Magazine of the
New Jersey Society of Certified Public Accountants
J a n • F e b 2 0 1 1
Health Care Reform Diagnosing the Patient Protection and Affordable Care Act The IRS’ Role in Health Care Reform Health Care Reform and the CPA Firm
Su ealt p h Pa ple Ca ge me re 38 nt
Limiting Liability Exposure Under the Patient Protection and Affordable Care Act
H
Family Business
Not-For-Profit
Corporate
Entrepreneur
All your clients are different. Explore how you and Paychex can work together to provide solutions that meet their unique needs. Every client is different, but they all have one thing in common. To stay successful, they need to focus on running their businesses and not navigating payroll complexities, healthcare insurance and new tax regulations. Your client could be a traditional family-run business searching for the best retirement plan, a large corporation faced with the new Health Care Reform legislation, a small business owner that’s experiencing growing pains, or a not-for-profit organization looking to understand the HIRE Act provisions.
Join the more than 20,000 CPA firms that have broadened their service offerings and enhanced their roles as trusted business advisors by referring their clients to Paychex. Participation is free and there is no obligation. Enroll online at www.cpa2biz.com/paychex, by phone at 877.534.4198 or through your local Paychex representative.
Newly referred clients will receive
ONE FREE MONTH of payroll processing
January • February 2011
Ralph Albert Thomas Executive Director rthomas@njscpa.org
Ellen C. McSherry Associate Executive Director emcsherry@njscpa.org
Don Meyer Director, Communications & Marketing dmeyer@njscpa.org
David Plaskow Managing Editor dplaskow@njscpa.org
Jeanette L. Miller Editorial Assistant jmiller@njscpa.org
Editorial Advisory Board Neil B. Becourtney, CPA David Callen, CPA David M. Capodanno, CPA Rosemary F. Ervin, CPA Rebecca B. Fitzhugh, CPA Christopher W. Frey, CPA Catherine Z. Horn, CPA Bernard M. Kiely, CPA Marcella LoCastro, CPA William C. McNamara, CPA Marc D. Mintz, CPA John F. Raspante, CPA Joseph F. Scutellaro, CPA Margaret Van Brunt, CPA
The Warren Group Design / Production / Advertising thewarrengroup.com custompubs@thewarrengroup.com
features
8 Diagnosing the Patient Protection and
Affordable Care Act Learn how the act will affect health care providers, individuals and employers and what the opportunities are for CPA firms.
12 The IRS’ Role in Health Care Reform See how health care reform will transform this already massive agency and make it even more prevalent in your daily life.
16 Health Care Reform and the CPA Firm Get the prescription for managing firm issues resulting from this law, such as management, staffing and tax implications.
18 Limiting Liability Exposure Under the Patient Protection and Affordable Care Act Don’t get diagnosed with professional negligence by not becoming familiar with this landmark legislation.
The New Jersey Society of Certified Public Accountants 425 Eagle Rock Avenue Suite 100 Roseland, NJ 07068-1723 973-226-4494 Fax: 973-226-7425 www.njscpa.org
4 Close Up Q&A with the NJSCPA Executive Director
48 Student Outlook 2011 CPA Exam Changes You Need to Know
6 News Briefs
49
20 22 24 25 2 6 27 28 30
A&A Buzz Developing a Successful Health Care Business Model
Legislative Views Small Business Jobs Act Hopes to Have a Big Impact
50 Member Profile Counting on the Kindness of Others
Best Practices Working with the Media on Complex Issues Society Pages CPE Offerings and Events, 32 Financial Planning Member Benefits, 32 Financial Planning for a Get Involved, 34 Special Needs Child State Board Report, 36 Classifieds, 37 Forensic File Forensic Accountants on the Health Care Trail of Health Care Fraud Supplement Introduction, 38 Industry Insights CPA Opportunities in the Industry CPAs in a New Health Insurance Health Care Era Sector, 40 Long-Term Care Insurance Small/Sole Practitioner Has Its (Tax) Turning the Red Flags Rule Advantages 42 from Burden to Opportunity Understanding FSA Benefits Post-PPACA, 44 Tax Talk Finding the Wellness Get Ready for the Program Hidden Gems in Medicare Tax in 2013 the PPACA, 46 Tech Center Advising Clients on EMR Implementation
New Jersey CPA (ISSN 1534-6692) is published six times per year by the New Jersey Society of Certified Public Accountants, 425 Eagle Rock Avenue-Suite 100, Roseland, NJ 07068. Issue No. 25 Copyright © 2011 New Jersey Society of Certified Public Accountants. Annual membership dues includes $9 for a one-year subscription to New Jersey CPA magazine. Members may not deduct subscription price from dues. Periodicals postage paid at Roseland, NJ, and at additional mailing office. POSTMASTER: Send address changes to New Jersey CPA, 425 Eagle Rock Avenue, Suite 100, Roseland, NJ 07068-1723. The materials and information contained within New Jersey CPA are offered as information only and not as practice, financial, accounting, legal or other professional advice. The opinions expressed herein are those of the authors and not necessarily those of the New Jersey Society of CPAs. Publication of an advertisement in New Jersey CPA does not constitute an endorsement of the product or service by the New Jersey Society of CPAs.
CLOSE
up
Q&A with the NJSCPA Executive Director T
his year promises to bring more than its share of changes for the country and the accounting profession. At this writing, there is still uncertainty about the expiration of the Bush tax cuts and the future of the estate tax. The accounting profession faces its own set of challenges as regulatory bodies debate the future of international accounting standards and private company financial reporting. According to New Jersey Society of CPAs Executive Director Ralph Albert Thomas, 2011 will be an active year for the Society. Below, Thomas discusses events that will impact Society members in the new year, including the looming specter of tax return preparer registration and the end of the CPE triennial reporting period.
What are the Society’s 2011 goals in Trenton and Washington, DC? The Society and its leaders worked tirelessly last year to establish a good working relationship with Governor Christie’s new administration, with great success. Most notably, we had discussions with the governor’s office, the state treasurer and other lawmakers regarding our opposition to the New Jersey Comptroller’s recommendation requiring mandatory audit firm rotation after 10 years for all government entities in the state. The administration has paused to consider our concerns, but there’s still work to be done. In 2011, we’ll be working with legislators to advocate for speedy passage of the governor’s 33-point “tool kit” reform package, which is intended to reign in property taxes by reducing the costs and expenditures of New Jersey county and municipal governments. We’ll also be working with the American Institute of CPAs on the IRS’ planned system of registration, qualification and oversight of all paid tax return preparers to ensure that the profession’s concerns are heard. The profession is especially concerned about the registration, testing and continuing education requirements, especially for nonCPA employees of CPA firms who prepare (but don’t sign) tax returns. Also, we’re concerned about the potential for confusion
regarding the designation afforded non-CPA tax preparers.
What issues keep you up at night? Quite a few, but in the interest of space, I’ll narrow it down. One big concern is maintaining our relevance to members in industry. Over the past 10 years, while the Society’s overall membership has steadily grown, our business and industry population has shrunk, dropping that group’s representation from 40 percent of total NJSCPA membership to about 31 percent. Figuring out how the Society can become a better resource and increase its value not only to our industry members, but also to the companies that they work for, will be a matter of discussion this year and beyond. I fully intend to tap into a valuable local resource: AICPA Chair Paul Stahlin, CPA. Not only is he the first New Jersey CPA to hold that position, he’s also a member in industry. His insight can be invaluable to developing programs and services for a very diverse group of CPAs.
Any final thoughts? 2011 is the final year of the New Jersey CPE triennial reporting period. All CPAs need 120 credits in order to renew an active license and must complete the mandatory New Jersey Law and Ethics course during this triennial period, even if they took the class previously. Those CPAs found deficient will have to pay fines, make up CPE or both. I strongly urge all NJSCPA members to make sure that they’re compliant by the end of this year. Also, a couple of years ago in this column I mentioned the implementation of the NJSCPA Firm Outreach Program. Our goals then and now are to get in front of our members and update them on what’s happening in the profession, including an overview of the regulatory and legislative landscape. I’m happy to say that in the last year, we’ve presented to nearly 20 New Jersey firms. If we haven’t visited your firm yet, let us know. We’d be happy to arrange a visit.
NEW JERSEY CPA • January • February 2011
4
2010/11 Board of Trustees EXECUTIVE COMMITTEE President Robert S. Marrone, CPA President-Elect Carole A. Hedinger, CPA Secretary Lloyd F. George, CPA Treasurer Frank R. Boutillette, CPA Immediate Past President Robert J. Traphagen, CPA Executive Director Ralph Albert Thomas TRUSTEES Lewis D. Bivona, CPA Jose E. Bombino, CPA Susan Burke-Leichner, CPA Rebecca B. Fitzhugh, CPA Robert A. Fodera, CPA Linda Gibson, CPA Ronald E. Gray, CPA Maryann Holloway, CPA James A. Lawrence, CPA Charles A. Lota, CPA Jay Mehta, CPA Marc D. Mintz, CPA Stanley J. Morin, CPA Robert A. Nanfro, CPA Kenneth Pogrob, CPA Christine Pronek, CPA Coleman F. Szely, CPA Patricia Vroman-Stuart, CPA
NEWS
briefs
2011 Changes to FSAs
The Internal Revenue Service (IRS) has issued guidance reflecting statutory changes regarding the use of certain tax-favored arrangements, such as flexible spending accounts (FSAs), to pay for over-the-counter medicines and drugs. The Affordable Care Act established a new uniform standard that applies to FSAs and health reimbursement arrangements. Under the new standard, the cost of an over-the-counter medicine or drug cannot be reimbursed from the account unless a prescription is obtained. The change does not affect insulin, even if purchased without a prescription, or other health care expenses such as medical devices, eye glasses, contact lenses, co-pays and deductibles. The new standard applies only to purchases made on or after January 1, 2011, so claims for medicines or drugs purchased without a prescription in 2010 can still be reimbursed in 2011 if allowed by the employer’s plan. A similar rule goes into effect on January 1, 2011, for health savings accounts and Archer medical savings accounts. See IRS Publication 969 at www.irs.gov.
Small Businesses Can Claim Health Care Tax Credit
Both small businesses and tax-exempt organizations should now use Form 8941 to calculate the small business health care tax credit. A small business will then include the amount of the credit as part of the general business credit on its income tax return. Tax-exempt organizations will instead claim the small business health care tax credit on a revised Form 990-T to enable eligible
tax-exempt organizations also to claim the small business health care tax credit.
Final Regulations on New Basis Reporting Requirement
The IRS issued final regulations that will require reporting of basis and other information by stock brokers and mutual fund companies for most stock purchased in 2011 and all stock purchased in 2012 and beyond. The reporting will be to investors and the IRS and optional for stock purchased prior to these dates. The regulations describe who is subject to this reporting requirement, which transactions are reportable and what information needs to be reported. Form 1099-B, Proceeds from Broker and Barter Exchange Transactions, will be expanded in 2011 to include the cost or other basis of stock and mutual fund shares sold or exchanged during the year. Stock brokers and mutual fund companies will use this form to make these expanded year-end reports. The expanded form will also be used to report whether gain or loss realized on these transactions is held more than one year, or one year or less. The expanded form, to be first used for calendar-year 2011 sales, must be filed with the IRS and furnished to investors in early 2012.
Guidance on Expanded Adoption Credit
The IRS issued guidance on the expanded adoption credit included in the Affordable Care Act. The act raises the maximum adoption credit to $13,170 per child, up from $12,150 in 2009. It also makes the credit refundable, meaning that eligible taxpayers can get it even
Hudson River Tunnel Project by the Numbers 2,700,000,000 140,000,000 625,000 45,000 2018 9
New Jersey’s dollar commitment to the project Pounds of annual greenhouse gases that would have been eliminated New Jerseyans who commute into Manhattan each work day Project’s permanent jobs creation Scheduled completion date Mile length of proposed tunnel
if they owe no tax for that year. The credit is based on reasonable expenses related to a legal adoption, including adoption fees, court costs, attorney’s fees and travel expenses. Income limits and other special rules apply. In addition to filling out Form 8839, Qualified Adoption Expenses, eligible taxpayers must include with their 2010 tax returns one or more adoption-related documents.
State Trying to Erase Memory to Combat ID Theft
Recent news reports indicate that most digital copy machines use internal hard drives, which store every document that has been scanned, printed, faxed or emailed by the machines. Those electronic records remain on the hard drive until the drive is erased. New Jersey Bill A2975 would require that a person destroy, or arrange for the destruction of, all records stored on a digital copy machine, which is no longer to be retained by that person, by erasing or otherwise modifying those records to make the records unreadable, undecipherable or non-reconstructable through generally available means.
PCAOB Issues Report on Auditing During the Economic Crisis
The Public Company Accounting Oversight Board (PCAOB) released a report summarizing audits of financial institutions and other companies during the economic crisis. • Some auditors appeared not to have complied with PCAOB auditing standards for audit areas significantly affected by the economic crisis, such as fair value measurements, impairment of goodwill, indefinite-lived intangible assets, other long-lived assets, allowance for loan losses, off-balance-sheet structures, revenue recognition, inventory and income taxes. • Firms should continue to focus on making improvements to their quality control systems. • The PCAOB will focus on whether firms’ actions to address quality control deficiencies have reduced or eliminated subsequent deficiencies. • The report will influence future PCAOB
NEW JERSEY CPA • January • February 2011
6
actions in connection with certain inspection, enforcement and standardsetting activities. The board will consider whether additional guidance is needed related to existing standards. • PCAOB inspectors will continue to focus on firms’ audits and quality control systems, particularly as they relate to audit risks posed by the ongoing effects of the economic crisis and any future similar events. The report covers PCAOB inspections conducted during the 2007 through 2009 inspection cycles and is based on audit inspections of financial institutions, financial services companies and other companies that posed audit risks and challenges specific to the economic downturn.
IRS Thinks Big
will strengthen international tax compliance for individuals and corporations in several ways: • Identifying emerging international compliance issues more quickly. • Removing geographic barriers. • Increasing international specialization among IRS staff. • Ensuring compliance resource allocation. • Consolidating oversight of international information reporting. • Coordinating more closely with field staff who originate cases. • Centralizing and enhancing a focus on transfer pricing. The LB&I will continue to serve corporations, subchapter S corporations and partnerships with assets greater than $10 million, as well as certain high-wealth individuals.
NJ-W-3 Can Now Be Submitted Electronically
The IRS announced the rechristening of the Large and Mid-Size Business division as the Large Business and International division (LB&I). This realignment will create a more centralized organization dedicated to improving international tax compliance and
Filers now have the option to submit the NJ-W-3 annual reconciliation electronically, both the W-2 and NJ-W-3 forms. If you currently use Tumbleweed to upload the
W-2 file, follow the same procedures when transmitting the NJ-W-3 form. The same login name and password will be used to access Tumbleweed for both transmissions. Before transmitting the NJ-W-3 form, please make sure the file is named W3Form. This will ensure the file is successfully captured and processed by the system. The NJ-W-3 record layout is available at www.state.nj.us/treasury/ revenue/swdev.htm.
NJ/NY Reciprocal Sales Tax Ends
The 1986 Reciprocal Agreement between the state of New Jersey and the state of New York providing Cooperative Tax Administration (“Reciprocal Agreement”) is ending. As a result, New Jersey vendors will no longer file ST-20/21 returns to report New York sales tax, and Schedule NJ for New York vendors to report New Jersey sales tax (NYS ST-100.4, ST-809.4, ST-810.4 and ST-101.4) will no longer be used to report New Jersey sales and use taxes. Learn more at the New Jersey Division of Taxation’s website at www.state. nj.us/treasury/taxation.
njscpa.org Spotlight Use NJSCPA Connect for Tax Season Success What if you could have immediate access to hundreds of your tax peers when faced with a daunting question? That’s a prime benefit members of the New Jersey Society of CPAs taxation interest groups enjoy. Here’s how it works. Join a Group. Visit njscpa.org/committees to join the Estate, Trust & Gift Taxation; Federal Taxation; International Taxation; and State Taxation interest groups. Log in using your username (email address) and password (NJSCPA ID, unless you’ve changed it during a previous visit.) There are also many other non-tax-related groups to choose from. Once you join a group, you’ll automatically be added to its community on NJSCPA Connect. Update Your Profile. Log onto njscpa.org/ connect and make sure your profile is current
by clicking the Profile link in the upper right corner. Make sure you upload a photo. Join the Conversation. Access one of your communities by clicking the Communities link in the upper right corner and then clicking on the community name. From there, you can: • Read past discussions by clicking a discussion title or the More link at the bottom of the Current Discussions box. • Ask a question or start a new discussion by clicking the Post link at the bottom of the Current Discussions box. Postings will automatically be sent to all group members. • Check the Recent Documents box for files that have been posted to the group, or add a new document by clicking the Add Document link.
• View all of the members of the group. Click on a person’s name to view his or her profile. Questions? Go to the Resources menu and select Training & User Guides, or contact Rachael Bell at rbell@njscpa.org or 973-226-4494, ext. 220.
NEW JERSEY CPA • January • February 2011
7
Diagnosing the
Patient Protection and Affordable Care Act The Patient Protection and Affordable Care Act (PPACA), as amended by the Health Care and Education Reconciliation Act of 2010, includes provisions both related and unrelated to health care phasing in over the next several years. This legislation alters the landscape for health care providers, individuals and employers.
By Kevin J. Hansen, CPA Hunter Group CPA LLC
This is a uniquely challenging time for health care businesses, as they are faced with a shrinking level of reimbursement. There are 32 million uninsured people, and half of them will be covered by Medicaid, which reimburses less than 70 cents per dollar spent. Health care providers must determine how to offer the same services at less cost to operate efficiently. This is where CPA firms can be of tremendous value to health care service providers.
Provisions for Individuals All individuals not covered by health insurance, including Medicare or Medicaid, will be required to obtain health care coverage or pay a penalty unless they are exempt from the
individual responsibility mandate. Lower-income individuals and some middle-income families may qualify for a premium assistance tax credit, cost sharing or a voucher to help pay for health insurance. Individuals may opt to shop for coverage through a state insurance exchange. Each state will establish a health benefit exchange for eligible individuals to enroll and facilitate the purchase of health insurance. A premium assistance credit will mitigate out-of-pocket costs to individuals and families who don’t have health insurance through an employer plan. Individuals who fail to maintain minimum essential coverage will be subject to penalty. Incentives for wellness will include preventive care without co-pays. By 2014, insurers must provide coverage for applicants with preexisting medical conditions without charging a higher premium.
Provisions for Employers While the PPACA does not mandate employer-provided coverage, it does include “play or pay” language. Businesses with more than 50 employees will be subject to the pay or play penalty. There is an incentive for small employers – a tax credit for nonelective contributions to purchase health insurance for their employees.
NEW JERSEY CPA • January • February 2011
8
“You save money. But more importantly, you’re saving patients’ lives.” Anne, Director of Infection Prevention / Robert Wood Johnson University Hospital Hamilton
Getting an infection in the hospital often means a longer stay to have it treated. That means increased costs, too. Horizon BCBSNJ sponsored an infection prevention program with hospitals across the state that has benefits for our members and non-members alike. The program is not only saving money, it’s saving lives. To learn more, visit HorizonBlue.com/Prevention
Horizon Blue Cross Blue Shield of New Jersey is an independent licensee of the Blue Cross and Blue Shield Association. ®Registered marks of the Blue Cross and Blue Shield Association. ®‘and SM Registered and service marks of Horizon Blue Cross Blue Shield of New Jersey. ©2010 Horizon Blue Cross Blue Shield of New Jersey. Three Penn Plaza East, Newark, New Jersey 07105.
To qualify, a business must offer health insurance to its employees as part of compensation and contribute at least half the total premium cost. The credit amount varies with the number of employees. While some employers will enjoy a tax credit, others will be subject to an excise tax on high-cost employer-sponsored health coverage. The excise tax, which applies for tax years beginning after 2017, places a nondeductible excise tax on insurance companies and plan administrators for any health coverage plan premiums that exceed certain thresholds.
Phase-In Versus Immediate Provisions The small business tax credit, along with some age adjustments, became effective in 2010. For purposes of including dependents on health insurance policies, the age of the dependent has increased to 26. Temporary, high-risk pools for individuals with preexisting conditions became available last year, as were provisions for early retirees. Among this year’s phase-ins: only prescribed medicines will be covered by flexible spending accounts (FSAs) and health savings accounts (HSAs), thus excluding over-the-counter medicines from reimbursement. The employer’s reporting of the annual value of health benefits has already been extended to 2012 Forms W-2 from the initial 2011 requirement. Expect additional delays
in the implementation of many of the complex provisions as insurers and businesses implement and realize the cost savings of reform.
Revenue Raisers The threshold for the itemized deduction for unreimbursed medical expenses increased from 7.5 percent to 10 percent of adjusted gross income (AGI) for regular income tax purposes with exceptions for taxpayers who turn age 65 during 2013-16. The law also imposes controversial new information reporting requirements for businesses that pay any amount greater than $600 during the year to corporate and noncorporate providers of property and services. The legislation expanded the 1099 information reporting requirement for business payments after 2010 to include payments for property and payments to incorporated businesses. As part of the payable process, businesses will be issuing Form W-9 to document official name, address and employer identification numbers of vendors to meet year-end compliance reporting. Businesses should consider the enhanced reporting requirements when assessing software upgrades. Magnetic media filing requirements will extend to smaller businesses.
Additional Medicare Tax Beginning in 2013, high-income taxpayers will be subject to an increased Medicare tax. The law includes the
employee portion of the hospital insurance tax part of FICA, currently 1.45 percent of covered wages, to be increased by 0.9 percent on wages that exceed a threshold amount. The additional tax will be imposed on the combined wages of both the taxpayer and the taxpayer’s spouse, in the case of a joint return. The threshold amount is $250,000 for a joint return or surviving spouse, $125,000 for a married individual filing a separate return and $200,000 in any other case. Concurrently, and with the same threshold amounts, net investment income will be subject to Medicare tax. Investment income is defined as income from interest, dividends, annuities, royalties and rents, and net gain from the disposition of property, other than such income derived in the ordinary course of a trade or business. Income from passive activities and from a trade or business of trading in financial instruments or commodities is also considered net investment income. The tax will be equal to 3.8 percent of the lesser of the individual’s net investment income for the year or the amount the individual’s modified AGI exceeds the same thresholds as the increased Medicare tax on wages. In addition to deleting nonprescription medications from FSAs, the maximum amount available for reimbursement of incurred medical expenses will be decreased to $2,500. The additional tax on distributions from an HSA or an Archer MSA that are not used for qualified medical expenses is increased to 20 percent of the disbursed amount, effective for disbursements this year. To remain current and provide the best advice for clients, practitioners need to be on top of revenue procedures and rulings, notices and regulations. Kevin J. Hansen, CPA, is a director of Hunter Group CPA LLC. He leads the firm’s medical and real estate service practices. He is a member of the New Jersey Society of CPAs. Contact Hansen at kjh@thehuntergroup.com or 201-693-9804.
NEW JERSEY CPA • January • February 2011
10
In this tough economic climate, your three best friends are your lawyer, your accountant and your banker.
Say hello to Gordon, Lawrence and Charles At Valley National Bank, we understand that your law rm has different needs. We will meet with you to discuss all aspects of your business to better understand what is required for its success. As your partner, we promise to develop a plan that’s right for you and your business. This includes choosing the account that’s right for you and your practice like our new BusinessCHECKING 1000. If you’re looking for free checking with up to 1,000 free transactions and online banking this account is designed to meet your practice’s monthly activity.
LAWRENCE E. FLACK
OFFICE: (201) 599-3971 CELL: (973) 610-2551 lack@valleynationalbank.com
GORDON HUNZIKER
OFFICE: (201) 599-3973 CELL: (973) 699-6421 gmhunziker@valleynationalbank.co
If this is the kind of relationship you are looking for in a bank, then say hello to a better way of banking and hello to Valley National Bank.
CHARLES SALES
For customized banking solutions, give us a call or visit one of our branch offices.
1-800-522-4100 www.valleynationalbank.com
OFFICE: (732) 842-7710, EXT.261 CELL: (732) 379-8432 csales@valleynationalbank.com
©2010 Valley National Bank. Member FDIC. Equal Opportunity Lender. VCS-3791
VNB_Prof_Group_Ad_7.375 x 9.875_NJCPA.indd 1
7/29/10 9:38:15 AM
The IRS’ Role in
Health Care Reform The recently enacted Patient Protection and Affordable Care Act will extend insurance coverage to roughly 32 million additional Americans. Among the inherent necessities of this legislation is an Internal Revenue Service (IRS) with greatly expanded authority. Many of the mechanics of health care implementation sit in amendments to the Internal Revenue Code (IRC). The health care bill will be largely paid for by imposing penalties and additional taxes on individuals and businesses, and a larger IRS with expanded authority will be the key agency to handle the economics of health care reform. More than 16,000 new IRS examiners will be needed to administer these economics. This represents an increase of more than 15 percent of the current IRS workforce and is projected to cost $10 billion over a 10-year period.
By David Wasserstrum, CPA WeiserMazars LLP
With more examiners come more examinations and thus an intrusion into the personal health matters of taxpayers. The IRS will become responsible for penalizing taxpayers that either do not have or do not provide acceptable health coverage and for monitoring the appropriate use of tax credits and other subsidies. Given that compliance will be monitored through filing Form 1040, more than 40 million Americans who
may not have otherwise been required to file must now do so. “All that will happen with the IRS is similar to a current 1099,” says IRS Commissioner Douglas Shulman. This will inform the person of whether or not he or she has acceptable health coverage. The Department of Health and Human Services will determine what constitutes acceptable health coverage. The health care legislation imposes a 2014 health insurance coverage mandate and charges penalties on taxpayers who, by 2014, do not have health insurance coverage. For example, an adult who does not have health insurance by 2014 would be penalized by the greater of $95 or 1 percent of income. This increases to the greater of $695 for an uninsured adult and up to $2,085 per household, or 2.5 percent of income, in 2016. Employers with more than 50 workers that do not offer a “qualified” health plan or don’t pay 60 percent of health insurance premiums would face an annual tax penalty of $2,000 per full-time worker. Another penalty applies to companies with 50 or more workers that hire from low- and moderate-income families who qualify for, and elect to accept, premium subsidies. Those employers would have to absorb an additional $3,000 peremployee per-year tax penalty – even if those companies already offer health insurance. These tax penalties may discourage companies from hiring new workers, particularly individuals who are likely to be in low-income families.
NEW JERSEY CPA • January • February 2011
12
Impress the Big Dogs Nothing impresses management or clients like finding anomalies not previously detected.
Prior to the enactment of the heath care legislation, there were no discrimination rules applicable to fully insured plans. This meant that an employer might provide different levels of insurance coverage for highly compensated employees than for nonhighly compensated employees and even specific forms and/or levels for a particular employee, even if highly compensated. Conversely, self-insured health plans were always subject to discrimination rules under IRC Section 105(h). The new health care legislation now applies the nondiscrimination rules of IRC Section 105(h) to fully insured health plans, effective the first day of the plan year beginning on or after September 23, 2010, or January 1, 2011, for a calendar-year plan. Current regulations that apply discrimination rules to self-insured health coverage will likely require amendment to comport with the expansion thereof to insured plans. However, the IRS recently announced that the penalty for failure to meet the nondiscrimination rules is an excise tax on the employer in the amount of $100 per day for each employee against whom the plan discriminates. The excise tax is reported and paid with Form 8928. The new health care legislation also includes additional tax increases, penalties and tax credits to modify taxpayer behavior in favor of universal health care: • If the firm fails to offer adequate coverage, a nondeductible fee will be charged to businesses with 50 or more employees equal to $2,000 times the number of employees in excess of 30. • A tax credit becomes effective in 2010 for employers with 10 or fewer workers and average annual wages of below $25,000 up to 35 percent of their health premium costs each year
Identify control and transaction issues before they become a problem for your organization or client with IDEA® – Data Analysis Software. Access and analyze large volumes of data in seconds to:
Identify errors and detect fraud Extend your auditing capabilities Meet documentation standards
IDEA is a registered trademark of CaseWare International Inc.
For a free demonstration CD of IDEA, contact us at audimation.com or call 888-641-2800.
We think there’s more to your client’s business than its credit score. As a non-profit lender, UCEDC looks beyond credit scores to find the real value in a small business. We lend up to $150,000 for fixed assets and working capital at affordable terms.
Advise your clients to call Ellen McHenry at 908-527-1166.
We finance growth. “With a loan from UCEDC, I was able to start my business. And they’ve helped me with every question I’ve had ever since.” –Kathy Vastola Breadsmith, Cranford, NJ
A Non Profit Economic Development Corporation
Resources & Solutions for Small Business
A NON-PROFIT SERVING SMALL BUSINESSES FOR OVER 30 YEARS!
NEW JERSEY CPA • January • February 2011
13
through 2013. The credit is phased out for larger companies and is completely phased out if a company has more than 25 employees or average annual wages of $50,000 or more. • Effective in 2013, a 0.9-percent Medicare surtax will apply to wages of more than $200,000 for single taxpayers and wages of more than $250,000 for married couples. A 3.8-percent surtax will also be applied against unearned income. • Effective in 2013, there will be an annual limit of $2,500 on salary reductions that participants can make to health care flexible spending accounts.
• Starting in 2011, reimbursements for cost of over-the-counter medications paid from flexible spending accounts will no longer be permissible. • The adjusted gross income limit on itemized deductions for medical expenses increased from 7.5 percent to 10 percent beginning in 2013. Taxpayers age 65 and over are exempt from this threshold increase through 2016. • The penalty for nonqualified distributions from health savings accounts doubles to 20 percent beginning in 2011. One key question is can the IRS handle the added responsibilities of the
health care legislation given its current size and complexity, as well as a growing political climate toward less government? Regardless, CPAs must be familiar with the new taxes and credits and keep current on the rapidly changing legislation as it evolves. CPAs must also be available to assist clients in determining necessary and appropriate hiring practices and assisting in insurance coverage consulting regarding the nature, level and forms of coverage to use. David Wasserstrum, CPA, M.B.A., is a partner at WeiserMazars LLP. Contact him at david.wasserstrum@ weisermazars.com.
NEW JERSEY CPA • January • February 2011
14
A VAluAble pArtner
FOr cpAs.
Find out why so many cpAs turn to tD bank for all their banking needs.
• Dedicated Small Business Relationship Manager • Longer Hours that Work with Your Schedule • Free BusinessDirect Online Banking • Comprehensive Cash Management Services
Call Don Buckley for Northern New Jersey, Nick Miceli for Central Jersey, Jim Kiernan for Monmouth through Cape May Counties or Rob Curley for Southern New Jersey at 1-888-751-9000 and open a business account today.
TD Bank, N.A. | TD Bank is a trade name for The Toronto-Dominion Bank. Used with permission. For detailed credit ratings for The Toronto-Dominion Bank and TD Bank, N.A. visit https://www.td.com/investor/credit.jsp. Credit Ratings are not recommendations to purchase, sell, or hold a financial obligation in as much as they do not comment on market price or suitability for a particular investor. Ratings subject to revision or withdrawal at any time by the rating organization.
Health Care Reform and the
CPA Firm
The Patient Protection and Affordable Care Act (PPACA) became law on March 23, 2010. With its passage, the playing field has changed in terms of the approach to insuring individuals. While the Obama administration suggests a key goal of the legislation is to ensure that all Americans have health insurance, the landscape in terms of how the U.S. population may receive this care is subject to debate.
By Andrew Botwin Rothstein Kass
Nearly a year after this landmark legislation was enacted, there is still much ambiguity surrounding the PPACA’s impact on businesses, including CPA firms. An initial review of the PPACA suggests three general steps that accounting firms can and should take now: (1) understand the direct impact on the business of their businesses; (2) understand the indirect impact on firms’ employment base and the associated challenges; and (3) demonstrate an understanding of how these legislative changes are likely to influence their clients’ businesses, the many tax implications of this legislation and the various embedded non-health-care reform items.
Managing Your CPA firm It’s no secret that the rapidly increasing cost of health care has impacted the profitability of all businesses. Many PPACA supporters hailed this law as
a way to contain the costs of health care, which represent approximately 16 percent of the total U.S. gross domestic product. As margins in many CPA firms have been squeezed, the costs of health care continue to factor into a wide range of business decisions, including hiring. It also appears most businesses will be facing aggressive price increases from their insurance carriers in coming years. It remains critical that CPA firms remain mindful of these as they budget for the future. To manage some of these costs and maintain profitability considering marketplace fee pressure, many CPA firms may pass on some of these costs to their employees and change plan designs to have more of a cost-sharing environment. On the surface, this approach may seem to make sense. However, such decisions could impact the “grandfather” status of the firm’s health insurance plans, making them subject to broader PPACA components, thus further increasing employer costs. These decisions should be carefully assessed while looking ahead to the cascading impact of the PPACA through 2018.
Talent Management Part of an accounting career’s allure has been, for many years, the stability offered by a profession seemingly always in demand – regardless of the general economic environment. As the profession has evolved, demand for talented accountants has remained high and so has pressure on CPA firms
NEW JERSEY CPA • January • February 2011
16
to become more employee-centric. Benefit programs, including health care offerings, have become more important in managing businesses and ensuring that accounting firms can attract and retain talented professionals. The creation of state-run insurance exchanges and tax penalties – such as the “free rider” provisions and the “Cadillac Plan” surcharges – suggest CPA firms have complex decisions to make regarding their overall financial structure and employee retention approaches. It’s not unforeseeable that some firms will try to compete for talent by offering superior medical coverage and paying a steep premium for this, while other firms will elect out of the insurance business entirely, pay the penalties and have their employees enter insurance exchanges. While these decisions are difficult and require current-day planning for an uncertain future, CPA firms can help themselves by increasing internal communication and education to their employees. Most will not initially understand the full PPACA implications. This creates an opportunity for firm management to form more of a partnership with its staff by openly talking about the current medical offerings employees receive, the financial impact on the organization and how this legislation may impact everyone
involved. As a result of the need for accounting firms to compete for talent, many firms may already have insurance coverage that meets or exceeds the standards set forth by the PPACA. Educating your employee base about this builds trust and sends a message that your firm is already ahead of the curve with respect to treatment of its members.
Client Advisors A crucial role CPAs play often goes beyond traditional tax and audit services. Modern CPAs conduct themselves as true business advisors to clients. While they are evaluating the range of implications to their own businesses, CPA firms must recognize the challenges that their clients will face not only in properly accounting for their expenses, but also in recognizing the financial implications of their decisions and the potential tax benefits or burdens that could impact profitability. CPAs must understand issues such as the definition of a full-time employee, Internal Revenue Service formulas for small business tax credits, withholding issues associated with high-income earners and the many other nuances of the new law. CPA firms should educate their professionals in partnership with their brokers and counsel to ensure they themselves are best equipped to advise
their clients in managing their own organizations. While there are still many unanswered questions as we look toward the new horizon of health care, it’s critical to plan strategically to shape your health care benefits so that they conform to the provisions of the PPACA. It’s equally important to help educate your staff on these matters so they will be better business advisors to clients and better partners with your firm to navigate through these changes. As business owners, many firms will need to tactically answer questions, such as their employment strategy, and assess the competitive landscape for hiring and retaining employees. Some employers may make the business decision to provide higher levels of benefits and pay the associated premiums as a result of the excise tax, while other employers may choose to completely exit the insurance business and pay the fees to have their employees be part of the state insurance exchanges. Andrew Botwin, B.S., M.B.A., J.D., is a principal at Rothstein Kass. He is responsible for leading the firm’s human resources, recruiting and personnel management. Contact Botwin at abotwin@rkco.com.
Accounting Practice Sales is North
Bigger is Better
America’s leader in sales because we know how to navigate today’s tricky financial market. When you decide to sell your practice, remember APS got to be the biggest because we earned it. We are the best at what we do! Bigger is Better! Call Bradley Holmes today!
Contact Bradley Holmes 1-800-397-0249 bradley@accountingpracticesales.com www.AccountingPracticeSales.com
NORTH AMERICA'S LEADER IN PRACTICE SALES
NEW JERSEY CPA • January • February 2011
17
Limiting Liability Exposure Under the Patient Protection and Affordable Care Act One of the biggest hurdles that CPAs face with the passing of any new legislation is the ability to fully comprehend its content and how it will ultimately apply to their clients. The Patient Protection and Affordable Care Act (PPACA) is no exception. While many of the PPACA’s provisions begin in 2014 and thereafter, the prudent CPA should become familiar with its content sooner, rather than later.
By John F. Raspante, CPA Graf Repetti & Company LLP
CPAs are expected to be familiar with new legislation, and arguably the standard of care would expect the same. Most state boards of accountancy address this issue in their accountancy acts under the competency and due care standards. Failing to become familiar with the PPACA’s provisions may very well be deemed professional negligence. Professional liability exposure may develop under the following scenarios:
Tax Subsidies The PPACA provides for a tax subsidy
program which will ensure that eligible families pay no more than 9.5 percent of their income for health coverage. CPAs who service closely held businesses will have to plan diligently to ensure that the income paid to the owners is minimized as best as possible, which will allow for the maximum subsidy. Deferral of income, entity selection, hiring family members and dividend distributions will have to be fully analyzed to attain the maximum subsidy. The failure in any of these circumstances will elevate the liability exposure faced by CPAs. It should be noted that families earning up to four times the poverty level will be eligible for the subsidy.
Fines for the Uninsured Beginning in 2014, the federal government will fine those who don’t have insurance coverage. Historically, professional liability claims against CPAs have resulted from fines being assessed against clients. Equally important will be a thorough knowledge of the exceptions to the penalties for failing to secure coverage. The fines for the years 2014-16 are:
NEW JERSEY CPA • January • February 2011
18
• 2014 – The greater of $95 or 1 percent of taxable income. • 2015 – The greater of $325 or 2 percent of taxable income. • 2016 – The greater of $695 or 2.5 percent of taxable income.
provisions of the IRC and consequently reduce professional liability exposure.
Insurance
After 2016, fines will be based on a governmental calculation based on a yet-to-be-determined cost-of-living adjustment. Newsletters and e-blasts can serve as protection against legal liability lawsuits, as clients will be put on notice of the potential for a fine and the need to plan with their CPAs to mitigate a fine.
Investment Income Beginning in 2013, earned income and investment income will be directly impacted by the PPACA. Essentially, married couples who earn more than $250,000 per year and singles earning more than $200,000 per year will be subject to an increase in Medicare Part A taxes. The increase will be 0.9 percent of the amount over the base amounts described above. Furthermore, beginning in 2013, there will be a new Medicare surtax of 3.8 percent on the lesser of net investment income or the excess of adjusted gross income of more than $250,000 for married couples and $200,000 for single taxpayers. Careful tax planning will be necessary to minimize these taxes. Undoubtedly, professional liability claims will develop asserting that necessary planning was not considered and additional taxes resulted. In addition, the CPA will need to balance the PPACA’s provisions regarding new investment income with other provisions of the Internal Revenue Code (IRC). For example: John, a CPA, recommended to his client, Bob, that he switch part of his investment portfolio from qualified dividend-paying mutual funds to a single premium annuity. While this recommendation will potentially lower the aforementioned Medicare surtax, it fails to consider the favorable tax rate presently afforded to qualified dividends of 15 percent. A CPA must be mindful of the interrelationship between other
The PPACA has the potential for insurance premium increases. Clients will inevitably seek advice from their CPAs to manage and mitigate this potential. CPAs must exercise care in providing insurance advice, as it is typically provided by insurance specialists as well. CPAs should refer their clients to competent insurance professionals and allow them to provide the needed guidance. Historically, CPAs have been faced with claim exposures when providing advice as to the carrier of choice, policy deductibles and policy exclusions. Certain malpractice carriers will exclude coverage for claims resulting from insurancerelated advice. The following engagement letter language will help limit liability: “In providing professional service to you, please be aware we are not insurance experts. We make no representations as to the adequacy of the deductible or to the interpretation of the policy provisions.”
The Cadillac Plan Tax Another area of concern for CPAs will be the Cadillac Plan tax. While this provision does not go into effect until 2018, it provides for an excessive additional tax. For single-member plans, the tax is 40 percent of the excess plan premium over a $10,200 threshold, and for family plans 40 percent of the excess over a $27,500 threshold. A leading insurance consulting firm estimates that the Cadillac Plan tax will affect approximately 60 percent of large employers. With this large a group,
CPAs need to be mindful of its impact and plan to mitigate its effect. The PPACA offers the possibility for increased accounting business via value-added consulting advice and tax planning. Conversely, the potential for claims also increases. A thorough knowledge of the PPACA’s content, coupled with a timely mechanism for sharing the details with impacted clients, will help mitigate CPAs’ exposure. John F. Raspante CPA, M.S.T., CDFA, is the director of compliance and risk management at Graf Repetti & Company LLP. He is a member of the New Jersey Society of CPAs Accounting & Auditing Standards Interest Group and the New Jersey CPA Editorial Advisory Board. Contact Raspante at jraspante@ grafrepetti.com or 212-302-3300.
NEW JERSEY CPA • January • February 2011
19
A&A
buzz
Developing a Successful Health Care Business Model B y Deborah R. Mathis , C PA, and M ichael S. Lewis , C owan, G unteski & C o. , P. A .
more time establishing a competitive fee schedule that will provide needed income. For those who do participate with insurance carriers, the fee schedule is less important since insurance companies pay according to their allowances, not providers’ charges. Benchmark data can be used to help estimate revenue and expenses and is typically available by provider specialty. While some data is available online, the most useful benchmark data comes from surveys from national and local health care specialty societies (e.g., MGMA, AMGA, ADA).
Expenses
I
t’s time to dispel the myth that health care providers are recessionproof. They are susceptible to a sagging economy just like any other industry. If patients are having a hard time making ends meet, they are most likely not seeking health care services, or they are waiting until they have an acute problem. Providers also have the challenge of collecting higher copayments and deductibles. The key for health care providers and their advisors is to create a business model that is flexible enough to accommodate changes in the economy and reimbursement structures.
can play a critical role in developing financial projections for providers. A key section of the financial pro forma is revenue. Consideration must be given to how fast the practice is expected to grow and whether the providers will charge cash or submit claims to insurance companies. Providers participating with insurance companies must allow sufficient time for credentialing and collection of revenue billed to insurance and patients. Typically, a pro forma for a new practice will ramp up revenue gradually over the first six months that the practice is open.
Pro Forma
Revenue
To succeed, a practitioner has to plan ahead, now more than ever. The first step in creating a business model should be developing a financial pro forma for the practice. This can be critical in determining financing needs and highlighting potential risks. CPAs
Revenue for a health care practice is tied to developing the fee schedule. The importance of this step varies depending upon the provider’s decision to participate with insurance carriers. Those who don’t participate with insurance carriers should spend
The key expense areas in a health care business model are staffing, occupancy and malpractice. These exceed 70 percent of the total expenses of the pro forma. Staffing expenses are driven by the estimated number of full-time equivalent staff members needed to run the practice and the related compensation and benefit costs. Compensation levels vary based on education, licensure status and experience. For example, a registered nurse or licensed practical nurse will cost more than a certified medical assistant. Occupancy expenses are the projected costs to rent space and the related utilities and maintenance. These may also include depreciation on leasehold improvements or fit out. When dealing with malpractice insurance, providers have options. Malpractice policies can be occurrence (traditional) or claims-made coverage. Occurrence coverage typically has higher premiums in the earlier years of the policy than claims-made insurance. Over time, the costs of the two fall
NEW JERSEY CPA • January • February 2011
20
in line. Typically, insurance costs for a health care practice are much higher in New Jersey than national benchmark data. When the anticipated operating expenses are calculated, you can estimate what profit will be available to cover provider compensation and benefits. Revenue available for provider compensation and benefits of 60 percent translates to practice overhead of 40 percent.
Practice Growth Lastly, health care providers must look at how they intend to grow and market their practices. It was once
believed that patients chose their health care professionals solely on skill and reputation. While these are still important, accessibility and availability are now becoming equally important to consumers. Providers must differentiate themselves from their competition, whether based on special procedures performed or convenience. Health care providers and their advisors must analyze their business models in all economic climates. Planning and developing flexible business models will allow providers to adjust line items for revenues and expenses based on varying activity
and volume levels and make business decisions in a proactive and growthoriented manner. Deborah R. Mathis, CPA, CHBC, shareholder-in-charge, and Michael S. Lewis, M.B.A., FACMPE, shareholder/ director, are with the health care services group at Cowan, Gunteski & Co., P.A. Mathis is a member of the New Jersey Society of CPAs. Contact the authors at 732-349-6880.
Member Benefit Join the Health Care Interest Group at www.njscpa.org/members/groups.
It’s hard to know who you can trust these days Reliability and Service
. . . a part of our insurance company Your clients look for these two traits in you, and our members require them from us. If you’re not happy with your current professional liability carrier’s reliability or service, call CPA Mutual. Let us prove to you that there is a difference. We strive to exceed our members’ expectations.
11801 Research Dr. • Alachua, FL 32615 (386) 418-4003 • (800) 543-3029 Fax: (386) 418-4004 • www.cpamutual.com Beverly K. Bullard • Laura Bess Member Services Representatives NEW JERSEY CPA • January • February 2011
21
BEST
practices
Working with the Media on Complex Issues B y A ngela S . C alzone and Danielle Yannotti, C hange & R esponse S trategies , L L C
W
hile the clutter continues at record speed with blogs on every imaginable topic, and “news reporting” entities that actually inform their audiences from a specific agenda or political platform, traditional media’s sole responsibility is still to report the news objectively and accurately. As a story is often only as strong as its sources, communication between CPAs and the media can mean the difference between calm and chaos. Media firestorms relating to business missteps or convoluted legislation are particularly common because information is often not explained prior to – or admitted after – a complex issue has already become problematic. Therefore, it’s essential for CPAs to provide the media with compelling and accurate information that speaks to the level of the audience’s understanding, whether they are readers, listeners or viewers. Be it complex tax legislation or a client whose business practices may be in question, being an informative resource is the key to communicating effectively with the media which can be incredibly rewarding, not to mention good for business. Here are a few suggestions to guide you when interacting with the media on complex issues:
Be Proactive Before a media inquiry even arises, be proactive and “pitch” the media most relevant to your client demographic profile on your specific expertise and the topic areas about which you are most fluent. Your pitch package should include a brief history of your firm, your bio, clips of any previous media coverage you received or articles you have written, and a case study or two that demonstrates how you’ve taken a challenging issue and resolved it through unpacking the complexity. Proactively pitching the media in this way identifies you as a key resource to journalists, editors and bloggers so that they will initially look to you as they develop stories or look for topics about which to create content.
Be Prepared When a hot public topic arises, be ready with your media brief. This is a one-page document that can be quickly transmitted to the media and translated to the public by the media. The document should offer a layman’s explanation of the complexity at hand, as well as clear tips on “how to…” or “what to do if…” The brief serves as a door opener for media to follow up with you for a more in-depth perspective on the issue. Unless the matter is one that merits a position, try never to take one. The CPA’s role is to inform and NEW JERSEY CPA • January • February 2011
22
educate in a clear, concise and consistent manner. If the public conversation has to do with a client heading for crisis, then a crisis communications plan is more appropriate. Depending on the potential impact of the crisis, both on your client and your firm, you may want to seek the counsel of a public relations firm that specializes in crisis communications. At a minimum, prepare and practice your media statements in advance of interviews and press inquiries. Remember, everything is on the record.
Be Clear and Accurate In addition to offering clear, concise and consistent content to the media which it can readily circulate to its audiences, CPAs must ensure the integrity and accuracy of the information they are providing. Fact check multiple times before releasing any statements or briefs, even if you’re certain everything is correct. Remember, too, that the media is probably not an expert in the topic being explored, and it is relying on you to provide coherent and linear explanations around a difficult-to-absorb topic. Being direct and to the point gives the media exactly what it needs in a quote or sound bite. Simplicity fosters competent reporting and all-around improved understanding.
Be Friends with the Media After you’ve gone on the record, be sure to monitor the stories as they develop. You may be called by additional media outlets to give a statement or further discuss the situation. It’s also a good practice to proactively offer further clarity or insight through a quick email or voice mail message. Keeping your composure throughout your media interactions shows you are comfortable under pressure and confident in tackling even the most difficult issues – all of which can prove invaluable to your business.
Physician Guided Care Coordination: • Is the proven way to reduce your overall costs of care • Measurably improves the Quality of Care your members receive • Is what your Healthplan needs now
Contact the authors at Change & Response Strategies, LLC, at www.changeandresponse.com.
Please contact us at: sales@piccorp.com 2 Tower Center Blvd. Tower 2, 12th Floor East Brunswick, NJ 08816 732-246-0291
Member Benefit Become a media resource to help interpret complex accounting questions. Complete your volunteer profile at www.njscpa.org/members/getinvolved.
www.piccorp.com NEW JERSEY CPA • January • February 2011
23
FINANCIAL
planning
Financial Planning for a Special Needs Child By Sy Bressler, CPA, and Marjorie Anstedt, CPA, Bederson & Company LLP
area and can create a highly tailored plan for each specific family situation.
Considerations and Goals
A
ccording to the U.S. Census Bureau (July 2005), an estimated 2.8 million American families, or one out of every 26, were raising at least one child age 5 to 17 with a disability. Establishing financial arrangements for a lifetime of special needs care is far different than ordinary financial planning. Planning for the future of a special needs child is a complex undertaking that requires knowledge of the federal laws as they pertain to government benefit eligibility and documents such as special needs guardianships and trusts. Key financial considerations are essential for providing lifetime care and quality of life. It is essential to work with trusted business advisors who are experienced in this
For a family with a special needs child, many facets over the child’s lifetime must be taken into consideration when forming a financial plan: child’s life expectancy; nature of the disability; expenses for the child’s medical issues, including treatments and equipment; residency needs both during and after the parents’ lifetime; education; earnings potential; and eligibility for government or other benefits/grants such as Medicaid and Supplemental Security Income (SSI). Investment strategies, insurance, legal and estate matters must also be carefully addressed as part of comprehensive planning. The family must also determine its investment goals, such as the parents’ retirement, health and education for other family members, and a timeline for those goals. Long-term goals, such as retirement assets, should be invested in growth-type investments. Depending on the needs of the child, allocable funds should be invested in income-producing assets to cover current costs. A special needs trust should be established to protect assets from creditors.
Special Needs Trust A special needs trust (SNT) is designed to provide supplemental care for basic necessities that are not covered by government benefits. When structured correctly, an SNT preserves eligibility for public assistance, as trust assets will not be included in the calculations for government benefits such as SSI and Medicaid. Once an SNT is established, it may begin receiving contributions from various sources, including extended family and friends. Once the trust is set up, a trustee must be appointed. Trustees for an SNT are
typically other family members, close family friends, banks or attorneys. It is also possible to select co-trustees who work together and must agree before any funds are paid out from the trust. A fee, normally a percentage of the total assets in the trust, is paid to the trustee for his or her services. No assets should ever be held in the child’s name, as it may preclude the child from qualifying for certain government aid. The child may need to have a legal guardian, even as an adult. Funds may be held in trust for the benefit of the child, requiring a trustee to administer those assets. The fiduciaries (and possible successors) should have the necessary knowledge to carry out this responsibility and act in the child’s best interest. Any assets passing to the child at the death of the parents should go into a special trust for the needs of the child for expenses to enhance the quality of life that are not covered by the government benefits.
Insurance Both parents must be adequately insured to provide for the family goals in the form of life insurance and disability insurance and to provide for the special needs child. Long-term care insurance for the parents will also help defray the costs that could deplete family investments intended for the care and support of the special needs child and/ or any other children. Adequate health insurance should be obtained to cover extraordinary high costs of medical needs in order to protect the family’s assets. Sy Bressler, CPA, CFE, is a partner, and Marjorie Anstedt, CPA, CFP, is a manager, with Bederson & Company LLP. Both are members of the New Jersey Society of CPAs. Contact the authors at 973-736-3333.
NEW JERSEY CPA • January • February 2011
24
Forensic
file
Forensic Accountants on the Trail of Health Care Fraud By Deirdre M. Hartmann, CPA, Nisivoccia LLP
T
he National Health Care AntiFraud Association reports that from 3 to 10 percent, or between $74 billion and $247 billion dollars, is lost each year to health care fraud, waste and abuse. There is little doubt that this contributes to soaring health care costs. It also offers a variety of opportunities for forensic accountants to create a profit center – and do some social good in the process.
Who Is Cheating the System? In 2010 alone it was reported Medicare was defrauded of hundreds of millions of dollars. Who were the culprits? Two of the largest frauds perpetrated against the Medicare program have just recently been uncovered in past months. In one case it was senior employees of American Therapeutics who participated in a scheme that defrauded the Medicare program of approximately $200 million. Another scenario involved 73 members of an organized crime syndicate whose scam cost Medicare $163 million. The perpetrators received kickbacks, billed for services either never rendered or medically unnecessary and used identity theft to fill their illegally lined pockets. Fraud within a health care provider’s company can be committed by an entry-level billing clerk all the way up to company officers.
What Is Considered Fraud? The 1996 Health Insurance Portability and Accountability Act created the Health Care Fraud and Abuse Control Program. In 2009, the Department of Justice along with the Department of Health and Human Services created the Health Care Fraud Prevention and Enforcement Action Team. Recent health care reform under the Patient
Protection and Affordable Care Act provides additional tools and resources targeted toward reducing health care fraud. What is considered health care fraud? Some of the most commonly known areas include: • A health care provider or facility submitting a claim to Medicare or Medicaid that is known to be false or fraudulent. • A health care provider or facility receiving rewards from those who refer business to them. • A physician referring patients for designated health services, such as clinical lab, imaging and radiology, and therapy sessions, to an entity which a physician or an immediate member of his or her family has a financial relationship. • Improper billing practices, sometimes called “up coding,” where health care providers or facilities bill using case codes that reflect a higher level of service than was actually rendered.
The Forensic Accountant’s Role Government funding for detecting health care fraud has increased dramatically over the past few years in an attempt to reduce the nation’s health care costs. This means opportunity for forensic accountants. By combining their knowledge of accounting and investigative skills, there are many roles that forensic accountants could fill. Positions exist within task forces of federal and state governments, insurance companies, recovery audit contractors and internal audit departments of health care providers or facilities. President Barack Obama recently expanded a program called the Recovery Audit Contractor audits, a federal program designed to detect
overpayments and improper payments paid to health care providers or facilities by Medicare. These audits need highly skilled accounting specialists and fraud examiners who use cutting-edge technology, such as data mining, to look for potential red flags, including duplicate payments, payments for services not rendered and fictitious vendors. The Internal Revenue Service is looking for criminal investigators who investigate health care fraud, follow the money trail and prosecute when income related to the fraud is not reported as taxable. Health care providers and facilities may find the need for an internal audit department to ensure their accounting and billing procedures are compliant with current rules and regulations.
What It Takes Those considering a career in health care forensic accounting should obtain a bachelor’s or master’s degree in accounting, along with additional certifications including CPA and Certified Fraud Examiner. Having audit and/or tax experience in the health care sector is obviously a big plus. For those interested in the criminal investigation area, additional education in criminal justice and law enforcement would be helpful. A dynamic discipline, where policies and laws often change, health care forensic accounting will prove challenging, exciting and lucrative for those up to the task. Deirdre M. Hartmann, CPA, is a manager with Nisivoccia LLP and a member of the New Jersey Society of CPAs Health Care Interest Group. Contact her at dhartmann@nisivoccia.com.
NEW JERSEY CPA • January • February 2011
25
INDUSTRY
insights
Industry CPAs in a New Health Care Era By Nicholas Jenner, CPA, MSPC Certified Public Accountants and Advisors, P.C .
provide additional coverage as required. Also, health plans will be subject to minimum medical loss ratios, which is the percentage of premiums collected by insurers actually spent on care that is not administrative costs or profits. This ratio will serve to ensure providers are not earning too large a profit on the premiums charged to those they insure.
2014
I
n 2010, President Obama signed the Patient Protection and Affordable Care Act, followed by the Health Care and Education Affordability Reconciliation Act (collectively, the Health Care Reform Act). This landmark legislation overhauls the nation’s health care system and ensures medical insurance for tens of millions of Americans. The Health Care Reform Act will have minor consequences to employers in the short term (2011 through 2013). Employers will be faced with new coverage options, altered cost structures and a revamped regulatory environment to oversee it all. Implementation is expected to span a decade, comprising regulation and coverage reform, coverage expansion and a bending of the cost curve that is loosely defined as a more efficient and inexpensive approach to health care delivery.
2011 Beginning in 2011, employers will have to change their health plans to include coverage for dependents to age 26 and remove lifetime limits on coverage for enrollees. Employers will need to review their current health plans against new provisions in order to determine any coverage disparity. If so, employers may need to drop existing coverage or
In 2014, health insurance will become an entitlement versus a benefit, requiring new coverage to be provided as defined by the federal government, including certain preventative services without any additional costs. Currently, employers should take care in ensuring their existing plans do not offer benefits that will not be permissible under those mandates in order to avoid excess efforts required to conform existing plans to anticipated provisions. A state exchange program is also scheduled for 2014, which will serve as a conduit for small businesses to collectively negotiate for better pricing and expanded coverage traditionally reaped by large corporations. Initially, these exchanges will only be open to those who work for companies with 100 or fewer employees, but it may open up to large employers by 2017.
2018 By 2018, employer-sponsored plans that have premiums above specified levels will be subject to a 40-percent excise tax on excess premiums. In anticipation of this provision, company personnel will want to ensure their plan is designed to avoid this tax. As a means of achieving this, employers will have to increase cost sharing via increased co-pays or coinsurance or reduce benefits offered.
Tax Compliance Ultimately, any plan revisions will need to be communicated to affected
employees. In addition, reporting requirements for W-2 filings should prompt company personnel to consider changes, if any, to the company’s internal control structure. This includes use of service organizations, such as payroll providers, insurance carriers and other third-party administrators, to coordinate the efforts required to satisfy tax filing requirements.
The CPA’s Role Furthermore, various company personnel will play a critical role in effective implementation of health care reform, with CPAs playing a prominent role by imparting guidance related to financial reporting, tax strategies and the cost/benefit of coverage as it relates to an entity’s cash flow requirements. The diversity of these challenges is well suited to CPAs working in industry who often serve in multiple roles and have skill sets diverse enough to manage circumstances when there are multiple considerations at hand. Historically, employers have used health care as an incentive to attract and retain a talented workforce. However, health care reform has challenged management to discern what incentives they most value, while appropriately managing their resources. The decade to come will certainly be challenging for owners and employees alike as they navigate a new era in health care. It is incumbent on industry CPAs and other financial staff to help chart the course. Nicholas Jenner, CPA, is a senior manager of quality control for MSPC Certified Public Accountants and Advisors, P.C. He is a member of the New Jersey Society of CPAs Accounting & Auditing Standards Interest Group. Contact Jenner at njenner@mspc-cpa.com or 908-272-7000.
NEW JERSEY CPA • January • February 2011
26
Small/Sole
practitioner
Turning the Red Flags Rule from Burden to Opportunity By Joseph L. DeLorenzo, CPA, Hudson Community Enterprises Inc .
I
n October 2007, the Federal Trade Commission (FTC) and various other regulatory agencies passed the Fair and Accurate Credit Transactions Act of 2003 (FACTA), which included Section 114 – also known as the infamous Red Flags Rule (RFR). The effective compliance date was January 1, 2008, with final deadline for compliance on November 1, 2008, for all institutions, except state chartered credit unions. Enforcement for organizations subject to oversight by the FTC has been extended five times and is now scheduled for December 31, 2010.
RFR Elements Section 114 requires that all organizations subject to FACTA must develop, implement and administer a written identity theft prevention program to detect, prevent and mitigate the warning signs (or red flags) of identity theft in their day-to-day operations. The program must include four basic elements which, together, create a framework to address the threat of identity theft. The program must: • Include reasonable policies and procedures to identify the red flags. • Be designed to detect the red flags identified. • Spell out appropriate actions that will be taken when red flags are detected. • Address steps to periodically review new risks from identity theft.
Plan Implementation There are several requirements on how to incorporate the program into the daily operations of a business. The board of directors, or board committee, must approve the first written program. If there is no board, then approval resides with the appropriate senior-level employee. Since employees may have a role to play in preventing and detecting
identity theft, the program must include appropriate staff training. This monitoring and compliance also extends to outsourcing and subcontractors.
Who the RFR Applies To Aside from obvious institutions – such as banks, thrifts, mortgage lenders, credit unions, U.S. branches and agencies of foreign banks, U.S. commercial lending companies of foreign banks and certain creditors that are defined as “any person or business that arranges for the extension, renewal or continuation of credit” – this legislation specifically includes utility companies, car dealers, telecommunication companies, health care companies and debt collectors. Once you’ve concluded that your business or organization falls under the auspices of the legislation, you must determine if you have one of the two categories of any covered accounts. The first category is a consumer account that a bank might offer primarily for personal, family or household purposes that involves or is designed to permit multiple payments or transactions. This includes credit card accounts, mortgage loans, checking accounts and savings accounts. The second kind of covered account is defined as “any other account that a financial institution or creditor offers or maintains for which there is a reasonably foreseeable risk to customers.”
Above and Beyond Whatever the Health Insurance Portability and Accountability Act has done to the medical profession is
relatively narrow in comparison to the RFR. What makes the RFR different is that not only must you design programs that detect, prevent and mitigate theft to isolate where the weaknesses are and who could be abusing the information, you must also have procedures to identify the victims.
Looking Ahead Where we are today with the RFR somewhat parallels where we were only a few years ago with forensic, divorce and valuation engagements. Accountants used their auditing, tax and economic reality knowledge and instincts to approach, organize, analyze and ultimately form conclusions. One thing is certain: As we go green and get evermore technological, we pay a price and lose some transparency. My company, which deals in the management, imaging, destruction, process improvement and security consulting of records, has already been developing procedures to embrace these rules and regulations. If we can turn the burden of the RFR into an opportunity, so, too, can you. Joseph L. DeLorenzo, CPA, is the vice president of finance at Hudson Community Enterprises Inc. He is a member of the New Jersey Society of CPAs Estate, Trust & Gift Taxation; Federal Taxation; and State Taxation interest groups. Contact DeLorenzo at ldelorenzo@hudsoncommunity.org or 201-434-3303.
Update Subsequent to press time, President Obama signed legislation exempting accountants from having to comply with the FTC’s Red Flags Rule. See www.journalofaccountancy.com/web/20103681.htm.
NEW JERSEY CPA • January • February 2011
27
TAX
talk
Get Ready for the Medicare Tax in 2013 B y Lauren M. L andolfi, W ilkin & Guttenplan, P. C .
I
n 2010, President Obama ratified massive health care reform legislation. In an effort to offset part of the $1 trillion price tag, the legislation includes provisions that expand the current Medicare tax by increasing the tax rate on earned income and subjecting investment income of high-income taxpayers to the tax.
Additional Tax on Wages and Self-Employment Earnings in 2013 Under present law, the Federal Insurance Contributions Act and the Self-Employment Contributions Act impose taxes on employees’ wages and self-employment earnings, respectively. The first tax is the Old Age, Survivors and Disability Insurance tax, (the Social Security tax) which is assessed at a rate of 12.4 percent on wages up to an annually adjusted wage base ($106,800 in 2010). The second tax is the Medicare Hospital Insurance tax, (the Medicare tax) which is assessed
at a rate of 2.9 percent on all wages, regardless of the amount. The liability for these taxes is shared by employees and employers with each contributing half of the total tax imposed. Earnings from self-employment are also subject to both taxes, with the Social Security portion capped at the same level that applies to wages. Selfemployed individuals are responsible for paying the full amount of the taxes. However, they are permitted to deduct half of the total tax imposed in arriving at adjusted gross income (AGI). Beginning in 2013, the new law provides for a 0.9-percent increase in the employee portion of the Medicare tax on wages and self-employment income in excess of certain thresholds ($250,000 of combined earnings on joint returns, $125,000 on married filing separate returns and $200,000 for all others). Earnings below these thresholds are not subject to the increased rate. These thresholds will not be indexed for inflation, thus more taxpayers will feel the rate increase going forward. While the rate increase only impacts the amount of the employees’ tax, employers are required to withhold and remit the additional tax when applicable. Employers are not required to consider wages of an employee’s spouse in determining whether or not the additional tax applies. Taxpayers who do not reach the threshold for the additional tax based on their own earnings may be subject to the increased rate once their spouse’s earnings are considered. Self-employed taxpayers, while also subject to the increased rate, are not allowed a deduction in arriving at AGI for the additional portion of the tax. All taxpayers should be cautioned about the possible need to make estimated tax payments to cover any potential shortfall.
Additional Tax on Investment Income in 2013 Under current law, the Medicare tax only applies to wages and selfemployment earnings. Beginning in 2013, however, the Medicare tax will be expanded and will apply to net investment income of individuals, estates, and certain trusts with modified adjusted gross income (MAGI) over certain thresholds at a rate of 3.8 percent. Investment income for the purposes of the new Medicare tax includes interest, dividends, capital gains, royalties, rents, annuities and other passive activities, but does not include tax-exempt income or taxdeferred income earned in retirement accounts. Investment income is reduced by deductions allocable to the income in arriving at net investment income. The tax will be calculated as 3.8 percent of the lesser of (1) net investment income; or (2) the excess of MAGI over the applicable threshold amounts ($250,000 for joint returns, $125,000 for married filing separate returns and $200,000 for all others). MAGI is defined as AGI increased by any amounts excluded from income as foreign earned, net of the deductions and exclusions disallowed with respect to the foreign earned income. Taxpayers whose MAGI exceeds the threshold may want to consider diversifying their portfolios to include more tax-exempt investments to shelter their income from this additional tax. While these changes are not scheduled to take place for a couple of years, it’s not too soon to start discussing the impact of these changes with your clients. Proactive tax planning can help mitigate the impact of the new health care law. Lauren M. Landolfi is a senior tax associate at Wilkin & Guttenplan, P.C. Contact her at llandolfi@wgcpas.com or 732-846-3000.
NEW JERSEY CPA • January • February 2011
28
Hudson Community Enterprises Red Flags RuleAre You In Compliance?
We Can Help...
Business Process Optimization Go Forward Scanning & Indexing Records Management Consulting NJDARM Certified
Records Information Management (RIM) State of the Art Equipment NAID Member Documents Shredded & Recycled Within 48 Hours
METRO SECURITY SERVICES
METRO
FACILITIES MANAGEMENT
Coming 2011
Unarmed Guard & Patrol Training Classes Certifications Automated Monitoring Systems
High Quality Janitorial Service Specialized Floor Care & Maintenance Landscaping & Grounds Keeping Building Repair & Maintenance
Call or email us for a free consultation! 68-70 Tuers Avenue Jersey City, NJ 07306 | Phone: 201.434.3303 | www.hudsoncommunity.org
TECH
center
Advising Clients on EMR Implementation B y A nthony Mongeluzo, Pro C omputer Service
I
t’s a nightmare scenario: You’re in Hawaii enjoying a much-needed vacation, and you get a call that your aging mother had an accident and needs immediate surgery. Do you know who has her medical records and how accessible they are? You share her doctor’s name and contact information and, within 10 minutes, the surgeon who needs the information receives her entire medical history via email. Stripping the issue of electronic medical records (EMR) to its core is where policy and implementation can be a life saver. Speed, accuracy and accessibility keep EMR on the cusp of advancing medical records technology. For most physicians, the question of whether to switch to EMR is a moot point. Federal mandates in President Obama’s stimulus bill require that doctors’ offices shift all medical records to an electronic system by 2014 or face penalties that could affect Medicare payments. The government is offering some incentives, thus providing a carrotand-stick approach, but physicians must decide precisely how they will implement the new regulations. It’s important to understand why EMR makes sense. It will save time for both physicians and their staffs. It removes many of the repetitive paper entries that overly engage employees and eliminates legibility issues, ultimately reducing errors. Decreasing the need for paper, EMR is also both eco-friendly and economical. One major component of the federal mandate is that physicians will have to choose a vendor to help move existing records to an EMR system. This presents opportunities for accounting firms to provide clarity for medical practice clients regarding software compatibility and budgeting – particularly when costs range from $10,000 to $40,000 prior to incentives. Here’s where you, as a
trusted business advisor, can assist clients that are considering a move to EMR: Check References – This is basic advice, but when you’re considering a firm that will literally hold patient information in its hands, you want unquestioned reliability. Don’t be afraid to ask for (and actually check) at least five references from a practice that is similar to your client’s, both in size and specialty. Develop a Question List – Each practice is different. Draw up every conceivable question, and be sure to include anything that might be peculiar or unique to your client’s practice when dealing with the vendor. Carefully Evaluate Any New Company That Promises Much but Doesn’t Have a Track Record – Because of the federal mandates, many companies are entering this field, understanding that doctors face an impending deadline. Some will pan out, others will disappear. Caution is the watchword. Take a Trial Run – Give the software a thorough test before committing. Use Circumspection if You Decide to Use a Customized Approach – It would be unwise for your client to become the first one for an EMR vendor. The importance of references has already been stated, but here they are paramount. Could your client afford to lose all of its records? What happens if the vendor doesn’t deliver as promised? Make an Onsite Visit – While this might seem odd in a digital age with an electronic product, an onsite visit will allow you and your client to see the workflow and determine whether the process is seamless or if there are any choke points.
Another approach is to use cloud computing, where you link up with an offsite service that provides the same capability without an installation into your client’s actual computer system. A cloud approach can reduce cost significantly, and vendors often charge a monthly fee. Some medical practices, however, might feel uncomfortable because there is no physical presence (even digitally) of patient information. For physicians thinking about retiring before the federal mandate takes effect, the need to go digital is less urgent. However, even these physicians may want to consider that offering a practice with EMR might be more attractive to potential buyers and yield a higher selling price. EMR is here to stay. This is where your firm can go beyond traditional tax and audit service and act as a business consultant in both a complex and potentially lucrative practice area. Anthony Mongeluzo is president of Pro Computer Service. Contact him at anthony@helpmepcs.com or 877-596-4446, or visit www.procomputerservice.com.
NEW JERSEY CPA • January • February 2011
30
BANK LEUMI USA Bank Leumi USA serves New Jersey middle market companies including importers and exporters, manufacturers, distributors, and retailers in diverse industries. We offer a full range of lending services including revolving credit lines, term loans, letters of credit, commercial mortgages, and equipment lease ďŹ nancing. For more information, please call Jose Roca, vice president, at 201-320-6509, or e-mail jose.roca@leumiusa.com.
COMMERCIAL BANKING INTERNATIONAL BANKING PRIVATE BANKING 800.892.5430 www.leumiusa.com Member of the Leumi Group
SOCIETY
pages
CPE Offerings and Events Upcoming Education Foundation Events Date
Event/Code
Location
CPE Credit
1/17
Form 1120S Schedule K-1 Analysis – Basis Calculations and Distributions for S Corporations (E1101061)
Roseland
8/TX
1/18
Form 1065 Schedule K-1 Analysis – Basis Calculations and Distributions for Partnerships and LLCs (E1101091)
Roseland
8/TX
1/19
IRAs – Contributions and Distributions for Traditional, Roth, SEP and SIMPLE IRAs (E1101101)
Roseland
8/TX
1/19
New Jersey Law and Ethics (2009-11) Webinar (E1101084)
N/A
4/PE
1/19
Cooperation with Bankers Cocktail Reception (E1101240)
West Orange
1/EC
1/20-21
Hands-On Tax Return Workshop – Individuals (Form 1040) (E1101071)
Roseland
16/TX
Upcoming Chapter Events Date
Chapter
Event/Code
Location
CPE Credit
1/20
Passaic County
Tax Series – Tax News and Headlines (E1101119)
Paterson
2/TX
1/20
Atlantic/Cape May
Financial Planning (E1101149)
Northfield
2/TX
1/24
Southwest Jersey
Keystone Opportunity Zone/Retirement Planning (E1101139)
Voorhees
2/TX
2/3
Hudson
OCBOA Statements (E1102019)
Secaucus
2/AA
3/11
Middlesex/Somerset
New Jersey Law and Ethics (E1103019)
Edison
4/PE
KEY AA – Accounting & Auditing MC – Multiple Categories PE – Professional Ethics
CS – Consulting Services MT – Management SK – Specialized Knowledge www.njscpa.org/catalog
EC – Economics PD – Personal Development TX – Taxation
Don’t Let Your Electricity Bill Shock You This Winter With winter raging, Energy Plus, a new New Jersey Society of CPAs Member Benefit Marketplace partner, and one of the fastest-growing electricity suppliers in New Jersey, offers a few tips to improve your energy efficiency, positively impacting your electricity bill and helping the environment: • Switch to Cold Water – Wash your laundry with cold water. You can save 85 percent of the energy needed for hot water. Only wash your laundry when you have a full load. • Pull Out Your Dark Clothes – Wear layers of warm, dark clothing so that they can absorb light and heat.
• Let the Sun Shine In – Open your curtains and blinds so the sun can stream in and help keep your home or business toasty and the electricity bill lower. When the sun goes down, close your curtains and blinds to preserve heat. • Rearrange Your Room – Place furniture so that you are sitting near interior walls. Exterior walls and older windows are likely to be drafty. • Keep It Shut – Traditional fireplaces are an energy loser. It’s best not to use them because they pull heated air from the house and out the chimney. When not in use, make sure the damper is closed.
• Stop Leaking Energy in Electronics – Unplug your appliances when they aren’t in use. Many new televisions, computers and other electronics use electricity even when they are switched off. Learn about other ways to save by calling Energy Plus at 877-866-9193. Mention Offer Code NJSCPA-5521. You can also visit EnergyPlusRewards.com/ NJSCPA5521 to learn more.
NEW JERSEY CPA • January • February 2011
32
Advertisers Index
In Sickness & Good Health
All advertising for New Jersey CPA magazine is managed by The Warren Group, a Boston-based real estate and financial information publishing company. New Jersey CPA is the only way to reach each of the 16,000-plus members of the New Jersey Society of CPAs, and 55 percent of readers take action after seeing an advertisement in the magazine – by either purchasing the product, contacting the advertiser, visiting a website or recommending the product or service to a client. The submission deadline for space in the March/April issue – which will focus on Rules and Regulations – is January 28 and the submission deadline for artwork is February 4. For advertising opportunities, contact Advertising Manager George Chateauneuf at c ustompubs@thewarrengroup.com.
Accounting Practice Sales www.accountingpracticesales.com
17
ADP www.adp.com
39
Argent Professional/CAMICO www.insuranceagent.com
52
Askin Weber & Reed, Inc. www.njscpa.org/insurance
43
Audimation Services, Inc. www.audimation.com
13
Bank Leumi USA www.leumiusa.com
31
CPA2Biz www.cpa2biz.com/paychex
2
CPA Mutual www.cpamutual.com
21
Horizon Blue Cross Blue Shield of NJ www.horizonblue.com
9
Hudson Community Enterprises www.hudsoncommunity.org
29
Lowenstein Sandler PC www.lowenstein.com/businessdivorce
45
Medallion Business Credit www.medallion.com
51
Partners in Care Corp. www.piccorp.com
23
PNC Wealth Management www.pnc.com/wealthmanagement
5
QualCare, Inc. www.qualcareinc.com
33
TD Bank www.tdbank.com
15
UCEDC www.ucedc.com
13
Valley National Bank www.valleynationalbank.com
11
QualCare is the largest provider owned full service managed care organization in New Jersey. QualCare offers a small to mid-size Group Health Plan Affiliated Physicians Health Plan
PLAN AVAILABLE TO ALL MEDICALLY RELATED BUSINESSES and NJ BASED ACCOUNTING FIRMS (Medical Billing, Medical Transport, Nursing Agencies, Physicians, Dentists, Chiropractors, Labs, Medical Supplies, Etc.)
PLAN HAS NATIONAL NETWORK Call a MEWA Account Executive to get a quote for your Company or Clients
(888) 670-8135 Press option 6 or Email: mewasales@qualcareinc.com
NEW JERSEY CPA • January • February 2011
33
SOCIETY
pages
Get Involved Technology Interest Group Ushers in Office 2010
Summertime, and the livin’ is easy! Mercer Chapter members, family and friends enjoy a Trenton Thunder minor league baseball game.
Mercer Chapter Hits a Home Run
Mercer Chapter President Mark A. Breckwold, CPA, will tell you right off the bat, “I can’t stress enough the importance of finding new volunteers. They bring a new perspective and energy. New players give existing volunteers an opportunity to be mentors and try new roles.” Together with Susan D. Gola, CPA, Mercer Chapter Director, they hit a home run with a new member event at a Trenton Thunder minor league baseball game in August. The event was held to recruit new board members and build enthusiasm for chapter participation. “Our chapter feels it’s important to run three social events per year as a break for the busy CPAs in Mercer County,” notes Breckwold. The chapter also runs more than 40 hours of CPE. Breckwold explains how they get it all done: “Over the past three years, we’ve made an effort to increase the size of our board to 15. It lets us accomplish more. In addition to planning CPE and social events, our board members are out there promoting the profession and recruiting new CPAs and student members.” Chapter member Jason Chen, CPA, was impressed with their hard work. He joined the New Jersey Society of CPAs in 2007 and quickly purchased the Mercer Chapter’s season pass. “The events
are well organized and the topics covered are interesting, practical and diversified,” Chen explains. “So I began paying more attention to the board that ran these events.” Breckwold spotted Chen’s interest and encouraged him to come to a few board meetings. “I was really impressed by the board members’ abilities and enthusiasm,” adds Chen. At the ballgame, he agreed to serve on the board – no hardball necessary. “In return, I’ll get to know talented CPAs in the area, and I’ll have the opportunity to serve them, too,” notes Chen. It turns out there was nothing minor about this game. The Mercer Chapter was recognized before the game to all attendees, and one lucky chapter member even got to throw out the first pitch. The home team won as Trenton got a 4-1 victory over Harrisburg, with fireworks capping off a great night. “It was a wonderful setting for networking,” says Breckwold. “I can honestly say I had a better time here than I would have had at a Yankees game.” Chen, who brought his wife and daughter, agrees: “Live baseball is always better than on television. Taking a break with other CPAs instead of talking about GAAP, tax law changes and other businesses made the night even better.” The Mercer Chapter is already planning another night with the Trenton Thunder. Visit www.njscpa.org/mercer.
The Technology Interest Group held a 30-minute webinar in October. Group member Jaime Campbell, CPA, M.B.A., CTT, MCT, of Bartolomei Pucciarelli, LLC, presented “Office 2010 Tips and Tricks,” guiding attendees through new features in Microsoft Word, Excel, PowerPoint and OneNote. Her tips, including transitioning to Office 2010 if you are a 2003 user, were practical and relevant for CPAs. “I attended because I’m a new Office 2010 user. The 8:30 to 9:00 a.m. format fit my schedule perfectly. Excel’s slicer feature interested me most,” says John S. Hemmendinger, CPA, Hemmendinger & Company, LLC. According to Campbell, “The slicer is a visual feature that communicates and controls what filters are applied to the information summarized in a pivot table. It facilitates transparency and accuracy, as readers can quickly see what information is included in and excluded from the summary. The previous filter tool was easy to use, but hidden from view; the slicer is viewable on screen and printable.” Kieran Krall, CPA, Guest Supply Inc., needed clarification about the pushpin feature, which is available throughout Office 2007 and Office 2010. Campbell explains: “The pushpin is a one-click tool in the File menu. It ‘fastens’ a file to the top of the Recently Used Files list. It saves a lot of time because frequently used files can be instantly accessed without having to browse to them.” Krall confesses his a-ha moment, “I thought it was just a graphic, not a useful tool!” The Technology Interest Group provides webinars during the year to share its knowledge of current and emerging technologies and help members understand the risks and benefits of various technologies. For more information on the group’s next event, visit www.njscpa.org/members/groups.
N E W J E R S E Y C P A • ja n u a r y • f e b r u a r y 2 0 1 1
34
Pudding Man, Weed Puller and CPA
Ralph J. Evangelista, CPA, grew up in the Vailsburg section of Newark with his parents, brother, grandmother, aunts and uncles in a four-family house owned by his grandparents. His family eventually settled in Ocean Township, but it seems family togetherness didn’t get left far behind. Today, he and his wife, Marylee, are partners at Frazer, Evangelista & Company, LLC. Being a CPA wasn’t always his dream. “I wanted to be a chocolate pudding man at a very young age,” Evangelista chuckles. “I liked chocolate pudding so much that I was sure I could sell it for 10 cents a scoop. After all, who doesn’t like chocolate pudding?” Eventually, he got a real job – pulling weeds at a miniature golf course. His innate business sense led him to become an accounting major at Fairleigh Dickinson University. “I felt accounting was the best business degree and would give me the skills and knowledge that would bring more job opportunities,” Evangelista says. He met Marylee over pizza and pinball just prior to college. She was also studying accounting. During those early years in the profession, Ralph spoke to CPAs in nonprofit, corporate and public accounting. “I was influenced by a friend of my father’s who said I would truly ‘dig my heels into accounting’ only if I worked
in public, and that’s what I wanted.” Some good advice from a partner at his previous firm helped Evangelista shape his sense of purpose as a CPA: “As CPAs, we need to protect clients from themselves.” So, in 1991, after working for eight years in local CPA firms, he dug in those heels and started his own firm. In January 2009, Evangelista & Associates, P.C., merged with Marylee’s firm, Frazer, Evangelista & Company, LLC, in order to consolidate costs and start preparing for a future exit plan. “I manage my firm and the day-to-day accounting projects by making sure they are completed timely and accurately,” Ralph explains. He is also involved in business development and hiring personnel, “I enjoy each and every task and consider it an adventure.” Ralph also serves as an adjunct professor at Monmouth University, teaching forensic and investigative accounting. He is also on the Seton Hall Accounting Advisory Board. To all of his adventures Evangelista brings integrity, a trait he admires above all because it allows him to truly rely on people. The NJSCPA has relied on Ralph’s service for more than 20 years, including being a member of all of the tax-related interest groups, chairing the Sports and Entertainment Committee and serving as a Society board member. “Early on, I
Magazine of the
volunteered with a group of members who worked with Voluntary Action Centers and with many nonprofit agencies,” Evangelista recalls. Currently, he is a Scholarship Fund Trustee and a member of the Educators Committee. Family togetherness still reigns in the Evangelista household. They love to travel, especially to St. Maarten-St. Martin. You can find Evangelista on Facebook and LinkedIn, or you might find him on a date with Marylee at Blue Water Seafood Company in East Brunswick. But on weekends you’ll find him spending time with his family, perhaps eating chocolate pudding.
Get Involved Now
Volunteer opportunities are available throughout the year at www.njscpa.org/ involved. Here’s one activity that needs your support now: NJSCPA members are needed to field personal income tax filing questions from the public. The Ask the Experts program runs from February 1 through March 31, and all participation is done via email. Volunteers are asked to commit to the entire two-month project and will receive an average of two questions per week. Contact Rachael Bell at rbell@njscpa.org or 973-226-4494, ext. 220.
New Jersey Society of Certified Public Accountants
March/April Coming Attractions Rules and Regulations n Tax Preparer Regulations n Peer Review n Government Initiatives n Practice Mobility N E W J E R S E Y C P A • ja n u a r y • f e b r u a r y 2 0 1 1
35
M a r • A p r 2 0 1 1
SOCIETY
pages
New Jersey State Board of Accountancy Report Duplicate Document Charges Shelved Newark (October 21)
Newark (November 18)
Miscellaneous
Executive Director’s Remarks
Committees
Committees
An inquiry was received concerning endorsement applicants. The board referred the person to N.J.S.A. 45:2B-53 (a) and (b).
Board Executive Director William Mandeville briefed the board on moving to a paperless system.
Quality Enhancement – The committee will meet to discuss the formation of a Peer Review Oversight Committee. Monitoring Profession – The committee will begin reviewing New Jersey Law and Ethics certification requests.
Legislative Matters
Regulatory Analyst Maryann Sheehan will hold in abeyance the provision regarding licensees charging reasonable fees for duplicate documents. The provision, originally part of the sunset regulations, stipulated the price was to be 75 cents for documents 1-10; 50 cents for documents 11-20; and 25 cents for documents 21 and over. The state had reduced the initial amount from 75 cents to five cents. This particular provision was removed so as to make sure the rest of the rules get codified and do not expire. The board can then revisit the duplicate document fee structure at a later date.
Public
New Jersey Society of CPAs Immediate Past President Robert J. Traphagen, CPA, mentioned that the Internal Revenue Service is requiring the use of its online registration system by January 1, 2011, to obtain a preparer tax identification number. As of now, this would also include non-signing preparers. Traphagen also indicated that at the American Institute of CPAs Fall Council, a resolution was passed that favors the creation of a private company financial standards board.
RMA – There are seven people currently registered for the next Registered Municipal Accountant exam. Peer Review Program – The committee is drafting a letter of notification informing firms of the new peer review requirements, new forms to be used for monitoring and implementation dates. The approximately 600 firms in the previous quality enhancement program will need to be “picked up” going forward. The committee hopes to tie it to the next registration period which is June 30, 2012. Statues/Rules/Regulations – The sunset regulations appeared in the New Jersey Register on November 15. Monitoring Profession – The committee has started the process of New Jersey Law and Ethics CPE audits. Unfortunately, it is finding many practitioners deficient in other CPE areas.
Public
New Jersey Society of CPAs Government Relations Director Jeffrey Kaszerman informed the board that the chair of the NJSCPA State Taxation Interest Group, James A. Bartek, CPA, has been appointed to the NJ Division of Taxation’s Tax Directory Advisory Council.
N E W J E R S E Y C P A • ja n u a r y • f e b r u a r y 2 0 1 1
36
ENTERPRISE
CLASSIFIEDS Mergers/Acquisitions Practices for sale: Atlantic County tax and accounting practice, gross $215K; central Jersey CPA firm, gross $1,915K; Atlantic City tax franchise, gross $120K; South Amboy tax franchise, gross $70.5K. For more information, please call 800-397-0249 or visit www.accountingpracticesales.com. New Jersey – CPA firm wishes to acquire or merge with progressive, small to mid-sized firms. File 0701
a quarterly focus on the people and the issues that drive new Jersey business
Want to sell or merge your accounting practice? Accounting Practice Sales has qualified buyers waiting and financing available to sell your practice quickly and get you the best deal possible. For information regarding our risk-free and confidential services, call Bradley Holmes at 800-397-0249. Buyers see listings and register for free email notifications at www.accountingpracticesales.com.
Pro Bono
Princeton, NJ-area sole practitioner anticipates near-term retirement. Gross $350K-$400K. Write-up and tax with a few financial statements. Reply to princparet@hotmail.com. Mironov, Sloan & Parziale LLC, a quality niche-based CPA firm in central New Jersey is looking to expand its practice. We are seeking merger/acquisition candidates ranging in size from $500,000 to $5,000,000. Reply in confidence to Don Hilker at 732-572-3900 or dhilker@mspcpa.net. Central NJ, regional CPA firm with an outstanding environment is looking to merge-in sole practitioners, small firms, practices needing succession planning or growth-orientated individuals seeking a synergistic platform. Reply in confidence: eguttenplan@wgcpas.com.
Habitat for Humanity of Greater Plainfield, NJ, a nonprofit 501(c)(3), seeks accounting services. Contact C. Jean Rawls at 908-769-5292 or jeremy@gphabitat.org. Second Chance Toys, Mountainside, NJ, just received its 501(c)(3) approval and seeks accounting direction and oversight. Contact Shelly Lipton at 908-789-2993 or slipton@ secondchancetoys.org.
Professional Services Immigration lawyers – We provide temporary visas (H-1Bs, L-1A, Investor, etc.) and green cards through employment/family to the U.S. and Canada – working with CPAs. Call 201-759-4333; www.visaserve.com.
The official publicaTion of The new Jersey chamber of commerce 6,500 circulation 1,700 local companies Connecting with members, clients, and new prospects Show your strength and extend your brand
Real Estate
Growing CPA firm with a first-class marketing culture in central NJ is looking to expand its practice. An ideal merge-in candidate is an accountant/sole practitioner/small firm with an established niche focus and strong business development skills, or a practice in need of a succession plan. Reply in confidence to dcowan@cowangunteski.com. Established northern NJ CPA firm seeking to purchase small practice or accounts. Reply in confidence to pmanetta@mpcpas.com. The Curchin Group, LLC, a central NJ, Monmouth County firm is seeking to merge-in near-retirement sole practitioners and small firms needing succession planning. Other individuals seeking growth and expansion are welcome to inquire. Initial practice continuation also an option. Reply in confidence to Peter Pfister, CPA, at 732-747-0500 or ppfister@ curchin.com.
Westfield, NJ, beautiful downtown location. Share 5,000 sq. ft. office space with two other CPA firms. Professional building, classy look, with an elevator and full handicap accessibility. Two private offices and two workstations available. Share common resources such as software, receptionist, conference room with seating for eight, kitchen, bath with shower, file space, etc. But the most valuable sharing is intelligence and conversation when needed. Call Rich Parness, 908-654-5444, or Bob Saunders, 908-233-7900. Classified Advertising Replies to ads with file numbers should be sent to: File______________________ New Jersey CPA Classifieds 425 Eagle Rock Avenue Suite 100 Roseland, NJ 07068-1723 To see additional classified listings, or to place an ad, visit www.njscpa.org/classifieds. FOR MORE INFORMATION CONTACT ADVERTISING AT 617.896.5344 OR EMAIL CUSTOMPUBS@THEWARRENGROUP.COM
N E W J E R S E Y C P A • ja n u a r y • f e b r u a r y 2 0 1 1
37
The Changing Business of Health Care At nearly 1,000 pages, the Patient Protection and Affordable Care Act can seem pretty daunting. It includes such head-scratching terms as high-risk pool, interstate compact, medical loss ratio and risk corridor. In practice, the Internal Revenue Service is deemed the agency responsible for administering and enforcing many of the act’s key provisions. So, it is in this new climate that CPAs will be called upon by individual and business clients alike to decipher the new laws so that they will not merely be in compliance, but prosper. With their training, experience and financial acumen, CPAs are well positioned to manage this challenge, or should I say opportunity. It is because this landmark legislation is so far reaching that New Jersey CPA has added this editorial supplement. Included here are articles by leading companies in the Garden State that converge on the health care sector. You’ll learn about value added programs that can benefit the body and mind of a company’s employees and the bottom line of a company itself, tax breaks for special health care services your clients might be interested in and even career opportunities for CPAs in a new health care landscape. It seems like one day the nation’s economic pulse is getting stronger, and then the next day it becomes disturbingly faint. Thankfully, New Jersey has a robust health care infrastructure that includes pharmaceuticals, biotech, research, teaching, treatment facilities and talent. And so, the health care sector, along with its CPA practitioners, will be instrumental in helping bring the economy back to life. So, here’s to your (financial) health! David Plaskow
Managing Editor New Jersey CPA Magazine
N E W J E R S E Y C P A • ja n u a r y • f e b r u a r y 2 0 1 1
38
ATTENTION: NEW TAX FILING MANDATES ON JANUARY 1ST
Tax laws are constantly changing. With ADP, you have a partner who will keep you and your clients in the know. ADP will keep you informed of the latest rules and standards, so you can run your business more efficiently and serve your clients better. Government deadlines? Newly-instituted penalties? We’ve got you covered.
DID YOU KNOW: • Effective January 1, 2011, virtually all businesses will need to switch to the IRS Electronic Federal Tax Payment System (EFTPS) for all federal tax payments.
• New regulations will eliminate the IRS paper tax deposit system that employers have used since World War I.
• Businesses must use EFTPS or face 10% penalties for taxes paid by check.
ADP can help your clients avoid costly penalties. Call (973) 739-3336 or visit www.adp.com/efilemandate.
The ADP Logo and ADP are registered trademarks of ADP, Inc. ADP does not provide tax or legal advice. © 2010 ADP, Inc.
HEALTH CARE
supplement
CPA Opportunities in the Health Insurance Sector H
orizon Blue Cross Blue Shield of New Jersey (BCBSNJ) is a notfor-profit health services corporation and an independent licensee of the Blue Cross Blue Shield Association. For insight about the role that financing and accounting plays at Horizon BCBS of New Jersey, as well as opportunities for CPAs in the health insurance sector, New Jersey CPA spoke with Horizon’s Vice President of Finance, Dave Huber, CPA. Huber has responsibility for external and internal reporting, financial planning, tax, enterprise risk management,
sourcing and supplier management, and facilities management.
How much of a presence is Horizon BCBS in New Jersey? Horizon BCBSNJ is the state’s oldest and largest health insurer. Headquartered in Newark, and with offices in Wall, Mount Laurel, Harrison and West Trenton, it employs more than 4,700 workers and serves approximately 3.6 million members. While Horizon is a not-for-profit company, it does pay both federal and state income taxes.
What are its service offerings? Horizon BCBSNJ provides a wide variety of medical, health and wellness, life insurance, worker compensation, and dental insurance products and services, including Medicare and Medicaid products, for local and national businesses and individuals.
What is the composition of Horizon’s workforce? The company is richly diversified in the makeup of its workers, as well as its job functions. As a health insurer,
May 18-19, 2011 Meadowlands Exposition Center in Secaucus
The Best CPE Value of the Year! SAVE THE DATE!
N E W J E R S E Y C P A • ja n u a r y • f e b r u a r y 2 0 1 1
40
Horizon is an employer of professionals across a broad range of careers, including medicine, actuarial and underwriting, business management and administration, information technology, legal, internal audit, community and government affairs, sales and marketing, communications and, of course, accounting and finance.
Where and how does Horizon BCBSNJ use CPA talent in its operations? Horizon employs many CPAs throughout the company. It encourages its finance employees to pursue the CPA designation, and it’s a job requirement for many management positions, including my own. Many of our financial reporting, financial planning, tax, internal audit and Sarbanes-Oxley professionals are CPAs. We also have a fair number of CPAs who have moved into other management jobs in operational areas of the company, such as billing. CPAs possess a wide range of technical skills that can be applied in many different situations, including evaluating business opportunities
objectively, problem solving, analyzing data, improving processes and tightening internal controls. Many of our CPAs are also very adept at soft skills, such as communicating effectively, building consensus, delivering presentations and developing people.
How does corporate finance differ from public accounting?
as International Financial Reporting Standards and convergence. An entrylevel CPA can work his or her way up from the corporate ranks to the executive level.
How long have you worked for Horizon, and what do you like about it?
What are Horizon’s present and future needs for professionals in the fields of finance and accounting?
I have been with the company since 2002. Prior to that, I spent 16 years in public accounting in the New Jersey and New York markets. I really enjoy working for Horizon. It’s a great company that values its employees. Horizon is a large enough company to offer its employees plenty of challenging work and opportunities to grow. I work with a number of different people and on various teams, addressing a diverse range of business challenges. I’ve been able to use the skills that I developed as a CPA and apply those in countless situations, broadening my experience significantly.
The company is always looking to bring in more talent. As the accounting and finance world continues to become more and more complex, it will need to recruit more talent in areas such
To learn more about Horizon Blue Cross Blue Shield of New Jersey, including career opportunities, visit www.horizon-bcbsnj.com.
In public accounting, the focus is on historical results. As a CPA working in industry, we spend relatively little time looking back. Once we get beyond the compliance requirements, the historical results are primarily used as an input to our business plans and decision making. We spend most of our time looking at future activities.
N E W J E R S E Y C P A • ja n u a r y • f e b r u a r y 2 0 1 1
41
HEALTH CARE
supplement
Long-Term Care Insurance Has Its (Tax) Advantages B y M ichael B . Fitz Patrick , LTC F inancial Partners, L L C
W
ith long-term care needs impacting three out of every four Americans over age 65, and costs for that care exceeding $80,000 annually, encouraging your clients to include long-term care insurance (LTCI) protection as part of their financial plans makes good sense. Uncle Sam and many states are even giving insureds a hefty tax deduction for their premiums, believing it’s better to subsidize private LTCI, rather than go broke providing government programs like Medicaid. LTCI is designed to cover the costs of long-term care services, most of which are not covered by traditional health insurance or Medicare. These include
basic activities of daily living, such as dressing, bathing, eating and walking. Already, 30 states have jumped on the tax-incentive bandwagon, according to a 2008 survey by the Kaiser Family Foundation. Many offer state tax deductions patterned after the federal deductions described in Section 213(d) (1)(D) of the Internal Revenue Code. Others offer tax credits that typically range from 10 to 25 percent of the LTCI premiums paid during the taxable year, usually with a maximum limit per policy or covered individual.
with a qualified policy may be able to deduct up to $4,110, depending on age. For a couple, the maximum amount doubles to just over $8,000. According to the Internal Revenue Service, for individuals the amounts of LTCI premiums that are deductible as medical expenses in 2010 can be up to: • $4,110 over age 70 • $3,290 between ages 61 and 70 • $1,230 between ages 51 and 60 • $620 between ages 41 and 50 • $330 age 40 or under
Tax Deductions
One state actively promoting private LTCI by offering a tax credit is New York. The amount is 20 percent of the sum of premiums paid for a qualified LTCI policy in a given tax year. New York is essentially helping to subsidize insured costs with one basic requirement: to pay taxes in New York.
For the 2010 tax year, an individual
Tax Credits
Plenty of Opportunity So why aren’t more Americans buying LTCI? Only 8 percent of the population has planned for it and has coverage. Experts believe that the fundamental lack of understanding about what longterm care is, what the premium covers, how coverages among policies differ and what people’s options are explain why so few people own LTCI policies. But recent health care reform includes the CLASS Act that helps people age 18 and older who are actively at work and not living in a nursing home or other institution to enroll for partial subsidy of LTCI premiums.
Vital Focus Additional legislation and programs also support the growing need for long-term care planning: N E W J E R S E Y C P A • ja n u a r y • f e b r u a r y 2 0 1 1
42
Recognizing the significant need for long‐term care planning among our members, the New Jersey State Society of Certified Public Accountants is pleased to announce a comprehensive new Long Term Care Insurance Program. This program offers a portfolio of comprehensive plans from multiple highly rated insurance carriers.
• The 2010 Pension Protection Act allows clients to use money currently held in annuities or life insurance contracts for LTCI premiums on a tax-free basis. • Partnership programs are developing among state governments, private LTCI providers and state residents who buy qualified policies that link to Medicaid for those who require continued care. • Product innovation hybrid plans include life insurance or annuities with an LTCI rider. • Home-equity-financed LTCI via reverse mortgages. • Limited-pay LTCI policies where premiums are paid out in 10 years or by age 65.
When you consider people are living longer and employers are beginning to offer long-term care as an employee benefit, then long-term care planning becomes more important than ever. Certainly, this puts the onus on accountants who assist clients with financial planning to address the tax advantages of purchasing an LTCI policy. Indeed, it also underscores the need for accountants and their clients to proactively discuss why and how LTCI can provide invaluable financial protection during the time of life when health risks increase and earning power diminishes. Michael B. FitzPatrick, CLTC, is a partner and board member with LTC Financial Partners, LLC. LTC assists people with developing a plan to protect against the financial and emotional costs typically associated with long-term care. Contact him at 973-394-0053 or at michael. fitzpatrick@ltcfp.net.
Through a partnership with Askin, Weber and Reed and Long‐Term Care Resources, New Jersey State Society of Certified Public Accountants members now have a national network of long‐term care specialists available to explain the costs and benefits of this vital program.
More importantly, we have used the buying power of our association to obtain special discounted rates.
While we know this program is very valuable, insurance is not the right answer for everyone. However, information is your best weapon in the fight against the high cost of long‐term care and to determine if Long Term Care Insurance is right for you. Advanced planning is always the best approach. To request more information, call today 800‐616‐8759.
N E W J E R S E Y C P A • ja n u a r y • f e b r u a r y 2 0 1 1
43
HEALTH CARE
supplement
Understanding FSA Benefits Post-PPACA B y Gerry L eonard, A D P
I
magine you’re walking the hallways of your office and you pass a poster on the wall that reads, “Stop by the benefits office and pick up a coupon that is good for a significant discount on daycare, contact lenses, orthodontia treatment and more.” Would you pass the sign without a second thought, or would you run to the benefits office as fast as possible? That particular hypothetical coupon is actually known as a flexible spending account (FSA). An FSA has quickly become a highly valued, voluntary employee benefit for many organizations. Payroll contributions made to an FSA are exempt from federal income tax, Social Security taxes and, in most cases, state income tax. As a result, those employees who use an FSA can essentially shield a portion of their income from taxes to pay for approved
medical and dependent care expenses. Yet, despite this significant benefit, in most organizations FSAs are often one of the most under-utilized company benefits.
A Misunderstood Benefit When you consider the potential savings, it’s a bit mystifying that FSA participation within most organizations is typically very low. There may be several factors contributing to this: (1) employees may not fully understand the true FSA savings; (2) it may be difficult for employees to get excited about the concept of a pre-tax benefit; (3) it’s not tangible; (4) people may focus on the word “tax” and then shy away from wanting to learn more about a related benefit; and (5) the idea of reducing employees’ paychecks may have a
negative connotation. When employees learn that an FSA involves having their paychecks reduced – without really understanding the reason – they are understandably skeptical. Top executives may not even understand FSA benefits. But employers need to be made aware that they also benefit when employees utilize an FSA because it reduces the company’s taxable income as employers save on the Social Security and Medicare taxes that they would otherwise pay on these wages. So, what’s the secret to increased employee participation in an FSA? As with any benefit offering, employee communication and education are critical to driving enrollment. The benefit of an FSA becomes much clearer when the financial savings are connected to money employees spend every day,
N E W J E R S E Y C P A • ja n u a r y • f e b r u a r y 2 0 1 1
44
when they learn that their asthma prescription, braces for a 14-year-old or monthly daycare expense can be reimbursed from an FSA.
Health Care Reform and the Future of FSAs The 2010 Patient Protection and Affordable Care Act will impact FSA accounts. However, participation in FSA programs may actually increase as more employers and employees see the tax saving benefits that can be realized through plan participation. Furthermore, other accounts, such as health savings accounts, will continue to offer out-of-pocket savings and are likely to gain popularity, at least in the short term. Near-term changes to FSA accounts began on January 1, 2011, with over-the-counter medicine and drug purchases only being reimbursed from an FSA if the participant has a valid prescription or a prescription number for the item purchased. In 2013, there will be a $2,500 limit on the amount participants can contribute to their FSAs. The average contribution for FSA participants is approximately $1,500, which is well within the limit established by the new legislation. Ultimately, employers will still get the tax benefits from the payroll contributions to FSA programs, and participation in the programs still provides the financial savings for employees on medical and dependent care expenses they would normally incur. Explaining the benefits to employees in terms of using a coupon or getting a discount helps relate these programs to daily life and may increase participation in these voluntary benefits. As a CPA, you have a multidimensional opportunity to advise both business and individual clients on the financial benefits of utilizing FSAs, not to mention incorporating FSA benefits at your own firm.
THE BUSINESS DIVORCE GROUP AT LOWENSTEIN SANDLER
DISPUTES AMONG CO-OWNERS OF A BUSINESS RAISE DIFFICULT QUESTIONS: Should I buy out my partner? Should we sell the business? Is my partner stealing from the business? Is my partner breaching his or her fiduciary duties? Can I be fired? What are my rights? Should I sue?
SOMETIMES IT’S MORE THAN JUST BUSINESS. The litigators and transactional attorneys in Lowenstein Sandler’s Business Divorce Group have decades of experience representing clients in business divorce and shareholder disputes. They possess the practical and broad-based knowledge to help clients achieve nonlitigated resolutions of business divorces and obtain court intervention if negotiations fail. Business divorce matters are complex and the stakes are too high to proceed without an experienced advisor. Lowenstein Sandler—The Right Answer Practice leaders: Steven B. Fuerst, Christopher S. Porrino and Nicholas San Filippo – 973 597 2500
www.lowenstein.com/businessdivorce New York
Gerry Leonard is division vice president and general manager for ADP National Account Service and the general manager of ADP’s Flexible Spending Account Administration Services and COBRA Administration Services.
Palo Alto Roseland 65 Livingston Avenue Roseland, NJ 07068 © 2009 Lowenstein Sandler PC. In California, Lowenstein Sandler LLP.
N E W J E R S E Y C P A • ja n u a r y • f e b r u a r y 2 0 1 1
45
HEALTH CARE
supplement
Finding the Wellness Program Hidden Gems in the PPACA By D onald Mallo, E x tensis G roup L L C
M
uch has been written regarding the features of the Patient Protection and Affordable Care Act (PPACA) that was enacted in March 2010. This complex statute has introduced us to a variety of new terms – non-discrimination testing, health exchanges, connectors and navigators – that continue to confuse employers, employees, governmental regulators and their professional advisors. Lost in this ponderous and frequently ambiguous law is certain wellness and preventive care program gems that, until now, have been
overlooked and infrequently discussed. For nearly 20 years, employers have looked for creative ways to improve the overall health of their employees and reverse the escalating cost of health insurance premiums. These searches have resulted in the implementation of such initiatives as smoker cessation programs, weight management plans, sponsored gym memberships and other creative initiatives designed to promote healthier lifestyles. The newly enacted PPACA has formalized these programs and established procedures to promote
them by rewarding employers for establishing wellness programs and preventative medicine initiatives and employees for participating in them. Here are several wellness programs covered under the PPACA: Elimination of Co-Pays – Commencing with plan years after September 23, 2010, nongrandfathered plans are prohibited from requiring co-pays on preventive services, including immunizations and breast cancer screenings. Additionally, effective March, 2011, co-pays are also limited for certain preventive
N E W J E R S E Y C P A • ja n u a r y • f e b r u a r y 2 0 1 1
46
services affecting Medicare and Medicaid recipients. (PPACA Sec. 4104-4108.) Expanded Coverage – Effective in 2014, the Secretary of Health and Human Services is authorized to issue essential health benefits requirements that individual employees and health insurance exchanges must cover. Employee Premium Discounts – Effective January 1, 2014, the PPACA increases the permissible discount that employers can pass on to employees participating in wellness programs. Currently, eligible employees may be able to reduce the cost of their health insurance premiums by up to 20 percent. That discount can increase up to 50 percent under the PPACA (Sec. 2705). Grant Funds – The greatest gem hidden within the PPACA bureaucratic maze is found in Section 10408. This section creates a federal grant program designed to assist small businesses in establishing comprehensive workplace wellness programs. Approximately
$200 million has been appropriated to fund the grant program for a five-year period. To qualify, employers must employ fewer than 100 employees working 25 hours or more per week and not have a workplace wellness program in place on March 23, 2010, the date the PPACA was enacted. The Secretary of Health and Human Services has been charged with developing the application process and issuing compliance guidelines. As of November 1, 2010, these guidelines have not been issued. A consistent theme running throughout the PPACA is the promotion of wellness programs and preventative medicine. The PPACA fortifies the belief that wellness plans will reverse the trend of escalating health insurance costs, not to mention result in a healthier society. It is highly recommended that eligible employers begin the preparation associated with applying for grant funds so that they can be
at the head of the line. Although the guidelines have not been issued, it is anticipated that they will be forthcoming. And, once issued, it is expected that the limited funds will go fast. While it is far too easy to complain about the costs associated with the PPACA, employers and employees need to concentrate on the opportunities and beneficial provisions of the law, especially those relating to wellness and preventative medicine. From a business perspective, this is where you, as the trusted business advisor, can play a significant role. Donald Mallo, Esq., is the vice president of human resources and general counsel for Extensis Group LLC, a professional employer organization that provides innovative human resource, benefits, risk management and payroll services to small and mid-sized businesses. Learn more at www.extensisgroup.com or by calling 888-473-6398.
N E W J E R S E Y C P A • ja n u a r y • f e b r u a r y 2 0 1 1
47
STUDENT
outlook
2011 CPA Exam Changes You Need to Know
CPA Exam Today!
B y Gerardo C . Pecoraro, D eloitte
A
re you planning on taking the Uniform CPA Examination in the not-too-distant future? Before you do, it’s important to note that effective January 1, 2011, the exam has changed. These changes aren’t small, subtle modifications; they are major alterations to the exam’s structure and format that need to be understood before entering the examination room. But before panic sets in, understand that these changes are actually in the best interest of exam candidates. The content being tested is nearly the same; it’s primarily the look and feel of the exam that’s different. In an effort to better replicate entry-level knowledge, the American Institute of CPAs decided to change the format and structure of the CPA Exam beginning this year. While there have been numerous, less-significant alterations to the exam, the three most important changes are (1) modifications to exam structure and format; (2) design of the newly released taskbased simulations; and (3) the addition of International Financial Reporting Standards (IFRS) content.
Exam Structure Modifications The structure of the exam has remained constant for some time. The prior format of all four parts included three multiple choice question testlets and two testlets of simulations for the three sections: Auditing and Attestation (AUD), Regulation (REG) and Financial Accounting and Reporting (FAR). Going forward, all four parts will consist of three testlets of multiple choice questions and one testlet of simulations. For AUD, FAR and REG, multiple choice questions will account for 60 percent and the simulations for 40
percent of the total score. For Business Environment and Concepts (BEC), the multiple choice questions will account for 85 percent of the score and the simulations the remaining 15 percent.
Task-Based Simulations (TBS) The most striking change to the exam is the AICPA’s new TBS that has replaced the accustomed single-task simulations. In pre-2011 exams, all simulations comprised three distinct components: a real-world simulation question, writing assignment and research task. With the 2011 changes, all three components have been modified. Gone are the days when a candidate would have one entire simulation on a single topic. Now, the AICPA’s TBS will consist of six to seven individual tasks to be completed on any variety of topics in the covered subject matter. In the new format, only the BEC section will have writing tasks. In fact, the TBS in BEC will be comprised entirely of writing assignments, while the three remaining exams will each have five to six real-world simulations and one research task. The research task will also see a change in the new 2011 format. Candidates will now be required to retrieve information from the newly adopted Financial Accounting Standards Board (FASB) Accounting Standard Codifications. The codifications are the new, superseding, authoritative, generally accepted accounting principles (GAAP) literature released by the FASB in July 2009. This is the single highest source of GAAP in existence and combines the volumes of previous pronouncements into a single, easy-to-navigate research tool.
IFRS Finally, the most talked about exam change involves the addition of IFRS to testable material. The AICPA has affirmed that the new content will be added to the exam gradually and, more importantly, in the first few testing windows will only concentrate on the similarities and differences between U.S. GAAP and IFRS. However, FAR will not be the only IFRS-impacted section of the exam. Candidates taking AUD and BEC may also see snippets of IFRS on their exams. For 2011, the only IFRS-free section is REG, but the AICPA has not made this permanent. This isn’t the first time that the CPA Exam has changed, but these modifications are the most significant ones in quite some time. There will definitely be a learning curve for candidates who have tested in prior windows, but these modifications shouldn’t impede a candidate’s path to success. The changes were instituted to better prepare them for success in a profession of constant change. Embrace these changes, and you’ll be well on your way to becoming a CPA. Gerardo C. Pecoraro is a tax consultant at Deloitte. He is a New Jersey Society of CPAs Scholarship recipient and an Exam Cram blogger. Contact Pecoraro at gerardopecoraro@gmail.com.
N E W J E R S E Y C P A • ja n u a r y • f e b r u a r y 2 0 1 1
48
LEGISLATIVE
views
Small Business Jobs Act Hopes to Have a Big Impact B y David Plaskow, N J SC PA Publications E ditor
O
n September 27, 2010, President Obama signed the Small Business Jobs and Credit Act whereby small business owners will receive tax breaks and better access to credit. Among the bill’s many important provisions are:
Lending and Credit Extension of Successful SBA Recovery Loan Provisions – The Small Business Administration will begin funding new recovery loans totaling more than $730 million, with the capacity to support $14 billion in small business loans. Increasing the Maximum Loan Size for the Largest SBA Programs – It will permanently increase the maximum 7(a) and 504 loans from $2 million to $5 million, and the maximum 504 manufacturing-related loan from $4 million to $5.5 million. The maximum loan size for SBA Express loans will temporarily increase from $350,000 to $1 million, providing greater access to working capital loans that small businesses use to purchase new inventory and allow them to create new jobs. A New $30 Billion Small Business Lending Fund – It will establish a new $30 billion Small Business Lending Fund, providing capital to small banks with incentives to increase small business lending. An Initiative to Strengthen Innovative State Small Business Programs – It will support at least $15 billion in small business lending through a new State Small Business Credit Initiative. “The 2010 Small Business Jobs and Credit Act will help my business as it will temporarily increase the maximum
loan size for SBA Express loans from $350,000 to $1 million, providing greater access to working capital loans. With more access to credit, I can update my computer systems and hire more staff to grow my business,” says Michelle Cicchini, CPA. “By helping millions of small businesses in this manner, the act could stimulate the economy by allowing them to create new jobs and help facilitate an economic recovery.”
Tax Cuts Zero Taxes on Capital Gains from Key Small Business Investments – The act temporarily eliminates, for 2010, all capital gains taxes on these investments if held for five years. Extension and Expansion of Small Businesses’ Ability to Immediately Expense Capital Investments – It increases for 2010 and 2011 the amount of investments that businesses would be eligible to immediately write off to $500,000, while raising the level of investments at which the write-off phases out to $2 million. Extension of 50-Percent Bonus Depreciation – It extends a Recovery Act provision for 50-percent bonus depreciation through 2010, accelerating the rate at which businesses deduct capital expenditures. A New Deduction of Health Insurance Costs for Self-Employed – It allows two million self-employed to get a deduction for the cost of health insurance for themselves and their family members in calculating their self-employment taxes. An Increase in the Deduction for Entrepreneurs’ Start-Up Expenses – It temporarily increases the amount of
start-up expenditures entrepreneurs can deduct from their taxes for this year from $5,000 to $10,000 (with a phase-out threshold of $60,000 in expenditures). Five-Year Carryback of General Business Credits – It will allow certain small businesses to carry back their general business credits to offset five years of taxes – providing them with a break on their taxes for this year – while also allowing these credits to offset the alternative minimum tax. Limitations on Penalties for Errors in Tax Reporting That Disproportionately Affect Small Business – It will change the penalty for failing to report certain tax transactions from a fixed-dollar amount to a percentage of the tax benefits from the transaction. Tax Relief and Simplification for Cell Phone Deductions – It changes rules so that the use of cell phones can be deducted without burdensome extra documentation. “This legislation is a step toward addressing needs of the small business community, but much work remains,” comments R. Bruce Josten of The U.S. Chamber of Commerce. “The Chamber urges Congress to address the imminent increase in marginal taxes rates and long-term capital gains and dividends, the regulatory burden of 1099 reporting requirements of the new health care law and uncertainty in the lending community posed by the financial reform bill.”
N E W J E R S E Y C P A • ja n u a r y • f e b r u a r y 2 0 1 1
49
MEMBER
profile
Counting on the Kindness of Others By David Plaskow, NJSCPA Publications Editor
“A
s a CPA, you’re trained to become self-sufficient, for the most part,” says Len Cerefice, CPA. “But one of the life lessons I’ve learned is how dependent we all are on each other.” Cerefice learned both of these points as a young man at his father’s public accounting practice in Newark. Cerefice was a sophomore accounting student at Seton Hall in 1961 when his dad, Louis, passed away from cancer. Len took over the business a few months prior and went to school part-time. “My dad belonged to the New Jersey Association of Public Accountants,” recalls Cerefice. “And several of their members were gracious enough to pitch in and help me keep the business going.” Cerefice graduated from Seton Hall with a B.S. in accounting in 1964. “I always liked accounting and was good at math,” notes Cerefice. “I wanted to work for a big firm, but plans change and I have absolutely no regrets about taking over my dad’s practice.” Cerefice obtained his CPA designation in 1970. “It’s about being the best in your field. My mom, Rose – who also worked at my dads’ practice – nudged me a little to become a CPA,” says Cerefice. Upon obtaining his CPA certificate, Cerefice joined the New Jersey Society of CPAs. “It was a no-brainer. I like to know what’s going on in the profession, the Society’s continuing professional education courses are outstanding, and I’ve met a lot of interesting people,” comments Cerefice. “And I had seen the benefits my dad reaped from being part of a professional organization.” Cerefice has been active with
NJSCPA committees, proctored CPE seminars, as well as been a member of the Westfield Optimist Club and a trustee at his church. He plays golf, likes to travel and enjoys gardening. One day in 1997, life became much more complicated for Cerefice. Severe abdominal pain, initially thought to be a kidney stone, was diagnosed as polycystic kidney disease. It essentially affects how the body cleanses waste in the bloodstream. Over time, kidney function decreases and eventually the kidneys fail. “I was actually managing the disease pretty well,” says Cerefice. “But in 2007 my doctor’s tone changed and he told me within five years I’d be on dialysis. I was floored.” After doing some research, Cerefice registered for the St. Barnabas Hospital kidney transplant list. But because the waiting list is lengthy and the life expectancy longer, he decided to seek a living donor. “Most people don’t know that they can live with one kidney. In fact, one in 750 people is actually born with only one,” notes the Westfield resident. “In talking with other people in my situation, I’ve learned that you shouldn’t be afraid to tell people about your condition and inquire about an organ donation.” So, Cerefice sent an appeal to everyone in his address book outlining all of the issues involved with being a living organ donor. He explained the requirements, process, insurance implications and so on. He heard from
20 people interested in being a donor. Most were eliminated for various reasons: age, blood type, physical condition. But it only took one match and, as of press time, Cerefice is scheduled for a transplant at St. Barnabas Hospital in early December – something to be extra thankful for this holiday season. And with all the talk of health care reform, how has this impacted Cerefice? “With Medicare and my AARP supplement, there has actually been very little out-of-pocket cost. And the entire transplant operation for myself and the donor will be covered,” says Cerefice. “The one area where I will notice a difference is the closing of the so-called Medicare ‘donut hole’ provision. Going forward, this should decrease out-of-pocket costs for prescription drugs. This will be a big help as the post-transplant antirejection drugs cost about $2,500 per month.” “It’s been a very emotional process,” adds Cerefice. “If and when I get this dark cloud behind me, I’d like to talk to groups about donating organs. I believe many people would really want to make this life-saving gesture if they knew all of the dynamics involved.”
NEW JERSEY CPA • January • February 2011
50
Our clients do their banking with banks. . . but when it comes to financing their business, they choose Medallion as their lender. What We Do Revolving lines of credit collateralized by accounts receivable, inventory, machinery and/or equipment and real estate ~ $250,000 or as much as $5,000,000. For Whom • Manufacturers • Distributors • Service providers • Finance companies Why Medallion • Stable financing solution • Competitive pricing • Committee- free approval process • Covenant-free agreements • Timely closings
Special considerations are given to start-ups, rapid growth/acquisitions, operational expansions and/or turnaround companies. Our skilled staff is trained to service your individual needs. We welcome your inquiry about our products and services. New York Office Jerry Grossman, President ggrossman@medallion.com Direct: 212-328-2124
New Jersey Office Connie Mitchko, Senior Vice President cmitchko@medallion.com Direct: 908-237-2960
Your NJSCPA Accountants Malpractice Program
Argent Professional Insurance Agency, LLC (formerly McLachlan Kane Insurance Agency), 30 Technology Drive, Warren, NJ 07059 t.908-769-7400 x46 f.908-769-7477 thf@insuranceagent.com www.insuranceagent.com