Today's CPA Nov/Dec 2011 by The Warren Group

Today’sCPA NOV./DEC. 2011

T E X AS S O C IET Y OF

C E RT I F I E D P U BL IC AC C OU N TANT S

Innocent Spouse Tax Relief The Ever– Changing Lease Exposure Draft The Sunset of the Estate Tax Repeal

CULTIVATING YOUNG CPAS

Also: Focus on the Future – CPA Horizons 2025

Find out more about the TSCPA HSA-Qualified Group HDHP

Tax Incentives

You May Want To Consider

Take Advantage of this Tax-Free Savings Option... Combine tax-free savings with a traditional health plan when you add a Health Savings Account (HSA) to an HSA-Qualified High-Deductible Health Plan (HDHP). Call today for details—you can have access to the “traditional” medical coverage you’re used to, with the flexibility to choose a provider that fits your needs…and budget! Plus a tax-free savings account that can help with the cost of your deductible.

Get an Instant Rate Quote

More Flexibility with an HDHP Switching to a High-Deductible Health Plan can give you access to an HSA, and even more flexible deductible options so you can find a heathcare provider that works for your needs and your budget!

Tax-Free Savings with an HSA The confining rules of a Flexible Savings Account are out—no more “use-it-or-lose-it” rules. An HSA can provide a Health Savings Account that allows you to deposit pre-tax money and withdraw your savings tax-free for medical bills. Many Americans are excited about the flexibility they have with their HSAs, especially the rollover option. You can rollover unused funds year to year. You get to keep your money no matter what! You can take your HSA with you from job to job and plan to plan. The TSCPA Group HDHP is underwritten by New York Life Insurance Company, 51 Madison Ave., New York, NY 10010 (Policy Form GMR).

CALL 1.800.262.7689 Or visit us online at www.TSCPAinsure.com

IMPORTANT NOTICE: The TSCPA currently makes available to its members a High-Deductible Insurance Plan (HDHP) designed to be HSA-qualified. The plan is underwritten by New York Life Insurance Company. The TSCPA, Marsh U.S. Consumer, a service of Seabury & Smith, Inc., and New York Life bear no responsibility for the establishment or administration of a Health Savings Account (HSA) you may open. NOTE: New York Life Insurance Company and the TSCPA cannot give, and this advertisement is not intended as, legal or tax advice. We strongly urge that you consult with your accountant or tax advisor before opening an HSA to determine if this savings vehicle is available to and appropriate for you. Also, if you or any of your dependents are covered under another health insurance program, it could affect your eligibility for a tax-advantaged HSA. You should consult with your accountant or tax advisor to determine if you are eligible for an HSA. For complete details of the TSCPA HSA-Qualified Group HDHP including eligibility, premium rates, coverage provisions, exclusions, limitations and termination provisions, etc., please visit www.tscpainsure.com. 50897, 50179 ©Seabury & Smith, Inc. 2011

AR Ins. Lic. #245544 CA Ins. Lic. #0633005 d/b/a in CA Seabury & Smith Insurance Program Management

CHAIRMAN Donna Holliday Wesling, CPA

EXECUTIVE DIRECTOR/CEO John Sharbaugh, CAE

Contents 24

NOVEMBER/ DECEMBER 2011

VOLUME 39, NUMBER 3

EDITORIAL BOARD CHAIRMAN Arthur Agulnek, CPA

Staff MANAGING EDITOR DeLynn Deakins ddeakins@tscpa.net 972-687-8550 800-428-0272, ext. 250

TECHNICAL EDITOR C. William Thomas, CPA, Ph.D. Bill_Thomas@baylor.edu

COLUMN EDITORS Greta P. Hicks, CPA Mano Mahadeva, CPA, MBA James F. Reeves, CPA C. William (Bill) Thomas, CPA, Ph.D.

WEB EDITOR

Wayne Hardin whardin@tscpa.net

CONTRIBUTORS Ali Allie; Melinda Bentley; Rosa Castillo; Kay Crider; Jerry Cross, CPA; Anne Davis, ABC; Donna Fritz; Rhonda Ledbetter; Craig Nauta; Judy Neathery; Kim Newlin; Jim O’Guinn; Bob Owen, CPA; Catherine Raffetto; Rori Shaw; Patty Wyatt

DIRECTOR, MARKETING & COMMUNICATIONS Janet Overton

cover story

columns

5 Chairman’s & Executive Director’s Message

24 Cultivating Young CPAs

Design/Production/Advertising

Understanding the generational diversity of your workforce.

The Warren Group thewarrengroup.com custompubs@thewarrengroup.com

society features

CLASSIFIED

Donna Fritz Texas Society of CPAs 14651 Dallas Parkway, Suite 700 Dallas, Texas 75254-7408 972-687-8501 dfritz@tscpa.net

Editorial Board Arthur Agulnek, CPA-Dallas; Lisa Bauman, CPA-Dallas; James Danford, CPA-Fort Worth; Greta Hicks, CPA-Houston; Jeffrey Liggitt, CPA-Dallas; Mano Mahadeva, CPA-Dallas; Alyssa Martin; CPA-Dallas; Dawne Meijer, CPAHouston; Ty Moore, CPA-Houston; Jan Taylor Morris, CPA-Houston; Windford Paschall, CPA-Fort Worth; Marshall Pitman, CPA-San Antonio; Mattie Porter, CPA-Houston; Kamala Raghavan, CPA-Houston; James Reeves, CPA-Fort Worth; Brinn Serbanic, CPA-East Texas; Paul Willey, CPA-Dallas. © 2011, Texas Society of CPAs. The opinions expressed herein are those of the authors and are not necessarily those of the Texas Society of CPAs. Today’s CPA (ISSN 00889-4337) is published bimonthly by the Texas Society of Certified Public Accountants; 14651 Dallas Parkway, Suite 700; Dallas, TX 75254-7408. Member subscription rate is $3 per year (included in membership dues); nonmember subscription rate is $28 per year. Single issue rate is $5. Periodical POSTAGE PAID at Dallas, TX and additional mailing offices. POSTMASTER: Send address changes to: Today’s CPA; 14651 Dallas Parkway, Suite 700; Dallas, TX 75254-7408.

Today’sCPA

| NOVEMBER/DECEMBER 2011

14 Roundup Brazos Valley CPA Lassoes Family and Career

20 Capitol Interest

Lawsuits, Elections and Franchise Taxes

technical articles

28 The Ever-Changing Lease Exposure Draft

Boards proposing changes to lease accounting standards.

32 The Innocent is the Person Who Explains Nothing … Unless You’re Dealing with Taxes

An examination of innocent spouse tax relief.

36 CPE: The Sunset of the Estate Tax Repeal and Its Impact on the American Farmer

Focus on the Future – CPA Horizons 2025

6 Tax Topics

CP 2000 Notices

7 Business Perspectives

America’s Desire for Jobs

8 Accounting and Auditing

U.S. GAAP for Private Companies Takes Another Step Forward

10 Emerging Issues What If CPAs Ran the Country?

12 Chapters

Galas for Good

departments 16 Take Note 42 CPE Calendar 44 Classifieds

New legislation will impact family farmers.

We see where financial salaries are going before they get there. Our Salary Center tools offer in-depth compensation data for more than 300 financial positions. To review salary trends, calculate local salary ranges and download a FREE 2012 Salary Guide, visit roberthalf.com/salarycenter.

1.800.803.8367 ÂŠ 2011 Robert Half. An Equal Opportunity Employer. 0911-9011

Chairman’s & Executive Director’s Message By Donna Holliday Wesling, CPA | TSCPA Chairman & John Sharbaugh, CAE | TSCPA Executive Director/CEO

Focus on the Future – CPA Horizons 2025 In an effort to anticipate and plan for the future of the profession, the American Institute of CPAs (AICPA) launched an initiative earlier this year called CPA Horizons 2025. The goal was to bring together CPAs from all areas of practice to define the forces that are changing the world and the impact these changes will have on the profession. It is an extension of AICPA’s CPA Vision Project that was started more than 15 years ago, which gathered input from CPAs across the country to develop a vision for the 21st century. The CPA Vision Project identified the profession’s core competencies, values and services. The purpose that emerged from the CPA Vision Project was “CPAs: Making sense of a complex and changing world.” The world has certainly not gotten less complex and there has been change beyond what was envisioned 15 years ago. So while this purpose still holds true, the landscape is so different that the profession needed to take a fresh look and see if our core competencies have changed (or needed to). The new CPA Horizons 2025 initiative incorporates the changes that have occurred in the last 15 years and looks ahead to what can be expected to happen going forward. AICPA examined how new and emerging technologies are affecting the work of CPAs, as well as upcoming issues and trends that will have an impact, and what new perspectives and talents the next generation of CPAs will

bring. As those questions were answered, AICPA considered how the core values, competencies and services might need to be updated looking ahead to the year 2025. The objectives of the CPA Horizons 2025 initiative included the following: • build awareness of future opportunities and challenges for all segments of the profession, • lead the profession as it navigates the changing demands of the marketplace, • draw together the profession to create a vibrant and viable future, and • build upon findings from the CPA Vision Project in helping define the future looking forward to 2025. AICPA turned to a number of sources for input and feedback, including business leaders, regulators, state CPA societies and futurists. They considered four major global forces that will affect the CPA profession: • political/regulatory, • economic, • social/human resources, and • technological. To gather insight and perspectives from CPAs, AICPA used an eight-city tour of in-person, interactive future forums. This

spring, we (Donna Wesling and John Sharbaugh) gathered at the forum in Dallas along with other CPAs, including TSCPA’s Chairman-elect, Fred Timmons, CPA-San Antonio; Phil Davis, CPAPermian Basin, immediate past president of TSCPA’s Permian Basin Chapter; and Michael Brown, CPA-Central Texas, the chair of TSCPA’s Young CPAs and Emerging Professionals Committee. At the forum, the group discussed various forces/issues that could affect the future of the profession, touching on political and regulatory issues, economic issues, sociological issues and technology. We ended up with a long list, but then narrowed them down to the “Top Six” that could affect the CPA profession over the next decade or more. AICPA also used market research, focus groups, and a widely distributed e-survey to gather input from CPAs. Survey participants included more than 5,100 CPAs of all ages from across the country and in every area of accounting practice. The input collected will assist AICPA in understanding the forces shaping the world and how they’ll affect the CPA profession in the future. For more information about the initiative, you can visit AICPA’s website at www.aicpa.org and search on the term CPA Horizons 2025. As of this writing, a report of the findings was just released in the CPA Horizons 2025 Final Report. TSCPA will keep you informed. The results will help drive development of AICPA activities, programs and services needed to assist CPA members in anticipating and responding to the challenges and opportunities as we look ahead to 2025 and beyond. TSCPA will also be examining the results and using them to help shape our future direction in ways that make sense. n

Donna Holliday Wesling can be contacted at donna@weslingcpa.com. John Sharbaugh can be contacted at jsharbaugh@tscpa.net.

Today’sCPA

| NOVEMBER/DECEMBER 2011

Tax Topics By Greta P. Hicks, CPA | Column Editor

CP 2000 Notices When the Internal Revenue Service finds a mismatch between its Form 1099/W2 data base, Information Returns Master File (IRMF), and Form 1040, Individual Master File (IMF), the resulting correspondence sent to the taxpayer is a CP 2000 notice which reflects the mismatch and resulting increase in tax. Upon receiving the CP 2000 notice, the taxpayer has an opportunity to agree, partially agree or disagree. A prompt response often results in reducing the amount of tax the IRS has calculated on the CP 2000 notice. The Portillo case (R. Portillo, CA-5, 91-2 USTC ¶50,304, 932 F2d 1128) involved an audit of Form 1040 with a comparison to the contents of the IRMF. The contractor did not mail the IRS Forms 1099s timely, but later mailed a Form 1099 to the IRS for Portillo in the amount of $35,305. During the audit, Portillo argued that the amount he reported on his return was the amount he had written in his daily/weekly journal, which had been stolen before the audit began. The auditor went to the contractor who furnished $13,925 of cancelled checks made to Portillo and stated the remaining $21,380 was paid in cash for a total of $35,305. Portillo agreed to the increase from $10,800 to $13,925. Since the IRMF indicated that Portillo received $35,305 from the contractor, the auditor made an adjustment to include the $24,505 in as unreported income. Portillo took this issue to Tax Court and later appealed the Tax Court’s decision. The 5th Circuit Court decided “… the notice of deficiency was arbitrary and erroneous because the IRS failed to substantiate in any way its claim that Portillo received unreported income. The basis for the 5th Circuit decision: In this case we find that the notice of deficiency lacks any “ligaments of fact.”

As the Supreme Court has held, the presumption of correctness does not apply when the government’s assessment falls within a narrow but important category of a ‘naked’ assessment without any foundation whatsoever ...” Several courts, including this one, have noted that a court need not give effect to the presumption of correctness in a case involving unreported income if the Commissioner cannot present some predicate evidence supporting its determination. In 1998, Congress added Code Sec. 7491(a), which provides that the burden of proof in a court proceeding will shift from the taxpayer to the IRS in income tax cases if the taxpayer presents credible evidence and certain requirements are met. Code Section 7491(a) also applies in cases where any item of income is based solely on statistical information and certain examinations that include an audit, the matching of amounts from IRMF and the review of a claim for refund prior to the issuance of the refund. The taxpayer must meet four requirements to shift the burden of proof (IRM 4.10.7.6.1.1). 1. Meet all applicable substantiation requirements of the Code and regulations, whether generally imposed or imposed with respect to specific items, such as charitable contributions or meals, entertainment, travel and certain other expenses. 2. Maintain all records required by the Code and regulations. Planning note: If the taxpayer can demonstrate that he/she had maintained the required substantiation,

but that it was destroyed or lost through no fault of the taxpayer, such as by fire or flood, existing tax rules regarding reconstruction of those records would continue to apply. 3. Cooperate with reasonable requests by the IRS for meetings, interviews, witnesses, information and documents (including providing, within a reasonable period of time, access to and inspection of witnesses, information and documents within the control of the taxpayer). The determination of whether a request is reasonable will depend on the facts and circumstances of each case as documented in the examiner’s case file. The taxpayer is not required to agree to extend the statute of limitations to be considered to have cooperated. Planning note: Keep a record of all documents requested and the taxpayer’s compliance with those requests. 4. Exhaust all administrative remedies, including appeal rights. The taxpayer’s failure to appear at the examination, supply documents or file a protest for an administrative appeal hearing will cause the burden to remain with the taxpayer during any court proceedings. In most instances, the IRS assumes that the 1099 or W2 received is correct and assesses taxes based upon that 1099 and/or W2. The Court in the Portillo case made it clear that the IRS should not assume the correctness of the 1099 or W2 and should use additional audit techniques to determine if the income reported on the 1099/W2 has been received by the taxpayer. Even though Portillo is a 1991 case, it is a 5th Circuit Case, and therefore is extremely important. Keep a copy of the case handy to send with any CP 2000 notice that your client receives. Quote it to an appeals officer. Most of all, keep a copy in your research file. Also see Internal Revenue Manual, IRM, 1.4.19, Automated Underreporter Program (AUR). n

Greta P. Hicks, CPA, is a consultant on IRS problems, seminar discussion leader, author of continuing education courses and web content provider. She can be reached at gretahickscpa@yahoo.com or www.gretahicks.com.

Today’sCPA

| NOVEMBER/DECEMBER 2011

Business Perspectives By Mano Mahadeva, CPA, MBA | Column Editor

America’s Desire for Jobs Looking back at the summer and spring of this year, August was simply a bad economic month. The game of “chicken” over the national debt limit dominated the beginning of August. The subsequent sigh of relief was short lived by the downgrade of our triple-A rating, which took care of mid-month. Hurricane Irene paid a visit during the latter part of the month by blowing through the eastern seaboard, causing destruction to the tune of $10 billion. And at month end, the Labor Department reported no net new jobs in the month, with the unemployment rate still at 9.1 percent! Ouch! These events, following what was supposed to be a pause in the pace of the U.S. economy during the spring, has now contributed to a longer period of stagnation, adding doubts to the viability of the two-year-old economic recovery. The economy grew a meager 1.3 percent on an annualized basis during the second quarter, but this growth rate was significantly under that predicted by many economists. The weak health of our economy contributed to a higher unemployment rate of 9.1 percent and lesser employment by some 2.4 million people, as compared to January 2009. The rate of unemployment is a percent of the labor force that is unemployed. So if 100 million people are employed and 10 million are unemployed, the unemployment rate is 9.09 percent. This rate is due to the combination of three types of unemployment – frictional, structural and cyclical. Frictional unemployment happens when 1) employees leave for better jobs; 2) employers displace employees; 3) technological progress displaces employees; and 4) consumers’ preferences change from one product to another, removing the need for that product. Frictional unemployment is positive to the economy due to a better matching of job skills, but a detriment to the employee. Structural unemployment takes place because of technological advances, which displaces

employees who do not have capable skill sets in specific occupations, industries and geography. This could be positive to the economy if the benefits of re-training and/ or relocation of the employee outweigh the associated costs. Cyclical unemployment is due to slowness in the economy and is costly to the economy because it is associated with the decrease in output. The jobs growth problem did not begin overnight. The impact due to globalization and technological advances began many years ago, but the then-booming economy masked what we face today. Even though offshoring has resulted in improved profitability, an alarming trend seen is that of the job mix moving toward the educated and those with superior skill sets offshore, leaving behind the unskilled and the uneducated. Technological innovation has made companies more efficient than before, requiring a lesser number of employees to produce the same output. When displaced employees try to find jobs, they find that they do not have the skill sets required by employers today. Due to structural unemployment, new jobs are created in different sectors, different geographies and different occupations, which displaced job seekers don’t fit into or do not consider, due to reasons such as dual income households, an under-water mortgage, or family issues.

Consumer spending accounts for the majority of gross domestic product in the U.S. and is therefore typically the more important business cycle factor. Business investment has a smaller but more volatile effect on gross domestic product. Due to the reduction in portfolio wealth, upside-down mortgages and loss of jobs, the consumer’s focus today is on increasing their savings and reducing their personal debt, rather than spend. Businesses have a higher share of cash on their balance sheets, greater than two trillion dollars, as they build up liquidity rather than invest in plants or hiring, because of the uncertainty and unknown impact of new regulations, and a reduction in demand. This simultaneous action of savings and less spending by both, consumers and businesses, have contributed to the weak economy. The immediate priorities have to drive demand. Legislators have to create a climate conducive to entrepreneurship and innovation. The tax code must offer the right incentives for job creation. The benefits of regulation need to exceed that of its cost. Immigration needs reform with a focus on job creation and on recruiting specialized labor. Trade and global commerce needs expansion so developing countries can help grow our export business. In addition, any jobs agenda must involve changes in education and more training to prepare for tomorrow’s jobs. Many proposals are on the table to help facilitate a strong economic recovery. Temporary solutions, such as tax-free holidays and payroll tax cuts, may help in the short term, but spending patterns remain largely determined by our longterm expectations and improved consumer confidence. Political infighting, polar opposite views and stubbornness within Congress is not helping to move any agenda toward future prosperity. This debate will only get louder as the election year rolls around. As a society, we cannot give up on our people and our economy – we need to act today! n

Mano Mahadeva, CPA, is executive director with U.S. Oncology in Plano. He serves on both the Editorial Board and the Business and Industry Issues Committee for TSCPA. Mahadeva can be reached at mano.mahadeva@usoncology.com.

Today’sCPA

| NOVEMBER/DECEMBER 2011

Accounting and Auditing By C. William (Bill) Thomas, CPA, Ph.D. | Column Editor

U.S. GAAP for Private Companies Takes Another Step Forward For the past two years, a Blue-Ribbon Panel has been studying the prospect of issuing separate accounting standards to meet the financial measurement and reporting needs of private companies (see this column in the May/June 2010 issue for background). In January 2011, the Panel released a report containing a set of recommendations to the Board of Trustees of the Financial Accounting Foundation (FAF).

assessment of the needs of the users of private company financial statements and how those needs differ from those of users of public company financial statements. This assessment serves as a basis for determining when and how to modify U.S. Generally Accepted Accounting Principles (GAAP) for private companies.

Among other things, the panel’s report suggested that due to the different needs of private and public company users of financial statements, it is necessary for the Financial Accounting Standards Board (FASB) to develop a different standardsetting framework for private companies.

WHY ANOTHER SET OF GAAP?

The overall objective of this project would be to decide which financial reporting standards need to be modified with regard to financial statement presentation/ disclosure, recognition and measurement requirements for private companies. In July 2011, FASB’s staff completed an initial

FASB has identified six significant factors that differentiate the financial reporting needs of users of private vs. public company financial statements. These six factors are: 1. The users themselves, who are a limited number of lenders and equity investors

The answers are out there Every firm has its own set of challenges. If you’re looking for individualized support for your firm, CPA Mutual is here for you. CPA Mutual has provided risk management services to our member-owners for over 23 years. They all enjoy direct contact with us should the need for assistance arise. Whether its pre-claim assistance or avoidance, coverage questions on new services or clients, or engagement assistance, we are just a phone call away. No delays ... no wasted time. We’re ready to join your quest to make your firm a success – and to help you sleep at night.

let us help you find them 11801 Research Dr. • Alachua, FL 32615 (386) 418-4003 • (800) 543-3029 Fax: (386) 418-4004 • www.cpamutual.com

Our business is taking care of your business. Today’sCPA

| NOVEMBER/DECEMBER 2011

who are more concerned with financial statement disclosures affecting cash earnings and liquidity vs. accrualmethod earnings and the current value of investments. 2. The access to management that these users have. Often, financial statements of private companies are used to corroborate information lenders and equity investors have already received from management by other means. 3. The investment strategies that users employ with regard to private companies, which usually focus on long-term performance, cash and access to debt and equity, vs. shortterm profitability and fluctuations in valuations. 4. The ownership structure of private companies, which tends to be individuals, private equity firms, venture capitalists and families. 5. The accounting resources of private companies, which are more limited than those of large, publicly traded companies. 6. The reduced ability of accountants at private companies to maintain their continuing professional education in accounting standards. Due to these factors, many private companies presently choose to issue financial statements that depart from GAAP in a variety of ways, thus forcing their auditors to issue qualified opinions. Users are accepting these modified financial statements along with qualified audit reports. FASB is concerned that such modifications will seriously harm the comparability of private company financial statements. FASB believes that the better course of action is to develop a separate financial reporting framework for GAAP of private companies that make modifications to GAAP unnecessary.

WHAT WILL THE MAJOR DIFFERENCES BE? It is important to understand that FASB

does not intend that the financial reporting framework for private companies be regarded as a new conceptual framework leading to entirely different financial statements for private companies. Rather, FASB is focused on identifying where and how the current standards should be modified to best meet the needs of users of private company financial statements. While FASB has not yet identified exactly what the differences will be, each of the six factors identified above suggest the following possible changes to GAAP that might be allowed for private companies: 1. More financial statement focus on cash and reduced requirements for fair value disclosures. 2. Simpler recognition and measurement approaches and less detailed disclosures than are presently allowed under GAAP. 3. More focus on items affecting earnings before interest, taxes, depreciation and amortization (EBITDA). 4. Stronger focus on income and estate taxes, succession planning, stock restrictions and liability exposure.

5. Accounting standards that are simpler and less costly to implement. 6. Delayed effective dates for accounting standards related to private companies.

WHAT’S NEXT? In October, FAF’s Board of Trustees issued for public comment a new “Plan to Establish the Private Company Standards Improvement Council (PCSIC).” The new council would have authority to identify, propose and vote on specific improvements to U.S. accounting standards for private companies. Changes would be subject to FASB ratification. AICPA and TSCPA were disappointed FAF did not propose creating a new independent board to set differences in U.S. GAAP standards, where appropriate. This was a cornerstone of the Blue-Ribbon Panel’s set of recommendations. Comments on the new plan are due by Jan. 14, 2012. The FAF trustees will make a final decision on the plan following the end of the comment period. For more information, please see the FAF website at www.accountingfoundation.org. n

C. William Thomas, CPA, Ph.D., is the KPMG/Thomas L. Holton Chair and the J.E. Bush Professor of Accounting in the Hankamer School of Business at Baylor University in Waco. Thomas can be reached at Bill_Thomas@baylor.edu.

Today’sCPA

| NOVEMBER/DECEMBER 2011

Emerging Issues By James F. Reeves, CPA | Column Editor

What If CPAs Ran the Country?

Imagine that you are an audit partner asked to bid on a new engagement, and a quick glance over the prior year’s unaudited financials shows a negative net worth of $44 million, an operating loss of $817,000, and a negative cash flow of $1.3 million. Would you bid on the job? Accept the engagement? Your first thought would probably be, “Is this a going concern?” Now imagine that instead of bidding on the audit, you are a consulting partner and asked by the board of directors to come in and review the company’s strategy and operations and make recommendations to turn the company around (and they agree to pay your fee upfront). You learn that the board is looking for a strategy to grow the business at 5 percent a year. You ask a few questions and find out that while board members are in agreement for the need to cut costs, they can’t agree on which costs to cut. Dig a little deeper and you find out that the annual budget is prepared on the cash basis, and there are about $31 million of off-balance sheet liabilities, mostly unfunded future pension and healthcare costs not reflected in the budget. Talk to a few board members and you learn that aside from these off-balance sheet liabilities and other one-time costs, the enterprise has reported a 4 percent net profit over the past 15 years, which is the picture

senior management has been presenting to the board, keeping everyone content, until recently. And by the way, they tell you that while still the market leader, the company has been losing ground to competitors for the last decade, and that competitors hold 46 percent of the company’s debt. Finally, you review a credit report that expresses serious concerns about the organization’s ability to repay its debt. A quick back-of-the-envelope calculation shows that in 15 years, the organization’s obligations for healthcare and retirement expenses, plus interest on its debt, will completely absorb all of its revenue. Accordingly, you clearly understand the board’s sense of urgency and the need for a restructuring specialist and accept the engagement.

THE ENGAGEMENT The first thing you do is address the shareholders. You make it totally clear that

long-term survival of the enterprise will be based on prudent cost management. You let them know that you will be focusing on the fundamental problems and underlying causes, not merely the symptoms. Next comes a SWOT analysis – a candid look at the strengths, weaknesses, opportunities and threats facing the organization, including the competitive environment. As part of the SWOT analysis, you bring in your due diligence team to evaluate the performance of the various lines of business, both core business lines and extensions, as well as the organization’s performance across its 50 geographic territories. You learn, not surprisingly, that some business lines and territories are outperforming others, and you note the ones that will require additional investment, ones that need to be scaled back, outsourced, or sold off. You also look at processes that can be automated and where technology can be applied to ensure that each line of business is operating at maximum efficiency. Your next area of focus is on the budgeting and financial reporting process. Clearly the board, shareholders, investors and creditors are not consistently getting the full picture, as the budgeting process has historically focused only on current operations, ignoring the fundamental or structural imbalance between receipts and disbursements resulting from the off-balance sheet liabilities. You explain to the board that the budgeting process is where resource allocations and strategic priorities need to be addressed, and the foundation for longterm success is laid. While there are always tradeoffs, a good budgeting process will provide multiple parties the opportunity to present their recommendations; at the end of the day, the chief executive and chief financial officer must sign off on the commitment of scarce resources in the pursuit of the organization’s aspirations, as well as its most fundamental needs.

James F. Reeves, CPA, is Senior Vice President, New Product Development at the Tax and Accounting business of Thomson Reuters. Contact him at jim.reeves@thomson.com, or visit his blog at http://jamesfreeves.blogspot.com.

Today’sCPA

| NOVEMBER/DECEMBER 2011

Once the new budgeting process is in place, you can identify the metrics and performance measures to help senior management make more informed decisions. Finally, once you have completed the annual budget for the coming year, you can develop a financial forecast for the short term, medium term and long term, which will be in your report to the board. As part of the budget review, you bring in your human resources consulting team for a comprehensive review of the company’s organizational structure and compensation practices. You learn that the company grew headcount 2 percent in 2008 and another 3 percent in 2009, while other organizations were cutting back, and it has been paying its employees at significant premiums relative to market rates. Further, you learn that the majority of employees still participate in defined benefit pension plans, even though such plans are increasingly rare in other

organizations. You conclude that what the organization needs is a performancebased culture focused on cost savings and operating efficiency with an incentive compensation program that ties bonus payouts to increasing the productivity of workers and meeting annual expense reduction targets. It is also evident that the enterprise must optimize its cost structure, including headcount, compensation and benefits relative to industry norms.

NEXT STEPS Now that you’ve addressed the operational and human resources issues, you understand that to complete the engagement you must drill down into the more strategic issues – restructuring the organization’s debt and revenue models in a way that will drive sustainable growth and lead to long-term solvency and a winning competitive position. To help with those formidable tasks, you appoint a super

committee of board members to review all available options, with “everything on the table,” and make recommendations for at least $1.5 million in cash flow improvement over the next 10 years. The alternative, you tell them, is across-the-board spending cuts, which nobody seems to want. Your final task will be an evaluation of senior management’s performance. Your recommendations will be considered at a shareholder’s meeting on Nov. 6, 2012. Stay tuned. Note: This article is a CPA-centric adaptation of a report titled “USA, Inc.,” by Mary Meeker, former analyst with Merrill Lynch and Morgan Stanley, and current partner with venture capital firm Kleiner, Perkins, Caufield, and Byers. You can do a search and access the report online. Note that you can multiply each of the above dollar amounts by one million to see the actual amounts for “the enterprise.” n

Sensible Investing Successful Results

Rely on an investment firm Texans trust. We’re ready to take the next flight your way.

An independent fee-only firm since 1988

Left to Right: Jeanie Weathington, CFP® Director of Research; Steven R. Goodman, CPA, CFP® President, Chief Investment Officer; Wade D. Egmon, CPA, CFP® Client Service Manager; Ed Roth, CFA, CPA, CFP®, CEBS

Vice President, Investment Advisory Services

(877) 599-1778 (713) 599-1777 • 5177 Richmond Ave., Suite 700 • Houston, Texas 77056

GoodmanAd_half page.indd 1 Today’sCPA | NOVEMBER/DECEMBER 2011

9/12/11 10:03 AM

Chapters By Rhonda Ledbetter | TSCPA Chapter Relations Representative

Galas for Good

Central Texas Chapter 2011-2012 President Michelle Downs, CPA, and 20102011 President Harry Harelik, CPA

Angela Ragan, CPA, Rachel Hobbs, CPA, and Michael Brown, CPA, at the Central Texas Chapter’s scholarship fundraising dinner

The chapters often hold events that celebrate the successes of their service years coming to a close.This month’s column features two chapters that held gala evening gatherings a step beyond their usual. CENTRAL TEXAS CHAPTER The first scholarship fundraiser and members’ social event in many years was held at the McLennan Community College Conference Center. 2010-11 President Harry Harelik, CPA, and past President Donna Tadlock, CPA, were co-chairs. As with a growing number of TSCPA chapters, the board determined that, if the chapter was to continue to award accounting scholarships, a fundraiser would be initiated so that the budget would not be impacted by scholarship expenses. The board also discussed the need to get chapter members together for a social event, aside

from the continuing professional education that the chapter offers each year. The evening was enhanced by including not only a formal installation of incoming chapter officers by past president and longtime member Walter Hill, CPA, but also recognition of all past presidents of the chapter. The printed program for the evening included a full listing of all past presidents of the chapter dating back to its founding. To add to the funds raised through the sale of dinner tickets for the evening, the board worked to solicit sponsors for the event. In addition, two raffle items

were secured for additional fundraising: an iPad 2 and a 32” Vizio HD LCD TV. The fundraising target of $3,000 was significantly exceeded, with an ultimate net of more than $6,500. Thanks to 16 sponsors, almost 80 attendees and hundreds of raffle ticket buyers, the chapter made more than enough to fund scholarships for the year. In addition to a gourmet buffet dinner and the installation of officers, the evening included a local humorist as the speaker. During the reception before the dinner, CPAs and their guests renewed acquaintances while listening to a grand piano serenade by an MCC music student. One of the chapter’s scholarship winners was also introduced to the audience. The dinner allowed non-CPA sponsors to see the chapter in action, raising local CPA visibility in an enjoyable atmosphere. It is hoped the event will become an annual activity, with increased participation and

Rhonda Ledbetter is the TSCPA chapter relations representative. Contact her at 972-687-8508 or at rledbetter@tscpa.net.

Today’sCPA

| NOVEMBER/DECEMBER 2011

HELP MAKE YOUR CHAPTER AWARD-WINNING Members are the key to – and the reason for – chapter success. Contact your local president or executive director and find out how you can get involved in making yours an awardwinning chapter! You can get contact information through the TSCPA website at tscpa.org. Southeast Texas Chapter 2010-2011 President Troy Domingue, CPA

Brian King, CPA, guest comic at the Southeast Texas Chapter’s 60th anniversary gala

increased interest by new CPAs, as well as experienced members who have not recently been active as chapter volunteers. Most importantly, the fundraiser reminded chapter members of the importance of helping students financially so they can complete their accounting degrees and eventually become part of the much-needed workforce in both public and private sector accounting.

by recent President Rusty Chimeno, CPA. The 2010-2011 committee was chaired by Cecilia Jungen, CPA, and included Laura Williams, CPA, as well as Chimeno. A special anniversary-year logo was used in a variety of communications and objects. Posters listing the year’s events were provided to members for placement at their offices and around town. T-shirts with the dates (concert-tour style) were given to members at meetings and CPE seminars, where a large professionally-prepared banner was displayed. Raising positive public awareness of the organization, and helping members feel good about their affiliation, were the dual purposes of the celebration. For the dinner, save-the-date postcards (and later, formal invitations to purchase tickets) were mailed to civic leaders, political figures and businesspersons throughout the chapter area. Sponsorships were sold to connect

SOUTHEAST TEXAS As the culmination of a year of events celebrating its 60th anniversary, the chapter held a gala dinner at the penthouse floor of the Lamar University Mary and John Gray Library. It was the chapter’s first anniversary commemoration in recent memory, so all the stops were pulled out to make it memorable. Planning began by a committee working during the previous fiscal year, spearheaded

Today’sCPA

| NOVEMBER/DECEMBER 2011

with area companies and offset the expense for the gathering. During the social hour, music was provided by a keyboardist dressed in clothing from the 1950s, when the chapter was founded. An area TV anchorman known for his humor was the surprise MC during the dinner. Then, the featured element: performances by two finalists in a Funniest Accountants competition. Brian King, CPA, and Gerry Leonard, CPA, donated their time to travel from the Atlanta area to Beaumont. The crowd of more than 70 enjoyed an evening of fun and festivity. n

Spotlight on CPAs By Anne McDonald Davis, ABC

Roundup – Brazos Valley CPA Lassoes Family and Career

Kacey, Amber and Hannah Bass.

Doug and Amber Bass.

Amber Bass, CPA-Brazos Valley, says it wasn’t just the traffic that made her steer clear of the bright lights and big cities when she began her career. “I treasure small town life,” she shrugs. “I’m very old fashioned and not ashamed to admit that; like taking time for my kids and teaching them respect and good manners. I was raised that way and want that for them too.” Born in Mexia, Bass grew up on horseback and won a rodeo scholarship to Hill College. She actually met her husband, Doug, at a team roping competition, although she wisely won’t venture an opinion as to which of them is better (however much she hints that she is). The proud mother reports that these days their girls, 4-year-old Kacey and 6-year-old Hannah, are the ones in the spotlight as they run barrels in rodeo competitions. Although Bass now works in Bryan, the family lives on 40 acres in nearby Brenham along with their eight horses, dogs and cows. She enthuses, “The whole family rides; we all live to be outside.”

Yes, even in the record heat Texans weathered this past summer; Bass says one remedy is running through the sprinklers. She probably just meant her little ones. But maybe not. The Bass’ 400 head of cattle graze on acreage leased near Cypress (further south). Doug is a full-time rancher who tends his own family’s herd along with others; he also manages an auction barn in Brenham. In many ways, Bass is a traditional rancher’s wife who looks after her critters and dotes on her kids. However, she’s also a CPA.

HER OTHER LIFE Although rodeo skills boosted her into college 14 years ago, Bass still had to determine what course of study to pursue. Like a lot of rural Texans, she’d grown up around animals and considered the veterinary sciences. But then again … she’d always been “good with numbers.” So accounting it was. “I even tutored accounting at Hill College. I say if you’re good at something and enjoy it, that’s the way to go,” she asserts. After Bass received her associate degree from Hill, she went on to Texas A&M University for her bachelor’s. Post graduation, she joined the office staff of a road construction company and then next, The LoanStar Funding Group, which evolved into her current employer, Greater Texas Foundation (greatertexasfoundation.org). While the organization started out specializing in student loans, today their broader purpose is supporting a number of initiatives to make post-secondary

Today’sCPA

| NOVEMBER/DECEMBER 2011

education a reality for as many Texas students as possible. The foundation’s particular focus is on math and the sciences, with a special outreach to students who face roadblocks to continuing their education. “Many of our grants go to universities to back up scholarship programs they already have in place,” explains Bass. “We partner to help make a bigger difference.” Although she worked her way up to controller of the foundation, Bass had to clear some additional hurdles along the way. Her BS degree in accounting did not encompass all the required hours to sit for the CPA exam, so she attended night school to achieve that goal. “Receiving my certificate helped me move up,” Bass says proudly. “I couldn’t have even applied for my present position if I hadn’t been a CPA.”

PART OF THE WHOLE “I became a [TSCPA] member when I graduated,” says Bass, who recalls how Society members became her networking lifeline for information in the early years of her career. “There was only one other CPA where I worked.” Since that time, Bass came to be active in the local Brazos Valley Chapter and serves on the board. In the past year, she began participating as a state-level volunteer on the Young CPAs committee. Bass sees the need for CPAs to be involved both in their professional society and grassroots community organizations. “I just recently was asked to be on the board for the Brazos Valley Community Action Agency,” she explains. “They have different programs to help the community like lower income housing, assistance for the elderly – that sort of aid. They wanted a CPA to help

We Go To Work For You.

deal with financial issues, which can be tough for non-accountant board members to understand.”

HOME ON THE RANGE Bass says that life in her 30s has different priorities from the narrower focus of her early 20s when she was “paying dues” as a new professional. “With two small children, I have to be aware of work/life balance,” she reflects. “I look forward to coming home … that’s where my heart is.” When Bass gets the chance to have a little time to herself, she pulls on her running shoes and logs a couple miles down the quiet country foot paths of Central Texas. Or she saddles up her quarter horse, Goose. “I think we should live each day to the fullest,” she smiles. “Time goes so fast. We just have to keep the faith and look to God to handle life.” n

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 your area who are actively looking for a practice. Call A Texas CPA Today! North Texas The Holmes Group Toll-Free 1-800-397-0249 ryan@accountingpracticesales.com Central & West Texas Bill Anecelle Toll-Free 1-866-809-8705 bill@accountingpracticesales.com Southeast Texas Gary & Wade Holmes Toll-Free 1-888-847-1040 garyh@apsleader.com www.AccountingPracticeSales.com

Today’sCPA

| NOVEMBER/DECEMBER 2011

Take Note

Connecting New Members – TSCPA: It’s a Wonderful Life

If you know Texas CPAs, candidates and/or accounting students who would benefit from belonging to an organization that is designed to help connect one CPA to another, invite them to join TSCPA. The Society exists for the benefit of the accounting profession and the careers of CPAs. Each member can have a starring role by lending their voice and vital support. They also receive the benefits of belonging to a professional community that’s more than 29,000 members strong, who practice in a variety of accounting areas. So connect them today – information on the membership categories and applications are available on the TSCPA website at this link: www.tscpa.org/Content/ general/jointscpa3.aspx.

Students Win Tuition/ Book Reimbursements

In October, four student members won $250 tuition/book reimbursements provided by the Accounting Education Foundation of TSCPA, Inc. The winners were selected in a random drawing of 2011-12 student members majoring in accounting. Congratulations to these four students: Ricky Patel Houston Chapter Houston Baptist University Jovi A. Paniagua Permian Basin Chapter University of Texas at Permian Basin Lily Hall Houston Chapter University of St. Thomas

Practice Management Institute

TSCPA can assist you with your succession planning needs through the Texas Society’s Practice Management Institute. Developed in partnership with the Succession Institute, LLC, this resource was designed especially for TSCPA members, and it focuses on firm management and practice management issues. You have access to free material and content on succession planning. There are also CPE self-study course offerings available to you at a discounted rate if you would like to receive CPE credit. To take advantage of this resource, please go to the CPE section of the TSCPA website at tscpa.org, scroll down and select Practice Management Institute CE.

New Professional Designation for Management Accounting

A new professional designation for management accounting will soon be offered. The American Institute of Certified Public Accountants (AICPA) and the Chartered Institute of Management Accountants, headquartered in London, have agreed on the creation of the Chartered Global Management Accountant (CGMA). The new CGMA designation will be a worldwide standard of professional excellence in management accounting, and it’s proposed that it will be issued early in 2012. Those holding it will commit to a program of developing and maintaining competency in management accounting, as well as leadership and strategy. AICPA voting members with at least three years working in management accounting or a financial management role would qualify for an accelerated route to obtaining the new designation. For more information, visit AICPA’s website at aicpa.org and search on “CGMA credential.”

Amy L. Taylor Dallas Chapter University of Texas – Dallas

Today’sCPA

| NOVEMBER/DECEMBER 2011

What’s New on the TSCPA Website

TSCPA’s Online Information Technology Community

Go to tscpa.org to learn more about …

New Student Blog: TXCPA2B Four Texas accounting majors are blogging on TSCPA’s new student blog, sharing their experiences and lessons learned on the road to becoming a CPA. To meet the bloggers and read their posts, go to http://txcpa2b. com/. Marketing Tools Address Potential Confusion of IRS Registered Tax Preparer Program AICPA has developed resources and tools to address the potential confusion in the marketplace created by the new IRS registered tax preparer program. The resources and tools were designed to help consumers understand that CPAs are the most qualified tax preparers. They can be used by CPAs in their efforts to promote the profession and differentiate CPAs from other tax preparers. Available now are: • print ads and a radio spot; • an educational brochure; • tax-saving strategies brochures, PowerPoints and speeches; • technical and general tweets; • talking points and video message from Barry Melancon; and • a media advisory template. More resources are in development and will be available in December 2011. To learn more, go to TSCPA’s website at tscpa.org/Content/52088.aspx and log in as a member.

MEMBERSHIP SUSPENSIONS The following people have had their membership in TSCPA suspended by the Executive Board for non-compliance with TSCPA Bylaws Article III, Section (4A)(1) for noncompliance with the Texas State Board of Public Accountancy’s continuing professional education requirements. Suspended for a period of three years: • Charles D. Davidson, CPA, Midland; • David A. Estes, CPA, Cross Plains; • Lucy A. Porter, CPA, Garland; • Blake Y. Stock, CPA, Dallas; • Nancee Michelle L. Upton, CPA, CGFO, Houston.

Today’sCPA

| NOVEMBER/DECEMBER 2011

The Information Technology Community on the website is a resource that addresses members’ strategic technology needs. You’ll find different neighborhoods within the community, including ERP, Excel, GRC, Implementing Technology, Security, and Social Media. The neighborhoods contain a library of articles, videos and/or other links to information pertinent to that particular issue. You’ll also find an “ask a question” area to connect you with other CPAs who have experience with similar issues and can assist with questions. To visit the community, go to the TSCPA website at tscpa.org. Under Resource Center, select Member Communities, and then scroll down and select Information Technology Community.

Ask a Member Program

TSCPA’s Ask a Member resource was created to assist you with questions, concerns or situations that arise and might be outside your area of expertise. Through this program, you have a link to other TSCPA members for a consultation. Volunteers provide quick, informal assistance on an “as needed” basis, giving you access to the wealth of knowledge and experience of other Texas CPAs. It’s an additional resource that TSCPA offers to help you with your professional needs. To access it, visit TSCPA’s website at tscpa.org/Content/ ResourceCenter/AskaMember.aspx and log in as a member.

Disciplinary Action

As a result of a decision by the Executive Board of the Texas Society of CPAs, the following member has had his TSCPA membership: Expelled – • William B. Cannon III of Richmond; Cannon’s certificate was revoked by the Texas State Board of Public Accountancy (State Board) on May 3, 2011. He failed to comply with the terms of a 2010 Agreed Consent Order entered into with the State Board for a five-year probated revocation.

Take Note

Leadership Nominations Results for 2012-13 Positions Terms Commence June 1, 2012 TSCPA’s Nominating Committee recently chose the slate of candidates for 2012-13 leadership positions, directors-at-large and Nominating Committee members. In accordance with TSCPA Bylaws Article IX, the candidates’ election will be conducted through a secure electronic ballot on a TSCPA website area approved by the Executive Board. The electronic ballot will be open to all eligible members to vote. The voting is planned to take place in mid-November through December 2011. TSCPA will send communications to members regarding the electronic voting and will post information about it on the website at tscpa.org. The following persons were nominated for terms beginning in fiscal year 2012-13 and have consented to serve if elected by the members: William (“Willie”) H. Hornberger (Dallas) Chairman-elect (Chairman in 2013-14) Jeannette P. Smith (Rio Grande Valley) Treasurer-elect (Treasurer in 2013-14) Brenda R. (“Roxie”) Samaniego (El Paso) Secretary (Beginning June 2012 and expiring May 2013) Executive Board Members Three-year term beginning June 2012 and expiring May 2015 Michael L. Brown (Central Texas) Kathryn W. Kapka (East Texas) Director at Large (Three-year term beginning June 2012 and expiring May 2015) E. Leroy Bolt (Abilene) Bradley D. Brown (Southeast Texas) Sandra Kay F. Brown (Brazos Valley) Susan S. Roberts (Fort Worth) Toni McBee Joyner (Brazos Valley) Donna P. Tadlock (Central Texas) Donna H. Hugly (Dallas) Keith Reeger (South Plains) Diane DeCou (Corpus Christi) Jerome G. Kotzur (Victoria) William L. Patton (San Antonio) Ryan G. Bartholomee (Permian Basin) Maria A. Martinez (San Antonio) was selected as a one-year Director-at-Large replacement (2012-2013) for Michael L. Brown (Central Texas) who was selected for a three-year Executive Board term. Mark J. Goldman (San Antonio) was selected as a one-year Directorat-Large replacement (2012-2013) for Melanie C. Geist (San Antonio) who will automatically be on the Board of Directors in 2012, when she will serve as president of the San Antonio Chapter.

Nominating Committee (Beginning June 2012 and expiring May 2013) Jacquelyn Kuciemba (Brazos Valley) Randy L. Crews (Rio Grande Valley) Sheri K. DelMage (Southeast Texas) Michelle R. Downs (Central Texas) Robert G. Lindsey (East Texas) Aaron G. Draper (Austin) Nancy M. Mathews (Houston) Paul W. Willey (Dallas) Robin T. Christian (Fort Worth) Melanie C. Geist (San Antonio) As immediate past chairman of TSCPA in 2012, Donna Wesling (Austin) will automatically serve as the Nominating Committee chair, and Melanie C. Geist (San Antonio) was appointed as vice chair. AICPA Council (Three-year term beginning October 2012 and expiring October 2015) The following names will be submitted to the AICPA Nominating Committee as recommendations from Texas to serve on the AICPA Council: Donna H. Wesling (Austin) Tracy B. Stewart (Brazos Valley) James A. Smith (Dallas) AICPA Council – 1-Year Designee: (Beginning October 2012 and expiring October 2013) Fred J. Timmons (San Antonio)

Today’sCPA

| NOVEMBER/DECEMBER 2011

Accountants Confidential Assistance Network TSCPA’s Accountants Confidential Assistance Network (ACAN) is a peer assistance program dedicated to helping Texas CPAs, CPA candidates and accounting students dealing with alcohol, chemical dependency and mental health issues. A 24hour hotline is available at 1-866-766-ACAN to help people who need assistance. You can also contact Craig Nauta at cnauta@tscpa.net. There’s no risk to call. By law, all information, communications, reports received, gathered or maintained by ACAN are strictly confidential. To learn more about the program, please go to the website at tscpa. org/resource/peerasst.

Notice of Midyear Board of Directors Meeting JANUARY 20-21, 2012 COLLEGE STATION, TEXAS

The Midyear Board of Directors Meeting will be held January 20-21, 2012 at the Hilton Hotel & Conference Center in College Station. The Hilton College Station & Conference Center is located at the intersection of University Drive and Tarrow Boulevard, less than two miles from Texas A&M University. Within a three-mile radius of the hotel, guests can shop at the Post Oak Mall, visit the Brazos Valley Museum, or tour the George Bush Library located on the campus of Texas A&M University. The Messina Hof Winery, located just minutes from the hotel, offers daily tours of the winery, vineyard and wine cellar, as well as samplings of award-winning wines produced in the Brazos Valley. Hilton Hotel & Conference Center College Station 801 University Drive East College Station, Texas 77840 Phone: 979-693-7500; Fax: 979-846-7361 TSCPA Group Rate: $129 +15% occupancy tax www.hiltoncs.com The cutoff date for the sleeping room block is Jan. 3, 2012. Make your reservation early. The block may sell out before the cutoff date. If that occurs, rooms may still be available, but at a higher rate. Directions: http://hiltoncs.com/maps/maps.html. For more details about the meeting and a preliminary agenda, please see TSCPA’s website at www.tscpa.org/Content/50457.aspx and select “2012 Midyear Board Meeting Information.”

Impress the Big Dogs Nothing impresses management or clients like ﬁnding anomalies not previously detected. Identify control and transaction issues before they become a problem for your organization or client with IDEA® – Data Analysis Software.

Access and analyze large volumes of data in seconds to: Identify errors and detect fraud Extend your auditing capabilities Meet documentation standards For a free demonstration CD of IDEA, contact us at audimation.com or call 888-641-2800.

Today’sCPA

| NOVEMBER/DECEMBER 2011

IDEA is a registered trademark of CaseWare International Inc.

Capitol Interest By Bob Owen, CPA | TSCPA Managing Director, Regulation and Legislation

Lawsuits, Elections and Franchise Taxes

Here we are, four months before the primary elections and a year away from the big Election Day. Although 2012 is a presidential election year, it’s an off-year for Texas statewide offices. All state legislators will be standing for election, including all state senators, because this is the first election after redistricting. There are a lot of existing politicians who are looking for a promotion. We are all aware of Gov. Rick Perry’s and Lt. Gov. David Dewhurst’s national aspirations, and you might have noticed that Rep. Ron Paul is also running for president. Unlike Perry and Dewhurst, Paul is giving up his congressional seat to run for president. Others who want to move up the political food chain include a long list of folks who want to be the new lieutenant governor. They include Comptroller Susan Combs, Agriculture Commissioner Todd Staples, Land Commissioner Jerry Patterson, and Texas Sen. Dan Patrick (R-Houston).

Railroad Commissioner Elizabeth Ames Jones plans to vie with Dewhurst for the U.S. Senate seat. Railroad Commissioner Michael Williams is running for Congress, and Rep. Warren Chisum (R-Pampa) wants to be a railroad commissioner. Texas Sen. Mike Jackson (R-La Porte), and Reps. Joaquin Castro (D-San Antonio), Pete Gallego (D-Alpine) and Randy Weber (R-Pearland) are running for Congress. Rodney Anderson (R-Grand Prairie) and Larry Taylor (R-Friendswood) are seeking a seat in the Texas Senate, while Reps. Kelly Hancock (R-North Richland Hills) and Mark Shelton (R-Fort Worth) are

thinking about doing the same in the same Senate district. There are several other representatives who are considering trying for the Texas Senate and at least two more who are contemplating a run for Congress (and probably more by the time you read this). Attorney General Gregg Abbott is the best-funded Republican in the state (he has over $10 million in his war chest), and he has made no announcements about his future political intentions despite reports in the press that he wants to be our next governor. There hasn’t been much talk about gubernatorial candidates, perhaps because Perry may be after that spot again in 2014. Candidates are in the process of officially filing for positions, as Dec. 12, 2011, is the new filing deadline. Before Christmas, we will know for sure who is running for what office. Look for serious campaigning to begin after the first of the year. Of course, I’m not talking about presidential campaigning, which seems to go on all the time. It would be a good idea if the redistricting lawsuits (there were at least 16 redistricting lawsuits filed) and Department of Justice approvals were done by now, since it’s hard to know where to run if you don’t know the district boundaries. All Texas redistricting in recent history is ultimately determined by the courts, and the courts could postpone the filing deadline if they’re unable to resolve the issues. Since this column is written some time before it’s published, it is possible this has all been resolved by the time you read it. If so, check the filings after Dec. 12 so you will know who’s on the ballot for your legislative districts. “Election season,” which means all of 2012 until Election Day, is a great time for CPAs to get to know potential legislators and make or improve relationships. Help with the campaign, and the candidate will be forever grateful, or at least until the next campaign.

Today’sCPA

| NOVEMBER/DECEMBER 2011

Just a short note about candidates for president and the U.S. Senate. By now you probably know that Perry and Dewhurst do not have to resign their current offices to pursue their federal ambitions. If they are unsuccessful on the national level, they will still be our governor and lieutenant governor. If they are both successful, who will take their place? That will be up to the state senators. If both win, the president pro tempore of the Senate becomes our governor, except that position is held by Sen. Mike Jackson, who is also running for Congress. If he wins, too, Texas will have no governor until the state senators elect one of their own as a new senate presiding officer, who then becomes governor. Then the senators do it all over again and this time, the selected senator becomes lieutenant governor. I think that means a special election to replace the senator who becomes governor, but not necessarily for the senator who becomes lieutenant governor, because he/she will still be a voting member of the Senate. If Perry wins the presidency and Dewhurst does not win the Senate seat, then Dewhurst gets to be governor. Vice versa and the Senate selects one of its own as the new lieutenant governor. This running for a federal office while holding a statewide office gets a little confusing for the voters and even more so for the campaign contributors. Perry and Dewhurst are holding federal and state fundraisers. Money collected is not interchangeable. If you give to Perry to help him be governor, the money can’t be used to pay for the presidential campaign, and vice versa. So if you’re inclined to give to Perry or Dewhurst, which campaign do you support? Both, of course, if you listen to Perry and Dewhurst; but in a state already suffering from fundraising fatigue, that’s a hard sell. If you are interested in state government, you might be inclined to make no contributions to either until the dust clears. After the November 2012 election, there are still two years before the next gubernatorial elections in Texas. What about the people who are already announcing their run to replace Perry and Dewhurst? They want your

Today’sCPA

| NOVEMBER/DECEMBER 2011

money too! But then if these two federal aspirants fail in their quest, they will be the sitting governor and lieutenant governor during the next legislative session. This is a political action committee nightmare. How about a law or constitutional amendment that says you have to resign your state office to run for federal office?

OTHER ISSUES Redistricting is not the only subject worthy of a lawsuit. After four years of breathless anticipation, a lawsuit has finally been filed challenging the constitutionality of the revised franchise tax, fondly known as the margin tax. When the margin tax was enacted back in 2006, this lawsuit was anticipated so much that the law included a provision that says such a lawsuit must be tried by the Texas Supreme Court and it must be done within 120 days. Accordingly, the lawsuit (Allcat Claims Service, LP and John Weakly, Realtors vs. Susan Combs,

Comptroller of Public Accounts of the State of Texas, and Greg Abbott, Attorney General of the State of Texas) was filed in the Texas Supreme Court. The lawsuit was also filed in district court, perhaps because there is an open legal question about the validity of the law that requires the suit to be heard before the Supreme Court; or perhaps because some of the claims may not be covered by that special provision. The lawsuit makes two claims: • the margin tax “violates the Texas Constitution because it imposes a tax on a natural person’s share of partnership income without voter approval, and • the comptroller’s interpretation of the revised franchise tax violates the equal and uniform taxation clause of the Texas Constitution.” The lawsuit also seeks to recover attorney’s fees.

Law Office of

ANTONIO VILLEDA Can assist in the following tax or bankruptcy cases: • IRS CONTROVERSIES • IRS OFFERS/INSTALLMENTS • CRIMINAL TAX CASES • STATE TAX CONTROVERSIES • BUSINESS BANKRUPTCIES. 28 years experience hablamos español 2 LOCATIONS. HOUSTON AND MCALLEN 5414 N. 10TH Mcallen, Texas 78504 956-631-9100

2909 Hillcroft Suite 350 Houston, Texas 77057 713-300-3945

Antonio Villeda Attorney/CPA Board Certified in Business Bankruptcy by the Texas Board of Legal Specialization and nationally by the ABI

avilleda@houstonirslawyer.com www.houstonirslawyer.com *Meeting with attorney by appointment only and there will be a consultation charge

Capitol Interest

Capitol Interest continued from previous page

The first claim involves two parts; whether the margin tax is an income tax and if so, does it violate the so-called Bullock Amendment to the Texas Constitution. That amendment, originally proposed by then Lt. Gov. Bob Bullock, states: “A general law enacted by the Legislature that imposes a tax on the net income of natural persons, including a person’s share of partnership and unincorporated association income, must provide that the portion of the law imposing the tax not take effect until approved by a majority of the registered voters in a statewide referendum held on the question of imposing the tax.” If the tax is not an income tax, obviously the Bullock Amendment does not apply. If the tax is an income tax, then the question is whether the tax is imposed on “natural persons, including a person’s share of partnership and unincorporated association income.” In the state’s response to the petition, Attorney General Gregg Abbott contends that the Bullock Amendment claim should be rejected “because the franchise tax is imposed on business entities, not the net income of natural persons.” Abbott also states that the other claims should be dismissed “because they are not encompassed in” the Supreme Court jurisdiction in the margin tax law. The Supreme Court has ordered the parties to the lawsuit to file briefs addressing the constitutionality of the court’s original jurisdiction as mandated by the margin tax law, the merits of the Bullock Amendment claim and whether the other claims in the suit are beyond the Court’s jurisdiction. Briefs were due between Sept. 12 and Oct. 10, 2011, and the case was tentatively set for oral arguments during the week of Oct. 24, 2011. These dates all fall between our publishing deadline and our issue date, so

you may know what happened by now, but probably not. It is interesting to see that the court asked for briefs about its original jurisdiction as mandated by the margin tax law, since both parties to the suit expressed support for the court to reach a timely decision on the matter. Perhaps the Supreme Court wants off the hot seat. They may be more comfortable with reviewing decisions than making them. It’s hard to contemplate the messy situation that would entail should the tax be ruled unconstitutional. But whether the tax is unconstitutional, it is an unpopular tax among many taxpayers and legislators. The tax may face substantial overhaul even if it is deemed constitutional by the Supreme Court. During the last session, a number of legislators called for an interim study of the franchise tax. While some legislators are concerned about the perceived unfairness of the tax, others are concerned that the tax does not collect the projected amount of revenue for the state. Subsequent to the session, Speaker Joe Straus (R-San Antonio) has reportedly conferred with Perry and Dewhurst about a joint select committee to study the tax. Understandably, Perry and Dewhurst seem to have other things on their mind, so it appears any interim study will be a House only committee. Rep. John Otto, CPA, (R-Dayton), has been a vocal advocate for such an interim study. Retiring Sen. Steve Ogden (R-Bryan) has proposed that the tax be returned to a true business income tax, similar to the former franchise tax. Straus told me interim committee charges would include a look at the tax by the House Ways and Means Committee and that he intended to do his own review of the tax. The Supreme Court’s deliberations on the tax may be pivotal in any study or proposed changes to the tax. Should the court agree with Abbott that the Bullock Amendment does not prohibit taxing the business

income of partnerships and associations, the road to a business income tax would seem to be paved. Otherwise, voters would have to approve any such tax. Adjusting the franchise tax to supposedly make it more fair might be a possibility, even with a Republican-led government; but asking the voters to approve a new tax might be just too much to ask of any Republican legislator who would like to keep his/her job. A major wrinkle in the idea of a business income tax is the estimated rate that would be necessary to raise enough money. I’ve seen estimates from 5.5 percent to 6.5 percent; that’s a hefty tax rate that likely would draw substantial opposition from Texas big business. The margin tax was passed with support of the business lobby. For these reasons, we may be stuck with the margin tax for a long time. Redistricting and franchise taxes aren’t the only lawsuits that legislators and the state of Texas face. The expected lawsuit over public school funding has been filed. The pending lawsuit comes as no surprise to legislators or any knowledgeable observer of school finance history in Texas. It was a school lawsuit that gave rise to the margin tax in the first place. The Supreme Court ruled the existing funding plan unconstitutional and gave the Legislature a deadline to fix the problem back in 2006. This Legislature’s $4 billion school budget cuts for the biennium expectedly raised the specter of constitutional funding adequacy and the equity of funding between various independent school districts. Although only seven school districts initiated the suit, by the time you read this, the plaintiff pool will likely be in the hundreds. A group of 690 school districts has been discussing participating in the lawsuit. Court rulings declaring the franchise tax and the school finance system unconstitutional might land the Texas Legislature back in special session. That could make for an interesting presidential election season. n

Bob Owen CPA, is TSCPA’s managing director of regulation and legislation. Contact him at bowen@tscpa.net.

Today’sCPA

| NOVEMBER/DECEMBER 2011

Newest Member Benefit Discount Tickets for TSCPA Members TSCPA is pleased to introduce its latest member benefit, discounted pro sports tickets! Currently, TSCPA has arranged deals with the San Antonio Spurs, Houston Rockets and Dallas Mavericks. To check out the discounts, please visit the Member Benefits Marketplace at tscpa.org. Stay tuned for more ticket packages on the way. Becker CPA Review Direct Bill Program

What can you expect from TSCPA besides Personal and Career Development Cutting-Edge Professional Information and CPE Enhancing the Image of the CPA Profession Recruiting New Members to the Profession Protecting the CPA Certificate You can expect special deals and discounts

full four-part CPA review course www.beckercpa.com/tscpa Texans Credit Union Full service financial institution 800-843-5295, www.texanscu.org Paychex Partner Program Payroll processing 877-264-2615 ProPay Discounts on credit card processing 888-227-9856 Tech Depot Discounts on computer and technical products 888-289-6424 Office Depot Discounts on office supplies 201-253-5215 FedEx Office Discounted pricing on most services, including digital printing and copying 646-302-9242 Infinet, Inc. AntiSpam/AntiVirus Protection 214-446-0089 Accurate Forms & Supplies Discounts on computer supplies and tax forms 800-777-0072 Nova Information Systems Discounts on payment processing services 800-546-1831 Monroe Systems for Business Discounts on calculators and other supplies www.monroe-systems.com Bank of America TSCPA credit card programs – Platinum MasterCard, CPA logo and other benefits 800-932-2775 CPA Exam Review Discounts For a complete list of exam review discounts available, visit the Member Benefits Marketplace at tscpa.org.

FedEx Shipping Discounts on select FedEx shipping services Passcode: 4R9TJP 1-800-MEMBERS InterCall Exclusive rates on audio and web conferencing services. 1-800-636-2377 Subscription Services Discounts on magazine subscriptions 800-603-5602 CareerBank.com Online career center for accounting and finance professionals tscpa.careerbank.com Framing Success Discounts on professional framing of all certificates 800-677-3726 Marsh Affinity Group Services TSCPA Insurance Trust offering a variety of insurance plans, including TSCPA-sponsored professional liability insurance 800-262-7689 Liberty Mutual Homeowners and auto insurance - ID number: 7026 800-524-9400 AXA Equitable TSCPA Members’ Retirement Program – Members are waived $25 enrollment fee. 800-523-1125, www.axa-equitable.com/mrp Hertz Discounts on car rentals - ID number: 1041643 800-654-2200, www.hertz.com La Quinta Inns and Suites Ten percent off standard room rates. Discount code: TXSCPA 800-531-5900, www.lq.com Quest Membership Program Save 50 percent on your next hotel bill 800-STAY450

Please visit the Member Benefits Marketplace at tscpa.org for complete information and links to each of our Member Discount Programs. 46

Today’sCPA

May/June 2011

| NOVEMBER/DECEMBER 2011

Questions? Contact the Member Benefits Administrator at 1-800-428-0272 ext. 216 or craffetto@tscpa.net.

COVER STORY

CULTIVATING YOUNG CPAS 24

Today’sCPA

| NOVEMBER/DECEMBER 2011

BY ARTHUR AGULNEK, CPA, AND BRINN SERBANIC, CPA

Age in the workplace is not a new challenge for employers, but the topic is rapidly gaining attention. As our environment changes at an increasing rate, generational time gaps are compressed, resulting in more generations than ever in the workplace at any one time. By better understanding the generational factors at work in the organization, managers can more effectively recruit, retain and cultivate the younger generation. WHY CULTIVATE YOUNG CPAS? Managers and partners throughout the accounting profession have noted the rapid turnover of young employees. Organizations are having difficulty retaining talented young CPAs, and substantial time and expense is associated with the loss of employees. The problem is not that young employees are fickle or disloyal, but rather this generation does not fit comfortably into the traditional office mold, and thus many are unhappy and seek alternative options. By taking an interest in cultivating young CPAs, managers can maximize employee potential, increase productivity and slow the job-hopping trend. In addition to preventing turnover, management should recognize the importance of developing young CPAs for job promotion and succession planning purposes. Managers tend to focus on the short-term of deadlines, projects and clients; as a result, the development of leadership skills in employees is neglected. As baby boomers near retirement, the need for a succession strategy is vital. Today’s junior staff will be in high demand in the near future as employers scramble to fill management positions vacated by the larger baby boomer population. Seize the opportunity to shape the next generation of CPAs. The rewards of mentoring and developing a young employee’s career will be worthwhile for those who make the effort. Organizations that foster an environment in which all generations can excel will reap the benefits of loyal, satisfied and long-term employees.

THE GENERATIONS DEFINED A generation is characterized by the major events, environment and culture

Today’sCPA

| NOVEMBER/DECEMBER 2011

of the time. Each generation has distinct behaviors, attitudes and motivations shaped by the shared experiences during their formative years. Although not all products of a generation possess all of these same characteristics, each generation is broadly defined by the following traits. Baby Boomers Born mid-1940s to early 1960s High-level management – ages 45-60 Characteristics: • Career-focused – competitive as a result of the large number of peers vying for a limited number of jobs; hard-working; professional accomplishments are allimportant; workaholic generation and values this trait in others. Even at an older age, this generation has been slow to retire and most plan to work part time beyond retirement age. • Task-oriented – versus outcome-oriented because this generation is a product of the manufacturing era; in other words, the process by which an activity is accomplished is as significant as the quality of the result. This generation emphasizes hierarchies and paying dues or proving oneself. Baby Boomers most likely scoff at the importance of soft skills versus technical skills. • Value face time – prefer in-person meetings and strongly believe communications and group work should be conducted in person. • Rebellious – accustomed to challenging the status-quo and established authorities. • Motivation – motivated in the workplace by money, prestige and respect.

Generation X Born mid-1960s to late 1970s Immediate supervisors – ages 30-45 Characteristics: • Work is a necessary evil – values work/ life balance; leaves work at the office and dislikes overtime; resists being micromanaged; more family-oriented and financially conservative. • Independent – favors freedom and autonomy; possesses an entrepreneur mindset; resourceful and self-reliant because grew up with divorced parents and working moms; prefers to work alone rather than in teams. • Tolerant – comfortable with technology and rapid change. • Skeptical – loyal to managers and people rather than a company; cynical towards traditional establishments and tend to ignore leaders rather than challenge them. • Motivation – motivated in the workplace by time off rather than monetary incentives. Generation Y Born early 1980s to late 1990s Entry level positions – ages 18-30 Characteristics: • Tech-savvy – products of the information age; comfortable with technology and accustomed to having knowledge just a Google search away. As a result, naturally curious and impatient; may be perceived as brash or too candid. • High-performance – generation of multi-taskers who are highly efficient, productivity machines when presented with challenging, important assignments; continued on next page

Young CPAs continued from previous page

•

dislike logging in eight hours when work can be completed in six. Work/life balance – desires more than a paycheck; interested in money only for the fact that it provides for the desired lifestyle; priority of family over work; values flexible hours and telecommuting arrangements. Older generations may view as lacking commitment or discipline, but this generation simply has different priorities. Team-oriented and extremely collaborative – highly connected technologically; wishes to be included and involved in workplace decisions; used to working with and referring to others for opinions. In direct contrast with Gen X, Gen Y is used to being monitored closely and showered with attention by helicopter parents and as a result, enjoys working closely with management. Self-aware – grew up in the era of self-improvement and emphasis on developing goals; places great value on themselves and their time; selected a chosen career earlier than other generations; also aware of how they measure up in relation to peers. Socially conscious – this generation is confident in their ability to make a difference in the world; Gen Y emphasizes civic duty, volunteering, the environment and green initiatives. Achievement-oriented – greater emphasis on outcome and results rather than the process used; uninterested in putting in the years for a promotion; prefers hard work and merit to determine success.

• High expectations – perceived as entitled by older generations; unlike baby boomers or Gen X, Gen Y does not view a job as a necessity to survive. Thus, if a position does not meet their expectations, the younger employee will simply move on looking for greener pastures, confident that in the event of failure, they will always be welcomed back home to rejoin mom and dad’s payroll. Today’s intergenerational workplace is made up of a rainbow of varying beliefs, motivations and desires. Consider an example of the differing methods an intergenerational team would use to communicate for a group project. The Baby Boomer wants to hold in-person meetings at any time, day or night. The Gen Xer prefers conference calls, but plans to conduct business only between the hours of 8 a.m. and 5 p.m. The Gen Yer hopes to communicate via e-mail, text and instant messaging on a regular basis and may never meet the other team members in person.

HOW TO DEVELOP LEADERSHIP IN GEN Y CPAS The greatest challenge for supervisors of Gen Y workers will be managing the expectations of this group. Younger employees may enter the workforce with unrealistic expectations, which then results in disappointment when encountering today’s reality. In an economic environment of high unemployment and intense competition from workers across all generations, why would a manager choose to invest in a Gen Y’s potential over a Baby Boomer’s established

professional accomplishments? To retain Gen Y employees, managers will have to balance the optimism and hope that defines Gen Y with the reality of today’s economy and workplace. Supervisors play a vital role in job satisfaction, and by understanding and engaging in a few simple actions, management can create an environment in which these employees will succeed. Encourage mentors. Never underestimate the importance of mentors for younger employees. Gen Y is naturally curious and desires to fully understand the why and how, office politics, and what worked for others. Unlike Baby Boomers who grew up challenging leaders and authority, Gen Y truly respects parents and values older mentors. This generation recognizes that mentors have a wealth of knowledge from which they may benefit without having to put in the years themselves. Develop a workplace mentor program and also make the effort to support mentor relationships outside of the workplace, such as with former employers, former professors and family friends. Provide constant feedback and communication. Junior staff members tend to feel frustrated and unhappy with no direction or no idea of where they stand, so feedback is essential. Baby Boomer supervisors typically resist giving feedback freely because they don’t want to invite it freely, so the simple issue of feedback frequency may be a workplace conflict. The younger generation is exceptionally aware of self – if a manager gives them an opportunity, they will share what they need or want from a manager. Communicate

Today’sCPA

| NOVEMBER/DECEMBER 2011

to junior staff what is expected and how they are measuring up, and specifically ask what they expect from managers and the organization. If their expectations are too high, be honest. Be accessible. All levels of management should be easily accessible to junior staff. To promote the feeling of accessibility, managers must make an effort to form relationships with staff through simple interactions. Stop by their cubicle or office, or better yet, send an IM asking about their weekend plans. Similar to Gen X, Gen Y tends to be loyal to people rather than a company, so investing in personal relationships will reap great benefits for an employer. Foster co-worker relationships. Younger employees crave connection with their co-workers and managers, so provide opportunities for creating relationships, such as ice cream breaks or happy hours after work. Inspire loyalty. Another way to foster loyalty in Gen Y employees is to include or, at the least, inform junior staff of firm events, decisions and happenings. For example, if the organization is considering conversion to a paperless office, ask junior staff members what processes could be streamlined or what they would look for in a paperless software system. Entrust with responsibility. Allow junior staff to sit in on meetings, hold tough conversations with clients about billing, present a tax planning idea to a client, or conduct an internal CPE course for the company. Most job-hopping is due to boredom, so provide varied and challenging responsibilities that will build leadership skills. Assign the Gen Yers an internal initiative, such as starting up a recycling program at the organization. Embrace their technological knowledge. Be open to learning new ways of doing things with technology and enable the staff to demonstrate that their knowledge is an asset. In addition, cultivate a risk-free environment where employees may question established policies or why tasks are performed a certain way. Require professional involvement. Volunteering on committees of professional organizations, such as TSCPA and the local

chapters or within the community, benefits the employee and the organization. Engage in their professional development. Partner with the staff in selecting their assignments to develop certain agreed upon competencies. Communicate this plan for their development in technical areas, as well as leadership. Offer flex time. Easily the best way to earn the loyalty and appreciation of younger employees is being flexible with work hours and time off, thus exhibiting trust in their ability to deliver quality results on their own terms. Essentially, management can place more emphasis on investing in employees rather than squeezing out more work and chargeable hours. None of these suggestions cost very much, but will save the time, expense and headaches associated with high staff turnover.

VISION OF FUTURE GEN Y-MANAGED OFFICES Members of Generation Y shared the following goals and ideas of how a typical office would operate when this generation graduates to management in 10-20 years. Gen Y is entering the workforce with extreme optimism and ambitious plans to change the traditional workplace ideology. It will be interesting to see to what extent they succeed. Individual customization in all areas of employment. Hours, pay, benefits, projects assigned, how reviews are conducted, the technology employed and equipment used, training, etc. will be tailored to meet the needs and desires of each employee. In every aspect, work will no longer be a “one size fits all” mentality. Varied assignments and responsibilities. Imagine the accounting profession being made up of more independent contractors than fulltime employees, thus eliminating down time and providing for more varied assignments. An independent contractor model will also allow several mini-retirements throughout work life. For example, a CPA may travel for a year between college and work, enjoy another few years’ break after having children, and take yet another mini-retirement to travel and

spend time with the spouse after kids leave for college. This generation prioritizes enjoying life during prime years and views careers and employment as life-long learning. Increased use of flex time. Hours will be varied; employees will work from home regularly and take more vacation as a result of being more productive during work hours. Gen Y will strive to eliminate the “last man standing wins” approach that characterizes public accounting today. Working for results rather than hours logged may result in more fixed-fee projects. Fewer meetings. Meetings will be held only when necessary. Communication will be on a constant basis and thus more informal. Regular feedback. Annual reviews may be completely eliminated and replaced with frequent informal feedback. Managers will also solicit feedback more freely to ensure employee concerns are being addressed. Reduction in office formality and politics. Knowledge is power to older generations; thus, retaining that knowledge for oneself can provide a competitive advantage. Gen Y is more of a team player, willing to share best practices and the inner workings of the office with everyone. This generation will foster a more informal work environment. Fifteen-minute water cooler conversations will be replaced with instant message sessions conducted throughout the day. Results-based promotions. Promotions and assignments will be granted solely based on skill level and accomplishments; seniority will have no bearing. Will Gen Y succeed in drastically transforming the traditional workplace or will economic conditions and rampant unemployment redefine expectations? Regardless of future developments, organizations are recognizing the present challenges associated with managing a multigenerational workforce. The moral of the story is that each generational group should strive to understand the others and be flexible in helping them attain their needs while not overly compromising their own. n

Arthur Agulnek, CPA, is senior lecturer – Accounting Area, at the University of Texas at Dallas, and he is the chairman of TSCPA’s Editorial Board. Brinn Serbanic, CPA, is a tax accountant for Curtis Blakely & Co., P.C. in Longview, and she is a member of TSCPA’s Editorial Board.

Today’sCPA

| NOVEMBER/DECEMBER 2011

Feature

BY JOSEF RASHTY, CPA, AND JOHN O’SHAUGHNESSY, PH.D., CPA (INACTIVE)

The Ever-Changing Lease Exposure Draft

The Financial Accounting Standards Board (FASB) and the International Accounting Standards Board (IASB) (collectively, the Boards) jointly released an exposure draft (ED) titled Leases and proposed an accounting model that would significantly change lease accounting. The objectives of this ED, released on Aug. 17, 2010, were to converge International Financial Reporting Standards (IFRS) with the U.S. Generally Accepted Accounting Principles (GAAP) and develop an improved standard on lease accounting. The proposed model has significant business implications, including impacts on contract negotiations, financial ratios, business systems and processes. The ED addresses both lessee and lessor accounting issues, but the focus of this article is primarily on lessee accounting. The ED requires a lessee to recognize its rights and obligations under all leases –

existing and new – on its balance sheet. Lessors would report leases using either a performance-obligation approach or a derecognition method. The Boards reversed their position and tentatively decided on a Receivable and Residual lessor accounting model in their deliberation in July 2011. The ED requires lessees to estimate the lease term and contingent payments at the

beginning of the lease and reflect them on their balance sheets. The lessees should also reassess these assets and liabilities subsequently throughout the term of the lease and adjust them accordingly. The Boards received over 770 comment letters in response. The comment period ended on Dec. 15, 2010. The Boards also reached out to users and preparers in different countries and held several roundtable discussions. Many respondents expressed concern about the technical complexity of the guidance as well as its practical application and its costs and benefits.

CURRENT U.S. GAAP FASB issued Statement of Financial Accounting Standards No. 13, Accounting for Leases, codified under Accounting Standard Codification Topic 840 (ASC 840) in 1973. The guidance requires lessees to

Today’sCPA

| NOVEMBER/DECEMBER 2011

Assets

Liabilities

Off-BS Liabilities

Lease Expenses

Amortization Expenses Interest Expense

Total Expense

Operating Lease (ASC 840): Year 1 Beginning

$- (1)

Year 1

$12,000 (2)

$12,000 (4)

$12,000

Year 2

$- (3)

12,000 (4)

12,000

Year 3

12,000 (5)

12,000

$36,000

========

=======

======

Total Capital Lease (ASC 840): Year 1 Beginning

$22,676 (1) $22,676 (1)

Year 1

$11,338 (2) $11,619 (3)

$11,338 (5)

$ 943 (6)

$12,281

Year 2

$- (2)

$- (3)

11,338 (5)

381 (6)

11,719

Year 3

12,000 (4)

12,000

Total

$12,000

$22,676

$1,324

$36,000

“Right-to-Use” ED:

======

=======

======

Year 1 Beginning

$33,036 (1) $33,036 (1)

Year 1

$22,024 (2) $22,562 (3)

$11,012 (4)

$1,527 (5)

$12,539

Year 2

$11,012 (2) $11,618 (3)

11,012 (4)

1,056 (5)

12,068

Year 3

$- (2)

$- (3)

Total

11,011 (4)

382 (5)

11,393

$33,035

$2,965

$36,000

======

=======

======

Operating Lease (ASC 840): (1) No assets or liabilities are recognized under ASC 840 operating leases. (2) The gross amount of lease obligations in Year 2. Companies usually disclose their off-BS liabilities in a footnote to their financial statements. (3) Option to renew the lease is not considered a liability or an off-BS liability under ASC 840. (4) Contractual lease payments. (5) Renewal option lease payments.

Capital Lease (ASC 840): (1) Reflects the present value of lease payments for 24 months. (2) Prior year book value less current year amortization. (3) Prior year balance less $12,000 lease payments plus current year interest. (4) Renewal option lease payments. (5) Straight-line amortization of asset for a useful life of two years. (6) Interest expense for Year 1 and Year 2.

“Right-to-Use” ED: (1) Reflects the present value of lease payments for 36 months. (2) Prior year book value less current year amortization. (3) Prior year balance less $12,000 lease payments plus current year interest. (4) Straight-line amortization of asset for a useful life of three years. (5) Interest expense for Year 1, Year 2 and Year 3.

classify all leases at the inception date as either a capital lease or an operating lease. A lease is a capital lease if it meets any one of the following criteria; otherwise, it is an operating lease: • Transfer of ownership. The lease transfers ownership of the property to the lessee by the end of the lease term. • Bargain purchase option. The lease contains a bargain purchase option. • Lease term. The lease term is equal to 75 percent or more of the estimated economic life of the leased property. • Minimum Lease Payments. The present value of the minimum lease payments equals or exceeds 90 percent of the fair value of the leased property.

In an operating lease, the lessee reflects the lease rentals in the statement of operations on a straight-line basis. In a capital lease, the lessee measures the liability based on the estimated lease term at the present value of the estimated future lease payments, discounted using the lessee’s incremental borrowing rate or, if it cannot be readily determined, the rate the lessor charges the lessee. The current lease accounting model has often been criticized for failing to meet the needs of the users. The financial information between different entities is not comparable under this model as “brightlines” – the 75 percent and 90 percent rules – for lease capitalization are arbitrary and encourage contract manipulation. The “off-

balance-sheet” liabilities distort the balance sheet of the lessees. Financial analysts commonly adjust financial statements for “off-balance-sheet” liabilities to achieve comparable results between entities.

Today’sCPA

| NOVEMBER/DECEMBER 2011

THE EXPOSURE DRAFT The main goal of the ED was to ensure that assets and liabilities related to lease contracts are reflected on the balance sheet. The ED impacts the statement of operations as well as the balance sheet. The straightline rent expense in existing guidance will generally be replaced by amortization of the “right-of-use” asset and interest expense on the lease obligation. The interest expense will be front-end loaded (similar to continued on next page

Lease Exposure Draft continued from previous page

mortgage amortization). Furthermore, the interest expense, unlike the lease expense, will be reflected as other expenses rather than as a component of operating expenses and cost of sales. Therefore, for a set of comparable data, the operating result or gross margin under the ED would be higher than the current U.S. GAAP guidance. At the inception of the lease, the lessee measures the liability based on the estimated lease term at the present value of the estimated future lease payments, discounted using the lessee’s incremental borrowing rate or, if that rate is not readily available, the rate the lessor charges the lessee. A “right-of-use” asset is recognized at lease commencement for an amount equal to the liability plus any rent that the lessee has prepaid and any recoverable initial direct costs that it has incurred. The Boards concluded that this measurement approach would be more practicable than a strict fair value measurement and would reasonably approximate the fair value of the property. The recognition of assets and liabilities under the proposed guidance is essentially the same as the accounting treatment for capital leases under ASC 840. The ED also requires that lessees subsequently reassess estimates of the lease term and contingent rent and reflect the result in their balance sheets. This process imposes a significant administrative burden to companies. Finally, the ED does not grandfather any of the lessee’s existing leases. As a result, companies need to assess and record all existing leases under the proposed model at the time of adoption and for any comparable periods presented. Clearly, this requirement imposes significant administrative burden to companies as well. Under the proposed “right-of-use” model, lessees are required to estimate the lease term and periodically reassess that estimate. The estimated lease term is defined as “the longest possible term that is more likely than not to occur.” Estimated future lease payments are determined using a probability-weighted expected outcomes approach and would include estimates for contingent rentals, residual value guarantees and termination option penalties. As we will

discuss, the Boards reversed their position on this matter and replaced the criterion of “probable-weighted outcome” with “significant economic incentive.” After the initial recognition and measurement, the “right-of-use” asset is amortized on a systematic basis (generally straight-line) using the pattern of the lessee’s consumption of the “right-ofuse” asset’s economic benefits from lease commencement over the shorter of the lease term or the useful life of the underlying property. The expense is reflected in the lessee’s statement of operations as amortization rather than rent expense. The “right-of-use” asset is also subject to impairment under the applicable standards. The lessee’s liability under the ED is measured at amortized cost every period using the interest method under which lease payments are apportioned between interest expense and a reduction of the remaining lease liability. The interest calculation is based on the effective interest method, which is calculated based on a declining principal basis. This method results in front-loading of the interest expense in the statement of operations of a lessee. Some of the key implications of the ED on lessees are as follows: • recognition of “right-to-use” assets and liabilities in balance sheet; • recognition of additional contingent liabilities in balance sheet; • impact on balance sheet key ratios and any lessee’s covenants; and • impact on statement of operations by front-loading the interest expenses and changing the geography of expenses within the statement of operations.

SUMMARY OF THE COMMENTS RECEIVED The Boards received over 770 comment letters. Many respondents expressed concerns about the technical application of the standard as well as its practical application and its costs and benefits. The following is a summary of some of the major and still outstanding issues: • Many of the constituents were concerned about acceleration of expenses compared to existing operating lease accounting and the

timing of cash payments. Many of the respondents questioned the usefulness of the proposed model. • There were also concerns among the respondents regarding the complexity and administrative burden of the proposed guidance. • Although many respondents agreed that some extension option and contingent payments should be accounted for and reflected as pseudo liabilities and corresponding pseudo assets in the balance sheets, they were concerned about the subjective nature of such judgments and the requirement for periodic reassessment of contingencies. There were a variety of opinions on this issue and it will remain a major discussion topic in coming months.

THE DISCUSSION PAPERS AND DELIBERATIONS The Boards issued a project update in March 2011 that revised the ED based on the comments that they received. The Boards decided to postpone consideration of lessor accounting issues because most of the criticisms of the proposed ED were directed at lessee accounting. The Boards tentatively agreed to account for all short-term leases by not recognizing lease assets or lease liabilities and by recognizing lease payments in the statement of operations on a straight-line basis over the lease term. Therefore, short-term leases will be treated like operating leases under ASC 840. A short-term lease is a lease that at the date of commencement has a maximum possible lease term − including any options to renew or extend − of 12 months or less. The Boards tentatively decided to identify a principle for categorizing two types of leases for both lessees and lessors, with different impact on statement of operations: • a finance lease with a profit or loss recognition pattern consistent with the proposals in the ED; • an other-than-finance lease with a profit or loss recognition pattern consistent with an operating lease under existing IFRS and U.S. GAAP (ASC 840).

Today’sCPA

| NOVEMBER/DECEMBER 2011

Those leases that are primarily financing transactions would have a recognition pattern similar to a financed purchase, as proposed in the ED. Leases that are not primarily financing in nature, on the other hand, would have a recognition pattern more closely aligned with ASC 840 straight-line lease accounting. Furthermore, the Boards, in their April discussions, tentatively decided that there should be a fundamental distinction between those leases that are primarily financing transactions in nature and those that are not. The Boards tentatively agreed to use indicators similar to those in International Accounting Standards (IAS) 17, Leases, as the basis for distinguishing between the two categories of leases. IAS 17 defines a lease as a finance lease if it transfers substantially all risks and rewards incident to ownership to the lessee, and all other leases are classified as operating leases. IAS 17 requires that the classification be made at the inception of the lease. [IAS 17.4] However, in their latest deliberations in May 2011, the Boards were unable to achieve a consensus for an approach to straight-line expense recognition for leases. As a result, they agreed to a major reversal on their earlier decision in April 2011. The Boards decided that lessees should apply the finance lease approach to all leases recognized on the balance sheet. Therefore, under this view, only one type of lease exists for lessees and expense recognition pattern would be consistent with the treatment of capital leases under the current ASC 840 lease accounting practice and the original ED proposal. The above provision would require a lessee to recognize interest expense using the effective interest method and separately amortize the right-of-use asset (generally on a straight-line basis). The expense recognition pattern generally would result in higher total periodic expense in the earlier periods of a lease and lower total periodic expense in later periods and is consistent with what the ED proposed and the treatment of capital leases under current lease accounting.

In April 2011, the Boards tentatively defined the lease term as the non-cancellable period for which the lessee has contracted with the lessor to lease the underlying asset, together with any options to extend or terminate the lease when there is a significant economic incentive for an entity to exercise an option to extend the lease, or for an entity not to exercise an option to terminate the lease. Therefore, in a major reversal from the tentative decisions reached in February 2011, “more likely than not” and “probability-weighted expected outcomes” were replaced by “significant economic incentive.” In May 2011, the Boards reversed their previous tentative decision again and required that options for extension of leases must meet a much higher threshold (such as reasonably assured) to be included in the amounts recognized on the balance sheet. The Boards revisited certain aspects of accounting for contingent rent in their April discussions. They tentatively agreed that contingent payments that are usage or performance based (e.g., tenant sales based) would not be considered in measuring the lease asset and liability unless the contingent payments are “in-substance” fixed lease payments (i.e., anti-abuse provision).

LATEST DEVELOPMENT FASB and IASB announced on July 22, 2011, that they are planning to re-expose their proposed leasing standard. The tentative re-deliberation decisions made by the Boards to date represent significant changes from the proposals in their August

2010 ED, therefore warranting re-exposure. The Boards plan to publish a revised exposure draft for public comment in the fourth quarter of 2011, with a final standard by mid-2012.

ILLUSTRATION In Figure 1, Entity A (the lessee) enters into a two-year lease agreement with option to renew the lease for an additional year. Entity A has a significant economic incentive to exercise this option. The monthly lease payment is $1,000 per month and the incremental borrowing rate of Entity A is 6 percent per annum. There is no purchase option and the residual value of property at the end of year three is nil. This illustration reflects the front-loading of expenses under the ED proposal and different geography of expenses under the ED and ASC 840. The total expense, however, remains the same under different guidance presented.

FURTHER DELIBERATIONS The Boards do not have complete and final thoughts on lessee accounting at this time. Some questions remain to be resolved and are subject to further deliberations. Their plan to re-expose the proposed guidance and continue with deliberations and outreach is an indication that the Boards intend to issue a quality standard and are cognizant of the views of their constituents. A complete summary of the Boards’ deliberations on the leases project is available on FASB’s website at www.fasb.org or IASB’s website at www.ifrs.org. n

Josef Rashty, CPA, has held managerial positions with several publicly held technology companies in Silicon Valley. He is a member of Texas Society of Certified Public Accountants and can be reached at jrashty@sfsu.edu. John O’Shaughnessy, Ph.D., CPA (inactive), is an accounting

professor at San Francisco State University. He can be reached at joshaun@sfsu.edu..

Today’sCPA

| NOVEMBER/DECEMBER 2011

Feature BY PATRICIA Z. GALLETTA, CPA

The Innocent is the Person

WHO EXPLAINS NOTHING … Unless You’re Dealing with Taxes Albert Camus once said, “The innocent is the person who explains nothing,” but in the case of joint income tax returns, the taxpayer bears the burden of proving they are an innocent spouse and should therefore be entitled to tax relief under Section 6015 in the Internal Revenue Code (IRC). Generally, each spouse is jointly and severally liable for the entire federal income tax due (including deficiencies) when filing a joint return. The taxpayer can apply to the Internal Revenue Service (IRS) or the Tax Court for relief under the innocent spouse rule if they feel they should not be held responsible for the tax and related deficiency.

Today’sCPA

| NOVEMBER/DECEMBER 2011

The intent of Section 6015, created by the Internal Revenue Service Restructuring and Reform Act of 1998, is to protect a spouse who does not know nor had reason to know that funds for the payment of taxes were taken by their spouse for the spouse’s benefit. There are three types of relief from joint and several liability arising from a joint return available under Section 6015: • Section 6015(b) provides full or apportioned relief from a proposed or assessed deficiency where there is an understatement of tax due to the erroneous item(s) on the tax return. To apply for innocent spouse relief under this section, the taxpayer must not have known nor had reason to know there was an understatement of tax due to an erroneous item on the tax return, and the facts/circumstances show it would be unfair to hold the taxpayer liable for the understatement of tax. The requesting spouse must apply for innocent spouse protection within two years from the date of the first collection activity through the preparation of Form 8857, Request for Innocent Spouse Relief. Relief of liability from the underpayment of income tax reported on a properly prepared joint return is not allowed under this section. • Section 6015(c) provides proportionate tax relief to divorced or separated taxpayers from a proposed or assessed deficiency. Under this section, the taxes due are apportioned between the two taxpayers who are either divorced or separated as long as the ex-spouses did not share the same household during the 12-month period ending on the date Form 8857 was filed. The requesting spouse must apply for innocent spouse protection within two years from the date of the first collection activity. Relief of liability from the underpayment of income tax reported on a properly prepared joint return is not allowed under this section. • Section 6015(f) provides equitable relief from joint and several liability if relief is not available under subsection (b) or (c). The IRS will consider many factors in determining if equitable relief will be granted as described in Rev. Proc. 2003-61 below. Normally, the IRS

Today’sCPA

| NOVEMBER/DECEMBER 2011

will grant equitable relief under IRC Sec. 6015(f) when the two divorced/ separated taxpayers did not share the same household during the 12-month period ending on the date Form 8857 was filed, the requesting spouse did not know nor had reason to know the nonrequesting spouse would not pay the tax liability, and the requesting spouse will suffer economic hardship if not granted relief. Section 6015(f) permits equitable relief for an underpayment of income tax on a tax return that was filed correctly, but the entire tax amount was not paid. Currently, IRC Sec. 6015 states the requesting spouse must apply for innocent spouse protection within two years from the date of the first collection activity. Effective July 25, 2011, the Treasury and IRS have agreed to retroactively revise Sec. 6015 to eliminate the two-year requirement when requesting equitable relief. Taxpayers whose request was previously rejected because of the two-year limit can request tax relief by submitting Form 8857, Request for Innocent Spouse Relief; however, the statute of limitations on the return must not have expired. For transitional rules, see Notice 2011-70 (www.irs.gov/pub/irs-drop/n-11-70.pdf). The two Tax Court decisions filed in 2010 and discussed below have dealt with Section 6015(f), which permits relief from joint and several liability where “it is inequitable to hold the individual liable for any unpaid tax or any deficiency (or any portion of either).” The IRS and the Tax Court use the guidelines provided from either Section 4.02 or Section 4.03 in Rev. Proc. 2003-61 to determine if the taxpayer is eligible for relief from income tax liability.

INNOCENT UNTIL PROVEN NOT SO INNOCENT?

Carolee and James (Carolee Flygare Argyle v. Commissioner, T.C. Summary Opinion 2010-129, August 31, 2010) filed their 2002 federal income tax return on time in which they reported a tax balance due of $27,539 partially as a result of James’ withdrawal of $144,205 in pension savings. Neither Carolee nor James paid the $28,000 income taxes

TAXPAYERS AND PRACTITIONERS SHOULD BE AWARE OF THE INTRICACIES OF THE INNOCENT SPOUSE SECTIONS WHILE MAKING SURE THE BASIC REQUIREMENTS ARE ADHERED TO. due. The couple divorced in 2006 and the divorce decree stated any unpaid debts are the responsibility of the person incurring the debt. In 2007, Carolee submitted a Form 8857, Request for Innocent Spouse Relief. Section 4.02 lists the conditions under which the IRS would normally grant “equitable” relief from an income tax underpayment on a joint return. To be considered for relief under this section, the taxpayer requesting innocent spouse relief: • can no longer be married to, legally separated from, or not have been a member of the same household as the non-requesting spouse at any time during the 12-month period ending on the date of the request for relief – Carolee and James were no longer married and therefore met this requirement. • cannot have knowledge or reason to know when she signed the return that the non-requesting spouse would not pay the tax liability – in the year the pension savings were withdrawn, both Carolee and James had lost their jobs, purchased a car, moved to another state and sold their home, thereby spending all the money withdrawn from the pension. • would suffer economic hardship if relief is not granted – Carolee’s income exceeded her basic living expenses. Conclusion: Carolee is not entitled to relief under Rev. Proc. 2003-61, Section 4.02 for two reasons. She should have known the tax liability would not be paid, and she would not have suffered economic hardship. continued on next page

Dealing with Taxes continued from previous page

A taxpayer’s case may not stop with Section 4.02. If a taxpayer is denied under Section 4.02, the IRS/Tax Court can look at Section 4.03 of Rev. Proc. 2003-61 for a list of additional factors to consider if it would be “unfair” to hold a requesting spouse jointly and severally liable for an underpayment of income tax (deficiency) on a joint return. These factors are: • marital status – Carolee and James were divorced; weighs in favor of granting relief to Carolee. • economic hardship if equitable relief is not granted; per Treas. Reg. §301.6343-1(b)(4), the taxpayer’s age, employment history, ability to earn, number of dependents, status as a dependent of someone else, and basic living expenses (including medical expenses) are taken into account in addition to the cost of living in the taxpayer’s region – since Carolee’s income exceeded her expenses, she would not suffer economic hardship; not in favor of relief. • knowledge or reason to know of the item creating the deficiency or that the tax would not be paid; in making this determination, the court takes into account the requesting spouse’s level of education, “any deceit or evasiveness of the non-requesting spouse, the requesting spouse’s degree of involvement in the activity generating the income tax liability, the requesting spouse’s involvement in business and household financial matters, the requesting spouse’s business or financial expertise, and any lavish or unusual expenditures compared with past spending levels.” (Sec. 4.03(2)(a)(iii)(C)) – as noted above, Carolee should have known the liability would not have been paid since the money was used for their living expenses and a new car; not in favor of relief. • non-requesting spouse’s legal obligation to pay the tax debt due to the divorce decree – not mentioned in the divorce decree; therefore is not considered. • significant benefit received by the requesting spouse due to the nonpayment – since the taxpayers purchased a new car, this factor would not be in favor of relief. • good-faith effort to comply with income tax laws in subsequent years – Carolee, now remarried, appears to be in compliance; weighs in favor of relief. • Spousal abuse – there was no spousal abuse between Carolee and James; therefore is not considered. • requesting spouse had poor mental or physical health – poor mental or physical health was not a factor in this case; therefore is not considered. Based on the factors above (three not in favor of relief, two in favor of tax relief and three neutral) the Tax Court issued a summary opinion against the taxpayer holding her jointly and severally liable for the income tax.

HOW INNOCENT IS SHE? Let’s take a look at the innocent spouse rules for a second taxpayer. Karen, (Wilson v. Commissioner, T.C. Memo 2010-134, June 17, 2010) a cashier whose education consisted of high school and some instruction at a technical school, married Lloyd in 1983 and had three sons. Lloyd was a self-employed salesman earning under $40,000 annually until 1997 when he became involved in a Ponzi scheme which earned him $20,000 monthly. With the additional monies, Karen no

longer worked, and a new home and new office were purchased by Karen and Lloyd. In 1999, Lloyd received a cease and desist order from the Securities and Exchange Commission (SEC) whereupon he stopped working. Karen failed to qualify for 6015(f) tax relief per the guidelines in Section 4.02 of Rev. Proc. 2003-61 since she was still married and living with Lloyd in March 2002 when she submitted IRS Form 8857 seeking innocent-spouse relief. Her request was denied in 2003, but appealed after Karen’s divorce was finalized in 2007. In evaluating Karen’s case for possible 4.03 relief, the following was decided: • marital status – although Karen and Lloyd’s divorce was finalized in 2007, which was after Form 8857 was submitted, they were divorced when the case was reviewed by the Tax Court; weighs in favor of granting relief to Karen. • economic hardship if equitable relief is not granted – with $540,000 in outstanding tax liabilities and insecure jobs that were just meeting her basic living expenses, the Court weighed in favor of relief. • knowledge or reason to know of the item creating the deficiency or that the tax would not be paid – although Karen signed the tax returns, based on her lack of business acumen and limited education, she would not have reason to know the past due taxes would not have been paid; weigh in favor of relief. • non-requesting spouse’s legal obligation to pay the tax debt due to the divorce decree – not mentioned in the divorce decree; therefore is not considered. • significant benefit received by the requesting spouse due to the nonpayment – with Lloyd not working and no significant assets in Karen’s name, she has not received significant benefits; weighs in favor of relief. • good-faith effort to comply with income tax laws in subsequent years – Karen had some small amounts due to the IRS for underpayment of taxes in subsequent year; not in favor of relief • spousal abuse – there was no spousal abuse between Karen and Lloyd; therefore is not considered. • requesting spouse had poor mental or physical health – poor mental or physical health was not a factor in this case; therefore is not considered. In this case, Karen was relieved from joint tax liability.

CASES COMPARED In comparing the two cases, Karen was granted relief while Carolee was not for the following primary reasons: • economic hardship if equitable relief is not granted – based on information provided by Carolee, her monthly cash inflow exceeded her basic living expenses by $610, which could be applied towards the $28,000 tax liability; Carolee stated she had extra expenses, but did not provide documentation supporting those extra expenses; in Karen’s case, although her monthly income exceeded her basic living expenses by $114, the Court determined that additional necessary expenses incurred on Karen’s credit cards (which need to be repaid) were not used in the calculation of the $114 excess; furthermore, even if her credit card debt was not taken into account, the $114 would not be enough to decrease the liability significantly.

Today’sCPA

| NOVEMBER/DECEMBER 2011

• knowledge or reason to know of the item creating the deficiency or that the tax would not be paid – when Carolee signed the 2002 tax return, she knew the tax was owed and that the pension monies had been spent on a car, living and moving expenses; Karen, on the other hand, believed through the equity in the home and office building along with a certificate of deposit, the tax bill would be paid; the lack of business savvy/knowledge by Karen also played a part in determining if it was reasonable for Karen to assume the liability would be paid. • significant benefit received by the requesting spouse due to the nonpayment – as stated above, Carolee realized a significant benefit by the purchase of a new car; both the IRS and the Tax Court, however, agree Karen did not realize any significant benefit due to the non-payment of the income taxes. There are several lessons to be learned from these cases. The income tax liability was not mentioned in either Carolee’s or Karen’s divorce decree. If there is a shared, significant debt that can be attributable to one taxpayer, the disposition of the liability should be specified in the divorce decree, along with who gets to take the exemptions for the children. Documentation should be provided to support all claims of economic hardship. The Tax Court will take into account the basic living expense documentation provided by the taxpayer with the understanding that the taxpayer will act in good faith by not falsifying or omitting pertinent financial information. Both the Summary Opinion (Carolee) and the Memorandum Decision (Karen) described in this article were the result of a de novo standard of review based on the independent fact finding by the Tax Court. This de novo decision allows the Court to find a different conclusion to the same facts presented to the IRS. Carolee’s case presented before the Tax Court resulted in the same resolution as the IRS. Karen’s case was denied tax relief by the IRS initially, but was granted tax relief by the Tax Court at a later date for several reasons. The IRS looked at the facts at the time Karen requested tax relief. The de novo case is allowed to consider facts at the time of the court proceedings and not just when relief was originally requested. These additional facts helped the court to weigh in favor of Karen for marital status, knowledge or reason to know, and economic hardship. Although these cases apply to a specific set of facts, they give an insight into how the Tax Court is interpreting the circumstances within each case to decide on the final outcome. Taxpayers and practitioners should be aware of the intricacies of the innocent spouse sections while making sure the basic requirements are adhered to. While working with the IRS, Karen failed to respond to the IRS Appeals Office regarding her case. The Appeals Office then denied Karen’s request. Albert Camus may think the innocent is the person who explains nothing, but to avoid issues with the IRS, you need to respond to their requests expeditiously or you will end up spending additional time and money going through the Tax Court to resolve your differences. n Patricia Z. Galletta, CPA, MBA, is an assistant professor of accounting at College of Staten Island. She may be reached at pzgalletta@gmail.com.

Today’sCPA

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

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

Eva Rosenberg

• Your choice of 2 or 4 hour sessions • Learn about Individual and Corporate Tax issues

Dennis Gerschick

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

Albert Grasso

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

| NOVEMBER/DECEMBER 2011 TXMagazine9_11.indd 1

9/29/2011 8:33:32 AM

CPE Article BY JOANIE E. SOMPAYRAC, JD, M.ACC., CPA, AND LINDA CHRISTIANSEN, JD, MBA, CPA

The Sunset of the

Estate Tax Repeal

and Its Impact on the American Farmer

CPE Self Study Curriculum: Tax Level: Basic Designed For: Public Practice, Tax Practitioners Objectives: To assist practitioners and tax professionals in understanding the effects of the changes in transfer tax laws that apply to farmers after the sunset of the repeal of the estate tax. Key Topics: Gift and estate tax Prerequisites: None Advanced Preparation: None 36

Todayâ&#x20AC;&#x2122;sCPA

| NOVEMBER/DECEMBER 2011

The American farmer is a vital and integral part of the U.S. economy and culture. In addition to providing food such as beef, grains, vegetables and fruits for the United States’ and world’s consumption, the American farmer provides the backbone to success of rural communities and regions throughout the country. The United States Department of Agriculture’s (USDA’s) National Agricultural Statistics Service estimates that there were about 2.2 million farms in the United States in 2010.1 Moreover, in its 2010 Family Farm Report, the USDA also estimates that almost 10 percent of these farms (or approximately 205,000) are large or very large family farms.2 This same report further notes that about 16.7 percent of large farm operators and 13.5 percent of very large farm operators are age 65 or older.3 Farmland values are also rising. In the first quarter of 2011, the Federal Reserve announced that the price of cropland in the heart of America rose 20 percent due largely to soaring prices for wheat, corn, soybeans and other commodities.4 While experts remain cautious about whether these rising farmland prices will continue,5 the current health of the agricultural economy requires careful planning by estate planners for farmers with large estates. While the statistics may indicate that family members with meaningful ownership interests in large and very large family farms may comprise a small portion of the overall U.S. population, they are likely to make up a large portion of clients who have a keen interest in the ever-changing federal estate tax since the sunset of the 2010 repeal, and with rising farmland prices, their interest will remain intense. continued on next page

Today’sCPA

| NOVEMBER/DECEMBER 2011

Estate Tax Repeal continued from previous page

EGTRAA AND THE 2010 TAX RECOVERY ACT The 2001 Economic Growth and Tax Relief Reconciliation Act (EGTRRA) included the gradual reduction of the estate tax, which ended with a sunset provision in 2010. On Jan. 1, 2010, the estates of individuals who died after Dec. 31, 2009, were not subject to the federal estate tax, but this legislation expired at the end of 2010. Without action by the United States Congress on Jan. 1, 2011, the estate tax was to return to the estate tax levels that existed prior to enactment of EGTRRA in 2001. Some taxpayers, including farmers with large land holdings, had hoped that Congress would extend the repeal of the estate tax, but it expired as scheduled. President Barack Obama, however, signed the 2010 Tax Relief Act, which made some modifications to the reinstated federal estate tax. Among the new law’s modifications that could help family farmers in their estate planning are the following: 1. The new law gives each taxpayer a $5 million lifetime exclusion for inter

vivos gifts and/or estate transfers. This provision effectively reunifies the gift and estate tax credits. This provision only applies to lifetime gifts made in 2011 and 2012 and estates of decedents dying in 2011 and 2012.6 2. If a spouse dies and does not completely use his/her estate tax exemption, the remaining unused exemption becomes “portable,” and can be used by the surviving spouse if an appropriate election is made on the federal estate tax return for the estate of the first spouse to die.7 3. The new law lowers the maximum estate tax rate to 35 percent for 2011 and 2012.8

ESTATE TAX STRATEGIES FOR FARMERS Despite some favorable tax treatment for farm estates under IRC §2032A, farm estates are much more likely to be required to pay estate taxes.9 Proper tax planning strategies should be used by farmers to mitigate the effect of the estate tax. Farmers who anticipate that they could be subject to estate

tax can significantly lower the tax burden to their estate and leave more to their heirs. Farmers and small business owners hold a significant amount of their net estate in their business; as a result, a good portion of their wealth is tied up in assets. The increased asset value comes from appreciated land values and significant capital investment in farm machinery and equipment. Many of the farmers are land rich but cash poor. Congress enacted IRC §2032A to provide relief to farmers and small businesses, but when a farmer’s heirs either choose non-farm occupations, or fail to make the farms work for 10 years after the decedents’ deaths, this special valuation provision may not matter. 2011 and 2012 Increased Lifetime Exclusions. Consequently, farmers need to be careful to execute estate plans that take advantage of current changes in the gift and estate taxes since the 2010 estate tax repeal, while anticipating future changes. Thanks to Public Law 111-312, §302(a)(1) and §302(b), owners of family farms can make lifetime transfers of up to $5 million. If these farm

Helping You, and Your Clients, Find the Missing Pieces As a Certified Public Accountant, the ever-changing rules and regulations in your industry often seem like a puzzle where the pieces either don’t fit — or are missing. As a result, today — more than ever — you need trusted advice from an experienced expert, a partner, who shares your commitment to integrity and professionalism. As a full-service, Texas-based and business-oriented law firm, Looper Reed & McGraw also provides a broad range of services for the individual such as Estate Taxes and Planning, Trust Planning, Fiduciary Litigation, Probate Law, Guardianship, Taxation and Tax Litigation. Looper Reed & McGraw. Pursuing unrivaled results. lrmlaw.com | 888.863.7157

Houston | Dallas | Tyler

Today’sCPA

| NOVEMBER/DECEMBER 2011

owners are married, their spouses can also make lifetime transfers of up to $5 million. If Farmer H and his spouse W own a large farm and seek to minimize their estate, they could transfer up to $10 million of farm property to their heir(s) tax-free in 2011 or 2012. This farm property and any future appreciation would then be removed from their estate when they die. This could be an important transfer because, to date, there is no certainty that the lifetime exclusion for gift and/or estate transfers will remain at $5 million for transfers after Dec. 31, 2012. If this law sunsets after 2012, the lifetime exclusion for both gifts and estates will fall back to $1 million in the absence of any further legislation in this area. It will be critical, however, for farmers who make these lifetime transfers in 2011 or 2012 to avoid retaining interests in possession or rights to income because IRC §2036 could trigger inclusion of the transferred property in the estate after all. If the farm owner, for example, could subdivide property and give portions of property to heirs as either a management succession plan to gradually move toward retirement in years 2011 and 2012, he/she could take advantage of the increased lifetime exclusions and lower the amount of property in his/her estate without worries of triggering IRC §2036. Life Insurance. Often when a family is land rich but cash poor, life insurance policies can provide enough cash to pay off the estate taxes. Life insurance proceeds can be used to pay debts, taxes and funeral costs of the decedent. The proceeds can also be used to pay nonfarming heirs for their share of the farm estate without having to sell off parts of the farm.

However, farm owners should proceed with caution when using life insurance in estate planning. While the recipients of life insurance proceeds do not have to pay income tax on these proceeds, the proceeds may be added to the decedent’s gross estate. IRC §2042 states: “The value of the gross estate shall include the value of all property – (1) Receivable by the executor to the extent of the amount receivable by the executor as insurance under policies on the life of the decedent. (2) Receivable by other beneficiaries to the extent of the amount receivable by all other beneficiaries as insurance under policies on the life of the decedent with respect to which the decedent possessed at his/her death any of the incidents of ownership, exercisable either alone or in conjunction with any other person. For purposes of the preceding sentence, the term “incident of ownership” includes a reversionary interest (whether arising by the express terms of the policy or other instrument or by operation of law) only if the value of such reversionary interest exceeded 5 percent of the value of the policy immediately before the death of the decedent. As used in this paragraph, the term “reversionary interest” includes a possibility that the policy, or the proceeds of the policy, may return to the decedent or his/her estate, or may be subject to a power of disposition by him/her … In determining the value of a possibility that the policy or proceeds thereof may be subject to a power of disposition by the decedent, such possibility shall be valued as if it were a possibility that such policy or proceeds may return to the decedent or his/ her estate.”

If a farm owner purchases a life insurance policy and that policy is (1) payable to his/ her estate; or (2) the farmer dies possessed of any incidents of ownership in the policy, then the proceeds will further increase the farmer’s gross estate and resulting tax liability for which it was purchased to pay taxes. An “incident of ownership” could be something as simple as the right to change the beneficiary of the policy or the right to borrow against the cash surrender value of the policy. To avoid inclusion in the gross estate and provide cash for heirs, the farm owner could arrange for his/her heirs to buy the life insurance policy so that the proceeds could bypass the estate and go directly to heirs to pay estate taxes without increasing the size of the gross estate itself. The farm owner might also consider creating an irrevocable life insurance trust (ILIT) that could purchase the life insurance policy. The ILIT could possess the incidents of ownership in the policy to avoid inclusion of the policy in the farm owner’s estate. The farm owner would then transfer premium payments to the trust each year to pay for the life insurance policy. It should be noted, however, that if the owner transferred an insurance policy to an ILIT within three years that ended on the owner’s death, IRC §2035 would require that the policy proceeds still be included in the owner’s gross estate. Deferral of Payment of Estate Taxes. The federal estate tax code normally requires that payment be made within nine months of the decedent’s death. If the farm owner’s heirs are unable to pay the estate taxes, they may elect to defer paying the tax for up to five years, and when the payment continued on next page

Today’sCPA

| NOVEMBER/DECEMBER 2011

Estate Tax Repeal

continued from previous page

period begins, they can pay in up to 10 installments under IRC §6166. This Code section states that it applies to closely held businesses, including farms, if the value of the business exceeds 35 percent of the value of the adjusted gross estate.10 With regard to farm property, IRC §6166 asserts: “For purposes of the 35-percent requirement of subsection (a)(1), an interest in a closely held business which is the business of farming includes an interest in residential buildings and related improvements on the farm which are occupied on a regular basis by the owner or lessee of the farm or by persons employed by such owner or lessee for purposes of operating or maintaining the farm.”11 Agricultural Conservation Easement. IRC §2031 allows a farm owner to give up rights to further develop his/her land while keeping ownership and possession of the land for the farmer or the farmer’s family. This arrangement is known as an agricultural conservation easement. While many argue that these easements are motivated by the desire to conserve land, most of these transfers are motivated by a desire to reduce estate taxes. Why? Since the land is limited in its future use, its value is lessened. Thus, if this conservation easement

is made while the owner of the farm property is alive, the farm owner will get an income tax deduction – a deduction that will generally be limited to 30 percent of the donor’s adjusted gross income (AGI) in the year of the transfer.12 When the easement is drafted, it is placed into a conservation trust created by an environmental group, and then it is operated under a local government agency. When the farmer/owner dies, the discounted value (usually an exclusion of about 40 percent up to a maximum of $500,000) of the property is included in the owner/decedent’s gross estate, thereby lowering the estate’s tax liability.13

MORE PLANNING NEEDED

7. 8.

As the value of farmland continues to rise, the percentage of farm estates subject to gift and estate taxes may also be on the rise. Consequently, these increases should trigger demand for estate planning for these farm owners. Moreover, as the laws keep changing in this area, it should require that farm owners and their estate planners revisit their estate plans at regular intervals to ensure that they minimize the impact of wealth transfer taxes while taking full advantage of planning opportunities available to them under the law. n

3. 4. 5. 6.

10. 11. 12. 13.

www.nass.usda.gov/Statistics_by_State/North_ Dakota/Publications/Land_Values_and_Farm_ Numbers/rel/farms0211.pdf Hoppe, Robert A. and Banker, David E., “Structure and Finances of Family Farms: Family Farm Report, 2010 Edition,” United States Department of Agriculture, pages 1 and 7, Economic Information Bulletin No. 66, July 2010. “Large” family farms have $250,000 or more in annual sales, and “very large” farms have annual sales over $500,000. Hoppe & Banker, page 23. MarketWatch.com, “U.S. Farmland Prices Up 20% in First Quarter,” May 13, 2011. Reuters, “U.S. Bankers Talk of Farmland Bubble, But Jury Out,” July 22, 2011. Public Law 111-312, §302(a)(1) and § 302(b) (December 17, 2010). Public Law 111-312, §303 (December 17, 2010). Public Law 111-312, §302(a)(2) (December 17, 2010). IRC 2032A permits farmland to be valued at its “current use” value instead of at its “highest and best value,” but this special valuation is only permitted if the heirs continue to use the farmland for its “qualified use” for 10 years after the decedent’s death per §2032A(b)-(c). IRC §6166(a)(1). IRC §6166(b)(3). IRC §170(f)(3)(B)(iii); Treasury Regulation §1.170A-7(b)(5). IRC §2031.

Joanie E. Sompayrac , JD, M.Acc., CPA, is UC Foundation Professor of Accounting and the assistant director of University Honors at The University of Tennessee at Chattanooga. She can be reached at Joanie-Sompayrac@utc.edu. Linda Christiansen, JD, MBA, CPA, is an associate professor of Accounting and Business Law at Indiana University Southeast in New Albany, Ind. She can be reached at lchristi@ius.edu.

Are you tired of doing business personal property renditions by hand for the following states? Florida (Forms DR-405, DR-405EZ) Oklahoma (Forms 901, 901F, 901P, 901FE) TEXAS (Forms 50-144, 50-113, 50-132, 50-162)

Our software saves you time and money!

Download the FREE TRIAL today! www.PersonalPropertyPro.com 40

Today’sCPA

918-252-1157

| NOVEMBER/DECEMBER 2011

CPE Quiz Today’s CPA offers the self-study exam below for readers to earn one hour of continuing professional education credit. The questions are based on technical information from the preceding article. Mail the completed test by December 31, 2011, to TSCPA for grading. If you score 70 or better, you will receive a certificate verifying you have earned one hour of CPE credit – granted as of the date the test arrived in the TSCPA office – in accordance with the rules of the Texas State Board of Public Accountancy (TSBPA). If you score below 70, you will receive a letter with your grade. The answers for this exam will be posted in the next issue of Today’s CPA. Answers to last issue’s selfstudy exam: 1. b, 2. b, 3. c, 4. a, 5. b, 6. a, 7. c, 8. b, 9. d, 10. b. PARTICIPATION EVALUATION (Please check one.) 5=excellent 4=good 3=average 2=below average 1=poor 1. The authors’ knowledge of the subject is: 5__ 4__ 3__ 2__ 1__. 2. The comprehensiveness of the article is: 5__ 4__ 3__ 2__ 1__. 3. The article and exam were well suited to my background, education and experience: 5__ 4__ 3__ 2__ 1__. 4. My overall rating of this self-study exam is: 5__ 4__ 3__ 2__ 1__. 5. It took me___hours and___minutes to study the article and take the exam. Name _______________________________ Company/Firm________________________ Address (Where certificate should be mailed) ___________________________________ City/State/ZIP_________________________ Enclosed is my check for: ___ $10 (TSCPA member) ___ $20 (non-member) Please make checks payable to The Texas Society of CPAs. Signature____________________________ TSCPA Membership No._______________ After completing the exam, please mail this page (photocopies accepted) along with your check to: Today’s CPA; Self-Study Exam: TSCPA CPE Foundation Inc.; 14651 Dallas Parkway, Suite 700; Dallas, Texas 75254-7408. TSBPA Registered Sponsor #260.

Today’sCPA

| NOVEMBER/DECEMBER 2011

The Sunset of the Estate Tax Repeal and Its Impact on the American Farmer 1 What percentage of very large family farm owners is age 65 or older? a. 10 percent b. 13.5 percent c. 15 percent d. 16.7 percent 2 The lifetime exclusion for gift and estate taxes in 2011 is: a. $1 million b. $2 million c. $3.5 million d. $5 million 3 The maximum estate tax rate in 2012 is: a. 35 percent b. 37 percent c. 45 percent d. 55 percent 4 For an estate to qualify for IRC §2032A special use valuation, the heirs must continue to use the land for farming for at least _____ years. a. three b. five c. 10 d. 30

5 If a farm owner transfers property but retains lifetime right to income from the property, IRC §_______ will require inclusion of the property in the farm owner’s gross estate. a. 2032A b. 2031 c. 2042 d. 2036

6 When a farm owner purchases a life insurance policy on his/her own life, all of these will result in inclusion of the policy in the farm owner’s gross estate except: a. Making the policy proceeds payable to the gross estate. b. Making the policy proceeds payable to the heirs of the estate. c. The farm owner reserves the right to change beneficiaries. d. The farm owner reserves the right to borrow against the cash surrender value of the policy. 7 IRC §6166 permits an estate to pay taxes in installments over a period up to: a. three years. b. five years. c. seven years. d. 10 years. 8 An agricultural conservation easement requires the owner to: a. File a special tax return. b. Create an irrevocable life insurance trust. c. Give up rights to further develop the land. d. File a special election under IRC §2042.

9 In the first quarter of 2011, the prices of cropland rose: a. 20 percent b. 25 percent c. 30 percent d. 50 percent

10 After 2012, the lifetime exclusion for gift and estate taxes is expected to be: a. $1 million b. $2 million c. $3.5 million d. $5 million

CPE Calendar TSCPA Continuing Professional Education Programs DECEMBER MONDAY

TUESDAY

WEDNESDAY

THURSDAY

FRIDAY

15 Navigating the LLC and Partnership Allocations and Basis Minefield Austin CPE Credits: 8

16 Annual Tax Update: Individuals and Sole Proprietors Fort Worth CPE Credits: 8

CPE EXPO Conference San Antonio CPE Credits: 18

CPE EXPO Conference Arlington CPE Credits: 18

12 Advanced Technical Tax Forms Training LLC, S Corporations and Partnerships Houston CPE Credits: 8 Determining How Much Money You Need to Retire, and Tax Ideas and Money Management in Retirement Dallas CPE Credits: 8 2011 Not-for-Profit Accounting and Auditing Update and Reporting Issues Austin CPE Credits: 8

LLCs and Partnerships for the Sophisticated Practitioner Houston CPE Credits: 8

OMB Circulars A-133, A-87 and The Compliance Supplement Austin CPE Credits: 8

New Critical Decisions in Selecting the Best Retirement Plan for Small Businesses in 2011 Dallas CPE Credits: 8

LLCs and Partnerships for the Sophisticated Practitioner San Antonio CPE Credits: 8

2011 Annual Tax Update SATELLITE BROADCAST Various CPE Credits: 8

2011 Not-for-Profit Accounting and Auditing Update and Reporting Issues San Antonio CPE Credits: 8

Personal and Professional Ethics for Texas CPAs Dallas CPE Credits: 4

Choosing the Best Entity Structure Under the New Tax Law in 2011 Houston CPE Credits: 8

CPE EXPO Conference Houston CPE Credits: 18

LLCs and Partnerships for the Sophisticated Practitioner Austin CPE Credits: 8

Tax Season Update: Corporations and Pass-Through Entities Fort Worth CPE Credits: 8

CPE Personal Assistant

Be sure to use your CPE Personal Assistant on the TSCPA website. It’s an online tool TSCPA members can use to track, maintain and update their CPE records. You can access this tool by going to the CPE area of the TSCPA website (tscpa.org) and clicking on the Wizard.

Today’sCPA

| NOVEMBER/DECEMBER 2011

JANUARY MONDAY

TUESDAY

WEDNESDAY

Preparing Individual Tax Returns for New Staff and ParaProfessionals Houston CPE Credits: 8

THURSDAY

Preparing Corporate Tax Returns for New Staff and ParaProfessionals Houston CPE Credits: 8

Preparing Individual Tax Returns for New Staff and ParaProfessionals Dallas CPE Credits: 8

FRIDAY

Navigating the LLC and Partnership Allocations and Basis Minefield Fort Worth CPE Credits: 8

Preparing Corporate Tax Returns for New Staff and ParaProfessionals Dallas CPE Credits: 8

Annual Tax Update: Individuals and Sole Proprietors Houston CPE Credits: 8

Tax Season Update: Corporations and Pass-Through Entities Houston CPE Credits: 8 Advanced Technical Tax Forms Training LLC, S Corporations and Partnerships San Antonio CPE Credits: 8

Tax Season Update: Corporations and Pass-Through Entities Dallas CPE Credits: 8 16

10 Choosing the Best Entity Structure Under the New Tax Law in 2011 San Antonio CPE Credits: 8 Annual Tax Update: Individuals and Sole Proprietors Dallas CPE Credits: 8 17 Advanced Individual Income Tax Return Issues Houston CPE Credits: 8 Personal and Professional Ethics for Texas CPAs Dallas CPE Credits: 4

11 Advanced Technical Tax Forms Training LLC, S Corporations and Partnerships Dallas CPE Credits: 8

12 Choosing the Best Entity Structure Under the New Tax Law in 2011 Dallas CPE Credits: 8

18 Strategies and Tactics in the New War Against Higher Individual Taxes Houston CPE Credits: 8

19 Advanced Individual Income Tax Return Issues Dallas CPE Credits: 8

Personal and Professional Ethics for Texas CPAs Austin CPE Credits: 4

Todayâ&#x20AC;&#x2122;sCPA

Annual Tax Update: Individuals and Sole Proprietors Austin CPE Credits: 8

| NOVEMBER/DECEMBER 2011

Tax Season Update: Corporations and Pass-Through Entities San Antonio CPE Credits: 8

Preparing Individual Tax Returns for New Staff and ParaProfessionals Austin CPE Credits: 8

26 Preparing Individual Tax Returns for New Staff and ParaProfessionals San Antonio CPE Credits: 8 Personal and Professional Ethics for Texas CPAs Houston CPE Credits: 4

30 Tax Season Update: Corporations and Pass-Through Entities Austin CPE Credits: 8

Annual Tax Update: Individuals and Sole Proprietors San Antonio CPE Credits: 8

20 The Complete Guide to Preparing Limited Liability Company, Partnership and S Corporation Federal Income Tax Returns Austin CPE Credits: 8 Strategies and Tactics in the New War Against Higher Individual Taxes Dallas CPE Credits: 8 27 The Complete Guide to Preparing Limited Liability Company, Partnership and S Corporation Federal Income Tax Returns San Antonio CPE Credits: 8

Classifieds Positions Available Certified Public Accountant – Victoria, TX Leading CPA and Wealth Management firm with a multi-family office serving high/ ultra high net worth clients located only 30 miles from the coast is searching for an experienced CPA to prepare and review federal and state income tax returns for trusts, estates, individuals, corporations and partnerships. Preparation of compilation reports is also required. The position also involves extensive income and estate tax planning and financial planning. Other responsibilities include but are not limited to: preparation and review of franchise, sales and payroll tax returns; research of tax and compliance issues; and mentoring and guiding other professionals. Qualifications: Must have 10+ years of public accounting experience in tax preparation and reviewing other preparer’s work. Experience in trusts and estates strongly preferred. Experience working with legal and insurance professionals preferred. Experience with various computer applications - Excel, Word, Outlook, Creative Solutions Tax and Accounting Products, QuickBooks. Must have excellent interpersonal skills and be able to interact effectively with clients and fellow employees. Possess strong tax research and writing skills as well as analytical skills Send resume to: mail@kellercpas.com or mail Keller & Associates, CPAs PO Box 2549 Victoria, TX 77902

$244,000 gross. Austin. Profitable CPA practice with 72% cash flow to owner. 80% tax and 20% accounting. TXC1043

$100,000 gross. Mesquite. Well-established with loyal clients. Evenly balanced (50/50) between tax and accounting. TXN1272

$233,488 gross. TX Panhandle/OK. Strong cash flow. Large number of business clients. Building also available. TXW1004

$130,000 gross. Mt Pleasant/Sulphur Springs area. Quality CPA practice with 50% tax and 50% accounting. TXN1277

$295,900 gross. TX Panhandle. Nice sized firm provides tax, accounting, payroll and consulting services. TXW1013

$677,000 gross. Richardson. 50% tax & 44% accounting. Highly profitable with cash flow of 50% of gross. TXN1276

$238,000 gross. Lubbock Metro area. Quality CPA firm with 45% accounting services and 55% tax prep. TXW1018

$1,650,000 gross. Collin County. Exceptionally strong fees & cash flow of 74%! Revenues 64% audit & 31% tax. TXN1278

$2,000,000 gross. East Texas. Reputable CPA firm with a nice mix of revenues, a loyal client base and tenured staff. TXN1285

$98,000 gross. Garland. Well-established CPA practice with 85% tax work. Offering favorable financing terms. TXN1280

$430,000 gross. Hunt County. Turn-key practice comprised of 80% tax with good cash flow and tenured staff. TXN1279 $35,000 gross. Desoto. CPA tax practice. Well-established, quality client base consists of approx 175 individuals. TXN1283 $167,000 gross. East Texas. Profitable practice with year-round income and strong cash flow to owner. TXN1231 $215,000 gross. East Texas. Well established. Great cash flow to owner. Partnership opportunity. TXN1249 $25,000 gross. Terrell-Kaufman Area. Turn-key tax practice with great potential for growth. Priced to move. TXN1254

$240,000 gross. Downtown Dallas. Composed entirely of bookkeeping & payroll services. Solid cash flow. TXN1281 $360,000 gross. Friendswood-League City area. CPA firm with excellent cash flow to owner. Revenues consist of 78% tax, 16% bookkeeping & 6% other services. TXS1107 $155,430 gross. Alvin. Primarily tax work with a loyal client base that should allow for expansion of services. TXS1088 $238,700 gross. Bryan-College Station. Quality tax practice with loyal staff and potential for expanding services. TXS1093 $175,575 gross. West Houston. Specializing in helping small business owners. Virtual office. TXS1094 $178,000 gross. McAllen. Excellent cash flow to owner. Owner willing to sell building. TXS1095

Practices For Sale

$72,000 gross. Rotan. Quality CPA practice composed of 85% tax prep. Strong cash flow & growth potential. TXN1258

Accounting Broker Acquisition Group 800-419-1223 X21 Accountingbroker.com Maximize Value When You Sell Your Firm

$95,000 gross. Kaufman Area. Highlyprofitable CPA practice with 70%+ cash flow to owner and quality clients. TXN1262

$63,000 gross. Brownsville. High concentration of tax work with 7 bookkeeping clients. Bilingual staff in place. TXS1100

$174,000 gross. East Texas. Highly profitable with strong fees. Quality client base includes many businesses. TXN1264

$286,289 gross. Brazoria County. 70% tax & 30% bookkeeping. Located in desirable area with experienced staff. TXS1101

$200,000 gross. Fort Worth. Tax practice with good fees, strong cash flow and excellent growth potential. TXN1275

$101,363 gross. Corpus Christi area. Revenues consist of 79% tax prep and 21% accounting/bookkeeping. TXS1103

Texas Practices Currently Available Through Accounting Practice Sales: $440,500 gross. Bell County. Well-established practice in desirable locations. Solid staff on board. TXC1030

Today’sCPA

| NOVEMBER/DECEMBER 2011

Classifieds $125,000 gross. Houston. 1/3 each: tax, annual bookkeeping & payroll/bookkeeping. Bilingual, well-trained staff. TXS1104 $285,480 gross. Conroe. Year round revenues include 50% tax, 25% bookkeeping, 5% reviews, & 20% other. TXS1106 ACCOUNTING PRACTICE SALES North America’s Leader in Practice Sales Toll Free 1-800-397-0249 See full listing details and inquire/register for free at www.accountingpracticesales.com PRACTICES FOR SALE THROUGHOUT TEXAS … including Dallas $350,000; South of Dallas CPA $600,000+; Tyler area CPA $200,000+; Oklahoma City $250,000. Many others nationwide! We provide 10-year bank financing on ALL listings with PAS! Confidential, prompt, professional. Contact Leon Faris, CPA, at Professional Accounting Sales, USA’s No. 1 accounting brokerage network. Phone 972-292-7172 or 800-729-9031. Visit our website at: www.cpasales.com

Practices Sought TAX PRACTICE SOUGHT 37 year old California CPA firm is seeking a tax practice in the Dallas/Fort Worth area with a practice size of $250-750K. No brokers please; this will be owner to owner acquisition and negotiation. If interested, please contact Ralph Kuhen via e-mail at Rkuhen@rkuhencpa.com. R. Kuhen & Co., Inc. Certified Public Accountants & Consultants Newport Beach, CA Visit our website at www.rkuhencpa.com BUYING OR SELLING? First talk with Texas CPAs who have the experience and knowledge to help with this big step. We know your concerns and what you are looking for. We can help with negotiations, details, financing, etc. Know your options. Visit www.accountingpracticesales.com for more information and current listings. Or call toll-free 800-397-0249. Confidential, no-obligation. We aren’t just a listing service. We work hard for you to obtain a professional and fair deal. ACCOUNTING PRACTICE SALES, INC. North America’s Leader in Practice Sales

Local CPA firm is interested in paying a premium for CPA practices up to $1 million in San Antonio area. We will retain staff or partners or work with transitioning retiring partners. Please contact psmith@cpatx.com. 210-366-9430. Accounting Broker Acquisition Group “Maximize Value When You Sell Your Firm” A Local Texas Corporation You Sell Your Firm Only Once! Will You Leave Money on the Table? Free Report: “Discover the 12 Irreversible Fatal Errors You Must Avoid When You Sell Your Firm!” We sell small & large CPA firms … 100 percent of our acquisition brokers are “Ex-Big Four” CPAs! We are the only firm of our type in the nation that can make this claim! Call now for your Free Report! 800-419-1223 X101 or send a quick e-mail to maximizevalue@accountingbroker.com

TSCPA offers opportunities for members and non-members to advertise in the Classifieds section of Today’s CPA magazine. To request a classified ad, contact Donna Fritz at dfritz@tscpa.net or 800-428-0272, ext. 201 or in Dallas at 972-687-8501; fax 972-687-8601. Or write to: TSCPA, Today’s CPA Classified Ads, 14651 Dallas Pkwy, Suite 700, Dallas, TX 75254-7408. ALL CLASSIFIED ADS MUST BE PAID IN ADVANCE. MASTERCARD, VISA, AMERICAN EXPRESS, PERSONAL AND BUSINESS CHECKS ARE ACCEPTED. PLEASE CONTACT DONNA FRITZ FOR RATES AND MORE INFORMATION.

Today’sCPA

| NOVEMBER/DECEMBER 2011

Classifieds Today’s CPA AD INDEX Company

Practices Sought

Services

continued

PRACTICES WANTED … Let our 28 years of CPA firm merger-acquisition experience work for you. We have hundreds of well qualified buyers anxiously seeking practices in the Austin, Dallas, Houston, and San Antonio areas. We provide 10-year financing so you can cash out at closing! Confidential, prompt, professional. Contact Leon Faris, CPA, at Professional Accounting Sales, USA’s No. 1 accounting brokerage network. Phone 972-292-7172 or 800-729-9031. Visit our website at: www.cpasales.com

Need assistance with a Client’s Texas Sales Tax Issue/Problem? Audits? Refunds? Not permitted? We were trained by and worked for the Comptroller of Public Accounts. We know Sales Tax Law and Audit procedures. Your client has options. Michael J. Robertson, CPA Web page: Texas-SalesTax.com 817-478-5788 Fax: 817-478-8779

Software For Sale PROVEN OIL and GAS ACCOUNTING SYSTEM keeps getting better. Fast, easy to use. Developed for PC/network by CPA. Over 2,000 users. G/L, A/P, depletion, payroll, joint interest billing, revenue distribution, document imaging, and production management. WolfePak Software; 2901 S. First St., Abilene, TX 79605. 325-677-1543 or 800-299-1543. E-mail: sales@wolfepak.com.

Page

Accounting Practice Sales www.accountingpracticesales.com

Audimation Services, Inc www.audimation.com

Cheque-Mate Payroll Solutions www.chequemate.com

CPA Mutual www.cpamutual.com

CPE Link www.cpelink.com

Goodman Financial www.goodmanfinancial.com

Halogen Software www.halogensoftware.com

Law Office of Antonio Villeda www.mybusinesslawyer.net

Looper, Reed, & McGraw P.C. www.lrmlaw.com

Marsh U.S. Consumer www.marshpm.com

Robert Half www.roberthalf.com

TorqueWare www.torqueware.com

MAXIMIZE

YOUR COMPANY’S EXPOSURE Your advertising message will reach the most influential CPAs, as well as the businesses and individual clients to whom they recommend products and services. Start growing your business now by advertising in all of our official association magazines. Call today and ask about our package discounts.

MARKET TO 75,000 CPAS AND ACCOUNTING PROFESSIONALS FOR MORE INFORMATION Contact Advertising at 617.896.5344 or email custompubs@thewarrengroup.com

Today’sCPA

| NOVEMBER/DECEMBER 2011

Identifying and developing top talent in Sue's firm used to be suspect.

Now it’s case closed!

Strategic Talent Management Made Easy! Thousands of HR professionals and firm administrators are using Halogen Software to take charge of their firm’s talent management practices – with brilliant results. Align goals, deliver detailed performance evaluations, project and 360 reviews, develop critical talent and drive employee performance as a competitive advantage. It’s never been easier. Visit www.halogensoftware.com to request a free trial of our award

Special Purchase Terms

winning Talent Management Suite for Professional Services, or

available for TSCPA members.

Inquire today!

Choose from our fully-integrated talent management solutions.