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TA B L E O F C O N T E N T S
FEATURES
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5 Steps for Increasing 7 Your Connection with Clients Clients drive your business model. In these tough times, it’s so important to connect with them and show them you care.
TAX
BABC SALT Corner 14 CPAs Beware: Some CARES Act and FFCRA Incentives Don’t Play Well Together
ACCOUNTING PIPELINE
Proposed CPA Licensure Model Designed to Future-Proof the Profession 15 A Model Flexible Enough to Evolve with the Profession
Inside the ASCPA Message from Jeannine................ 4 Message from the Chair................ 5 Focused Efforts on the College
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Normalcy During the Virus? Our roles have never been more critical to our clients. Here’s how to help them navigate COVID-19 legislation.
Pipeline of CPAs.......................... 16 Classifieds................................... 17 New CPE Season, New Opportunities..................... 18
2020 Tax Season: The “Perfect Storm”
Arm yourself and protect your organization with these insights.
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Responding to COVID-19 with Remote Access?
COVID-19 has led to an increase in the number of attacks being launched against the US—specifically, tax professionals.
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Cover Image: Board Members Keary Foster, James White, Jr., & Sarah Propper, and ASCPA Educational Foundation Board Member Karen Moore at the ASCPA’s Centennial Gala.
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MESSAGE FROM JEANNINE
T
he world pivoted – literally overnight. Just a few months ago, the ASCPA team was enthusiastically planning the CPE events that typically kick off our education season; a time where we get to see and serve Alabama CPAs. CPE season is known to be the busiest time of year at the ASCPA and I like to think we all benefit from the constant communication and traffic in our office. Simply put, it is good to see you, talk to you face-to-face, and collaborate with you on new ideas and solutions. I know that our team gets better at communicating, working together, and solving problems when we get to spend time not only with one another but with you, our member. The ASCPA team works together every CPE season to provide the best, newest content and delivery and this year was to be no different considering the shift in new Alabama State Board of Accountancy learning requirements. Best laid plans laid to rest... naturally, CPE we originally planned looks different right now. Not only do we and will we miss this teambuilding, member-connection season, but we project that we will have a greater than 25% loss in revenue. But has this stopped us? Why no – in the past few weeks we have not only put together timely CPE webinars, we have offered them to members at no charge, i.e. free. I would like to thank the many volunteers who helped us literally overnight put together content for you. My gratitude to Trip Umbach, Bruce Ely, Will Thistle, and the
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ASCPA Connections
Bradley team, Lisa McKinney, Karen Miller, Kassi Rushing, Stacey Horne, Commissioner Vernon Barnett, Curtis Stewart, Derrick Coleman and Kelley Gillikin (Alabama Department of Revenue), and Carl Peterson for being invaluable to ASCPA. While free might shock many not for profit organizations, I believe that our value commitment to you is to protect, educate, and connect. We have had that same supportive, all-in spirit in delivering to you ASCPA value, albeit in different delivery modes and while 100% of the team works from home. ASCPA continues to solve problems, seek innovative ways to provide you with the resources and tools that you need right now, and we are learning to become a stronger team throughout our current circumstances. If you have not had the opportunity to participate or use some of the resources that we have created in the past two months, I hope that you will visit ASCPA.org now. You will find the latest regulatory news and guidance in one spot for you, as well as connection points and education opportunities including ASCPA-hosted webinars that cover all aspects of the latest legislative changes, how to work safely & efficiently from home, and virtual conferences. Lastly, we are most excited to deliver the business portion of our Annual Members’ Meeting to you 100% virtually on Tuesday, June 16, 2020. We will recognize ASCPA leadership who has led through this crisis, welcome incoming board members and provide at least 1 hour of CPE to help you meet the September 30th deadline. Being that the ASCPA is a membership organization, the membership team has worked overtime to make renewing your annual dues and Peer Review dues easier in 2020. Within a few days, they created an optional quarterly payment plan for your annual dues, and the Peer Review team extended deadlines in response to this difficult time. For the first time, we have a 90-day trial membership for newly certified Alabama CPAs. If you know someone who would benefit from our education events and ASCPA news, please
tell them to reach out to Zack Camerio, our Member & Student Engagement Manager at zcamerio@ascpa.org. The ASCPA Coronavirus Resource Page (www.ascpa.org/coronavirus) will continue to be a hot spot for regulatory resources and guidance as long as necessary. The ASCPA Connect Community has been buzzing with conversations over the past two months, too. It is encouraging to see you band together and share valuable knowledge there. Still, if you cannot find a specific resource or have questions, please do not hesitate to reach out to me at jbirmingham@ascpa.org or to our Communications Director, Corena Cottles, at ccottles@ascpa.org. In conclusion, I would like to extend my gratitude to many of you who have sent kind messages to me and the ASCPA team throughout the past two months. Encouraging words do more for team morale than you might imagine. To quote one of these said messages, “the world has become very small, in ways we could not have imagined, we are truly citizens of the world. With the whole human family, we are facing our fragility in a way that most of us have never experienced. Life is precious and precarious, yet in times of crisis, can also summon us to be our best selves”. ASCPA works every day whether in the office or a remote environment to be our best selves for you. We are proud yet humbled to work for professionals who give so much to clients, companies, education, government, and the community at large. While our present circumstances may be absent of physical gatherings, the ASCPA team is dedicated to helping you where you are at right now. We are in this together—and we cannot wait to see you again!
Jeannine
MESSAGE FROM THE CHAIR
W
ow, what was that? That is the first thought that crossed my mind when I pondered the question, “what happened during my year as Chair?”. At the time I am writing this Chair letter, our world is still fighting the battle against an awful virus while most of us work remotely. As you are reading this message, you are still in a battle to take care of your clients and your firms. It’s a battle we will win. And, we will exit the contest stronger, wiser, and with an understanding of just how adaptable CPAs can be regardless of what we may have believed before. The past year has been an incredibly fun and rewarding year for me as your Chair. These are some of the highlights that come to mind: • We started the year with a great celebration of our 100th anniversary and the YCPA golf tournament in June. • Summer brought a great series of education options for every type member we serve with great presenters from around the country. Add to that, the enormous online education offerings ASCPA provides at a very reasonable price allowing the continuous learner in each of us to feed our need to stay up to date. • Legislative actions in Montgomery are always at the forefront led by Jeannine’s efforts to maintain strong relationships with leaders in every branch of Alabama government. • Chapters continued to foster positive relationships in their local communities through service. • In the Fall, the ASCPA Education Foundation announced the awarding of $80,000 in scholarships to deserving college students from around the state. • Our peer review program’s success in administering reviews within Alabama has led to two states engaging ASCPA to administer their peer review programs. • Three Small-Firms Forums were hosted
around the state led by AICPA’s Carl Peterson. The feedback and conversation provided valuable data for ASCPA and AICPA to more effectively serve small firms. • In November, the ASCPA board hosted a two-day strategic planning session facilitated by Gary Boomer of Boomer Consulting that provided the roadmap for an aggressive plan to transform ASCPA to be better prepared to serve our membership in the future. • Little did we know, that strategic thinking would start to pay dividends a few months later when our newest challenge, the Coronavirus, appeared. Every past ASCPA Chair has a year they will remember for a variety of reasons. I will remember getting to know so many more CPAs around the state, getting to know my fellow board members, and getting to know leaders on a national level. I made a commitment to spend time at ASCPA offices every month (until the virus appeared) to interact with the staff and be present for Jeannine. Those days were most enjoyable and invigorating and, so beneficial for me as Chair. I appreciate the board’s hard work during every meeting and at our strategic planning session. To be an ASCPA board member requires a commitment to serve while contributing their time, knowledge and experience. Everyone on our current board contributes at a high level. Numerous member volunteers serve on the various committees and task forces we have, and I thank you for your service. Lastly, in a time of critical need, I will never forget how your ASCPA staff adapted to serve you as the new unexpected challenges from the Coronavirus Chaos appeared. The ASCPA team is incredible!
whatever capacity I can to serve this great profession. In closing, the Coronavirus Chaos has changed our country. My Mother likened what is going on to her childhood and teenage years during the Great Depression and World War II. The people of this great nation will adapt and will see that we remain the great nation we have become. Our profession will find we can adapt faster, easier and, more effectively than we believed. This will provide a new confidence to have the courage to commit to seeking new capabilities to serve our clients and organizations in ways just last year we thought were years away. The core of my philosophy on leadership focuses on serving others. With that in mind, I thank you for the privilege to serve as your ASCPA Chair for the past year.
Dennis
Looking forward, your ASCPA board leadership is in excellent hands with Incoming Chair Mike Brand leading the way and Chair-Elect James Moody joining our leadership team. I look forward to continuing to actively serve during my year as Past-Chair and beyond in
May/June
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ASCPA Connections
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4/29/2020 10:49:25 AM 4/29/2020 10:49:25 AM
5 STEPS
FOR INCREASING YOUR CONNECTION WITH CLIENTS
by Sandra Wiley, President of Boomer Consulting Your clients drive your business model. This is why, in these tough times, it’s so important to connect with them and show them you care. Over the last several weeks, your clients have likely felt a sense of panic over the public health situation, the economy, their own customer base, and their employees. They may be facing a tension between generating sales during a time of extreme economic hardship and respecting threats to life and livelihood. Now more than ever, they need guidance and support to navigate those changes. Is your firm that trusted resource? To ensure you are, here are five ways to increase your connection with clients. 1. EMBRACE VIDEO If your firm hasn’t fully embraced a shift to video conferencing, now is the time. With video, the entire feel of a client meeting changes. Participants can see and be seen. It removes a sense of distance in a way that a phone call just doesn’t. Our team at Boomer Consulting has been fully remote for several years now. We’ve seen firsthand just how video translates into closer relationships – even between team members and clients who haven’t met in person. When paths finally do cross, it doesn’t feel as though you’re meeting a stranger. You recognize one another. In these times of social distancing and sheltering in place, video conferencing is the next best thing to working together in person. 2. REALLY LISTEN A true trusted advisor isn’t just available when business is doing well. If you want your clients to trust and respect you, now is the time to earn it. Be empathetic and really listen to their questions and concerns. In times of change and pressure, it takes real effort to take the time to listen to others without interrupting or breaking in, judging what the person is saying, or thinking about what you’re going to say while the client is still talking. Luckily, active listening is a learned skill, so practice using these steps adapted from the Financial Planning Association: Give your undivided attention. Don’t multitask while talking to your clients. If you’re
thinking about your next meeting or checking email, you’re not listening well. Learn non-verbal cues. A substantial portion of communication is non-verbal, so look for verbal cues from your clients and consider the ones you’re sending. This is especially important during a video conference. Make eye contact and ensure your facial expressions are aligned with your message. Considering your own non-verbal cues will make it easier for clients to share their concerns with you. Learning to read their non-verbal communication, such as fidgeting and avoiding eye contact, can help you interpret their emotions and respond appropriately. Ask the right questions. Before connecting with your client, it’s a good idea to create an outline for the conversation and consider questions you want to ask. But don’t write a script to read. Interrogating your clients with a list of questions won’t facilitate dialog. Use your outline as a guide, but let the client guide the conversation to show that you are open and caring. Before asking a question, think about how it will help you serve your client better. Make a connection. Some client concerns might seem small to you, but they’re not to them. Don’t skim over pain points or be judgmental. Try to understand their fears and frustrations by putting yourself in their place. Follow up. If your conversation requires a follow-up, make sure you call or email in a timely fashion. This lets your client know you didn’t forget about them, even if you don’t have an answer for them right away. Following up lets your clients know you care about their problems and are reliable. 3. BE PROACTIVE Don’t wait for your clients to reach out to you. Think about what they’re going through now and reach out to them. Remember, in our current situation, the situation they were facing a few weeks ago may be completely different from the situation they’re in today. Respond to what’s happening now – not where they were in the past. 4. PRIORITIZE SIMPLICITY AND CLARITY The accounting profession is loaded with terminology and jargon that makes it difficult
to convey a clear message to clients. Keep in mind, one of the main reasons your clients sought out your services is that they don’t have an in-depth knowledge of accounting, taxes, etc. Using language they don’t understand serves no purpose other than to confuse them and push them further away. Use language that is plain and simple. Above all, strive to ensure your clients walk away from your conversation feeling like they have a clear plan. 5. SET AN EXAMPLE FOR YOUR TEAM For leaders in firms, setting an example for closer client connections is crucial because your team will follow where you lead. When everyone on your team knows how to create an exceptional client experience, you’ll increase long-term loyalty with your clients and create more opportunities for your firm. By focusing on cultivating client connections during tough times, you’ll build sustainable relationships instead of just doing the work and moving on. These relationships are a strong foundation that will help you grow your firm to new levels.
Do you want the tools and accountability to start from where you are now and get where you want to be? The Boomer Certified Consultant Training program helps equip accounting professionals with the mindset and skills to become true trusted business advisors to clients. If you’re interested in learning more about this unique 3.5-day training program, email us at solutions@boomer.com to schedule a call today! Sandra Wiley, President of Boomer Consulting, Inc., is a leader in the accounting profession with a passion for helping firms grow, adapt and thrive. She is regularly recognized by Accounting Today as one of the 100 Most Influential People in Accounting as a result of her expertise in leadership, management, collaboration, culture building, talent and training.
Take a deep breath. We are here for you. Our mission is to enhance your profession through advocacy, education, and member engagement.
Let one of us know how we can help you. Visit www.ascpa.org/staff to reach one of us today.
NORMALCY DURING THE VIRUS? by Tom Zobelein and Clara Benitez We are still suffering from the whiplash of our economy hitting the breaks and the lightning speed at which we must absorb complex legislation. Our roles have never been more critical to our clients. We will highlight the major provisions of one such piece of legislation, the Coronavirus Aid, Relief and Economic Security (CARES) Act.
Here is how to assist clients maximize the forgiveness of their PPP loan.
The Coronavirus Aid, Relief and Economic Security (CARES) Act Early in the shutdown, it became obvious that small businesses could not survive an extended closure without help. In response, the Coronavirus Aid, Relief and Economic Security (CARES) Act was passed by the Senate and House, and then signed by President Trump within just two days. The CARES Act’s goal is to put money into the economy as quickly as possible during this crisis via the following provisions:
i. Cash wages limited to $15,385 per employee (8/52 of $16,666)
ii. Covered benefits
1. Loan forgiveness for expenses incurred during the eight weeks after loan is made. Beware that SBA’s guidance applies a factor of 8/52 weeks instead of 2/12 months. Here are the rules: a. Forgivable payroll (must be at least 75% of the loan)
1. These are not forgiven for self-employed business owners (uncertain if it includes all owners).
iii. Employer paid state taxes, such as SUI
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Paycheck Protection Program Loans
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Main Street New Loan Program and the Main Street Expanded Loan Program
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Economic Injury Disaster Loan and Grant
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Subsidy for Certain Loan Payments
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Qualified Improvement Property Permanent Fix (fifteen-year real property pre-TCJA)
i. Mortgage interest and equipment debt interest (excludes principle and prepayments)
• Special Rules for Using Retirement Funds for Coronavirus Costs
ii. Rent (includes both facility and equipment leases)
iii. Utilities (includes telephone and internet, per Pub 535)
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Changes to Charitable Contributions
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Changes to the Net Operating Loss Rules
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Exclusion from Income of Employer Payment of Employee Student Loan Debt
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Employee Retention Credit
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Delay of Payment of Employer Payroll Tax and Self-Employment Tax
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Temporary (and Retroactive) Removal of Section 461(l):
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Changes to the Interest Limitation Rules
Paycheck Protection Program (PPP) Loans (Covered Period is February 15, 2020 – June 30, 2020) The Small Business Administration (SBA) PPP loan, including interest, can be forgiven if the guidelines are followed. Ensuring the funds are traceable to a qualified forgivable use is now where we can best help our clients in the PPP process. Most banks have requested that borrowers keep the funds in a segregated bank account. Even if this is not required by the lenders, we believe it will assist in the funds tracing necessary to obtain loan forgiveness.
b. Forgivable non-payroll costs (limited to 25% of the loan) appear limited to 8/52 weeks. This, and whether costs are determined on a cash basis, are unclear at this writing.
c. Self-employed compensation is limited to 8/52 of 2019 Schedule C line 31 earnings. 2019 Schedule C should be prepared for the loan application but is required for loan forgiveness. 2. Loan forgiveness is reduced for any reduction in employee head count. a. It is not reduced if an employee is rehired by June 30, 2020. Also, there is an exempt 30-day period for temporary reductions. 3. Loan forgiveness is reduced for pay reductions exceeding 25% for employees not furloughed. 4. PPP forgivable costs exclude the portion of EIDL loans forgiven under that program 5. Documentation for loan forgiveness a. Payroll information verifying the number full-time equivalent employees and their pay rates for the eight-week period
i. Payroll filings with the IRS
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ii. State income and unemployment filings
b) Amortization of principal and interest deferred for one year.
b. Expense verification
i. Cancelled checks
ii. Transcripts of accounts
iii. Payment receipts (including rent and debt payments)
d) e)
c. Certification by the representative, under penalty of perjury, of the accuracy of the documentation and the use of the funds
f)
d. No certification = no forgiveness
g) h)
6. Loan forgiveness is not forgiveness of debt income for tax purposes. a. Expenses covered by the forgiven loan are not recaptured. The operating expenses covered by the loans may remain business expenses after loan is forgiven (double benefit but watch IRC §265 denial of expenses for tax-exempt income). 7. Remember PPP borrower has payment deferral for six months but can request up to one year (lender decision). 75% of the loan must be paid in wages. So, maximize payments to employees within the eight-week period beginning with the day the loan is funded. Avoid prepayments. Consider cutting the last payroll period so it can be paid by the last day of the eight-week period. The Act defines the covered period as beginning on February 15, 2020, so a payroll paid after receipt of the PPP funds may qualify as payroll for forgiveness purposes, even if it includes dates between February 15, 2020, and the funding date. Also, think of paying PTO earned up through the eight-week cutoff. Payroll was defined as an average for a rolling twelve-month period. Paying wages at the 2019 average rate and hours should qualify if the employee’s lack of hours is due to the shutdown. Also, consider funding the company match. Beware, the 8/52 weeks of 2019 rule may be applied as the ceiling. Main Street New Loan Program and the Main Street Expanded Loan Program This program is for businesses who employ between 500 – 10,000 employees, is not a forgivable loan, and is based on the credit strength of the borrower. There is no restriction for those companies that received a PPP loan.
1. Borrower Eligibility a) Borrower with up to 10,000 employees or up to
b)
c) d) e)
$2.5 billion in 2019 annual revenues (it is unclear to what extent “affiliation rules” will apply to employee count). Borrower organized in the United States or under the laws of the United States, with significant operations and most of its employees based in the United States. Ability to make Required Borrower Attestations. Borrower permitted to also participate in the Paycheck Protection Program. Borrower may only participate in one of the Main Street Loan Programs and would not be eligible to participate in the Federal Reserve’s the Primary Market Corporate Credit Facility.
1. Eligible Loans a) Four-year maturity. 10
c) Adjustable rate of Secured Overnight Financing Rate
ASCPA Connections
(SOFR) + 2.5% – 4.0% (as of April 8, 2020, the SOFR was 0.01%). Minimum loan size of $1 million. Maximum loan size that is the lesser of (i) $25 million, and (ii) an amount that when added to the borrower’s existing outstanding and committed, but undrawn, debt, does not exceed four times the borrower’s 2019 EBITDA. Borrower will pay an origination fee of 1% of the principal amount of the loans. No prepayment penalty. Loans are unsecured term loans.
Economic Injury Disaster Loan and Grant (EIDL) The CARES Act also expands access to Economic Injury Disaster Loans to include businesses with fewer than 500 employees and sole proprietors. Any loans made under this program must be before December 31, 2020. No personal guarantee will be required on loans below $200,000. The bill allows an EIDL taken out between January 31, 2020 – April 3, 2020, to be rolled into the PPP loan. The use of the EIDL for expenses other than payroll does not reduce the PPP loan amount. This type of loan is handled on a case by case basis, with the borrower submitting proof of the economic loss sustained from the shutdown and other losses due to COVID-19. This program also includes a $10,000 grant, which later SBA Regulations limited to $1,000 per employee. In most cases this was the only EIDL funded before April 3, 2020 and was included in the PPP. As a grant, this does not have to be repaid. Qualified Improvement Property Fix (QIP) The TCJA intended to include qualified improvements as fifteen-year property (leasehold improvements, restaurants, etc.) to simplify depreciation. However, the legislation inadvertently did not call it fifteen-year property. The CARES Act fixes this error, effective January 1, 2018. The Act also makes qualified improvement property eligible for bonus depreciation. Guidance issued April 17, 2020, generally permits a taxpayer to file an amended return or a Form 3115 for its 2018, 2019, or 2020 tax year to: • Change the depreciation of QIP placed in service after December 31, 2017, • Make a late election out of bonus depreciation, or revoke an election out of bonus depreciation o Note: late elections and revocations are not limited to QIP • Make a late election to use the alternative depreciation system (ADS). In filing a Form 3115 there are two new change numbers:
• •
DCN 244, to change the depreciation of QIP placed in service after December 31, 2017. DCN 245, to make a late election out of bonus depreciation or to use ADS, or to revoke an election out of bonus depreciation.
Special Rules for Using Retirement Funds for Coronavirus Costs The CARES Act allows a taxpayer to take a “coronavirus-related distribution” of up to $100,000 during 2020, free from the 10% penalty. A “coronavirus-related distribution” is a distribution made during 2020: • To an individual who is diagnosed with SARS-COV-2 or COVID-19 by a CDC approved test, • Whose spouse or dependent is diagnosed with this disease, or
•
Who experiences adverse financial consequences as a result of being quarantined, furloughed, laid off, having work hours reduced, or being unable to work due to lack of childcare.
While the distribution is subject to income tax, the taxpayer may spread the income over a three-year period, beginning in 2020. The taxpayer also has the choice to avoid any income recognition by repaying the distribution to the retirement plan within three years of receipt. Alternatively, the amount an individual may borrow from his or her retirement plan is increased from $50,000 to $100,000 for the 180-day period beginning after March 27, 2020. RMDs for 2020 The “required minimum distribution” for 2020 is waived. Changes to Charitable Contributions The individual limit is expanded to 100% of AGI for 2020, with any excess contributions available to be carried over to the next five years. For corporate donors, the limit increased from 10% to 25% of adjusted taxable income. The CARES Act allows an individual (MFJ is limited to only one) who does not itemize can make a cash contribution of up to $300 to certain qualifying charities and deduct the contribution “above-the-line” in computing adjusted gross income. Changes to the Net Operating Loss Rules and Temporary Suspension of the §461(1) Loss Cap A significant change in the Act is the waiving of the TCJA’s NOL carryback prohibition for tax years 2018-2020. Better than pre TCJA, it now allows a five-year carryback. This change is for both corporate and non-corporate filers. The NOL carrybacks can be filed on Form 1139 for corporations and Form 1045 for individuals. Corporations can also claim any unused minimum tax credit (Form 8827). Both claims can be filed on the same Form 1139. In this case, on the top of Form 8827 mark “electing to take 100% Refundable Credit Amount in 2018per CARES Act Section 2305(b).” 2018 NOLs can be carried back and qualify to use Forms 1139 or 1045 for a quick refund, if filed before June 30, 2020. The required carryback is five years unless in business less than five years. Both Forms 1139 and 1045 are to be faxed (Form 1139 to 844249-6236 and Form 1045 to 844-249-6237). Please be sure you “dot your i’s and cross your t’s” when filing the NOL carrybacks as the IRS has 90 days to act on them and can reject them by treating them as regular amended tax returns that will be processed after they are back to regular staffing. There is also a 100-page size limit. The 80% limit is waived for this period, so 100% of NOL can be used in carryback year. The $250,000/$500,000 loss cap placed by the TCJA has been removed for 2018-2020 to allow full benefit of the loss. Watch out! Please remember that the TCJA NOL restriction is suspended and the carryback is automatic for 2019 and 2020. That means you must actively elect out of the carryback if you want to carry the NOL forward. This may turn out to be an audit “gotcha.” Exclusion from Income of Employer Payment of Employee Student Loan Debt As part of the CARES Act, an employer can pay up to $5,250 of an employee’s student loan obligation on a tax-free basis in 2020. The employer must have a §127 education plan. Owners are limited 5% of the amount paid for the rank and file employees. Normally §127 plans pay for tuition and related fees, but this change allows the plan to pay directly or to the employee to pay against their student loans.
Employee Retention Credit • The employer must be in business during calendar year 2020, and for any quarter in 2020 in which o Their trade or business was fully or partially suspended due to a COVID-19 order, or o Suffered a decline since January 1, 2020, of 50% of gross revenue • Did not apply for or receive a PPP loan • Wages for which credit has been applied for under the Families First Coronavirus Response Act sick time and or FMLA • The credit is equal to 50% of wages paid per quarter (full time employees) with an individual employee limit of $10,000. o Wages include health benefits normally excluded from the employee wages o Cannot be more than the employee would have received in the thirty days prior to the quarter (no raises to boost wages) o If the employer had, on average, over 100 full-time employees in 2019, wages are limited to those employees who are not working due to COVID-19 restrictions but are being paid. o If the employer had, on average, 100 or fewer fulltime employees in 2019, wages are total wages paid (for employees who are working and not working). • The credit applies to the employer’s portion of quarterly payroll taxes o If not sufficient to cover the credit, it is treated as an overpayment subject to a refund. o The prohibition is for the PPP loan but not the EIDL. Delay of Payment of Employer Payroll Tax and Self-Employment Tax To alleviate the burden on employers struggling to make payroll, this part of the CARES Act allows the employer’s share of the 6.2% Social Security tax that would otherwise be due from the date of enactment through December 31, 2020, to be paid in equal installments on December 31, 2021 and 2022. Similarly, a self-employed taxpayer can defer paying 50% of his or her self-employment tax that would be due from the date of enactment through the end of 2020 to equal installments at the end of 2021 and 2022. This is not available if our client has a PPP loan. Changes to the Interest Limitation Rules Section 163(j) limited a business’s ability to deduct its interest expense to 30% of “adjusted taxable income,” with any excess interest expense carried forward. The CARES Act increases that limit to 50% of adjusted taxable income for 2019 and 2020, and perhaps more importantly given that many businesses will not have taxable income in 2020, the business can elect to use its 2019 adjusted taxable income in computing its 2020 limitation. If a business had ATI of $10 million in 2019, but a negative ATI in 2020, it could elect to deduct $5 million of interest expense in 2020 (50% of $10 million), generate a bigger loss, and then use the favorable new net operating loss provisions to carry back the loss to 2019 and recover taxes paid in that year. A partnership cannot use the 50% limit of ATI for 2019. Instead, any interest disallowed at the partnership level is passed out to the partners and is suspended at the partner level under the normal rules. In 2020, 50% of the suspended interest “frees up,” and will be fully deductible, while the other 50% will remain suspended until the partnership allocates excess taxable income or excess interest income to the partner (or the partnership is no longer subject to Section 163(j)). Our sincere hope is that by the time you are reading this life is starting to get back to normal – albeit the new normal. May/June
11
2020 Tax Season
The “Perfect Storm”
Due to the Covid-19 pandemic, the IRS has extended the tax filing deadline for 2019 to July 15, 2020. The IRS is encouraging individual filers and companies who expect a refund to file sooner rather than later in order to have access to these funds. Filers fall into two categories: clients who are rushing to file in order to have access to refunds and filers who are using this extra time to better organize/ prepare themselves to meet the extended deadline. Both groups are at risk and are putting tax professionals in jeopardy. The extended tax season and increase in the remote workforce has created more opportunities for cybercriminals to strike and telecommuting has put tax preparers in a precarious position of being easy targets. Per the IRS, “Protecting taxpayer data is the law. Federal law gives the Federal Trade Commission authority to set data safeguard regulations for various entities, including professional tax return preparers. According to the FTC Safeguards Rule, tax return preparers must create and enact security plans to protect client data. Failure to do so may result in an FTC investigation.” In May of 2019, accounting software company Wolters Kluwer was hit with a major malware attack, shutting off service and bringing opera12
ASCPA Connections
tions in their client’s offices to a halt. As a result of this attack, the IRS was forced to extend the tax filing deadline. Tax preparers who were using Wolters Kluwer’s software lost a week or more of productivity during their busiest time of the year and many were faced with the prospect of having to file returns by hand. Covid-19 has led to an increase in the number of attacks being launched against the US and cybercriminals are focusing on tax professionals now more than ever. Like most of the US workforce, a high percentage of tax preparers are working from home, which has led to a tremendous amount of both corporate and personal data being at risk for theft and exposure. In recent months, companies like Capital One and Facebook have been successfully breached by cybercriminals. If these companies can be successfully breached, you need to ask yourself if your home or small office network is secure enough to fend off an attack. The data that tax preparers store and/or have access to is extremely valuable to cybercriminals. Tax ID numbers, banking/financial information, and earnings are just a few examples of personal information that criminals can and will steal from you and your clients.
The days of relying on anti-virus software, firewalls, and VPN connections for security are over. Utilizing remote tools like Remote Desktop Protocol (RDP) puts you at an increased risk of a cyberattack. To make matters worse, IT companies that support financial entities are now at risk themselves if they are not engaging with dedicated cybersecurity
companies to protect them. Some of the largest attacks launched against US companies in 2019 were the result of breaches against IT providers and the cybercriminals gaining automatic access to all their clients’ usernames, passwords and networks.
For tax preparers, these are the top 3 areas where you are most vulnerable:
• Your Network Being Hacked Directly Cybercriminals can easily gain access to your network by targeting vulnerabilities (“unlocked doors and windows”) on your network. • Business Email Compromise (BEC) via Phishing/Spear Phishing Campaigns Phishing, Spear Phishing and Social Engineering are just some of the techniques that threat actors will use when targeting your staff to click on something that appears legitimate (it may even look like an email from someone familiar). • Malware/Ransomware Delivered by Your IT Company Hackers are now targeting your IT/MSP partners in order to gain access to your networks. This has now become a common occurrence.
It’s time to take action NOW to better protect yourself and your clients in the future. The thought of hitting the “pause button” for just a few hours during your busiest time of year is almost unthinkable but it is also necessary. Spending the time now to have online cybersecurity training could save your office days, weeks or even months of downtime. Engaging with a company who specializes in network security and offers affordable vulnerability management and penetration test-
ing has become the new standard and the only way to truly protect yourself from a devastating data breach. Gary Salman is Chief Executive Officer of Black Talon Security. He has over 30 years of experience in software development and computer IT. As a leader in cybersecurity, the company offers a complete suite of compliance and cybersecurity solutions that are custom engineered for your business.
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May/June
13
BABC SALT CORNER
CPAS BEWARE:
SOME CARES ACT AND FFCRA INCENTIVES DON’T PLAY WELL TOGETHER The landmark CARES Act, signed into law by the President on March 27, provides many employers with several options to increase liquidity and cash flow during the time of the COVID-19 pandemic. And only 9 days before that legislation was enacted, the Families First Coronavirus Response Act (FFCRA) also created two other payroll tax-related incentives for certain employers, and to self-employed individuals. The incentive receiving the most attention, both here in Alabama and across the country, has been the Paycheck Protection Program (PPP) administered by the SBA in cooperation with private banks. As our friend Tom Zoebelein points out in his thorough article beginning on page 9, these loans can become (federally) tax-free grants if the borrower expends a certain percentage of the loan funds on qualifying expenses, particularly payroll, maintains good documentation, and then applies for and receives written forgiveness from the lending bank. But not everyone qualifies or desires to apply for a PPP loan, or the criteria for forgiveness of the loan may be too strict as applied to their business operations (e.g., a restaurant that has essentially shut down), so their tax advisers are called on to quickly find alternatives. The CARES Act provides what can be a substantial “employee retention tax credit” (ERTC) against the first $10,000 of each employee’s “qualifying wages” (see below). The ERTC is limited to $5,000 per eligible employee, but there is no limit on the number of eligible 1
employees.1 The Act also gives qualifying employers the option to defer their share (6.2% of employee wages) of Social Security payroll taxes that would have otherwise been owed for the period between March 27 and December 31, 2020. Electing employers must repay one-half of what is in effect an interest-free loan from the federal government by December 31, 2021, with the remainder to be repaid by December 31, 2022. This has reportedly become a popular option but remember it’s still a loan-- with potential personal liability attached if not repaid when due. Also, the FFCRA provides two refundable payroll tax credits for employees on paid leave, one based on the Family Medical Leave Act but focused on children and the unavailability of child care (“qualified family leave tax credit”) and a more lucrative credit based on wages paid to employees who were diagnosed with COVID-19 or who were isolated under a federal, state or local quarantine order (“qualified sick leave credit”)2. The common theme among these incentives? They’re all designed to encourage employers to keep their employees on the payroll, at least for a limited period of time, in anticipation of the state or local quarantine order being lifted. We provided further explanation of these payroll tax incentives in our previous “Connections” column and in two separate Tax Alerts that are available on our firm’s COVID-19 resource page: https://www.bradley.com/ practices-and-industries/practices/ coronavirus-disease-2019-covid-19.
Also, please refer to Tom’s detailed article. But let’s focus on how these potentially lucrative payroll tax incentives interact with each other and with the PPP: • If an employer receives a PPP loan (even if not one dollar is forgiven), the employer cannot claim the ERTC for any of its employees [CARES Act section 2301(j)], but it can claim one or both FFCRA refundable payroll tax credits, if they apply. • Conversely, if the employer claims the ERTC, it’s ineligible to borrow from the SBA under the PPP [CARES Act section 2301(h)(1)]. • If the employer receives a PPP loan that’s forgiven even in small part, once forgiveness is granted, the employer may not elect to defer its share of payroll tax liability for the period from that date through December 31. [CARES Act section 2302(a)(3)]. • If the employer claims the ERTC, it cannot claim the same employees as eligible for the existing Work Opportunity Tax Credit (WOTC) [CARES Act section 2301(h) (1)]. • Finally, if the employer claims the ERTC for the wages of any of its employees, it cannot claim either of the FFCRA payroll tax credits mentioned above on those same employees except to the extent that it paid each of its eligible employees more than $10,000 in
“qualifying wages” this year (which includes health insurance benefits it paid on their behalf). Thus, if the employer paid wages to a large group of employees, say $75,000 each this year, including payment of Blue Cross health insurance premiums, it could claim one or both refundable FFCRA payroll tax credits, assuming the criteria are met, for the $65,000 per employee increment. We’ve heard the warning about the need for “modeling” every time we’ve either presented or listened to a webinar on the various CARES Act and FFCRA tax incentives, and that’s spot-on. The client would be extremely wise to involve their tax advisers early in the process!
© May 1, 2020. Bruce P. Ely and William T. Thistle II/Bradley Arant Boult Cummings LLP. We asked Bruce and Will to provide this special article for our members, outlining how these unique tax incentives interact, based on current guidance. This column is not meant to provide tax or legal advice as to the reader’s or your client’s specific situation. Readers are urged to consult their own tax advisers and attorneys and the many available guides and information resources before taking any action involving any of these tax incentives or applying for a loan under the PPP.
The IRS issued a revised set of 94 FAQs on the ERTC on April 30. They are well worth reading if your client is interested in claiming this credit. The IRS issued a draft Form 941 and instructions on April 29, delineating how wages subject to the Sick Leave tax credit, the Family Leave tax credit, and the ERTC are to be reported. We also encourage our readers to review the form and instructions. 2
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ASCPA Connections
Proposed CPA Licensure Model Designed to Future-Proof the Profession By AICPA and NASBA The National Association of State Boards of Accountancy (NASBA) and the American Institute of CPAs (AICPA) have proposed a new CPA licensure model that is designed to evolve newly licensed CPAs’ knowledge and skills, protect the public interest and position the CPA profession for the future. NASBA and the AICPA believe this draft model will address the greatly expanding body of knowledge required of newly licensed CPAs, which includes a deeper understanding of systems, controls, SOC engagements and data analysis. The proposed model reflects dialogue with stakeholders such as AICPA members, firms of all sizes, academia, federal regulators, students, technology experts, state CPA societies and state boards of accountancy on five guiding principles to inform the creation of a new licensure model. Feedback on the principles from more than 2,000 stakeholders indicated these themes:
• While technological expertise should be required for licensure, there are other factors disrupting the profession, and a revised licensure model should be about maintaining the strength and relevance of the CPA license to ensure continued public protection. NASBA and AICPA also conducted a study of other professions’ licensure models. The organizations aim to finalize an approach for a new licensure model by summer 2020, followed by a multi-year implementation plan. Both organizations are still collecting feedback on the proposed model, and those wishing to provide input may email feedback@ evolutionofcpa.org.
• There is support for the need to change the CPA licensure model to have a bigger emphasis on technology skills and knowledge. Most stakeholders shared this view.
The draft model’s robust requirements start with a strong core in accounting, auditing, tax and technology that all candidates would be required to complete. Then, each candidate would choose a discipline in which to demonstrate deeper skills and knowledge. Regardless of chosen discipline, this proposed model would lead to a full CPA license, with rights and privileges consistent with today’s CPA.
• All newly licensed CPAs should demonstrate strong common core competencies of accounting, auditing, tax and technology.
A discipline selected for testing would not mean the CPA is limited to that practice area. (See below image of the possible model.)
The proposed model will: • Enhance public protection by producing candidates who have the deep knowledge necessary to perform high-quality work, meeting the needs of organizations, firms and the public; • Reflect the realities of practice by requiring candidates to demonstrate deeper proven knowledge in one of three disciplines that are pillars of the profession; • Be adaptive and flexible, helping to future-proof the CPA as the profession continues to evolve; and Result in one CPA license. “The model we are proposing reflects the realities of practice
today. When you look at the profession 20 or 30 years ago, it’s evident that the demands of CPAs have grown,” said Bill Reeb, CPA, CITP, CGMA, chair of the AICPA. “For example, today there are three times as many pages in the Internal Revenue Code, four times as many accounting standards and five times as many auditing standards as there were in 1980. As our body of knowledge has expanded, we’ve stretched the exam and curriculum to cover more and more material, but that approach isn’t sustainable. We need a licensure model that is flexible enough to evolve with our profession.” More information on the CPA Evolution initiative may be found at evolutionofcpa.org. May/June
15
FOCUSED EFFORTS ON THE
COLLEGE PIPELINE OF CPAS
On Tuesday, April 21, 2020 the ASCPA Educational Foundation Board of Directors held their quarterly meeting via Zoom to focus on the financial status and potential opportunities of the ASCPA Educational Foundation. Board Members present included Chair Gerald Pentacost, Lowell Broom, Jamey Carroll, Lynne Bozeman, Amanda Paul, Keina Houser, Kevin Cook, and Karen Moore. ASCPA staff also present included President & CEO, Jeannine Birmingham, Member & Student Engagement Manager, Zack Camerio, and College Pipeline Initiatives Manager, Renee Hubbard. Merrill Lynch manages the ASCPA Educational Foundation’s Investment Account, and Jake Ray, Merrill Lynch, presented the review of the Foundation’s investment account as of March 31, 2020. The return on assets is -8.15, the account has a net unrealized gain of $211,274 and total assets of $1,593,834. It was decided that this year’s scholarship money will need to be drawn from investments. The report also projected that at an annual withdrawal of $60,000 for scholarships each year for five years, assuming a modest rate of return, the account should continue to grow based on the analysis provided. The Board then discussed the March 31, 2020 Financial Statement, which was previously submitted to the Board for review. The report outlined the $1,636,818 in ASCPA Educational Foundation assets. Program expenses included $93,436 for scholarships, two Accounting Career Awareness Program (ACAP) case study winner scholarships, and two additional endowed scholarships, including one to Samford University for the Lowell Broom Endowed Scholarship. The combination of the Young CPA Charity Golf Tournament only raising $9,299 in 2019 versus $15,886 in 2018 and
16
ASCPA Connections
Centennial Sponsorships contributing $12,105 to the Educational Foundation reflected a 56% decrease in Contributions Income as of March 31, 2020. In March, 41 scholarships were awarded to accounting students across the state totaling $90,000. The scholarship total included 12 chapter scholarships of $23,000. Recipients and sponsors from their university were notified via email. Renee Hubbard highlighted the new scoring system that was utilized for scholarship selections this year. Another new initiative discussed during the meeting is that scholarship recipients will be contacted each quarter so that the ASCPA can track their progress on earning their CPA designation. Zack Camerio presented the increase of student membership and data regarding their transition to full ASCPA member. In order to assist students’ transition to licensed CPA and ASCPA member, the ASCPA partnered with Becker CPA Review this year to award the first full Becker Review Scholarship from the ASCPA Educational Foundation. Jeannine Birmingham shared recent CPA exam statistics from the National State Board of Public Accountancy (NASBA) and Alabama State Board of Public Accountancy (ASBPA). Alabama continues to be well represented as a state with significant pass rates and scoring for the CPA exam. While Prometric test centers are closed through June (at the time of the board meeting), it is anticipated that we will see a decrease in new CPAs this year. A new element to the CPA Exam is continuous testing. Continuous testing will commence July 2020 and will allow students to test and retest for sections of the exam they still must pass. Jeannine also emphasized that
resources for CPA exam testing during the pandemic have been shared on the ASCPA website, specifically on the student page. Jeannine closed the meeting by opening the floor to discuss fundraising opportunities for the Educational Foundation. One option the Board may consider in the future is crowdfunding. The next ASCPA Educational Foundation Board meeting will be held Friday, August 14, 2020. If members have comments or suggestions for the Educational Foundation Board, please feel free to contact Jeannine Birmingham or Gerald Pentecost, board chairman.
Renee Hubbard, recently retired tax partner from Jackson Thornton and previous chair of the ASCPA, joined the ASCPA staff earlier this year at the Manager of College Pipeline Initiatives. Renee has served on the ASCPA Educational Foundation as chair and a member following her service as 2013 ASCPA Chair. Renee served as a recruiter and mentor at Jackson Thornton. She also frequently volunteered for Meet the Firm events for her firm and the Society, the ASCPA Accounting Interview Day, ASCPA Interview Skills Workshops, presentations to Alabama universities, and other accounting career development programs. We are excited that Renee will provide a focused effort on the college accounting pipeline in Alabama. When you meet her in-person, Renee’s enthusiasm will inspire you to invest your time, talent, and resources in the next generation of CPAs and the future of the profession. Welcome to the ASCPA Renee Hubbard.
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CELEBRATING THE FUTURE OF THE ACCOUNTING PROFESSION Thank you to everyone whose made a generous donation to the ASCPA Educational Foundation. Scholarships, like the one I recently received, allow students to focus on their studies instead of overwhelming economic issues. So I would like to thank you, and I hope that I can use this to help my community more through my studies to become a CPA. Brittany Rowe Auburn University
Your Chapter contributions & Educational Foundation donations support students like Brittany become a CPA. | www.ascpa.org/EdFoundation.
EdFoundation - MJ2020.indd 1
May/June
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4/30/2020 11:38:19 AM
NEW NEW CPE SEASON OPPORTUNITIES The last time we saw many of you in-person was our 2020 Business & Industry Appreciation Conference, and every attendee we got to talk to was so enthusiastic about what they got to learn. While we hope to see that same enthusiasm in-person again soon, we do not expect to host any in-person seminars, workshops, or conferences until potentially August. Currently, the 2020 CPE Workshop & Conference has shifted: •
Emerging Leaders Summit: Thursday, May 7, 2020; Cancelled, but will return in 2021.
•
Employee Benefits Workshop: Friday, May 15, 2020; Now 100% virtual
•
101st Annual Meeting: Tuesday, June 16, 2020; Our in-person event has been postponed to Fall 2020, but we will host a 1-hour CPE injunction with the business meeting that typically occurs during the Annual Members Meeting luncheon.
•
Gulf Shores CPE Clusters: Monday, June 22 – Wednesday, June 24, 2020; Cancelled, but will return in 2021.
•
Summer Education Conference: Monday, July 20 – Friday, July 24, 2020; TBD.
•
K2 Technology Conference: Thursday, August 13 – Friday, August 14; Open for registration.
•
Financial Accounting & Auditing Conference: Friday, September 25, 2020; Open for registration.
•
Governmental Accounting & Auditing Forum: December 2020; Registration details coming soon!
Instead of live in-person events, live webinars hosted with ASCPA partners & members in response to COVID-19 (coronavirus) have been very successful. We second Jeannine’s message and extend our deepest gratitude to Alfonzo Alexander, Carey Rome, Bruce Ely, Will Thistle, and the Bradley team, Lisa McKinney, Karen Miller, Kassi Rushing, Stacey Horne, Commissioner Vernon Barnett, Curtis Stewart, Derrick Coleman and Kelley Gillikin (Alabama Department of Revenue), and Carl Peterson for leading such insightful webinars and self-study courses for our members as we all began to work from home. We have a robust portfolio of self-study courses that will include new web-recordings and previous self-study courses, which will allow us to offer a new customizable self-study bundle available mid-May. Coincidentally, last October, the Alabama State Board of Public Accountancy (ASBPA) released the cap of self-study course hours you can use towards your annual licensure. As always, we are here to serve you and make sure you gain all the insight you need to succeed throughout the year. Please contact our CPE team with any questions you have or if you need help registering for one of our courses.
Earlier this year, our CPE Team gained two new, exceptional staff. Madison Williams, a recent Auburn University graduate, joined the ASCPA as our new CPE Coordinator. She has an eye for detail and is a quick study in our fastpaced environment. Krispin Nelson, a communications & marketing specialist with experience in team-building and continuing professional education, is our new CPE Manager. Her creativity and desire to help people succeed has already served the ASCPA well during this difficult time. Jessica Roberts, previously our Vice President of Education, shifted to fill the role of Programs Director & CFO. She will continue to lead our new team members as they bring the best CPE we can offer to you in 2020. Welcome to the ASCPA, Krispin & Madison.
18
ASCPA Connections
Learn From Home
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MAY 2020
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JUNE 2020
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ANNUAL MEETING Our first 100% virtual Annual eeting includes 1 hour of CPE, welcoming new board members, and honoring A CPA leaders. Annual eeting would not be the same without you! We cannot wait to see you online.
learn more about these & more ASCPA CPE opportunities at ascpa.org/cpe.
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