COCPA NewsAccount - January/February 2020

NEWSACCOUNT COLORADO SOCIETY OF CPAs • JANUARY/FEBRUARY 2020

Core + Discipline Proposed PAGE 6

Making a Difference: The 2019 Everyday Heroes and Heroines PAGE 7

America’s Student Loan Debt Crisis PAGE 14

FUTURE-

PROOFING THE

PROFESSION

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NewsAccount | January/February 2020

12 Contents

19

Features 4

Lassar to Become Chair; Watkins Nominated for Vice Chair/Chair-elect The Nominating Committee presents the slate for COCPA leadership positions, beginning, May 1, 2020.

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Future-Proofing the Profession: Core + Discipline Proposed The new licensure model is designed to evolve newly licensed CPAs’ knowledge and skills, protect the public interest, and position the CPA profession for the future.

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Making a Difference: The 2019 Everyday Heroes and Heroines Last November, the profession honored seven COCPA members for their outstanding, yet previously unheralded, service to their communities and colleagues. We noticed.

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Income Tax Apportionment: Colorado’s New Terminology and Sourcing Rules Colorado House Bill 18-1185 dramatically changed how multistate service providers apportion their income. It provided much needed relief to Colorado’s providers, at the cost of added complexity.

America’s Student Loan Debt Crisis As many as 44.7 million Americans have racked up student loan debt - the biggest asset on the U.S. government’s balance sheet. There’s more to the crisis - and the ideas for tackling it - than you might imagine.

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Planning an M&A Transaction: Seven Buy-side Pitfalls to Avoid Jack Allgood hopes by considering these potential pitfalls in advance, serious problems can be avoided.

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Financially Fit Aging: Diminished Capacity and Your Clients This is the fifth article in our series about helping your clients - and perhaps you and your family - prepare for the many aspects of aging beyond financial planning.

24 Departments 2

Chair Column

28

Movers & Shakers / Classified Ads

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In Memoriam

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January/February 2020 | www.cocpa.org

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CHAIR COLUMN

NEWSACCOUNT

CPA Evolution: Your Profession Needs You!

A bimonthly publication of the Colorado Society of Certified Public Accountants Vol. 65, No. 5 January/February 2020

Officers

Benjamin T. Hrouda, Chair Sharon S. Lassar, Vice Chair Christopher J. Telli, Treasurer Victor A. Amaya, Immediate Past Chair Mary E. Medley, Secretary

Directors

Kristine M. Brands, Toby Clary, Audra Dixon, Renny Fagan, Georgia Z. Phillips

Editorial Board

Jack Allgood, Alan D. Bennett, Steve Corder, Peggy Jennings, Georgia Z. Phillips, Lori Anne Reinwald, Laura J. Theiss, Barbara J. Tedesko, Steve Van Meter, Michael D. West, Charlie Wright Mary E. Medley, President/CEO Natalie G. Rooney, Contributing Writer Ariana Cassard, Blue Ocean Ideas, Design NewsAccount (ISSN #10899952) is published bimonthly by the Colorado Society of Certified Public Accountants, 7887 E. Belleview Ave., Suite 200, Englewood, CO 80111. NewsAccount is published in January, March, May, July, September, and November and reports information, news, and trends in the accounting profession. 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 $12.00 one-year subscription to NewsAccount.

Periodical postage paid in Englewood, CO, and additional mailing offices.

POSTMASTER: Send address changes to NewsAccount, Colorado Society of Certified Public Accountants 7887 E. Belleview Ave., Suite 200 Englewood, CO 80111 Net press run = 6,388 copies; sales through dealers and carriers, street vendors, and counter sales = 0; paid or requested mail subscription = 6,312; free distribution by mail = 0; free distribution outside the mail = 20; total free distribution = 20; total distribution = 6,332; office use, leftovers, spoiled = 56; returns from news agents = 0; total sum = 6,388; percent paid and/or requested circulation = 99%.

303-773-2877 • 800-523-9082 Fax: 303-773-6344

NewsAccount is available online at www.cocpa.org.

BY BEN HROUDA, CPA

The AICPA Fall Council meeting is always filled with opportunities to network, exchange ideas, and really dig into the future of our profession. This year’s installment was no different, but there was a heightened sense of urgency to the profession’s number one national project: CPA Evolution.

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s a quick refresher, the CPA Evolution initiative is a joint project between the AICPA and the National Association of State Boards of Accountancy (NASBA) to explore integrating technological and analytical expertise into initial CPA licensure requirements.

QUESTIONS THE INITIATIVE IS SEEKING TO ADDRESS INCLUDE WHETHER: • Current college curricula adequately prepare CPA talent for required expectations within firms and businesses.

• The Uniform CPA Exam is testing the right competencies and skills.

• Current experience requirements are reflective of quality services.

The AICPA and NASBA are working to move the initiative forward exponentially by the summer of 2020. Why the rush? Because we can’t afford to wait. Our profession tends to be slow to change – consider the five or six years required to implement a new accounting pronouncement.

This time, waiting for years isn’t an option.

If we are to survive and thrive, our profession must rapidly move forward with CPA Evolution or risk not moving forward at all. It’s up to us to decide what we want for our future.

NOW IS THE TIME While your state and national leaders are moving forward rapidly on CPA Evolution, their actions have been deliberate.

The AICPA and NASBA have invested time and resources in reviewing alternative approaches to modernize the profession’s licensing model, considering and including many different perspectives from across the profession. Feedback has come from stakeholders such as state CPA societies, state boards of accountancy, academia, firms of all sizes, and CPAs in all areas of practice from across the country. Their insights have been crucial as we consider possible licensure changes and determine a path forward.

While the initial comment period ended Aug. 9, 2019, you can learn more about CPA Evolution and the steps the AICPA and NASBA have taken thus far at EvolutionOfCPA.org. Also see the related article on page 6.

For those of you who provided feedback on the initiative already, thank you.

The AICPA and NASBA are developing a model based on that feedback and will be releasing more information. If you have questions in the meantime, you can email Feedback@EvolutionofCPA.org.

YOUR PROFESSION NEEDS YOU As for moving CPA Evolution forward on the home front, we’re fortunate to have Sharon Lassar, PhD, CPA, the John J. Gilbert Professor and Director of the University of Denver’s School of Accountancy, as our incoming Chair. She will bring a vital perspective to the changes ahead for accounting education.

“This time, waiting for years isn’t an option. If we are to survive and thrive, our profession must rapidly move forward with CPA Evolution or risk not moving forward at all.”

As we enter into a new decade, I encourage you to get involved, not only in CPA Evolution but also in the many other issues facing our profession at the state and national levels. We can no longer afford to take years to initiate and implement change. It’s clear: if we wait, we’re too late.

Your support

made a difference on Colorado Gives Day 2019.

You helped raise

$47,450

Your gifts helped unlock $25,000 in matching funds from:

- BKD LLP - Mark J. Smith - KPMG LLP Family Foundation - SingerLewak - Wipfli LLP

Email Ben Hrouda at ben.hrouda@flywheelcap.com.

YOU STILL HAVE TIME TO RENEW! To retain your Colorado CPA license in active, inactive, or retired status, you must renew it by January 31, 2020. Look for the email from the Colorado State Board of Accountancy, to your email address on file, notifying you the online system is open for renewal processing. Update your email address now, if it’s changed since you last renewed. Go to www.colorado.gov/pacific/dora/DPO_Update_ Contact, and log in to your account.

If renewing in active status, you will attest that you have or will have completed the required CPE between Jan. 1, 2018, and Dec. 31, 2019 - 80 hours for the two-year period, including four hours in Ethics. No more than 16 hours can be in Personal Development.

January/February 2020 | www.cocpa.org

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LEADERSHIP NEWS

Lassar To Become Chair

WATKINS NOMINATED FOR VICE CHAIR/CHAIR-ELECT The Nominating Committee, chaired by COCPA immediate past chair Victor Amaya, CPA, presents the following slate for COCPA leadership positions beginning May 1, 2020. The chair and vice chair serve for one year, and the treasurer and directors serve for two years. Watch for the March/ April 2020 NewsAccount in which you’ll find biographical information on these nominees.

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ongratulations to officer nominees Chair Sharon S. Lassar, University of Denver School of Accountancy, Denver; Vice Chair/Chair-elect Randy L. Watkins, ACM LLP, Greeley; and Treasurer Peter Derschang, Leeds West Groups, Greenwood Village.

Benjamin T. Hrouda, Flywheel Capital, Denver, continues on the Board as immediate past chair. COCPA CEO Mary E. Medley is the Board secretary.

Directors to begin a two-year term are: James Brendel, Moss Adams LLP, Denver; Mary-Margaret Henke, Liberty Oilfield Services, Denver; and Kelly Kozeliski Broughton, Plante Moran LLP, Denver.

Continuing on the Board are Community Member Renny Fagan, Colorado Nonprofit Association, Denver; Toby Clary, Soukup, Bush & Associates, P.C., CPAs, Fort Collins; and Audra Dixon, EY LLP, New York City.

The Board of Directors thanks for their service the following directors who will complete their terms on April 30, 2020: Kristine Brands, U.S.

Air Force Academy, Colorado Springs; and Georgia Z. Phillips, The Phillips Allderdice Consulting Group PC, Denver.

The Nominating Committee presents the following nominees for the Educational Foundation Board of Trustees for a three-year term: Kathleen “KED” Davisson, University of Denver, Denver; Kyle Green, Wall Smith Bateman Inc., Alamosa; and Alexandra “Alexie” Tune, Deloitte LLP, Denver.

Currently serving on the Foundation Board are officers Diego J. Baca, EY LLP, Denver, President; Patrick Lytle, SM Energy Company, Denver, Vice President; Ingrid Stiver, PwC LLP, Denver, Treasurer; Kyle Green, Wall Smith Bateman Inc., Alamosa (filling a one-year unexpired term); Theresa Hilliard, Fort Lewis College, Durango; Lisa Kutcher, Colorado State University, Fort Collins; Scott Ranby, Kuhn Advisors Inc., Denver; Laura Theiss, Holben Hay Lake Balzer, Denver; Karen Turner, Retired, University of Northern Colorado, Greeley; and Mary E. Medley, COCPA. COCPA CFO Alicia Gelinas serves as executive director of the Foundation

QUALIFIED OPPORTUNITY ZONE REGS FINALIZED

By Dave Strausfeld, J.D., Journal of Accountancy senior editor (David.Strausfeld@aicpa-cima.com) On Dec. 19, 2019, the IRS issued final regulations (T.D. 9889) providing guidance on tax-favored investments in qualified opportunity zones (QOZs). These regulations provide additional guidance for taxpayers eligible to elect to temporarily defer the inclusion in gross income of certain gains if corresponding amounts are invested in certain equity interests in qualified opportunity funds (QOFs), as well as guidance on the ability of such taxpayers to exclude from gross income additional gain recognized after holding those equity interests for at least ten years. In addition, they address various requirements that must be met for an entity to qualify as a QOF, including requirements that must be met for an entity to qualify as a qualified opportunity zone business (QOZB).

The Tax Cuts and Jobs Act, P.L. 115-97, created a process for designating certain low-income communities and qualifying contiguous census tracts as QOZs (Sec. 1400Z-1). Taxpayers, in turn, were offered three federal income tax incentives to invest in a business located within a QOZ: (1) the temporary deferral of capital gains, to the extent the gains are reinvested into a QOF; (2) the partial exclusion of previously deferred gains when certain holding period requirements in a QOF are met; and (3) the permanent exclusion of post-acquisition gains from the sale of an investment in a QOF held longer than 10 years (Sec. 1400Z-2).

T.D. 9889 finalizes regulations that were proposed in 2018 (REG-115420-18) as well as regulations proposed in 2019 (REG-120186-18). The 544-page final regulations retain the basic approach and structure of the proposed regulations, with some revisions.

Related forms, instructions, and other updated information taxpayers need will be made available in January 2020, the IRS says.

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NewsAccount | January/February 2020

LEADERSHIP DEVELOPMENT

Make This Your New Year’s Resolution: LeadFit in 2020

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eadership skills are more important than ever in today’s rapidly changing, often chaotic, ever-demanding work world. LeadFit, the COCPA’s leadership development program for aspiring supervisors and managers, is your opportunity to gain invaluable knowledge, tools, and techniques to achieve your professional and personal goals.

Limited to 16 participants, the program is delivered over five months – two full days, two half days, a special debriefing, individual coaching, a welcome kickoff BBQ hosted by COCPA CEO Mary E. Medley, and a celebration event at the program’s conclusion.

Check out the 2020 dates – which you must commit to attending – and plan now to keep this resolution: • July 23 - Welcome BBQ • July 24 - Full Day Session • August 21 - Half Day Session • September 18 - Half Day Session • November 6 - Full Day Session and Graduation Celebration To register or sponsor a colleague from your organization, contact Terry Cervi, terry@cocpa.org, for an application and further details.

Application Deadline: July 1, 2020

LEADFIT FACILITATOR Lorrie Blanchard Tietze is the founder and manager of Interface Consulting, LLC, Castle, Rock, Colo., a consulting firm focused on helping companies enable change and build productivity through process, tools, and skills. She is committed to helping people help themselves and their businesses.

January/February 2020 | www.cocpa.org

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CPA EVOLUTION

FUTURE-PROOFING THE PROFESSION:

Core + Discipline Proposed As first reported in the November/December 2019 NewsAccount, the American Institute of CPAs (AICPA) and the National Association of State Boards of Accountancy (NASBA) have proposed a new CPA licensure model that is designed to evolve newly licensed CPAs’ knowledge and skills, protect the public interest, and position the CPA profession for the future. NASBA and AICPA leadership believe this draft model will address the greatly expanding body of knowledge required of newly licensed CPAs, which includes a deeper understanding of systems, controls, SOC engagements, and data analysis.

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disrupting the profession, and a revised licensure model should be about maintaining the strength and relevance of the CPA license to ensure continued public protection.

he proposed model to evolve the CPA reflects dialogue with stakeholders such as AICPA members, firms of all sizes, academia, federal regulators, students, technology experts, state CPA societies, and state boards of accountancy on five guiding principles to inform the creation of a new licensure model. Feedback on the principles from more than 2,000 stakeholders indicated these themes:

NASBA and AICPA also conducted a study of other professions’ licensure models.

The two organizations aim to finalize an approach for a new licensure model by summer 2020, followed by a multi-year implementation plan. Both organizations continue to collect feedback on the proposed model. You are encouraged to email Feedback@EvolutionOfCPA.org.

• There is support for the need to change the CPA licensure model to include greater emphasis on technology skills and knowledge in licensure. The majority of stakeholders shared this view.

The draft model’s robust requirements start with a strong core in accounting, auditing, tax, and technology that all candidates would be required to complete. Then, each candidate would choose a discipline in which to demonstrate deeper skills and knowledge.

Regardless of the chosen discipline, this pro-

• All newly licensed CPAs should demonstrate strong common core competencies in accounting, auditing, tax, and technology.

• While technological expertise should be required for licensure, other factors are

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NewsAccount | January/February 2020

= CPA

posed model would lead to a full CPA license, with rights and privileges consistent with today’s CPA. A discipline selected for testing would not mean the CPA is limited to that practice area.

The proposed model would: • Enhance public protection by producing candidates who have the deep knowledge necessary to perform high-quality work, meeting the needs of organizations, firms, and the public; • Reflect the realities of practice by requiring candidates to demonstrate deeper proven knowledge in one of three disciplines that are pillars of the profession; • Be adaptive and flexible, helping to future-proof the CPA as the profession continues to evolve; and • Result in one CPA license.

“The model we are proposing reflects the realities of practice today. When you look at the profession twenty or thirty years ago, it’s evident that the demands of CPAs have grown,” says Bill Reeb, CPA, CITP, CGMA, chair of the AICPA. “For example, today there are three times as many pages in the Internal Revenue Code, four times as many accounting standards, and five times as many auditing standards as there were in 1980.

As our body of knowledge has expanded, we’ve stretched the exam and curriculum to cover more and more material, but that approach isn’t sustainable. We need a licensure model that is flexible enough to evolve with our profession.”

More information on the CPA Evolution initiative may be found at www.evolutionofcpa.org.

COMMUNITY SERVICE

Making a Difference: The 2019 Everyday Heroes and Heroines On Nov. 7, 2019, the profession recognized seven individuals for their service to their communities and colleagues. We applaud their accomplishments and appreciate their commitment to making our world better for all. In their honor, the COCPA made a donation to the charity of each one’s choice.

CONTINUED ON PAGE 8

January/February 2020 | www.cocpa.org

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COMMUNITY SERVICE CONTINUED FROM PAGE 7 STEVEN R. CORDER, CPA, KUNDINGER CORDER & ENGLE PC, DENVER The list of organizations and groups which have benefitted from Steve Corder’s wisdom and expertise is lengthy - including the Colorado Secretary of State Charities Task Force, Boy Scouts of America Denver Area Council, the Children’s Diabetes Foundation, the Race to Erase MS, and St. Thomas More Church and his impact on young professionals is legendary. He routinely makes time to model for those aspiring to make an impact, and he cares for and assists CPAs and CPA’s -to-be in ways that will leave a lasting imprint beyond his time. Steve’s work with the Solich Caddie and Leadership Academy creates opportunities for him to encourage leadership and character development in young people - which also feeds his golfer soul. Side Note: Steve wears very festive socks, his personal way of putting a smile on everyone’s face, every day.

SHARI LYNN LUTZ, CPA, SHARI LUTZ & ASSOCIATES, DENVER Shari has been at the forefront of leadership development - for women in particular – giving back to her community, and changing lives, in many cases in small ways, one person at a time. Her work with the Alliance Foundation, which celebrated its 25th anniversary of granting scholarships to non-traditional-aged women returning to college, providing hands-on volunteer opportunities, and funding village bank micro loans, is testament to her commitment to making the world better. On a personal note, Shari is - in her words - “addicted to trying to grow the perfect tomato.”

JULIE TROUTMAN LERUDIS, CPA, BOETTCHER FOUNDATION, DENVER In his nomination, colleague Garrett Mayberry wrote, “Julie Lerudis is the consummate CPA whose involvement in the community is far deeper than the typical volunteer or board member. ...she rolls up her sleeves and applies her talents as a CPA to help with strategic decisions, implementing financial best practices, and navigating challenges.” Philanthropy Southwest, Denver Urban Renewal Authority, Social Venture Partners, Community Resource Center, and many more have benefitted from Julie’s service. She is, as another colleague writes, “a consummate champion of people who never loses sight of the big picture.”

LAUREN NAPHEYS, CPA, KPMG LLP, DENVER Lauren is an everyday heroine because service is a lifestyle for her. She’s been involved with Project CURE, the Denver Rescue Mission, Denver Health Foundation, the American Transplant Foundation, and the Global Livingston Institute. She packs her bags for volunteer service, too, delivering medical supplies to Panama City, and participating in the 2041 Foundation’s Climate Force 2019 summer expedition to the Arctic Circle, where she worked with travelers from across the globe to research and develop practical guidelines for living sustainable lifestyles.

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NewsAccount | January/February 2020

ALEXANDRIA A. ROMERO, CPA, PUEBLO CITY-COUNTY LIBRARY DISTRICT, PUEBLO Alex is doing heavy volunteer lifting for the Pueblo Downtown Association, the Southern Colorado Runners Club, and the Junior League of Pueblo, to name just a few. Her community has noticed. Alex was the only accounting professional selected by the Pueblo Latino Chamber of Commerce as one of its 40 Under 40 Emerging Leaders. In October, 2019, she graduated from the AICPA Leadership Academy, in the same month she helped to bring back the Pumpkin Chase to Pueblo - a citywide scavenger hunt for middle and high school kids.

JENNIFER K. SCHOLZ, CPA, HENSEL PHELPS CONSTRUCTION COMPANY, GREELEY Jenny is a trailblazer at Hensel Phelps who always has been focused on giving back.

Whether through the firm’s Women’s Leadership Seminar, the Boys and Girls Clubs of Weld County, United Way, or the Northern Colorado Medical Center Foundation, Jenny brings her natural people skills and intuitive leadership style to everything she does. What sets her apart, says Mark Mollandor, is her ability to communicate and work successfully with others - and she’s one of the most optimistic people you’ll ever know. You might say Jenny is the poster person for Keep Calm and Carry On!

TIMOTHY P. WATSON, CPA, ACM LLP, BOULDER If you are one of over 120 charities receiving support from the Edmund T. and Eleanor Quick Foundation, Tim’s handprints are on that support - to Boys and Girls Clubs, Family Resource Centers, domestic violence and early childhood development programs, and programs benefiting rural Colorado communities, too. He’s served on the Boulder Urban Renewal Authority and worked with the Boulder Shelter for the Homeless to purchase land, design, and open a new building for those in need. His board work extends to many other organizations including the Lyons Fire Protection District, Frasier Meadows Retirement Community, Social Venture Partners Boulder County, and Boulder Valley Rotary, helping to kickstart one of the club’s first international projects.

Tim is quick to point out that none of what he’s done was accomplished single-handedly - it always takes the combined efforts of a strong team.

To nominate a worthy candidate for the 2020 awards, contact Terry Cervi, terry@cocpa.org.

January/February 2020 | www.cocpa.org

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ACCOUNTING STANDARDS

FASB Delays Standards Effective Dates

BY ANGIE M. HILLESTAD, CPA, CGMA

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The Financial Accounting Standards Board (FASB) recently voted to delay effective dates of four upcoming accounting standards. The move was widely expected and followed proposed delays communicated by the FASB late this past summer.

or many organizations, the delays are a welcome relief as many entities quickly found themselves behind in preparing for the significant changes.

For all other entities, the standard will now be effective for fiscal years beginning after Dec. 15, 2020, and interim periods within fiscal years beginning after Dec. 15, 2021.

Early application is allowed.

Here is a summary of the changes made by FASB:

FINANCIAL SERVICES – INSURANCE (TOPIC 944): TARGETED IMPROVEMENTS TO THE ACCOUNTING FOR LONG-DURATION CONTRACTS (ASU NO. 2018-12) For public business entities that meet the definition of an SEC filer, excluding eligible SRCs, the amendments are effective for fiscal years beginning after Dec. 15, 2021, and interim periods within those fiscal years.

LEASING STANDARD (TOPIC 842), (ASU NO. 2016-02) The amendments do not impact the effective date for: • Public business entities • U.S. Securities and Exchange Commission (SEC) filers • Employee benefit plans that file or furnish financial statements with or to the SEC

For all other entities, including SRCs, the standard will now be effective for fiscal years beginning after Dec. 15, 2023, and interim periods within fiscal years beginning after Dec. 15, 2024. Early application is allowed.

• Nonprofit entities that have issued or are conduit bond obligors for securities that are traded, listed, or quoted on an exchange or over-the-counter market The effective date for these entities remains for fiscal years beginning after Dec. 15, 2018, including interim periods within those fiscal years.

For all other entities, the standard will now be effective for fiscal years beginning after Dec. 15, 2020, and interim periods within fiscal years beginning after Dec. 15, 2021.

Early application is allowed.

FINANCIAL INSTRUMENTS – CREDIT LOSSES (TOPIC 326): MEASUREMENT OF CREDIT LOSSES ON FINANCIAL INSTRUMENTS (ASU NO. 2016-13) The amendments do not impact the effective date for public business entities that meet the definition of an SEC filer, excluding entities eligible to be smaller reporting companies (SRCs) as defined by the SEC. The effective date for these entities remains

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for fiscal years beginning after Dec. 15, 2019, including interim periods within those fiscal years.

For all other entities, including SRCs, the standard will now be effective for fiscal years beginning after Dec. 15, 2022, including interim periods within those fiscal years.

Early application is allowed.

DERIVATIVES AND HEDGING (TOPIC 815): TARGETED IMPROVEMENTS TO ACCOUNTING FOR HEDGING ACTIVITIES (ASU NO. 2017-12) The amendments do not impact the effective date for public business entities and SEC filers. The effective date for these entities remains for fiscal years beginning after Dec. 15, 2018, including interim periods within those fiscal years.

NewsAccount | January/February 2020

ADDITIONAL DELAYS In addition to these changes, the FASB also voted to align the effective date of ASU No. 2017-04, Intangibles – Goodwill and Other (Topic 350): Simplifying the Test of Goodwill Impairment, with the amended effective dates for the credit loss standard.

Angie M. Hillestad, CPA, CGMA, is a partner in Eide Bailly LLP’s National Assurance Office, Sioux Falls, SD. Contact her at ahillestad@eidebailly.com. This article originally appeared on EideBailly.com. It is reprinted with permission.

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720-308-5317 January/February 2020 | www.cocpa.org

11

STATE TAXATION

INCOME TAX APPORTIONMENT:

Colorado’s New Terminology and Sourcing Rules

BY BRUCE M. NELSON, CPA

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n June 4, 2018, Colorado Governor John Hickenlooper signed House Bill 18-1185 (HB 18-1185) into law thereby making the biggest change to the state’s income tax statute since 1985.

The bill, which became effective, Jan. 1, 2019, dramatically changed how multistate service providers apportion their income and created permanent and substantive implications for professionals in law, accounting, architecture, engineering, and computer consulting services.

THE NEW LAW AND THE OLD The new legislation was largely an addition rather than a restatement of the law, specifically, the addition of a single code section, Colorado Revised Statute (C.R.S.) §39-22-303.6 (new law). The drafters built the new section by simply taking the previous

code section, C.R.S. §39-22-303.5 (old law), changing some terminology, and then adding some language from the Multistate Tax Commission’s (MTC) model regulations.1 At first glance, other than the change to market-based sourcing, the new law reads very much like the old law. However, several subtle but substantive changes require attention.

CHANGES IN TERMINOLOGY First, the terms “business income” and “nonbusiness income” have been replaced with “apportionable income” and “nonapportionable income.”2 Despite some testimony to the contrary, the change to “apportionable income” is clearly intended to be broader in definition than “business income.” Sometimes, the connotations of terms alone carry some significance. Taxpayers for years have been asking, “How can you have business

income from going out of business?” It sounds nonsensical but not so much when you rephrase it as, “How can you have apportionable income from going out of business?”

The new definition also clarifies the distinction between the “transactional” and “functional” tests for determining business, now apportionable, income.

Like many other states, Colorado’s tax law is based upon the Uniform Division of Income for Tax Purposes Act (UDITPA) promulgated in 1957. UDITPA provided that business income be apportioned and defined it as: income arising from transactions and activity in the regular course of the taxpayer’s trade or business and includes income from tangible and intangible property if the acquisition, management,

See Colo. Rev. Stat. §39-22-303.6 and the Multistate Tax Commission’s Model General Allocation and Apportionment Regulations with Amendments, Feb. 24, 2017. The MTC model regulations date back to 1971 and have been modified and amended several times. Colorado’s prior cost-of-performance rules were based on earlier versions of the MTC model regulations. The changes introduced by HB 1185 were drawn from the MTC amendments adopted Feb. 24, 2017.

2 Compare C.R.S. §39-22-303.5(1)(a) and (c) with §39-22-303.6(1)(a) and (c) 1

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NewsAccount | January/February 2020

and disposition of the property constitute integral parts of the taxpayer’s regular trade or business operations3 “Nonbusiness income” was unhelpfully defined as “all income other than business income.”4 There has been a long, theological-like debate over whether there were one or two tests in the UDITPA definition. Some courts and commentators argued there was only a transactional test (transactions in the regular course of business) and others that there was a second, functional test (income from property if the acquisition, management, and disposition constitute integral parts of the trade or business). The argument hinged on whether one believed that the definition’s second clause was an elaboration of the first or the articulation of a separate, second test. 5 The Colorado Department of Revenue always embraced the two-test approach although that distinction was neither explicitly clear in statute nor necessarily supported by Colorado case law.6 The new law addresses the confusion, not only by changing the terminology but also by deleting the word “includes” and segregating the tests into two clauses, (A) and (B).7 In addition, the old law referred to income from the “acquisition, management, and disposition” of property. The new law changes the phrase to “acquisition, management, employment, development, or disposition” of property.

Besides adding the terms “employment” and “development,” the new language changed the coordinating conjunction from “and” to “or.”8 As Peter Faber noted, “The use of the word “and” rather than the word “or” means that gain from the sale of property will not produce business income unless the disposition of the property is a regular part of the taxpayer’s normal business operations.”9

A second change in terminology replaced “sales” with “receipts.” The new law also changed what is excluded from the sales, or receipts, factor. Formerly, sales included “the gain from the sale and not the gross receipts” from intangible property. The new law deletes this language and replaces it by excluding from the definition of receipts income from “hedging transactions and from the maturity, redemption, sale, exchange, loan, or other disposition of cash or securities.”10 The definition of “taxpayer” was changed as well. Formerly, taxpayer included “a C corporation or any nonresident individual, nonresident partner, or S corporation.” The new law simply says that “taxpayer” means “any person that is permitted or required” to apportion and allocate income, thereby sweeping in partnerships and limited liability companies.11 The end result of all these terminology changes is generally an expansion of who and what is included in the terms, “apportionable income,” “taxpayer,” and “receipts.”

SOURCING SALES OF SERVICES The most dramatic change is sourcing service sales from where the work was performed (Colorado’s traditional “cost of performance” measurement) to where the services are received (market-based sourcing). The change impacts not just service sales but also receipts of “other than tangible personal property,” a category that includes sales of real property and intangible property.12 The new language is taken directly from the amendment to the model regulations drafted by the Multistate Tax Commission.13 As more and more states moved toward market-based sourcing, Colorado multistate service providers were increasingly at a financial disadvantage to service providers in those states. A simple example will illustrate the problem.

Suppose there is a Colorado architectural firm that wins a California contract to design a skyscraper in San Francisco. The fee is $1,000,000.

While there were a few meetings and site visits in California, almost all the drafting and design work is performed at the firm’s Colorado office. Both states use a single sales formula for apportioning income that compares in-state sales with total sales everywhere.

Under the prior law, Colorado required the one million dollar fee to be included in the state’s numerator because the work was performed in Colorado. California law requires the same million dollars to be included in the numerator of its sales factor because, as a market-based state, the benefit of the service was received in California. Thus, because the same income is being counted in both state’s numerators for apportionment, the firm is apportioning and paying income tax on more than 100% of its income.

Strangely enough, it appears that most taxpayers dislike paying tax on more than 100% of their income.

Now, suppose the architectural firm were located in California, and the bid was for a skyscraper in Colorado. In that case, the fee would not show up in either state’s numerator. It doesn’t belong in the Colorado numerator because the work was performed in California. And it doesn’t belong in the California numerator because the benefit of the service was received in Colorado. Thus, the California architectural firm is now apportioning and paying tax on less than 100% of its income, a fact that puts it at a competitive advantage over the Colorado firm.

This tax disadvantage has been the reality for Colorado multi-state service providers for the past several years. Not only did Colorado service providers have to pay tax on more than 100% of their income when working in market-based sourcing states, they were CONTINUED ON PAGE 14

UDITPA §1(a).

3

UDITPA §1(e).

4

The debate over the distinction between “business income,” “nonbusiness income,” and how many tests there are go back many, many years. For some examples see James Peters, 25 U.S.C. Law Center Tax Institute, pp. 251-87 (1973), Marilyn A. Wethekam, Fred O. Marcus, Jordan M. Goodman, David A. Hughes, and Brian L. Browdy, “Render Unto Caesar: The Difference Between Business Income and Nonbusiness Income,” State Tax Notes, August 4, 1997, p. 312; and Jennifer Carr and Cara Griffith, Determining Business Income Under the Functional Test: Should A Partial Liquidation Exception Apply?” State Tax Notes, January 16, 2006, p. 147. Perhaps Led Zeppelin said it best in Stairway to Heaven, “There’s a sign on the wall, but she wants to be sure ‘cause you know sometimes words have two meanings.”

5

See Atlantic Richfield Company v. Colorado, 601 P.2d 628 (1979)

6

See C.R.S. §39-22-303.6(1)(a)(II)(A) and (B)

7

See C.R.S. §39-22-303.6(1)(a)(II)(B) By this time, if you are still reading, I am sure you are probably wishing you had paid more attention to language and punctuation in school.

8

Peter Faber, “Sales in Liquidation Under the Functional Test for Nonbusiness Income,” State Tax Notes, February 19, 2001, p. 612.

9

Compare C.R.S. §39-22-303.5(1)(d) to CRS §39-22-303.6(1)(d).

10

Compare C.R.S. §39-22-303.5(1)(f) to CRS §39-22-303.6(1)(f).

11

Compare C.R.S. §39-22-303.5(4) with C.R.S. §39-22-303.5(6).

12

MTC Model Reg. IV.17.(a)(1) and (d)(1). The MTC is an organization created by the states that assists the states in drafting model regulations and statutes, promotes uniformity among them, and lobbies on their behalf.

13

January/February 2020 | www.cocpa.org

13

STATE TAXATION CONTINUED FROM PAGE 13 also at an economic disadvantage in bidding on any Colorado work against competitors in market-based states such as California.14 The new Colorado law changes the sourcing of services from “services rendered in Colorado” to “service delivered to a location in Colorado.”15 The MTC regulation explains that “delivered to a location refers to the location of the taxpayer’s market for the service, which may not be the location of the taxpayer’s employees or property.”16 Both the MTC regulation and the Colorado statute go on to distinguish among in-person services, professional services, and services delivered to or for a customer online. The drafter’s notes to the MTC model regulation state that changes from UDITPA “do not require the taxpayer to determine where the service or intangible property or the benefit of the service or intangible property is received, but rather look to the location of delivery, for

targets viewers throughout the Rocky Mountains delivering its service? Is it in California, or to the ads viewers, including those in Colorado? For multistate service providers such as attorneys, accountants, architects, engineers, and other consultants, determining the location of the delivered services will often remain uncertain.

tion cannot be made, the receipt must be excluded from the receipts factor.22 No guidance is provided in the statute as to what sources of information might be used in arriving at a reasonable approximation, so taxpayers should plan accordingly and document, document, document whatever methodology is adopted.

Like the old law, the new law sources sales, rentals, and leases of real property to the state in which the property is located; so too with leases and rentals of tangible personal property.18

As with the old law, taxpayers may annually elect to treat all income as apportionable, but once made, the election is irrevocable for that year.23 The new law also carries over the old law’s provisions with respect to “allocable,” now nonapportionable, income and the options regarding alternative apportionment. The burden of proof in alternative apportionment lies with whomever, taxpayer or Director, is petitioning for the change.

However, the Director can shift the burden to the taxpayer if it can be shown that in “any two of the prior five tax years,” the taxpayer “used an allocation and apportionment method at variance with its methods in the other years.24 If the Director does successfully argue for alternative apportionment, the taxpayer cannot be subject to any penalties for relying on the statutory apportionment rules.25

Sales of intangible property are sourced to Colorado in one of two ways. First, an intangible sale is sourced to Colorado if the right or license grants the holder the right to conduct its business activities or use it in a “specific geographic area” in Colorado. Second, an intangible sale is sourced

The new Colorado law changes the sourcing of services from “services rendered in Colorado” to “service delivered to a location in Colorado.” services, and the location of use, for intangibles”17 (emphasis in the original).

While helpful, the drafter’s notes still leave the delivery location by market uncertain.

For example, is repair work performed on out-of-state aircraft in Colorado by an aircraft dealership serving the Rocky Mountain West sourced to Colorado where the work is performed, or to the state in which the aircraft is owned and hangered? Where is a Colorado advertising firm providing a television spot for a California company that

to Colorado if its receipts are contingent on its “productivity, use, or disposition” in Colorado. However, intangible property that is “rented, leased, or licensed” is sourced to Colorado to the extent that it is marketed in Colorado to users in Colorado.19 Any other receipts of intangible property are excluded from the receipts factor.20 The new law also provides that if a taxpayer is unable to specifically identify the state in which a transaction should be sourced, the taxpayer may make a reasonable approximation.21 And, if a reasonable approxima-

HB 18-1185 provides much needed relief to Colorado’s multistate service providers.

Unfortunately, as is all too often the case in tax law, it does so at the result of added complexity.

Bruce M. Nelson, CPA, is Editor-in-Chief of Wolters Kluwer CCH’s Journal of State Taxation and occasional presenter for the AICPA and the Colorado Society of CPAs. Contact him at 970- 420-3360 or bruce.nelson@brucenelsoncpa.com.

This article is a revised and updated version of Nelson’s column published in Tax Analysts’ State Tax Notes on July 9, 2018. It is printed here with permission.

The states that have adopted market-based sourcing include: California, Colorado, Connecticut, Georgia, Hawaii, Illinois, Indiana, Iowa, Kentucky, Louisiana, Maine, Maryland, Massachusetts, Michigan, Minnesota, Missouri (2020), Montana, Nebraska, Nevada, (Commerce Tax), New Hampshire (2021), New Jersey, New Mexico, New York, North Carolina, Ohio (CAT), Oklahoma, Oregon, Pennsylvania, Rhode Island, Tennessee, Utah, Vermont, Washington (B&O tax), Wisconsin, and the District of Columbia.

14

Compare C.R.S. §39-22-303.5(4)(c)(I) to C.R.S. §39-22-303.6(a).

15

MTC Model Reg. IV.17.(d)(1).

16

MTC Model regulations, drafter’s note at p. 12.

17

C.R.S. §39-22-303.6(6)(b) and (c).

18

C.R.S. §39-22-303.6(6)(d)

19

C.R.S. §39-22-303.6(6)(d)(III).

20

C.R.S. §39-22-303.6(6)(e).

21

C.R.S. §39-22-303.6(6)(f).

22

C.R.S. §39-22-303.6(8).

23

24

C.R.S. §39-22-303.6(9)(c).

C.R.S. §39-22-303.6(9)(d). This provision was clearly a reaction in part to the Mississippi Department of Revenue’s shabby treatment of Equifax. See Equifax Inc. v. Miss. Dep’t of Revenue, 125 So.3d 36 (Miss. 2013), cert. denied, 134 S. Ct. 2872 (2014). See also Vodafone Americas Holding, Inc. v. Roberts, 486 S.W.3d 496 (Tenn. 2016).

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NewsAccount | January/February 2020

PERSPECTIVES

America’s Student Loan Debt Crisis

BY NATALIE ROONEY

What would you guess is the biggest asset on the U.S. government’s balance sheet? Land?

Equipment? Cash? It’s actually student loan receivables which total $1.47 trillion. What does that number mean for the debt holders, the U.S., and Colorado?

THE MACRO VIEW As many as 44.7 million Americans have racked up a total of $1.47 trillion in student debt – more than credit cards or auto loans – and now they’re having trouble paying it off. More than one-third of all severely delinquent debt in the country is the result of the ever-growing number of delinquent student loans, which topped $89 billion by the second quarter of 2019, compared to $38 billion in the same period of 2013, according to the Federal Reserve Bank of New York.

And all of those derelict student loans are just sitting out there as the biggest receivable on the U.S. government’s financial statements as of Sept. 30, 2018, the most recent U.S. government audit.

“Thirty-seven percent of the federal government’s assets are student loan receivables,” says Greg Anton, CPA, chairman and CEO of ACM LLP and chairman of the National CPA Financial Literacy Commission. “It’s shocking and kind of twisted when you think about it.”

Anton points out the $1.47 trillion isn’t even the entire student loan debt amount because it encompasses only public student loans.

There’s another $200 billion in private student loan debt floating around out there.

“It’s just a massive amount,” Anton says.

“So, when you hear presidential candidates talking about forgiving student loans, doing so would increase the nation’s budget deficit significantly.”

THE MICRO VIEW According to Credit.com, the average student loan debt total per person is $31,172.

Those who do pay off their debts take 10 to 30 years to do so.

The average monthly student loan payment is $393, and many borrowers struggle with that monthly amount.

The national default rate, a U.S. Department of Education measurement of the number of borrowers who start repayment, then default in the next two to three years, was 10.8

CURRENT OUTSTANDING STUDENT LOAN DEBT: percent among those who started repayment in 2015, the most recent data available.

Borrowers with low balances are the most likely to default.

Most Americans with student debt are young. But adults 60 and older — who either struggled to pay off their own loans or took on debt for their children or grandchildren — are the fastest-growing age cohort among student loan borrowers.

In 2019, student loan debt, including principal amounts and accrued interest, was highest for those age 35 to 49. With the exception of borrowers under the age of 24, for whom outstanding debt dropped in 2019, all other age groups experienced steady increases in debt amount.

• 24 and younger: $120.1 billion • 25 to 34: $494.2 billion • 35–49: $548.4 billion • 50–61: $224.1 billion • 62 and older: $67.8 billion

In Colorado, about 734,000 borrowers are paying off student loans and face a total of $26 billion in education-related debt, according to a study of government data released by the national group Student Borrower Protection Center and the local New Era Colorado Foundation.

The study also shows that more than one out of every four middle-aged Coloradans owe CONTINUED ON PAGE 16

January/February 2020 | www.cocpa.org

15

PERSPECTIVES CONTINUED FROM PAGE 15 student debt. Nearly half of all young adults in Colorado owe on a student loan.

More than 130,000 rural Coloradans owe student loan debt. Among those rural borrowers, more than 20,000 are severely delinquent.

EDUCATING THE CONSUMER The University of Denver’s (DU) Associate Vice Chancellor of Enrollment and Director of Financial Aid, John Gudvangen, says the business of college affordability, financial aid, grants, scholarships, loans, and debt is overly complex and can be quite different based on the school. “A school can say it’s going to meet your need, but what does that mean from the standpoint of student debt?” he asks. “Or a school can give a financial aid award showing how it’s affordable, but actually $20,000 of parent debt is involved because it’s a federal loan program for parents. That’s not really financial aid. That’s just debt. I don’t think it should be presented that way. Schools should say that parent loans are available and not call it an award.”

Data shows the average undergraduate federal student loan debt for DU grads in 2018 was $22,500. Combined with private

loans, the total was approximately $28,000.

“That’s a sustainable amount for a graduate with a degree and a job to make payments, not to be in a crushing debt situation, and to be able to make decisions about marriage, a home, or a car,” Gudvangen says.

He also says data shows that much of the student debt crisis doesn’t actually apply to the undergraduate level, but rather to graduate education.

DU’s Office of Financial Aid conducts extensive outreach efforts, visiting 40 – 50 high schools a year to educate parents and students about financial aid. “It’s not because we want to tell them about DU,” Gudvangen says. Rather, DU encourages families to look at grants, scholarships, loans, and student employment that may be available for their student to attend any given school. “It’s an important part of our profession,” he says.

“We explain to parents that if their student ends up with debt, it’s an investment for a lifetime. A modest amount of debt is OK, but they do need to consider if a school is affordable for the family.”

At DU, 45 percent of undergraduate students receive need-based aid, and another 40

percent receive merit aid, with some overlap between the two. “We assess and determine what they can pay, what the difference is, and then we meet a percentage of that,” Gudvangen explains.

On average, students today are paying over twice what their parents paid to attend college. In 1971, when the College Board began collecting data on higher education costs, the average cost for tuition, fees, and room and board for a four-year public university was $8,730 in today’s currency.

The most recent data, from the 2018–2019 school year, shows the average cost at $21,370 – a 145 percent increase. Median household income has only increased 28 percent in the same time period.

The struggle for affordability is ongoing, Gudvangen says, explaining that the college cost issue has impacted schools quite heavily. “We’re trying to keep the classrooms filled and maintain a vibrant institution while managing families’ increased costs by discounting. It’s a struggle.”

Twenty years ago, two-thirds of public-school higher education would have been covered by state spending. Now, that same

The AICPA Benevolent Fund was established in 1933 by AICPA members to assist other members through temporary periods of financial difficulty.

When our members face difficult circumstances that are beyond their financial means, the Fund is here to help. Financial assistance grants are provided on a caseby-case basis, depending on financial need and circumstances surrounding that need. Some examples of the types of assistance available are temporary living expenses and temporary medical expenses. Onetime emergency grants also are available to help with natural disasters and other unexpected events.

If you need assistance, simply visit the Benevolent Fund web page on aicpa.org and follow the instructions to apply. You may also contact the Benevolent Fund administrator via phone at 866.527.2228 or email at Benevolent_Fund@aicpa.org..

If you wish to make a charitable gift to the Benevolent Fund, visit our web page at aicpa.org/benevolentfund The Benevolent Fund is a 501(c)(3) organization.

16

NewsAccount | January/February 2020

two-thirds is covered by families themselves.

That inversion occurred largely as a result of the 2008 economic downturn. “It’s easier to cut revenue for a government expenditure that has its own revenue source, like universities, versus K through twelve education, prisons, and highways,” Gudvangen explains.

Sanders says he will fund his plan through a new tax on financial transactions, which he says could raise more than $2 trillion over the next ten years. The tax plan would include a 0.5 percent fee on all stock trades, a 0.1 percent fee on all bond trades, and a 0.005 percent fee on all derivatives trades.

While more funding is starting to flow to higher ed again, families still see the sticker price and think it’s not possible.

Similarly, Sen. Elizabeth Warren, also a 2020 presidential candidate, introduced legislation earlier this year to cancel $50,000 in student loan debt for every person with household income under $100,000 and cancel substantial debt for every person with household income between $100,000 and $250,000.

Like Sanders, Warren would fund student loan forgiveness through new taxes. Both candidates would not assess income tax on any student loan debt that is cancelled.

“Our role in financial aid is to focus less on sticker price and more on net cost,” Gudvangen says. He encourages families and

“Rather than asking how much a school costs, ask how affordable it is for you.” students to know what grants, loans, and scholarships are available. “Don’t eliminate a school before you go through the financial aid process and do your research. You may be eliminating schools that are a great fit and are more affordable than you think. Rather than asking how much a school costs, ask how affordable it is for you.”

Anton points out that many students take out student loans and never graduate, so they never reach the earning potential to pay off their loans. “Some individuals choose a very expensive college, and there isn’t an ROI based on their degree,” he says. “They’re not employable after graduation, but they have significant debt.”

Gudvangen says DU is continually working to educate families and students. “We want to make sure we don’t make our system so complex that families can’t navigate it. That’s the hard part of the financial aid world.”

THE DEBT DILEMMA DISCUSSIONS Presidential candidate Sen. Bernie Sanders has said he wants to forgive all $1.6 trillion of outstanding student loans, federal and private. Sanders’s student loan forgiveness plan has no eligibility requirements; all 45 million student loan borrowers would be eligible for student loan discharge.

A Moody’s assessment of the economic impact found that student loan debt cancellation would result in: • A modest increase in household consumption and investment; • An improvement in small business and household formation; and • Increased home ownership in the longterm.

Moody’s also found the economic impact would be relatively minimal, similar to a “tax-cut-like stimulus to economic activity” in the near-term. The report found the potential for: • Increased “moral hazard”: For example, future student borrowers could be incentivized to borrow more student loan debt knowing that their debt will be forgiven.

• More student loan debt: Future student loan borrowers may borrow more student loan debt, but their student loan debt may not be forgiven, leaving them with potentially higher loan amounts.

• Lost Revenue: Since about 90 percent of student loan debt is in federal student loans, the federal government would lose about $85 billion, or 0.4 percent of GDP, in forfeited student loan principal, interest, and fees.

• Muted Impact Due to Borrower Base: The majority of beneficiaries of universal student loan cancellation are high income earners, which could limit the economic benefit.

“Basically, if this asset goes away, that cash wouldn’t be collected in the future, so the U.S. won’t have money to pay its future bills,”

Anton says. “The government will have to spend less or increase revenue to cover those uncollected receivables. It creates a huge burden on the rest of the U.S. citizens because they’re picking up the bill. It isn’t fair to force taxpayers to pay for the previous education that individuals received.”

FINDING FUNDING ALTERNATIVES Finding a solution to the student debt balance is many-fold and includes educating consumers, as DU is doing through outreach, and as the AICPA is working to do through its 360 Degrees of Financial Literacy website, 360financialliteracy.org. The site offers tools, such as a savings calculator, for estimating college expenses. “It’s a great resource for CPAs’ clients, as well as CPAs’ own family members,” Anton says.

Other ideas to manage the cost of higher education include: • Scholarships. Anton says many scholarships go unused, including those from the AICPA. Visit thiswaytocpa.org and click on “Money for School” for more information about financial aid. Also, for those choosing to major in accounting, check out the scholarships available through the Educational Foundation of the COCPA at students.cocpa.org.

• Income sharing agreements. Purdue University graduates make payments for ten years after graduation. The percentage graduates pay depends on their major and the amount of funding they receive. The less they make, the less they are required to pay. And if they do not work, they do not pay anything.

• Community college. Many community colleges offer local students the opportunity to either earn college credits while they’re in high school or attend the first two years at low or no cost, drastically reducing the cost of a degree.

“At the end of the day, it’s really up to the student and the family to understand the financial implications of loans, a college education, and what’s financially viable for them,” Gudvangen says. “A college education with the right degree is the best investment anyone can ever make. The future earnings power of a college-degreed person versus someone with a high school education is massive. But it has to be the right education and the right knowledge at the right cost for the person - and within their financial means.”

January/February 2020 | www.cocpa.org

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PLANNING STRATEGIES

What’s Driving M&A Today?

BY NATALIE ROONEY

For more than a decade, mergers and acquisitions (M&A) have been booming, and the accounting profession has been no exception. But 2019 saw a subtle shift in the M&A landscape. What’s happening now?

BIGGER DEALS IN 2019 After 2018’s record number of M&As, the actual number of mergers fell during 2019.

However, the deals themselves were bigger, so the dollar value remained steady, says Mark Koziel, CPA, CGMA, the AICPA’s Executive Vice President – Firm Services.

Activity in 2018 saw accounting firms acquiring non-CPA firms such as cyber security, HR, advisory, IT, forensic, and business management consulting. IT and business management consulting were the top types of firms acquired, making up approximately one-third of M&A activity. Over the past few years, one-third of accounting firm mergers have been with non-CPA firms, Koziel says, but he adds that there has also been a slowdown in non-CPA firm acquisitions.

Why the drop in the number of mergers this past year? Koziel says accounting firms indicated they are talking to much larger firms and those deals take longer to complete.

Overall, merger activity is still high because firms are nervous about being prepared for the future, especially around the technology and skill sets needed to adapt to an 18

ever-changing market. “They’re uneasy about being able to keep up,” Koziel says.

THE DRIVERS: SUCCESSION AND EXPANSION Typically, mergers are being driven by succession or expansion, Koziel says. “You find the succession issue if the founding partners still hold a majority of the firm, and they haven’t transitioned well enough for proper succession. Firms that have been through a full cycle of transitioning partners today are finding succession easier.”

The smallest firms, however, are having to make a personal choice: Turn out the lights at the end of the day (which is still a succession plan, Koziel notes), or stay in the game.

“Firm owners can stay in the game and hang up their pencil at the end of the day or try to remain a viable M&A target by staying up to date with technology and systems,” Koziel says. “Becoming a prime merger candidate is really about doing all the things you should do to avoid having to merge with another firm. It’s having your technology up to date, your staff properly trained, and being aware of new trends and responding to them.”

NewsAccount | January/February 2020

Regardless of which path a firm chooses, Koziel stresses that it’s absolutely necessary to have plans in place in case something prevents you from continuing to work with your clients.

On the expansion side of M&A, Koziel says merger firms are looking for something.

“It’s important to understand why someone would want to merge you in,” he says.

Top reasons for an M&A include: • Adding a new service or specialty niche that a particular firm may have • Increasing presence in a particular geographic location • Acquiring talent • Smoothing out the partner category: too many partners in the same age range so one firm merges in a younger firm.

Koziel says this isn’t as common, but it does happen.

The AICPA Private Company Practice Section offers multiple resources including tools for planning, merging, and succession. Learn more at aicpa.org/interestareas/privatecompaniespracticesection.html.

Planning an M&A Transaction: Seven Buy-side Pitfalls to Avoid

BY NATALIE ROONEY

T

he merger and acquisition process can be tricky to navigate effectively and efficiently. Jack Allgood, CPA-Retired, CGMA, Managing Member, Allgood LLC, Englewood, with over 40 years of experience in public accounting and industry, has participated as an advisor in many M&A transactions. He has seen transactions succeed as planned and some struggle or fall apart for one or a combination of reasons.

Allgood has identified seven buy-side pitfalls to avoid when planning and conducting an M&A transaction - issues that could cost the entities and persons involved thousands or even millions of dollars.

“I’ve cautioned and coached management on how important every step is in the transaction process,” Allgood says. “There were times we’d be brought into a merger or other type of acquisition that was already in process, and we had a hard time getting some of the items altered, reversed, or correctly implemented if the parties had already executed a letter of intent (LOI) and hadn’t done some necessary homework that would have pointed the management and ownership teams in a different direction or require additional steps take place.” Allgood says. “Changing mindsets after parties have established preliminary thoughts or arrangements can be challenging at best, even in the case of an otherwise non-binding LOI.” Allgood’s list of pitfalls isn’t specific to a firm or company type. Rather, it’s geared toward what he’s seen in the M&A world. “They’re observations of things that can lead to a lot of mistakes and regret,” he says.

1.

Management not understanding and appreciating the importance of the process and sequence of events

Allgood says depending on the nature of the transaction and the related complexity, management

and owners sometimes underestimate the steps and sequence of events that need to happen. He recommends an early planning meeting with management and key owners to coordinate legal and separate outside tax counsel to determine who will do what, when, and in what sequence of events. “This upfront planning meeting gets everyone on the same page,” Allgood says.

“These meetings can help ensure steps aren’t being duplicated or omitted. When income tax laws and regulations are involved, the sequence of events is critical to achieving desired results.”

2. Entering into a transaction with the wrong, or less than ideal, target This is often a major pitfall in the pre-LOI analysis stage, Allgood cautions. Before an acquirer goes too far, important points must be addressed: • Why is the target for sale? Has the company been up for sale previously? “If so, find out what went wrong,” Allgood suggests. “Maybe the previous acquirer found some skeletons in the closet.” This is a chance to have an open discussion up front to address any downside potential.

• Consider the complexity and legal structure. This is when the tax/legal counsel meeting is critically important. If there is to be any pre-transaction structuring or restructuring of the target or acquirer’s entity, now is the time to do it to accomplish desired tax and legal goals.

• Perform due diligence on the officers and directors now, not later when an LOI has been signed and when outside professional fees may have already been incurred. “For management, psychologically it’s harder to undue a transaction when professional fees have been incurred,” Allgood says, “but now is the time to find out if there’s a director or officer with a problem in their background.”

• Does the target have a business plan?

Has it been revised? Are operations performing in accordance with the plan?

• Does the market justify an expansion or acquisition? Does the target have a

respectable market share? What is the ease of entry and exit for the target’s market? “The ease of entry and exit can encourage competition in the industry if people can easily start their own companies and compete,” Allgood cautions.

3. Entering into an LOI without appropriate management planning and advice from independent experts Allgood has observed that sometimes management takes it upon themselves to enter into an LOI with a potential target/ candidate before they’ve had appropriate planning advice from tax and legal experts.

“Sometimes there are inclusions in an LOI that the experts wish weren’t there,” he says.

“Conversely, there are important items that should have been included in the LOI but aren’t and can be a mess.” He recommends: • Don’t overlook planning for the “buyer’s” transaction costs and plan to see if the Rev. Proc. 2011-29 Safe Harbor can be beneficial. Rev. Proc. 2011-29 provides for safe harbor election where the purchaser (and the seller) may both be able to take advantage of designated “success-based” fees and claim a deduction for 70% of such transaction costs, Allgood explains.

“Oftentimes, this is an important ingredient for the target that should have been included in the LOI but was forgotten, not known, or overlooked.” He says technically the safe harbor election isn’t available to a target entity in an Internal Revenue Code (IRC) Section (Sec.) 338(h) (10) transaction (see Chief Counsel Advice 201624021 June 2016). The important takeaway here: Management and owners shouldn’t enter into an LOI without appropriate advice because they could be overlooking some important planning opportunities such as the fact that the seller’s (target’s) transaction costs may or may not be deductible. As an example, in the case of an S corporation target, success-based transaction costs could be leveraged by avoiding the IRC Sec. 338(h) (10) Election and instead by structuring a qualifying F-type reorganization prior CONTINUED ON PAGE 20

January/February 2020 | www.cocpa.org

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PLANNING STRATEGIES CONTINUED FROM PAGE 19 to the acquisition to obtain the essential equivalent of an asset-based acquisition with partnership entity formation.

ble assets foreign-based? “For tax years beginning after December 31, 2017, the income tax due diligence process should include consideration of whether global intangible low-taxed income (“GILTI”) has been included, the related 10 percent tax correctly applied, and whether the IRC Sec. 250 eligible deductions for foreign-derived intangible income (“FDII”) and GILTI have been included in the corporate reporting.”

• Consider whether pre-transaction entity structuring (choice of entity, asset v. equity, etc.) is beneficial and if any of the target owners is to have a “rollover” equity interest in the successor arrangement.

• Is an income tax “gross-up” required by the seller(s) to compensate for ordinary income tax rates tied to the sale of the business?

• From an operations standpoint, there should be a focus on the responsibility chart, key employees and their compensation agreements, customer relationships, employee versus independent contractor exposure, quality control elements, etc.

4. Not performing a complete due diligence of the target “I’ve been asked on a number of transactions to advise the acquirer and to conduct due diligence from an income tax perspective,” says Allgood. “We’ve found that without the acquirer seeking independent tax advice, many appropriate income tax due diligence points are overlooked – either because it’s sometimes not natural for legal counsel who is engaged to conduct legal due diligence and draft an acquisition agreement to think about all of the appropriate tax and detailed operational due diligence exposures, or management undertakes their own due diligence procedures.”

• Have an employee benefit plan specialist review Form 5500 and applicable financial statement reporting to identify any qualified plan reporting concerns.

• Work with tax experts to identify any legal and liability exposures that come to their attention during the tax due diligence.

• Review all income and sales and use tax filings for all open years.

5. Not analyzing (or an inadequate study of) the quality of earnings (Q of E) Allgood says it’s important for accounting teams to focus on the target’s reporting reliability, quality, and transparency. He suggests asking:

The existence and location of intangible assets has become important since the enactment of the 2017 Tax Cuts and Jobs Act (TCJA), Allgood says. Are the intangi-

20

6. Incorrect assumptions and miscalculations related to the income tax ramifications of the transaction “This one can be a killer,” Allgood says.

“Whether it’s on the buy side or the seller side, incorrect assumptions can be devastating.”

• “While in the planning process, make sure all assumptions are appropriate and that preliminary computations are

“Law firms want to incorporate into the purchase agreement things that come to the experts’ attention during tax and financial statement due diligence.”

Allgood recommends in addition to other due diligence procedures the following be considered:

• International reporting is very important for a target with international activity.

Determine the applicability of Forms 5471, 5472, 8858 (disregarded foreign entities), 8865 (foreign partnerships), 8993 (Sec. 250 deductions for FDII and GILTI), and FinCENs for penalty exposures. “Be sure to review these forms,” Allgood cautions. “The penalties for inaccurate, incomplete, or failure to submit a required international reporting form can be significant, and usually the acquirer is tagged by the IRS with inheriting the exposure for filing past forms and with related penalties.” He adds that the acquirer should consider setting aside at closing appropriate escrow funds if the buyer should need to catch up with international reporting.

Encountering problems in one or more of these areas can be awkward and difficult to overcome. “Law firms want to incorporate into the purchase agreement things that come to the experts’ attention during tax and financial statement due diligence,” Allgood says.

NewsAccount | January/February 2020

• For internal controls, is there an adequate and appropriate separation of duties?

• Are the judgments and estimates reasonable and appropriate?

• If the target is public, is management’s discussion and analysis (MD&A) clear and complete?

• Don’t overlook essential adjustments that impact earnings and balance sheet accounts.

• What is the reputation and quality of the target’s CPA firm?

• Does the target have audited financial statements or something less?

correct and all-inclusive. Don’t wait until the end,” Allgood says.

• Confirm that the step-transactions are in the proper sequence to achieve the intended tax benefits.

• Make sure the seller and the acquirer coordinate methods of accounting. This is particularly true if an S corporation is the target. The S corporation election terminates the day of the transaction, resulting in an accounting and tax cut-off effective the day preceding the transaction. The final S corporation return is through and includes the last day preceding the transaction date.

7. Not planning appropriately and completely for entity, operational, and management integration.

“Even some of the best acquisition transactions ultimately lack efficient and effective plans to integrate,” Allgood says.

And that’s a big mistake. “The integration isn’t just for the entities combining financially, he says. “It’s also for operational and management functions.”

• Don’t misjudge the target’s culture.

Both management teams should have a clear perspective of each other and the cultures they’ve created. Jumping to con-

clusions after the transaction can lead to some potentially harmful decisions, for example, letting someone go or changing something that was going to become successful. “Rash decisions can be harmful to an otherwise successful transaction and the integration,” Allgood notes.

• What is the realistic timeline for necessary integration? Get input from both teams. The timeline should be thought out and in place before the transaction occurs. What is reasonable? “Timelines that are either too short or too long can be harmful to the combined entities,” Allgood says.

• Have you planned a timely and economical exit to undo the transaction if unsuccessful? “I get some pushback talking about this subject,” Allgood says.

“People ask, ‘Isn’t this setting up for failure?’ Allgood thinks it can get ugly if you haven’t thought about how to undo the transaction if necessary. What if this doesn’t work - if cultures or operations can’t be acceptably integrated? “This is true for both sides of the transaction.”

Allgood says. He stresses that the goal should be each organization will be able to go its separate way – given adequate monetary consideration. In essence, plan for what steps may be necessary for the parties to undo the transaction and be made as whole as possible while reducing damage upon exit.

“I’ve run into situations that didn’t have exit agreements,” Allgood says. “It can be disastrous and a big legal battle. It can be worse than a marriage breaking up.”

Allgood hopes that by considering these seven pitfalls in advance, serious problems can be avoided by the parties. “It’s also an opportunity, like a checklist, for tax experts to have in mind when participating as an advisor in an M&A transaction,” he says.

Readers are advised to seek tax counsel or to perform their own research without relying on these materials for specific tax advice.

The information contained herein is gen-

eral in nature and is not intended, and should not be construed, as legal, accounting, or tax advice.

Neither Allgood LLC nor Jack Allgood is familiar with the reader’s particular facts and circumstances, and the reader is cautioned that this material may not be applicable to, or suitable for, the reader’s specific circumstances or needs and may require consideration of legal, non-tax, and other tax factors if any action is to be contemplated. This material is intended as cautionary and to hopefully help the reader preclude making some costly mistakes that might have otherwise occurred without special attention to the referenced items.

All rights reserved: Allgood LLC - John W. (Jack) Allgood, Managing Member Contact Jack Allgood, CPA-Retired, CGMA, Managing Member, Allgood LLC, Denver, at j.allgood@outlook.com.

THE MOST FUN YOU CAN HAVE AT A TAX SEMINAR

January 15, 2020 DENVER + WEBCAST | CPE: 8

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January/February 2020 | www.cocpa.org

21

TECHNOLOGY

Understanding Artificial Intelligence, Machine Learning, and Deep Learning

BY DANIEL BURRUS CEO, BURRUS RESEARCH

Technological advancements and change are running rampant in today’s business world, disrupting not only large organizations but also the smallest startups left and right. Whether you run a Fortune 500 company or a mom-and-pop shop, you and your organization are not immune to digital disruption.

T

he inquiry I always present is as follows: Will you be the disruptor or the disrupted? There is no middle ground anymore! In order to be the former of the two, you need to pay close attention to the Hard Trends that are shaping the future of your industry, your business, and the world outside of your industry, and identify the related opportunities you can use to innovate, grow rapidly, and become the new disruptor. In addition, you must use those Hard Trends to pre-solve any problems your organization or your customers might have before they occur, thus putting you far ahead of agile organizations that are focused on reacting quickly after a disruption occurs or after a problem occurs.

THE POWER OF SHARED UNDERSTANDINGS AND DEFINITIONS I’m seeing a noticeable issue in the world today: having a shared definition and understanding of the words we use. While several companies are on course to use Artificial Intelligence (AI), Machine Learning (ML), and even Deep Learning (DL) to become a positive disruptor in their industry, back at the starting line, many hardly understand the fundamental differences among these powerful technologies. How can they be successful, much less disruptive, when they themselves do not have a handle on what AI, Machine Learning, or Deep Learning can do for their companies, let alone what each is? They can’t!

Recently, a technology and software company known as Sage conducted surveys pertaining to AI and individuals’ understanding of the ever-growing technology. Surprisingly and unfortunately, 43% of respondents in a U.S. survey and 47% of respondents in a UK survey claimed they had no idea what AI is about, or any of its capabilities or applications in business, let alone their own.

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NewsAccount | January/February 2020

Now, this is not solely an issue of under-education in the worlds of those individuals. General observations in today’s market reveal that many vendors rush a myriad of AI solutions to market before the ultimate decision-makers and buyers are up to speed on what they need or what the technology could actually do for their companies. This leads to dramatic confusion within organizations and in the minds of observers from the outside and internal employees.

Add to the mix the subcategories of AI such as Machine Learning and Deep Learning, and this situation gets even more convoluted. When CIOs and other technology leaders are asked by the CEO about the specifics of what AI can accomplish or, better yet, how AI differs from its counterparts mentioned above, they often draw a blank.

As I advise the leadership of many leading companies, governments, and institutions around the world, I have found that we all have different definitions of and understandings about AI, Machine Learning, Deep Learning, and other related topics. For example, several months ago, I was asked to participate in a high-level strategy meeting regarding AI in Washington, DC. In the meeting were AI experts from the Department of Defense, DARPA, and several major defense contractors.

Before the meeting began, I could hear several people talking about what they were doing with Deep Learning, and another group talking about the results they were getting from Machine Learning.

I started the meeting by saying that everyone at the meeting was from different large organizations focusing on applying different elements of AI, and before the meeting began, all were excited about the future possibilities as they were sharing their interest in the various topics.

But do we know what everyone else is talking about? So, I asked one

of the experts to give their definition of Machine Learning. Then I asked another expert for their definition. By the third person, it was clear we all had different definitions for the same thing – or were we sure we were even talking about the same thing?

experience over time. Chatbots like Amazon’s Alexa, Apple’s Siri, or any of the others from companies like Google and Microsoft all get better every year thanks to all of the use we give them and the Machine Learning that takes place in the background.

I asked for the definition of Deep Learning from several other individuals and once again got different definitions. I then asked how they would define Artificial Intelligence. Once again, many different definitions emerged.

Deep Learning is a subset of machine learning that uses advanced algorithms to enable an AI system to train itself to perform tasks by exposing multilayered neural networks to vast amounts of data, then using what has been learned to recognize new patterns contained in the data. Learning can be Human Supervised Learning, Unsupervised Learning, and/or Reinforcement Learning - as Google used with DeepMind to learn how to beat humans at the complex game Go. Reinforcement learning will drive some of the biggest breakthroughs.

My point is, if we are sharing how we are applying a technology, but we have different definitions and therefore understandings for what it actually is that we are talking about, we are not truly communicating

“If we are sharing how we are applying a technology, but we have different definitions and therefore understandings for what it actually is that we are talking about, we are not truly communicating with each other, much less collaborating with each other. with each other, much less collaborating with each other. In addition, it’s likely we will create an increasing number of problems going forward. As you might guess, we spent the next part of the meeting crafting definitions that everyone agreed on.

WHAT EXACTLY IS AI? ∙ MACHINE LEARNING? ∙ DEEP LEARNING? Artificial Intelligence applies to computing systems designed to perform tasks usually reserved for human intelligence using logic, if-then rules, and decision trees to recognize patterns from vast amounts of data, provide insights, predict outcomes, and make complex decisions. AI can be applied to pattern recognition, object classification, language translation, data translation, logistical modeling, and predictive modeling, to name a few. It’s important to understand that all AI relies on vast amounts of quality data and advanced analytics technology. It’s critical to understand that the quality of the data used will determine the reliability of the AI output.

Autonomous Computing uses advanced AI tools such as deep learning to enable systems to be self-governing and capable of acting according to situational data without human command. AI autonomy includes perception, high-speed analytics, machine-to-machine communications, and movement. For example, autonomous vehicles use all of these in real time to successfully pilot a vehicle without a human driver.

Augmented Thinking: Over the next five years and beyond, AI will become increasingly embedded at the chip level into objects, processes, products, and services, and humans will augment their personal problem-solving and decision-making abilities with the insights AI provides to get to a better answer faster.

It is critical for leaders and employees alike to develop a firm understanding of the fundamental differences among AI, Machine Learning, and Deep Learning. The increasing levels of business insights that can be gained from a shared understanding of the different elements of AI become more evident when understanding exactly how these ever-growing, disruptive technologies can be harnessed by your organization and, by applying them strategically, set you on a path to being a positive disruptor as opposed to becoming the disrupted.

Of course, it will always be imperative for organizations and leaders to go beyond reacting quickly and becoming anticipatory by paying attention to the Hard Trends that will happen and work to have solutions to problems before they occur. Understanding AI technologies and how they build upon one another is a great start and will ultimately help you and your organization move swiftly into the future.

Daniel Burrus is considered one of the World’s Leading Technology Futurists on Global Trends and Innovation and is the founder and CEO of Burrus Research, a research and consulting firm that monitors global advancements in technology-driven trends to help clients understand how technological, social, and business forces are converging to create enormous untapped opportunities. He is the author of seven books including the newest, The Anticipatory Organization: Turn Disruption and Change Into Opportunity and Advantage. Burrus also is the creator of The Anticipatory Organization™ Learning System– named a Top 10 Product of 2016. Contact Rebecca Campbell, rebecca@cocpa.org, for information on the program. Reprinted with permission.

Machine Learning is a subset of AI that utilizes advanced statistical techniques to enable computing systems to improve at tasks with January/February 2020 | www.cocpa.org

23

PLANNING STRATEGIES

Financially Fit Aging: Diminished Capacity and Your Clients

BY AMY KING, CPA, CGMA

This is the fifth article in our series about helping your clients – and perhaps you and your family – prepare for the many aspects of aging beyond financial planning.

Y

ou’ve probably heard many of these statistics:

• By the year 2020, nearly one in every six Americans will be 65 or older. (U.S. Census Bureau)

• A man who is 65 today can expect to live 84.3 years. A woman who is 65 today can expect to live 86.7 years. One out of four 65-yearolds will live to be 90. One out of ten will live past 95. (Social Security Administration) • 50 million people suffer from dementia with 10 million added each year. (World Health Organization) • The prevalence of dementia increases dramatically with age.

• By 2025, the number of people age 65 and older with Alzheimer’s disease is expected to reach 7.1 million people, a 27 percent increase from the 5.6 million age 65 and older in 2019.

(Alzheimer’s Association) So why is it important to see all these statistics together? Because the likelihood that you will deal with a client impacted by some sort of diminished capacity increases every day. As trusted professionals, working with clients who are experiencing these changes, we should

The likelihood that you will deal with a client impacted by some sort of diminished capacity increases every day. know how to respond to these situations. We have the opportunity to develop safeguards that will help protect clients’ rights and interests, and address the risk we and our firms face when servicing these clients.

Competence, capacity, cognitive impairment, dementia, Alzheimer’s, diminished capacity, financial capacity. So many terms. What is the difference?

Competence – This is a legal term. A competent person is deemed to have full possession of faculties and no impairment on judgment.

Someone is either competent or incompetent, usually based on a physical test.

Capacity: This is the ability to make a specific decision in a specific circumstance. It involves understanding and enables an individual to 24

NewsAccount | January/February 2020

make an informed decision. It is a concept that can be applied on a situational basis.

Diminished Capacity: Lacking in capacity – meaning that a person can’t understand information provided or isn’t able to consider all the information to make a decision.

Financial Capacity: This involves information processing related to basic skills such as counting to tasks that require more judgment and executive skills such as managing money, paying bills, or reconciling a checkbook. Research studies have shown that difficulties in this area are some of the first markers for individuals with oncoming dementia.

(Declining financial capacity in mild cognitive impairment: American Neurology) Mild Cognitive Impairment (MCI): A brain disorder whereby an individual has trouble with memory, remembering names, or the flow of a conversation but is able to function in daily living. It is different from dementia.

Dementia: A broad term for a decline in mental ability but a level of decline that has become severe enough to affect everyday living.

Alzheimer’s: A form of dementia that is one of the most common and as such gets all the attention. Most changes are permanent and get progressively worse although there are forms that can improve when treated.

Defining all these terms doesn’t mean you can recognize them when you see them. Some changes are considered a regular part of aging.

Normal cognitive changes occur as a person’s mental processing speed slows down. This is the speed with which we process new information, store it, and recall it. Someone can still understand all the information; it just takes a bit longer.

It also doesn’t make it easier to recognize when a person does have a sustained capacity issue, as things like hearing loss, poor nutrition, sleep deprivation, medication, or even disruptive life events such as the loss of a spouse can mimic symptoms of diminished capacity.

It really is a continuum of capacity stages and the onset of dementia.

The impacts are slow, gradual, progressive, and hard to diagnose.

The stages generally start with mild memory loss and progress to difficulty following complex multi-step tasks. Severe dementia (and Alzheimer’s) usually means not being able to conduct activities of daily living.

7 STAGES OF PROGRESSION 1. No functional deficit 2. Mild memory loss, no functional deficit 3. Mild cognitive impairment: functional deficit in demanding setting such as learning new software 4. Early dementia: difficulty with complex, multi-step tasks such as cooking a meal or balancing a checkbook 5. Moderate dementia: recalls major aspects of life such as address, phone number, some disorientation to date, season, place, trouble making choices on own such as clothing to wear 6. Moderately severe dementia: occasionally forgets spouse’s name, unaware of recent events or experiences. Needs assistance with activities of daily living 7. Severe dementia: speech limited to a few words, loss of ability to walk, sit Source: Excerpted from Reisbert, B;Ferris, S.H.; de Leon, M.J. and Crook, T (1982). The global deterioration scale for assessment of primary degenerative dementia. American Journal of Psychiatry

RED FLAGS How does this translate into something you can use in your everyday practice? Listed here are some red flags that can signal something beyond normal aging changes: • Pattern of not remembering discussions or contacting you several times and not remembering previous episodes • Frequently repeating questions and trouble understanding your responses

• Unable to follow basic directions • Difficulty performing familiar tasks or simple tasks such as signing a form • Showing disorientation (place and time) when they come into your office • Problems with abstract thinking • Changes in mood or behavior, personality – unusual or erratic, outbursts, anger, or withdrawn – anything out of the individual’s normal character • If you happen to find out they are forgetting to pay bills or other financial obligations • Difficulty in speaking or writing words • Increased disorganization – this may appear with scheduling – they forget an appointment, or when they arrive, they aren’t sure why they are there or for what purpose • Change in appearance – looking disheveled, unkempt, change in hygiene Each individual is different. Someone can carry on a conversation about family, or how things are going, but deeper underlying developments may be occurring. It helps to know how your client normally behaves or responds to determine if there has been a change.

Now that you know what to look for, what do you do about it? The next article will explore what practices and policies you can put in place to continue servicing these clients and to lay the groundwork for early intervention.

Amy King, CPA, CGMA, is a wealth advisor with RubinBrown Wealth Advisory Services Group, Denver. She is a member of the COCPA Financial Literacy Committee and counsels clients about the choices available to them as they age. Contact her at amy.king@rubinbrown.com.

• Having trouble understanding basic financial concepts, financial terms, or math concepts January/February 2020 | www.cocpa.org

25

ESTATE PLANNING

A CPA’s Guide to Death in the Internet Age

BY GREG LAFOLLETTE, CPA/CITP, CGMA

As CPAs, we are often called upon to provide guidance in estate planning and occasionally to actually implement those plans at the time of death. We all know the drill regarding bank accounts, legal title transfers, execution of the last will and testament, trust documents, etc. But are we ready to assist in dealing with “digital death” regarding internet accounts and social media? The problem is very real and growing as more and more of us maintain dozens, even hundreds, of accounts on various websites and apps.

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NewsAccount | January/February 2020

I

have given this a fair amount of thought and tried to create a plan to smooth the way for those charged with handling my “digital presence” after my demise. While I’m perfectly OK with most of my “service” types of accounts simply expiring (e.g., Best Buy, Staples, Zappos, Fandango, and even Papa Murphy’s), other accounts deserve attention after my death. Those accounts include the obvious financial ones — banking, credit card, brokerage, etc. — and many not-so-obvious ones — airline and hotel loyalty accounts, social media accounts,

Are we ready to assist in dealing with “digital death” regarding internet accounts and social media? and accounts holding “digital assets” such as music, books, movies, etc. We’ve discussed password managers before in this space so just a note to remind you of the importance of documenting not only passwords but also the usernames and the very existence of internet

accounts. Here are some things you’ll want to know regarding some of the more common accounts: Facebook: I recommend that you add a “legacy contact” to your account. This is someone who can gain control of your account and memorialize (or delete) it following your death. A legacy contact will be able to update profile pictures and post things that appear on your “memorialized” page. This person also can have your account permanently deleted if that’s what you prefer. Here’s how to set up a legacy contact: 1. Go to your account Settings > Manage Account > Your Legacy Contact.

2. Type in the name of the person you would like to make your legacy contact. He or she must be among your existing Facebook friends.

3. You can choose to send this friend a message to let him or her know of your designation, but it’s not required. The contact will receive an email explaining what it means to be a legacy contact.

4. Finally, decide whether your legacy contact will have data-archiving permission and whether you’d like your account to simply be deleted.

Instagram: Though owned by Facebook, Instagram does not use the legacy contact system but rather asks the next of kin to notify the company and provide proof of the account holder’s death.

Twitter: Twitter will not grant survivors access to your account, so without the username and password, your only alternative is to have your heirs provide proof of death and request that your account be deactivated.

Apple: What about all the movies, music, and books you’ve “purchased” through iTunes over the years? Well, you really purchased only a “license,” and, according to Apple, that license expires when you do! The terms and conditions state: “You agree that your Account is non-transferable and that any rights to your Apple ID or Content within your Account terminate upon your death.” There’s not much room for interpretation there.

Google: You can nominate an account trustee and select what will be shared with them (e.g., photos, email, calendar data, etc.). Google provides “activation” of the trustee at a preselected time between three and 18 months after your account becomes inactive. To set up your trustee, log in to your Google account and go to the Inactive Account Manager at myaccount.google.com/inactive.

Greg LaFollette, CPA/CITP, CGMA, is a strategic adviser with CPA.com, the commercial subsidiary of the American Institute of CPAs. To comment on this article or to suggest an idea for another article, contact Jeff Drew, a JofA senior editor, at Jeff.Drew@aicpa-cima.com or 919-402-4056.

© 2018 Association of International Certified Professional Accountants. All rights reserved.

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Office - 866.260.2793 Kathy Cell - 501.514.4928 Christy Cell - 501.499.4357

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kathy@accountingbizbrokers.com christy@accountingbizbrokers.com accountingbizbrokers.com

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MOVERS & SHAKERS DR. CHRISTINE NOEL, CPA Dr. Christine Noel, CPA, Assistant Professor of Accounting at Colorado Mesa University, Grand Junction, was appointed Academic Department Head for the Department of Business.

CALL FOR APPLICATIONS The Governor’s Office of Boards and Commissions is looking for qualified candidates to fill positions that statutorily require Certified Public Accountants. Boards that require a CPA including the State Board of Accountancy, the Colorado State Fair Authority Board of Commissioners, the Limited Gaming Control Commission, and the Colorado Lottery Commission, among others.

ACM LLP ACM LLP, Denver, promoted the following individuals to partner: Erin Breit, CPA, Jessica Friedly, CPA, Scott Norquist, CPA, Jason Slavsky, CPA, and Tim Stueven, CPA. Also promoted were Marc Furton, CPA, to Audit Director; Michael Malody, CPA, to Tax Director; Michelle Welch to Client Accounting Services Director; Brooke Hipp to Chief Marketing Officer; Scott Walker to Chief Technology Officer; Curtis Forney, CPA, to Audit Manager; and Jessica Wambsgans, CPA, to Audit Manager.

The Office of Boards and Commissions accepts all applications on a rolling basis, and applications are valid for two years. In the application, please note your status as a CPA in the “Memberships in Organizations and Offices Held” portion of the application.

Contact the Office of Boards and Commissions at 303-866-5232. The application can be found at colorado.gov/governor/boards-commissions-application.

MICHAEL KRAEHNKE, CPA & JOHNNIE BEJARANO, CPA The Colorado State Board of Accountancy re-elected Michael Kraehnke, CPA, chair, and elected Johnnie Bejarano, CPA, vice chair for the 2019-2020 year.

DEANNA DUELL, CPA Deanna Duell, CPA, joined BKD LLP, Denver, as the firm’s first energy industry contract compliance leader.

CLASSIFIEDS

Careers At ACM, we work hard, play hard, and greet each day with optimism. This commitment is shared by each and every member of our firm – and it’s why we’ve been consistently recognized as one of the best accounting firms to work for in Colorado and across the nation.

“ACM is a family. It’s an amazing group of people who bring their best to the table each and every day.”

- melissa k. hooley, partner-in-charge, employee benefit plan services

PRACTICES FOR SALE, PURCHASE, OR MERGER Selling your firm is complex! ACCOUNTING BIZ BROKERS can help!

We have been selling CPA firms for over 15 years, and we know how to simplify the process. We have a large database of active buyers.

We work with industry specific lenders ready to assist buyers with financing. Contact us today to receive a free market analysis or to start the sales process. Current Listings: Mesa County Gross $113k (New); Loveland Gross $175k (New); Pueblo County Gross $135k (New); Arvada Gross $156k (Sold!); Denver (Central) Gross $500k; N Denver Area Tax Practice Gross $155k; Colorado Springs CPA Firm Gross $260k; Central Mountains CPA Firm Gross $123k. Kathy Brents, CPA, CBI, at 866-260-2793 or Kathy@AccountingBizBrokers.com, or visit our website at www.AccountingBizBrokers.com.

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NewsAccount | January/February 2020

“ACM encourages each employee to take on new challenges and grow professionally – all while being able to maintain a quality family life.

-

dennis tschacher, partner

“I love working at ACM because we’re given opportunity for personal and professional growth.

You can pick your own path and your own pace.”

-

tim stueven, audit director

303.830.1120 ∙ www.acmllp.com/careers Denver ∙ Boulder ∙ Northern Colorado ∙ Laramie

TAX STUDY GROUPS

BRAND

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Boulder/Longmont Tax Study Group

COCPA’s on-demand CPE offerings are designed to bring you the CPE training you need on the schedule that works best for you. Our on-demand courses are available anywhere, any time, and cover the relevant topics that matter to you.

This informal roundtable discussion group meets at the Meadows Branch Public Library, 4800 Baseline Rd., Boulder, BYO Bag Lunch. Additional 2020 Meeting Date: Mar. 18. For additional information, contact Lynn M. Mitton, CPA, MT, MPA, 303-499-7445, or email lynn@flewellingcpa.com.

On-Demand Courses

AT THE MEADOWS BRANCH PUBLIC LIBRARY

Wednesday, Jan. 22 and Thursday, Feb. 20

2019 Colorado State Board of Accountancy Statues, Rules, and Regulations (CR&R) Instructor: Rosemary Weiss • CPE: 2.0 Legislative Update: Colorado Sales and Use Tax Instructor: Bruce Nelson, CPA • CPE: 1.0 Sales Tax – Current Developments, Problem Areas, and Opportunities Instructor: Bruce Nelson, CPA • CPE: 4.0 Colorado Income Tax – Current Developments, Problem Areas, and Opportunities (Coming Soon) Instructor: Bruce Nelson, CPA • CPE: 4.0 Emerging Issues in the Cannabis and Hemp/CBD Industries Instructors: Ronald Seigneur, MBA CPA/ABV, CVA, ASA & Jim Marty, CPA • CPE: 0.5

Denver Tax Study Group AT THE COCPA OFFICE

Tuesday, Jan. 28 and Tuesday, Feb. 25 This informal roundtable discussion group meets over lunch, the last Tuesday of most months, at the COCPA office, 7887 E. Belleview Ave., Ste. 200, Englewood. Additional 2020 Meeting Dates: Mar. 24, Apr. 28, May 19, Jun. 23, Jul. 28, Aug. 25, Sep. 22, Oct. 27, Dec. 8. Register at www.cocpa.org.

National Cannabis Overview - The Rapidly Changing and Growing Industry Instructor: Calvin Shannon & Jim Marty, CPA • CPE: 1.0 Being the Trusted Advisor to Marijuana Clients Instructor: Bernie Taillon, CPA • CPE: 1.0 Advanced Budgeting Instructor: John Daly • CPE: 1.0 Retirement Planning - Solutions to the Three Primary Investment Risks (Coming Soon) Instructor: Mark J. Smith, CFP®, CPA/PFS, CIMA®, M.J. Smith & Associates • CPE: 1.5 Advanced Cost Accounting; Assigning Overhead Instructor: John Daly • CPE: 2.0

IN MEMORIAM We extend our sympathy to the families and friends of the following COCPA members: Darrell Eskam Member since 1988, Gering, Nebraska Donald A. Kaniecki Member since 2009, Louisville, Colorado Steven Oltmans Member since 2007, Arvada, Colorado

Learn more at COCPA.org/On-Demand January/February 2020 | www.cocpa.org

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Colorado Society of Certified Public Accountants 7887 E. Belleview Ave., Suite 200 Englewood, CO 80111-6076

want to Make this Tax Season YOUR LAST?

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Delivering Results One Practice At a time Bill Anecelle, CPA, MBA Sr.Practice Transition Consultant

(303) 670-3623 Bill@atp4s.com

Kevin Overberg, CPA/PFS, CFP Practice Transition Consultant

(720) 988-4334 Kevin@atp4s.com

Our HEAD START Program Will Make It Happen!

800-859-8250 www.APS.net