New Jersey CPA - July/August 2014 by New Jersey Society of CPAs

Magazine of the

New Jersey Society of Certified Public Accountants

Obamacare What You Need to Know Now About the ACA Medical Sector Consolidation Presents New Opportunities for CPAs Managing Health Care Costs in an Era of Reform The ACA’s Impact on Small Business

July • August 2014

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July • August 2014

features

Ralph Albert Thomas, CGMA Chief Executive Officer & Executive Director rthomas@njscpa.org

Ellen C. McSherry, CGMA

Chief Operating Officer emcsherry@njscpa.org

Don Meyer

Director, Communications & Marketing dmeyer@njscpa.org

David Plaskow

Managing Editor dplaskow@njscpa.org

Jeanette L. Miller Editorial Assistant jmiller@njscpa.org

Janice M. Celeste Multimedia Specialist jceleste@njscpa.org

Editorial Advisory Board Neil B. Becourtney, CPA Timothy A. Burley, CPA Salvatore A. Collemi, CPA Rebecca B. Fitzhugh, CPA Catherine Z. Horn, CPA Bernard M. Kiely, CPA Gregory Levine, CPA Marcella LoCastro, CPA Anthony F. Marone, CPA Marc D. Mintz, CPA Margaret Van Brunt, CPA

What You Need to Know Now About the ACA Get up to speed on the individual and employer mandates as well as the PCORI fee. Medical Sector Consolidation Presents New Opportunities for CPAs Discover how hospital mergers and the sale of physician practices can be lucrative opportunities for CPAs.

10 12

The New Jersey Society of Certified Public Accountants 425 Eagle Rock Avenue Roseland, NJ 07068-1723 973-226-4494 njscpa.org #njcpamag ReadNew NewJersey JerseyCPA Read CPA digital at digital at njscpa.org/newjerseycpa. njscpa.org/newjerseycpa.

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Managing Health Care Costs in an Era of Reform Learn how accounting firms need to think even more strategically when it comes to providing their employees with health care insurance. The ACA’s Impact on Small Business Clear up some misconceptions you may have about the Affordable Care Act’s impact on small business, and find out options to mitigate that impact.

Letter to the Editor Crazy or Creative Cover?

Close Up New Society President Looks to Get Young People Involved

24 Tax Talk Treating Personal Goodwill as Property 25 Tech Center Upgrading Your Office Phone System

News Briefs 27 Classifieds

14 A&A Buzz Health Care Entities and Bad Debts 16 Best Practices Cadillac Health Plans: Luxury or Lemon? 18 Business & Industry Insights CMS Sanctions Screening History and Best Practices 20 Financial Planning Whole Life Insurance Versus Munis in a Portfolio 21 Forensic File Voluntary/Involuntary Alimony and Taxes

34 Student Outlook What Students and 20-Somethings Need to Know About Obamacare 35 Legislative Views The View from Washington on Tax Reform 36 Member Profile Here’s to Your Health(care) Society Pages 2014/15 Chapter Presidents, 28 CPE Offerings and Events, 30 Member Benefits, 31 Get Involved, 32 NJ State Board of Accountancy Report, 33

22 Small/Sole Practitioner Trial Balance and Write-Up Software Options New Jersey CPA (ISSN 1534-6692) is published six times per year by the New Jersey Society of Certified Public Accountants, 425 Eagle Rock Avenue-Suite 100, Roseland, NJ 07068. Issue No. 46 Copyright © 2014 New Jersey Society of Certified Public Accountants. Annual membership dues includes $8 for a one-year subscription to New Jersey CPA magazine. Members may not deduct subscription price from dues. Periodicals postage paid at Roseland, NJ, and at additional mailing office. POSTMASTER: Send address changes to New Jersey CPA, 425 Eagle Rock Avenue, Suite 100, Roseland, NJ 07068-1723. The materials and information contained within New Jersey CPA are offered as information only and not as practice, financial, accounting, legal or other professional advice. The opinions expressed herein are those of the authors and not necessarily those of the New Jersey Society of CPAs. Publication of an advertisement in New Jersey CPA does not constitute an endorsement of the product or service by the New Jersey Society of CPAs.

LETTER

the

editor

Crazy or Creative Cover? Dear Mr. Plaskow, I was disappointed to say the least in the (Mar/Apr) cover of the CPA magazine. How ridiculous and inappropriate! Is this the best that you can do? Sincerely, Robert A. Blum, CPA Dear Mr. Blum, Thanks for taking the time to write. Many people seem to have a pretty strong reaction to this cover (both pro and con). I certainly could have gone the safe route of including the four complete headshots on the cover, but I felt that would have been a pedestrian approach

to an important topic. The idea was to portray that we’re all connected somehow, and the sum of our profession is greater than its parts. The designer and I actually put in quite a bit of time to get the cover to exactly where we wanted it. Whatever anyone’s opinion, it seems to be getting people’s interest and they’re talking about it which, I think, is a good thing. And, you have to admit, the articles are pretty darn good.

Magazine of the

New Jersey Society of Certified Public Accountants

March • April 2014

Diversity David Lopez Emily Vu Marcy LoCastro

Regards,

Ralph Thomas

David Plaskow Managing Editor

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New Society President Looks to Get Young People Involved B y Don Meyer, NJS CPA C ommu nications & M arketing D irector

t’s no secret: The CPA profession is getting older. In fact, by 2020, 75 percent of American Institute of CPAs members will be at or near retirement age. Over the next decade, firms, companies and state CPA societies will look to pass the baton to a new generation. Recently inaugurated New Jersey Society of CPAs President Brad E. Muniz, CPA, believes that organizations of all shapes and sizes should get young people involved now. “We more experienced professionals too often try to do everything ourselves and convey to young people that they have to earn their stripes without giving them the initiatives, opportunities or mentoring that they need to succeed; we need to empower young people,” says Muniz, who resides in Parsippany with his wife, Diane, and their three children: Allison, Emily and Nicholas. I recently sat down with Muniz to talk about his Society tenure.

How did you become involved with the Society?

It started with the Young CPAs Committee (now Council) in 1993. I participated in the annual tennis/ racquetball outing and found the group to be an invaluable source of networking and camaraderie. I then moved onto the Morris/Sussex Chapter where I served in various leadership positions, from director to president. I also chaired the Chapter Operations Committee. The Young CPAs Committee got me involved, but it was at the chapter level where I learned how to lead an organization. I also worked with the Government Relations and Sports & Entertainment committees and have been heavily involved in the New Jersey CPA Political Action Committee (PAC). I resisted PAC involvement at first, but staff helped me understand

its role and showed me the insignificant barrier to entry – I joined the PAC with just a $20 bill. Thankfully, I learned some things about governance that I’ll carry with me during my year as president. Lastly, I served in several capacities on the Society’s Board of Trustees, including trustee, secretary and treasurer.

What are your presidential goals?

Well, I’m just one of 15,000 members, so my goals have to align with those of the organization. Last year, the NJSCPA polled young CPAs about what they need and want from the Society and also asked firms for guidance on engaging younger professionals. Results showed that networking, career guidance and access to job opportunities are the most important things that the Society can do for an emerging CPA. We also found that young CPAs are interested in volunteering more with the NJSCPA, but they don’t always know what’s available. As such, this year, we’ll follow-up those efforts with focus groups with young CPAs and other at-risk groups, as well as research into how to attract young CPAs to chapter, committee and interest group involvement. Simultaneously, our Volunteer Relations Committee will continue to counsel young volunteer leaders. As a former business and industry (B&I) member, I’m also anxious to find ways to keep these members involved. Whether it’s new learning methods, career transition assistance, CPE administration or something else, we need to continue to look for ways to remain relevant to B&I members, especially as more and more accounting graduates start their careers in business and industry, rather than in public accounting. N E W J E R S E Y C P A • j u ly • a u g u s t 2 0 1 4

Any final thoughts?

First, I can’t say enough about the Society’s helpful and courteous staff. The main reason I’ve stayed involved over the years is because of them. Second, I’ve always been similarly impressed with how my fellow members are willing and able to provide guidance, answer questions and discuss career options. Sure, there have been some occasional disagreements with members, but we always manage to respect each other as colleagues and remain friends.

2014/15 Board of Trustees Executive Committee President – Brad E. Muniz, CPA President-Elect – Frank R. Boutillette, CPA Secretary – Edward I. Guttenplan, CPA Treasurer – John M. Szczomak, CPA Immediate Past President – Gerard Abbattista, CPA CEO & Executive Director – R alph Albert Thomas, CGMA Trustees Sharon J. Bishop, CPA Leonard N. Brooks, CPA William A. Cadmus, CPA Joseph C. DiFalco, CPA Michael W. Gutwetter, CPA Robert P. Herman, CPA Sarah Krom, CPA Edward G. O’Connell, CPA William J. Ryan III, CPA Audrey J. Sherrick, CPA Lorenzo T. Vanore, CPA Joseph A. Zielinski, CPA

NEWS Virtual Currency Is Treated as Property for Federal Tax Purposes

The Internal Revenue Service (IRS) has issued a notice providing answers to frequently asked questions (FAQs) on virtual currency, such as Bitcoin. These FAQs provide basic information on the U.S. federal tax implications of transactions in, or transactions that use, virtual currency. The notice provides that virtual currency is treated as property for U.S. federal tax purposes. General tax principles that apply to property transactions apply to transactions using virtual currency, such as wages paid to employees and payments made to independent contractors and other service providers. The character of gain or loss from the sale or exchange of virtual currency depends on whether it is a capital asset and information reporting. Visit irs.gov.

NASBA Releases 2013 Uniform CPA Examination School Statistics

The National Association of State Boards of Accountancy (NASBA) released the 2013 Uniform CPA Examination School Performance Book. The publication features comprehensive statistical data from all four testing windows of the 2013 Uniform CPA Examination, including full-page graphic reports for states, regions and universities, as well as a view into performance by region and program size among peer institutions. Visit nasba.org.

AICPA Benevolent Fund Assists Members in Financial Difficulty

The American Institute of CPAs Benevolent Fund offers financial assistance grants to members who face difficult circumstances beyond their financial means. Founded in

briefs 1933, the fund provides grants on a caseby-case basis, depending on financial need and circumstances. Examples include temporary living expenses and temporary medical expenses. One-time emergency grants also are available to help with natural disasters and other unexpected events. For assistance or to make a charitable gift, visit the benevolent fund webpage on aicpa. org. Questions? Call 866-527-2228 or email benevolent_fund@aicpa.org.

GASB Moves Forward with Implementation of Statement No. 68

The Governmental Accounting Standards Board (GASB) voted unanimously not to delay the implementation date of GASB Statement No. 68, Accounting and Financial Reporting for Pensions. The requirements of Statement 68 are effective for periods beginning after June 15, 2014. The request for an indefinite delay in the implementation date came from stakeholder groups that asserted that such a delay is necessary until related auditing procedures have been implemented for a sufficient period. The concern was expressed that governments in multiple-employer pension plans will receive a modified audit opinion on their financial statements in the interim. The GASB is offering a toolkit to help state and local governments implement the new pension accounting standards. The toolkit features fact sheets, articles, videos and more. Visit gasb.org.

Take the 2014 AICPA PCPS/ TSCPA National MAP Survey

The AICPA PCPS (Private Companies Practice Section) and TSCPA (the Texas Society of CPAs)

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Counties covered N E W J E R S E Y C P A â&#x20AC;˘ j u ly â&#x20AC;˘ a u g u s t 2 0 1 4

National MAP Survey covers key practice management issues that will let your firm compare its performance to other firms and gain strategic insights into building a more profitable and rewarding practice. Targeted benchmarks include billing rates, chargeability ratios and other key performance indicators. Survey results will also help accounting firms benchmark themselves against same-sized firms geographically. To take the survey, visit aicpa.org/mapsurvey. The survey deadline is July 31. Each participant will receive a free report that contains key performance metrics plus a host of additional ratios and statistical analyses.

FASB Issues Update for Private Companies on Consolidation of Variable Interest Entities

The Financial Accounting Standards Board (FASB) has issued guidance intended to improve private company financial reporting regarding consolidation of lessors in certain common control leasing arrangements. FASB Accounting Standards Update No. 2014-07, Applying Variable Interest Entities Guidance to Common Control Leasing Arrangements, is based on a consensus reached by the Private Company Council (PCC). Under current U.S. Generally Accepted Accounting Principles, a company is required to consolidate the financial reporting from an entity in which it has a controlling financial interest. The assessment of controlling financial interest is performed under either a voting interest model or a variable interest entity (VIE) model. In a VIE model, the company has a controlling financial interest when it has (1) the power to direct the activities that most significantly affect the economic performance of the entity, and (2) the obligation to absorb losses or the right to receive benefits of the entity that could be potentially significant to the entity.

To determine which model applies, a company preparing financial statements must first determine whether it has a variable interest in the entity being evaluated for consolidation and whether that entity is a VIE. The new guidance allows a private company to elect – when certain conditions exist – not to apply VIE guidance to a lessor under common control. Instead, the private company would make certain disclosures about the lessor and the leasing arrangement. Visit fasb.org.

Computerized CPA Examination Turns 10

The AICPA, NASBA and Prometric marked the 10th anniversary of computer-based testing (CBT) for the Uniform CPA Examination. One of the key enhancements was an increased emphasis placed on skills assessment through questions based on case studies – task-based simulations. Since the

launch of CBT, more than 400,000 candidates have sat for a total of more than two million sections of the exam. Prior to the conversion, candidates were able to sit for the CPA Exam only twice a year. Currently, candidates can take the exam 243 days a year at nearly 300 testing locations. Candidates now receive their scores seven to 45 days after taking a section, whereas it took 90 days to receive score results under the pencil-and-paper model. The CPA Exam is administered in 54 jurisdictions nationwide by the AICPA, NASBA and Prometric.

GASB Issues Concepts Statement No. 6

The GASB has issued Concepts Statement No. 6, Measurement of Elements of Financial Statements, which will guide the GASB in establishing accounting and financial reporting standards for U.S. state and local

njscpa.org Spotlight

CPE Tracker Allows Easy CPE Monitoring and Reporting December 31, 2014 – the end of the New Jersey triennial – is fast approaching. Do you know how close you are to completing your required CPE? A tool available on the New Jersey Society of CPAs website, the CPE Tracker, can answer that question for you. Access the CPE Tracker at njscpa.org/cpetracker and you’ll be able to: • View a report of all of the CPE you’ve earned through the NJSCPA and its 11 chapters. • See the CPE you’re scheduled to earn at upcoming courses. • Enter CPE credit you’ve earned with other providers. • Download the data for sorting and analysis in Excel. • Access a printable report of all the CPE you’ve earned. As a reminder, New Jersey CPA licensees must complete 120 credits between January 1, 2012, and December 31, 2014; earn a minimum of 20 CPE credits each calendar year; and take an approved New Jersey Law and Ethics program. For more information on the requirements and tips for renewing your license, visit njscpa.org/ triennialfaqs.

N E W J E R S E Y C P A • j u ly • a u g u s t 2 0 1 4

governments regarding the measurement of assets and liabilities. Statement No. 6 augments the framework the board employs in order to promote consistency in setting accounting and financial reporting standards. This also may benefit financial statement preparers and auditors when evaluating transactions for which there are no existing standards. Statement No. 6 establishes concepts that will inform the GASB’s decisions when setting future standards for how state and local governments determine the dollar amount at which to report assets and liabilities. It establishes two approaches to measuring assets and liabilities – initial amounts and re-measured amounts. Statement No. 6 also establishes four measurement attributes of an asset or liability that is being measured: historical cost, fair value, replacement cost and settlement amount.

What You Need to Know Now About the ACA

It seems as though there is a change made to the Affordable Care Act (ACA) every day. Even with the transition relief and recent clarifications, complying with the ACA is a challenge. Below is a summary of the major recent clarifications, upcoming due dates and updates made to the ACA that will help guide you to where it stands today. Employer Mandate

By Alyssa Rausch, CPA Smolin, Lupin & Co., P.A.

Transition relief – Employers that have 50-99 full-time employees are not subject to the employer mandate, which requires applicable large employers to pay a penalty for not providing minimum essential health coverage to a certain percentage of full-time employees, until 2016. (The effective date for employers with 100 or more full-time employees is 2015.) In addition, the percentage of employees required to have health coverage will be phased in. In 2015, the percentage will be 70 percent, and in 2016 and thereafter the percentage will be 95 percent. Seasonal worker exception – Final regulations released in February clarified what is known as the seasonal worker exception. The seasonal worker exception states that an employer is not an applicable large employer if it had 50 or more employees for less than 120 days for the year (essentially four months of the year), and the employees in excess of the 50 mark during that 120-day period were seasonal workers. N E W J E R S E Y C P A • j u ly • a u g u s t 2 0 1 4

The 120-day period is not a consecutive period. Employers starting their businesses in 2015 without a preceding year baseline period should use 2015 as their baseline period, basing it on their reasonable expectations of whether or not they expect to meet the seasonal worker exception in 2015. Businesses that do not fall clearly above or below the 50 mark should implement a process to properly count both the number of full-time employees and full-time equivalent employees today, since the determination of whether or not you are an “applicable large employer” is based on the prior year. Therefore, businesses will be deemed to be an applicable large employer in 2015 based on the number of employees they have in 2014. Monthly measurement method and look-back measurement method – Nuances of the monthly measurement method and the look-back measurement method were further detailed. Only the monthly measurement method can be used to count the number of fulltime employees. Both methods may be used to determine the penalty. Further clarification was also made with regard to how to treat an employee who is absent for a temporary period. The look-back measurement method allows employers to select the period of time that they will measure whether or not ongoing employees (as opposed to new hires) are considered full-time employees. The period of time must be a consecutive period of at least three months, but not more than 12 months.

Once an ongoing employee is deemed to be a full-time employee, then that ongoing employee will always be deemed a full-time employee regardless of whether he or she would meet the test in a subsequent period. In addition, the measurement period used by the employer may differ based on the employee category. Employer information reporting requirements due March 2016 simplified – In March, the U.S. Treasury Department simplified the rules for employers with regard to their reporting requirements. Every applicable large employer is required to report information about their health care plans to both the Internal Revenue Service and to their employees. The reports are due March 2016. Although employers who have 50-99 full-time employees are not subject to the aforementioned penalty for 2015, these employers are still subject to the employer information reporting requirements.

Individual Mandate

Relief for individuals who enrolled in ineligible government programs in 2014 – In Notice 2014-10, individuals who enrolled in certain government programs that do not meet the minimum essential health care coverage

requirements were exempt from the penalty. These government health care programs include state Medicaid programs, health care programs under Section 1115 of the Social Security Act and medical care provided under the military health system. As a reminder, the individual mandate became effective January 1, 2014. Health insurance premium tax credit and victims of domestic violence – Individuals who purchase their health insurance through the Health Insurance Marketplace may be eligible for the health insurance premium tax credit. One of the eligibility requirements to qualify for this credit is the taxpayer cannot use the filing status “married filing separately.” Notice 2014-23 clarifies that an exception to this rule is if the spouse is a victim of domestic violence. Certain victims of domestic violence that fall under this exception may claim the health insurance premium tax credit – provided the other requirements are met – and file as married filing separately.

Patient-Centered Outcomes Research Institute Fee Due July 31, 2014

Plan sponsors of small or large businesses with an applicable N E W J E R S E Y C P A • j u ly • a u g u s t 2 0 1 4

self-insured health plan and health insurance companies (e.g., UnitedHealthcare, Cigna, etc.) will be subject to the Patient-Centered Outcomes Research Institute (PCORI) fee due July 31, 2014. If a business has a third-party administrator who administers its applicable self-insured health plan, then the business should coordinate with the third-party administrator to ensure compliance and avoid inadvertently paying the fee twice. The PCORI fee will fund research on the effectiveness of the health care system conducted by the PatientCentered Outcomes Research Institute established under the ACA. The PCORI fee is the average number of lives covered multiplied by a fixed dollar amount. The PCORI fee is reported annually on Form 720 and is deductible as an ordinary and necessary business expense. Alyssa Rausch, CPA, M.B.A., is a tax manager at Smolin, Lupin & Co., P.A. She is a member of the New Jersey Society of CPAs State Taxation and Federal Taxation interest groups. Contact her at arausch@smolin. com or 862-881-4748.

Medical Sector Consolidation Presents New Opportunities for CPAs Health care has undeniably changed under the Affordable Care Act (ACA). What was the status quo just four years ago is no longer true. There’s no real guarantee you can keep your current health plan. Payment reforms required to fund the new law have largely been kicked down the road until after the next election cycle at best. But things are changing as health care moves slowly into a new reality. You can embrace the change or ignore it at your firm’s financial peril.

By Lewis D. Bivona Jr., CPA Professional Medical Management Consultants

The ACA has created many new laws and attendant regulations. If you’re a tax practitioner, you’ll be asked to help employers and individuals deal with the myriad of issues involved in the tax code changes. Are my benefit plans affordable? How can I avoid the Cadillac Tax? Will I be subject to penalties? Clients will have many questions for their trusted financial advisors.

Hospitals

Hospital mergers are expected to increase as a means of eliminating redundancies. According to a recent PwC report, hospital merger and acquisition (M&A) activity increased more than 50 percent since 2009 and continues to grow. This N E W J E R S E Y C P A • j u ly • a u g u s t 2 0 1 4

M&A activity is sure to spawn many CPA opportunities, including preacquisition audits, due diligence projects, market analyses and pro forma estimates amongst the transactional parties. You can expect regulators and insurance industry executives to hire external, unbiased professionals to evaluate these transactions to assure public benefit. Many have asserted, however, that current M&A activity has actually increased, rather than decreased, costs. The ACA, while it encourages provider alignment to streamline costs, also has provisions requiring transaction review for possible antitrust and anticompetitive issues.

Physicians

Physicians are also consolidating to create economies of scale, if not into large group or multi-group practices, then under the umbrella of hospitalowned practices. Much like hospital M&A transactions, physicians will need transactional guidance support to assist them in structuring deals to benefit their stakeholders. Physicians are much more in the driver’s seat when it comes to controlling costs, and they will expect that risk-sharing gains in a “medical home” be weighted in their favor.

Allied Health Providers

Other types of providers will also be uniting or looking to leverage their

quality or cost mitigation strengths to grab a piece of the health care reform pie. Look for large reference lab companies to run labs in hospitals, outpatient facilities and large specialty practices, because these entities focus on core practice issues yet shed responsibility for services that can be better managed by business associates. Skilled nursing facilities will bond together to manage patients who do not meet acuity standards to remain hospitalized. The new focus will be on how to manage outcomes in the most cost-effective manner, which creates limitless opportunities for health care providers that are determined to be part of the solution to managing care outcomes, not just charging per service.

CPA Practice Opportunities

While the aforementioned seems daunting, there are numerous opportunities for health care accountants to assist their clients in developing relationships, staying compliant with current laws and regulations, and advising them on business development initiatives. Key opportunities include: • Fraud prevention and forensic services engagements will continue to increase as government and commercial payors continue to develop medical necessity and billing audits. CPAs can work on both sides of this transaction.

NJ Physician Age Breakdown Under 35........................ 5% 35-44...........................26% 45-54...........................33% 55-64........................... 24% 65+...............................12%

However, be wary if you’re engaged in compliance testing on behalf of a government program or other payors, as it may harm your relationships with the provider community. In these instances, a firm with a large provider clientele may seek to perform compliance testing on behalf of the provider community only. The ACA has bulked up pre-existing compliance requirements. Your health care clients certainly don’t need treble damages, nonparticipation in insurance programs and potential severe penalties. Accountants have the computerized audit tools to evaluate billing pattern trends that can help clients maintain an effective compliance program. Also, protect your work with the attorney-client privilege. • Information technology (IT) is a huge growth market for firms with an IT assurance practice. Meaningful use payments have been used by the government as an incentive to deploy electronic medical records and billing systems. The first hurdle of meaningful use was easy to clear, the following ones not so much. The downside is that if any provider certifies it met those hurdles and has not, it is subject to incentive payment recoupment. Many providers will be looking for external validation that their incentives are earned and, conversely, the federal government will be looking for external audit sources to assure the same. • Another key IT opportunity exists for those firms that have experience in system intrusion and security N E W J E R S E Y C P A • j u ly • a u g u s t 2 0 1 4

engagements. HIPAA privacy and security regulations provide for heavy fines and mitigation costs of improper disclosure of personal health or financial information. Since many providers have both of these exposures, it would help them sleep better at night knowing that an external source has tested both personnel and system issues related to data safeguards. • Consulting services will continue to abound as providers transition into health care reform. While some services might require firms to partner with outside experts, such as coders, billing experts, actuaries and lawyers, many will not. Expect clients to be nervous about bottom-line buying decisions related to diagnostic service equipment purchases, outsourcing of non-key services and other cost drivers that encourage more frugal use of care. Modeling of acuity changes and practice variations and estimating their impacts will be key to those charged with governance. The preceding ideas are certainly not exhaustive. Stay on top of the Office of Inspector General’s Work Plan and other key information sources to keep your firm positioned for new developments in the rapidly changing health care environment. Lewis D. Bivona Jr., CPA, AFE, is president of Professional Medical Management Consultants. He is a member of the New Jersey Society of CPAs Health Care Interest Group. Contact him at lewcpa@gmail.com.

Managing Health Care Costs in an

Era of Reform

Quite often our advice for clients emanates from our own experiences as business owners and employers. Discussions regarding the Affordable Care Act (ACA) invariably start with the client asking what our firm is experiencing or how other clients of a similar size are dealing with the issues. The short answer is, like every other employer, “We’re exploring options.”

By Steven P. Bortnick, CPA Bederson LLP

a win-win. However, an expanded workforce can mandate the more stringent compliance issues of a large group, currently defined as 100 fulltime equivalent employees (FTEs), and defined as 50 FTEs effective in 2016.

The Impact of BusySeason Hours

Historically content to renew our long-standing, fully insured plan that allows us to offer participants a choice of between three plans of different benefit levels, our firm’s agent has recently presented us with a range of options that includes a self-insured plan, a private exchange platform, as well as wide-ranging benefit variations on our existing program. A longer answer is likely to entail the structure and staffing requirements of an accounting firm and where we fall within the ACA small/ large employer definitions.

Like many other accounting firms, we have a long history of client service and committing whatever resources are necessary to complete the engagement, which usually translates to long hours, sometimes in a very concentrated period. Will this type of commitment to client services distort the reality of FTE calculations at the end of each year and produce the unintended consequence of needing to micromanage staff hours in order to avoid large-group status? Actually, this seems an unlikely concern for small to regional firms as most probably already offer health care as a benefit. In a competitive employment environment, health care benefits play a key role in the employment package.

Part-Time Option

Self-Insurance

An intriguing issue to consider is that public accounting firms can successfully utilize the services of permanent parttime professionals; a good candidate is a parent whose child has grown and is returning to the workforce who has strong prior experience and existing client relationships, but is not looking for a full week’s schedule. This type of arrangement allows for continuity of staff and client engagement. It also allows for creative employment opportunities, seemingly resulting in N E W J E R S E Y C P A • j u ly • a u g u s t 2 0 1 4

It is wise to explore alternatives regarding the need for cost containment and plan design. During the latest renewal of our coverage offerings, the possibility of implementing a selfinsurance program gained noteworthy traction. The benefits seem to be various and significant. As long as the program provides the basic state coverage mandates, the employer may save money by creating plan options that exclude some of the state-mandated benefits. New Jersey has a significant

number of mandated benefits – more than most states – and these benefits add to the cost of all fully insured programs. While the firm is responsible for paying the participants’ claims, the self-insured program would still include paying premiums to an insurance carrier for a stop-loss policy to cap the total potential cost, as well as providing access to a network of hospitals and physicians. The program also includes additional monthly fees for administrative services to manage the processing and payment of claims. By self-insuring, the firm could possibly save money if the participants’ claims are less than expected. Additionally, many of the ACA taxes and fees currently imposed on fully insured programs do not apply to selfinsured programs. Furthermore, those ACA taxes and fees that do apply to selfinsured plans are scheduled to sunset in the next few years. A self-insured program’s design flexibility could allow for the inclusion of an employee wellness program, which hopefully results in less claim utilization. Under the current fully insured program, given the size of the firm, plan costs and rates are not based on utilization but, rather, are community rated. Working to improve wellness under the current program could improve morale but would never positively impact the firm’s plan costs. Perhaps most intriguing is that the plan benefits in subsequent years could be designed to maximize targeted benefits based on actual firm claim and utilization data, rather than making plan decrements provided by an insurance carrier without any confirmed indication it would impact firm utilization. The difficulties with a self-insurance program seem to be the potential for drastic fluctuations in the monthly dollar amounts needed to satisfy participant claims and the effects on the firm’s cash flows. The size of the group determines if an existing fully insured plan is community rated or experience rated. Under a self-insured program, renewal of the stop-loss policy is specifically experience-rated; therefore, heavy usage could create an untenable increase in the stop-

loss policy in subsequent years unless mitigated by the newfound ability to negotiate with many other companies to provide the coverage. The changing landscape created by the ACA requires significant time commitments to explore and learn about new options and the pitfalls of increased compliance issues. However, based on the possible magnitude of costs

and penalties, that commitment is time well spent. Clients may also be able to emulate your health care cost-savings template. This can not only be an additional revenue stream, but cement your trusted advisor status. Steven P. Bortnick, CPA, is a partner at Bederson LLP. He is a member of the New Jersey Society of CPAs. Contact him at 973-530-9113 or sbortnick@bederson.com.

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The ACA’s Impact on

Small Business

The Affordable Care Act (ACA) includes new laws and regulations that impact every aspect of our nation’s health care system: physicians, hospitals, insurance companies and many others. It imposes requirements on individuals to obtain health insurance coverage or pay a penalty. It also contains the new Employer Shared Responsibility Provisions – employer penalties imposed under certain circumstances.

By William J. McDevitt, CPA, and Karolis Matulis Wilkin & Guttenplan, P.C.

Many small business owners are worried about how the ACA will impact their employees and bottom lines. A significant percentage of them continue to misunderstand the law and, therefore, feel unprepared. In a recent Paychex survey of small business owners with 50 or fewer employees, 48 percent said they feel their business is totally prepared for the changes imposed by the ACA; 16 percent feel somewhat prepared, but still need more assistance; and 36 percent feel that they are not prepared at all. It is difficult to educate oneself on details of the ACA due to information overload (much of it wrong), together with the high emotions involved. Add to the confusion a rollout full of glitches and numerous changes to the law since its passage and it is no wonder why small business owners are left scratching their heads.

A Brief History of Employer-Provided Health Insurance

How did Americans end up with a system in which employers basically control our health insurance? In the N E W J E R S E Y C P A • j u ly • a u g u s t 2 0 1 4

early 1900s, medical care was essentially medieval, and health care spending was a very small part of the average person’s annual budget. As health care became more effective, it also became more expensive. In the early 1940s, laws were passed to encourage employers to provide insurance for their employees in an effort to promote access to health care. The basic system resulted in people with good jobs getting health care through work, while almost everyone else had to look to the government. Today, the vast majority of individuals still get their health insurance through an employer-sponsored plan, and the employers in many cases pay a significant portion of the cost. The Kaiser Family Foundation reports that 99 percent of businesses with 200 or more workers provide employee health insurance. That figure drops to 57 percent when the business has between 3 and 199 workers.

Employer Shared Responsibility Penalties

Small companies with less than 50 full-time equivalent employees (FTEs) are not required to offer health insurance and will not be subjected to any penalties for not offering health insurance to their employees. A fulltime equivalent is a combination of employees, each of whom is not individually treated as a full-time employee because he or she is not employed on average at least 30 hours per week with an employer. Beginning January 1, 2015, employers with 100-plus FTEs must offer an “affordable” and “qualified” group health insurance plan. Failure to offer this coverage may result in penalties. The requirement for employers with

50-plus FTE employees does not go into effect until January 1, 2016. Employers that fail to offer insurance or that offer insurance that is “inadequate” or “unaffordable” while exceeding the FTE threshold will be subject to the penalties. If the employer does not offer coverage, the penalty is $2,000 per full-time employee, not counting the first 30 employees. If the employer does offer coverage, but it is deemed to be unaffordable (self-only coverage exceeds 9.5 percent of an employee’s W-2 wages from the employer) and any full-time employee is certified to receive a premium tax credit or subsidy, then the employer penalty will be $3,000 per full-time employee who receives assistance in the form of the credit or subsidy. The penalty is the lesser of the $3,000 per employee mentioned above or $2,000 for each full-time employee (not counting the first 30 employees). The penalties will be calculated and paid via the business tax return and are nondeductible. One of the single most misunderstood aspects of the penalties is that employers are not required to pay for the health insurance to avoid the penalty. They are

only required to offer affordable and adequate coverage.

Employer Health Care Tax Credits Certain employers may qualify for employer health care tax credits if they have fewer than 25 full-time equivalent employees making an average of $50,000 a year or less. To qualify for the Small Business Health Care Tax Credit, the employer must pay at least 50 percent of the full-time employees’ premium costs. The employer does not need to offer coverage to its part-time employees or to dependents. The tax credit is worth up to 50 percent of the employer contribution toward employees’ premium costs.

SHOP Program

In order to make it easier for small businesses to comply, the marketplace also contains the Small Business Health Options Program (SHOP). The SHOP Marketplace works similarly to the individual marketplace and allows employers to choose different levels of coverage and how much they wish to N E W J E R S E Y C P A • j u ly • a u g u s t 2 0 1 4

pay toward employee premiums. For 2014, the SHOP Marketplace is open to employers with 50 or fewer FTEs. You can start coverage any time. Enroll by the 15th of the month, and coverage can begin on the first of the following month. You can use your current licensed agent or broker to buy health insurance in the SHOP, provided your agent or broker signs an agreement with the SHOP Marketplace. The fundamental questions that small business employers must answer were, are and will continue to be: Should we offer health care coverage to workers to attract and retain the employees we need? And, if we do, how benefit-rich should the plan be, and how do we pay for it? William J. McDevitt, CPA, shareholder, and Karolis Matulis, are with Wilkin & Guttenplan, P.C. McDevitt is a member of the New Jersey Society of CPAs Business Valuation Forensic Litigation Services and Federal Taxation interest Groups. Matulis is a CPA Candidate member. Contact the authors at 732846-3000.

A&A

buzz

Health Care Entities and Bad Debts By Joan DiSalvio, CPA, Fairleigh Dickinson University, and Paul Lynch, Fordham University

ccounting Standards Update (ASU) 2011-07, Presentation and Disclosure of Patient Service Revenue, Provision for Bad Debts and the Allowance for Doubtful Accounts for Certain Health Care Entities, was issued by the Financial Accounting Standards Board’s Emerging Issues Task Force in July 2011 for public health care service companies that report a major portion of their revenues as patient service revenue at the time services are rendered, but do not immediately assess the patient’s ability to pay. For example, hospitals must treat uninsured emergency room patients and customarily charge the standard rate; however, they do not assess the patients’ ability to pay at the time the services are rendered. Entities affected include HMOs, hospitals, emergency care and rehabilitation facilities, among others. Patient service revenue by payer type is a required disclosure and includes separation of revenue from third-party contracts and uninsured patients, for example. Additionally, the assessment of the estimate for allowance for doubtful accounts must be disclosed.

Update Objective

The goal is to provide enhanced information that will allow financial statement users to expand transparency about patient service revenue on the statement of operations. It will provide greater comparability of patient service revenue between affected health care companies who were previously using different methods of reporting and disclosing patient service revenue due to the nature of the patients served and health care services provided. Investors were concerned that patient service revenue did not reflect the amounts that companies realistically expected to collect.

What Has Changed

The affected companies are required to reclassify bad debt expense from an operating expense to a separate line item (allowance for doubtful accounts) adjacent to revenue as a deduction from patient service revenue, net of contractual allowances and discounts, in order to derive net patient service revenue. The result is that companies report lower net service revenue than they had prior to the update. N E W J E R S E Y C P A • j u ly • a u g u s t 2 0 1 4

Enhanced disclosures of policies for recognizing revenue and assessing bad debts and disclosure of patient service revenue and qualitative and quantitative information about changes in the allowance for doubtful accounts are now also required. In order to enhance comparability and transparency between companies who report patient service revenue composed of third-party patient coverage using contractual rates, as well as uninsured patients who do not qualify for charity care, companies must enhance reporting by major payer source of revenue for interim and annual periods. Disclosures must include its policy for assessing collectibility in determining the timing and amount of patient service revenue, net of contractual allowances and discounts, to be recognized. It must also disclose its patient service revenue before the provision for bad debts. Major payer sources of revenue must be identified by the entity and be consistent with how the entity manages its business. Health care service providers vary widely, and their methods of reporting and assessing

Example

Vanguard adopted the update early, and its financial statement is presented below. Provision for doubtful accounts is subtracted from patient service revenue to produce net patient service revenue: Vanguard Health Systems, Inc. Unaudited Pro Forma Condensed Combined Statement of Operations For the Year Ended June 30, 2011

bad debt were not consistent due to the nature of these differences. Rehabilitation facilities, emergency care centers, hospitals and medical group practices are different in their billing and delivery of patient service revenue. In the health care services industry, patients are not typical of other consumers of services. For example, patient service revenue may be associated with third-party payer coverage or patients who are uninsured. Therefore, there are differences in the methods for assessing uncollectible accounts that require qualitative and quantitative disclosure. Joan DiSalvio, CPA, Ph.D., M.B.A., M.S., is an accounting professor at Fairleigh Dickinson University. She is a member of the New Jersey Society of CPAs Accounting & Auditing Standards Interest Group. Contact her at disalvio99@aol. com. Paul Lynch, Ph.D., M.B.A., M.A., is an accounting professor at Fordham University. Contact him at bpalynch@fordham.edu.

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BEST

practices

Cadillac Health Plans: Luxury or Lemon? By Michael Mariano, Leaf, Saltzman, Manganelli, Pfeil & Tendler, LLP

any of us have probably heard the term “Cadillac health insurance plan,” which is basically a plan with luxurious benefit levels and/or high premiums. Many public accounting firms offer such plans to their employees and have done so for many years. However, these plans are probably a little less luxurious than they used to be 20 years ago because of adjustments over the last decade due to double-digit percent increases that have forced us all to adjust benefits to keep costs manageable. Just how will the Cadillac insurance plans fit into our future with upcoming mandates from the Affordable Care Act (ACA)? Even though the ACA is law, there are portions of it that go into effect in the future, and some of the rules have not yet been defined, so we don’t know their exact parameters. Because we will have elections between now and the start date of some of these regulations, new political climates could result in changes to those parameters.

The Tax Impact

The ACA calls for a tax on high-priced health plans starting in 2018. Highpriced plans are defined as coverage of more than $10,200 for an individual or $27,500 for a family. The tax is 40 percent of amounts above those limits, which is paid by the employer, not the employee. Many pundits believe that the limits will increase and the penalty percentage will decrease before the 2018 deadline. But thanks to government gridlock and partisan politics, who knows?

Fulfilling Its Intent?

One flaw in the way the ACA is currently established is the concept that it’s the dollar value of the plan that should be scrutinized. Yes, the excessive plans will be expensive, but they’re not the only ones. Plans with many older

or ill people will also be expensive with much more basic coverage. Therefore, you have a tax aimed at luxury that is affecting those who are getting luxury, as well as those who are elderly and those who have serious health issues. The act’s original intent – besides raising money to subsidize other parts of the plan – was to make Cadillac plans unattractive because they were thought to encourage overuse of medical care, which drives up costs. The idea is to get the whole medical industry to become more lean so that it becomes affordable to more people. At first glance, it sounds good that we should be preoccupied with the overuse of medical care. However, is that really a valid idea since many lives are saved every year through discovery of illnesses detected through what would be considered overuse of medical care?

Trends

There is already a serious shift toward cutting Cadillac plans back to get them in line with not having to pay the tax. Insurance companies are retooling the plans they offer to come in under the taxable threshold, and employers are downgrading the plans they are offering employees so as to get under N E W J E R S E Y C P A • j u ly • a u g u s t 2 0 1 4

the threshold. The trend seems to be to downgrade both the plans and the offerings in stages over the next four years so that employee impact is more gradual. The changes are usually across different aspects of plans such as deductibles, co-payments or out-ofpocket maximums. Obviously, firms (not to mention the clients they advise) are different and they will have to consider their overall plans and strategies when choosing insurance offerings. Employers used to offer highend Cadillac plans to attract and retain talent because rates to the insured were reasonable. Today, under a new health care reality, the pendulum has swung the other way and most are offering high-deductible, health savings account subsidized plans to encourage hiring and retention, minimize costs and keep more money in employees’ pockets. The aforementioned are just a few things you should be aware of so as to create best practices with regard to Cadillac health insurance plans at your organization. Michael Mariano, PHR, is the firm administrator for Leaf, Saltzman, Manganelli, Pfeil & Tendler, LLP. Contact him at michaelm@njcpafirm.com.

BUSINESS & INDUSTRY

insights

CMS Sanctions Screening History and Best Practices B y Jonathan Besler , C PA, B E SLE R C ons u lting

ndividuals and organizations are excluded from the Medicare and Medicaid programs for various reasons: fraudulent billing, patient abuse, controlled substance convictions and other prohibited activities. Congress established an “excluded person” to help deter fraud and abuse in federal health care programs and prevent payment to those convicted of program-related crimes. As a financial professional, it is critical that you play a key role in mitigating risk via screening and best practices.

Screening

In 1987, the exclusion authorities were expanded to include a variety of mandatory and discretionary exclusion types, and by the late 1990s a new Civil Monetary Penalties (CMP) authority was created to impose fines on providers that employ or contract with excluded entities. The guidelines from the Centers for Medicare and Medicaid Services (CMS) stated only that employees and vendors should be screened “routinely.” In January 2009, the CMS notified Medicaid program directors regarding the screening and sanction process. The letter recommended that Medicaid programs instruct enrolled providers that their employees should be screened against the Office of Inspector General’s (OIG’s) List of Excluded Individuals and Entities (LEIE) monthly. It was the first time that the CMS was specific about a monthly screening interval. In May 2012, the OIG referenced the state Medicaid directors’ letter and indicated that the OIG’s LEIE is updated monthly. In May 2013, the anticipated OIG guidance arrived as an update to a Special Advisory Bulletin that had originally been issued in 1999.

Excluded individuals face CMPs of up to $10,000 for each item or service furnished, in addition to assessments of up to three times the billed amount, among others.

Best Practices

Screening Frequency – Monthly screening is deemed a best practice by the OIG; however, fewer than 25 percent of providers are screening this often, if at all. Early detection of an employee or vendor who has been sanctioned can reduce potential takebacks from CMS and demonstrate a good-faith effort that may help to mitigate significant fines. Name Matching – A simple one-toone match of first name and last name is not effective screening. Consider nicknames and maiden names, among other conventions. A misspelled name on the OIG’s LEIE is no safe harbor from penalties and fines. Vendor Name Matching – There is not much to go on besides the name N E W J E R S E Y C P A • j u ly • a u g u s t 2 0 1 4

and electronic identification number. There is no birth date or middle name, and not all data sources support addresses, which are not particularly reliable. How many company names contain “health care,” “American,” “corporation?” There is also the issue of whether the word “incorporated” is spelled out or abbreviated and with or without the period. Use of Tools and Services – While finding actual matches when employees and vendors are screened is key, a close second is avoiding any unnecessary matches. Some tools provide a scoring system that compares all of the data elements available by list and calculates a probability of a match. This allows prioritization of most important results. Coordination Across Departments – Sanction screening might be handled by the compliance, IT or accounts payable department. Once monthly screening is introduced and repeated, it often prompts a wider conversation

2012 Medicare Revenue Sources

General Revenue..................... 40% Payroll Taxes............................. 38% Beneficiary Premiums..........13% Other............................................. 9%

and review of the entire screening and background check process at the provider. Documentation and Audits – If the entire process is completed internally, someone who is proficient with Excel and Access software should perform

the matching. If a software tool is used, someone will still need to manage the software and follow-up on identified matches. With the continuing focus on reducing government fraud and

waste, the emphasis on the exclusion program will continue to grow. If your company is not already screening monthly, there are compelling reasons to start doing so. A screening and best practices model is a sound approach. A full list of exclusions and the related authorities can be found on the OIG website at https://oig.hhs. gov/exclusions/authorities.asp. Also, read BESLER Consulting’s white paper on the subject at besler.com/cmssanctions-screening-white-paper/. Jonathan Besler, CPA, is the president and CEO of BESLER Consulting. He is a member of the New Jersey Society of CPAs. Contact him at jbesler@besler.com.

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FINANCIAL

planning

Whole Life Insurance Versus Munis in a Portfolio B y M itchell A. Franklin , C PA, Sy rac u se Universit y

ny properly diversified investor will have a mixture of risk and investment within a portfolio. As such, one will often have to decide between municipal bonds (munis) or whole life insurance. Each has advantages and disadvantages to consider when investment decisions are made.

Whole Life Insurance

With a whole life policy, you are purchasing a policy that remains in effect for the remainder of the insured’s life and offers a cash value investment feature that can add to one’s savings portfolio. By paying a fixed premium over the life of the insured, the insured can simultaneously maintain an insurance benefit and build savings through a cash value account. The cash value builds on a fixed schedule, and as one ages, a greater portion of the premium paid covers the insurance policy and a smaller portion is invested within the cash value. The cash value offers tax-free growth but becomes taxable income if it is withdrawn to the extent that the amount withdrawn is greater than premiums paid. Municipal Debt Holders

Banks 11%

Insurance Companies 12%

Mutual Funds 30%

Individuals 47%

Regardless of the fees and tax consequences, many prefer a whole life policy due to its liquidity as the cash value can be borrowed against it for a set interest rate per the policy. The Great Recession aside, there are many highly rated insurance companies that can make guaranteed income payments with low risk and also work with professional asset management teams to manage the cash value investment portfolios. In a straight whole life policy, the insured has no control over investment decisions, and the investments are kept fairly conservative. Historically, it is somewhat rare that these policies fail, but one could probably make better tax advantaged returns on investment, especially where fees are considered.

Munis

Municipal bonds are a long-term debt security that can be issued by most state and local government agencies. Municipalities issue these bonds to pay for road construction, school construction or other municipal projects. These vehicles offer a low default rate and are fairly low risk, but are more risky than insurance products. In many cases, the guaranteed returns on a muni can be lower than the return on a diversified cash value investment, but it produces tax-free income. The interest on a muni is tax-free income on the federal level and can be extremely beneficial to investors, especially when in a higher tax bracket. These investments can often be exempt from state tax if the investor resides in the same state as the municipality issuing the bonds. The return might look unattractive on its surface, but when adjusting for after-tax returns and the high expense N E W J E R S E Y C P A • j u ly • a u g u s t 2 0 1 4

of a whole life policy, munis are much more closely aligned with other vehicles and may produce a comparable or lower risk, especially if one has a diversified portfolio of munis through a vehicle such as a municipal bond fund. A diversified municipal bond fund can provide diversification and liquidity that is not always available through direct investment in a muni. A municipal bond fund does carry management fees and sometimes a load cost, but it is typically more cost effective than a whole life policy. This increased cost can be outweighed by the diversification available. I haven’t been a fan of using life insurance as an investment vehicle. However, it is an important part of any complete financial plan when it comes to covering needs such as mortgage payments, college tuition and other income replacement needs in the event of a primary income earner’s death. This can typically be met with less-expensive term insurance. The high fees and often limited investment options of the cash value lessen the attractiveness of cash value as investment. Munis, however, if part of a municipal portfolio, can provide taxadvantaged income at a tolerable risk level. In an appropriate tax bracket, don’t overlook the muni – as long as it is used properly by someone who fits an appropriate needs analysis. Mitchell A. Franklin, CPA, Ph.D., is an accounting professor at Syracuse University and a member of the New Jersey Society of CPAs. Contact him at mifrankl@syr.edu.

Forensic

file

Voluntary/Involuntary Alimony and Taxes B y A lexander L . Krasnomowitz , C PA, W iss & C ompan y

rom a financial perspective, alimony – also called spousal support – has significant tax consequences for both the payer and the payee. The purpose of alimony is to provide financial support to a spouse with lower income or lower income potential. It is not the same as child support. In broad, general terms, a spouse must have been financially dependent on the other spouse in order to receive alimony. Alimony calculations vary by state, and the judge takes into consideration such criteria as each person’s ability to make money, the length of the marriage, the conduct of the parties, and the health and age of the parties. Alimony payments are usually made monthly.

Voluntary Alimony

Voluntary alimony are payments not required or agreed to by a divorce decree, legal separation agreement or other legal court-filed contract and do not qualify as alimony in the eyes of the Internal Revenue Service (IRS). This means that voluntary alimony is neither reported as income by the recipient nor reported as a deduction by the payee. Voluntary alimony can still be tax deductible if it is documented by the court. If a spouse pays his or her ex-spouse payments each month which are not documented by the court, the money is not tax deductible. States with the lowest percent of divorced residents:

NJ......................................... 8.6% NY........................................ 8.8% DC........................................ 9.2% UT........................................ 9.5% PA........................................ 9.5%

Involuntary Alimony

Involuntary alimony is the amount paid or financial support dictated as a result of a legal divorce or legal separation decree. It is determined and ordered by a judge, and the payment amount and information will depend upon the situation and the judge who oversees the case. Alimony is reported as a tax deduction for the payer and is considered taxable income for the recipient who must report the full amount within the taxable income. This means that he or she must pay taxes on the alimony payments.

Tax-Deductible Alimony Criteria

In order for alimony to be tax deductible, it needs to meet certain criteria. Amounts paid under a divorce or separation decree or other written legal agreements entered into between spouses and former spouses are considered alimony for federal tax purposes only if: • The individual and spouse or former spouse do not file a joint return. • The individual and spouse or former spouse live separately. • The individual pays in cash, check or money order. This means payments made for goods, such as groceries or clothing; property, such as land or vehicles; services, such as home repairs and childcare; are not considered part of alimony and thus not tax deductible as part of alimony. • The payment is received by, or on behalf of, the spouse or former spouse. • The divorce decree or separation agreement does not say the payment is not alimony. N E W J E R S E Y C P A • j u ly • a u g u s t 2 0 1 4

• The individual has no liability to make the payment – in cash or property – after the death of the spouse/former spouse. • The individual’s payment is not treated as child support or a property settlement.

Child Support

It is important to note that child support is not considered alimony and is neither tax deductible to the person who pays it nor included in taxable income of the person who receives it. If the divorce/separation decree provides for both alimony and child support, and the individual pays less than the total required, payments first apply to child support and any remaining amount is considered alimony. Failing to report alimony on a tax return can result in an IRS audit and it is easy for the IRS to track exactly how much alimony was received, since the person paying alimony will show the deduction on his or her return. Alexander L. Krasnomowitz, CPA, M.B.A., is a litigation support partner for Wiss & Company. He is a member of the New Jersey Society of CPAs. Contact him at akrasnomowitz@wiss.com or 973-994-9400.

Small/Sole

practitioner

Trial Balance and Write-Up Software Options B y P eter J. Renz ulli, C PA

oftware for small accounting firms is getting increasingly costly and, as the owner of the firm, you must always seek more cost-effective options. Most small firms provide write-up and financial statement services to clients, and small firm owners generally believe they need both trial balance software and QuickBooks to get the job done. The issue with QuickBooks is that your end product looks like you did the work in QuickBooks. When selecting tools for your business, purchase software that can assist you with multiple tasks. Buying single-task software is expensive and may cause integration issues. As such, you can use two different types of software to create financial statements. The first is trial balance software which imports the client’s data from its accounting system and allows you to make adjustments and produce financial statements. The second is write-up software that has many of the features of the trial balance software, plus the ability to enter transactions. Some write-up software will allow the entry of accounts payable, accounts receivable and payroll, and journal entries. You may be called upon to provide both write-up and financial

statement attestation; as a result, consider the multi-task capability of write-up software over the trial balance software. Intuit currently owns approximately 80 percent of the write-up and bookkeeping software market with QuickBooks, and most accountants know and understand this software. So, instead, let’s focus on other options for small accounting firms. Drake and ATX are two examples of tax software that has a trial balance/ write-up solution that integrates with taxes. Both systems include general ledger, trial balance, accounts payable, accounts receivable and financial statement reporting. Both also have a payroll option. Their advantage is that financial statements can be downloaded directly to the tax software, streamlining tax preparation. The trial balance/write-up software in both Drake and ATX is extremely powerful and inexpensive.

ATX

ATX Accounting Suite has all the bells and whistles one expects from CCH, at an attractive price point. All you need do with Accounting Suite to prepare trial balances and financial statements is to import the data from the client’s QuickBooks or Peachtree files and then enter your journal entries. The system has intuitive reports as well as built-in or customized GAAPcompliant letters and formatting. The suite can also be used for traditional write-up services with or without automated distributions to the general ledger. Data entry is flexible, giving an accountant the choice of entering checks and deposits in journal entry format or check entry. The bank reconciliation feature also includes the ability to reconcile credit cards and bank accounts. ATX has a similar design to QuickBooks, making the transition from QuickBooks to ATX N E W J E R S E Y C P A • j u ly • a u g u s t 2 0 1 4

easier. ATX Accounting Suite lets small practitioners provide services to clients that have internal bookkeeping and clients in need of write-up services.

Drake

Drake Client Write-Up software also focuses on write-up services and can be used as trial balance software. You can easily import client data, making it simple to do journal entries and prepare financial statements. Reporting is basic and not customizable without Excel; as a result, formal typing of the financial statement is a must. Data input for write-up is done only using the journal-entry method, which means that the bookkeeper will need to know debits and credits while following the data input procedures for the software, or the bank reconciliation feature will not work properly. For the cost-minded professional, Drake offers a solid trial balance and writeup solution without fancy data entry screens or complicated bells and whistles that limit the ability to produce customized financial statement reporting. Both ATX Accounting Suite and Drake Client Write-Up are effective trial balance and write-up software solutions. They integrate efficiently with their related tax software and allow for quick and easy tracking of the supporting financials to the tax return. ATX Accounting Suite is an additional cost to the tax software and can be purchased as a stand-alone product. Drake is included with the tax software. Both systems are inexpensive and designed for the small to mediumsized practitioner. Peter J. Renzulli, CPA, is a member of the New Jersey Society of CPAs. Contact him at renzulli@bookkeepers2go.com.

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TAX

talk

Treating Personal Goodwill as Property B y Irving Jankovitz , C PA, The M ironov Gro u p, L L C

ost practitioners are aware that substantial tax savings are possible if a portion of the acquisition price of a business can be attributed to the owner of the business for personal goodwill. The characterization of the payments from the acquirer to the selling shareholder for personal goodwill could result in one level of taxation and at more favorable capital gains rates. Buying or selling a company can be summarized into three payment types: • Sale/purchase agreement required for the assets. • Payments required to be allocated to the consulting agreement. • Payments required by and allocated to the goodwill agreement. Personal goodwill attaches to an individual, rather than a business, and differs from business goodwill. It is present when the unique expertise, reputation or relationships of an individual give a business its intrinsic value. Consider a mom-and-pop grocery store. Customers would probably find better selections and prices at the local Wal-Mart. However, they may continue to shop at the grocery store because they are loyal to the owners. If the owners retired, the business might lose its customers and much of its value. Essentially, mom and pop are the business, and the business derives its intrinsic value from them because they possess personal goodwill. Personal goodwill is often found in professional corporations, which are able to offer unique services due to the owners’ education and skills. Here, personal goodwill is called professional goodwill. Courts have been more open to recognize personal goodwill in a professional setting because it is easier to see how a professional, (e.g., lawyer, surgeon) gives a business its return on value. This, however, does not mean

that the law should afford different treatment to nonprofessionals, provided they, too, are shown to own personal goodwill. Instead, the fundamental inquiry is whether a business or its owner, professional or nonprofessional, possesses the value sought by a buyer. Courts have held that personal goodwill, or at least professional goodwill, is property that can be bought and sold. Two well-known cases are Martin Ice Cream (MIC) and Norwalk v. Comm. (Norwalk). Both cases adopted a view that personal goodwill is property that can be transferred, and the shareholders owned personal goodwill which was intangible property. IRS TAM 200244009 provides additional guidance on the ability to sell personal goodwill by indicating that it cannot be transferred or sold separately when an employment contract and a noncompete agreement exist. In the court’s view, the fact that the shareholder of MIC never entered into a noncompete or employment agreement with MIC indicated that the shareholder had never transferred his rights to any relationships or expertise he may have had and, therefore, they remained his personal property. In Norwalk, the court acknowledged that even when a corporation is dependent on a key employee, that employee cannot own the goodwill if the employee has entered into a covenant not to compete – or similar agreement – under which the employee’s personal relationship with clients may become the corporation’s property. Norwalk had a covenant not to compete, which ceased after seven years when the employment agreements expired. He was no longer a shareholder and, thus, no longer obligated to the corporation after it ceased to operate upon its termination and liquidation. N E W J E R S E Y C P A • j u ly • a u g u s t 2 0 1 4

Unlike in Howard, 2010-2 USTC (July 2010), the court concluded that Howard was a corporate employee with a covenant not to compete, which extended for three years beyond the stock sale. When an employee works for a corporation under a contract with an agreement not to compete, the corporation – not the individual – owns the goodwill. That the goodwill may be generated from the professional’s work does not make the goodwill personal goodwill. Personal goodwill is property belonging to the professional that can be transferred or sold separately as long as there is no employment contract or noncompete agreement between the professional and the business. Ownership of this intangible cannot be attributed to the employer, as the shareholder retains ownership of this property and can be separately bargained for when negotiating the sale of a business. Irving Jankovitz, CPA, is a tax partner at The Mironov Group, LLC. He is a member of the New Jersey Society of CPAs State Taxation and Federal Taxation interest groups. Contact him at ijankovitz@mironovgroup.com.

TECH

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Upgrading Your Office Phone System B y Thomas M. Angelo, C PA, Spire Gro u p, PC

ith April 15 in the rearview mirror, many firms are working on upgrading their technology for next tax season. Maybe it’s adding a couple of workstations or giving staff some new tablets. While we’re all intrigued by our mobile devices as our primary communication tool, the office phone system is still a vital component of any office, and today’s systems not only provide you with basic service to talk with clients and prospects, but the right system can help you stay mobile and connected and allows you and your staff to continue to work from anywhere.

System Types

phone system is hosted in a data center. The phones connect to your local area network in a similar fashion as your computers. This technology allows all of the maintenance, updates and redundancy to be maintained by the hosting provider. In addition, it allows you to have phones anywhere – including residences, remote offices and anywhere there is an Internet connection. The second type of system is the on-premise phone system. Here, the actual server is located in your office. The phones are connected to the server using your local network as before, but

There are many choices in phone systems today; however, the first decision to make prior to any purchase is if you want to purchase all of the equipment and manage the system on site, or if you want to manage the phone system from the cloud. Many CPA firms are moving their applications to the cloud and, in some cases, they’ve moved away from their on-premise server, and all of their files, emails and applications are stored or hosted in the cloud. The same technology can be utilized for your office phone system. In a cloud-hosted phone system, the actual

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now the actual control and maintenance of the phone system is done from your office. With an on-premise system, you need to connect the server to the outside world using several options. First, you can utilize existing telephone lines from your phone company or cable provider. The second, and more popular option for growing businesses, would be to utilize Voice over Internet Protocol (VoIP). The real benefit to using VoIP is

Percent of U.S. Households with a Landline Phone

1998............................... 96% 2005............................... 90% 2011................................71%

that as your business grows, you can add more VoIP trunks – which are similar to telephone lines – without changing phone system equipment or adding wiring. VoIP is also often cheaper than traditional analog lines.

employees’ homes so they can make calls from your office phone system. This is essential for inclement weather and limiting the amount of time your staff spends in the office during busy season.

Features

As you can see, there are many choices when upgrading your office communication system that can increase your productivity, extend the walls of your office to almost anywhere and save you money on your phone bill. The key is to engage a professional to help determine the right system for you and develop a list of necessary features. While there are many providers out there, perform your due diligence to ensure that you are both using a reputable company and maximizing your investment. Happy dialing.

It’s important to add features that you may not have had before, but which add to your productivity or perhaps enhance your ability to work remotely while continuing to stay in touch with your clients and colleagues. Here are some features to consider when upgrading your phone system: Voicemail to Email – When your clients leave you a voicemail message, the phone system will email you and deliver your voicemail to your inbox so that you can play it from your laptop or mobile device. Mobile Device Integration – If you choose a system that has an integrated smartphone application, you can make and receive calls on your mobile device using your business phone number. Remote Phones – With many of today's VoIP phone systems, you can place phones in your and your N E W J E R S E Y C P A • j u ly • a u g u s t 2 0 1 4

Thomas M. Angelo, CPA, CITP, is a partner at Spire Group, PC, and a partner in Spire IT, LLC, its technology division. He is a member of the New Jersey Society of CPAs Technology and Nonprofit interest groups. Contact him at tangelo@ spirecpa.com or 732-381-8887.

CLASSIFIEDS Mergers/Acquisitions The Curchin Group, LLC, a central NJ, Monmouth County firm is seeking to merge-in near-retirement sole practitioners and small firms needing succession planning. Other individuals seeking growth and expansion are welcome to inquire. Initial practice continuation also an option. Reply in confidence to Peter Pfister, CPA, at 732-747-0500 or ppfister@curchin.com. New Jersey practices for sale: Woodbridge CPA practice, $100K gross; Newark EA practice, $190K gross. For more information, call Bradley Holmes at 800-397-0249 or visit accountingpracticesales.com to view all listings and register for free email updates. Morris County CPA firm with retirement-minded partner seeks CPA to acquire practice. Remaining partner and key employee will stay on during transition. Practice is 95 percent tax prep, grosses $450K and is peer reviewed. Call 973-971-9966 or email pgmcpa@aol.com. Thinking of selling your practice? Accounting Practice Sales is the leading marketer of accounting and tax practices in North America. We have qualified buyers waiting and the experience to help you find the right fit for your firm and negotiate the best deal possible. For information about our risk-free and confidential services, call Bradley Holmes at 800-397-0249 or email bradley@apsleader.com. Buyers see listings and register for free email notifications at accountingpracticesales.com. Seize a merger/acquisition opportunity with benefits for you. Tired of dealing with issues of running a firm? We are looking for firms ranging from $300,000 to $5,000,000 eager to combine forces as we continue to grow across northern NJ, Westchester and the Hudson Valley region. Goldstein Lieberman & Company is ideally situated to service all types of industries. Visit glcpas.com; email me, Phillip Goldstein, CPA, managing partner, philg@glcpas.com; or call 800-839-5767 to have a confidential conversation. Traphagen Financial Group, 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 $300,000 to $700,000. This is an opportunity to align with a quality firm while continuing to provide your clients with exceptional service. To confidentially discuss this opportunity, please email us at iaishia@tfgllc.com.

Parsippany, NJ. Three-partner CPA firm seeks retirement-minded practitioner to merge/acquire practice ranging from $100K and up. Please contact Carl Gutt 973-451-0800 x22 or cgutt@dglcpa.com. Established West Essex CPA, sole practitioner with staff seeks CPA to employ with small or no practice for ultimate buyout. Tax and nonprofit audit experience. Reply to rmcpa@verizon.net. Young Union County CPA firm is looking to acquire a firm in the $300,000 to $800,000 range. Please contact Spiro Leunes at 908-358-0503 or sleunes@llicpa.com. Bergen County CPA, established $500K practice, two staff, seeking association with fellow practitioner or small firm for synergy, efficiency and strategic growth. Will consider merger, office/practice sharing in your space if suitable, or relocation. Contact Steven DelSanto at 201-784-5600 or steven@defreitasdelsanto.com. Well-established Essex County firm seeks small to medium-sized firms contemplating client services succession and/or expansion. We put our clients above all else. Office space accommodates 30-plus. Contact us to align with a growing brand of CPAs like you. File 12213

Professional Services Are you a CPA firm that needs to outsource your write-up practice? Do you have clients that need professional bookkeeping or outsourced controllership? We provide you with these services using cloud technologies, and all work is overseen by a CPA. Contact us at 973-835-1431; stratusbusiness.com. Buchbinder Tunick & Company LLP, Certified Public Accountants. Over 70 years of service. Engage our dedicated team to assist your firm with peer review services and quality control services. Our services include engagement inspections and monitoring, design of quality control systems, system reviews, engagement reviews. Contact Vincent Gaudiuso, CPA, at 212-896-1920 or vgaudiuso@buchbinder.com. Add a wealth management division to your accounting practice. Successful Bergen County high net worth financial planning and money management firm wants to work with your firm to create a financial services division. For 30-plus years we have been successfully implementing professional partnerships with CPA firms to increase their revenues by offering financial products to their clients. Contact Steven Kolinsky at 201-474-4012 or skolinsky@kolinskywealth.com. N E W J E R S E Y C P A â&#x20AC;˘ j u ly â&#x20AC;˘ a u g u s t 2 0 1 4

Real Estate Real estate appraising/consulting. Commercial/industrial/residential; expert witness; business valuations. Contact Charles A. McCullough, CPA, M.B.A., State Certified General Real Estate Appraiser, American Society of Appraisers member: cmccullough@camcpavalue.com, 609-923-5879; renwickandassociates.com, 856-779-7050. Classified Advertising Replies to ads with file numbers should be sent to: File______________________ New Jersey CPA Classifieds 425 Eagle Rock Avenue, Suite 100 Roseland, NJ 07068-1723 To see additional classified listings or to place an ad, visit njscpa.org/classifieds.

ADVERTISERS INDEX For advertising opportunities, contact: Companies A-L Aileen Kronke 770-431-0867 x212/aileen@lionhrtpub.com Companies M-Z John Davis 770-431-0867 x226/jdavis@lionhrtpub.com Accounting Practice Sales accountingpracticesales.com

Intuit 23 quickbooksonlineaccountant.com Investors Bank myinvestorsbank.com

PNC Bank C4 pnc.com Qualcare, Inc. C2 qualcareinc.com Smolin Lupin C3 smolin.com The Estate Planning Team myept.com

USA VoIP Systems usaphone.com

Wilkin & Guttenplan wgcpas.com

WithumSmith+Brown 31 withum.com Xcel Federal Credit Union xcelfcu.org

SOCIETY

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2014/15 Chapter Presidents Atlantic/Cape May

Essex

Teresa L. Zipf, CPA, Financial Consultant, Benjamin F. Edwards & Co., Northfield, joined the New Jersey Society of CPAs in 1997. In the Atlantic/Cape May Chapter, she has served as vice president, secretary, treasurer and director. She has also served as a member of the NJSCPA Professional Development Conference Task Force. This is Zipf’s second term as president. Zipf is a member of the American Institute of CPAs. Zipf earned her A.S. in business administration from Atlantic Cape Community College and B.A. in accounting from Richard Stockton College of New Jersey. She is also a Certified Financial Planner. She resides in Egg Harbor Township.

Noorus S. Khan, CPA, Manager, Smolin Lupin & Co., P.A., Fairfield, joined the New Jersey Society of CPAs in 2004. In the Essex Chapter, she has served as vice president and director. She has also served as a member of the NJSCPA Student Programs & Scholarships Committee. Khan is a member of the American Institute of CPAs and vice president of finance/treasurer of the North Essex Chamber of Commerce. Khan earned her B.S. in accounting from William Paterson University. She resides in Pompton Lakes.

Hudson

Bergen

Juan (Adele) Peng, CPA, Tax Senior, O’Connor Davies, LLP, Cranford, joined the New Jersey Society of CPAs in 2011. In the Hudson Chapter, she has served as treasurer and secretary. Peng is a member of the American Institute of CPAs. Peng earned her M.S. in accounting from St. Peter’s University. She and her husband, Zhenfeng, reside in Harrison.

George E. Williams, CPA, Partner, Ross, Rosenthal & Company, LLP, Morristown, joined the New Jersey Society of CPAs in 2001. In the Bergen Chapter, he has served as vice president, secretary, treasurer and director. He has also served as a member of the NJSCPA Educators, Financial Literacy, and Student Programs & Scholarships committees; Business Valuation Forensic Litigation Services, Federal Taxation, Nonprofit, State Taxation and Technology interest groups; and the Department of Labor Work Group. Williams is a member of the American Institute of CPAs, American Bar Association, American Association of Attorneys, New York County Lawyers Association and the New York State Bar Association. In his community, Williams is an adjunct professor of accounting at Bergen Community College, treasurer for the Bergenfield Swim Club and has served as a councilman for the Borough of Bergenfield. Williams earned his B.S. in accounting from William Paterson University, J.D. in law from Seton Hall University and LL.M. in taxation from New York University. He and his wife, Michele, reside in Bergenfield and have three daughters.

Mercer

Susan D. Gola, CPA, Senior Consultant, Real Possibilities, Skillman, joined the New Jersey Society of CPAs in 1995. In the Mercer Chapter, she served as vice president, secretary, treasurer and director. Gola is a member of the American Institute of CPAs. In her community, Gola has served as treasurer for the Princeton Country Dancers. Gola earned her A.A.S. in accounting from Mercer County Community College, B.A. in speech communications from Allegheny College and B.S. in business administration from Thomas Edison State College. She resides in Lawrenceville.

N E W J E R S E Y C P A • j u ly • a u g u s t 2 0 1 4

Middlesex/Somerset

Passaic County

Samuel E. Schneider, CPA, Senior Accountant, Taylor Management Company, AAMC, AMO, Whippany, joined the New Jersey Society of CPAs in 2005. In the Middlesex/ Somerset Chapter, he has served as vice president, secretary and director. He has also served on the NJSCPA Tomorrow’s CPA Editorial

Jonathan L. Colgary, CPA, Manager, Bederson LLP, Fairfield, joined the New Jersey Society of CPAs in 2007. In the Passaic County Chapter, he has served as vice president, secretary, treasurer and director. He has also served as a member of the NJSCPA Accounting & Auditing Standards Interest Group. Colgary is a member of the American Institute of CPAs. Colgary earned his B.S. and M.B.A. in accounting from Fordham University. He and his wife, Kara, reside in Wayne and have two daughters.

Advisory Board. Schneider is a member of the American Institute of CPAs. Schneider earned his B.S. in accounting from The College of New Jersey. He resides in Aberdeen.

Monmouth/Ocean

Southwest Jersey

Michael T. Adago, CPA, Senior Manager, The Curchin Group, LLC, Red Bank, joined the New Jersey Society of CPAs in 2004. In the Monmouth/Ocean Chapter, he has served as vice president, secretary, treasurer and director. He also serves as a member of the NJSCPA Student Programs & Scholarships Committee. Adago is a member of the American Institute of CPAs. Adago earned his B.S. and M.S. in accounting from Kean University. He and his wife, Stephanie, reside in Old Bridge and have a daughter and a son.

Jatinder Singh, CPA, Owner, Account Vision LLC, Mount Laurel, joined the New Jersey Society of CPAs in 2007. In the Southwest Jersey Chapter, she has served as vice president, secretary, treasurer and director. She has also served as a member of the NJSCPA Technology Interest Group and the Accounting & Auditing and Tax resource groups. Singh is a member of the American Institute of CPAs. Singh earned her B.S. in accounting from Drexel University. She and her husband, Rai, reside in Marlton and have two daughters.

Morris/Sussex

Union County

Michael Gilchrist, CPA, Principal, Fischer Barr & Wissinger LLC, Parsippany, joined the New Jersey Society of CPAs in 2005. In the Morris/ Sussex Chapter, he has served as vice president. He has also served as a member of the NJSCPA Accounting & Auditing Standards Interest Group. In his community, Gilchrist serves as treasurer of the Morristown Toastmasters and treasurer of the Court Appointed Special Advocates of Morris and Sussex counties. Gilchrist earned his B.S. in accounting from Seton Hall University. He and his wife, Lisa, reside in Randolph and have a son.

Michael J. Herlihy, CPA, Senior Accountant, United Water Resources, Inc., Harrington Park, joined the New Jersey Society of CPAs in 2009. In the Union County Chapter, he has served as vice president, secretary, treasurer and director. He has also served as a member of the NJSCPA International Taxation Committee and the Business Valuation Forensic Litigation Services; Estate, Trust & Gift Taxation; Federal Taxation; Health Care; Personal Financial Planning; State Taxation; and Technology interest groups. Herlihy is a member of the American Institute of CPAs. Herlihy earned his B.S. in accounting from Kean University. He and his wife, Gleny, reside in Bloomfield and have two sons.

N E W J E R S E Y C P A • j u ly • a u g u s t 2 0 1 4

SOCIETY

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CPE Offerings and Events Upcoming Education Foundation Events Date

Event/Code

Location

CPE Credit

8/7

Auditing for Internal Fraud (E1408223)

Iselin

8/AA

8/8

Internal Control Essentials for Accountants and Auditors (E1408233)

Iselin

8/AA

8/11

Accounting for Business Combinations (E1408133)

Roseland

8/AA

8/12

FASB Review for Business and Industry (E1408123)

Roseland

8/AA

8/13

Advanced Excel (E1408253)

Roseland

8/MT

8/13

New Jersey Law and Ethics Webinar (E1408014)

N/A

4/PE

8/14

Paperless Office (E1408263)

Roseland

8/MT

8/15

Top Accounting Solutions – Cloud and On-Premise (E1408273)

Roseland

8/MT

8/18

Loscalzo’s 2014 FASB and AICPA Update (E1408021)

Atlantic City

8/AA

8/18

Yellow Book: Government Auditing Standards (E1408061)

Atlantic City

8/AA

8/18

Annual Update for Controllers (E1408073)

Atlantic City

8/MT

8/18

Getting More Active with the Passive Activity Rules and the New Net Investment Income Tax (E1408151)

Atlantic City

8/TX

8/19

A Practical Guide to Small Business Health Insurance and Fringe Benefits: 2014 and Beyond (E1408163)

Atlantic City

8/TX

8/19

Governmental and Not-for-Profit Annual Update (E1408081)

Atlantic City

8/AA

8/19

Advanced Controller and CFO Skills (E1408093)

Atlantic City

8/MT

8/19

Loscalzo’s Deceptive Revenue Recognition and Other Accounting Techniques – Recognizing the Warning Signs (E1408033)

Atlantic City

8/AA

8/20

Compilation and Review Standards: Current Issues and the Future of Financial Reporting (E1408041)

Atlantic City

8/AA

8/20

Not-for-Profit Accounting and Reporting: From Start to Finish (E1408101)

Atlantic City

8/AA

8/20

Financial Forecasting and Decision Making (E1408113)

Atlantic City

8/MT

8/20

The Best Individual Income Tax Update Course by Surgent (E1408141)

Atlantic City

8/TX

8/22

Choosing the Best Entity Structure Under the New Tax Law in 2014 (E1408171)

Voorhees

8/TX

8/22

Audit Workpapers: Documenting and Reviewing Field Work (E1408241)

Roseland

8/AA

8/27

Advanced Real Estate Accounting, Auditing and Taxation (E1408203)

Freehold

8/AA

8/28

Construction Contractors Advanced Issues (E1408211)

Freehold

8/AA

8/29

AICPA’s Annual Update: Top 12 Governmental and Not-for-Profit Accounting and Auditing Issues Facing CPAs (E1408251)

Freehold

8/AA

9/4

Advanced FASB Review: Complex GAAP Issues (E1409223)

Iselin

8/AA

9/5

Revenue Recognition (E1409233)

Iselin

8/AA

9/8

Comprehending OMB Circular A-133 (E1409241)

Roseland

8/AA

9/9

Applying OMB Circular A-133 to Not-for-Profit and Governmental Organizations (E1409361)

Voorhees

8/AA

9/9

Yellow Book: Government Auditing Standards (E1409051)

Iselin

8/AA

9/10

Not-for-Profit Accounting and Auditing Update (E1409061)

Roseland

8/AA

9/11

Accounting and Reporting for Not-for-Profit Organizations (E1409071)

Roseland

8/AA

9/12

Advanced Auditing of HUD-Assisted Projects (E1409251)

Iselin

8/AA

9/15

Forensic Accounting Investigative Practices (E1409263)

Iselin

8/AA

9/15

Public Company Update: SEC, PCAOB and Other Developments (E1409283)

Roseland

8/AA

KEY CS – Consulting Services EC – Economics MC – Multiple Categories PD – Personal Development PE – Professional Ethics PM – Practice Management SK – Specialized Knowledge TX – Taxation Please note: Events are subject to change. For a full listing of all NJSCPA events, visit njscpa.org/catalog.

AA – Accounting & Auditing MT – Management

N E W J E R S E Y C P A • J u ly • a u g u s t 2 0 1 4

NJSCPA Member Benefits Can Enhance Your Job Search Efforts To help you create an integrated job search approach that will help you land the job that’s right for you, the New Jersey Society of CPAs has developed a resource guide that highlights the member benefits to tap into for your search. Visit njscpa.org/transition to explore these and other benefits: Chapters, Interest Groups and Committees – Get involved to network and learn with other members who share your interests. Connect – Reach out to your fellow members, use the membership directory and ask technical, management or administrative questions via the Open Forum on Connect. Leave of Absence Membership Dues Category – Unemployed members pay $89 per year and still receive the same level of benefits. LinkedIn – Join the NJSCPA LinkedIn group to make contacts, keep in touch and find resources 24/7 with members and other professionals.

Member Benefits Marketplace – Save money on business and leisure products and services. Members in Transition Connect Community – Converse with other members in a dedicated online support and networking group on Connect for NJSCPA members seeking employment. Online Job Bank – Post your résumé, search available jobs and find other job search resources. Professional Development – Sharpen your skills, increase your knowledge and earn CPE at conveniently located conferences and seminars – all at special member pricing. Publications – Stay current on the accounting profession with Society publications such as New Jersey CPA and NJCPA Pulse. If you have any questions about these or any other member benefits, contact the NJSCPA Membership Department at 973-226-4494 or membership@njscpa.org.

Great leaders in business not only set the bar for themselves, but inspire and empower others to push to new heights. Frank Boutillette, CPA/ABV, CGMA, Partner, makes his imprint every day with his enthusiasm for the growth of our Firm and the accounting profession, influencing today’s business professionals to lead through action and passion. WithumSmith+Brown congratulates Frank Boutillette, the incoming President Elect of New Jersey Executive Committee of the NJSCPA.

N E W J E R S E Y C P A • j u ly • a u g u s t 2 0 1 4

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Get Involved Google Sheets or Microsoft Excel? Excel is clearly the spreadsheet market leader. Or is it? Google Sheets has become a significant player. New Jersey Society of CPAs Technology Interest Group members Christopher R. Whalen, CPA, and Tony Novak, CPA, weigh in on the spreadsheet battle.

Christopher R. Whalen, CPA: Google Sheets Is for Me Google Sheets is part of Google Drive, a web-based application suite and cloud-based storage program. There’s no cumbersome sharing of spreadsheets via emails when operating in the cloud. Google Sheets offers advantages that increase profitability, customer satisfaction and retention, and efficiency. Here’s why Google Sheets is for me: Off-Site Data Backup – Many clients have inadequate data backup strategies. Having off-site data archives is a must, and Google Drive offers it. But, unlike other cloud-based storage solutions, you can access and change this data directly and in real-time. You can easily back up your data to your local servers, and Google Drive acts as an additional cloud-based hard drive. Collaboration – Share spreadsheets as read-only or with full editing rights. My staff has full access simultaneously to all of the spreadsheets I use (e.g., tax return tracking, write-up) in their web browsers. There’s no need to open a program. All changes are saved to the master file online, and all users see the changes instantly. Also, collaborating with clients is extremely easy. I can “own” a spreadsheet and give access to clients to update as needed through a browser. With all participants viewing the shared spreadsheet simultaneously, I can remotely explain data within the spreadsheets to management and train client staff on spreadsheet use and procedures. Any Platform, Any Time – With Google Drive Applications, the same data is available on all devices simultaneously: desktops, netbooks, tablets, smart phones. This creates a true virtual space that follows you and gives the user true control over the data, whereas in the past the location of file storage – usually in the office – controlled you. This exponentially increases productivity, customer service and flexibility. Price – For most, the Google suite of applications and its associated storage (15 GB) are free. Anyone can create a Google Drive account. Security – The one caveat to Google Sheets is that when items are stored in the cloud there is increased risk of data breach.

Tony Novak, CPA: I’m a Microsoft Excel Guy

scenarios where data mining from my Office and Excel documents would not be appropriate or desirable. Allegations stemming from a recent series of lawsuits against Google for alleged inappropriate use of user data are disturbing, and I prefer to avoid those risks. Dependability – Reliability and support are impeccable. I’ve been using Office for 20-plus years and see no reason to switch now. Features and Functionality – It’s easy to cut and paste or import/ transfer from one Office application to another. I usually transfer Excel data to/from Word documents and OneNote and occasionally to PowerPoint. The included services with Microsoft Office are great: OneDrive for storing and sharing, and Skype for collaborating. These are generally recognized as best-in-class services. I have not used Excel to share within a Skype call and would concede that Google Sheets is recognized as having an advantage there. Value and Quality – At around $10 per month, it’s a phenomenal value. I can have five PCs and five tablets, and each household member can have his or her own account. The business, government agencies and professional firms I work with prefer a Microsoft Office environment. Job descriptions I see commonly indicate “competency with Microsoft Office required,” rarely do I see a similar statement about Google Apps. Word has more features than Docs, and Excel has more features than Sheets. I understand that free is good, especially where you want mass deployment of sharing. In those cases, Google Docs might be the way to go. I also understand that there’s some resentment against Microsoft for its tactics to dominate the market, but I believe that issue is completely outside the scope of this comparison. In my professional practice, Microsoft Office and Excel are clearly the preferred choices.

NJSCPA Volunteers Answer Tax Questions

At the height of tax season, 16 Society members graciously volunteered their time and expertise to answer questions from 430 members of the public during the annual NJSCPA tax-season call-in program at the Asbury Park Press and News 12 New Jersey. “It’s really a useful service because many of the callers are elderly and on a limited income to pay for tax services,” said Neil B. Becourtney, CPA, CohnReznick LLP. “Callers are truly appreciative,” explained Chistopher M. Arunkumar, CPA, Breakpoint Assurance Company. “It’s a very good feeling that you are able to do this pro bono.”

In an informal poll in the LinkedIn CPA Sole Practitioners forum, seven out of seven CPAs who responded indicated a preference for Excel. Here’s why I’m a Microsoft Excel guy: Protection – Since I am contractually paying for Microsoft’s best efforts to protect my data and make its services available, I should have legal recourse in the event that these basic expectations are not met. I pay for data privacy to the maximum extent possible. Conversely, Google is fundamentally a data mining firm that uses apps and sheets to gather data for marketing purposes. I can imagine

N E W J E R S E Y C P A • j u ly • a u g u s t 2 0 1 4

Many thanks to these members for being so generous with their time: John Apisa, CPA O’Connor Davies, LLP Christopher M. Arunkumar, CPA Breakpoint Assurance Company

Peter Traphagen Jr., CPA Traphagen Financial Group

Marcia A. Geltman, CPA Nisivoccia LLP Edward A. Lempka, CPA Edward A. Lempka, CPA

Let the NJSCPA know you want

Peter J. Marchiano, CPA Peter J. Marchiano, CPA

Get Involved Now

Neil B. Becourtney, CPA CohnReznick LLP

Stephen J. Mazur, CPA Mazur & Associates, CPAs and Business Advisors PC

David Eliran, CPA I. David Eliran, LLC

Pat J. Pepe, CPA Pat Pepe, CPA

Pishoy Fahmi, CPA PNF Accounting, LLC

Joseph R. Petrucelli, CPA PP&D Accounting Services, Inc.

Anthony J. Falcone, CPA Anthony J. Falcone, CPA

Barry D. Shapiro, CPA WithumSmith+Brown

Robert A. Fodera, CPA ParenteBeard, LLC

James A. Toto, CPA WeiserMazars LLP

to make a difference by completing your Volunteer Interest Profile at njscpa.org/getinvolved.

Volunteer opportunities are available throughout the year. Let us know how you’d like to be involved at njscpa.org/getinvolved. Here is an activity that needs your support now: NJSCPA Student Ambassador – Student members are needed to reach out on their college campuses and encourage students to consider accounting as a career choice as well as publicize NJSCPA programs, such as scholarship opportunities, Career Night, Scholars Institute and membership, to their fellow students. Student Ambassadors can earn monthly rewards plus win a trip to the NJSCPA Annual Convention & Expo. Contact Lauren Matullo at lmatullo@njscpa.org or 973-226-4494 x241, or complete the application online at njscpa.org/ambassador.

NJ State Board of Accountancy Report Firm Mobility Approved Newark (May 15) President Remark’s

Board President John F. Dailey Jr., CPA, congratulated previous Executive Director William Mandeville on his recent retirement and thanked him for his service to the board. Dailey indicated there is a new board member David J. Milkosky, CPA, from EY.

Public

Andrew L. DuBoff, CPA, indicated that the National Association of State Boards of Accountancy and the American Institute of CPAs joint committee approved a proposal on firm mobility which will now become part of the Uniform Accountancy Act. New Jersey Society of CPAs CEO and Executive Director Ralph Albert Thomas,

CGMA, congratulated Mandeville and wished him well during his retirement. Thomas discussed legislation that would allow the governor to choose either a Public Accountant (PA) or a Certified Public Accountant for either/both of the two PA slots on the NJ State Board of Accountancy. The measure heads to the NJ Assembly for a vote.

Legislative Matters

The board voted to accept as information, but not to comment on, A1254, which would require certain civil actions against certain licensed persons to be brought within two years. The board voted in favor of A2460, which would waive certain professional and occupational licensing fees for veterans and spouses of veterans.

Committees

Reciprocity – The committee received an inquiry from the Arizona Board of Accountancy regarding how New Jersey handles an international reciprocity application. The board will discuss.

Magazine of the

New Jersey Society of Certified Public Accountants

September • October 2014

September/October – Coming Attractions

Soft Skills l l l l

Client Relationships Digital Soft Skills Branding Yourself as a Leader Managing Interpersonal Conflict

N E W J E R S E Y C P A • j u ly • a u g u s t 2 0 1 4

STUDENT

outlook

What Students and 20-Somethings Need to Know About Obamacare B y Conor P. H iggins , B entley University

Insurance Exchanges

he Affordable Care Act (ACA), aka Obamacare, has been controversial since its inception. While lawmakers, lobbyists and citizens have continually debated the economic, social and ethical merits of the act, Obamacare is no less a reality. Arguments from both sides have created confusion about the act, making it difficult for individuals and businesses to understand their options. Young professionals, who may be new to the idea of obtaining their own health care, are especially impacted by Obamacare. It is essential that you possess a complete understanding of the act and how it affects you to ensure that your health and your wallet remain in good condition. Even though those already insured via a benefit plan at work are not directly impacted by the ACA, it still contains three key elements that everyone should understand: Medicaid expansion, insurance exchanges and the individual mandate.

Medicaid Expands

Medicaid, a social assistance program for low-income individuals, is set to expand under Obamacare and is available to individuals whose income is less than $15,521. New Jersey is currently one of 25 states that is set to expand the program.

Insurance exchanges allow those who are uninsured to compare plans and purchase one that fits their needs and budgets. Financial assistance, while not guaranteed, is available to individuals from low- to middle-income households. While 16 states have created a statebased marketplace, New Jersey and the majority of states are using healthcare. gov, which is the current federally facilitated marketplace. Think of this marketplace as a travel planning site with different prices and coverage ranges. Most programs do, however, have a coverage range of between 60 and 90 percent. Insurance companies assessing insurance coverage are allowed to adjust plans based on age, residence and tobacco usage. Individuals with pre-existing conditions seeking coverage will not be subject to increased premiums and cannot be denied coverage. The 2014 enrollment season has passed, and the next enrollment season will be from November 15, 2014, to February 15, 2015. Those who move or lose coverage from work may be granted special acceptance for coverage.

Individual Mandate

The most pivotal piece of the ACA has been the individual mandate. Obamacare mandates that all individuals obtain health insurance, whether it is through work, an insurance exchange or Medicaid. Those without insurance will be subject to a penalty of $95 or 1 percent of income – whichever is larger. This penalty will be accessed via a reduction in the federal tax refund.

Youth Impacted

Obamacare is especially important to the 18-30 age group. According to Gallup, in 2014 this age group experienced a 4.3-percent increase in N E W J E R S E Y C P A • j u ly • a u g u s t 2 0 1 4

insurance rates, the largest of any age group. Generally, younger people have lower medical expenses. This group’s activity has been closely monitored by legislators, since their participation would ideally balance out expensive older participants and thereby establish lower premiums. This “evening out” process does, however, make the younger age group susceptible to comparatively higher premiums. As such, individual plans for young adults are likely to be cheaper, assuming an individual does not have a history of tobacco use. While the accounting profession enjoys an unemployment rate of approximately 4 percent, many young professionals still struggle to find employment. As a result, many of these young adults forgo health insurance. With Obamacare, there is a slightly larger buffer zone for those looking to enter the workforce. Under the ACA, those under age 26 can stay on their parents’ health insurance. These young adults will not be subject to the individual mandate until they reach age 26. Those who are employed and work for a company that offers benefits have the luxury of comparing plans to see which offers a lower premium. Young professionals should ask questions, weigh their options and plan accordingly. The debate around Obamacare shows little sign of slowing, but health insurance is not something that you can simply brush under the rug. By staying informed, you can determine which path is best for you. Conor P. Higgins is an accounting student at Bentley University and a New Jersey Society of CPAs CPA Candidate member. Contact him at higgins_cono@bentley.edu.

LEGISLATIVE

views

The View from Washington on Tax Reform B y Robert Zucker , Winning Strategies Washington

hen U.S. Representative Dave Camp (R-MI), Chair of the House Ways and Means Committee, released his draft blueprint for comprehensive tax reform in February, practically the only ones to applaud were tax policy wonks who respected the courage it displayed by eliminating dozens of preferences permeating the tax code since the last major overhaul in 1986. Unfortunately for Camp, tax policy wonks can’t vote to advance his package. In Congress, Camp’s proposed plan, the Tax Reform Act of 2014, received polite support at best from Republican colleagues, and lesspolite reviews from House Democrats like Representative Bill Pascrell from New Jersey who sits on the Ways and Means Committee and who lamented that Democrats were not included in its development. With his term as chair ending, and just one month after introducing his proposal, Camp announced he will retire at the end of 2014. While many in Washington exhaled, knowing that their stakes in the tax code are safe for now, the Camp proposal prompted a reassessment of tax reform. It’s worth examining how Camp tried to win bipartisan support, what the plan’s failure means for future tax reform efforts and how Congress will deal with taxes on a smaller scale in the absence of a larger overhaul. Camp worked diligently over several years to prepare a plan to fulfill the Republican ideal of lowering corporate rates to enhance the competitiveness of American businesses and simplify the rate structure while remaining revenue neutral. To pay for lower rates, the Camp proposal created, in the words of one analyst, “a killing field of sacred cows” in which tax preferences affecting rich, middle-

class and low-income Americans and myriad special interests were targeted for elimination. With the rise of the Tea Party, Camp tacked right by proposing to replace the earned income tax credit, a Democratic favorite, with a partial exemption from payroll taxes. In theory, these efforts should have won Camp broad backing from Republicans, allowing him to focus on securing enough Democrats to move forward. But Camp’s plan also contained several provisions designed either to attract Democratic support or raise revenue to pay for the package, which ultimately undermined the effort. Proposals to end special treatment for carried interest by investment fund managers and assess a special tax on the largest banks, though popular with Democrats, prompted Republican protests. The plan’s dramatic reduction in the mortgage interest deduction and elimination of the deduction for state and local taxes made enough colleagues queasy to arrest any momentum Camp sought to generate. Even in its failure, however, the Camp proposal will profoundly affect the future of tax reform. Provisions Camp proposed for elimination are now on the table for next time, and groups affected by these changes will be working overtime to justify why they should be left alone. For those unscathed by the Camp plan, they will be doing their utmost to ensure they remain secure going forward. Despite the demise of comprehensive tax reform, 2014 will be busy for tax writers in Congress. The focus will shift to renewal of tax provisions that expired at the end of 2013, which is a priority for the business community. The Senate Finance Committee recently approved an $85 billion package, including reinstatement of the research and development tax credit and bonus N E W J E R S E Y C P A • j u ly • a u g u s t 2 0 1 4

depreciation for businesses. The House Ways and Means Committee is expected to follow suit this summer, with industries and advocates maneuvering to keep pace. Looking ahead, the task of overhauling the tax code will fall to the new Chair of the Senate Finance Committee, Senator Ron Wyden (D-OR), together with Camp’s successor on the House Ways and Means Committee – Representative Paul Ryan (R-WI) being the odds-on favorite. Wyden and Ryan have teamed up in the past, including work on a Medicare reform plan. Their history together could bode well for forging the kind of coalition needed to give tax reform a fighting chance. But as Camp’s experience illustrates, they will have to choose their targets carefully, because the window of opportunity for a plan to catch fire is small. Robert Zucker is a partner at Winning Strategies Washington, a full-service, bipartisan government relations firm. Contact him at rzucker@wswdc.com.

MEMBER

profile

Here’s to Your Health(care) By David Plaskow, NJSCPA Communications Manager

hysical health. Environmental health. Financial health. The concept of health seems to be a recurring theme with Tony Novak, CPA. Growing up on a farm outside of Philadelphia, Novak was one of five children to parents who wanted to raise a family with minimalist organic roots. It wasn’t until years later that he discovered that they weren’t poor farm kids but the children of an aerospace engineer. It was that appreciation of the environment that led Novak to get a B.S. in animal science at the Delaware Valley College of Science and Agriculture in 1982. “Unfortunately, I discovered that a career in science was very difficult work for not much pay,” laments Novak. So, he obtained an M.B.A. from Temple University in 1985 and later an M.T. from Villanova University. Novak’s first finance job was with investment banking firm Drexel Burnham Lambert in 1986. “It really was like the movie The Wolf of Wall Street back then,” says Novak. “I flew on private jets, wore power suits and had a red Porsche.” But after a year, Novak decided to hang his shingle, and he’s been self-employed ever since. “I was naïve and overconfident,” says Novak. “I struggled for about five years while I built my practice.” It was that idea of understanding what you don’t know that prompted Novak to go for his CPA designation. “I was one month away from taking the last part of the CPA Exam when I got hit by a drunk driver,” recalls Novak. “It took me six years to fully recover, and by that point my experience was outdated. Also, due to the onerous regulations, I had to take every part of the exam again.” But the tenacity paid off, and Novak

earned his CPA license this year. “I was interested in developing my business in New Jersey, and that’s where the New Jersey Society of CPAs became invaluable,” notes Novak. “It comes down to one word: people. The Society feels like a community; it’s welcoming and a great way to make contacts.” When Novak bought a cabin in a quiet corner of southwest NJ, he was able to combine his business skills with his love for the environment to purchase a marina that had gone bankrupt. “I didn’t set out to buy a marina,” says Novak. “But it’s a nice fit for the Delaware Bay conservation programs I’m involved with.” When he’s not maintaining the environment, Novak maintains himself. He’s an avid cross-trainer who was also a national champion wrestler with the Amateur Athletic Union until he was age 40. In 1995, long before the Affordable Care Act (ACA) joined the national lexicon, Novak created a website to help his small business clients learn about and obtain health insurance. “You could call it an early version of a health care exchange,” he says. Novak developed a health insurance following beyond his clients through his website (MedSave), interviews N E W J E R S E Y C P A • j u ly • a u g u s t 2 0 1 4

and appearances. “I got really good at web analytics: determining how people choose websites, how long they stay on a site and other patterns.” During its peak, MedSave had approximately 35,000 visitors. In 2006, he was even asked to do recordings for a national HR medical training firm: “The recording contract I always wanted,” laughs Novak. Novak sold MedSave in 2008 and a couple of years later he launched Freedom Benefits, a website that offers health insurance links and information. “It’s a low-maintenance resource that gets about 500 visits a day,” says Novak. How does Novak assess the health insurance landscape pre-ACA versus post-ACA? “Before the ACA, it was the Wild West, with all types of issues on the table,” says Novak. “After the ACA, the government really defines health care.” Novak adds, “If I could give CPAs one piece of advice, I would say there’s so much information out there on the ACA, much of it erroneous. If you are establishing yourself as an expert to clients, make sure you know what you’re talking about. It can be a highly emotional topic, and people really do blame the messenger.”

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