NJCPA NOV/DEC by The Warren Group

CPE Triennial Ends 12-31-11

Magazine of the

New Jersey Society of Certified Public Accountants

Tax Matters 2011 Tax Update: The Sequel to Restoring the Economy Is the NJ Tax Base Going in the Right Direction? The Current Tax Examination Landscape Residency Tax Planning for High-Net-Worth Individuals

N o v â&#x20AC;˘ D e c 2 0 1 1

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November • December 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 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 Anthony F. Marone, 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 2011 Tax Update: The Sequel to Restoring the Economy Learn about recent tax developments in New Jersey, New York and at the federal level.

12 IsthetheRight NJ Tax Base Going in Direction? Discover the trends in corporate, individual and property taxation that bode well for the state’s future.

16 The Current Tax Examination Landscape See how the IRS, NJ and NY are ramping up their individual and business tax exam efforts due to budgetary shortfalls.

20 Residency Tax Planning for High-Net-Worth Individuals Find out the subtle residency nuances that can make a tremendous tax difference for high-net-worth individuals.

Close Up Doing Business in New York Just Became Much Easier

6 News Briefs 24 A&A Buzz The Changing Face of Financial Statements 25 Best Practices How Severance Pay Affects Federal and New Jersey Taxes 26 Financial Planning Asset Protection Trusts 28 Forensic File CPA Opportunities in Mediation 29 Industry Insights Avoiding Corporate Tax Icebergs 30 Small/Sole Practitioner Assisting Clients in Understanding Fee Increases 32 Tax Talk Answering Tax Notices

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

34 Tech Center Should an IT Person Be a Partner?

48 Student Outlook The NJSCPA College Scholarship Fund: Change on the Horizon 49 Legislative Views Yes, New Jersey Is a High-Tax State 50 Member Profile The Sweet Taste of Entrepreneurism Society Pages CPE Offerings and Events, 36 Get Involved, 38 Member Benefits, 42 Year-End Financials, 43 NJ State Board of Accountancy Report, 46 Classifieds, 47

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. 30 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.

Doing Business in New York Just Became Much Easier B Y RA L PH AL BERT THOM AS, NJ SC PA E X E C UT I VE D I RE C TO R

n August 2011, New York Governor Andrew Cuomo signed a new CPA cross-border mobility statute. The bill goes into effect on November 15. This legislation is good for all businesses and acknowledges the rapidly changing business environment in which the CPA profession practices and offers services – in New York, New Jersey and around the country. Since 2007, the American Institute of CPAs has worked collaboratively with state CPA societies, the National Association of State Boards of Accountancy, individual state accountancy boards, and AICPA members and their firms to update state licensing laws. The law makes it easier for CPAs to gain practice privileges outside of their home-state jurisdiction without obtaining an additional license in another state, benefitting businesses and the economy. New Jersey enacted mobility legislation in July 2009 and New York becomes the 48th state to adopt such legislation, bringing the U.S. closer to a national uniform mobility system for CPAs, CPA firms and the state boards of accountancy that regulate them. New York’s law authorizes the State Board of Regents to determine whether a state’s CPA licensure requirements are substantially equivalent to New York’s and will not change the current law’s provisions on New York CPA licensure. Under Section 23 of substantial equivalency, if a CPA has a license in good standing from a state utilizing CPA licensure and certification criteria outlined in the Uniform Accountancy Act (UAA) – 150 hours of education, passing the CPA Exam and at least one year of experience – then that CPA would be qualified to practice in any state that has adopted UAA Section 23 mobility. Any CPA who goes into New York under the proposed mobility practice privilege would fall under the jurisdiction and be subject to the rules of the state of New York, even if the crossborder practice in question consists of a single email. There are also strict public protection provisions that cover any disciplinary action a visiting CPA has received in the past seven years. If he/she meets any of the criteria outlined in the

bill, that CPA must notify the State Education Department (SED) by form and cannot practice in New York until the CPA has received written permission from the SED before practicing there. If that CPA does, he/she would be considered to be practicing in New York without a license, a crime in New York State. Mobility, or cross-border practice privilege, which goes into effect on November 15 in New York, allows New Jersey CPAs or a CPA licensed in good standing in his/her substantially equivalent home state to provide services to clients in other states without having to file any paperwork or pay any fees. It makes sense that in 2011 you can send an email to a client in New York without having to fill out an application. While all New Jersey CPAs and CPA firms may benefit from this legislation, small firms and practitioners may benefit most. Large firms have whole departments dedicated to compliance; small firms and sole practitioners have only themselves. They won’t have to waste time or resources poring over state licensing requirements. Small firms no longer compete with the firm just down the street or in the next town. Technology allows them to compete with small firms across the country. Now, sole practitioners and small firms located in New Jersey won’t be restricted from serving their New York clients. There are now only seven remaining states and jurisdictions without a mobility statute. However, legislation remains active before the Washington, DC, City Council, and the remaining states and jurisdictions are all having active conversations on how best to move the issue forward. We have to help keep the momentum going and ensure that our laws allow New Jersey CPAs to compete across state lines and in a global economy. Questions about mobility? Visit cpamobility.org.

Member Benefit Stay current on key issues impacting the accounting profession and the Society by texting “NJSCPA” to 366948.

NEW JERSEY CPA • NOVEMBER • DECEMBER 2011

2011/12 Board of Trustees EXECUTIVE COMMITTEE President Carole A. Hedinger, CPA President-Elect Thomas F. Roche III, CPA Secretary Lloyd F. George, CPA Treasurer Walter J. Brasch, CPA Immediate Past President Robert S. Marrone, CPA Executive Director Ralph Albert Thomas TRUSTEES Lewis D. Bivona, CPA Jose E. Bombino, CPA Susan Burke, CPA Rebecca B. Fitzhugh, CPA Linda Gibson, CPA Edward I. Guttenplan, CPA Karl A. Halteman, CPA Maryann Holloway, CPA Robert Nanfro, CPA Kenneth Pogrob, CPA Jody Rorick, CPA Mary E. Zago, CPA

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NEWS

briefs

IRS Revises Time Limits for Some Innocent Spouse Requests

The Internal Revenue Service (IRS) will extend help to more innocent spouses by eliminating the two-year time limit to new equitable relief requests or requests currently being considered by the agency. A taxpayer whose equitable relief request was previously denied solely due to the two-year limit may reapply using IRS Form 8857, Request for Innocent Spouse Relief, if the collection statute of limitations for the tax years involved has not expired. Taxpayers with cases currently in suspense will be automatically afforded the new rule and should not reapply. The IRS will not apply the two-year limit in any pending litigation involving equitable relief, and where litigation is final, the agency will suspend collection action under certain circumstances. Read Notice 2011-70 on irs.gov for more information.

FASB Simplifies Testing Goodwill for Impairment

The Financial Accounting Standards Board approved a revised accounting standard intended to simplify how an entity tests goodwill for impairment. The amendments will allow an entity to first assess qualitative factors to determine whether it is necessary to perform the two-step quantitative goodwill impairment test. An entity no longer will be required to calculate the fair value of a reporting unit unless the entity determines, based on a qualitative assessment, that it is more likely than not that its fair value is less than its carrying amount. The guidance also includes examples of the types of factors to consider in conducting the qualitative assessment. The amendments will be effective for annual and interim goodwill impairment tests performed for fiscal years

New Jersey Society of CPAs Executive Director Ralph Albert Thomas gives a professional issues update during the second annual Firm Administrators Breakfast held in September in Iselin.

beginning after December 15, 2011. Learn more at fasb.org.

Treasury and IRS Issue FATCA Guidance

The Treasury Department and the IRS announced plans to phase in the requirements of the Foreign Account Tax Compliance Act (FATCA), which targets noncompliance by U.S. taxpayers through foreign accounts. Under the notice, foreign financial institutions (FFIs) and U.S. withholding agents are given adequate time to fully comply with FATCA. FATCA requires FFIs to report to the IRS information about financial accounts held by U.S. taxpayers or by foreign entities in which U.S. taxpayers hold a substantial ownership interest. To avoid being withheld upon under FATCA, a participating FFI must enter into an agreement with the IRS to identify U.S. accounts, report certain information to the IRS regarding U.S. accounts and withhold a 30-percent tax on certain payments to non-participating FFIs and account holders unwilling to provide the required information. FFIs that do not enter into an agreement with the IRS will be subject to withholding

New Jersey by the Numbers 394,000,000 Incentive dollars awarded by the state for the Urban Transit Hub program 10,000,000 State dollar increase in hospital funding for charity care 1,081 Average cost for a NJ auto insurance policy, third in the nation 3 Percent decrease in cigarette sales in NJ last year

on certain types of payments, including U.S. source interest and dividends, gross proceeds from the disposition of U.S. securities and pass-thru payments. Notice 2011-53 provides a timeline for FFIs and U.S. withholding agents to implement the FATCA requirements. The notice phases in the implementation of FATCA as follows: • An FFI must enter an agreement with the IRS by June 30, 2013, to ensure that it will be identified as a participating FFI in sufficient time to allow withholding agents to refrain from withholding beginning on January 1, 2014. • Withholding on U.S. source dividends and interest paid to non-participating FFIs will begin on January 1, 2014, and withholding on all withholdable payments (including on gross proceeds) will be fully phased in on January 1, 2015. • Due diligence requirements for identifying new and pre-existing U.S. accounts (including certain high-risk accounts) will begin in 2013. Reporting requirements will begin in 2014. • High-risk accounts include private banking accounts with a balance of $500,000 or more.

GASB Issues Statements 63 and 64

The Governmental Accounting Standards Board (GASB) has issued Statement No. 63, Financial Reporting of Deferred Outflows of Resources, Deferred Inflows of Resources, and Net Position, and Statement No. 64,

NEW JERSEY CPA • NOVEMBER • DECEMBER 2011

Derivative Instruments: Application of Hedge Accounting Termination Provisions (an amendment to GASB Statement No. 53). These two statements help improve governmental financial reporting by providing taxpayers and others with information about how past transactions will continue to impact a government’s financial statements in the future and clarifying the circumstances in which hedge accounting continues to be applied when a swap counterparty, or related credit support provider, is replaced. The provisions of Statement 63 are effective for financial statements for periods beginning after December 15, 2011, with earlier application encouraged. Statement 64 is effective for periods beginning after June 15, 2011, also with earlier application encouraged. For information, visit gasb.org.

New Mobility Tool Now Available

Developed by the American Institute of CPAs and the National Association of State Boards of Accountancy, cpamobility.org provides helpful information, updated regularly, on the state of mobility laws across the 55 U.S. states and jurisdictions. The site can also be used on a mobile device.

Chinese and U.S. Regulators Hold Meeting on Audit Oversight Cooperation

The Sino-U.S. Symposium on Audit Oversight was held in China in July where officials briefed each other on their respective audit oversight systems and inspection

procedures. They also exchanged views on how to deepen cooperation on cross-border audit oversight and welcomed continued dialogue concerning the oversight of accounting firms providing audit services to public companies so as to enhance mutual trust and strive to reach an agreement on cross-border audit oversight. The two sides discussed a series of arrangements, including sending staff to observe the inspection of accounting firms in each other’s jurisdiction. The parties share the view that increasing cooperation on cross-border audit oversight will help improve the quality of auditing and accounting information of public companies, protect the rights of investors and assist in safeguarding of financial markets in both countries.

Free Online Tool from the SBA Helps Small Businesses Develop an Export Business Plan

Small businesses interested in starting or expanding overseas have a new, free online tool that will gauge their readiness and help them develop an export business plan. The U.S. Small Business Administration’s (SBA’s) Export Business Planner offers a ready-made, customizable document that can be updated and referenced continuously as the business grows. The planner allows users to determine export readiness, obtain financing information, customize export marketing plans and more. Available at sba.gov/ exportbusinessplanner, the planner features an extensive compilation of export research

and information, including quick links to websites, training podcasts, trade statistics, a list of current SBA lenders and much more.

Fitch Downgrades New Jersey

Fitch downgraded its rating on New Jersey’s outstanding general obligation bonds from AA to AA-, and its appropriation-backed debt and other related debt issued through a number of authorities were downgraded from AA- to A+. Low reserves, unfunded pension obligations and weak employment were cited as reasons for the downgrade.

New Law Removes Taxpayer Barriers

The September America Invents Act included a measure eliminating tax strategy patents. It deems any “strategy for reducing, avoiding or deferring tax liability” to be “prior art” under patent law and therefore not patentable. “Tax liability” is broadly defined as any tax liability under federal, state, local or foreign law.

IRS Issues Guidance on Cell Phone Tax Treatment

IRS Notice 2011-72 provides guidance on the treatment of employer-provided cell phones as an excludible fringe benefit. When an employer provides an employee with a cell phone primarily for non-compensatory business reasons, the business and personal use of the cell phone is generally nontaxable to the employee. The IRS will not require recordkeeping of business use in order to receive this tax-free treatment.

njscpa.org Spotlight Market Your Firm for Free This Tax Season

Get Only the Information You Want

Tax season is right around the corner, so now’s the time to accelerate your marketing efforts. As a New Jersey Society of CPAs member, your firm is entitled to a free listing in the Society’s Find-A-CPA Online Referral Service. The free basic listing includes your choice of four services provided and four industries served. Additional services and industries can be purchased for $15 each per year. For more information and to enroll, go to findacpa.org/enroll. Questions? Contact Jeanette Miller at findacpa@njscpa.org or 973-226-4494 x246.

Would you like to get fewer emails? Who wouldn’t! Make sure the NJSCPA knows your areas of interest so that we don’t send you information and events that you’re not interested in. Update your profile at njscpa.org/profile. While you’re there, make sure your contact information is current as well.

NEW JERSEY CPA • NOVEMBER • DECEMBER 2011

2011 Tax Update: The Sequel to Restoring the Economy Federal In 2010, tax legislation was geared toward stimulating the economy and restoring some of the jobs lost in the economic recession. This legislation contained provisions that affected 2010 and beyond. In 2011, the Budget Control Act may pave the way for major tax reform that will help reduce the deficit.

By Maryann Previtera, CPA Alloy, Silverstein, Shapiro, Adams, Mulford, Cicalese, Wilson & Company

The Affordable Care Act of 2010 – This created the Small Business Health Care Tax Credit, in effect through 2014. This credit is designed to help small businesses and small tax-exempt organizations afford health care coverage for employees. Through 2013, the maximum credit amount is 35 percent of an entity’s premium costs (25 percent for tax-exempt employers). On January 1, 2014, this rate increases to 50 percent (35 percent for taxexempt employers). To qualify for the credit, employers must provide at least 50 percent of the cost of health care coverage for some of its workers based on the single rate. The credit phases out gradually for entities with average wages of between $25,000 and $50,000 and for entities with the

equivalent of between 10 and 25 fulltime workers. The Hiring Incentives to Restore Employment Act of 2010 – It provided a 6.2-percent employer Social Security tax exemption in 2010 for qualified employers that hired eligible employees. These qualified employers may also be eligible for a business tax credit in 2011. To be eligible for the credit, each qualified worker who was hired in 2010 must be employed for at least 52 consecutive weeks and be paid an amount equal to at least 80 percent of his/her first 26 weeks of wages during the last 26 weeks of the 52-consecutive-week period. The credit is the lesser of $1,000 or 6.2 percent of wages paid to the qualified retained worker during the 52-consecutive-week period. This credit can be claimed on the employer’s 2011 income tax return. The 2010 Tax Relief Act – This is a multi-billion dollar tax-cut package that extended the Bush-era tax cuts. The Child Tax Credit, Dependent Care Credit and American Opportunity Tax Credit are extended through December 31, 2012. The Bush tax rates and capital gains rates/qualified dividends rates are also extended to December 31, 2012. Itemized deductions and personal exemptions will not have a phase-out for higher-income taxpayers.

NEW JERSEY CPA • NOVEMBER • DECEMBER 2011

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The energy credit is at the $500 pre-2009 amount for 2011, and state and local sales tax deductions, higher education tuition deductions, teachers’ classroom expense deduction and charitable contributions of individual retirement account proceeds are extended through December 31, 2011. The alternative minimum tax exemptions will be increased to $48,450 for individuals and $74,450 for joint filers in 2011. Business Income Taxes – A 100-percent bonus depreciation will be allowed for qualified investments

made in 2011. A 50-percent bonus depreciation will be allowed for qualified investments made in 2012. Section 179 expense limits for 2011 will be $500,000 per individual investment and $2 million of total annual capital investments. In 2012, this amount will revert back to $125,000 per individual investment and $500,000 per year (indexed for inflation). In 2011, the self-employment tax is reduced by 2 percent as is the employee portion of Social Security tax. One hundred percent of any capital gains from the sale of qualified small

See The Good.

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

business stock will be excluded for stock issued prior to January 1, 2012, that was held for more than five years. The Work Opportunity Tax Credit, energy incentives, Research Tax Credit, five-year write-off of farm machinery and equipment, and charitable deductions for food inventory and for books to public schools and computer equipment for educational purposes are extended through December 31, 2011.

New Jersey The S corporation minimum tax is reduced by 25 percent for tax years

• ShopRite Partners in Caring Fund. Since 1999, the

ShopRite Partners in Caring Fund has supported hungerfighting efforts in New Jersey and throughout the Northeast. To date, ShopRite has donated $24 million to hunger fighting organizations. A unique feature of the Fund is how it has become part of the ShopRite culture, receiving a variety of support from employees, customers and partners.

If your clients are looking to make a difference through charitable giving, we’d like to be of assistance. Please contact Hans Dekker at hdekker@cfnj.org | 973-267-5533.

• Great Companions Fund. A donor, inspired by her life’s

work of training and nurturing animals, created a fund to support causes and organizations throughout New Jersey that care for and promote the welfare of companion animals and wildlife, helping spread the joy and comfort animals can bring.

2011 Year-To-Date (May): Grants Issued - $5.8MM | Gifts to Donor Advised Funds - $18.1MM

facebook.com/GivingNJ

NEW JERSEY CPA • NOVEMBER • DECEMBER 2011

twitter.com/GivingNJ

cfnj.tumblr.com

beginning in calendar year 2012. The three-fraction allocation formula of the Corporation Business Tax allocation factor will be replaced with a single sales fraction formula. The change is phased in over three years, with tax years beginning on or after January 1, 2012. For tax years beginning on or after January 1, 2012, but before January 1, 2013, the sales fraction will be 70 percent of the allocation, and the property and payroll fractions will each be 15 percent of the allocation. For tax years beginning on or after January 1, 2013, but before January 1, 2014, the sales fraction will be 90 percent of the allocation, and the property and payroll fractions will each be 5 percent of the allocation. For tax years beginning on or after January 1, 2014, the sales fraction will be 100 percent of the allocation. Beginning January 1, 2012, taxpayers will be allowed to net gains from one type of business entity against losses from another type of business

entity. Taxpayers will also be allowed to carry forward business losses for up to 20 years.

New York The existing personal and corporate tax rates for New York City are extended through 2014. They had been scheduled to be reduced in 2012.

Future Considerations The Budget Control Act of 2011 created a joint select committee of Congress. The committee must provide a report that contains deficit-reducing recommendations for fiscal years 2012 to 2021. The report must be submitted by December 2, 2011. Some of the major tax changes that may be addressed by the committee are: • Reducing individual marginal tax rates. • Repealing the alternative minimum tax. • Reducing and/or repealing deductions allowed by individuals. • Reducing favored treatment of

dividends and capital gains. • Creating a single corporate income tax rate. • Reducing business tax deductions and/or incentives. • Changing international taxation. This act requires the House and Senate to vote on a final bill by the end of December. Stay tuned for developments that may have a major impact on 2012 tax planning. Maryann Previtera, CPA, is a supervisor at Alloy, Silverstein, Shapiro, Adams, Mulford, Cicalese, Wilson & Company. She is a member of the New Jersey Society of CPAs Federal Taxation, State Taxation and Nonprofit interest groups. Contact her at mprevitera@alloysilverstein.com.

Member Benefit Save 30 percent on more than 175 CCH tax and accounting books at njscpa.org/marketplace.

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NEW JERSEY CPA • NOVEMBER • DECEMBER 2011

Is the NJ Tax Base Going in the

Right Direction? Look at any economic indices today and most likely New Jersey will appear at or near the bottom. Clearly, factors such as recession, unemployment, natural disasters and the like have a significant economic impact. But taxation – be it corporate, individual or property – due to adverse state legislation this decade has eroded the state’s tax base, thus leaving less revenue for state programs and investment (Table I). However, with the Christie administration and some recent changes highlighted below, the tide may be turning for the better. Corporate Taxation

By Gerard Bobal, CPA WeiserMazars LLP

Single Sales Factor – Recently, Governor Chris Christie signed legislation changing how multi-state corporations report income to the state of New Jersey. Such corporations report income based on an apportionment formula which consists of three factors: payroll, sales and assets (the ratio of those factors in New Jersey versus everywhere). Companies that had large investments in assets and employees in

New Jersey were at a tax disadvantage compared to those that had little or no investment in the state. In effect, New Jersey was penalizing its own companies. With S2753, companies will now apportion income to New Jersey based solely on a sales factor. This change, effective for years beginning on or after January 1, 2012, is phased in over a three-year period and makes New Jersey-based companies more competitive with companies not based in New Jersey. Throw Out the Throw-Out Rule – For years, when calculating apportioned sales, companies had to exclude from the denominator (sales everywhere) sales in states in which the taxpayer was not subject to a tax on – or measured by – profits, income or business presence. This increased the sales factor apportioned to New Jersey and therefore the amount of New Jersey tax. This throw-out rule was repealed for years beginning on or after July 1, 2010. Out-of-State Place of Business – In the past, companies that had no regular place of business outside of New Jersey (e.g., office, warehouse) were prohibited from apportioning out even if they paid tax to other states. This raised New Jersey companies’ tax (i.e., 100 percent

NEW JERSEY CPA • NOVEMBER • DECEMBER 2011

of the business activity was apportioned to New Jersey). Effective for years beginning on or after July 1, 2010, this rule was repealed. The Verdict: In an Office of Legislative Services of the New Jersey Legislature report, corporate tax revenue is expected to grow by 4.7 percent to $2.43 billion in 2012.

Individual Taxation Since its enactment in 1976, the New Jersey income tax has been a gross income tax. Net losses in any category of income (e.g., S corporation, partnership, rental) could not offset income from another category. For instance, wages or interest income could not be offset by a loss from schedule C or a rental property. For federal purposes, this is allowed (assuming passive activity rules have been complied

TABLE I NJ Income Tax Revenue (millions of $) FY

Amount

Change

Percent Change

2011

9,855

(467)

(4.6)

2010

10,322

(154)

(1.5)

2009

10,476

(2,129)

(17)

2008

12,605

878

7.5

2007

11,727

1,220

11.6

NJ Corporation Tax Revenue (millions of $) FY

Amount

Change

Percent Change

2011

2,145

146

7.3

2010

1,999

(623)

(23.7)

2009

2,622

(371)

(12.4)

2008

2,993

(4)

(.1)

2007

2,997

159

5.6

Source: Council of New Jersey Grantmakers

NEW JERSEY CPA â&#x20AC;˘ NOVEMBER â&#x20AC;˘ DECEMBER 2011

with). Losses within a category can offset income within that same category. For example, S corporation income and losses can be netted, but if the result is a net loss, it is not allowed. Basically, the net loss is lost. Unlike federal law, there are no carryforward provisions. Effective for years beginning on or after January 1, 2012, this changes. A new deduction, the Alternative Business Calculation Deduction, will be available. This deduction, phased in over five years, will ultimately be 50 percent of the business increment for any particular year. Alternative business income is subtracted from regular business income to determine the business increment. The alternative business income is the net of the four types of business income (partnership income, S corporation income, rental income and net profits from business). While somewhat convoluted, it does result in some deduction of net losses. Also, there is a provision in the new law that allows for a 20-year carryforward for business-related losses. The Verdict: Income tax revenue is expected to grow to $11.03 billion in 2012, more than $500 million more than originally projected.

Property Taxation In 2010, the governor signed a 2-percent cap on property tax increases effective January 1, 2011. New

TABLE II Total property tax revenue collected by New Jersey school boards, town councils and county governments: Year

Amount (In billions of $)

Percent Increase

2010

25.01

2009

24.05

3.6

2008

23.20

4.9

2007

22.1

5.8

2006

20.9

6.9

Source: New Jersey Department of Community Affairs

Jerseyans suffer the highest property taxes in the nation (Table II). And while this will leave less revenue for municipalities, it will hopefully prevent the exodus of Garden State residents to other states. The Verdict: Due to the recent effective date, property tax rebates, 566 municipal government budgets and uncertain action by future administrations, this is the real wild card. However, the cap is a good first step and offers fiscal hope.

citizens leave New Jersey, the state loses not only the potential estate tax, but also income, property and sales taxes. The Verdict: At this point, this is only a proposal and has not become law.

Estate Taxes

Gerard Bobal, CPA, M.S.T., is a partner at WeiserMazars LLP. He is a member of the New Jersey Society of CPAs Federal Taxation and State Taxation interest groups. Contact him at 732-205-2028 or jerry.bobal@weisermazars.com.

To reduce the incentive to move out of state, Christie has proposed increasing the lifetime estate tax exemption from $675,000 to $1 million per person. The administration recognizes that when

So, while we still have high unemployment and a stagnant economy, New Jersey has taken some significant measures to address its tax base and will hopefully, in the nottoo-distant future, lead and not follow other states.

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The Current Tax Examination Landscape Your clients, whether individuals, partnerships or corporations, face the possibility of being selected for a tax examination by the Internal Revenue Service (IRS), New Jersey Division of Taxation or New York State Department of Taxation and Finance. The following are some recent audit trends involving these three taxing authorities. IRS

By Neil B. Becourtney, CPA J.H. Cohn LLP

The IRS has shown an increased concern over unreported income and the evergrowing tax gap estimated to exceed $350 billion annually. This year, a second Offshore Voluntary Disclosure Initiative was conducted targeting taxpayers with foreign bank and financial accounts for which income has not been reported. Cash-basis small businesses under audit are routinely asked to provide bank statements for a 14-month period – the 12 months in the tax year, the last month preceding the tax year and the first month following the tax year – to enable the auditor to see if a trend exists of making large deposits very early in the tax year that reflects an improper deferral of income under the constructive receipt doctrine. Commencing in 2011, credit card companies will be required to issue new Form 1099-K, Merchant Card and Third-Party Network Payments, reporting gross revenue from credit cards. Also beginning in 2011, Form 1099-B has

new boxes for date of acquisition and cost basis. Brokers will be required to report purchase information for stocks acquired on or after January 1, 2011; mutual funds acquired on or after January 1, 2012; and other securities, including bonds acquired on or after January 1, 2013. Through desk audits (CP2000 notices), the IRS has historically attempted to match 1099-B proceeds to Schedule D filed by taxpayers, but this expanded reporting targets inflated costbasis reported by taxpayers. Unreported income is not the only major area that the IRS is presently focusing on. Recently, the reporting of income and losses from pass-through entities by individuals on Schedule E has come under attack. Large losses labeled as nonpassive are being scrutinized as to whether the taxpayer meets one of the material participation tests. The IRS can always resort to a hobby-loss challenge if unsuccessful in reclassing nonpassive losses to passive losses where there is a history of losses for a taxpayer’s secondary business. Sizable bad-debt deductions are often analyzed by the IRS, including the legitimacy of the indebtedness, if collection efforts were exhausted and if the year that the deduction was claimed was appropriate.

New Jersey Division of Taxation For individuals, New Jersey continues to regularly challenge the computation of the credit for taxes paid to other jurisdictions. Numerous court cases

NEW JERSEY CPA • NOVEMBER • DECEMBER 2011

have been adjudicated, making it more difficult to claim the credit, which commercial tax software often computes incorrectly. For tax years beginning on or after July 1, 2010, the elimination of the requirement to have a regular place of business outside of New Jersey in order to allocate income outside the state will help New Jersey resident shareholders of multistate S corporation filers who, prior to this law change, were sometimes precluded from claiming a resident credit. Prior to this law change, income reported to another state (e.g., nexus caused by inventory in a public warehouse) was considered allocated to New Jersey where the

regular place of business requirement was not met (no full-time employee based there). Thus, despite incurring tax in nonresident states, the S corporation shareholder(s) were not deemed to have nonresident source state income and thus denied the credit. This inequity disappears for calendar year 2011 gross income tax. The NJ Division of Taxation historically has business field auditors examine the “big three” taxes simultaneously: corporation business tax (CBT), gross income tax withholding, and sales and use tax. Director Michael Bryan has announced his desire to have a separate CBT audit function, believing

that more effective CBT audits will take place if auditors concentrate solely in that area. Businesses are regularly audited over use tax: filers for four years and non-filers for seven years. All fixed-asset invoices for the audit period must be presented along with everyday expense invoices for a sample period, often the most recent calendar year.

New York State Department of Taxation and Finance The most notorious audits that practitioners face are New York State residency audits. When a high-income resident taxpayer becomes a nonresident filer, or ceases filing New York income

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York residence is rented for the entire year to an unrelated party, the mere ownership of the property combined with more than 183 days presence will result in statutory resident status for the nonresident filer. Budgetary pressures will likely force the state taxing authorities to increase their enforcement levels. Ironically, the budget debate in Washington had House Republicans seeking to cut IRS funding sought by the Obama administration by $600 million, which IRS Commissioner Doug Shulman warned could increase the deficit by decreasing revenue.

tax returns due to no longer having any New York source income as a nonresident, you can generally expect an audit. If the taxpayer continues to maintain a New York residence, the auditor’s mindset frequently is that nothing has changed with respect to residency. Detailed records for the taxpayer’s whereabouts, especially days outside of New York, whether working or non-working days, are critical to a successful outcome.

In 2010, Form IT-201 filed by resident individuals asks for an entry on page one for the number of days spent in New York City during the year for those maintaining living quarters in the city, an attempt to challenge suburban New York State residents who are not paying city resident tax. In a June Tax Appeals Tribunal decision, Matter of Evans, the court stated that ownership transcends all other facts and circumstances. Thus, even where a New

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Neil B. Becourtney, CPA, is a tax partner at J.H. Cohn LLP. He is a member of the New Jersey Society of CPAs State Taxation and Federal Taxation interest groups and a past chair of the State Tax Committee. He can be reached at nbecourtney@jhcohn.com.

Member Benefit Multistate Income Tax: Simplifying the Complexities Monday, December 5, Roseland Visit njscpa.org/catalog Express Code: E1112331

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NEW JERSEY CPA • NOVEMBER • DECEMBER 2011

Residency Tax Planning for High-Net-Worth Individuals Before your client buys that vacation home or apartment for a child in college, know that particular state’s residency rules. Many high-net-worth residents are likely to own or rent more than one dwelling, work in a neighboring state and retire to a more tax-friendly state. That makes them targets for increased state tax residency audits. It’s no secret that New York has developed advanced residency audit techniques. It probably performs more residency audits than all other states combined. Key Concepts

By Steven P. Bortnick, CPA, and Timothy H. Brennan, CPA Bederson & Company LLP

Such audits revolve around several critical concepts: “permanent place of abode,” “access” and counting a “day.” Recent rulings by New York have changed the definition of “access.” Now, merely having a key and unlimited access to an apartment or house is enough, in some cases, to implicate statutory residence status, provided the dwelling was available for use more than 11 months during the year. New York does not have to prove that you lived in the New York dwelling for more than 183 days, only that you had

access to a permanent place of abode and spent greater than 183 days either working in or visiting New York. Under New York’s residency rules, you would be taxed as a resident if either (1) you are domiciled in New York; or (2) you maintain a permanent place of abode in New York and spend more than 183 days there during the tax year.

Case Study One case involved a non-resident owner/operator of a 24-hour Staten Island service station. There was no question the taxpayer was in New York more than 183 days each year, but the issue of access to an abode revolved around the fact that he also owned a multi-family residence in Staten Island, which he claimed was for investment only. Two units were rented to third parties and one unit was maintained for the taxpayer’s parents. Unfortunately for the taxpayer, he maintained and paid all his parents’ utility bills in his name, in addition to claiming them as dependants. The court held that where a taxpayer has a property right to the subject premises, it is unnecessary to consider the taxpayer’s subjective use of the premises. The taxpayer clearly maintained the property because he owned it and paid the upkeep expenses. The taxpayer’s occasional use of the

NEW JERSEY CPA • NOVEMBER • DECEMBER 2011

property was irrelevant. For resident status purposes, the taxpayer is not required to actually dwell in the abode, but merely have access to it. Moreover, the court rejected the taxpayer’s argument that he is required to maintain the premises for his own use. Therefore, because the taxpayer maintained a permanent place of abode within New York City, he was a statutory resident for state and city income tax purposes.

“It’s no secret that New York has developed advanced residency audit techniques. It probably performs more residency audits than all other states combined.”

State Tax Impact Residency is a critical concept in state taxes because they are taxed on all types of income, not just compensation and earned income. Thus, taxpayers face the prospect of full taxation on their worldwide income if they qualify as New York residents. And since New York City residents must also pay a separate tax of almost 4 percent, residency classifications in New York State and New York City can carry huge

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consequences. The real issue is that their state of domicile may not offer tax credits equal to those taxes paid in New York. For example, Connecticut allows a credit only for taxes paid on earned income in other states, while New Jersey would generally allow a credit on all income taxed in the other jurisdiction. Certain states will even allow credits for taxes paid to Canada, so it is important to understand the potential exposure and remedies available when your clients are telling you about their new digs.

Documentation It is critical for potential statutory residents to keep clear records of their whereabouts in and out of New York. Documentation, such as E-ZPass and credit card receipts, works well and adequately logs resident whereabouts. The state will assume that any undocumented day is a New York day. Be aware of automatic monthly credit card payments to health or dining clubs. Without contrary evidence, the state will use that to document a presence on that day.

What Day Is It? What is a “day?” A day in New York is not 24 hours; it is any portion of a day,

no matter how brief. So, a late-night dinner and show could cost the unwary taxpayer an extra day simply by being in New York on both sides of midnight. One exception is a transient day (e.g., solely for boarding a plane, ship, train or bus for travel to a destination outside New York or while traveling through New York).

Other Considerations There are many other rules and nuances to consider, such as when a person retires to Florida but retains ownership of property in New Jersey. How that property is held, directly or in a partnership, is critical to the potential exposure to New Jersey estate and inheritance taxes. How the state treats a stay in a hospital is another consideration.

residency during the time abroad if the state can prove intent to return. In other words, no other state residency was established during the absence. Because of proximity, New Jerseyans are most likely to be exposed to New York residency issues, but it would seem to be just a matter of time before other cash-starved states begin their own hunts for more taxable residents. And who is a better target for a return on the audit costs than the high-net-worth client? Steven P. Bortnick, CPA, is a partner and Timothy H. Brennan, CPA, M.S.T., is a tax manager at Bederson & Company LLP. Both are members of the New Jersey Society of CPAs. Contact them at 973736-3333.

Perpetuating Residency Many states have stringent regulations regarding the perpetuation of residency even if you leave the state and sell your home. Referred to as “leave and land,” you must establish a bona fide replacement domicile in another state to no longer be considered a resident of the former state. For example, leaving New Jersey for a year to work in Spain and then returning does not vitiate state

Member Benefit Strategies and Tactics in the New War Against Higher Individual Taxes Thursday, December 1, Iselin, and Tuesday, December 13, East Hanover Visit njscpa.org/catalog Express Code: E1112031 and E1112131

NEW JERSEY CPA • NOVEMBER • DECEMBER 2011

A&A

buzz

The Changing Face of Financial Statements B Y W ILL IAM F. MURPHY, C PA, AND M E LI SSA P. W E RNE R , L E A F, S A LT Z M A N , M A N G A N E L L I , P FE I L & T E N D L E R , L L P

mong the many joint projects the Financial Accounting Standards Board (FASB) and the International Accounting Standards Board (IASB) are currently working on – with the goal of converging and improving both U.S. and International Financial Reporting Standards (IFRS) – is one that will significantly change the format and presentation of basic financial statements. The FASB and IASB have issued a staff draft of the exposure draft on financial statement presentation (staff draft) after completing their initial deliberation of key issues from their 2008 discussion paper. The staff draft contains significant changes from the discussion paper and incorporates much of the feedback from comment letters and field tests. Still, it strives to achieve the major objectives identified in the discussion paper: better integration of the interrelationships between the separate financial statements and greater presentation of disaggregated information for users to better assess an entity’s cash flow and liquidity. The names of the basic financial statements would also change. If the staff draft is adopted, balance sheets would only be referred to as statements of financial position, and statements of income would be known as statements of comprehensive income. Separate statements of income and comprehensive income would not be permitted. Only the statement of cash flows would retain its present title. To enhance the interrelationships between basic financial statements, the statements of financial position and comprehensive income would each be divided into business and financing sections, in addition to separate sections for income taxes

and discontinued operations. Today’s statement of cash flows is divided into similar categories but, according to the staff draft, the other basic financial statements would be, too. The business activities section would be further segregated in each of these financial statements between operating activities, investing activities and financing activities arising from operating activities. The separate financing activities section would include items that relate to an entity obtaining or repaying capital and consists of two categories: debt and equity. Income taxes and discontinued operations would be displayed separately from the business and financing activities sections. The income tax section would include all current and deferred income tax accounts. The cash flow statement based on the indirect method would no longer be permitted. The direct method would be required, along with certain indirect information. A reconciliation from operating income to net cash from operating activities would be presented on the face of the statement. Entities would be required to disaggregate cash flows in the statement of cash flows by classes of cash receipts and payments so that the statement shows how the entity generates and uses cash and reflects the nature of the income or expense to which the cash flow is related. The statement of comprehensive income would present net income, other comprehensive income and total comprehensive income. The information presented on the statement would be disaggregated by function (e.g., cost of sales, selling, marketing) on the face of the statement and by nature (e.g., bad debt, advertising) in

the notes. Perhaps the most striking feature of the proposed changes to the financial statements is that the equation of total assets equaling total liabilities and stockholders’ equity would no longer be explicitly presented on the face of the statement of financial position so that the statement will no longer balance in the traditional sense. This may affect the financial ratios that would be highlighted by future users of the financial statements. The changes proposed in the staff draft are not inevitable, and an issue date for the exposure draft has not been determined. The Securities and Exchange Commission indicates that 2015 would be the earliest IFRS would be mandated for public companies, with private company adoption probably sometime thereafter. Given the accounting system enhancements needed to capture and assess all of the additional information to categorize and disaggregate, as well as the impact on the use of traditional financial ratios, clients should be made aware of the potential far-reaching changes on the horizon. William F. Murphy, CPA, is a partner and Melissa P. Werner is an audit manager at Leaf, Saltzman, Manganelli, Pfeil & Tendler, LLP. Murphy is a New Jersey Society of CPAs member and Werner is an NJSCPA CPA Candidate member. Contact the authors at 973-808-9500.

NEW JERSEY CPA • NOVEMBER • DECEMBER 2011

Member Benefit Loscalzo’s Introduction to the International Financial Reporting Standards Tuesday, December 13, Roseland Visit njscpa.org/catalog Express Code: E1112253

BEST

practices

How Severance Pay Affects Federal and New Jersey Taxes B Y LOWEL L S . KIRS CH NE R, C PA, PR AGE R AND F E NTO N L L P

o ease the impact of layoffs, promote goodwill among remaining employees and prevent employmentrelated lawsuits, employers customarily award severance pay to their former employees. There are some income, employment and possible excise tax implications to the employer and former employee with respect to severance pay.

Tax Implications Severance pay is typically classified as wages and has similar income and employment tax consequences, even though this payment may not be classified as wages for non-income tax purposes. This is the case whether the employer pays the severance after the employer/employee relationship has been terminated and whether the employee receives the severance in exchange for (1) not pursuing legal action against the employer; (2) canceling an employment contract; and (3) rights accruing during employment, such as unused sick and vacation days, tenure and stock appreciation or phantom stock credited to an employee. For purposes of employment taxes, wages include any payments made on account of involuntary separation from the employer, whether or not the employer is legally bound to make them. The employer can deduct this severance pay in the year it pays or incurs this expense if it meets certain conditions, among which is that the severance pay must be deemed to: • Be a reasonable allowance for personal services actually rendered. • Provide only a current-year benefit, subject to some exceptions;

otherwise, it may have to be capitalized. • Be unrelated to goodwill or customer lists (as in the case of a sales employee); otherwise, it would have to be capitalized and deducted ratably over 15 years. The employee, notwithstanding the tax implications to the employer, would be taxed on this payment at his or her ordinary income rates, and not capital gains rates, in the year received. Additionally, if the employer makes a severance payment upon the sale of either itself or a substantial part of its assets, an employee could be subject to a 20-percent excise tax with respect to some or all of the severance payment. Generally, this could occur if the payment greatly exceeds an employee’s annual salary, unless the employer could establish that the severance payment is based upon merit. For example, in the case of a former employee who was a salesperson, the employer may be able to establish that the payment was reasonable if based upon sales he or she generated.

Tax Reporting The employer would report severance pay on an employee’s Form W-2, box 10. The employer may withhold federal income taxes with respect to the severance payment at either a flat 25-percent rate or use withholding tables with gross wages equal to the combination of the regular wages and severance pay, but must withhold New Jersey income taxes based upon the combination of the regular and

severance pay. The employee, other than reporting the amount as per the Form W-2, should not have any other tax reporting obligations.

Tax Planning The employer could substitute part of the severance pay with non-cash benefits that would have identical income tax consequences to the employer, but would be non-taxable to the employee and not subject to employment taxes for either of them. For example, the employer can temporarily fund the employee’s COBRA health benefits, assuming that the employee was part of the employer’s health insurance plan when he or she was terminated. With this option, the employee would continue to participate in the employer’s cafeteria plan, which is allowable as long as the plan was not created predominately for the benefit of former employees. An employer could also provide job placement services. In order for these job placement services to retain the benefits of non-cash severance benefits, the Internal Revenue Service has ruled that the employee cannot be given the choice between the job placement services and severance pay. These job placement services could be vital, especially if the former employee has been out of the job market for many years. Lowell S. Kirschner, CPA, LL.M., is a tax manager at Prager and Fenton LLP. He is a member of the New Jersey Society of CPAs Federal Taxation Interest Group. Contact him at lkirschner@pragerfenton.com.

NEW JERSEY CPA • NOVEMBER • DECEMBER 2011

FINANCIAL

planning

Asset Protection Trusts BY GLENN A. HENKEL, CPA, KULZER & DIPADOVA, P.A.

ll trusts create asset protection by separating the legal ownership of property (to the trustee) from beneficial ownership of property (to the beneficiary). An asset protection trust (APT) is a trust created for yourself, with your own assets. These so-called self-settled trusts can provide creditor protection. With a selfsettled trust, donors place their own property into the trust and reserve the right to use income and principal for their own benefits. These trusts are distinguished from a trust established by someone else for the benefit of another. New Jersey Statute 3B:11-1 provides that a creator’s reserved

interest in a trust is alienable and subject to creditors’ claims. Thus, if an individual places his/her own property in a trust and retains any right in the corpus, creditors can attach the trust assets (e.g., freely alienable). In New Jersey, protection from creditor claims would be virtually nonexistent. In the mid-1980s, several countries changed their laws to permit individuals to create APT self-settled trusts. Transfers to the trust needed to be made long before any claim in order to avoid being classified as a fraudulent conveyance. Long-standing laws prevent debtors from transferring assets to defeat creditors. New Jersey, like 44 other states, has enacted the

Uniform Fraudulent Transfer Act to codify this rule. To attract trust business, foreign jurisdictions modified their trust laws several ways. The foreign, or offshore, trust is income and estate tax neutral with no tax benefits. However, by removing assets from the jurisdiction, grantors would seek to protect assets from creditors’ (or potential creditor) claims. If a U.S. judgment is made against the grantor and presented in the trust situs jurisdiction, the creditor would have to re-litigate the underlying merits of the case in order to collect against the trust assets. Lawsuits in the U.S. can be brought with relative ease because the moving litigant does not face the risk of paying the defense counsel fees if unsuccessful. Because of contingency fees, an injured party in the U.S. can also have no fee of his/her own. These rules arguably increased litigation in the United States and made potential defendants wary of the system, enhancing the popularity of foreign assets protection trusts (FAPTs). As a result of FAPTs, some states modified their laws during the 1990s to allow for the creation of domestic asset protection trusts (DAPT). The most common jurisdictions clients use are Delaware and Alaska. If a donor places assets in an irrevocable trust with a Delaware or Alaska trustee, after sufficient statute of limitations has expired, the assets may be protected from future claims against the donor. The purported DAPT benefits are twofold. First, legislation allows the donor to place property in trust and reserve the right (at the trustee’s direction) to be a permissible discretionary beneficiary. The trust must name an irrevocable corporate trustee in the jurisdiction where created. A judgment obtained against

NEW JERSEY CPA • NOVEMBER • DECEMBER 2011

a New Jersey donor would require the creditor take the judgment to the trust jurisdiction for enforcement. The Delaware or Alaska court might be permitted to use its own law in interpreting the trust to determine whether or not the trustee would be compelled to make a payment on the judgment, and the trustee would have discretion to deny the claim. Second, unlike the FAPT, the DAPT may allow for both income and gift tax savings. Under Delaware law, the income will not be subject to Delaware tax; however, the income may also escape New Jersey income taxation. A donor may make a completed gift to the trust for gift tax purposes. Thus, all appreciation may possibly be removed from the estate of the donor if, in fact, trust assets are never given to the donor. In the event of financial misfortune, the grantor could – at the trustee’s discretion – be a permissible trust beneficiary. With the expanded gift tax exemptions, some additional planning opportunities may exist. A client may feel more comfortable making a large gift, in trust, with the ability to receive a benefit from the trust in an extreme circumstance. While the APT provides an opportunity to many New Jersey residents, clients are generally unwilling to part with funds on an irrevocable basis to a foreign trustee, even if to another state. Glenn A. Henkel, CPA, J.D., is with Kulzer & DiPadova, P.A. He is a member of the New Jersey Society of CPAs. Contact him at 856-795-7744 or gah@kulzerdipadova.com.

Member Benefit Join the Personal Financial Planning Interest Group at njscpa.org/ volunteer-contribute/groups.

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FORENSIC

file

CPA Opportunities in Mediation BY LYNNE BROZA, CPA, COWAN, GUNTESKI & CO., P.A.

t some point, the parties to a litigation must reach a conclusion to their case. There are several paths which may be taken toward resolution of the issues, with a trial usually being the last option. The courts and most attorneys try to settle their cases and avoid the time and expense of preparing for and conducting a trial. Toward that end, there could be settlement conferences, early settlement panels, blue ribbon panels, arbitration, collaboration and/or mediation. Here, we will focus on mediation: how it can be used, who can use it and, more practically, how CPAs can be involved. While mediation has been around for decades, it has recently become a key method for settling and clearing out the backlog of cases in our court system. Although most people assume that mediators have legal backgrounds, such as lawyers or retired judges, mediators actually come from varied occupations, including accountants. In fact, in many instances, the use of a qualified CPA to mediate a case makes the most sense. According to the New Jersey Association of Professional Mediators, “Mediation is the process in which a trained neutral person...facilitates the resolution of a dispute between two or more parties. Mediation is nonadversarial with the objective of helping the parties reach a mutually acceptable agreement.” Mediation is generally a more cooperative and open process, usually less expensive than litigating, and it allows the parties to have control over the settlement that works for them. Most matrimonial and civil cases involve significant financial issues. A couple trying to divide assets in a matrimonial matter would be helped greatly by a mediator who understands the financial and tax aspects of such a division. The same would be true in a civil case where monetary damages are

being sought. While a mediator should not dictate or impose a settlement, the ability to provide key financial facts can be integral to settling a case. Although there are no licensing requirements for mediators in New Jersey, there are several paths to receive training in order to become qualified. There are also certain requirements to be listed on the court-approved roster of mediators in the state. Generally, for family law mediation, you must hold a graduate degree and complete a 40-hour training course that is approved by the courts. For civil law cases, the requirements are 18 hours of training and five hours of being mentored in civil mediation. There are nuances to these requirements, but they are the basic qualifications one must have. Once you obtain the necessary qualifications and training to be on the court roster, you also must submit an application that will need the approval of the Administrative Office of the Courts, which oversees the program. The good news is that, once approved, your name will appear on the rosters in whichever vicinages you choose. The not-so-good news is that courtappointed mediations require the mediator to provide the first two hours

of time for free, with a maximum of one hour to be used for preparation. While this may sound antithetical to a profit-seeking venture, the court roster system is often a building block to enhancing your reputation and marketing your mediation services. Once you reach a certain level of competency, attorneys and judges will actively seek you out for assistance in settling their cases. Any mediation that is not officially assigned by the court does not require the two free hours of labor because the parties mutually agree to come to the mediator to try to resolve their differences. Mediation can be a helpful tool in settling matters that are litigated or even before official complaints are filed in the court system. A CPA can enhance the process if he or she is properly trained and familiar with the topic. With the courts overburdened, there is opportunity for CPAs who want to enter into the realm of mediation. Lynne Broza, CPA, ABV, CFF, is a director at Cowan, Gunteski & Co., P.A. She is a member of the New Jersey Society of CPAs Business Valuation Forensic Litigation Services Interest Group. Contact her at lbroza@ cowangunteski.com or 732-676-4100.

NEW JERSEY CPA • NOVEMBER • DECEMBER 2011

INDUSTRY

insights

Avoiding Corporate Tax Icebergs BY NEIL GERARD, CPA, J.H. COHN LLP

anaging risk today has clearly become a priority within every organization and a key part of every CFO’s and audit committee member’s responsibilities. Organizational risk is far reaching and can impact employee productivity, service, company brand value and earnings quality. Risk analysis focuses on identifying and evaluating the risk with the greatest potential for loss and the greatest probability of occurrence within an organization. Once these risks are identified, management must work with its advisers to develop controls and processes to ensure that risks are properly controlled, constantly monitor for system failures and regularly update internal processes to ensure that any risk that does occur is swiftly and properly identified. Taxation is one of the most significant areas of an organization’s risk profile.

Tax Exposure When assessing tax risk, management should first focus on identifying the types of tax that may lead to exposure if not handled in compliance with established regulatory requirements. These commonly include – but are not limited to – sales and use tax, property tax, payroll tax, federal and state income tax, international tax, and customs and duties tax. The tax department is responsible for handling both the tax return filing requirements, as well as preparing the worldwide tax provision for the financial statements. Over the past several years, tax accounting has led to a large number of financial restatements.

Rules and Regulations With the ongoing legislative changes in federal, state and international tax filing requirements – along with the increased

level of filing complexity – tax risk is on the agenda of every CFO and audit committee. The Financial Accounting Standards Board’s efforts to provide greater transparency in the tax area has resulted in the implementation of ASC 740-10 (FIN 48) requiring uncertain tax positions to be reported in financial statements. Additionally, the Internal Revenue Service (IRS) has instituted Schedule UTP, which requires filers to disclose uncertain tax positions on their returns; the phase-in period of which depends on company size, though companies with assets in excess of $100 million are impacted beginning with the 2010 tax year.

Processes and Controls Beyond positions claimed, tax risk may also be associated with the processes in place to prepare a company’s tax provision. A major issue facing corporate finance and tax departments is managing available resources. In order to comply with the financial and tax reporting requirements, these departments are required to significantly increase the amount of documentation and spreadsheet analysis to support quarterly and year-end tax provisions. Further pressure is added by third-party audit firms that need these departments to update memoranda regarding uncertain tax positions so that they may accurately opine on their financial statements. To more effectively manage restatement risk related to a company’s tax provision, CFOs have typically increased the focus they place on their tax departments, developing processes and internal controls that will detect errors and eliminate or reduce the probability of a restatement. Now that corporate executives have a better

understanding of the tax processes associated with preparing a tax provision, they understand the risks associated with their uncertain tax positions.

What the Future May Hold An interesting byproduct of the added disclosure requirements for Schedule UTP and FIN 48 may lead companies to change their overall risk tolerances and limit the number of uncertain tax positions taken in the future. IRS audits, penalties and potentially damaging public disclosures have quickly changed the landscape for companies implementing tax planning strategies that are not “more likely than not.” An organization’s corporate brand, public trust and integrity can change quickly if an organization does not have a management team dedicated to controlling risk. Risk profiles need to be constantly updated and monitored as an organization grows, changes and operates. Expansion into new countries or markets, reorganizations and acquisitions all can change the risk profile of a company very quickly. CFOs must develop a corporate culture for communicating changes so that all departments understand their business’ risk profile. Icebergs can be avoided by organizations that have the tools and processes in place to monitor risks, both currently and prospectively. Neil Gerard, CPA, is a tax partner at J.H. Cohn LLP. He is a member of the New Jersey Society of CPAs. Contact him at ngerard@jhcohn.com or 973-403-7995.

NEW JERSEY CPA • NOVEMBER • DECEMBER 2011

SMALL/SOLE

practitioner

Assisting Clients in Understanding Fee Increases BY JEFFREY J. SCHRADER, CPA, JEFFREY J. SCHRADER, CPA, P.C .

he American Institute of CPAs 2011 Private Companies Practice Section (PCPS) CPA Top Issues Survey, released in June, included “fee pressure and pricing of services” as a key pair of issues affecting small firms. While communicating fee increases to clients may seem like an unsavory task, there are ways to present fee increases to clients in a palatable manner.

firm simply as the cost of doing business. Fees may need to be increased because of existing under-pricing. A few under-pricing indicators are delayed investment in technology, training or marketing; your prices are lower than competitors; revenue has increased, but profit margin is smaller; prior price increases are behind cost increases; net income per owner is declining; and the lack of client complaints about price. Perhaps the most embraceable reason for increasing fees is that your traditional billing model does not reflect the true value you currently add to your clients’ businesses.

Reasons to Increase Fees Aside from the need to cover rising operating costs, there are several compelling reasons to increase fees. New tax laws and financial reporting standards create additional costs where accountants invest the time and effort to educate themselves and implement those changes at the client level. These efforts can be intensive, yet cannot be absorbed by the accounting

Handling Fee Increases Accountants possess more leverage in the advisor/client

NEW JERSEY CPA • NOVEMBER • DECEMBER 2011

relationship when the client needs a service, and a service that is needed is worth more than a service already delivered. Generally, clients should be more accepting of fee increases if they are advised well before the commencement of any work. A clear understanding about the nature of the work and related fees goes a long way. Think back to the sticker shock you felt when you got work done on your home and the final bill was much more than anticipated. Leverage is lost if an agreement is not in place beforehand. Consider moving from pricing services to pricing the client. Fee increases may not apply to all clients, but only to a select few, and these increases could be significant. As such, first perform a client-by-client assessment to determine which one’s fees should be increased and by how much. Practitioners know clients are required to adopt new tax laws and financial reporting standards, but do the clients understand the full picture? We, as trusted business advisors, have a responsibility to educate clients on these changes, how they impact them, and the fact that these changes necessitate practitioners to undertake greater efforts on their behalf, which result in increased costs.

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The Value Proposition You can also consider value pricing, which is pricing your services based upon their value to the client, not the cost of providing such services. The key here is to avoid having services viewed as commodities, which can lead to price being the differentiator. Value propositions should focus on results and outcomes. Convey to your clients that accounting services are more than an hourly rate. Most clients don’t care that it took five additional hours to test for whether or not the new small business health care tax credit applied. But they will take notice and probably thank you – in spite of a fee increase – for adding value to the equation.

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Resources

Bill What You’re Worth, Second Edition, David W. Cottle, AICPA, 2011.

Learn More Call:

Firm Practice Management-PCPS, aicpa.org, offers a wealth of pertinent articles on billing, collections and practice management issues with a focus on smaller practices.

Phil Kolm: 201.341.3634

MaryLynne Andreula: 973.738.2492

Implementing Value Pricing: A Radical Business Model for Professional Firms, First Edition, Ronald J. Baker, Wiley Professional Firms Advisory Services, 2010, verasage.com. Value Pricing: 76 Word Sample and Article, Edward Mendlowitz, CPA, a free download is available at http:// institute.accountingtoday.com. Jeffrey J. Schrader, CPA, M.S.T., is the president of Jeffrey J. Schrader, CPA, P.C. He is a member of the New Jersey Society of CPAs State Taxation and Federal Taxation interest groups. Contact him at jjscpa@fast.net or 609-581-5533.

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TAX

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Answering Tax Notices B Y M ARCIA A. G ELTMA N, C PA, NI SI VOC C I A LLP

s CPAs, we try our best to get things right, but inevitably many clients will receive tax notices from either the Internal Revenue Service (IRS), or from state or local taxing authorities. Combine technology with taxing authorities searching for every bit of revenue, and increased levels of notices seem highly likely. The IRS indicates that approximately 1 percent (14 million) of tax returns are audited annually, of which 11 million are correspondence audits. Nonaudit notices can also be generated for payment discrepancies. Keeping the client calm and informed is essential in maintaining a good client relationship. Correspondence audits are perhaps the most frustrating of all notices. This is where the return has been assigned to a group. The only effective way to respond to these notices is via mail or fax. It’s often difficult to speak with a person, and the delay in getting problems resolved can be lengthy.

Notice Triggers Notices can result from clients not providing complete or accurate information, failing to file returns or paying the incorrect tax. Another cause is taxing authority input errors. Finally, as hard as we try to prepare accurate returns, practitioners occasionally do make errors.

Power of Attorney (POA) POAs are useful tools. While obtaining one can be cumbersome, it’s worth the effort. Sending the POA with the correspondence is good, but there is no guarantee that it will be posted into the IRS system. If any follow-up is necessary, additional time may be required in resending a copy of the POA. As such, also fax a Federal POA to 901-546-4115, though it may take up to two weeks to post in the IRS system.

An easier alternative is an online POA. With the client’s permission, this can be done at irs.gov in the “Tax Professionals” section. You’ll need the client’s date of birth, address, prior year adjusted gross income, as well as your Centralized Authorization File number. Online POAs are posted immediately. State and local taxing authorities don’t offer online POAs. Some states may require a notarized signature. It’s important to note that when emailing documents containing Social Security numbers, always send them through a secure email link, and remind clients to return documents via secure email. Some notices can be resolved with a simple letter of explanation or by providing additional documentation. A POA may not be necessary because taxing authorities generally accept information from practitioners without a POA. The downside to not having one, however, is the inability to follow up on the status of notices and any future client correspondence. This sometimes results in having to follow up with the client as to whether additional correspondence has been received.

Helpful IRS Documents It’s more difficult to respond to a notice when information is needed from either the client or from the taxing authority. Unfortunately, some clients may be unable to provide needed information if, for example, the client is deceased. The IRS offers a pair of helpful documents. The transcript of the account provides a summary of the tax liabilities and payments. It also gives details on when the return was filed, any penalties or interest assessed, as well as the transfer application from one year to another. An account transcript is also a good way to resolve questions regarding account balances. Call the Practitioner Hotline at 866-860-4259 or visit irs.gov to obtain an account transcript.

A wage and income statement summarizes Forms W-2, 1099 and 1098. Since posting of these documents is not immediate, wait until approximately mid-summer to obtain one. This form is helpful in preparing federal tax returns for individuals where records may be incomplete. It won’t provide information regarding state wages or withholding; or information regarding deductions, except for mortgage interest.

Practitioner Hotline This is usually a good source for assistance. However, its value depends on who answers the phone. As with any customer service helpline, some representatives are just better than others. Notices are inevitable. Knowing the tools and resources available helps resolve issues in a relatively expeditious and painless manner. Marcia A. Geltman, CPA, is a tax partner at Nisivoccia LLP. She is a New Jersey Society of CPAs member. Contact her at mgeltman@nisivoccia.com.

NEW JERSEY CPA • NOVEMBER • DECEMBER 2011

For networking opportunities, career resources and exam guidance, visit njscpa.org/youngcpas

NEW JERSEY CPA • NOVEMBER • DECEMBER 2011

TECH

center

Should an IT Person Be a Partner? B Y JA MES C . BOURKE, C PA, W I THUM SM I TH+ B ROW N

iving information technology (IT) a seat at the table is imperative because technology is at the core of a firm, driving nearly every initiative. Think about your practice. How has technology transformed it, both internally and externally? The way we account for time, bill, prepare tax returns and financial statements, store client information, deliver our final product to clients and how clients access that information all come down to technology. As many firms have found out the hard way, it’s not just deploying technologies that make for a successful practice, but deploying the right technologies and understanding them to meet the specific needs of the firm today and into the future. With our busy schedules, and the many areas of focus within a CPA firm, it’s difficult for a traditional practitioner to be an expert in all areas, including technology. Technology today is so much more than purchasing off-the-shelf solutions and installing them. Previously, the two typical career paths to becoming a partner in a CPA firm were either accounting and auditing, or tax. A generalist with some knowledge in each of these areas, in a small, medium or large firm, could easily have reached the partner level in a short amount of time.

As time passed and firms entered new areas with expanded revenue streams, the need for experts in litigation support, financial services, service audits, health care and other forms of industry-specific consulting grew. Recently, we’ve seen successful firms fill seats at the partner level with individuals who have a strong focus in some of these areas, many of whom have spent very little – if any – time in the A&A or tax areas within the firm. There are generally two paths for an IT person to become a partner at a CPA firm. The first is a CPA who has a passion and focus in the area of technology. This individual may have spent a number of years in tax and/or A&A. He or she also understands the technology needs and concerns of the firm, its staff and its clients. This same person has generally been responsible for taking specific technology initiatives to the next level and finding ways to deploy new technologies into the current practice to make the firm more profitable and competitive. He or she is generally a self-starter who has taken ownership of technology and, thus, deserves a seat at the partner table. This person brings a different perspective and has a vision to see where and how new technologies should be deployed within the practice.

This individual has a handle on what and where the firm should be spending on technology to keep it competitive in the marketplace. The second type of person is a nonCPA who has followed the internal technology pathway within the firm. Generally, he or she has been directly responsible for the selection, training and deployment of firm technologies. This individual understands the core technologies that need to exist within a firm and the best way to deploy them. He or she has been directly responsible for putting the best technologies into the hands of the staff to allow them to respond to client needs and concerns 24/7. Although many states don’t allow non-CPA ownership of firms, these firms have found ways to keep individuals engaged and even elevated them to key leadership and management positions paralleling those of traditional CPAs who are partners. Regardless of whether a CPA or nonCPA within a firm has demonstrated a strong passion and understanding of firm technologies, he or she should be given the same opportunities to achieve the partner (or equivalent) level within the firm. The right individual allows the firm to make the best use of technology in a cost-effective manner and helps ensure the appropriate technologies are selected. James C. Bourke, CPA, CITP, CFF, is a partner at WithumSmith+Brown where he is director of firm technology. He is a past president of the New Jersey Society of CPAs and has been named by Accounting Today magazine as one of the “Top 100 Most Influential People in the Accounting Profession.” Contact him at jbourke@ withum.com.

Member Benefit Join the Technology Interest Group at njscpa.org/volunteer-contribute/groups.

NEW JERSEY CPA • NOVEMBER • DECEMBER 2011

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CPE Offerings and Events Upcoming Education Foundation Events Date

Event/Code

Location

CPE Credit

11/22

Acquisitions to Grow the Business: Strategy, Structure, Integration and Due Diligence (E1111393)

Roseland

4/MT, 4/AA

11/22

Surgent McCoy's Guide to Understanding the Key Issues in Preparing S Corporation Tax Returns (E1111181)

East Hanover

8/TX

11/28

Federal Tax Update – Individuals (E1111521)

Voorhees

8/TX

11/29

Multistate Conference (E1111240)

Edison

8/TX

11/29

Professional Ethics for New Jersey CPAs and Frequently Asked Questions in GAAP Financial Statements (E1111211)

Roseland

4/AA, 4/PE

11/29

Loscalzo's Not-for-Profit Auditing Made Easy (E1111831)

East Hanover

8/AA

11/29

Gary Zeune's Guide to Audits & Compilations and Reviews: What's New for 2011 Engagements (E1111461)

Iselin

8/AA

11/29

Federal Tax Update – C & S Corporations, Partnerships & LLCs (Forms 1120, 1120S & 1065) (E1111531)

Voorhees

8/TX

11/30

Gary Zeune's Guide to Detecting and Preventing Internal Fraud, Theft and Abuse (E1111473)

Iselin

8/AA

11/30

Surgent McCoy's Advanced Critical Tax Issues for Limited Liability Companies and Partnerships (E1111191)

East Hanover

8/TX

11/30

Loscalzo's Frequently Missed Issues for OMB Circular A-133 Audits (E1111221)

Roseland

8/AA

11/30

Basis Calculations and Distributions for Pass-Thru Entities – Everything You Need to Know! (E1111541)

Roseland

8/TX

11/30

New Jersey Law and Ethics (2009/11) Webinar (E1111734)

N/A

4/PE

12/1

Nonprofit Conference (E1112400)

Edison

8/MC

12/1

The Best Federal Tax Update Course by Surgent McCoy (E1112021)

Voorhees

8/TX

12/1

Federal Tax Update – Individuals (E1112581)

Roseland

8/TX

12/1

Gary Zeune's Guide to Audits in Times of Massive Financial, Legal, Health Care and Regulatory Reform (E1112473)

Iselin

4/MT, 4/AA

12/1

Internal Control Essentials for Financial Managers, Accountants and Auditors (E1112313)

Freehold

8/AA

12/1

Strategies and Tactics in the New War Against Higher Individual Taxes (E1112031)

Iselin

8/TX

12/2

Choosing the Best Entity Structure Under the New Tax Law in 2011 (E1112041)

Jamesburg

8/TX

12/2

Federal Tax Update – C & S Corporations, Partnerships & LLCs (Forms 1120, 1120S & 1065) (E1111531)

Roseland

8/TX

12/2

Make Money for You and Your Clients: Surgent McCoy's Top Business Tax Planning Strategies (E1112051)

Iselin

8/TX

12/2

Loscalzo's Compilation and Review Essentials – The New Rules for Local Practitioners (E1112211)

Voorhees

8/AA

12/2

Common Frauds and Internal Controls for Revenue, Purchasing and Cash Receipts (E1112323)

Roseland

8/AA

12/5

Multistate Income Tax: Simplifying the Complexities (E1112331)

Roseland

8/TX

12/5

What You Need to Do Now in Estate Planning (E1112061)

Iselin

8/TX

12/6

Loscalzo's Accounts Payable Fraud: Overlooked Schemes and How to Detect and Prevent Them (E1112453)

East Hanover

8/AA

12/6

Sales and Use Tax Conference (E1112790)

West Orange

8/TX

12/6

The Best Income Tax, Estate Tax and Financial Planning Ideas of 2011 (E1112071)

Roseland

8/TX

12/7

Advanced Tips and Tricks of Investment Tax Management to Enhance Client Wealth Accumulation and Retirement Security (E1112081)

Roseland

8/TX

12/7

Advanced Tax Update for Experienced Practitioners (E1112461)

Iselin

8/TX

12/8

Loscalzo's Disclosure – The Key to Financial Statements (E1112231)

Iselin

8/AA

12/8

Surgent McCoy's 2011 Annual Tax Planning Guide for S Corporations, Partnerships and LLCs (E1112091)

Jamesburg

8/TX

12/8

The Best Income Tax, Estate Tax and Financial Planning Ideas of 2011 (E1112101)

Iselin

8/TX

12/8

New Jersey Law and Ethics (2009/11) Webinar (E1112014)

N/A

4/PE

12/8

Young Professionals Holiday Party (E1112550)

New Brunswick

N/A

12/8-9

AICPA's 1040 Tax Return Workshop by Sid Kess (E1112341)

Roseland

16/TX

12/9

Loscalzo's Tax Practitioner's Guide to Accounting and Reporting Issues (E1112221)

Voorhees

8/AA

12/9

Nonprofit Auditing and Accounting Update (E1112351)

Iselin

8/AA

12/9

Surgent McCoy's Limited Liability Company and Partnership Tax Return Preparation Workshop (E1112111)

East Hanover

8/TX

12/12

Metrics Management: Choose and Use Key Performance (E1112433)

Roseland

4/AA, 4/MT

NEW JERSEY CPA • NOVEMBER • DECEMBER 2011

12/12

The Top 50 Business Tax Mistakes Practitioners Make and How to Fix Them (E1112121)

Roseland

8/TX

12/12

New Jersey Law and Ethics (2009/11) Webinar (E1112834)

N/A

4/PE

12/13

Performance Analysis: Identify Profit Improvement Opportunities (E1112443)

Roseland

8/AA

12/13

Loscalzo's Introduction to the International Financial Reporting Standards (E1112253)

Roseland

8/AA

12/13

Strategies and Tactics in the New War Against Higher Individual Taxes (E1112131)

East Hanover

8/TX

12/14

Choosing the Best Entity Structure Under the New Tax Law in 2011 (E1112481)

East Hanover

8/TX

12/14

Loscalzo's Hands-On Guide to Understanding and Testing Internal Control (E1112263)

Roseland

8/AA

12/15

Loscalzo's 2011 FASB and AICPA Update (E1112271)

Roseland

8/AA

12/15

Effective and Efficient Senior-Level Review of Tax Returns in Busy Season (E1112491)

East Hanover

8/TX

12/15

Advanced Technical Tax Forms Training – Form 1040 Issues (E1112141)

Iselin

8/TX

12/16

Advanced Technical Tax Forms Training – Form 1040 Issues (E1112151)

East Hanover

8/TX

12/16

Effective and Efficient Senior-Level Review of Tax Returns in Busy Season (E1112501)

Iselin

8/TX

12/16

Professional Ethics for New Jersey CPAs and Frequently Asked Questions in GAAP Financial Statements (E1112281)

Voorhees

4/AA, 4/PE

12/19

The Loscalzo Answer to Frequently Asked Questions in Accounting and Auditing (E1112291)

Iselin

8/AA

12/19

Advanced Technical Tax Forms Training – LLCs, S Corporations and Partnerships (E1112161)

Freehold

8/TX

12/19

Risk Assessment and Audit Sampling: Applying the New Audit Sampling Guide Requirements (E1112371)

Jamesburg

8/AA

12/20

Audit Workpapers: Documenting and Reviewing Field Work (E1112381)

Jamesburg

8/AA

12/20

Advanced Technical Tax Forms Training – LLCs, S Corporations and Partnerships (E1112171)

Roseland

8/TX

12/20

Loscalzo's GAAP Refresher (E1112301)

Voorhees

8/AA

12/21

Upcoming Peer Review: Is Your Firm Ready? (E1112391)

Jamesburg

8/AA

12/21

Advanced Tax Structures: Using Tiered Partnerships, Multiple Corporations, Series LLCs and Disregarded Entities (E1112193)

Iselin

8/TX

12/22

New Jersey Law and Ethics (2009/11) Webinar (E1112744)

N/A

4/PE

12/27

New Critical Decisions in Selecting the Best Retirement Plan for Small Businesses in 2011 (E1112513)

Iselin

8/TX

12/28

M.B.A. in a Day! (E1112243)

Iselin

8/MT

1/3

Surgent McCoy's Advanced Individual Income Tax Return Issues (E1201011)

Roseland

8/TX

1/4

Surgent McCoy's 1040 Tax Season Survival Guide (E1201021)

Iselin

8/TX

1/5

Preparing Individual Tax Returns for New Staff and Para Professionals (E1201061)

Roseland

8/TX

1/10

Preparing C Corporation Tax Returns for New Staff and Para Professionals (E1201031)

Roseland

8/TX

Upcoming Chapter Events Date

Chapter

Event/Code

Location

CPE Credit

1/10

Union County

Accounting and Auditing Update (E1201149)

Garwood

2.5/AA

1/10

Monmouth/Ocean

New Jersey Sales and Use Tax (E1201169)

Neptune

4/TX

1/10

Hudson

New Jersey State Tax Update (E1201119)

Jersey City

2/TX

1/12

Passaic County

Mistakes in Dealing with the IRS (E1201159)

Paterson

2/TX

1/14

Middlesex/Somerset

Express Tax Update (E1201219)

Somerset

4/TX

1/18

Morris/Sussex

Technology Update (E1201199)

Mount Olive

2/CS

KEY AA – Accounting & Auditing MC – Multiple Categories PE – Professional Ethics

CS – Consulting Services MT – Management SK – Specialized Knowledge njscpa.org/catalog

EC – Economics PD – Personal Development TX – Taxation

NEW JERSEY CPA • NOVEMBER • DECEMBER 2011

SOCIETY

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Get Involved What Will You Do to Reach Future CPAs? By Marilyn Carnevale During her second semester at college, my brother’s girlfriend, Sam, decided to change her major to accounting. I told her all about the New Jersey Society of CPAs Scholars Institute and how she should attend next year. Sam was very interested in learning more, so I gave her some brochures from when the Society presented to my honor society, Beta Alpha Psi, when I was at Rutgers. Then, I remembered a June 2011 Tomorrow’s CPA article written by Scholars Institute attendee John C. Dispenziere Jr. Sam found John’s firsthand recap of the event most helpful. “I envisioned sitting through session after session of accountants talking about debits and credits,” Dispenziere said. “Surprisingly, however, by the end of day two, my friends and I all wished we could stay another night.” His article made it more appealing for Sam to attend than any of my praises and brochures. Through Dispenziere’s article, Sam received a clear idea of what it was actually like to attend the Scholars Institute. She found comfort in knowing that other students had the same assumptions about accounting and got the opportunity to discover what the profession is really all about. Other than the obvious benefits of networking, Sam was glad to see all of the activities that were offered and how advantageous it would be to attend. Since she is basically shy, Sam was thrilled to learn that mock interviews could prepare her for a real job hunt. When I was a sophomore, I had no idea the Scholars Institute even existed. It’s fantastic that members volunteer to share their experiences to let future CPAs know what Society events and programs are all about. Existing members, like me, can also forward information. I wish I had someone

More than 60 women attended the New Jersey Society of CPAs new conference, “Women as Powerful Leaders and Influencers,” in August in Roseland. Society President Carole A. Hedinger, CPA (left), looks on as speaker Marcy LoCastro, CPA, discusses how female accounting professionals can develop skills that will set them apart. The event was also used as a venue to drop off business clothing to the Morris County Chapter of Dress for Success.

who had reached out to me about the Scholars Institute when I was a sophomore. Thanks to John, the Tomorrow’s CPA team and a little nudge from me, Sam’s on the right track and plans to attend the 2012 Scholars Institute – and so do I. What will you do to reach future CPAs? Marilyn Carnevale is an NJSCPA CPA Candidate member and a member of the Tomorrow’s CPA Editorial Advisory Board and the E-YoungCPA Writers Pool. Contact her at marilyn.carnevale@gmail.com.

It Feels Great to Volunteer By Megan A. Cicchetti A colleague and I recently went to Rutgers Business School to talk to students in its accounting M.B.A. program about my employer, Sax, Macy, Fromm & Co., P.C. A young lady came up to me and said that she’d met me last year at the NJSCPA Career Night. More than 300 students were there, so I didn’t exactly remember meeting her.

But she remembered me among the 30 or so exhibitors and dozens of firm representatives whom she shook hands with that night. She recalled getting information about my firm, but it was my energy and enthusiasm that increased her commitment to accounting. She also said that she reads my NJSCPA Exam Cram blog and it motivates her even more. I was so touched when she said that because of me and my Society involvement, she is now in Rutgers’ M.B.A. accounting program. I felt so great about making a difference in her life that I wanted to share it with all of our NJSCPA members. I can’t wait to see what happens next! Megan A. Cicchetti is an NJSCPA CPA Candidate member and a member of the Student Programs & Scholarships Committee. Contact her at cicchetti04@ hotmail.com.

NEW JERSEY CPA • NOVEMBER • DECEMBER 2011

Tax Updates via Live Webinar Tax Updates for Busy People – like you! • Convenient live webcast format • Choose from 4 expert speakers Vern Hoven

- Vern Hoven - Dennis Gerschick - Eva Rosenberg - Albert Grasso

Eva Rosenberg

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Dennis Gerschick

• 25 convenient dates (November 14 – January 13) • Self-study version available December 1

Albert Grasso

Your best value: the Value Pass Choose live webcasts, self-study, or a combination. Enjoy CPE savings for a full year! Order today! www.cpelink.com/valuepass/

NEW JERSEY CPA • NOVEMBER • DECEMBER 2011

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9/29/2011 8:33:32 AM

SOCIETY

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Staying Involved from Afar

Wendy S. Penman, CPA, is a tax associate at PricewaterhouseCoopers in Richmond, Virginia. Before transferring from PwC’s Florham Park office last year, Wendy was an active member of the NJSCPA Student Programs and Scholarships Committee. One way she remains involved is through NJSCPA Connect. In fact, she finds it has become one of her most valuable tools for staying in touch with fellow New Jersey CPAs, including former co-workers. “After transferring, it’s easy to lose touch with those whom I’ve worked closely with for years,” Penman says. “But Connect lets me know what they’re up to and if anyone has moved to another position. We can also answer accounting questions from each other.” Connect’s forums allow Penman to remain involved by maintaining the relationships she’s made throughout the years – which will be helpful if she ever returns to New Jersey. For now, she’s searched Connect and found other NJSCPA members who live in Virginia. “If I find myself with a question about Virginia tax rules and need the name of someone who could assist me, I know precisely where to look.” Penman is also a member of the E-YoungCPA Writers Pool, a group of more than 40 members who suggest resources, provide ideas and write articles for E-YoungCPA. “There are no meetings involved. Everything is done through email. I respond to topics and questions that pique my interest,” Penman says. “It’s the perfect way for me to stay involved.” Contact her at wendypenman@gmail.com or find her on Connect at njscpa.org/connect.

Get Involved Now

Volunteer opportunities are available throughout the year. Here are a few activities that need your support now. Let us know how you’d like to be involved at njscpa.org/ getinvolved. Help Feed Those in Need – The NJSCPA Young CPAs are sponsoring a food drive to benefit the Community Food Bank of New Jersey, which works to provide support

to more than 1,600 agency programs in the fight against hunger and poverty. The Young CPAs goal is to collect 100 bags of nonperishable items and canned goods, surpassing last year’s collection of 60 bags. You can drop off nonperishable food donations through November 18 at the following locations: • Enrst & Young LLP, 99 Wood Avenue South, Iselin • Fazio, Mannuzza, Roche, Tankel, LaPilusa, LLC, 20 Commerce Drive, Suite 301, Cranford • NJSCPA headquarters, 425 Eagle Rock Avenue, Suite 100, Roseland • Paolini & Scout, LLC, 20 Trading Post Way, Suite 200, Medford Lakes • Sharpe, Kawam, Carmosino & Company LLC, 1 Mars Court, Suite 100, Boonton Township • WithumSmith+Brown, 465 South Street, Suite 200, Morristown • Young Professionals Wine Tasting on November 17 at Maggiano’s Little Italy, Bridgewater

Interview NJSCPA Scholarship Candidates – Society members are needed to interview candidates for NJSCPA high school and college scholarships. High school interviews will be held on Saturday, January 21, at NJSCPA headquarters in Roseland. College interviews will be held on Saturday, January 28, at Ernst & Young LLP in Iselin. Contact Lauren Matullo at lmatullo@njscpa.org or 973-226-4494 x241. Help Her “Do It Herself” – This year’s Do It Herself conference, a day-long financial education event for women, is being held at Caldwell College on Saturday, January 28, and features keynote speaker Sharon Epperson of CNBC. NJSCPA members who are experienced speakers can contact Jennifer O’Leary at joleary@njscpa.org or 973-226-7794 x251 if they are interested in presenting on any of the following topics: • Estate Planning • Investing • Retirement and Social Security Planning • Understanding Your Credit Score

Contact Lauren Walsh at lwalsh@njscpa.org or 973-226-4494 x224 for more information. Be a Mentor and Make a Difference – Mentors are needed to help guide NJSCPA high school scholarship recipients through the transition from high school to college and then into the accounting profession. The mentor program provides an invaluable opportunity for students to learn about the profession from the inside and begin to build a network of professional contacts. Mentors must be a CPA age 35 or younger. Contact Lauren Matullo at lmatullo@njscpa.org or 973-226-4494 x241.

NEW JERSEY CPA • NOVEMBER • DECEMBER 2011

Wells Fargo Commercial Banking: Helping customers achieve their business goals

Wells Fargo provides a broad range of financial services to support U.S. businesses operating domestically and around the globe. We can help businesses with credit and financing, commercial real estate, treasury management, insurance, equipment finance, investment banking, and much more. Plus, we offer a host of asset-based lending options, including revolving lines of credit, term loans, factoring, and DIP financing. Our team members have a thorough understanding of the local business environment, and they are dedicated to getting to know a customer’s business. To learn more, give us a call today. Thomas J. Vigna, Relationship Manager • 908-542-2056 Commercial Banking Office • 120 Mountainview Blvd, Suite 200, Basking Ridge, NJ 07920

SOCIETY

pages

Your NJSCPA Tax-Time Tool Box The New Jersey Society of CPAs has many convenient ways for members to stay current on federal and state tax laws and regulations: Learn: Get CPE Credits on Relevant Tax Topics and Trends Upcoming tax-related CPE courses can be found by searching the Taxation category in the online CPE catalog at njscpa.org/catalog. Listen: Federal Tax Podcasts Hear expert analysis on what is happening in federal taxation. These 20-minute podcasts, written and produced by nationally recognized tax experts, are updated weekly and posted on njscpa.org/news/podcasts.

Read: Tax Guides and More Society members save 30 percent at the CCH online store on more than 175 CCH tax and accounting titles such as: • 2012 Express Answers 1040, 1065, 1120s, 1041 • 2012 Master Depreciation Guide • 2012 Master Estate & Gift Tax Guide • 2012 Master Tax Guide • 2012 New Jersey Guidebook to Taxes • 2012 State Tax Handbook • Tax Planning Strategies 2011-2012 • Winter 2012 Income Tax Regulations • Winter 2012 Internal Revenue Code

Across

Down

1. Duties imposed on imports/ exports 5. CPAs’ hottest time of the year 8. Add up 9. Amendment of the Constitution relating to income tax 11. List abbr. 12. Naval rank: abbr. 14. Liquidated gradually 18. Earned 21. Celebrated scientist who said: “The hardest thing in the world to understand is the income tax.” 25. For example 26. Broke bread 27. “___ way!” 28. Money allocations 29. Latin word that tax was derived from, meaning “I estimate” 32. Type of tax that was imposed in July 1861 to pay for the cost of the Civil War 35. Part of a group 37. Cover story 38. Decimal or metric 39. Take temporary possession of, as a security

1. Tax in Medieval times 2. Percentages 3. Finance-related 4. Highest die number 5. IRS employee 6. Maintained 7. __-di-dah 10. Bit of business attire 13. Secrecy agreement, for short 15. Leave out 16. #26 of 26 17. Philanthropical giver 18. Syndicate 19. Takes away from taxable income 20. Nest- ___ 21. Absorb, as a cost 22. Bottom line 23. Formal wear, informally 24. Buy __ 30. Scope 31. He excluded himself from the Presidential Campaign Fund in 2008 32. They require Form 1040s 33. Fannie ___ 34. Stately tree 35. Law group 36. Quote from Homer

Visit njscpa.org/marketplace to access the members-only priority code. Collaborate: With Members Just Like You Access the knowledge of other tax experts by joining the State Taxation and/or Federal Taxation interests groups. Join by visiting the groups/committees page at njscpa.org/ volunteer-contribute/groups. Once you’re a member, you can access an ongoing open forum to discuss and learn from other members about taxation issues through NJSCPA Connect at njscpa.org/connect.

11 12

27 29

37 38

See the answers on njscpa.org/newjerseycpa.

NEW JERSEY CPA • NOVEMBER • DECEMBER 2011

HIGHLIGHTS OF FINANCIAL RESULTS for

t h e Ye a r

Ended

May

31, 2011

he global economic downturn remained a significant factor as fiscal year The NJSCPA Scholarship Fund continued to benefit from the strong support 2011 began for the New Jersey Society of CPAs and affiliated entities of the Society’s chapters, as well as members and their firms and companies. (NJSCPA Education Foundation and NJSCPA Scholarship Fund). Operations Contributions were lower compared to last year, as expected, since 2010 included continued to be guided by the Society’s Strategic Plan, with programming the 50th anniversary fundraising campaign. Even so, the fund awarded nearly to support the plan’s four pillars: Provide Membership Community; Support $390,000 to more than 90 eligible students, an increase of $50,000 over the Education; Encourage High Professional Standards; and Advocate for the prior year. Temporarily restricted net assets increased approximately $289,000, CPA and Public Interests. Each operating entity was charged with revenue almost entirely due to unrealized gains on the fund’s investment portfolio. generation and cost containment to convert breakeven or deficit budgets into surpluses, and each met the challenge. The efforts of Society leaders and staff MEMBERSHIP DUES were augmented by the recovery in the financial markets, allowing each affiliate Income from membership dues increased approximately 6.5 percent for the to post healthy bottom lines and rebuild reserves from the losses sustained in year due to increases in new member income and an inflationary rate increase. fiscal 2009. Recruitment of new members exceeded budget by more than 150 members; The Society increased efforts on its two major strategic programs, Volunteer however, member reductions also outpaced budget. While still trailing preRelations and Firm Outreach, while launching NJSCPA Connect, NJSCPA recession levels, member retention improved slightly from 92 percent last year to Mobile and redesigning the member website, all of which enhanced member 93 percent in 2011, and total membership remained flat for the year at 15,400. involvement. Advocacy efforts put a stop to mandatory audit firm rotation and the creation of a new board of tax preparers, while continuing to uphold SEMINAR AND CONFERENCE FEES privity and the standard of care statutes. The Society’s net assets increased Income from seminar and conference fees was up more than $400,000 over approximately $622,000, almost half of which came from unrealized gains on last year due to the second year of the triennial cycle, coupled with the new its long-term investment portfolio. requirement for a minimum number of live training credits. Direct expenses of The NJSCPA Education Foundation came through the second year of its education programs increased accordingly. triennial reporting cycle with record-setting attendance. Not only did attendance surpass any previous non-reporting year since the state changed to triennial OTHER REVENUES reporting in 2000, it also surpassed the previous highs for any reporting year. Publication income decreased primarily due to the biannual publication of the Strong attendance coupled with good program execution allowed the foundation Forensic & Litigation Services Directory in 2010. Investment portfolios returned to overcome a budgeted of deficit and increaseResults net assets byfor approximately percent for the year, compared to 16 percent last year, as the Highlights Financial the Year Endedapproximately May 31,202011 $108,000. financial markets continued to recover from the lows reached in 2009.

REVENUES AND OTHER SUPPORT 2011

2010 2%

3% 40%

4% 9%

3% 7%

37%

40%

Membership Dues Seminar Fees Peer Review Dues Special Events Contributions Investment Income Advertising and Other

NEW JERSEY CPA • NOVEMBER • DECEMBER 2011

41%

HIGHLIGHTS OF FINANCIAL RESULTS for

t h e Ye a r

FUNCTIONAL EXPENSES 2011 20%

15% 8%

5% 9% 3% 40%

2010 20%

Ended

May

OPERATING EXPENSES Total expenses increased 2.6 percent over 2010; however, exclusive of the increase in direct costs of education programs, expenses remained flat. In the area of salaries and benefits, merit increases of 2 percent and one new hire were offset, in part, by a reduction in accrued vacation pay due to a change in policy. Printing and distribution were lower than 2010, which included the biannual production of the Forensic & Litigation Services Directory. Professional fees were also lower than 2010, which included

31, 2011 significant fees to defend the privity statute in New Jersey. Special event expenses were also lower due to a reduction in the number and size of chapter social events, coupled with lower costs for student events. While the Combined Statements of Activities present expenses by natural classification, below are the combined expenses of the Society, the Education Foundation and the Scholarship Fund, summarized by each major functional area.

16% 9%

5% 9%

2011

2010

$1,205,000

$1,272,000

680,000

745,000

3,173,000

2,905,000

Peer review

271,000

290,000

Career awareness

725,000

667,000

6,054,000

5,879,000

369,000

359,000

Management and general

1,594,000

1,579,000

Total Support Services

1,963,000

1,938,000

$8,017,000

$7,817,000

PROGRAM SERVICES Membership activities Communications and public relations

4% 37%

Membership Activities Communications and Public Relations Educational Activities Peer Review Career Awareness Recruitment and Fundraising- 5 Management and General

Educational activities

Total Program Services SUPPORT SERVICES Membership recruitment and fundraising

TOTAL PROGRAM AND SUPPORT SERVICES COMBINED STATEMENTS OF FINANCIAL POSITION

NEW JERSEY SOCIETY OF CERTIFIED PUBLIC ACCOUNTANTS AND AFFILIATES

May 31, 2011 May 31, 2010 ASSETS Cash and cash equivalents $5,971,000 $5,140,000 -6Investments 4,548,000 3,775,000 Other 916,000 962,000 Total Assets $11,435,000 $9,877,000 LIABILITIES AND NET ASSETS Deferred revenue $2,558,000 $2,044,000 Other 825,000 800,000 Total Liabilities 3,383,000 2,844,000 Unrestricted net assets 5,460,000 4,730,000 Temporarily restricted net assets 2,592,000 2,303,000 Total Net Assets 8,052,000 7,033,000 Total Liabilities and Net Assets $11,435,000 $9,877,000 NEW JERSEY CPA • NOVEMBER • DECEMBER 2011

HIGHLIGHTS OF FINANCIAL RESULTS for

t h e Ye a r

Ended

May

31, 2011

COMBINED STATEMENTS OF ACTIVITIES NEW JERSEY SOCIETY OF CERTIFIED PUBLIC ACCOUNTANTS AND AFFILIATES

Year Ended

May 31, 2011

May 31, 2010

Changes in Unrestricted Net Assets REVENUES AND OTHER SUPPORT $3,569,000

Membership dues and other fees

$3,351,000

3,594,000 3,179,000

Seminar and conference registration fees Peer review dues

306,000 293,000

Publication, directory and website advertising

136,000 139,000

Investment income

446,000 306,000

Special events

212,000 237,000

Other

231,000

Net assets released from restrictions

253,000

Total Unrestricted Revenues and Other Support

306,000 86,000

8,747,000 7,897,000

EXPENSES Salaries, payroll taxes and employee benefits

3,449,000 3,410,000

Direct costs of educational programs

2,373,000 2,177,000

Rent and occupancy

422,000 417,000

Printing and distribution

136,000 158,000

Scholarship awards

425,000 347,000

Office and supplies

257,000 241,000

Professional fees

229,000 269,000

Travel and meetings

128,000 109,000

Special events

181,000

247,000

Other

417,000

442,000

Total Expenses

8,017,000 7,817,000 730,000 80,000

Increase in Unrestricted Net Assets Changes in Temporarily Restricted Net Assets Contributions

193,000 225,000

Investment income

349,000 235,000

Net assets released from restrictions Increase in Temporarily Restricted Net Assets

(253,000)

(86,000)

289,000

374,000

Changes in Net Assets

1,019,000 454,000

Net assets at beginning of year

7,033,000

Net assets at end of year

6,579,000

$8,052,000 $7,033,000

These condensed financial statements are derived from the Society’s audited financial statements, which received an unqualified opinion. A complete copy of the financial statements is available by contacting the Society at 973-226-4494. NEW JERSEY CPA • NOVEMBER • DECEMBER 2011

SOCIETY

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NJ State Board of Accountancy Report AICPA to Formally Admonish Violators Newark (August 18) Committees

Ethics – A course submitted from Rigos was not approved. Statutes/Rules/Regulations – The National Association of State Boards of Accountancy and the American Institute of CPAs issued an exposure draft on updating CPE regulations. It included changes in terminology, specifically from “computer-based study” to “group Internet-based programs.” The draft also changed verbiage on CPE for teachers from “receiving a specific number of credits for class preparation” to “following the guidelines of the teacher’s respective state board.” The CPE Committee will review the exposure draft and give its comments to the Statutes/Rules/Regulations Committee. Monitoring Profession – Thus far, 700 Uniform Penalty Letters (UPLs) have been sent and there have been 495 responses. There have been 242 voluntary license surrenders, and a total of $3.5 million in penalties have been assessed.

Public

New Jersey Society of CPAs Executive Director Ralph Albert Thomas mentioned that there has been a resurgence regarding audit firm rotation, as evidenced by the

chair of the Public Company Accounting Oversight Board recently giving a speech on the subject. Thomas is encouraging NJSCPA members and their clients to write to the Financial Accounting Foundation in support of the recommendations of its Blue Ribbon Panel. Thomas discussed a conference call with the AICPA Professional Ethics Committee where – as a result of the unsatisfactorily high number of UPLs issued – it voted that any member who is disciplined by a regulatory body will be publically admonished without the benefit of a hearing. Any member who is sanctioned as such can appeal. Board Executive Director William Mandeville inquired if said individuals will still receive their AICPA benefits, such as health insurance. Thomas believes they would, but he needs to confirm. The same may not be true for members who voluntarily surrender their licenses.

Newark (September 15)

EisnerAmper LLP, and John A. Demetrius, CPA, Demetrius and Company LLC. Monitoring Profession – The committee has completed the initial review process. Thus far, 741 UPLs have been sent and there have been 591 responses. There have been 259 voluntary license surrenders, and a total of $3.67 million in penalties have been assessed.

Public

New Jersey Society of CPAs Government Relations Director Jeffrey T. Kaszerman mentioned that the Congressional Conference Committee passed legislation banning tax strategy patents. It now moves to President Barack Obama’s desk for signature. The Society continues to assist members affected by Hurricane Irene. Finally, the New Jersey Supreme Court held a hearing on a lower court’s decision against a New Jersey CPA firm that involved accountants’ liability, privity and standard of care. The NJSCPA filed an amicus brief in support of upholding the current accountants’ liability statute and standard of care rules and principles.

Committees

Peer Review Program – Two Society members were named as public representatives for the Oversight Subcommittee: Lawrence S. Gray, CPA,

January/February Coming Attractions Divorce

Magazine of the

New Jersey Society of Certified Public Accountants

J a n • F e b 2 0 1 2

n n n n

The New Economics of Divorce in NJ Divorce Practice Development Divorce Case Study Collaborative Law Under Divorce

NEW JERSEY CPA • NOVEMBER • DECEMBER 2011

CLASSIFIEDS Mergers/Acquisitions Looking for established CPA to share fully furnished, individual, professional office with growing bookkeeping service in Point Pleasant. Looking to create a synergy and a possible alliance over time. $300 per month covers all utilities, Internet, monthly cleaning and common-area maintenance. Alarm and kitchen access included. Plenty of parking, no security deposit. Occupy immediately. Contact Rich or Dawn at Sharp Bookkeeping Service, 732-458-3800, or rjcptpl@aol.com. Sole practitioner, Livingston, with growing practice, seeks young CPA with business to assist in servicing current and future clients leading toward association. Small staff and office space available. Reply to cpalivingston@aol.com.

Leading, suburban Essex County CPA firm with a quality-oriented work environment has a merge opportunity for sole practitioners or a small firm needing succession planning. We work with a diversified client base and have the benefit of a dedicated support staff. In addition, we offer support services in the areas of technology, consulting, litigation and financial planning. Reply to ljcpa@ljcpa.com. Edison, NJ, retirement-minded CPA with small tax, corporate practice, seeks younger CPA with own practice for mutual growth and to partner with. Call 732-549-4950. Parsippany, NJ. Three-partner CPA firm seeks retirement-minded practitioner to merge/ acquire practice ranging from $100K and up. Please contact Carl Gutt, 973-451-0800 x22, or cgutt@dglcpa.com.

NJ practices for sale: West Orange EA practice, gross $90K; Atlantic City tax franchise, gross $120K; Clifton tax and accounting, gross $44K; Morris County CPA practice, gross $248K; Ocean County CPA practice, gross $305K; Vineland CPA practice, gross $231K. For more information, call 800-397-0249 and/or you can see all of our listings, inquire for details and register for free email updates regarding new listings at accountingpracticesales.com. Goldstein Lieberman & Company LLC, one of the region’s fastest growing CPA firms, wants to expand its practice and is seeking merger/acquisition opportunities in northern NJ and the entire Hudson Valley region, including Westchester. We are looking for firms ranging in size from $300,000 to $5,000,000. To confidentially discuss how our firms may benefit from one another, please contact Phillip Goldstein, CPA, at philg@glcpas.com or 800-839-5767. Klatzkin & Company, LLP, an established firm with offices in Mercer County, NJ, and Pennsylvania is looking to acquire or merge-in small firms or sole practitioners in need of succession planning. We offer our clients an extraordinary and individualized level of commitment, a dedicated staff and a broad spectrum of available services. We work with a constantly expanding, diversified client base. Firms seeking growth and stability are encouraged to inquire. Reply to bsnyder@klatzkin.com.

The Curchin Group, LLC, a central NJ, Monmouth County firm is seeking to merge-in near-retirement sole practitioners and small firms needing succession planning. Other individuals seeking growth and expansion are welcome to inquire. Initial practice continuation also an option. Reply in confidence to Peter Pfister, CPA, at 732-747-0500 or ppfister@curchin.com. Want to sell or merge your accounting practice? Accounting Practice Sales has qualified buyers waiting and financing available to sell your practice quickly and get you the best deal possible. For information regarding our risk-free and confidential services, call Bradley Holmes at 800-397-0249. Buyers see listings and register for free email notifications at accountingpracticesales.com. Central NJ, regional CPA firm with an outstanding environment is looking to merge-in sole practitioners, small firms, practices needing succession planning or growth-oriented individuals seeking a synergistic platform. Reply in confidence: eguttenplan@wgcpas.com. 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.

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

Professional Services Create a successful wealth management division. Successful, Bergen County, high-net-worth financial planning and money management firm wants to work with your accounting firm to create a financial services division. For more than 30 years, we have been successfully implementing professional partnerships with CPA firms that want to increase their revenues by offering financial products to their clients. Contact Steven Kolinsky, 201-474-4012, or skolinsky@ kolinskywealth.com. Pre-issuance reviews/quality control – Do you need an experienced reviewer to evaluate your audit reports, workpapers and checklists? Peer Review – Do you need an experienced system or engagement reviewer? Audits – Do you have clients who need an audit, but your firm doesn’t perform them? If the answer is yes, contact Brian Bertscha to discuss your firm or client needs and obtain a free quotation at bbertscha@yahoo.com. Referrals appreciated.

Real Estate Bridgewater, professional office, prime location. Great 800-square-foot office space with highway sign! The space has three offices, waiting room, bathroom and storage. Available immediately; bwaterrental@aol.com or 908-218-0800.

Classified Advertising Replies to ads with file numbers should be sent to: File______________________ New Jersey CPA Classifieds 425 Eagle Rock Avenue Suite 100 Roseland, NJ 07068-1723 To see additional classified listings or to place an ad, visit njscpa.org/classifieds.

NEW JERSEY CPA • NOVEMBER • DECEMBER 2011

STUDENT

outlook

The NJSCPA College Scholarship Fund: Change on the Horizon B Y CH RIS TOPHER L OVASZ, C PA, D E LO I T T E

hange is never easy; most people will readily admit that they don’t like it. Change is even more difficult when it involves a program that, by all accounts, is very successful. Since its inception, the New Jersey Society of CPAs Scholarship Fund has assisted approximately 1,400 students and awarded more than $3.1 million in scholarships. But change was the dilemma facing the Student Programs & Scholarships Committee when it decided to examine the college scholarship program. So why change the largest professional scholarship program in New Jersey? When the committee looked behind the numbers, it realized the program was not achieving the fund’s stated mission. That mission is to attract the best and the brightest New Jersey students to the accounting profession, encourage students from diverse fields to pursue an advanced education in accountancy and increase awareness about the opportunities provided by a CPA career path. The committee learned that a large percentage of scholarship recipients were not achieving the CPA designation. As a result, the scholarship fund approved some significant changes to the college scholarship process. For the first time, interviews will be held at a centralized location, rather than at individual schools, which will allow the applicants to compete against all other students. This change enables the NJSCPA to award scholarships to the most qualified candidates overall, rather than at just a particular school. Starting this fall, an applicant for a college scholarship must write an essay. The essay will require the students to become more involved in and have a vested interest in the application process. It will also be used to get to know the applicant: to understand why the student is interested in accounting, his or

her commitment to achieving the CPA license and how the applicant plans to utilize his or her studies and experiences to achieve a successful career in accounting. The changes to the college scholarship program enable the Society to learn more about the student before the interview and to evaluate the scholarship applicants in a more comprehensive and consistent manner. In order to be eligible for a scholarship, the student must be a New Jersey resident and enrolled as an accounting major at a New Jersey college. The scholarships are available to college students currently in their junior or senior year who will be entering an accounting-related graduate program and are awarded based on an evaluation of the applicant’s grade point average, recommendation letter, transcript, resume, essay and interview. Being awarded an NJSCPA scholarship has been and will continue to be an honor that all of our recipients should be extremely proud of achieving. As chair of the Student Programs & Scholarships Committee, my goal is to increase the impact that comes with being an NJSCPA college scholarship recipient. As someone who interviews countless students, when a candidate comes in that is a scholarship recipient, I realize that this individual has made a commitment to a career in accounting and has distinguished himself or herself as one of the best and brightest students. As with all of the NJSCPA’s successful programs, in order to implement these changes the Society will once again call upon on its membership volunteers for assistance. You can serve as an advocate for the scholarship and promote it in your workplace and to your friends. Educators and college administrators can promote the scholarship to qualified students on their campuses and nominate those who they feel embody the characteristics of a successful future CPA and Society member. Finally, if you are interested in assisting with the college scholarship process, either as an interviewer or essay reviewer, contact Lauren Matullo at 973-226-4494 x241 or lmatullo@njscpa.org. The Society’s college scholarship program has been successful and has had a lasting impact on its recipients. Visit njscpa.org/scholarships to learn more about several of these recipients. Christopher Lovasz, CPA, is an audit director at Deloitte. He is the Student Programs & Scholarships Committee Chair and NJSCPA Scholarship Fund Trustee. Contact him at clovasz@ deloitte.com or 973-602-6275.

NEW JERSEY CPA • NOVEMBER • DECEMBER 2011

LEGISLATIVE

views

Yes, New Jersey Is a High-Tax State B Y PAUL V. TYAHL A, CO M M ON SE NSE I NST I T U T E OF N J

any in the New Jersey Legislature and public have shown an interest in the New Jersey Policy Perspective’s (NJPP’s) op-ed purporting to demonstrate that New Jersey is not the nation’s highest-taxed state (njpp.org/editorials). The NJPP research, using government Census data, indicates New Jerseyans pay the eighth-largest share of their income in state/local taxes and are fifth on a per capita basis. While neither ranking is cause for celebration, the NJPP piece does open a legitimate discussion on how tax collections should be attributed and the need for a simplified tax code.

Exporting Taxes While the NJPP uses much of its op-ed to criticize the methodology of the Tax Foundation, which issued a report claiming the state is the highest taxed in the nation, the two organizations reach a similar conclusion. The NJPP claims New Jersey residents pay 12.1 percent of their income in state/ local taxes, while the Tax Foundation claims 12.2 percent. The main difference is in the rankings, much of which involve taxes that are exported by states. While the NJPP claims the Census data to be the “cleanest” and describes the Tax Foundation methodology as “convoluted,” that does not necessarily mean a methodology accurately describes a state of affairs. For example, the NJPP concludes that Alaska is the nation’s most-taxed state, both in terms of share of personal income and on a per capita basis. However, most of Alaska’s tax revenue comes via oil. Alaskans pay only a small percentage of this tax, with the rest passed along by oil companies to consumers in other states. So, while dividing

Alaska’s tax revenue by its population and income may be clean, it does not accurately describe the average resident’s tax burden. Other states, especially those with strong energy or tourism sectors, also place their tax burdens on non-residents. This comes into play with New Jersey’s income tax. New Jerseyans who work in New York pay most of their income tax dollars to Albany, not Trenton. This results in more than $2.5 billion in revenue to New York. The Tax Foundation methodology would charge this money as a tax burden on New Jerseyans, since they are the ones paying the tax. The Common Sense Institute of NJ believes this is an accurate way to assess a burden. The goal of such rankings is not to place blame or grade 50 state governments; it is to describe what percentage of income residents pay in state/ local taxes. A Montclair resident, paying very high income taxes to New York and high New Jersey property taxes, takes no comfort and does not have an easier time making ends meet knowing that the burden is not entirely the fault of New Jersey’s tax code. New Jersey legislators must deal with the structural advantage long ago ceded to New York and understand that New Jersey residents pay high income taxes there. The Tax Foundation survey attempts to describe the life of the taxpayer of a given state. While methodology drives part of New Jersey’s rank, our tax code is also very burdensome. We have among the highest top marginal income taxes, property taxes and corporate business taxes. These are the areas legislators need to address. Fortunately, the NJPP acknowledges that New Jersey is an above-average tax state, even if the group argues that the Garden State is not the most taxed. Some organizations have used Census data to demonstrate New Jersey is simply an average tax state, and that deeply flawed methodology was repeated in the media. At least more groups now agree that New Jerseyans do pay higher taxes than most of the nation, which makes this argument largely academic. Policy analysts can argue passionately and reasonably as to whether a clean methodology is preferable to one that assesses burden based on a citizen’s actual experience, but neither outcome should change the goal of New Jersey legislators. If a policymaker believes the state to be “only” the fifth or eighth most-heavily taxed, it is not cause to celebrate. The state still has high taxes and dimming memories of robust private-sector job growth. The job of legislators to simplify the tax code and make it less burdensome on New Jersey families remains unchanged. Paul V. Tyahla is the executive director of Common Sense Institute of NJ, a member of the NJ Taxpayer Alliance. Visit csinj.org.

NEW JERSEY CPA • NOVEMBER • DECEMBER 2011

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The Sweet Taste of Entrepreneurism BY DAVID PLASKOW, NJSCPA PUBLIC ATIONS EDITOR

ou can hear the passion in Daniel J. Geltrude, CPA’s, voice when he talks about business. He knew as far back as his teenage days playing soccer for Nutley High School that someday he wanted to transfer that spirit of athletic competitiveness to starting his own business. Geltrude graduated from Rider University in 1987 with a B.S. in accounting. “Accounting provides a great background for understanding business,” says Geltrude. “I thought I could use it to start my own business or, at a minimum, start my own accounting firm. That’s one of the great things about accounting, it lets you keep your options open.” After graduation, Geltrude worked at Arthur Andersen, auditing manufacturing companies and small businesses. He later worked for a pair of smaller public accounting firms getting more involved in the tax area, in addition to audit. “I got a better all-around picture of how businesses work,” notes Geltrude. In 1995, Geltrude started his own practice, Geltrude & Company, a fullservice accounting firm with a niche in pension audits and the real estate sector. Geltrude is huge believer in continuing education. He received an M.S. in taxation from Fairleigh Dickinson University in 1996 and an online master’s degree in human resources from Penn State in 2011, along the way obtaining Series 7 and life/health/ disability insurance licenses. But why human resources, and what was it like getting an online degree in his 40s? “There are 20 professionals working at our accounting firm. Knowing employment law makes me a better manager of people,” explains Geltrude. “It’s also become invaluable when

relating to younger professionals and understanding how they think and learn electronically.” Because the education process never ends for Geltrude, that also included obtaining the CPA designation. “When you tell people you’re an accountant, one of the first questions they ask is ‘Are you a CPA?’” says Geltrude. “There’s definite credibility in being a CPA.” And joining the New Jersey Society of CPAs? “It’s important to understand what’s going on in the profession, such as tax law changes,” notes Geltrude. “We also need to be together to protect our interests as well as maintain the integrity of the profession.” To help maintain that integrity, Geltrude currently serves as secretary of the New Jersey State Board of Accountancy. He also started the Mike Geltrude Foundation in 2006 for the research and education of melanoma after his father passed away from the disease. To unwind, Geltrude coaches youth soccer and spends time with his family at their house on the Jersey Shore. Because it’s all about using his vast education and experience in an entrepreneurial way, Geltrude started a real estate holding company with his brother in 1993, purchasing commercial and residential real estate. He then opened a bank in his native Nutley in 1999. “Understanding financing, business models and tax implications is where being a CPA is invaluable,” comments Geltrude. “These diverse skill

sets also help me be a better advisor to my clients.” It was one business venture, however, that took the cake, so to speak. The owners of a café next to Geltrude’s office started offering stuffed cupcakes, and that particular segment of the business really took off. “In fact, the owners closed the café and began selling cupcakes exclusively,” notes Geltrude. The cupcakes have received much attention and were even featured by Oprah Winfrey in her O magazine. Geltrude volunteered to review his friends’ financials, production model and purchasing trends. He suggested a few tweaks and, lo and behold, he was invited to become a partner in the business, Stuffed Cupcakes LLC, which he gladly did. To meet the exploding demand, Stuffed Cupcakes is opening a new, state-of-the-art facility. “We’ve sold more than a million cupcakes and are up to 200 flavors, like red velvet, cannoli dream and butterscotch kiss,” says Geltrude. “Now, we need to determine how we will open additional retail locations: as franchised or company-owned. That’s the type of thing I find really exciting about being an entrepreneur.” So, is the cupcake a fad – the frozen yogurt of the 1990s – or does it have staying power? “Cupcakes have been around forever and have that feel-good aspect of childhood,” says Geltrude. “They’re definitely here to stay.”

NEW JERSEY CPA • NOVEMBER • DECEMBER 2011

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