New Jersey CPA - November/December 2013

Magazine of the

New Jersey Society of Certified Public Accountants

Tax Matters Tax Update: Health Care Reform Takes Center Stage A Cup of Coffee with Director Bryan A CPA Primer for Mitigating Tax Risk The Misinformation About Information Returns

Nov • Dec 2013

November • December 2013

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

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Tax Update: Health Care Reform Takes Center Stage See which major (and notso-major) issues will be at the forefront this tax season.

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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

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

A Cup of Coffee with Director Bryan Hear from the Director of the NJ Division of Taxation on a variety of topics affecting taxpayers and practitioners in New Jersey.

A CPA Primer for Mitigating Tax Risk Learn the tax risk “pressure points” and the standards you need to apply to provide impeccable client service.

The Misinformation About Information Returns Discover some of the major issues associated with the issuance of 1099s.

2 Close Up A Conversation with Society CEO Ralph Albert Thomas 4 News Briefs

18 A&A Buzz Servicing the CIRA Niche 19 Best Practices E-Paying Client Taxes 20 Financial Planning Income Tax Filing for Same-Sex Couples

26 Tax Talk Taxability of Forgiven Debt

27 Tech Center Restricted Stock Versus Stock Options for Tech Execs 38 Student Outlook Sowing the Seeds of a Profession 39 Legislative Views NJSCPA Fighting Burdensome Legislation 40

22 Forensic File Business Valuations: Should You Tax Affect Pass-Through Entities?

23 Industry Insights Unclaimed Property Compliance 24 Small/Sole Practitioner Offers in Compromise for Small Businesses

Member Profile From CPA to Plié

Society Pages Year-End Financials, 28 CPE Offerings and Events, 32 Member Benefits, 33 Get Involved, 34 NJ State Board of Accountancy Report, 36 Classifieds, 37

Design/Production/Advertising Lionheart Publishing Inc..

506 Roswell Street, Suite 220 Marietta, GA 30060 President – John Llewellyn 770-431-0867 x209 llewellyn@lionhrtpub.com

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. 42 Copyright © 2013 New Jersey Society of Certified Public Accountants. Annual membership dues includes $9 for a one-year subscription to New Jersey CPA magazine. Members may not deduct subscription price from dues.

Periodicals postage paid at Roseland, NJ, and at additional mailing office. POSTMASTER: Send address changes to New Jersey CPA, 425 Eagle Rock Avenue, Suite 100, Roseland, NJ 07068-1723.

The materials and information contained within New Jersey CPA are offered as information only and not as practice, financial, accounting, legal or other professional advice. The opinions expressed herein are those of the authors and not necessarily those of the New Jersey Society of CPAs. Publication of an advertisement in New Jersey CPA does not constitute an endorsement of the product or service by the New Jersey Society of CPAs.

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A Conversation with Society CEO Ralph Albert Thomas B y Don Meyer, NJS CPA C omm u nications & M arketing D irector

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of “spray and pray” communication are over. Our messages will be much more focused and targeted so that we’re sending members only the information they want and need from us.

our generations in the workplace.

An aging profession. Evolving learning platforms. Emerging technologies. These are just a few of the issues that the New Jersey Society of CPAs will be tackling in the new year. NJSCPA CEO & Executive Director, Ralph Albert Thomas, CGMA, talks about adapting to a changing professional landscape: What’s your vision for the NJSCPA in 2014?

We have to adapt to this ever-changing professional landscape. Not only is the accounting profession changing, but the way that professional associations are working and engaging with members is changing as well.

For Society staff, connecting with members is key. In 2014, we’ll all be bolstering our efforts to talk with and engage members, firms and companies.

We’ll have a strong outreach focus to find out how we can better serve members’ needs.

To further that effort, we’ll be introducing a revamped firm outreach program built to strengthen the NJSCPA’s value and relevancy to public accounting firms and companies. We want to talk with companies of all sizes, from small firms and the Big Four to Fortune 500 companies and academic institutions. Our goal is to provide a level of communication and service that serves the mutual interests and goals of the NJSCPA, its members and their companies and results in increased membership and involvement of students, CPAs and young professionals.

What changes can we expect in how the Society communicates with members?

We all know that work and life are more complex. Members can’t sift through the scads of emails, texts and phone messages they get every day, so the days

Are there particular member groups the NJSCPA wants to connect with?

We have a diverse membership, and we certainly want to serve all groups. But we’ve identified two constituencies that we want to engage to a greater degree: young CPAs and members in business and industry.

We want to build on the success of our young CPAs strategic planning initiative this fall. We recently learned that a member of our Young CPAs Council and a past scholarship recipient want to serve on our board of trustees and be president one day. We want to identify those future leaders and nurture their desire to serve the Society and the profession.

We also want to enhance our connection with and engage corporate members. They comprise more than 30 percent of membership, so it’s important that we’re seen as more than a society that focuses on public accounting.

It’s challenging, but we’ve been successful with many initiatives so far, and we’re working to do even more.

We’ve developed CPE with members’ needs in mind, and soon we'll launch our Business, Industry & Government (BIG) webpage and e-newsletter. We have to find ways to get people to talk to and connect with one another.

help those companies build the skills and competencies their staffs need to succeed.

We’re developing a new vision for education, one built on a variety of learning platforms adaptable to four generations of learners. We want our members to think of us when they need the right content, on the right platform.

To that end, webinars, webcasts and other technology-based learning platforms will become more prominent parts of our strategy going forward, although face-to-face interactions will always be important.

How do you see the Society’s role changing in providing member education?

CPE has become more than just a way to get credits. Firms and companies of all sizes want to develop their staffs because it makes them better employees and prepares them to be leaders. We want to

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To see a special message from Ralph, visit njscpa. org/newjerseycpa/novdec13.

2013/14 Board of Trustees EXECUTIVE COMMITTEE President – Gerard Abbattista, CPA President-Elect – Brad E. Muniz, CPA Secretary – Walter J. Brasch, CPA Treasurer – John M. Szczomak, CPA Immediate Past President – Thomas F. Roche III, CPA CEO & Executive Director – Ralph Albert Thomas, CGMA TRUSTEES Sharon J. Bishop, CPA Leonard N. Brooks, CPA William A. Cadmus, CPA Joseph C. DiFalco, CPA Edward I. Guttenplan, CPA Michael W. Gutwetter, CPA Karl A. Halteman, CPA Robert P. Herman, CPA Edward G. O’Connell, CPA Jody Rorick, CPA Mary E. Zago, CPA Joseph A. Zielinski, CPA

NEWS AICPA Releases FRF for SMEs Decision Tool The American Institute of CPAs has released guidelines to help privately held businesses determine which accounting framework, including the Financial Reporting Framework for Small and Medium-Sized Entities (FRF for SMEs), best meets their financial reporting needs. The National Association of State Boards of Accountancy provided input into the development of the new tool for CPAs. The AICPA has developed the FRF for SMEs framework for use by private, owner-managed businesses when GAAP financial statements are not required. The framework was designed to provide financial statement users with useful, relevant information in a simplified, consistent, cost-effective way. The tool is available at no cost at aicpa.org.

IRS Website Explains Tax Provisions of ACA The Internal Revenue Service (IRS) has launched a new Affordable Care Act tax provisions website at irs.gov/aca to educate individuals and businesses on how the health care law may affect them. The site explains the tax benefits and responsibilities for individuals and families, employers and other organizations, with links and information for each group. The site provides information about tax provisions that are in effect now and those that will go into effect in 2014 and beyond.

PCAOB Proposes New Standard to Enhance Reporting Model The Public Company Accounting Oversight Board (PCAOB) proposed a new auditing

briefs standard and related amendments to enhance the auditor's reporting model. The proposed standard would retain the pass/fail model in the existing auditor's report, but would provide additional information to investors and other financial statement users about the audit and the auditor. The proposed auditor reporting standard would require: • The communication of critical audit matters as determined by the auditor.

• The addition of new elements to the auditor's report related to auditor independence, auditor tenure and the auditor's responsibilities for, and results of, the auditor's evaluation of other information outside the financial statements.

• Enhancements to existing language in the auditor's report related to the auditor's responsibilities for fraud and notes to the financial statements.

Comments are due by December 11, 2013.

Visit pcaobus.org to learn more.

Employers Continue to Classify Workers as Independent Contractors Despite a program allowing employers and workers to seek determinations from the IRS of whether workers are employees or independent contractors, many employers continue to misclassify millions of workers as independent contractors instead of employees. When this happens, employers avoid paying a significant amount of employment taxes, according to an audit by the Treasury Inspector General for Tax Administration (TIGTA).

Online Gaming in NJ by the Numbers 750,000,000 Estimated annual revenue generation in NJ in dollars 112,500,000 Approximate annual tax revenue in dollars 15 Online gaming tax rate percentage 3 Number of states where online gaming is legal

The IRS’ Determination of Worker Status Program (referred to as the SS-8 Program) allows either a business or a worker to request a determination letter from the IRS regarding a worker’s federal employment tax status as an employee or independent contractor. The TIGTA conducted its audit to evaluate whether the IRS’ SS-8 Program is effectively processing worker determination requests and whether the subsequent rulings are being followed. Results showed that not all employers are complying with the determination rulings.

FAF to Conduct PIR on Impairment of Capital Assets The Financial Accounting Foundation (FAF) announced it will conduct a Post-Implementation Review (PIR) of an accounting and financial reporting standard for state and local governments regarding the impairment of capital assets and insurance recoveries.

Issued in 2003, Governmental Accounting Standards Board (GASB) Statement No. 42, Accounting and Financial Reporting for Impairment of Capital Assets and for Insurance Recoveries, establishes measurement guidance for capital asset impairments and requires governments to report the effects of those impairments when they occur, rather than as a part of the ongoing depreciation expense for the capital asset or upon disposal of the capital asset. It also provides uniform reporting guidance for insurance recoveries of state and local governments.

The PIR team recently completed its review of GASB Statements No. 10, Accounting and Financial Reporting for Risk Financing and Related Insurance Issues, and No. 30, Risk Financing Omnibus, which establish accounting and financial reporting standards for risk financing and insurance-related activities of state and local governments, including public risk pools.

IRS Opens Online FATCA Registration System The IRS now offers an online registration system for financial institutions that need to register with the IRS under the Foreign Account Tax Compliance Act (FATCA).

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Financial institutions that must register with the IRS to meet their FATCA obligations can now begin the process of registering by creating an account and providing required information. Financial institutions can also provide required information for their branches of operation and other members of their expanded affiliate groups in which the financial institution is the lead organization.

The registration system, designed to enable secure account management, is a web-based application with around-the-clock availability.

Starting in January 2014, financial institutions will be expected to finalize their registration information by logging into their accounts, making any necessary changes and submitting the information as final. To ensure inclusion in the June 2014 IRS FFI list, financial institutions will need to finalize their registrations by April 25, 2014. Visit irs.gov/ fatca.

FASB and IASB to Form Joint Transition Resource Group for Revenue Recognition The Financial Accounting Standards Board (FASB) and the International Accounting Standards Board (IASB) announced plans to create a joint transition resource group focused on the upcoming final converged standard on revenue recognition.

The transition group will be responsible for informing the IASB and FASB about interpretive issues that could arise when companies, institutions and other organizations implement the revenue recognition standard. It will solicit, analyze and discuss stakeholder issues that apply to common transactions that could reasonably create practice diversity. The transition group also will provide information that will help the boards determine what, if any, action will be needed to resolve that diversity. The group itself will not issue guidance. The group’s primary activities should occur before the standard takes effect in 2017.

Form 990 Availability Resumes The IRS has resumed making the Form 990 series filed by exempt organizations

available. The IRS determined there is low risk of Social Security numbers being included in recent Form 990 filings.

Given the low risk, the IRS will resume release of new Form 990 series to third-party groups. However, the IRS will periodically conduct a statistically valid sample of new Form 990s to ensure that the risk remains low.

The IRS will continue to aggressively reach out to remind exempt organizations not to include SSNs or other unneeded personal information on the filings. Moreover, the IRS urges exempt organizations to file the Form 990s electronically in order to reduce the risk of inadvertently including SSNs.

njscpa.org Spotlight

Special Notice for Gmail Account Holders If you have a Gmail account, you may be missing out on important emails from the New Jersey Society of CPAs. Earlier this year, Gmail rolled out “tabs,” an effort to organize your incoming mail into categories. The three default tabs are Primary, Social Messages and Promotions, and Gmail is automatically sorting and sending your mail to the tab it corresponds to. Messages from the NJSCPA are being sent to the Promotions tab by default.

Don’t miss out on registration confirmations, CPE credit letters, E-NEWS, the Open Forum and other important emails you’re entitled to as part of your NJSCPA membership. If the Promotions tab is not one you check frequently, we recommend you move Society emails to the Primary tab by following these instructions: 1. Go to your Promotions tab and find an email from the NJSCPA. 2. Drag the email to your Primary tab.



3. Click “yes” in the yellow box asking if you want to do this for future messages.



Since the NJSCPA uses several different email addresses, you will have to repeat this process for each e-newsletter you receive (e.g., E-NEWS, CPE Connection, E-YoungCPA, Tomorrow’s CPA, your chapter e-newsletter) as well as one time for our general emails from mail@njscpa.org.

For more information about using Gmail tabs, visit mashable.com/2013/07/23/ tabs-in-gmail.

NEW JERSEY CPA • November • December 2013

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Tax Update: Health Care Reform Takes Center Stage Due to last-minute federal legislation, tax return preparers in 2013 contended with an abbreviated filing season. Software producers, the Internal Revenue Service (IRS) and tax preparers alike had to scramble to revamp their systems to reflect the retroactive enactment of many key extended tax provisions, along with some new ones, courtesy of the American Taxpayer Relief Act of 2012.

Legislation will also force CPA practitioners to stay on top of many new developments for 2013 as well:

Federal

By Margaret Van Brunt, CPA Rowan University

Many provisions of the Health Care and Education Reconciliation Act of 2010 take effect in 2013 and beyond.

Health Care Unearned Income Medicare Contribution Tax – Effective for 2013, one of the most complicated features of the new health care law is the 3.8-percent net-investment income tax, which applies to high-income individuals, trusts and estates. In the

case of an individual, the tax is in addition to any other income tax for each tax year. The tax is calculated by multiplying 3.8 percent of the lesser of the individual’s net investment income for the year or the excess, if any, of the individual’s modified adjusted gross income (AGI) above a threshold amount.

The threshold amounts are $250,000 for married individuals or surviving spouses filing a joint return; $125,000 for married individuals filing separate returns; and $200,000 in all other cases.

Health Insurance Penalty – Beginning on January 14, 2014, the penalty for not obtaining health insurance under the Patient Protection and Affordable Care Act (PPACA) will be $95 or 1 percent of household income, whichever is larger. The penalty will increase to $695 per person, or 2.5 percent of household income, in 2016. There will be a cost-of-living formula for future years. Individuals who qualify for Medicaid coverage but reside in states that are not taking part in the law's expanded Medicaid will be exempt, as will those who are temporarily uninsured while between jobs, those opposed to having insurance coverage

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rules for those who may claim a home office deduction – it merely simplifies the calculation and recordkeeping requirements. Under this method, individuals will not calculate the deduction based on actual expenses.

Instead, they will multiply the square footage of a home office by a prescribed rate of $5 per square foot. The maximum square footage allowed is 300. This means the most someone can deduct using the new method is $1,500 per year.

Choose either the simplified method or the actual-expense method for any tax year. Once you use a method for a specific tax year, you cannot change to the other method for that same year.

New Jersey

for religious reasons or members of Indian tribes.

Extension of Provisions – In July 2013, the Obama administration announced it would extend by one year the due dates of three provisions enacted under the PPACA: • Reporting of individuals’ health coverage by health insurers and selfinsured employer health plans will not be due until 2016.

• Reporting of employees’ health coverage by employers will not be due until 2016.

• Employer-shared responsibility payments (the employee mandate) will not apply until 2015.

Medical Expense Deduction – Beginning on January 1, 2013, a

deduction may be claimed for medical expenses not covered by health insurance when expenses reach 10 percent of an individual’s AGI. The 7.5-percent threshold will remain for those age 65 and older for tax years 2013 through 2016.

Resources – The IRS has launched a new ACA tax provisions website at irs.gov/aca to educate individuals and businesses on how the health care law may affect them. The site provides information about tax provisions that are in effect now and those that will go into effect in 2014 and beyond.

Simplified Option for Home Office Deduction – Beginning this year, there is a new, simpler option to calculate the business use of a home. This simplified option does not change the

In September 2013, Governor Christie signed The New Jersey Economic Opportunity Act of 2013, the longawaited bill designed to overhaul the state's business incentives offerings. The bill consolidates five current incentive programs into two – Grow New Jersey and Economic Redevelopment and Growth – while expanding eligibility and placing more focus on job creation. It is expected that this act will help New Jersey gain a more competitive edge in both the national and global markets.

In January 2013, Governor Christie enacted the New Jersey Angel Investor Tax Credit Act, which is intended to encourage investment in New Jersey emerging technology businesses.

Such businesses include advanced computing, advanced materials, biotechnology, electronic device technology, information technology, life sciences, medical device technology, mobile communications technology and renewable energy technology. The new law provides for a tax credit of up to 10 percent of the angel investors' qualified investment in NJ emerging technology companies with less than 225 employees, where at least 75 percent of those positions are located in New Jersey.

New York For tax year 2014, a subtraction modification for residents with small

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business and/or farm income is available. The modification equals 3 percent of the net items of income, gain, loss and deduction attributable to a business or farm included in federal AGI (but not less than zero) for tax year 2014. This is increased to 3.75 percent in tax year 2015 and 5 percent in tax year 2016 and thereafter. A small business is defined as a sole proprietor or a farm business employing one or more persons during the taxable year that has net business income or net farm income of less than $250,000.

Pennsylvania Capital Stock/Foreign Franchise Tax – The Capital Stock/Foreign Franchise Tax was scheduled to expire for taxable years beginning after December 31, 2013. The expiration is delayed for two

years until tax years beginning after December 31, 2015. The tax rate will gradually phase down from the current level of 0.89 mills to 0.67 mills in 2014 and 0.45 mills in 2015.

Personal Income Tax – Effective for tax years beginning in 2014, the Pennsylvania resident tax credit for taxes paid to foreign countries has been eliminated; however, tax credits will continue to be allowed for taxes paid to other states.

Margaret Van Brunt, CPA, is the assistant dean at the Roher College of Business at Rowan University. She is a member of the New Jersey Society of CPAs Educators Committee, president of the Southwest Jersey Chapter and on the Editorial Advisory Board of New Jersey CPA magazine. Contact her at vanbrunt@rowan.edu.

Magazine of the

Jan • Feb 2014

January/February Coming Attractions

When Disaster Strikes n Insurance and Risk Management n Data Protection and Recovery n Tax Implications n Business Continuity for Staff

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New Jersey Society of Certified Public Accountants

A Cup of Coffee with Director Bryan New Jersey CPA magazine recently spoke with the Director of the New Jersey Division of Taxation, Michael J. Bryan:

By David Plaskow NJSCPA Communications Manager

What has the division’s experience been with tax return identity theft?

We’ve recognized it as a growing threat to the revenue of NJ. We recently posted a document (IDT 100) on our website where we can flag an account and do our best to limit the tax exposure. In 2011, we implemented a tool to identify a potential abuse, primarily in the area of earned income tax credit abuse. We expanded the scope to include withholding tax issues, and we’re trying to validate taxpayers’ withholdings. One form of theft is fictitious W-2s, with the bad actors knowing the timing of a refund will often precede the validation process of payroll information we get from Social Security or payroll providers. We’re going to be validating that information earlier because payroll processors will provide the information in late January, rather than late February.

Are there any particular industries that the division is focusing audit activity on?

No. But we are expanding the pursuit of civil and criminal fraud. We’ve ramped up personnel in our office of criminal investigation – nearly doubling the number of agents – and we’ve also done training in our civil audit process so the auditors better understand the fraud referral process. We believe this can have a significant impact on the tax gap.

Are there any major systems changes in store?

Most of the software providers should be up and running to file CBT 100s, and we expect practitioners to comply with the 1040 e-filing mandate. There are approximately 3,800 practitioners – who we plan to send notices to – who haven’t met the 11-or-more requirement for e-filing. This should ease the processing burdens.

To what extent does the division work with other state taxing authorities?

We belong to the Federation of Tax Administrators (FTA). We meet periodically to share ideas such as software, compliance, collection and enforcement. We have data sharing agreements with the federal government and other states. One of the FTA mottos is: “Let no good idea go unstolen.”

What can you tell us about issues with large refunds not being processed until the requests are made?

We do have controls regarding paying large refunds. There can be keying errors, system errors or taxpayergenerated errors. Often, extremely large refunds need to be validated via taxpayer outreach for additional documentation. Practitioners who notice a trend with certain clients or a class of clients should notify the office of the tax advocate.

Why do requests for escrow amounts on bulk sales or real estate sales frequently seem unreasonably high?

These are statutory requirements.

Often, the people who broker these

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transactions don’t spend much time considering the tax aspects of the transactions. We strongly encourage practitioners and taxpayers to follow the suggested timeline and requirements.

Given the overturn of the Defense of Marriage Act, how will the NJ estate tax apply to NJ residents who are lawfully married in another state and now reside in NJ? The division will post a notice on its website so taxpayers understand the filing obligations per the Supreme Court decision. I’m going to ask our attorneys to address the estate tax situation before we post our notice.

Prior to your appointment, Conference and Appeals changed few audit decisions. Has Conference and Appeals become more objective since your appointment?

I hope so. I’ve met with all of our conferees and encouraged them to evaluate conference cases independently of audit conclusions. What I don’t want are conferees re-auditing cases or looking back to the auditor or audit management for a decision about how to handle a case. We’ve empowered conferees to consider the hazards of litigation and to resolve cases without litigation where it’s not warranted. I’ve tried to reduce the number of cases that we’ve put on the tax court docket.

What’s the status of the division's audit manual?

It’s still a work in progress, but we hope to have portions of it published before year’s end.

Any plans to expedite the processing of NJ inheritance/estate tax returns and depositing NJ inheritance and estate tax checks?

If practitioners are noticing delays, I need to know about it. The process is almost completely manual, and I recently reviewed with managers some of the physical processes of how we handle checks and returns. We are working on long-term systems

modernization, and I’m hopeful we can make the handling of these returns more efficient.

What measures are being taken to combat criminal tax fraud?

Along with expanding the staff in our office of criminal investigations, we’re engaged in a process to encourage our civil auditors to identify those cases they believe are potentially fraudulent and make referrals to our office of criminal investigations. We also coordinate efforts with state and county prosecutors as well as the Internal Revenue Service (IRS).

When will NJ institute an offer in compromise program that mirrors the federal government’s?

While a program that mirrors the IRS’ is not on our to-do list, we do compromise cases in a number of areas such as collections cases or within audit, our conference and appeals branch, or once the cases are under the jurisdiction of the tax court. I encourage taxpayers to reach out and educate us as to why their cases should be compromised.

Since the New Jersey earned income credit (EIC) is calculated as a percentage of the federal EIC, can the state wait to seek additional documentation until there appears to be an issue with the federal EIC? We try to stop as few of these EIC refunds as possible. But the IRS has stated that about 25 percent of its EIC filings are potentially erroneous.

We can’t wait for the IRS to resolve those issues because the timing is very difficult. Many of the abuses we see happen early in the filing season. The bad actors are good at moving that money quickly out of state and out of the country. If we wait to interrupt those payment streams, we won’t have any success at interrupting what is essentially another form of identity theft.

See Director Bryan’s interview at njscpa.org/ newjerseycpa/novdec13.

Also, he will be presenting at the NJSCPA Multistate Tax Conference in Edison on Tuesday, November 19. Visit njscpa.org/catalog to register or learn more.

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A CPA Primer for Mitigating Tax Risk Tax risk for CPAs may include financial, economic, regulatory and reputational risk. Mitigating these risks includes best practices and understanding the applicable professional and regulatory standards, as well as exercising common sense when preparing tax returns, recommending tax reporting positions or opining on a transaction’s tax consequences.

In assessing and mitigating tax risk, CPAs in tax practices should put themselves in the place of other CPAs and critically analyze how they would behave under similar circumstances.

Our behavior is at the core of how others judge whether we have exercised ordinary business care and prudence.

By Walter J. Pagano, CPA EisnerAmper LLP

Professional Standards Our Core Standard – Rule 201, General Standards, is at the core of how our ethical behavior is judged.

It provides that a New Jersey Society of CPAs member shall comply with (1) professional competence; (2) due professional care; (3) planning and supervision; and (4) sufficient

relevant data. It cannot be overstated that members have no discretion in following the General Standards.

Integrity and Objectivity – Equally important to complying with the General Standards is complying with Rule 102, Integrity and Objectivity.

This standard provides that in the performance of any professional service, an NJSCPA member shall maintain objectivity and integrity, be free of conflicts of interest and not knowingly misrepresent facts or subordinate his or her judgment to others. As with the General Standards, members have no discretion in following Rule 102.

AICPA Statements on Standards for Tax Services (SSTS) 1-7 – The American Institute of CPAs SSTSs cover (1) reporting tax return positions; (2) answering questions on tax returns; (3) following procedural aspects in preparing returns; (4) using estimates; (5) departing from a previously concluded tax reporting position; (6) knowing that an error exists on a previously prepared return; and (7) providing advice to clients. These standards can be summarized as follows: • SSTS No. 1, reporting tax return positions, applies to a member who

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recommends, prepares or signs a return. It provides guidance when a tax return position must be disclosed on a return. This standard makes it clear that it is the preparer’s right and responsibility to advocate for the client, while at the same time ensuring that the return is true, correct and complete.

• SSTS No. 2, answering questions on tax returns, applies a “reasonable effort” standard to answer those questions that are applicable to a client’s specific situation.

• SSTS No. 3, procedural aspects in preparing returns, imposes a good-faith reliance standard and does not expect a member to verify supporting data when preparing a return unless the information provided is incomplete, inaccurate or inconsistent with other facts known,

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or that should be known, to the member.

• SSTS No. 4, using estimates, allows a member to use reasonable estimates when preparing returns unless otherwise prohibited. When using estimates, the standard does not require disclosing that an estimate has been used for an item unless nondisclosure may prove misleading.

• SSTS No. 5, departing from a previously concluded tax reporting position, is not restricted provided that the requirements of SSTS No. 1 are met and there is no binding document, such as a closing agreement or similar agreement that precludes reporting a different position.

• SSTS No. 6, knowing that an error on a return exists, requires a member to inform the client about

the error, advise the client about its consequences and recommend the appropriate corrective action.

• SSTS No. 7, providing advice to clients, requires professional judgment and may be either verbal or written depending on the complexity of the issue and its facts and circumstances.

Regulatory and Statutory Standards Treasury Department Circular 230 – The Internal Revenue Service (IRS) has established the Office of Professional Responsibility to administer and enforce Circular 230, which contains the rules governing CPAs and other persons representing taxpayers before the IRS. Subpart B, related to Duties and Restrictions Relating to Practice Before the IRS, provides the nuts-and-

bolts guidance to tax practitioners who prepare tax returns, represent clients before the IRS and advise clients about tax matters. Although subpart B contains many sections, the sections that tax practitioners generally deal with regularly are: • Section 10.21, knowledge of client’s omission • Section 10.22, diligence as to accuracy • Section 10.23, prompt disposition of pending matters • Section 10.29, conflicting interests • Section 10.33, best practices for tax advisors • Section 10.34, standards with respect to tax returns and documents, affidavits and other papers • Section 10.51, incompetence and disreputable conduct

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These sections require tax practitioners to take the following actions as circumstances warrant in connection with tax matters governed by the Internal Revenue Code: (1) advise the client promptly of the consequences of noncompliance, errors or omissions; (2) exercise the attention and care expected from someone of ordinary prudence under similar circumstances; (3) use reasonable efforts to resolve matters when representing clients; (4) ascertain whether conflicts of interest exist; (5) use reasonable efforts and sound professional judgment to comply with Circular 230; (6) make verbal representations or written statements that are truthful, correct and accurate; and (7) refrain from conduct that is incompetent and disreputable.

Mitigating tax risk is an essential part of a professional tax practice and must be considered and carefully analyzed when representing clients, preparing tax returns, making representations and performing the most basic as well as complex tasks in order to avoid potential financial, economic, regulatory and reputational risk. Complying with our general and tax services standards, maintaining objectivity and integrity, using common sense, complying with Circular 230 and its best practices provisions, and obtaining the advice of competent legal counsel as circumstances warrant will provide the tax practitioner with the necessary guidance to perform tax services of the highest quality.

Walter J. Pagano, CPA, CFE, M.P.A., is the tax controversy practice leader at EisnerAmper LLP. He is a member of the New Jersey Society of CPAs. Contact him at walter.pagano@ eisneramper.com.

To read additional risk points from Pagano, including the Internal Revenue Code, visit njscpa. org/newjerseycpa/novdec13.

NEW JERSEY CPA • November • December 2013

15

The Misinformation About Information Returns “Information returns” is the formal name for the vast series of 1099 forms that the Internal Revenue Service (IRS) has created, in large part, for purposes of reporting income paid by one taxpayer to another taxpayer.

By Neil B. Becourtney, CPA CohnReznick LLP

Taxpayers commonly receive 1099 forms reporting their receipt of dividends; interest; proceeds from sales of stocks, bonds and mutual funds; retirement plan distributions; state tax refunds; unemployment compensation; and the catch-all – miscellaneous income. The following discusses some of the major issues associated with the issuance of 1099s.

Form 1099-MISC

Form 1099-MISC is used to report miscellaneous income. This form is required to be issued for payments made in the course of operating a trade or business that amount to $600 or more during a calendar year for rents, services and some less-common income items (e.g., crop insurance proceeds).

Nonprofit organizations are considered

to be engaged in a trade or business and are thus subject to the same reporting requirements as for-profit businesses.

Most individual tax clients would not be required to issue their tax preparer a Form 1099-MISC as they would not have paid their fees in connection with the operation of a trade or business. On the other hand, most businesses would be required to issue a Form 1099-MISC to their outside accountants.

There are two broad exceptions to the issuance of Form 1099-MISC. First, payments to corporations are exempt from 1099-MISC reporting except for medical and health care payments and payments of attorneys’ fees. Many taxpayers are under the misimpression that a Form 1099-MISC is only to be issued to individuals. Where the income recipient is a general partnership, limited partnership, LLC or LLP, Form 1099-MISC reporting applies.

The second major exception relates to payments for merchandise.

A provision of the Patient Protection and Affordable Care Act (PPACA) would have expanded Form 1099MISC reporting for payments made after 2011 by eliminating the exception for payments related to merchandise

NEW JERSEY CPA • November • December 2013

16

and expanding corporate reporting to all corporations. In April 2011, after outcries from many business groups, President Obama signed a bill repealing the expanded Form 1099 requirements contained in the PPACA. Thus, the general rules remain unchanged.

The IRS utilizes 1099 forms to increase tax compliance. For 2011, the IRS added two new questions to business tax returns – Forms 1065, 1120, 1120S and Schedules C and E filed with Form 1040. The first question asks whether the taxpayer made any payments during the calendar year that would require any Form(s) 1099 to be filed. If this question is answered “yes,” a followup question is whether the taxpayer has or will file all required Form(s) 1099. These questions are not limited to Form 1099-MISC. For example, if a corporation paid interest on a loan from a shareholder, Form 1099-INT would be required to be issued if the interest is $10 or more.

Form 1099-K In 2011, the IRS unveiled Form 1099-K, Payment Card and ThirdParty Network Transactions.

Payment settlement entities, defined as banks or other organizations that have contractual obligations to make payments to participating payees in settlement of payment card transactions, are required to issue this form. For 2011, the IRS had added a new line at the top of the aforementioned business tax forms labeled: “Merchant card and thirdparty payments” as distinguished from all other gross receipts, with a note to enter zero for 2011. The intention was to have taxpayers differentiate between income received via third-party reporting (e.g., credit cards) versus all other receipts, beginning in 2012.

Thus, for example, a medical practice would have needed to establish separate general ledger accounts for payments received by credit card, such as patient copayments. Again, outcries from business groups led to the IRS

eliminating its plans for the separate reporting of gross receipts in this fashion, resulting in the elimination of such income tax reporting. Form 1099K remains in use, and the IRS has indicated that it will be sending notices to taxpayers where it believes there are significant discrepancies.

Tax Gap The IRS remains concerned over the tax gap, defined as the amount of tax liability faced by taxpayers that is not paid on time. The most recent IRS tax gap study in January 2012 – based on the 2006 tax year – estimated the annual gross tax gap to be $450 billion.

Only $65 billion of this is recouped via enforcement, leaving a net tax gap of $385 billion annually. The IRS uses information returns to attempt to identify the under-reporting of income – anyone who has ever responded to an IRS CP 2000 notice can vouch for this. While there are certainly instances where CP 2000 notices accurately reflect the omission of income items, those notices often contain errors associated with a variety of 1099 forms: Form 1099-B proceeds, Sec. 529 plan distributions reported on Form 1099-Q and Roth IRA conversions reported on Form 1099-R, to name a few. A standard request in the initial

Information Document Request for an IRS business audit is to provide copies of all 1099 forms issued along with the Form 1096 transmittals.

New Jersey State taxing authorities have a myriad of rules when it comes to information returns. The New Jersey Division of Taxation requires that copies of Federal 1099 forms be filed on or before February 15 (the IRS deadline is February 28 if paper filing and March 31 if e-filing) following the close of the calendar year where the amount paid is $1,000 or more, or where there has been any New Jersey tax withheld. Reg. 18:35-8.1 states that the forms are to be mailed to Division of Taxation, PO Box 248, Trenton, NJ 08646-0248. On the other hand, the New York State Department of Taxation and Finance does not require any 1099 forms to be filed. It relies on data received from the IRS. Neil B. Becourtney, CPA, is a tax partner at CohnReznick LLP. He is a member of the New Jersey Society of CPAs Federal Taxation and State Taxation interest groups and the Editorial Advisory Board of New Jersey CPA magazine. Contact him at neil.becourtney@cohnreznick.com.

NEW JERSEY CPA • November • December 2013

17

A&A

buzz

Servicing the CIRA Niche

By Jules C . Frankel, CPA, and C arol J. Koransky, CPA, Wilkin & Guttenplan, P.C .

What Are CIRAs?

Governance

CIRAs, or common interest realty associations, include condominium, cooperative, homeowner, fee simple and timeshare associations. Approximately 60 million Americans live in about 300,000 such associations. Because of its population density, New Jersey has more CIRAs than the average state. Servicing CIRAs requires specific knowledge in the following areas:

One common characteristic of all CIRAs is that they are governed by volunteers who serve as board members. This requires CPAs to be able to interface with board members who are elected and often change over time. This is in contrast to small businesses where the ownership is more consistent over a longer period of time.

Another common characteristic is that many CIRAs utilize managing agents to handle their property management needs. This function encompasses a myriad of tasks, which range from recommending and monitoring vendors to attending board meetings and maintaining minutes. Most management companies fulfill the CIRA’s daily financial recordkeeping needs. Utilization of managing agents may call for additional considerations when servicing CIRAs in areas such as evaluating internal controls and the audit process.

Structure The legal structures, ownership rights and obligations of CIRAs vary significantly.

The owner of a condominium usually owns from the “inside walls” in. Thus, the condominium association is responsible for all of the exterior maintenance and repair. Owners of townhomes often have a fee simple interest in the land and structure. Thus, townhome owners are usually responsible for the exterior maintenance and repair of their homes, while the owners association usually is responsible for the common elements that are not part of the living structures: roadways, recreation areas and detention basins, to name a few. Cooperatives are corporations that own the buildings.

Shareholders have the right to occupy units utilizing a document called a propriety lease. Therefore, understanding the legal structure is the first step in being able to service a particular CIRA.

NJ HOME ownership rates 70%

65% 62% 1985

66% 63%

1990

1997

2005

2012

Finances Most New Jersey associations employ the use of fund accounting. Operating, working capital, deferred maintenance, capital improvement and replacement (reserve) funds are the most common types of funds used by CIRAs. An offshoot of the use of fund accounting is the critical role that budgets play in an association, as well as concepts such as cumulative surpluses, deficits and interfund balances. As many volunteer board members may not have financial expertise, they often look to and rely on their CPAs to convey the implications of these concepts. This is particularly true in helping boards understand reserve (replacement) studies and the underlying philosophies, nuances, implications and risks of the typical recommended funding methodologies which include full (or component), threshold and baseline funding.

Taxation is also unique for CIRAs. Being considered a nonprofit organization in the state of NJ, but having to file a Federal Form 1120 or 1120H, is the norm for a condominium association. The forms and rules differ for the different types of associations, such as cooperatives or timeshares.

The world of taxation is further complicated by items such as surplus carryover resolutions, pass through of interest and real estate deductions for co-ops, and sales tax considerations, to name a few.

Industry Expertise Knowledge of the issues facing CIRAs is an essential element in being able to service this niche. It is quite common for board members to look to their CPAs for industry input on issues ranging from understanding types of replacement funding to understanding the pros and cons of special assessments and/or loans to fund capital projects. Explanations of financial statements to unit owners at annual open meetings and monitoring elections of board members are other tasks that an association's CPA may be called upon to perform.

As more Americans, and New Jersey residents in particular, live in community associations, the need to service this sector will grow. For CPAs, this will require a thorough understanding of the specific structures and governance of these entities, the unique financial issues that CIRAs face and a comprehensive, up-to-date awareness of industry trends and issues.

Jules C. Frankel, CPA, is a shareholder and Carol J. Koransky, CPA, is a manager at Wilkin & Guttenplan, P.C. Both are members of the New Jersey Society of CPAs. Contact the authors at 732-846-3000.

NEW JERSEY CPA • November • December 2013

18

BEST

practices

E-Paying Client Taxes

By David A. Springsteen, CPA, WithumSmith+Brown

H

as the electronic age made a CPA’s tax compliance easier? Many would say yes for e-filing, but what about e-payments?

Background Tax return e-filing mandates on CPAs have found their way to the payment of income, employment and other taxes. Surprisingly, certain government tax mandates can provide efficiencies for a CPA practice if proper policies and procedures are implemented and followed. Best practices also reduce the risk of penalties.

Identity theft is now common in our tax system. Many clients embrace tax e-payments and e-filings; however, they often need CPA guidance on e-payment options. Therefore, a CPA must implement proper procedures for e-filing, e-payment and client information security.

E-Funds Business clients are required to pay their federal tax deposits using electronic funds transfer (EFT). This requirement applies to all federal taxes, including corporate income taxes, estimated taxes, FICA, FUTA and excise taxes. The EFT requirement varies from state to state, but many states mandate electronic tax payments. Federal rules, which require most companies to pay taxes electronically, can be found under Internal Revenue Code Sec. 6302(h) and Rev. Proc. 97-33.

Paying by check when EFT is required results in a penalty on the client. Credit card payments, when allowed, are deemed made when authorized. Any amount paid by EFT is deemed paid on the last day prescribed for filing the applicable return, or if later, when the funds are drawn from the payee's account.

If the payment is late, clients

could be assessed a substantial penalty. Thus, clear and concise client communication is essential.

Individuals do not have the same broad e-payment mandates; however, many choose to pay in the electronic format. CPAs must inform clients about timely and correct payment methods and how and when to remit taxes.

New Jersey New Jersey’s payment options include e-check, credit card and EFT. CPAs can alert business and individual clients to go to the NJ Division of Taxation's website at state.nj.us/treasury/taxation.

New Jersey mandates that business clients with a prior year tax liability of $10,000 or more pay all taxes using EFT.

Best Practices Many clients providing timely and accurate banking information, and who have sufficient funds, find the process less burdensome than writing numerous checks, securing proof of mailing and performing related administrative tasks.

To assist clients, many CPA firms use a reminder system alerting their clients several days before the due date to pay their taxes. A checklist of best practices may include: • Determine the e-payment mandates by each governmental authority.

• Register for e-payment in a timely manner, allowing significant time to obtain a PIN. • Communicate e-payment benefits and related debit or credit methods.

• Inform the client of e-payment requirements and options.

• Remind clients that changes in banks or credit cards, or a business reorganization, must be identified and updated to the e-system.

• Remind clients that changes in

personal filing status can impact e-payments.

• Advise clients of the service fees for using credit card payments or thirdparty facilities.

• Document policies and procedures, and communicate these to staff and clients.

• Use a client reminder letter for 1040 filings as an option to pay income tax for amounts due with the return, extension and estimated tax payments.

Avoid Penalties Penalties apply for the failure to deposit taxes in a timely manner and use the required EFT. Employment tax rules provide penalties of 2 to 10 percent of amounts due, depending on the number of days late. EFT rules require deposits for taxes to be made by the close of the next business day if the taxes exceed $100,000. Thresholds are critical on deposit due dates for employment tax.

Thus, business clients must use EFT for all federal tax deposits, unless the IRS provides an exemption. Keep in mind that stats vary on the requirements or voluntary use of e-payment, electronic funds withdrawals and online payments via a state’s website.

CPAs must address the e-payment mandates and options by implementing policies and procedures and related controls into their tax compliance processes. Staff and client communication is critical to reduce exposure and add efficiencies. Also, periodically review e-payment best practices.

David A. Springsteen, CPA, M.B.A., is a tax partner at WithumSmith+Brown.

He is a member of the New Jersey Society of CPAs. Contact him at dspringsteen@withum.com.

NEW JERSEY CPA • November • December 2013

19

FINANCIAL

planning

Income Tax Filing for Same-Sex Couples B y B ernard M. Kiely, C PA, K iely C apital M anagement, I nc .

M

arriage laws in the U.S. are left to individual states. Currently, 13 states and the District of Columbia will issue a marriage license to samesex couples. Five states, including New Jersey, allow same-sex civil unions, and seven states allow domestic partnerships. Thus, 25 states allow same-sex couples to file a joint state income tax return.

Social Security survivor’s benefits or obtained health insurance as a spouse of a federal employee.

In October 2012, DOMA was ruled unconstitutional by the federal appeals court in New York. And in a landmark 5-4 decision in June of this year, the U.S. Supreme Court declared DOMA unconstitutional.

History Is Made

Electronic filing of tax returns for same-sex couples, however, contains some practical problems. First, you need to open three files in your tax software. One will be for a joint New Jersey tax return. The other two are for single federal returns, one for each same-sex spouse. Preparing and e-filing a joint New Jersey return is pretty straightforward: A married couple is a married couple.

I use Turbo Tax Pro Series for tax preparation. If there are two tax files with the same Social Security number, the program won’t let me e-file either.

So, I open up the joint New Jersey file and then input the data and e-file the joint return. I then delete both Social Security numbers from the file and save the return without Social Security numbers. I then create the two single federal return files. While the joint New Jersey return is easy, the two singles become a little more complicated.

Preparing tax returns for same-sex couples initially takes two to three times longer than for married opposite-sex couples. After the computer files are created, it probably takes one-and-a-half times longer than for a traditional couple.

Until 1996, the federal government was silent on the topic of marriage. Then, in September of that year, President Clinton signed into law the Defense of Marriage Act (DOMA). Section 3 of DOMA codified the nonrecognition of same-sex marriage for all federal purposes. So, under DOMA, a samesex couple could not have received the same federal benefits as opposite-sex spouses. They could not have filed a joint federal income tax return, claimed exemption from estate taxes, received

SUPPORT FOR SAME-SEX Marriage in NJ

b Undecided 9%

Con 31%

Pro 60%

E-Filing Challenges

Federal From the federal government’s perspective, all of the normal rules come into play. Income must be appropriately reported. Individual

1099s are straightforward, but joint accounts must be allocated between both same-sex spouses. For itemized deductions, the usual rules apply: Who owns the house? Whose name is on the mortgage? Who made the payments?

If one spouse owns the house and payments are paid from a joint account, the other spouse would be eligible for his or her half of the mortgage interest and property taxes. But, one partner would not be eligible for his or her half because it’s not his or her obligation.

If the other took the entire deduction it could be problematic upon audit, since he or she paid the mortgage and property tax partially with his or her money and partially with someone else’s money.

What a Difference

One of my clients is a same-sex married couple in Massachusetts.

Because DOMA was ruled unconstitutional, my clients will be able to file a joint federal income tax return. When they do file jointly, the marriage penalty kicks in. If my clients had filed a joint federal return in 2011, it would have cost them $10,676 in additional income and alternative minimum taxes. New Jersey allows civil unions, which technically aren’t a marriage. Accordingly, New Jersey civil union couples will still have to file single returns because under federal rules they are not married.

Bernard M. Kiely, CPA, CFP, is the president of Kiely Capital Management, Inc. He is a member of the New Jersey Society of CPAs Personal Financial Planning Interest Group and the Editorial Advisory Board of New Jersey CPA magazine. Contact him at bernie@kielycapital.com or 973-455-1894.

NEW JERSEY CPA • November • December 2013

20

Forensic

file

Business Valuations: Should You Tax Affect Pass-Through Entities?

B y Paul White , CPA, F riedman LLP

T

axation of pass-through entities continues to be the subject of studies, valuation models and academic literature. As valuation specialists, we are aware that every engagement has unique factors that can influence our analysis and decision-making processes.

These include the specific yearly tax rate (federal, state and/or local) of income retained by the company versus distributions, as well as the specific type of pass-through entity, such as a general partnership versus a limited partnership.

Whether to tax affect a pass-through entity is a matter of continuing debate within the business valuation community. When considering how to approach the valuation of a passthrough entity such as an S corporation, partnership, limited liability company and so on, one needs to be cognizant of tax court ruling precedents. A few examples below demonstrate instances of these precedents.

Gross v. Commissioner Petitioners (Gross) had gifted shares of a corporation (G&J) to their children and disagreements resulted, including one around the impact of the tax effect on the earning and value of the corporation. One of the assertions of the respondent was that since virtually all of the corporation’s earnings were being distributed, the business would have virtually a zero-percent corporate tax rate. The tax court held “tax affecting inappropriate under facts presented.”

Estate of Adams v.

Commissioner The court cited Gross during this case. The court noted an increase in

the capitalization rate to account for an adjustment of the discount rate before tax cash flows (tax affecting the earnings stream). The court stated: “…should not have converted the capitalization rate from after corporate tax to before corporate tax because the tax character of both this estimated net cash flows for the WSA Corporation and unconverted capitalization rates is after corporate tax.”

These cases, along with many others, led to the start of a significant research and analysis effort trying to determine the value of an S corporation versus a C corporation.

Delaware Open MRI Radiology Associates v. Kessler This was a later court case in which tax affecting was treated quite differently.

In this matter, heard in the Court of Chancery of Delaware, New Castle County, Vice Chancellor Strine applied his own valuation analysis. He said, “This case is another progeny of one of law’s hybrid varietals: the combined appraisal and entire fairness action.” One expert tax affected the earnings stream as a C corporation, while the second expert did not tax affect at all. Focusing on only the tax affecting, the court stated, “I am not going to quantify the value at which [the company] would sell to a C corporation; I am trying to quantify [its] value . . . as a going concern with an S corporation structure.” The court applied a 29.4-percent effective tax rate to this pass-through entity. The court also embraced Gross and other tax court opinions, but noted departures from the precedent which influenced the decision. This decision represents a different position than the decision in

Gross, but the court considered all the facts and circumstances in coming to its determination.

These tax court decisions are a small component of the debate on this issue.

This is evident when one considers that two cases, such as Gross and Delaware MRI that both fall under the rubric “valuation engagements,” can lead to such different approaches to tax affecting. As valuation professionals, we need to be open to the nuances of each engagement, aware of precedents that have been set and the reasoning behind them, and willing to expand our knowledge and skill sets.

Paul White, CPA, CVA, is a manager at Friedman LLP. He is a member of the New Jersey Society of CPAs. Contact him at pwhite@friedmanllp.com or 856-830-1600.

NEW JERSEY CPA • November • December 2013

22

INDUSTRY

insights

Unclaimed Property Compliance B y P eggy Tilles, S axB ST

I

n 2010, New Jersey enacted unclaimed property legislation for gift cards, gift certificates and prepaid cards (stored value cards). After extensive litigation, New Jersey revised its law in June 2012. Senate Bill No. 1928 was an attempt by NJ to legislate a settlement with the American Express Prepaid Card Management Corporation and industry groups such as the New Jersey Food Council and New Jersey Retail Merchants Association.

All 50 states and the District of Columbia have unclaimed property tax laws, also known as escheat or abandoned property laws. These laws require businesses to turn over abandoned property to the state after a certain period of time, with the purpose of reuniting owners with their property when the business has been unsuccessful in contacting the owner.

Gift Cards, Gift Certificates and Prepaid Cards (Stored Value Cards) New Jersey expanded its escheat laws to collect revenue from stored value cards that are seldom claimed by their

Gift card saleS

2007 2008 2009 2010 2011 2012

$97 billion $91 billion $87 billion $91 billion $99 billion $110 billion

owners. Gift cards and certificates are often issued by a specific retailer or service provider. General-purpose reloadable cards include debit cards issued by banks in prepaid amounts that can be honored for goods or services or at automated teller machines.

The new legislation presumes that stored value cards are abandoned after five years of inactivity. It applies to businesses that issue cards with an annual value of more than $250,000.

Sales by franchised outlets and those under common ownership are grouped together to determine this threshold.

Data Collection Requirement The most controversial provision of the law continues to be the requirement to obtain the name and address of either the purchaser or the owner of each stored value card issued or sold and, at a minimum, maintain a record of the ZIP code of the owner or purchaser (data collection requirement).

Top gift card issuers threatened to withdraw from the stored value card market if this data collection requirement was implemented, claiming that they could not ensure compliance when cards were sold at retail locations or through third-party websites. Spas objected to the customer delays involved in gathering this information during the busy holiday season. Businesses were concerned about the costs of compliance, including employee training costs, as well as with violations of consumer privacy.

New Jersey responded to these concerns in its 2012 legislation by delaying for approximately four years the requirement to have systems in place to satisfy the data collection requirement. New Jersey is hoping to reach an agreement with issuers before the mid-2016 deadline. For businesses that have systems in place to retain

this information, NJ would apply the escheat law to stored value cards issued beginning July 1, 2010. New Jersey is authorized to grant an exemption from the data collection requirements for a business that demonstrates good cause.

Cash Refunds and Penalties With limited exceptions, beginning September 1, 2012, owners of stored value cards can request cash refunds if the card balance is below $5. Issuers face significant penalties if they do not issue these refunds. In order to comply with this requirement, issuers must maintain records of card balances.

Some companies are putting marketing strategies in place to keep cards active and delay escheat to the state. One example is to offer incentives for owners to use their cards. Another strategy is to keep cards active through communication with owners regarding card balances.

If this strategy is used, the issuer must maintain a record of the communications by the owner concerning the value of the balance remaining on the card.

Issuers of general purpose reloadable cards are required to remit to New Jersey the value of the card in money on the date the card is presumed abandoned. Issuers of other cards must remit 60 percent of the card value. Additional burdens for issuers include complying with restrictions on expiration dates and fees, completing forms required to report abandoned property and responding to state unclaimed property tax exams. Consult with an accounting firm knowledgeable in this area to determine how this legislation may affect your company.

Peggy Tilles, J.D., LL.M., is a tax manager at SaxBST. Contact her at ptilles@smf-cpa.com or 973-472-6250.

NEW JERSEY CPA • November • December 2013

23

Small/Sole

practitioner

Offers in Compromise for Small Businesses B y George Williams, C PA, Ross Rosenthal & C o.

considered when adding the value of total assets to disposable income.

Application Process When filing for an OIC for a small business, the taxpayer must submit a $150 application fee with Form 656. The taxpayer must also submit Form 433-A, Collection Information Statement for Wage Earners and SelfEmployed Individuals, or Form 433-B, Collection Information Statement for Businesses.

OIC Payment Offer

T

he Internal Revenue Service (IRS) Offer in Compromise (OIC) program, codified under 26 USC §7122, allows qualified individuals and small businesses with unpaid tax debts to negotiate settled amounts that are less than the total owed.

A Fresh Start In 2012, the IRS promoted its “Fresh Start” initiative to include more favorable qualifications for its streamlined OIC program. Historically, the IRS has accepted approximately 34 percent of the offers from self-employed and business applications. Fresh Start makes it easier for individual and small business taxpayers to pay back taxes and avoid tax liens.

Under Fresh Start, the IRS has incorporated its streamlined OIC process into the overall investigation of offers and has added flexibility via the financial analysis used in evaluating offers. The process includes fewer taxpayer information requests and greater flexibility regarding taxpayers’ ability to pay.

The changes to financial analysis add more flexibility to the OIC process

and include greater flexibility in determining the equity in assets and reducing the amount of future income included in the offer. Instead of taking the disposable income amount and multiplying it by 48 or 60, it will be multiplied by 12 or 24, respectively. If the taxpayer has income-producing assets in a viable ongoing business, the equity in those assets will not be

When making an OIC payment, a taxpayer may pay in a lump sum or make periodic payments. The lumpsum offer is payable in five or fewer installments and within 24 months after the offer is accepted. If a taxpayer submits a lump-sum offer, he or she must include a nonrefundable payment equal to a minimum of 20 percent of the offer amount along with the Form 656.

The 20-percent amount is nonrefundable even if the offer is rejected by the IRS.

IRS OICs 2008

11,000

2009

11,000

44,000 52,000 57,000

2010

14,000

2011

59,000

20,000

64,000

2012

24,000 Received

NEW JERSEY CPA • November • December 2013

24

Accepted

The periodic payment offer is payable in six or more monthly installments and within 24 months after the offer is accepted. The taxpayer must include the first proposed installment payment along with IRS Form 656. This amount is also nonrefundable. While the IRS is evaluating a periodic payment offer, the taxpayer must continue to make the installment payments under the offer’s terms.

OIC Acceptance by the IRS If the IRS accepts the taxpayer's offer, the IRS expects the taxpayer to have no further delinquencies and fully comply with all tax laws. The terms and conditions of OIC acceptance include a requirement that the taxpayer file all tax returns and pay all taxes

in a timely manner for five years from the date of acceptance of the OIC. If the taxpayer does not comply with the OIC’s terms, the IRS may determine that the OIC is in default and the agreement is no longer in effect. The IRS may then collect the amounts originally owed, including all interest and penalties. One small caveat many practitioners fail to inform their clients about is that any refunds due within the calendar year in which the offer is accepted will be withheld and applied to the outstanding tax debt.

OIC Rejection by the IRS If the IRS rejects an OIC, the taxpayer will be notified by certified mail.

The letter will indicate the reason for rejection and provide detailed

instructions on how the taxpayer may appeal the decision to the IRS Office of Appeals. Appeals must be made within 30 days from the date of the rejection letter. The statutory time within which the IRS may engage in collection activities is suspended during the period that the OIC is under consideration and is further suspended if the OIC is rejected by the IRS in instances in which the taxpayer appeals the rejection to the Office of Appeals.

George Williams, CPA, J.D., LL.M., is a partner at Ross Rosenthal & Co. He is a member of the New Jersey Society of CPAs Federal Taxation and State Taxation interest groups. Contact him at gwilliams@rossrosenthal.com.

NEW JERSEY CPA • November • December 2013

25

TAX

talk

Taxability of Forgiven Debt

By Marcia A. Geltman, CPA, Nisivoccia LLP

M

any of our clients who experience financial hardships are often able to have part or all of the debt forgiven.

Income tax law requires the amount of debt cancellation (COD) to be taxable.

However, there are a number of exceptions to this taxability treatment.

If debt is cancelled by a relative, friend or as part of a will, the cancellation of debt income may be considered a gift or inheritance, rather than income.

Cancellation of certain student loans also does not result in COD income.

This would apply if, per the loan agreement, the debt would be forgiven if the student worked for a specified period of time.

Under Internal Revenue Code (IRC) Section 111, COD income is not taxable if the related debt resulted in no tax benefit. An example would be forgiveness of mortgage interest expense. If the interest expense wasn’t deducted or if it was deducted and no tax benefit was received, interest forgiveness would not be taxable.

IRC Section 108 provides for additional exceptions. If the debtor is bankrupt or insolvent, no income is required to be reported. There are also specific types of debt (qualified farm debt, qualified real property

1099-C Filings 2003 2006 2009

1.0 1.9 2.8

2012 2015 (est.)

(in millions)

business debt and qualified principal residence debt) for which the exclusion applies.

The bankruptcy exception applies to any bankruptcy case under the Bankruptcy Code. The insolvency exception applies to any forgiveness while the taxpayer is insolvent.

Insolvency is defined as the excess of liabilities over the fair market value of assets, determined immediately before the discharge. The forgiveness is limited to the amount by which the taxpayer is insolvent. Note, however, that even though a person or entity is bankrupt or insolvent, not all discharges qualify for the income exclusion. Certain discharges related to damage claims, surrender of contract rights or transfers of property would not qualify for the IRC Section 108 exclusion.

Qualified farm debt is debt incurred directly in connection with the business of farming. Fifty percent or more of the taxpayer’s aggregate gross receipts for the three preceding taxable years must be attributable to farming.

Qualified real property business indebtedness, which applies to all taxpayers other than C corporations, is debt incurred in connection with real property used in a trade or business and is secured by such real property. It must be incurred prior to 1993, unless it is qualified acquisition indebtedness. This is defined as indebtedness with respect to real property used in a trade 6.2 or business, secured by 6.7 such property to acquire, construct, reconstruct or substantially improve such property.

The exclusion for qualified principal residence indebtedness, currently set to expire on December 31, 2013, applies to indebtedness discharges beginning in 2007 incurred to acquire, construct or substantially improve a principal residence. The excluded amount cannot exceed the taxpayer’s basis in the residence and is limited to $2 million ($1 million for married filing separate). Any indebtedness used for debt consolidation does not qualify for the exclusion.

Even though COD income qualifies for exclusion from tax, IRC Section 108 provides for reduction of certain tax attributes as a result of the exclusion. Taxpayers can elect to reduce the basis of depreciable property first.

For a personal residence, the basis of the taxpayer's home is reduced. When reducing basis, the assets are reduced on the first day of the year following the debt forgiveness.

The other tax attributes must be reduced in the following order: net operating loss carryovers, business tax credits, minimum tax credits, net capital loss carryovers, basis of depreciable assets (if election to reduce first was not made), passive activity loss and credit carryovers, and foreign tax credit carryovers. Reductions are made on a dollar-for-dollar basis except for credit reductions, which are reduced 33.3 cents for every dollar excluded.

Once the attributes are reduced, there is no further tax impact of the forgiven amount.

New Jersey has no provision that requires debt forgiveness to be included in income except for corporations, which must follow federal law.

Marcia A. Geltman, CPA, is a partner at Nisivoccia LLP. She is a member of the New Jersey Society of CPAs. Contact her at mgeltman@nisivoccia.com.

NEW JERSEY CPA • November • December 2013

26

TECH

center

Restricted Stock Versus Stock Options for Tech Execs B y M ichael R. S teiner , C PA, RegentAtlantic C apital , L L C

W

ho could forget the good old days when tech companies doled out stock options, and the value of the company stock was dictated not by revenues or profits but by mouse clicks. It seemed paper millionaires were being created daily. While those days are behind us, stock options for tech executives remain. Following stock option treatment on company balance sheets – thanks to Sarbanes Oxley – can still be a valuable component to one’s compensation and should not be ignored.

Within the last decade, restricted stock grants have become more popular and far more mainstream than their leveraged counterparts. Stock option purchases are at a predetermined price for a period of time, generally not to exceed 10 years, and vesting periods range anywhere from one to five years before the holder can exercise his or her right. One key benefit of stock options is if the price of the stock goes down, the holder doesn’t risk losing any of the principal. It’s a great deal for employees and can be quite lucrative.

Restricted stock, on the other hand, is a grant of stock that vests over time, typically one to three years. Upon vesting, the shares are owned outright, and employees are taxed on their values on the days the shares vest. The tax treatment differs from options in that the employee can have discretion over the timing of execution and, thus, recognizing the income. This flexibility offers the opportunity to plan an execution strategy with an eye toward timing one’s income tax liability.

Restricted stock assures that there is some value as the stock itself has a value to it. That value can go up or down and is dictated by nothing more

Highest Paid Tech CEOs for 2012 Larry Ellison, Oracle $96.2 million Robert Kotick, Activision $64.9 million Marissa Mayer, Yahoo $36.6 million John Donahoe, eBay $29.7 million

than the value of the stock on the day the shares vest. There are no decisions or elections to make. The upside lies simply in the value of the company.

As such, restricted stocks pose risk if there is a decline in value subsequent to the vesting because the taxes are fixed based on the value on the vesting date.

On the other hand, options have greater flexibility in terms of leverage.

For example: TechCo issued options with a strike price of $35 and the stock is now trading at $36. If the stock goes from $36 to $37, that gain is 100 percent. If it then goes to $38, the gain is 50 percent, and so on. That’s the leverage factor.

Eventually, the percentage gain increase gets to the point where it’s almost like owning the stock. In most instances, it would not pay to exercise options and hold the stock (assuming they are nonqualified options, which represent the majority of option grants today), thereby assuming risk by having personal capital invested. Generally, the preferred approach is to exercise the options and sell the shares simultaneously. This way, the employee does not assume the risk of holding the stock in the event of a decline because, at that point, his or her personal capital would be at risk.

For technology companies, leverage in options can be amplified even more when there is volatility. The upside to options is magnified without the risk of loss on the downside. The only real risk is the opportunity cost in a stock that does not move in value much, thereby keeping the options relatively valueless.

However, in technology and related industries, the expectations are for growth, and that’s what makes options an attractive opportunity.

In many instances, companies offer the choice of options or restricted stock as part of an overall compensation package. Both forms of compensation are attractive, and one is not inherently better than the other. Restricted stock is generally the safer choice, but that doesn’t necessarily make it the optimal choice.

Options utilize leverage and can result in big gains or no value at all. The decision ultimately boils down to one’s tolerance for risk and the company outlook.

Michael R. Steiner, CPA, is a wealth manager for RegentAtlanticCapital, LLC. He is a member of the New Jersey Society of CPAs Personal Financial Planning Interest Group. Contact him at msteiner@regentatlantic.com.

NEW JERSEY CPA • November • December 2013

27

Highlights of Financial Results For the Year Ended May 31, 2013

T

The NJSCPA Scholarship Fund continued to benefit from the strong support of the Society’s chapters, as well as from Society members and their firms and companies. In addition, two significant memorial contributions were received during the fiscal year. For the second year in a row, the fund awarded more than $500,000 to more than 90 eligible students, including awards by three chapters. Temporarily restricted net assets increased approximately $466,000, including unrealized gains of $237,000 on the fund’s investment portfolio.

he New Jersey Society of CPAs’ Board of Trustees and management are pleased to present the annual report for the Society and affiliates (NJSCPA Education Foundation and NJSCPA Scholarship Fund) for the year ended May 31, 2013. Faced with a sluggish economic recovery and changing member demographics, the Society was challenged to continue to deliver quality programming to meet member needs and expectations. Fiscal 2013 operating results were strong for all entities in the combined group, which is a testament to the ongoing commitment to strategic planning on the part of each organization's governing body. When compared to last year, the most striking differences are in the areas of educational program activity, which fluctuates according to the CPE triennial cycle, and returns on long-term reserves, which benefitted from favorable market conditions for most of the fiscal period.

The Society continued efforts on its two major strategic programs, volunteer relations and firm outreach. Nearly 135 members submitted new volunteer interest profiles, and the growth in 100-Percent Member Champion firms resulted in more than 150 new members. More than 550 peer reviews were administered due to the influx of new firms enrolled in the program, and advocacy efforts were escalated in the areas of appeal bond cap legislation and the five-year "death penalty" bill. The millionaires’ tax was averted, and three NJSCPA-endorsed candidates were appointed to the NJ State Board of Accountancy. The Society’s net assets increased approximately $480,000, including unrealized investment gains of $233,000.

The NJSCPA Education Foundation completed the first year of the triennial reporting cycle, delivering more than 129,000 credit hours of CPE to 26,500-plus registrants. Better-than-anticipated attendance at live programs and a continued increase in web training volume allowed the foundation to trim its budgeted deficit by almost 50 percent. Net assets decreased by approximately $134,000 versus a budgeted deficit of $262,000.

Membership Dues Income from membership dues increased approximately 1.3 percent, mainly due to inflationary increases in rates which were 1.6 percent for fellow members and 1 percent for retired and leave of absence members. Recruitment of new members exceeded budget by 150 members, while overall member retention remained the same as last year at 92 percent. Total membership declined slightly to 15,300.

Educational Program Fees Income from educational program fees was down approximately 30 percent from last year, as expected, since this was the first year of the new triennial cycle versus the third year last year. Attendance remained strong and was not only ahead of budget but also surpassed the first-year pace set in the prior triennial period. The decrease in royalties and commissions is also attributable to the first year of the cycle, which impacted alliance income on webcasts. Direct expenses of educational programs decreased proportionately.

Other Revenues The decrease in publication revenues is due mainly to the fact that last year included the biennial production of the Forensic & Litigation

REVENUES AND OTHER SUPPORT

2013 4% 37%

1%

2012 51%

7%

4%

11%

2% 4%

1%

Membership Dues 40%

Educational Program Fees Peer Review Fees Publication and Advertising Special Events and Contributions Investment, Royalties and Other NEW JERSEY CPA • November • December 2013 NEW JERSEY CPA • November • December 2013

28 28

38%

Highlights of Financial Results For the Year Ended May 31, 2013 Services Directory of CPAs, while the increase in special events revenue is due to an additional Scholars Institute event during the fiscal period. Investments returned approximately 16 percent as the majority of asset classes posted solid returns for the fiscal period. This compares to a negative return of approximately 7 percent last year.

FUNCTIONAL EXPENSES

2013 20%

15% 9%

4% 10%

Operating Expenses Management of expenses remained a critical focus for the Society and affiliates during fiscal 2013. Total expenses decreased 6 percent from 2012 and, exclusive of the decrease in direct costs of educational programs, they increased only 0.5 percent. The increase in salaries, payroll

4%

2012 19%

38% 15% 8%

4% 9%

taxes and benefits includes an average merit increase of 3 percent, offset in part by one retirement. Printing and distribution was lower than 2012, mainly due to the biennial production of the Forensic & Litigation Services Directory of CPAs last year. The increase in special events was due to the additional Scholars Institute event noted above, offset in part by cost savings achieved by changes in format of this and other student program events.

While the Combined Statements of Activities present expenses by natural classification, below are the combined expenses of the Society, the NJSCPA Education Foundation and the NJSCPA Scholarship Fund, summarized by each major functional area.

Program Services Membership activities Communications and public relations Educational activities Peer review Career awareness Total Program Services Support Services Membership recruitment and fundraising Management and general Total Support Services Total Program and Support Services

3% 42% Membership Activities Communications and Public Relations Educational Activities Peer Review Career Awareness Recruitment and Fundraising Management and General

2013

2012

$1,252,000 729,000 3,198,000 336,000 806,000 6,321,000

$1,277,000 733,000 3,755,000 304,000 776,000 6,845,000

369,000 1,698,000 2,067,000 $8,388,000

369,000 1,684,000 2,053,000 $8,898,000

Combined Statements of Financial Position New Jersey Society of Certified Public Accountants and Affiliates May 31, 2013

May 31, 2012

$ 7,201,000

$ 6,614,000

5,187,000

4,243,000

781,000

919,000

$13,169,000

$11,776,000

$ 2,790,000

$ 2,198,000

Assets Cash and cash equivalents Investments Other Total Assets Liabilities and Net Assets Deferred revenue

873,000

884,000

Total Liabilities

3,663,000

3,082,000

Unrestricted net assets

6,579,000

6,233,000

Temporarily restricted net assets

2,927,000

2,461,000

Total Net Assets

9,506,000

8,694,000

$13,169,000

$11,776,000

Other

Total Liabilities and Net Assets

NEW JERSEY CPA • November • December 2013 NEW JERSEY CPA • November • December 2013

29 29

Highlights of Financial Results For the Year Ended May 31, 2013 Combined Statements of Activities New Jersey Society of Certified Public Accountants and Affiliates Year Ended May 31, 2013

Year Ended May 31, 2012

$3,668,000

$3,620,000

3,453,000

4,901,000

Peer review fees

356,000

384,000

Publication, directory and website advertising

135,000

182,000

Investment income (loss)

408,000

(134,000 )

Royalties and commissions

192,000

261,000

Special events

277,000

196,000

64,000

72,000

181,000

189,000

8,734,000

9,671,000

Salaries, payroll taxes and employee benefits

3,724,000

3,670,000

Direct costs of educational programs

2,353,000

2,890,000

Rent and occupancy

432,000

431,000

Printing and distribution

140,000

152,000

Scholarship awards

443,000

463,000

Office and supplies

242,000

241,000

Professional fees

273,000

279,000

Travel and meetings

112,000

110,000

Special events

204,000

187,000

Other general

465,000

475,000

8,388,000

8,898,000

346,000

773,000

Contributions

334,000

196,000

Investment income (loss)

313,000

(138,000 )

(181,000)

(189,000 )

Increase (Decrease) in Temporarily Restricted Net Assets

466,000

(131,000 )

Changes in Net Assets

812,000

642,000

8,694,000

8,052,000

$9,506,000

$8,694,000

Changes in Unrestricted Net Assets Revenues and other support Membership dues and other fees Educational program fees

Other Net assets released from restrictions Total Unrestricted Revenues and Other Support Expenses

Total Expenses Increase in Unrestricted Net Assets Changes in Temporarily Restricted Net Assets

Net assets released from restrictions

Net assets at beginning of year Net assets at end of year

These condensed financial statements are derived from the Society’s audited combined financial statements, which received an unqualified opinion.

A complete copy of the financial statements is available by contacting the Society at 973-226-4494 or mdonohue@njscpa.org.

NEW JERSEY CPA • November • December 2013

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SOCIETY

pages

CPE Offerings and Events Upcoming Education Foundation Events Date

Event/Code

Location

CPE Credit

11/22

Surgent McCoy's Comprehensive Guide to Tax Depreciation, Amortization and Property Transactions from Acquisition to Exchange or Disposition (E1311413)

Iselin

8/TX

11/22

Connect: Leveraging NJSCPA’s Online Community for Business Webinar (E1311864)

N/A

1.5/CS

11/26

Tax Updates and News and Pronouncement Updates (E1311787)

Roseland

2/TX

12/2

Understanding the Clarified Auditing Standards: The Changes You Need to Know (E1312611)

Roseland

8/AA

12/2

Determining How Much Money You Need to Retire, and Tax Ideas and Money Management in Retirement (E1312261)

Iselin

4/CS, 4/TX

12/3

Social Security, Medicare and Prescription Drug Retirement Benefits: What Every Baby Boomer Needs to Know Now (E1312271)

Roseland

8/TX

12/3

Financial Reporting Framework for Small and Medium-Sized Entities (E1312603)

Roseland

8/AA

12/4

OCBOA: Preparing and Reporting on Cash, Modified Cash and Tax Basis Financial Statements (E1312281)

Roseland

8/AA

12/4

Surgent McCoy's Limited Liability Company and Partnership Tax Return Preparation Workshop (E1312291)

Mount Laurel

8/TX

12/4

Applying the Risk Assessment Standards (E1312471)

Iselin

8/AA

12/5

Nonprofit Conference (E1312010)

Edison

8/MC

12/5

Pricing for Profitability: Strategies and Techniques (E1312063)

Roseland

2/AA, 5/MT, 1/PE

12/5

What You Need to Do Now in Estate Planning Under the New Tax Law (E1312241)

East Hanover

8/TX

12/5

IFRS for Smaller Entities vs. U.S. GAAP: A Study in How the Financial Statements Look and Feel Different (E1312253)

Roseland

8/AA

12/5

Reading, Understanding and Structuring LLC and Partnership Agreements from a CPA's Perspective (E1312301)

Mount Laurel

8/TX

12/5

Young Professionals Holiday Party (E1312690)

New Brunswick

N/A

12/6

Know Your Cost: Double Your Profit (E1312073)

East Hanover

8/AA

12/6

Effective and Efficient Senior-Level Review of Tax Returns in Busy Season (E1312231)

Iselin

8/TX

Upcoming Chapter Events Date

Chapter

Event/Code

Location

CPE Credit

11/22

Mercer

Accounting and Auditing Update (E1311659)

West Windsor

4/AA

11/22

Essex

Annual Tax Seminar (E1311559)

East Hanover

5/TX

11/23

Middlesex/Somerset

Annual Tax Seminar (E1311779)

Edison

7/TX

12/3

Union County

Disaster Planning for the New Age (E1312589)

Kenilworth

2.5/CS

12/3

Passaic County

Accounting and Auditing Update (E1312519)

Paterson

4/AA

12/4

Middlesex/Somerset

Offers in Compromise and Navigating the IRS (E1312649)

Somerset

4/TX

12/5

Bergen

New Jersey Law and Ethics (E1312349)

Paramus

4/PE

12/6

Southwest Jersey

Annual Tax Seminar (E1312509)

Cherry Hill

5/TX

12/6

Mercer

Annual Tax Seminar (E1312559)

West Windsor

8/TX

KEY AA – Accounting & Auditing MT – Management

CS – Consulting Services PD – Personal Development SK – Specialized Knowledge

EC – Economics PE – Professional Ethics TX – Taxation

MC – Multiple Categories PM – Practice Management

Please note: Events are subject to change. For a full listing of all NJSCPA events, visit njscpa.org/catalog.

NEW JERSEY CPA • November • December 2013

32

ADVERTISERS INDEX

Prepare for Tax Season with the NJSCPA The New Jersey Society of CPAs has various ways for you to stay current on federal and state tax laws and regulations, as well as remove some of the stress that comes with tax season.

The following benefits (and more) are available to NJSCPA members and designed to fit your schedule:

Learn and Earn CPE Credits: CPE Courses on Relevant Tax Topics and Trends Upcoming tax-related CPE courses can be found by searching under Taxation at njscpa. org/catalog. Also, keep track of all of your CPE credits through the CPE Tracker at njscpa.org/cpetracker.

Read: Tax Guides and More Society members can save 30 percent at the CCH online store on more than 175 tax and accounting publications. Visit njscpa. org/marketplace, to access the store and the members-only priority code.

Get Support: Find Per Diem Staff Reach the most qualified candidates by posting your per diem or permanent job openings on our online Job Bank at njscpa.org/jobs. You can also search for résumés and only pay for the ones that interest you.

Collaborate: With Members Just Like You Tap into the knowledge of other tax experts by joining the NJSCPA State Taxation and/or Federal Taxation interest groups. Join by visiting the groups/committees page at njscpa.org/volunteercontribute/groups. You’ll have ongoing access to an online community to discuss and learn from other members about taxation issues through njscpa.org/connect.

New Jersey CPA is the only way to reach each of the 15,500 members of the New Jersey Society of CPAs, and 55 percent of readers take action after seeing an advertisement in the magazine – by either purchasing the product, contacting the advertiser, visiting a website or recommending the product or service to a client. 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

36

ADP 13 accountant.adp.com/grow Askin, Weber & Reed, Inc. myltcplan.com/njscpa

15

Capital One Bank capitalone.com

3

CPE Link cpelink.com

25

Electronic Office Systems eosnj.com

21

Fulton Bank of New Jersey fultonbanknj.com

35

Intuit intuit.com PNC Bank pnc.com/cashflowinsight Provident Bank providentnj.com Residential Home Funding rhfbloomingdale.com

C2, 7 C3 9 14

Rutgers 31 business.rutgers.edu/accounting Surgent McCoy cpenow.com

NEW JERSEY CPA • November • December 2013

33

C4

SOCIETY

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Get Involved What Young CPAs Want

By Sarah Krom, CPA, NJSCPA Young CPAs Council Chair The New Jersey Society of CPAs Young CPAs Council is responsible for helping to support and develop the next generation within the accounting profession. The goal is to have a pipeline for leadership within the Society and arm young CPAs with resources they need personally and professionally to meet their career goals. To assist in accomplishing these goals, we recently conducted a survey to get the pulse on what makes our constituency “tick.” In addition, we’re holding focus groups with firm leaders to understand what programs they would be supportive of sending their younger staff to.

Preliminary results show networking, career guidance and access to job opportunities at the top of the list when we asked young CPAs: “What’s the most important thing the NJSCPA can do for you or provide you at your current career stage?” Networking events have been the cornerstone of our young CPAs programming. Networking has allowed me to develop relationships that fostered opportunities I otherwise wouldn’t have gotten had I not known the “right” people. Moving forward, we’ll look to complement our successful networking activities, like the Kickball Tournament and Beer Break, with programs to help young CPAs make smart career choices and move up the ladder. Young CPAs are more passionate about work-life balance and are looking for more flexibility, utilizing technology in order to work smarter, not harder.

We also found that young CPAs are interested in volunteering more with the NJSCPA, but either don’t have time or don’t know what’s available.

NJSCPA involvement can build soft skills that will accelerate development and springboard individuals closer to their goals. So, it’s important for us to not only let members know about the Society’s short-term volunteer opportunities, but make sure they are attractive to young CPAs. Our completed research, along with ongoing discussions and initiatives supported by the NJSCPA Strategic Planning Committee, will

help strengthen young CPAs, the council, our membership and the profession. We look forward to a refreshing new outlook for 2014.

Visit njscpa.org/youngcpas to find out what’s next.

Sarah Krom, CPA, is a manager at Sharpe, Kawam, Carmosino & Company, LLC. An NJSCPA Scholarship recipient, she attended Scholars Institute, currently leads the Young CPAs Council and is a member of the NJSCPA Strategic Planning Committee and the Bergen Chapter Board. Contact her at skrom@ skcandco.com.

When the State Taxation Interest Group Talks, People Listen

By Mark J. Philips, CPA, NJSCPA State Taxation Interest Group Vice Leader The New Jersey Division of Taxation relies upon the NJSCPA State Taxation Interest Group to comment on proposed regulations and amendments to existing regulations including, but not limited to, the division’s proposed corporation business tax market-sourcing apportionment rule relating to taxpayers’ service revenue; proposed regulation addressing the new alternative business deduction enacted by the Legislature under the Gross Income Tax Act; regulatory changes relating to updates to the Streamlined Sales and Use Tax Act, including how and when the good faith requirement standard applies; and amendments to regulations governing conference and appeals branch practices and procedures.

The State Taxation Interest Group’s comments on such proposals have enhanced members’ relationships with the division by providing opportunities to work proactively on tax matters impacting a majority of the tax community. This working relationship continues to grow and is further facilitated by Governor Christie’s Executive Order No. 2, specifically paragraph 1(a), which says: “State agencies shall provide the advance notice of rules by soliciting advice and views of knowledgeable

persons from outside of New Jersey State government, including the private sector … in advance of any rulemaking to provide valuable insights on the proposed rules and to prevent unworkable, overly proscriptive or ill-advised rules from being adopted.”

Through the relationship developed between the group and the division, its advanced notice is extending beyond regulatory changes to technical advisory memorandums and technical bulletins (TBs). For example, the New Jersey Sales and Use Tax treatment of cloud computing services is a complex area where the division has focused resources and collaborated with the group to discuss draft guidance the division planned to publish. In July 2013, the division published TB-72, Cloud Computing (SaaS, PaaS, IaaS), which reflects comments made by group members. Comments included identifying challenges taxpayers may be faced with when trying to obtain and document certain source data relating to cloud services, and issues that may arise when reconciling how cloud services may be treated for sales and use tax purposes compared to corporation business tax purposes. Ultimately, the dialogue between the division and the group resulted in a final TB which appears to be more concise and direct than previous drafts, providing well-needed guidance on a complex tax matter.

The State Taxation Interest Group is also a resource for Society members seeking guidance on technical topics. Members can submit their questions through the group’s Open Forum on Connect (njscpa.org/connect). The group, which is comprised of members from firms of all sizes as well as members in industry and educators, provides monthly CPE on various topics. For more information, visit njscpa.org/getinvolved or email the group’s leader, John C. Genz, CPA, at john.genz@eisneramper.com.

Mark J. Philips, CPA, is a state and local tax manager at KPMG LLP. He currently serves as the State Taxation Interest Group Vice Leader and Leader of its Directors Work Group, which liaises with the NJ Division of Taxation.

Contact him at mphilips@kpmg.com.

NEW JERSEY CPA • November • December 2013

34

Get Involved Now NJSCPA volunteer opportunities are available throughout the year.

Let us know how you’d like to be involved at njscpa.org/getinvolved.

Here are a few activities that need your support now: Help Feed Those in Need in Essex County – The Essex Chapter will be accepting donations to benefit the Human Needs Food Pantry at its annual tax seminar on Friday, November 22. Please bring nonperishable, unopened, unexpired food items. Bags of food will be also available on site for a $5 a bag. The Food Pantry provides food and other services to people in need in Essex County. Visit humanneedsfoodpantry.org.

Toy/Food Drives – Many NJSCPA chapters will be hosting toy/ food drives at their annual tax seminars from November through January. If you are interested in participating, visit njscpa.org/ chapters and check out the annual tax seminar in your area. Contact Theresa Hinton at thinton@njscpa.org with questions.

Be a Mentor and Make a Difference – CPA members under the age of 36 are needed to be mentors for the 2014 NJSCPA high

school scholarship recipients to provide guidance throughout their college careers. Apply online by Friday, December 13, at njscpa. org/mentor. Contact Lauren Matullo at lmatullo@njscpa.org or 973-226-4494 x241.

Read and Rank Essays from NJSCPA High School and College Scholarship Candidates – Volunteers are needed to read essays from high school scholarship candidates on Saturday, January 4, from 9:00am to 1:00pm at NJSCPA headquarters in Roseland. College essays can be read electronically from Friday, January 10, to Friday, January 17. Contact Janice Amatucci at jamatucci@njscpa.org or 973-226-4494 x209.

Interview NJSCPA College Scholarship Candidates – Society members are needed to interview candidates for NJSCPA college scholarships. College interviews will be held on Saturday, January 25, at Ernst & Young in Iselin, with a snow date of Saturday, February 1. Contact Janice Amatucci at jamatucci@njscpa.org or 973-226-4494 x209.

NEW JERSEY CPA • November • December 2013

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SOCIETY

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NJ State Board of Accountancy Report

Significant Number of Firms Not Registered for Peer Review Newark (September 19) NASBA The board responded to the National Association of State Boards of Accountancy (NASBA) focus questions as follows: • What is the most effective way to vet NASBA issues with your board? Email or mail to the executive director.

• Do you need any additional information on the Uniform Accountancy Act exposure draft on firm mobility? We'd like to know what concerns still exist and how they will be alleviated. Thus far, our board has taken a wait-and-see approach to firm mobility.

• What is happening in your jurisdiction? We are underway with our audit compliance

review of the 2009-11 triennial. Also, the education regulations are being evaluated.

• How can the NASBA assist your board?

By expediting the ALD database program to share information. Also, we may be interested in a visit from NASBA’s state board liaison.

Committees Peer Review Oversight – Approximately 690 firms have not responded or registered for their peer reviews. A letter will be sent to them indicating they need to register or submit an exemption request.

Statutes/Rules/Regulations – So far, there has been a response from only one school (The College of New Jersey) to the proposed education regulation changes.

Monitoring Profession – Letters are being sent to a variety of licensees who are not in compliance due to a lack of CPE documentation.

Remedies include voluntary surrenders, or fines ranging from $500 to $8,000.

Public New Jersey Society of CPAs CEO and Executive Director Ralph Albert Thomas, CGMA, mentioned that the American Institute of CPAs Commission on Diversity and Inclusion, of which he’s a member, has been very active. Thomas has also become a member of the NASBA State Society Relations Committee, which was formed to facilitate relations among the NASBA, state accountancy boards and state CPA societies.

Thomas is pleased to report that the NASBA and the AICPA are working more collaboratively on a financial reporting framework for small and medium-sized entities.

On the federal front, Thomas said the Society has issued a support letter on mobile workforce legislation. The bill will be submitted to the House, and the Society is looking for a Senate cosponsor. The Society has also sent a letter of opposition on legislation regarding cash basis of accounting from a tax reporting standpoint for partnerships and Subchapter S corporations.

In New Jersey, Thomas mentioned a meeting with the chair of the Senate Commerce Committee on a reciprocity bill. Also, the Society is requesting clarification from the attorney general on the possibility of forensic accountants needing a private investigator license, as some states require. Another piece of potential legislation that the Society is monitoring pertains to independent contractors.

There would need to be a formal contract between the contractor and the firm, and in the event of a dispute the burden of proof would be on the firm. The Society considers this onerous and may lead to a decrease in the use of independent contractors.

Thomas indicated that the Society will continue to get the message out to its members regarding CPE compliance. He also requested the names of those noncompliant practitioners from the state board for its joint enforcement program with the AICPA. The state board will provide those names to the Society.

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CLASSIFIEDS Bergen County, small peer-reviewed CPA firm seeking to acquire or merge with retirement-minded practitioners. We have acquired previously and promise to make the transition seamless! If interested, please reply in confidence to bergencountycpa@gmail.com.

Marketing Support Save 20 percent on PR, marketing, branding and coaching services with PRCounts, an NJSCPA Member Benefit Provider. Contact Eileen Monesson at 609-570-2150 or emonesson@prcounts.com; prcounts.com.

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.

Mergers/Acquisitions North NJ CPA looking toward retirement.

Practice gross is more than $350K. Looking for a CPA to take over sole-owner’s practice in near future as retiring partner works part-time for a few years. Prospective buyer should have a small practice of his/her own and be able to move into existing-staffed modern office of seller. Looking to finalize terms prior to end of year. Email response to cpanj2010@gmail.com.

Small Union County firm looking to sell roughly 50 tax clients. Reasonable terms. Email response in confidence to unionctycpa@aol.com.

Woodbridge CPA looking toward retirement.

Gross $300K. Looking for CPA to take over practice in near future as retiring partner works part-time. Must multitask and have small existing clients. Fax contact information to 732-283-3329.

Brunswick Income Tax Service, a CPA firm with more than 20 years’ experience, is interested in the acquisition of a small firm and tax clients.

If interested, please contact Bruce Butchen, CPA, nj254taxes@gmail.com or call 732-846-8297. All communication is confidential.

Bergen County firm interested in succession.

5,000 square feet, new offices, strong professional/administrative staff. Three million plus gross-high net, flexible terms, must maintain current location and key staff – not a broker advertisement. Reply in confidence.

File 91913 Northern NJ, medium-sized, full-service and peer-reviewed CPA firm is interested in acquisition or merger of smaller firm or affiliation with retirement-minded practitioner. If interested, please send your confidential information to northernnjcpafirm@gmail.com.

File 92613 Young Union County firm is seeking to acquire practice in the $300,000 to $800,000 range.

Please call 917-816-0601, or email nnjcpa@ gmail.com.

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.

Want to sell or merge your accounting practice? Accounting Practice Sales has qualified buyers waiting and financing available to sell your practice quickly and get you the best deal possible. For information regarding our risk-free and confidential services, call Bradley Holmes at 800-397-0249. Buyers see listings and register for free email notifications at accountingpracticesales.com.

New Jersey – CPA firm wishes to acquire or merge with progressive, small to mid-sized firms. File 0701

Real Estate Office space available, Continental Plaza, 411 Hackensack Avenue, 10th floor, Hackensack, NJ 07601. We have one or two offices immediately available with space for staff as well. We also have all office equipment, desks, chairs, copy machines, receptionist and conference room. The offices are very nice; all windows with wonderful views. If interested, please call Josephine at 201-525-5445 or josephine@rothtoscano.com.

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, member, American Society of Appraisers: cmccullough@camcpavalue.com, 609-923-5879; renwickandassociates.com, 856-779-7050.

Office space available in Fort Lee, NJ, Route 9W, George Washington Bridge, ranging from 785-1,440 square feet in modern office building. Move-in condition; windowed offices with view; reception/ work areas; Saturday heat; ample parking; onsite Bank of America, CVS, UPS Store, FedEx Kinkos, Starbucks. Conveniently located to major highways and serviced by buses to surrounding communities and Manhattan. Call owner at 212-685-1514.

Office space for rent, Totowa Road, Totowa, NJ. One office on second floor with windows (22’x15’) with an adjoining room (10’x10’). Elevator building with private parking lot. Use of conference room, kitchen and rest rooms. Includes electric, heat and air conditioning for $1,200 per month. Email aginsberg@brunodibello.com.

Professional office suites for rent – Beautiful, renovated Victorian home located perfectly in business district, Court Street, Freehold, NJ. Conference room, reception area, $900 to $1,200/month. Contact Darren, 908-420-5299.

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 me at 800-839-5767 to have a confidential conversation.

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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.

STUDENT

outlook

Sowing the Seeds of a Profession B y Janice Amatucci, NJ SC PA Ne x t Gen Ou treach M anager

E

stablished in 1960, the New Jersey Society of CPAs Scholarship Fund has supported more than 1,600 NJ students in its 53-year history. Many of the scholarship recipients have been the first in their families to attend college, and we often hear that receiving this financial gift was a life-changing event that led to a rewarding career.

Behind every scholarship is a story, and earlier this year the NJSCPA profiled several past scholarship recipients, including KPMG Senior Associate Patrick Chong, CPA, and CohnReznick Manager Henrietta Fuchs, CPA. You can read their and other recipient stories at njscpa.org/scholarship.

Of course, Chong and Fuch’s stories were made possible by a strong donor base that includes individual Society members and the NJSCPA’s 11 chapters, as well as CPA firms and companies, like-minded foundations and Society sponsors. Generations of accounting professionals have been fostered thanks to the generosity of thousands of fund donors, including NJSCPA Past President John Lee, CPA. You may or may not know Lee, but in many ways he is the patriarch of today’s NJSCPA Scholarship Fund. His passion for the fund was forged even before its

founding when, in 1955, Lee was one of five lucky high school seniors to receive a $1,000 scholarship – a significant amount of money 58 years ago – to help pay his college tuition.

Thirty years later, Lee was afforded the opportunity to help a new generation of high school seniors when he was named Society president. Here’s some of what he had to say at the 2011 Scholarship Awards Ceremony: “As I prepared for my term as president, I wanted a theme or to tackle an issue or project that could be accomplished within my term as president. Because of my familiarity with the internal dynamics of the Society, I knew the scholarship fund was weak and needed strengthening.

Although the fund had been in existence for 26 years, it was heavily subsidized by the Society. Four $3,000 scholarships were granted annually to high school students who were seriously planning to major in accounting.

Recognizing students’ needs in 1985, and considering the scholarship program structure already in place, I decided to initiate a full-fledged campaign and I set a goal: $100,000.

While many felt this was unrealistic, I was not daunted by the lack of optimism. I felt the chapters would support the campaign, but I could not specifically identify additional support except to hope and believe it would come forward. I was confident in my plans and preliminary preparations.

Well, miracles do happen. First, two widows of past presidents came forward with $10,000 contributions each. I made personal contact with all living past presidents for support, and the

chapters all responded with fundraising events. About this time, in 1986, an attorney and Society member who administered a charitable trust came forward with a check for $20,000.

The final count was just over $148,000, and we awarded 22 scholarships in 1986. But, the success did not end with my term in office.

Each year, the support has continued.”

Thanks to Lee and members like him, over the last six decades the fund has granted more than $4 million in awards.

In the coming months, the NJSCPA will profile several donors and firms in the 2012/13 fund annual report and online. Like our scholarship recipients, these individuals and businesses have unique stories of their own. Some want to give back or help others the way that they were once helped. Others want to honor a family member or colleague.

But they’re all motivated by the same goal: to attract the best and brightest NJ students into the accounting profession and provide the resources needed for students from diverse fields to pursue an accounting education. To give to the NJSCPA Scholarship Fund and help us create more success stories, visit njscpa.org/scholarship.

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NJSCPA SCHOLARSHIP DOLLARS AWARDED 2003 $282,500 2006 $338,400 2009 $457,500 2012 $506,000

LEGISLATIVE

views

NJSCPA Fighting Burdensome Legislation B y Jeffrey T. Kaszerman , NJ SC PA Government R elations D irector

NJSCPA Opposes Bill Regulating Payments to Independent Contractors The New Jersey Society of CPAs has joined other business groups in opposing state legislation (A3310/ S2496) that unnecessarily creates a burdensome regulatory framework to address late payments to independent contractors. The bill, which passed the NJ Assembly in June, provides that an independent contractor must be paid the compensation earned according to work terms agreed to by the independent contractor and its client and requires the NJ Department of Labor and Workforce Development (DLWD) to act as a regulatory agency in certain circumstances regarding these work agreements. The bill also provides that work terms – agreed to by the independent contractor and the client – shall be in writing, signed by both parties, kept on file by the client for a period of not less than six years and made available to the DLWD upon request.

While recognizing the bill is well intentioned, the Society believes it creates an unnecessary bureaucratic process to address an issue that should be handled in the state’s court system. The Society argues that if, in fact, there is a systemic problem with payments to independent contractors, such a problem should be addressed as part of the review being undertaken by the NJ Supreme Court’s Advisory Committee on Expedited Civil Actions.

Other concerns are the unintended consequence of chilling economic activity with independent contractors and that the measure places unprecedented restrictions on the ability of parties to freely contract, which has traditionally been protected by the U.S. Constitution’s contract clause.

If this legislation is enacted, it would have the effect of requiring all contracts with independent contractors to be in writing. This would slow the pace of business activity, and many businesses would likely seek out alternatives to working with independent contractors.

It also imposes onerous recordkeeping requirements on businesses and creates an entirely new regulatory mechanism in the DLWD to handle disputes, which is counter to the recent movement in the state, spearheaded by the bipartisan NJ Red Tape Review Commission, to reduce unnecessary regulations strangling businesses.

The bill needlessly complicates simple contract actions, and many of its provisions are unfair to the businesses that engage independent contractors.

For example, the bill unfairly places the burden on a business to produce the contract and proof of timely payment to disprove claims of late payment to the independent contractor. It could also subject a business to claims of nonpayment before invoices are even issued or before projects are completed.

There are numerous other requirements in the bill that are unfair and difficult for businesses to comply with.

Ten-Percent UI Tax Increase Averted An automatic 10-percent surcharge on employers' unemployment insurance (UI) taxes, which was scheduled to take effect July 1, has been suspended for at least a year. In June, Governor Christie signed bipartisan legislation (S-2404) which is expected to save employers $300 million in new UI taxes (about $300 per employee). The surcharge on employers' UI taxes automatically kicks in when the UI trust fund becomes insolvent. The state has had to borrow more than $1 billion from the federal government. Employers across the state

have been forced to pay back millions to make up the shortfall, since employer state UI tax rates are largely determined by the health of the UI trust fund.

U.S. House Approves Bill Prohibiting Mandatory Audit Firm Rotation In July, the U.S. House of Representatives overwhelmingly passed the Audit Integrity and Job Protection Act (H.R. 1564). This legislation, supported by the NJSCPA and American Institute of CPAs, would prohibit the Public Company Accounting Oversight Board (PCAOB) from requiring mandatory audit firm rotation. The NJSCPA and the AICPA believe that mandatory audit firm rotation does not increase audit quality, but instead is a costly proposal that actually increases the risk of fraud going undetected.

The PCAOB has been considering auditor rotation since 2011. AICPA President and CEO Barry Melancon, CPA, CGMA, welcomed the result of the House vote: “In the absence of evidence that mandatory audit firm rotation would enhance audit quality, the House has sent regulators in the U.S. and Europe a clear message that the time has come to end the debate over rotation.”

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MEMBER

profile

From CPA to Plié

By David Plaskow, NJSCPA Communications Manager

K

imberlee S. Phelan, CPA, isn’t one to stand still. She grew up in Corona del Mar, California, with seven sisters and one brother. Dad was an airline pilot for United Airlines and Mom was a high school accounting teacher. When it came time for college, Phelan changed coasts and went to Wellesley in Massachusetts, majoring in economics and international relations.

After graduation, Phelan took a job as an investment banker with Prudential-Bache in New York City, later to be transferred to the Los Angeles office. She handled financial analyses for mortgage-backed securities. Back on the West Coast, she went for her M.B.A. at UCLA, graduating in 1991 with the Maurice J. Dahlem Fellowship Award for Excellence in accounting. During the early 1990s, Phelan worked for Price Waterhouse doing international taxation and later Coopers & Lybrand. Her final stop in public accounting was 1997 when she joined WithumSmith+Brown in New Jersey as a tax manager.

“I actually went the CPA route because the hours were better than in investment banking,” laughs Phelan.

She always knew she would become a CPA. “I love working in public accounting with clients,” says Phelan.

“There are always questions and issues to resolve, so there’s constant learning.” Shortly after obtaining her CPA designation in 2003, Phelan joined the New Jersey Society of CPAs. “One of the most important things I learned as an investment banker is to surround yourself with smart people,” notes the Princeton resident. “There’s that symbiotic relationship being around like-minded professionals.”

Phelan has made some pretty impressive inroads while at Withum.

In 2001, she became the firm’s first female partner; in 2005, she became its first female director; and in 2011, she was named the practice director for international services. Her trailblazing efforts have paid off.

She’s been dubbed one of the “50 Best Women in Business” by New Jersey Business magazine, received a Woman of the Year Award by Garden State Woman magazine and been named a “Woman of Note” by this very publication. “I have a passion to serve others and help other women succeed,” notes Phelan.

Phelan gives back to the community, serving on the national board of the Learning Ally, a group that works with dyslexic and visually impaired people. She was also on the board of the Princeton YWCA, which bestowed her its Tribute to Women Award in 2002.

For fun, Phelan fancies knitting.

“I learned knitting years ago as an exchange student in Norway,” she recalls. She also loves to travel and quite often gets the chance to do so by presenting at international tax conferences. She lists Russia, South Africa and China as favorite destinations, while her travel wish list includes India, Australia and Antarctica – though she doesn’t foresee a tax conference there anytime soon.

But it’s one activity – much closer to home – that really takes her breath away: ballet. While Phelan danced as a youngster, her passion was reignited when her husband, John, won a charity bid for a walkon role in The Nutcracker with the American Reparatory Ballet in Princeton. Now in their fifth year as

members of the cast, the Phelans get so much enjoyment from their participation. “It’s amazing to be able to share the stage with these dedicated artists whose movements are so beautiful and fluid. It’s really a wonderful way to express oneself without speech,” says Phelan. Each year, the theater company performs The Nutcracker from approximately Thanksgiving to Christmas for about 10,000 people all across New Jersey.

Of course, the apple doesn’t fall far from the tree. Phelan’s 20-year-old daughter, Amanda, danced with the ARB/Princeton Ballet School for 15 years, and her other daughter, Unity, is an apprentice with the New York City Ballet.

“Ballet is so different from accounting. I guess it’s a right-brain/ left-brain thing,” comments Phelan.

“I’ve had partners from WS+B see the show with their kids, come backstage and say, ‘I had no idea you did this!’”

“Sharing an art with the community gives me so much fulfillment,” says Phelan. “My daughter put it best: ‘There’s that moment on stage just as the curtain goes up and you know you’re performing for an audience – there’s nothing like it.’”

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