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THE MAGAZINE OF THE NEW JERSEY SOCIETY OF CERTIFIED PUBLIC ACCOUNTANTS
4 Nexus and Other COVID-Related New Jersey Tax Issues RALPH ALBERT THOMAS, RALPH ALBERT THOMAS, CPA (DC), CGMA CPA (DC), CGMA Chief Executive Officer Chief Executive Officer & Executive Director & Executive Director rthomas@njcpa.org rthomas@njcpa.org ELLEN THERESA C. McSHERRY HINTON Chief Chief Operating Operating Officer Officer emcsherry@njcpa.org thinton@njcpa.org DON DON MEYER, MEYER CAE 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 Senior Content Content EditorEditor khoffelder@njcpa.org khoffelder@njcpa.org MARC DIANE L.ESPIRITU REIN Multimedia Senior Graphic Specialist Designer mrein@njcpa.org despiritu@njcpa.org WALT HARTSFIELD Junior Graphic Designer whartsfield@njcpa.org THE NEW JERSEY SOCIETY OF CERTIFIED PUBLIC ACCOUNTANTS 425 EAGLE ROCK AVENUE SUITE 100, ROSELAND NJ 07068 THE NEW JERSEY SOCIETY 973-226-4494 | NJCPA.ORG OF CERTIFIED PUBLIC #NJCPAMAG ACCOUNTANTS 105 EISENHOWER PARKWAY SUITE 300, ROSELAND NJ 07068 READ NEW JERSEY CPA 973-226-4494 | NJCPA.ORG ONLINE AT NJCPA.ORG/ #NJCPAMAG NEWJERSEYCPA DE SIGN / P RODUCT I ON / READ NEW JERSEY ADVERTISIN G CPA ONLINE AT NJCPA.ORG/ NEWJERSEYCPA THE YGS GROUP 3650 WEST MARKET STREET YORK, PA 17404 TO A DVERTI SE I N Advertising Contact: NEW J E R S E Y C PA LAURA GAENZLE Visit njcpa.org/advertising ACCOUNT EXECUTIVE or contact Eileen Proven at717-430-2351 eproven@njcpa.org laura.gaenzle@theygsgroup.com or 862-702-5640
COVID-related tax issues are front and center for many businesses. Topping the list for many of them are payroll tax and sales tax nexus issues created by having remote employees. Find out how New Jersey and surrounding states have addressed these issues.
6 Will You Take the BAIT?
The New Jersey Pass-Through Business Alternative Income Tax, also known as the “BAIT,” provides pass-through entities the opportunity to alleviate the effects of the state and local tax deduction limitation implemented by the Tax Cuts and Jobs Act. Yet, despite potential savings, many remain reluctant to take the BAIT.
8 Avoiding Audits: How to Protect Clients from an IRS Audit
Although most may never have to experience an IRS audit, professionals need to hope for the best, prepare for the worst and put clients’ minds at ease. Find out some ways to smooth the process for everyone involved.
10 New Jersey Tax Audits — What to Expect
State audits have quieted down with COVID-19, which taxpayers can be happy about for now, but that could change. It’s important to understand the differences in how the New Jersey Division of Taxation approaches audits of businesses and audits of individuals.
2 CLOSE UP
Legislative Action Needed After Cannabis Vote 12 ACCOUNTING, AUDITING & ATTEST
3 Approaches for Reporting PPP Forgiveness on Financial Statements 13 BECOMING A CPA
5 Tips for CPA Exam Success 14 BUSINESS MANAGEMENT
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The Ins and Outs of the Employee Retention Credit 25 NJCPA NEWS
Retirement Planning Implications of COVID-19
y CPA Exam Fee Lottery Winners Announced
18 FIRM MANAGEMENT
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Legislative Action Needed After Cannabis Vote BY RALPH ALBERT THOMAS, CPA (DC), CGMA, CEO AND EXECUTIVE DIRECTOR, NJCPA
Voters in New Jersey made their decision clear in November when they approved a constitutional amendment to legalize adult-use cannabis. Since then, the measure has been on the legislative fast track. However, more action is needed to make the commercial cannabis industry a viable marketplace in the state. Adult-use marijuana is still illegal on a federal level, which complicates procedures on a state level. And until legislation is passed to decouple New Jersey from the federal limitations set forth under Section 280E of the Internal Revenue Code, which prohibits the deduction of business expenses by companies engaged in “illegal drug activities,” small and minority- or women-owned businesses in this industry are at a clear disadvantage. Any commercial cannabis industry in New Jersey could effectively be dominated by large and already established players, many of which will come from out of state. Already, 280E has had a negative impact on New Jersey companies working in the medicinal market and will similarly hurt businesses that will be involved in the adult-use market. Decoupling would eliminate this burden for state tax purposes and allow cannabis businesses to have access to the same tax benefits as all other New Jersey businesses. In November, we wrote a letter to our state legislators asking them to consider leveling the playing field for small businesses to enter this marketplace. Recognizing that potential business deductions could impact the state’s coffers, we recommended capping the decoupling
of §280E at $25 million in aggregate gross receipts. This ceiling represents the small business definition provided under Internal Revenue Code Section 448. We believe that’s the best outcome for all given that Governor Murphy’s administration supports the marketplace due to the increased revenue it could potentially bring to the state. Indeed, our members feel strongly about the effectiveness of such a marketplace. In a survey we conducted in August, the majority (68 percent) of the 924 members surveyed showed that they either “strongly agree” or “somewhat agree” that New Jersey lawmakers need to take steps to mitigate the impact of federal regulations on the industry, such as the inability to deduct business expenses. According to 66 percent of those surveyed, having a commercial cannabis industry in New Jersey would help the economy. Though at the time of this writing other taxes related to the growth and dissemination of the product were up for discussion, retail cannabis sales would be subject so far only to the state’s sales tax. Compared to other states that impose taxes on recreational marijuana, this would still be a low rate. “A commercial cannabis market in New Jersey opens up many opportunities for business owners. They will need to have the right team of professionals advising them on all phases of development and sale,” said Melissa A. Dardani, CPA, MAcc, leader of the NJCPA Cannabis Interest Group. “CPAs can certainly help move this market forward.”
DO MORE JOIN THE NJCPA CANNABIS INTEREST GROUP njcpa.org/groups
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New Jersey CPA (ISSN 1534-6692) is published six times per year by the New Jersey Society of Certified Public Accountants, 105 Eisenhower Parkway, Suite 300, Roseland, NJ 07068. Issue No. 85 Copyright © 2021 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, 105 Eisenhower Parkway, Suite 300, Roseland, NJ 07068-1640. 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.
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NEXUS AND OTHER COVID-RELATED NEW JERSEY TAX ISSUES By RALPH LOGGIA, CPA
GOLDSTEIN & LOGGIA CPA’S, LLC
To address nexus issues during the coronavirus pandemic, New Jersey has implemented numerous temporary rules. Given the complexity these rules have introduced and the ongoing volatility of the COVID-19 pandemic, now is an important time for businesses to more fully review their nexus status.
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TELECOMMUTING AND CORPORATE NEXUS In 2010, the Tax Court of New Jersey ruled that an out-of-state company employing a telecommuter who resides and works in the state was “doing business” in New Jersey. This created nexus and, thus, was subject to the New Jersey Corporation Business Tax Act (Telebright Corporation, Inc. v. Director, Division of Taxation). The Tax Court cited the company’s consistent contact with the employee and the employee’s use of a company-owned computer as being sufficient to trigger a taxable presence in New Jersey. For this particular case, the New Jersey employee’s software development and coding activities, on behalf of Telebright, exceeded solicitation protected by P.L. 86-272, which requires the payment of state income tax. Due to the pandemic, working from home has become a social norm to assure public health, safety and welfare. Fortunately, the New Jersey Division of Taxation issued guidance that, as a result of COVID-19, it is temporarily waiving the impact of the legal threshold discussed in Telebright which treats the presence of employees working from their homes in New Jersey as sufficient nexus for out-ofstate corporations. Therefore, an employee working remotely in New Jersey solely as a result of closures due to the coronavirus pandemic and/or an employer’s social distancing policy does not create nexus and apportionment for an out-of-state business in New Jersey.
JANUARY/FEBRUARY 2021 | NEW JERSEY CPA
In addition, the Division stated it would not require employers to change the current work state setup in their payroll systems for employees telecommuting from or temporarily relocated to an out-of-state location. New Jersey is permitting businesses to continue to withhold income tax in the state where the employer is located. Under the normal rules, New Jersey dictates that income is sourced to the state based on where the service or employment is performed, using a day’s method of allocation. However, during the COVID-19 outbreak, the Division has stated that wage income will continue to be sourced as determined by the employer, in accordance with the employer’s jurisdiction. The Division notes that because of the reciprocal agreement between New Jersey and Pennsylvania, New Jersey nonresident income tax is not required on wages for services performed within New Jersey by Pennsylvania residents. These states have also agreed not to tax workers who have moved there temporarily because of the pandemic. THE CONVENIENCE-OFTHE-EMPLOYER TEST New York’s convenience-of-the-employer test states that when an employee is teleworking, if it is done voluntarily, at the employee’s option, withholding is done at the employer’s work location (New York) even if the employee is teleworking in a different state, such as New Jersey. If the employer requires or mandates it, then the employee can have state tax withholding where teleworking (New Jersey).
Using the location of the employer helps prevent a potential double tax when one state uses the convenience of employer test (New York and Pennsylvania) to source wage payments while another state uses the physical presence standard. It is possible that a resident’s state credit for taxes paid to another state may not cover all the nonresident state taxes paid. GUIDANCE ON NEXUS FOR SALES TAX The New Jersey Division of Taxation states that, due to the COVID-19 pandemic, it has temporarily waived the sales tax nexus standard that is generally met if an out-ofstate seller has an employee working within New Jersey. Accordingly, as long as the outof-state seller did not maintain any physical presence, other than employees working from home in New Jersey, and is below the economic thresholds, the Division will not consider the out-of-state seller to have nexus for sales tax purposes during the period of the COVID-19 emergency. However, a remote seller that makes a retail sale of tangible personal property, specified digital products or services delivered into New Jersey must register, collect and remit New Jersey sales tax if the remote seller meets either economic threshold: $100,000 of revenue or 200 transactions in a year. SALES TAX AND SURCHARGES FOR COVID-19 PRECAUTIONS A separate surcharge (regardless of what it is called) to cover the cost of COVID-19 precautions is an expense that a seller
incurs in order to perform a service or sell a product. As the surcharge is part of the sales price, the taxability of it depends on the taxability of the service provided or the products sold. Thus, if a service or product a business offers is not subject to sales tax, then the COVID-19-related surcharge is also not subject to tax. APPORTIONMENT SOURCING RULES FOR SERVICES The Division has adopted rules for sourcing services for tax years ending on or after July 31, 2019. These rules are intended to source revenues from services to the location(s) where the benefits are received. As such, New Jersey is moving away from the traditional cost of performance method to market sourcing, which many other states have already adopted. A general rule provides that the numerator of the sales fraction includes receipts from services not otherwise apportioned, if the benefit of the service is received by the customer at a location within New Jersey. A customer within New Jersey is either (1) a recipient that is engaged in a trade or business and maintains a regular place of business in New Jersey, or (2) an individual who is not a sole proprietor and is located in New Jersey. If the location of the individual cannot be determined, then the benefit of the services will be deemed to be received at the individual’s billing address. A regular place of business in New Jersey is not limited to the principal place of business of the customer, and this includes any office, factory, warehouse or other business location in New Jersey where the
customer either conducts business in a regular and systematic manner or maintains property or employees. However, one of the requirements in order for an office to be considered a regular place of business is that the office is owned or rented in the taxpayer’s name. The sunset date of these waivers varies from state to state, with some tied to emergency declarations and others to specific dates. New Jersey is also tied to the existence of measures to control the spread of the virus such as work-fromhome orders, including employers’ own social-distancing policies. The expiration period may be adjusted depending on the course of the pandemic. Ralph Loggia, CPA, MST, is a partner at Goldstein & Loggia CPA’s, LLC. He is a member of the NJCPA and can be reached at RL9cpa@sprynet.com.
LEARN MORE JAN. 8 AND 20, WEBCAST ANNUAL TAX SEMINAR
JAN. 14, WEBCAST MULTI-STATE TAXATION njcpa.org/events
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NEW JERSEY CPA | JANUARY/FEBRUARY 2021
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WILL YOU TAKE THE “BAIT?” By JASON ROSENBERG, CPA WITHUM
A national trend ensuing the Tax Cuts and Jobs Act (TCJA) has been states’ attempts to circumvent the $10,000 state and local tax (SALT) deduction limitation. New Jersey is one of the latest states to enact such a SALT workaround, using an entity-level tax known as the Pass-Through Business Alternative Income Tax (BAIT).
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The SALT limitation has profoundly impacted mid-market businesses. As these businesses predominantly use “passthrough” entities (PTE) in structuring their affairs, businesses were awarded with cuts to their marginal tax rates, but in many cases these tax cuts were nullified by the inability to continue to deduct SALT. Pass-through businesses are generally not subject to an entity-level tax. Conversely, the profits flow through to the owners and, as such, are taxed under the individual income tax regime. In hightaxed states, many owners of pass-through businesses, such as partnerships, limited liability companies and S corporations, found themselves with an increased tax burden, or, at best, a reduced net benefit. It’s been repeatedly reported in the news that the TCJA SALT limitation brought for the first time in over 100 years the inability for taxpayers to deduct SALT. As such, this results in taxes on income that in effect are being double taxed at the federal and state levels. States previously operated under the long-standing precedent that the federal code provides for deductibility. Some states, including New Jersey, contribute significantly more taxes to the federal government than they receive back in federal spending, according to “Giving or Getting,” a January 2020 report from the Rockefeller Institute of Government. Also, statutory deductions and credits are not adjusted in states with higher costs of living. The pre-TCJA SALT deduction counterbalanced some of these inequities. As a result, many states have been scurrying around in conjunction with research policy institutes attempting to devise legislation to overcome the impact of the TCJA to its constituents. Most notably, a
JANUARY/FEBRUARY 2021 | NEW JERSEY CPA
number of states have enacted legislation using PTEs in an attempt to mitigate the SALT limitation impact. The entity-level tax at the PTE attempts to sidestep the SALT limitation by shifting state taxes from the individual to the PTE, allowing the owners to claim a credit on their state tax return for the owner’s distributive share of taxes paid by the PTE. To date, a number of states have enacted PTE SALT workarounds. New Jersey’s PTE workaround has received a lot of attention as it is one of the highest-taxed states in the nation. ENTICING BUSINESSES WITH NEW JERSEY “BAIT” The pass-through income tax, or BAIT, applies to tax years beginning on Jan. 1, 2020, and provides PTEs the opportunity to alleviate the effects of the SALT limitation. The annual election allows PTEs to elect to pay tax due on the owner’s share of distributive proceeds at the entity level; the owners may then claim a tax credit for the amount of tax paid by the pass-through
resident states for PTE entity-level tax imposed in New Jersey. Although a handful of states have provided general guidance, states such as New York and others have not provided explicit direction and could subject owners to double taxation. Like the original IRS concern, the electability feature of the tax versus a mandatory imposition may be relevant with resident credits. Possible planning to overcome this might include reorganizing the business into a multi-tiered structure, with the owners split at the upper tier based on their state residency; the BAIT would only be elected by the entity comprised of New Jersey residents. Businesses should be mindful that the BAIT will be most helpful to businesses with significant New Jersey presence, as it is computed based on income derived from New Jersey. Undoubtedly the BAIT election could be a compelling and effective tax planning strategy, but businesses need to holistically review their affairs before biting at the BAIT.
entity. The annual election should be made electronically on or before the original due date of the entity’s return. Distributive proceeds means income sourced to New Jersey under the Gross Income Tax. As the BAIT sources its income based on the rules of the Gross Income Tax Act, the election of the BAIT may result in the application of “cost of performance” sourcing for S corporations as opposed to market sourcing which S corporations are subject to. Conceptually speaking, by passing through a net amount of income reduced by the SALT deduction, the owner is able to fully deduct their New Jersey taxes for federal purposes. Looking at this in a vacuum, the savings are unmistakable. For simplicity, on $5 million of distributive proceeds, that’s about $427,888 in New Jersey BAIT tax. Assuming all things equal, and with a federal top marginal rate of 37 percent, that’s about $158,000 in savings! WILL YOU TAKE THE “BAIT?” Despite these potential savings, some New Jersey businesses remain reluctant
to take the BAIT. First, there has been the concern about possible IRS challenges. The IRS did block the charitable deduction SALT workarounds. IRC 164(a) allows for businesses to deduct state income taxes. The TCJA Conference Report issued by Congress affirmed that taxes imposed at the entity level, such as a business tax imposed on pass-through entities, would continue to be deductible without limitation. With this said, on Nov. 9, 2020, the IRS issued Notice 2020-75 explaining that it intends to issue proposed regulations supporting the use of PTE SALT workarounds. The notice affirms that the proposed regulations would not make a distinction between a PTE tax which may be mandatory (e.g., Connecticut) versus a PTE tax made by election, such as the New Jersey BAIT. As some businesses had been in a wait-and-see position, this taxpayer-friendly announcement will help alleviate some concerns. A remaining concern with the BAIT is whether non-resident owners would be permitted to receive credits in their
Disclosure: This article was written in November 2020 when the magazine issue went to press; therefore, some of the information and views presented may be outdated. Jason Rosenberg, CPA, CGMA, EA, MST, is a senior manager in the State and Local Tax Practice at Withum. He is a member of the NJCPA and can be reached at jrosenberg@withum.com.
LEARN MORE JAN. 6, WEBCAST NEW JERSEY BUSINESS ALTERNATIVE INCOME TAX
JAN. 8 AND 20, WEBCAST ANNUAL TAX SEMINAR njcpa.org/events
DO MORE JOIN THE STATE TAXATION INTEREST GROUP njcpa.org/groups
READ MORE STATE TAX ARTICLES AND RESOURCES njcpa.org/topics/statetax
NEW JERSEY CPA | JANUARY/FEBRUARY 2021
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AVOIDING AUDITS: HOW TO PROTECT CLIENTS FROM AN IRS AUDIT By DEBORAH SCHAUB, CPA
C&B ACCOUNTING
Getting audited is a common fear of business clients, especially if they fall into the “target” groups of Schedule C filers, pass-through entities and millionaires. Although most may never have to experience an audit, professionals need to hope for the best, prepare for the worst and put clients’ minds at ease.
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There are three useful informational resources accounting professionals can rely on for audit guidance: y IRS documentation. The IRS publishes forms, instructions and other publications written in an easy-to-understand manner. The guides are not overly technical, are very readable for clients and are helpful for understanding essential information. Because the documents are not a “substantial authority,” CPAs may need something more to advance an argument with the IRS. However, it may be an excellent place to start because the IRS will likely follow its own documentation. y Treasury regulations. The U.S. Treasury Department will write a temporary regulation (good for three years) following Congress’s passing of a new statute. Although regulations and statutes have similar authority, a statute will prevail if there is any conflict between the two. Proposed regulations have less authority than final and temporary regulations. Practitioners can rely on proposed regulations as a statement of the IRS’s official position on an issue. They can be persuasive with the IRS, but not so with the courts. y Tax code. Rely on the tax code as the best authority in a case with the IRS. With a “statute” (a tax code provision) as backup that accurately reflects the situation, a practitioner should be able to win the case upon citing it. However, if the case is in direct opposition to the tax code, avoid the fight and try to settle for the least amount possible. Be advised that tax code verbiage is
JANUARY/FEBRUARY 2021 | NEW JERSEY CPA
sometimes too general to support a tax strategy completely; additional types of back-up authority may be needed. OFFICIAL PRONOUNCEMENTS The Internal Revenue Bulletin publishes official pronouncements from the IRS. They are known as “the authoritative instrument of the Commissioner of Internal Revenue for announcing official rulings and procedures.” They are technical and difficult to understand; therefore, consulting other resources to comprehend may be useful. The four types of publications are: y Revenue Ruling — a summary of a case transcription that shows how the IRS applied the law in a specific situation. y Revenue Procedure — the use of a particular revenue procedure to administer the law by updating dollar amounts for inflation and explaining processes for making elections or filing forms. y Acquiescence and non-acquiescence by the IRS — a statement issued by the IRS indicating its agreement or disagreement with a tax ruling. y Notices and Announcements — information disseminated by the IRS regarding their official position on recent issues. The courts do not treat IRS documents as binding authority. However, the IRS rarely argues a court position that contradicts something it wrote in its published documents. PROTECT CLIENTS AND AVOID AUDITS Here are some things that can help put clients’ minds at ease while protecting them from being audited:
the results, that’s possible through the Alternative Dispute Resolution (ADR) escalation process. However, should the case go to court, the best tax authority resources are statutes, regulations and prior court cases. Deborah Schaub, CPA, CTC, is the founder of C&B Accounting. She can be reached at cfo@ deborahschaub.com.
LEARN MORE JAN. 8, WEBCAST IRS AUDITS
JAN. 21, FEB. 8 AND MARCH 3, WEBCAST IRS BEHAVIORAL INSIGHTS FOR ACCOUNTANTS
y Be sure to report all income, including stocks, cryptocurrency transactions, trades, 1099s, 1099-INTs and W-2s. y Only itemize if paperwork and receipts are available for back-up. y Be mindful that the IRS will notice if a client’s business reports a loss for several consecutive years with no other income sources. y Support charitable donations over $250 with receipts. y Be aware of the client’s marital situation. If divorced and both are claiming alimony payments with different num-
bers, they could hear from the IRS. y Claim Earned Income Credit (EIC) for clients. y Keep expenses consistent, especially for gig workers and the self-employed. RESULTS Once the IRS audit results come in, it’s essential to keep the client calm and to help him/her understand the next steps. In most cases, the client will owe back taxes plus any additional interest to the IRS. They can often set up a payment plan. If the client wants to appeal
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NEW JERSEY CPA | JANUARY/FEBRUARY 2021
9
NEW JERSEY TAX AUDITS — WHAT TO EXPECT By NEIL BECOURTNEY, CPA
COHNREZNICK LLP
The New Jersey Division of Taxation conducts its fair share of tax audits. Its approaches to auditing businesses and individuals are quite different.
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BUSINESS AUDITS Businesses often face a simultaneous audit of the “big three” taxes: corporation business tax (CBT), gross income tax withholding (GITW) and sales and use tax (SUT). This article will not address any of the many other taxes administered by the Division of Taxation, such as cigarette tax, inheritance tax, litter control fee and motor fuels tax, to name a few. Typically, one auditor will conduct an audit of all three of the big three taxes (other states have separate audit functions for corporate tax versus sales and use tax). After the taxpayer — or their outside CPA representative(s) that has executed Form M-5008-R, Appointment of Taxpayer Representative — has responded to the examination letter announcing the selection of the taxpayer for audit, a pre-audit conference is usually scheduled to kick off the audit. At the pre-audit conference, the auditor first announces which taxes and tax periods are going to be examined. For CBT, it is typically the past four tax years, for GITW the past three years and for SUT the past 16 quarters (four years) if filing, which grows to 28 quarters (seven years) if a non-filer, all coinciding with the applicable statutes of limitations. The auditor will look to complete a multipage questionnaire, gaining knowledge of the business operations while completing it. A tour of the facility often takes place. An initial Information Document Request is presented, and the auditor will seek to schedule the official start of the audit within a few weeks. GITW usually results in few issues, especially if the taxpayer is current with its GIT remittances and filings. CBT issues
JANUARY/FEBRUARY 2021 | NEW JERSEY CPA
can be varied. For smaller taxpayers that receive some of their revenue in cash, an auditor will often search for unreported income by totaling bank account deposits and comparing the sum to the gross revenue reported on the CBT return, as well as cross-checking the total revenue reported on the SUT returns. Support for the allocation factor, which is now single-factor receipts, might be sought if significant. And modifications from federal taxable income may be questioned, including the addback of state and local income taxes and decoupling from federal depreciation. SUT is frequently where the auditor focuses much of their time. For use tax, a sample period, often the most recent calendar year, is chosen for review of expense invoices. In addition, all fixed-asset invoices for the audit period are looked at since fixed-asset purchases do not lend themselves to extrapolation as is the case with recurring expense items. If one can convince the auditor that an expense invoice is truly non-recurring — for example, the taxpayer’s area code changed or the taxpayer moved, requiring a large order of new business cards, envelopes, labels, stationery, etc. — if sales tax was not charged, the auditor will likely not extrapolate that item in calculating a use tax assessment. Credit card statements with no supporting invoices often are a problem as there is no proof that the vendors charged sales tax. For sales tax in a situation where the business is required to charge sales tax, the auditor is going to need to be provided with exemption certificates where sales tax was not charged, aside from shipments out of state, which are automatically exempt from New Jersey sales
returns, copies of Schedules K-1 and documentation pertaining to the reporting of tax-exempt investment income. Once the assigned desk auditor has reviewed the submission, it frequently leads to a tax assessment being made. Commercial tax software rarely calculates a resident credit correctly if it involves passthrough income from partnerships and/ or S corporations. Since the gross income tax law does not piggyback the Internal Revenue Code and other states handle various items differently than New Jersey does (i.e., New York allows full Section 179 expense), the resident credit is often reduced on a desk audit. There are several landmark cases to be cognizant of when it comes to calculation of the resident credit, including the Beljakovic, Berliner, Bonanno and Mannino decisions. Whereas the level of IRS audit activity has been steadily decreasing in recent years due to constant budget cuts combined with not replacing retiring auditors with any regularity, the New Jersey Division of Taxation has not shown any decline in its audit activity and, in fact, has hired additional auditors where possible. During the COVID-19 pandemic, state auditors were not visiting taxpayer locations and new audits were not being launched, one of the few things that taxpayers were likely happy about as far as the disruptions caused to everyday life.
tax. When the taxpayer becomes aware of being selected for audit, it is prudent to review their records pertaining to exemption certificates and to seek any missing certificates before the audit commences. Depending on the volume of sales invoices, the sample period looked at could be as small as one month or one quarter. An error rate will be calculated and extrapolated on the total sales for the audit period. The auditor will generate a preliminary assessment that will be provided to taxpayer personnel/CPA representatives handling the audit for review and rebuttal. If a mutually agreeable settlement
cannot be reached, the auditor will generate a Notice of Assessment for which a protest can be filed with the Conference and Appeals Branch within 90 days. INDIVIDUAL AUDITS When it comes to auditing individuals, the Division of Taxation devotes much of its resources to desk audits. A taxpayer will routinely receive a letter requesting that they provide certain information to allow the Division to complete its review of their gross income tax return. The requested information typically includes a copy of the federal income tax return, copies of nonresident state income tax
Neil Becourtney, CPA, is a tax partner with the Holmdel, New Jersey, office of 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.
LEARN MORE JAN. 8 AND 20, WEBCAST ANNUAL TAX SEMINAR njcpa.org/events DO MORE JOIN THE STATE TAXATION INTEREST GROUP njcpa.org/groups
READ MORE STATE TAX ARTICLES AND RESOURCES njcpa.org/topics/statetax
NEW JERSEY CPA | JANUARY/FEBRUARY 2021
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ACCOUNTING, AUDITING & ATTEST
3 Approaches for Reporting PPP Forgiveness on Financial Statements BY ROBERT J. TRAPHAGEN, CPA, TRAPHAGEN CPAS & WEALTH ADVISORS
The Coronavirus Aid, Relief, and Economic Security Act (CARES Act) created a new lending program, the Paycheck Protection Program (PPP), under Section 7 (a) of the Small Business Act (15 USC 636) to provide low-interest loans to certain small businesses. PPP loans are eligible for forgiveness if the requirements specified in the CARES Act regarding use of funds, employee retention and maintenance of salaries are met. The question becomes, during these unprecedented times: How is PPP loan forgiveness reported on financial statements? There is no specific standard to date from U.S. Generally Accepted Accounting Principles (GAAP) that addresses accounting for PPP loan forgiveness. However, the American Institute of CPAs (AICPA), working with its members and Financial Accounting Standards Board (FASB) staff, developed Technical Questions and Answers (TQA) 3200.18. The TQA addresses accounting for non-governmental entities including business entities and not-for-profit entities. The Securities and Exchange Commission also has weighed in by indicating that it would not object to accounting for PPP loans under ASC 470 or as a government grant, by analogy to IAS 20, a non-GAAP international standard. There are three approaches to consider: 1. FASB ASC 470-50/405-20 One approach is to recognize the loan forgiveness under FASB ASC 470-50, Debt Modifications and Extinguishments, and FASB ASC 405-20, Extinguishment of Liabilities. Whether an entity expects to repay the PPP loan or believes it represents, in substance, a grant that is expected to be forgiven, it should account for the loan as a financial liability, a single line item within the short- and/or long-term section of the balance sheet. Interest begins accruing at origination in accordance with FASB ASC 835; interest
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associated with forgiven principal will be included in the forgiveness. Based on the guidance in FASB ASC 405-20-40-1, for purposes of derecognition of the liability, the proceeds from the loan would remain as a liability until either (1) the loan is, in part or wholly, forgiven and the debtor has been “legally released” or (2) the debtor pays off the loan to the creditor. 2. FASB ASC 958-605 A second approach is to follow the guidance in FASB ASC 958-605, Not-for-profit (NFP) Entities — Revenue Recognition. Governmental assistance in the form of loan forgiveness would be considered a nonreciprocal or non-exchange transaction referred to in the guidance as a contribution. Because PPP loan forgiveness is dependent on meeting certain conditions, it would be considered a conditional contribution. Conditional contributions are recognized as income when the conditions on which they depend are met. Under this approach, the cash inflow from the PPP loan is recorded as a refundable advance. One should reduce the refundable advance and recognize the contribution as income once the conditions for release have been met. Additional guidance suggests that a non-governmental NFP may also account for the PPP loan as a conditional grant if certain conditions are met. 3. IAS 20 Another approach is to follow International Accounting Standards (IAS) 20, Accounting for Government Grants and Disclosures of Government Assistance. Under this guidance, entities’ forgivable loans are recognized as government grants. Forgivable loans are “loans which the lender undertakes to waive repayment under certain prescribed conditions.” This approach may be used if the entity has “reasonable assurance” that the loan
NOVEMBER/DECEMBER 2020 | NEW JERSEY CPA
will be forgiven. Reasonable assurance in International Financial Reporting Standards (IFRS) is similar to the “probable” threshold in U.S. GAAP. The cash inflow from the PPP loan is recorded as deferred income; income is recognized, and the liability is reduced on a systematic basis as the eligible expenses are paid. The caution here is that the forgiveness estimate and the actual results could differ upon final settlement, especially where the grant period may cross year end. There is no clear consensus; it is a matter of substance versus form. Two highly regarded professionals — Brad Muniz, CPA, CGMA, partner at SobelCo, and Frank R. Boutillette, CPA, CGMA, partner at Withum — while differing on their approaches, both agreed that the critical element of PPP reporting will be footnote disclosures that clearly identify the impact to the financial statements. Disclosures would include the accounting method used to record the loan, loan repayment terms, related interest, presentation of forgiveness related expenses and lastly any subsequent event disclosures. Robert J. Traphagen, CPA, CGMA, is the managing partner of Traphagen CPAs & Wealth Advisors. He is a past president of the NJCPA and is a member of the Accounting & Auditing Standards Interest Group. He can be reached at robert@tfgllc.com. READ MORE CARES ACT ARTICLES AND RESOURCES njcpa.org/topics/caresact
DO MORE JOIN THE ACCOUNTING & AUDITING STANDARDS INTEREST GROUP njcpa.org/groups
BECOMING A CPA
5 Tips for CPA Exam Success BY MICHAEL KENNY, CPA, WITHUM
So, you’ve decided to take the CPA Exam to further your accounting career — congratulations! Although the Exam is challenging to prepare for, the benefits of becoming a CPA are immeasurable to one’s career. The following tips can help make your Exam process as smooth as possible. 1. SET YOUR TIMELINE One of the first things to consider when preparing for the Exam is when to take it. This element is central to success because the amount of time you can dedicate to studying will greatly affect how much material you can cover in a period of time. For example, if you are currently working, do not consider taking an Exam during your busy seasons when you may not have ample time to study. Also be sure to consider your own personal availability, family commitments and other factors that will impact your time to study. 2. SELECT A REVIEW COURSE Another element to consider before beginning to study is which CPA Exam review course to use. Each course has its own benefits, and the course you choose depends totally on your own study preferences. Do not simply choose the review course that you have heard about the most or the one that costs the least. Many of the providers offer a free trial which will allow you to test the course and see which presentation style and format works best for you. 3. CREATE A STUDY SCHEDULE Once you have chosen a review program, start to plan your study schedule. Be realistic; if you know that once you get home from work you will only study for an hour, build that into your planning. Many CPA Exam review courses spread out the material over the amount of time you plan on studying each week. If your target hours are not met on a daily or weekly basis, you will likely fall behind on the material. This will only cause you more stress, which is
why it is so important to represent your study time accurately in your review course. 4. START STUDYING With your study plan in place, start studying for the section of the Exam that you have chosen to sit for first. Designate a space of your own for peace and quiet. Focus and concentration are vital to mastering the material on the Exam. The material covered is plentiful, however, with a dedicated space of your own, you’ll be able to hone in on the material and grasp it more quickly. That being said, do not be alarmed if you start to see material that was not covered in any prior courses you have taken. That is to be expected with any review course, and it may even help motivate you to study more with the inclusion of “unmastered” areas of expertise. 5. BUILD A SUPPORT SYSTEM Lastly, and perhaps the most important piece of advice, is to make sure you have a friend in accounting who can relate to the struggles of taking the Exam. It is great to be surrounded by your family; however, if they have not taken the CPA Exam,
they will not be able to fully understand the trials and tribulations that go along with this process. From my own personal experience, having a friend to relate to not only helps alleviate stress but it also can help you in your review processes by seeing what others have done that helped them. If you do not know anyone else in the field, there are many online forums for CPA Exam candidates to help each other with the Exam and provide tips on studying. The CPA Exam is very challenging; however, by following these tips, you will be in a much better position to sit for and pass the Exam. Best of luck to all potential candidates! Michael Kenny, CPA, is a staff level II accountant at Withum. He can be reached at mkenny@withum.com. READ MORE CPA EXAM INFORMATION AND RESOURCES njcpa.org/becomeacpa DO MORE SAVE ON CPA EXAM REVIEW COURSES njcpa.org/examprepcourses
NEW JERSEY CPA | JANUARY/FEBRUARY 2021
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BUSINESS MANAGEMENT
Strategic Planning for Business — Do You SWOT or SOAR? BY CHERYL MUCHA, CPA, AND CHRISTIN MEIZINGER, CFO YOUR WAY LLC
Every business needs a strategic plan in order to thrive, and this has never been truer given the current economic environment. That plan starts with a vision statement — where leadership sees the company going in three to five years. This is different than the mission statement — the “why we do what we do.” A vision statement is “where we want to go from here.” They both align with the company’s business plan and goals, but one is foundational and the other aspirational. With corporate vision in place as a guide, it’s time to get in the evaluation trenches. CORPORATE STRATEGY AND STRUCTURE The following fundamental activities inform the business strategy: y Survey stakeholders, from internal leadership to shareholders, to find out what they see for the future of the organization. Use this to develop or tweak the vision. y Look at the evolving needs and market conditions of the company’s customers or clients. Does the organization need to pivot service or product offerings? Are there industry trends or technology changes that need to be adopted in order to stay competitive? y Analyze the company’s competitors and industry to see what lies ahead, and draw up a plan for how and where to compete. As COVID-19 has shown, many companies are no longer limited to current physical geography. Next up, assessing the business from the inside out. SWOT ANALYSIS This four-part assessment looks at the following: y Strengths — What’s working well for the company? What gives the company a competitive advantage? y Weaknesses — What are the areas for improvement or practices that are best to avoid?
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y Opportunities — What trends can the company take advantage of? Are there changes in government policy or the market that will affect the business? y Threats — What are the internal and external issues that threaten sustainability and profits (such as poor cash flow, debt, lack of funding, human resource problems or technology deficits)? SOAR ANALYSIS This alternative assessment model, which looks at strengths, opportunities, aspirations and results, focuses on positive attributes and is suggested for early-stage companies that are still developing. Since weaknesses and threats have not yet arisen, SOAR makes sense, especially as the company is growing and working its business plan. CREATE SMART GOALS Based on the results of the SWOT/SOAR analyses, it’s time to create an operational plan with goals that are: y Specific for effective planning. They may not look like financial goals on the surface, but they should all tie back to (improving) the company’s numbers. y Measurable to determine progress and reevaluate actions as needed; remember, what gets measured gets done. Be sure to include key performance indicators (KPIs). Reviews should be done at least quarterly and incorporate the most recent financials. Over time, there will be more history and experience to rely on to make nimble adjustments. y Attainable inasmuch as they can be accomplished within a reasonable time frame. y Relevant in that they align with an organization’s values and long-term objectives, which further support the vision y Time based with a realistic yet ambitious end date for each specific task (at least quarterly); include a “by when” for each action to keep the team focused, motivated and on target.
JANUARY/FEBRUARY 2021 | NEW JERSEY CPA
FOLLOW THE PLAN It’s hard work to develop a strategic plan so it’s vital that the company follows it. Conduct periodic evaluations against the stated KPIs to measure those goals and make any necessary adjustments upon review or in response to changes in the market or industry. Even if something changes, be sure to set deadlines for each specific task to stay the course and lead the organization towards fulfilling the SMART goals and achieving the vision. As the pandemic has taught all of us, change happens — frequently; companies that work their strategic plans while also recognizing the need (and possessing the ability) to shift accordingly will fare better than others in the long run. Remember, although action plans are short-term measures, the strategic plan is a tool for long-term viability and financial health. Cheryl Mucha, CPA, is the owner of CFO Your Way LLC, a firm that creates pathways to profitability for growing local businesses with outsourced accounting services. She is a member of the NJCPA and can be reached at cheryl@cfoyourway.com. Christin Meizinger is a multi-site controller at CFO Your Way and can be reached at christin@ cfoyourway.com. LEARN MORE JAN. 4, FEB. 9 AND MARCH 18, WEBCAST SURVIVING AND PIVOTING TO THE NEXT NORMAL JAN. 8, FEB. 22 AND MARCH 22, WEBCAST THE CHANGING ROLE OF THE CONTROLLER: ADVANCING FROM TACTICAL TO STRATEGIC njcpa.org/events READ MORE BUSINESS MANAGEMENT ARTICLES AND RESOURCES njcpa.org/topics/ businessmanagement
BUSINESS MANAGEMENT
SPONSORED CONTENT
How to Estimate PPP Loan Forgiveness BY MARC DOVI, PAYCHEX
For businesses that received a Paycheck Protection Program (PPP) loan through the U.S. Small Business Administration (SBA), estimating the loan forgiveness amount is based on many factors. COVERED PERIOD The first step is to determine whether to use the Covered or the Alternative Covered Period. y The Covered and the Alternative Covered Periods are both 24 weeks (168 days), unless the business is eligible to choose the original eight-week (56-day) period. Only borrowers who received their PPP loan before June 5, 2020, may choose the eight-week period. y The Covered Period begins on the date the loan proceeds were received. The Alternative Covered Period begins on the first day of the first pay period following the receipt of the funds. Only borrowers with a biweekly (or more frequent) payroll schedule may choose to use an Alternative Covered Period. y In no event will a covered period extend beyond Dec. 31, 2020. ELIGIBLE COSTS Next, the eligible costs during the covered period need to be calculated. This includes payroll costs and non-payroll costs (mortgage interest, rent and utilities) and the number of full-time equivalent (FTE) employees. Loan forgiveness could be reduced if a company uses less than 60 percent of the forgiveness amount for payroll costs. Applying less to payroll costs may result in needing to pay money back. Loan forgiveness may be further reduced based on the difference between FTEs and wages-paid levels during the covered period and the number of FTEs and wages paid during a look-back period. Fewer FTEs and/or wages reduced by more than 25 percent during the covered period will reduce the amount of the loan that can be forgiven.
APPLYING FOR FORGIVENESS To apply for PPP loan forgiveness, the PPP Loan Forgiveness Application (LFA) or the PPP Loan Forgiveness Application Form 380 EZ (PPP EZ Form) needs to be completed and submitted to the lender that issued or is servicing the loan. The PPP EZ Form can be used on any size loan that fits in one of the following three categories: y Self-employed individual, independent contractor or sole proprietor who had no employees at the time of the PPP loan application and did not include any employee salaries in the computation of average monthly payroll in the Borrower Application Form y Borrowers who did not reduce salaries or wages of employees by more than 25 percent and did not reduce the number or average paid hours of employees (with some exceptions) y Borrowers who did not reduce salaries or wages of employees by more than 25 percent and experienced reductions in business activity as a result of COVID-19-related health directives If the business does not fall within one of these three categories, the full PPP Loan Forgiveness Application must be used. The SBA also issued SBA Form 3508S in October. Any qualified borrower of a PPP loan of $50,000 or less may use SBA Form 3508S to apply for loan forgiveness and be
exempted from any reductions in their loan forgiveness amount based on reductions in FTEs or reductions in employee salary or wages. Note that a borrower that, together with its affiliates, received loans totaling $2 million or greater cannot use form 3508S. Borrowers may submit a loan forgiveness application any time before the maturity date of the loan, which is either two or five years from loan origination. However, if a borrower does not apply for loan forgiveness within 10 months after the last day of the borrower’s loan forgiveness covered period, loan payments are no longer deferred, and the borrower must begin making payments on the loan. Marc Dovi is the marketing content program manager at Paychex and can be reached at mdovi@ paychex.com.
Paychex is an NJCPA member benefit provider offering unique benefits for CPA firms as well as discounts on integrated payroll, retirement and HR services for firms’ small business clients. Learn more at njcpa.org/benefits. Access their free PPP Loan Forgiveness Estimator at payx.me/ NJCPA-estimator.
NEW JERSEY CPA | JANUARY/FEBRUARY 2021
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FINANCIAL PLANNING SERVICES
Buying and Selling Businesses Using Structured Installment Sales BY WILLIAM ROTHROCK, CSSC, ROTHROCK SETTLEMENT CONSULTING
Advising business owners on the sale or purchase of a business represents one of the most important services an accountant can provide to clients. A successful business represents a lifetime’s work for the seller and a lifetime commitment for the buyer. Structured installment sales assist the buyer and the seller by reducing barriers to the transfer of a business. Structured installment sales are subject to the statutory requirements of the installment method detailed in IRC Sec. 453 — Installment Sales. HOW IT WORKS IRC Sec. 453 affords sellers of both closely held business and appreciated real estate the ability to defer taxable income, possibly permitting a lower capital gains rate as well as reduction or avoidance of the tax on net investment income. This article discusses the structured installment sale’s impact on the sale and purchase of a business. For the business owner, exposing a lifetime of work by too great an emphasis on tax savings demands both risk aversion and tax benefits. Utilizing a structured installment settlement eliminates doubt of collection without violating the constructive receipts doctrine. All future periodic payments can be designed by the seller and guaranteed by an A-rated insurance company. Two additional requirements are a part of the sale process for a successful structured installment sale. First, the sales proceeds must be paid directly to the insurance company and not to the seller. Second, the sales and purchase agreement must contain annuity language specifying the transfer of the installment obligation to the insurance company; the transfer is referred to as a non-qualified assignment. Both actions parallel those used by insurance carriers for the past 40 years when implementing a structured installment settlement for business clients and their attorneys.
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BENEFITS FOR THE SELLER A structured installment sale transaction increases the value of the company, removes the obstacles peculiar to a stock purchase and creates guaranteed retirement income while preserving and expanding tax benefits. The accelerated recapture of invested capital by the buyer due to accelerated depreciation methods available under the asset sale method increases the net present value of the company. Structured installment sales mitigate the impact of the tax on capital gains and net investment income while producing ordinary income during the period of tax deferral. An added benefit of the deferral period is the creation of retirement income for the business owner. This benefit is often overlooked until after the sale; however, it creates a cash flow stream to replace that which was formerly generated by the business. Structured installment settlements were created for the very purpose of protecting clients from the loss of irreplaceable assets needed to sustain their long-term needs by substituting a more dependable debtor, the insurance company, for the buyer. BENEFITS FOR THE BUYER While the sellers are concerned about obtaining ample proceeds to justify a lifetime’s effort, buyers are concerned with the possible risk of paying more than the enterprise’s value would justify. Due diligence and careful analysis of the business must justify the risk assumed. A structured installment sale transaction reduces risks for the buyer in two ways. First, a stock sale is often the preferred option of sellers, but it requires a more intensive due diligence by buyers and their advisors because of hidden liabilities. A structured installment sale transaction converts the transaction to an asset sale, which reduces due diligence cost because only the purchased assets are analyzed. This benefit of reduced due diligence cost lends itself to
JANUARY/FEBRUARY 2021 | NEW JERSEY CPA
the second benefit — the risk reduction of a structured installment sale. Additionally, a step-up in the basis of purchased assets and the creation of deductible goodwill eliminates having a balance sheet of fully depreciated assets. Accelerated depreciation, additional first-year depreciation, and an election to expense depreciable business assets reduces the economic effect of the purchase obligation, increasing the net present value of the company. As a consequence, the business seller can increase the selling price of their company. A structured installment sale smooths the negotiation process by creating flexibility in counter party demands. It also opens avenues and sale options typically unavailable or limited due to the assumption of risk by either party. Thus, as a sales tool, structured installment sales benefit both parties in the purchase and sales transaction while improving the negotiated result. William Rothrock is a Certified Structured Settlement Consultant (CSSC) at Rothrock Settlement Consulting with diverse experience solving financial problems. He can be reached at william@williamrothrock.com.
LEARN MORE JAN. 7, WEBCAST BUYING AND SELLING A BUSINESS: TAX AND STRUCTURING OVERVIEW njcpa.org/events READ MORE FINANCIAL PLANNING ARTICLES AND RESOURCES njcpa.org/topics/financialplanning
FINANCIAL PLANNING SERVICES
Retirement Planning Implications of COVID-19 BY SHARIF A. MUHAMMAD, CPA, UNLIMITED FINANCIAL SERVICES LLC
As trusted advisors to clients and constituents, there have been very few CPAs who have not felt the impact of COVID-19. From situations involving afflictions and deaths from the coronavirus, to furloughs, layoffs, business interruptions and financial disruptions in households throughout many communities, the reach of the global pandemic has been far and wide. While we are not out of the woods yet, it’s important to make sure clients understand the implications of the pandemic on their finances — especially with respect to retirement planning. Here are three observations and considerations to keep in mind: 1. This is a wake-up call. The pandemic has created a systemic disruption to the economy in ways that many financial advisors never imagined. Many of the tenets of financial planning — a fully funded and accessible emergency fund, proper and adequate insurance, and a properly drafted and executed estate plan — came into focus during the pandemic’s initial wave and remind us that individuals need these items in place just as much as a robust retirement plan. 2. COVID-19 is not a black swan. Author Nicholas Taleb defines a “black swan” as an event that is unpredictable and rare, but when it occurs, its results are catastrophic. The Great Recession of 2008-09 is an example of a black swan. While it can be tempting to look at the COVID-19 pandemic as a black swan, history tells us differently. Global pandemics and epidemics from the recent past such as SARS, MERS, swine flu, ebola and HIV/AIDs are all recognized as adverse events that are “baked into” the patterns and pricing of the market. Financial discipline mechanisms such as staying invested in risk- and goal-oriented portfolio allocations, staying diversified and rebalancing are all defensive tools that help to mitigate the effects of negative market events like COVID-19.
3. Rethink “risk management” in retirement plans. Unconventional investment vehicles like self-directed IRAs and familiar (but hotly debated) vehicles like annuities deserve a second look as a part of a retirement plan strategy to mitigate risks. MITIGATING RISKS Risk in retirement planning has generally been perceived as the likelihood of a person outliving their retirement assets. That also includes the chances of an adverse event — like a health event that leads to the need for longterm care — that can significantly reduce the assets for a client’s remaining life. However, with COVID-19, the timing of such market downturns can profoundly impact an individual currently taking distributions from a retirement portfolio, as too many losses on the front-end could lead to irreparable damage to what was considered “safe withdrawal percentages” for the duration of one’s retirement. This phenomenon is known as the “sequence of returns.” Couple the COVID event with a low-interest environment and the real prospect of a prolonged U.S. recession, and this risk becomes very real. To mitigate such risks, one can look to (1) unconventional alternative investments (i.e., private equity, hedge funds, specialized real estate investment trusts (REITs), (2) invest a portion of retirement assets via a self-directed IRA focused on uncorrelated investments to the market (e.g., hard money lending), and (3) annuities. GETTING FINANCIAL HOUSES IN ORDER Just as the pandemic exposed many shortcomings in the healthcare system, specifically our shortages in personal protective equipment and ventilators, many families had their share of experiences with financial shortfalls. Common scenarios included the following: y Not having adequate emergency funds to bridge disruptions in income y Becoming ill or facing disability without the appropriate or adequate insurance
y Not having the appropriate estate planning documentation in place to properly handle the affairs of a person who fell ill, became incapacitated for a prolonged period or died. What creates challenges for investors, especially pre-retirees and retirees who see significant drops in value of their holdings, is an unprecedented shut down of the economy. This leads to panic, where investors irrationally pull funds out of the market (while values are dropping) and place them into cash. This exacerbates the level of disruption in clients’ financial plans which lends to the axiom that financial performance is more of a function of investor behavior than it is actual asset selection. If there is any time for reaching out to clients, it is now. CPAs can be a guiding light for their clients, since they need assistance now more than ever. Sharif A. Muhammad, MBA, CPA, MST, CFP®, is the managing member of Unlimited Financial Services LLC. He is a member of the NJCPA State Taxation, Federal Taxation and Cannabis interest groups and can be reached at smuhammad@unlimited-financial.com.
READ MORE FINANCIAL PLANNING ARTICLES AND RESOURCES njcpa.org/topics/financialplanning
NEW JERSEY CPA | JANUARY/FEBRUARY 2021
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FIRM MANAGEMENT
Inside the Client’s Brain — What Really Matters BY EILEEN MONESSON, CPC, PRCOUNTS
It used to be that client relationships were based more on mutual trust and respect than technical knowledge. That is changing. The Hinge Research Institute found in its recent study, Inside the Buyer’s Brain: Accounting and Financial Services Edition, that clients want accounting and financial services (A&FS) providers who have relevant experience in their industry and extensive experience working in their line of business. Hinge surveyed both buyers and sellers to determine what they find important in a client relationship. Here are the results of the study: CLIENT DISCONNECT Most financial service providers believe they understand the challenges their clients face. However, data demonstrates the fallacy of that belief. Professionals in A&FS firms have significant disconnects, according to Hinge, when it comes to understanding the top challenges of their clients. As shown in Table 1, clients rank dealing with budget pressures and financial issues as their highest priority. A&FS firms ranked this category much lower (8). According to Lee Frederiksen, Ph.D., managing partner of Hinge, “clients want to work with professionals that have demonstrated, first-hand knowledge of solving their challenges.” A&FS firms that are not relevant and focused on the right priorities risk losing clients, regardless of the strength of their personal relationship.
Table 2
RELEVANCY MATTERS Service providers who can relate to a prospect’s key challenges have more success attracting and retaining clients. As shown in Table 2, those who are viewed as highly relevant to clients’ current issues are in fact 82 percent more likely to be highly recommended by their existing clients. High relevancy ratings are also associated with a 76-percent-higher likelihood of having highly loyal clients. “Firms have to make it obvious that they have the relevant experience that clients need,” adds Frederiksen. “Relevancy is becoming more important than trust when it comes to client loyalty.”
Table 1
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JANUARY/FEBRUARY 2021 | NEW JERSEY CPA
PROVIDER SEARCH Business owners have traditionally turned to associates when investigating business-related issues. No longer. Web searches are almost as important as asking colleagues for help. Earning the position as a thought leader in one’s niche by writing articles, blogs and other relevant content is essential to being viewed as an expert. LinkedIn is used by more than 77 percent of organizations, making it the dominant social media platform. Facebook is making a surprisingly strong showing with a third of A&FS buyers using it for business purposes. EVALUATING PROVIDERS Clients are less likely to stay with an existing firm, especially if a competitor has deeper industry knowledge and a more talented staff with greater subject matter expertise. As shown in Table 3, talented staff/team skills are now the top deciding factors for almost one third of buyers. Industry knowledge and flexible and responsive client service are also becoming much more important in closing the A&FS sale.
Table 3
The bottom line: Never assume that clients understand what they need or how a financial services provider can help them. Make it obvious. Recruiting and retaining talented staff remains important to long-term success. Clients want to work with experts who can help them meet their challenges. And with the widespread remote work taking place, location is becoming less important. Buyers are free to search for the expertise they need, independent of geographic location. Interactions do not need to be face-to-face to be rewarding and successful. Eileen Monesson, CPC, is a founding principal with PRCounts, a brand engagement company. She can be reached at emonesson@PRCounts.com.
Annual Tax Seminar FRIDAY, JANUARY 8 8:30 a.m.—1:30 p.m. | WEBCAST REPLAY: WEDNESDAY, JANUARY 20
GAIN BROAD KNOWLEDGE OF STATE AND FEDERAL PLANNING STRATEGIES Individual and Entity Tax | Employee Benefits | Estate/Inheritance Tax
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NEW JERSEY CPA | JANUARY/FEBRUARY 2021
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FIRM MANAGEMENT
Wage and Hour Issues to Keep in Mind as Your Practice Goes (or Stays) Virtual BY KATHLEEN McLEOD CAMINITI, ESQ., AND SARAH WIESELTHIER, FISHER PHILLIPS
Almost one year after COVID-19 surfaced in the United States, New Jersey businesses, including accounting firms and their clients, have adapted in ways previously unimagined. To continue business within this “new normal,” many accounting firms and white-collar businesses have gone remote. However, managing a remote workforce comes with its own challenges, especially in the wage and hour context and even more so in the state of New Jersey, which has one of the strongest wage theft laws in the country.
Notably, the U.S. Department of Labor recognized the importance of flexibility in these challenging times. As a result, where a non-exempt employee works a flexible schedule, such as with time off mid-day to attend to the demands of their school-age children, an employer is not required to pay for time not worked even during “normal” business hours. The key to success, as well as wage and hour compliance, is proper communication and record-keeping.
HIGH STAKES FOR WAGE AND HOUR VIOLATIONS New Jersey’s Wage Theft Act (WTA), enacted in 2019, substantially expanded exposure for wage and hour violations by significantly increasing damages and penalties, extending the statute of limitations to six years and criminalizing certain violations. Absent an affirmative defense, an employer faces liquidated damages of 200 percent in addition to the unpaid wages owed for failing to properly pay its employees. Furthermore, under the WTA, successor entities can be liable for the wage violations of their predecessors. Therefore, as businesses change ownership, liability under the WTA, and the hefty penalties and potential damages, remain. The risk of successor liability is especially acute in these uncertain economic times.
y Implement a remote-work agreement A remote-work agreement provides employees with guidance regarding their job responsibilities and the company’s expectations for employees who work remotely some or all of the workweek. As a best practice, the agreement should set forth the company’s time-keeping requirements while working from home and should be acknowledged and signed by the employee. As part of the agreement, non-exempt employees should be required to report all hours worked, even if worked outside of the normal workday or in excess of those that they were scheduled to work. Additionally, the agreement should make clear the extent to which the company will or will not be reimbursing employees for the use of personal phones, computers, printers, internet, etc. Employers are required to reimburse non-exempt employees for expenses incurred on behalf of their employer to the extent that those expenses “cut into” the minimum wage earnings.
WAGE AND HOUR CONSIDERATIONS FOR REMOTE WORK y Compensate employees for all time worked. A significant challenge with remote work is ensuring that non-exempt employees are paid for all time worked, even if not scheduled. This means that employers should have reasonable time-reporting systems and documentation. The duty to pay for all time worked applies when the employer knows (or has reason to know) that time was worked after hours — even when the employee does not report the extra time.
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y Maintain accurate records. Recordkeeping has always been essential to wage and hour compliance and even more so in the remote work environment. Employers must maintain accurate records of hours worked (on a daily and workweek basis) and wages paid to employees as a matter of New Jersey law, and these records are critical to avoid
NOVEMBER/DECEMBER 2020 | NEW JERSEY CPA
significant penalties and defend against potential litigation. Businesses should keep these records accessible so they can be produced upon request by the New Jersey Department of Labor and Workforce Development. If a company fails to provide sufficient records during an investigation, there is a rebuttable presumption that the employee actually worked for the period of time claimed. The absences of accurate time and pay records can be very costly. Remote work arrangements have become common in the wake of COVID-19. To protect your firm and clients from the significant damages and penalties under New Jersey’s wage payment laws, take the time to review pay and record-keeping practices, and consider implementing a remote work agreement. Kathleen McLeod Caminiti, Esq., is a partner at Fisher Phillips, a national labor and employment firm representing employers, where she is co-chair of the firm’s national Wage and Hour Practice Group. She can be reached at kcaminiti@fisherphillips.com. Sarah Wieselthier is an associate in the firm’s New Jersey office, specializing in labor and employment law. She can be reached at swieselthier@fisherphillips.com.
LEARN MORE FEB. 12 AND MARCH 10, WEBCAST BASICS OF EMPLOYMENT LAW FOR NON-HR PROFESSIONALS njcpa.org/events
INDUSTRIES
Managing the Cash to Pay It Forward BY DR. JOSEPH HOWE, CPA
With so much uncertainty in the financial markets and the economy, it is a good time for nonprofit managers and boards to brush up on the Uniform Prudent Management of Institutional Funds Act (UPMIFA). New Jersey promulgated the UPMIFA in 2009 in the aftermath of the financial crisis as an update to prior laws that governed nonprofit institutions’ investments. The general theme of the UPMIFA is that each person responsible for managing and investing institutional funds (on behalf of nonprofits, charities and endowments) shall manage and invest the funds “in good faith and with the care an ordinarily prudent person in a like position would exercise under similar circumstances.” This principle, commonly referred to as the “reasonable person standard,” is a mainstay in many legal doctrines, but what does it mean here and what steps can organizations take to protect and grow their investments? The synthesis of this principle is that one must take steps to perform due diligence before investing funds and thereafter have processes and procedures in place for the ongoing monitoring of investments. This applies whether the institution manages the funds in house or hires investment managers. To help memorialize the steps taken to oversee investing and cash management, the board should adopt written policies and procedures to establish and govern the investment process. For smaller nonprofits, there are a number of organizations that offer model investment and cash management policies at little or no cost. INVESTMENT DECISIONS The institution’s board or investment committee sets the risk profile which guides management decision making. The organization’s risk profile will be mission dependent with most having a more conservative risk profile, the goal of which is to preserve capital while generating income to fund operations. In this scenario, the portfolio is likely made up of investment-grade bonds. With that risk appetite, an investment policy would restrict more exotic or volatile investments, or at the
very least require them to come before the board before any capital is allocated. In guiding investment policy and decisions, the UPMIFA articulates that, at a minimum, the following factors must be taken into consideration when managing and investing institutional funds: y General economic conditions y The possible effect of inflation or deflation y The expected tax consequences, if any, of investment decisions or strategies y The role that each investment or course of action plays within the overall investment portfolio of the fund y The expected total return from income and the appreciation of investments y Other resources of the institution y The needs of the institution and the funds to make distributions and to preserve capital y An asset’s special relationship or special value, if any, to the charitable purposes of the institution Taking these factors into consideration should assist the organization in determining the nature, timing and extent of the investments they make. Each of these elements should be articulated in the investment process and addressed when making investment decisions. DELEGATING INVESTMENT FUNCTIONS Another important section of the UPMIFA, sometimes referred to as the Madoff clause, requires an institution that delegates an external agent to manage and invest institutional funds to periodically review their actions in order to monitor their performance and compliance with the scope and terms of the agreement. Madoff’s list of victims includes some of the most sophisticated charities in existence, but some of them did not even perform the most basic due diligence. Notably, an institution that exercises the proper due diligence under the act may not be liable for the decisions or actions of the agent. Some key measures of oversight
can include monitoring transactions for consistency with the institution’s investment goals, independently verifying account balances, reviewing transaction statements and comparing them to historical market prices, and having a firm understanding of how they are compensated. Whether a nonprofit receives funding from charitable donations or government contracts, those who hand money over want to know that the organization will be a good steward of their funding. The key takeaway is to have written investment policies and procedures and follow them. The proper investment of nonprofit funds is critical as any missteps can dry up future funding sources. Dr. Joseph Howe, CPA, CFE, CGFM, is the chief financial officer of a government entity in New Jersey. He is a member of the NJCPA Governmental Accounting & Auditing Interest Group and can be reached at jhowecpa@gmail.com. DO MORE JOIN THE NONPROFIT INTEREST GROUP njcpa.org/groups
READ MORE NONPROFIT ARTICLES AND RESOURCES njcpa.org/topics/nonprofit
NEW JERSEY CPA | JANUARY/FEBRUARY 2021
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RISK & COMPLIANCE
What CPAs Need to Know About Cyber Insurance Today BY PETER A. HALPRIN, ESQ., PASICH LLP
The year 2019 ended with a number of cyberattacks on New Jersey government entities and businesses. In December 2019, it was reported that Hackensack Meridian Health was hit with a ransomware attack that disrupted care across its clinics and 17 hospitals. The attack brought down their computers for two days, and the healthcare network was forced to cancel some surgical procedures. According to press reports, Hackensack Meridian paid hackers an undisclosed ransom amount which was covered by insurance. Indeed, prior to COVID-19, cyber security was at the top of the list of concerns for accountants, as well as other finance, legal and risk management professionals. Unfortunately, COVID-19 hasn’t reduced this threat. If anything, threat actors are exploiting the fact that many people are working at home — distracted and less focused on cyber hygiene — to gain access to corporate systems for nefarious purposes. Accountants are familiar with insurance policies, including cyber insurance and other policies such as crime or property, which are likely to have responsive coverage to cyber crime and cyber breaches. But the key to assisting clients in understanding such assets in the event of an attack is to fully know the policy terms and to understand that cyber insurance generally includes both first-party and third-party liability insurance, each of which may be important following an incident.
Following a security breach, an accountant will want to review a company’s cyber policy to seek reimbursement for their breach-related costs and expenses. Some insurers have relationships with certain professional firms, including their technical and legal experts, and may cover breach response costs without reducing policy limits. Accountants will also look to cyber policies for reimbursement for the costs associated with restoring data that is changed, damaged or lost following a breach. Similarly, cyber policies may cover business interruption losses, including those which arise out of attacks on a vendor or cloud provider. The case of one law firm demonstrates how detrimental these attacks can be. Following a ransomware attack on the firm’s network, the attackers encrypted the firm’s files so that they were not accessible without payment of a ransom. The firm paid the cyber criminals $25,000 ransom, but it still took more than nine months to retrieve the corrupted information. As a result, the firm suffered more than $700,000 in business income losses. Other businesses faced with similar attacks have been forced to close due to the financial loss. As such, first-party cyber coverage, including business interruption, is a risk management tool that accountants and policyholders may need to call upon following COVID-19-related attacks.
FIRST-PARTY CYBER COVERAGES Although the coverage and policy language may differ from policy to policy, first-party cyber coverages generally include breach response as well as the following: y Event management (including data recovery, betterment, etc.) y Cyber extortion y Network/business interruption (including system failure and voluntary shutdown) y Dependent business interruption (for IT and non-IT providers) y Consequential reputational loss
THIRD-PARTY CYBER COVERAGES Although the coverage and policy language will differ from policy to policy, third-party cyber policies generally include coverage for the following: y Network security failures and privacy events y Regulatory defense and penalties (including coverage for General Data Protection Regulation (GDPR) liabilities) y Payment Card Industry Data Security Standard (PCI-DSS) liabilities and costs y Media content liability
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JANUARY/FEBRUARY 2021 | NEW JERSEY CPA
As an example, Facebook settled a class-action lawsuit over its use of facial recognition technology which arose under the Illinois Biometric Information Privacy Act. The case reportedly settled for $550 million. It is particularly important, therefore, for accountants watching the bottom line to assess a company’s coverage for claims by consumers and employees, including class actions and regulatory actions arising out of data breaches. As COVID-19 has seemingly emboldened threat actors, accountants are encouraged to review and understand cyber insurance coverages so as to maximize recovery in the event of an incident. Peter A. Halprin, Esq., FAiADR, FCIArb, partner in Pasich LLP’s New York office, is insurance recovery counsel for commercial policyholders. His practice includes representing clients in matters involving cyber breaches and cyber crime. He can be reached at phalprin@pasichllp.com. LEARN MORE JAN. 6, FEB. 4 AND MARCH 8, WEBCAST CYBERSECURITY DISRUPTION — WHAT CPAs NEED TO KNOW JAN. 15, FEB. 11 AND MARCH 16, WEBCAST GUIDE TO CYBERSECURITY PLANNING njcpa.org/events DO MORE SAVE ON CYBERSECURITY INSURANCE WITH GALLAGHER AFFINITY njcpa.org/benefits EARN AN AICPA CYBERSECURITY CERTIFICATE Save 25 percent with code CYBER25 through Feb. 28 njcpa.org/groups/certificates
RISK & COMPLIANCE
SPONSORED CONTENT
Prioritizing Your Cybersecurity Spend BY BRANDON MARKS, OVERWATCH GROUP
As remote workers drive organizations to invest in the latest cybersecurity tools and technology, criminals appear unphased and attacks on business networks soar, with hackers taking aim at softer targets: people. From basic prevention like antivirus, anti-malware and firewalls, to user training modules and more advanced cybersecurity like breach detection, penetration testing and vulnerability assessments, an organization can employ a variety of security tools. SECURITY AS A CULTURE While technology is vital, it can become costly and is likely ineffective when used in a vacuum. So how does a small or midsize business prioritize its cybersecurity investment, especially when so many are experiencing so much uncertainty? One answer lies in the company’s culture. Companies should embrace the idea of “Security as a Culture,” with consistent, top-down messaging that promotes the importance of cybersecurity and a “think before you move” mentality. The concept is a mindset and an approach meant to slow folks down, while keeping businesses moving. Employee performance is often engineered for speed, and disruptions are the enemy of productivity; however, a company that values quickness and convenience over security is ignoring best practices and underestimating the risks of working online in the 21st century. When companies take an overt position to secure privacy and harden their teams to the seriousness and threats they face, better business decisions are made. It’s possible to move quickly while remaining vigilant and alert, but corporate culture must be prioritized. The following steps will create a culture of security so that cybersecurity is top of mind with every action a company’s staff executes: y Frequent and consistent messaging from leaders and management to inform employee behavior and attitudes
y Documented and enforceable policies customized to the needs of the business y Training during onboarding and as an ongoing process, with measurable analytics to reinforce and retrain when necessary y Solutions that reflect the company’s specific privacy concerns and industry compliance requirements Cybersecurity requires a layered approach, and technology is a critical component. Backup is critical. Patch updates are critical. Penetration tests, internal threat scans, breach detection, multifactor authentication and data loss prevention are all important and highly recommended. However, if 99 percent of cyberattacks rely on human intervention, people need to be an active part of the equation and employee awareness can’t be overlooked, according to the Proofpoint article, “Human Factor 2019.” Cybersecurity needs to be an everyday conversation, and staff should feel as though they are the first and last line of defense in a cyberattack, because in many ways they are. COSTLY CONSEQUENCES Poor decisions open organizations up to bad actors, as well as the long arm of governance and corporate oversight. Steep fines punishing those who don’t secure their perimeter and protect Personally Identifiable Information (PII) could exceed the financial damage of the initial hack. Laws like California’s Consumer Privacy Act (CCPA) and New York’s Stop Hacks and Improve Electronic Data Security (SHIELD) Act are examples of nationwide trends and coming regu-
lations written in the same vein as the EU’s General Data Protection Regulation (GDPR). The SHEILD Act, which took effect in March 2020, imposes penalties up to $5,000 per violation, with a maximum penalty of $250,000, for any organization that experiences a data breach compromising the private information of a New York resident. Corporate leaders must understand the significance of privacy and security. More than ever, criminals are conning employees into making the wrong choices, and with our ever-expanding digital presence, theft will continue to rise. We must shape our businesses culture to prioritize security and increase vigilance. Brandon Marks is the founder of Overwatch Group, a technology operations firm that believes technology has a lifecycle – advise, build, secure, support, evaluate, repeat. He can be reached at bmarks@overwatchgrp.com.
Overwatch Group is an NJCPA member benefit provider and a leading New Jersey-based technology integrator and a provider of IT strategy, cybersecurity and support services. They offer a clientcentric, professional and honest approach to IT for the accounting and small business community. Learn more at njcpa.org/benefits. Overwatch Group is offering one New Jersey based accounting firm (up to 10 users) an opportunity to upgrade their technology at no cost. For more information, visit overwatchgrp.com/blog/technologyrefresh.
NEW JERSEY CPA | JANUARY/FEBRUARY 2021
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TAX
The Ins and Outs of the Employee Retention Credit BY RICHARD HIGGINS, CPA, McCARTHY & COMPANY, PC
The Employee Retention Credit is a provision of the Coronavirus Aid, Relief, and Economic Security (CARES) Act. This credit provides an incentive for businesses to keep employees on their payroll. The Employee Retention Credit is a refundable tax credit against certain employment taxes. It is equal to 50 percent of up to $10,000 in wages paid between March 12, 2020, and Jan. 1, 2021. Employers can generally include certain health plan costs, as well as federal income tax withholding, the employees’ share of Social Security and Medicare taxes, and the employer’s share of Social Security and Medicare taxes for all employees, up to the amount of the credit. This credit can be taken without penalty and can include any reduction for employment tax deposits in anticipation of the paid sick and family leave credit under the Families First Coronavirus Response Act (FFCRA). ELIGIBLE EMPLOYERS As explained by the IRS, employers (including tax-exempt organizations) are eligible for the credit if they operate a trade or business during calendar year 2020 and experience either: y The full or partial suspension of the operation of their trade or business during any calendar quarter because of governmental orders limiting commerce, travel or group meetings due to COVID-19, or y A significant decline in gross receipts. According to the IRS, a significant decline in gross receipts begins on the first day of the first calendar quarter of 2020 for which an employer’s gross receipts are less than 50 percent of its gross receipts for the same calendar quarter in 2019. The IRS says that a significant decline in gross receipts ends on the first day of the first calendar quarter following the calendar quarter in which gross receipts are more than of 80 percent of its gross receipts for the same calendar quarter in 2019.
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JULY/AUGUST 2019 | NEW JERSEY CPA
QUALIFIED WAGES For each employee, wages up to $10,000 can be counted to determine the amount of the 50-percent credit. This credit can apply to wages already paid after March 12, 2020. The amount of qualified wages depends on the number of employees. For employers with 100 or fewer employees (on average in 2019), the credit is based on wages paid to all employees whether they worked or not. Employers can take the credit for employees who were paid for full-time work. For employers with more than 100 employees (on average in 2019), the credit is allowed only for wages paid to employees who did not work during the calendar quarter. Only wages up to the amount that the employee would have otherwise been paid during the 30 days prior to the pandemic-related hardship can be included. OTHER CONSIDERATIONS As explained by the IRS, an eligible employer’s ability to claim the Employee Retention Credit is impacted by other credit and relief provisions as follows: y Employers that received a Small Business Interruption Loan under the Paycheck Protection Program (PPP) are not eligible for the Employee Retention Credit. y Wages for this credit do not include wages for which the employer received a tax credit for paid sick and family leave under the FFCRA. y Wages counted for this credit cannot be counted for the credit for paid family and medical leave under Section 45S of the Internal Revenue Code. y Employees are not counted for this credit if the employer is allowed a Work Opportunity Tax Credit under Section 51 of the Internal Revenue Code for the employee. CLAIMING THE CREDIT Employers can use this credit by reducing upcoming deposits or requesting an
advance credit on Form 7200, Advance of Employer Credits Due to COVID-19. Beginning with the second quarter of 2020, eligible employers can report their qualified wages and the related health insurance costs for each quarter on their quarterly employment tax returns (Form 941). The Employee Retention Credit is taken against the employer’s share of social security tax, but the excess is usually refundable. FAQs on the Employee Retention Credit are available on the IRS website at irs.gov/ coronavirus/employee-retention-credit. Richard Higgins, CPA, is the managing principal of the New Jersey office of McCarthy & Company, PC, a leader in construction accounting. He is an NJCPA member and can be reached at Richard.Higgins@MCC-CPAs.com. READ MORE CARES ACT ARTICLES AND RESOURCES njcpa.org/caresact
DO MORE JOIN THE FEDERAL TAXATION INTEREST GROUP njcpa.org/groups
NJCPA NEWS
CPA Exam Fee Lottery Winners Announced The NJCPA’s second annual CPA Exam Fee Lottery awarded 10 aspiring CPAs with a $750 voucher each towards taking the CPA Exam. The winners were selected at random from a pool of 70 Student and CPA Candidate members of the NJCPA who entered the lottery in October. With fees associated with taking the CPA Exam often exceeding $1,000 given all four parts of the Exam and review courses, the Lottery was initiated to help ease some of the financial burden for those wishing to take the Exam. The NJCPA Scholarship Fund distributed the awards. “Preparing for the CPA Exam is difficult enough, but it should not be a financial imposition as well,” said Ralph Albert Thomas, CPA (DC), CGMA, CEO and executive director at the NJCPA. “Coupled with loan payments or other financial obligations, taking the Exam can become a hardship. We want to assist where we can.”
y Nicole Kinney, student at Drew University y Nicole Marsh, student at Atlantic Cape Community College y Katharine Meza, student at Kean University y Odalis Nunez-Cardenas, staff accountant at Lerch, Vinci & Higgins, LLP y Shabsai Palley, student at Fairleigh Dickinson University-Lakewood y Diane Pineda, senior accountant KRS CPAs, LLC y Oyungerel Tumendelger, student at Rider University Congratulations to the following winners: y Solmayra De La Cruz, student at Seton Hall University y Kevin Fabiano, accountant at Brendon Pierson, Inc. y Katherine Gurski, staff accountant at Miesel, Tuteur & Lewis, P.C.
To be eligible, the winners have to sign up to take the first part of the fourpart CPA Exam between Dec. 1, 2020, and Nov. 30, 2021, and they must be currently enrolled in a New Jersey college or university or graduated within the past five years. Winners also must not be receiving compensation for taking the Exam from their employer.
New Business & Industry Professionals Interest Group Launches To keep members abreast of accounting trends, challenges and new developments in the business world, the NJCPA has launched the Business & Industry Professionals Interest Group. Open to all accounting and finance professionals working in business and industry, the group provides a regular platform to share ideas and discuss accounting, financial reporting, technology, insurance, human resources and other issues affecting accounting and finance professionals. “As evidenced by the recent pandemic, CPAs and accounting professionals have adapted to many new work environments and have taken on added responsibilities. Setting up a community for B&I professionals to hear opinions and best practices on workflow, staffing issues or
budgetary challenges is a great way to improve efficiencies and stay connected,” said Chris J. Schiffer, CPA, CFP, MBA, AIF, a senior vice president at Wealth Enhancement Group and the leader of the interest group. Caren C. Jesseman, CPA, MBA, owner/president at CFO Solution, LLC, is serving as the vice leader. The B&I Professionals Interest Group is expected to hold approximately 10 meetings per year, with upcoming meetings scheduled for Jan. 14, Feb. 11, March 11, April 8 and May 13. The Jan. 14 meeting will include a panel discussion about managing a remote workforce. The panel will delve into considerations for permanent work-from-home options, how to stay connected to one’s workforce, the
best way to measure productivity when employees are working remotely and how to handle performance reviews. It will also look at maintaining company culture during the pandemic, cybersecurity challenges, whether employers should provide equipment for a work-from-home environment and whether employers’ employment practices liability insurance (EPLI) policies are adequate in a post-COVID world. The group will also hold roundtable discussions on emerging professional issues. CPE credit will be available for many of the meetings. Members are also encouraged to prepare and review articles and blogs on corporate finance issues. NJCPA members can join the interest group at njcpa.org/groups.
NEW JERSEY CPA | JANUARY/FEBRUARY 2021
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NJCPA NEWS
Job Resources to Assist with Busy Season As busy season gets underway, CPA firms as well as corporate accounting departments may have hiring needs for full- and part-time employees, interns or other flexible staff. A great way to fulfill those needs is to take advantage of the job resources available through the NJCPA. These include: JOBBANK Whether an employer is looking to hire someone with a particular niche back-
ground, at a certain staffing level or with various certifications, the NJCPA JobBank is available to help. Post job openings and search resumes at jobs.njcpa.org/employer. Now through Feb. 28, save 25 percent on job postings with code HIRENOW25. Members looking for a career change should start their search at the JobBank, where they can post their resume online, peruse job postings, set up job alerts and receive updates on new listings. Get started at jobs.njcpa.org.
LAUNCHPAD Looking for that perfect intern? There’s no better place than NJCPA Launchpad, our online job site that connects businesses with students looking to gain that first job, build skillsets or put their academic knowledge to work in a practical setting. College and graduate students must be members of the NJCPA to post their resume and search for internships. Employers can post internships and search resumes at launchpad.njcpa.org.
TechTalk Podcast Launches The NJCPA Emerging Technologies Interest Group (ETIG) has developed a new way for members to stay abreast of the latest technological trends impacting CPAs and the accounting profession through a new podcast beginning Jan. 14. Hosted and produced by the ETIG, the monthly TechTalk Podcast will bring to the forefront how blockchain, cryptocurrencies, artificial intelligence, robotic process automation, data analytics and other advancements are not only impacting the daily lives of CPAs but also how firms and corporate accounting departments can put these tools to practical use.
Discussions will focus on the implications of modern data analytics on management, staffing and clients, and what the true business value is in incorporating modern technology tools to improve business efficiencies. While technological advancements have transformed the accounting profession, challenges remain over implementation and cost. The podcast will address what works for small and midsize CPA practices as well as accounting departments. Podcast host, Dr. Sean Stein Smith, DBA, CPA, CMA, CGMA, CFE, assistant professor at Lehman College (CUNY), says the podcast will discuss the hottest
tech-focused topics in the accounting profession. “On top of discussing the tools themselves in an understandable and practical manner, the podcast will also feature guests who are able to share real-world and hands-on stories (good and bad) of how technology is changing the profession across the board,” he explains. The podcast is available in all podcast apps, on YouTube at youtube.com/njcpa or online at njcpa.org/techtalk. Members of the ETIG (#NJCPATech) have also written numerous articles and blogs on tech topics, which are accessible at njcpa/blog. NJCPA members are invited to join the ETIG at njcpa.org/groups.
NJCPA Past President Receives AICPA Gold Medal Award Paul V. Stahlin, CPA, CGMA, a past president of the NJCPA and former chair of the AICPA, was awarded its 2020 Gold Medal Award of Distinction, which recognizes a person whose influence on the accounting profession as a whole is especially notable in comparison to other industry leaders. The AICPA cited Stahlin’s long history of volunteerism within the accounting profession and his efforts in establishing the joint venture between the AICPA and the Chartered Institute of Management Accountants (CIMA), leading to the creation of the Association of International Certified Professional Accountants. During his
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service to the AICPA, he is credited with helping to launch the CPA Vision Project, a comprehensive and integrated vision of the profession’s future, and the CPA Horizons 2025 project, a blueprint for the profession building on the CPA Vision Project. At the NJCPA, Stahlin, who served as president from 1999 to 2000, was known for espousing the benefits of becoming a CPA and encouraging the next generation of young professionals. He was also a strong advocate for members in business and industry and an advocate for the importance of CPAs networking. Stahlin was active in many committees and industry
JANUARY/FEBRUARY 2021 | NEW JERSEY CPA
groups including the Scholarship Trust, the Education Foundation Task Force and the Finance, Strategic Planning and Committee Operations committees. “It’s great to acknowledge the accomplishments of such a worthy individual. Paul’s leadership at the NJCPA and in the profession will be commended for a long time to come,” said Ralph Albert Thomas, CPA(DC), CGMA, CEO and executive director at the NJCPA. Stahlin retired in 2014 after a long career in banking, most recently as regional president of Skylands Community Bank. He began his career at PricewaterhouseCoopers.
CLASSIFIEDS
MERGERS/ACQUISITIONS
Matthews, Panariello P.C., a well established Bergen County firm located in Paramus, is looking to acquire small firms and sole practitioners ranging in size from $100,000 to $550,000. We are a full service, peer reviewed firm with a strong track record of client satisfaction and retention. We have been successful in prior acquisitions; let’s talk. Please visit our website at www.mpcpas.com. To confidentially discuss this opportunity email us at pmanetta@mpcpas.com. Monmouth County tax and wealth advisory firm seeking partnership with CPA practice(s): looking for an additional source of recurring revenue to complement your tax practice? Looking to enter the wealth advisory business without the costs and complexities? Do you have a succession plan for incapacity or retirement? Contact Gregg at gshaw@hstaxwealth.com,732268-8813; www.hstaxwealth.com. Traphagen CPAs & Wealth Advisors, a well-established firm in Bergen County with diverse client base and credentialed support staff is seeking small firms and sole practitioners for acquisition or merger. We are looking for firms ranging in size from $300K to $700K. This is an opportunity to align with a quality peer-reviewed firm, while continuing to provide your clients with exceptional service. To confidentially discuss this opportunity, please email us at carolynn@tfgllc.com. Accounting Practice Exchange, the online marketplace dedicated exclusively to the purchase, sale and merger of CPA and accounting practices across the USA. View opportunities here: www.accountingpracticeexchange.com.
Whitman Business Advisors www.whitmanbiz.com has been helping CPA firms with their M&A needs since 2008. We are working with several nonNJ headquartered firms that are looking for a foundational firm to expand their foot-print into NJ. If your revenues exceed $3MM annually then we should talk today! To confidentially discuss this opportunity, please email us at pw@ whitmanbiz.com. New Jersey practices for sale: Gross revenues shown: Roxbury Township EA tax practice - $230K; Hunterdon Co tax $123K; Southern Middlesex Co CPA $1.075M; Wayne, NJ CPA $237K; Gloucester Co CPA $615K; Bergen Co CPA $330K. For more information, call 800-397-0249 or visit www.aps.net. Retirement-minded Passaic County CPA, looking for a CPA to take over my firm. Gross $300K. Must have strong background in Tax. Helps if you have small existing client base. Reply in confidence nardone@cox.net.
PROFESSIONAL SERVICES
Experience counts. We have buyers right now looking for businesses. For 27 years First Choice Business Brokers have transitioned $8 billion in business sales of all sizes. Principal broker, Gregory J. Carafello, has owned and operated businesses for 39 years in NY/NJ region. Call Greg to assist your clients transition business ownership at 973-632-2192 or gcarafello@fcbb.com. Quality Review for CPA firms: audit, review, compilation, employee benefit plans, Yellow Book, revenue recognition. Contact James M. Sausmer, CPA at 732261-7710 or james.sausmer@gmail.com. REAL ESTATE
Office space for rent In the Allendale Professional Building, 1 De Mercurio Drive, Allendale, NJ. Great location, in a beautiful building. Offices are approx 120 sq feet each. Newly renovated offices, soundproofing insulation in the walls and ceiling. Rent is $730 per month including all utilities and high speed internet included. No realtor fees. Contact Bill Cummings (917) 531-7536, email wm.cummings@gmail.com.
To see additional classified listings or to place an ad, visit njcpa.org/classifieds.
NEW JERSEY CPA | NOVEMBER/DECEMBER 2020
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MEMBER STORY
the most amount of revenue with minimal burden.” But it was during his classes at the University of Pennsylvania Law School that he discovered his love for actual tax work. “Most lawyers do not like taxes. I took the classes and I liked them, so I started taking more.” And after increasing exposure to tax controversy challenges, he also realized the importance of obtaining his CPA. Marcus then went to school at night to obtain the necessary credits to take the CPA Exam. Nowadays, Marcus spends more time navigating taxpayers’ challenges amid the “partially closed labyrinth of the IRS,” as he calls it. “The bigger the challenge, the more satisfaction I get out of it,” he admits. Though there are fewer tax collection letters from the IRS due to the COVID-19 pandemic, Marcus works on lots of complex tax engagements. On any given day, he will be knee-deep in tax appeals, IRS examinations or dealing with significant tax penalties. As he says, “it’s really the best of both worlds.”
The Best of Both Worlds BY KATHLEEN HOFFELDER, NJCPA SENIOR CONTENT EDITOR
It’s not every day that a lawyer decides to obtain his CPA or a student is so motivated by taxes that he decides to become a lawyer — but that’s exactly what happened to Marcus Dyer, Esq., CPA, co-leader of tax controversy at Withum. Marcus, who was raised in North Carolina, attended Duke University for undergraduate studies, achieved his master’s at the LBJ School of Public Affairs in Austin, Texas, and then moved back to the east coast to attend the University of Pennsylvania Law School. Determined to assist as many businesses as he could, Marcus never really forgot his southern roots. As he explains, he works to provide “comfort to the client.” And nowhere is that assistance needed more than in tax controversy. “Each day is a new challenge. I love defending the taxpayer against the government,” he explains.
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THE EARLY YEARS What drove Marcus to law school in the first place was his experience at the LBJ School and a subsequent internship at a tax lobbying firm. “It was my job to tell the Legislature how much revenue and cost was associated with a bill. In Texas, any bill that had a net cost was dead on arrival. Some of the legislators would ask if they could preserve the essence of the bill and take the cost components out.” In order to do that, Marcus told them he would have to change the language of the bill. So, he got started. “I had to understand the legislation, work with our counsel to try to find a way to keep the essence of the statute…I said ‘this is fun.’” He then went on to take the law school admissions test. While Marcus enjoyed taxes, he didn’t start out liking accounting. “Unlike most CPAs, I was studying things from the government standpoint…how to raise
JANUARY/FEBRUARY 2021 | NEW JERSEY CPA
PAYING IT FORWARD As an appointee to Governor Murphy’s Restart and Recovery Advisory Council and the chairman of the Foundation Board of the African American Chamber of Commerce of New Jersey, Marcus knows the importance of assisting New Jersey businesses. At the Chamber, Marcus works to provide African American business owners with “the resources they need to flourish and remain viable businesses.” And he does not take that role lightly. “If small business is the backbone of the economy, the success of African American businesses is critical if we want to uplift the economically disadvantaged communities in which these businesses tend to be disproportionately concentrated,” he says. Indeed, giving back is important to Marcus since he has had several mentors who have assisted him along the way — beginning with his uncle, Don Dyer, who was the first African American partner at PricewaterhouseCoopers; Rick Coyne, partner-in-charge at Withum; and John Harmon, founder, president and CEO of the African American Chamber of Commerce of New Jersey.
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JULY/AUGUST 2019 | NEW JERSEY CPA
