencasts, videos, screenshots, photos, prose, bullet-point lists and checklists. Update documentation when a process or policy changes. Use physical or digital places for moving and storing information so it is available to the right people on a timely basis. Remember that the backup person will need to access this information as well. TECHNOLOGY Segregation of duties does not mean segregation of all information. Don’t store data on local computers; use a shared information environment (SharePoint, ShareFile, server). Rather than individual to-do lists, use a team tool (Asana, Wrike). Quickly get information in the payables cycle, for example, from authorization (the bill is legit) to recordkeeping (record the payable) to custody (pay the bill) to recordkeeping (record the payment).

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Some accounting software includes an approval function for payables (Xero), and there are apps that include an approve button (Bill.com, Mineral Tree). Apps such as Entryless and Expensify can also assist with easily securing expense documentation. Any audit trail, be it in a bank account, accounting records or app, is only useful if the users have unique IDs and passwords, and those passwords are not shared. Attaching backup to transactions in the accounting system is a must. Even with approvals via signature on paper, it’s difficult to see that transactions are substantiated if the files are maintained on paper and/ or in a system that is separate from the accounting records. Keep them together by leveraging technology to keep your organization’s assets secure. If you have a hard time selling segregation of duties to the team or the board out of a concern of bringing the perception of mistrust or drama into the conversation, remember that segregation of duties not only helps to prevent fraud, but it also protects the reputation of those who are doing right. Jaime Campbell, CPA, M.B.A. is the chief financial officer of Tier One Services, a fractional CFO and outsourced accounting firm serving $1 million to $20 million organizations. She is a member of the NJCPA Content Advisory Board and several interest groups and can be reached at jcampbellcpa@ tieroneservices.net.

LAW & ETHICS

Maintaining Independence During the Client Lifecycle BY PETER J. RENZULLI, CPA, BOOKKEEPERS2GO

The changing needs of clients create many complex demands on the CPA, one of which is the maintenance of independence. The reality is that a CPA only needs to maintain independence for attest functions and not for other services. Many times CPAs do not realize that the other services can provide a great deal of value for the client and revenue for the firm; as a result, the CPA must consider which services to provide to maximize the client-CPA relationship for everyone. Building a long-term relationship with the client no longer consists of just sending an engagement letter, preparing the financials and issuing the opinion letter. Rather, it is now a strategic process of the long-term implications of the life cycle of services needed by the client. Client relationships start with helping a client fill a specific need, such as financial statements for a bank loan or a tax return. As the CPA’s knowledge and understanding of the client develops and grows, the client may look for strategic and tactical advice including assistance with management decisions. This request can damage the client relationship if not handled correctly. ANTICIPATE CLIENT NEEDS It is always best to be the one who anticipates a client’s changing needs and meets with the client first. Otherwise, the client can search for other professional services without your knowledge as they may not realize that you can provide the needed services in question. Thus, even though the relationship began solely with financials, the strategic or tactical management assistance that you bring to the table may add more value and create a lasting client relationship. BUILD A TEAM In the case where the CPA wants to convert the initial engagement to a consulting (controller) type, the starting point is to have a relationship with another CPA firm

that specializes in attestation engagements and design an ongoing agreement with the other firm to outline who will provide which services. Once the CPA and the other firm have reached an agreement, the CPA should meet with the client and explain how a different structure to the relationship will add value. Once there is client buy-in, a meeting with the complete team will solidify the CPA as the go-to person working with the outside firm to do attestation work. This team-based approach protects the independence surrounding the attestation work while giving the CPA the opportunity to add value through the experience gained over the previous client relationship. However, many attestation engagements end up unprofitable because the CPA does not receive assistance from the client and the financials have too many adjustments. In some cases, the client may not need full-time assistance; a part-time controller can give the client the expertise needed to prepare for the attest engagement as well as assist in day-to-day management of the accounting systems that an attest CPA is barred from doing because of independence.

CPAs that face issues due to independence have options that will allow them to provide value to the client, which makes their relationship secure. But trying to maintain the whole relationship with the client and not anticipating the client’s long-term needs can cause problems. A true professional understands that building a strong team and working closely with them will help the client, members of the team and themselves. Being in compliance with professional standards means that CPAs must look to other CPAs not necessarily as competition, but as a valued member of the service team for clients. Done wisely, the CPAs can assist each other in growing both firms while extending their brand. Peter J. Renzulli, CPA, is the president of Bookkeepers2Go. He is a member of the NJCPA Content Advisory Board and can be reached at renzulli@bookkeepers2go.com. READ MORE LAW & ETHICS ARTICLES AND RESOURCES njcpa.org/topics/ethics

NEW JERSEY CPA | JANUARY/FEBRUARY 2018

TAX

The Section 179 Deduction: It Has Come a Long Way BY NEIL BECOURTNEY, CPA, COHNREZNICK LLP

Internal Revenue Code Section 179, Election to Expense Certain Depreciable Business Assets, was enacted by Congress as part of the Technical Corrections Act of 1958. The original deduction limit was $10,000. This provision allows taxpayers other than estates and trusts to expense in full various fixed asset additions used in their trade or business in the year of acquisition with certain limitations. Some states, such as New York, have piggybacked Sec. 179. Other states, such as New Jersey, have decoupled from Federal Sec. 179 and have their own rules (covered in greater detail at the end of this article). Sec. 179 has been tinkered with by many tax acts over its 60 years of existence. Most recently, the Protecting Americans from Tax Hikes Act of 2015 (PATH Act) made permanent the $500,000 expensing limitation and $2 million additions threshold at which the Sec. 179 expense deduction is phased out. Beginning in 2016, these items are indexed for inflation. For 2017 tax years, the Sec. 179 limitation is $510,000 with the phase-out beginning once Sec. 179 additions for the year exceed $2,030,000. Property qualifying for Sec. 179 expense includes most tangible property aside from buildings and their structural components, off-the-shelf computer software and “qualified section 179 real property” — qualified leasehold improvement property, qualified restaurant property and qualified retail improvement property. Used property qualifies for Sec. 179 expense, which is a distinct difference from bonus depreciation where only newly acquired property qualifies. A special rule applies for Sec. 179 expense on sport utility vehicles (SUVs). The Sec. 179 expense deduction is limited to $25,000 for any SUV or other vehicle rated at more than 6,000 pounds gross vehicle weight and not more than 14,000 pounds gross vehicle weight. The $25,000 limit does not apply to a vehicle designed to seat more than nine persons beside the driver’s seat, equipped with a cargo area of at least six feet in interior length that is not

readily accessible directly from the passenger compartment, or that has an integral enclosure fully enclosing the driver compartment, does not have seating rearward of the driver’s seat and has no body section protruding more than 30 inches ahead of the leading edge of the windshield. In claiming a Sec. 179 expense deduction for qualifying fixed asset additions, the deduction cannot exceed the business income limitation. For individuals, one computes total taxable income from the trade or business before the Sec. 179 expense deduction, the deduction for one-half of self-employment taxes and any net operating loss deduction. Wages are added to this calculation. Thus a taxpayer that incurs a loss from a sole proprietorship on Schedule C can claim Sec. 179 expense to the extent they reported wages in excess of the Schedule C loss thus producing positive trade or business taxable income. For S corporations, compensation paid to shareholder-employees (often but not always officers) is added back to net income so it is not unusual for an S corporation to incur a loss yet report Sec. 179 expense on Schedules K and K-1. A taxpayer makes a Sec. 179 election simply by completing Part I of IRS Form 4562 either on their original income tax return or on an amended tax return. Any unused Sec. 179 expense deduction is carried

JANUARY/FEBRUARY 2018 | NEW JERSEY CPA

over to the following year. The carryover is indefinite. No carryback of unused Sec. 179 expense is permitted. A recapture rule exists where if the section 179 property is not used more than 50 percent in the trade or business at any time before the end of the property’s recovery period, the benefit of the Sec. 179 expense deduction must be reported as other income. For 2001 the Sec. 179 expense limit was $25,000 with the deduction phasedout once fixed asset additions exceeded $200,000. For New Jersey purposes these thresholds from 2001 remain in place as all subsequent Federal increases have been ignored for state purposes. Thus, if Sec. 179 additions for a tax year exceed $225,000, no Sec. 179 expense deduction can be claimed for New Jersey purposes. Combine this with the state having decoupled from bonus depreciation and the end result is much slower depreciation deductions over time. Neil B. Becourtney, CPA, is a tax partner at CohnReznick LLP. He is a member of the NJCPA Federal Taxation and State Taxation interest groups and can be reached at neil.becourtney@ cohnreznick.com. READ MORE FEDERAL TAXATION ARTICLES AND RESOURCES njcpa.org/topics/fedtax

TECHNOLOGY & INFORMATION MANAGEMENT

Using Excel to Harness the Power of Data BY BRIAN FITZ-GERALD, CPA, AKSESHEN LLC

You’ve noticed your clients collecting massive amounts of internally and externally generated data. This wealth of data will yield significant and profitable opportunities, right? Well, maybe. The value of that data is only unlocked when it is used to make better-informed business decisions; making this happen is not easy. Data must be processed and analyzed before it can extract insights and be used in decision making. This requires technical expertise as well as significant and specific knowledge of a business. Clients typically need help in this area, and forward-thinking accountants and CPA firms can offer the solution. THE OPPORTUNITY Accountants are well positioned to be the problem solver in this situation, to unlock the business intelligence residing within client data. CPAs are already well versed in converting raw data into useful and actionable information. However, accountants often spend the majority of their time extracting, cleaning and formatting data and less time than they’d prefer on analytics. In fact, a recent study found that those involved in analytics spend 80 percent of their time preparing data for analysis. Further, survey respondents indicated this is the least enjoyable part of their job. For accountants, the analytical part is easy. But how to efficiently and effectively convert all of that data into useful information; here there’s room for improvement. After all, the reason data excites is not the data itself but rather the insights that can be distilled from raw data to help clients function and create value more effectively. Fortunately, Excel can help solve data problems and increase time spent generating insights. KNOW YOUR DATA AND WORK SMARTER There is a tendency to get a file and begin working right away, which wastes time. Analysts can work for hours only to realize near the end that a crucial piece of information is missing or that different sets of data

were confused, which translates into time and effort wasted. Instead, analysts should take 15 minutes to get familiar with a set of data. Simple steps like scrolling through the dataset, reading each header, and reviewing the high and low values, will provide a quick sense of the data and will likely uncover how to work most efficiently. To work smarter and more productively, always begin with the outcome in mind. Quickly researching a solution can save hours or even days. Whatever the problem, someone has likely already solved it and posted it online whether in a forum or a short article. Remember, it’s not about knowing every formula or trick, but rather being able to research a solution and then apply it. KNOW YOUR TOOLS Most business analysts are familiar with five or six formulas that they consistently utilize in every Excel situation. Learning a few more formulas can pay large dividends. For example, did you know you could sum a set of values based on multiple conditions with the SUMIFS formula? This formula saves time filtering columns based on

each condition and then adding together the values. Commit to learning one new formula a week. It will change your Excel life for the better. KEEP IT SIMPLE When you spin your wheels trying to understand complex formulas and workbook structure, productivity is lost. For anything you are trying to accomplish in Excel, someone has likely done it before. You can ask colleagues, or do a quick search online; it’s amazing what you can find. Identify the simplest solution and the one users of your files can easily utilize. A good rule of thumb is that every formula or workbook should be explainable, portable and easy to maintain. These simple tips can save time and enhance your effectiveness in working with large amounts of data. You already have Excel at your fingertips, and knowing these little tricks can have a huge payoff. Brian Fitz-Gerald, CPA, is the founder and CEO of Akseshen LLC, a company focused on offering data transformation and analytics services to CPA firms. He can be reached at brian@akseshen.com.

NEW JERSEY CPA | JANUARY/FEBRUARY 2018

NJCPA NEWS

NJCPA to Relaunch Find-A-CPA The NJCPA will be launching a new and improved version of Find-A-CPA, the online directory for consumers and business owners to locate a CPA firm in the state. Find-A-CPA is one of the most-visited sections of the NJCPA website.

New Jersey CPA firms with at least one NJCPA member are eligible to enroll for a free listing in the service. The free listing includes your firm’s contact information, description, logo and up to six services your firm provides and six industries your

firm serves. Additional services and industries can be selected for $20 each per year. The directory will be promoted to the public during tax season and throughout the year. To enroll, visit findacpa.org.

a tax call-in program volunteer at njcpa. org/getinvolved to be notified when the programs are scheduled.

Similarly, donating one’s time at a high school to help inform potential CPA candidates about the virtues of the profession can significantly help the next generation. The NJCPA has made it easy for members to sign up and use one of our established high school presentations. Sign up at njcpa. org/careerpresentations.

Get Involved With spring around the corner, it’s a great time to be a volunteer at the NJCPA. Whether devoting time as a tax expert, career professional or showing a young person “the ropes” of being a successful CPA, volunteering is a valuable experience. Several volunteering programs are available in the spring, which include: TAX CALL-IN PROGRAMS The NJCPA schedules several tax callin programs with local media in March, and volunteers are needed to answer tax-related questions from the public. Helpers are needed to answer calls about federal and state taxes, income taxes or other tax form challenges. Past volunteers have helped 200 to 300 callers. Sign up as

MENTOR PROGRAM AND CAREER AWARENESS PRESENTATIONS Being a mentor to a college student can be a rewarding opportunity. Any member CPA can participate in the program, in either a one-year timeframe or the duration of the student’s time in college. “For many, it is a chance to give back and to share experiences, advice on the CPA exam and how to have a work-life balance,” said Theresa Hinton, member engagement manager at NJCPA. Learn more and sign up to be a mentor at njcpa.org/mentor.

JANUARY/FEBRUARY 2018 | NEW JERSEY CPA

CPE MODERATORS Member CPAs are needed to moderate several CPE classes in the spring. Help is needed on all subjects. Moderators receive a discount on their registration fee. To see a list of available courses, visit njcpa.org/ moderate.

CLASSIFIEDS

MERGERS/ACQUISITIONS

Morris/Somerset CPA looking to slow down. Seeking merger, buy-out or association for tax, consulting practice with excellent clientele. Now in office-share arrangement with low overhead. Reply to File No. 1300 New Jersey CPA practice for sale: Warren County CPA firm with two retirement-minded partners. Long established excellent business and individual practice. Grosses about $460,000. Contact njcpafirm4sale@gmail.com. Northwestern New Jersey CPA practice for sale. Gross billings approximately $400K. Call or email Pat for details at 908-684-8300 or patbent4343@ yahoo.com. Established Paramus CPA firm seeking acquisition of accounting and tax practices. Have completed successful acquisition with 99 percent client retention. Flexible transition plan options. Please call Jerry at 201-655-7411 or email gshanker@krscpas.com. Essex County retirement minded CPA seeks CPA to assume his partnership interest and continue with remaining partner at our office location. Retiring partner will remain during transition period. Interested candidates should reply to essexcpa@ gmail.com.

Seize a merger acquisition opportunity with benefits for you. We are looking for firms ranging from $300,000 to $5,000,000 eager to combine forces as we continue to grow across Northern NJ, Westchester and the Hudson Valley region. Goldstein Lieberman & Company is ideally situated to service all types of industries. Visit www.glcpas.com; email me, Phillip Goldstein, CPA, Managing Partner, philg@glcpas.com; or call me at 800-839-5767 to have a confidential conversation. New Jersey practices for sale: gross revenue shown: Warren County CPA $190K - tax only, strong fee structure, cash flow near 45 percent; Mercer County CPA $498K - 80 percent from businesses, strong fee structure, cash flow near 50 percent. For more information, call 800-397-0249 or visit www.aps.net. REAL ESTATE

Office space for rent in CPA office at 165 Passaic Avenue, Fairfield. Furnished, 15' x 15’ window office with views of airport. Includes use of copier, fax, high speed internet, phone and files. Call or email Michael at 973-227-0086 or mkap@kapmack.com.

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Replies to ads with files numbers should be sent to: File_____, New Jersey CPA Classifieds, 425 Eagle Rock, Suite 100, Roseland, NJ 07068. To see additional classified listings or to place an ad, visit njcpa.org/classifieds.

NEW JERSEY CPA | JANUARY/FEBRUARY 2018

MEMBER STORY

Lynn Petrovich, CPA , (right)

and her daughter, Katrina.

Disconnecting to Connect BY KATHLEEN HOFFELDER, NJCPA CONTENT EDITOR

Lynn Petrovich, CPA, has worked for clients on both sides of the track — for the highest-paid private wealth manager to the low-income individual who hasn’t filed a tax return in years. To Petrovich, who resides in Monmouth County, tax help should not come in one package. After working for several years as project controller at Tutor Perini, a specialty construction company in New York, she realized in her free time she could help the needy in her own backyard. Along with her daughter Katrina, an attorney, she became a volunteer for AARP Foundation Tax-Aide, a free tax program aimed at low-income and senior citizens who cannot afford tax preparation services. It was here that she discovered a void in the lower-income communities that CPAs like herself could fill. “Five or six years into being licensed I felt discon-

nected from society. What I was seeing in corporate accounting was not what I was seeing in the community where I lived,” says Petrovich. BRANCHING OUT In 2016, Lynn and her daughter, seeing the need for year-round tax services (including preparation of amended and prior year returns) and helping taxpayers with IRS notices, founded People’s Tax Clinic (PTC), a 501(c)(3) nonprofit organization that helps low-income individuals with their financial needs, including basic legal document preparation like wills, health care directives and powers of attorney. It was an ideal way to reach out to those who need help the most. Though she still has her day job, it reassures her to know that she is doing her part for society. “My expertise was greatly needed elsewhere. It was rewarding

JANUARY/FEBRUARY 2018 | NEW JERSEY CPA

to me. It’s a way to move forward for the benefit of society.” At PTC, most clients will not pay a fee for services. For others, there are nominal fees based on a sliding income scale. So far, People’s Tax Clinic has helped about 50 individuals, which is work that is in addition to Lynn and her daughter’s service as tax season volunteers at AARP. “We’re doing returns for people who were formerly incarcerated, living in their cars, facing foreclosure, fighting cancer, people who have to pay $600 in health care penalties even though they make only $19,000 a year, etc.,” she explains. Lynn would love to see the organization reach out to more communities with the help of charitable donations, corporate grants for funding and the hiring of volunteers, but she is first focusing on New Jersey. “If someone called us and needed help over a notice from the government, it’s certainly not something we would turn down,” she adds. “If they needed help in Georgia, we would network and try and find someone in Georgia who could help.” Low-income and elderly people are not the only ones who benefit from her desire to reach out to the less fortunate. Petrovich can also be seen regularly speaking pro bono at high schools in Monmouth and Ocean counties about the perils of student loan debt (her seminar is called “Everything you need to know about student loan debt, before, during, and after college”). Students, she notes, are in dire need of education about what having too much student loan debt can mean for one’s future. Helping those young adults who do not have access to financing hits home with her own upbringing. As a student, she did not have many places to turn for advice, but her love of accounting and the profession prevailed. “I always enjoyed math and accounting when I went to college part-time at night. I started taking classes at Brookdale Community College. I then transferred to Monmouth College. Once I got into a couple of accounting classes I was hooked,” she says.

Generate new client leads for free Enroll in the Find-A-CPA service today!

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Learn more at findacpa.org NEW JERSEY CPA | JANUARY/FEBRUARY 2018

JANUARY/FEBRUARY 2018 | NEW JERSEY CPA