Financial Reform: What’s in it?

Thursday, July 22nd, 2010

The President signed the Dodd-Frank Act (Financial Reform) this week, and we wanted to share what we know about what’s in it.

Many of the provisions still require what I’d call “implementation planning” — exactly how is this going to work? — but here’s what we know so far.   The law is primarily focused on avoiding future systemic banking system failure, and includes provisions that affect consumers, businesses, banks, investors, and investment advisors. 

Here are some of the highlights:

For consumers:

• A new regulatory body, the Consumer Financial Protection Bureau, will be responsible for writing new rules on financial consumer products.
• New mortgage rules requiring those granting loans to verify applicants’ credit history, income, and employment status (establishing that you can actually pay back what you’re borrowing) may be helpful to those whose appetites are bigger than their paychecks.  And rules that require lenders to hold onto a certain percentage of the loans they write should limit lending to people at a high risk of default.
• New credit card rules may benefit consumers — card minimums now cannot exceed $10, and limits to the “interchange fees” that banks can charge merchants may lead to better prices for consumers. 
• Got a complaint about a financial institution?  This act creates a national consumer complaint hotline to report problems with financial products and services.
• You’ll now be entitled to a free look at your credit score, not just your credit report, if it affects whether you get credit you’ve applied for.
• And if one of those “too big” financial companies needs to be liquidated, taxpayers will bear no cost.  FDIC can borrow only the amount of funds to liquidate a company that it expects to be repaid from the assets of the company being liquidated.

For businesses:

• Finally, the suspense over SOX 404 is over for smaller public companies.  For “non-accelerated filers,” (those with less than $75 million in market cap), the act amends Sarbanes-Oxley to make permanent the exemption from its section 404(b) requirement.  It  also requires the SEC to study (within 9 months) how to reduce the burden of 404(b) compliance for companies with market caps between $75 million and $250 million.
• New rules limiting the interchange fees that credit care issuers can charge merchants may help small businesses.

For investors:

• The bill addresses the conflict of interest created when banks and financial institutions pay a credit rating agency to evaluate their securities. 
• It gives shareholders of publicly traded companies a vote on executive pay, though the vote is nonbinding.
• Executives of public companies who are paid based on their financial performance will have to pay back up to three years worth of compensation if the financial reporting that was used to calculate the pay turns out to be inaccurate and is restated.
• The  U.S. Commodity Futures Trading Commission and the Securities and Exchange Commission will have authority to regulate over-the-counter derivatives.  Banks will be prohibited from trading certain forms of derivatives, and most of the trading must occur on transparent exchanges.

Regarding financial institutions:

• The “Volker Rule” prohibits banks from engaging in proprietary trading (trading the bank’s money for profit), which some perceive as creating conflicts of interest. 
• Banks’ relationships with hedge funds and private equity funds will also be limited, and they will be prohibited from trading certain types of derivatives.
• A new council will be watching.  The “Financial Stability Oversight Council,” will monitor the U.S. economy for underlying systemic risks and make recommendations to the Federal Reserve on issues created by firms that are deeply interconnected within the financial system.   The council will also monitor and advise Congress and the SEC regarding domestic and international accounting standards developments.
• Liquidation authority. The Federal Deposit Insurance Corporation will have a mechanism to unwind “failing systemically significant financial companies,” with no financial impact to taxpayers.

Regarding investment advisors:

• Regulation of more registered investment advisors will move from the SEC  to the states.  The threshold requiring registration with the SEC will be raised from $30 million in assets under management to $100 million, with smaller advisors regulated by the states.  Some exceptions apply.
• Private advisers are no longer exempt from registering with the SEC.  Advisers to venture capital funds remain exempt, as do those who only advise private funds and have U.S. assets under management below $150 million.  Family offices are also exempt.

There are more provisions (the bill is 2,300 pages).  We’ll keep an eye on developments as the new rules are  implemented.

—

Alan Chosed, CPA, is a principal at Kaufman, Rossin & Co, one of the top accounting firms in the Southeast.  He can be reached at achosed@kaufmanrossin.com

Hurricanes are no joke.

Friday, July 2nd, 2010

On Sunday night, August 24, 1992, Hurricane Andrew ripped through South Florida and caused more than $26.5 billion in damages. Our firm’s offices were closed for two full weeks – power in the neighborhood was out for a week, and then we were closed for another week to replace the electrical panel that had been flooded and the air conditioning towers that had blown off the roof. The name Andrew was retired by the National Weather Services, and replaced by the name Alex.

If you were in South Florida in 1992, you won’t forget that hurricanes are no joke.

Hurricane season runs June 1 through November 30. Building a “culture of readiness” for your family, employees and business will help you make good decisions and provide you with options to minimize the effects of a disaster like Andrew.

If you don’t have a plan, start planning right away.   Ask yourself:

• Who is my emergency management team, and what tasks should each of them be assigned?
• Which staff, materials, procedures and equipment are absolutely necessary to keep the business operating?  
• What are my backup plans if any of these are unavailable? 
• Can employees work at home if necessary? 
• What is my communications plan – how will employees know the status of the business and whether they should try to get to work?  How will I know all employees are safe?
• Which customers should I make sure to contact immediately, to let them know the status of the business?  Do I have their contact information easily available?

To learn more about how to prepare your business and minimize the effects of a hurricane or other disaster, register for my free breakfast seminar on July 22nd.  You’ll get important tips and answers to your questions, and receive a free copy of the Kaufman Rossin Disaster Preparedness Guide. 

Jorge Rey is Director of Information Security for Kaufman, Rossin & Co., one of the top CPA firms in the Southeast.  He can be reached at jrey@kaufmanrossin.com.

Legislative Alert: Is your law practice an S-Corp?

Friday, June 25th, 2010

June 25, 2010 Update

The Tax Extenders Bill has been tabled after a third cloture attempt failed yesterday. This is the bill that included the provision to subject all business income from certain S corporations to employment taxes. Senator Snowe (R-Maine) cited the “anti-abuse” provisions for S corporations as one of the reasons for voting against cloture.

The future of the bill is uncertain at this time but don’t breathe too easy — it is likely that the payroll tax issue for S corporations will arise again.

Now is the time to get ready by consulting your tax advisor. Prepare by understanding the tax impact on your practice, which could be substantial, and consider making other tax moves to get ready.

June 23, 2010 Update

The Tax Extenders Bill is still being debated in the Senate. Various amendments are being considered to either ensure the number of votes for passage, or pay for the extended tax benefits. The federal budget deficit is now a hot issue that affects this and other legislation.

However, the provision affecting S corporation shareholders is still in the bill, and when this bill does pass it’s my expectation that it will still be in there, which means many professionals will see a significant tax impact.  Contacting your tax professional to plan ahead – even if it’s just getting an idea of the additional tax you’re likely to pay — is smart strategy.  See below for a discussion of the S-Corp provision.

The Tax Extenders and Unemployment Bill I wrote about last week was passed by the House and now goes to the Senate.  Read on to see how your S-Corp may be affected. 

——-

May 24, 2010

Legislation scheduled to hit the House floor this week would impose Social Security and Medicare taxes on all income derived from professional service businesses.  This is a House amendment to a Senate amendment to HR 4213 (Jobs and Closing Tax Loopholes Act of 2010).  That means if it passes the House all income of professional service businesses formed as S-Corporations or Partnerships or Limited Liability Companies would be subject to payroll taxes beginning sometime in 2010.

Social Security taxes are imposed on compensation and self-employment income up to the Social Security Wage Base (currently $106,800) and the Medicare tax is imposed on all self-employment and compensation income.  Under the current tax law, many professional service firms are set up as S-Corporations owned by the professionals in an effort to minimize income subject to payroll taxes.  The S-Corporation earns the professional fees and pays the shareholder-professional wages that are less than the income earned by the S-Corporation. Any income in excess of the wages is then treated as earnings of the S-corporation allocated to the shareholder-professional and not subject to payroll taxes.

This legislation would change that.  In situations where an S-corporation is in a professional service business that is principally based on the reputation and skill of 3 or fewer individuals or an S corporation that is a partner in a professional service business, all of the earnings of the S-Corporation allocated to the shareholder-professional would be subject to employment taxes. The bill would also clarify that individuals that are engaged in professional service businesses are unable to avoid employment taxes by routing their earnings through a limited liability corporation or a limited partnership.

If this measure passes — and it could pass this week — it could impact the tax planning of many professionals.  If your practice is an S-Corporation, contact your accountant to understand the implications.

Dennis Fitzpatrick, J.D., is a tax principal with Kaufman, Rossin & Co., one of the top CPA firms in the Southeast. He can be reached at dfitzpatrick@kaufmanrossin.com

Community Association Relief – It’s about time!

Friday, June 11th, 2010

On June 1, 2010, there was a big sigh of relief across the state of Florida.  We all heard it.  On that day, the Florida residential community associations’ voice was heard.  In a stunning reversal from the year before, Florida Governor Crist elected not to veto Senate Bill 1196 and House Bill 561, also referred to as the Distressed Community Association Relief Act.  Long overdue, the Act will finally provide some much needed relief to distressed condominium and homeowner associations, and their law-abiding members, when it goes into effect on July 1, 2010. (more…)

Why did the accountant cross the road?

Monday, April 19th, 2010

Some have said he did it just to get a laugh.

Others have said she did it to help the chicken with his tax return. 

And some accountants would certainly cross the road to win the Corporate Run!

At Kaufman, Rossin, we believe that laughing together is an important part of a healthy environment.  Joy at Work is one of our core values, and we like to think it’s one of the reasons we were named Best Place to Work again this year. 

So we’d like to spread the joy of laughter today and ask for your help filling in the punch line.

Tell us your punch line – Why did the accountant cross the road?

Don’t be a target for the IRS!

Wednesday, March 31st, 2010

The chances of getting audited are probably higher than ever this year.  After all, tax enforcement is one of the few ways the government can collect more…without anyone risking their next election.  Now more than ever, it’s important to pay attention to the factors that will increase the likelihood of an audit.

How do the unlucky ones get chosen?

The IRS relies on technology to take the first step in the process of selecting returns for audit. After your return is filed, it goes through a computer check, comparing it to a model.  The return receives a Discrimination Information Function (DIF) score.  The model, like so many we deal with these days, is closely guarded (think the recipe for Coca Cola or the Google search algorithm).  Then seasoned IRS agents review the highest scoring returns, to identify high potential audit candidates.  

What makes high potential?  It’s simple.  As Deep Throat advised Bob Woodward in All the President’s Men, they “follow the money.”  If you earn more than $100,000  a year, you’re already five times more likely to be audited – there’s a larger potential return on their time invested!

What would make me more likely to be audited?

For your individual tax return, here are some key factors.

1. Your deductions are higher than normal for your reported income
2. You give more to charity than most people who earn what you do
3. The income on your return doesn’t match the other forms they received, like W-2′s and 1099′s
4. Your income is incredibly low, compared to others in your profession
5. The numbers look too exact, like you’re guessing - $1,000 in real estate taxes is highly unlikely
6. You work in a cash business, like the restaurant or taxi industry

What makes my business more likely to be audited?

The self-employed, like the wealthy, start out with a target on their backs.   How can it get worse?

1. If you show losses year after year, they may classify your business as a hobby - not deductible.
2. If you intermingle business and personal expenses, that’s a big mistake.  Using the same bank account to pay for paper for the office copier and that new Prada bag is a big red flag.
3. If you try to avoid payroll taxes by hiring everybody as independent contractors, you’ll need to prove it. 
4. If you treat office equipment like supplies, you’re making a mistake. Suppies (copy paper) are deductible, but business equipment (your new copier) is a capital expense, and must be depreciated.  Good news, though – for property placed in service during 2009 there are several ways to write off all or most of these purchases in the first year.  
5. If you pay yourself too much – or too little! – IRS will notice and take a deeper look.

And of course, there are simple mistakes you’ll want to kick yourself for.   If you calculate wrong, forget to sign your forms, forget to include all the documents – you’re likely to get audited

—

Dennis Fitzpatrick is a tax principal with Kaufman, Rossin & Co., one of the top accounting firms in the Southeast.  He can be reached at dfitzpatrick@kaufmanrossin.com

Now what? Some Impacts of Health Care Reform

Wednesday, March 24th, 2010

After a series of complex parliamentary maneuvers, the House approved a massive health care reform package on March 21, 2010, with over $400 billion in revenue raisers and new taxes on employers and individuals. President Obama signed it into law, and the additional congressional steps have been taken. 

Health care reform has arrived.   But what does that really mean for individuals and businesses? 

The uninsured are clearly the biggest beneficiaries of this legislation, which (starting in 2013) will require all individuals to have “minimum essential coverage” and provide subsidies for those who can’t afford it.   Large businesses will have to provide that coverage (or pay an additional tax) but smaller businesses will be exempt from this requirement and may even qualify for subsidies to help them provide coverage to employees. 

Here are a few of the early changes that may affect you and your family sometime this year.

1. Dependent children will be able to remain on their parents’ insurance plans till age 26
2. Many plans will be prohibited from placing lifetime limits on coverage, or cancelling your coverage if you become ill
3. Plans won’t be able to deny coverage for children with pre-existing conditions.
4. People who have been uninsurable due to pre-existing conditions could qualify for insurance through a federal high-risk program.
5. Medicare beneficiaries who hit the “doughnut hole” in drug coverage will get a rebate this year
6. Some preventive care, including some types of cancer screening, will be free from co-pays and deductibles.

This is a complex bill.   For more information, take a look at this summary, or contact your accountant.   

Some additional good resources include:
Inc. Magazine: What Health Care Reform Means for Your Business
NY Times: For Consumers, Some Clarity on Health Care Changes

Dennis J. Fitzpatrick, JD, is a tax principal at Kaufman, Rossin & Co., one of the top CPA firms in the Southeast.  He can be reached at dfitzpatrick@kaufmanrossin.com.

Best Place to Work

Friday, February 26th, 2010

Yesterday, our firm was once again named the #1 Best Place to Work in South Florida.   That’s a very special honor for us, and I wanted to share a few thoughts.

What makes this place so special is our employees. We don’t just hire great accountants. We recruit, select, mentor and develop great people.

Here’s what I mean.

• Our people love what they do, so our clients get the special attention and the caring service that sets us apart from other accounting firms
• Our people care about each other, so our teams  — everything from client audit teams to our championship CPA softball team – help each other improve performance all the time
• Our people are smart and resourceful.  They recognize that, to continue to grow, they need to see beyond the numbers to what matters most to clients, and find ways to deliver.
• Our people care about our community, and are willing to spend time and energy to make it better.

For 48 years we’ve put our employees first.  As the firm has grown we’ve put new programs in place that help to maintain the caring, family atmosphere.

I’m gratified that, while the economic downturn has affected everyone in South Florida, our employees trust that management is still focused on maintaining our Joy At Work culture.

What do you think makes a great place to work?

Keeping condo associations afloat

Thursday, February 4th, 2010

As foreclosures mount, condominium and homeowner associations have been reeling from sharp decreases in revenue due to the delinquency of unit owners in the payment of their association fees. This has created a tremendous burden for the paying unit owners to shoulder the shortfall so the association will have sufficient income to continue operating.

However, many homeowner and condominium associations in Florida are taking advantage of an equitable remedy known as the “Blanket Receivership” to increase the association’s revenue stream. To effectuate a Blanket Receivership, the association engages an attorney to petition the court to appoint a Receiver over the delinquent units. Once appointed, the Receiver is authorized to collect rent directly from the tenants residing in the delinquent units to pay the association fees. It’s called a “Blanket Receivership” because it eliminates the need to appoint a Receiver over each delinquent unit individually, which is a costly and time-consuming endeavor. Although there is some cost involved in implementing the legal remedy, it allows the association to collect funds it otherwise would not see at all. The “Blanket Receivership,” approved by Florida courts, is a cost effective and efficient remedy that enables the association to stay afloat.

Read the whole article

Amir Isaiah is the Director of Receivership & Fiduciary Services for Kaufman, Rossin & Co., one of the top CPA firms in the Southeast. He has been appointed numerous times as Receiver for residential and mixed-use community associations and was the first Receiver to obtain authorization to lease abandoned units under the Blanket Receivership structure. Mr. Isaiah has extensive experience serving as a guest speaker and panelist on the topic of receiverships, and is co-author of “The Receivership Manual for the Florida Juiciary” revised 2009. He can be reached at aisaiah@kaufmanrossin.com.

Teach more, learn more, add more value.

Friday, November 20th, 2009

Just read Bill Taylor’s HBR blog post The Rise of the Teaching Organization and I couldn’t agree more. 

He writes:

“Executives have come to understand that for their companies to stay ahead of the competition, their people, at every level, have to learn more (and more quickly) than the competition: new skills, new takes on emerging technologies, new ways to do old things, from manufacturing to marketing to R&D….

But one thing I’ve learned over the last few years, as I’ve traveled the world in search of organizations unleashing big change in difficult circumstances, is that the most determined innovators — the organizations with the most original ideas about how to compete and win — aren’t just committed to learning. They are just as committed to teaching.”

Organizations that look beyond their own walls to find new ideas, or venture out to share the innovations they have created, can benefit in so many ways!  Building awareness of their business is an obvious one — but sharing ideas that help others comes back in so many more  valuable ways.

Don’t miss this post!  I’d love to hear what you think.