New Jersey CPA - November/December 2012 by New Jersey Society of CPAs

Magazine of the

New Jersey Society of Certified Public Accountants

Nov • Dec 2012

Tax Matters 2012 Promises to Be a Memorable Tax Year Helping Clients with Property Tax Appeals The Evolution of Domicile in New Jersey Navigating the Foreign Information Reporting Landscape

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November • December 2012

features

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

Ellen C. McSherry, CGMA Chief Operating Officer emcsherry@njscpa.org

2012 Promises to Be a Memorable Tax Year The president-elect will certainly have his hands full in 2013 and beyond, including the expiring Bush tax cuts and health care reform.

Don Meyer Director, Communications & Marketing dmeyer@njscpa.org

David Plaskow Managing Editor dplaskow@njscpa.org

Jeanette L. Miller

Helping Clients with Property Tax Appeals See how the current real estate market presents another avenue for CPAs to solidify themselves as clients’ trusted business advisors.

Editorial Assistant jmiller@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 Marcella LoCastro, CPA Anthony F. Marone, CPA William C. McNamara, CPA Marc D. Mintz, CPA John F. Raspante, CPA Margaret Van Brunt, CPA

The New Jersey Society of Certified Public Accountants 425 Eagle Rock Avenue Suite 100 Roseland, NJ 07068-1723 973-226-4494 Fax: 973-226-7425 njscpa.org

The Evolution of Domicile in New Jersey Discover the precedents for establishing domicile in NJ and the factors currently used to determine it. Navigating the Foreign Information Reporting Landscape With increasing economic globalization, learn about foreign reporting requirements necessary for your clients to withstand scrutiny.

4 Letter to the Editor 5 Close Up Diversity: Why the Profession Needs to Change and How to Do It 6 News Briefs 16 A&A Buzz How Pronouncements Affect Covenants 18 Best Practices The Need for a Progressive Discipline Policy 20 Financial Planning Take a Tip on TIPS 22 Forensic File The Impact of Federal Rule 26 Changes 24 Industry Insights Don’t Lose Track of Tracking Shareholders 26 Small/Sole Practitioner Reporting Information on K-1 Partnership Forms

28 Tax Talk New Jersey’s Responsible Persons Law 30 Tech Center The NJ Technology Business Tax Certificate Transfer Program 42 Student Outlook An Opportunity to Bring It On Again 44 Legislative Views Society Delivers NJ Congressional Delegation Fiscal Tools 46 Member Profile It’s All Downhill for This CPA Society Pages CPE Offerings and Events, 32 Get Involved, 34 Member Benefits, 36 Year-End Financials, 37 NJ State Board of Accountancy Report, 40 Classifieds, 41

The Warren Group Design / Production / Advertising thewarrengroup.com custompubs@thewarrengroup.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. 36 Copyright © 2012 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.

Letter

the

editor

Student Loan Debt Crisis Worth Debating I

Student loan debt can be a figurative debtor’s prison. Why would America expose the best and brightest to these draconian, yet legal, strategies which are expected to continue under both presidential candidates? That’s a question for debate.

’ve read with interest your September/October article on “Obama Versus Romney: The Student Perspective” and the issue of college affordability, with the total amount of student loan debt recently topping $1 trillion. I’ve spent a decade investigating student loan accounting, policy and law and have watched as graduates have become despondent over their insurmountable debts. Why? • Student loan debt is the only debt exempt from most consumer protection laws. • It’s a debt that you can take to your grave as it’s only dischargeable in bankruptcy under the most dire of circumstances. • Default due to a disabling illness can result in wage garnishment. • Most private corporations mishandle payment processing, interest and fees, and as many as 99 percent of students pay thousands of dollars more than owed while being informed that they are delinquent when, in fact, they’re not.

Lynn M. Petrovich, CPA Oakhurst Dear Ms. Petrovich, Thanks for taking the time to write. The September 9, 2012, Newsweek cover story, “Is College a Lousy Investment?” says a lot about the current state of college affordability. Many are calling it the next great bubble. The more information we can get to accounting professionals who can, in turn, pass it along to clients, the better.

David Plaskow NJSCPA Publications Editor

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njscpa.org/cpetracker

Have you met your 20-credit CPE minimum? Not to worry if you haven’t, there are still 2 months of seminars and conferences. njscpa.org/catalog

EXECUTIVE COMMITTEE President Thomas F. Roche III, CPA President-Elect Gerard Abbattista, CPA Secretary Brad E. Muniz, CPA Treasurer Walter J. Brasch, CPA Immediate Past President Carole A. Hedinger, CPA CEO & Executive Director Ralph Albert Thomas, CGMA TRUSTEES Jose E. Bombino, CPA Susan Burke-Leichner, CPA William A. Cadmus, CPA Edward I. Guttenplan, CPA Michael W. Gutwetter, CPA Karl A. Halteman, CPA Robert P. Herman, CPA Maryann Holloway, CPA Kenneth Pogrob, CPA Jody Rorick, CPA Mary E. Zago, CPA Joseph A. Zielinski, CPA

NEW JERSEY CPA • November • December 2012

Diversity: Why the Profession Needs to Change and How to Do It B y Don Meyer, Commu nications & M arketin g D irector , N ew J erse y S ociet y of C PA s

iversity in the CPA profession has changed very little in the last 25 years. According to an American Institute of CPAs report, 2011 Trends in the Supply of Accounting Graduates and the Demand for Public Accounting Recruits, minority hiring in the profession has seen slight improvements, but overall stagnation. From 2008 to 2010, minority hiring rose from 22 percent to 25 percent. Broken down by ethnicity, Hispanic hiring increased from 4 to 7 percent of total hires over the two-year span; African-American hires stayed steady at 4 percent; Asian/Pacific Islander hires also remained fixed at 12 percent; and American Indian/Alaskan Native hires fell from 2 percent to zero. Multi-ethnic hiring accounted for 2 percent of new hires. To keep pace with population demographics and client/employer needs, the profession is acting now. In August, New Jersey Society of CPAs CEO and Executive Director Ralph Albert Thomas, CGMA, the first African-American to lead a state CPA organization, participated in a diversity summit sponsored by the Indiana Society of CPAs. Diversity leaders explored the most effective and innovative tools and proven results needed to address the challenges associated with minority hiring and retention. I sat down with Ralph to discuss why the profession needs to change and how to accomplish it. What is the business case for increased diversity? Demographic changes are making diversity a business imperative. The total number of minorities in the U.S. will be the majority by 2042. The

number of minorities that are business owners or occupy top roles continues to grow. Organizations looking to do business with those companies need to ask themselves, “Do we have the know-how, understanding and in-house human capital to fully understand the culture, needs and sensitivities of our minority clients?” From a staffing perspective, younger staff, both current and prospective, will have grown up in a much more multicultural environment than their parents’ generation. The best and brightest among these populations are going to be attracted to firms that value and embrace diversity. What challenges are associated with attracting minorities into the CPA profession? Even though accounting has been consistently ranked as one of the leading majors for students, minority students are not considering it a viable option. Many minority students have the perception that accounting is simply too boring. They seem to hold stereotypes and misconceptions about what accountants do, so they tend to opt for more glamorous majors or professions where they see more diversity. Additionally, the profession has difficulty holding onto qualified candidates. At each step in the supply chain, the percentage of minority representation drops, from college enrollment to overall CPA firm employees. How do we make the profession more desirable to minorities? Exam affordability is significantly associated with the likelihood of becoming a CPA. I recommend that accounting firms of all sizes, along with state CPA societies, explore providing

The interview continues here...

...or at njscpa.org/closeupvideo. financial assistance by paying for CPA Exam registration and associated fees. Also, in a recent membership survey conducted by the National Association of Black Accountants, 81 percent of respondents agreed that having a powerful mentor contributes to a successful career. I agree with that assessment, but I think that firms should take that one step further and move mentor programs to sponsorship/ advocate programs. Mentors are valuable, but sponsors/advocates are close enough to their protégés’ career trajectories and personal goals to clearly see in detail where protégés should be focusing their efforts in the near future to accomplish their professional, and sometimes life, goals. If a firm is serious about diversity initiatives, where should it start? Two good places to start are assigning minorities to major clients and giving them challenging tasks on these engagements, and increasing the minority pipeline at both the senior and manager levels. For more information about the profession’s diversity initiatives, visit aicpa.org/career/diversityinitiatives.

NEW JERSEY CPA • November • December 2012

NEWS AICPA Provides More Detailed Critique of Complex IRS Capitalization Rules Temporary regulations proposed by the Internal Revenue Service (IRS) governing the deduction and capitalization of tangible property expenditures would be unnecessarily complex and burdensome for many taxpayers, barring substantive changes, according to the American Institute of CPAs. The AICPA believes the IRS should provide illustrative examples to guide taxpayers on the interrelationship of some of the temporary regulations, particularly the disposition provisions, general asset account (GAA) elections and improvement provisions. The AICPA provides new recommendations on the treatment of improvements, materials and supplies under the temporary regulations. The AICPA also expanded its previous comments on dispositions/GAA elections, Method Change Guidance and acquisition costs. The AICPA believes the de minimis rule in the regulations, which requires an annual financial statement that meets the definition of an Applicable Financial Statement (AFS), discriminates against smaller taxpayers. The AICPA suggests an alternative to expand the definition of an AFS to include a financial statement that has been reviewed by a CPA.

Room to Improve on the IRS RPVP

A Treasury Inspector General for Tax Administration (TIGTA) report concerning the IRS Return Preparer Visitation Project (RPVP) found that the program has been correctly implemented, but its effectiveness remains to be determined. TIGTA analyses found that in 2011, the RPVP issued letters to more than 10,000 paid preparers and conducted 2,498 visitations, or nearly 100 percent of its goal. The TIGTA determined that those visited may not have benefited the most from an

briefs educational visit. Several paid preparers remarked that the use of IRS resources to visit their office was wasteful because their CPE requirements were much more extensive than the information presented by the revenue agents. The TIGTA also determined that the RPVP did not have performance measures or tracking procedures to successfully evaluate its effectiveness.

FASB Issues ASU 2012-02

The Financial Accounting Standards Board (FASB) issued Accounting Standards Update No. 2012-02, Intangibles – Goodwill and Other (Topic 350): Testing Indefinite-Lived Intangible Assets for Impairment. The update simplifies the guidance for testing the decline in the realizable value (impairment) of indefinite-lived intangible assets other than goodwill. The standard applies to all public, private and not-for-profit organizations. The amendments allow an organization the option to first assess qualitative factors to determine whether it is necessary to perform the quantitative impairment test. An organization electing to perform a qualitative assessment is no longer required to calculate the fair value of an indefinite-lived intangible asset unless the organization determines, based on a qualitative assessment, that it is “more likely than not” that the asset is impaired. The amendments in this update are effective for annual and interim impairment tests performed for fiscal years beginning after September 15, 2012. Early adoption is permitted.

IRS Whistleblower Claims Approach Triple Digits

Often under fire for a slow response to acknowledging claims and claim payments, the IRS has paid 90 claims since October 2011 and is monitoring 60 others. In recent

New Jersey Teacher Tenure Overhaul Bill by the Numbers 100,000 Number of NJ teachers affected 2014 Date for changes to take full effect statewide 11 Number of states (including NJ) that have last-in, first-out policy for teacher layoffs 4 Years until eligible for tenure

years, Congress has increased the amount of whistleblower awards and dedicated staffing.

SEC Reports on Municipal Securities Market

The Securities and Exchange Commission (SEC) issued a report to help improve the structure of the $3.7 trillion municipal securities market and enhance investor disclosures. The report recommends that Congress consider authorizing the SEC to set baseline disclosure standards and require municipal issuers to have audited financial statements. Other recommended legislative changes include: • Eliminating SEC exemptions for conduit borrowers who are not municipal entities. • Authorizing the SEC to establish the form and content of financial statements for municipal issuers who issue municipal securities and to recognize a designated private-sector body as the standard setter for generally accepted federal securities law purposes. • Providing a safe harbor from private liability for forward-looking statements of repeat municipal issuers that satisfy certain conditions. • Permitting the IRS to share information with the SEC. • Providing a mechanism to enforce compliance with continuing disclosure agreements and other obligations of municipal issuers to protect municipal securities bondholders. The SEC report also discusses potential initiatives to improve pre-trade and post-trade price transparency.

PCAOB Issues Release Concerning Its Inspection Process

The Public Company Accounting Oversight Board (PCAOB) issued a release to provide information to audit committees about its inspection process and the meaning of reported inspection results. The goal is to better equip audit committees of public company boards of directors to engage in meaningful discussion with PCAOB-registered audit firms about the results of inspections. The release provides information about the meaning and significance of PCAOB

NEW JERSEY CPA • November • December 2012

inspection findings in the context of both engagement reviews and quality control reviews. The release also suggests some specific approaches that an audit committee might consider for initiating or enhancing inspection-related discussions with an audit firm. The release highlights certain areas of inquiry that audit committees may wish to address with their auditors, such as whether the audit overseen by the audit committee was selected by the PCAOB for an inspection and whether any findings were made; potentially relevant inspection findings on other audits performed by the firm; the firm's response to PCAOB findings; and the firm’s remedial efforts in light of any quality control deficiencies that may have been identified by the PCAOB.

New GASB Pension Standards Now Available

The Governmental Accounting Standards Board (GASB) has published standards intended to improve the accounting and financial reporting of public employee pensions by state and local governments. Statement No. 67, Financial Reporting for Pension Plans, revises existing guidance for the financial reports of most pension plans. Statement No. 68, Accounting and Financial Reporting for Pensions, revises and establishes new financial reporting requirements for most governments that provide their employees with pension benefits. The provisions in Statement 67 are effective for financial statements for periods beginning

after June 15, 2013. The provisions in Statement 68 are effective for fiscal years beginning after June 15, 2014. Earlier application is encouraged for both.

Sports Leagues Sue NJ Over Sports Betting

Major League Baseball, the National Basketball Association, the National Football League, the National Hockey League and the National Collegiate Athletic Association filed suit in U.S. District Court in Trenton to prevent sports betting in New Jersey, citing a threat to the integrity of the sports. One consequence could be the 2014 Super Bowl and potential future Super Bowls in the Meadowlands.

AICPA Recommends Change to IRS Rules Governing Gift Cards

The AICPA recommends a modification to IRS guidance that governs the treatment of retail gift cards when the issuance and redemption of a card is handled by financially unrelated entities. Previously, gift card programs were largely self-contained, with the owner of a retail brand responsible for both the sale and redemption of a card. But it has become increasingly common for retailers and other entities to participate in clearinghouses for card programs, with the settling of proceeds governed by service agreements. Under current IRS rules, however, an issue arises

regarding eligibility for the deferral method when redemption involves two entities with unconsolidated financial results.

Tax Delinquent Federal Employees in Crosshairs

The U.S. House of Representatives passed a bill that would terminate federal employees who are “seriously delinquent” in paying their taxes and make those delinquent taxpayers applying for federal jobs ineligible. The bill’s sponsor, Rep. Jason Chaffetz (R-Utah), claims there are approximately 100,000 federal employees who fall into the seriously delinquent category owing more than $1 billion. The bill now goes to the Senate.

PCAOB Adopts Auditing Standard No. 16

The PCAOB adopted Auditing Standard No. 16, Communications with Audit Committees, to establish requirements that enhance the relevance and timeliness of the communications between the auditor and the audit committee and is intended to foster constructive dialogue between the two on significant audit and financial statement matters. The standard supersedes the board’s interim auditing standards AU Sec. 310, Appointment of the Independent Auditor, and AU Sec. 380, Communication with Audit Committees. The new standard will be effective for public company audits of fiscal periods beginning after December 15, 2012.

njscpa.org Spotlight

Succession Planning Resources With a large number of Baby Boomers facing retirement, succession planning has become a top concern at many CPA firms. The New Jersey Society of CPAs has created a Succession Planning Resource Center on its website to help members deal with this important issue. Features include: • CPASuccessionMatch – The NJSCPA has partnered with the Connecticut Society of CPAs to offer CPASuccessionMatch, a matchmaking website for CPAs looking to sell, grow or buy a firm. There is no middleman and no pressure to act. Subscribers can anonymously search for and contact a buyer, seller or merger match in a confidential environment. When and if there is a match, subscribers can exchange contact information and take the conversation to the next level. CPASuccessionMatch currently serves several states in the Northeast and has plans for expansion. The subscription rate is $300 for six months and $500 for a full year. • Events – See a schedule of upcoming programs and seminars on succession planning and mergers and acquisitions. • News and Articles – Read about everything from identifying future firm leaders to developing a succession plan to merger/acquisition tips. Access the Succession Planning Resource Center at njscpa.org/succession.

NEW JERSEY CPA • November • December 2012

2012 Promises to Be a Memorable Tax Year With the political conventions and debates behind us, the U.S. economy will almost certainly be the defining issue in the presidential race between President Barack Obama and former Massachusetts Governor Mitt Romney – including what to do about the Bush tax cuts which are scheduled to expire on December 31, 2012. It falls on each candidate to clarify his position on tax policy, but whether this will translate into any action on the part of the incoming Congress remains to be seen. A Grand Bargain?

By Neil B. Becourtney, CPA CohnReznick LLP

In December 2010, just prior to when the Bush tax cuts were initially set to expire, Obama struck a deal with the Republicans in Congress, creating the Tax Relief, Unemployment Insurance Reauthorization and Job Creation Act of 2010 (2010 Tax Relief Act) to extend the Bush tax cuts for an additional two years. That legislation included a reduction in the employee Social Security tax withholding rate from 6.2 to 4.2 percent for calendar year 2011. Congress initially extended this provision for two months through the end of February 2012. In February 2012, the president signed the Middle Class Tax Relief and Job Creation Act of 2012 extending the

4.2 percent tax rate through the end of 2012. This was a rare situation where there was bipartisan support for tax policy, as neither political party wanted to be accused of hiking taxes on tens of millions of workers – especially in an election year. The Social Security tax component of self-employment tax will similarly remain at 10.4 percent for all of 2012.

Estate and Gift Taxes Estate and gift taxes were significantly impacted by the 2010 Tax Relief Act, which increased the estate and gift tax exemption to $5 million for 2011 and 2012 (indexed for inflation) and lowered the top estate tax rate from 55 to 35 percent. No different from the other Bush tax cuts, uncertainty exists as to federal estate and gift taxes beyond 2012.

Tax Extenders Numerous tax-extender provisions expired at the end of 2011, including: • R&D tax credit. • 15-year depreciable life for qualified leasehold improvements. • 100-percent bonus depreciation (50 percent for qualifying 2012 acquisitions). • $500,000 Sec. 179 expense limitation ($139,000 for 2012 tax years). • Sales tax deduction in lieu of state and local income tax deduction. • Increased individual income tax alternative minimum tax exemptions.

NEW JERSEY CPA • November • December 2012

• Transfers from individual retirement accounts to charity if over age 70½. Various members of Congress have talked about the need to evaluate all 132 extender provisions to determine which ones merit reinstatement. In this election year, taxpayers and tax practitioners have been left in limbo as to the fate of these various tax provisions.

Health Care The U.S. Supreme Court handed down its decision in late June 2012 that the Affordable Care Act was constitutional. Two new taxes included in the original legislation will therefore take effect in 2013 – a 0.9-percent hospital insurance tax on earned income and a 3.8-percent unearned income Medicare contribution (UIMC) tax on investment income. Both of these taxes are triggered where income exceeds $250,000 for married joint filers, $125,000 for married couples filing separately and $200,000 for single and head-of-household filers. The UIMC, combined with the expiration of the Bush tax cuts, could result in the top tax rate on qualified dividend income increasing from 15 to 43.4 percent and the top tax rate on long-term capital gain income increasing from 15 to 23.8 percent in 2013.

New Jersey With the need to balance their budgets each year, states cannot delay important

tax policy decisions like the federal government routinely does. In New Jersey, Governor Chris Christie pushed for an across-the-board 10-percent gross income tax cut to be implemented over three years, which he first proposed in February. The Legislature countered with a bill reinstituting the so-called millionaire tax that would have increased the gross income tax rate on taxable income of more than $1 million from 8.97 to 10.75 percent. The governor vetoed that bill, and the state budget was adopted without either measure included. On the business side, the fixed-dollar corporate minimum tax imposed on S corporations was slashed by 25 percent for tax years beginning with 2012. For corporations with $1 million or more of New Jersey source gross receipts, the highest level of minimum tax will therefore drop from $2,000 to $1,500. To make New Jersey more competitive with neighboring states, the corporation business tax three-factor formula is being changed to a single sales factor over a three-year period beginning with 2012 (70 percent sales, 15 percent payroll and property).

New York New York state increased the filing thresholds for the Metropolitan Commuter Transportation Mobility Tax (MCTMT) to eliminate a filing requirement for many smaller taxpayers. Effective with

See The Good.

At the Community Foundation of New Jersey, we’re focused on helping our donors use their funds to create real impact in their communities and see the good their charitable giving creates. Here are two recent examples of innovative ways our donors are using their CFNJ funds to make a difference:

• CFNJ Helps Fund New Report on New Jersey’s Fiscal Challenges: CFNJ, along with the Geraldine R. Dodge Foundation, the Fund for New Jersey and the Robert Wood Johnson Foundation, was instrumental in including New Jersey in State Budget Crisis Task Force. The Task Force examined the threats to near and long-term fiscal sustainability in six states. The goal of the Task Force is to move states closer to righting their budgetary problems.

the second quarter of 2012, the payroll expense threshold for employers increased from $2,500 to $312,500, and the selfemployment earnings threshold increased from $10,000 to $50,000 effective for 2012. In August, the New York State Supreme Court declared the MCTMT unconstitutional; the state is apealling the decision. Last December, the New York Legislature passed a bill establishing a new top personal income tax rate effective for 2012 and future years of 8.82 percent for single taxpayers with a taxable income of more than $1 million and joint filers with taxable income of more than $2 million.

Other State Developments Outside of the New York metropolitan area, some states have pursued tax cuts while others have pursued tax hikes for 2012. Idaho reduced its top personal income tax rate from 7.8 to 7.4 percent. Maryland increased its top personal income tax rate from 5.5 to 5.75 percent. And California has a November ballot measure asking voters to approve an increase in the top personal income tax rate from 10.3 to 12.3 percent. 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.

• Giving to Children in Foster Care: The Rogers Family Fund developed A Gift in Time as a way to fulfill gift requests of foster children. Having worked with Court Appointed Special Advocates (CASA), a non-profit devoted to supporting children in protective services, the idea for A Gift in Time was born after hearing the one thing that stood out to a young girl was a red pair of shoes given to her by a CASA volunteer. The initial launch of $5,000 to the fund has turned into $15,000 worth of small gifts that have made a big difference in these children’s lives. If your clients are looking to make a difference through charitable giving, we’d like to be of assistance. Please contact

Hans Dekker at hdekker@cfnj.org | 973-267-5533. To learn more, go to www.cfnj.org

2012 Year-To-Date (August): Grants Issued - $18.3MM | Gifts to Donor Advised Funds - $13.5MM Follow us:

facebook.com/GivingNJ

twitter.com/GivingNJ

cfnj.tumblr.com

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Helping Clients with Property Tax Appeals New Jersey’s property taxes remain among the highest in the country. Following the housing sector crash of 2008, property values fell drastically across the nation, and New Jersey was no exception. The recent decrease in property values provides CPAs the opportunity to discuss property tax appeals with their clients, as homeowners may be paying property taxes on assessed values greater than their properties are worth. Being familiar with the rules, processes and procedures involved in preparing, filing and presenting a tax appeal under New Jersey law, CPAs and their property-owning clients can be successful.

The Numbers Don’t Lie By Margaret Van Brunt, CPA Rowan University

New Jersey has seen a dramatic increase in property tax appeals. According to the New Jersey Division of Taxation (state.nj.us/treasury/taxation/pdf/lpt/ appealsbycounty.pdf), the number of property tax appeals filed increased from 32,980 in 2008 to 87,313 in 2011.

The success rate of these appeals can be found on state.nj.us/treasury/taxation/ pdf/lpt/appeals2011.pdf.

Timing and Notification Every January or February, property owners in New Jersey receive a postcard from their tax assessor with the assessed value of their properties, along with net property taxes billed for the current year. As this comes at the same time of year as many of the documents needed for income tax return preparation, many property owners simply file this along with the other documents used to either prepare their own returns or give to their tax preparers. Although this postcard may provide some assistance in preparing the income tax return, it is required under N.J.S.A. 54.4-38.1 to give notice of the assessed value of the property and outlines the appeal process in the event a homeowner disagrees with the assessed value. An appeal of a property’s assessed value is filed with the county board of taxation. The deadline to file is April 1 or within 45 days of the bulk mailing of the aforementioned assessment notices, or May 1 where a municipalwide revaluation or municipal-wide reassessment has been implemented. Currently, filing fees are based on

NEW JERSEY CPA • November • December 2012

assessed value of the property and range from $5 (assessed valuation less than $150,000) to $150 (assessed valuation $1,000,000 or more). Individual taxpayers may represent themselves; however, business entities other than sole proprietorships must use an attorney.

To File or Not to File? To determine if a property tax assessment is fair and if a client should file a tax appeal in 2013, some work is required. The New Jersey Legislature adopted a formula called Chapter 123 to test an assessment’s fairness. When compared to the property’s true market value, the current assessment must fit within the common level range. Every year, the NJ State Division of Taxation, along with local tax assessors, computes these ratios by analyzing sales of comparable properties over the prior 24 months. The list of average ratios is published every year in January at state.nj.us/treasury/taxation/lpt/ chapter123.shtml. Most townships also publish their tax ratios on their respective websites. For example, assume the common level range of your client’s property falls within 42.69 to 57.75 percent of true market value. The home’s true value is $350,000, and it is currently assessed at $233,500. Because $233,500 is 66.71 percent of $350,000 ($233,500 ÷ $350,000), it falls past the maximum percentage within the common level range and a property tax appeal should be considered. Using the same common level range of 42.69-57.75 percent of true market value along with the home’s true value of $350,000, if it is currently assessed at $100,000, then it is at 28.57 percent of true value ($100,000÷ $350,000) and, therefore, falls below the common level range. Thus, a property tax appeal would not be recommended.

Burden of Proof Property owners considering an appeal should understand that the burden of proof is on them to prove that the assessed value is unreasonable compared to a market value standard. Recent comparable sales are the best

evidence. These are recent sales of properties similar to your client’s and should precede the October 1 annual assessment date of the pre-tax year. There are various resources for getting this information (e.g., county clerk records, real estate agents and appraisers), but they are not all free. Use state.nj.us/treasury/taxation/lpt/ taxlistsearchpublicwebpage.shtml as a resource to assist in comparing assessed values. Also, sites such as tulia.com and zillow.com can help in searching recent sales. Finding recent sales data may not be an easy task in this sluggish housing market. In certain areas, there are limited comparable home sales. Another obstacle is that estate sales, foreclosures and short sales are not considered arm’s length transactions in New Jersey and, therefore, one would not be allowed to present those types of transactions as comparable sales data during an appeal. As many realtors send marketing materials advertising recent sales in neighborhoods, this information – along with photos – is somewhat easy to obtain.

Hearings Tax appeal hearings are generally held annually within three months of April 1. In some instances, if the assessor, municipal attorney and taxpayer agree

to a settlement or otherwise resolve the issues, it may not be necessary for the client to attend a hearing.

Beware Solicitations Due to the popularity of tax appeals resulting from a decline in property values, there has been an increase in individuals and groups soliciting tax appeals. Your clients should be aware that if they have received notices from companies representing themselves as a service to lower an assessment, it is not an automatic means for reduction. Remember, the burden of proof falls on the property owner to present comparable sales at the time of the hearing to prove the true market value of the property. Property tax appeals represent another avenue to solidify your status as a client’s trusted business advisor. Learn more at state.nj.us/treasury/taxation/pdf/ lpt/ptappeal.pdf. Margaret Van Brunt, CPA, is the assistant dean of the William G. Rohrer College of Business at Rowan University. She is on the New Jersey Society of CPAs Educators Committee and the Editorial Advisory Board of New Jersey CPA magazine. She is also the treasurer of the Southwest Jersey Chapter of the NJSCPA. Contact her at vanbrunt@rowan.edu or 856-256-4047.

NEW JERSEY CPA • November • December 2012

The Evolution of Domicile in New Jersey Many believe that an individual who is a long-time resident of New Jersey can simply claim residence elsewhere if he or she is living outside of New Jersey for 183 days or more. Although this common misconception is often put into practice, the rule is that one must first abandon his/her New Jersey domicile in order for the 183-day test to be relevant in determining whether an individual is a New Jersey resident for tax purposes. Generally, individuals determined to be New Jersey domiciliaries will be residents for tax purposes without regard to the amount of days they are actually present in New Jersey. The process to codify domicile in New Jersey evolved over a period of many years.

Domicile Defined By James A. Toto, CPA WeiserMazars LLP

Domicile is defined as any place that the taxpayer regards as his/her permanent home or the place he/she intends to return to after traveling. Once established, domicile continues until the taxpayer moves to a new location with the intent to establish a permanent home there and to abandon the prior domicile. As such, moving to a new location – even for an extended period of time – does not constitute

a change in domicile if there is an eventual return to New Jersey.

Lyon v. Glaser The taxpayer’s intent is paramount in ultimately determining domicile. In Lyon v. Glaser (60 NJ 259) 1972, the New Jersey Supreme Court stated: “A person has the right to choose his own domicile, and his motive in doing so is immaterial.” However, the burden of proof is still on the taxpayer to prove that the choice has been made and executed.

NESTOA In 1978, New Jersey became part of a cooperative agreement on domicile, residency and multiple taxation issues which includes the 12-member North Eastern State Tax Officials Association (NESTOA). Other NESTOA states include Connecticut, Delaware, Maine, Maryland, Massachusetts, New Hampshire, New York, Pennsylvania, Rhode Island, Vermont and the District of Columbia.

Goffredo v. Director, Division of Taxation Taxpayers often want to keep the traditional family home and try to establish residency in low- or no-tax states like Pennsylvania or Florida. However, abandonment of the New Jersey domicile is necessary before one can establish a new domicile somewhere

NEW JERSEY CPA • November • December 2012

else. In Goffredo v. Director, Division of Taxation (1987, NJTaxCt) 9 NJTax 135, the taxpayers established residency in Pennsylvania for 16 years, but were unable to prove establishment of a new domicile because they never abandoned the old one. The court concluded that “by reason of the fact that plaintiffs did maintain a permanent place of abode in New Jersey, it is not necessary to make a determination whether they spent in the aggregate more than 30 days in New Jersey. It is concluded that since plaintiffs were domiciled in New Jersey from 1958 to the present and maintained a permanent place of abode in New Jersey during the tax years in issue, plaintiffs are New Jersey resident taxpayers within the meaning of N.J.S.A. 54A:1-2(m)(1).”

What Determines Domicile Items such as changing your driver’s license and voter registration are insignificant in determining domicile. In New Jersey, domicile is determined by applying the following factors: • Home value. • Time spent in the domicile. • Items considered near and dear. • Active business involvement. • Family connections, if the other criteria are not conclusive.

Home Value Normally, the value of the home is a significant factor in determining

domicile. Factors such as behavior patterns will also apply to this test. For example, where does the taxpayer spend his/her holidays? For taxpayers looking to abandon New Jersey residency, selling the traditional family home will allow them to make a strong argument that they had changed their domicile and established one elsewhere.

Time Time is another important factor. Anyone spending 183 days in New Jersey who also maintains a home in New Jersey will be considered a resident for tax purposes, even if such individual is not a New Jersey domiciliary. However, spending less than 183 days in New Jersey does not necessarily exclude an individual from being considered a New Jersey resident for tax purposes. For example, if someone is in New Jersey less than 183 days but spends more time in New Jersey than in the location he/she considers a new domicile, that may be an indication that a change in domicile has not occurred.

Near and Dear Items near and dear refer to the taxpayer’s most prized possessions. In this instance, the location of valuable jewelry or collectibles is important. If you are trying to prove that you are no longer a resident of New Jersey, when insuring items of this nature, list them as being located outside of New Jersey.

Active Business Involvement Active business involvement considers not only the physical location from which the individual works, but where the taxpayer’s network of customers, colleagues and other business associates are primarily located. This may not be as much of an issue for retirees, but for those still actively involved in business – especially if it is a closely held family business – this is a difficult test to pass if the business is still operating and located in or near New Jersey.

Family Connections A family connection is the last factor considered, and only if the other four tests do not conclusively determine domicile. Determining domicile and residency in the 21st century is made on a case-by-case basis using parameters developed largely during the previous one. You need to analyze the aforementioned factors to determine domicile, and every determination of residency will be based on the particular facts of each case. James A. Toto, CPA, is a partner at WeiserMazars LLP. He is the Immediate Past President of the New Jersey Society of CPAs Middlesex/Somerset Chapter. Contact him at james.toto@ weisermazars.com or 732-549-2800.

NEW JERSEY CPA • November • December 2012

Navigating the

Foreign Information Reporting Landscape The 2012 filing season introduced new requirements for owners of foreign financial accounts. In an effort to provide greater transparency of foreign financial assets owned by taxpayers in the U.S. (both citizens and aliens) the Internal Revenue Service (IRS) has created new filing requirements, along with possible criminal penalties for noncompliance.

By Rosemary F. Ervin, CPA and Kenneth A. Hofsommer, CPA The Hunter Group CPA LLC

Most practitioners are familiar with Form TD F 90-22.1, Report of Foreign Bank and Financial Accounts (FBAR), the annual report filed with the U.S. Treasury on or before June 30 of the year immediately following the calendar year being reported (with no extension). Individuals and certain entities are required to answer a question on their tax returns about ownership and signatory authority over foreign accounts. Corporations that own directly or indirectly more than 50 percent of one or more other entities may file consolidated FBAR reports. The 2010 Foreign Account Tax Compliance Act (FACTA) created Section 6038D for tax years starting after March 18, 2010. Section 6038D requires disclosure on the new Form

8938, Statement of Specified Foreign Financial Assets, and is included with the annual income tax return, Forms 1040 or 1040-NR. At some point, filings by domestic entities will be addressed. Absent the filing requirement for an income tax return, there is no requirement for Form 8938 and it does not replace or affect a taxpayer’s obligation to file Form TD F 90-22.1. Taxpayers must file each form for which they meet the relevant reporting thresholds. Financial asset reporting under FACTA is mandated under the Internal Revenue Code and is separate from the FBAR requirements. Different account levels, disclosure information, filing deadlines, mailing instructions, penalties and statutes of limitations apply to each. The IRS website at irs.gov has a comprehensive chart comparing Form 8938 and FBAR requirements, detailing the differences in reporting thresholds, types of foreign assets and whether they are reportable, valuations, due dates and penalties. Preparers should familiarize themselves with the rules, as failure to disclose leaves open the statute of limitations. FACTA requirements are more copious than FBAR, so taxpayers who have never filed TD F 90-22.1 may be

NEW JERSEY CPA • November • December 2012

subject to filing Form 8938. Specifically, the definition of a foreign financial asset reportable on Form 8938 is broader than the foreign financial account reportable on Form TD F 90-22.1. While both are reporting documents, FBAR reporting is utilized for law enforcement, while FACTA is used in tax administration. FBAR reporting is not confidential; federal officials are able to access the computer database in their criminal, tax and regulatory investigations. Taxpayers should understand all components of the comparison chart to determine filing requirements, as the reporting thresholds include different financial assets. For example, Congress has expanded the passive foreign investment company reporting requirements, an area of U.S. international tax compliance. Form 8621, Information Return by a Shareholder of a Passive Foreign Investment Company (PFIC) or Qualified Electing Fund, is not required by certain indirect shareholders if an intermediate entity files the form. However, the value of the PFIC is included in determining the FACTA filing threshold. Filing of Form TD F90-22.1 is required if a taxpayer has even a signatory authority over a foreign account in excess of $10,000 for one day. FACTA assets are valued on the last day of the year and at the highest fair market value during the year. While FBAR addresses foreign financial accounts, FACTA also includes foreign stock, securities and foreign partnership interests not held in financial accounts.

FACTA includes foreign hedge funds and foreign private equity funds. Form 8938 assets generally include income, gains, losses, deductions, credits, gross proceeds or distributions that are required to be reported on an income tax return. Hence, Form 8938 is included with the income tax return. Form TD F 90-22.1 includes assets according to legal title and authority to control the disposition of the assets. Foreign operations and investments may affect a U.S. person's U.S. tax liability, but it is difficult for the IRS to obtain information directly about assets and activities abroad, especially if the records are kept abroad. FACTA enables the IRS to obtain information about U.S. persons who directly or indirectly hold accounts or other investments abroad who earn income that has not been reported to the IRS. Foreign financial institutions will be required to enter into an agreement with the IRS to disclose and identify certain financial accounts of specified U.S. persons or they will be subject to withholding tax. There will be disincentives for U.S. taxpayers to do business with a financial institution that has chosen not to enter into an agreement. The intent is to enable the IRS to obtain information about investments held abroad that earn income that has not been reported to the IRS. Effectively connected income will not be subject to withholding. Agreements and withholding requirements are currently subject to phase-in after December 31, 2013, during which time additional guidance is expected. Form 5471, Information Return of

U.S. Persons with Respect to Certain Foreign Corporations, is used to collect information about foreign corporations with substantial U.S. ownership. Form 926, Return by a U.S. Transferor of Property to a Foreign Corporation, reports outbound transfers to foreign corporations. IRS enforcement currently includes international examiners, and attention will continue to be focused on cross-border transactions, while transfer pricing and foreign tax credit rules have been addressed. Tax administration has evolved drastically since September 11, 2001. Reporting of foreign assets and crossborder transactions has been the focus of legislation that requires attention to compliance details. Foreign reporting is no longer limited to those specializing in international practices. A global economy requires that even small practitioners be aware of reporting requirements. Because taxpayers today remain generally ill-informed of these changes, your professional counsel will be of critical value. Rosemary F. Ervin, CPA, is a tax consultant and Kenneth A. Hofsommer, CPA, M.S.T., is the tax practice director for The Hunter Group CPA LLC. Both are members of the New Jersey Society of CPAs. Contact the authors at 201-261-4030.

Member Benefit Introduction to U.S. Taxation of International Transactions Monday, December 10, Iselin Visit njscpa.org/catalog Express Code: E1212113

NEW JERSEY CPA â&#x20AC;˘ November â&#x20AC;˘ December 2012

A&A

buzz

How Pronouncements Affect Covenants B y James H. Ruitenberg, C PA, B ederson & C ompan y L L P

annual or more-frequent basis. These ratios are often submitted to the lender along with a certification and the financial statements that support the underlying data. As GAAP evolves, computing covenants become affected which could result in a company unintentionally failing to meet the financial covenants as defined by the creditor. This is all because the loan agreement mandates that the financial statements must be in accordance with GAAP.

GAAP Changes

enerally accepted accounting principles (GAAP) are frequently described in most loan agreements. Financial institutions traditionally have written a broad range of financial covenants into loan documents that allow the banks to monitor the borrower’s financial position. These financial covenants allow the financial institution to react to a possible deteriorating financial position of the borrower, thus enabling the institution to reduce credit or consider the loan in default and demand repayment.

Debt Covenants Debt covenants can be either financial, nonfinancial or both.

Financial statements to be submitted within so many days, a provision that all taxes and insurance have been paid or environmental compliance are examples of a nonfinancial covenant. In most loan documents, financial statements often include the term “prepared in accordance with generally accepted accounting principles” or “accounting principles generally accepted in the United States.”

Financial Covenants Financial covenants typically consist of several ratios that the creditor deems relevant to the loan. The borrower must compute these on an

For a company to maintain its loan in good standing and prevent default, it must not only submit financial statements, but the financial statements must be in accordance with GAAP, not other comprehensive basis of accounting, cash basis or income tax basis. Hence, whenever changes in GAAP occur, the company must adopt the new pronouncement or face automatic noncompliance with the loan provisions. Noncompliance means default; default means reclassification of the long-term portion of the debt to a current liability which creates additional problems.

Example 1 Let’s examine how a GAAP change can affect covenants. One example is the consolidation of variable interest entities. Company A, the primary beneficiary, has a loan that mandates a debt service coverage ratio (DSCR) minimum of 1.5. Under this ratio, earnings before income, taxes, depreciation and amortization (EBITDA) must exceed 1.5 times the current portion of long-term debt plus interest expense. Company A easily meets this requirement. Enter Financial Accounting Standards

NEW JERSEY CPA • November • December 2012

Board ASC 810-10, aka FIN 46, Consolidation of Variable Interest Entities. FIN 46 defines Company A as the primary beneficiary of a rental real estate entity (Company B) and requires consolidation with Company B (the variable interest entity). Company B has a mortgage on its building with a sizable current portion. Under the bank’s formula for computing DSCR, Company A now fails to meet the minimum coverage of 1.5 due to the increased current portion of debt.

Example 2 Imagine Company B doesn’t exist and Company A leases its manufacturing facilities from an unrelated landlord where FASB ASC 810-10 does not

apply. Again, Company A has a loan that requires a DSCR minimum of 1.5. Company A has no difficulty in meeting this ratio under current lease accounting pronouncements. Under the current lease accounting treatment, the leased asset and related obligation are not on the balance sheet. Approximately two years ago, the FASB and the International Accounting Standards Board began work on an exposure draft regarding leasing activities. This proposed standard would redefine leases by requiring a liability on the balance sheet equal to the present value of the lease payments. This new liability, or a portion of it, will factor into Company A’s financial covenant, increasing the denominator

and potentially causing the coverage ratio to fall below 1.5 resulting in a technical default under the terms of the loan agreement. Pronouncements do affect covenants and may cause a technical default which could result in unanticipated and undesirable consequences. It is incumbent on the practitioner to be aware of possible scenarios. James H. Ruitenberg, CPA, CFP, PSA, is a partner at Bederson & Company LLP. He is a director on the board of the New Jersey Society of CPAs Passaic County Chapter. Contact him at jruitenberg@bederson.com or 973-530-9129.

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NEW JERSEY CPA • November • December 2012

BEST

practices

The Need for a Progressive Discipline Policy By Michael Mariano, Leaf, Saltzman, Manganelli, Tendler & Miele, LLP

ou have professional liability insurance, general insurance and likely offer your employees medical insurance. Having a progressive discipline policy is like having another kind of insurance – from making bad human resource (HR) decisions and getting sued for improperly terminating employees.

What Is Progressive Discipline? When an employee breaks a rule or is not performing as expected, a warning is issued, perhaps verbally initially. If the behavior is not corrected, the supervisor or HR professional would then move to the next (progressive)

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The Human Element While insurance against lost time and money is a major benefit of the progressive disciplinary review policy, it’s not the paramount one. The human impact is the greater benefit. Most people like structure and rules, especially in the workplace. It may not seem that way, but psychology tells us that it is human nature to want defined boundaries. It makes us comfortable knowing what is acceptable or unacceptable in any given situation. Secondly, structure gives employers the potential to turn a borderline employee into a productive one. If employers terminated every employee, without the benefit of progressive discipline, who did not live up to expectations or did something wrong in the workplace, they

could lose many good employees in the long run. I’ve seen several employees who didn’t take their jobs seriously, but after being given a first or second warning, they realized exactly what they would be losing. As such, they turned over a new leaf, improved their performance and became top employees.

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Policy Downside While the pros definitely outweigh the cons, there are disadvantages to having a progressive discipline system. The policy can become a double-edged sword in at-will employment states. The at-will law allows employers to terminate employees at-will – with no reason needed – as long as the reason is not illegal, such as protected class. This allows employers to terminate those employees who simply don’t “fit” into their organization for whatever (legal) reason. However, when you introduce a progressive discipline policy, you are now hampered by a process that slows down or limits termination. Those who support progressive discipline, however, argue that good hiring practices can mitigate this downside.

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Progressive discipline is fine in most circumstances, but some infractions are clearly too grievous to be given a second chance, and in those cases termination is warranted. This should also be part of the written policy as well as employees’ expectations. Michael Mariano, PHR, AAAPM, is the firm administrator for Leaf, Saltzman, Manganelli, Tendler & Miele, LLP. Contact him at michaelm@njcpafirm.com or 973-808-9500.

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step, which is typically a written warning. And if the behavior still has not changed for the better, then the employee is either terminated or receives a final written warning. In the case of the final written warning, termination becomes the final step if the behavior still does not change within a specified period of time. The number of steps is relatively unimportant. What is important is that a decision is made on how many steps there are, that they are in writing and that the policy is communicated to all employees so that they understand expectations. When the employees are informed via due process that their behavior is unacceptable, what about it is unacceptable and what they need to do to correct the unacceptable behavior, then their ability to sue the employer for not handling the situation properly is minimized, and that is like insurance against getting sued. The court system likes – and employees can appreciate – that this system is basically fair and applies to everyone. There is decreased concern that different employees will be given different punishments for similar infractions. As a result, employees will feel like they have a stable, professional environment whose conditions are more nurturing.

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FINANCIAL

planning

Take a Tip on TIPS B y M ichael R. S teiner , C PA, R e gentAtlantic C apital, L L C

reasury Inflation Protected Securities (TIPS) are one asset class that can play an important role in any diversified portfolio. TIPS are bonds issued by the U.S. Treasury whose principal (par value) fluctuates with changes in the consumer price index (CPI), thereby offering investors a way to help reduce inflation risk. Another important TIPS feature is that while the coupon rate on TIPS stays constant, coupon payments are based on a principal amount that is adjusted for CPI changes. Thus, in an increasing inflationary environment, the actual interest income paid by the bond will rise accordingly. These are two important distinctions when comparing TIPS to traditional bonds, because par value does not change with traditional bonds.

Inflation Example 1 A significant long-term threat to investors is inflation. Inflation erodes investor purchasing power and can be particularly corrosive to bonds. When an investor owns a bond, especially a long-term bond, there generally is not much concern about receiving the principal back at maturity. However, many investors overlook the purchasing power of that bond when it matures. Let’s assume an investor buys a $10,000 10-year bond paying 3-percent interest. The investor will receive annual interest income of $300 and at the end of 10 years receive $10,000 of principal. Factoring in inflation at an assumed rate of 3 percent, the investor would lose 26 percent in purchasing power. The $10,000 that was invested for a decade would only be able to buy $7,441 worth of goods at maturity. This doesn’t take into account the $3,000 of interest that was earned

over the bond’s life. But when taking taxes into account, the investor breaks even at best. If inflation grew at 4 percent annually, purchase power erosion would grow to 32 percent. That’s quite a risk for an investor to take in a conservative investment.

Inflation Example 2 Now let’s examine a similar $10,000, 10-year TIPS investment that has a 1.5-percent coupon and an annual inflation rate of 3 percent. At the end of 10 years, the investor would receive a principal payment of $13,439, which represents the inflation-adjusted principal. Total interest payments over the bond’s life would total $1,720, for a total earnings of $5,159. This is clearly the superior investment, even though the coupon rate is half that of the traditional bond. If inflation was to increase to 4 percent, the bond would pay $14,802, and cumulative interest payments would total $1,801. It’s clear that TIPS can be a superior investment to traditional bonds, especially where inflation (or an investor’s inflation expectations) is high. However, that is not always the case. Remember, TIPS are affected by the CPI rate, and that rate can also turn negative. When that happens, the par value of the bond is reduced and so is the corresponding income. Both the value at maturity and coupon payment will fluctuate with inflation.

have caused TIPS to have high perceived safety, with treasury notes and bonds being perceived as among the safest. Risk aversion is so high today that some investors are willing to lock in negative real rates of return by buying TIPS. A 10-year TIP at press time yielded about -0.6 percent!

Today’s TIP

Certainly, different types of investments involve varying degrees of risk and, as always, past performance may not be indicative of future results. But TIPS can play an important role in a well-diversified portfolio. Remember, TIPS are but one ingredient in that portfolio. The key to any successful investment portfolio is relative weighting. It’s up to you, as a client’s trusted financial advisor, to help determine that weight.

TIPS are generally a good investment; investors can reduce inflation risk significantly by adjusting their principal and income to CPI changes. Unfortunately, TIPS are a rather unattractive investment in today’s market because they are expensive. Concerns about the economy and general risk aversion among investors

Michael R. Steiner, CPA, CFP, is a wealth manager at RegentAtlantic Capital, LLC. He is chair of the New Jersey Society of CPAs Investment Committee and a member of the Personal Financial Planning Interest Group. Contact him at msteiner@ regentatlantic.com or 973-425-8420.

NEW JERSEY CPA • November • December 2012

BEHIND EVERY

SCHOLARSHIP IS A STORY.

njscpa.org/scholarship

Forensic

file

The Impact of Federal Rule 26 Changes B y Sean Raquet, CPA, B ederson & C ompany LLP

forensic accountant is often engaged by an attorney in a litigation matter to assist a client in proving or defending a case. When engaged in a litigation matter, my firm is subject to both its own professional

standards and the rules of civil procedure followed by the court in the jurisdiction in which the case was filed. For example, when a case is filed in federal court, its civil procedures apply. One of the most relevant

Federal Rules of Civil Procedures for forensic accountants, as well as other experts, is Federal Rule of Civil Procedure 26 (Rule 26) which governs discovery matters and mandates the disclosure of certain facts

NEW JERSEY CPA • November • December 2012

to the adversary. Because discovery rules differ, we are often engaged first as a nontestifying expert and later named as a testifying expert. A non-testifying expert’s communications, notes and the like are not required to be turned over to the adversary, while a testifying expert’s are, as amended by changes made in December 2010. These are the first such amendments to be put in place since 1993. The 1993 amendments caused quite a dilemma for the testifying experts and attorneys working together on a case. These amendments required any communication, whether oral or written, be turned over to the adversary or deemed discoverable and not subject to work product protection rules, making it difficult for the expert and attorneys to openly discuss facts of the case. As a result, and to the detriment of the case, the expert and attorney limited their written and oral communication, and the expert prepared only one draft of his/her report. In some matters, to avoid disclosure under the work product privilege, counsel or his/her clients hire nontestifying experts to run different scenarios and calculations. Here, testifying experts are able to show attorneys a copy of their reports on a laptop or other device for review and editing without creating another draft.

Get More For Your Money Enjoy CPE savings for a full year! The December 2010 amendments included limiting the discovery of draft reports, attorneyexpert communications and changed the requirement that all “data and other information” be disclosed to “the facts or data considered by the witness” being disclosed to the adversary. The expectation was and is that these changes will streamline the discovery process when testifying experts are used during litigations. Not only will it eliminate unnecessary questioning at deposition, but it will also reduce associated costs. While Rule 26 changes include the protection of most communications between attorneys and experts and draft reports, certain information is still discoverable, including: • The expert’s compensation arrangement. • Information considered that was provided by counsel for whom he/she is working. • Any assumptions used that were provided by counsel. The modifications do not protect communications with third parties, such as other testifying experts. For example, when a forensic accountant relies on information provided by another testifying expert in formulating his/her opinion, he/she often speaks with the other expert. Beware, those discussions are

discoverable. If the forensic accountant is asked if he/ she had any conversations by opposing counsel during the deposition, the forensic accountant will have to divulge the content. Had the conversations been with the attorney, they would be privileged and he/she would not be required to respond to the question. In its report to the Judicial Conference, the Committee on Rules of Practice and Procedure looked to New Jersey’s success after enacting its own rules prohibiting discovery of draft expert reports and limiting discovery of attorneyexpert communications. The committee stated that it “obtained information from lawyers practicing on both sides of the ‘v’ and in a variety of subject areas about their experiences with it” and that “the New Jersey practitioners emphasized that discovery had improved.” As a forensic accountant who has been engaged as a testifying expert in federal litigation matters, Rule 26 changes will make it easier to complete assignments without hindering a litigant’s rights to fair due process. It’s a win for all involved.

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Sean Raquet, CPA, CFE, is a partner at Bederson & Company LLP. He is a member of the New Jersey Society of CPAs. Contact him at sraquet@bederson.com or 973-530-9128.

NEW JERSEY CPA • November • December 2012

INDUSTRY

insights

Don’t Lose Track of Tracking Shareholders B y M ichael J. Napolitano, C PA, C itrin C ooperman & C ompan y, L L P

information. Many companies use stock issuance to raise capital. I’ve encountered many instances of the underlying books and records not reflecting the issuance of stock, which presents a number of issues. The financial statements may report the wrong amounts of stock issued, and the tax returns may have incorrectly allocated profit or loss or, even worse, not reported a new shareholder.

ISOs

’ve assisted dozens of companies with their financial statements and tax returns. One often-overlooked area is maintaining accurate and up-to-date shareholder information. For smaller companies, this is relatively easy, but for companies that have grown significantly and added more complex capital structures, the need for proper shareholder accounting becomes that much more important.

Beyond the Basics Most small businesses have shareholders who’ve remained unchanged for years. Sans some key event, such as a death, sale of an interest or shareholder addition, the accounting is fairly straightforward. Many companies maintain the shareholder information in a simple Excel or Word document and update accordingly. As companies grow,

the capital structure can become more complex and require enhanced shareholder accounting. Depending on the company’s tax structure, proper shareholder accounting is crucial so as to not disqualify the entity from certain preferential tax treatment.

The Shareholder Agreement The first item to reconcile is the underlying books and records reflecting the shareholder agreement. This basic task is often overlooked, and companies report the incorrect owner percentages or reflect the wrong stock class. Account for each shareholder agreement, and document any changes to shareholder status. The company should also keep a summary of the basic terms of the shareholder agreement: voting rights, stock class and any other pertinent

An increasing number of companies have been offering incentive stock options (ISOs) to employees for performance-based compensation. An ISO requires the company to manage each employee agreement and account for various items, such as issuance date, vesting period, qualified versus non-qualified, to name a few. ISOs also require certain valuations to be performed to report the correct compensation for each employee. Another component of managing shareholders is primarily tax related. Many states require companies to remit taxes for outof-state shareholders. Shareholders must provide change-of-address information for any mailings, and the tax returns need to reflect this same information. Dates become more important for tax purposes when there is a change in shareholders for S corporations so that income or loss is allocated correctly. Keep accurate records related to shareholder basis for S corporations. Each shareholder’s capital account should be accounted for, and a schedule should reflect all additions and subtractions (income, loss, capital contributed and distributions) to arrive at an ending capital balance. I’ve seen shareholders with negative capital

NEW JERSEY CPA • November • December 2012

Administered by

accounts which, in some instances, prevented loss deductions. This has led the shareholder to question the accounting of his or her capital account and forced the company to spend many hours reconciling the last several years of transactions, wasting valuable time and money.

Employment Agreements Employment agreements with shareholders are also critical. How often have we seen litigation between parties, especially during difficult economic times? When was the last time your clients’ buy-sell agreements were reviewed? If you can’t remember, it’s probably far too long. The clock is ticking on wealth transfer opportunities as 2012 comes to a close. This may be one of the last opportunities to gift large values of closely held stock, unless Congress says otherwise.

Shareholder Schedules Maintaining shareholder schedules is not a difficult process and, if done annually, future shareholder problems can be avoided. Companies can go years without changes to their shareholders, and the idea of maintaining separate schedules becomes an afterthought. Most of our attention is generally spent on managing the financial operations and cash flow, and shareholder schedules are usually at the bottom of the list. The fire drill occurs when a shareholder sells interest or the company is sold. These events are often the trigger for the shareholder to suddenly take notice. Michael J. Napolitano, CPA, is a partner at Citrin Cooperman & Company, LLP. He is a member of the New Jersey Society of CPAs. Contact him at mnapolitano@ citrincooperman.com or 973-218-0500.

Working together with some of the most trusted names in insurance, Askin, Weber & Reed has been providing quality insurance programs to the New Jersey Society of CPAs (NJSCPA) and its members for more than 60 years. NJSCPA members and their families are able to easily and conveniently access a large variety of insurance coverages at special group rates.

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NEW JERSEY CPA • November • December 2012

AG9538 (09/12)

Small/Sole

practitioner

Reporting Information on K-1 Partnership Forms B y Ralph L og gia , CPA, Fazio, M ann u zza, Roche , Tankel, L a P il u sa L L C

Foreign Taxes Schedule K-1, box 16 contains foreign transactions. If the taxpayer is married and the amount in boxes L and M (foreign taxes paid/accrued) isn’t more than $600, you don’t need to input into your program lines 16 A-K, unless there are other sources of foreign transactions that would put the taxpayer over the threshold. One exception is if there’s a carryforward foreign tax credit available. The amounts on lines 16 A-K could then help release some of the carryforward credit.

NJ Partnership Filing Requirements and Other Considerations

nder the passive activity loss rules, net income/loss from a publicly traded partnership (PTP) is considered portfolio income to the partner and, therefore, is not passive activity income (Form 8582). Passive activity limitations are applied separately to income/ loss items attributable to each PTP and cannot be netted with income/ losses from other PTPs. Upon a PTP disposition, there’s usually a statement attached to the K-1 that indicates the gain or loss that must be reported (e.g., ordinary gain/loss versus capital gain/ loss). This information isn’t included on the face of the K-1.

Qualified Production Activities Income Box 13 of the K-1 contains the qualified production activities income (QPAI) and related expenses, which can be six or more line items. If this is the only source from which QPAI is earned and there are no W-2 wages on line 13, code V, you don’t need to enter any of the QPAI information into your program, as there will be no tax benefit. That’s because the allowable deduction is the smaller of 9 percent of the qualifying income or 50 percent of the qualifying wages. No wages; no benefit.

If your client is a nonresident of NJ and receives a NJ K-1 that shows no income or loss in column B for NJ source amounts, NJ requires the partnership to file a tax return if it has just one resident partner in that state. Essentially, if the partnership does not conduct business in NJ but has a NJ partner or member, the partnership is required to file a NJ partnership tax return and issue K-1s to all partners or members. Some other states with this filing requirement include Delaware, Georgia, Maine, Missouri, New York, Oregon, Pennsylvania and West Virginia. Part IV of an NJ K-1, which includes the supplemental information, reports the partner/member share of an Internal Revenue Code section 754 adjustment. This adjustment is permitted as a deduction for NJ purposes and should decrease the amount of income shown in Part II of the K-1. An NJ K-1 that reports a nonresident partner/member share of NJ tax based on the amount of income allocated to NJ is not only included as a tax payment on the client’s NJ tax return, but is also permitted as an itemized deduction on the federal tax return for state taxes paid. However, not all K-1s provide a footnote as to when this tax was paid so that the client’s tax preparer may determine the year in which the taxpayer should take the deduction on Schedule A.

NEW JERSEY CPA • November • December 2012

It’s not necessary to ask the client if the estimated tax payments were made by the partnership. Visit state.nj.us/treasury/taxation and enter the employee identification number and the name of the partnership to view the details of the estimated tax payments made. You can also use the website to file and pay Part-100 and Part-200-T and make estimated tax payments. NJ requires payment by electronic funds transfer if the partnership’s prior year liability exceeded $10,000. Don’t deduct nonresident withholding on the partnership tax return. It’s not an expense, it’s part of the partner’s/ member’s distribution. A gain on the sale or disposition of a partnership interest may be entitled to a Koch depreciation basis adjustment. For certain losses where the taxpayer’s federal basis was reduced, but where the taxpayer did not receive a similar benefit on his/her NJ tax return, the taxpayer is entitled to adjust the basis for NJ purposes in order to recognize a lower taxable gain. This adjustment should be reflected in the bucket of net gains or income from disposition of property (line 18) on the taxpayer’s return.

Who can CPAs count on today? New Jersey Accountants Count on Columbia for the right financial products and services they need. And you can always Count on Columbia to remain true to the principles of community banking. When you add it all up, you’ll want to call us today.

Finally, interests in partnerships that generate passive income without any offsetting passive losses, if disposed of in 2012, can recognize gain at 15 percent before the federal capital gains rate increases and avoid the 3.8-percent Medicare tax that begins in 2013. Ralph Loggia, CPA, M.S.T., is a tax manager at Fazio, Mannuzza, Roche, Tankel, LaPilusa LLC. He is a member of the New Jersey Society of CPAs State Taxation and Federal Taxation interest groups. Contact him at rloggia@fmrtl.com.

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Member Benefit Hands-On Tax Return Workshop – Partnerships & LLCs Wednesday, December 19, Roseland Visit njscpa.org/catalog Express Code: E1212701

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Count on Columbia. NEW JERSEY CPA • November • December 2012

27 9/19/11 CPA AD COL-3083 4.875” w x 9.875

Member FDIC

TAX

talk

New Jersey’s Responsible Persons Law B y Gary C . Bingel, C PA, and Gina Giordano, E isner A mper L L P

• Knowledge of failure to remit due taxes. • Derivation of substantial income or benefits from the corporation.

he corporation is widely known as a mechanism for business owners and managers to shield themselves from personal responsibility for a business’s debts. However, in New Jersey and in an increasing number of states, the corporate form offers little protection to responsible persons when a failure to remit trust fund taxes is at issue. Trust fund taxes are considered a sales tax, gross income withholding tax and motor fuels tax. New Jersey defines a responsible person broadly. Both corporate officers and corporate employees are exposed to a potential penalty. The touchstone for personal responsibility is not the corporate title, but rather whether the position imposes a duty to collect and remit trust fund taxes on behalf of the corporation. Mere unexercised

authority to collect taxes will not suffice, while authority to oversee those failing to remit taxes may suffice. In 1993, the NJ Tax Court addressed the issue of responsible persons in Cooperstein v. Director, Division of Taxation, 13 NJ Tax 68. The court analyzed these factors: • Contents of corporate bylaws. • Officer and/or stockholder status. • Authority to sign checks and the exercise of this authority. • Authority to hire and fire and the exercise of this authority. • Responsibility to prepare and/or sign tax returns. • Day-to-day involvement in the business or management responsibility. • Power to control payment regarding corporate creditors and taxes.

The NJ Division of Taxation has announced it will use these and possibly other factors. Upon a finding of personal responsibility, the division states that liability attaches to unpaid trust fund taxes along with penalties and interest accrued on the delinquency. Determining whether a corporate officer or employee is a responsible party with a duty to collect trust taxes is a fact-sensitive inquiry. A seminal case, Cooperstein was decided in favor of the taxpayer. The court turned to “well-reasoned sister-state decisions” of New York courts for guidance, emphasizing the nearly identical statutory language in New York and also noting the New York decisions’ consistency with federal cases. Joseph Cooperstein was a licensed real estate broker and consultant hired by the sole proprietor of a corporation to discuss the commercial feasibility of selling the business. Cooperstein advised selling the business to family members, as the business had no real assets, and he became president and director. Cooperstein had the authority to sign corporate checks but never exercised it during the tax period at issue, nor did he exercise the proxy giving him voting control. He had no involvement in the dayto-day operations of the business or in its management, and his main participation was to earn a brokerage fee. The court applied the aforementioned factors as gleaned from New York case law to determine

NEW JERSEY CPA • November • December 2012

that Cooperstein did not have a duty to act for the corporation. Cooperstein was absolved from liability for the corporation’s unpaid sales and gross income withholding taxes. The court specifically rejected the notion that unexercised authority alone may lead to a finding of personal responsibility. Rather, the court focused on the degree of influence and control actually exercised by the officer. By contrast, the 1994 case, Skaperdas and Birkenholz v. Director, Division of Taxation, 14 NJ Tax 103, found two of the three corporate officers to be

personally liable for the corporation’s unpaid sales taxes, employing much of the same analysis as in Cooperstein. The two responsible officers signed checks with regularity, controlled 84 percent of the corporate stock and exercised management control over the corporation. The other officer did not exercise his authority to sign checks and controlled only 16 percent of the corporate stock. The responsible party law seems far reaching and unforgiving; however, New Jersey courts have taken a pragmatic approach in its enforcement.

To avoid complication, a corporate officer or employee should promptly respond to a personal responsibility notice within the allotted 90-day time frame. Note: Determinations of personal responsibility may be challenged. Gary C. Bingel, CPA, J.D., CMI, M.B.A., is a partner in the state and local tax consulting group at EisnerAmper LLP. Gina Giordano, J.D., MAcc, is part of EisnerAmper’s state and local tax consulting group. Contact the authors at 908-218-5002.

NJSCPA members now receive an additional 15% discount on New Jersey car insurance through Plymouth Rock Assurance.

For your free quote and special 15% member discount, call 1-888-391-4910 or visit www.NJSCPAQuote.com today.

Insurance offered by Plymouth Rock Management Company of New Jersey under the brand name Plymouth Rock Assurance. Discount applies to policies written in High Point Property and Casualty Insurance Company. If the discount is not currently applied, it may be added upon request. May not be combined with any other group discounts. Offer available to New Jersey residents only.

NEW JERSEY CPA • November • December 2012

TECH

center

The NJ Technology Business Tax Certificate Transfer Program B y James B . Evans Jr., C PA, K ulzer & D i Padova , PA

93 percent for surrendered 2011 tax benefits. The business must be a new or expanding technology or biotechnology business with fewer than 225 U.S. employees (including any parent company and all subsidiaries). An eligible company must have at least one full-time employee working in NJ if the company or its predecessor has existed for less than three years, five fulltime employees in NJ if it has existed for more than three years but less than five years, or 10 full-time employees in NJ if it has been in existence for five years or more. In September 2012, the NJEDA adopted rules establishing a new definition of “full-time employee working in this state.” A qualifying employee must spend at least 80 percent of his or her time working in NJ and must be eligible to receive health benefits under the group health plan of the applicant or an affiliate. Anyone who works as an independent contractor or on a consulting basis is not a full-time employee. Special rules apply for workers provided by professional employer organizations. An applicant cannot show positive net operating income in either of the two full years of operations preceding the application date. Further, an applicant cannot be owned or controlled (directly or indirectly) by another corporation or be part of a consolidated group of affiliated corporations (as filed for federal income tax purposes) that has positive net operating income in either of the prior two years.

ew Jersey’s Technology Business Tax Certificate Transfer Program targets new or expanding emerging technology and biotechnology companies with unused research and development (R&D) tax credits or unused net operating losses (NOLs). The NJ Economic Development Authority (NJEDA) determines participants’ eligibility, and the NJ Division of Taxation determines the value of the tax benefits. The program provides $60 million of tax benefits annually, of which $10 million is allocated exclusively among the eligible companies operating within three innovation zones (sections of Camden, Newark and greater New Brunswick). Awards in 2011 totaled 83, ranging from $21,475 to $9,459,430, and the average award was $833,333. Transferable tax benefits include an eligible applicant’s unused NOL carryovers multiplied by the applicant’s anticipated corporation business tax allocation factor for the tax year in which the benefit is transferred, and it is subsequently multiplied by the corporation business tax rate plus the applicant’s total unused research and development tax credit carryovers. An applicant can transfer less than all of its available tax benefits. Transferable tax benefits can be sold to a corporation business taxpayer for at least 80 percent of the surrendered tax benefit. The NJEDA reported an average sale price of

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NEW JERSEY CPA • November • December 2012

Net operating income is determined from the applicant’s financial statements, but does not include net income resulting from selling NOLs or R&D credits, selling a major asset or other nonrecurring income. Financial statements of the applicant and all of its affiliates must be prepared under generally accepted accounting principles (including footnotes) and compiled, reviewed or audited by an independent CPA firm. Internal financial statements or tax returns cannot be used to determine net operating income. The sales proceeds must fund operating expenses of the selling company in the state, including expenditures for real estate and equipment, working capital, salaries, R&D expenditures and any other expenses determined by the NJEDA to be necessary to carry out the program’s purposes. If a selling business fails to use the sales proceeds as required, it must return to the state 100 percent of the non-qualifying expenditures. A company that fails to maintain a headquarters or base of operation in the state during the five years following the sale of its tax benefits is subject to a recapture requirement. A selling business may retain only 20 percent of the face value of the tax credit certificate for each full year the business remained in NJ. The forfeiture provisions do not apply if the failure is due to the liquidation of the new or expanding emerging technology or biotechnology business. James B. Evans Jr., CPA, J.D., LL.M., is an attorney with Kulzer & DiPadova, PA. He is a past president of the New Jersey Society of CPAs and a current member of the State Taxation and Federal Taxation interest groups. Contact him at jbe@kulzerdipadova.com or 856-795-7744.

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NEW JERSEY CPA • November • December 2012

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SOCIETY

pages

CPE Offerings and Events Upcoming Education Foundation Events Date

Event/Code

Location

CPE Credit

11/19

Loscalzo's Implementation Guide to the Risk Assessment Standards (E1211071)

Iselin

8/AA

11/19

Loscalzo's Using Tax Basis and Other Special Purpose Frameworks Presentations Effectively and Professional Ethics for New Jersey CPAs (E1211471)

Voorhees

4/AA, 4/PE

11/26

Mergers, Acquisitions and Sales of Closely Held Businesses: Advanced Case Analysis (E1211363)

Iselin

8/TX

11/27

Multistate Conference (E1211010)

Edison

8/TX

11/27

Cooperation with Bankers Breakfast (E1211770)

Iselin

1/TX

11/27

Form 990: AICPA's Answer to Unlocking the Tax Complexities (E1211371)

Iselin

8/TX

11/27

Financial Reporting: Turn Information into Action! (E1211203)

Roseland

8/AA

11/28

Fraud Alert! Prevention and Follow-Up (E1211213)

Roseland

8/AA

11/28

Loscalzo's 2012 FASB and AICPA Update (E1211081)

Iselin

8/AA

11/28

New Jersey Law and Ethics Webinar (E1211104)

N/A

4/PE

11/29

Loscalzo's Step-by-Step Guide to Compliance Auditing – A Gateway to Efficiency (E1211091)

Iselin

8/AA

11/29

Advanced Technical Tax Forms Training – Form 1040 Issues (E1211291)

Roseland

8/TX

11/29

AICPA's Annual Update for Controllers (E1211383)

Roseland

8/MT

11/29

CPA Exam Application: Dotting Your I’s , Crossing Your T’s (E1211675)

Roseland

N/A

11/29

CPA Exam Study Session – Failure Is Not an Option (E1211685)

Roseland

N/A

11/30

Advanced Controller and CFO Skills (E1211393)

Roseland

8/MT

11/30

Advanced Technical Tax Forms Training – LLCs, S Corporations and Partnerships (E1211301)

Roseland

8/TX

11/30

Loscalzo's Not-for-Profit Industry Update and Major Accounting and Disclosure Issues (E1211051)

Iselin

8/AA

12/3

Strategies and Tactics in the New War Against Higher Individual Taxes (E1212231)

Iselin

8/TX

12/3

Loscalzo's Compilation and Review Essentials – Rules for Local Practitioners (E1212041)

East Hanover

8/AA

12/3-4

AICPA's 1040 Tax Return Workshop by Sid Kess (E1212391)

Roseland

16/TX

12/3

PowerPoint (2007 and 2010): Creating Dynamic Financial Presentations with Business Graphics (E1212443)

Roseland

8/CS

12/4

Cloud Computing Unraveled and Social Media for Accountants (E1212683)

Roseland

8/CS

12/4

Choosing the Best Entity Structure Under the New Tax Law in 2012 (E1212201)

East Hanover

8/TX

12/4

Loscalzo's Accounts Payable Fraud: Overlooked Schemes and How to Detect and Prevent Them (E1212053)

Iselin

8/AA

12/5

Young Professionals Holiday Party (E1212380)

New Brunswick

N/A

12/6

Nonprofit Conference (E1212130)

Edison

8/MC

12/7

Loscalzo's Using Tax Basis and Other Special Purpose Frameworks Presentations Effectively and Professional Ethics for New Jersey CPAs (E1212011)

Iselin

4/AA, 4/PE

12/10

Introduction to U.S. Taxation of International Transactions (E1212113)

Iselin

8/TX

12/10

Advanced Form 1041 Practice Workshop (E1212241)

Jamesburg

8/TX

12/10

The Best Individual Income Tax Update Course by Surgent McCoy (E1212251)

Voorhees

8/TX

12/10

Business Law Refresher: What Every Financial Manager Should Know (E1212153)

Roseland

8/MT

12/10

Fair Value Accounting: A Critical Skill for All CPAs (E1212403)

Mount Laurel

8/AA

12/11

Skillful Negotiations: Getting the Most from Your Banker, Customers and Vendors (E1212163)

Roseland

8/MT

12/11

The Best Income Tax, Estate Tax and Financial Planning Ideas of 2012 (E1212261)

Voorhees

8/TX

12/11

Annual Update for Accountants and Auditors (E1212411)

Jamesburg

8/AA

12/11

Tax Aspects of Bankruptcy: All Need Not Be Lost (E1212121)

Iselin

8/TX

12/11

Loscalzo's Governmental Update and Major Accounting and Disclosure Issues (E1212141)

Iselin

8/AA

NEW JERSEY CPA • November • December 2012

12/12

Loscalzo's Not-for-Profit Auditing Made Easy (E1212071)

Iselin

8/AA

12/12

Advanced Technical Tax Forms Training – Form 1040 Issues (E1212211)

Voorhees

8/TX

12/12

Acquisitions to Grow the Business: Strategy, Structure, Integration and Due Diligence (E1212173)

Roseland

4/MT, 4/AA

12/12

New Jersey Law and Ethics Webinar (E1212104)

N/A

4/PE

12/13

AICPA's Annual Federal Tax Update (E1212421)

Mount Laurel

8/TX

12/13

Advanced Technical Tax Forms Training – LLCs, S Corporations and Partnerships (E1212221)

Freehold

8/TX

12/13

Make Money for You and Your Clients: Surgent McCoy's Top Business Tax Planning Strategies (E1212371)

Roseland

8/TX

12/13

Chief Financial Officer: Executive Level Skills for Financial Managers (E1212183)

Iselin

6/MT, 2/AA

12/13

The Loscalzo Answer to Frequently Asked Questions in Accounting and Auditing (E1212081)

Iselin

8/AA

12/14

AICPA's Hottest Tax Topics for 2012 (E1212431)

Mount Laurel

8/TX

12/17

Surgent McCoy's Advanced Individual Income Tax Return Issues (E1212291)

Iselin

8/TX

12/17

The Best S Corporation, Limited Liability and Partnership Update Course by Surgent McCoy (E1212281)

East Hanover

8/TX

12/17-18

Hands-On Tax Return Workshop – Individuals (Form 1040) (E1212481)

Roseland

16/TX

12/18

The Best Individual Income Tax Update Course by Surgent McCoy (E1212271)

East Hanover

8/TX

12/18

Loscalzo's Auditing Manual Utilizing the Risk-Based Audit Standards (E1212091)

Iselin

8/AA

12/18

Advanced Tax Structures: Using Tiered Partnerships, Multiple Corporations, Series LLCs and Disregarded Entities (E1212303)

Voorhees

8/TX

12/19

Loscalzo's Hands-On Guide to Understanding and Testing Internal Control (E1212031)

Iselin

8/AA

12/19

Hands-On Tax Return Workshop – Partnerships and LLCs (E1212701)

Roseland

8/TX

12/19

Surgent McCoy's Handbook for Mastering Basis, Distributions and Loss-Limitation Issues for S Corporations, LLCs and Partnerships (E1212311)

Roseland

8/TX

12/20

Reading, Understanding and Structuring LLC and Partnership Agreements from a CPA's Perspective (E1212321)

Roseland

8/TX

12/20

The Complete Guide to Payroll Taxes and 1099 Issues (E1212333)

East Hanover

8/TX

12/20

Loscalzo's Tax Practitioner's Guide to Accounting and Reporting Issues (E1212021)

Iselin

8/AA

12/21

Effective and Efficient Senior-Level Review of Tax Returns in Busy Season (E1212341)

Iselin

8/TX

12/27

Hot IRS Tax Examination Issues for Individuals and Businesses (E1212351)

Jamesburg

8/TX

12/28

Surgent McCoy's 2012 Top Ten Tax Topics (E1212361)

Jamesburg

8/TX

Upcoming Chapter Events Date

Chapter

Event/Code

Location

CPE Credit

11/19

Southwest Jersey

Bank Night (E1211509)

Voorhees

2/EC

11/20

Passaic County

1099 Primer and Changes (E1211759)

Paterson

2/TX

11/28

Middlesex/Somerset

Business Valuation and Succession Planning (E1211639)

Somerset

4/CS

12/1

Union County

Annual Tax Seminar (E1212559)

Union

5/TX

12/4

Hudson

IRS E-File Issues (E1212629)

West New York

2/TX

12/6

Bergen

New Jersey Law and Ethics (E1212459)

Paramus

4/PE

12/6

Middlesex/Somerset

Bankruptcy (E1212609)

Somerset

4/TX

12/6

Monmouth/Ocean

Accounting and Auditing Seminar (E1212649)

Neptune

4/AA

12/7

Mercer

Annual Tax Seminar (E1212589)

West Windsor

8/TX

12/7

Southwest Jersey

Annual Tax Seminar (E1212529)

Cherry Hill

5/TX

12/7

Essex

Offer in Compromise/Navigating the IRS (E1212579)

East Hanover

4/TX

12/7

Monmouth/Ocean

New Jersey and New York State Tax Update (E1212659)

Eatontown

3/TX

12/7

Atlantic/Cape May

Annual Tax Seminar (E1212509)

Mays Landing

5/TX

KEY AA – Accounting & Auditing MT – Management

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

EC – Economics PE – Professional Ethics TX – Taxation

njscpa.org/catalog NEW JERSEY CPA • November • December 2012

MC – Multiple Categories PM – Practice Management

SOCIETY

pages

Get Involved Accounting and Auditing Standards Interest Group Likes Making Comments By Nicholas A. Jenner, CPA, MSPC Certified Public Accountants and Advisors, P.C. One of the most compelling reasons for choosing a career in public accounting is the opportunity for professionals to have voices that allow them to shape the landscape of their profession. For those who have gravitated toward accounting and auditing, an increasing concern is the multitude of often-complex standards that govern the profession, even those standards at the proposal stage. As professional stakeholders, our ability to provide commentary on prospective standards provides a unique opportunity to advise the standard-setting bodies on the benefits that may (or may not) be provided by the adoption of those proposed standards. Members of the New Jersey Society of CPAs Accounting & Auditing Standards Interest Group regularly comment on exposure drafts – drawing on the vast experience of the CPAs comprising the group. The group first educates its members through a contemporaneous exchange of ideas during the drafting of comment letters that convey the interest group’s position on a particular standard. These comment letters serve a vital purpose by allowing for constructive outreach and due process between accounting professionals and the standard-setting bodies. They also serve one of the core missions of the NJSCPA: to encourage high professional standards through competency and ethics. Recently drafted comment letters have included the Financial Accounting Standards Board’s revised proposed standard on revenue recognition, the Public Company Accounting Oversight Board’s proposed standard for revision to the auditor’s report and the Standards for Accounting and Review Services’ proposed statements. You can read these comment letters at njscpa.org/ accounting. Ultimately, an organization is only as good as the members who are ardent about its cause. Consequently, NJSCPA members and interest groups demonstrate their desires to improve the profession through their activities, affording those involved the ability to continually improve themselves and the profession as a whole which, in turn, benefits the public. For more information about the Accounting & Auditing Standards Interest Group, visit njscpa.org/ getinvolved. Nicholas A. Jenner, CPA, is a senior manager with MSPC Certified Public Accountants and Advisors, P.C. He manages MSPC’s quality control department, conducts reviews of engagement compliance with professional standards and coordinates staff training. He is a member of the NJSCPA Accounting & Auditing Standards Interest Group. Contact him at njenner@mspc-cpa.com.

Young CPAs Kickball Tournament Kicks for a Cause

The NJSCPA Second Annual Young CPAs Kickball Tournament brought together some of New Jersey’s most competitive young professionals and raised $2,000 in donations for The Valerie Fund. A total of 12 teams from 11 firms and companies faced each other in single-elimination matches. It all came down to the teams from Rothstein Kass and KPMG in the final round. After 40 minutes of kicking, catching and running by both teams, the KPMG team (pictured) took the victory by a score of 9 to 4. For a complete wrap-up of the game, including one hospitalization and free beer, read the August issue of E-YoungCPA at njscpa.org/youngcpas.

Members in Transition Come Together in New Online Community

The New Jersey Society of CPAs is sensitive to the unique needs of members in transition. We have created a new Members in Transition community on Connect, the NJSCPA’s online community site, to help unemployed or underemployed members who are actively looking for employment network as well as share job search ideas, résumé tips, interviewing techniques and more based on their personal experiences. This is a private space away from other members, recruiters and employers to discuss strategies, frustrations and success stories. Stewart Linder, CPA, has experience hosting a similar group and has volunteered to guide the community. Job listings from the NJSCPA Job Bank will be posted weekly, and job search resources are posted in the community library. To join the community and begin posting questions, thoughts and resources, log on to http://connect.njscpa.org/communities, search for “Members in Transition” and then click the “Join Community” button. Select a subscription option and save. Contact Carolyn Hook at chook@njscpa.org for more information.

NEW JERSEY CPA • November • December 2012

Get Involved Now

Meeting Planning Made Easy with Doodle.com

Volunteer opportunities are available throughout the year. Here are a few activities that need your support now. Let us know how you’d like to be involved at njscpa.org/getinvolved. Be a Mentor and Make a Difference – CPA members under the age of 36 are needed to be mentors for the 2013 NJSCPA high school scholarship recipients to provide guidance throughout their college careers. Apply online by Friday, December 14, at njscpa.org/mentor. Read and Rank Essays from NJSCPA High School and College Scholarship Candidates – Volunteers are needed to read essays, which are limited to 500 words, from high school candidates on Saturday, January 5, from 9:00am to 1:00pm at NJSCPA headquarters in Roseland. College essays can be read electronically from Saturday, January 12, to Friday, January 18. Interview NJSCPA College Scholarship Candidates – Society members are needed to interview candidates for NJSCPA college scholarships. College interviews will be held on Saturday, January 26, at Ernst & Young in Iselin, with a snow date of Saturday, February 2. For more information on the above programs, contact Janice Amatucci at jamatucci@njscpa.org or 973-226-4494 x209.

Choosing a meeting date for a group of busy people can be difficult, especially when they use different calendar software or don’t keep an up-to-date calendar handy. Next time, try Doodle. com, an online scheduling tool that allows meeting planners to establish meeting time options. Participants can then indicate their availability and preferred meeting times. Site registration is not required for either the meeting planner or participants. Doodle provides a link for meeting participants and one for administration so that meeting planners don’t have to keep track of emails from participants on their availability, and it helps the group come to a consensus on a meeting time. “Doodle is very practical and efficient,” says Marc D. Mintz, CPA, chair of the NJSCPA Strategic Planning Committee, and he recommended the committee use it regularly to schedule meetings.

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SOCIETY 1

pages 4

8 9

13 15

Job Searcher Resources for a Tough Economy

Finding that next great job opportunity in this difficult economy can prove to be a monumental challenge. To help you create an integrated job search approach that will help you land the job that’s right for you, the New Jersey Society of CPAs has developed a resource guide that highlights the member benefits to leverage for your search. Visit njscpa.org/ transition to explore these and other helpful benefits:

19 20

Chapters, Interest Groups and Committees

25 26

Across

Network and learn with members locally who share your interests.

Connect

32 34

1. Jersey Shore star 4. Real Housewives of New Jersey star, first name 9. Shia LaBeouf attended this university in Transformers: Revenge of the Fallen 10. Melted chocolate cake description 11. Zones 14. Dress for a party 15. Hoops grp. 17. Famous Halloween broadcaster in 1938 (two words) 20. Old British sports car 21. Trenton, for one 22. Recipe order 24. I-95 sign 26. The First Noel is one 28. Singer who performed a series of concerts at Revel casino, last name 30. Freeway division 33. Try out 34. And a partridge in a ___ tree 35. Call, in poker

Connect with your fellow members, use the membership directory and ask technical, management or administrative questions via the Open Forum at njscpa.org/connect.

Leave of Absence Membership Dues Category

Down

1. TV series set in New Jersey 2. Popeye's girl 3. Thrills 5. Long, long time 6. Christmas drinks 7. Adding beauty to, the tree perhaps 8. Had a turkey 12. Long, long ___ 13. Twice, for short 15. One of the filming locations for The Dark Knight Rises 16. Pub order 18. See 25 down 19. Crowd roar 20. Doctor 21. Calcium symbol 23. Christmas presents for girls 24. Hanukkah money 25. Group featured in Jersey Boys (goes with 18 down) 27. Law & Order position, for short 29. Murder, __ Wrote 31. Channel with mystery shows, ___ and ___ 32. Above

See the answers on njscpa.org/newjerseycpa.

Unemployed members pay $88 per year and continue to receive the same level of benefits.

Make contacts, keep in touch and find resources 24/7 with members and other professionals by joining the NJSCPA LinkedIn group.

Members in Transition Connect Community Connect with other members in your own online support and networking group for NJSCPA members seeking employment. See the Get Involved column in this issue for additional information.

NJSCPA Member Benefits Marketplace

Save money on business and leisure products and services.

Online Job Bank

Post your resume, search available jobs and find other job search resources.

Professional Development

Sharpen your skills, increase your knowledge and earn CPE at conveniently located conferences and seminars – all at special member pricing.

Publications

Stay current with the help of NJSCPA publications, including New Jersey CPA, E-NEWS, Tomorrow’s CPA and others.

NEW JERSEY CPA • November • December 2012

Highlights of Financial Results for

t h e Ye a r

Ended

e are pleased to provide these financial highlights of fiscal 2012 for the New Jersey Society of CPAs and affiliated entities (NJSCPA Education Foundation and NJSCPA Scholarship Fund). Member programs and services continued to be guided by the Society’s strategic plan, and operational results were enhanced by two key factors: the end of the CPE triennial reporting cycle and the NJ State Board of Accountancy’s adoption of a peer review program. While each of these factors was anticipated, actual results exceeded budget expectations and fueled the increase in unrestricted net assets. The third significant factor, uncertainty in the global investment markets, impacted all three entities, causing long-term reserves to decrease for the period, while still remaining above the targets established for each entity. The Society continued efforts on its two major strategic programs, volunteer relations and firm outreach. Nearly 300 members submitted new volunteer interest profiles, and the number of NJSCPA 100-Percent Member Champion firms grew by more than 25 percent to almost 90 firms. The successful Pay It Forward Program reached 10,800 students thanks to the efforts of 140 members making presentations at 160 high schools. More than 220 new firms enrolled in the peer review program administered by the NJSCPA. Advocacy efforts focused on advancing appeal bond cap legislation, upholding privity and standard of care statutes in the courts, as well as the appointment of several members to the NJ State Board of Accountancy. The Society’s net assets increased approximately $113,000, more than $70,000 ahead of budget, despite unrealized investment losses of $165,000. The NJSCPA Education Foundation completed the third year of the triennial reporting cycle with record-setting attendance, surpassing 30,500 attendees, and delivered nearly 162,000 credit hours. Strong attendance coupled with good program execution, including an increased emphasis on web training, allowed the foundation to increase its budgeted surplus by nearly $480,000 and increase net assets by approximately $660,000.

May

31, 2012

The NJSCPA Scholarship Fund continued to benefit from the strong support of the Society’s chapters, as well as from members, firms and companies. The fund increased the amount of awards granted to more than $500,000, the most in its history. More than 100 eligible students received awards, including awards by three Society chapters. Temporarily restricted net assets decreased approximately $131,000, due to unrealized losses of $176,000 on the fund’s investment portfolio. Membership Dues Income from membership dues increased approximately 1.4 percent over last year mainly the result of new member income since dues rates remained largely the same. Recruitment of new members exceeded budget by 170 members, while overall member retention declined slightly from 93 percent last year to 92 percent in 2012. Total membership remained flat at 15,400. Educational Program Fees Income from educational offerings was up more than $1.3 million over last year, due to the end of the CPE reporting cycle and the new requirement for a minimum number of live training credits. Attendance was very strong for each of the major lines of programming, and overall attendance was the largest since triennial reporting cycles began. Direct expenses of education programs increased accordingly. Other Revenues Publication income increased due to the biannual publication of the Forensic & Litigation Services Directory of CPAs. Royalties and commissions increased primarily as a result of expanded web-based CPE offerings. Investments declined approximately 6.7 percent, with unrealized losses of 8.5 percent, compared to a positive return of approximately 20 percent last year.

Revenues and Other Support 2012

2011 3%

51% 4%

40%

Membership Dues Educational Program Fees Peer Review Fees Publications and Advertising Special Events and Contributions Investment, Royalties and Other NEW JERSEY CPA • November • December 2012

4% 11%

38%

Highlights of Financial Results for

t h e Ye a r

Functional EXPENSES 2012 19%

15%

9% 3% 42%

2011 20%

May

Operating Expenses Total expenses for 2012 increased 11 percent over last year and, exclusive of the increase in direct costs of education programs, they increased 6.5 percent. The increase in salaries and wages included an average merit increase of 2 percent, a severance package and additional hours for a part-time sales specialist. The remaining variance is due to the fact that last year included the effect of a change in vacation policy, lowering the vacation pay accrual and, with it, salary expense. Printing and distribution expenses were higher than 2011 due to the biannual production of the Forensic & Litigation Services Directory of

31, 2012 CPAs. Professional fees were up significantly due to additional peer review technical review fees and the launch of a comprehensive branding project. Other general expenses were up, mainly in the area of credit card fees, due to the increase in CPE registration volume, a larger portion of which came through e-commerce. While the Combined Statements of Activities present expenses by natural classification, below are the combined expenses of the Society, the Education Foundation and the Scholarship Fund summarized by each major functional area.

15%

2012

2011

$1,277,000

$1,205,000

733,000

680,000

3,755,000

3,173,000

Peer review

304,000

271,000

Career awareness

776,000

725,000

6,845,000

6,054,000

369,000

Management and general

1,684,000

1,594,000

Total Support Services

2,053,000

1,963,000

$8,898,000

$8,017,000

Program Services

9% 3%

Ended

Membership activities Communications and public relations 40%

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

Educational activities

Total Program Services Support Services Membership recruitment and fundraising

Total Program and Support Services Combined Statements of Financial Position

New Jersey Society of Certified Public Accountants and Affiliates

May 31, 2012 May 31, 2011 Assets Cash and cash equivalents $ 6,614,000 $ 5,971,000 Investments 4,243,000 4,548,000 Other 919,000 916,000 Total Assets $11,776,000 $11,435,000 Liabilities and Net Assets Deferred revenue $ 2,198,000 $ 2,558,000 Other 884,000 825,000 Total Liabilities 3,082,000 3,383,000 Unrestricted net assets 6,233,000 5,460,000 Temporarily restricted net assets 2,461,000 2,592,000 Total Net Assets 8,694,000 8,052,000 Total Liabilities and Net Assets $11,776,000 $11,435,000 NEW JERSEY CPA â&#x20AC;˘ November â&#x20AC;˘ December 2012

Highlights of Financial Results for

t h e Ye a r

Ended

May

31, 2012

Combined Statements of Activities New Jersey Society of Certified Public Accountants and Affiliates

Year Ended Year Ended May 31, 2012 May 31, 2011 Changes in Unrestricted Net Assets Revenues and other support Membership dues and other fees $3,620,000 $3,569,000 Educational program fees 4,901,000 3,594,000 Peer review fees 384,000 306,000 Publication, directory and website advertising 182,000 136,000 Investment income (loss) (134,000) 446,000 Royalties and commissions 261,000 155,000 Special events 196,000 212,000 Other 72,000 76,000 Net assets released from restrictions 189,000 253,000 Total Unrestricted Revenues and Other Support 9,671,000 8,747,000 Expenses Salaries, payroll taxes and employee benefits 3,670,000 3,449,000 Direct costs of educational programs 2,890,000 2,373,000 Rent and occupancy 431,000 422,000 Printing and distribution 152,000 136,000 Scholarship awards 463,000 425,000 Office and supplies 241,000 257,000 Professional fees 279,000 229,000 Travel and meetings 110,000 128,000 Special events 187,000 181,000 Other 475,000 417,000 Total Expenses 8,898,000 8,017,000 Increase in Unrestricted Net Assets 773,000 730,000 Changes in Temporarily Restricted Net Assets Contributions 196,000 193,000 Investment income (loss) (138,000) 349,000 Net assets released from restrictions (189,000) (253,000) Increase (decrease) in Temporarily Restricted Net Assets (131,000) 289,000 Changes in Net Assets 642,000 1,019,000 Net assets at beginning of year 8,052,000 7,033,000 Net assets at end of year $8,694,000 $8,052,000 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 2012

SOCIETY

pages

NJ State Board of Accountancy Report Society Offers Board CPE Tracker Program Newark (September 20)

practitioners whose licenses lapse after five years, the so-called “death penalty.” The proposed legislation would put the responsibility on the state board for addressing licensee deficiencies. Currently, New Jersey is one of only two states with this retest requirement. Thomas reported that California recently passed mobility legislation, which is awaiting the governor’s signature. California’s mobility legislation should be effective as of January 1, 2013, making Hawaii the only state without a practice mobility requirement. In light of the recent reports that the state is facing a larger revenue shortfall than previously estimated, Thomas said the Society is closely monitoring the state budget for potential vehicles to increase revenue, such as a tax on professional services. Thomas will be presenting a proposal requesting the state board use the Society’s CPE Tracker system. This free system for Society members provides an electronic transcript of licensees who have taken courses through the NJSCPA, which includes the course, credit hours and course category. Thomas indicated that this system can streamline the review process and greatly decrease the amount of paperwork. It was noted that many large firms currently submit credit reports to the state board electronically for in-house credits taken.

Committees

RMA – The next Registered Municipal Accountant Exam is being held in Newark on Friday, December 7. Education – The committee chair expressed an interest in possibly promoting the issues of eXtensible Business Reporting Language and International Financial Reporting Standards to accounting students. Statutes/Rules/Regulations – The committee reviewed a number of issues – including the issue of didactic learning requirements – with the board’s regulatory analyst and legal counsel and is working on changes and adjustments and will send back to the board for review.

Public

New Jersey Society of CPAs CEO & Executive Director Ralph Albert Thomas mentioned the Society’s quarterly board meeting being held on Friday, December 7, and a public policy forum on Tuesday, December 11, in conjunction with the New Jersey Business & Industry Association, which will cover the economic outlook for New Jersey, including recent regional survey data. Thomas indicated a reciprocity bill is still in the NJ Legislature that addresses the retest requirement for CPA

audimation.com NEW JERSEY CPA • November • December 2012

CLASSIFIEDS

Mergers/Acquisitions We are a well-established CPA firm in Essex County with a diverse client base and wonderful support staff. We have an opportunity for retirement-minded practitioners looking for a merger/succession plan or outright sale of their practice. Practices with $200K-$750K in business clients are welcome to call 551-655-1600. We can offer your clients the continuity and great service they deserve. Goldstein Lieberman & Company LLC, one of the region's fastest growing CPA firms, wants to expand its practice and is seeking merger/acquisition opportunities in northern NJ and the entire Hudson Valley region, including Westchester. We are looking for firms ranging in size from $300,000 to $5 million. To confidentially discuss how our firms may benefit from one another, please contact Phillip Goldstein, CPA, at philg@glcpas.com or 800-839-5767.

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.

Parsippany, NJ, three-partner CPA firm seeks retiring practitioner to merge/acquire practice ranging from $100K and up. Please contact Carl Gutt, 973-451-0800 x22 or cgutt@ dglcpa.com. Small Clifton CPA firm looking to buy out retirement-minded practitioner over 2-4 years. Will pay top dollar with large down payment. Let's discuss over coffee. File 80612

Growing CPA firm with first-class marketing culture in central NJ is looking to expand its practice. Ideal merger candidates are sole practitioners or small firms with established niche focus and strong business development skills and/or in need of a succession plan. Reply in confidence to dcowan@ cowangunteski.com. New Jersey – CPA firm wishes to acquire or merge with progressive, small to mid-sized firms. File 0701

Central Jersey CPA firm seeks an individual, preferably with a small practice, for future partnership with retirement-minded partners. Email bam4711@yahoo.com. Established, northern New Jersey and New York City, mid-sized CPA firm seeks to merge with another like-minded CPA firm for mutually beneficial growth. We are seeking firms in the $500,000 to $2 million size in northern or central New Jersey or New York. This is your opportunity to expand without being gobbled up by one of the big guys. To confidentially discuss this opportunity, please contact nynjcpas@gmail.com.

Livingston sole practitioner seeks CPA with practice to assist in servicing clients leading toward association. Staff and office space available. Reply to cpalivingston@aol.com.

New Jersey practices for sale: Northeastern Atlantic City County CPA practice, gross $410K. Central Monmouth County CPA practice, gross $300K. For more information, call Bradley Holmes at 800-397-0249 or visit accountingpracticesales.com to view all listings and register for free email updates. Mergers and acquisitions are not the only road. Have you considered a structured client transfer? It’s an ideal solution for practitioners to lighten their loads without an obligation to merge or sell. Contact us to learn more about this option. We represent a highly motivated CPA firm looking to recalibrate its practice by pursuing a mutually beneficial transfer arrangement. Contact ira@optimumstrategies. com for details.

Professional Services Outsource your pension practice. We do nothing but pension administration. Let us make your pension practice efficient and profitable. Contact Larry Zeller from Preferred Pension Planning at 908-575-7575 or lzeller@ preferredpension.com. Peer Review – Do you need a practical system or engagement reviewer? Obtain a free quotation at bbertscha@yahoo.com. Audits – Does your client need an audit, but you don't provide audit services? You do the tax work, and I'll do the financials; contact bbertscha@yahoo.com.

Real Estate Real estate appraising – Tax assessment appeals, eminent domain (condemnation), unique properties; consulting; business valuations. Charles A. McCullough, CPA, M.B.A., State Certified General Real Estate Appraiser, American Society of Appraisers member; cmccullough@camcpavalue. com, renwickandassociates.com, 856-779-7050, 609-923-5879. Two furnished offices for rent located near routes 23, 46 and 80 in Little Falls. Includes use of kitchenette, conference room, reception area, copier, scan and fax. Call Peter: 973-785-4588. Accounting office space available immediately in Washington Township. Two offices available in a beautiful, professionally decorated office. Old-world-style décor. Includes an 800-square-foot conference room and 300 square feet of storage space. Call Ted Harrington at 856-275-3256 for more information.

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.

NEW JERSEY CPA • November • December 2012

STUDENT

outlook

An Opportunity to Bring It On Again B y Christopher S . Flemin g, U. S. D epartment of the N av y

as learning from past actions, are critical success factors. We’ve all acted in ways that we wish we could take back, but learning from these experiences can provide valuable life lessons and make us better people. “You miss 100 percent of the shots you never take,” said hockey legend Wayne Gretzky. As professionals, our careers are built on and a reflection of our actions. During the making of Bring It On III, I realized and appreciated the impact this could have on high school students. I also started to gain more and more admiration for the work of professional associations like the New Jersey Society of CPAs. There is great value in the services it provides to both students and professionals. By offering information on job postings, career advice, CPA Exam tips, CPE, events and more, the Society acts as a sounding board for the CPA profession and provides its audience with the tools it needs to leverage opportunities and take action. There are those two words again! Bring It On III is a perfect example. It visualizes accounting opportunities for high school students that they may not have known existed. From supporting the troops in Afghanistan to dissecting the financial impact of a bad trade in the National Football

here I was, standing in front of a U.S. Navy fighter plane this summer, 27 years old, talking about my career path as an aspiring CPA. A finance manager for the Navy Department, I was filming a part for Bring It On III, a New Jersey Society of CPAs video detailing the accounting career opportunities for high school students. My major, the college classes I had taken, the jobs I had held and people I had met all led me to where I was that day. And the making of this video gave me a chance to reflect on my career thus far. It all boiled down to opportunities and action. Opportunities sometimes come along due to luck, but they are usually a reflection of your decisions and who you are. I like to think you make your own luck. Either way, I owe a lot to opportunity. In many cases, these were opportunities created by people going out of their way to give me chance: an interview, job reference or help on some accounting homework. Whatever it was, and no matter how big or how small the gestures, I appreciate all of my opportunities and recognize their importance in my professional development. Opportunity, on the other hand, cannot be seized without action. Knowing when, how and what to act on, as well

NEW JERSEY CPA • November • December 2012

Let us help your firm grow. Together, we are

League, CPAs flourish across all industries. During the filming of Bring It On III, I was asked what I think are the advantages of being a CPA. My answer was simply “opportunity.” Being a CPA means not being pigeonholed, whether it’s working on Wall Street or owning your own hardware store. It means developing the skills and tools required to take action and succeed in a job market that is always changing – and not always for the better. And it means earning the respect and trust of others through our actions, which are a reflection of our profession as a whole. When I look back at my opportunities, I also think about what I’m doing to help others, especially young people, with their career aspirations. The NJSCPA provides a venue for professionals to pay it forward and provide young professionals with opportunities to succeed at work and in life. Students who see this video may have no idea of what they want to major in, never mind what they want to do for the rest of their lives. However, by providing them with an understanding of what accountants do and the opportunities that exist to them, we are providing them valuable information from which to make decisions. I’m grateful to have been a part of Bring It On III. It gave me an opportunity to reflect on my career, hold my head up high and consider what I can do to further the careers of others.

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Learn More Call: MaryLynne Andreula: 973.738.2492 Magazine of the

New Jersey Society of Certified Public Accountants

Jan • Feb 2013

January/February Coming Attractions

Insurance n Advising Your Clients on Insurance Issues n Mitigating CPA Malpractice n Insurance Issues at Your Firm n Directors and Officers Insurance

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NEW JERSEY CPA • November • December 2012

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LEGISLATIVE

views

Society Delivers NJ Congressional Delegation Fiscal Tools B y Jeffrey T. Kaszerman , NJ SC PA Government R elations D irector

ew Jersey Society of CPAs members who attended the American Institute of CPAs 125th Anniversary Council meeting earlier this year in Washington, DC, delivered new tools to members of the New Jersey Congressional Delegation that are designed to promote greater fiscal insight and tax awareness. It was part of a national AICPA campaign to make Congressional members more aware of the true state of the nation’s fiscal health and how much taxpayers are paying in taxes on a national, state and local level. The NJSCPA members gave the NJ Congressional Delegation copies of the AICPA’s recently released video, What’s at Stake: A CPA’s Insights into the Federal Government’s Finances, as well as information on how to access the AICPA’s Total Tax Insights Calculator. The video, narrated by AICPA Chair Gregory J. Anton, CPA, offers a nonpartisan analysis into why reading the U.S. government’s financial statements – prepared by the U.S. Treasury Department – offers Americans a better insight into their government’s financial future than does the higher-profile annual federal budget. “The budget describes the top target for government spending each year,” Anton explained. “The financial statements provide a multi-year look, taking all of the federal government’s existing obligations into account. Accordingly, the financial statements provide a much more complete – and sobering – analysis.” “The growing mismatch between the federal government’s long-term spending obligations and projected revenues is probably one of the toughest issues for taxpayers to understand,” Anton added. “The video explains the mismatch in non-technical language that clearly describes the magnitude of the problem. Knowing where our nation’s revenues come from, where the money is obligated to be spent and how much it

Use Your Expertise to Help the Community New Jersey State government has hundreds of boards, authorities and commissions that deal with practically every public policy issue imaginable. These bodies are made up of thousands of interested citizens who volunteer their time and expertise. Most towns and counties also have a number of boards that are open to local citizens just like you. Appointments to the state boards are generally made by the governor. If you’re interested in serving, visit the governor’s website at state.nj.us/governor/admin/bca to

costs to service its debts gives very important insights into how we can reset our economic picture.” CPAs and members of the public can view the video and related government documents at aicpa.org/advocacy/pages/cpasinsight.aspx. The Total Tax Insights Calculator is the nation’s most comprehensive tax calculator and was developed as a tool to enable taxpayers to estimate the amount they pay each year for the most common federal, state and local taxes. “We’ve introduced this new calculator to help Americans grasp how much they’re paying in combined federal, state and local taxes,” said AICPA President and CEO Barry C. Melancon, CPA. “Our recent national poll showed that taxpayers do not know the percentages of their income that goes to pay taxes or how many types of taxes they pay annually. The AICPA’s goal is to make federal, state and local taxes more transparent, and the Total Tax Insights Calculator does that.” Only basic information is required to use the calculator: the county or city in which the taxpayer lives, marital status, federal adjusted gross income and number of dependents. The calculator then estimates what the taxpayer is paying on an annual basis for approximately 20 different taxes. Individuals do not need to identify themselves in any way, and the data is erased when a user leaves the website. Access the calculator by visiting totaltaxinsights.org. see a complete board listing. If you see something you’re interested in, upload your resume and apply for a position on that board. The Society encourages its members to get involved with these boards. It’s a rewarding way for you to serve the community and a great way to let the public know how talented CPAs are. If you prefer to get involved with a board on a more local level, contact your mayor, town council members or school board for more information. You can also contact your county officials to see what they have available.

NEW JERSEY CPA • November • December 2012

Advertisers Index 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 Advertising Manager George Chateauneuf at custompubs@ thewarrengroup.com. Accounting Practice Sales

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providentnj.com NEW JERSEY CPA • November • December 2012

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It’s All Downhill for This CPA By David Plaskow, NJSCPA Publications Editor

he ski slopes of Park City, Utah, are a long way from the Bronx, which is where Stanley Goldschmidt, CPA, grew up. His mother, Helen, was a homemaker, and his dad, Nate, owned a butter, egg and cheese wholesaler. “Unfortunately, when I was a youth, that was around the time the Bronx really started going downhill,” recalls Goldschmidt. He enrolled in night school at Long Island University (LIU) and worked as an accounting clerk during the day at a small firm in Manhattan. “Based on how the partners treated me and what I learned, I think that heavily influenced my going into the accounting profession,” Goldschmidt says. “Thankfully, accounting fits me, I enjoy it and feel that I’m pretty good at it.” After graduating from LIU with a B.S. in accounting in 1969, Goldschmidt became a junior accountant at LKH&H where he did audits of retail businesses and hotels. After three years, Goldschmidt took a position as the controller of a construction company in New Jersey. “I was looking for less of a commute and wanted to get out of New York, so my family moved to Newton in 1972,” comments Goldschmidt. He stayed in the construction industry until the early 1990s when he opened his own tax practice. Not long after moving to Newton, Goldschmidt obtained the CPA credential. “Obviously, a CPA certificate can lead to better opportunities and compensation, but I also feel that if you are in a profession, you should be the best you can at that profession – and that’s where the CPA designation came in,” admits Goldschmidt. “And my employers at that time made it much easier by being

very supportive of my pursuit of the CPA credential.” A New Jersey Society of CPAs member for more than 30 years, Goldschmidt appreciates the camaraderie, access to information and discounted CPE that come with being a member. “I’m also a member of the New York State Society of CPAs and the American Institute of CPAs,” he notes. He was the director of the New Jersey Construction Association for two years and a long-time member of the Newton Zoning Board. “That actually came about due to a zoning issue I had regarding my practice,” adds Goldschmidt. “The zoning officer, who I became good friends with, told me I could be part of the solution or part of the problem – so I became part of the solution.” A few of Goldschmidt’s outdoorsy pursuits include cycling and hiking. “I thought Yellowstone National Park was breathtaking,” he says. “And I can’t forget the time at Antelope Park in Utah where a 500-pound mountain lion looked at us like we were the main course – thankfully, we hopped in the car before we went on the menu.” One of Goldschmidt’s other outdoor passions came about as a result of some daddy-daughter time. Years ago, he took his daughter, Yvonne, to her downhill skiing races. Like many

parents, he got involved in his child’s activities. In this case, his involvement and passion led him to become a technical delegate for the U.S. Ski and Snowboard Association (USSA). “While the USSA is active on many levels, its ultimate goal is to help young athletes reach the Olympics,” says Goldschmidt. Some of his duties included being a gate judge, interpreting the rules, supervising safety and reviewing racing results. “I was the finish referee at a race where Picabo Street had competed, and she ultimately had a great Olympic career,” adds Goldschmidt. It was around the time Street was winning gold at the 1998 Winter Olympics in Nagano, Japan, that Goldschmidt received an award from the USSA as an outstanding alpine official. Goldschmidt has a couple clients, but he’s essentially retired. This allowed him to purchase a condo in Park City, Utah, where he and his wife, Sheila – a former Internal Revenue Service agent – hit the slopes for several months out of the year. “I just love the outdoors, the adrenaline rush and the friends I’ve made on the slopes,” notes Goldschmidt. “Even though skiing is mostly physical and accounting is predominantly mental, you have to clear your mind when doing both and choose a path of action.”

NEW JERSEY CPA • November • December 2012

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