COCPA NewsAccount - 2012 - January/February Issue

NewsAccount Colorado Society of CPAs

January/February 2012

… nothing can be said to be certain, except death and taxes.

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NewsAccount January/February 2012

Contents Features

} 2 The View From Here

Three key issues anchored the 2011 AICPA Fall Meeting of Council.

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2012-2013 Nominations Announced Fort Collins CPA Scott Bush will become chair, and Marc Hendrikson will become vice chair, May 1, 2012.

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EZ Pre-Certification Required New requirements for enterprise zone tax credits are effective as of Jan. 1, 2012. Make sure your business clients comply.

Ahead of Her Time Marjorie G. Smith showed change was possible before change was acceptable.

2011 Tax Update Legislation, court decisions, and IRS rulings abound which will affect tax return preparation this season.

Departments

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n a letter to French publicist and historian Jean-Baptiste Leroy on the 13th of November, 1789, Benjamin Franklin wrote, “Our new Constitution is now established, and has an appearance that promises permanency; but in this world nothing can be said to be certain, except death and taxes.�

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Point/Counterpoint Movers & Shakers State of the Industry Classifieds

January/February 2012

www.cocpa.org

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News Account A bi-monthly publication of the Colorado Society of Certified Public Accountants Vol. 57, No. 5 January | February 2012 Board of Directors Michael S. Bearup, Chair Scott E. Bush, Vice Chair Mark T. Solomon, Treasurer Sidny K. Zink, Immediate Past Chair Mary E. Medley, Secretary Directors Sheila M. Balzer, Steven R. Corder, Ben T. Hrouda, Gary L. Mitchell, Lori D. Nelson, Christine Riordan Editorial Board Jack Allgood, James M. Boak, Frances J. Coet, Kay R. Dragon, Deanna C. Duell, Jennifer Emerson, Mira J. Finé, Georgia Z. Phillips, Patrick A. Lytle, Mark Paller, Jennifer C. Pitkin, Tawyna Ramirez, Ronald O. Reed, Scott K. Sprinkle, Barbara J. Tedesko, Mark A. Torrey, Gregory A. Truitt, R. Stephen Van Meter, Michael West Mary E. Medley, President/CEO Elizabeth M. Julin, Deputy Director Krista Flynt, Editor/Publisher Natalie G. Rooney, Contributing Writer NewsAccount (ISSN #10899952) is published bimonthly by the Colorado Society of Certified Public Accountants, 7979 E. Tufts Ave., Suite 1000, Denver, Colorado 802372847. NewsAccount is published in January, March, May, July, September, and November and reports information, news, and trends in the accounting profession. Articles, display advertisements, and classified advertisements are due 30 days prior to publication. The Colorado Society of CPAs assumes no liability for readers’ business decisions in reference to advertisements or other information included in this publication.

Membership dues include a $9.90 one-year subscription to NewsAccount. Periodical postage paid at Denver, CO. POSTMASTER: Send address changes to NewsAccount, Colorado Society of Certified Public Accountants, 7979 E. Tufts Ave., Suite 1000, Denver, CO 80237-2847.

Net press run = 8,850 copies; sales through dealers and carriers, street vendors, and counter sales = 0; paid or requested mail subscription = 8,450; free distribution by mail = 50; free distribution outside the mail = 0; total free distribution = 50; total distribution = 8,500; office use, leftovers, spoiled = 350; returns from news agents = 0; total sum = 8,850; percent paid and/or requested circulation = 99%.

(303) 773-2877 • (800) 523-9082 Fax: (303) 773-6344 E-mail: cpa-staff@cocpa.org NewsAccount is available in PDF format on line at www.cocpa.org.

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NewsAccount January/February 2012

Chair Column

The View From Here

By Mike Bearup, CPA

AICPA Council meetings not only offer the opportunity to network with CPA peers from around the country, but also the meetings give state CPA society representatives access to important news and updates.

Three key issues anchored the 2011 AICPA Fall Meeting of Council, and the Institute made sure we had the most upto-date information on each topic. I’m sharing it with you as well. It’s interesting, and it affects all of us.

CGMA Designation Now Available As of Jan. 1, 2012, an exciting new opportunity exists for CPAs working outside of public accounting. In May 2011, the AICPA announced a joint venture with the Chartered Institute of Management Accountants (CIMA) to develop a new professional designation: the Chartered Global Management Accountant (CGMA).

Why this new designation? Why now?

Nearly half the AICPA membership (and the CSCPA membership) works outside of public accounting. The new designation will provide new opportunities and professional growth to members who aren’t in public practice. We previewed an amazing curriculum that covers everything from basic entry-level cost accounting to enterprise risk management to strategy and much more. If I were in the early part of my accounting career — and not an old guy — looking to increase my personal market value, I’d have this designation locked in my sights. In fact, the AICPA and CIMA reached out to CFOs, CEOs, and other business leaders, asking how valuable a person who had the CGMA credential would be to them and to their organizations. The response was an overwhelming “very valuable.” They know, as we do, that better managed companies — guided by CGMAs — present better investment opportunities and are better corporate citizens.

The CGMA will be the gold standard in management accounting worldwide. It will demonstrate members’ expertise in areas such as managing change, risk, and uncertainty; promoting operational efficiency and effectiveness; and protecting corporate assets, helping organizations make better informed decisions. Look for the rollout of the CGMA designation on Jan. 31, 2012.

AICPA and FAF—Opposing Views on Private Company GAAP We may be witnessing an historic disagreement between the AICPA and the Financial Accounting Foundation (FAF), FASB’s governing body. At the time Council convened, the FAF had rejected the Blue Ribbon Panel’s recommendation for a separate standards board for private companies. It was clear to all who attended the meeting that the FAF’s response was a much different path than that recommended by the AICPA — in fact, it was pretty much the complete opposite approach. AICPA President and CEO Barry Melancon and the AICPA Council indicated willingness to continue to push for the recommendations of the Blue Ribbon Panel — separate GAAP for private companies, set by a separate board. This will be interesting, no doubt, so stay tuned. Council passed a resolution that would give the AICPA Board of Directors the ability to consider the option of creating a separate committee or board to develop accounting standards for private companies. In short, the AICPA is strongly encouraging the FAF to rethink its stance or face the possibility that the AICPA will explore alternatives. It’s unclear how and when this issue will be resolved. If you feel strongly about it, one way or another, please make sure your voice is heard. Go to www.aicpa.org/ privategaap for information on how to weigh in on this important initiative.

Past presidents and past chairs — along with Vice Chair Scott Bush, former Executive Director Gordon Scheer and CEO Mary Medley — gather at the CPAs Make a Difference Celebration, Nov. 10, 2011. Standing, from left, are Mike Bearup (2011), Mike West (2007), Greg Anton (2004), Scott Bush (2012), Derald Lyons (1997), Ron Seigneur (2009), Phil Doty (1994), Dave Dirks (1990), and Gordon Scheer (1955-1991). Seated, from left, are Mary Medley, Barbara Seacrest (2008), Sidny Zink (2010), and Mira Finé (2006).

The Future is Not So Far Away You may remember the CPA Vision Project, a late-1990s grassroots effort of the AICPA and state societies to bring together CPAs from across the country and ask them what the future held. These CPAs created a blueprint for the profession that led us through 2011.

Now we’re at the next iteration of that project: CPA Horizons 2025.

At Fall Council, we participated in a working session to identify the big themes for this next phase. We discovered that CPAs were spot on when they predicted the future in the late 1990s, and many of the elements of that vision are still valid. For example, CPAs overwhelmingly agreed that the profession’s core purpose, “Making sense of a changing and complex world,” remains relevant today and for the future. The profession’s core values (integrity, competence, lifelong learning, objectivity, commitment to excellence, and relevance in the global marketplace) remained substantially unchanged, and our core competencies (communication skills, leadership skills, critical thinking and problem solving skills, anticipating and serving evolving needs, synthesizing intelligence to insight, and integration and collaboration) have evolved to reflect the 21st century.

It was fascinating to think about what our profession might look like in 2025. For example, major demographic and economic factors will impact our profession. People are living longer. What does that mean for staffing when new CPAs are working alongside staff in their 70s and 80s? I know one certainty: We’ll all need bigger computer screens as our eyes start to go! What else? Certainly personal financial planning will need to be handled differently so that a nest

egg designed to last into your 80s can sustain you into your 90s, and maybe beyond. This fact alone definitely made me rethink my retirement and savings goal.

Caution: Volatility Remains A final component of the Council meeting was the U.S. Chamber’s economic update. It’s clear we still have a long slog to recover from the “Great Recession,” which ended, according to the economists, in November 2009. The economy is growing at a slower rate than its potential. Unemployment persists. A significant number of people possess skills which are atrophying. And it’s clear the state of the housing market continues to have a negative economic and psychological impact.

Another clear message: Budget deficits at all levels will persist. In response, it is likely that taxing authorities will be very aggressive in collecting revenue and in interpreting existing regulations. It’s going to be a challenge for governments and other taxing jurisdictions to make ends meet, which means they all will be more focused on collections. There are many opportunities for CPAs simply because the more aggressive these taxing authorities in all jurisdictions get, the more likely it is that our clients’ positions will be challenged. Our clients need our commitment to help them make sense of a changing and complex world more than ever.

As always, I’m interested in your thoughts and feedback on any of the issues covered in this column or regarding other topics important to you. Send your comments and ideas to me at mbearup@ cocpa.org. s January/February 2012

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Leadership News

Fort Collins CPA To Become Chair Community Bank CPA Tapped For Vice Chair

The Nominating Committee, chaired by CSCPA immediate past chair Sidny K. Zink, presents the following slate for CSCPA leadership positions beginning May 1, 2012. The chair and vice chair serve for one year, and the treasurer and directors serve for two years. Watch for the March/April issue of NewsAccount, in which you’ll find the biographical information on these nominees.

Congratulations to the following officer nominees: Chair Scott E. Bush, Soukup Bush & Associates CPAs PC, Fort Collins; Vice Chair/Chair-elect Marc C. Hendrikson, Citywide Banks, Aurora; and Treasurer Lora L. Finley, Johnson Capital Group, Denver. Michael S. Bearup, KPMG LLP, Denver, continues on the Board as immediate past chair.

Directors to begin a two-year term are Carrie J. Bartow, Clifton Gunderson LLP, Colorado Springs; Peter J. Derschang, Brakes Plus, Centennial; and Debbi C. Warden, The Business Manager, LLC, Greenwood Village.

Continuing on the Board are directors Steven R. Corder, Kundinger Corder and Engle PC, Denver; Benjamin T. Hrouda, Continental Realty Advisors, Littleton; and public member Christine Riordan, University of Denver Daniels College of Business, Denver. Sam D. Cheris, Aurora, continues to serve as special advisor to the Board, and CSCPA CEO Mary E. Medley continues to serve as secretary of the Board.

The Board of Directors thanks for their service outgoing Treasurer Mark T. Solomon, SM Energy Company, Denver, and the following directors who will complete their terms on April 30, 2012: Sheila M. Balzer, Holben Hay Husman CPAs LLC, Denver; Gary L. Mitchell, Anton Collins Mitchell LLP, Denver; and Lori D. Nelson, Ehrhardt Keefe Steiner & Hottman, PC, Denver.

The Nominating Committee presents the following nominees for the Educational Foundation Board of Trustees for a three-year term. Congratulations to: William C. Sanden, SSA PC, Colorado Springs; Mark T. Solomon, SM Energy Company, Denver; and Alicia J. Sweeney, Ernst & Young LLP, Denver.

Currently serving on the Foundation’s Board of Trustees are: President Marc C. Hendrikson, Citywide Banks, Aurora; Vice President Shannon G. Ellis, Tradewinds Solutions, Highlands Ranch; Secretary/Treasurer Doug M. Laufer, Metropolitan State College, Denver; Immediate Past President Jerald R. Kaiser, GHP Horwath PC, Denver; Griselda E. Casillas, Clifton Gunderson LLP, Greenwood Village; David M. Dirks, Metropolitan State College of Denver, Denver; Christine M. Haslam, CPA, Denver; Jill E. Korenek, JDS Professional Group, Greenwood Village; Cynthia G. McGinley, Jefferson Wells International Inc., Denver; Geri B. Wink, Colorado State University-Pueblo, Pueblo; and Mary E. Medley. Susan M. Vachereau serves as executive director of the Foundation.s

Scott E. Bush, CPA

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Marc C. Hendrikson, CPA

NewsAccount January/February 2012

Making Sense of a Changing and Complex World In the late 90s, the AICPA and the state CPA societies worked to bring together CPAs from across the country to develop an unprecedented grassroots vision for the profession for 21st century and beyond. This joint effort, the CPA Vision Project, identified the profession’s core competencies, core values, and core services.

Although the core purpose that emerged from the CPA Vision Project, “CPAs: Making sense of a changing and complex world,” still holds true today, the profession’s environment and landscape have changed dramatically.

In early 2011, the AICPA launched CPA Horizons 2025 to build upon the CPA Vision Project, validate the findings, evaluate the accomplishments, and discuss where the profession is headed.

Over a six-month period, CPA Horizons 2025 sought the insights of CPAs on cur-

rent and forecasted trends that will impact not only the profession but also the world.

Through an online survey, 16 in-person forums (two the CSCPA hosted in Denver) and online discussion and focus groups, about 5,600 CPAs weighed in and generated more than 75,000 comments about the current state and future of the profession.

The initiative’s Advisory Panel, a 21-member group representing all member segments of the profession (by practice area, age, gender, and diversity) and the state CPA societies, carefully reviewed and refined the input, defining the profession’s Core Purpose, Values, Competencies, and Services.

The research shows that the entire profession—from sole practitioners to medium and large firm members to members in business and industry to those in government and academia—has a bright future and will need to respond quickly and competitively

to the shifting ground on political, economic, social, technological, and regulatory fronts.

Using these insights and directions as a road map, CPAs and the accounting profession will mold their future. Two observations: • The profession’s core values and competencies resonated with CPAs conceptually, but the definitions needed to be refined and updated to reflect the 21st century.

• The services provided by CPAs have become so varied and diverse that the concept of core services was no longer representative of the profession and therefore was dropped.

The CPA Horizons 2025 report is available at www.aicpa.org/Research/CPAHorizons2025/DownloadableDocuments/cpahorizons-report-web.pdf. s

Colorado Nonprofits Seek Critical Donations Two new funds — Goodwill Industries and Families in Action for Mental Health — complete the list of 16 Colorado nonprofit organizations eligible for voluntary checkoff donations from taxpayers on the Colorado Department of Revenue’s recently released 2011 individual income tax form. The organizations represent a diverse range of causes and provide critical programs and services to communities across the state. The campaign helped raise close to $1.5 million in 2011.

“The great thing about checkoff giving is the ease with which people can donate to worthy Colorado charities,” says Jon Pushkin, spokesman for Checkoff Colorado. “Even a $10 donation can make a huge impact, and every dollar donated stays in Colorado to support the critical services and programs these nonprofits provide.”

In a survey commissioned by Checkoff Colorado last year, participants said one of the most important factors in

their charitable decisions is knowing that they’re giving to credible organizations.

“Taxpayers can rest assured that each of the funds eligible for check-off donations was established after a vigorous review process by the Colorado State Legislature,” said Pushkin. “To become a part of the check-off program, each fund must demonstrate that it provides an important service to communities across the state.”

Colorado was the first state in the country to allow a taxpayer to "check off" a voluntary contribution to a non-profit organization in 1977. The Colorado Nongame and Endangered Wildlife Fund was the organization listed.

In 2003, Checkoff Colorado also became the first collaborative statewide campaign to raise awareness about tax checkoff programs. It is funded by contributions from participating funds and its corporate sponsor, the Credit Union of Colorado (www.cuofco.org).

For more information visit www. checkoffcolorado.org. s

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• Colorado Nongame and Endangered Wildlife • Colorado Domestic Abuse Fund • Colorado Homeless Prevention Activities • Special Olympics Colorado • Western Colorado State Veterans Cemetery • Pet Overpopulation • Healthy Rivers • Alzheimer's Association • Military Family Relief • Colorado Breast and Women's Reproductive Cancers • Make-A-Wish Foundation of Colorado • Colorado 2-1-1 First Call for Help • Colorado Unwanted Horse Alliance • Goodwill Industries • Families in Action for Mental Health • Adult Stem Cell January/February 2012

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Tax Advice for Business Clients

Enterprise Zone Pre-Certification Required Editor’s Note: The following information is excerpted from the Colorado Enterprise Zone information on the Colorado state government website at www.colorado.gov. The new requirements for pre-certification, resulting from passage of 39-30-103(7)(a) C.R. S., became effective, Jan. 1, 2012.

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olorado's Enterprise Zone (EZ) program provides tax incentives to encourage businesses to locate and expand in designated economically distressed areas of Colorado — of which there are 16 designated enterprise zones and two sub-zones.

Pre-certification Required in 2012 If a business will perform an activity on or after Jan. 1, 2012 that will earn an EZ business tax credit, Colorado Revised Stat-

ute 39-30-103(7)(a) requires the business to receive pre-certification prior to commencing the activity that will earn the credit.

• Pre-certification and Certification are both required for activities performed in 2012 or later.

• Only Certification is required if all activities that earned an EZ tax credit were performed in 2011 or prior.

• A taxpayer that completes an activity in 2011 or prior, for which the taxpayer intends to claim an Enterprise Zone tax credit, shall submit to the EZ Administrator, on or before Dec. 31, 2012, any information related to such completed activity that is necessary to receive certification from the EZ Administrator.

Pre-certification is not required for the Contribution Tax Credit or the Manufacturing / Mining Sales and Use Tax Exemption.

Online Pre-certification and Certification System Pre-certification and Certification for business Enterprise Zone Tax Credits can be done online at www.colorado.gov/apps/oedit/enterpriseCert/home.jsf. Using the new system provides the ability to receive: • Certification for business Enterprise Zone tax credits for forms DR0074, DR0076, and DR0077 for activities that earned a tax credit in 2011 and prior • Pre-certification for business Enterprise Zone tax credits for forms DR0074, DR0076, and DR0077 for activities to be completed in 2012 or later, and for certification after activities are completed in 2012 or later.For additional information guidance regarding the following credits, see the specific FYI noted at www. colorado.gov/cs/Satellite/Revenue/ REVX/1219229527887. s

TAX CREDIT

CREDIT AMOUNT

FORM

FYI

Investment Tax Credit

3% of equipment purchases

DR0074

FYI Income 11

Job Training Tax Credit

10% of qualified training expenses

DR0074

FYI Income 31

New Business Facility (NBF) Jobs Credit

$500 per new job

DR0074

FYI Income 10

NBF Ag Processing Jobs Credit

$1,000 total per new a.p. job

DR0074

FYI Income 10

NBF Health Insurance Credit

$200 x 2 years per new h.i. job

DR0074

FYI Income 10

R&D Increase Tax Credit

3% of increased R&D expenditures

DR0077

FYI Income 22

Vacant Building Rehabilitation Tax Credit

25% of rehabilitation expenditures

DR0076

FYI Income 24

Manufacturing / Mining Sales and Use Tax Exemption

Expanded S&U tax exemption DR1191 in EZ

FYI Sales 10 FYI Sales 69

Commercial Vehicle Investment Tax Credit (CVITC)

1.5% of commercial vehicle purchases

CVITC Application

CVITC Details FYI Income 11

Contribution Tax Credit

25% of cash (12.5% in-kind) donations

DR0075*

FYI Income 23

*EZ Contribution Project will provide contributor with the DR0075 form with receipt of a donation.

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NewsAccount January/February 2012

Legislative Changes to Enterprise Zone Program Pre-Certification Required for Business Credits in 2012 Enterprise Zone (EZ) businesses must obtain pre-certification each year from their local EZ Administrator* prior to engaging in an activity for which they intend to earn a credit starting January 1, 2012. * The new Commercial Vehicle Investment Tax Credit shall be pre-certified by the Economic Development Commission (EDC).

Colorado Department of Revenue (CDOR) forms DR0074, DR0076, and/or DR0077 shall be submitted with the business owner’s or authorized company official’s signature and receive pre-certification each year before a credit can be earned (not claimed). Note: Credits are earned at the time that the activity required to receive the tax credit is performed. For a list of the nine EZ tax credits and the form required for each, visit: www.advancecolorado.com/ez.

Example: ABC Corporation plans to make an investment in 2012 in order to earn the EZ Investment Tax Credit. Prior to making the investment, ABC Corporation must submit the DR0074 form to obtain precertification from the local EZ administrator for that income tax year. After the tax credit has been earned, ABC Corporation must return the “pre-certified” DR0074 form to the local EZ administrator for final certification at the end of their income tax year. Once the form is certified and returned by the EZ administrator, the tax credit may be claimed on the business’s state income taxes.

Additional Changes Three bills were enacted that make changes to the EZ Program: Senate Bill 10-162 (Effective Jan. 1, 2012) • Establishes a requirement that businesses obtain pre-certification prior to earning EZ business tax credits.

• Requires businesses claiming EZ tax credits to file electronically with the Colorado Department of Revenue (CDOR) unless the business will experience an "undue hardship.” Visit www.advancecolorado.com/ez for details.

• Establishes a standard method for calculating a zone’s population and sets the population limit for urban zones at 115,000 persons and for rural zones at 150,000 persons.

• Removes ineffective and broad economic indicators from EZ statute.

• Changes industry coding for EZ businesses from the SIC code to the more commonly used NAICS code.

• Authorizes zones to charge reasonable fees to Contribution Project Organizations (if desired), and gives authority to the EDC to approve fee policies.

• Requires the Office of Economic Development and International Trade (OEDIT) to work with the EDC and the CDOR to implement a method for electronic precertification and certification prior to Jan. 1, 2013.

House Bill 10-1200 (Effective Jan. 1, 2011) • Sets a temporary requirement that businesses defer claiming an EZ Investment Tax Credit (ITC) that exceeds $500,000 in years 2011, 2012, and 2013. Businesses are “allowed to claim the deferred credit as an ITC carryover for 12 income tax years following the year the credit was originally allowed plus one additional income tax year for each income tax year that the credit was deferred.”

House Bill 10-1285 (Effective Jan. 1, 2011) • Provides a 1.5% EZ Commercial Vehicle Investment Tax Credit on qualified investment (made on or after 7/1/2011) in a new commercial vehicle that is licensed and registered within the state and predominantly housed and based at the taxpayer's business trucking facility within an EZ for the 12-month period following its purchase.

For more details on the legislative changes outlined in this article, visit: www.advancecolorado.com/ez. s

For Your Information FYI tax publications are developed by the Colorado Department of Revenue Taxpayer Service Division and are classified into the following six categories: Estate, Excise, General, Income, Sales, and Withholding.

Each publication is numbered within a general category: Estate 1, General 14, Income 25, Sales 9, etc.

These publications provide general information concerning a variety of Colorado tax topics in simple and straightforward language. Although the FYIs represent a good faith effort to provide accurate and complete tax information, the information is not binding on the Colorado Department

of Revenue, nor does it replace, alter, or supersede Colorado law and regulations.

To receive the FYI of the Month, or any other Department of Revenue information via e-mail, send an e-mail message with the word Subscribe in the subject line to tpspublicinfo@ spike.dor.state.co.us.

January/February 2012

www.cocpa.org

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Point/Counterpoint:

The Tax System In Defense of the Status Quo

Let’s start out with the basic premise that taxes are necessary because they fund the services provided by government and have a large impact on the economy. People’s behaviors are influenced by taxes as they alter incentives to work, consume, save, and invest.

The goal of the current tax policy is to design a system that balances economic efficiency and produces the desired amount of revenue.

In general, the current tax system has resulted in a huge drop (since the 1960’s) in the top marginal individual rates, and corporate income taxes as a fraction of GDP have fallen by half to less than 2% in the early 2000’s.

Yet corporate profits as a share of GDP have not declined.

Even though the current tax system may not be simple or largely transparent, it may be more administratively efficient than other simple or flat tax proposals.

Administrators would no longer be able to rely on information returns as enforcement tools. A new Mira FinÉ, MT, CPA system could be simple but could present administrative difficulties because it would be difficult to distinguish between similar commodities such as taxable and taxexempt items.

The current tax system is and continues to be a progressive system. A system is progressive if after-tax income is more equally distributed than before-tax income. Progressive rate schedules are believed to have higher efficiency costs than a proportional schedule that raises the same amount of revenue (GAO — Understanding the Tax Reform Debate, September 2005). The trade-off appears to be equity i.e. how individuals are taxed and how benefits of government spending are to be distributed. Even if you judge tax policy to be inequitable, government policy may be considered more equitable once the distribution of both taxes and government benefits are accounted for.

The current tax system encourages consumption. Switching to a different system, such as a flat tax, would discourage buying or consumption. If there were a switch, there would have to be some transition relief changes in the tax system to avoid taxation of items of income that have already been taxed. The tax treatment may also affect prices of goods such as the elimination of the interest deduction which would have a severe effect on housing.

Currently we understand the tax base, tax rates, and collection

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NewsAccount January/February 2012

Why Change is Needed

It’s true that some income taxes must be collected, as they fund the services provided by the government and have an effect on our economy. Each and every one of us can concur that the taxes we pay alter our incentives to work, consume, save, and invest. However, in the time of a declining economy, where there are many discouraged people out of work and struggling, one must wonder what can be done to help turn the economy around to promote growth. One way is to change or simplify our income tax system to make it more efficient and effective.

Our current system is extremely complex, and it continues to become even more complex as new rules and regulations are added or changed. The average taxpayer cannot prepare his or her own tax return accurately without consulting a professional. Simplifying the current tax system might allow tax profesJillian Wulf, MT, CPA sionals to better understand and apply the rules and regulations.

For instance, if we were to remove all the methods of depreciation (such as ADS, MACRS, Section 179, and bonus depreciation) and agree on the use of only one method, this would remove a large portion of our tax code. This is one area where tax professionals spend a lot of time. Given a much simpler and universal method of calculating depreciation, tax professionals would be allowed to concentrate on more complex tax issues, which would ultimately reduce the burden placed on taxpayers in general, freeing up their funds to be spent as they choose.

We currently have a progressive tax system, whereby the tax rate increases as the taxable base amount increases. Progressive taxes attempt to reduce the tax rate of people with a lower ability to pay and increase the tax rate of people who have a higher ability to pay. As such, a large portion of the general public pays little or no tax and, in fact, gets refunds for money they have not even paid in the form of tax credits. On the flip side, a small portion of the general public pays most of the tax at rather high tax rates. Whether it is "fair" to apply a progressive tax rate rather than a flat tax rate to all taxpayers is debatable. However, reducing the tax of those who pay higher tax rates would promote those individuals to spend their wealth in other more beneficial ways, such as investing in new or existing companies. Those individuals

Status Quo continued

Change Needed continued

points. Proposals to replace the federal tax base would and could have a severe effect on budgets and fiscal outlook. In general, those who are capable of bearing the burden of taxes should pay the taxes. The features of the current income tax system can be viewed as reflecting attempts to account for the differences in the ability to pay. The current system does not heavily tax people’s basic needs.

Finally, the current system is predictable which is what we need right now. As stated in the GAO report cited previously, “a truly efficient tax policy should encompass all the social values of the economic, political, and cultural dimensions.”s

might also donate more to charities, which would additionally help those in need. Such changes might actually promote growth in our declining economy, which is exactly what we need.

It is difficult to assume that simplifying the current tax system to reduce tax rates or changing to a flat tax system would discourage buying or consumption. In a flat tax system, where everyone pays taxes at the same rate, it is agreed that some people may pay taxes who have not previously paid them.

However, in both cases, reducing current tax rates or changing to a flat tax system would reduce the overall tax of those who pay higher tax rates, allowing them to pump more money into our economy. This would effectively create more jobs and more opportunities for lower income taxpayers. This could theoretically create more spending, thereby creating an all-around better economy.

One may argue it would be more administratively efficient to continue using the current income tax system rather than a simpler or flat tax system, and that propos-

Mira Finé, CPA, is the national director of tax service for Hein & Assoc., LLP, Denver. She is a former chair of the CSCPA Board of the Directors and is a current member of the Editorial Board. Contact her at mfine@heincpa.com.

Freedom is

als to replace the federal tax base would and could have a severe effect on budgets and fiscal outlook. Theoretically, a simpler or flat tax system would be easier to "administratively" monitor, thereby making it more efficient. There would be fewer complex issues to monitor, which should result in less administration. For those complex areas that remain, there could be specific experts assigned to monitoring those areas, which would be more efficient and might result in fewer errors. This might make balancing the budget and creating accurate fiscal outlooks more achievable.

In business, we constantly ask ourselves if what we have been doing is still the right thing to do. We often find that there are new and better ways of accomplishing the same results or even better results. So why wouldn't we treat our government the same way? Overhauling the current tax system to create a simpler and more transparent tax system is just what we need right now. s Jillian Wulf, MT, CPA, is a tax manager with Anton Collins Mitchell, LLP, Denver.

Contact her at jwulf@acmllp.com.

Ent’s CPA Solution

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January/February 2012

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9

Shopping for Small Business Health Insurance

by Krista Flynt

W

$

ith health care costs skyrocketing of late, purchasing the right plan for your company can be one of the decisions affecting in your operating budget. Here are some things to consider when the time comes to pick a health insurance plan.

Don't assume a certain type of plan is best for your company No type of policy is especially better for small businesses than any other. All carriers will offer a combination of PPO's, HMO’s, and HSA's on a small or large group basis.

The plan that would work best depends upon the coverage needs and budget of the specific employer group. Check out all your options.

Before doing anything, check the needs of your business Carriers negotiate provider contracts with hospitals and physicians — check the list of these providers to make sure there are doctors and hospitals in locations you desire.

Determine your budget and coverage needs.

Talk to your employees Especially at a small business where all employees are likely to have the same plan, talk to your employees about what their needs are when shopping for insurance. This way you can make sure the plan you choose excels at the type of coverage they need most. Another important reason to talk to your employees about their health insurance is transparency. With costs on the rise, employees will inevitably have to pay more and receive less than they expect. Making them a part of the process of balancing cost vs. coverage will leave no one surprised or disenfranchised.

Don't get caught unaware Determining the needs of your business and employees is critical so that when the time comes, the coverage is where you need it. “We have had several instances where plan participants incurred services deemed not medically necessary, or they utilized a healthcare provider who is not contracted

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with their carrier,” says insurance broker Jim Vandersluis, owner/manager of Consolidated Administrators, Inc. and CRS Group Benefits, Inc. In both of these situations, the patient will be on the hook for the medical bills. “If a plan participant seeks alternative treatment, we always try to encourage him or her to ask questions and not assume anything is covered,” Vandersluis advises.

Consider higher deductibles “I’m a big believer in higher deductible plans to save premium dollars. Groups with lower deductible plans are possibly paying for coverage they do not use,” says Vandersluis. This is a pretty simple concept — a higher deductible means lower premiums.

Consider an HRA On the flip side of choosing a plan with a high deductible, don't get caught in a situation where unexpected medical costs drag you or your employees into a difficult financial situation. Consider establishing a Health Reimbursement Account (HRA — some refer to it as an “arrangement” instead of an “account”) to reimburse plan participants for a portion of potential out of pocket costs. If the group is healthy, the employer will realize substantial savings.

The down side would be if a large number of employees utilized the plan and requested out-of-pocket expense reimbursement. “We

NewsAccount January/February 2012

have about 30% to 40% of our groups participate in HRA's,” says Vandersluis. “But HRA's won’t work in all cases. Groups with younger employees are good prospects, or if the employer has a good idea of their claims utilization.” Bonus: Because the employer funds the plan, any distributions are considered tax deductible for the employer. Also, reimbursement dollars received by the employee are generally tax free.

Penny pinching moves Government mandates that have added many items to the “must cover” column have left employers with few options to reduce costs by excluding coverages. Vandersluis suggests considering excluding first dollar coverage for accidental injury services and removing deductible carryovers for savings. However, both of these are minor costs.

“First dollar coverage” is an insurance policy feature that provides full coverage for the entire value of a loss without a deductible.

“Deductible carryover” means that charges incurred for health services in the last three months of the year can be used to satisfy the deductible for the following calendar year.

Check the ratings A.M. Best is an independent agency that rates carriers, primarily by looking at their financial well being. You generally want to buy a product from a carrier that’s rated by

A.M. Best as B or higher, says Sam Gibbs, senior vice president of eHealthInsurance. The ratings follow the same grading scale as your elementary school teacher. There's even an A++. Check out the agency's industry coverage at www3.ambest.com/health/default.asp.

Consider a broker The group insurance marketplace can be intimidating. When looking for a broker, first make sure he or she is licensed by the Colorado Department of Insurance. Working with a broker who represents multiple carriers can provide you a more expansive idea of all existing options. “The broker should be the client's advocate — including with claims or coverage issues. The broker should listen to the client carefully, and make sure when any coverage purchase decision is made, the client is comfortable,” says Vandersluis.

Something is better than nothing The good news for those with insurance is, even if you have a high deductible, you receive a discount on medical services that the health insurance carriers have negotiated with doctors, says Gibbs. So even if you are paying out of pocket because your deductible hasn't been met, you still benefit from having insurance by not paying list price for all your medical bills.

Check and check again Make sure to check different carriers. It can be tempting for small business owners to shop once for a plan and move on to other things.

But experts recommend re-shopping for coverage at least every two years to be sure you’re still getting the best deal.

The Internet is your friend Comparison shopping for such a critical and complicated product can be daunting. However the same type of websites that help you receive car insurance quotes from many insurance companies can help you in your health insurance search. Try www.ehealthinsurance.com, www. gohealthinsurance.com, or www.healthcareshopper.com to receive quotes from multiple health insurance carriers.

Says Vandersluis, “The cost of providing coverage to employees and their families is probably the second highest business expense behind payroll.” Make sure you’re getting the best you can afford. s To contact Jim Vandersluis, e-mail him at jvan@cacolo.com.

Tomorrow’s CPAs

T

Enrollments Climb, Recruiting Strong

he AICPA has released the results of its 2011 Trends in the Supply of Accounting Graduates and the Demand for Public Accounting Recruits survey. The report identifies key trends in accounting enrollment and graduation at colleges and the demand for those prospects by accounting firms of all sizes.

The report contains the results of two separate surveys—one is for colleges, and the other is for hiring firms.

The surveys have been conducted periodically since 1971. The information contained in this report is based on surveys conducted at the end of 2010.

The report was last published in 2009.

Demand for Graduates Hiring is back on the upswing after decreasing from 2007 to 2008. In 2007, the total number of accounting hires was 36,111. That dropped to 25,488 in 2008 but climbed to 33,321 in 2010. A large portion of that increase was in firms with fewer than 10 CPAs on staff. Firms of that size increased their hiring projections from 11,432 in 2008 to 16,342 in 2010.

In terms of the types of positions CPA firm new hires were recruited to fill across firms of all sizes, accounting and auditing still commanded a narrow majority at 51 percent; followed by taxation at 25 percent; other at 16 percent; and information technology at 8 percent.

The accounting and auditing share of new hires was down from 60 percent in 2007, with the declines coming from firms with 50 or more CPAs. Hiring of new CPA graduates likewise decreased for information technology (down 5 percentage points from 13 percent). Tax showed a slight increase (2 percentage points) with the strongest gains coming from firms with fewer than 10 CPAs, while the largest

growth since 2007 was in the “other” category.

The percentage of overall firms expecting to hire the same or more new accounting graduates than last year also is up—to 89 percent from 74 percent when the question was asked in 2008.

Colorado Enrollment and Hiring Demand Overall, accounting student enrollments were up 6 percent, from 212,834 in 2008 to 226,108 in 2010. This is a sharp increase from 10 years ago, when total enrollment was 152,885.

“In Colorado we see our enrollments slightly increasing, and we see all sizes of firms interesting in hiring,” says Ron Reed, Ph.D., CPA, professor of accounting at the University of Northern Colorado, Greeley. Reed says a recent Meet the Firms event brought roughly 29 organizations to campus.

Twenty of the organizations were CPA firms. The remainder were government employers. “What we’re seeing is still good, healthy demand from the firm side.”

Reed speculates that while there still is a lag in the economy, firms’ business is picking up which means they are moving forward with hiring plans. “Most firms are holding steady and even growing,” he says. “Firms are coming back to campus. That trend was flatter two years ago.” s

January/February 2012

www.cocpa.org

11

One Woman’s Work

Ahead of Her Time

by Natalie Rooney

She doesn’t see herself as a pioneer, a trendsetter, or ahead of the curve by joining the CPA profession in the early 1970s. From family, to school, to becoming a CPA, to starting her own firm, Marjorie G. Smith showed change was possible before change was acceptable.

The Accidental Profession Smart. Savvy. Practical. Determined.

These are the words that spring to mind as you’re speaking with Marjorie G. Smith. But Smith was almost the Colorado CPA who wasn’t.

Born in Mississippi, Smith and her family moved to Denver during World War II to accommodate her mother’s need for a drier climate — a move decided by a literal flip of a coin between Denver and Phoenix. Smith graduated from East High School and then left home for New York City to attend Barnard College, a private liberal arts college for women. She attended for two years as a premed student majoring in math with a minor in physics. Her goal: To become a doctor.

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But, a little thing called marriage happened, and her higher education and medical career ambitions took a backseat to raising a family. Smith’s husband, Donald, who attended law school in the early days of their marriage, assured her she would finish college.

Sure enough, as her children grew, Smith began testing the waters, trying to decide where and what she would study. When all was said and done, she found herself at the University of Colorado Denver earning a degree in accounting. She had considered a law degree and even sat for the Law School Admission Test, but in the end, accounting won out.

“I examined all of the options and decided that with family commitments, a medical career didn’t make sense,” Smith reflects on her decision to pursue accounting. She had taken

NewsAccount January/February 2012

a few accounting courses at the University of Denver and realized she liked accounting.

“Back then, accounting was black and white, which I liked, and law had all these shades of gray,” she says. “I’ve since learned that’s not the case about accounting though,” she laughs.

Professional Progress Smith’s choice of schools, CU Denver, was a fortuitous one. The school attracted non-traditional students, and she fit right in as she worked to balance her family and her education.

“I had a family which I was caring for, and my husband and children were all very supportive,” Smith says. She attended class-

es one day a week in a marathon session, often arriving home after 10 p.m. on school nights. Smith eventually graduated Magna Cum Laude.

With school behind her and a degree to her name, Smith set out to take on the accounting profession. She briefly worked for a sole practitioner while she awaited the results of her CPA exam — she passed all four parts on the first try. As soon as she became certified, it was time to move on.

Smith joined Les Whittimore and Company, a regional firm located in downtown Denver. Her goal was to gain the audit experience she needed.

After three years, Smith’s entrepreneurial spirit got the better of her. She partnered with another female CPA who had also joined the profession in a non-traditional fashion, and they started their own firm. It didn’t come to pass without a few hurdles.

“We wanted an office in the Littleton area,” Smith says. “We found office space and then went to the bank to sign a threeyear lease where we discovered they wanted our husbands’ signatures on the lease agreement. We refused, and they still rented to us,” she laughs.

Smith’s firm went through a few iterations. Partners, all women, came and went.

The firm originally focused on tax and small business but matured into estate and trust taxes. Smith developed quite a following of female clients, many of whom were drawn to the firm because the partners were women. Smith had found a niche in assisting women, many of whom needed financial guidance after their husbands passed away, who felt more comfortable working with other women.

When Smith sold the practice in 1992, many clients wanted to stay with her. “I had taken care of them for so many years,” she says. “They were like family.” She kept some clients, but she and Donald decided it was time for a change. They moved to Buffalo Creek, a mountain community southwest of Denver.

Smith continued to work with her closest clients until after her husband of 50 years passed away in 2002. “I came to a point when I realized that I was unwilling to keep up with the necessary tax research to do an adequate job for clients,” she says. She declared herself officially ready to retire.

“

I never lost a client because I was a woman. I did fire a couple of clients because I didn’t feel they were trustworthy though.”

Reluctant Role Model “I don’t see myself as a trailblazer,” Smith says of her early days in accounting. Nor does she feel she was discriminated against as a woman in a profession that had been dominated by men for many generations. “I never lost a client because I was a woman,” she adds.

“I did fire a couple of clients because I didn’t feel they were trustworthy though.”

Smith remembers what it was like in the early days to be the only woman in the room.

She recounts a story from a tax study group she attended — she was the only female. One day she listened to the group’s male practitioners discussing a female CPA employee, about whom they had nothing good to say.

“The men joined in the conversation, and I just listened,” she says. “As we were walking out, I turned to a male friend and colleague and said, ‘You know I’m a woman.’ And he replied, ‘I know, but I forget.’ I wasn’t offended by it. It was a challenge to overcome those perceptions, but I never had a problem being accepted at the CSCPA or by people I worked for.” Smith adds, “I didn’t feel like an outsider or feel discriminated against. If you look for discrimination, you’ll find it. I never looked.”

While Smith may not have felt any discrimination over the years, she does wonder about Donald. “Professional events I attended offered activities for spouses, and Donald always came with me,” she recalls. “The welcome gifts, the activities, and the entertainment were always feminine. I remember him saying he had great fun at a poolside fashion show one year. And he always passed along the welcome gifts to me,” she laughs. “Donald was a fish out of water, but he was willing and able to handle it.”

Smith joined the CSCPA at Les Whittimore’s urging and served in many capacities

over the years, including as the chair of the state taxation committee. “I wanted to be the first woman president of the CSCPA, and although it didn’t happen, I’m pleased with my association with the organization and what it did for me from an education standpoint and the people I knew there,” she says.

Accounting, says Smith, is a great career choice for women, especially those with families. “It can be seasonal. You can work full time or part time. You can work from home.” In fact, Smith says over the years she employed only women. “I was questioned about that once,” she notes. “Someone wondered if I was being discriminatory. But no, I just never found a man who was willing to sit on my lap and take dictation. I never found a man who would do the job as a woman could.”

Smith’s son once made a comment that has stuck with her ever since. “Because I was a CPA and I worked with women, my son never perceived accounting as a man’s profession.

When I encouraged him to go into accounting, he said, ‘No, that’s woman’s work!’ I understand why he said it, but I laughed because it was so untrue.”

The Right Choice If she had it to do over again, would she? Her reply is an unequivocal “yes” on all counts. Accounting, says Smith, doesn’t require you to exclude your family. “You can do both,” she asserts. “And you can do both well.” Her second piece of wisdom, “Don’t look for problems. Solve them if they come.”

And finally, “You can do anything in the accounting profession that you want to do if you have enough desire.”

So even though the rest of us may see her as a trailblazer, Smith was just doing what she needed to do to achieve her professional goals while raising her family. It was busy, but fulfilling and she wouldn’t change a thing.

Smith is now enjoying the opportunity to give back to the school and profession that helped her achieve her success. She has created an endowed scholarship at CU Denver for working students and one-parent families.

It’s the school’s first endowed scholarship in accounting. “It’s a very rewarding feeling,” Smith says.s Contact Smith at cpamgs@aol.com.

January/February 2012

www.cocpa.org

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Practice Management

Digital Data Management: Tips for Securing Client Information

By Suzanne M. Holl, CPA While it’s the multinational corporations like AT&T, Sony, and Lockheed Martin that get the media coverage when hackers steal their data, cyber thieves are increasingly pursuing small businesses.

Of the 761 data breaches investigated in 2010 by the U.S. Secret Service and Verizon Communications, 63 percent occurred at companies with 100 employees or fewer.

With Internet crime on the increase, and with small businesses becoming more popular targets, it is critical that CPA firms train all staff to use appropriate safeguards and to continually monitor the security and confidentiality of client information.

Motivation and Training The first step to prevent a data breach or other catastrophe is to make electronic data management a business initiative, supported by firm leadership.

Good risk management involves instituting a formal training program for all computer users, including executives, IT staff, and others with privileged

access. Tools alone cannot fully protect a firm from all computer and data security threats.

So make all staff aware of the firm’s policies for document management and data retention as well as the custody and care of laptops and other computers. Teach them about all risks, including social engineering and web application attacks.

Your firm should have easy-to-follow procedures in case of a loss or compromise of client information, including having a person or committee in place to immediately debrief all employees with knowledge of the compromised information. Do all employees understand what to do if there is a breach, and how the firm plans to respond? What are the reporting criteria, and to which state agencies must the firm report a breach?

Risk Management Tips Federal and state laws continue to raise standards for maintaining the security of clients’ personal information. Establishing a client portal system or utilizing a file-sending service may be good alternatives to e-mail for sending clients confidential

personal information documents. As your firm executes its risk management program regarding data and information, be sure that every employee knows the following:

E-mail • E-mail tax returns or other personal information documents only with client consent.

• Be sure there are always layers of encryption, whether e-mailing personal information data or not, in accordance with firm policy: 1) hard-drive encryption for the computer; 2) data encryption for Social Security numbers, ID numbers, and other personal identity information; 3) file encryption for documents such as e-mail attachments; and 4) e-mail digital certificates to protect sensitive data in the e-mail message body.

Recorded Conversations • Voicemail, also widely used during client engagements, is not considered as secure as e-mail, nor is it recommended as a form of documentation for storage and retrieval.

All significant communications should be confirmed in writing between the CPA and the client to preserve a clear record of advice provided and decisions made.

• Recorded telephone conversations tend to fall in the same category as voicemail, but before recording any telephone conversation, be sure you understand the legal issues in every state where you do business. State laws vary widely on this subject.

Social Media • Just like e-mail, social media can create business records. If an employee posts on Facebook using the firm’s resources, for example, that content could be used as evidence in lawsuits or regulatory audits.

Therefore, be sure your firm has a strong social media policy that includes a code of conduct, sets forth acceptable and unacceptable communications, and requires certain disclosures and disclaimers.

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NewsAccount January/February 2012

• Instant Messaging (IM) and text messaging are also subject to discovery in a lawsuit, but neither method of communication is considered secure or recommended for retaining and storing information pertaining to clients.

Discovery and Disposal • E-mail messages are subject to discovery and therefore should be addressed by an e-mail usage policy that defines the circumstances under which e-mail use is and isn’t authorized. Guidelines should also be established for deleting or retaining e-mail messages, according to the nature of the e-mail and the CPA firm’s general records retention policy. Since e-mail may continue to exist on both the sender’s and recipient’s hard drive or server because of back-up systems, an information technology specialist may need to be consulted regarding the use of e-mail “overwriting” software that will permanently remove it.

• Document imaging systems enable firms to scan hard-copy documents into digital formats for electronic storage. Other computer-generated documents include e-mail messages, computer faxes, and information downloaded from the Internet. All data and information that exist on a firm’s back-up storage systems and computers (which may also include personal and laptop computers from home) are subject to discovery in a lawsuit.

• Because some states have implemented statutes and rules relating directly to the discovery of electronic documents, CPA firms should check the discovery laws for the states in which they do business.

Due Diligence CPA firms are responsible for due diligence when selecting and monitoring third parties and their information security services. This includes third parties such as tax return processors and cloud computing service providers. Agreements with third-party service providers should contain language indicating that: • The third-party provider will treat any client data it receives as confidential and will not make any unauthorized disclosures or use of the information; and • The provider will be financially responsible for any unauthorized disclosures or use that it commits.

Ensure that your firm retains full ownership of, and rights to, the data, even after it is stored externally. Do not allow third-party access or mining of your data. Cloud service providers also need to make a contractual commitment to support legal and regulatory compliance and investigations.

Whether dealing with a client of 10 employees or 10,000, all staff in your firm must understand the importance of using appropriate safeguards and continually monitoring the security and confidentiality of client information. s Suzanne M. Holl, CPA, is vice president of loss prevention services with CAMICO (www.camico.com). Contact her at lp@camico.com.

January/February 2012

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15

PCAOB News

Consequences of Mandatory Audit Firm Rotation

O

n Aug. 16, 2011, the Public Company Accounting Oversight Board (PCAOB or the Board) issued Concept Release on Auditor Independence and Audit Firm Rotation (Release No. 2011-006). In the Release, the PCAOB continues to raise questions about the role of auditors of public companies. As the title suggests, those questions focus on whether mandatory audit firm rotation would enhance auditor independence, objectivity, and skepticism and thereby help to prevent fraud and financial restatements. The Release provides a useful overview of pertinent topics such as the PCAOB’s inspection program findings, a history of the firm rotation issue, and a discussion of the diverse arguments for and against mandatory auditor rotation.

Inspection Results The Release suggests that one of the Board’s primary concerns relates to the several hundred audit failures out of 2,800 engagements inspected since 2002. The Board believes that these failures suggest a link to a loss of auditor objectivity and professional skepticism and, thus, a loss of auditor independence. For example, the Board cites wording from five firm inspection reports in which inspectors found an overreliance on management representations. While it could be argued that the apparent overreliance could be a failure to follow proper audit procedures rather than an impairment of independence or audit failure, nonetheless the Board is correct to challenge the possible loss of auditor objectivity or skepticism.

History of the Firm Rotation Question The Release reviewed a stream of reports and discussions of the rotation issue, from the 1977 Metcalf Report to the Board’s recent 2011 Investor Advisory Group meeting.

Included in the reports and discussions were topics such as auditor conflict of interest, the fee for service model, excessive non-audit

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By James M. Boak, CPA

revenues, management pressures on auditors relative to accounting issues, protection of investors’ interest and auditors’ reluctance to admit prior year error. The Release also cites a Government Accounting Office report and academic studies questioning the value of mandatory rotation in view of the reportedly high correlation of audit failures to auditor rotation in the first two years after auditor rotation.

Input to the Board To engage the public in this discussion, the PCAOB has presented the Release, letters from respondents and Board members, and the applicable transcript portion of the Standing Advisory Group (SAG) meeting on Nov. 6, 2011, on its website, www.pcaobus.gov. This transparency definitely fleshes out many of the issues outlined in the Release itself. As of Nov. 30, 2011, the Board had received 77 letters and communications from diverse parties. Most are from public company financial officers, executives, audit committee heads, or auditors. Some even origonate from graduate student papers. Unfortunately, many responses do not provide the background or credentials of the writer in order to judge their expertise in regard to the expressed position.

The individual responses generally support rotation for some of the following reasons:

NewsAccount January/February 2012

• Without rotation, audit firms become complacent and lose the fresh perspective of new eyes.

• Firms have developed close interdependent relationships with their clients thus impairing their objectivity.

• A change in firms and audit methodologies may uncover problems not perceived by the predecessor auditor.

As might be expected, a sampling of the corporate and auditor responses are adverse to mandatory rotation for the following reasons: • Significant time and experience of an auditor is often required to acquire sufficient institutional knowledge of the company to perform a quality audit. This is especially true of large multinational companies. The quality and efficiency of an audit would suffer with frequent rotation.

• Audit fees for companies might be 20% to 50% higher within the first year or two of mandatory rotation.

• Companies are concerned that they may incur significant time and costs to evaluate, select, and educate auditors on a rotating basis.

• The establishment of effective audit committees makes rotating auditors unnecessary, and rotation would undermine the role of audit committees.

• The current mandatory rotation of audit partners is more than adequate to bring a periodic fresh perspective without the need for firm rotation, which would be superfluous.

• The implementation of the PCAOB inspection process itself has improved the expertise of audit firms and the overall quality of audits, making rotation less critical.

• Many other factors affect audit quality such as education, a firm’s quality control system, auditor experience, audit committees interaction, and improved corporate governance, thus reducing the need for firm rotation to improve audit quality.

• Implementation of Sarbanes-Oxley Sec. 404 rules in 2002 has significantly improved companies’ internal controls and corporate governance, which has significantly facilitated better audits.

Oddly, no responses appear to have been received from the investor representatives such as pension plans, equity investor groups, or mutual funds. However, many of the individual responses seem likely to be de facto investor views. The Board’s cutoff for written responses was Dec.14, 2011.

Lastly, the Board has not yet held a roundtable discussion on the rotation topic by experts from various disciplines. That is expected to occur in March 2012. Nevertheless, the discussion at the Board’s recent Standing Advisory Group (SAG) meeting seems a reasonable proxy at this time for the more formal roundtable. Many of the pro and con arguments expressed by the Release and the respondents were explored in the SAG discussions.

Summary The PCAOB’s purpose is to assist the SEC in protecting the investor’s interests. All parties appear to concur with this goal but many wonder if the Board is going too far if it mandates auditor rotation. Many foresee numerous practical reasons to object, often related to a lack of cost-benefit, and even question if auditor independence is actually a problem today. The wild card may be Congress, which, if lobbied hard enough, could be a decisive factor as it was with Sarbanes-Oxley when it gave non-accelerated companies relief from mandatory external audit of internal control. s James M. Boak, CPA (jboak@eidebailly.com) is an audit partner in the Denver office of Eide Bailly LLP. He is a member of the CSCPA Public Company Forum and Editorial Board.

CPA Special Mortgage Program • 5% down, up to $1 million loan amount on purchases • No mortgage insurance • 90% LTV on refinances • Competitive rates on purchases and refinances • Less than 2 years employment history okay For more information please contact: Beaux Selznick (303) 588-5101 Beaux.selznick@bbvacompass.com

Movers & Shakers William C. Sanden, a director with SSA PC, Colorado Springs, was appointed to the Colorado Educational and Cultural Facilities Authority by Gov. John Hickenlooper.

Eide Bailly LLP expanded its Boulder practice with the acquisition of William D. Pyle & Associates P.C., effective Nov. 1, 2011. Dory Troutman, tax manager; Ben Boggess, tax associate; and Sarah Hall, administrative assistant, joined the firm.

Eric Garrett, CPA, joined RubinBrown LLP as a manager in the firm’s assurance services group. In addition, Mary Jo Larsen, CPA, joined the firm as a manager in the tax consulting services group.

Anton Collins Mitchell LLP (ACM) announced three internal promotions. Kevin Gile and Dave Hallett were promoted to director in the audit practice, and Scott Grimm was promoted to director in the tax practice.

Bivins & Bunyak, CPAs, PLLC announced that Reed D. Sellers, CPA, joined the firm as an audit manager.

Baurle and Company, Denver, recently hired Ann M. Broderick, Maria Soucek, and Chris Oxford.

CBIZ and Mayer Hoffman McCann P.C. welcomed director Stu Myhill and manager Johnnie Pfeifer to the Denver office.

Mark J. Smith of M.J. Smith and Associates was named to the Raymond James Financial Services Chairman’s Council for the twenty-third consecutive year. M.J. Smith and Associates was named one of Colorado’s top financial advisors by the National Association of Board Certified Advisory Practices.

Dalby, Wendland, & Co., P.C. promoted Ronda L. Watson, CPA, to associate principal; Katharine S. (Kat) Doud, CPA, to audit manager; and Kimberly C. Lesure, CPA, Sarah L. Menge, CPA, Jaime L. Martinez, CPA, and Shannon R. Psenda, CPA, to manager.

Tammy Meier joined the Golden office of Eide Bailly LLP as a tax manager.

Ehrhardt Keefe Steiner & Hottman P.C., Denver, was recognized as one of the top “25 Best Medium-sized Companies to work for in America,” by the Great Places to Work Institute and Entrepreneur magazine. The firm promoted Lisa Meacham, Drew Rice, and Karen Winkelman to partner.

Alicia J. Sweeney was one of 33 CPAs under age 36 selected to participate in the American Institute of Certified Public Accountants’ annual Leadership Academy in Durham, N.C. CSD & Co. P.C., announced Gina Tallman, CPA, as its newest tax senior.

January/February 2012

www.cocpa.org

17

The State of The Industry:

Hospitality

The Manor Lodge Vail Vail, CO

In this column, NewsAccount talks with CPAs from various industries that are important in the U.S. and Colorado economies. We ask: What’s happening today? What factors will affect your industry over the the next 12 months?

In this issue, we focus on the hospitality industry.

by Natalie Rooney

Kathleen R. McIntee Chief Financial Officer Destination Hotels & Resorts Englewood

About the Organization Destination Hotels & Resorts is the third largest hospitality management company in the United States approaching 40 independent, luxury and upscale hotels, resorts, and golf clubs with almost 9,000 rooms. DestinationÂŽ is focused on the acquisition and management of properties that offer exceptional amenities, including conference facilities, spas, dining, and award-winning golf courses.

Destination Hotels & Resorts distinguishes itself through community stewardship and a strong commitment to maintaining and preserving the natural beauty and

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historical significance of each of its properties and their respective communities by investing in them.

We are a wholly owned subsidiary of Los Angeles-based Lowe Enterprises, a privately held, national real estate organization active in commercial and hospitality property investment, management, and development. Destination Hotels & Resorts was founded in 1973 when Lowe Enterprises built The Gant in Aspen. The company has since evolved to a large and comprehensive collection of hotels, resorts, clubs, conference centers, and spas.

Destination Hotels & Resorts distinguishes itself from the competition through our entrepreneurial culture and adherence to our guiding principles.

NewsAccount January/February 2012

What role does hospitality play in the Colorado economy?

Tourism and hospitality are significant drivers of the Colorado economy. Destination has ten properties in Colorado that range from a full-service hotel and conference center in Denver, (The Inverness Hotel & Conference Center) to a luxury resort in Vail (Vail Cascade Resort), a boutique hotel in Telluride (the Hotel Telluride), an iconic condominium resort in Aspen (The Gant), and a collection of luxury and upscale condominiums in Snowmass.

Over 1,000 employees of Destination Hotels & Resorts work in our corporate office in Englewood and at our properties throughout Colorado.

Our Colorado hotels and resorts generate approximately $100 million in total revenues in the state of the Colorado.

What challenges face the hospitality industry in Colorado? Does this differ from national challenges?

The hospitality industry must keep current with changing customer preferences. There is an emphasis upon creating value for the customer in today’s economy.

The customer booking window is short term in this type of economy so it is critical to have strong and effective CRM (Customer Relationship Management) in place and utilize contemporary marketing and social media solutions as well.

We need to ensure that DIA continues to have broad airline distribution and capacity and that our tourism funding remains strong to ensure that Colorado is competitive with other areas.

Key challenges also include recruiting talented associates as well as entry level positions, and providing training and growth opportunities.

There is ongoing pressure on generating profitable business with the evolution of flash sales, online travel agencies, and other discounted distribution channels. It is a continueing challenge to maintain a profitable business with these new, deeply discounted channels yet they are also sources for customer acquisition if used effectively.

We seek to acquire management contracts from those who are unsatisfied with current management. Also, as part of our flexible nature, we are able to obtain third-party management contracts without ownership.

What is your role within Destination Hotels & Resorts?

I am responsible for oversight of all Destination financial and accounting activities, including corporate and property finance and information technology as well as administration.

I joined the company in mid-1999 and my background includes having been vice president of corporate and hotel accounting for REGAL-AIRCOA Companies, Inc. (now Richfield) where I managed North American finance activities for real estate, investments, and hotel operations. I am a CPA with 35 years in hospitality and real estate.

Is this a good time to be in the hospitality industry?

Yes, despite the slowing in growth of real estate and the economy, we have an active business development team. There is currently a great deal of real estate with under-performing assets where we can generate substantial value for owners. We are taking advantage of buying opportunities in the current market.

Destination is also able to create value around assets and offer owners new and flexible management of their asset. Our core competency in implementing positioning and repositioning strategies at properties allows them to enhance their brand and emerge as market leaders. Thus, we are able to benefit from this time in the hospitality industry to obtain assets to create long term value and growth.

Destination will celebrate its 40th year in 2013 and has been through a number of expansion and contraction cycles. The challenging economic cycles have actually allowed us to optimize and grow from a very small private organization that managed four condominium resorts to the industry’s third largest management company with a diverse portfolio of hotels, resorts, and clubs throughout North America. s January/February 2012

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2011 Tax Update

Be Prepared: Changes Abound for 2011

By Frances J. Coet, CPA

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lthough Congress has seemed beyond dysfunctional during 2011, legislation passed in 2010 and earlier will bring changes to 2011 tax returns.

Further, with the extension in mid-December 2010 of the “Bush Tax Cuts” and clarification in the estate and gift area for 2010 and 2011, we will experience changes to returns prepared for 2011. The Internal Revenue Service (IRS) continues to issue prolific amounts of Notices, Announcements, Revenue Rulings (RR), and Revenue Procedures (RP). Add several court cases in the tax arena, and 2011 has been a full, if not dizzying, year in tax practice.

Legislation Emergency Economic Stabilization Act of 2008 The Act mandates that brokerage houses report not only the proceeds but also the basis of “covered transactions.”

The IRS has generated Form 8949, which becomes the transaction report detail to be carried forward to Schedule D of the reporting individual or entity. You must prepare separate Forms 8949 for short- and long-term transactions. And, you must prepare separate Forms 8949 for “covered,” “non-covered,” and “other” transactions.

The Act is effective for transactions after Dec. 31, 2010. The due date for the Form 1099-B is Feb. 15, 2012, but if history is an indicator, the release may come substantially later.

Housing Act of 2008 Section 6050W, enacted by the Housing Assistance Tax Act of 2008, requires a payment settlement entity to report payments made to merchants for goods and services in settlement of payment card and third-party payment network transactions.

A “payment settlement entity” is, in the case of a payment card transaction, a merchant acquiring entity, or, in the case of a third-party network transaction, the third party settlement organization.

Final Regulations were issued in August

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2010 concerning reporting by the payment settlement entities.

The IRS has yet to finalize the Form 1099-K for 2011, but draft forms have been available since mid-2011 on the IRS website.

Virtually all forms — Schedules C, E, F of Form 1040, and Forms 1120, 1120S and Form 1065 — have been modified to accommodate segregated reporting of credit card transactions as a subset of the entity’s gross receipts.

However, for 2011, the IRS has deferred the requirement to report these amounts on business returns, including the Schedule C attached to Form 1040. At the writing of this article, all business entities will enter zero on line 1a and report all gross receipts on line 1b, including any income reported to them on Form 1099-K, Merchant Card, and Third Party Network Payments.

HIRE Act (3/18/10) If a qualified employee hired under the provisions of the HIRE Act is retained for 52 consecutive weeks at least at 80% of the level hired initially, there is an up to $1,000 HIRE credit on the employer’s 2011 tax return.

• This means as long as the last 26 weeks of the 52 week period equals or exceeds 80% of wages paid in the first 26 weeks.

• IRS Information Letter 2010-0198 says that an otherwise eligible employee who “experiences a short term of temporary interruption of service continues to be a qualified employee, depending on facts and circumstances.”

Healthcare Legislation (3/23/10) Eligible small employers may claim a credit for providing group health insurance to employees of up to 35% of the premiums paid by the employer, restricted by computations for numbers of employees (FTEs) and limited by average annual wages paid, and further restricted by the state’s maximum allowable insurance premiums (Rev. Proc.

NewsAccount January/February 2012

2010-13). The IRS has issued a “Special Edition Tax Tip 2011-06” to provide additional explanation of how the credit works and when it applies.

2011) Optional reporting of employee’s cost of health insurance on Form W-2. Pursuant to IRS Notice 2011-28, the requirement is mandatory for 2012 for employers with more than 250 employees. The requirement for a small business with fewer than 250 employees has yet to be determined but will be no earlier than January 2014.

2012) Corporate to corporate 1099 information reporting. This requirement was repealed in April 2011, in the Comprehensive 1099 Taxpayer Protection and Repayment of Exchange Subsidy Overpayments Act. 2014) Credit for individuals who purchase their own health insurance. Note that the Supreme Court agreed to review State of Florida v. U.S. Dept. of Health and Human Services (CA 11, 08/12/2011, cited as 108 AFTR 2011-5728) but rejected the Appeals Court opinion that the entire Health Act be struck down as unconstitutional due to nonseverability.

HR 5297 — Small Business Jobs Act (9/27/2010) The Act required information reporting for rental property expense payments. This requirement was repealed in April 2011, in the Comprehensive 1099 Taxpayer Protection and Repayment of Exchange Subsidy Overpayments Act.

Tax Relief Act (12/17/2010) Estate and gift tax relief through 2012 is retroactive to Jan. 1, 2010. The Act reinstated and increased the Unified Credit equivalent amount from the 2009 amount of $3,500,000 to $5,000,000 ($5,120,000 for 2012) and reduced the rate on the excess of $5,000,000 from 55% to 35%. The Gift exclusion equivalent was also increased to the $5M and $5.12M for 2010, 2011, and

2012 respectively. Without further action, the $5M+ will drop to the pre-Bush tax cuts amount of $1,000,000 for both estate and gift purposes.

Estates may “opt out” of the above rule by using the rules in effect prior to the reinstatement mentioned above for decedents passing during calendar year 2010 by filing Form 8939 no later than Jan. 17, 2012. In so doing, the beneficiaries receive property at its modified carryover basis instead of the fair market value date of the decedent’s death. A limited “step-up” in valuation is available on up to the first $1.3M of value, plus an additional $3M for property passing to a surviving spouse.

The filing requirement for 2010 estate returns (Form 706) generally only applies to either a gross estate in which the estate and taxable gifts total more than $5M and an estate for which the executor does not file Form 8939 by Jan. 17, 2012.

The TRA of 2012 added a feature called “portability,” which applies to the unused portion of the $5M “exclusion.” For 2011 and 2012, the personal representative may “elect” to transfer a decedent’s unused exclusion — in essence protecting up to $10M of a married couple’s estate value.This provision only applies to estate and gift transactions for the surviving spouse if the executor of the first decedent’s estate files a timely Form 706 (whether or not one would have been otherwise required).

Individual Provisions The Act included a two percent (of 6.2%) reduction in employee’s FICA withholding and an identical reduction for selfemployed (dropping their 12.4% to 10.4%) for calendar 2011.

Although many “extender” provisions were addressed by this legislation through 2011, the residential energy credits have been reduced to their pre-2009 levels. Maximum lifetime credit (for years 2006, 2007 and 2009-2010) is now $500.

Extended through 2011: $250 adjustment to income for educators; election to deduct state and local sales taxes; higher education adjustment to income of up to $4,000; higher deductions and carryover limits for charitable contributions of “conservation easements”; deduction for home mortgage insurance premiums; tax-

free transfers directly from IRA accounts to charities by taxpayers over 70½ of up to $100,000; temporary exclusion of 100% of the gain on eligible small business stock; the previously mentioned 2% holiday of Social Security taxes; “refundable” adoption credits; the AMT “patch”; and the residential energy credits.

Court Decisions Martin Grosjean, Jr., TC Summary 2011-75, 7/27/11. Couple divorces in 2003. He agrees to spousal maintenance in the exact amount of the marital home’s PITI monthly payment, as “contractual,

non-modifiable maintenance,” deductible to him and taxable to her. Decree also provides she must refinance the house within five years. Market value goes down, and she can’t qualify. They agree “orally” that he will pay $50,000 to her to reduce the mortgage balance and qualify her to refinance. He deducts the $50k, but she doesn’t include it as income. As he is dealing with the IRS, couple goes to arbitration (mandated by their decree), and arbitrator says, “Yes, that is maintenance.” Court denies the maintenance treatment, as it wasn’t a written agreement. Colorado Case.

Larry Zedaker, TC Summary 2011-64, 6/1/2011. Wife retires from teaching and starts taking her pension; decides she wants to go back to work, and repays the entire amount of the five years’ benefits she had previously received. When she retires for good, she is left with an extraordinarily high basis in the pension; IRC §72 (d)(1)(B)(iii)

only allows basis recovery over 310 months — greater than her life expectancy. Court sympathized but could not allow shortened recovery period.

Recovery Group, TC Memo 2010-76, 108 AFTR 2d 2011-5437. Company buys out a 23% shareholder, and agreement includes $400,000 for covenant not to compete for a year. Is the deduction taken over the time covered in the CNC? No. Amortizable asset over 15 years. Lost in Appeals, 2011, on same issue.

Lawrence L. Wickersham, TC Memo 2011-178. Couple in out-state Iowa had a home-based business. When the business sold, so were the mixed-use real property and improvements. Messy case; EA who prepared the return reporting the sale paid $1,000 preparer penalty under §6692; had skewed the transaction numbers to maximize the exclusion for sale of personal residence. Taxpayers owed additional tax and interest but no accuracy-related penalty for reliance on tax professional.

Kevin Ward, TC Summ 2011-67, 6/8/2011. Wife was real estate agent in Idaho and claimed business use of her new vehicle, an SUV purchased in year under exam.

Upon the audit, asserts that she meant to claim §179 for business use times $25,000.

She had not maintained any type of mileage log; tried to reconstruct one from notes on calendar, cell phone records, etc. None of that satisfied the court as to “contemporaneous records”; not mandatory to have a ‘contemporaneous log,” but must maintain a current record by some methodology.

Jan Van Dusen, 136 TC No. 25, 6/2/2011. Attorney was a volunteer for “Fix Our Ferals” in Oakland, CA. She incurred out-of-pocket expenses for animals under her care as volunteer; at any point in time during year under question she had 60-70 cats under her care living with her, including her own pets. Goes to her tax preparer with receipts to support more than $12,000 in out-of-pocket expenses; preparer says she can throw away receipts, which she does. Issue before the court was whether or not bank

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Tax Update

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records and credit card statements without receipts could support out-of-pocket expenses.

Only for transactions less than $250 at a time, as “Fix Our Ferals” would have had to furnish a written acknowledgement of each more than $250 transaction. Court granted more than $7,000 as allowed.

Glenn Patrick Bogue, TC Memo, 2011164. Self-employed contractor in the Philadelphia area. Deducted mileage for back and forth to job sites. Did not claim or prove office in the home, had no fixed location for work (all were temporary), and never left the greater Philadelphia area (his tax home), so no mileage was allowed.

Matthew R. McCrory, Bankruptcy Court N. Ohio W Division, 9/8/2011.

Debtor husband filed for bankruptcy, 10/13/2010, then filed joint return with non-debtor wife as of 12/31/2010, claiming a $16,000 refund. Bankruptcy court required allocation of the refund; trustee took no portion of the EIC or Child Tax Credit; First-Time Homebuyer credit was allocated 50/50; and, because all withholding was husband’s, balance of refund was allocated to the Bankruptcy court.

Kathleen Stipe, TC Memo 2011-92, 4/25/2011. Taxpayer received disability payments from Office of Personnel Management. The payments were taxable. Distributions from her IRA account were subjected to 10% penalty as taxpayer was not 59½ when received. Court cited IRC §72(m)(7), which provides meaning of “disabled.” Court stated that, “A taxpayer who is disabled for Social Security or employment purposes is not necessarily disabled within the meaning of §72(m) (7).” The court referenced Kopty v. Comm., DC Circuit 2009, affg TC Memo 2007-343 and Hemrick v Comm., TC Memo 2009-72.

Bill S. McGowen, CA 10, #10-9000, 9/2/2011. In 1986, taxpayer’s wife purchased a single premium variable life insurance policy for $500,000. Investment gains were added to the value of the policy; from time to time, she borrowed against the policy. Including accrued interest, the total outstanding against the policy was $1,065,000. The insurance

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company terminated the policy in an “overloan” status, and the excess of over $565,000 was taxable in 2004 when the policy terminated. The taxpayers argued that the income was cancellation of debt, but the court found the transaction was a taxable use of the policy value for debt repayment.

Phillip Driscoll, 135 TC No. 27, 12/14/2011. Driscoll received parsonage payments from church for primary and secondary home. The total payments for both homes exceeded $200,000 for tax year in question.

Court allowed taxpayer to exclude from income all the house payments for both homes, saying underreported gain from sale of asset due to overstatement of basis, and resulting understated net income was IRC §107, a home is not singular.

Ronald Mayo, 136 TC No. 4, 1/25/2011.

Mayo conducted a gambling business and incurred $11,000 of “non-wagering” expenses — transportation, meals admission fees, and the like. The court said the expenses were considered deductible business expenses under IRC §162(a), and the restriction for gambling losses under 165(d) does not supersede 162.

Mona Lisa Herrington, TC Memo 201173, 3/30/2011. Taxpayer’s boyfriend wrote checks from her business without her consent. They came to an agreement by signing an affidavit saying that the payments would be treated as “compensation as a consultant to the business.” Court said payments were not deductible under §162 but were deductible as theft losses.

Al Alexander, TC Summ. 2011-48, 4/12/20112. Taxpayers were “qualified providers” for the Washington State Department of Social and Health Services and Al’s parents under that state’s Medicaid Personal Care program. Al’s parents were not “qualified foster care individuals” because they were not “placed by an agency of a State or political subdivision thereof.” The payments Al received were therefore taxable income, and not exempt under IRC §113.

Jac E. Baker, TC Summ. 2011-95, 7/19/2011. Taxpayers shared a personal residence in Seattle, WA, but court ruled that they had two different tax homes. He was a

NewsAccount January/February 2012

tug master based in Honolulu, and she was a flight attendant based in New York. Travel from Seattle to Honolulu for husband and to New York for wife were non-deductible personal commuting expenses. Taxpayers did not have to pay accuracy-related penalties, as they had provided all the pertinent information to their accountant and relied on him to know the application of the law.

Richard Kay, Jr., TC Memo 2011-159, 7/6/2011. Taxpayer was not a day trader, and the losses he claimed as ordinary were treated as capital losses. The court found insufficient activity (less than 200 transactions in the year at question), he held the stock too long (sometimes for weeks), and simply making the election under IRC §475 (f) does not make the taxpayer a dealer. The election simply allows a person who is a dealer to mark to market the trading inventory as of year-end.

Tony L. Robucci, et al v. Comm., TC Memo 2011-19, 1/24/2011. A psychiatrist who was operating as a sole proprietor goes to a Boulder, CO CPA and attorney, saying he needs to “restructure” his practice to save taxes. The CPA/attorney sets up a multi-member LLC; the doctor owns an 85% membership interest in LLC as an investor (he receives the interest in exchange for the practitioner’s goodwill in his sole proprietorship). The doctor also receives a 10% membership interest, which is the only portion of the practice’s profit that was taxed for self-employment purposes. In addition to the LLC, two C corporations were established, one as the owner of the remaining member in the LLC. Tax court collapsed all the entities back to a sole proprietorship and subjected all profits to selfemployment tax.

Renkemeyer, Campbell & Weaver LLP v.

Comm., 136 TC #7, 2/9/2011. Three member LLP, attorneys, who in the first fiscal year audited (FYE 4/30/2004) held their member ownership interests 30% each; fourth member (10% for P & L only) was an S corporation (which was owned by an ESOP — the beneficiaries of which were the three members in the LLP). For that fiscal year, the firm’s profits were allocated 87.55% (which equaled $1,079,999) to the ESOP, and the remainder profit was allocated 1/3, 1/3, 1/3. In FYE 4/30/2005 (net profits were $541,064), the

Operating Agreement was modified, and each member attorney was allocated a 1% general partnership interest, and a 32% “investing” or limited interest. Self-employment taxes were computed only on the 1% general partnership interests. Court recharacterized the “special allocation” in first fiscal year to the three individuals,and subjected all earnings in both years to Social Security and Medicare taxes.

IRS Rulings, Pronouncements, Letter Rulings Rev Proc 2011-26. Explains the bonus depreciation under the Small Business Jobs Act of 2010. Clarifies that from Jan. 1, 2008 through Dec. 31, 2012, the 50% bonus depreciation is available, but from Sept. 8, 2010 through Dec. 31, 2011, the percentage is first 100%. Taxpayers must opt out of the 100% bonus, and then opt out of the fifty percent bonus depreciation if taxpayer chooses not to claim bonus depreciation. The rules are quite generous to taxpayer, permitting 100% bonus on special components where work on large self-constructed projects begun before Sept.

8, 2010, and allows taxpayer the option of designating property that is qualified leasehold improvement property, but could also be qualified restaurant improvement property or qualified retail improvement property. the taxpayer can select such dual character property as applying either bonus depreciation or treat as property eligible for 179 expensing.

Rev Proc 2011-22. Safe harbor for determining recovery periods for wireless assets — MTSO (Mobile Telephone Switching Office) and cell sites.

Voluntary Classification Settlement Program. The Voluntary Classification Settlement Program (VCSP) is a new optional program that provides taxpayers with an opportunity to reclassify their workers as employees for future tax periods for employment tax purposes with partial relief from federal employment taxes for eligible taxpayers that agree to prospectively treat their workers (or a class or group of workers) as employees. To participate in this new voluntary program, the taxpayer must meet certain eligibility requirements, apply to participate in the VCSP by fil-

ing Form 8952, Application for Voluntary Classification Settlement Program, and enter into a closing agreement with the IRS. In this area, IRS has begun a National Research Project (NRP) as a collaborative effort with the Department of Labor and some individual states’ taxing authorities. IRS will be flagging for additional follow-up businesses that file Forms 1099MISC with Non-Employee Compensation (NEC) of greater than $25,000 at to at least five workers who have no other income source.

Mileage rates for 2011 were split due to gas costs. Business: 51 cents — Jan. 1, 2011, to June 30, 2011, and 55 cents — July 1, 2011, to Dec. 31, 2011. Medical and moving: 19 cents/23.5 cents. Charitable: 14 cents.

Mileage rates for 2012 are 55.5 cents per mile for business miles; 23 cents per mile for medical or moving; and 14 cents per mile for charitable. s Frances J. Coet, CPA/CFF, CVA, CFP, CFFA, of Coet2CPAs PC in Westminster is a member of the CSCPA Editorial Board. Reach her at fcoet@coetandcoet.com.

Big Changes Coming for CPAs Who Give Expert Testimony

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pilot project that began, Jan. 1, 2012, will impact CPAs who give expert testimony in Colorado civil law cases. The Colorado Supreme Court is enacting a new set of civil procedure rules, specific to certain types of business and commercial cases, meant to streamline the litigation process and make civil cases more efficient and less expensive. The project, known as the Civil Access Pilot Project (CAPP), is scheduled to end Dec. 31, 2013.

John Tatlock, special counsel for The Harris Law Firm, discussed CAPP at a recent CSCPA Forensic and Valuation Services roundtable. Tatlock says that CPAs who give expert testimony and who are involved with business and commercial cases will be impacted by the pilot project.

What CPAs Need to Know CAPP will focus on a broad range of “business actions,” including breach of contract cases, business torts, Uniform Commer-

cial Code (UCC) disputes, derivative actions, business disputes involving commercial banks and other financial institutions, insurance coverage cases (such as officer-director liability, errors and omissions cases), intellectual property cases, and actions involving the dissolution of business organizations.

Tatlock says the proposed rules are intended to: • Reduce the amount of discovery • Simplify expert reporting and testimony • Limit the number of experts • Eliminate expert depositions • Accelerate litigation by severely limiting trial continuances and extensions of time only upon extraordinary circumstances, such as the death or incapacity of an attorney or an expert, but not necessarily One of the biggest implications of CAPP is that more efficient and earlier planning will be required for cases requiring expert testi-

mony. “The pilot project has dramatically shortened the time periods in which an expert has to complete his or her work,” Tatlock says.

“There will be an increased need for the attorney in the case and the expert to get involved much earlier in the case, and greater care and attention to expert preparation and reporting,” he adds.

If you’re involved in expert testimony, you’re encouraged to read and understand the full text of the rules on the Supreme Court of Colorado’s website at: www.courts.state. co.us/Courts/Supreme_Court/Directives/ CJD%2011-02amended10-7-11.pdf.

“This is a dramatic change for civil litigation in Colorado, and there will be a long period of adjustment,” Tatlock says.

The effect of the pilot will be studied by the Institute for the Advancement of the American Legal System (IAALS) working at the request of the Court. IAALS will issue a report on the effectiveness of the pilot project upon the conclusion of the two-year pilot.s

January/February 2012

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Making a Difference

Sidny Zink was honored as a CPA who makes a Difference, Nov. 10, 2011.

AICPA Chair Greg Anton emphsizes his point about CPAs who make a difference.

CSCPA Financial Literacy Committee members gathered at the annual Women’s Foundation of Colorado luncheon. Pictured with keynote speaker, Martina Navratilova, from left, are: Deanna Duell-Smed, Sandy Kemper, Gail Vail, Stephen McQueen, Navratilova, Craig Arfsten, Diane Wightman, Liz Julin, Debbi Warden, and Cynthia Hansen.

KED Davisson places her bid at the silent auction.

CSCPA Chair Mike Bearup emcee’d the Nov. 10 event.

The Everyday Heroes and Heroines were recognized at the Nov. 10, 2011, celebration. From left: Jean Bushong, Rick Crosser, Kevin Farrell, Sharon Ross, Rick Simms, Ann Hinkins accepting on behalf of David Steiner, and Alicia Sweeney.

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NewsAccount January/February 2012

Classified Advertising Job Opportunities Senior Tax Accountant 2-5 years tax experience in public accounting. Must have an active CPA license or be a CPA candidate. Must have solid technical skills and be able to maintain important client relationships in a professional office. Articulate, deadline-oriented atmosphere demands an organized individual who can prioritize projects efficiently. Email resume to HR@ dalbycpa.com. Visit www.DalbyCPA.com.

Major super-regional bank is looking for a senior wealth strategist to provide planning and consulting services to business owners.

The job, based in Denver, will utilize the national footprint of the bank to generate leads. The successful candidate will be able to provide: tax planning, financial planning, estate and liquidity planning to the principals of businesses above $10mm in revenues, and guide and prepare them for a liquidity event/ IPO. Additional responsibility will include cross-selling private banking and commercial lending capabilities to these companies.

The organization is an equal opportunity employer M/F/D/V. Please contact Sara Farkas at (212) 375-6250 or sfarkas@kbasearch. com for further details.

Practices for Sale, Purchase, or Merger

Real Estate

Fred Mehring, Select Business Group, Inc., specializes in the sale, merger, and acquisition of accounting and tax practices.

Over 25 years of experience. Confidentiality stressed! Call Fred Mehring at (303) 7713100, fax (303) 477-6010, or fmehring@ selectbg.com.

DTC full service practice is looking to expand business via acquisition of practice with revenues up to $500,000. Looking to retire/transition, please contact us, as we have been successful before. We specialize in working with small business reviews, compilations, tax, write up, payroll, and general business matters. No brokers. Send responses to kflynt@cocpa.org with Box #00932 in the subject line.

Colorado Springs CPA seeks near term merger/sale of $500,000 practice, 80% tax and 20% assurance. Send replies to kflynt@cocpa.org with Box #72632 in the subject line.

One to three offices (with one secretarial space) available for immediate occupancy. Located at 19th and Sherman, Denver, two blocks from the Brown Palace.

Offices are fully furnished, with state of the art amenities, high speed DSL connectivity, high speed copier/scanner, approximately 184 square feet each. The available services include receptionist, telephone, color copier/scanner, fax, conference room, and breakroom. Contact Stuart Kritzer at (303) 393-1111 or stuart@kritzer.com.

Miscellaneous CPA Focused IT Support. Live Consulting is the complete IT solution for CPA firms in Denver, Boulder, and Castle Rock.

Plans and packages available to meet your unique needs. Solutions for Cloud Computing, Scanning and Document Management, Service Agreements, Virus and Spyware Removal, Complete Network Design, and Troubleshooting. To find out how you can save on recurring IT costs, go to www.LiveConsulting.com or call (303) 217-3000 today! Client references available upon request.

NewsAccount and Web Classified Advertising Rates $55 for the first 40 words. $2 per word thereafter. $10 discount for placing both a NewsAccount and web classified ad. E-mail Krista Flynt at kflynt@cocpa.org for a price quote and to place a classified ad.

In Memoriam We regret the loss of the following CSCPA member.

We extend our sympathy to his family and friends.

Bernard Berson

Member since 1993 Highlands Ranch, CO

Women to Watch On Feb. 13, 1913, the first female Colorado CPA, Emma Manns, was licensed. On May 23, 2012, we’ll honor today’s women in the profession. Save the date, and look forward to the first annual CSCPA Women to Watch Awards program featuring keynote speaker Christine Riordan, Dean of the University of Denver Daniels College of Business. For details, contact Liz Julin at ljulin@cocpa.org.

January/February 2012

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Colorado Society of Certified Public Accountants 7979 E. Tufts Ave. Ste. 1000 Denver, CO 80237-2847

Periodicals Postage

CSCPA Tax CPE: The Choice is Yours.

The Complete Guide to Preparing Limited Liability Company, Partnership, and S Corporation Federal Income Tax Returns January 10 — CSCPA Pamela Davis-Vaughn will improve your ability to accurately and efficiently prepare S corporation, LLC, and partnership tax returns.

Member: $355 Nonmember: $507

Preparing Individual Tax Returns for New Staff and Para-Professionals January 11 — CSCPA Pamela Davis-Vaughn will familiarize new staff with most tax forms, latest law changes, the complicated issues of filing status and dependency exemptions, and more during this practical, hands-on course.

Member: $355 Nonmember: $507

NEW! Effective and Efficient Senior-level Review of Tax Returns in Busy Season January 12 — CSCPA Even the seasoned reviewer will gain additional and advanced procedures via a multitude of checklists to more thoroughly review various tax returns and avoid errors thanks to Pamela Davis-Vaughn. Member: $355 Nonmember: $507 Advanced Tax Update January 17 — Hyatt-DTC Don Farmer will cover the Job Creation Act of 2011, signed by the President on Nov. 21, 2011; new 2011 requirements for individuals to report “foreign financial assets” using Form 8938; the 2011 tax court case explaining taxation of gain from the sale of state income tax credits; and much more.

Member: $410 Nonmember: $586

To register, go to www.cocpa.org, or call (303) 773-2877 or (800) 523-9082.