How COVID-19 is Causing Gaps in GAAP

By SUSAN FIRRIOLO, CPA

TAX CORRESPONDENCE SERVICE

The coronavirus pandemic has left CPAs with a lot of balls in the air, creating a whole new ballgame when applying Generally Accepted Accounting Principles (GAAP).

Should COVID-19 be considered a one-time event or the new normal? Some key areas CPAs may want to pay attention to are: y Estimates y Going concern y Leases y Subsequent events y Government assistance y Current expected credit losses (CECL) y Asset impairment

ESTIMATES Accounting estimates involve identifying, measuring and disclosing future amounts or evaluating an event which has occurred where information cannot be collected in time for financial reporting. Accounting estimates are difficult enough. The pandemic has made accounting estimates more complex even for those with experience and training. When using professional judgement while making accounting estimates involving COVID-19, consider the following: y Have a good understanding of the entity. y Perform a meaningful risk assessment containing information that can be applied to estimates. y Document information available at the time. y Question if all estimates are reasonable. y Disclose circumstances that change estimates after the fact. y Involve experts and evaluate their work. GOING CONCERN A going concern assessment relies on evaluating future plans for the operations of an entity. An entity is usually a going concern if management has a realistic plan to avoid liquidation. Because of the pandemic, there are many indicators of a going concern to consider, including: y A pause in operations causing less demand for services and goods y Uncertainty about future restrictions on operations and employees y Financial changes and the inability to pay down or obtain loans y Lack of resources such as materials, services and workers y Intercompany money which is no longer available y Realization and write-downs of accounts receivable and inventory y Cancelled events where money will not be recovered y Reliance on vendor credit that will no longer be available y Short-term assets which may not be recovered y Lack of government assistance

LEASES Many leases have been renegotiated because of COVID-19 to reflect a decrease in the ability to pay and realize revenue. The timing is less than perfect with the crossover happening between Financial Accounting

Standards Board (FASB) Topic 842 and Topic 840 – Leases. To make accounting for rent concessions easier during the pandemic, FASB has simplified the accounting guidance. The FASB staff considers it acceptable to make an election to account for rent concessions under Topics 842 and 840 as though enforceable rights are part of the lease agreement even if they are not. Accordingly, lessees have the option to avoid evaluating if a rent concession associated with COVID-19 is a lease modification. This option prevents the costly and time-consuming work involved in determining if a rent concession is a new lease.

When agreements are made to modify rent payments, CPAs should refer to the original lease agreement, get proof of changes and document their understanding of the modified conditions.

SUBSEQUENT EVENTS The rate of change going on each day because of the pandemic almost guarantees subsequent events will have to be disclosed in financial statements. Types of subsequent events include the following: y Adjusting subsequent events where circumstances existing at the balance sheet date require financial statement adjustment y Non-adjusting subsequent events where circumstances happening after the balance sheet date are required to be explained and disclosed if amounts are material

When performing an audit, CPAs should get audit evidence about what happens between the date of the financial report and the date of the audit report. When doing this, double check whether subsequent events are properly reported and disclosed in the financial statements.

GOVERNMENT ASSISTANCE Government support in the form of the Coronavirus Aid, Relief and Economic Security (CARES) Act was made available because of COVID-19. The CARES Act includes the Payroll Protection Program among other assistance. When accounting for government grants, remember they may not be recognized until there is reasonable assurance of compliance with the conditions of the grant. When accounting for amounts advanced to supplement employee wages, record the support as a government grant not as a reduction to payroll expense. Government grants related to income can be presented separately as a part of profit and loss or under a general account such as other income.

Remember that pandemic-related payroll assistance does not account for employee fringe benefits such as bonuses, holidays, vacation days, sick days and pension liabilities. There could be additional accruals for employees who have been furloughed and are still entitled to these benefits unless other agreements are made.

CURRENT ESTIMATED CREDIT LOSSES (CECL) According to CECL, an entity has to estimate lifetime expected credit losses for all loans, leases, debt securities, trade receivables and other financial assets. Losses are estimated using past events and current circumstances along with an acceptable estimate of future collections. The CARES Act has provided temporary relief for entities required to adopt CECL.

ASSET IMPAIRMENT The pandemic has changed normal business operations. When determining impairment, carrying amounts should not be greater than recoverable amounts at the balance sheet date. When evaluating longlived assets for impairment, it is important to measure factual evidence to figure out if problems were due to COVID-19.

There is no doubt that the coronavirus pandemic is having a major impact on financial statements. The extent to which it affects financial reporting depends, as always, on the facts and circumstances. All those involved in the financial reporting process should understand the direct and indirect effects of the pandemic on the financial statements. As CPAs address the COVID-19 uncertainty, they should rely on and document professional judgement as it is important to the public now more than ever.

Susan Firriolo, CPA, CITP, CGMA, CISA, is president of Tax Correspondence Service and a leader of the Technology Work Group within the NJCPA Accounting & Auditing Standards Interest Group. She can be reached at susan@tacs4it.com.

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KEEPING UP WITH RPA AND THE AUDIT FUNCTION

By DR. SEAN STEIN SMITH, CPA

LEHMAN COLLEGE

Automation is discussed so often in the context of accounting and audit services that it’s become something of a cliché. But dismissing the trend as just another buzzword misses the bigger picture.

The accounting profession is being redefined and changed on a daily basis by the continued integration of technology and automation tools, both on the client side and within firms. That said, it can be difficult for organizations to keep pace with the rapid development of automation, and this has only increased in the face of the coronavirus pandemic. Much has been written about how the trends toward remote working and a distributed workforce have been pulled forward because of social distancing and other safety measures. The real question, then, is how can firms outside of the top 25 keep pace, stay informed and continue to offer much-needed guidance and advice to clients?

DEFINING THE TOOL Automation is an umbrella term and can encompass an array of options. A priority in every automation conversation is to make sure that both the client and firm staff on the engagement are on the same page as to what specific automation tool is being used. The major categories of automation include the following: y Bots, and for conversation this will take the form of software bots versus physical robots, are programs that can address some processes that already exist in an organization. Common points for early adoption include implementing bots to manage customer service responses, emails and meeting scheduling. y Robotic process automation (RPA) can be best thought of as a halfway y point between current automation protocols embedded into existing software and more advanced automation packages and suites. Numerous organizations, in the rush to automate processes and accelerate innovation, may overlook cost-effective RPA solutions in the marketplace. Artificial intelligence (AI) may be where every organization wants to go, and that is because — in theory — an AI tool can learn, apply and expand upon existing information and training to interpret new information to help business owners make more-informed business choices. Popularized by IBM Watson, the reality is that, for many organizations, an AI implementation is further off than some might think.

DEVELOP THE USE CASE The use case or application for an automation tool needs to be assessed, and this is where small and midsize firms and associated advisors need to focus clearly. While a fully blown AI suite and implementation may be the end goal that upper management at both the client organization and the firm would like to reach, the reality is that many companies simply are not ready for such an implementation. Media presentations of what AI is capable of may have led some practitioners and business leaders to assume progress is more advanced or widespread than it actually is. This is both a challenge and an opportunity for auditors and other members of the

profession to educate clients.

From a practical perspective, this means that a critical part of audit and assurance in an increasingly technological environment will focus not only on the tools themselves, but also how these tools interact with underlying business goals and processes. In other words, if an automation project is underway or being considered, the very first step should be an assessment of existing tools, processes and controls. Without understanding where the organization currently stands, and whether the controls and documentation are being followed, it is difficult to make an informed and cost-appropriate decision.

AUDIT IMPACT Automation, in and of itself, will not address or solve underlying business problems or conditions, and this applies equally to emerging technologies as it does to more traditional technology applications. Increasingly automating processes, which can include everything from onboarding to tax preparation to financial reporting, can inadvertently lead to the breaking down of internal controls and processes. Specifically, if a process is reduced from 15 steps and three employees involved to six steps with only one employee involved, this might very well result in internal controls and separation of duties no longer functioning. From a practical perspective, the continued automation and digitization of the accounting function will ultimately change the audit in a fundamental manner. Automation can deliver fantastic benefits in terms of efficiency, but it must be implemented in a correct and logical manner to deliver

on these potential benefits. There are several considerations that need to be taken into account as audits and assurance services continue to become integrated with technology services: y Audit and other attestation engagements will invariably shift from confirming specific amounts to examining certain processes. With increased automation comes increased importance for systems testing and process testing;

SOC 1 and SOC 2 engagements are prime areas for further development and expansion. y Continuous audits will continue to move from the conceptual stage to market reality due to the augmentation of reporting and attestation processes.

Automation — via whichever tool makes the most sense from a budget and business perspective — will allow business managers and attestation professionals to examine information on an ongoing basis. y Skills and competencies that are necessary for an effective and efficient audit to take place will continue to change.

Some tasks, including confirmations and inventory counts for example, will become less important as automated systems and reports handle the majority of such work. That said, these processes will still need to be reviewed, and attestation professionals will need to possess the skills to interpret results in terms of business objectives.

Emerging technologies and their effects on businesses and the accounting field are nearly impossible to accurately forecast. One thing, however, is certain: tools must first be carefully assessed before being purchased and implemented. That, at the end of the day, may be the best value-added service practitioners can deliver: advising clients through the planning, implementation and maintenance of emerging technology tools.

Dr. Sean Stein Smith, CPA, DBA, M.S., MBA, CMA, CGMA, is an assistant professor at Lehman College. He is the chairperson of the NJCPA Emerging Technologies Interest Group and is a member of the Content Advisory Board, Student Programs & Scholarship Committee, Emerging Leaders Council and the Nonprofit and Accounting & Auditing Standards interest groups. He can be reached at drseansteinsmith@gmail.com.

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Understanding the Balance Sheet

BY DONALD KAISER, CPA, McCARTHY & COMPANY

A thorough understanding of the balance sheet can help investors and business owners make better financial decisions — which is why a review may be in order. A balance sheet is a financial statement that reports a company’s assets, liabilities and shareholders’ equity at a specific point in time. The statement shows what an entity owns (assets) and how much it owes (liabilities), as well as the amount invested in the business (equity). It is an indicator of the business’ financial health.

Assets are presented on one side of the balance sheet and liabilities plus shareholders’ equity on the other. Here is the accounting equation: Assets = Liabilities + Shareholders’ Equity. Investopedia describes the formula as being intuitive: a company must pay for all the things it owns (assets) by either borrowing money (taking on liabilities) or taking it from investors (issuing shareholders’ equity).

By itself, the balance sheet cannot provide insight on trends over a period time. Therefore, it should be compared with previous periods to gain information and benchmarks. Comparisons should also be made to similar companies in the geographic area to gain insight on how the company is doing.

ASSETS The assets are divided into two sections: the current assets and the non-current assets (fixed assets).

Current assets include the following: y Cash and cash equivalents — includes most liquid assets of the company y Receivable accounts — money the customers still owe to the company y Marketable securities — all equity as well as debt investments that have a liquid market y Inventory — goods the business currently has in stock ready to sell listed with the current market price or lower y Prepaid expenses — value that has been paid for expenses such as insurance or rent

Long-term assets include the following: y Any long-term investments — investments that cannot be liquidated in the coming year y Fixed assets — assets such as land, machinery, equipment and buildings. y Intangible assets — assets that are not physical assets but have value. Intellectual property, for example, is an intangible asset. Intangible assets like this are only listed on a balance sheet if the business acquires them.

LIABILITIES The business balance sheet makes the distinction between current and long-term liabilities. Not all liabilities are included in the business balance sheet.

Current liabilities include the following: y Accounts payable — amounts due to vendors that have supplied goods or services y Deferred revenues — amounts a customer has prepaid and will be earned by the company within one year of the balance sheet date y Accrued compensation — payroll due to employees and to be remitted for payroll taxes y Other accrued expenses — amounts owed for items not recorded in accounts payable or accrued compensation y Accrued income taxes and some deferred income taxes y Short-term notes — loans from banks that will become due within one year y Current portion of long-term debt — principal payments of a mortgage loan or an equipment loan that must be paid within one year y Dividends payable to investors or shareholders

Long-term liabilities include the following: y Long-term debt — interest and principal on bonds the business might have issued y Pension fund liability — payments for employees’ retirement funds y Deferred tax liability — tax payments that will not be payable for the next year or later SHAREHOLDERS’ EQUITY The equity section is commonly divided into the following sections: y Capital stock (original) y Retained earnings — net earnings the business uses to pay off its debt or reinvest in the business. The remaining is then distributed to shareholders in the form of dividend payments. y Treasury stock — stock that the company has either repurchased or never issued. It can be used to raise cash or prevent a hostile takeover, or it can be sold. y Additional paid-in capital — common stock or preferred stock in which shareholders have invested. The value is based on par value instead of a market price.

The shareholders’ equity section can be calculated by taking the total amount of liabilities away from the total amount of assets.

FINANCIAL RATIOS A financial ratio analysis can be used to gain a deeper understanding of the balance sheet. The most common ratios used to determine a company’s financial health include the following: y Debt-to-equity ratio = total liabilities / shareholders’ equity y Working capital = current assets - current liabilities y Quick ratio = (current assets - inventory) / current liabilities y Debt to total assets = total debt / total assets

Thus, the balance sheet provides an idea of the company’s financial position, indicates whether the business is profitable and helps to determine what actions, if any, need to be taken to improve the company’s performance.

Donald Kaiser, CPA, is a principal with McCarthy & Company, a leader in construction accounting. He is a member of the NJCPA and can be reached at Donald. Kaiser@MCC-CPAs.com.

The Modern CPA Profession for Accounting Students and Recent Graduates

BY ADITI H. SHAH, CPA, CULLARI CARRICO, LLC

It wasn’t too long ago that students considered their math ability as a factor in determining if accounting was a possible career path. Historically, choosing to be an accountant had been perceived by many to be similar to choosing to be a mathematician, however the two couldn’t be more different.

TRANSFORMATION Accountants were once defined as number crunchers due to their use of paper ledgers, sharpened pencils, calculators and 13-column green paper. The accounting profession, however, has changed significantly over the short span of 10 years due to technology integration. This integration has helped the progressive CPA firms that embraced this change to attract those recent graduates who will perpetuate the profession by revolutionizing the way firms do business.

The traditional four-by-four workstation and 9-to-5 work day has been transforming to a cloud-based workspace and flexible hours. For progressive firms, the transition to almost entirely work-from-home during the COVID-19 pandemic was a little easier. The remote-work environment highlighted the importance of, and sometimes inadequate resources dedicated to, IT and communications.

CAREER OPTIONS Today’s college graduates have a wider range of career options as they enter the modern accounting profession. In addition to the traditional tax and audit career paths, the profession now offers opportunities in areas such as consulting, information technology and communications.

Consultant The business world is producing data faster than it has the ability to interpret and analyze. The accounting profession is evolving to help business with this challenge. Modern accounting firms are shifting from producing historical financial statements sometimes two months after a period end to the interpretation of data generated yesterday. Technological advances and integration provide instant financials, and business owners are looking to their accounting professionals to provide insight on this data.

Historical cost financial statements present challenges because they do not provide information on current value. Many businesses instead are asking for fair-value financial statements. The modern CPA profession is providing a career path for consultants who will be able to provide valuable information to business owners as they manage growth in a data-driven society.

Accounting Information System Specialist Technology has played a large role in revolutionizing the accounting profession. Many routine and manually intensive tasks have been automated. Accounting firms have been able to work smarter with a smaller work force and an effectively implemented accounting information system (AIS). The modern CPA profession is providing a career path for AIS specialists who can assist with the design and implementation of data management systems. Accountants with a background in information technology have an advantage over traditional accountants or consultants in that the accountant who is an AIS specialist understands accounting compliance concerns important to the accounting firm and is able to help organizations in managing information for secure and accurate financial reporting.

Business Development CPA firms recognize that many families and businesses need assistance managing their financial houses. These advisory services can extend to bill paying and maintenance of a household general ledger. The accessibility of QuickBooks online and its ease of use can

be a feeder service to a firm’s tax compliance practice. These advisory professionals can be an important resource in a firm’s new business development by identifying needs that can be fulfilled by other departments in the organization.

The accounting profession has drastically changed and will continue to adapt in order to compete in a technology-driven world. This is an exciting time for recent graduates and students who are considering an accounting degree. Young professionals can look forward to increased client interaction, consulting engagements and technology opportunities that didn’t exist in audit and tax compliance accounting firms in the notso-distant past.

Aditi H. Shah, CPA, is a senior tax accountant at Cullari Carrico, LLC. She is a member of the NJCPA Federal Taxation Interest Group and the Student Programs & Scholarships Committee. She can be reached at ashah@cullaricarrico.com.

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Taking Advantage of Opportunity Zones

BY ASHLEY M. KETTLER, CPA, WITHUM

Investing in qualified opportunity zones (QOZ) can provide taxpayers a deferral of capital gain taxes until 2026, a 10-percent reduction if the Qualified Opportunity Fund (QOF) investment is held for five years, and a permanent exclusion from taxes on any incremental gains if the QOF investment is held for 10 years. As a result of the coronavirus pandemic, the IRS has extended several deadlines and granted numerous measures of relief for QOF investors, QOFs and Qualified Opportunity Zone Businesses (QOZB) under Notice 2020-39.

ADDITIONAL TIME TO INVEST To qualify for the benefits mentioned above, taxpayers need a realized capital gain and need to reinvest into a QOF within 180 days of the date of the realized capital gain. The 180-day period for Section 1231 gains (no longer netted with 1231 losses) starts on the date of the sale/exchange that gives rise to the Section 1231 gains. When a partnership recognizes a gain, partners have three options for when the 180-day period can start: y The day the gain is realized by the partnership y The last day of the partnership’s tax year in which the gain is recognized y The due date (without extensions) of the partnership’s tax return (generally

March 15) for the year in which the gain is recognized

Notice 2020-39 extends the 180-day period for QOF investors to reinvest their qualified gains. If the last day of the 180day period falls between April 1, 2020, and Dec. 31, 2020, then the last day of the 180-day period is postponed to Dec. 31, 2020. For example, if a taxpayer realized a capital gain on Nov. 3, 2019, the 180-day period ended May 1, 2020 (within the relief period). The taxpayer now has until Dec. 31, 2020, to reinvest their capital gain into a QOF. The relief is automatic. However, taxpayers still need to make the deferral election per the instructions for Form 8949 and file Form 8997 timely with their annual tax return.

RELIEF FOR QOFs/QOZBs There are several measures of relief for QOFs and QOZBs: y 90-percent test. QOFs must invest at least 90 percent of their assets into a QOZ property. The 90-percent test must be met biannually and reported on Form 8996 on the QOF’s yearly tax return. If the QOF fails the test, they are subject to a penalty for each month they fail to meet the requirements. The testing periods are the last day of the first six-month period of the taxpayer’s tax year (for initial years, the last day of the six-month period after a taxpayer chooses to be a QOF) and the last day of the taxpayer’s tax year. Notice 2020-39 provides penalty relief for failure to meet the 90-percent test if the last day of the first six-month period or the last day of the tax year falls between April 1, 2020, and Dec. 31, 2020. The QOF should still file Form 8996 timely with their annual tax return, but can put “0” in Part IV,

Line 9, Penalty. y Substantial improvements. QOZBs must substantially improve QOZ property within any 30-month period.

Under Notice 2020-39, the nine months between April 1, 2020, and Dec. 31, 2020, are essentially ignored in counting toward the overall 30-month period. y Working capital safe harbor. A QOZB cannot hold more than 5 percent of its assets in nonqualified financial property (cash or cash equivalents). However,

QOZBs are afforded a working capital safe harbor for 31 months if certain y requirements are met. Notice 2020-39 states that all QOZBs holding working capital assets who intended to use the working capital safe harbor before Dec. 31, 2020, receive an additional 24 months to spend the cash as long as the QOZB would otherwise meet the requirements of the safe harbor.

12-month reinvestment period for

QOFs. The final regulations allow a QOF that sells or disposes its QOZ property to reinvest the proceeds into other QOZ property within 12 months after the disposition and treat the reinvested proceeds as QOZ property for purposes of the 90-percent test. If the 12-month reinvestment period includes Jan. 20, 2020, the reinvestment period may be extended up to an additional 12 months.

CPAs should inform their clients about the welcome extensions under Notice 2020-39, whether they are a taxpayer with capital gains who now has extra time to reinvest or a QOF or QOZB who has extra time to meet the various requirements.

Ashley M. Kettler, CPA, is a tax senior manager specializing in real estate at Withum. She is a member of the NJCPA and can be reached at akettler@withum.com.

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DEC. 2, DEC. 17 AND JAN. 13, WEBCAST TAX ADVANTAGES OF INVESTING IN OPPORTUNITY ZONES njcpa.org/events

Maintaining Cash Flow as a Case for Continuity Planning

BY BERNADETTE MACKO, PROVIDENT BANK

During these times of uncertainty, CPAs and businesses are faced with a variety of new challenges. Digital cash management solutions are a unique approach to respond to those needs in real time.

Tools for collecting receivables, methods for payables and digital banking technology provide the ability to bank whenever and wherever — on one’s own schedule. This ability helps organizations to maximize the time spent on business strategies and minimize the time spent on mundane and monotonous payment recordings.

RECEIVABLES Collecting payments is paramount to maintaining cash flow — now more than ever this needs to be seamless for the most efficient business operations. When it comes to information reporting, collection of receivables, positive pay and investment solutions, intelligent cash management can help a business get ahead of the competition and concentrate on what one does best — running and growing the business. Here are some receivables options that work well: y Mobile deposit offers the ability to deposit checks from anywhere. y Remote deposit capture allows checks to be conveniently deposited from an office even if staff is working remotely.

Products like these help save time and provide the convenience of depositing checks the same day they are received.

They also allow staff to access funds more quickly, instantly view check images, deposits and reports online, and export accounts receivable data into an accounting system. y Lockbox services offer consistent collection of account receivables if staff can’t be in the office to collect and process payments. y Automated clearing house (ACH) origination collects funds electronically while increasing speed and efficiency.

ACH debit origination can be utilized for the collection of rents, membership dues and recurring invoices. y Autobooks provides the ability to send

invoices and receive a variety of payment options digitally.

PAYABLES Similarly, while the pandemic may have slowed some payment processes, vendors still need to be paid. Efficient payables options help ensure that inventory remains available. The following payables solutions should be considered: y Business bill payment provides the ability to pay bills from anywhere, even if one can’t get to a physical check stock.

Typically, any size bill is accepted with some restrictions by location. y ACH origination allows businesses to take greater control over cash flow by sending payments electronically, including ACH credits for payroll, expense reimbursements and vendor payments.

ACH payments can safely and effectively replace check processing. y Wire transfers may be the only option a vendor will accept for highly desirable inventory products.

FRAUD PREVENTION Those banking options which provide an extra layer of security protection are most valuable during this unprecedented time. Despite the decline of total check volume in the marketplace, fiscal loss from check fraud continues to climb. This crime poses one of the greatest challenges for businesses and financial institutions, its tendrils reaching countless organizations in nearly every industry. The following products can help ward off theft: y Check positive pay provides precautions to keep fraud at bay. y ACH positive pay does not allow anyone to have access to valuable balances without permission.

Maintaining consistency and flexibility as a plan for business continuity is the best solution to solve the immediate pain points to business operations. It’s important to be able to obtain the agreements and approvals to put solutions in place remotely until we can all be together again.

Bernadette Macko is senior vice president and director in Corporate Cash Management at Provident Bank. She can be reached at Bernadette. Macko@Provident.Bank.

Provident Bank is an NJCPA premier sponsor that provides cash management solutions, wealth management, digital banking and business services. Learn more at njcpa.org/ benefits.

A Case for Structuring an Attorney’s Fee

BY WILLIAM ROTHROCK, CSSC, BRANT HICKEY & ASSOCIATES

Last year, I worked with an attorney and his CPA to defer his seven-figure fee from a personal injury case. The attorney called recently to thank me. Why? In these uncertain times, he had the cash flow necessary to keep his firm running, pay his employees and continue to build his retirement nest egg. All attorneys who litigate on behalf of physically and, in some cases, mentally injured clients can structure their fee using a structured settlement.

WHAT IS A STRUCTURED SETTLEMENT? A structured settlement defined under IRC § 5891(C)(1) is an arrangement established by a suit or agreement for the periodic payment of damages excludable from the gross income of the recipient under section 104(a)(2). Simply stated, it is akin to an annuity with the ability to adjust the nature and timing of periodic payments at the initiation of the contract only. The inability to alter the guaranteed payments later requires precise planning and coordination between all interested parties. All payments are guaranteed by the credit of the nation’s largest life insurance companies.

Structuring attorney fees represents such an important economic right, and it is recommended that attorneys protect this right by including language in their compensation agreement (firm), retainer agreements (client) and any mediation or settlement agreements they negotiate for their clients ensuring their ability to utilize and the willingness of the counter-party to support the use of a structured settlement. This essential inclusion avoids difficulty and eliminates questions about consideration later.

BENEFITS OF A STRUCTURED SETTLEMENT Cases often take years to complete while they generate costs daily. A structured settlement provides a guaranteed income stream matching revenue with expenses and gives the firm the flexibility to meet

future funding needs. The firm’s ability to fund cases using payments from a structured settlement increases the economic viability of the firm.

How does the attorney smooth and derive increased cash flow? Structured settlements created under IRC § 130 use “Constructive Receipt” as the defining line for revenue recognition. If you avoid constructive receipt then income recognition only occurs when future distributions occur. This helped the previously mentioned attorney achieve long-term guaranteed retirement income while saving $270,000 in cashflow by minimizing his short-term tax exposure, which kept his firm solvent.

Cash flow management generated additional dollars by avoiding tax thresholds. The federal tax schedule incorporates large increases in tax rates at certain income levels. For example, the federal rate for a married couple filing jointly with income above $326,000 increases from 24 percent to 32 percent. In this example, deferring income above the 24-percent threshold increases cash flow by $8,000 per $100,00 of income.

The additional cash flow and peace of mind in knowing guaranteed revenue exists for the following year is one clear benefit of structuring attorney fees. Another benefit is the creation of a solid retirement foundation. The guaranteed income of a structured settlement solidifies the base of the retirement pyramid. Other asset classes, retirement vehicles and compensation plans cannot guarantee returns and hold significant levels of financial and regulator complexity that a structured settlement just does not encounter. Defined benefit programs, 401(k)s, deferred compensation or structured insurance plans should be utilized in concert with a systematic use of structuring attorney fees. Through proper planning and implementation, the security of clients’ retirement years increases with the addition of a structured settlement to their retirement portfolio.

Whether a client requires a stream of income, needs to catch up on retirement contributions or some combination of both, a structured settlement accomplishes these goals effectively, at a lower cost and with the added benefit of providing guaranteed results.

William Rothrock, CSSC, is a settlement consultant at Brant Hickey LLC with diverse experience solving financial issues surrounding injury litigation. He can be reached at wrothrock@branthickey.com.

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Leading Others to Lead

BY ALAN D. SOBEL, CPA, CGMA, SOBELCO

“As a leader, you set the tone for your entire team. Communicate your vision.” — General Colin Powell

Much has been written about “tone at the top.” A great tone brings everyone to a higher level of performance. But the wrong tone may be the first way that success is derailed, especially if that tone doesn’t support the strategic objectives of your organization. In the worst case, the wrong tone could result in colleagues working against the company’s goals. Why would anyone be motivated to ensure an objective is achieved if leadership of an organization doesn’t set the right tone?

THE IMPORTANCE OF PEOPLE Throughout my professional career, I have strongly believed that the most important responsibility of any leader is the professional development of the people they lead. It is more important than the organization’s growth. It is more important than delivering excellent client service. It is more important than processes, technology and policies. It is even more important than your own professional development… although one could argue that it’s a leader’s personal development that results in the effective development of others.

Leveraging the development of others is the catalyst that allows other key drivers in business to be successful. Regardless of length of service or experience or level of expertise, the development and nurturing of people in any organization is the key to success. Very few company leaders can succeed on their own. Most rely on a motivated, highly skilled team to achieve the company’s tactical and strategic goals. It is the people in an organization that create the capabilities that allow for growth. The bottom line is that no matter how fast a business wants to grow, it is limited without highly competent employees.

SETTING PRIORITIES Unfortunately, fostering the professional development of others is not a top priority for some leaders. This is not usually from a lack of understanding its importance, but rather because it takes a lot of time, effort and commitment. It’s not as simple as just sending people to a CPE program or watching a webinar, although those can be effective tools to help professionals develop.

Let’s face it, when a client or customer calls, we drop everything to address their needs. When a deadline is approaching, and we all know there are daily deadlines, we will work overtime to meet those deadlines. But too often the time devoted to coaching our most valuable assets are neglected, or put on hold until the next day, or the next or the next.

Another concern is often the cost associated with developing our people. The CEO’s response in the image above is a perfect example of setting the right tone at the top when it comes to cultivating people. Setting the tone starts by recognizing that investing in people is not a cost, but a way to add value to our service delivery models.

Although it is important to be a cheerleader and advocate, leading by example sets the tone by doing the things that you are asking others to do. Great leaders work with their teams to encourage professional development and affirm it as a priority. Leaders can demonstrate that they care about their people by constantly reinforcing the business case of how developing others adds incremental value to an organization.

But as the CFO points out in the image above, our efforts and investment in our staff don’t always pay off. We can do everything right, and still people leave

organizations. Setting the tone means that you keep moving forward, making changes and preparing the business to keep improving. Leaders must always play to the highest common denominator and avoid accepting an “it’s not worth it” mentality. Organizations cannot afford to have leaders with a negative attitude or who project that nurturing the team can lead to wasted efforts.

Instead, keep an open mind, set the right tone and provide the tools to help everyone be their best. Who knows, your young associate may grow into the next great executive — or may even be your successor!

Alan D. Sobel, CPA, CGMA, is the managing member of SobelCo LLC. He is the 2020/21 president of the NJCPA and can be reached at alan.sobel@sobelcollc.com.

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NOV. 16 AND DEC. 8, WEBCAST LEADERSHIP SKILLS FOR PEAK PERFORMANCE IN THE 21ST CENTURY

DEC. 2 AND DEC. 16, WEBCAST MOTIVATING THE RIGHT WAY — GET THE MOST FROM YOUR STAFF Register at njcpa.org/events

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FIRM MANAGEMENT ARTICLES AND RESOURCES njcpa.org/topics/firmmanagement

Helping Clients Thrive Now (and Later)

BY CLAIRE PENNOCK, QUICKFEE

In the age of COVID-19, business owners and consumers are laser focused on staying afloat, increasing the demand for financial advice from their CPA. But there’s one major obstacle to giving that advice: Even a firm’s best clients may be dealing with limited cash flow.

A SLOWDOWN IN CASH FLOW In an emergency, the pilot tells us to put on our oxygen masks before helping others. The same principle applies to firm management during a crisis. Accounting professionals face a unique dilemma in that much of their revenue is locked in accounts receivable. If struggling clients can’t pay their bills, their accountants can’t pay their bills or staff.

This creates something of a catch-22 for financial professionals, who are emotionally and economically tied to the fates of those they serve. As a former accounting firm partner, QuickFee CEO Bruce Coombes knows how heavy this burden can become. “When you’re a partner in a firm, it can be tough to weigh your clients’ problems against pressing internal needs, like rent and payroll,” says Coombes. “At the same time, accountants are close to their clients’ financial situations. We feel a duty to help our best clients avoid the worst outcomes.”

A RISK MANAGEMENT MINDSET Even the Big Four accounting firms have a hard time navigating these challenges. Take KPMG, one of the largest professional service networks in the world. With firms located in 147 countries, KPMG immediately felt the shockwaves of the crisis, as an inconsistent patchwork of health regulations re-shaped global business practices overnight.

By confronting the health risks early and shifting into a risk management mindset, the accounting giant avoided much of the economic fallout. In an interview with Coombes earlier this year, KPMG COO of Enterprise Paul Green shared some insight on this approach: “I think that many organizations came into COVID with some degree of a balance sheet to draw on, and they’ve

drawn heavily on that during the crisis. So, as we get further through this, there’s going to be more companies that are under pressure. We are certainly keen on managing risks and exposures around that fact.”

Put another way, firms must prepare for rough times ahead by carefully analyzing the risks associated with each account. In many cases, that means recognizing that clients will continue to wrestle with payment deadlines.

POWERFUL PAYMENT SOLUTIONS In May, the New York Times reported that contactless payment usage grew by 150 percent between 2019 and 2020. Now, more than ever, consumers need a variety of contactless payment options, particularly online payment processing. They also want plenty of modern payment alternatives, such as “buy now, pay later” (BNPL) payment plans, which are projected to become a billion-dollar industry in the next five years.

According to INSIDE Public Accounting (IPA), it takes an average of 64 days for accounting firms to get paid after completing work. Most invoices are still paid through the mail, putting a damper on firm cash flow. By offering BNPL payment plans, firms can significantly reduce their accounts receivable. Clients also benefit when they have the flexibility to pay their bills over time.

With an uncertain future ahead, it just makes good business sense for firms to have more financial tools to help their existing clients (and win new ones.) More importantly, payment plans can empower firms to keep doing what they do best: Advising and supporting their clients.

Claire Pennock is the content marketing manager at QuickFee. She can be reached at claire@quickfee.com.

QuickFee is an NJCPA member benefit provider. Serving over a third of the IPA Top 400 firms, QuickFee offers easy online payment and financing solutions. The company also recently invested in sophisticated technology to bring nonrecourse “buy now, pay later” style financing to professional services firms. Learn about QuickFee discounts for NJCPA members at njcpa.org/benefits.

9 Steps to Smoothly Manage the Life of Your Grant

BY CAREN C. JESSEMAN, CPA, CFO SOLUTION LLC

On March 27, 2020, the Coronavirus Aid, Relief and Economic Security (CARES) Act was signed into law and brought with it a host of economic relief and stimulus efforts for individuals, businesses and nonprofit organizations. Many for-profit businesses found themselves struggling through the applications and process to acquire the funds, but this was one time that nonprofits believed they were at an advantage. Many nonprofits are accustomed to the hoops associated with grant applications, as well as the accompanying compliance measures and ultimate grant audit that will ensue.

Here are some guidelines organizations can adopt to smoothly manage a grant from initial award of funds through the eventual grant audit:

Identify the team. Assign internal responsibility for grant compliance and interim reporting throughout the life of the grant. Large nonprofits often have an entire grants department, but even small nonprofits should identify a grants specialist who is responsible for the compliance, interim reporting and management of the grant audit. Ensure that the terms of the grant are understood by key staff members. Allowable uses of funds and interim reporting requirements are two areas that are crucial.

Track the funds. Utilize grant management software, a general ledger module or even an Excel spreadsheet to track the ins and outs of funds. Sometimes setting up a separate bank account can help in segregating disbursement of the grant funds. If possible, utilize a segment of the general ledger accounts to track receipts and disbursements associated with the grant.

Establish periodic internal audits. These audits should be conducted by someone who is independent of daily management of the grant. A larger organization may have internal audit 4. 5. 6.

staff but, if not, a board committee can be assigned the task or an outside consultant can be engaged. This step should not be overlooked. It is far better to discover noncompliance issues early when corrections can still be made rather than when the grant auditors come in after the fact, possibly resulting in a

giveback of funds. Close and reconcile the books. When it comes time for the actual grant audit, make sure your books and records are closed and reconciled prior to the arrival of the auditors. Produce financial statements for the period for the grant and have the CFO, treasurer or finance committee carefully review the financial

records. Be prepared for the audit. Obtain a list of requested documents from the auditors prior to their arrival. Be sure to run all requested reports and pull out journal entries, invoices, payroll journals and contracts. Have all the documents in a secure electronic drop box prior to the auditors’ first day of

field work.

Communicate with the auditors.

Carve out time each day that the auditors are onsite to check in with them. Discuss any issues that they are finding to be sticking points. Direct the accounting team to prioritize requests from the auditors. 7. Be flexible. If the auditors are asking for something that can’t be found or doesn’t exist, don’t panic. Talk with the auditors to see if there is another document that may suffice. There is usually more than one way to show substantiation.

8.

Remain professional and cooper-

ative. Unfortunately, it’s not uncommon to see an adversarial or defensive attitude taken against the auditors. This is unnecessary, unprofessional and not in the best interest of the organization or the audit.

9. Wrap things up. Meet with the auditors upon completion of their field work. Go over items outstanding and offer a plan and timeframe for getting those items wrapped up. Then follow up with those items as soon as possible.

When it comes to grant funding, winning the award is just the beginning. The grant needs to be carefully and methodically managed throughout its life, including through the audit. Having a thoughtful process in place can make administration of the grant straightforward and possibly avoid any required giveback of funds in the end.

Caren C. Jesseman, CPA, MBA, is the owner and president of CFO Solution, LLC. She is a member of the NJCPA and can be reached at cjesseman@ cfosolutionllc.com

CARES Act Support for the Life Sciences Sector

BY CHRISTINE KACHINSKY, CPA, AND ROSS REITER, CPA, KPMG

The Coronavirus Aid, Relief and Economic Security (CARES) Act provided government relief aimed at saving jobs as well as favorable tax treatment of certain deductions and losses.

While many of these changes are far reaching for businesses nationwide, this article will focus on the life sciences industry, a major force in New Jersey’s economy that has been impacted by the COVID-19 crisis. While the travel and entertainment industries had largely halted during the state’s lockdown and other industries faced additional challenges in how they operate, the impact in life sciences has been more subtle and perhaps delayed.

Companies, including those producing drugs and/or medical equipment used in elective surgeries, found their revenues impacted in the first half of 2020. Despite an idled sales force and delayed clinical trials, several life science companies are donating their scientific discoveries, resources and capital to the development of COVID-19 treatments and vaccines.

Regardless of the industry, the CARES Act provides some relief, creating additional working capital liquidity in the short term to allow companies to continue operations.

For the emerging pharma/biotech companies that are in early stage development efforts and have not yet received FDA approval for drugs in development, the Small Business Administration (SBA) loan program may provide a source of funding to allow this sub-sector to continue its work. Further, other incentives offered in the CARES Act might be considered as a means to retain general and administrative staff, field forces and any other functions whose jobs may be impacted, such as the Payroll Protection Program, Employee Retention Credit and payroll tax deferral.

TAX RELIEF Some life sciences organizations may be reporting losses for the first time in years, and the CARES Act provides opportunities for tax relief to businesses related to the treatment of net operating losses, as well as charitable contributions, deduction of interest expense and acceleration of expensing certain property improvements. Here are some opportunities to consider: y Losses: For those previously taxable taxpayers that recently incurred or are projecting a tax loss, the CARES Act allows losses incurred in 2018 through 2020 to be carried back five years and removes the 80-percent limitation on the amount of losses that could offset income that was imposed by the Tax Cuts and Jobs Act (TCJA). This relief could be substantial to the extent a company previously paid tax in a pre-tax reform year at a 35-percent tax rate. However, these calculations are complex because of the interdependencies of other provisions within the TCJA, so careful modeling to ensure another unanticipated tax is not triggered is important. y Charitable contributions: The CARES

Act allows increased charitable deductions for certain cash contributions by increasing the taxable income limitation on such deductions from 10 percent to 25 percent. Many life sciences companies have made and will continue to make significant contributions in response to the pandemic — from donations of potential

COVID-19 therapies, vaccines, PPE and medical devices to the contribution of scientific expertise and technologies.

Analysis of the tax implications associated with these donations can be complicated and may also include transfer pricing, customs/duties and indirect tax consequences as well as impacts to provisions introduced by TCJA (e.g., base erosion anti-abuse tax implications). y Interest expense: For companies incurring interest expense, the CARES Act increases the limit of deductible business interest as a percentage of adjusted taxable income to 50 percent from 30 percent for 2019 and 2020 and provides favorable methodologies to determine the taxable income limitation. However, post-TCJA, more interest expense may not always yield a better tax answer for those companies paying tax as a result of y transactions with foreign affiliates; therefore, modeling potential consequences is important. Leasehold improvements: The CARES Act also made a technical amendment related to leasehold improvements and interior components of building renovation work. While the intent under the TCJA had been to provide a 15-year tax recovery period and 100-percent expensing (bonus depreciation) with respect to such property, the legislative text mistakenly resulted in a 39-year tax recovery life with no bonus depreciation. The CARES Act has remedied this result retroactively for 2018, 2019 and 2020, and the IRS has issued related procedures that could result in tax savings.

Additional tax benefits and traps for the unwary exist outside of the CARES Act as well, particularly post-TCJA as mentioned above, and substantial TCJA-related guidance is being issued at the time of this writing. It is critical for businesses to consider the tax opportunities and consequences of planned investments and operational changes as they are being contemplated in order to provide the additional capital needed to invest into R&D — the lifeblood of these organizations.

As of late July, Congress was considering additional measures to provide economic relief, which is beyond the scope of the above discussion.

Christine Kachinsky, CPA, serves as KPMG’s U.S. Life Sciences Tax Industry Leader as well as the New Jersey Tax Practice leader. She is a member of the NJCPA and can be reached at ckachins@kpmg.com. Ross Reiter, CPA, is a managing director in KPMG’s Business Tax Services practice. He can be reached at rsreiter@kpmg.com.

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NOV. 19, 24 AND 30, WEBCAST FEDERAL TAX UPDATE: CONSIDERATIONS AND COMPLIANCE FOR 2020 njcpa.org/events

Why Diversity and Inclusion Matters

BY JULIE SILARD KANTOR, TWOMENTOR

Many organizations have come to recognize the impact of mentorship on advancing diversity and fostering inclusivity. But companies that want more diversity will need to mentor and sponsor more diversely. Mentoring, after all, helps employees develop a sense of belonging which is important to building a diverse and inclusive culture.

For companies, the key is to create a company culture in which team members feel individually recognized, valued and committed while working toward common goals. That can be accomplished through mentoring initiatives focused on enriching relationships between cultural groups. On an individual basis, sponsorship is also equally important, wherein a sponsor takes an active role in championing a high-potential employee for growth opportunities within the organization.

THE VALUE OF SPONSORSHIP AND MENTORING While a mentor speaks with their mentee and shares from their invaluable learning, a sponsor speaks about their sponsee behind closed doors and champions him or her to others. Sponsors have a dramatic influence on an individual’s career advancement, company succession plans and elevating diverse leaders. Unfortunately, not all high-potential employees have equitable access to sponsors, and most leaders tend to mentor and sponsor in their own likeness. Research from McKinsey, the Center for Talent Innovation and the Boston Consulting Group have all shown that people of color, women, LGBTQ+ individuals and other under-represented groups often lack sponsors. Formal sponsorship programs engineer and ensure access to internal champions for high-potential employees. Simultaneously, these initiatives also help executives build their leadership skills and living legacies.

In a 2016 Harvard Business Review article, “Why Diversity Programs Fail,” authors Frank Dobbin and Alexandra Kalev reported on the impact of mentoring, training, self-managed teams, diversity task forces and diversity managers on the representation of African American, Hispanic and Asian men and women at the manager level. The researchers found that mentoring had the largest impact of all strategies, resulting in an increase of representation of minorities at the manager level by 9 to 24 percent.

DIVERSITY ISSUES A 2018 McKinsey study, Delivering Through Diversity, found gender diversity on executive teams is highly correlated with profitability and value creation. Companies in the top quartile for gender diversity on executive teams were 21-percent more likely to outperform on profitability and 27-percent more likely to have superior value creation.

Women and minorities usually connect better with their mentors through formal mentoring programs. Formal programs offer an established, credible and supported way to mentor women and minorities. The most effective mentoring programs provide training on how to have healthy boundaries in mentoring relationships and the role of unconscious bias in the workplace. Even so, numerous companies rely on informal mentorship.

Although a lot of progress has been made, LeanIn.Org disclosed in the article, “Men, Commit to Mentor Women” in 2019 that one in six male managers feels uncomfortable mentoring women. Thirty-six percent of men surveyed claimed that they have avoided mentoring or socializing with a woman at work because they were nervous about how it would look.

Deloitte’s 2014 report, From Diversity to Inclusion: Shift from Compliance to Diversity as a Business Strategy, says that even though diversity programs have been around for decades, most companies still do not have a highly inclusive workplace. Deloitte’s research uncovered that companies want to shift from diversity as a program to diversity and inclusion as a business strategy. According to Deloitte, diversity is the measure and inclusion is the mechanism. High-performing organizations recognize that the aim of diversity is not just meeting

compliance targets but tapping into the diverse perspectives and approaches each individual employee brings to the workplace. A diverse workforce is a company’s lifeblood, and diverse perspectives and approaches are the only means of solving complex and challenging business issues. Moving beyond diversity to focus on inclusion as well requires companies to examine how fully the organization embraces new ideas, accommodates different styles of thinking, creates a more flexible work environment, enables people to connect and collaborate, and encourages different types of leaders.

Julie Silard Kantor is the founder and CEO of Twomentor, a high-impact training and development company focused on talent strategies for a diverse workforce. She can be reached at julie@twomentor.com.

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WHITEPAPER: UNDERSTANDING THE RETURN ON INVESTMENT IN WORKPLACE MENTORING INITIATIVES twomentor.com

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NOV. 17, WEBCAST SOCIALIZING INCLUSIVENESS THROUGHOUT YOUR ORGANIZATION njcpa.org/events

Cybersecurity: Building a Defensive Moat that Keeps the Hackers Out

BY ANTHONY MONGELUZO, PCS

In the world of cybersecurity, accountants should be aware of the “big four” threats that are the most common ways to breach a company’s IT infrastructure: phishing and whaling; ransomware and worms; remote desktop protocol attacks; and WiFi hotspot hacks.

The process of protecting against these threats can be described as creating a moat around your IT castle. Here are dangers and a starting point for defensive measures.

PHISHING AND WHALING Phishing and whaling both attack IT security; phishing targets individuals, and whaling focuses on executives. (Everyone is a phishing target, while some accountants are whales.) Phishing is the most common. Hackers try to fraudulently enter the victim’s system to steal their valuable data by pretending to be a trustworthy person or company. They “catch” the victim when they’re complacent or ignorant about security rules.

Simple first step: Educate staff. They should never click on a link they don’t recognize. And they should never download anything unless they absolutely know the source. If they’re unsure, they should check with their in-house IT person or provider.

RANSOMWARE AND WORMS Ransomware is one of the most disruptive and common security threats, which is especially crippling for small and midsize accounting firms that often lack the sophistication and expertise to combat it. Ransomware locks out an accounting practice’s computers, data and networks. The firm pays the ransom or the hacker devastates the firm’s IT infrastructure. A worm is malware that can replicate copies of itself computer to computer.

Simple first step: See above. It’s always about unverified websites, links and especially downloads. Check the email extension on any email; don’t open it or any links if you don’t recognize it. Be sure to use updated virus protection against worms.

REMOTE DESKTOP PROTOCOL (RDP) ATTACKS Businesspeople, including clients, use RDP to connect to networks regularly, so that’s become a prime target. Hackers often use brute-force password attacks, running through millions of potential passwords to enter.

Simple first step: Start with a strong password and make your RDP available only through a company VPN (virtual private network). Implement network-level authentication and, when possible, use two-factor authentication.

WiFi HOTSPOT LOVEFESTS While it may be tempting to use the public WiFi at Starbucks to log in to a work network, don’t do it. That smartly dressed woman in the corner might be the hacker, and her hacking job becomes much easier when someone uses the public WiFi for work purposes. Many people use public WiFi systems, either through laziness or just trying to save data time. It’s a mistake (I’ve actually shown how this is done on television).

Simple first step: Enable WPA2 (wireless protected access) or WPA3 wireless encryption. Both are digital moats that can stop most intrusions. Add a strong SSID (your network name) password, and now there are two layers of protection.

BUILDING THE MOAT We’re all guilty of wanting a single answer that fits all questions. There are none for cybersecurity. Hardware, IT knowledge,

discipline (yes, everyone needs to be disciplined when it comes to establishing and maintaining protocols) and expert counsel are the only safeguards.

Here is a reliable two-step solution: At least twice a year, companies should have an IT security expert conduct a session on security with all employees. Attendance should be mandatory for all (including partners). An in-house IT person is fine if they are well-versed on the topic, otherwise search for an expert outside the firm.

Second, run a penetrating drill and see what happens. It’s like learning a self-defense move, then using those skills on the street. Did it work? The IT provider should be able to offer this at a modest cost. All firms have insurance, and most are very happy when they don’t have to use it. Think of IT systems in the same fashion because they are part of the fortifications that protect the company against merciless hackers.

“Not following basic principles almost ensures that the company will be breached,” says Michael M. Nelson, president, DFDR Consulting, an expert in digital forensics, penetration testing and managed security. “Even worse comes the question of negligence in terms of clients, shareholders or insurance. If you survive the breach, will your reputation endure? Will your clients stick around? What is that cost compared to the original time and effort that you spend to protect your IT environment?”

Anthony Mongeluzo is the CEO of PCS, an IT managed services and support firm that provides technology solutions for companies. He can be reached at Anthony@helpmepcs.com, on Twitter at @PCS_AnthonyM or online at helpmepcs.com.

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NOV. 12 AND DEC. 15, WEBCAST GUIDE TO CYBERSECURITY PLANNING

NOV. 17, WEBCAST NEW RISKS FOR TODAY’S CPAs: FRAUD AND TECHNOLOGY

NOV. 19 AND DEC. 8, WEBCAST CYBERSECURITY DISRUPTION — WHAT CPAs NEED TO KNOW njcpa.org/events

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OBTAIN A CYBERSECURITY CERTIFICATE FROM THE AICPA njcpa.org/certificates

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For more information, contact Len Noll, Relationship Executive

Chase Middle Market – New Jersey leonard.noll@chase.com (201)657-2700

How the IRS and State Authorities are Addressing the Pandemic

BY RALPH LOGGIA, CPA, GOLDSTEIN & LOGGIA CPAs, LLC

In response to the many negative impacts of the pandemic, the IRS and state authorities have presented a number of interesting options.

DIGITAL SIGNATURES The IRS accepted digital signatures during the period ending July 15, 2020. This applied to extending the statute of limitations on assessments to specific tax matters or liabilities (closing agreements). It also included any other statement or form needing the signature of a taxpayer or representative traditionally collected by IRS personnel outside of standard filing procedures such as a Power of Attorney form. In addition, through the end of the year, Form 3115, Application for Change in Accounting Method, and Form 8832, Entity Classification Election, are some additional forms that have been added.

New York for the first time permitted digital signatures during this period on the forms needed to electronically file a tax return and has recently made this permanent. Hopefully, the IRS follows suit.

ELECTRONIC DOCUMENTS The IRS allowed taxpayers to send certain documents for which they accepted either photocopied or digital signatures via email during the period ending July 15. If a taxpayer or their representative wanted to email an IRS employee a document, then that employee would have to authenticate the identity of the sender by phone and verbally verify the email address. The IRS employee must also advise the taxpayer that such communications are not secured, and to redact as much identifying information as possible. The taxpayer must state in the email or attached cover letter that the document includes the taxpayer’s valid signature and that the taxpayer intends to transmit the attached document to the IRS. An IRS employee may email documents to a taxpayer if that taxpayer consents and the IRS employee sends the document as a password-protected, secure zip attachment.

Hopefully, the IRS will also make this change permanent or set up a system in line with the New Jersey Division of Taxation’s option to upload documents and correspondence through their website. This could help minimize or eliminate the mailbox rule under which taxpayers need to prove that a document was filed timely.

REMOTE AUDITS Under the IRS’ People First Initiative, current audits will continue but will be conducted remotely and without in-person contact for the foreseeable future. Since documents provided to an agent cannot be explained in person as could be prior to the pandemic, it is important to spend additional time ensuring that it is clearly explained how the documentation supports the position(s) taken on the taxpayer’s tax return in order to minimize the possibility of the case heading to IRS Appeals. For those audits that have an assessed tax liability and the customary 20-percent penalty, it is probably safe to assume that COVID-19, if applicable, would provide reasonable cause to have the penalty abated.

Since the IRS was already dealing with limited resources for audits, it is doubtful that those resources could increase with the need to focus on COVID-19-related fraud and scams.

OPEN BALANCES For taxpayers who have a balance due to the IRS and whose ability to produce income has been compromised by COVID-19, one option is to request a “currently not collectable” status. Taxpayers need to submit a financial statement (Form 433) showing that collection of the liability would create a hardship, leaving the taxpayer unable to meet necessary living expenses. If a taxpayer meets the requirements for reporting the account as uncollectable, then the IRS will suspend collection.

Those taxpayers who need to file their delinquent tax returns should do so as quickly as possible as well as enter into an installment agreement or an offer in compromise to obtain a fresh start. If qualified, the taxpayer will receive the economic stimulus payment or be able to claim it when filing their 2020 tax return.

As part of the stimulus relief, the IRS will not apply the stimulus payment against any balances owed, with one exception related to delinquent child support obligations.

Overall, the main takeaway of the federal and state tax law changes, as well as the Payroll Protection Program, Economic Injury Disaster Loan and the various other Small Business Administration (SBA) loans and state grants, is that an expert CPA has never been more valuable for the taxpayer, whether an individual or business.

Ralph Loggia, CPA, MST, is a partner at Goldstein & Loggia CPAs, LLC. He is a member of the NJCPA and can be reached at RL9cpa@ sprynet.com.

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NOV. 9, NOV. 18 AND DEC. 14, WEBCAST AICPA’S ANNUAL FEDERAL TAX UPDATE

NOV. 17, WEBCAST MULTISTATE TAX CONFERENCE

NOV. 18, WEBCAST CURRENT FEDERAL TAX DEVELOPMENTS

DEC. 18, WEBCAST NEW JERSEY TAX UPDATE

JAN. 8, WEBCAST ANNUAL TAX SEMINAR Register at njcpa.org/events

NJCPA Publishes Audit Report

BY GORDON SMITH, CPA, NJCPA CHIEF FINANCIAL OFFICER

The combined financial statements for the NJCPA and Affiliates (NJCPA Education Foundation and NJCPA Scholarship Fund) for the year ended May 31, 2020, have been published.

The latter part the fiscal year ended May 31, 2020, brought the coronavirus pandemic and much uncertainty to the world and its people, and the NJCPA and Affiliates was no exception. While the pandemic brought in-person learning to a halt, because of the investment in technology upon the NJCPA and Affiliates’ office relocation in July 2019, learning was quickly able to be transitioned to an online platform to best serve members.

Unrestricted consolidated revenues for fiscal 2020 increased roughly 1.5 percent from the prior year, with the majority of the increase coming in investment income where the investment portfolios had a slight positive return for the year compared to a 2.5 percent loss in the prior year. Advertising income, along with commissions/royalties, saw increases in the current year, partially offset by reductions in peer review and special event income.

NEW JERSEY SOCIETY OF CPAs Under the Society, membership dues were flat year-over-year at $3.59 million, with the 2020 amount the result of a small dues increase and a slight reduction in dues-paying members. Overall, membership was relatively stable, ending May 31, 2020, at 14,725 members versus 14,900 members at May 31, 2019, with a Fellow member retention rate of 94.6 percent in fiscal 2020 compared to a 93.2 percent retention rate for fiscal 2019, and an overall member retention for 2020 of 90.1 percent compared to 88.9 percent in 2019.

Peer review fees in fiscal 2020 from administration of that program decreased 3 percent from the prior year as firms continued to remove themselves from the program as they no longer perform certain services. As previously noted, the investment portfolios had a slight positive return for the fiscal year as unrealized losses were more than covered by realized interest and dividends. Expense savings versus budget were realized in several areas, the largest being in the Office line item where moving costs were significantly lower than what was expected. Additional savings were seen in the Meetings & Travel line, as the traveling to and holding of live meetings was put on hold starting in midMarch 2020, and in the Information Technology line as certain projects were put on hold. While still experiencing a decrease in net assets for the year of $232,000, the reduction in actual expenses versus what was budgeted resulted in the Society being ahead of budget by $339,000.

NJCPA EDUCATION FOUNDATION With the pandemic halting all in-person learning activities, both at the state and chapter levels, the NJCPA Education Foundation faced a big challenge towards the end of the fiscal year but was able to quickly pivot to online training because of established abilities from both a technological and personnel perspective. While the total number of learning opportunities decreased, those that were offered online were well attended, and while overall program revenue decreased versus budget because of the pandemic, the direct cost to run those programs decreased at a higher rate than the decrease in revenues. Depreciation costs were also lower than budget as the cost to build out the education center with the technology to broadcast educational programs was lower than anticipated. The Foundation ended fiscal 2020 with a negative change in net assets of approximately $471,000, which was better than budget by $66,000, due to expense savings; this is compared to a negative change in net assets of $457,000 for fiscal 2019. For 2020, educational programming served 19,725 registrants and delivered just under 90,000 credit hours of CPE.

NJCPA SCHOLARSHIP FUND For the second year in a row, fiscal 2020 chapter contributions to the NJCPA

Scholarship Fund were approximately 20 percent above budget due to better-than-expected financial results in those programs, even with the stoppage experienced at the end of the fiscal year. The Scholarship Fund received a contribution from the Society’s outgoing president, Kyle Sell, along with a matching gift from Deloitte, to drive general fundraising over budget by $48,000. However, the Fund saw a decrease versus budget in membership renewal fundraising of $21,000 and a decrease in investment income versus budget, resulting in total revenue being below budget by 4 percent. The Fund awarded $400,500 in state and local scholarships to 74 applicants and made payments on prior-year awards for another 53 students; overall award expense was $15,750 below budget. Because of the pandemic, the awards ceremony for scholarship winners was cancelled, resulting in event savings. These savings, along with a lower-than-budgeted awards expense and a slightly lower revenue number, resulted in a decrease in net assets of $103,000 for 2020 versus a budgeted decrease of $122,000 and compared to a decrease in net assets of $209,000 for 2019.

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NJCPA COMBINED FINANCIAL STATEMENTS njcpa.org/about

Tax Resources to Assist Before Busy Season

Ahead of tax season, NJCPA members have a variety of tax resources at their fingertips. From joining federal and state tax interest groups, reading timely news articles and attending tax-related webinars, tax professionals, admin staff and CFOs have a wealth of information available at njcpa.org. Those looking to be connected with individuals and business owners seeking help during the tax season should especially check out the resources available. Discounts on popular tax publications are also provided.

Join tax interest groups. NJCPA members with an interest in federal or state tax issues should join either the Federal

Taxation Interest Group, the State Taxation Interest Group or both. The groups, which provide an outlet to connect to tax peers at all levels, seek to educate and inform members about pending regulations regarding both federal and state tax issues. The groups meet monthly, except during tax season, and most meetings include a free CPE session. Sign up at njcpa.org/groups.

Leverage the JobBank. The NJCPA

JobBank helps professionals find the right individual for their practice or accounting department — from those just starting in the industry to those New this year, the NJCPA is offering a Student Loan Debt Lottery to Fellow members. Ten recipients will receive $1,200 each towards their student loans. NJCPA will accept submissions during the month of November at njcpa.org/ studentloandebtlottery.

The lottery was created to ease the financial burdens of Fellow members who accumulated debt on the way to becoming a CPA. The NJCPA created a Student Loan Debt Task Force to evaluate the problem and assist with solutions for members and others facing the same challenges. The NJCPA is also advocaty

y

y reaching partner level. Temporary help during tax season can be found as well as year-round employees. Job alerts and regular updates can be set up. Get started by posting a job and/or searching resumes at njcpa.org/jobs. Now through Dec. 31, save 25 percent on job postings with code HIRENOW25.

Save on tax publications. NJCPA member benefit provider Wolters Kluwer is offering a 25-percent discount to members on all CCH tax publications, including the U.S. Master Tax Guide®, which offers comprehensive federal tax question assistance. Learn more at njcpa.org/marketplace.

Enroll in Find-A-CPA. NJCPA’s Find-

A-CPA Online Referral Service helps individuals and business owners locate

New Jersey-based CPA firms, which can be searched for by location, services provided and industries served. A basic listing is free for any firm with at least one NJCPA member. Listing enhancements can be purchased for as little as $15. Enroll at findacpa.org.

Stay informed. Access the latest news from the IRS, New Jersey

Division of Taxation and more via the NJCPA’s publications, including

NJCPA Pulse, New Jersey CPA magazine, njcpa.org/topics/statetax and njcpa. ing for pending federal legislation that would allow student loan repayments made by an employer to be tax free, and it has drafted legislation at the state level to make student loan debt interest tax deductible.

“Accounting professionals definitely face some tough choices when it comes to deciding their careers and how much debt to enter into. It’s a serious issue for those just starting out in the industry and those parents or guardians who may have acquired debt assisting them,” says Melissa Dardani, CPA, a cofounder of the NJCPA Student Loan Debt Task Force. y org/topics/fedtax. Be sure that your areas of interest are up to date by reviewing your profile at njcpa.org/ profile so that we send you the content you want and need. Remain up to date. Webinars and webcasts covering a variety of tax topics can help ease the burden of tax season. All upcoming events can be accessed at njcpa.org/events, including the following: y AICPA’s Annual Federal Tax Update — Nov. 9, Nov. 18 and Dec. 14 y The Best Federal Tax Update Course by Surgent — Nov. 12 and Dec. 14 y Multistate Tax Conference — Nov. 17 y Current Federal Tax Developments — Nov. 18 y Federal Tax Update: Considerations and Compliance for 2020 — Nov. 19, 24 and 30 | Free for NJCPA members as part of Membership+ y The Best Individual Income Tax

Update Course by Surgent — Nov. 20 and Dec. 21 y PPP Loan Forgiveness and Other

Recent COVID-19 Tax Developments with Ed Zollars — Nov. 30 and Dec. 21 y New Jersey Tax Update — Dec. 18 and 29

Student Loan Debt Lottery Now Open

y Annual Tax Seminar — Jan. 8

“Understanding the extent of the crisis is crucial to finding some solutions,” added Zachary Cohen, CPA, a cofounder of the Task Force and an audit manager at Prudential Financial, Inc. “More education is needed about borrowing so households do not enter into the wrong kinds of debt.”

At $1.6 trillion, student debt is a national crisis. More than 75 percent of NJCPA members surveyed last year considered student loan debt to be a “major problem.”

MERGERS/ACQUISITIONS

Seize a merger/acquisition oppor-

tunity with benefits for you. We are looking for firms ranging from $300,000 to $5,000,000 eager to combine forces as we continue to grow across northern NJ, Westchester and the Hudson Valley region. Goldstein Lieberman & Company is ideally situated to service all types of industries. Visit www.glcpas.com; email me, Phillip Goldstein, CPA, Managing Partner, philg@glcpas.com; or call me at 800-839-5767 to have a confidential conversation.

Matthews, Panariello P.C., a wellestablished Bergen County firm located in Paramus, is looking to acquire small firms and sole practitioners ranging in size from $100,000 to $550,000. We are a full service, peer reviewed firm with a strong track record of client satisfaction and retention. We have been successful in prior acquisitions; let’s talk. Please visit our website at www.mpcpas.com. To confidentially discuss this opportunity email us at pmanetta@mpcpas.com.

Monmouth County tax and wealth advisory firm seeking partnership with CPA practice(s): looking for an additional source of recurring revenue to complement your tax practice? Looking to enter the wealth advisory business without the costs and complexities? Do you have a succession plan for incapacity or retirement? Contact Gregg at gshaw@hstaxwealth.com,732268-8813; www.hstaxwealth.com. Traphagen CPAs & Wealth Advisors, a well-established firm in Bergen County with diverse client base and credentialed support staff is seeking small firms and sole practitioners for acquisition or merger. We are looking for firms ranging in size from $300K to $700K. This is an opportunity to align with a quality peer-reviewed firm, while continuing to provide your clients with exceptional service. To confidentially discuss this opportunity, please email us at carolynn@tfgllc.com.

Block Advisors in Marlton is looking to acquire small firm and or sole practitioners with around 350 clients. Block Advisors is an H&R Block brand that redefined the tax preparation experience for individuals and small businesses with complex tax and business service needs. If you are interested in taking your business to the next level, we would like to speak with you. Call North East DGM, Nan Goldman at 973-264-7695, or send an email to nan.goldman@hrblock.com.

Growing CPA firm seeking ambitious CPA partner to manage and grow prime Hunterdon County office location. Ideal CPA partner should have an existing book of business and well-rounded individual and business tax experience. Equity partnership to be discussed. Reply in confidence at njcpa.org/classifieds. Accounting Practice Exchange, the online marketplace dedicated exclusively to the purchase, sale and merger of CPA and accounting practices across the USA. View opportunities here: www.accountingpracticeexchange.com.

PROFESSIONAL SERVICES

Quality Review for CPA firms: audit, review, compilation, employee benefit plans, Yellow Book, revenue recognition. Contact James M. Sausmer, CPA at 732261-7710 or james.sausmer@gmail.com.

Experience counts. We have buyers right now looking for businesses. For 27 years First Choice Business Brokers have transitioned $8 billion in business sales of all sizes. Principal broker, Gregory J.Carafello, has owned and operated businesses for 39 years in NY/NJ region. Call Greg to assist your clients transition business ownership at 973-632-2192 or gcarafello@fcbb.com.

To see additional classified listings or to place an ad, visit njcpa.org/classifieds.

How a Three-Month Stay Turned into a Lifetime of Learning

BY KATHLEEN HOFFELDER, NJCPA SENIOR CONTENT EDITOR

Fabiana M. Mello, CPA, a native of Brazil, left to study English in the United States for three months when she was 19. The only problem was she didn’t want to return home. “I saw an opportunity to earn a living here,” she says. After realizing her potential to become an accountant and a CPA, she decided to attend Essex County College and then Montclair State University for her bachelor’s degree. From there, Fabiana never really stopped learning.

She passed the CPA Exam in six months, then eventually earned her Certified in Financial Forensics (CFF), Certified Municipal Finance Officer (CMFO), Certified Tax Collector (CTC) and Qualified Purchasing Agent (QPA) certifications. And now, as the chief financial officer of the Borough of Lincoln Park, she is in the process of studying for her Registered Municipal Accountant (RMA) license.

“Math was also easier for me since I was just learning the English language. Little did I know that accounting is a whole new language,” admits Fabiana. And since she likes problem solving, governmental accounting particularly suited her. From working on water utility issues, redevelopment challenges, town events, road upkeeps and repairs, and the development of new sports fields, she solves lots of problems.

“Everything I do has a long-term impact. The borough will be debt free by 2030,” she says. “When I first started this job, I thought I might be bored coming from a CPA firm, but I am always learning new things. The laws are constantly changing.” GETTING STARTED Fabiana very much enjoyed her forensic specialty as an accounting manager at DiGabriele, McNulty, Campanella & Co., LLC in Fairfield. “In forensic accounting, there were no guidelines for the solutions, so you really had to be creative,” she explains. But after a close mentor espoused the benefits of working as a municipal CFO, she was enticed by governmental accounting and all the hands-on projects that went along with it. She was appointed assistant CFO for the town of Paterson and eventually moved to CFO in the Borough of Lincoln Park in 2017.

And signs were there that she would be a natural in accounting even as a kid. “I grew up liking math and always liked the office environment — paper, pens, calculators. I actually collected pens and papers,” she admits. “I thought it would be harder in the U.S., but I have a good work ethic, which helped.” Her passion to perform was evident during her first internship with DiGabriele, McNulty and it’s why they asked her to return several years later.

Though her family keeps her busy, she still enjoys her day job. At age 22, her son, John, is not exactly ready to follow in his mom’s footsteps, and her two other children — Logan, age 9, and Luke, age 6 — do not have much of an idea about accounting just yet. But that doesn’t stop her from encouraging them all to go into accounting one day. However, she and her husband, Rafael, will keep an open mind when it comes to their children’s careers.

One thing she does push for, though, is for her children to embrace their Brazilian roots. While the coronavirus pandemic made her emphasize “the important things in life,” according to Fabiana, it also helped her connect with her culture again. During the past few months working at home, she was able to sign both of the younger boys up for virtual Portuguese language lessons. Her older son, already fluent in Portuguese, goes back every year to Brazil, but now her younger children will have an opportunity to experience the language.