NJCPA Sept/Oct 2011

CPE Triennial Ends 12-31-11

Magazine of the

New Jersey Society of Certified Public Accountants

Real Estate Residential Real Estate in New Jersey and the Road to Recovery A Check-Up for Real Estate Clients Real Estate Financing Goes Back to Basics Maximizing Cash Flow Through Cost Segregation Studies

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American Institute of CPAs

September • October 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

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

features

8 Residential Real Estate in New Jersey and the Road to Recovery Learn the factors, both in and out of NJ, that are driving the residential real estate market.

12 ARealCheck-Up for Estate Clients Create an effective real estate planning checklist to help leverage opportunities for your clients and your firm.

16 Real Estate Financing Goes Back to Basics See how it’s the best of times and the worst of times when financing a real estate transaction.

18 Maximizing Cash Flow Through Cost Segregation Studies Discover the many benefits of this method and how CPAs can apply it.

4 Close Up Avoiding CPE Triennial Trauma

32 Tax Talk When to Use a Qualified Personal Residence Trust

6 News Briefs

22 A&A Buzz Lease Accounting Gets a Makeover

33 Tech Center Finding That Elusive Real Estate Accounting Software

24 Best Practices To Trade Show or Not to Trade Show?

25 Financial Planning Using a Self-Canceling Installment Note in Estate Planning

48 Student Outlook The Ambassador to Atlantic City 49 Legislative Views State Passes Historic Reforms 50 Member Profile Reaching the Summit of His Profession

26 Forensic File Discounts on Embedded Capital Gains for Society Pages Real Estate 2011/12 Chapter

Presidents, 34 28 Industry Insights CPE Offerings and Don’t Discount Events, 36 Discounted Cash Flow Get Involved, 38 Member Benefits, 42 30 Small/Sole Practitioner NJ State Board of Helping Your Client Accountancy Report, 44 Measure the Costs of Classifieds, 46 Eminent Domain

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. 29 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.

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Avoiding CPE Triennial Trauma 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

T

he end of the current New Jersey CPE triennial reporting period is December 31, 2011, less than four months away. We all know that renewing your CPA license can be confusing, and considering the potential consequences for making a mistake, a bit nerve racking. But if you complete the needed 120 hours of CPE by the end of the year, including the mandatory four-credit New Jersey Law and Ethics course, there isn’t much to worry about.

Of concern to the New Jersey Society of CPAs and the New Jersey State Board of Accountancy are those CPAs who’ve willfully or carelessly violated the rules. In the past year, the state board undertook a 100-percent audit of attendance at the mandated New Jersey Law and Ethics class for the 2006-08 triennial reporting period. The results were embarrassing for the profession.

As of this writing, more than 600 individuals have been served Uniform Penalty Letters (UPLs) letters, including more than 200 CPAs who’ve completed no CPE, and approximately 190 CPAs have volunteered to surrender their licenses.

Fines range from $500 to $8,000. The $8,000 fines are for individuals with 10 hours or less of the 120-hour requirement. The Society estimates that this first round of UPLs is less than 60 percent of the final total that will be issued.

CPAs have met stringent education and experience requirements, must perform their work in accordance with high-quality technical and professional standards and adhere to a strict code of professional ethics. The CPAs who received the UPLs violated their professional oath, and our profession has zero tolerance for CPAs who don’t adhere to the rules.

While some CPAs were guilty of sloppy, but not unethical, behavior the fact that any violations transpired signifies the importance of continuing professional education in ethics.

In enforcing our continuing education rules, the self-regulatory process has generally been effective.

However, the NJSCPA and the profession recognize the need for the state board’s audit to weed out a few hundred CPAs who are guilty

of unethical behavior. The vast majority of New Jersey CPAs, more than 18,000, met their continuing education obligations in the last triennial period. They’re a group of diligent, hard-working individuals who depend on the public’s trust and work to earn it every day.

Should word get out beyond the state board, the NJSCPA and the affected CPAs, the substantial fines directed at a profession that prides itself on integrity could generate interest from the media. We don’t want to relive, even on a limited scale, the days that followed the Enron and WorldCom scandals. It’s in all of our interests to ensure that the CPA profession is above reproach. Toward that end, here are a few reminders about the end of the CPE triennial: • There are specific requirements regarding the composition of the 120 credit hours required to renew your license. Please see the CPE requirement details at njscpa.org/education/ cpe-requirements.

• Each applicant for an active license renewal must complete a four-credit course on New Jersey Law and Ethics provided by a sponsor approved by the state board. You’re not permitted to fulfill the New Jersey Law and Ethics requirement via self-study. Approved Law and Ethics providers may be found on the state board’s website.

• The state board grants self-study credits at the rate of one credit for every 50 minutes of correspondence and individual self-study program participation. A maximum of 60 credit hours of CPE may be obtained in correspondence and other individual self-study programs in each triennial renewal period.

• If you don’t have enough credits by December 31, 2011, request “inactive” status, pay the associated fees if appropriate, take the required number of credits and then reapply for active status.

Visit njscpa.org/triennialfaqs for answers to some commonly asked questions, contact information and more. If you have other questions, Society staff will do their best to assist you.

NEW JERSEY CPA • SEPTEMBER • OCTOBER 2011

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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 IASB and FASB Issue Common Fair Value Measurement and Disclosure Requirements

briefs Houston Tops List of Most Affordable Cities to Do Business

The International Accounting Standards Board (IASB) and the Financial Accounting Standards Board (FASB) have issued new guidance on fair value measurement and disclosure requirements for International Financial Reporting Standards (IFRS) and U.S. generally accepted accounting principles (GAAP). The guidance, set out in IFRS 13, Fair Value Measurement, and an update to Topic 820 in the FASB’s Accounting Standards Codification (formerly referred to as SFAS 157), is a joint effort to bring about IFRS and U.S. GAAP convergence as well as an important element of the boards’ response to the global financial crisis.

The requirements do not extend the use of fair value accounting, but provide guidance on how it should be applied where its use is already required or permitted by other standards within IFRS or U.S. GAAP. IFRS 13, Fair Value Measurement, will improve consistency and reduce complexity by providing a precise definition of fair value and a single source of fair value measurement and disclosure requirements for use across IFRSs. For U.S. GAAP, the update will supersede most of the guidance in Topic 820, although many of the changes are clarifications of existing guidance or wording changes to align with IFRS 13. It also reflects the FASB’s consideration of the different characteristics of public and non-public entities and the needs of users of their financial statements. Non-public entities will be exempt from a number of the new disclosure requirements.

A recent study by PricewaterhouseCoopers and the Partnership for New York City named the 10 most affordable cities for doing business. Factors such as real estate costs, transportation system, regulatory climate and others were examined.

1. Houston 2. Los Angeles 3. Chicago 4. San Francisco 5. Toronto 6. Berlin 7. Sydney 8. Johannesburg 9. Santiago 10. Stockholm

PCAOB Adopts Interim Inspection Program for Broker-Dealer Audits

The Public Company Accounting Oversight Board (PCAOB) adopted certain rules to implement provisions of the Dodd-Frank Wall Street Reform and Consumer Protection Act related to audits of securities brokers and dealers. Specifically, the board adopted a temporary rule to establish an interim inspection program for registered public accounting firms’ audits of brokers and dealers. The board also adopted rules for assessing and collecting a portion of its accounting support fee from brokers and dealers to fund PCAOB oversight of audits of brokers and dealers, consistent with the Dodd-Frank Act. The board also adopted certain amendments to existing funding rules for issuers. Learn more at pcaobus.org.

SEC Adopts Whistleblower Rules

The Securities and Exchange Commission (SEC) adopted rules to create a

New Jersey by the Numbers 22,000,000 State annual expenditures on clothing allowances 2016 When NJ is expected to reach pre-recession employment levels 22 State rank in adapting to the global export market 1 New Jersey’s rank of state lawmakers with advanced degrees

Society Executive Director Ralph Albert Thomas and My9 WWOR-TV anchor Brenda Blackmon at the CIANJ Legislative Dinner.

whistleblower program that rewards individuals who help expose violations and provide significant evidence that helps the SEC bring successful enforcement actions. Whistleblowers must voluntarily provide original information that leads to the successful enforcement by the SEC of a federal court or administrative action in which the SEC obtains monetary sanctions totaling more than $1 million.

Nonprofits Losing Tax-Exempt Status

The Internal Revenue Service (IRS) has announced that approximately 275,000 organizations have lost their tax-exempt status because they did not file legally required annual reports for three consecutive years. The IRS issued guidance on how organizations can apply for reinstatement of their tax-exempt status, including retroactive reinstatement. Existing organizations that seek to have their tax-exempt status reinstated must complete an application and pay a user fee regardless of whether they were originally required to file such an application. More information on the reinstatement process, including retroactive reinstatement, can be found on irs.gov.

FASB Launches New Taxonomy Online Review and Comment System The FASB launched a new system that provides greater transparency for users of eXtensible Business Reporting Language (XBRL) and makes it easier for stakeholders

NEW JERSEY CPA • SEPTEMBER • OCTOBER 2011

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to submit comments on the U.S. GAAP Financial Reporting Taxonomy. The Taxonomy Online Review and Comment System allows users to review and provide direct input on the Development Taxonomy being updated and maintained by the FASB XBRL team. Learn more at fasb.org.

SEC Issues Bulletin on Risks of Investing in Reverse Merger Companies

The SEC has issued an Investor Bulletin about investing in companies that enter U.S. markets through reverse mergers. Reverse mergers permit private companies to access U.S. investors and markets by merging with an existing public shell company. The SEC and U.S. exchanges recently suspended trading in more than a dozen reverse merger companies, citing a lack of current, accurate information about these firms and their finances. Learn more at sec.gov.

2012/13 Forensic & Litigation Services Directory of CPAs Now Accepting Applications

Reach thousands of attorneys and judges throughout the state by becoming listed in the ninth edition of the New Jersey Society of CPAs Forensic & Litigation Services Directory of CPAs. The directory will be distributed to attorneys and judges who specialize in alternative dispute resolution, domestic relations, bankruptcy, taxation and other areas. Each listing includes a description of your qualifications, two areas of expertise and a companion web listing.

The deadline to apply is Friday, December 9. Visit njscpa.org/forensic to submit your listing.

FASB Update to Improve Presentation of Comprehensive Income

The FASB issued Accounting Standards Update (ASU) No. 2011-05, Comprehensive Income (Topic 220): Presentation of Comprehensive Income, intended to increase

the prominence of other comprehensive income in financial statements. The ASU provides that an entity that reports items of other comprehensive income can present comprehensive income in either (1) a single statement presenting the components of net income and total net income, the components of other comprehensive income and total other comprehensive income, and a total for comprehensive income; or (2) in a two-statement approach, an entity must present the components of net income and total net income in the first statement. That statement must be immediately followed by a financial statement that presents the components of other comprehensive income, a total for other comprehensive income and a total for comprehensive income. The option in current generally accepted accounting principles that permits the presentation of other comprehensive income in the statement of changes in equity has been eliminated.

The amendments in this update should be applied retrospectively. For public entities, the amendments are effective for fiscal years, and interim periods within those years, beginning after December 15, 2011.

For nonpublic entities, the amendments are effective for fiscal years ending after December 15, 2012, and interim and annual periods thereafter. Early adoption is permitted.

PCAOB Issues Concept Release on Auditor’s Reporting Model

The PCAOB issued a concept release to discuss several alternatives for changing the auditor’s reporting model that could provide investors with more transparency in the audit process and more insight into the company’s financial statements or other information outside the financial statements.

Comments on the concept release are due by September 30, 2011.

IRS Increases Mileage Rate to 55.5 Cents Per Mile

njscpa.org Spotlight Track Your CPE Online

The end of New Jersey’s CPE reporting triennial is almost here. Will you have the required number of credits by December 31?

There’s an easy way for New Jersey Society of CPAs members to track their credits. The CPE Tracker provides members with a report of all CPE credits earned through the NJSCPA Education Foundation and the Society’s 11 chapters, as well as a tool to add credits earned elsewhere.

To access your CPE Tracker report, go to njscpa.org/cpetracker. Your CPE credits will be displayed in three sections: Earned Credits – Once the roster for an NJSCPA event you attended has been reconciled (after all late arrivals, early departures and no-shows are accounted for), the credits are considered “final” and will appear here. You can click on the event title to access a CPE certificate for that event.

Pending Credits – CPE credits for events that you are registered to attend or events that have taken place, but where the roster has not yet been reconciled, will appear here.

Member-Added Credits – This is where you can enter CPE credits you’ve earned from other providers, giving you one place to track all of your CPE. Questions? Contact the NJSCPA Education Foundation at education@ njscpa.org or 973-226-4494. Need more information about New Jersey’s CPE requirements and the license renewal process? Visit our FAQ page at njscpa.org/triennialfaqs. Need to earn more CPE credits? Visit njscpa. org/catalog for a schedule of upcoming seminars and events.

The IRS announced an increase in the optional standard mileage rates to 55.5 cents a mile for all business miles driven the final half of 2011.

NEW JERSEY CPA • SEPTEMBER • OCTOBER 2011

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Residential Real Estate in New Jersey and the Road to Recovery New Jersey’s residential real estate market is ripe for financially capable buyers, as now is an unprecedented time to enter the market and purchase a home as a long-term investment. According to the National Association of Realtors (NAR), on average, long-term appreciation of homes in the Garden State has been shown to exceed the national rates five times over.

By Jarrod C. Grasso New Jersey Association of Realtors

Affordability conditions are paramount. The NAR affordability index for New Jersey reached its highest point in years, 151.1 for the first quarter of 2011. NAR’s affordability index is a measure that factors median home prices, mortgage interest rates, average family income and other economic indicators to determine how affordable owning a home is in a particular area. Increasing levels of affordability mean a home purchase is within reach for more New Jerseyans than at the same time the year before.

Paired with exceptionally low interest rates, affordable home prices make the housing market a boon for financially sound buyers right now.

Today’s buyers are also faced with various challenges outside of market conditions that have impacted their decision to pursue homeownership.

Unemployment New Jersey has long been a hub for the pharmaceutical industry, offering significant opportunities.

Other strong industries in the state include telecommunications, chemical development, food processing, electric equipment, printing and publishing.

However, the recession deeply impacted housing in New Jersey and the U.S. as employment is a direct link to housing. For example, the NAR estimates that one job is generated for every two home sales.

They also found that when a home is sold in New Jersey, income generated from real-estate-related industries is $32,463. Additional expenditures on consumer items – such as furniture and appliances – total more than $5,000. As the recession affected unemployment rates, the housing market and subsequent ancillary services have also felt the effect.

Foreclosures New Jersey existing home sales were down 2.8 percent in the first quarter of 2011, compared to the national figure of just less than 1 percent. However, this is consistent with other data that suggest the recovery began here somewhat later and has proceeded a bit more slowly than elsewhere.

New Jersey is one of 23 states that handles foreclosure proceedings through the courts. While our state has not experienced the foreclosure glut that others may have earlier in

NEW JERSEY CPA • SEPTEMBER • OCTOBER 2011

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the recession, many Garden State foreclosures are still in process.

According to the latest Mortgage Bankers Association National Delinquency Survey, Florida, Illinois and New Jersey showed the biggest increases in the number of loans in foreclosure, while foreclosures increased at a slower pace in California, Arizona and Michigan. The three states that ranked highest are all judicial foreclosure states. This shows that while there may not be more foreclosures initiating in our state, the transactions continuing through the lengthy proceedings are still counted and do influence our numbers.

State and Federal Housing Issues Besides price, one of the first questions customers always ask their realtors about is property taxes. Skyrocketing property taxes have made certain parts of New Jersey unaffordable and forced many long-time residents to flee. While we have a long way to go before the property tax burden is alleviated, the New Jersey Association of Realtors (NJAR) continues to work with the Legislature and the governor to enact proposals that will not only slow the rate that property taxes increase, but eventually lower them.

At the federal level, issues in Washington continue to hamper progress here in the Garden State. The

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:

• 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.

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Federal Housing Administration’s higher loan limits, as approved through the American Recovery and Reinvestment Act of 2009, are set to revert back to the lower limits on September 30, 2011.

This will have an impact on a high-cost state, such as New Jersey, lowering the purchasing power for many potential buyers.

Another homeownership challenge stems from federal regulators proposing a rule as part of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010. Recently, federal banking regulators have proposed a rule that would mandate a 20-percent down payment on qualified residential mortgages (QRMs). This leaves millions of families with two undesirable options: Either delay the purchase of their homes until they can save enough for a down payment, or pay higher mortgage rates.

According to the Center for Responsible Lending, it would take 14 years for the typical U.S. family to save for the appropriate 20-percent down payment on an average-priced home.

There is progress against this proposal, as more than 40 Senators and more than 150 House members have signed letters to the regulatory agencies raising their concerns about the proposed QRM regulations.

The Road to Recovery NJAR advocacy teams at the federal and state levels continue to work on behalf of the industry and property owners on issues concerning the Garden State housing market. In the meantime, strides are being made to help those about to lose their homes.

According to the June Housing Scorecard from the U.S. Department of Housing and Urban Development, which features key data on the health of the housing market and the impact of foreclosure prevention programs, nearly 5 million modification arrangements were started nationally between April 2009 and the end of April 2011.

The NJAR consumer website, realstorynj.com, features market data, tips and calculators, and resources to

help boost credit and avoid foreclosure.

Also listed on the Get the Real Story website are the various programs offered by the Housing & Mortgage Finance Agency through the state of New Jersey.

The agency offers competitive interest rates and opportunities, such as the Live Where You Work, Smart Start and FirstTime Home Buyer Programs.

Boasting good school systems, infrastructure, tourism and a convenient commute to two major cities – New York and Philadelphia – there is no denying that our state has inherent advantages that make it an attractive place to live. However, external factors, such as unemployment and tight lending restrictions, have impeded a quicker housing industry recovery. With significant strides underway to overcome these challenges, New Jersey is on the road to recovery.

Jarrod C. Grasso is the chief executive officer of the New Jersey Association of Realtors. For more information, visit njar.com and realstorynj.com.

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A Check-Up for

Real Estate Clients Despite the ups and downs of the real estate market, ownership of real estate has a number of unique tax aspects. Many opportunities exist that can help owners secure the highest total return from the operation and disposition of property. The following checklist provides a few items to consider: Cost Segregation Study Depending on the use of the property, it may be possible to recover costs through depreciation deductions. The current depreciation rules, however, are not taxpayer friendly as it could take as long as 39 years to recover the initial investment. A cost segregation study permits the segregation of the property into components, each of which may be eligible to be depreciated over a shorter life, thereby accelerating the depreciation deductions, reducing taxes and increasing cash flow.

Leases: Free Rent/Ownership of Improvements

By Vinay S. Navani, CPA, and Karen A. Schirmacher, CPA Wilkin & Guttenplan, P.C.

For leases where a build-out of the occupied space is required, it is common to see “free rent” provisions allowing the tenants to pay for the build-out in lieu of rent. The terms of these leases must be carefully reviewed.

In many cases, the tenant will be entitled to deduct the payments as rent expense in the period they are made and will not own the improvements.

Property owners will, however, report rental income, record the improvements on their books and be entitled to the depreciation as property owner. These lease provisions must be carefully considered to avoid any yearend tax surprises.

Dealer Versus Investor A dealer is someone who regularly sells property to customers in the ordinary course of business. A dealer will typically look to capture short-term profits through the sale of inventory and thus pay tax at ordinary income rates. An investor typically looks to capture long-term appreciation and will generally pay tax at the more favorable capital gains rates. Investors who see an opportunity to further develop a piece of property to increase the gain potential run the risk of converting their long-term capital gain into ordinary income. Careful planning to preserve long-term capital-gain treatment for the pre-development value of the property usually involves performing the development activity in an entity separate from that which held the property during the period of longterm appreciation.

Real Estate Professional Rules Losses stemming from rental real estate are, by definition, passive and can generally only offset passive income unless the property is sold in a taxable transaction. An exception to this

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stringent treatment is that a real estate professional may not be subject to the passive-loss rules. In order to qualify for this exception, taxpayers must work 750 hours in a real property trade/business and must spend more than 50 percent of the total time spent working in real property trades/ businesses in which they materially participate. To meet these criteria, taxpayers may need to make an election under Interal Revenue Code §469(c)(7) to aggregate rental real estate activities so that hours spent on

separate activities can be combined to meet the material participation threshold. The Internal Revenue Service (IRS) recently issued Rev. Proc. 201134 which allows for late aggregation elections in certain circumstances.

Repairs Versus Capitalization For tax purposes, an expenditure that constitutes a repair is currently deductible; an expenditure that creates an asset with a useful life of more than one year must be capitalized. The determination of whether or not an

expenditure is a deductible repair or capitalized asset is subjective based on the expected benefit of the expenditure and whether the expenditure extends the useful life of the property. The IRS has released the Capitalization Versus Repair Audit Technique Guide which can be found on irs.gov and contains a comprehensive analysis of the case law in this area.

Impact of Debt Guarantees Depending upon the type of entity that holds the real estate, there may be

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however, are not afforded the same favorable treatment. They must actually act on the guarantee and make good on it before they receive an increase in basis allowing them to deduct losses.

Debt-Financed Distributions

a benefit to personally guaranteeing the debt. In order to deduct losses from the operation of real estate, an individual must have basis in his or her S corporation stock or partnership interest and must be at risk for that amount. A partner, guaranteeing the debt of a partnership, receives at risk basis merely for providing the guarantee and, thus, can deduct losses against the guaranteed portion of the entity’s debt. Owners of S corporations,

Real estate owners will frequently borrow against the equity in their holdings and use the borrowed funds to distribute to the owners. When the borrower is a flow-through entity, to the extent the entity has made a debt-financed distribution, the deductibility of the interest expense associated with the distributed funds is determined at the owner level and is ultimately determined based on how the distributed funds were used by the owner. For example, if the owner used the funds for personal purposes, the interest would not be deductible, as it would be treated as personal interest.

Like-Kind Exchanges Despite the fact that real estate values are still depressed, a like-kind exchange is still one of the most powerful tools

available to taxpayers. The basics are well understood – the gain on the sale of business or investment property can be deferred if the property is exchanged or if proceeds are reinvested and other requirements are met. There are several common traps, however, such as not reinvesting the entire sales proceeds or not using a qualified intermediary to hold the proceeds at all times, which can eliminate the benefit of the exchange.

The above list only scratches the surface of available opportunities.

Effective real estate planning often involves multi-year projections, since most real estate investors focus on the total returns associated with a property and consider both the operation as well as property disposition.

Vinay S. Navani, CPA, M.B.A., M.S.T., is a shareholder and Karen A. Schirmacher, CPA, M.S.T., is a principal at Wilkin & Guttenplan, P.C. Both are members of the New Jersey Society of CPAs. Contact them at 732-846-3000.

NEW JERSEY CPA • SEPTEMBER • OCTOBER 2011

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Real Estate Financing Goes Back to Basics Real estate financing now is simultaneously harder to obtain and easier to finance. It’s harder to obtain because lenders interested in real estate financing are taking a much closer look at the property involved, the borrower and the transaction details. But, it’s easier to finance because if the property, borrower and transaction all look good, a deal can usually get done in a timely manner at an attractive interest rate. There is no backlog, and the lending community can move quickly on a good deal. For those familiar with real estate financing of 25-plus years ago, the market today has, in some respects, gone back to the basics from those times.

The Property

By Christopher W. Frey, CPA CFO Solutions, Inc.

The fallout from the 2008/09 real estate debacle still lingers. Lenders that are interested and active in real estate lending have put a microscope on the properties they will finance. Too many lowoccupancy office parks, empty strip malls and homes in foreclosure make real estate lending a much riskier proposition today.

Generally, lenders don’t want to own and/or manage real estate, they want to finance good, low-risk investments that will earn income through transaction fees and loan interest with minimal oversight and monitoring.

In today’s market, there are many real estate opportunities, but few that hold interest for the lending community. The market is highly fractured, regionalized and segmented. The residential market is tough: Condos in south Florida and Las Vegas are on life support, while single

family homes in a Manhattan suburb will still move, albeit at somewhat reduced prices. Commercially, many markets are still extremely soft, but there are pockets of opportunity in some regions, such as the New Jersey gold coast and the Washington, DC, area. But, buyers beware. If your landlord has just put the office, warehouse or store up for sale and you think this might be a good opportunity to own the building, think again. Why exactly is that owner selling?

What does the local market look like?

How long do you expect to remain at this location growth-wise? Could you carry the building for an extended period? These are just a few of the questions that need to be addressed in detail for any potential lender. Perhaps, most importantly, any loan on the property and related covenants will also impact any other credit facilities used and/or needed by the business.

The Borrower The real estate market meltdown impacted the entire real estate lending community. Many lenders have exited or were forced to exit the market. Highrisk players, niche-market providers and small or thinly capitalized lenders are mostly gone. What remains are the large, diversified financial firms that in many cases were “TARPed” through the recent market correction.

What this means is that borrowers will be put under a microscope. Are their businesses doing well? What is the outlook for the next 12 to 24 months, and is it good enough for them to carry the properties? How have their businesses done these past two years? Are they trending up, down or flat? What are their cash positions? Are there existing relationships with the lenders? If not,

NEW JERSEY CPA • SEPTEMBER • OCTOBER 2011

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which additional businesses can be moved to lenders? Guaranteeing loans is a given.

So, what do owners’ personal finances look like for the past two years, including income, expenses and debt? What other equity/assets do owners have and can they be cross-collateralized if needed? Do they need to escrow some cash against a certain number of months of coverage?

The thinly capitalized, stretched borrower of the past is gone. If a borrower cannot demonstrate solid economic credentials to the lending community, then now is not the time to purchase real estate.

The Transaction Complicated, highly leveraged transactions are out. If there are any shaky aspects to the transaction, expect lenders to pass on the deal or come back with some tough restrictions. Both residential and commercial lenders have gone back to basics with respect to qualified properties and borrowers, as previously mentioned.

For residential transactions, lenders

want to see substantial equity provided by borrowers – the 20-percent-plus range is still a good guideline. Deals can be done with less equity, but the pool of interested lenders declines and the cost, including interest and fees, increases. Lower-capitalized transactions also get greater scrutiny from the lender’s underwriting department and usually result in tighter restrictions. This translates into higher-verified income and asset levels and tighter debt ratios.

Less equity means the hoops get more numerous and greater to clear.

For commercial transactions, lenders would also like to see substantial equity provided by borrowers, between 30 and 50 percent, depending on the property. Again, deals can be done with less equity, but the pool of interested lenders declines and those costs increase.

Commercial loans have ongoing loan covenants that need to be met at least annually – income levels, cash, and asset and debt ratios – and also require financial reporting by both the business and the business owners personally

who are the guarantors. These generally include audited/reviewed financials and tax returns at a minimum. Deals with less equity, if doable at all, will require commercial borrowers to have even tighter restrictions, which will include more ongoing monitoring, financial reporting and covenant ratios.

A good property at an attractive price where the numbers work, along with a solid, well-established buyer, can usually find a willing lender and close a favorable transaction in a reasonable amount of time. It really is back to the basics of real estate financing where good fundamentals rule the day.

Christopher W. Frey, CPA, is managing director of CFO Solutions, Inc. (cfosolutionsinc.com), a firm that works with emerging to mid-sized companies that are growing, restructuring or in some other transitional phase. He is also on the Editorial Advisory Board of New Jersey CPA magazine. Contact Frey at 973-7618971 or cwfrey@cfo-solution.com.

NEW JERSEY CPA • SEPTEMBER • OCTOBER 2011

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Maximizing Cash Flow Through Cost Segregation Studies Now, more than ever, most companies are looking for every opportunity to maximize after-tax cash flow.

One of the best ways to do so for companies that have property investments, such as office, industrial, manufacturing, residential, restaurants and hotels, is by taking advantage of cost segregation studies (CSS).

By David Grant, CPA J.H. Cohn

A CSS is a fairly straightforward tax-deferral concept and involves reducing current tax liabilities by reclassifying Internal Revenue Code (IRC) §1250, or “real property,” to IRC §1245, “personal property.”

This analysis allocates costs into the appropriate asset classes to accelerate tax depreciation in the earlier years of property ownership. A properly performed CSS will identify costs that have shorter tax lives (five, seven and 15 years) than the building or leasehold fit-out life (39 years for commercial property and 27.5 years for residential property). The result is an accelerated write off of costs

previously included as part of the building or leasehold fit-out.

A CSS is a collaborative effort between a CPA and a specially trained engineer with cost reproduction construction experience. The CPA needs the requisite knowledge of the tax laws to determine which assets can be depreciated over a shorter tax life. It is necessary for the engineer to possess the requisite knowledge of how to allocate the construction costs for either a purchased or a constructed property. A qualified CSS professional service firm should have both the tax and engineering skills. The benefits of a CSS are numerous and far reaching.

Properties qualifying for a CSS include: • Purchases of previously existing property.

• Construction of new property.

• Expansion or renovation of existing property.

• Leasehold improvement fit-out.

• Property that had a step-up in basis (an increase in value) as a result of an inheritance or the purchase of an interest in a property.

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“These studies have generated millions of dollars in current federal and state income tax savings for all types of companies.”

Those who stand to benefit include property holders who can answer “yes” to: Can I benefit from accelerating tax depreciation deductions? Does the building or leasehold fit-out cost more than $750,000? Will the property be held for at least two years from in-service or acquisition date?

The total depreciation deductions of a property over its tax life are the same with or without a CSS. However, the benefit of accelerating depreciation deductions by performing a CSS can be huge, because it puts the tax savings in the property owner’s pocket much more quickly. Given the time value of money and the immediate benefits of tax savings in a tough economy,

the CSS concept is worth considering.

These studies have generated millions of dollars in current federal and state income tax savings for all types of companies. Tax benefits of between 5 percent and 10 percent of the cost of the property may be realized. For example: • A New York City hospitality client generated more than $650,000 of current-year tax savings on a $5 million fit-out.

• A Florida-based supermarketanchored shopping center client generated more than $250,000 in savings on a $4.5 million acquisition.

• A residential garden apartment client generated more than $800,000 in

savings on a $20 million acquisition.

• A medical office client generated more the $150,000 in savings on a $1.4 million fit-out of its leased space.

There are several tax law changes that apply specifically to companies that lease space as either a tenant or a landlord. Many of these tax laws also apply to companies that acquire or construct property. Unfortunately, many of these tax laws have very short windows of opportunity. So, the time to act is now.

• There is a 15-year tax life for certain leasehold fit-out costs, as compared to 39 years for 2010 and 2011.

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Starting in 2012, the 15-year life reverts to a 39-year life.

• There is bonus depreciation that can be either 50 percent or 100 percent of the property cost, depending on the type of property and the dates placed in service. The 100-percent bonus depreciation applies to assets acquired and placed in service after September 8, 2010, through December 31, 2011. The 50-percent bonus depreciation applies to assets acquired and placed in service in 2012. There is no bonus depreciation beyond 2012 as the tax laws are currently enacted.

• There is no adjustment for alternative minimum tax for certain five- and seven-year assets for 2010 through 2012.

• Finally, IRC §179 has been enhanced to allow for the expensing of up to $500,000 of personal property, including up to $250,000 of certain leasehold fit-out costs through

December 31, 2011. In 2012, the expensing maximum reverts to $25,000.

Based on the current rules promulgated by the Internal Revenue Service under Rev. Proc. 2011-14, a CSS can be performed with the cumulative effect of catching up all of the prior year’s missed depreciation in the current year, without the need to amend any prior year tax returns.

Further, there is no limit to the number of years you can go back, even to closed tax years. In addition to the catch up of prior years’ underdepreciated amounts, the segregated assets continue to be depreciated over their remaining shorter tax life, providing additional benefits to future years as well.

Potential CSS downsides include the increased probability of taxing authority scrutiny. Given that there is a possibility for any tax return to

come under scrutiny, a CSS has proven not to be much of any additional risk.

And, if properly performed, the CSS provides documented authority as to the allocation of shorter-lived assets.

David Grant, CPA, is a partner at J.H. Cohn. As a member of the firm’s real estate industry practice and head of cost segregation studies, he has focused his expertise in real estate consulting and specialized tax-planning services. He is a New Jersey Society of CPAs member.

Contact Grant at dgrant@jhcohn.com or 973-403-6905.

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THE BUSINESS DIVORCE GROUP AT LOWENSTEIN SANDLER

DISPUTES AMONG CO-OWNERS OF A BUSINESS RAISE DIFFICULT QUESTIONS: Should I buy out my partner? Should we sell the business? Is my partner stealing from the business? Is my partner breaching his or her fiduciary duties? Can I be fired? What are my rights? Should I sue?

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NEW JERSEY CPA • SEPTEMBER • OCTOBER 2011

21

A&A

buzz

Lease Accounting Gets a Makeover 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

T

Lessee Accounting Standards

he Financial Accounting Standards Board (FASB) is proposing jointly with the International Accounting Standards Board (IASB) the most significant revision of lease accounting since the 1970s. The proposal, released by the FASB in an August 2010 exposure draft, was spurred initially by the Security and Exchange Commission’s report on offbalance-sheet arrangements in the wake of Enron and by criticism that the current rule with its bright-line thresholds of identifying leases as either “operating” or “capital” has offered entities too much leeway to structure lease arrangements.

Critical feedback received by the FASB and IASB to the exposure draft has led to additional deliberations. Although a final standard had been targeted by the end of 2011 with an effective date of January 1, 2015, the FASB and IASB recently announced their intention to issue a re-exposure draft to address remaining concerns, which further postpones the targeted timetable. The proposal applies only to the leasing of tangible assets, such as property, plant and equipment, and it addresses the accounting treatment for both the lessee and lessor.

The proposed lessee accounting standards eliminate offbalance-sheet treatment presently permitted by current standards for leases categorized as operating for all applicable leases exceeding 12 months. Instead, at the inception of the lease, an asset representing the “right to use” the leased property and a liability equal to the asset would be recognized. The amounts recognized would be based on the total of all payments required by the lease deemed more likely than not to occur over the expected lease term (expected outcome approach), discounted to present value at the lessee’s incremental borrowing rate. Lease payments included in the calculation under this expected outcome approach would include contingent rent and index rate adjustments, as applicable, over an estimated lease term that could include options to extend or terminate the lease based on existing economic incentives.

The right-to-use asset would be amortized systematically, generally by using the straight-line method, over the expected lease term and would also be subject to impairment

NEW JERSEY CPA • SEPTEMBER • OCTOBER 2011

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evaluation. As the lease liability is paid, interest expense would be recognized under the effective-interest method, front loading the larger portion of the interest expense into the earlier periods, which differs from the straight-line treatment of lease expense under current standards. Also, the statement of cash flows would categorize the lease payments as financing in nature, rather than as operating under current standards, and the liability recognition required under the proposed standard may significantly affect the entity’s debt-to-equity ratio and other financial ratios specified by bank covenants.

Lessor Accounting Standards The proposed lessor accounting standards are more unsettled.

Although the single right-of-use approach for lessees described above has been tentatively decided, no decision has been finalized as to whether a one- or two-approach model should be adopted for lessor accounting. If a single approach is adopted, the lessor would immediately expense, or de-recognize, a portion of the leased asset at lease inception as if sold.

Under the two-approach model, the lessor would generally use the de-recognition approach when substantially all the risks and rewards incidental to ownership of the leased asset have been transferred to the lessee. Otherwise, the performance-obligation approach would be used and none of the leased asset would be de-recognized. However, a liability to permit the use of the leased asset would be recognized at lease commencement – to be amortized to revenue over the

estimated lease term – with the discounted lease payment receivable, rather than the immediate income recognition that would follow from the de-recognition approach.

Although the proposal is not yet final, and its effective date is several years away, the profession needs to make the issuers and users of financial statements aware of the impact these changes could have on the financial statements. Since all existing leases as of the effective date of the new standard, including leases presented in comparative financial statements, will be subject to the new standard, calculations of the effect of the change will need to be made long before the effective date. Users, particularly banks, should be apprised of the new standard’s effect on financial covenants.

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.

Member Benefit IFRS Update and Review of Complex Topics Thursday, September 29, Iselin Visit njscpa.org/catalog Express Code: E1109343

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NEW JERSEY CPA • SEPTEMBER • OCTOBER 2011

23

BEST

practices

To Trade Show or Not to Trade Show?

B Y RHONDA MARAZITI , W I T HUM SM I TH+ B ROW N

that specific trade show is attracting your target audience. Also, note if your competitors are exhibiting. It is easily noticed when my firm is not at a tradeshow, and our known competitors are clearly visible.

Create a Pre-Show Plan

I

n today’s business climate, where doing more with less is the current mantra, accounting firms are taking a hard look at all spending, particularly when it comes to marketing. Part of the traditional marketing mix includes exhibiting at trade shows, which is generally a sizable investment in terms of both time and actual dollars. But are trade shows really worth doing? The answer depends on your ability to leverage all of the available benefits of a trade show. The objective is to meet quality contacts for new business opportunities with the understanding that a trade show is just the beginning of the sales cycle. Expecting to come home with a year’s supply of business is unlikely. Here are some best practices for maximizing trade show return on investment:

Conduct Due Diligence If the trade show you are considering is new to you, go as an attendee before committing to exhibit. Observe the traffic. Talk to vendors and other attendees. This will help determine if

As an exhibitor, prior to the show you will often receive a list of all the registered attendees with their contact information. Create a postcard or email campaign announcing your booth number and invite attendees to visit you.

Have fun and get creative developing ideas that will drive booth traffic (a valued prize or informative white paper). Don’t forget to let your LinkedIn contacts, Twitter followers and other social media contacts know you will be at the XYZ Conference at booth 123.

You can also do a targeted mailing/eblast instead, focusing your efforts on scheduling meetings with specific people while at the show. In reviewing the list, note if there is a good ratio of vendor reps versus industry attendees.

Consider Booth Placement Exhibitors get a map of the vendor hall, indicating how the booths will be arranged by number. Review the map and select your top three choices of booth location if given the option.

Ideal locations are by the main entrance of the hall where most traffic will be flowing in or out between conference sessions or near the food area where people will often gather.

Maximize Show Time Network with the crowd. Ensure there is ample coverage at your booth during peak traffic times, and have plenty of marketing materials and small giveaways. As much as it seems like many attendees are trick-or-treating for their children when grabbing a few pens and giveaways from booths, remember

that your brand is going home with them and that is a good thing. Consider providing a nice gift basket or prize drawing to gather business cards.

When traffic is light because attendees are in an education session, talk to other vendors, including competitors. Like you, they are looking for something productive to do, and you might learn some great tips and best practices. Even vendors could be potential clients or referral sources.

Don’t Overlook a Post-Show Follow-Up Campaign This is where most marketing efforts fall short. After a show, it quickly becomes a distant memory. Take the time to incorporate the names and contact information from the attendee list – along with the business cards from the prize drop – into your contact database.

Send them your tax tips and newsletters on a regular basis, keeping your firm’s name top-of-mind. If you have business development staff, have them conduct follow-up calls. Or, reach out personally to your new contacts, thanking them for stopping by the booth, and invite them to lunch. This is a great way to build new relationships.

When considering exhibiting at a trade show, building a strategic plan is the key to making it a successful investment. Take the time to get the most out of every opportunity a trade show can present.

Rhonda Maraziti is the director of marketing and practice growth at WithumSmith+Brown. Contact her at 732-842-3113 or rmaraziti@withum.com.

Member Benefit The NJSCPA CPA Marketing Tool Kit offers marketing and communication resources and information at njscpa.org/news/toolkit.

NEW JERSEY CPA • SEPTEMBER • OCTOBER 2011

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FINANCIAL

planning

Using a Self-Canceling Installment Note in Estate Planning

BY EDWARD R. COLLINS, ARTISAN WEALTH MANAGEMENT, LLC

T

here are many strategies that can be utilized by business owners to transfer a family-owned business to the next generation. However, all strategies are not created equal. Each has a different level of benefits and drawbacks depending upon the valuation environment the business currently exists within, along with the prevailing interest rate at the time of a transfer. One technique that may be particularly advantageous given the current state of affairs is the use of a self-canceling installment note (SCIN).

A SCIN is essentially a debt obligation that, by its terms, is extinguished at the death of the seller/creditor, with the remaining note balance canceled automatically. The advantage of a SCIN over a standard installment note is that if the seller dies prior to the debt being fully repaid, the remaining value of the installments is not included in his or her taxable estate, which can be extremely beneficial.

The appreciation in the value of the business realized by the transfer can be spread out over the term of the note. This essentially lessens the upfront tax impact from the transfer.

While some might not be inclined to use this strategy solely because of the capital gains tax exposure of the transfer, when compared to the potential estate tax costs of not transferring the asset now, along with any future appreciation of the business, capital gains tax treatment would be preferred by most. The purchaser, on the other hand, acquires the asset with a new basis set at the acquisition price (not the seller’s basis, as would be the case if the asset was gifted and not sold).

Since adequate consideration is being given under this strategy, a SCIN does not require the use of any annual exclusion or unified credit (applicable exclusion amount). This leaves the owner with the ability to further defund his or her estate through supplementary gifting strategies.

A SCIN can be an effective tool when it comes to estate tax minimization planning. This tool, however, does not come without a few things that need to be measured.

In order to ensure that the transaction will be allowed by the Internal Revenue Service (IRS), there needs to be sufficient consideration offered for the cancellation benefit of this note.

This can be accomplished two ways. First, the borrower can agree to a higher-than-normal interest rate for the note. With the extremely low interest rate environment that currently exists, even a higher-than-normal interest rate could potentially be quite favorable. Another way to effectively create adequate consideration would be to agree to an above-market purchase price for the underlying business which is being financed via the SCIN. This alternative could also be potentially advantageous given the fact that many business assets have

depreciated in value over the past few years. Therefore, even an above-market purchase price could be favorable.

A separate area which requires careful attention is the overall term of the note. The IRS stipulates that the term cannot exceed the normal life expectancy of the seller. Family-specific information can be used, however, to craft a term that meets the objective of not exceeding normal life expectancy, while providing for the potential estate tax benefits of not having the remainder counted in the decedent’s taxable estate should he or she not outlive the term.

What happens if the seller does not outlive the term? The ramifications depend on the appreciation potential of the underlying business assets being transferred. If the business appreciates in value at a rate greater than the cost of either the higher-than-normal interest rate charged on the note or the above-market purchase price, then the heirs are still better off having utilized this strategy as the after-tax effect would be more advantageous. As with any estate planning technique, careful consideration should be given to the benefits and drawbacks of this strategy.

Edward R. Collins, AAMS, RFC, is a founding partner and wealth advisor at Artisan Wealth Management, LLC. Contact him at 908-366-7630, or visit artisanwealthmanagement.com.

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

NEW JERSEY CPA • SEPTEMBER • OCTOBER 2011

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FORENSIC

file

Discounts on Embedded Capital Gains for Real Estate

BY CHARLES S. LUNDEN, CPA, BEDERSON & COMPANY LLP

gymnasium, ball fields, horse stable, cottages, dining hall and bunkhouses. The estate retained a valuation expert to value the privately held C corporation. The expert used a net asset value to begin the valuation process.

The net asset value of the real property and other assets was $4.7 million.

The estate’s expert deducted $500,000 in long-term capital gains. The IRS expert argued that with tax planning, this gain could be avoided (deferred) and, as a result, no reduction in net asset value was appropriate.

At the time of the litigation, a $333,000 deficiency was assessed by the IRS.

Estate’s Position

I

n August 2010, concerning the matter of the Estate of Jensen v. Commissioner of the Internal Revenue Service (IRS), the tax court issued guidance on a matter of great concern to valuation professionals performing estate tax valuations. At issue was the extent to

which it was appropriate for the real estate valuation to include a discount for embedded long-term capital gains on appreciated real property when measuring the fair market value of the estate’s share of the holding company.

The Case Marie Jensen’s estate owned an 82-percent interest in Wa-Klo Inc., a real estate holding company that held title to a 94-acre waterfront parcel housing a New Hampshire summer camp.

Camp Wa-Klo had a sports facility, including an indoor

NEW JERSEY CPA • SEPTEMBER • OCTOBER 2011

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The valuation expert for the estate took a dollar-for-dollar discount for the anticipated future long-term capital gains tax on the sale of the real estate. He explained that the adjusted book value method was based upon the premise that assets will be liquidated, thus triggering the long-term capital gains tax resulting from appreciation of the underlying asset. He followed the tax court’s reasoning in the Estate of Dunn v. Commissioner ruling. He did not rely on an income method to value the holding company, because its earnings results were below a 5-percent return on an asset benchmark common in the camp industry.

He did not rely on a discounted cash flow method, because the camp did not generate substantial cash flow from operations.

He assumed a 34-percent tax rate on the sale of the real property.

IRS Position The IRS valuation expert agreed with the measurement of the fair market value of the holding company, but felt the liability for future capital gains should be $250,000, without explaining how he arrived at that conclusion.

He used six closed-end real estate funds to measure the impact of appreciated property and exposure to capital gains tax in real estate investment trusts and the impact that appreciation had on market value.

He was unable to find a correlation between the extent of appreciation and the discount in marketability beyond 41.5 percent of the appreciation. He also argued that this gain could be avoided by employing a 1031 like-kind exchange or by converting to an S corporation. The IRS expert argued that the Eisenberg v. Commissioner of the IRS case held that no discount for long-term capital gains should be allowed.

Tax Court Consideration

moved by the IRS argument that the gain could be avoided. It pointed out that although some deferral methods may be available, the long-term capital gains tax could not be avoided. In addition, the hypothetical buyer of the 82-percent interest may or may not have an interest in a like exchange, and assuming that such a buyer would agree to reinvest the sale proceeds into a similar asset class was speculating. The court also observed that a hypothetical buyer may not qualify to be an S corporation. It did not believe there was an effective method to avoid the long-term capital gains tax. It took issue with the comparability of the closedend funds the IRS expert used in his study. None of those closed-end funds held interests in summer camps.

The court commented that other factors, including fund management performance, supply and demand, investor confidence and liquidity, all affect discounts for lack of marketability noted in the disparity between trading price and net asset value.

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Charles S. Lunden, CPA, CFF, ABV, CFE, CMA, CLU, FLMI, is a partner at Bederson & Company LLP. He is a New Jersey Society of CPAs member. Contact him at clunden@bederson.com.

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The tax court was not NEW JERSEY CPA • SEPTEMBER • OCTOBER 2011

27

INDUSTRY

insights

Don’t Discount Discounted Cash Flow

BY FRANCIS C . THOMAS, CPA, RICHARD STOCKTON COLLEGE OF NEW JERSEY

T

he sooner you receive cash, the better. Money received now can be invested to earn a return; if the same amount is received a year later, the investment opportunity is missed. The process of reducing future cash flows for the investment income sacrifice of not having them today is called discounting, also known as present value techniques.

Present value techniques calculate the value today (time zero) of a single sum or cash flow stream to be received in the future. How much would you need to have on deposit today paying i-percent interest in order to withdraw the specified cash flow(s) in the future?

The applicable interest rate to determine the present value is called the discount rate, or opportunity cost. It represents the return that could be earned currently or a rate to reflect the uncertainty of the future cash flow(s). More risk means a higher discount rate, and a higher rate decreases the present value.

All of the cash flows from an investment need to be measured at the same point in time. Typically, the cash flows are evaluated either at the beginning of the cash flow stream or at the end. Determining the future value at the end of the project is called compounding. Since most financial decisions are made at time zero, discounting techniques are primarily used.

There are three types of cash flows: single sum, annuity and uneven cash stream. The procedures to discount them are different. There are also at least four ways to compute present value: mathematical formula, financial tables, financial calculator routines and computer spreadsheet functions.

To calculate the present value of $10,000 to be received five years from today, assuming an 8-percent opportunity cost, the formula would be: PV = 10,000 * 1/(1 + .08)5 which is $6,806. Financial tables are indexed by

EXHIBIT I (-$10,000)

$3,000

$4,000

$5,000

$3,000

$1,000

|...................... |....................... |.......................|...................... |.......................|

0 1 2 3 4 5

interest rates (columns) and number of periods (rows). The factor found that intersects the rate and the periods is multiplied by the future sum. Here, the factor is .6806. The formula approach is cumbersome when you deal with problems involving multiple cash flows, and the factors from the tables are imprecise.

Annuities are uniform, uninterrupted cash flows, such as $2,000, to be received at the end of each year for five years. Cash flows received at the end of the periods are ordinary annuities, and cash flows received at the beginning of

the period are annuities due. Using a 6-percent discount rate, the present value of $2,000 for five years is $8,425 as an ordinary annuity, and $8,930 as an annuity due. The present value of annuity due is always greater than an ordinary annuity because the first withdrawal is immediate and earns no return.

The typical calculator keystrokes are N – number of periods, I – rate per period, PMT – annuity cash flow, CPT – to initiate calculation and PV – present value. With a couple of keystrokes, calculators can easily switch between the two types of annuities. Financial

NEW JERSEY CPA • SEPTEMBER • OCTOBER 2011

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calculators simplify annuity calculations and provide more precision. The keystrokes for many financial problems can be found on the Internet. The Texas Instruments BA II Plus Professional, a commonly used calculator, is available at atomiclearning.com/k12/en/ti_ba2.

A timeline is an effective tool to illustrate cash flows. The timeline on the previous page (Exhibit I) depicts the cash flows for an investment containing uneven cash flows.

The present value of the above cash flows using a 12-percent rate is $11,900 and, after deducting the investment’s cost, the net present value is $1,900.

An Excel worksheet (Exhibit II) is an efficient and straightforward method to calculate all types of present value problems:

It All Adds Up With Columbia For Professional Business Banking Services

EXHIBIT II A

B

1

Present Value of an Uneven Cash Flow Stream

2

Discount Rate

12 Percent

3

Present Value

$11,900

4

Year

Y/E Return

5

1

$3,000

6

2

$4,000

7

3

$5,000

8

4

$3,000

9

5

$1,000

10

Entry in Cell B3 is = NPV(B2,B5:B9)

• Prime Line of Credit for Professionals • Tax-Sheltered Individual and Business Retirement Plans • Tax-Deductible Home Equity Financing

Francis C. Thomas, CPA, PFS, is a professor of accounting and finance at Richard Stockton College of New Jersey.

He is a member of the New Jersey Society of CPAs Educators Committee and chair of the Investment Committee. Contact him at frank.thomas@stockton.edu.

Member Benefit Visit the Strategic Learning Resources guide at njscpa.org/education/slr for a list of industry CPE.

• Savings & Investment Plans • Business Checking • Commercial Loans • SBA Loans • Business Online Banking • And More!

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Count on Columbia.

NEW JERSEY CPA • SEPTEMBER • OCTOBER 2011

29

COL-2786 4.875" w x 9.875 11/2/10- FULL COLOR NJ CPA

Member FDIC

SMALL/SOLE

practitioner

Helping Your Client Measure the Costs of Eminent Domain

BY RANDALL M. PAULIKENS, CPA, WITHUMSMITH+BROWN

T

here are and will continue to be court battles, protests and heated public debates about whether a government entity can take private property for just compensation. We often see this when a road, school or piece of property is deemed more valuable to the community than to the current owner. You may even hear about our Constitutional protections against unreasonable searches and seizures. Whatever the case, there are ways you can help your client during this difficult time.

There are three important aspects of an eminent domain action that you should be aware of. The first is having the appropriate legal representation.

Your client may ask you, as a trusted advisor, for any recommendations. Use your connections to help your client locate counsel experienced in eminent domain.

The second area is the emotional aspect. While accountants are not necessarily trained in such, it is very important to know that your clients may be very upset or angry. Don’t minimize this. Your clients may need time to come to grips with what may be a profound change in their lives.

The financial analysis may not be the most important thing on their minds at the moment.

The third area is the financial aspect, and that is our primary focus as accountants. Eminent domain does not mean that the government can just confiscate your property. It must adequately compensate you for it. It is that phrase “adequately compensate” that is the most difficult to measure.

In terms of real estate, there are differences of opinion as to the value of a particular parcel of land. It’s important to understand that the town wishes to pay the least it can.

Your client will have to be prepared to invest in obtaining the appropriate appraisals so that he or she can negotiate on a level playing field.

There are other costs a business must consider. Think about how much it will cost for someone to move: real estate commissions, transaction costs, fix-up costs and so on.

Consider the actual costs of relocating equipment – if it is even able to be moved. What about the cost of the replacement property – if it is even available? Perhaps the company was “grandfathered in” for that location and the permits to operate will not be available or will take a long period of time to be granted for a new locale.

How long will the business be shut down and will that force customers to find a replacement supplier?

Other costs are not as obvious.

Can the business operate at another location? For example, most professional practices can move a short distance to a new building without significant, long-term negative consequence. The same may not be said for a restaurant, hotel or a retail store.

Is there another location that is as equally convenient for the business to operate? This applies not only to the customers, but also to the staff.

What are the costs to compensate the employees who now need to drive 50 minutes versus 10 minutes to get to work? Can the business still be profitable? Are there tax ramifications on the sale transaction? Are there environmental issues (positive and negative)? Is the property sellable to anyone else but the town?

Eminent domain is a highly emotional issue, with business owners being forced to disrupt the financial livelihood of not only themselves, but others associated with that business.

There are a myriad of costs to consider, some more obvious than others. When advising your clients in this area, take the time to think and measure the full economic impact being made, and prepare a well-thought-out report that can – and will most likely have to – be presented in court.

Randall M. Paulikens, CPA, ABV, CFF, CITP, is a partner at WithumSmith+Brown and the director of its litigation/law firm/valuation services group. He is a member of the New Jersey Society of CPAs Business Valuation Forensic Litigation Services Interest Group. Contact him at 732-759-6822.

NEW JERSEY CPA • SEPTEMBER • OCTOBER 2011

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NEW JERSEY CPA • SEPTEMBER • OCTOBER 2011

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TAX

talk

When to Use a Qualified Personal Residence Trust B Y M ICH AEL CUL L IGAN, C PA, J U M P, SC UT E LLARO AN D C O M PA N Y L L P

T

he Internal Revenue Code (IRC) §2702 gift tax “special valuation” rules do not apply if the transfer to trust is a transfer of a residence that will be used as the grantor’s personal residence. The §2702 regulations permit two types of these personal residence trusts: the personal residence trust (PRT) and the qualified personal residence trust (QPRT). In choosing the right type of residence trust to fit the grantor’s circumstances, understand the similarities and differences between each trust: • Both require a written trust instrument.

• Spouses can share joint interests in the PRT and together or separately transfer the residence into one joint QPRT or individual QPRTs that jointly own the principle residence.

• A gift will be completed for federal gift tax purposes upon the transfer of the principal residence to the QPRT or PRT. • If the grantor dies during the primary term of the personal residence trust (QPRT or PRT), the entire value of the trust assets will be included in the grantor’s gross estate for estate tax purposes.

• The QPRT or PRT will be treated as a grantor trust for income tax purposes during the primary term. Income realized by the trust will be treated as income of the grantor directly received.

• Grantor of the QPRT or PRT will receive tax deductions for mortgage interest and real estate taxes paid.

• The benefit of §121 election will not be available since the remainder interest is held by other than the grantor/occupant of the residence.

Gain is attributable to those holders of the remainder interest.

When deciding between a QPRT or PRT, the QPRT offers more flexibility: • The QPRT allows assets other than a personal residence to be held by the trust, while the PRT does not.

• The PRT only allows the trust to contain the personal residence, while the QPRT can permit additions of cash to the trust to be held in separate

Choosing a QPRT allows a grantor to gift the remainder interest of the residence that the grantor believes will appreciate in value, thus excluding any appreciation of the residence from the grantor’s estate, as long as the grantor lives to the term of the trust. The following (Exhibit I) is an example of how a QPRT would work:

EXHIBIT I Applicable Federal Rate (June 2011)

2.80%

Annual Growth

2.50%

Trust Term

10 Years

Fair Market Value of Residence

$1,500,000

Grantor’s Calculated Retained Value

$361,952

Taxable Gift

$1,138, 048

Residence’s Value After 10 Years of Growth

$1,920,417

accounts that can be used for (1) payment of trust expenses incurred or reasonably expected to be paid in the next six months for improvements to the residence; (2) purchase of the initial residence within three months of trust’s creation; and (3) purchase of the replacement residence within three months of the date the addition is made.

• The QPRT allows the trustee to sell the residence and then use the proceeds to purchase a new residence, where the PRT does not.

• The QPRT allows insurance policies on the residence, while the PRT does not.

Because the transfer to the QPRT is not valued for gift tax purposes under the special valuation rules of IRC §2702, the grantor’s retained interest will have a calculated value along with remainder interest of the residence. This remainder interest will be calculated by subtracting the actuarial value of the grantor’s retained interest from the entire value of the residence.

Thus, the QPRT would remove $782,369 ($1,920,417 less $1,138,048) from the grantor’s estate.

One also must be aware of a QPRT’s drawbacks. When the term concludes, the grantor cedes title to the remainder beneficiaries. Either the grantor will begin to use another house as his/her principle residence, or he/she must pay rent to the beneficiaries. If the grantor dies before the trust term expires, the entire value of the trust assets will be included in the grantor’s gross estate for estate tax purposes.

When planning, balance the desire to limit the gift transfer through extending the trust term against the risk that the trust grantor might die before the term expires.

Michael Culligan, CPA, CFF, CVA, is a partner at Jump, Scutellaro and Company LLP. He is a member of the New Jersey Society of CPAs Federal Taxation and State Taxation interest groups. Contact him at 732-240-7377.

NEW JERSEY CPA • SEPTEMBER • OCTOBER 2011

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TECH

center

Finding That Elusive Real Estate Accounting Software B Y A N THONY MONG E LUZO, PRO C O M PU T E R SE RVI CE

A

ccountants who are interested in finding a comprehensive, supported and up-to-date software package that focuses on real estate should prepare themselves for an unpleasant surprise: It’s a fragmented industry. There is no de facto leader in the field, such as QuickBooks, for small business. I have more than two dozen clients who are engaged in real estate; however, when I review their accounts, I see no clear winner that their accountants use to handle their fiscal matters.

The reason for this is the real estate market itself. During the recent economic constriction, fewer large software developers decided to enter an unstable market. As such, those that did were small shops – companies with a single or possibly a handful of software developers.

While initiative and small size can suggest hunger and creativity, the lack of depth resulted in many of these companies disappearing within a year or two. It’s frightening to think of spending significant time and money on a new software program when suddenly – poof – the software company disappears. Thankfully, there is some good news. With forethought and effort, you can narrow your search and reduce the risk of buying a program with a short shelf-life.

Go Custom – This has the potential to be the most expensive approach.

However, with a reputable company it is the option most likely to satisfy your needs. There is a critical mass where the investment is worthwhile, if you have a practice with enough clients to justify the expense. What’s that magic number?

It is the number of clients, their size, the amount of activity and the portion of real estate transactions that contribute to your overall business versus the actual cost to develop a customized solution.

For an accountant who feels that a customized package will eventually simplify and facilitate the process to handle real estate transactions, the cost can range from $10,000 to $100,000.

Develop a Realistic Checklist – If the customized approach is too expensive, research real estate trade organizations to see if they offer recommendations.

Trade groups and service vendors are often familiar with the organizations and what they do. Those service vendors might be competitors. But talking to someone in the organization will probably help you discern which overthe-counter package it’s touting. That information might even be listed on the service vendor’s website.

Perform a Search – Call local accountants who aren’t competitors and ask them what they’re using. You can Google search to find someone with a large real estate practice. I tried “accountants specializing in real estate” and found plenty of names. In this instance, the service vendor (accountant) might talk to you if he doesn’t perceive you to be a backyard competitor.

Demo Different Software Packages – Despite my comments about the dearth of a major player for real estate accounting software, there are companies that claim they have terrific packages. But don’t take their word for it. To ensure that you don’t buy one that eventually falls flat, ask for a fully functional demo of at least five packages

and run them through their paces. For example, does the entire package handle the accounting, or does it flow into a program, such as QuickBooks? Ask how many they’ve sold to accountants or real estate firms. Get at least three references.

Ask what the update schedule is.

Ask the Client – I am still surprised to see that many accountants fail to ask their clients what type of reporting is important to them. Every industry, without exception, has its own peculiar strands of information that clients want.

Ask the client a simple question: What are three pieces of financial information that might be unconventional? Then, determine whether the software package you’re investigating will deliver.

Bring IT into the Loop – Check with your IT person to ensure there are no compatibility issues or any hardware or licensing limitations.

Don’t rush into buying an accounting software package until you search the field and consult with your clients. This degree of thoroughness will pay huge dividends when you finally do make a choice.

Anthony Mongeluzo is president of Pro Computer Service. Contact him at 856-596-4446 or anthony@helpmepcs.com, or visit procomputerservice.com.

Member Benefit The NJSCPA Member Benefits Marketplace offers discounts on everyday business and leisure products and services at njscpa.org/marketplace.

NEW JERSEY CPA • SEPTEMBER • OCTOBER 2011

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SOCIETY

pages

2011/12 Chapter Presidents Atlantic/Cape May

Audrey J. Sherrick, CPA, Principal, Friedman LLP, Linwood, joined the New Jersey Society of CPAs in 1980. In the Atlantic/Cape May Chapter, she has served as vice president, secretary and director.

She is a member of the American Institute of CPAs and received its Certificate of Education Achievement in Not-for-Profit Accounting and Auditing.

In her community, Sherrick serves on the business advisory board of Richard Stockton College of New Jersey and is treasurer for the John R. Elliott Foundation Hero Campaign for Designated Drivers.

Sherrick received a B.A. in accounting and business administration, magna cum laude, from Lycoming College. She and her husband, Earl, reside in Mays Landing and have two daughters and a son.

Bergen

Lorenzo T. Vanore, CPA, Principal, ASDS Consulting Services, Upper Saddle River, joined the New Jersey Society of CPAs in 1992. In the Bergen Chapter, he has served as vice president, treasurer and director.

He is a member of the American Institute of CPAs and the New York State Society of CPAs where he served as chair of its Statewide Hospitality Committee.

In his community, Vanore is involved with St. Anne’s Church and the Church of the Presentation.

Venore is also the CFO of BillyBey Ferry Company, LLC, and Benchmarc Restaurants by Marc Murphy.

Vanore earned a B.S. in accounting from St. John’s University.

He and his wife, Annette, reside in Upper Saddle River and have a daughter and two sons.

Federal Taxation Interest Group.

In her community, she is referee/coach for the Bayonne Youth Soccer. She has also served as a volunteer for the Bayonne Little League and an assistant leader of the Hudson Chapter Girl Scouts.

Buczkowski earned a B.S. in accounting from St. Peter’s College.

She and her husband, Frank, reside in Bayonne and have a son and five daughters.

Mercer

Joseph C. DiFalco, CPA, Senior Manager, EisnerAmper LLP, Edison, joined the New Jersey Society of CPAs in 2001. In the Mercer Chapter, he has served as vice president, secretary and director.

He has also served as a member of the NJSCPA Financial Literacy Committee.

He is a member of the American Institute of CPAs. DiFalco earned a B.S. in accounting from Kent State University. He resides in Chesterfield.

Middlesex/Somerset

James A. Toto, CPA, Partner, WeiserMazars LLP, Edison, joined the New Jersey Society of CPAs in 1997. In the Middlesex/Somerset Chapter, he has served as vice president, treasurer and director. He has also served as a member of the NJSCPA Personal Financial Planning Committee. This is Toto’s second term as president.

Toto earned a B.S. in accounting from Syracuse University. He resides in Scotch Plains.

Monmouth/Ocean

R. Gregory Quirk, CPA, Retired, joined the New Jersey Society of CPAs in 2000. In the Monmouth/ Ocean Chapter, he has served as vice president, secretary, treasurer and director. He has also served as a member of the NJSCPA Cooperation with IRS; Estate, Trust & Gift Taxation; Federal Taxation; Government Accounting & Auditing; and State Taxation interest groups.

He is a member of the American Institute of CPAs, chapter president of the New Jersey Association of School Business Officials and a recipient of the Meritorious Service Award from the New Jersey Association of School Business Officials.

In his community, Quirk is treasurer for Christ Episcopal Church, a volunteer tax preparer for AARP Tax Aid and a Little League coach for the Middletown Youth Athletic Association. He is also a retired Commander, USNR Naval Flight Officer.

Quirk received a B.A. in history from Monmouth University, M.A. in education from The College of New Jersey and Ed.D. from Rutgers University. He and his wife, Ellen, reside in Middletown and have three sons.

Essex

Michael K. Bernstein, CPA, Accounting Manager, First Aviation Services, Teterboro, joined the New Jersey Society of CPAs in 2005. In the Essex Chapter, he has served as secretary, treasurer and director.

He is a member of the American Institute of CPAs. In his community, Bernstein is on the advisory board of The Arc of Essex County and is an honorary member of the Cambridge Who’s Who. Bernstein earned a B.B.A. in accounting and entrepreneurship from Hofstra University. He resides in Hoboken.

Hudson

Virginia C. Buczkowski, CPA, Sole Practitioner, Bayonne, joined the New Jersey Society of CPAs in 1992. In the Hudson Chapter, she has served as vice president and two terms as treasurer. This is Buczkowski’s fourth term as president. She is also on the NJSCPA

NEW JERSEY CPA • SEPTEMBER • OCTOBER 2011

34

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Morris/Sussex

Stephen F. Herbes, CPA, Principal, Law Office of Stephen F. Herbes, Short Hills, joined the New Jersey Society of CPAs in 2007. In the Morris/ Sussex Chapter, he has served as vice president and secretary. This is Herbes’ second term as president.

Herbes chaired the Comments on 414(x) Committee of the American Bar Association and served as president of the Harvard Law School Alumni Association of New Jersey.

In his community, Herbes is a religious education instructor at Assumption of the Blessed Virgin Mary Catholic Church in Morristown. He also volunteers with the Community Soup Kitchen and Outreach Center, Inc., of Morristown and the Morris Museum, and he is a member of the Morris County Chamber of Commerce Government Affairs Committee. He has been recognized as a “Rising Star” by Super Lawyers magazine and New Jersey Monthly.

Herbes earned a B.A. in accounting/finance from the University of Portland, J.D. from Harvard Law School and LL.M. from the New York University School of Law. He and his wife, Kristin, reside in Morristown and have three daughters.

“I want a bank that focuses on its customers… not shareholders.”

Passaic County

Laurie Newport-Conklin, CPA, Financial Planning and Analysis Manager, Toys “R” Us, Inc., Wayne, joined the New Jersey Society of CPAs in 2004. In the Passaic County Chapter, she has served as vice president, secretary, treasurer and director.

Newport-Conklin earned a B.S. in accounting and economics from Queens College and an M.B.A. in management systems with a specialization in international business and statistics from Fordham University. She and her husband, Russell, reside in Wayne.

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Southwest Jersey

Daniel M. DiGangi, CPA, Manager, Bowman & Company LLP, Voorhees, joined the New Jersey Society of CPAs in 2002. In the Southwest Jersey Chapter, he has served as vice president, secretary, treasurer and director.

He is a member of the American Institute of CPAs, the New Jersey Registered Municipal Accountants Association and the Burlington County Association of School Business Officials.

DiGangi earned a B.S. in accounting from Rutgers University. He and his wife, Evon, reside in Berlin and have two sons.

We’re also proud to have received the 2010 Community Service Award from the NJBankers Association—a real testament to our commitment to community involvement.

Union County

NVE. Our customers always come first.

Michael Borowski, CPA, Financial Planner, Stonegate Wealth Management, Fair Lawn, joined the New Jersey Society of CPAs in 1998. In the Union County Chapter, he has served as vice president, treasurer and director. He is a member of the NJSCPA Business Valuation Forensic Litigation Services, Cooperation with Bankers, Federal Taxation, Personal Financial Planning and State Taxation interest groups.

He is a member of the New Jersey Financial Planning Association and board member of the Blood Center of New Jersey.

Borowski earned a B.S. in accounting from Montclair State University. He and his wife, Sondra, reside in Scotch Plains.

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NEW JERSEY CPA • SEPTEMBER • OCTOBER 2011

35

4:31

SOCIETY

pages

CPE Offerings and Events Upcoming Education Foundation Events Date

Event/Code

Location

CPE Credit

9/28

Second Annual Firm Administrators Appreciation Breakfast (E1109470)

Iselin

N/A

9/28

Health Care Conference (E1109160)

Iselin

8/MC

9/28

Annual Update for Accountants and Auditors (E1109331)

Iselin

8/AA

9/29

IFRS Update and Review of Complex Topics (E1109343)

Iselin

8/AA

10/4

Business Valuation, Forensic Investigation and Litigation Services Conference (E1110390)

Edison

8/MC

10/5

Fair Value Accounting: A Critical Skill for All CPAs (E1110243)

Iselin

8/AA

10/6

Career Night (E1110175)

Edison

N/A

10/6

Small Business Audits: Best Practices Including Risk Assessment and Internal Control (E1110251)

Iselin

8/AA

10/11

The Top Ten Fraud Schemes: How to Detect and Prevent Them (E1110273)

Roseland

8/AA

10/12

Uncovering Misappropriation Schemes (E1110283)

Roseland

8/AA

10/13

Best Practices in Quantitative Financial Analysis (E1110423)

Mount Laurel

8/MT

10/14

Forecasting Techniques for Accounting and Finance Professionals (E1110433)

Mount Laurel

8/MT

10/17

Corporate Finance Tune-Up: Putting the Right Skills in Your Analytical Toolbox (E1110043)

Roseland

8/AA

10/17

Loscalzo's 2011 FASB and AICPA Update (E1110181)

Iselin

8/AA

10/18

AICPA's Advanced Workshop: Practical Guidance for Peer Reviewers (E1110301)

Freehold

8/AA

10/18

Driving Corporate Performance: The CFO's Role in Developing Competitive Advantage (E1110053)

Roseland

8/MT

10/18

The Best S Corporation, Limited Liability and Partnership Update Course by Surgent McCoy (E1110101)

Roseland

8/TX

10/18

Bankruptcy Today: What Every CPA Must Know! (E1110311)

Iselin

8/MT

10/19

Sales and Use Tax: Guide to Doing It Right (E1110321)

Iselin

8/TX

10/19

The Top 50 Mistakes Practitioners Make and How to Fix Them: Individual Tax and Financial Planning (E1110111)

East Hanover

8/TX

10/19

Excel Financial Reporting and Analysis (E1110013)

Roseland

4/AA, 4/CS

10/19

New Jersey Law and Ethics (2009-11) Webinar (E1110084)

N/A

4/PE

10/20

Surgent McCoy's Multistate Tax Update (E1110131)

Voorhees

8/TX

10/20

Creating Effective PowerPoint Presentations (E1110023)

Roseland

8/CS

10/20

International Taxation: To and from the United States (E1110351)

Freehold

8/TX

10/20

New Jersey Taxation Conference (E1110220)

Edison

8/TX

10/20

Identifying Fraudulent Financial Transactions (E1110333)

Jamesburg

8/AA

10/20

The Best Individual Income Tax Update Course by Surgent McCoy (E1110121)

Iselin

8/TX

10/20

Young Professionals Happy Hour at P.J. Whelihan's Pub and Restaurant (E1110440)

Cherry Hill

N/A

10/21

Advanced Tax Structures: Using Tiered Partnerships, Multiple Corporations, Series LLCs and Disregarded Entities (E1110143)

Voorhees

8/TX

10/21

Auditing for Internal Fraud (E1110343)

Iselin

8/AA

10/21

Budgeting, Forecasting and Business Analytics (E1110033)

Roseland

4/AA, 4/MT

10/21

Loscalzo's GAAP Refresher (E1110191)

Roseland

8/AA

10/24

Chief Financial Officer: Executive Level Skills for Financial Managers (E1110063)

Roseland

6/MT, 2/AA

10/24

Advanced Estate Planning: Practical Strategies for Your Clients (E1110361)

Iselin

8/TX

10/24

Loscalzo's Analyzing Financial Statements, Including Techniques for Cash Flow Analysis (E1110203)

Voorhees

8/AA

10/25

Business Law Essentials for Accountants (E1110373)

Iselin

8/MT

10/25

Professional Ethics for New Jersey CPAs and Frequently Asked Questions in GAAP Financial Statements (E1110211)

Jamesburg

4/AA, 4/PE

10/25

Advanced Management Accounting: Contemporary Cost Concepts (E1110073)

Roseland

8/AA

10/26

Mastering the Fundamentals of Estate Planning (E1110151)

Roseland

8/TX

10/26

Young Professionals Beer Break (E1110450)

Fairfield

N/A

NEW JERSEY CPA • SEPTEMBER • OCTOBER 2011

36

10/28

Surgent McCoy's Top 10 Tax Issues in Dealing with LLCs and Partnerships (E1110161)

Mount Laurel

8/TX

11/1

Family and Succession Planning for the Business Owner (E1111401)

Roseland

8/TX

11/1

The Complete Trust Workshop! (E1111071)

Iselin

8/TX

11/2

Tax Update for Financial Executives (E1111413)

Voorhees

8/TX

11/2

What You Need to Do Now in Estate Planning (E1111081)

East Hanover

8/TX

11/3

Hot IRS Tax Examination Issues for Individuals and Businesses (E1111091)

Iselin

8/TX

11/3

Tax Update for Financial Executives (E1111423)

Roseland

8/TX

11/4

Hot IRS Tax Examination Issues for Individuals and Businesses (E1111101)

Voorhees

8/TX

11/7

Governmental and Nonprofit Annual Update (E1111261)

Roseland

8/AA

11/7

Determining How Much Money You Need to Retire, and Tax Ideas and Money Management in Retirement (E1111111)

Iselin

4/CS, 4/TX

11/8

Accounting and Reporting Practices of Not-for-Profit Organizations (E1111271)

Iselin

8/AA

11/8

Social Security, Medicare and Prescription Drug Retirement Benefits: What Every Baby Boomer Needs to Know Now (E1111121)

Roseland

8/TX

11/9-13

Professional Development Conference (E1111460)

San Antonio

12/MC

11/9

Advanced Tax Practice (E1111431)

Voorhees

8/TX

11/9

The Best Individual Income Tax Update Course by Surgent McCoy (E1111131)

East Hanover

8/TX

11/9

Frequently Asked Questions in GAAP Financial Statements and Professional Ethics for NY CPAs (Concentration in Auditing) (E1111481)

Iselin

4/PE, 4/AA

11/9

Running a Nonprofit Like a For-Profit Business (E1111281)

Roseland

8/AA

11/9

Excel-Based Dashboards (E1111023)

Roseland

4/AA, 4/MT

11/10

QuickBooks for Accountants (E1111031)

Roseland

4/AA, 4/CS

11/10

Applying A-133 to Nonprofit and Governmental Organizations (E1111291)

Iselin

8/AA

11/10

Advanced Tax Update for Experienced Practitioners (E1111441)

Voorhees

8/TX

11/11

Pass-Through Entities: Advanced Tax Issues (E1111451)

Voorhees

8/TX

11/11

Analytical Procedures for Nonprofit Organizations (E1111301)

Iselin

8/AA

11/11

Outlook for Accountants: Get Organized Today! (E1111043)

Roseland

8/MT

11/14

Managing Legal Costs: Use Your Lawyers Efficiently (E1111053)

Roseland

8/MT

11/14

Fiduciary Income Tax Returns – Form 1041 Workshop (E1111141)

Roseland

8/TX

11/14

Audits of 401(k) Plans (E1111311)

East Hanover

8/AA

11/15

Employee Benefit Plans: Audit and Accounting Essentials (E1111501)

Voorhees

8/AA

11/15

Business Law Refresher: What Every Financial Manager Should Know (E1111373)

Roseland

8/MT

11/15

Strategic Planning: A Simplified and Workable Approach for Private Companies (E1111333)

Freehold

8/MT

11/16

Mastering the Applications of Budgeting While Side-Stepping the Pitfalls (E1111343)

Freehold

8/MT

11/16

Accounting and Auditing Variety Pack (E1111230)

Edison

8/AA

Upcoming Chapter Events Date

Chapter

Event/Code

Location

CPE Credit

10/19

Passaic County

New Jersey Law and Ethics (E1110409)

Paterson

4/PE

10/22

Union County

New Jersey Law and Ethics (E1110239)

N/A

4/PE

10/26

Monmouth/Ocean

New Jersey Law and Ethics (E1110389)

Neptune

4/PE

10/28

Southwest Jersey

New Jersey Law and Ethics (E1110099)

Voorhees

4/PE

11/3

Bergen

Accounting and Auditing Update (E1111599)

Paramus

4/AA

11/18

Hudson

New Jersey Law and Ethics (E1111579)

Secaucus

4/PE

11/19

Hudson

Semiannual Tax and Accounting Seminar (E1111589)

Secaucus

4/AA 4/TX

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 • SEPTEMBER • OCTOBER 2011

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Get Involved Getting Involved by Tweeting Think being involved with the New Jersey Society of CPAs is all about going to interest group or chapter meetings? Ever wonder if the NJSCPA only cares about your involvement if you ascend to a board position? The Society is thankful for our group members, chapter season-pass holders and our trustees. We also love to see our members “like” our most-recent Facebook status, respond to a LinkedIn discussion topic and tweet about tax pronouncements. Yes, tweeting for and about @NJSCPA means you’re involved!

Why Tweeting = Involvement

Think about American Idol or America’s Got Talent. You tune in and laugh at the auditions, maybe have some water cooler talk the next day. You were somewhat interested. As the finalists are selected, you start to have your favorites. Now you’re beyond just interested. You check your schedule and you set the DVR if necessary.

And when “your” contestant is dismissed you get on Facebook and tell your 582 friends how disappointed you are. Next week, you won’t let it happen again. You’re passionate about your new favorite, and you’re going to vote. Suddenly, you’re involved with a television show in a way you’ve never been before, and all you did was make a phone call.

That’s why the NJSCPA loves to see its members tweeting for and about us. It means you’re passionate about what we’re doing and (hopefully) agree with the messages we’re sending. It means you’re involved.

Not on Twitter Yet?

Here are a few benefits to having a Twitter account; following people, organizations and events; and being followed by people you know and don’t know: Twitter Leads to New Connections – A technology guru, a journalist and a

chocoholic are following you. You’ve never met them before, and maybe they need a CPA. Twitter Provides a Bridge Between Virtual and Face-to-Face Relationships – At the train station you spot a guy eating a chocolate brownie. You recognize him from his Twitter photo as the chocoholic. “Excuse me, I think you follow me on Twitter.” You make an instant connection with no awkward first-meeting moment, and it gets you talking.

Twitter Makes You Like the Captain of the Enterprise, Going Where You’ve Never Gone Before – Your expertise serves a global audience and, conversely, you have access to experts across the world.

For a comprehensive tutorial, Google “Twitter Basics Part 1 Deirde Reid” to find her seven-part series about creating your Twitter account, getting started and managing your tweets and tweeps. Or, watch “Twitter in Plain English” at commoncraft.com.

Tweet Along with @NJSCPA

If you’re already on Twitter – tweeting for and about your NJSCPA experiences and interactions – align yourself with the premier organization for CPAs in New Jersey, support your career goals and create exposure by doing the following: Tweet When You Speak – Let everyone know when you’re speaking at a CPE seminar or conference and what you’ll be talking about. It’s a great way to convey your expertise to the masses.

Retweet @NJSCPA’s News, Events, New Services and Activities – It shows your commitment to your professional organization, sparks interest in others and builds your connections with others who want to interact with Society members.

Use NJSCPA Event Hashtags to Give a Play-by-Play of the Good Stuff – Nine faithful tweeters gave the inside scoop to attendees

and non-attendees of the June NJSCPA Convention & Expo. Thank you to James C. Bourke, CPA; Jesse M. Herschbein, CPA; Maryann Holloway, CPA; Kathleen A. Meller, CPA; Justin O’Horo, CPA; Gail Rosen, CPA; Michael R. Steiner, CPA; Julia Van Saun, CPA; and George E. Williams, CPA. Let Your Followers Know When You’re Taking CPE with the NJSCPA – It tells your followers that you’re keeping up with the profession and you’re committed to enhancing your knowledge.

Give Kudos to Other Society Members for Their Accomplishments – Include @NJSCPA in your post so we can help spread the good news.

Have a Conversation or Meeting with Other Members on Twitter – It’s faster than email and you can send direct messages to each other.

Invite Your Followers to Network with @ NJSCPA – Let them know where you’ll be networking with the NJSCPA and invite them to join in.

Share Your NJSCPA Interactions – “Just renewed my @NJSCPA membership” tells others you know the value of membership.

“Giving a Pay It Forward presentation at my alma mater for @NJSCPA” shows you’re making a difference for the future of the profession. Brag to the world, “My first article to be published in @NJSCPA’s New Jersey CPA magazine.”

The NJSCPA is looking forward to seeing more members get involved through Twitter and our other social media. If you have any questions about Twitter, Facebook or LinkedIn – or would like a free CPE presentation about social media for your firm, chapter, interest group or committee – contact Don Meyer at dmeyer@njscpa.org.

NEW JERSEY CPA • SEPTEMBER • OCTOBER 2011

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NEW JERSEY CPA • SEPTEMBER • OCTOBER 2011

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SOCIETY

pages

2011/12 NJSCPA interest group leaders and vice leaders.

NJSCPA 2011/12 Interest Groups and Committees

Through NJSCPA groups and committees, you’ll increase your exposure, build your resource network and take charge of your success. Participate in ways that balance your life – in person, online and by phone.

Learn more at njscpa.org/volunteercontribute.

Interest Groups – The ongoing interest groups below help you build a network of people who face the same everyday challenges and opportunities you do in the technical areas you specialize in or want to learn more about: • Accounting & Auditing Standards • Business Valuation Forensic Litigation Services • Cooperation with Bankers • Federal Taxation (Domestic & International) • Governmental Accounting & Auditing

2011/12 NJSCPA committee chairs and vice chairs.

• • • • • •

Health Care Insolvency and Reorganization Nonprofit Personal Financial Planning State Taxation Technology

NJSCPA Standing and Appointed Committees – NJSCPA-appointed committees and leadership groups address the highest-priority issues of the profession.

To be considered for a leader-level position, members must complete the Volunteer Interest Profile at njscpa.org/getinvolved: • Audit • Chapter Operations • Committee Operations • Council of Past Presidents • Education Foundation Executive • Executive • Finance • Investment

We Go To Work For You.

• • • • • • • • • • • •

Meetings & Special Events NJ-CPA-PAC NJSCPA Insurance Trust NJSCPA Scholarship Fund Nominating Peer Review Executive Professional Conduct Retirement Savings Plan Scholarship Advisory Board Strategic Planning Volunteer Relations Young CPAs Council

Volunteer Committees – Volunteer committees allow members to work together in smaller groups to accomplish objectives and complete projects that support the NJSCPA mission and strategic plan: • Educators • Financial Literacy • Student Programs & Scholarships

Go with the biggest in the industry. We are North America’s leader in marketing accounting and tax practices because we understand the value of your firm, know how to market it and have hundreds of buyers in Pennsylvania who want a practice. Our biggest concern is you. Our wealth of experience culminates to make sure your comfort level is met, your questions are answered and everything is being done to sell your firm.

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NEW JERSEY CPA • SEPTEMBER • OCTOBER 2011

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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.

Contribute to the Young CPAs Food Drive – The NJSCPA Young CPAs Council is sponsoring a food drive for the Community Food Bank of New Jersey September 19 through November 18. Bring your non-perishable items to NJSCPA headquarters in Roseland. Additional drop-off locations are listed at njscpa. org/youngcpas. Invite your co-workers to participate. Contact Lauren Walsh at lwalsh@njscpa.org.

Leader-Level Engagement – Society leadership participates in addressing issues critical to the profession. Leaders have generally been actively involved with the Society and are expected to participate through in-person meetings, conference calls and email to achieve objectives that support the NJSCPA strategic plan. To be considered for an appointed leadership position for 2012/13, complete the Volunteer Interest Profile at njscpa.org/getinvolved.

NJSCPA College Ambassadors – NJSCPA student members are needed to discuss accounting as a career choice and the available NJSCPA benefits and programs with other students on their college campuses. Handouts and speaking points are provided. Rewards are given to ambassadors who meet Society goals, such as recruiting new student members and making in-class presentations. Contact Janice Amatucci at jamatucci@njscpa.org.

Pay It Forward Speakers – Join more than 100 Society members who’ll be heading back to the classroom as part of the Pay It Forward program alerting high school students to the range of rewarding career opportunities by pursuing an accounting degree. Practice public speaking with our ready-to-go presentation, which includes speaking points, fun facts, quizzes and videos. Visit njscpa.org/payitforward.

Recognizing the significant need for long‐term care planning among our members, the New Jersey Society of Certified Public Accountants is pleased to announce a comprehensive new Long Term Care Insurance Program. This program offers a portfolio of comprehensive plans from multiple highly rated insurance carriers.

Through a partnership with Askin, Weber and Reed and Long‐Term Care Resources, New Jersey Society of Certified Public Accountants members now have a national network of long‐term care specialists available to explain the costs and benefits of this vital program.

More importantly, we have used the buying power of our association to obtain special discounted rates.

While we know this program is very valuable, insurance is not the right answer for everyone.

However, information is your best weapon in the fight against the high cost of long‐term care and to determine if Long Term Care Insurance is right for you. Advanced planning is always the best approach. To request more information, call today 800‐616‐8759.

Connect with us at: www.awrins.com

NEW JERSEY CPA • SEPTEMBER • OCTOBER 2011

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Share the Society’s Benefits and Recommend a New Member Whether you’ve been a New Jersey Society of CPAs member for 40 years or four months, your membership has provided you with at least one benefit that you may have shared with colleagues. So, why not take it one step further and recommend a fellow CPA, CPA candidate or student for Society membership?

Simply send your name and address, along with the name and address of the eligible nonmember, to

membership@njscpa.org and we’ll send him or her an application. Or, tell the nonmember to join at njscpa.org/join and ask that he or she type your full name in the “recommended by” box on the online application.

Once the person joins, we’ll give you your choice of an NJSCPA umbrella or NJSCPA portfolio as a thank you! Questions? Contact the NJSCPA Membership Department at 973226-4494 or membership@njscpa.org.

Across

Down

1. Real estate mogul and almost presidential candidate 4. Much-sought-after vista 8. Victorian, e.g.

10. Wanting to sell fast 12. One of the most used words on HGTV 13. 1982 sci-fi blockbuster 14. Wanted, as in a real estate description 19. Like Vegas and Arizona mostly 20. Green area 22. Plain and simple 24. Building add-on 26. How much real estate is purchased (two words) 28. Probably equals small 30. It’s from the date when built 31. ____ contractor 32. The right coast 34. House hunters channel 35. Delightful, hopefully!

39. Timeworn 40. June honoree 41. Wall hanging 42. Beach feature

1. ____ on the market 2. Messy 3. Lays patio stones, e.g.

4. Toward the edge 5. Terminate 6. Just built 7. Visited 9. Real estate investor’s profit 11. Arrival time, abbr.

15. Helpful connections 16. Areas for pools, swings, etc.

17. Drawing of the exterior 18. Worth 19. Not connected to any other houses 21. Railway 23. Number of bathrooms, perhaps 25. In the MLS 27. Ford Explorer, e.g.

29. Enthusiasm 33. Small, for short 36. It describes areas where properties turnover quickly 37. Commuting concern 38. Italian “but”

See the answers on njscpa.org/newjerseycpa.

NEW JERSEY CPA • SEPTEMBER • OCTOBER 2011

42

ADVERTISERS INDEX All advertising for New Jersey CPA magazine is managed by The Warren Group, a Boston-based real estate and financial information publishing company.

New Jersey CPA is the only way to reach each of the 15,500 members of the New Jersey Society of CPAs, and 55 percent of readers take action after seeing an advertisement in the magazine – by either purchasing the product, contacting the advertiser, visiting a website or recommending the product or service to a client.

For advertising opportunities, contact Advertising Manager George Chateauneuf at custompubs@thewarrengroup.com.

Accounting Practice Sales accountingpracticesales.com

40

Affinity Federal Credit Union affinityfcu.org Argent Professional/CAMICO insuranceagent.com

39

Askin, Weber & Reed, Inc. awrins.com Audimation Services, Inc. audimation.com

41

Bank Leumi USA leumiusa.com Columbia Bank columbiabankonline.com

52

13

5 29

Community Foundation New Jersey 10 cfnj.org CPA2Biz 2 cpa2biz.com CPA Mutual cpamutual.com CPE Link cpelink.com

11

High Point njscpaquote.com Lowenstein Sandler PC lowenstein.com

23

Medallion Business Credit medallion.com NVE Bank nvebank.com

51

PNC Bank pnc.com Sterling National Bank sterling4biz.com

15

TD Bank tdbank.com The Provident Bank providentnj.com Valley National Bank valleynationalbank.com

43

21

35

27

9 20

47 NEW JERSEY CPA • SEPTEMBER • OCTOBER 2011

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SOCIETY

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NJ State Board of Accountancy Report Newark (June 16)

disciplinary action and how this action is conveyed to the public.

• Suggested improved and/or alternative ways for communicating with CPE providers on record retention so that practitioners have better access to data.

Miscellaneous

A practitioner wrote to the board requesting clarification on what functions a CPA can provide without charging the client a fee. The board will send this individual a copy of N.J.A.C. 13:29-3.12(b).

Public

Newark (July 21)

New Jersey Society of CPAs Executive Director Ralph Albert Thomas: • Mentioned the Society’s Career Night on October 6 in Edison and the Professional Development Conference November 9-13 in San Antonio.

• Indicated that the Internal Revenue Service Commissioner came out with a qualifying statement that non-licensed tax preparers would need to include on promotional materials. Tax strategy patent legislation has passed the House and Senate and is now in committee.

• Talked about the state budget being passed and that there was no negative impact on personal or business income taxes.

• Discussed the AICPA Spring Council in Washington, DC. The NJ delegation visited 12 members of the Congressional delegation and reviewed tax simplification, tax due dates, tax patents and mobile workforce tax simplification.

• Asked that the board, in cooperation with the NJSCPA, become more proactive in communicating and think outside the box concerning addressing the disturbingly increasing number of Uniform Penalty Letters (UPLs) being issued.

• Indicated that the Society is receiving a significant number of calls regarding the often confusing language in the UPLs. Issues include inactive versus inactive paid status, what is considered

Executive Director’s Remarks

Board Executive Director William Mandeville mentioned a conference call that took place between himself, legal counsel, New Jersey Society of CPAs Executive Director Ralph Albert Thomas and representatives from the American Institute of CPAs regarding UPLs.

Committees

Peer Review Program – The committee’s oversight group will begin reviewing the forms recently sent to program participants. Also, Jim Bracken from the AICPA will make a presentation to the board on October 20 as to how its peer review program operates.

Monitoring Profession – Thus far, more than 600 UPLs have been mailed and there have been 329 responses. There have been 191 voluntary license surrenders, and 55 people went inactive/paid. Approximately 300-500 licensees still need to be reviewed.

Public

Andrew L. DuBoff, CPA, thanked the board for his selection as a public member to the Peer Review Program Oversight Committee. He also gave the board an update on the National Association of State Boards of Accountancy activities: It recently presented to the Securities and Exchange Commission on International Financial Reporting Standards, indicating that the implementation may be happening too quickly; it sold 80-percent

of its interest in Professional Credential Services, a non-CPA testing service; and it is tackling the issue of firm naming and what would be considered misleading to the public.

New Jersey Society of CPAs Executive Director Ralph Albert Thomas indicated that the Society had nominated two of its members as public representatives for the board’s Peer Review Program Oversight Committee.

Thomas asked if licensees who received a UPL and subsequently make up the credits, will they receive any type of confirmation letter from the board?

Mandeville indicated, “No, it’s up to the licensees to know the rules and regulations.”

The Society, in conjunction with the AICPA, has been meeting with the G400 firms – those 400 largest firms after the top 100 and the Big Four. The visits are to build a sense of community, review best practices and assist in their development.

The Society forwarded to the Financial Accounting Foundation (FAF) a resolution supporting the recommendations of the FAF’s Blue Ribbon Panel. Thomas met with the president and CEO of the NJ Banking Association to obtain that group’s support of the panel.

The Society’s CPE programming has been extremely strong, estimated to have more than 28,000 registrants taking NJSCPA CPE programs this year. The Society will create a communications plan to reach out to non-member licensees on end-of-triennial compliance.

NEW JERSEY CPA • SEPTEMBER • OCTOBER 2011

44

MAXiMize Your CoMPaNY’s exPosure

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CLASSIFIEDS Mergers/Acquisitions NJ practices for sale: West Orange EA practice, gross $90K; and Atlantic City tax franchise, gross $120K. 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.

Growth-oriented, local south Jersey firm looking to acquire an active practice of a retirement or merger-minded practitioner.

We are looking for a firm grossing at least $300,000. File 07011

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.

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.

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.

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.

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 Seeking practitioner or firm to share office space and amenities with retirement-minded CPA. Eventual buyout for right firm.

File 080511

Office Products/Equipment Emails bouncing? Whether you use email, snail mail, smoke signals or carrier pigeon, the most important thing is “did they get it?” EFM, the smart document and delivery system answers these questions and many more. It comes with its own plug-in appliance, and we designed it so there is no software to install. Visit electronicfilemanagement.net today for more information or to request a demonstration!

Professional Services Pre-peer review and pre-issuance services for financial statements and workpapers. Quality control/technical reviewer available on a per diem basis. 30-plus years’ experience. Reply to: 201-306-0881 or slg@bellatlantic.net.

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 office space – Great 800-square-foot office space with extremely visible highway sign! Space has three offices, waiting room, bathroom and storage. Call 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.

November/December Coming Attractions Tax Matters

Magazine of the

New Jersey Society of Certified Public Accountants

N o v • D e c 2 0 1 1

n n n n

Tax Update Is the NJ Tax Base Headed in the Right Direction?

Tax Examination Audit Targets Tax Planning for High Net Worth

NEW JERSEY CPA • SEPTEMBER • OCTOBER 2011

46

Big bank resources and small bank personal service.

Gerald H. Lipkin CHAIRMAN OF THE BOARD, PRESIDENT & CHIEF EXECUTIVE OFFICER

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8/8/11 1:41:17 PM

STUDENT

outlook

The Ambassador to Atlantic City B Y M ICH AEL G. MAL L OT I D E S, D E LO I T T E

T

he New Jersey Society of CPAs reaches more than 800 college students in the Garden State every year. NextGen Outreach Manager Janice Amatucci and her team personally visit with accounting clubs, accounting classes, students and faculty. Assisting them in the Society’s mission to encourage students to consider accounting as a career choice are 10 NJSCPA Ambassadors. Their jobs are to liaise with academia and publicize Society scholarship opportunities, Career Night, the Scholars Institute, the Exam Cram Blog and, of course, membership to their fellow students. “Having students on campus who can talk to other students about the profession is a critical component of our accounting career awareness initiatives,” says Amatucci.

As an NJSCPA Ambassador at Fairleigh Dickinson University, I attended both career and club fairs on campus and informed fellow students about the benefits of joining the Society as a student member. I conveyed the excellent networking opportunities, such as the NJSCPA Career Night, a statewide event for college accounting students. While serving as vice president of Fairleigh’s Accounting Society, I helped organize a trip for 25 students to attend Career Night.

I also got to speak in several accounting classes about the profession and the different career paths available. After my presentation, some students actually told me that they were going to change their major to accounting and join

the NJSCPA. I felt so proud that I made a difference in the future careers of my classmates!

As a thank-you for my promotional and recruiting efforts, I was invited to the 2011 NJSCPA Convention & Expo in Atlantic City – the Society’s premier event that is attended by more than 500 accounting leaders and professionals.

As one of only a few student members to attend, I got the opportunity to network with CPAs, meet representatives from the top financial and accounting companies in New Jersey and learn from nationally recognized speakers.

As an up-and-coming professional, the convention offered the perfect venue to learn more about accounting and how it fits into the greater business environment. I felt my attendance would give me an advantage in the classroom and an edge in my job search. One of the most intriguing speakers was Cynthia Cooper, who was named one of Time magazine’s “Persons of the Year” for her role in unraveling fraud at WorldCom. Listening to her story of how she discovered the fraud, the steps she took and how it affected her personal life kept the audience riveted the entire time.

Motivational speaker Curtis Zimmerman focused on the actions and decisions we each make in writing our own life story. For example, because we focus our lives in the direction we want to go, we can write people in and out of our lives. Zimmerman also discussed not being afraid to “drop the ball” when we try new things or when we get overwhelmed. In fact, he taught us how much fun it can be to literally drop the ball. He passed out juggling balls to 500 attendees and taught each of us, step-by-step, how to juggle.

To say that we all repeatedly dropped the ball would be an understatement. But, by the end, we began to get the hang of it and overcame our fears. Some of us even learned to juggle right then and there.

While my convention attendance won’t be included on my official FDU transcript, the knowledge that I gained from the education sessions, networking, trade show and more will be extremely helpful as I start my professional career. The 2011 NJSCPA Convention was an amazing experience, and I’d like to thank the Society for allowing me to be part of it. I look forward to attending the convention next year and strongly recommend to anyone in the accounting profession to do so as well.

NJSCPA Student Members can volunteer to be an ambassador either through the NJSCPA Volunteer Interest Profile at njscpa.org/getinvolved or by contacting jamatucci@ njscpa.org.

Michael G. Mallotides recently joined Deloitte and is a CPA Candidate Member. Contact him at michaelmallotides@gmail.com.

NEW JERSEY CPA • SEPTEMBER • OCTOBER 2011

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LEGISLATIVE

views

State Passes Historic Reforms B Y JEF FREY T. KAS ZERM AN, NJ SC PA GOVE R NM E NT R E L AT I O N S D I R E C TO R

The new reforms will increase pension contributions for government workers and teachers by 1 percent immediately and an additional 1 percent over the next seven years.

Police and firefighters will pay an additional 1.5 percent immediately. For health benefits, public employees will pay between 3 percent and 35 percent of the cost of their insurance premiums, depending on their income.

Governor Vetoes Millionaire’s Tax and Uses Line-Item Veto to Cut Budget was a politically charged month for state lawmakers.

June Legislators narrowly passed, and Governor Chris Christie signed, historic pension and health benefits reform measures that stirred up heated protests from public employee unions.

After spending most of June immersed in benefits reform debate, the Legislature spent the final frenzied week creating a budget shaped by the Democratic majority in both houses that the governor cut by almost a billion dollars. The Democrats’ budget plan also included a “millionaire’s tax,” which the governor vetoed. The business community and the New Jersey Society of CPAs supported the benefits reform measures and the governor’s veto of the millionaire’s tax.

Pension and Health Benefits Reform Spurred on by a strong Republican governor and the huge costs associated with the state’s pension and health plans, several Democratic leaders in both houses joined with Republicans to narrowly pass unprecedented reform measures that faced vehement opposition from local and state government workers and fellow Democrats.

The need for benefits reform has been apparent since at least 2005 when former Governor Richard Codey convened a panel of experts to study the issue and current Senate President Stephen Sweeney, himself a union official, introduced bills to shore up the fiscal integrity of the benefit programs. Facing strong resistance from public worker unions and little support from former Governor Jon Corzine, Sweeney’s bills went nowhere.

Warning that New Jersey’s combined pension and health benefits programs are underfunded by at least $120 billion and would go broke without higher contributions from government employees, the governor has been pushing to overhaul the programs since 2009 when he was elected.

Business and taxpayer groups have supported the governor, arguing that unless benefit costs are lowered, the costs will consume an ever-increasing portion of the state budget and result in higher taxes, harming economic development.

Christie line-item vetoed almost $1 billion from the state budget sent to him by the Democrat-controlled Legislature.

He also vetoed the proposed millionaire’s tax. Strongly opposed by the business community, the millionaire’s tax would have hiked the income tax rate for more than 16,000 New Jerseyans who earn $1 million-plus annually. Business groups argued that it would impact many business owners, as well as individual taxpayers, since many small businesses pay taxes through their owner’s income. These groups argued that the tax hike would discourage businesses from creating and retaining jobs or expanding investments in New Jersey.

The final budget signed by the governor appropriates $29.7 billion, somewhat larger than last year’s $28.3 billion budget.

Most of the increase is going toward increased homestead benefit property tax relief and meeting a state Supreme Court order to add $500 million in funds for Abbott school districts.

The budget signed by the governor also included $180 million in business tax reforms and incentives supported by the business community: • The minimum tax to be paid by S corporations is reduced by 25 percent.

• The research and development credit to offset corporate tax liability is increased from 50 percent to 100 percent.

• The Transitional Energy Facility Assessment is phased out over three years, beginning in 2012. This temporary assessment was scheduled to end in 2002, but has been extended every year.

• Funding for the Technology Business Tax Certificate Transfer Program is increased from $30 million to $60 million. This program enables unprofitable technology and biotechnology companies to sell their unused net operating losses and research and development credits.

In another action important to the business community, the governor signed bipartisan legislation that phases in an automatic Unemployment Insurance tax increase over a three-year period, reducing the tax increase this year on the employer community. The NJSCPA was part of a coalition of business groups that lobbied for passage of this measure.

NEW JERSEY CPA • SEPTEMBER • OCTOBER 2011

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Reaching the Summit of His Profession

BY DAVID PLASKOW, NJSCPA PUBLIC ATIONS EDITOR

S

hoe stores must love H. Jay Sexton, CPA, PFS, CFP, because he hasn’t met a hiking trail he didn’t like.

His treks have taken him from the Appalachian Trail to Mount Everest.

Sexton was born in Hamilton where his dad, Harold, was a civil engineer and his mom, Helen, was a teacher. It was during a Navy stint that he cast off on the way to becoming an accountant, “I was the financial disbursement clerk on the destroyer U.S.S. Rich,” says Sexton.

“I liked it and found I was good at it.”

His Mediterranean tour of duty took him to Italy, France, Spain, Greece and Lebanon – occasionally playing hide and seek with Soviet submarines.

After leaving active service in 1959, Sexton enrolled in Rider University’s accounting program. It was during his college years that Sexton met his future wife, Katy, at the Jersey Shore.

After graduating from Rider, Jay worked briefly for an oil company, but he always wanted to get into public accounting. He then took a position at Joseph Froggatt & Company in Manhattan where he specialized in the insurance sector. After several years, Froggatt merged with Coopers, and Sexton decided to work for one of his insurance clients, Fisco, Inc., in Philadelphia. But the call of public accounting again beckoned and, in 1974, Sexton started a firm with former New Jersey Society of CPAs President John S. Lee, CPA. In 1987, he merged into WithumSmith+Brown, where today Sexton is semi-retired as shareholder emeritus, “winding down his career at age 74 and enjoying it.”

After obtaining his CPA credential in 1969, Sexton became involved with the Society. “John got me involved with

the Mercer Chapter, and I eventually joined state-level committees and served as chair of the Insurance Trust and on the NJSCPA Board of Trustees,” notes Sexton. “I’m grateful for the time well spent and the professional relationships I’ve made. Society members are really the cream of the crop.”

Sexton has also given a lot back to the community. He has been involved in his church, a volunteer EMT and active in the New Jersey Business and Industry Association, among others. For enjoyment, Sexton likes to read, play tennis and hike. He and his family have been hiking the Appalachian Trail since the 1970s. In fact, they built a retirement home in Pennsylvania to be closer to the trail. “I have 1,250 miles under my belt and hope to complete the whole trail before I leave this planet,” says Sexton.

But it was a different type of hiking challenge – much colder and more vertical – proposed by his brother-inlaw that stopped Sexton in his tracks, so to speak. “He knew a cultural anthropologist from Holland with knowledge of Nepal who also led excursions up Mount Everest,” remarks Sexton.

“I wanted to give this trip a purpose,” notes Sexton. “There is a young man in my church named Myles who suffers from histiocytosis,

a rare disease affecting the nervous system. I decided to use this trip to raise awareness and money for this disease – ‘Miles for Myles.’ With support from my family, church and WS+B, we raised more than $17,000.”

Preparing for the trip included 40-mile-per-week training hikes to go along with all of the paperwork, equipment, permits, immunizations and cultural research. After a 36-hour flight from New York to Kathmandu, the group of eight, along with a pair of Sherpa guides, began the ascent from the little village of Phalplu. “Despite being a very poor nation, the country is beautiful and the people are friendly,” says Sexton.

After a 12-day trek, the expedition reached the 19,000-foot summit of Kala Patar. At age 72, Sexton was the oldest on the team. “It was 10°F and crystal clear with an amazing view from the roof of the world,” recounts Sexton.

“Prior to the trip, my wife had made a felt heart and cut it half,” notes Sexton. “She gave half to Myles and I brought the other half with me. When I got to the summit, I took it out and the Sherpas put a Buddhist prayer ribbon around my neck. It all brought tears to my eyes and the fatigue just disappeared.”

NEW JERSEY CPA • SEPTEMBER • OCTOBER 2011

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