COCPA NewsAccount - July/August 2021

NEWSACCOUNT COLORADO SOCIETY OF CPAs • JULY/AUGUST 2021

The Future of Downtown Denver: What’s Next, Post-Pandemic?

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Tracking Changes in Computation of Colorado Corporate Taxable Invome PAGE 22

BUSINESS AS

UNUSUAL

Best Practices for Safely Returning to the Office

Trimble & Associates Recruiting Executive recruiters specializing in the placement of accounting, tax, and corporate finance professionals Contingency search firm focused in the Denver and Boulder Metro areas and the broader colorado and intermountain region family owned and operated for over 20 years 8400 E Crescent Parkway Suite 600 Greenwood Village, CO 80111 info@trimbleassociates.com 303-779-5800

Call or email us today to see if we can be of assistance!

Employers and job seekers residing in or relocating to Colorado also can find more information about Trimble & Associates, Inc. at our website: www.trimbleassociates.com 2

NewsAccount | July/August 2021

10 16 Contents Features 4

Colorado Legislature Passes Major Policies in Final Days The Colorado General Assembly adjourned on June 8, 2021, after a challenging legislative session for the business community. The outcome was more positive than it could have been.

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Business as Unusual: Best Practices for Safely Returning to the Office Welcoming employees back to the workplace during and after the COVID-19 pandemic isn’t as simple as announcing a reopening or setting a return-tothe-workplace date and then carrying on business as usual.

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The Future of Downtown Denver: What’s Next, Post-Pandemic?

When COVID-19 swept across the U.S. and employers sent their employees home to work, businesses that had relied on offices and tourism — the retail, restaurant, and service sectors, in particular — found themselves in a struggle for survival. Is downtown Denver resilient enough to rebound?

Tax and Legal Issues Facing Colorado’s Marijuana Industry On the surface, one would think marijuana growers and retailers should be making money hand over fist. But while marijuana remains illegal at the federal level, the tax and legal issues facing the industry can have an almost crippling effect.

Tracking Changes in Computation of Colorado Corporate Taxable Income It is an understatement to describe the interplay of recent federal changes and related Colorado adjustments as confusing. Authors Mark Kozik and Bruce Nelson clear up some of it, while practitioners await further guidance, litigation outcomes, or subsequent legislation.

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July/August 2021 | www.cocpa.org

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CHAIR COLUMN

Adapt and Thrive

NEWSACCOUNT

A bimonthly publication of the Colorado Society of Certified Public Accountants Vol. 67, No. 2 July/August 2021

BY RANDY L. WATKINS, CPA, CGMA, CCIFP

Officers

Randy L. Watkins, Chair Angela Roberts, Vice Chair Peter J. Derschang, Treasurer Sharon S. Lassar, Immediate Past Chair Mary E. Medley, Secretary

Directors

Diego J. Baca, James N. Brendel, Jim Gilbert, Mary-Margaret Henke, Amy King, Kelly A. Kozeliski

Editorial Board

Jack Allgood, Steve Corder, 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, Editor 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 $14.00 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 = 5,794 copies; sales through dealers and carriers, street vendors, and counter sales = 0; paid or requested mail subscription = 5,736; free distribution by mail = 0; free distribution outside the mail = 20; total free distribution = 20; total distribution = 5,756; office use, leftovers, spoiled = 38; returns from news agents = 0; total sum = 5,794; 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.

Each spring and fall, the AICPA Council meetings provide the opportunity for state CPA society leadership teams to gather and take a deep dive into what’s going on at the national and international levels. What’s impacting our profession? Where do we need to focus and make changes?

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he most recent Council meeting, which was held virtually in late May, reaffirmed a lot of what we’ve already been talking about in our own organizations here in Colorado and as a COCPA leadership team. We are focused and ready to take on new, as well as existing, challenges.

Public Accounting Recruits shows a decrease in the number of students enrolled in accounting programs. Certain groups still are underrepresented in the profession, and it will take a concerted effort to change this.

BEYOND THE NUMBERS There was much discussion on the impact of Environmental, Social, and Governance (ESG) issues and the role the accounting profession will have as demand increases for attestation and assurance over these types of reports. While this is starting out as a bigger issue for publicly held and multinational companies, we’ll see this trickle down to smaller organizations over time.

Historically, the accounting profession has been viewed as one dimensional – merely analyzing numbers on a page. Those of us who have operated under wildly uncertain circumstances, especially over the past 18 months, know differently. Resilience became the watchword as we repeatedly pivoted to create value and help our clients, organizations, and employers navigate

REMAINING RESILIENT

Resilience became the watchword as we repeatedly pivoted to create value and help our clients, organizations, and employers navigate the pandemic environment.

And while diversity, equity, and inclusion (DEI) might seem like a completely different topic, DEI and ESG are closely aligned, especially in how they are interwoven in attracting talent to our profession.

The AICPA’s 2019 Trends in the Supply of Accounting Graduates and the Demand for

the pandemic environment. We need to continue to be the ones they turn to. The environment we operate in has permanently changed course, and our clients and the organizations we work for need the ongoing guidance that accounting professionals are uniquely qualified to provide.

SAVE THE DATE

Here are a few challenges ahead: • Reinventing the finance function. Sustainability, which was once the “green movement” and thought of as New Age-y, is now just good business. Companies no longer are evaluated solely on their bottom lines. Multiple factors make up enterprise value, and the U.S. is playing catch up with the rest of the world. Check out the AICPA resources at www.aicpa. org/interestareas/businessindustryandgovernment/resources/sustainability.html.

CPAs make a DIFFERENCE November 11, 2021

Westin Denver Downtown

• Building new capabilities beyond technical skills.

The future lies far beyond assembling work papers.

Top skills needed over the next five to ten years include: complex problem solving, critical thinking, creativity, communication, technology, and emotional intelligence.

• Changing how educators teach the fundamentals and how we attract more talent. The AICPA is working to create a grassroots effort to reach out to students at high schools and community colleges.

Maybe accounting will even become part of STEM education!

As students evaluate the ROI from their college education, we need to make sure accounting stays at the top.

• Reinventing compensation models. Accounting has lost some ground compared to other professions that are compensating their entry level recruits more highly. As students evaluate the ROI from their college education, we need to make sure accounting stays at the top.

According to a recent McKinsey Global Survey of executives, companies have accelerated the digitization of their customer and supply-chain interactions and of their internal operations by three to four years. Additionally, the share of digital or digitally enabled products in their portfolios has accelerated by seven years.

Yes, all this change, coming so quickly, created stress.

But we’ve kept up and led the way in many instances.

The accounting profession continues to do an incredible job of adapting to an ever-changing environment.

SEE YOU SOON This summer, I’m looking forward to traveling around Colorado, where possible, for the annual Chair Tour and to discussing these issues with you. I hope you’ll share what’s on your mind, and what’s happening in your part of the state. Until then, thank you for your continued efforts as leaders of the business community.

2021 HEROES & HEROINES SOUGHT Nominations Deadline: September

22, 2021

Each and every day, away from the headlines, in businesses large and small across Colorado, and in others’ lives, CPAs make a difference.

We will honor those contributions with the 2021 Everyday Heroes and Heroines Awards.

If you know a CPA who should be considered, please submit a nomination. Send a narrative, not to exceed three pages, explaining why you believe the candidate should be recognized and detailing his or her accomplishments.

Nominees must hold a CPA certificate and be a COCPA member.

They should be “everyday” heroes and heroines who haven’t been recognized widely for their contributions. Nominees should demonstrate significant service in one or more areas: INVOLVEMENT: Describe the nominee’s level(s) of involvement, length of involvement, and time devoted to nonprofit organizations and community activities.

LEADERSHIP: Describe the nominee’s position(s) held and substantial accomplishments achieved in one or more community organizations, including taking the lead in identifying and solving a problem, founding or rescuing an organization, or developing an innovative program.

IMPACT: Describe how the nominee’s actions benefited the community, improved the overall quality of life, helped others overcome adversity, or served as a role model for CPAs exemplifying the profession’s core values of integrity, competency, and objectivity.

For more information and to submit your nomination electronically, contact Kelli Davis, kelli@cocpa.org, 303-741-8610.

Email Randy Watkins at rwatkins@bdo.com.

July/August 2021 | www.cocpa.org

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AT THE CAPITOL

Colorado Legislature Passes Major Policies in Final Days

BY LOREN FURMAN

The following information is excerpted from the Colorado Chamber of Commerce Capitol Report, published, June 11, 2021, and reprinted with permission.

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he Colorado General Assembly adjourned on June 8, 2021, after a challenging legislative session for the business community.

In the final days, several last-minute deals and changes were made to key business bills. Most significantly, Senate Bill (SB) 21-176, the litigious workplace harassment bill, was killed in committee – a major victory for Colorado businesses. Several other bills went through a series of changes before final passage, as well.

Most significantly, Senate Bill 21-176, the litigious workplace harassment bill, was killed in committee – a major victory for Colorado businesses.

SB21-176: WORKPLACE HARASSMENT BILL The bill, which was a major priority of the Colorado Chamber this session, would have overhauled the way Colorado handles harassment cases in the public and private sectors. It would have changed the definition of harassment to remove the “severe and pervasive” standard, included independent contractors and caregivers, made it easier to file a claim against employers, and created excessive punitive fines.

After aggressive outreach to the House Judiciary Committee by Colorado Chamber members and other business groups, SB 176 was killed in a 9-2 vote in committee. The Colorado Chamber lobby team raised a number of concerns about the broad definitions and untested legal standards included in the bill. After compelling testimony in the previous week’s hearing, the sponsors attempted a strike-below amendment to the bill but were unsuccessful.

SB21-200 & HB21-1266: GREENHOUSE GAS ROADMAP This environmental justice legislation looked to be dead earlier in the session. The bill imposed aggressive caps on greenhouse gas emissions and gave the state’s environmental regulators broad control over virtually any entity that generates greenhouse gas. Due to the broad authority given to an unelected commission, Gov. Jared Polis threatened to veto the bill early on, and the Colorado Chamber opposed it as well.

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After last-minute negotiations among Democrats, the bill sponsors, and the Governor’s office, SB 200 was given new life as an amendment to House Bill (HB) 21-1266, the Environmental Justice Act, in the final days of session, giving stakeholders and business groups little time to respond or provide feedback.

Some changes were made from the original bill – most significantly, the codification of the Greenhouse Gas Roadmap only applies to the electric, industrial, and manufacturing sectors (and excludes buildings and transportation). HB 1266 accelerates the target reductions for the industrial and manufacturing sectors substantially, moving the baseline of 2005 emission rates to 2015 emission rates, excluding oil and gas, with the same reduction goal of 20% by 2030. Additionally, it accelerates the reduction targets for oil and gas to 36% by 2025 and 60% by 2030 – a substantial increase from the Greenhouse Gas Roadmap. The new version also gives the Air Quality Control Commission (AQCC) more authority to rewrite energy plans for entities which are not meeting the targets or making sufficient progress – as defined by the AQCC. HB21-1232: THE PUBLIC OPTION While the Colorado Chamber still opposed the final version of the bill due to fundamental cost-shifting concerns, it did see some improvement compared to the bill as introduced.

Most notably, the original bill required health care plans to drop premiums by 20% by 2024, while the final bill lowered that to 15%. The original bill also required mandatory participation for doctors, hospitals, and health care plans. The final bill removed penalties for doctors who did not comply with the mandatory participation requirement and loosened the enforcement provisions for hospitals by removing the loss of licensure provision.

The bill was finalized in House concurrence with the Senate amendments. At press time, it was headed to Governor Polis for signature.

SB21-175: PRESCRIPTION DRUG AFFORDABILITY REVIEW BOARD The bill creates a new Prescription Drug Affordability Review Board that sets price caps for certain prescription drugs that meet the specified eligibility requirements. The bill also makes it illegal to purchase or reimburse a prescription drug at a cost that exceeds the upper payment limit or price cap established by the Board. The bill

was changed significantly throughout the legislative process, with 26 amendments in the Senate and five amendments on the House Floor.

Notable changes include sunsetting the program after five years, setting a limit of 12 drugs to be reviewed by the Board annually, and requiring that the Board report annually to the Legislature about the drugs chosen and whether the manufacturer will continue to make the drugs available in Colorado, in addition to a rationale provided by the manufacturer. Amendments changed which drugs the Board is allowed to consider and how it is allowed to consider them. For example, the Board must consider a drug’s orphan status and drugs that have a greater impact on public health. The eligibility threshold was changed from drugs that had increased by $3,000 to drugs that had increased by 10% in the 12 months prior.

The bill passed in the last days of the session with House concurrence with Senate amendments and headed to the Governor for signature.

HB21-1311 & HB21-1312: TAXATION The two major business tax reform bills eliminate a series of tax exemptions while raising the exemption cap for business personal

property taxes to $50,000. Significant improvements made in the legislative process include: • Reinstating the “3 of 6 combined reporting” rule • Slowing the restrictions on the regional home office exemptions • Eliminating the “highest and best use” language for commercial or residential property assessments • Providing more clarity and defining terms, including “mainframe computer access,” “photocopying,” and “packing and crating” • Allowing agriculturally zoned land to continue to be eligible for Colorado capital gains tax breaks • Increasing the cap on 529 educational tax deductions • Adjusting certain provisions for inflation Both bills passed and headed to the Governor for signature.

Loren Furman is Senior Vice President, State and Federal Relations, with the Colorado Chamber of Commerce, Denver, Colo.

July/August 2021 | www.cocpa.org

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HUMAN RESOURCES

Business as Unusual: Best Practices for Safely Returning to the Office

BY NATALIE ROONEY Editor’s Note: The federal District Court decision in Bridges, et al v. Houston Methodist Hospital et al, regarding the employer’s right to mandate vaccination, was released after this article was written. Expect further developments on this subject.

As employers and employees consider a return to office life in the wake of the pandemic, what safety considerations should be top of mind?

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• Providing personal protective equipment (PPE) such as: - Masks, gloves, face shields, etc.

- Personal hand sanitizer

elcoming employees back to the workplace during and after the COVID-19 pandemic isn’t as simple as announcing a reopening or setting a return-to-the-workplace date and then carrying on business as usual.

• Detailing cleaning procedures and procuring ongoing supplies

The Centers for Disease Control (CDC) and state and local governments are releasing information to guide employers as they prepare their offices for their employees’ return and a COVIDfree future. The details of each employer’s plan to return will look different, but there are key issues to understand and start preparing for now to help teams return with confidence.

- Surveying employees regarding their intentions to receive the vaccine

WORKPLACE SAFETY Employees and clients may have fears after so many months at home, so preparing for and communicating safety and hygiene issues will help put everyone at ease.

Potential safety measures to consider: • Implementing employee health screening procedures

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• Developing an exposure-response plan that addresses: - Isolation, containment, and contact tracing procedures - Stay-at-home requirements - Exposure communications to affected staff

• Implementing a workforce vaccination strategy to include:

- Developing a voluntary or mandatory vaccination policy - Handling religious or medical accommodation requests - Communicating with employees about the vaccine • Establishing physical distancing measures within the workplace: - Staggered shifts and lunch/rest breaks - Rotating weeks in the office and working remotely

- Moving workstations to increase separation distance - Implementing one-way traffic patterns throughout the workplace • Restricting business travel: - Start with essential travel only and define what that is - Follow government guidance to ease restrictions over time • Defining customer and/or visitor contact protocols such as: - Directing customer traffic through the workplace - Limiting the number of customers in any area at one time - No handshake greetings, remain 6 feet apart - Using video or telephone conferencing instead of in-person client meetings - Providing contactless pickup and delivery of products • Understanding and complying with Occupational Safety and Health Administration (OSHA) record-keeping and reporting obligations: - Identify positions, if any, with the potential for occupational exposure to COVID-19 - Review OSHA regulation 29 CFR § 1904 to determine work-relatedness of illnesses RECALL PROCEDURES Once a timeframe for a return to the office is determined, plan for how and when employees will return with an organized and controlled approach. All employees returning on the same day at the same time could be overwhelming and possibly unsafe.

Considerations: • Phase-in employees’ return dates: - Use seniority or other nondiscriminatory factors for selection - Determine schedule changes to provide the greatest protection to workers • Create a plan for employees who are in high-risk categories for infection: - Consider allowing them to work from home or remain on leave until they feel comfortable to return - Determine increased measures to protect them when working on-site, including isolated workstations, additional PPE as requested, fewer days in the office, etc.

• Notify the state unemployment agency of employees recalled to work. This is a state requirement and will help save on unemployment taxes for those who choose not to return to work.

• Determine how to handle employees who are unable or unwilling to return to work: - Those who are fearful of returning to work - Those who have family obligations that interfere with the ability to return to work - Those who remain under quarantine due to exposure to COVID-19 ACCOMMODATING ONGOING REMOTE WORK Many employers indicate they plan to continue to use remote work, not only as a short-term tool but also as a permanent work/life balance and cost-saving measure.

Considerations: • Allowing remote work to continue when possible to keep employees safe • Staggering weeks in the office and at home among team members, or parttime remote work on alternate weekdays • Updating technology to support virtual workers CREATING A VACCINE POLICY In Dec. 2020, the EEOC offered guidance that employers have the option to mandate COVID-19 vaccination for employees, but that may change going forward as there have been challenges to the ruling.

The decision to require a COVID vaccine should be based on the business and employees’ potential exposure. Organizations may use a hybrid approach to requiring vaccination. Workers who have high contact with the public, such as health care workers, first responders, and those in the travel and retail industries might be required while vaccination may be voluntary for those who answer phones or work remotely.

Tips: • If you choose to mandate vaccination, your policy must allow for employees to request exemptions. Work closely with your HR or benefits provider to determine the appropriate steps for your organization.

• Employers can provide incentives to vaccinate such as reimbursing the cost and covering or reimbursing the time away from work for the vaccine appointment.

• Know what other companies are doing,

the trends in your industry, and consider the perspective of your employees.

• Once your policy is in place, communicate with your employees, and give them the tools to comply and request exemptions if necessary.

• Workplace operations may change, so continue to assess and course correct as needed.

HEY, HAVE YOU BEEN VACCINATED? TREAD LIGHTLY While it’s legal to ask your employees if they’ve been vaccinated or if they plan to vaccinate, proceed carefully. These questions may violate the Americans With Disabilities Act (ADA) or be protected by Title VII. Ask only in a private setting and be mindful of exemption options. Employers can ask for proof of vaccination if job-related and consistent with the business’s necessities.

Keep any proof of vaccination, notes, and documentation separate from an employee’s personnel file and only accessible to HR or other operational staff.

If an employee refuses to vaccinate or provide proof of vaccination, and an employer has a mandatory vaccination policy, the employee can be terminated. If refusal is based on medical, religious, or genetic issues, employers must give time for the employee to provide an exemption, and reasonable accommodations must be made, such as working remotely. If the accommodation causes undue hardship on the employer or isn’t possible, the employee/ employer relationship can be terminated.

If vaccination is voluntary and an employee refuses to vaccinate, the HR team should be ready to provide information, educate, and put safety protocols in place that are fair and equitable to all regardless of their decision about the vaccine.

Leadership should continue to remind workers who are sick, whether they have COVID or another illness, to stay home.

Educate teams on sick leave policies per the Colorado Healthy Families and Workplaces Act which includes COVID-19 related paid leave, paid sick leave, and public health emergency-related paid leave.

It may be helpful to designate a point of contact to address questions and concerns.

The pandemic has brought many surprises over the past 18 months, but by creating a plan to move forward, businesses can be CONTINUED ON PAGE 8 July/August 2021 | www.cocpa.org

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HUMAN RESOURCES CONTINUED FROM PAGE 7 better prepared to adjust to changing circumstances.

HOW COLORADO CPA FIRMS ARE PROCEEDING Stockman Kast Ryan + Co. – Colorado Springs Steve Hochstetter, CPA, Audit Partner, says the firm is operating with about 25 – 30 percent of staff in the office, which has remained steady since last fall. Rather than working in alternating shifts, Hochstetter says it tends to be the same people each day. “It’s a personal preference for those who come in.”

The firm has yet to set a hard return date. A recent survey asked staff their preferences, comfort level, and how many days they’d like to work remotely versus in the office. “We anticipate the hybrid approach continuing since some people were already working remotely prior to COVID,” Hochstetter says.

Firm safety measures include physical distancing which is made easier because offices are available for nearly everyone who wants to work on-site. In the early stages of the pandemic, Hochstetter says enhanced cleaning protocols were put in place and will continue.

The firm has been communicating all guidance to staff via email. “We’re reinforcing the guidance and guidelines the state has been laying out for us,” Hochstetter says.

“We already were doing a lot of the things suggested in state and local regulations. Now we’re trying to balance the needs of our staff, our clients, and the firm.”

Tafoya Barrett and Associates PC – Durango Brad Tafoya, CPA, CFP®, Registered Financial Life Planner, says the firm was fairly well prepared for remote work last spring from an IT perspective. However, it definitely had to overcome some hurdles on efficiency, communication, and emotional fronts. As summer rolled around, employees were ready to get back to work in the office to increase efficiency and the ability to collaborate with each other.

The firm followed San Juan Basin Public Health Department guidelines as staff were allowed back at 25 percent capacity and then 50 percent capacity. Tafoya says they were able to provide everyone with at least two days a week in the office. The fall surge sent everyone home again, but by the start of tax season, employees returned at limited capacity.

Any resources and announcements from the county were forwarded to employees. A local 8

NewsAccount | July/August 2021

group held a 30-minute COVID-19 Zoom conference call for the firm to cover the history of the virus, vaccine information, and an opportunity for Q&A.

prioritized those responsible for critical business functions and essential client work, while also providing accommodations for employees who wish to return on site safely.”

“We have a standing staff meeting to discuss new developments, get feedback, and ensure people feel safe,” Tafoya says. “We also let everyone know that if they weren’t comfortable speaking up in the meeting, they could speak to us privately to address their concerns about coming back to the office. We’ve focused on being transparent and open.”

The safety of the BDO team has been the firm’s highest priority. “We have implemented rigorous measures that help ensure the health and wellbeing of all personnel, including mask requirements, physically distanced workspaces, capacity planning, enhanced cleaning practices, and more,” Duke adds. “We also have lots of closed-door offices available for any team member to use so they can work safely and comfortably during this difficult time.”

Tafoya says LaPlata County has done a great job of getting residents vaccinated, and employees didn’t hesitate. As of mid-May,

“We also let everyone know that if they weren’t comfortable speaking up in the meeting, they could speak to us privately to address their concerns about coming back to the office.

We’ve focused on being transparent and open.” everyone at the firm had been fully vaccinated. “Our motto has been: ‘Take care of ourselves, our clients, our loved ones, and our community.’”

BDO USA – Denver BDO has put in place a phased approach to reopening that aligns with state and local regulations, says Stacey Duke, CPA, CGMA, Office Managing Partner. “As we methodically expand capacity in our offices, we have

Duke says that while throughout the pandemic BDO ensured the virtual resources needed to maintain the firm’s standard of exceptional client service and the high levels of team productivity and connectivity they are accustomed to, she is looking forward to seeing people in person. “I have missed the face-to-face interactions with my colleagues and clients that an in-person environment brings,” she says. “I look forward to regaining some of that as it becomes safe to do so.”

RESOURCES The following resources may be helpful as you prepare to welcome employees back to the office: CDC guidance: www.cdc.gov/coronavirus/2019-ncov/community/guidance-business-response.html A free webinar about creating a COVID-19 vaccine policy: info.obsidianhr.com/ ondemand-webinar-creating-a-covid-vaccine-policy Colorado Department of Health guidance for businesses: covid19.colorado.gov/ guidance-for-businesses Colorado Department of Health sector-specific guidance: covid19.colorado.gov/ guidance-resources Colorado Department of Labor & Employment: cdle.colorado.gov/employers Continue to check your county health department’s website for additional guidance specific to your area.

Sources: SHRM, Obsidian, Colorado Department of Health, Colorado Department of Labor & Employment

CAMICO – Sponsored Provider of COCPA since 1998 “The COCPA chose CAMICO more than twenty years ago because it offered top-level expertise and support – by CPAs for CPAs. The same is true today. CAMICO consistently delivers outstanding customer service, regardless of market or economic conditions.”

Mary E. Medley, CEO COCPA

Why CAMICO? • For 35 years, CAMICO has been protecting CPAs with insurance solutions tailored to the professional services and concerns faced by CPA firms every day.

• Policyholders can call CAMICO as often as needed and consult with in-house experts on loss prevention, tax, and accounting and auditing issues — all at no additional cost.

• Receive no-cost subpoena, potential claims and reported claims assistance from seasoned in-house CAMICO Claims Specialists.

• Unlimited access to a Members-Only Site with unique tools and resources such as sample engagement letters, articles, newsletters, advisories, eAlerts, FAQs and more.

These are just some of the reasons why COCPA selected CAMICO as the Society’s sponsored provider of Professional Liability Insurance.

Alpa (Keily) Evans Account Executive T: 800.652.1772 Ext. 6720 E: aevans@camico.com W: www.camico.com

Accountants Professional Liability Insurance may be underwritten by CAMICO Mutual Insurance Company or through CAMICO Insurance Services by one or more insurance company subsidiaries of W. R. Berkley Corporation. Not all products and services are available in every jurisdiction, and the precise coverage afforded by any insurer is subject to the actual terms and conditions of the policies as issued. © CAMICO Services, Inc., dba CAMICO Insurance Services. All Rights Reserved.

THE BUSINESS ENVIRONMENT

The Future of Downtown Denver: What’s Next, Post-Pandemic?

BY NATALIE ROONEY

Downtowns and central business districts are the economic lifeblood of cities, but when COVID-19 swept across the United States and employers sent their employees home to work, businesses that had relied on offices and tourism — the retail, restaurant, and service sectors, in particular — found themselves in a struggle for survival. Is downtown Denver resilient enough to rebound?

FROM BOOM TOWN TO GHOST TOWN Mike West, CPA, CFO, and Chief Compliance Officer at Millennium Bridge Capital, Denver, has lived in Lower Downtown (LoDo) Denver since 1989, before the area was anything to write home about. Over the decades, however, the area, and much of downtown Denver, has been developed into a destination for businesses, employees, tourists, and fans of the arts and sports.

“Before the pandemic, downtown Denver was so alive,” West says. “There were new restaurants and excitement about McGregor Square, Union Station, and the development of the Platte Valley. Downtown Denver was booming.”

And then the pandemic hit.

“It was astonishing,” West recalls. “Almost overnight, restaurants shut down, hotel traffic disappeared, convention traffic stopped, and no one was coming downtown for sports or to go to the Denver Center for the Performing Arts. It was all just gone. It was like a ghost town.”

West says even though a fair number of people live downtown now, the livelihood of the area is based on other people coming downtown and spending money.

The key to downtowns is people, West says. “It’s why downtowns exist. You’ve got to have people. And a key presence are the people who work downtown.

Now they’re gone, and they’re not coming back in any significant numbers. All of that drives everything else – commercial business, and to a degree, sports and arts.”

Jen Morris, Chief of Staff for Denver Economic Development and Opportunity (DEDO), says urban centers across the country are feeling the effects of not having workers downtown, and Denver is no different. “We had 250,000 visitors downtown on any given day pre-pandemic,” she says. “At the very lowest point last year, we had about 50,000 people.” Morris says numbers are creeping back up but remain under 150,000.

FEELING BULLISH While Denver has been eerily quiet, the Mile High City also has outperformed its peer cities in many categories, says Tami Door, President and CEO of the 10

NewsAccount | July/August 2021

Downtown Denver Partnership (DDP). Denver is frequently recognized as a downtown that has created and implemented its strategic plans most effectively. “It’s a testament to the fact that we’ve spent decades developing and implementing a place where people want to be,” Door says. “Having a 20-year plan is important because it sets the stage to be a resilient place that attracts talent. If you have that in place, the ride may be bumpy, but we’ll get through.”

Door says she’s bullish on Denver’s future. Throughout the pandemic, the city’s residential base continued to grow. “We fielded calls from companies on both coasts which want to move their entire operations to Center City where job growth is strong. We still believe our five- to ten-year projections are on track for employment, resident growth, and talent attraction.”

What has changed, however, is the five-year trendline which is no longer a steady graph heading upward. The pandemic altered the trajectory. “Ultimately, we still land right where we anticipated in five years,” says Door. “That result will be thanks to a number of very large property transactions that took place during the pandemic year.”

On the development side, major investment is coming into Denver.

“We continue to be listed as one of the top places to start and grow companies,” Door says. “It’s an interesting confluence of attracting companies from other places and growing our own. Our investment in transit, parks, and public places tells developers and companies that this is a place that will be well built, which is everything in terms of attracting talent. Strategic planning and implementation are important, but on top of that, the core component is resilience. We’ve built ourselves for that.”

DENVER’S READY Many companies still haven’t set dates for employees to return to the office, but a couple of new programs are encouraging a return to working downtown.

Denver’s Ready (www.denversready.com) is a growing coalition of partners that includes the City & County of Denver, COVIDCheck Colorado, DDP, Gary Community Investments, and RTD. The program calls on business leaders to take a pledge and begin reopening their offices and bringing their staff back downtown.

Denver’s Rebuilding for an Inclusive and Sustainable Economy plan, or RISE Denver (denvergov.org/Government/Departments/Economic-Development-Opportunity/RISE-Denver), will focus on five strategic areas to provide equitable relief for businesses, workers, and communities that have been hit the hardest, and create an economy that works for everyone. The goal will be to create or bring back 40,000 jobs for Denver residents by the end of 2022.

CPAs who live downtown can get involved in CityLive, a DDP sub-council dedicated to keeping downtown Denver vital. Learn more and sign up at www.downtowndenver.com/citylive.

While some company leaders can’t take the pledge because their return to the local office is governed by a national office, Morris says numbers are looking good. “We’re ready to do this.”

Others are ready to get back to Denver, as well. As leisure traffic begins to rebound, destination travel searches put Denver as one of the top five U.S. cities people want to visit when they can travel safely.

RETURNING TO DOWNTOWN: ONE FIRM’S PLANS PwC LLP has been monitoring conditions for safe reopening, and slowly opening select offices at reduced capacity and with safety and social distancing measures in place, including Check-In, the firm’s contact tracing technology.

“From the onset of the pandemic, PwC has remained focused on the safety and well-being of our people,” says Ellen Valde, PwC Workforce of the Future Managing Partner and Denver Office Managing Partner.

Valde says pending the status of the virus and what the data says, the firm will work toward reopening its offices more broadly at the end of the summer, including plans to reopen the Denver office at reduced capacity at that time. The firm currently has 750 people in its Denver office.

“While we’ve been able to deliver quality work to our clients in our fully remote setup as a result of the firm’s early investments in digitally upskilling our workforce, we believe that in-person interactions and human connection provide value for both our firm’s culture and the work we deliver for our clients,” Valde says. “We recognize the needs and preferences of our people vary across the firm, which is why we are also shifting to a hybrid work model where we will take what we’ve learned from the past year and combine it with what we miss about being in person to reimagine our future way of working.

We will have three options - remote, flex (combination of in-office, at client sites, or remote) and in-person.”

PwC will continue to fine tune and adjust its strategy to confirm that it continues to lead with safety and provide the appropriate resources and support to its people, Valde says.

“Through my involvement on the Board of the Downtown Denver Partnership, I have experienced the proactiveness of the business community in keeping downtown Denver a vibrant city that people want to work and live in,” Valde says.

“We continue to expand the number of team members in our Denver office, and Denver is a highly sought-after place to live.”

“We’re already seeing that play out in our pedestrian environment,” Door says.

As for who will return to office life and when, Door predicts it will be another 36 months before that picture becomes clear. “We likely will see a hybrid, flexible work environment depending on the company and industry sector, but companies that are taking space downtown haven’t spoken to remote work plans,” she says. “Companies choose an urban environment because they want their employees in an innovative, vibrant setting. It feeds their culture. Any changes we may see in companies taking less office space will be offset by growth and new companies.”

AN EQUITABLE PLAN FOR THE FUTURE The City of Denver is trying to track office lease renewals, but with differing schedules, Morris says it’s difficult to discern trends just yet.

“We’re hopeful that if people renew their leases, we can get federal CONTINUED ON PAGE 12 July/August 2021 | www.cocpa.org

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THE BUSINESS ENVIRONMENT CONTINUED FROM PAGE 11 funds to help smaller, under-resourced businesses with their leases and lease extensions. We don’t want empty storefronts or a city that’s wiped out of minority and women-owned businesses and made up only of chains or brands. Small, unique shops have been the hardest hit, and that’s concerning to us. We want to support them with the federal funding coming our way.”

The city’s Economic Relief and Recovery Council (ERRC), which was originally formed at the start of the pandemic to address the emergency needs of downtown businesses, has shifted its focus to the long term. Lori Davis, CPA, managing partner of Grant Thornton’s Denver office, has been leading the ERRC for the past 18 months. Davis says the group discussed incentives to keep business owners downtown.

“We need life and interesting storefronts so people want to come back downtown, because if they can continue to work remotely, they will. We need a compelling reason for them to come back downtown.

Incentives will be necessary in the short term.”

Several major investment projects are in the works, including a $149 million project to reimagine and reconstruct the 16th Street Mall and an additional $195 million to expand the Colorado Convention Center.

“It’s a great way to reinvigorate the area, and it will create 4,400 jobs,” Jen Morris says. “The convention center will draw people into town while we also work to incentivize residents to come downtown on weekends or for lunch through our placemaking work on the mall.”

BOUNCING BACK Major disruptions, Tami Door says, expose a city’s strengths and gaps.

“I don’t believe there were any surprises that came out over the last

year,” she says. “The pandemic reinforced our strengths, widened the gaps, and gave us a new playing field. Now we take that and build on it. Companies in Denver are growing exponentially. We need to make sure we stay the course on our original vision by building a place where talent wants to be and then the companies will follow.”

City agencies along with the ERRC have continued to work collaboratively to determine what Denver’s recovery will look like; they have brainstormed more than 250 tactics to help stimulate the economy in an equitable way. “We can’t fund all 250, but this has been an opportunity to think through options with the community stakeholders and determine what we can do now,” Morris says. “Next year, there will be more money for nonprofits, small and minority businesses, and neighborhoods so that we recover equitably, and everyone has the opportunity to thrive again.”

Door says data and models show that even after world wars, global pandemics, and other crises, people return to cities in droves. “We are by nature communal beings. Denver and other struggling urban centers aren’t going anywhere. As our society moves even more to the use of technology and communicating on screens, the desire to be part of an urban center will rise more than ever. Certain cities will have to redefine their placemaking and who they are. Those who don’t have gathering spaces or pedestrian spaces will have to add those.

Those that do will have a head start.”

“Even in the midst of a pandemic, we never took our eye off of our strategy and never stopped believing in the big, bold visions, even as we addressed the immediate impacts of the pandemic,” Door asserts.

“It’s what makes Denver a great place.”

LEADERSHIP S U M M I T

The Power of People: Finding Resilience and Grit Out of Challenge

YOU’RE INVITED: September 2, 2021 • Colorado

• Resilience: Leadership

• Re-calibrating Culture

• The Future Workforce

• Breakout Discussions

• Networking Reception

Economic Update

12

Through Change

and Engagement

For details, contact Kelli Davis, kelli@cocpa.org.

NewsAccount | July/August 2021

INDUSTRY UPDATE

Tax and Legal Issues Facing Colorado’s Marijuana Industry

BY NATALIE ROONEY

Colorado’s marijuana industry is big and getting bigger. The tax and legal issues surrounding the industry are getting bigger as well.

77 WORDS The cornerstone of the tax issues is Internal Revenue Code (IRC) Section 280E. The provision contains just 77 words, but “280E is a big economic hammer,” says Ron Seigneur, MBA, CPA/ABV, ASA, CVA, Managing Partner, Seigneur Gustafson LLP, Lakewood.

Section 280E prohibits businesses from deducting otherwise ordinary business expenses from gross income associated with the “trafficking” of Schedule I or II substances, as defined by the Controlled Substances Act of 1970. The IRS has routinely applied Section 280E to state-legal marijuana businesses, since marijuana is still classified as a Schedule I substance.

The provision originated from a 1981 court case in which a convicted drug trafficker asserted his right under federal tax law to deduct ordinary business expenses. In 1982, Congress enacted 280E to prevent drug dealers and others involved in illegal activities under the federal code from realizing

“They’ve done their best to get their tax returns prepared, but there’s a lot of uncertainty.” economic income tax benefits beyond their direct cost of goods sold (COGS) expenses.

Jennifer Benda, Esq., a former Big Four CPA and current shareholder with Hall Estill, Denver, has developed a niche advising and defending businesses in the marijuana industry on tax-related matters. Most of her clients come to her because they’ve encountered an issue and are under IRS examination. “They’ve done their best to get their tax returns prepared, but there’s a lot of uncertainty,” she says. “I want to be sure they’re aware and doing what they can to protect themselves and file the best tax returns possible.”

COST OF GOODS SOLD = EVERYTHING? While marijuana businesses can’t deduct business expenses because of 280E, they can deduct COGS. Benda says because COGS isn’t a narrow definition, a lot of legal battles take place as to how the rules can be applied.

“Are you a reseller or a producer?” she asks.

“How you’re classified will give you different results. These companies are trying to maximize their cost of goods sold because they can’t deduct anything else.”

The Tax Cuts and Jobs Act of 2017 (TCJA) greatly expanded the gross receipts CONTINUED ON PAGE 14

COLORADO DEPARTMENT OF REVENUE MARIJUANA SALES

July/August 2021 | www.cocpa.org

13

INDUSTRY UPDATE CONTINUED FROM PAGE 13 threshold criteria for a small business.

Under the TCJA, businesses with average annual gross receipts for the prior three years of $25 million or less meet the small business criteria. As an industry in its early stages, many marijuana businesses meet the gross receipts requirement. These qualified small business clients who want to be more aggressive are turning to IRC 471(c), which was finalized by the IRS early in 2021. It allows small businesses to elect an internal method of accounting to report the cost of inventory as opposed to using the inventory rules established in IRC 471(a). Under the new regulations, marijuana owners may elect to treat inventory as non-incidental materials and supplies, which appears to open the door to allow them to determine their company’s COGS. Even though it’s early days for the regulations, Benda says some businesses are willing to be the guinea pigs.

“Clients are very curious about the impact of this new provision,” she says. “You have to look at the intent of the law. It’s a potential loophole that may eventually close, but it’s the hot new thing.”

AN ONGOING LACK OF GUIDANCE Typically, when a controversial IRC provision is released, it is accompanied by pages of interpretations explaining how to apply it. “The IRS has never done that for 280E,” Seigneur says. “There have been a lot of court cases over those 77 words.”

Even when guidance is released, the IRS often ignores it, taking positions contrary to its other positions. “That’s hard to deal with when you’re trying to prepare a tax return and pay tax liabilities,” Benda says. “These aren’t backroom enterprises. They’re registered with the state. They’re advertising. They can’t take the risk of not filing a tax return.”

A 2020 FAQ document is a perfect example of the ambiguity facing the marijuana industry. Brenda Clarke, CPA/ABV, CVA, CFF, a Seigneur Gustafson partner specializing in tax compliance for the marijuana industry, points out that in true IRS form the document is “very vague, borderline threatening, and includes language about penalties. The IRS could come in and say you didn’t apply 280E correctly. You could suddenly find your tax liability up 40 or 50 percent. You don’t have any cash in the bank, but now you have to cut a check to the IRS for hundreds of thousands of dollars. The perception from the outside is that you’re making a lot of money, but revenue doesn’t equal profits, especially after taxes. It can be a really tough industry.”

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NewsAccount | July/August 2021

HARBORSIDE RULING: NO RELIEF IN SIGHT In April, a U.S. appeals court rejected California-based cannabis retailer Harborside’s effort to stamp out Section 280E. In this case, the IRS allowed the cost to acquire the cannabis, but it was the processing, curing, trimming, and packaging that was disallowed and that Harborside pointed to as a Constitutional violation.

Harborside’s attorney argued that by banning deductions for costs such as acquiring raw cannabis, dispensaries were being unconstitutionally taxed on gross instead of net income.

The ruling was a major blow to the marijuana industry’s hopes of eliminating the federal tax provision that has cost companies countless millions of dollars over the years.

The outcome means that marijuana companies will continue to be taxed by the federal government at a far higher rate than mainstream businesses – unless Congress and the Biden administration approve legislation legalizing marijuana and taxing the businesses as any other industry.

Benda says while the IRS is starting to concede more cases to avoid litigation, it currently comes down to determining what inventory costs are, what rules a marijuana business is subject to, and whether a business is a producer, a reseller, or a vertically integrated company.

She notes a lot of other issues addressed in these legal cases aren’t getting any traction either, like arguing that 280E doesn’t apply to a state legal business, or not cooperating during IRS examinations because of Constitutional rights under the Fifth Amendment.

SMART VS. OVERLY AGGRESSIVE Seigneur explains that there are essentially four segments to the marijuana business: • Cultivators who grow the plants. Eighty to 90 percent of what they do is cost of goods sold.

• Processors who take the grown marijuana plants and process them into edibles and concentrates. Most of what they do is also cost of goods sold.

• Dispensaries which are the retail side.

This is the group that really gets hammered because of the inability to deduct front of the house expenses.

• Ancillary businesses are everything that has sprung up to support the marijuana industry, including point of sale software,

consulting, accountants, attorneys, and advisors.

In the wake of Harborside, Seigneur and Clarke observe that the marijuana industry is trying to figure out how to reallocate costs above the line to get them into COGS in a way that would be permitted by the IRS. “It’s an ongoing battle between tax preparers and clients who want to be aggressive. Sometimes we’re not sure we can put our name on a return.”

Another way clients have tried to aggressively reduce their tax exposure is by setting up a management company that avoids 280E by charging a management fee. “The IRS says that doesn’t work,” Seigneur cautions.

“We have clients who want to get super aggressive with their cost of goods sold and others who want to fly under the radar,” Clarke says. “We advise all of our clients to have their books and records reflect their tax return.”

WHAT’S THE DIFFERENCE BETWEEN CANNABIS AND MARIJUANA? Although the terms “cannabis” and “marijuana” are often used interchangeably, they’re not actually interchangeable. Cannabis is the genus while marijuana is the species. Both hemp and marijuana plants belong to the cannabis genus. In other words, all marijuana is cannabis, but not all cannabis is marijuana.

Clarke says it’s important for marijuana businesses to consider their structure.

When marijuana was first legalized, Colorado retailers had to grow 70 percent of what they sold, which is why grow and retail operations are often found together in one facility. In 2014, that provision was eliminated. Many companies figured out it’s hard to both grow and sell well unless it’s a really big operation that can vertically integrate, referred to as “seed to sale.” Bigger players are adopting this Costco-type model, taking advantage of economies of scale to offer a quality product at a lower price.

THE BLACK MARKET FACTOR As big as the legalized marijuana market

is, the black market is even bigger. A 2017 survey by the Cannabis Consumers Coalition in Colorado asked 17,000 Coalition members where they buy their marijuana. A majority of respondents still purchase illicitly from dealers or friends.

Legal marijuana is almost always more expensive than illegal marijuana. “The legal people are paying high taxes because of the penalties from 280E and the inability to deduct costs, together with the added costs of compliance with testing and regulators,” Seigneur says. “Then there’s someone down the street growing their own. It’s good stuff, and it’s cheaper, so people continue to buy from them. It’s putting excessive burdens on those who are legally competing with the black market. It’s a conundrum.”

The economic burdens of state and local excise taxes, testing fees, and regulatory requirements continue to give the illicit market a huge competitive price advantage, to say nothing of the dangers of contaminated product and lack of consistent purity and potency, Seigneur adds.

MAKING BANKING SAFE As cash-only businesses, marijuana retailers have been prime targets for robberies and burglaries. As long as federal law still classifies marijuana as a Schedule 1 drug, banking remains problematic. Federally insured banks risk charges of aiding and abetting a federal crime or money laundering if they choose to do business with marijuana-related ventures.

Help may be on the way, however. In September 2019, in a bipartisan vote, the U.S. House of Representatives approved reform of federal banking rules that would allow legal marijuana businesses to access banks.

The House bill has been stuck in the Senate Banking Committee since then, but there are signs that the U.S. Senate is now more favorably inclined to send this legislation to the Senate floor where it is anticipated to pass.

It’s a paperwork nightmare for banks to deal with marijuana businesses. FINCEN requires banks to file suspicious activity reports every time a marijuana business deposits money, essentially making banks a monitor for the business which in turns means lots of fees charged. “It’s not for the faint of heart,” Benda says.

The Secure and Fair Enforcement (SAFE) Banking Act would allow U.S. banks to service marijuana companies in states that have legalized marijuana. It appears to be gaining steam in Congress, even among Republicans.

The bill recently passed in the House of Representatives for the third time.

Colorado has actually been in a better situation than many states in terms of banking for the marijuana industry. State credit unions and smaller banks stepped in to fill the void left by FDIC-insured banks. Should the SAFE Act pass – some predict that could happen as soon as the end of 2021 – it would allow big, nationally chartered banks to serve the industry, including the ability to provide conventional lending and better access to capital.

CPAS & MARIJUANA For CPAs who already have marijuana clients, or may be thinking about taking on marijuana clients, Benda advises carefully watching the excise tax numbers and where that money is going. “It’s huge for Colorado, and it’s an area of compliance where there’s a lot of confusion. There are so many weird issues that come up in excise tax audits.”

During the pandemic, marijuana dispensaries were deemed essential, which Benda says was important for the industry. “There has always been this sense that someone could flip a switch and shut it all down. But

once the industry was deemed essential, it became apparent how critical the industry is to economies.” She points to the sales tax remittance deferrals given to many companies during the pandemic. “That didn’t apply to marijuana companies,” she says. “The state was relying on that revenue for cash flow purposes. It was really critical, and it was eye-opening to see it all play out.”

Benda has been talking to her clients about the future and what federal legislation might look like. The MORE Act (Marijuana Opportunity Reinvestment and Expungement Act of 2020), which the U.S. House passed in Dec. 2020, is a proposal to deschedule cannabis and create a national excise tax to replace the current 280E tax burdens. “From a policy perspective, that’s what the industry is trying to get ahead of and make sure whatever this excise tax is works and doesn’t depress the industry.”

“From a national perspective, the excise tax has to replace that money in the federal budget,” Benda adds. “Everyone is expecting the excise tax, but they want one that isn’t cumbersome and reflects a good perspective of the industry.”

Guiding the businesses of a

GROWING INDUSTRY

AUGUST 12, 2021

COCPA* + WEBCAST • CPE: 8.0 *All in-person events are subject to change and space is limited.

REGISTER TODAY AT

cocpa.org/MBS July/August 2021 | www.cocpa.org

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MEMBER PERSPECTIVE

What is Mine to Do?

BY REBECCA A. BOWER, CPA, CGMA

F

eb. 23, 2020, Ahmaud Arbery; March 13, 2020, Breonna Taylor; May 25, 2020, George Floyd. As the barrage of senseless killings of Black people continued in the early months of last year, I thought, “Somebody needs to do something! Why aren’t our national or state or local leaders (or somebody!) doing something?!” But as time passed…..I realized I’d better do something.

But what to do? How to start? I reached out to a couple of people, and their response was, “Educate yourself.”

One of my first steps was supporting a friend and fellow CPA as she started “a multi-generational community of women who are committed to being actively anti-racist and calling out racism when we see or hear it.” She produces information-packed newsletters, and together we book clubbed and brainstormed via Zoom and phone calls throughout the pandemic. Our first book club selection was Lies My Teacher Told Me by James W. Loewen which critically examines the Eurocentric slant of American high school history textbooks. Our second selection was The Vanishing Half by Brit Bennett which tells the story of identical twins whose life paths diverge when one chooses to “pass for white.” I bought several copies of this book for friends and family and encouraged them to join our book club.

I signed up for the five-part Diversity, Equity, and Inclusion Crossing Bridges Series offered by the COCPA via the Ohio Society of CPAs. I read White Fragility: Why It’s So Hard

16

NewsAccount | July/August 2021

But as time passed….

I realized I’d better

do something.

for White People to Talk About Racism by Robin DiAngelo. I joined the FaceBook group, “What is Mine to Do?” I found and watched all episodes of Emmanuel Acho’s “Uncomfortable Conversations with a Black Man” on YouTube and fell in love with his approach and presentation. I searched out podcasts where Emmanuel was a guest (Matthew West, Brene’ Brown). I bought and read Emmanuel’s book, Uncomfortable Conversations with a Black Man, which I highly recommend.

Earlier this year, I completed the spring session of “Race Talk University” through the Shorter Community AME Church. We delved into many topics, but my main takeaway was that racism itself is not the problem. Racism is just “dysfunctional people interaction.” You are always going to have people disliking other people for a variety of reasons. The real problem is systemic racism which is explicit, institutional bias against people because of race, AND an asymmetrical power structure. If we eliminated

all racist behavior, we would still have systemic racism, because it is in the systems “baked into the cake.”

What is systemic racism? Well, it’s the obvious things like redlining, gerrymandering, poll taxes, and Jim Crow laws, but it is oh so much more pervasive.

Master Bedroom, Master Bath, Plantation Shutters, and being “sold down the river” all have their origins in slavery.

Being a Black Sheep, or Blacklisted, or Blackballed all carry negative connotations.

Calling a person of color a minority, when we all know “majority rules.”

So many words and expressions roll off our tongues without us being aware we are perpetuating hurts and stereotypes that have passed through generations. It’s pernicious.

Well, “What is Mine to Do?” I continue to search out books, news articles, podcasts,

movies, and other sources to expand my knowledge. I support Black artists, authors, and business owners. I support candidates who are working to fix our racist systems.

I’m a founding member of the COCPA’s Diversity, Equity, and Inclusion Working Group. I speak out. I speak up.

Have I made a difference? Baby steps, but yes. I believe raising awareness makes a difference. I hope I have raised your awareness and interest in working on ourselves and our systems. If we all join in baby steps, we can make BIG steps!

Rebecca A. Bower, CPA, CGMA, Centennial, Colo., provides accounting services to small business government contractors.

Contact her at rbower@rbowercpa.com.

Interested in joining the COCPA DE&I Working Group? Contact Stacy Svendsen at stacy@cocpa.org.

All events are virtual and will take place on Wednesdays from noon to 1:15 pm MT.

July 28

SEE ME STORY 1: Not a Puzzle Piece.

Being Autistic in the Work World

August 25

SEE ME STORY 2: Sherpa-Sharwa: The Ethnic Group of Nepal

September 29

SEE ME STORY 3: Coming to America

October 27

SEE ME STORY 4 : My Point of View

Engaging personal experiences with diversity, equity, and inclusion.

SP O NSORE D BY

December 1

SEE ME STORY 5: A panel discussion

Register now at

cocpa.org/SeeMe

July/August 2021 | www.cocpa.org

17

EDUCATIONAL FOUNDATION OF COCPA

Congratulations 2021 Gold Key Award Winners Each year, the Educational Foundation recognizes with the Gold Key Award the top graduating accounting student chosen by faculty at each Colorado college or university. Congratulations to these outstanding recipients and future CPAs.

S

ince 1958, the Foundation also has helped the best and brightest Colorado accounting students who want to become CPAs through scholarship dollars. Made possible through COCPA members’ financial support, scholarships are awarded primarily on merit and the student’s commitment to pursuing accounting as a career goal.

To contribute to the Educational Foundation and continue its important work, go to coloradogives.org/EFColoradoSocietyCPAs/overview.

Adams State University Tristen Roach

Regis University Adam Hubley

Colorado Christian University Myllisa Bigler

University of Colorado Boulder Alan Jeremy Stolyar

Colorado Mesa University Gage Fransen

University of Colorado Colorado Springs Connor Howard

Colorado Mountain College Danielle Louise Dardi Colorado State University Fort Collins Spencer Ailes Colorado State University Pueblo Kimberly Turner Fort Lewis College Aria Klooster

University of Colorado Denver Max Katz University of Denver Megan King University of Northern Colorado Kimberly McGuire

Kathy Brents

Christy Hudson

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Office: 866-260-2793 Kathy: 501-514-4928 Christy: 501-499-4357

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RESOURCES

Financial Relief for Colorado Small Businesses

C

reated by Colorado House Bill 20-1430, the CLIMBER Fund was established to provide up to $250M in working capital loans to Colorado small businesses. CLIMBER focuses on businesses that were financially stable before the pandemic but now need help to survive.

PROGRAM DETAILS • $30,000 to $500,000 loans for working capital • Below-market interest rates • Payment deferrals for up to one year • Maturities of up to five years • Refinancing options available BUSINESS QUALIFICATIONS To qualify for CLIMBER, the business must meet the following requirements:

By Women, For Women WOMEN’S SUMMIT M O V I N G

F O R W A R D

August 27, 2021

In-Person & Virtual Event The annual COCPA Women’s Summit provides practical strategies for women to enhance their personal and professional development. With so many successful women in one place, attendees can easily connect, engage, and gain new perspectives.

The Women to Watch Awards will be presented during lunch. Networking opportunities are offered throughout the day. We are looking forward to being together again!

• The business is: - A for-profit corporation, partnership, or association incorporated in Colorado, - Filed with the Colorado Secretary of State as a foreign entity authorized in Colorado, - A nonprofit in Colorado, or - A sole proprietorship owned by a Colorado resident with primary operations in Colorado • The business employs between 5-99 employees.

• The business had a two-year positive cash flow in the past five years prior to Feb. 29, 2020.

• The debt service coverage ratio was at least 1:1 prior to Feb. 29, 2020.

ELIGIBLE USES The CLIMBER Loan Fund provides loans for working capital to help businesses recover. Working capital uses include: inventory, marketing, payroll, refitting a workspace for new social distancing guidelines; operating and emergency maintenance; current property taxes, utilities, rent, supplies; making regularly scheduled interest and principal payments on mortgages, loans, and other existing business debt; paying off existing debt that is due within 90 days; and paying off credit cards that were used to pay monthly operating expenses and that the business historically was able to pay off each month. Loan proceeds may be used to refinance existing business term debt or Lines of Credit incurred after July 1, 2019, if certain conditions are met.

To learn more, apply, and find a lender, go to CLIMBER-colorado.com.

The Women to Watch Awards ceremony honors women who have made significant contributions to the accounting profession, or who demonstrate characteristics that have enabled them to become leaders in the accounting profession. Nominees are from a variety of industries and professional practice areas.

Winners are selected in two categories: Emerging Leaders and Experienced Leaders.

nomination deadline: July 12 Nominate the outstanding female CPAs you know and register for the Women’s Summit at

cocpa.org/Womenssummit Contact Kelli Davis, kelli@cocpa.org, for details.

July/August 2021 | www.cocpa.org

19

DIVERSITY, EQUITY, AND INCLUSION

To Truly Enact Change, Leaders Need To Take A Stand Against What They Will Not Tolerate

BY TONY WARD

At some point,most leadership training gets around to the importance of leaders letting people know what they stand for. But I don’t recall hearing too much about what it looks like when a leader lets people know what they will not stand for.

T

his feels like an omission and a mistake, especially in the context of the eruption of anti-Asian violence and racial bias that threatens the safety and well-being of individuals and of our way of life.

Anti-Asian discrimination didn’t start with the pandemic.

However, there has been a lot of misinformation and inflammatory rhetoric at the highest levels. The correlation between spiking Asian hate crimes and the virus is unmissable: • The organization Stop AAPI Hate received almost 3,800 reports of hate incidents between last March and the end of February.

• Hate crimes targeting Asians were up nearly 150% overall in 2020, while overall hate crimes decreased, according to an analysis by the Center for the Study of Hate and Extremism at California State University, San Bernardino.

And whether the motives of the gunman in the Atlanta killings are straightforward or layered and confused, it is impossible to disconnect his actions from long-standing stereotypes applied to Asian women.

You have to ask why it is so hard for people in leadership positions to plant their feet and declare — as so many did after the killing of George Floyd — that they reject bigotry in all its cruel and destructive manifestations. I suspect the default answer is it’s a risky business decision.

Establishing a position that will turn off some people or factions risks revenue and customer loyalty. It departs from the maxims that say business exists expressly to earn customers and reward shareholders.

20

That view is one of the essential kernels of what is called “purpose” today. It reflects the realities of a world that works best when it leans toward connection over isolation and favors understanding over suspicion.

I believe these maxims were never correct. Still, entrenched ideas pass slowly, and the kind of rebalancing I’m talking about is massively complex. Of course the interests of all stakeholders must be considered. When they are, I have a strong feeling leaders will find the consensus is overwhelmingly on the side of respect and inclusion. I also believe the perceived risk is far greater than the actual risk.

For leaders in business, it’s important to remember we’re also citizens who hold positions of influence and big stakes in the functioning of a healthy society and the fabric of the communities that support our operations. If you agree with that, the question shifts to how leaders in business as well as government, media, nonprofits, and all the institutions that run the world have to take the responsibility to actively promote greater understanding, empathy, and respect, and drive sustainable change. That’s what I think of as demonstrating what they stand for.

Michael Gerson, former White House speechwriter and columnist for the Washington Post, describes the American ideal and role of our democracy as allowing “people of diverse views and backgrounds to live in peace with one another and find common purpose.” He calls that aspiration both a “practical arrangement” and “a moral commitment.”

However, this is where the tough work really begins — leaders actually voicing what they will never stand for.

This is the will to visibly and programmatically reject and stigmatize bigotry, whether it’s overt and intentional acts of hate or bigotry in its insidious subtle, casual, and passive guises.

NewsAccount | July/August 2021

My sphere of influence is the North American business of a global accounting software company, the people I work with, and my family

I’m writing this in Boulder, Colo., about 30 minutes from Xero’s North American business headquarters, on the day after the grocery store

My background and the privileges of birth create unavoidable blind spots that will require my sustained personal effort to overcome. and community. My efforts start with a reminder to myself that my background and the privileges of birth create unavoidable blind spots that will require my sustained personal effort to overcome.

I have to fill those gaps with education, reading, and listening to better understand the history and dimensions of the issues. I’ve found good, practical advice and guidance in these sources: • “How to Respond to Coronavirus Racism” by Learning for Justice.

• The “Take Action” section of the Anti-Defamation League’s “Coronavirus and Infectious Racism.”

• Rolling Stone’s “What You Can Do About Anti-Asian Violence.”

• Anti-Asian Prejudice from California State University, San Bernardino.

Gun rights is a separate topic; however, I include it because leaders at companies such as Dick’s Sporting Goods and Walmart did their analyses, consulted their moral compasses, and took courageous, common sense stands in support of limiting individual access to high-capacity weapons.

mass shooting here and seven days after the Atlanta killings. So you could say this is my statement about what I won’t stand for.

We as Americans are at our best when we allow individuals and audiences, including lawmakers, to accept responsibility to work for what they stand for, and work against what they will not stand for. And we as financial services leaders must take the time, put into action, and reinforce our beliefs and values, and what we will not tolerate, with our teams. It’s a positive, tangible action leaders can take to build a culture of inclusion.

As President of the Americas, Tony Ward leads Xero’s businesses in the United States and Canada. Xero is a COCPA Silver Partner, providing financial support which helps the COCPA provide information, education, and resources to members. If you are looking for professional or personal services through Xero and other COCPA partners, visit the member-only COCPA Discounts webpage at COCPA.org/for-members/member-discounts.

It’s accounting made easy Less troubleshooting, more problem solving Accounting software should be simple and smart.

That’s why Xero’s cloud platform offers helpful tools and features to boost efficiencies in your practice and help your clients grow.

To learn more visit xero.com/cpa

July/August 2021 | www.cocpa.org

21

COLORADO TAX UPDATE

Tracking Changes in Computation of Colorado Corporate Taxable Income

BY MARK KOZIK, ESQ., AND BRUCE M. NELSON, CPA

Nelson and Kozik discuss recent changes in the calculation of Colorado corporate taxable income: • Prior to enactment of the Tax Cuts and Jobs Act (TCJA)1, signed into law, Dec. 22, 2017; • After enactment of the TCJA; • After enactment of the Coronavirus Aid, Relief, and Economic Security Act (CARES Act)2, signed into law, March 27, 2020; • After enactment of Colorado H.B. 20-1024, Concerning Modifications to the State’s Net Operating Loss Deduction (no short title), signed into law, June 26, 2020 and Colorado H.B. 20-1420 (Tax Fairness Act), signed into law, July 11, 2020; and • After enactment of Colorado H.B. 21-1002, Concerning Reductions to Certain Taxpayers’ State Income Tax Liability Related to State Tax Law Changes Made in 2020, and, in Connection therewith, Making an Appropriation (no short title), signed into law, Jan. 21, 2021.

S

tates generally employ one of the two following methods in calculating corporate taxable income: 1

2

1. Moving (or rolling) Conformity – The determination of state-level taxable income begins with federal taxable income as calculated for the current year under the current applicable provisions of the Internal Revenue Code.

While this is the easiest of the two methods to implement in practice, one drawback is that, absent a state modification, changes made at the federal level in determining federal taxable income automatically filter down to the determination of state-level taxable income. Consequently, states that use moving conformity typically provide a number of increasing and decreasing modifications that are added to or subtracted from federal taxable income to determine state-level taxable income.

For example, a state might provide an increasing modification to offset all or part of the federal-level benefit of accelerated depreciation. To illustrate, if federal taxable income were $500,000 after claiming bonus depreciation of $100,000, a state decoupling from bonus depreciation would add back the $100,000 (an increasing modification), making state taxable income $600,000.

1

If asked, most experienced Colorado income tax practitioners would immediately respond that Colorado is a “moving conformity” state.

2. Static Conformity – The determination of state-level taxable income begins with federal taxable income as it would have been calculated under the Internal Revenue Code as of a specified date.

For example, the starting point for determining a particular state’s taxable income might be federal taxable income as calculated under the Internal Revenue Code as of Dec. 31, 2016. Assuming such a reference date, the determination of state-level taxable income would obviously not include the TCJA changes. Typically, states that use static conformity enact legislation every year or so, updating their reference date to the Internal Revenue Code, and enacting any new desired modifications to “counter” federal provisions they do not wish to incorporate. One advantage of this approach is that federal-level changes do not automatically filter

down to the state level. However, a significant disadvantage is the practical difficulty in determining federal taxable income for one year (say, 2020) as it would have been calculated under a prior version of the Internal Revenue Code (say, the Code as it existed on Dec. 31, 2016).

If asked, most experienced Colorado income tax practitioners would immediately respond that Colorado is a “moving conformity” state.

This follows from the Colorado tax statute, which provides that “the net income3 of a C Corporation means the C Corporation’s federal taxable income, as defined in the Internal Revenue Code, for the taxable year, with the modifications specified in this section.”4 However, in June 2020, the Colorado Department of Revenue (CDOR or Department) issued “CARES Act Tax Law Changes & Colorado Impact,” (revised in Sept. 2020), a 14-page publication that explains the Colorado decoupling from the CARES Act

Public Law 115-97 (Dec. 22, 2017)

Public Law 116-136 (March 27, 2020)

2 3

This statute uses the term “net income,” and so does CRS § 39-22-301, which states that Colorado corporate income tax is determined by applying the applicable rate for the year to “net income.” However, Department of Revenue Form 112, Colorado C Corporation Income Tax Return, uses the term “taxable income.” See lines 16-20 of the 2020 Form 112.

CRS § 39-22-304(1). The statute goes on to provide a list of items that are added back to federal taxable income (the increasing modifications) and a list of items that are subtracted from federal taxable income (the decreasing modifications).

4

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and provides some helpful Frequently Asked Questions and charts. In addition, it states: Although Colorado adopts the Internal Revenue Code on a rolling basis, Colorado’s definition of “Internal Revenue Code” does not incorporate federal statutory changes that are enacted after the last day of the tax year (and thus, neither do Colorado statutory references to “federal taxable income”). Accordingly federal statutory changes enacted after the end of a tax year do not impact the taxpayer’s Colorado tax liability for that tax year.

The Department has adopted regulations that reflect this position (C.C.R. § 39-22103(5.3) for individual taxpayers and C.C.R. § 39-22-303.6-1(1)(f) for corporations).

Therefore, at least as far as the Department is concerned, it is not so clear that Colorado is a moving conformity state.

In the event a corporation does business in multiple states, the portion of the pre-NOL taxable income attributable to Colorado is apportioned using Colorado’s single-factor sales factor. The result is then reduced by the corporation’s Colorado NOL, and the Colorado tax rate is applied to the final sum.5 Note that additional considerations come into play if a corporation is a member of a group filing a Colorado consolidated return and/or a Colorado unitary/combined return.

PRE-TCJA Historically, and prior to the TCJA, the determination of Colorado corporate taxable income closely followed the methodology described above as “moving conformity.” A corporation’s current-year federal taxable income was increased or decreased by the applicable Colorado modifications set out in CRS § 39-22-304(2) (increasing modifications), CRS § 39-22-304(3) (decreasing modifications), and CRS § 39-22-303(10) (the foreign-source income modification).

state or political subdivision thereof (other than obligations issued by Colorado or a political subdivision of Colorado on or after May 1, 1980, and certain such obligations issued before May 1, 1980)

9. The amount of Internal Revenue Code § 78 dividend 10. The amount contributed to a medical savings account under CRS § 39-22504.7(2)(e) to the extent such amount is not claimed as a deduction on the federal income tax return

3. The federal net operating loss deduction 4. Colorado income tax deducted in determining federal taxable income 5. Expenses/payments related to certain discriminatory clubs

11. For licensed marijuana dealers, the amount otherwise eligible to be claimed as a federal income tax deduction but disallowed under Internal Revenue Code § 280E because marijuana is a controlled substance under federal law

6. The federal charitable deduction allowed on a contribution for which a Colorado income tax conservation easement credit is available under CRS § 39-22-522 7. Certain wages paid to “unauthorized aliens” as defined in CRS § 39-22-529 The most common decreasing modifications (subtracted from federal taxable income) include the following:7 1. Interest income on obligations of the United States 2. Interest or dividend income on obligations or securities of an authority, commission, or instrumentality of the United States to the extent included in federal taxable income but exempt from state income tax under federal law 3. All/part of the gain or loss from the sale or disposition of property that has a higher adjusted basis for Colorado income tax purposes than it does for federal income tax purposes 4. All/part of the gain from a sale to a purchaser who could have condemned the property 5. The refund or credit for overpayment of Colorado state income tax to the extent included in federal taxable income 6. The Colorado net operating loss deduction under CRS § 39-22-504

1. Foreign income tax deducted on a corporation’s federal income tax return

7. An amount equal to the difference between the depletion allowance allowed for federal income tax purposes for oil shale and the amount that would have been allowed for depletion under a specified set of assumptions set out in CRS § 39-22-304(3)(h)

2. Interest income (less premium amortization) on obligations issued by any

8. The portion of wages/salaries paid/ incurred for the tax year that are disal-

For corporations, the most common increasing modifications (added to federal taxable income) include the following:6

lowed as a deduction for federal income tax purposes under Internal Revenue Code 280C

12. The foreign-source income modification provided in CRS § 39-22-303(10)8 So, under the historical method of calculating Colorado corporate taxable income, changes incorporated at the federal level that increased or decreased federal taxable income were generally implicitly incorporated into the calculation of Colorado taxable income by virtue of Colorado starting its taxable income calculation with current-year federal taxable income. The exceptions to this implicit incorporation of the federal provisions were the modifications that increased or decreased federal taxable income.

For example, assume a corporation with $50,000,000 in sales in 2017 had $1,000,000 of federal taxable income before an interest deduction of $400,000. Because the TCJA business interest limitation became effective only for tax years beginning on or after Jan. 1, 2018, and assuming no other applicable Colorado modification, both federal and state taxable income for 2017 would be $600,000.

The calculation of Colorado corporate taxable income has become much more complicated for recent years, not just because of the federal tax legislation but also because of actions by the Colorado state legislature and the Colorado Department of Revenue in response to the federal legislation. These changes include the following: 1. H.B. 20-1024, where the Colorado legislature adjusted the treatment of Colorado NOLs 2. H.B. 20-1420, where Colorado decoupled from several major provisions of CONTINUED ON PAGE 24

See 2020 Department of Revenue Form DR 112, line 16, Schedule RF (apportionment schedule), and line 17.

5

For corporations, the modifications increasing federal taxable income are found at CRS §39-22-304(2).

6

For corporations, the modifications decreasing federal taxable income are found at CRS §§ 39-22-304(3) and 39-22-303(10).

7

Note that while most of the increasing and decreasing corporate modifications are listed in CRS § 39-22-304, the foreign-source income modification is listed in CRS 39-22303(10).

8

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23

COLORADO TAX UPDATE CONTINUED FROM PAGE 23 the federal CARES Act, including those related to net operating losses (NOLs) (CARES Act § 2303), business interest expense deductions (CARES Act § 2306), and qualified improvement property (QIP) (CARES Act § 2307) 3. H.B. 21-1002, where the Colorado legislature prospectively restored, in part, some of the benefits lost by Colorado taxpayers because of the decoupling provisions enacted in H.B. 20-1420 4. Department of Revenue Regulation (now called “Rule”) C.C.R. § 39-22103(5.3), where the Department claims that Colorado’s rolling conformity statute applies only on a prospective basis.9 Thus, any retroactive CARES Act changes are effective for Colorado purposes only for tax years ending on or after March 27, 2020. For example, the CARES Act technical correction of providing QIP with a 15-year depreciable life and bonus depreciation, rather than a 39-year life and no bonus depreciation dictated under the TCJA, allows taxpayers to amend their 2018 and 2019 federal returns for any QIP placed in service in those years. But under this rule, the CDOR states that Colorado will conform to the federal changes regarding QIP only for tax years ending on or after March 27, 2020, the date of the enactment of the CARES Act. TCJA The TCJA was signed into law on Dec. 22, 2017. Some of its provisions took effect prospectively, and some applied retroactively.

Business Interest Limitation The TCJA limited the amount of certain deductible business interest to 30% of adjusted taxable income (as defined) for tax years beginning after Dec. 31, 2017. [See IRC § 163(j).]

The federal and Colorado treatment of the TCJA limitation on the deduction for business interest is illustrated in the following simplified example. Assume that for 2018 a corporation had both adjusted taxable income and taxable income before consideration of interest of $50,000,000, with $20,000,000 of business interest

otherwise deductible. Under the 30% TCJA limitation, only $15,000,000 of the interest ($50,000,000 x 30%) could be deducted on the federal return. Thus, what would have been a $20,000,000 federal interest deduction is reduced to a $15,000,000 deduction, making federal taxable income $35,000,000.

That federal taxable income of $35,000,000 is the starting point in calculating 2018 Colorado taxable income. Since there are no applicable Colorado modifications with respect to the disallowed interest, Colorado taxable income is also $35,000,000 (subject to CARES Act discussion which follows).

Qualified Improvement Property For federal income tax purposes, the TCJA treated QIP as 39-year real property that did not qualify for bonus depreciation.10 With no applicable depreciation modification, Colorado would follow this treatment, which generally applied for property placed in service after 2017 (subject to CARES Act discussion which follows).11 Corporate NOLs Prior to the TCJA, most federal NOLs could be carried back two years and/or forward for 20 years. Colorado has prohibited the carryback of corporate NOLs since 1984, but it did follow the federal 20-year carryforward rule.

For NOLs arising in tax years ending after Dec. 31, 2017, the TCJA eliminated the federal carryback provision but allowed an indefinite carryforward. However, for NOLs arising in tax years beginning after Dec. 31, 2017, the NOL can only offset 80% of a taxpayer’s federal taxable income in the year deducted.12 Initially, Colorado conformed to the TCJA changes to the federal NOL provisions.

However, after enactment of the CARES Act, Colorado decoupled from some of the federal changes to NOLs (discussed in more detail below).

CARES ACT The CARES Act was signed into law on March 27, 2020. As with the TCJA, some of the CARES Act provisions were effective prospectively, and some took effect retroactively. The Colorado corporate income tax provisions most impacted by the CARES Act include business interest deduction limitation, the depreciation of QIP, and the treatment of NOLs. Business Interest Limitation As noted previously, the TCJA imposed a 30% limitation (based on adjusted taxable income, as defined) on business interest deductions for tax years beginning after Dec. 31, 2017. The CARES Act increased the TCJA limitation to 50% for tax years beginning in 2019 and 2020. Colorado H.B. 20-1420 blocks the increased deduction available under the CARES Act for tax years beginning or ending on or after the enactment of the CARES Act but before Jan. 1, 2021 (which would be calendar year 2020 but possibly two fiscal years, such as the fiscal year ending June 30, 2020 and the fiscal year beginning July 1, 2020). [See CRS §39-22-304(2)(i).] According to the Department: For tax years beginning or ending between March 27, 2020 and Dec. 31, 2020, section 39-22-104(3)(n), C.R.S., requires taxpayers to add back to federal taxable income business interest deductions taken on the federal return to the extent they are in excess of the limits imposed under section 163(j) of the Internal Revenue Code prior to the amendment of that section by section 2306 of the CARES Act. This includes, but is not limited to, additional deductions related to the increase in the applicable percentage and additional deductions resulting from the election to use 2019 adjusted taxable income in lieu of 2020 adjusted taxable income to

However, after enactment of the CARES Act, Colorado decoupled from some of the federal changes to NOLs.

See C.C.R. § 39-22-103(5.3) and C.C.R § 39-22-303.6-1(1)(f).

9

The TCJA eliminated the 15-year MACRS property classifications for qualified restaurant, leasehold, and retail improvement property and replaced them with a single classification: qualified improvement property (QIP). Congress clearly intended that QIP have a 15-year life. See H.R. Rep. No. 115-466, at 366-367 and 366 n.567 (2017) (Conf. Rep.); Joint Committee on Taxation, “General Explanation of Public Law 115- 97,” JCS-1-18, at 138, (Dec. 20, 2018); §§ 168(k)(2)(A)(i)(IV), (k)(3) (2017); TCJA § 13204(a)(4), (b). Unfortunately, QIP was omitted from the statutory list of 15-year property, § 168(e)(3)(e), thereby defaulting to 39-year property. And to add insult to injury, bonus depreciation is only available to property with a 20-year life or less (§ 168(k)(2)(A)(i)(I)).

10

C.C.R. § 39-22-103(5.3) and C.C.R § 39-22-303.6-1(1)(f).

11

We are ignoring here specific NOL rules for farming and casualty losses, insurance companies, REITs, and others.

12

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NewsAccount | July/August 2021

calculate the limitation under section 163(j) of the Internal Revenue Code.13 The CARES Act suspension of the limitation for federal purposes for 2019 is blocked for Colorado purposes under the Department’s rule, described above, that federal changes do not apply for Colorado purposes in tax years ending before the federal change is enacted.

For federal purposes, any interest expense that cannot be deducted as a result of the TCJA limitation may be carried forward. In the carryover year, federal taxable income would reflect the application of any business interest deduction carried from an earlier year. With no applicable Colorado increasing modification, Colorado taxable income

taxable income in calculating their Colorado income tax liabilities.

That section does not provide a subtraction for prior-year business interest deductions that were subject to a higher limit for federal tax purposes than for Colorado tax purposes. C corporations may not take a subtraction from federal taxable income on their Colorado returns for tax years ending on and after March 27, 2020 to reflect additional deductions claimed on federal returns for prior tax years.14 The following chart summarizes the treatment of federal and Colorado business interest limitation (based on calendar years):

FEDERAL BUSINESS INTEREST LIMIT

PERCENTAGE

ATI BASE

CARRYFORWARD EXCESS

2018

30%

2018

Yes

2019

50%

2019

Yes

2020

50%

2019 or 2020

Yes

2018

30%

2018

No

2019

30%

2019

No

2020

30%

2020

No

COLORADO BUSINESS INTEREST LIMIT

would likewise reflect the application of the federal carryover. However, the result does not appear to be the same with respect to the amount of interest allowed for federal purposes under the relaxed 50% limitation but still subject to the 30% limitation for Colorado purposes. That “layer” of interest deduction is not allowed for Colorado purposes in the year paid/incurred, and Colorado does not provide for a carryover of the disallowed amount to a future year, or a decreasing modification in a future year to take into account the interest deduction lost for Colorado purposes in the year the federal limitation was based on 50% of income but the Colorado limitation was based on 30%.

Again, as the Department states: Section 39-22-304(3), C.R.S., lists the amounts C corporations must subtract from federal

See discussion about 2021 legislation (H.B. 21-1002), below.

Qualified Improvement Property As mentioned above, the CARES Act provided a technical correction to the TCJA regarding the depreciation of QIP. Under the CARES Act provision, QIP qualifies for a federal 15-year depreciable life and bonus depreciation, rather than a 39-year life and no bonus depreciation “mistakenly” provided for in the TCJA. Also, the CARES Act allows federal taxpayers to amend their 2018, and 2019 returns for any QIP placed in service in those years. However, because the Colorado rule now applies such changes only prospectively, Colorado will conform to the federal changes regarding QIP only for tax years ending on or after March 27, 2020, the date of the enactment of the CARES Act. The following chart

summarizes the treatment of federal and Colorado QIP (based on calendar years): FEDERAL QIP

RECOVERY PERIOD

BONUS DEPRECIATION

2018

15 years

Yes

2019

15 years

Yes

2020

15 years

Yes

2018

39 years

No

2019

39 years

No

2020

15 years

Yes

COLORADO QIP

See discussion about 2021 legislation (H.B. 21-1002), below.

MORE ON THE CDOR POLICY ON RETROACTIVE FEDERAL TAX LEGISLATION Put simply, under the Department’s policy/ regulation, absent Colorado legislation (see discussion of 2021 legislation, below), Colorado will conform to the CARES Act only for tax years ending after the March 27, 2020 CARES Act enactment date. This rule/ policy was not previously widely known and is arguably an example of executive departmental overreach into what has traditionally been the purview of the state legislature.

For example, what this means is that the H.B. 20-1420 legislative decoupling impacting years 2018 and 2019 was arguably unnecessary. The provisions enacted by the legislature prohibiting the CARES Act suspension of the 80% taxable income limitation for 2018 and 2019 were moot when the bill was signed on July 11, 2020, because the Department’s new rule already preempted the application of the retroactive provisions of the CARES Act to 2018 and 2019 Colorado taxable income. The interplay and overlap of the Department’s new rule on rolling conformation with the legislative changes in the Tax Fairness Act (H.B. 20-1420) causes confusion for both individual and corporate taxpayers. In fact, the legislature’s own Office of Legislative Legal Services recommended the Department’s rule be discontinued because it “conflicts with the statute.”15 CONTINUED ON PAGE 26

CARES Act Tax Law Changes & Colorado Impact, Colorado Department of Revenue (Sept. 2020) p. 8.

13

Ibid.

14

Memorandum to the Committee on Legal Services, Summary of Problem Identified and Recommendation, (December 1, 2020).

15

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25

COLORADO TAX UPDATE CONTINUED FROM PAGE 25 The rule’s impact reaches far beyond the CARES Act. Almost every year there are expiring federal income tax provisions that are temporarily reinstated. Often called “tax extenders” these provisions are routinely extended retroactively.

For example, the provision allowing mortgage insurance premiums to be federally deductible as home mortgage interest expired on Dec. 31, 2017. The Taxpayer Certainty and Disaster Tax Relief Act of 2019 extended the provision retroactively through Dec. 31, 2020. The extension allowed individuals, who were unable to claim the deduction on their 2018 federal returns, the opportunity to amend their federal returns and claim a refund.

However, the Department’s rule prevents individuals from similarly amending their 2018 Colorado return because the Disaster Act was enacted after the 2018 year-end, meaning that the deduction is only available to Colorado taxpayers prospectively for tax years 2019 and 2020. Similarly, a score of extenders in the Disaster Act and other federal bills that were extended retroactively remain unavailable to Colorado taxpayers.16 CORPORATE NOLS As previously noted, the TCJA lifted the 20-year carryover period that was otherwise generally applicable to federal NOLs. For NOLs incurred in tax years ending after Dec. 31, 2017, it provided an indefinite carryover period. However, it also limited the deduction of these NOLs to 80% of federal taxable income for NOLs arising in tax years beginning after Dec. 31, 2017.

First, let’s walk through the NOL carryback/ carryforward changes addressed in H.B. 20-1024.

CRS §39-22-504(1)(a) states that, “A net operating loss deduction shall be allowed in the same manner that it is allowed under the Internal Revenue Code except as otherwise provided in this section.”

For tax years beginning before Jan. 1, 2018, Colorado corporate net operating losses could/can be carried forward the same as federal (so, 20 years). [CRS §39-22-504(3)(a).]

For tax years beginning on or after Jan. 1, 2018 but before Jan. 1, 2021 (so, calendar years 2018, 2019, 2020), Colorado corpo-

rate NOLs could/can be carried forward indefinitely (to match up with the federal indefinite carryforward period enacted by the TCJA). [CRS §39-22-504(3)(a).]

For tax years beginning on or after Jan. 1, 2021, Colorado corporate NOLs can only be carried forward 20 years, thereby decoupling from the continuing indefinite federal carryforward provision. [CRS §39-22-504(3)(b).]

Colorado corporate NOL carrybacks are not allowed for any year. [CRS §39-22-504(3).]

Next, let’s walk through the NOL changes addressed in H.B. 20-1420 (the Tax Fairness Act)which address the Colorado treatment of the 80% taxable-income limitation as provided in the TCJA and modified in the CARES Act. The CARES Act suspended the 80% taxable-income limitation for federal NOL

Act relief from the 80% limitation for federal NOL deductions taken in 2018, 2019, and 2020 would presumably relax the corresponding Colorado NOL deductions to 100% of Colorado taxable income before the loss is deducted in those three years.

However, the Colorado legislature decoupled from the CARES Act’s relaxation of the 80% taxable-income limitation. In other words, the Colorado legislature wanted to retain the 80% limitation on the deduction of those NOLs in 2018, 2019, and 2020, so it enacted CRS §39-22-504(1)(b), which provides that the 80% limitation shall apply for Colorado purposes to NOLs incurred after Dec. 31, 2017 without regard to the CARES Act’s three-year relief.

The following chart summarizes the treatment of federal and Colorado corporate NOLs (based on calendar years):

FEDERAL

TAXABLE INCOME

NOLS INCURRED IN TAX YEARS

CARRYBACK

CARRYFORWARD

OFFSET PERCENTAGE

Beginning before 12-31-17

2 years

20 years

100%

2018-2020

5 years

Indefinite

100% prior to 2021 80% after 2020

2021 and after

None

Indefinite

80%

Beginning before 12-31-17

None

20 years

100%

2018-2020

None

Indefinite

80%

2021 and after

None

20 years

80%

COLORADO NOLS INCURRED IN TAX YEARS

deductions that would otherwise apply in taxable years beginning on or after Jan. 1, 2018 but before Jan. 1, 2021 (so, calendar years 2018, 2019, 2020).

Absent Colorado legislation, the CRS §3922-504(1)(a) wording that, “[a] net operating loss deduction shall be allowed in the same manner that it is allowed under the Internal Revenue Code except as otherwise provided in this section” would presumably limit the deduction of the Colorado NOL to 80% of Colorado taxable income before the Colorado NOL deduction. Likewise, the CARES

2021 COLORADO LEGISLATION For Tax Year 2021 Returns Due in 2022 Realizing that the Colorado budget was not in as bad shape as anticipated in 2020, the state legislature enacted H.B. 21-1002, providing an opportunity for taxpayers to reclaim some, if not all, of the deductions lost by the state’s decoupling from the CARES Act. In brief, Colorado corporate taxpayers are provided a new subtraction from Colorado taxable income for the calendar year 2021.

Legislation still open under the state’s statute of limitations and thus subject to the Department’s new rule include the Tax Cuts and Jobs Act (TCJA) (12-22-17); the Consolidated Appropriations Act of 2020 (12-20-19), which includes the Setting Every Community Up for Retirement Act of 2019 (SECURE Act) and the Taxpayer Certainty and Disaster Tax Relief Act of 2019; the Families First Coronavirus Response Act (3-18-20); the Coronavirus Aid, Relief, and Economic Security (CARES) Act (3-27-20); and the Consolidated Appropriations Act of 2021 (12-27-20). Any “tax extenders” that expired prior to the year of passage of any of these Acts may be unavailable until the years ending after the Act’s passage.

16

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H.B. 21-1002 readdresses the interplay between the federal CARES Act, on the one hand, and the related Colorado legislation and Department regulations, on the other.

The effect of this legislation, signed Jan. 21, 2021, is to move Colorado corporate income tax treatment of several CARES Act items back toward conformity with the federal treatment.

In general, H.B. 21-1002 creates a new corporate decreasing modification for tax years beginning on or after Jan. 1, 2021 but before Jan. 1, 2022 (so for calendar taxpayers, 2021).

This decreasing modification is set out in CRS § 39-22-304(p) and is equal to the sum of the amounts described in (1) and (2), below.

1. “Taxable Income for the Specified Tax Years” minus “Taxable Income for the Modified Specified Tax Years,” computed separately for each tax year.17 a. “Taxable Income for the Specified Tax Years” is defined as Colorado taxable income for tax years ending before March 27, 2020, as calculated under “Colorado law applicable to the taxpayer’s return as of the date the return was due.” So, for 2019, this would be Colorado taxable income as computed under the Colorado law as of the due date of the 2019 Colorado return.18 Presumably, this would simply be Colorado taxable income shown on the 2019 Colorado return as originally filed. b. “Taxable Income for the Modified Specified Tax Years” is defined as Colorado taxable income for tax years ending before March 27, 2020, as calculated under “the internal revenue code and Colorado law applicable to the taxpayer’s return as of the date the return was due, as modified by the application of the retroactive provisions of the CARES Act applied to the calculation of the taxpayer’s federal taxable income, but only to the extent the taxpayer appropriately applied those provisions to the taxpayer’s federal income tax returns for each tax year.”19

In effect, this component of the modification is essentially the difference between Colorado taxable income as originally reported and that which would have been reported had Colorado conformed to the federal CARES Act benefits, to the extent such benefits were taken on the taxpayer’s federal return.

2. The amount added back to federal taxable income as an increasing modification for business interest under CRS § 39-22-304(2)(i). CRS § 39-22-304(2) (i) applies to income tax years ending after March 27, 2020 and before Jan. 1, 2021. The amount of this modification is equal to the excess of the business interest deduction under IRC § 163(j) taken for the year over the amount that would have been allowed absent the CARES Act. In general, this modification is equal to the difference between the business interest deduction as calculated under the 30%-taxable income limitation that applied prior to enactment of the CARES Act, and the deduction as calculated under the 50%-taxable income limitation provided in the CARES Act.20 Overall, if that were the end of the story, this modification would essentially get the taxpayer to a place where its Colorado taxable income would reflect conformity to the federal benefits realized by the taxpayer under the CARES Act. However, the story does not end there. This modification (CRS § 39-22-304(p)) applies only after all of the other subtracting modifications set out in CRS § 39-22-304(3).21 Also, the subtraction is capped at: 1. the lesser of Colorado taxable income or $300,000 the first year (2021 for calendar-year taxpayers), 2. the lesser of Colorado taxable income or $150,000 for tax years beginning on or after Jan. 1, 2022 but before Jan. 1, 2026, and 3. taxable income per year after Jan. 1, 2026.22

The amount that cannot be taken due to the limitation is carried forward until used.23 Additional guidance is provided for corporations that allocate/apportion income. See CRS §§ 39-22-304(3)(p)(I)(B) and 39-22-304(3) (p)(II)(C).

Taxpayers taking advantage of the CRS § 39-22-304(3)(p) modification with respect to QIP must use the QIP’s federal income tax basis at the time of a sale or disposition of the QIP.24 CONCLUSION It is an understatement to describe the interplay of recent federal changes and related Colorado adjustments as confusing.

Some questions may be answered through the compliance process of “putting the numbers to the paper.” However, answers to others may wait on the Department’s issuance of additional guidance, litigation, or subsequent legislation. In the meantime, taxpayers and tax practitioners will need to proceed thoughtfully and carefully.

Finally, we would be remiss if we did not point out that this confusion could have been avoided had the state legislature simply continued to “piggyback” off federal taxable income as it had done in the past.

Instead, with the passage of H.B. 21-1002, the legislature is just giving back in 2021 and future years the additional taxes collected in 2018 through 2020. Granted, from a state budget standpoint, the timing difference arguably may have been significant, but at an unmeasurable additional cost and confusion to taxpayers.

Mark Kozik is Of Counsel with Holland & Hart, LLP, Denver, Colo. Bruce M. Nelson, CPA, Fort Collins, Colo., is a frequent COCPA author/instructor with more than 35 years’ experience in state and local tax.

He is the Editor-in-Chief of the Journal of State Taxation. This article does not necessarily represent the opinions of the authors’ employers, should not be considered the rendering of tax or legal advice, and is not intended to provide specific guidance or advice for any issue in any particular jurisdiction.

CRS § 39-22-304(p)(1)(A).

17

CRS § 39-22-304(3)(p)(IV)(E).

18

CRS § 39-22-304(3)(p)(IV)(D).

19

At first glance it appears that adding the amounts in (1) and (2) double up the deduction but it doesn’t. The first part is for tax years ending before March 27, 2020. The second part is for tax years ending from March 27, 2020 to Dec. 31, 2020.

20

Note that the foreign income modification under CRS § 39-22-303(10) is not mentioned here.

21

CRS § 39-22-304(3)(p)(II)(A).

22

CRS § 39-22-304(3)(p)(II)(B).

23

CRS § 39-22-304(3)(p)(III).

24

July/August 2021 | www.cocpa.org

27

SPECIALTY ACCREDITATION

Life Transitions Can Trigger Deeper Client Service Opportunities

BY DAVID STOLZ CPA/PFS

I

t’s no secret that a phone call can change a life’s trajectory. Two decades ago, I received a call that not only had a deep impact on my family but also sent me down a career path to help my clients navigate critical life transitions — unexpected and otherwise.

UNEXPECTED EVENTS AND MAJOR LIFE TRANSITIONS OFFER A CRITICAL OPPORTUNITY TO ASSIST CLIENTS. Over 20 years ago, my mom called and asked if I had talked with my dad that day. He had recently suffered some health issues but was doing well, so I assured her that he was probably out for coffee with friends. The day did not end well. I soon discovered that my dad had passed out while driving due to adjustments in medications and died in a one-car accident. He was only 64.

After dealing with the immediate grief and repercussions of my dad’s death, I began contemplating how to balance living for today and planning for tomorrow. My dad had passed away at a time when most people are preparing to retire. Over time, I recognized a difference in the way I was talking to my tax clients. I found myself engaging in broader personal financial planning conversations beyond taxes.

Life’s ups and downs each come with specific financial implications. CPAs serve individual clients on the good days (marriage, births, and retirement) and bad (aging parents, divorce, and death). But are we stopping to listen or consider how we might help? Do clients have a plan for the loss of a loved one? Have they considered how to address an aging parent’s needs? How are they balancing retirement funding while saving for their children’s education?

BROADEN YOUR KNOWLEDGE AND POSITION YOURSELF AS THE TRUSTED ADVISER. As I listened to my clients, I knew I needed to deepen my expertise in all aspects of their financial lives. Tax knowledge serves as a critical foundation when planning for retirement, estate, investments, and risk management.

But to be able to address the broader financial picture, pursuing the Personal Financial

28

NewsAccount | July/August 2021

Specialist (CPA/PFS) credential was the most logical path.

In a recent AICPA survey of high-net-worth and high-income prospects, “2 of every 3 participants said that the credentials an individual holds are very important when selecting a financial planning professional.”

To me, obtaining financial planning education and a credential that aligned with my CPA

2 OF EVERY 3 PARTICIPANTS

said that the credentials an individual holds are very important when selecting a financial planning professional. ethics and thought process was the perfect way to go. The AICPA offers not only the comprehensive PFS™ exam but also the Personal Financial Planning (PFP) Certificate Program, a more flexible option to help you grow your financial planning skill set and work toward the credential.

CPAs have the skills to successfully produce financial planning solutions; we are process-oriented, analytical, and we know how to talk with people about money. Keep in mind that you don’t have to be the expert in everything. Clients appreciate having a primary point of contact and as such, CPAs can oversee the overall picture while bringing in specialists or partnering with other professionals where needed.

SLOW DOWN, LISTEN AND CONNECT TO DISCERN CLIENTS’ NEEDS. Stories are a powerful way to connect. I hope you haven’t walked through anything as jarring as the unexpected death of a family member. But, chances are you have an engaging story of your own. It doesn’t have to be complicated or life-altering. It could be as simple as, “My spouse and I were talking about our retirement plans recently; what are

you thinking about retirement? How much longer do you want to work?” Those questions can open a conversation about a universal topic that is a great first step into a broader planning discussion. They are not intrusive, but valuable!

The key is to ask open-ended questions, slow the pace of your meeting, and listen. Instead of beginning a tax return delivery meeting with, “Anything new?”, ask instead, “How are you doing? Has anything been on your mind about your finances?” Then wait. Be prepared for some awkward silence; I promise you it is worth the 20 seconds of discomfort. Resist the urge to jot down notes and listen as you would with a trusted friend.

Asking the right questions and then listening can help you discern what is most important to your client. Is it a safe retirement? Passing money to heirs? Funding grandchildren’s schooling or leaving a charitable legacy?

Perhaps complications of aging are affecting a loved one.

Once you’ve given your clients an opportunity to tell their story, ask if they’d like you to follow up. Set up a second meeting, offer to help run some numbers or look at their scattered accounts. These simple steps are incredibly valuable to your clients and may be the genesis of a personal financial planning relationship — and perhaps, like me, a new direction for your career.

If you aren’t sure where to start, you’re not alone. The AICPA PFP Section developed a Tax and Financial Planning Services hub with toolkits, checklists, and guides designed to help not only initiate these conversations but also transform your practice.

My dad’s death opened my eyes and ears to the needs of my clients as they face the certainties and uncertainties in their own lives.

As a tax preparer, it can be difficult to slow down the hustle of your practice to relax into these conversations. But, when you do, clients are anything but hesitant. After all, you may be one of the few people they talk candidly with about their finances.

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The Association of International Certified Professional Accountants, powering leaders in accounting and finance around the globe © 2021 Association of International Certified Professional Accountants. All rights reserved. 2102-49162 July/August 2021 | www.cocpa.org

29

MANAGEMENT ACCOUNTING STRATEGIES

How CFOs Can Enable Innovation Now

BY AMY J. RADIN

Businesses need innovation now more than ever, so energize your organization by taking action in three areas.

O

rganizations in every corner of the economy are focusing with renewed intensity on innovating to anticipate and meet new customer expectations accelerated by and arising from the pandemic. We are not going back to the way things were pre-2020. The pressure is on to transform business models from top to bottom and acknowledge that innovation, far from being “cool stuff” or an off-to-the-side, not-always-measurable set of activities, is core to any business’s strategy in this rapidly changing, uncertain, and unpredictable world.

CFOs, by virtue of their role in an organization, their platform, and their relationship to the board, the CEO, and their C-suite colleagues, are uniquely positioned to enable an organization’s innovation results. Their ability to exercise innovation leadership at this moment may be vital to their business’s future. This article presents recommendations on what they can do to enable the innovation agenda and how to ensure their actions translate into results. (For a look at whether an organization could benefit from devoting one executive to the innovation function, see the sidebar, “The Pros and Cons of Appointing a Chief Innovation Officer.”)

DEFINING ‘INNOVATION’ — A WORD THAT SPARKS ADMIRATION AND CONTROVERSY The word “innovation” itself can be polarizing. It conjures up coolness and threat, inevitability and unpredictability, attraction 30

NewsAccount | July/August 2021

and avoidance. Few will debate that innovation is essential — yet it fails more often than it succeeds and can be easily derailed by the forces of the status quo.

Innovations are viable new offerings that solve people’s real problems; i.e., they: • Can be executed and delivered — technically, legally, ethically, financially, operationally, etc.

• May be new to a segment, geography, industry sector, or even to the world.

• May be incremental — enhancing an existing business, product, service, experience, etc. — or disruptive and completely game-changing.

• Address actual needs of the people a business wants to serve, whether the business has a business-to-business or business-to-consumer focus.

• Exist in many forms as illustrated by the Ten Types of Innovation model created

by The Doblin Group. In its research, Doblin found that innovations tend to be least effective when focused solely on product and most effective when combining five or more of the ten types.

For example, consider how Ikea has combined innovating the brand, customer experience, product, business model, and processes, or how Zappos innovates the brand, customer experience, channel, product assortment, and business model — in both cases creating unique positions

in the market and in the minds of their customers.

WHERE IS THE CFO’S LEVERAGE TO ENABLE INNOVATION? The CFO can accelerate innovation progress, energize the organization, and signal culture change by taking action in three areas: Ensure resources are adequately allocated to innovation.

Innovations don’t generally happen within the confines of the annual planning cycle.

The reality is that innovation can feel messy relative to the structures most businesses follow around budgeting, forecasting, and planning. It’s driven by the marketplace, by customers’ expectations, and, as the world has experienced this year, by events beyond our control.

Consider good practices for resourcing innovation that create flexibility and support financial management requirements. For example: • Challenge teams coming forward with innovation proposals to see themselves as founders, who self-fund the very first steps before seeking outside capital.

Good founders gather qualitative, directionally meaningful customer feedback, and develop rough prototypes for proofof-concept purposes on shoestring budgets.

• Borrow from the startup playbook by funding early-stage concept development in incremental tranches, investing relatively small amounts of capital as milestones are met. Plan a research and

development line into the budget so that these investments are accounted for, and anticipate larger investments when it is time to scale.

• Value and consider each innovation initiative as an item in the investment portfolio the business is creating to assure the company’s future. Each investment will have a different degree of risk and reward, and likelihood of success, and will pay off at a different point in time. We know that a balanced portfolio mitigates risk and also bakes in the reality that not all portfolio items will succeed or succeed to the same degree or at the same time. Expect that many projects will yield learning and fail to reach commercial success but create value insofar as they can inform future efforts or may be “version 1.0” renditions that require further iteration or time, so should not be discarded. Mapping the portfolio initiatives on a matrix will help confirm whether the mix is right, too aggressive, or too conservative relative to the company’s strategy and goals.

Develop policies and processes that facilitate innovation.

Some years back my team wanted to run a test in partnership with a startup company whose advanced technology could enable exceptional delivery of critical elements of the customer experience, overcoming a significant barrier that business-as-usual solutions had not addressed.

The project manager set off through the standard approval process, starting with contacting the procurement team. I received a call one day from the procurement specialist who told me, “We cannot work with this vendor because, according to their [Dun & Bradstreet] report, they lose money.”

No kidding. This was an early-stage startup (which, incidentally, ended up with a $300 million-plus exit a few years later that we never could have foreseen). As is typical of early-stage businesses, this startup was losing money at that point — capital had been invested in building a world-class platform, and the sales pipeline was not close to maturing.

By the standards of a scale business operating in a highly regulated sector, integrating a capability from a P&L-negative provider would not be acceptable. But in the case of a low-volume test of a new capability whose functionality is not core to the safety and soundness of the enterprise, the risks are

THE PROS AND CONS OF APPOINTING A CHIEF INNOVATION OFFICER As a two-time former corporate chief innovation officer, I am often asked, “Is it a good idea to have a chief innovation officer?” Here’s the not-so-simple answer: • Innovation happens with skills, leadership, and a mindset that are quite different from those that drive a mature business at scale. The benefits of a C-suite innovation executive with the authority to hire and lead a small team are that this team, properly built, can seed those complementary skills and capabilities, and the role can be a powerful signal to the organization that innovation is a priority.

• The downside is that innovation does not happen in a silo and will benefit from the capabilities and institutional knowledge of the organization at large. A separate team can send a false signal to the rest of the organization that the accountability rests in the team, when in fact everyone should feel they have skin in the innovation game.

The CFO is well positioned to advocate for innovation governance that engages the entire C-suite and: • Holds business unit heads and functional experts accountable for contributing to the innovation team’s success; • Encourages collaboration and pooling of expertise needed to advance concepts before they warrant dedicated staffing; and • Helps ensure that innovation priorities and corporate strategy are connected.

different and so are the mitigation strategies.

In this case, we articulated upfront a clear exit plan, including what we would communicate to customers involved in the pilot; acknowledged that the pilot investment would be written off; and had a clear plan to account for a write-off in our financials.

Applying policies and processes that work well for a scale operation can be overkill for a nascent concept. Innovation requires a different approach with rigor appropriate to the task, risk, and capital involved.

What can the CFO do to cultivate innovation-appropriate policies and processes?

• Help C-suite colleagues and the finance team focus on asking the question, “What is the problem we are trying to solve?” in assessing next steps for a new concept.

• Ensure relevant processes are in place to assess and approve innovation vendors and other strategic decisions that both enable experimentation and address the need to protect the enterprise.

Adopt relevant metrics.

Early in my corporate career when I was on a team seeking seed funding for a new concept, an executive offered valuable advice that has stuck with me. In a presentation to this particular executive, the team shared copious financial analyses, including five years’ worth of P&Ls carried out to the penny. He waved aside our spreadsheets and, laughing, told us, “Don’t seek a level of

precision that cannot be possible when you are looking at something so new.”

Instead, the CFO can lead the adoption of common-sense approaches to ensure discipline — the right kind of discipline — for evaluating and monitoring emerging business models.

When measuring innovation effectiveness, what is most important is to ask the right questions, be confident in relying on judgment where facts simply do not exist, seek metaphors from other sectors or markets, and accept good enough data that can be refined along the way.

Smart questions answered in fast testand-learn cycles can help a team to derive the relevant metrics and keep innovation projects moving closer to success, or to the set-aside pile.

There is comfort in hard data. It is reassuring to see numbers in organized columns and rows with optimistic trends demonstrating success. But innovation is messy, and it’s vital to explore, listen, and dig into qualitative insights that could be important signals that are just too raw to quantify. (See the sidebar, “What to Ask First”.)

WHAT CAN THE CFO DO TO SUCCEED AS AN INNOVATION ENABLER? The CFO role is evolving, and for people pursuing careers that include even a stint in CONTINUED ON PAGE 32 July/August 2021 | www.cocpa.org

31

MANAGEMENT ACCOUNTING STRATEGIES CONTINUED FROM PAGE 31 the finance function, this is an exciting time to make an expanded contribution to their company, leveraging the unique positioning and attributes of their roles. Address these four priorities to support this evolution: • Step up to the broader role, acknowledging the opportunities beyond traditional reporting, budgeting, and forecasting responsibilities and how critical this scope is to the business’s future.

• Update the talent strategy for the finance function, in particular by recruiting diverse team members and encouraging the strengthening of skills in customer insight, data analytics, and trend analysis that will enable them to be productive and highly valued thought partners to colleagues working on innovation initiatives.

• Assess and augment the capabilities the function needs to perform effectively now, particularly technology capabilities that allow ready access to usable data and support the team’s ability to get from data to insight to action.

• Find the right balance between shareholder requirements and those of the

32

NewsAccount | July/August 2021

WHAT TO ASK FIRST Top questions for establishing innovation metrics for early-stage concepts include: • How big is the addressable market?

• What would you have to believe for this to be a concept worth pursuing? In the absence of a rear-view mirror’s worth of history, it’s better to look forward and envision market, customer, operational, and other basics that would need to exist for a concept to appear reasonable.

• What appear to be the likely key drivers of revenue, expenses, and the balance sheet?

• What is the unit profit model, and what is the potential to scale?

other stakeholders to the business — customers, vendors, partners, employees, regulators, and the broader community.

CFOs must embrace the reality that to be an innovation enabler, many of the decisions they will be asked to make will be “and” decisions, not “either/or” choices. They will be faced with polarities. To identify, shape, test, launch, and scale innovations requires financial management approaches that may feel at odds with traditional ways of operating. But the adoption of fit-for-innovation methods is essential to nurturing new ideas and allowing them to grow into commercial successes.

Amy J. Radin is the author of The Change Maker’s Playbook: How to Seek, Seed and Scale Innovation in Any Company. Her corporate career included roles as a Fortune 100 digital, marketing, and innovation executive. Now as a keynote speaker, and as an adviser and board member, she brings her expertise to help teams innovate. She serves on the Association of International Certified Professional Accountants’ board of directors.

To comment on this article or to suggest an idea for another article, contact Kim Nilsen, FM magazine’s publisher, at Kim.Nilsen@aicpa-cima.com.

MOVERS & SHAKERS

IN MEMORIAM We extend our sympathy to the families and friends of the following members: Duane A. Youngdahl Greensboro, N.C., Member since 1960

KATHY CANTU, CPA Kathy Cantu, CPA, was named a partner with Eide Bailly LLP, Grand Junction, Colo.

LISA HRINIK, CPA Lisa Hrinik, CPA, was promoted to partner at Wipfli LLP, Lakewood, Colo.

Sherri Hender Lone Tree, Colo. and Ft. Meyers, Fla., Member since 1991

TAX STUDY GROUPS Boulder/Longmont Tax Study Group CURT OLSON, CPA Curt Olson, CPA, was promoted to partner at Wipfli LLP, Englewood, Colo.

LAURA THEISS, CPA Laura Theiss, CPA, joined Avanti Residential LLC, Denver, Colo., as Vice President of Tax/Accounting.

VIRTUAL ONLY

Wednesday, July 21, and Wednesday, Aug. 18 Additional 2021 dates: Sep. 22, Oct. 20, Nov. 17, Dec. 15. For more information, contact Lynn M. Mitton, CPA, MT, MPA, 303-499-7445, or email lmitton@tandemcpas.com.

Denver Tax Study Group VIRTUAL ONLY MICHAEL D. WEST, CPA Michael D. West, CPA, CFO, Millennium Bridge Capital, Denver, Colo., has been named to the University of Denver Board of Trustees.

CHARLIE WRIGHT, CPA (PA) Charlie Wright, CPA (PA), CGMA, CFO, the Denver Zoological Foundation, joined the University of Denver adjunct faculty to teach a course in its Master’s in Nonprofit Leadership Program.

BRIANNE DAVIDSON The AICPA announced the 89 winners of the 2020 Elijah Watt Sells Award, including Brianne Davidson, a graduate of the U.S. Air Force Academy with a Bachelor’s of Science in Mathematics and a Masters of Professional Accountancy from the University of South Dakota. She is employed with KPMG LLP in Denver, Colo.

Tuesday, July 27, and Tuesday, Aug. 24 Additional 2021 dates: Sep. 28, Oct. 26, Dec. 7. Register at www.cocpa.org.

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July/August 2021 | www.cocpa.org

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