The Cooperative Accountant - Summer 2024

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President

Eric Krienert, CPA Moss Adams

Vice President Erik Gillam, CPA Aldrich CPAs +Advisors

Treasurer Kent Erhardt CoBank, ACB

Secretary Jim Halvorsen CLA (CliftonLarsonAllen)

Immediate

David Antoni, CPA Moss Adams LLP

Executive

Julia Sevald, CPA Land O'Lakes, Inc.

From the Editor

Collat School of Business

CSB 319, 710 13th Street South Birmingham, AL 35294-1460 • (205) 934-8827

fmessina@uab.edu

Everything is moving at such a hectic pace. Prices are skyrocketing and it can all seem so overwhelming. It’s summertime and the simple things in life can really help. Take a fun family vacation. Get out into nature. Leave all your worries behind and enjoy relaxing. So many studies continue to show us that all of these things can really make you healthier. I was watching a recent documentary on Italy and one of the many things that stuck with me was a statement. It said, “In the United States its as if people live to work while in Italy people work to live.” Leave work behind and get out this summer and enjoy yourselves.

Remember, we too are always looking for you to share your knowledge since you may have some extra time on your hands (like others continue to do) with us through articles in The Cooperative Accountant. Feel free to contact me (fmessina@uab.edu) if you have any ideas or thoughts on a potential article contribution. Sharing knowledge is a wonderful thing for all!!! Knowledge can change our world!

That is why we must remember – “The Past is history; the Future is a mystery, but this Moment is a Gift – that’s why it’s called the Present.”

Positively Yours,

Articles and other information which appear in The Cooperative Accountant do not necessarily reflect the official position of the NATIONAL SOCIETY OF ACCOUNTANTS FOR COOPERATIVES and the publication does not constitute an endorsement of views or information which may be expressed. The Cooperative Accountant (ISSN 0010-83910) is published quarterly by the National Society of Accountants for Cooperatives at Centerville, Ohio 45459 digitally. The Cooperative Accountant is published as a direct benefit/ service to the members of the Society and is only available to those that are eligible for membership. Subscriptions are available to university libraries, government agencies and other libraries. Land Grant colleges may receive a digital copy. Send requests and contact changes to: The National Society of Accountants for Cooperatives, 7946 Clyo Road, Suite A, Centerville, Ohio 45459.

Pool of Accounting Graduates and Potential Accounting Careers

A 2023 report by the American Institute of Certified Public Accountants (AICPA) noted that the number of college accounting graduates dipped in the 2021-2022 academic year. The report, “2023 Trends: A Report on Accounting Education, the CPA Exam and Public Accounting Firms’ Hiring of Recent Graduates”, indicated that about 47,000 students earned a bachelor’s degree in accounting in the 2021-2022 school year. This was down 7.8% from the previous year, which followed a steady decline of 1-3% per year from 2015-2016 (p. 5). Additionally, the number of students earning a master’s degree in accounting slipped 6.4% to 18,238 students. The number of students earning a master’s degree in the 2020-2021 and 2019-2020 years was 19,484 and 20,442, respectively. The report included completion data for those student degrees and programs categorized in the following Classification of Instructional Programs (CIP) codes for all U.S. universities: Accounting, Accounting Technology/Technician and Bookkeeping, Auditing, Accounting and Finance, Accounting and Business/Management, Accounting and Related Services-Other, and Taxation.

Editor & Guest Writer

Phone 225.262.3026

Cell: 239.887.0131

peggym@DEMCO.ORG

Despite these declining figures, accounting program enrollment expectations were optimistic for 2023-2024 with 75% of responding bachelor’s programs and 78% of master’s programs expecting enrollment to be the same or higher as in 2021-2022 (AICPA, p. 5). Accounting graduates may choose to focus their career choices on a variety of career paths, and some of them include financial accounting, management accounting, finance, auditing, and taxation. Franklin University (n.d.) lists the top three accounting career sectors as public accounting, corporate accounting, and financial services. They list the five most popular careers for corporate (private) accountants and their average median annual salary in the U.S. as general accountant ($81,000), financial analyst ($86,000), budget analyst ($84,250), internal auditor ($90,500), and IT auditor ($96,000). Franklin University also notes the demand for accountants is expected to grow citing “According to the Bureau of Labor Statistics (BLS), jobs for accountants and auditors are predicted to grow by 7% by 2030. About 135,000 openings for accountants and auditors are projected each year, on average.” (para. 1).

Brown and Tegeler (2020) conducted an exploratory study which sought to understand why non-accounting graduates return to school to pursue a degree and career in accounting. Their publication “Giving Accounting a Second Chance: Factors Influencing Returning Students to Choose Accounting” referred to these students as “converts.” They maintained that converts “may serve as a source of talent for the accounting profession with the skills and work experience they achieved in other fields” (p. 1). The study results suggested that the job characteristics and earnings potential of careers in the accounting field drove their decision to change professions or “convert.” Study participants indicated that their decision to change careers was driven by practical considerations such as job security and earnings growth potential, which were generally placed as a priority over passion for the field.

The U.S. Bureau of Labor Statistics provides an “Occupational Outlook Handbook” for accountants and auditors. The handbook describes what they do, their work environment, how to become one, and job outlooks across various areas of the country. Per their website, they offer the following quick facts for accountants and auditors:

• 2023 Median Pay: $79,880 per year, $38.41 per hour

• Typical Entry-Level Education: Bachelor’s degree

• Work Experience in Related Occupation: None

• On-the-job Training: None

• Number of jobs, 2022: 1,538,400

• Job Outlook, 2022-2032: 4% (As fast as average)

• Employment Change, 2022-2032: 67,400 (“Summary” section)

Their website also includes a section “Occupational Employment and Wage Statistics (OEWS)” for employment and wage estimates annually for over 800 occupations, including the occupation of accountants and

auditors. On this website, they offer a tool “CareerOneStop” which includes a salary information tool to search for wages by zip code.

Robert Half (2023), the accounting job placement agency, also provides salary ranges for accounting and finance positions in their “Salary Guide.” The guide, which can be found on their website, also provides information on hiring trends and job opportunities for entry-level and remote workers. Information can be searched by city or region. It also lists the hottest jobs in finance and accounting, along with projected salary and benefits. This guide can be a helpful tool for both hiring managers and job seekers. Their website notes that hiring remains robust in finance and accounting, and unemployment in these fields is well below the national average. Currently the role in highest demand is the Financial Planning & Analysis (FP&A) role, and also in high demand are the financial reporting and general accounting roles. Robert Half projects that salaries in these positions will continue to climb.

Handshake, an early-career networked community of students, colleges, and employers, indicates that early-career accountants are in demand across industries. Some additional key takeaways are provided in their article “Gen Z gives accounting careers a closer look” (2024), which are listed as follows:

• Accounting firms are increasingly emphasizing social impact—and it’s paying off. More than 1 in 4 accounting jobs posted on Handshake in 2023 mentioned social impact, and jobs that included social impact keywords in their descriptions received about 80% more applications.

• Students from a range of majors are applying to accountant roles. Business, economics, and political science majors make up a significant share of applicants to accountant roles, and tech majors now account for about 15% of the applicant pool. (para. 1)

Handshake points to job security as one of the possible reasons for rebounding interest in accounting careers. They cite a 2023 survey by the accounting firm EY that found that “career stability” and “comfortable lifestyle” were common motivations students cited for wanting to pursue a career in accounting (Handshake, “After a dip in recent years” section, para. 2). The EY survey also found that 75% of students believed an accounting degree will have long-term benefits, and 33% saw an accounting degree as a steppingstone to other leadership opportunities.

The number of undergraduate accounting degrees fell between 2016 and 2022, and that could be partly due to concerns about strict CPA licensing requirements which created a barrier to entry for some accounting professionals. The “150-hour rule” for Certified Public Accountant (CPA) certification, required by the AICPA, had possibly dampened interest from new applicants. The rule requires 150 hours of specific educational courses to qualify for the CPA license. State Boards of Accountancy had discretion over when to enact the rule, but by 2015 all states had adopted it. But, despite this, Handshake is now reporting an uptick in that over 2.5% of students in the class of 2025 on Handshake are accounting majors, which is up from 2.1% from the class of 2023. Finance majors are following a similar trend.

What are accounting graduates looking for from an employer?

Not all graduates are motivated similarly, but some graduates have similar motivations.

Caseware (2023), a company dedicated to helping businesses with transforming technologies, notes that Millennial and Gen Z workers are not that different from earlier generations. Gen Z’s will make up 30% of the workforce in a few short years. Millennials now make up the largest share of the workforce and achieved that distinction last year when the working population of Millennials hit 53.5 million in the U.S.

workforce. As of 2023, Millennials are between 27 and 42 years old, and Generation Z is between 12 and 27 years old. Millennials, also known as Generation Y, are people born between 1981 and 1996. Generation Z is defined as people born between 1997 and 2012. Both Millennials and Gen Z’s generally want a job that can provide a chance to grow and use their skillsets, just the same as prior generations. Pay is also important to these younger workers, as they want their investments in education and training to be rewarded. But Millennials and Gen Z employees are now requesting or demanding some things that employees in other generations may not have thought to ask for.

Caseware cites these things as follows:

• Growth and learning opportunities. Spurred in part by the aftermath of the 2008 recession, the chance to continually develop new skills is significant for young accountants. This can help give them a sense of stability and personal satisfaction.

• Work that has purpose. More and more companies are concerned about corporate social responsibility (CSR) — the impact of their work on the local community and the world at large. Gen Z and Millennial employees want a job with meaning, even if it’s just the opportunity to contribute to a meaningful cause on occasion through their volunteering with their organization.

• Work-life balance. This phrase has been bandied about for some time, but it remains important. Younger workers don’t want to give everything to their jobs — they want a life outside of the office, too. The recent pandemic has shifted ideas about where and how people can work, making hybrid arrangements more common.

• Quality management. While older generations may have simply accepted whatever management offered, younger workers are putting a premium on quality oversight. They may choose to simply leave a job and work elsewhere instead of putting up with poor management. Gartner recently noted that in the wake of the

pandemic, members of leadership teams have become relationship managers, focusing on people under their supervision as much as their work.

(“What’s different about the Millennial and Gen Z mindset?” section, para. 3-6)

Some of the characteristics of traditional accounting roles may not be desirable to the younger generations. For instance, repetitive work, jobs that don’t offer personal satisfaction, long working hours, and busy seasons that put constraints on time are things that may be found undesirable. Employers that offer clear paths for advancement, adopt a flexible work culture, develop a sense of community, commit to technology, and focus on transparency can provide a more desirable environment for those seeking this work environment.

Karbon, a collaborative practice management platform for accounting firms, publishes news and updates in their online “Magazine.” A recent Magazine article (n.d.) describes what they believe Millennials want in a workplace. They note that this generation is looking for a workplace that allows for growth and self-development. Millennials place importance on how their career growth will support achieving their personal goals. Many voice a desire for more flexibility in, and control of, their work-life balance. The quality of their work is something they would like to be judged on for the output and not the hours put into the effort. Remote working can be desirable in helping achieve work-life balance. They also tend to gravitate towards organizations that are tech-savvy, both with tools they can use to be more productive on the job and employers that embrace adoption of innovative technologies to improve processes. Also, it can be important for employees of this generation to work in companies that reflect their values. Magazine notes that 44% have made job choices based on “personal ethics and how they align with a company’s” ethics (“Millennials want to work in firms” section, para. 1). Millennials are not

afraid of change, and value innovation at the top of their list of important qualities in a potential employer.

The Montana Society of CPA’s (2022) published an article “What employers should understand about today’s accounting students” where they wanted employers to know these things about Gen Z:

• They enjoy being independent and getting their work done without relying on others.

• They want to feel valued for their ideas and recognized for their contributions.

• They are intentional about their career choices and are ready to move from one employer to another with relative ease.

• They want to make a difference in their workplace and in society in general.

• They are visual content connoisseurs, so using short videos on social media, in emails, and on websites is critical to reaching and engaging this audience.

• They are concerned about entry-level accounting work being taken over by technology. That said, employers can convey that although technology is transforming many entry-level tasks, they are looking to emerging accounting professionals to step into higher-value work that requires personal judgment and problem-solving skills. (para. 15)

The University of Scranton (n.d.) offers some suggestions to employers who are looking to attract younger workers. First, they suggest creating a thriving corporate culture. Examples of this include adopting nontraditional workspaces, sponsoring group activities and events, and setting up special gathering or eating areas for employees. Secondly, employee benefits are sought by many young workers. Health care and retirement packages are both desirable benefits that are being sought after. Thirdly, mentorship is a valued relationship in the workplace. Mentorship is seen as a two-way street, where both the young employee can learn from the more experienced worker and vice versa. Finally, the suggestion is to use unconventional recruiting tools. For instance,

newspaper ads and referrals were used as standard practice in the past, but employers should consider adopting advertising on social media (i.e., Facebook and Instagram), attending college job fairs, developing relationships with college career centers, and seeking out talented workers on LinkedIn or other notable online career sites. What are cooperative employers looking for from accounting graduates?

Vien (2021), of the AICPA, quotes Mark Rocca, CPA and audit partner at EY’s Boston office, as stating “We don’t expect them to have all the answers, but to be able to ask questions that can get them to the right questions” (para. 7). Curiosity and a willingness to ask questions is a trait employers desire. Vien additionally lists other desirable traits such as the ability to know when they need more information to solve a problem, the ability to acquire the information they need, comfort with ambiguity, and digital flexibility. She recommends that college faculty can foster these skills by pushing students to consider their audience, getting students comfortable with ambiguity, giving assignments that ask students to define the problem themselves, and letting students know what to expect in the workplace.

CPA Credits, a company which offers accounting educational classes, lists the top accounting skills employers want from accounting graduates as proficiency in accounting software, data analysis and visualization, tax knowledge, financial reporting and analysis, attention to detail, regulatory compliance, communication skills, time management and organization, adaptability, and ethical decision-making (2023). While many technical skills are included in this list, there are also soft skills noted that are equally important to potential employers. Soft skills are a collection of personal attributes and inter-personal qualities that allow people to effectively interact and communicate with others. They

are intangible but play a key role in the accounting graduate’s ability to be successful professionally. The essential soft skills in demand by employers include problem solving, critical thinking, time management, adaptability, teamwork, leadership, work ethic, communication, and interpersonal skills.

Cooperatives are uniquely positioned to provide working environments that offer many of the things that the younger worker is looking for. For cooperatives, being a private corporation that is not-for-profit, they have a strong community-centered mission statement with corporate vision and values that align with many of the things that new graduates are seeking. Cooperatives lead by serving cooperative members in providing much needed goods and services in a way that is quite different than their for-profit company counterparts. The cooperative unique corporate structure and mission is well-suited to an environment that can offer its employees the opportunity to serve in the communities in which they live, not to create a profit but to be of service to those they live and work with. Cooperatives are owned by their members and are not working for the profit motive but rather to control costs for their members and provide the best value product or service possible. Cooperatives are not driven by the interest of shareholders like a for-profit company, but instead by serving the communities in which they operate.

Cooperatives can be more agile than some of their for-profit company counterparts in being able to offer personalized and tailored activities that would be desirable to new graduates. Some of these things might include:

1. Practical Experience

a. Hands-on Training: Cooperatives often provide entry-level positions or internships where new graduates can apply their theoretical knowledge in realworld scenarios.

b. Exposure to Diverse Accounting Tasks: Graduates can gain experience in various aspects of accounting, including bookkeeping, financial analysis, auditing, tax preparation, and more.

2. Learning and Development

a. Mentorship Programs: Cooperatives may have structured mentorship programs where experienced accountants guide new graduates.

b. Professional Development: Many cooperatives offer workshops, seminars, and training sessions to help new graduates keep up with the latest accounting standards and practices. Many also offer educational benefits where the cooperative pays for advanced education or certifications. Cooperatives generally invest in their employees and value long-term employment.

3. Collaborative Environment

a. Team-oriented Work Culture: Working in a cooperative emphasizes collaboration and teamwork, which can be beneficial for developing interpersonal and professional skills.

b. Decision-making Experience: Graduates may have the opportunity to participate in decision-making processes, providing insights into managerial and strategic aspects of accounting.

4. Networking Opportunities

a. Professional Connections: Cooperatives can connect new graduates with professionals in the field, fostering relationships that can be advantageous for future career opportunities.

5. Community Engagement: Cooperatives often engage with their communities, allowing graduates to build a network beyond their immediate professional circle.

5. Career Growth and Advancement

a. Clear Career Paths: Many cooperatives offer well-defined career advancement paths, helping graduates plan and

progress in their careers.

b. Internal Promotions: Cooperatives often promote from within, giving new graduates the chance to advance based on their performance and development.

6. Ethical and Sustainable Practices

a. Values-driven Work: Cooperatives typically emphasize ethical practices and social responsibility, aligning with the values of many new graduates who are looking to make a positive impact.

b. Sustainability Focus: Working for a cooperative often means contributing to sustainable business practices and community development.

7. Competitive Compensation and Benefits

a. Fair Compensation: Many cooperatives offer competitive salaries and benefits packages, including health insurance, retirement plans, and other perks.

8. Work-life Balance

a. Flexible Working Conditions: Cooperatives may offer flexible working hours and remote work options, supporting a healthy work-life balance.

9. Community and Social Impact

a. Community Involvement: Cooperatives often have a strong focus on community involvement and development, allowing graduates to contribute positively to society.

b. Social Responsibility: New graduates can work for organizations that prioritize social good, aligning their work with personal values.

By joining a cooperative, new accounting graduates can gain comprehensive professional experience, benefit from mentorship and career development opportunities, and contribute to ethical and sustainable business practices. This can attract new accounting graduates when the benefits of working for a cooperative are shared with those seeking an accounting profession.

References

AICPA. (October 11, 2023). 2023 Trends: A Report on Accounting Education, the CPA Exam and Public Accounting Firms’ Hiring of Recent Graduates. Retrieved May 21, 2024 from the following website: https://www.aicpa-cima.com/professional-insights/download/2023-trendsreport

Brown, V. & Tegeler, A. (September, 2020). Giving Accounting a Second Chance: Factors Influencing Returning Students to Choose Accounting. Retrieved May 21, 2024 from the following website: https://nasba.org/wp-content/uploads/2021/08/BrownTegeler_ManuscriptConverts_NASBA-112020.pdf

Caseware. (February 9, 2023). How to Attract and Retain Millennial and Gen Z Accounting Talent. Retrieved May 21, 2024 from the following website: https://www.caseware.com/us/ resources/blog/attract-retain-millennial-gen-z-accounting-talent/ CPA Credits. (June 8, 2023). Top accounting skills employers want. Retrieved May 21, 2024 from the following website: https://cpacredits.com/resources/top-accounting-skills-employerswant/

Franklin University. (n.d.). Accounting Careers: 10 of the Best Jobs in Accounting. Retrieved May 21, 2024 from the following website: https://www.franklin.edu/blog/accounting-mvp/topaccounting-careers

Handshake. (March 25, 2024). Gen Z gives accounting careers a closer look. Retrieved May 21, 2024 from the following website: https://joinhandshake.com/blog/network-trends/gen-zaccounting-careers/

Joshia, P. L. (April 3, 2022). A Conceptual Framework For The Factors Influencing The Accounting Students’ Career Choice As Public Accountants. Retrieved May 21, 2024 from the following website: https://jafas.org/articles/2022-8-3/1_FULL_TEXT.pdf

Karbon. (n.d.). How to attract and recruit the very best millennial accountants. Karbon Magazine article. Retrieved May 21, 2024 from the following website: https://karbonhq.com/ resources/how-to-attract-and-recruit-the-best-millennial-accountants/#:~:text=Firms%20 that%20make%20learning%20opportunities,to%20them%20in%20a%20job

Montana Society of CPA’s. (November 9, 2022). What employers should understand about today’s accounting students. Retrieved May 21, 2024 from the following website: https:// www.montana.cpa/news/8abe955c-0448-4f3b-8c14-c831ca7f2eb2:what-employers-shouldunderstand-about-today-s-accounting-students

Robert Half. (December 8, 2023). Accounting Starting Salaries for 2024. Retrieved May 21, 2024 from the following website: https://www.roberthalf.com/us/en/insights/careerdevelopment/the-rise-of-the-accountant-salary-and-10-top-accounting-jobs

The University of Scranton. (n.d.). 4 ways companies can attract and retain young workers. Retrieved May 21, 2024 from the following website: https://elearning.scranton.edu/resources/ article/4-ways-companies-retain-young-workers/

U.S. Bureau of Labor Statistics. (n.d.). Accountants and Auditors section. Retrieved May 21, 2024 from the following website: https://www.bls.gov/ooh/business-and-financial/ accountants-and-auditors.htm

Vien, C. (October 12, 2021). The abilities employers seek from accounting graduates. Retrieved May 21, 2024 from the following website: https://www.journalofaccountancy.com/ newsletters/extra-credit/abilities-employers-seek-accounting-graduates.html

gregt@dwilliams.net

FASB ISSUES ASU 2024-01 March 2024 COMPENSATION-STOCK COMPENSATION (Topic 718) Scope Application of Profits Interest and Similar Awards

Summary

Purpose and Rationale The FASB issued this Update to clarify the application of GAAP to profits interest and similar awards. These awards, which are often used to align compensation with an entity’s performance, have led to inconsistent accounting practices. The Update aims to provide clear guidance on whether these awards should be accounted for under Topic 718 (Compensation—Stock Compensation) or other compensation-related topics.

Amendments Introduced

• Illustrative Example: The Update includes an example with four different fact patterns to guide entities in determining the appropriate accounting treatment for profits interest awards.

• Scope Clarification: Amendments to paragraph 718-10-15-3 enhance clarity and operability without altering the fundamental guidance.

Effective Date and Transition

• For PBEs: Effective for annual periods beginning after December 15, 2024.

• For Other Entities: Effective for annual periods beginning after December 15, 2025.

• Early adoption is allowed.

• Entities can apply the amendments retrospectively or prospectively, with specific disclosure requirements for each method.

Analysis of the Update Impact on Stakeholders

• Entities: The clarifications provided by the Update help entities make more consistent and accurate accounting decisions regarding profits interest awards. This reduces the complexity and judgment involved, potentially lowering the risk of errors or misinterpretations.

• Investors and Analysts: More consistent application of accounting principles improves the comparability of financial statements across entities, aiding investors and analysts in making better-informed decisions.

• Auditors: Clearer guidance facilitates the auditing process, as auditors can rely

on more standardized practices when reviewing financial statements involving profits interest awards.

Benefits to GAAP

• Reduction in Diversity of Practice: By providing specific examples and clarifying scope conditions, the Update reduces the variability in how entities account for profits interest awards. This leads to more uniform financial reporting.

• Enhanced Clarity and Operability: The amendments to the scope and scope exceptions section make the guidance more user-friendly and easier to apply in practice. This can help both preparers and auditors in understanding and implementing the requirements correctly.

Challenges and Considerations

• Implementation Costs: Entities may incur costs related to updating their accounting policies and systems to comply with the new guidance. This is particularly relevant for those choosing retrospective application, as it involves restating prior period financial statements.

• Training and Education: Organizations will need to invest in training for their accounting and finance staff to ensure they understand and can effectively apply the new guidance.

• Monitoring and Adaptation: Entities must monitor the impact of these changes on their financial statements and adapt their internal controls and processes accordingly.

Conclusion

The FASB’s Update is a significant step towards improving the consistency and clarity of accounting for profits interest and similar awards. By addressing the complexities and providing illustrative examples, the Update enhances GAAP, making it more robust and user-friendly. Entities will need to carefully evaluate the transition options and prepare

for the implementation to ensure a smooth transition and compliance with the new standards. Overall, the Update is a positive development that benefits a wide range of stakeholders in the financial reporting ecosystem.

The ASU, including effective date information, is available at www.fasb.org FASB ISSUES ASU 2024-09 March 2024 CODIFICATION IMPROVEMENTS – AMENDMENTS TO REMOVE REFERENCES TO THE CONCEPTS STATEMENTS

Summary

Purpose and Rationale: The FASB issued this Update to remove references to various FASB Concepts Statements within the Codification. This is part of an ongoing project to make technical corrections and incremental improvements to GAAP. The amendments aim to clarify the Codification, correct unintended guidance applications, and simplify the wording and structure of guidance.

Main Amendments

• Removal of References: The Update removes references to Concepts Statements in various sections of the Codification. These references were often extraneous and could imply that Concepts Statements are authoritative, which they are not. The Concepts Statements are meant to provide a conceptual framework for developing standards, not for application in practice.

• Clarity and Simplification: By removing these references, the Update aims to simplify the Codification and make a clearer distinction between authoritative and nonauthoritative literature.

Who is Affected

• Scope: The amendments apply to all reporting entities within the scope of the

affected accounting guidance. Various Topics in the Codification are impacted, so all entities using these sections will need to review the changes.

Effective Date and Transition Requirements

• Effective Date:

• For Public Business Entities (PBEs): Fiscal years beginning after December 15, 2024.

• For Other Entities: Fiscal years beginning after December 15, 2025.

• Early Adoption: Permitted for any fiscal year or interim period for which financial statements have not yet been issued.

• Transition Methods:

• Prospective: Apply to new transactions recognized on or after the first application date.

• Retrospective: Apply to the beginning of the earliest comparative period presented, with adjustments to the opening balance of retained earnings or other appropriate components.

Analysis of the Update Impact on Stakeholders

• Entities: Entities will benefit from clearer, more straightforward guidance, reducing the potential for misinterpretation and errors. The removal of references to Concepts Statements simplifies the application of standards, making it easier for entities to comply.

• Investors and Analysts: Improved clarity and consistency in financial reporting enhance comparability and reliability, aiding in better investment decisions.

• Auditors: Auditors will find the simplified and clarified guidance easier to audit against, reducing ambiguity and ensuring more consistent application of standards.

Benefits to GAAP

• Reduced Complexity: By eliminating

unnecessary references, the Codification becomes more streamlined, facilitating easier understanding and application of the standards.

• Enhanced Clarity: The distinction between authoritative guidance and conceptual framework helps prevent confusion about what is required versus what is conceptual.

• Consistency: Aligning all references and guidance within the authoritative literature ensures more uniform application across different entities and scenarios.

Challenges and Considerations

• Implementation: Entities will need to review and understand the changes, which may require some initial effort. However, the long-term benefits of simplified and clarified guidance outweigh this initial work.

• Training: Accountants and auditors will need to be trained on the new guidance to ensure smooth transition and application.

• Monitoring Impact: Entities will need to monitor the impact of these changes on their accounting practices and financial reporting.

Conclusion

The FASB’s Update is a positive step towards improving the clarity and operability of GAAP. By removing unnecessary references to Concepts Statements, the Update enhances the usability of the Codification and ensures that the guidance is easier to follow and apply. This will lead to more consistent and reliable financial reporting, benefiting a wide range of stakeholders. Entities should prepare for the changes and ensure they are ready to adopt the amendments by the effective dates.

The ASU, including effective date information, is available at www.fasb.org

RECENT ACTIVITIES OF THE PRIVATE COMPANY COUNCIL

The Private Company Council (PCC) met on Thursday, April 18, 2024. Below is a summary of topics discussed by PCC and FASB members at the meeting:

• PCC Agenda Priorities: PCC members discussed their agenda priorities and the factors that should be considered in their determination. PCC members supported conducting preliminary research on the following areas: debt modifications and extinguishments, credit losses—short-term trade accounts receivable and contract assets, lease accounting simplifications such as practical expedients or accounting alternatives for private companies, and the presentation of conditional retainage and overbillings as contract assets and liabilities.

• Stock Compensation Disclosures (PCC Research Project): PCC members decided not to add a project to the PCC agenda to consider stock compensation disclosures in Topic 718, Compensation—Stock Compensation. PCC members noted that there are more pervasive and pressing issues for the PCC to address such as those discussed under PCC Agenda Priorities.

• Accounting for and Disclosures of Software Costs: FASB staff provided PCC members with an update on the project, including the Board’s recent decision to pursue targeted improvements to Subtopic 350-40, Intangibles—Goodwill and Other—Internal-Use Software. PCC members provided feedback on whether the tentative amendments to Subtopic 350-40 under this approach would be auditable and operable. PCC members suggested that further clarification on unit of account and maintenance and enhancements guidance would improve

the operability of the approach. Some PCC members observed that many software projects involve aspects of both linear and nonlinear development (commonly referred to as waterfall and agile development, respectively) and applying the tentative decisions for nonlinear development to all software costs within the Subtopic could reduce complexity. Additionally, PCC members observed that some of the new terminology included in the targeted improvements would introduce new judgments into the guidance. User PCC members indicated that they would like to be able to differentiate between recurring and onetime software costs and to have more insight into management’s judgments. PCC members also discussed whether a recognition and measurement exception is warranted for private companies.

• Accounting for Government Grants: The PCC discussed the Board’s recent decisions on this project, including its decisions to (1) leverage the accounting framework within IAS 20, Accounting for Government Grants and Disclosure of Government Assistance, for government grants and (2) make targeted improvements to the IAS 20 guidance and provide implementation guidance. PCC members generally agreed with the Board’s decisions and specifically expressed their support for including implementation guidance. Preparer PCC members asked about wording differences related to the recognition threshold between IAS 20 and the proposed wording in the Codification. Preparer PCC members also asked clarifying questions about the type of transactions that would be included in the proposed guidance based on the revised scope. User PCC members noted that the required disclosures in Topic 832, Government Assistance, are important to help users understand

the accounting for government grants received by the private companies that they work with.

• Credit Losses Implementation: PCC members discussed recent observations on private company implementation of Topic 326, Financial Instruments—Credit Losses (CECL). PCC user members noted that they have not observed a significant effect on private company financial statements from applying CECL to trade accounts receivable and contract assets. Several PCC members commented on the application of CECL to contract assets and the interaction between credit risk and revenue recognition under Topic 606, Revenue from Contracts with Customers.

• Scope Application of Profits Interest Awards: PCC members supported the amendments in Accounting Standards Update No. 2024-01, Compensation— Stock Compensation (Topic 718): Scope Application of Profits Interest and Similar Awards. Several practitioner PCC members noted that the amendments will help private company stakeholders apply the guidance. PCC members discussed various ways to educate stakeholders on this Accounting Standards Update.

• Town Hall/Liaison Meeting Update: PCC members and FASB staff discussed feedback received during the March 2024 liaison meeting with the Institute of Management Accountants (IMA) Small Business Committee (SBC). FASB staff also noted that the PCC will hold a liaison meeting with AICPA Private Companies Practice Section (PCPS) Technical Issues Committee (TIC) in May 2024, and a townhall style forum at the AICPA ENGAGE Conference in June 2024. FASB staff also noted that the FASB will present its semiannual webcast, IN FOCUS: FASB Update for Private Companies and Not-

for-Profit Organizations, on June 10, 2024.

• Other Business: FASB staff summarized the PCC’s closed meeting discussion of the interest rate environment and its effects on financial reporting, as well as other topics.

The next PCC meeting is scheduled for Monday, June 24, 2024, and a joint meeting between the PCC and the FASB’s Small Business Advisory Committee (SBAC) is scheduled for Tuesday, June 25, 2024.

THE FOLLOWING ARE SELECTED TOPICS FROM THE WEEKLY ACCOUNTING HIGHLIGHTS PUBLISHED BY THOMSON REUTERS – FULL ATTRIBUTION TO SOYOUNG HO (SEC matters) and DENISE LUGO (FASB, AICPA matters), WHO WRITE THESE SUMMARIES FOR THOMSON REUTERS

In ‘Dear Stakeholders’ Alert, FASB Trustees Urge Firms to Opine on Private Company Council

Denise Lugo  Editor, Accounting and Compliance Alert – May 6, 2024

The FASB’s trustees are pressing for firms to submit comments about the effectiveness of the Private Company Council (PCC), the body that works to amend GAAP for the largest business demographic in the US.

The Financial Accounting Foundation (FAF) issued a “Dear Stakeholders” alert to remind firms that the comment deadline on Review of the Private Company Council closes on May 31, 2024. No comment letters have been submitted as yet, but accountants said they plan to do so – and some already have a mouthful.

When the PCC was first formed it “did a good job of identifying areas where GAAP accommodations were warranted for private companies,” pushing through a number of simplifications around goodwill amortization, hedge accounting for “plain vanilla” interest

rate swaps, and common control leases, some said on May 1.

“After this initial wave of PCC activity, though, the Council seemed to peter out a bit,” Scott Ehrlich, president of Mind the GAAP, LLC, said. “From my perspective, it felt like the PCC was given less autonomy to set its own agenda and instead simply transitioned into being a sounding board for current FASB research or technical projects,” he said. “In other words, the PCC appeared to morph from a body that was proactively identifying issues and proposing solutions to one where its main purpose was to merely provide feedback on existing FASB projects and proposed FASB Exposure Drafts.”

The PCC is composed of 12 members who work as accountants, auditors, analysts, and academics at various firms and organizations. The panel was established in 2012 to help the FASB to amend GAAP for private companies, after a Blue Ribbon Panel – convened by the FAF and AICPA – debated the topic for two years.

The FAF’s review comes at a pivotal time for the PCC as it recently appointed Jere Shawver as chair to succeed Candace Wright who vacated the seat at the end of last year after serving several terms. This is the second formal review of the PCC since it was established in 2012. The last review took place in 2015.

Many Private Companies Have Moved Away from US GAAP

Over the years, disappointment has cropped up over the PCC’s reluctance to allow for differences in the financial statement presentation and recognition requirements such as carve outs for private companies for ASC 842, Leases and for ASC 326, Credit Losses, for allowance for credit losses and trade receivables. As a result many private companies have moved away from using US GAAP, accountants said.

“We have also noted instances in which privately-held entities spent considerable

time and effort implementing new standards only to have the FASB later provide for a practical expedient that addresses the issue,” said Allison Henry, vice president of profession and technical standards at Pennsylvania Institute of Certified Public Accountants.

“We believe that some of these issues could have been addressed proactively,” said Henry. “For example, the FASB issued a practical expedient for leases between entities under common control in March of 2023 and the effective date for ASC 842, for calendar year end entities commencing Jan. 1, 2022,” she said. “And subsequent to the implementation of CECL, the FASB is now considering an amendment for short-term trade receivables and contract assets for privately held entities.”

Awakens Big GAAP, Little GAAP Debate?

A theme that often comes with the PCC is whether differences should be minimized in GAAP for public versus private companies wherever possible. Having “big GAAP” and “little GAAP” can present challenges for financial statement users and auditors, as well as for reporting entities that are transitioning between being private or public, some said.

Others said that private companies have benefited from the PCC alternatives that were put in place, pointing to the different needs smaller firms especially have.

“Understanding that the needs and profiles of private companies differ from those of larger public companies, the PCC has been successful in proposing many GAAP alternatives to particularly cumbersome accounting standards,” Bob Michaels, technical accounting lead, at CrossCountry Consulting, said. “While these GAAP alternatives for private companies may serve to decrease compliance costs and simplify reporting requirements, the consequence is a reduction of comparability between financial statements of public and private companies, which could impact future

investment decisions,” he said. ”The use of an alternative reporting method could mean similar items in a set of financial statements are recognized and measured differently across entities. Private companies must carefully weigh the costs and benefits of these GAAP alternatives, including costs of future compliance or transition to a public entity.”

Suggestions Include Re-thinking PCC’s Mission

One suggestion is that the FAF use the review period to reconsider “the mission, purpose, and operating procedures of the PCC, similar to what the FASB just did” with the Emerging Issues Task Force (EITF). Specifically, Ehrlich suggests the following:

• Consider a slight shift in the make-up of the PCC to ensure that more smaller audit firms and reporting entities are represented — this may mean increasing the PCC slightly up to 15 members.

• Ensure that across the PCC, there is at least one current member with significant experience in every Industry Topic set out in the “900 area” of the Codification.

• Allow for the PCC to set its own agenda, similar to how the EITF will function starting in June 2024.

• If enough members of the PCC agree that an issue meets the criteria in the PCC Decision Making Framework, allow the PCC to develop proposed changes to US GAAP and document their thinking via an agenda request to the FASB. Any PCC agenda requests should be given priority by the FASB for consideration at public board meetings and, ultimately, possible publication in the form of an Exposure Draft.

PCAOB Staff Report Recommends Root Cause Analysis to Improve Audit Quality

Soyoung Ho,  Senior Editor, Accounting and Compliance Alert – May 3, 2024

The Public Company Accounting Oversight Board (PCAOB) on April 30, 2024, published a staff report about how a root cause analysis (RCA) can lead to improved audit quality.

The 9-page report covers general considerations, other observations about root cause analysis from audit inspections, and key questions for firms to consider.

An audit firm’s understanding of the underlying reasons behind a deficiency can result in incremental improvements to a firm’s system of quality system, which in turn would improve audit quality, the report notes.

This comes as inspection results have shown high audit deficiency rates. (See PCAOB Chair Williams: Rising Audit Deficiency Rates are ‘Unacceptable’ in the July 26, 2023, edition of Accounting & Compliance Alert.)

RCA is a multifaceted approach, not a single well-defined process or methodology, and firms should consider what makes sense for their facts and circumstances. And RCA does not mean that only one factor is the cause of an issue.

“Selecting from a list of potential causes, opting for prepopulated fields, or even using the five whys technique, although helpful, appears to be too linear and limiting for complex problems, and these methods will not likely show the many intricate interrelationships between each cause and associated effect,” the report explains.

The term “five-whys” refers to a strategy of asking “why” five times, drilling down to the root cause.

Illustrative Example

The report provides an example, illustrating how RCA could be beneficial when a firm is trying to fix insufficient testing of management review controls in a business combination.

The audit firm concluded that one cause was insufficient supervision and review by

a partner who appeared to rely too much on a senior manager who was new to the engagement team and did not have enough experience or knowledge of the company being audited.

Moreover, the firm identified other causes, such as lack of training or insufficient knowledge by engagement team members.

“Performing a thorough RCA and identifying these root causes helped the firm design and implement appropriate corrective actions into its QCS to address each of the causal factors that contributed to the deficiency,” the report states.

Good Root Cause Analysis Process

The staff report provides the following characteristics and practices of a welldesigned RCA process:

• dedicated team;

• guidance and training;

• data gathering and tools;

• scope;

• level of analysis;

• prioritization;

• conclusions;

• monitoring remedial actions; and

• reporting.

The staff found that large audit firms have formal RCA processes at varying stages of design and implementation.

Smaller firms have a process tailored for their structure and size. But inspectors also found that many small firms either had limited or no RCA procedures.

“The PCAOB strongly encourages firms to assess the underlying root causes of a deficiency so that the deficiency can be effectively addressed and ultimately remediated and eliminated,” the board states. “RCA is an important procedure that many audit firms use to evaluate the adequacy of and compliance with their quality control system.”

The staff also saw that certain firms have metrics such as milestones, distribution of

hours during the year, partner workload, partner industry experience, and use of specialists, among others.

In addition, the report highlights challenges at certain firms, including persistent criticisms and delayed causal analysis.

Exception to Derivatives Accounting Rules to be Expanded in Coming FASB Proposal

Denise Lugo  Editor, Accounting and Compliance Alert – April 12, 2024

The nation’s accounting rule maker plans to propose rules this summer that would keep the boundaries of complex derivatives accounting rules in check.

The Financial Accounting Standards Board (FASB) on April 10, 2024, voted to issue a narrow proposal to clarify which types of arrangements would meet the definition of a derivative and which would be exempt under Topic 815, Derivatives and Hedging.

Rulemaking efforts started last year after the board heard that the definition of a derivative is being too broadly applied, often going beyond what was intended when it was put in place about 20 years ago.

The proposal will be issued with a 90-day comment period, the board agreed.

“I think this is an extremely important standard; I think reining in the everexpanding definition of a derivative is a challenge and I think this is good first step,” Chair Richard Jones said. “I do hope that to the extent that there are other items out there that we have missed, that some might through say a derivative lens all of a sudden identify as a derivative that most people have accounted for differently for years under other literature, if there’s any others, I hope people raise those to us,” he said.

Full Board Affirmed Issuing Proposal

All board members signaled hope that the proposal will be well-received. Vice Chair James Kroeker, whose second term

ends in June, said he “long sought to address this issue with the increasing scope interpretations of derivative accounting evolving over time.”

Similarly, Susan Cosper noted that where the board “landed on this issue was good,” and Marsha Hunt observed that the proposed guidance “would be well received.” In addition to Jones, Kroeker, Cosper, and Hunt represent the financial statement preparer and auditor voices on the board.

The “financial statement user” voices on the board also favored the proposal, although some remarks were cautious.

Specifically, Christine Botosan said “pending what we learned through the exposure draft process, the benefits would exceed the costs.” Frederick Cannon said he believes “that this is a step forward in terms of the definition of a derivative” but certain questions should be included, and Joyce Joseph said “the cost-benefit analysis was particularly beneficial for organizations where they should no longer be deterred from entering into certain arrangements—that’s very important that the accounting doesn’t affect business decisions that entities would make in this regard.”

More Innovative Arrangements Emerging

The potential changes have become more pressing these days as innovative arrangements have developed, including around environmental, social, and governance (ESG)-linked financial instruments, research and development (R&D) funding arrangements, and litigation funding arrangements.

At a meeting last year, staff members heard from the board’s stakeholders that the current derivatives guidance is complex to apply to those types of new arrangements, as well as unintuitive.

Other challenges include, estimating the fair value of these arrangements as this requires significant judgment resulting in

subjective fair value measurements that may not be the best reflection of the economics of those arrangements. Accounting for those arrangements in their entirety or bifurcating an embedded derivative from these arrangements, may not necessarily facilitate the analyses performed by investors, those discussions revealed.

Expanding Derivatives Scope Exception

Today, companies have to evaluate whether an arrangement as a whole meets the definition of a derivative or has an embedded feature that meets the definition of a derivative. If the arrangement meets the definition of a derivative, companies must evaluate whether the arrangement (or embedded feature) qualifies for any of the derivatives scope exceptions. Those that meet the definition can use the scope exception in the rules. Arrangements that meet the criteria of the definition of a derivative must be marked to market through the income statement.

The FASB agreed to propose that the current derivatives scope exception should be expanded to include “contracts with underlyings based on the operations or activities” that are specific to one of the parties to the contract. This means that more arrangements would be able to avoid using derivatives accounting rules.

The proposal would also address the interaction of Topic 815, Topic 321, Investments—Equity Securities, and Topic 606, Revenue from Contracts with Customers, related to certain revenue arrangements involving noncash consideration.

The board also voted:

• to refine the predominant characteristics assessment in paragraph 815-10-15-60 by replacing the correlation assessment with a fair value assessment. That assessment should be performed at inception. • to require prospective application with an option to elect modified retrospective.

• to allow a one-time option for entities to elect the fair value option for eligible financial instruments that are no longer accounted for as a derivative as a result of applying the new guidance.

• to allow early application, including early application in an interim period as of the beginning of the fiscal year that includes that interim period.

New FASB Rule on Profits Interest Awards Could Mean Change for Some Firms

Denise Lugo  Editor, Accounting and Compliance Alert – March 22, 2024

The FASB on March 21, 2024, published a narrow rule on profits interest awards that could mean change for some firms — causing them to have to switch to stock compensation accounting rules at a cost.

The board issued Accounting Standards Update (ASU) No. 2024-01, Compensation— Stock Compensation (Topic 718), Scope Application of Profits Interest and Similar Awards, which provides an illustrative example that shows how to determine whether a profits interest award should be accounted for as a share-based payment arrangement under Topic 718, Compensation—Stock Compensation, or under another rule such as Topic 710, Compensation—General.

The example is intended to reduce “complexity in determining whether a profits interest or similar award is subject to the guidance in Topic 718” and eliminate “diversity in practice,” according to the “Basis for Conclusions” section of the standard. “Investors and other allocators of capital will benefit from entities accounting for economically similar awards consistently.”

But a knock-on implication for some firms is that they may have to have to change from using Topic 710 to account for “certain profits interest and similar awards” to using Topic 718. “Those preparers may incur

incremental costs to apply the guidance in Topic 718,” the “Basis” text explains.

Ultimately, the board concluded that the general benefits would outweigh any costs that are incurred, and that those that already use Topic 718 for profits interest awards will see a reduction in costs.

Weighing in, some accountants said that because the standard addresses diversity in practice in accounting for awards that meet the legal definition of a profits interest, it would help to clarify issues.

“While it won’t cover all scenarios, the examples provide a much needed framework to minimize the judgment previously exercised and help promote consistency in its application,” Bob Michaels, Technical Accounting Lead at CrossCountry Consulting, said. “It is expected that the additional clarity could result in more profit interest awards being accounted for under ASC 718.”

Provisions Come After 4 Years of Effort

For some the topic is popular because profits interests provide an interest in a partnership’s future profits and are often compensation for services. They can be economically similar to stock options or stock appreciation rights but vary in each partnership. Some companies have trouble identifying when a transaction with a counterparty is a partnership and therefore represents an allocation of capital, or whether the distribution is a form of compensation, board discussions have revealed. If a company concludes it is a compensation transaction, for example, it has to figure out whether it is an equity award or a liability award.

The narrow provisions come after about four years of effort by the FASB, including research by the Private Company Council, the panel that works with the board to amend GAAP for private companies.

The board agreed to address the issue narrowly after hearing that accounting confusion had surfaced because there is no

explicit definition in GAAP for profits interest awards, and agreements with those items vary. Further, the board heard that use of profits interest in the private company space has soared partly because of the tax relief provided.

Effective Next Year for Public Companies

The new standard is effective for annual periods beginning after December 15, 2024, and interim periods within those annual periods for publicly held companies, according to the main text.

For privately held companies and other entities, it is effective for annual periods beginning after December 15, 2025, and interim periods within those annual periods. Early adoption is permitted.

Companies can apply the guidance either retrospectively to all prior periods presented in the financial statements or prospectively “to profits interest and similar awards granted or modified on or after the date at which the company first applies the amendments.”

If applied retrospectively, the company is required to provide the disclosures in paragraphs 250-10-50-1 through 50-3 in the period of adoption. If applied prospectively, the company is required to disclose the nature of and reason for the change in accounting principle.

New FASB Segment Accounting Rules Carry Big Implications for Using Non-GAAP Measures

Denise Lugo  Editor, Accounting and Compliance Alert – February 28, 2024

Accountants are thinking about the FASB’s new segment reporting rules that take effect this year, mindful of the implications the rules hold for using non-GAAP measures when reporting on earnings, some say.

A non-GAAP measure is an accounting term that refers to a number that is not

calculated in accordance with how Generally Accepted Accounting Principles (GAAP) say they are to be reported. Although these measures may provide more information to investors, if not calculated in accordance with GAAP, they will be subject to SEC rules and external audit – a notable development, according to practitioners.

“The SEC’s staff have provided their view that additional optional measures of segment profit or loss, beyond the single measure required to be disclosed under the standard, would be considered a non-GAAP financial measure (if not calculated in accordance with GAAP) because that measure would not qualify for the exception in the SEC’s nonGAAP financial measures requirements,” said Rich Brady, IMA’s (Institute of Management Accountants’) Global Board Chair and CEO of the American Society of Military Comptrollers.

The FASB standard requires public companies to disclose at least one measure of segment profit or loss that is most consistent with the consolidated financial statement or GAAP. The standard also allows public companies to disclose more than one measure of segment profit or loss such as a non-GAAP measure if it is used by the chief operating decision-maker (CODM).

An example is: if management uses gross profit, as well as Earnings Before Interest, Taxes, Depreciation, and Amortization (EBITDA) as the measures of segment profit or loss.

“The public entity could only disclose gross profit since it represents the measure most consistent with the amounts included in its consolidated financial statements, or it could disclose gross profit and EBITDA, but it may not only disclose EBITDA,” Brady explained. Further, “regulations stipulate specific presentation, disclosure, and reconciliation requirements; prohibitions on certain adjustments; and a prohibition on the inclusion of a non-GAAP financial measure

in the financial statements, including the footnotes,” he said.

Non-GAAP measures are popular with finance chiefs because they enable them to provide a more complete picture of their business operations. Critics have said that such measures encourage companies to paint a rosier picture of their financial performance than the industry standard of rules developed by the FASB.

Investors Waiting to See

The FASB issued the new rules last year as Accounting Standards Update (ASU) No. 2023-07, Segment Reporting (Topic 280): Improvements To Reportable Segment Disclosures, after hearing from the investment community that segment information is critical to their understanding of public companies’ business activities.

That information enables them to understand a company’s overall performance and assist them in making their own evaluations of that performance. The board addressed this feedback to provide investors with more decision-useful information about the reportable segments of a company under the management approach.

Those results remain to be seen, investors said on February 15, 2024.

“I think we have to wait and see how the disclosures are presented by the companies,” Security Analyst Stephen Percoco of Lark Research, said. “And I had hoped that FASB would integrate the standard to make it consistent with the new disclosures that are likely to be required for the disaggregation of income statement expenses project,” he said. “It doesn’t seem like that’s going to happen, so it really is up to the companies to make it all consistent and relevant, and I guess we’ll just have to see whether that happens and how it happens.”

Must Recast for Three Years

The rules take effect for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December

15, 2024. Accountants noted the adoption process that is needed, requiring years of prior information to be gathered.

“The new standard is required to be adopted retrospectively,” Iris Chan, accounting advisory partner, at CrossCountry Consulting, said. “Meaning upon adoption, the public company will generally need to recast or update its segment footnote for all years presented (i.e., three years in most cases) based on the current year presentation even if segment expenses or other profit measures were different from those presented to the Chief Operating Decision Maker – CODM – in previous years.”

The standard applies to all public companies that are required to report segment information in accordance with Topic 280, Segment Reporting.

The other main provisions require that a public company:

• disclose, on an annual and interim basis, significant segment expenses that are regularly provided to the CODM and included within each reported measure of segment profit or loss.

• disclose, on an annual and interim basis, an amount for other segment items by reportable segment and a description of its composition. The other segment items category is the difference between segment revenue less the significant expenses disclosed and each reported measure of segment profit or loss.

• provide all annual disclosures about a reportable segment’s profit or loss and assets currently required by Topic 280 in interim periods.

• disclose the title and position of the CODM and an explanation of how the CODM uses the reported measure(s) of segment profit or loss in assessing segment performance and deciding how to allocate resources.

• that has a single reportable segment provide all the disclosures required by the new guidance and all existing segment disclosures in Topic 280.

Washington Update

As of mid-April the fate of federal tax legislation is uncertain. On January 31 the House approved H.R. 7024, the “Tax Relief for American Families and Workers Act of 2024,” by a vote of 357 to 70. The Senate has not yet taken up the bill, which contains several key business tax relief provisions, including:

• Delay five-year amortization of domestic research or experimental costs until taxable years beginning after December 31, 2025.

• Continue to allow depreciation, amortization, or depletion expense to be excluded from adjusted taxable income in determining the limitation on business interest through 2025.

TAXFAX EDITOR

George W. Benson Counsel

McDermott Will & Emery LLP 444 West Lake Street, Suite 4000 Chicago, Illinois 60606-0029 tel: (312) 984-7529 fax: (312) 984-7700

e-mail: gbenson@mwe.com

Guest Writer

Marlis Carson

General Counsel

Vice President – Legal, Tax and Accounting

National Council of Farmer Cooperatives 50 F Street, N.W. – Suite 900 Washington, D.C. 20001 tel: (202) 879-0825 fax: (202) 626-8722

e-mail: mcarson@ncfc.org

• Extend 100 percent business expensing for qualified property placed in service through 2025 (and through 2026 for some longer production period property) and retain 20 percent bonus depreciation for property placed in service after 2025.

• Increase the threshold for information reporting on Forms 1099-NEC and 1099-MISC from $600 to $1,000.

• Increase the section 179 deduction for small businesses to a maximum of $1.29 million, reduced by the amount that qualifying property exceeds $3.22 million for taxable years beginning after 2023; and

• Provide disaster tax relief for individuals and businesses.

NCFC has joined with a coalition of farm organizations urging House and Senate leadership to pass the bill. However, Senate leaders have expressed disagreement with some provisions, most notably extension of the child tax credit -- Sen. Crapo (R-ID) views the provision as a government subsidy.

In early March, the White House issued a fact sheet outlining President Biden’s tax priorities. While Congress certainly will not take up all the items on the list, the items do reflect the administration’s thinking on tax policy. The priorities include:

• Raise the corporate tax rate to 28 percent and the GILTI minimum tax rate (applicable to corporate foreign earnings) to 21 percent.

• Require Americans with incomes exceeding $100 million to pay at least 25 percent in income taxes.

• Increase the stock buyback tax from 1 percent to 4 percent.

• Deny corporations a deduction when they pay any of their employees more than $1 million in compensation.

• Increase the Medicare tax rate on income over $400,000 and close “loopholes” in existing Medicare taxes.

• Direct all Medicare tax revenue to the Medicare Hospital Insurance Trust Fund.

• Eliminate a tax break that gives preferential treatment to corporate jets and increase the fuel tax on corporate and private jet travel.

• Restore the expanded Child Tax Credit provided under the American Rescue Plan Act.

• Increase the earned income tax credit for certain childless workers.

• Make permanent the expansion of the premium health tax credit.

The Congressional calendar is always challenging in a presidential election year, as members of Congress want to be at home campaigning, so there is limited time to pass tax legislation in this session of Congress. There is always a chance, though, and the lame duck session in December is often an opportunity to address last minute changes.

NCFC Tax Working Groups. This spring NCFC’s Legal, Tax and Accounting Committee re-engaged its working group on Code Section 163(j), dealing with the interest expense limitation.  The code section has some specific impacts on farmer co-ops and the group is considering seeking a letter ruling from the IRS to address those issues. Several NCFC members are engaged on this issue, including Land O’Lakes, CoBank, AGP,

GROWMARK, and CHS.

The LTA’s Pillar 2 Working Group is monitoring the potential impacts on farmer cooperatives of the Pillar 2 global minimum tax. Working group members met with Treasury officials last fall and subsequently submitted comments to OECD officials. An OECD representative recently told NCFC cooperative issues are on their list of items for potential guidance.

The global minimum tax was developed by the OECD/G20; it would impose a global fifteen percent effective minimum tax on book income of companies with annual revenue of more than €750 million (currently approximately $800 million) and a physical presence in a foreign country. More than 130 countries have adopted the taxing regime. While Congressional leaders have said the U.S. will not adopt the rules, cooperatives operating in foreign countries would be subject to the tax.

Final regulations under Section 6417 –issues of particular interest to cooperatives

A short article in the TAXFAX Column in the Fall 2023 edition of The Cooperative Accountant discussed some of the cooperative aspects of a set of proposed regulations related to monetization of the new energy credits. Final regulations were recently issued regarding the direct pay option provided for “applicable entities” under Section 6417. T.D. 9988, 89 FR 17546 (March 11, 2024).

Set forth below are some aspects of the final regulations of interest to cooperatives.

Section 521 cooperatives are “applicable entities”

The final regulations make it clear that Section 521 cooperatives are “applicable entities” eligible to elect direct payments of applicable credits.

The statute defines “applicable entity”

to include “any organization exempt from the tax imposed by subtitle A.” Section 6417(d)(1)(A)(i). The proposed regulations provided that “any organization exempt from the tax imposed by subtitle A” meant “any organization exempt from the tax imposed by subtitle A by reason of section 501(a) of the Code.” This left some doubt whether Section 521 cooperatives were covered by this definition since Section 521(a) provides that such cooperatives “shall be considered an organization exempt from income taxes for purposes of any law which refers to organizations exempt from income taxes” without specifically mentioning Section 501(a). Section 501 is mentioned in the regulations, but not in the Code itself.

No Section 521 cooperative commented on the Section 6417 regulations, but several Section 528 homeowners’ associations did. Section 528 associations faced the same question since Section 528(a) provides that a homeowners’ association “shall be considered an organization exempt from income taxes for the purpose of any law which refers to organizations exempt from income taxes” without specific mention Section 501(a). Two of the comments pointed out that “other sections within subchapter F of chapter 1 have similar statutory language.” One suggested that the definition in the regulations be changed to replace the reference to section 501(a) with a reference to subchapter F of chapter 1.

The preamble to T.D. 9988 provides:

“In response, these final regulations adopt this comment and define ‘any organization exempt from the tax imposed by subtitle A’ to include organizations exempt from the tax imposed by subtitle A by reason of subchapter F of chapter 1. Thus, under these final regulations, any organization described in sections 501 through 530 of the Code that meets the requirements to be recognized as exempt from tax under these sections is an applicable entity eligible to make an elective payment election.” (emphasis added).

“Chaining” is not permitted (though further comments are solicited)

One question raised by applicable entities was whether they could claim a direct payment under Section 6417 for credits they purchased under Section 6418 (a practice described as “chaining”), thus opening the door for exempt corporations to arbitrage the credit provisions.

The proposed regulations took the position that “chaining” is not permitted. This position was not surprising since allowing “chaining” would effectively make all applicable energy credits refundable, something Congress did not do. The final regulations follow the proposed regulations in prohibiting chaining.

In the preamble to the proposed regulations, the Treasury/IRS admitted that the statutory language did not address “chaining.” But they stated that they believe that “not permitting chaining allows for a more straightforward application of the statute as a whole,” avoids certain administrability issues and limits the potential for fraud and abuse.

While the final regulations prohibit chaining, the notice says that the Treasury/IRS continues to study the issue and invites input. Specifically, further comments are solicited “on any situations in which an election under § 6417(a) … could be made for a credit that was purchased in a transfer for which an election under § 6418(a) is made.” See, Notice 2024-27 (March 5, 2024).

This review does not appear to be on a fast track since the deadline for additional comments is not until December 1, 2024.

Guidance for rural electric cooperatives

Also of interest is the discussion in the preamble to the final regulations addressing to issues pertinent to rural electric cooperatives.

The Section 6417 definition of “applicable entities” includes “any corporation operating on a cooperative basis which is engaged in furnishing electric energy to persons in rural

areas.” Section 6417(d)(1)(A)(vi). Several commenters asked that the regulations provide further guidance with respect to that section.

The final regulations and their preamble made it clear that subsection (vi) does not apply to rural electric cooperatives that are exempt under Section 501(c)(12) since those cooperatives are already “applicable entities” under Section 6417(d)(1)(A)(i) (which, as noted above, sweeps in exempt organizations). They also made it clear that electric cooperatives (that are not exempt under Section 501(c)(12)) which qualify as Subchapter T cooperatives are not covered by subsection (vi).

They conclude that subsection (vi) covers nonexempt cooperatives which are carved out of Subchapter T by Section 1381(a)(2) (C) (which provides that Subchapter T does not apply to a corporation “operating on a cooperative basis … which is engaged in furnishing electric energy, or providing telephone service, to persons in rural areas”). These entities are taxed under the rules of taxation applicable to cooperatives prior to the enactment of Subchapter T.

Thus, Treas. Reg. § 1.6417-1(c)(6) has been modified to read that the term “applicable entity” means “(6) Any corporation operating on a cooperative basis that is engaged in furnishing electric energy to persons in rural areas as described in section 1381(a)(2)(C) of the Code…” (emphasis added).

The regulations do not include definitions of some of the key terms in (6) – namely what it means to be “operating on a cooperative basis,” or to be “furnishing” electricity to persons in “rural” areas. However, the preamble includes several pages discussing those terms. For “operating on a cooperative basis,” the preamble refers to how that term is understood for Subchapter T purposes, citing Puget Sound Plywood v. Commissioner, 44 T.C. 305 (1965), acq. It observes:

“The payment of patronage dividends (and operation at cost) is critical to achieving cooperative status as defined by Puget

Sound, so any organization must analyze this issue to determine whether it is operating on a cooperative basis.”

For “furnishing” and “rural,” the preamble takes the view that those terms have the same meanings as the terms in Section 1381(a)(2)(C). It refers to guidance discussing these terms in Treas. Reg. §1.1381-1(b)(4).

Finally, the preamble observes that a cooperative taxed under Subchapter T (such as, for instance, a rural electric cooperative furnishing power in a non-rural areas) is not an “applicable entity” since “a cooperative cannot be both subject to subchapter T and excepted from subchapter T.” Also, the Treasury/IRS notes that a cooperative that is engaged solely in the activity of installation of energy equipment (such as the installation of solar panels) is not an “applicable entity” as that alone is not the generation or other furnishing of electricity.

Organization denied Section 521 status

A few years ago, the IRS stopped releasing data as to the number of Section 521 determination letter requests and responses processed each year. When it last released statistics, the number had dwindled to the single digits.

Every so often, the IRS releases an adverse determination letter denying Section 521 status. In recent years, the adverse determination letters leave the reader wondering what gave the requesting organization the idea that it might qualify. Ltr. 202402013 (October 16, 2023) is such a letter.

As cooperative advisors all know, Section 521 is available only for cooperatives that market crops or purchase supplies for farmers and that meet a variety of technical requirements. In recent years, the common denominator of adverse determination letters is that the organization is not a farmers’ cooperative. That was not always true. In the

past, there were many letters revoking the exempt status of Section 521 cooperatives that served farmers but failed (or were alleged to have failed) to meet the technical requirements. But such letters have not been so common in recent years perhaps because many cooperatives lost or surrendered their Section 521 status and those that remain are more compliant.

The most recent adverse determination is addressed to an organization whose “activities are not primarily directed to farmers, fruit growers, or like associations organized and operated on a cooperative basis, but rather to providing educational training classes for youth, homeless individuals, and young entrepreneurs.” The organization indicated that some of its “classes include learning about agriculture, agriculture products, arts and crafts products, and repurposing recyclables” but that “these activities will only constitute a small percentage of [its] total activities.”

Having a few classes related to agriculture clearly is not enough so it is no surprise that the determination letter was adverse.

By way of contrast, some organizers of cooperative or cooperative-like organizations seek and are denied exempt status under some other provision of the Code, but might have adjusted their business model to qualify as an exempt or nonexempt Subchapter T cooperative.

For example, organizers of farmers’ markets persist in requesting exempt status under Section 501(c)(5), which provides for exemption for labor, agricultural or horticultural associations. These requests are routinely denied because the entities are not operated exclusively for exempt purposes, a prerequisite for exemption under Section 501(c)(5). The most recent denial is contained in Ltr. 20240515 (November 6, 2023), which observes:

“Your activities are not directed to the betterment of the conditions of farmers, the improvement of the grade of their products,

and the development of the higher degree of efficiency in the farming industry, rather, you provide an economic outlet to enable farmers and vendors to sell their products directly to consumers.”

Another recent letter found that a farmers’ market did not qualify for Section 501(c)(3) status for similar reasons. See Ltr. 202406014 (November 15, 2023).

The IRS has recognized that farmers’ markets may qualify as exempt under Section 521 if they otherwise meet the requirements for Section 521 status. See, Rev. Rul. 67-430, 1967-2 C.B. 220, updating and restating the position originally set forth in I.T. 2720, XII-2 C.B. 71 (1933).

However, this requires operating in a manner consistent with Section 521, something that often is not what is desired. See, for example, NSAR 0296 (September 6, 2001), rejecting the application of a farmers’ market for exempt status as a business league under Section 501(c)(6), which observed:

“You could operate the farmers market and qualify for exemption under IRC 521 as [a] farmers cooperative if you changed operations to meet cooperative requirements, but you have indicated you do not want to qualify as [a] farmers’ cooperative.”

The National Taxpayer Advocate’s 2024 list of recommendations for tax reform

Each year the National Taxpayer Advocate prepares a report to Congress of “Legislative Recommendations to Strengthen Taxpayer Rights and Improve Tax Administration.” This report is known as the Purple Book. This year’s report, The National Taxpayer Advocate 2024 Purple Book (December 31, 2023) can be found at www.TaxpayerAdvocate.irs. gov/2024PurpleBook.

This year’s Purple Book contains sixty-six separate recommendations. While many target problems experienced by individual taxpayers (and, in particular, those of modest

means), some are of interest to corporate taxpayers.

Appearing on the list is no guarantee that Congress will do anything. However, every so often, some of the items of the Taxpayer Advocate’s list get included when Congress passes tax legislation. Next year could present such an opportunity when Congress is forced to address the expiration of many provisions in the Tax Cuts and Jobs Act of 2017.

Legislative Recommendation #2: Require the IRS to Timely Process Claims for Credit or Refund.

Currently there is no requirement that the IRS process refund claims, let alone process them in a timely manner. If the IRS does not process a claim, after six months a taxpayer may bring suit in a U.S. District Court or the U.S. Court of Federal Claims, but it cannot otherwise force the IRS to act on the claim.

The Taxpayer Advocate proposes to require the IRS to process claims within three years from the date of filing. If a claim is not acted upon within that period, she proposes that the IRS should be required to pay an additional five percent interest beyond the statutory rate on any refund ultimately allowed. Also, she proposes that the burden of proof should shift to the IRS in any litigation with respect to the claim.

While requiring the IRS to process claims (other than so-called “protective” refund claims) is a good idea, more thought needs to be given to the consequences of IRS inaction.

• For instance, under the Taxpayer Advocate’s proposal, what is to prevent the IRS from simply issuing a blanket denial to meet the timely processing requirement (and what has been accomplished if that is the result of the adoption of the proposal)?

Summary denial would give the taxpayer the ability to go to Appeals, but it would start a two-year statute running on the time to go to court.1

• Most taxpayers probably do not want to wait three years after a claim is filed to bring suit. Would the enhanced interest and the burden shift still apply?

Perhaps, for claims other than “protective” claims, the IRS should be penalized in some manner if the claim has not been acted on within 18 months of filing, the taxpayer brings suit and recovers all or part of the claim. For instance, under such circumstances, a prevailing taxpayer might be entitled to receive recovery, interest, and an additional amount equal to 20% of the recovery. That might encourage the IRS to pay more attention to refund claims.

Legislative Recommendation #3: Treat Electronically Submitted Tax Payments and Documents as Timely if Submitted on or Before theApplicable Deadline.

Section 7502 provides that, if certain requirements are met, a mailed document (or one sent by designated private delivery services) or payment is deemed filed or paid on the date of the postmark stamped on the envelope even if received later.

Electronically filed documents and payments are treated differently. For instance, according to instructions at the website of the Electronic Federal Tax Payment System (the “EFTPS”) an electronically submitted payment using that system “must be scheduled by 8 p.m. ET the day before the due date to be received timely by the IRS.”

The Taxpayer Advocate observes:

“This disparity in the treatment of mailed and electronically submitted payments makes little sense. As compared with a mailed check, an electronic payment is received more quickly, is cheaper to process, and eliminates the risk that a mailed check will be lost or misplaced. Yet, rather than encouraging taxpayers to use EFTPS, an earlier deadline serves as a deterrent.”

The Taxpayer Advocate proposes amending Section 7502 “to apply the

1 See, Legislative Recommendation #46: Extend the deadline for taxpayers to bring a refund suit when they have requested Appeals reconsideration of a notice of claim disallowance but the IRS has not acted timely to decide their claim.

statutory mailbox rule to all time-sensitive documents and payments electronically submitted to the IRS in a manner comparable to similar documents and payments submitted through the U.S. Postal Service or a designated delivery service and direct the Secretary to issue regulations implementing his requirement.”

Legislative Recommendations #8, #9 and #11: Tighten requirements related to math error notices.

The Code permits the IRS to make a summary assessment of tax arising from a mathematical or clerical error. See, Section 6213(b). While this is an efficient way to handle situations involving obvious errors, if applied in situations that are not obvious errors, it can undermine taxpayer rights.

The Code lists twenty-two kinds of changes that are considered mathematical and clerical errors for this purpose, and the list has grown in recent years. See, Section 6213(g) (2)(A)-(V). A taxpayer who disagrees with a math error notice must request abatement within 60 days from the date of the notice. If abatement is not requested, the summary assessment becomes final, and the taxpayer loses the right to challenge the assessment in the Tax Court. See, Section 6213(b).

Math error notices have become increasingly common in recent years. The 2023 IRS Data Book indicates that over 2.2 million math error notices were sent to individual taxpayers with respect to their 2022 returns. The notices the IRS sends often do not provide a clear explanation of the reason for the proposed assessment, leaving it to the recipient to try to figure out. Taxpayers often do not understand the significance of the notice and the need to act promptly if they disagree. As a result, they can inadvertently lose Appeal rights (and the ability to go to Tax Court) with respect to adjustments with which they disagree.

There have been concerns with the everexpanding list of changes that can be made

through math error notices.

“Math error authority, which provides fewer taxpayer protections, was authorized as a limited exception to regular deficiency procedures. It allows the IRS to make adjustments in cases of clear taxpayer error, such as where a taxpayer incorrectly adds the numbers or incorrectly transcribes a number from one form to another. …

The National Taxpayer Advocate is concerned about the impact on taxpayer rights of giving Treasury broad authority to add new categories of math error by regulation. In our reports to Congress, we have documented numerous circumstances in which the IRS has used math error authority to address discrepancies that have undermined taxpayer rights.

If the IRS uses math error authority to address more complex issues that require additional fact finding, its assessments are more likely to be wrong, and the IRS’s computer-generated notices, which confuse many taxpayers in the simplest of circumstances, are likely to become even more difficult to understand.”

The Taxpayer Advocate proposes to limit the IRS use of “math error authority” to the items specified by statute. “Congress should retain sole authority to revise categories of math errors and not give Treasury the authority to add new categories of math errors by regulation.”

She also proposes to require math error notices to be mailed by certified or registered mail (to focus taxpayer attention), that the notices describe the reason(s) for the adjustment with specificity, and that the notices clearly inform taxpayers that they may request abatement within 60 days if they disagree. Further she proposes that the notices clearly describe the consequences of not requesting abatement.

Taxpayers abroad are given additional time to respond to notices of deficiency, but they are not given additional time to request the abatement of a math error notice. The

Taxpayer Advocate proposes giving taxpayer 120 days to request an abatement when a math error notice is addressed to a person outside the United States.

Legislative Recommendations #13 and #43 – expand jurisdiction of the Tax Court. The Tax Court is a court of limited jurisdiction. Generally, a taxpayer can take a case to Tax Court only after having received a statutory notice of deficiency.

The Taxpayer Advocate has a number of recommendations aimed at expanding the jurisdiction of the Tax Court.

For instance, Section 6671(a) authorizes the IRS to assess some penalties (the so-called, assessable penalties) without first issuing a notice of deficiency. The Taxpayer Advocate proposes amending the Code to make it possible for taxpayers to take disputes related to assessable penalties to the Tax Court so they can contest the penalties without first having to pay the amount in dispute.

Taxpayers with refund claims are generally precluded from going to the Tax Court. They must bring suit in either a U.S. District Court or the U.S. Court of Claims. The Taxpayer Advocate recommends giving “the Tax Court jurisdiction to determine liabilities in refund suits to the same extent as the U.S. district courts and the U.S. Court of Claims.”

Legislative Recommendations #28, #29 and #30: Changes related to estimated tax payments and to overpayments of estimated tax.

A taxpayer that fails to timely pay estimated taxes is subject to a “penalty” specified in Sections 6654 and 6655. The Taxpayer Advocate believes that it is more appropriate to characterize the “penalty” as “interest” since it is computed like interest. Use of the term “penalty” suggests that the taxpayer is “engaged in improper conduct,” and that, according to the Taxpayer

Advocate, is often not the case. The Taxpayer Advocate proposes recharacterizing the penalty as an interest charge. She also proposes simplifying the computation by applying only one interest rate per estimated tax underpayment period.2

Historically, the IRS has not paid interest on excess estimated tax payments. The Taxpayer Advocate proposes that it should be required to do so, arguing that would be reciprocal and fair and improve voluntary tax compliance. Also, providing for such interest could provide an additional incentive to file on a timely basis if interest is limited only to timely-filed returns.

Legislative Recommendation #31: Extend Reasonable Cause Defense for the Failureto-File Penalty to Taxpayers Who Rely on Return Preparers to E-File Their Returns. A recent Eleventh Circuit decision held a taxpayer responsible for the failure-to-file penalty when it was clear that the late filing was the result of the failure of the taxpayer’s preparer to e-file the return. The taxpayer was not permitted to make a reasonable cause defense.

The Taxpayer Advocate believes that “the nearly automatic assessment of the failureto-file penalty for e-filed returns deemed late (often where the return was submitted timely by the taxpayer or preparer but rejected by the IRS before processing) is grossly unfair and undermines the congressional policy that e-filing be encouraged.”

She proposes to amend the Code “to specify that reasonable cause relief may be available to taxpayers that use return preparers to submit their returns electronically and direct the Secretary to issue regulations specifying what constitutes ordinary business care and prudence for e-filed returns.”

Legislative Recommendation #36: Require Taxpayers’ Consent Before Allowing

2 Also, for individuals the Taxpayer Advocate proposes changing the timing of estimated tax payments so that they are due 15 days after the end of each calendar quarter (i.e., April 15, July 15, October 15, and January 15) rather than the current due dates of April 15, June 15, September 15, and January 15. Legislative Recommendation #6.

IRS Counsel or Compliance Personnel to Participate in Appeals Conferences.

Historically IRS counsel and compliance personnel did not participate in Appeals meetings. In recent years, that has changed, raising concerns that their participation has compromised the independence of the Appeals process. The Taxpayer Advocate proposes to allow their attendance only if the taxpayer consents.

The Taxpayer Advocate explains:

“Under the revised procedures [i.e., those now in effect], an Appeals Officer may invite the additional participants regardless of whether taxpayers agree or object to their presence. …Including Counsel and Compliance personnel in nondocketed cases without the consent of taxpayers runs contrary to the purpose of an independent Appeals conference, which is neither to give Compliance personnel another bite at the apple nor to transform Appeals into a mediation forum. Instead, the mission and credibility of Appeals rests on its ability to undertake direct and unbiased settlement negotiations with taxpayers and their representative, independent of the Counsel and Compliance function.”

This would be a helpful reform. IRS counsel and compliance have an opportunity to present their views in the thirty-day letter and revenue agent report, and historically they have been able to meet with Appeals before the Appeals conference begins. Participation in the Appeals conference itself undermines the process.

Legislative Recommendation #42: Repeal Statute Suspension under IRS § 7811(d) for Taxpayers Seeking Assistance from the Taxpayer Advocate Service.

Section 7811 authorizes the Taxpayer Advocate to come to the assistance of taxpayers “suffering or about to suffer a significant hardship as a result of the manner in which the internal revenue laws are being administered by the Secretary.” This is done through the issuance of a Taxpayer Assistance Order.

There is one potential downside to requesting a Taxpayer Assistance Order. Section 7811(d) suspends “any period of limitations with respect to any action” when a request for assistance is pending. However, this applies only when the taxpayer makes a written request. See, Treas. Reg. § 301.78111(e)(4). It does not apply to telephone requests, which the explanation of the proposal observes “is the method by which most taxpayer’s seek TAS’s help.”

According to the explanation of this proposal, the IRS “has never implemented this rule” (though one court used it affirmatively against the IRS to toll the period for filing a wrongful levy claim). The IRS takes normal actions to protect against the running of any relevant statute while any request is pending.

The Taxpayer Advocate proposes repealing Section 7811(d) because “this provision – apart from being unnecessary and unutilized – would produce disparate outcomes for taxpayers who, despite lacking any knowledge of this issue, contact TAS by different means,” e.g., by telephone.

Legislative Recommendation #54: Amend the Lookback Period for Allowing Tax Credits or Refunds to Include the Period of Any Postponement or Additional or Disregarded Time for Timely Filing a Tax Return.

Generally, taxpayers who think they overpaid their taxes may file refund claims by the later of three years from the date the return was filed or two years from the date the tax was paid.

The language of Section 6511(b) places a cap on tax that can be recovered when a taxpayer files a claim within three years of the date the return was filed. If the return was filed later than the original due date, the cap differs depending upon whether the return is filed pursuant to an ordinary extension or to a special extension (such as one resulting from a federally declared disaster). The amount of tax refunded if there is a special extension

is limited to the tax paid in the three-year period before the return was filed. If there is an ordinary extension, the amount of tax potentially refunded is the tax paid in the period of the extension plus three years.

This problem was fixed in an IRS notice in the case of returns filed late because of COVID, but it remains for returns filed late because of a special extension.

The Taxpayer Advocate proposes to amend the Code “to provide that when any postponement or addition or disregarding of time is granted pursuant to the IRC for purpose of timely filing, the limit on the amount of a credit or refund will be the amounts paid in the three-year period preceding the filing of the claim for credit or refund plus the period of any extension, postponement, or additional or disregarded time for timely filing the related return.”

Legislative Recommendation #59: Remove the Requirement that Written Receipts Acknowledging Charitable Contributions Must be Contemporaneous. There are a number of technical requirements that must be met in order to be able to claim deductions for charitable contributions.

One is that any charitable contribution of $250 or more must be substantiated by a contemporaneous written acknowledgment from the donee. Section 170(f)(8)(A). The acknowledgment must include (i) the amount of cash and a description of any other property contributed, (ii) whether the donee provided in goods or services in consideration for the donation, and, if so, (iii) a description of what was received and its fair market value. Section 170(f)(8)(B). The acknowledgement must be received no later than the date the return is filed or the date on which the return is due (including extensions). Section 170(f)(8)(C).

The IRS has been picky about this requirement. The Taxpayer Advocate states that “[s]trict contemporaneous timing requirements harm taxpayers and tax-exempt

organizations that make a technical mistake in their written acknowledgment or that provide some necessary information only after the statutory deadline has passed.”

The Taxpayer Advocate proposes to eliminate the “contemporaneous” requirement. She notes that her proposal “would still require taxpayers to provide sufficient evidence to substantiate their deductions, but it would reduce taxpayer burden and give the IRS and courts common sense flexibility in administering the law.”

Legislative Recommendation #62: Encourage and Authorize Independent Contractors and Service Recipients to Enter into Voluntary Withholding Agreements. Whether certain workers are employees or independent contractors has been a longstanding area of tax controversy. Whatever their status, such workers owe federal income taxes with respect to their earnings. Their status affects how the taxes are paid –through withholding (if they are employees) or by estimated tax payments (if they are independent contractors).

The Taxpayer Advocate is concerned that “many independent contractors fail to make estimated tax payments for a variety of reasons and therefore face penalties under IRC § 6654. In addition, some do not save enough funds to pay their taxes at the end of the year” which can lead to further difficulties.

The Taxpayer Advocate believes that employers and independent contractors should be encouraged to enter into voluntary withholding agreements for income taxes. She is concerned that employers may be reluctant to do so out of concern about the impact in determining whether the worker is an employee or independent contractor for other purposes (e.g., for employment tax purposes).

She proposes to amend the law “to clarify that when voluntary withholding agreements are entered into by parties for

the withholding of income tax and these parties do not treat themselves as engaged in an employer-employee relationship, the IRS may not consider the existence of such agreements as a factor when challenging worker classification arrangements.”

Updates to Previously Reported Cases

There have been developments with respect to several cases discussed in recent TAXFAX columns. This short article describes several.

Proposed regulations characterize aggressive CRAT transactions as “reportable transactions” The Summer 2023 TAXFAX column described an unsuccessful attempt by a farmer and his wife to avoid tax on appreciated farm assets (including crops) through use of a charitable remainder annuity trust (“CRAT”). See, “The Tax Court Deflates a Farmer’s Scheme to Avoid Tax on His Crops,” The Cooperative Accountant (Summer 2023), discussing Donald and Rita Furrer v. Commissioner, T.C. Memo. 2022-100 (2022).

Recently, the Treasury and IRS released proposed regulations identifying CRAT transactions of the sort used by the Furrers as “listed transactions,” a type of reportable transaction. The targeted CRAT transactions are transactions where the taxpayers form a CRAT, fund the CRAT with appreciated property, sell the property, use the proceeds to purchase an annuity, and then treat “the annuity amount payable from the trust as if it were, in whole or in part, an annuity payment subject to section 72 of the Code, instead of as carrying out to the beneficiary amounts in the ordinary income and capital gain tiers of the trust in accordance with section 664(b).” Prop. Treas. Reg. § 1.6011-15. Transactions “substantially similar to” such CRAT transactions are also covered.

This is no surprise. Such CRAT transactions have been targeted for years. They have been included in the IRS annual “Dirty Dozen” list. While at one time characterizing

a transaction like the aggressive CRATs as listed transactions might have been done with a notice, since losing a case finding that notices used in that manner were invalid under the Administrative Procedures Act, the Treasury/IRS have begun using regulations to do so.

Characterizing such transactions as “reportable transactions” triggers certain reporting requirements for taxpayers participating in such transactions and their material advisors. Material advisors also have list maintenance responsibilities. It also brings into play penalties potentially applicable reportable transactions. See, for example, Sections 6662, 6662A, 6707, 6707A and 6708. An extended statute of limitations applies to the failure to disclose listed transactions. Section 6501(c)(10).

When a charitable organization participates in a reportable transaction, it and its managers may be subject to penalties under Section 4965. However, because charitable organizations entitled to remainder interests under the CRATs often do not have knowledge of their beneficiary status, the proposed regulations provide that a charitable organization will not be treated as a party to the transaction (and thus subject to a penalty) “solely by reason of its status as a recipient of the remainder interest…” Prop. Treas. Reg. § 1.6011-15(d). However, if the charitable organization does more, for instance, providing assistance with respect to the transaction, the penalties may apply. The Treasury/IRS specifically request comments with respect to whether charitable remaindermen ever provide such assistance, and the nature of the assistance provided, and whether they receive fees for such assistance.

Master’s Gallery Wisconsin personal property tax decision reversed. The Summer 2022 TAXFAX column described two decisions of the Wisconsin Tax Appeals Commission concluding that some machinery and equipment of a cheesemaker was subject

to the Wisconsin personal property tax and some was not. See “Wisconsin Tax Appeals Commission Decision Examines the Extent to Which Cheese Plant Equipment is Subject to the Personal Property Tax,” The Cooperative Accountant (Summer 2022), discussing Master’s Gallery Foods, Inc. v. Wisconsin Department of Revenue, Docket No. 19-M067 (September 8, 2020, and January 28, 2022).

These decisions have turned out not to be the last word on the subject. The decisions were first appealed to the Circuit Court of Sheboygan County and then to the Wisconsin Court of Appeals, District II. For the Court of Appeals decision see Department of Revenue v. Master’s Gallery Foods, Inc., Tax Notes Doc. 2024-8485 (March 20, 2024). Both concluded that all of the equipment was taxable, reversing the Commission’s decision to the extent that it concluded some was exempt.

As described in the earlier article, while Wisconsin imposes a tax on personal property, there are numerous exceptions. Section 70.111(27) exempts “machinery, tools, and patterns, not including such items used in manufacturing.” (emphasis added). While Master’s Gallery conceded that it was a manufacturer, it argued that some of its machinery was not “used in manufacturing,” but rather was used in activities that preceded or followed its manufacturing activities. The Court of Appeals did not agree. It concluded that the “used in manufacturing” language was ambiguous. It then considered extrinsic evidence to determine what it thought the Wisconsin Legislature really meant when it enacted the exception. Its decision effectively read the word “used” out of the exception, concluding that all machinery owned by a manufacturer is subject to the tax, no matter how used.

A dissenting judge concluded that the language was unambiguous, stating that “I would apply the plain meaning of the text actually enacted and stop there.” He observed that:

“The enacted law does not say ‘owned by and used in.’ It does not say ‘all property used in the manufacturing industry’ or ‘all manufacturing property.’ Nor does it say ‘ any property that a manufacturer submits to the Department for assessment.’” (italics in original).

The extrinsic evidence found persuasive by the majority related principally to revenue estimates prepared by the Legislative Fiscal Bureau during the legislative process. These estimates focused on property owned by manufacturers and nonmanufacturers, not on property “used in manufacturing” by manufacturers and all other property.

Should this evidence have been taken into account? Only if the statutory language was ambiguous. As the dissent observes, “[w] here no ambiguity exists, we simply apply the statute’s plain meaning.” The majority found the language ambiguous and reversed the Commission’s decision which sought to give meaning to the word “used.”

The majority may have stretched to find ambiguity with language that is clear on its face, but it presented a case for doing so. At the same time the machinery exception was enacted, the legislature passed a provision designed to compensate local governmental units for the loss in revenue as a result of the exception and appropriated a specific sum to do so. That sum ties to the revenue estimate, which led the Court of Appeals to consider the estimate in interpreting the statute.

However, what the revenue estimators may have thought does not change the plain language of the statute. When faced with a situation like this, some courts leave it to the legislature to fix any mistake that may have been made. The Court of Appeals is not one such court. Rather, it found ambiguity in an otherwise unambiguous provision and proceeded to fix the language to conform to what it believed the legislature really intended.

Supreme Court denies certiorari to Seaview Trading

The Summer 2023 TAXFAX column discussed a case involving a taxpayer who had “filed” a delinquent for a year by delivering it first to an IRS agent and several years later to an IRS attorney. See, “Avoiding Procedural Pitfalls: Another Case Study,” The Cooperative Accountant (Winter 2023), describing Seaview Trading, LLC v. Commissioner, 62 F.4th 1131 (9th Cir. 2023), aff’g. T.C. Memo. 2019-122. Over a vigorous dissent, the Ninth Circuit concluded the “filing” was not effective to start the running of the statute of limitations because the return should have been sent to the appropriate Service Center.

The article noted that the Ninth Circuit decision might not be the last word on the subject because Seaview Trading had requested certiorari from the Supreme Court. It turns out that decision is the last word since the Supreme Court denied certiorari in January.

Tax Court dismisses another late petition

The Fall 2023 TAXFAX column discussed a Tax Court decision dismissing a petition that was filed eleven seconds too late. See, “Tax Court dismisses a petition filed eleven seconds too late,” The Cooperative Accountant (Fall 2023), describing Sanders v. Commissioner, 160 T.C. No. 16 (June 20, 2023). It does not appear that decision was appealed.

In a recent decision, the Tax Court dismissed a petition which was sent on a timely basis but received a day late. Dzuy Nguyen v. Commissioner, T.C. Memo. 2023151 (December 20, 2023). The petition was not sent using the U.S. mail so the “timely mailed, timely filed” rule of Section 7502 did not apply. The petition was sent by FedEx. While the “timely mailed, timely filed” rule applies to some specified forms of FedEx delivery, it does not apply to the form Mr. Nguyen chose, namely FedEx Ground. See, Notice 2016-30, 2016-18 I.R.B. 676. Mr. Nguyen has filed a notice of appeal in this case.

As described in the earlier article, the Tax Court continues (notwithstanding the 3rd Circuit Court of Appeals decision in Culp to the contrary) to view the 90-day filing period as jurisdictional, requiring strict compliance. (Note, the IRS recently filed a petition for certiorari to the Supreme Court in Culp.) Thus, it will not consider making an exception to the rule based on equitable considerations.

Taxpayers filing Tax Court petitions at the last minute clearly need to be careful about how they do so.

Taxpayers should be aware that special rules apply to petitions that bear postmarks other than those of the U.S. Postal Service. If for instance, the envelope with a petition bears a Pitney Bowes mark, and is delivered to the post office on the last day for filing, Treas. Reg. § 301.7502-1(c)(1)(iii)(B)(i) requires: (i) the postmark so made must bear a legible date on or before the last date to file; and (ii) the document must be received by the Court not later than the time a document contained in an envelope properly addressed, mailed and sent by the same class of mail would ordinarily be received if it were postmarked at the same point of origin by the U.S. Postal Service on the last date to file.

In a recent case, the IRS argued that this required delivery within 8 days. In the case, the petition was delivered on the ninth day, which according to the IRS was too late. The Tax Court rejected the IRS argument, observing that elsewhere “this Court has recognized that ‘a petition can take as little as 8 business days and up to 15 business days to arrive at the Tax Court after being mailed.’”

See, Salas v. Commissioner, Docket No. 37377-21, Order dated November 20, 2023.

The moral of the story is not to wait to the last minute to file Tax Court petitions. The gold standard remains mailing by certified or registered mail at the post office (and, if certified mail is used, getting the certified mail receipt postmarked by a postal employee).

Workplace bullying is defined as “situations where an employee repeatedly and over a prolonged period is exposed to harassing behavior from one or more colleagues (including subordinates and leaders) and where the targeted person is unable to defend him/herself against this systematic mistreatment” (Nielsen & Einarsen, 2018, p.73). While the negative effects of workplace bullying have been documented and will be discussed further below, bullying in the workplace remains a problem. A survey of U.S. adults in 2021 (Workplace Bullying Institute, 2021) found that 30% surveyed reported being bullied at work, 19% witnessed bullying, 49% reported being affected by it, and 66% are aware that it occurs.

Workplace bullying can be found globally in all industries and professions, and accounting is no exception. As you can see from the definition above, harassment is an example of bullying behavior.

PriceWaterhouseCooper settled a worker’s compensation claim in part due to a junior accountant alleging he was bullied for being Tasmanian (Tadros, 2017). In 2018, Ernst &

Workplace Bullying: What it is and What to do about it

EDITOR

Young (EY) partner, Jessica Casucci, filed a sexual harassment suit against the company. Later that same year, another former EY partner, Karen Ward, sued the firm alleging sexual harassment and retaliation.

Barbara A. Wech, Ph.D. Department of Management, Information Systems, and Quantitative Methods University of Alabama at Birmingham COLLAT School of Business 710 13th St. South Department of Management, Information Systems, & Quantitative Methods Birmingham, Alabama 35233 bawech@uab.edu

GUEST WRITER

Annetta R. Dolowitz, Ph.D. DoloWech Consulting 205-821-3186 annetta.dolowitz@gmail.com

Two executives, partner John Martinkat and principal Michael McNamara, were fired because of the lawsuits. The Financial Times reported that Deloitte U.K. fired approximately 20 partners between 2014 and 2018 for inappropriate behavior, including sexual harassment and bullying. KPMG told the Financial Times that during that same timeframe, seven of its U.K. partners left the firm due to inappropriate behavior. In 2023, it was reported to the Australian Congress that EY in the previous 2 years had fired

8 partners for behavioral issues including bullying (Tadros, 2023). As you can see from these examples, the world of accounting is not immune from bullying.

While accountants work in all sectors and industries, our focus here is on cooperatives. Cooperatives in the United States range in size from small neighborhood grocery stores to a $15 billion organization such as Land O’ Lakes. However, the median size of a coop’s workforce is 10, clearly putting most co-ops in the small size range (US Worker Cooperatives, n.d.). If a small business is not proactive in combating workplace bullying, the negative effects and costs of such behaviors will be substantial and the results could be devastating (Baillien, Neyens, & de Witte, 2011). For example, absenteeism and turnover, both results of bullying, are more costly to a small organization than to a large one that has more human and financial capital to address negative outcomes.

In the remainder of this article, I will cover several specifics about workplace bullying. I will identify what bullying looks like, the costs of workplace bullying, how to respond to it as an employee and as a manager, and how to help prevent it.

What Does Workplace Bullying Look Like

Workplace bullying can take many forms. Here are some examples:

• Yelling in anger

• Lying or spreading rumors

• Harassment of someone’s identity (i.e., religion, race, ethnicity, gender, etc.)

• Intimidating someone by glaring at someone

• Leaving a room when they enter it.

• Withhold information and otherwise sabotage others’ work

• Belittling someone

• Isolating a coworker

• Blocking employment opportunities

• Setting impossible deadlines

• Criticizing someone in a demeaning manner or one who does not warrant the criticism

Many of these examples of bullying can also occur virtually via Zoom or another similar online platform, email, etc. When bullying takes place online, it is also known as cyberbullying. Identity-based bullying can occur on Zoom by targeting people based on their race, gender, sexual orientation, religion, or any other aspect of their identity through discriminatory comments or actions. Sending threatening or abusive messages through Zoom’s chat feature or privately messaging participants with malicious intent can constitute cyberbullying. Harassment can occur by sending repeated offensive or threatening emails whose intent is to intimidate the recipient. This could include name-calling, derogatory remarks, or personal attacks. Isolating a coworker via email occurs by excluding him or her from group emails which can make the individual feel isolated and marginalized.

Costs of Workplace Bullying

Workplace bullying not only has costs to the organization but also to the bullied employees and those who witness the bullying. The Workplace Bullying Institute estimates that bullying costs the U.S. economy $300 billion annually (Narine, 2015).

Workplace bullying has costly outcomes for the bullied employee and the organization (National Workplace Bullying Coalition, n.d.). When bullying occurs, it leads to an increase in absenteeism, turnover, healthcare costs due to stress, legal costs, workplace accidents, and sabotage, and can also increase escalating from bullying to aggression and violence. Bullying leads to a decrease in productivity, work quality, and performance. Targets (and sometimes witnesses of the bullying) reduce how much work they do, go out of their way to avoid the bully, and in general, will punish the organization for the behavior of the bully. Employees who witness bullying behaviors in their workplaces also display some of the

negative effects that the targets themselves experience, such as the stress associated with such environments. Employee poor health was estimated to cost U.S. businesses $576 billion annually in 2012 (Japson). That number has only increased. The estimate includes many of the consequences of workplace bullying, such as wage replacement, medical and disability leaves ($117 billion), and productivity loss ($227 billion) from absenteeism and presenteeism (employees being present but not functioning to their full capacity due to illness, stress, etc.).

How to Respond to Being Bullied

If you feel you are being bullied in the workplace, here is some advice on how to handle the situation (Walker & Circo, 2024). The first thing you should do is try and defuse the situation. You can do this by politely, yet assertively, asking the bully to stop what he/she/they is doing. Ask the bully to leave and if he or she will not do so, remove yourself from the scene. After trying these approaches, immediately report the situation to your supervisor (or another source if the bully is your supervisor). Your goal should always be to stay calm and be respectful. Document any bullying situations and also note if others were witnesses to the bullying. What should you do if the bully is a client or customer (How to deal with the bully client, n.d.)? One simple piece of advice to know the difference between a customer or client with high expectations versus a bully: a good customer is honest and civil while a bully is dishonest or manipulative and abusive. The first thing you want to do is make sure the behavior is bullying. Document your interactions with the client/customer. Discuss the interactions with your supervisor to be sure the client is being a bully as opposed to making sure their expectations are being met. Once there is confirmation that bullying is taking place, then you can take some actions. You should handle a bullying client similarly

to a fellow employee who is a bully (Saguil, March 17, 2023). If the client is yelling or otherwise being aggressive, remain calm. Sometimes such behavior can be a tactic for the client to get what she or he wants from you. Stay focused on the facts of the situation at hand. In other words, you model more appropriate behavior. Depending on the situation, document the details. When communicating with a bullying client, be confident and respond to the bully calmly and assertively.

How You Should Respond to Bullying as a Manager

There are many actions managers can take to prevent bullying and to address it when it happens. The anti-bullying policy you will find later in this article: distribute it, discuss it at meetings, etc. This will communicate that the organization knows bullying exists in some workplaces and that it will not be tolerated in your firm. It communicates what the behaviors look like and how the organization will address them.

As a manager, be a model of appropriate behavior. The manager should be behaving in a way that communicates what behaviors are acceptable in the organization. Managers should behave in a way that reinforces the fact that employees are valued and should be treated with dignity and respect. Oftentimes, managers are bullies. Examine your interactions. Solicit feedback from trusted others in the organization to make sure you are not one of the organization’s bullies. If so, do better: modify your behaviors so you treat people inclusively and respectfully (Y. Othman, personal communication, February 22, 2024).

When an employee comes to you to report a concern about being bullied, investigate the situation and take action quickly, thoroughly, and impartially. If bullying is occurring, address the bully. Let the individual know such behavior will not be

tolerated. Offer to help the person improve their interpersonal interactions. Sometimes it can be the case that the bully does not realize she or he is being a bully. Perhaps some advice on how to better communicate feedback, for example, may be helpful. Focus on the behavior, not the individual. Provides specific examples of the bullying behaviors the person has displayed and offer suggestions on how to behave in a positive, nonbullying manner. But in any case, the bully must understand that bullying behavior will not be tolerated. Use of the disciplinary process could result if behaviors don’t improve, for example.

How to Prevent Workplace Bullying

One essential way to prevent workplace bullying is through a policy. This will make clear to employees what bullying is and what the consequences are for being a bully in your organization. Also, it should outline what a victim of bullying can do to notify the organization that such behavior is taking place. The Society for Human Resource Management has developed a sample bullying policy (see Figure 1). You can modify the policy to fit your organization and also may want to include potential disciplinary steps for the person found to be displaying bullying behaviors.

A study on small businesses and bullying found that those with an anti-bullying policy had less bullying than those who did not have such a policy (Baillien et al., 2011). Having such a policy also allows for addressing unwanted behaviors by confronting the bully and starting constructive actions to help the employee stop such behaviors. In addition, the employee could be placed in the disciplinary process to improve their behaviors or risk termination. Another positive for an anti-bullying policy is the support it shows victims of bullying. It communicates that such behaviors will not be tolerated and that there is an avenue for bullied employees to report such behaviors and have them addressed by the organization (Taylor, 2024).

Another important deterrent to workplace bullying is the organization’s culture. In the study just mentioned, they also found that small organizations with a peopleoriented culture also experienced less incidents of workplace bullying. People-oriented cultures believe that people are their most valuable asset. Such cultures value fairness in policies and procedures, supportiveness, and treating people with dignity and respect. Businesses with this culture strive to create an environment where work is fun and employees do not feel obligated to choose work over their outside lives (Erdogan, Liden, & Kraimer, 2006).

In summary, bullying is a problem in organizations around the world. Accountants are not immune to being bullied or even being bullies themselves. Bullying can be displayed in many ways and these behaviors harm the employees who experience them, people who witness such incidents, and the organizations that they work for. Companies can take action to address bullies and to prevent workplace bullying. Targets can also behave in ways to try and address bullies. I hope the information in this article helps you to have a more inclusive and respectful work life and workplace, free from bullies. One essential way to prevent workplace bullying is through a policy. This will make clear to employees what bullying is and what the consequences are for being a bully in your organization. Also, it should outline what a victim of bullying can do to notify the organization that such behavior is taking place.

Workplace Bullying Policy

Objective

The purpose of this policy is to communicate to all employees, including supervisors, managers and executives, that [Company Name] will not in any instance tolerate bullying behavior. Employees found in violation of this policy will be disciplined, up to and including termination.

Definition

[Company Name] defines bullying as repeated, health-harming mistreatment of one or more people by one or more perpetrators. It is abusive conduct that includes:

• Threatening, humiliating or intimidating behaviors.

• Work interference/sabotage that prevents work from getting done.

• Verbal abuse.

Such behavior violates [Company Name]’s Code of Ethics, which clearly states that all employees will be treated with dignity and respect.

Examples

[Company Name] considers the following types of behavior examples of bullying:

• Verbal bullying. Slandering, ridiculing or maligning a person or his or her family; persistent name-calling that is hurtful, insulting or humiliating; using a person as the butt of jokes; abusive and offensive remarks.

• Physical bullying. Pushing, shoving, kicking, poking, tripping, assault or threat of physical assault, damage to a person’s work area or property.

• Gesture bullying. Nonverbal gestures that can convey threatening messages.

• Exclusion. Socially or physically excluding or disregarding a person in work-related activities.

In addition, the following examples may constitute or contribute to evidence of bullying in the workplace:

• Persistent singling out of one person.

• Shouting or raising one’s voice at an individual in public or in private.

• Using obscene or intimidating gestures.

• Not allowing the person to speak or express himself of herself (i.e., ignoring or interrupting).

• Personal insults and use of offensive nicknames.

• Public humiliation in any form.

• Constant criticism on matters unrelated or minimally related to the person’s job performance or description.

• Public reprimands.

• Repeatedly accusing someone of errors that cannot be documented.

• Deliberately interfering with mail and other communications.

• Spreading rumors and gossip regarding individuals.

• Encouraging others to disregard a supervisor’s instructions.

• Manipulating the ability of someone to do his or her work (e.g., overloading, underloading, withholding information, setting deadlines that cannot be met, giving deliberately ambiguous instructions).

• Assigning menial tasks not in keeping with the normal responsibilities of the job.

• Taking credit for another person’s ideas.

• Refusing reasonable requests for leave in the absence of work-related reasons not to grant leave.

• Deliberately excluding an individual or isolating him or her from work-related activities, such as meetings.

• Unwanted physical contact, physical abuse or threats of abuse to an individual or an individual’s property (defacing or marking up property).

Individuals who feel they have experienced bullying should report this to their supervisor or to Human Resources before the conduct becomes severe or pervasive. All employees are strongly encouraged to report any bullying conduct they experience or witness as soon as possible to allow [Company Name] to take appropriate action.

Society for Human Resource Management. https://www.shrm.org/topics-tools/tools/ policies/workplace-bullying-policy

References

Baillien, E., Neyens, I., & de Witte, H. (2011). Organizational correlates of workplace bullying in small- and medium-sized enterprises. International Small Business Journal, 29, 610- 625.

Erdogan, B., Liden, R. C., & Kraimer, M. L. (2006). Justice and leader-member exchange: The moderating role of organizational culture. Academy of Management Journal, 49, 395–406.

How to deal with a Bully Client (n.d.) Retrieved on March 22, 2024 from https://ugn.com/howto-deal-with-the-bully-client/

Japsen, B. (2011). U.S. Workforce Illness Costs $576B Annually From Sick Days To Workers Compensation. https://www.forbes.com/sites/brucejapsen/2012/09/12/u-s-workforceillness-costs-576b-annually-from-sick-days-to-workers-compensation/?sh=7bc557675db0

Narine, M. L. (2015). Fifty years after the passage of Title VII: Is it time for the government to use the bully pulpit to enact a status-blind harassment statute? St. John’s Law Review, 89, 621-655. Retrieved from www.stjohns.edu/

National Workplace Bullying Coalition (n.d.). The research. https://www. workplacebullyingcoalition.org/workplace-bullying-research#:~:text=Employees%20 making%20%2460%2C000%2Fyear%20will,employee%20(Legal%20Risk%20 Management).

Nielsen, N. B., & Einarsen, S. V. (2018). What we know, what we do not know, and what we should and could have known about workplace bullying: An overview of the literature and agenda for future research. Aggression and Violent Behavior, 42, 71-83.

Saguil, R. (March 17, 2023). 4 ways to manage a “BULLY client. https://www.linkedin.com/ pulse/4-ways-manage-bully-client-ren-saguil#:~:text=Stand%20firm%20without%20 compromising%20your,than%20what%20I%20am%20feeling

Tadros, E. (January, 31, 2017). PwC settles workplace bullying claim for $120,000. https:// www.afr.com/companies/professional-services/pwc-settles-workplace-bullying-claim-for120000-20170118-gttucq

Tadros, E. (July 11, 2023) EY, Deloitte, KPMG force out dozens for bullying, harassment. https://www.afr.com/companies/professional-services/ey-deloitte-kpmg-force-out-dozensfor-bullying-harassment-20230711-p5dni1

Taylor, J. C. (2024). Ask HR: How Do You Stop a Workplace Bully? Retrieved March 22, 2024 from https://www.shrm.org/topics-tools/news/organizational-employee-development/askhr-how-to-stop-workplace-bully

US Worker Cooperatives: A State of the Sector (n.d.). Democracy at Work Institute. Retrieved February 29, 2024 from chrome-extension://efaidnbmnnnibpcajpcglclefindmkaj/https:// institute.coop/sites/default/files/resources/State_of_the_sector_0.pdf.

Walker, J., & Circo, D. (February 9, 2024). How to recognize and deal with bullying at work. https://www.shrm.org/topics-tools/news/employee-relations/recognize-bullying-at-work

Yakas, B. (September 24, 2018). Former Female Partner Sues Ernst & Young Over Alleged Sexual Harassment & Retaliatory Practices. https://gothamist.com/news/former-femalepartner-sues-ernst-young-over-alleged-sexual-harassment-retaliatory-practices

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