Disclosures: March-April 2018

THE OFFICIAL MAGAZINE OF THE VIRGINIA SOCIETY OF CPAs

MARCH/APRIL 2018

LIGHTS, CAMERA... CPA ACTION! ALSO... Difficult conversations with clients

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contents

LIGHTS, CAMERA, CPA ACTION page 20

CPAs are an integral part to helping film companies in Virginia take advantage of tax incentives.

Features 26

When they don’t want to hear what you have to say Navigating difficult conversations with clients.

Columns

Departments

12

Virginia Taxation

4

President’s Perspective

M&A tax implications

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Line Items

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Tech Talk

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Advocacy

30

VSCPA News

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Classifieds

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I Am the VSCPA

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Public Relations CPAs in the classroom

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Taxation Safe harbor for R&D

18

Young Professionals Focus on people

CONNECT: connect.vscpa.com

FACEBOOK: facebook.com/VSCPA

TWITTER: @VSCPANews, @FinancialFit

INSTAGRAM: instagram.com/VSCPA

LINKEDIN: tinyurl.com/VSCPALinkedInGroup

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president’s perspective 4309 Cox Road Glen Allen, VA 23060 (800) 733-8272 vscpa.com

disclosures disclosures.vscpa.com disclosures@vscpa.com MARCH/APRIL 2018 Volume 31, No. 2 Managing Editor Jill Edmonds disclosures@vscpa.com Contributing Editor Chip Knighton cknighton@vscpa.com Public Affairs & Communications Director David Bass dbass@vscpa.com Editorial Task Force Olaf Barthelmai, CPA Adam Chaikin, CPA Cheri David, CPA Jennifer Eversole, CPA Genevieve Hancock Alesia Lewis, CPA Harold Martin Jr., CPA David Peters, CPA Mark Plostock, CPA Barbara Sukramani, CPA Disclosures is published six times a year by the Virginia Society of Certified Public Accountants (VSCPA). The magazine’s mission is to communicate information of value to VSCPA members, including professional issues and VSCPA initiatives. The materials and information in Disclosures are offered as material only and not as practice, financial, accounting, legal or other professional advice. Statements of fact and opinion are made by the authors alone and do not imply an opinion on the part of VSCPA officers, members or editorial staff. Publication of an advertisement in Disclosures does not constitute a VSCPA endorsement of the product or service. Copyright © 2018 Virginia Society of CPAs.

VSCPA Preferred Providers

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Maintaining a foundation of trust

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hope, by now, you have read about VSCPA2025, our dynamic vision for the profession and strategic roadmap ensuring CPAs are as relevant in the future as they are today. As it should, VSCPA2025 focuses heavily on navigating changes that have already started to alter the profession, and, throughout the 2025 visioning process, we constantly heard phrases like “reimagining current programming,” “technology and change drive our society,” “rapidly changing technologies and shifting demographics” and “highly competitive global workforce.” It’s important to be aware that change is occurring more rapidly than ever, and CPAs must lead others in understanding and embracing change. However, VSCPA2025 is equally about maintaining the core set of values and highly ethical behavior that have been the foundation of the CPA profession for more than 125 years. It is this foundation of trust that has set CPAs apart. The ethical values that govern the CPA profession are simple, yet vital. CPAs must act with integrity — they must be honest and forthright regarding all aspects of their work, not only financial information. They must maintain objectivity and independence to avoid conflicts of interest that can undermine their work and even our entire business ecosystem. And they must exercise due care in scrupulously following technical standards that have been developed over decades of practice and enshrined as U.S. Generally Accepted Accounting Principles. And it’s not easy — that’s why trust is such a precious commodity, especially in today’s culture of “fake news” and “alternative facts.” This is why the profession has created myriad organizations aimed at protecting that foundation by enforcing ethical behavior and continually educating practitioners on how to remain ethical despite challenging situations. It remains so important, because it’s so easy for unethical behavior to undermine the entire profession and render its work useless.

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The core mission of the VSCPA is to empower our members to thrive, and we do this by creating opportunities and removing barriers to your success. Maintaining the profession’s strong reputation of trust and excellence is a top priority of our work, and we achieve this through our ethics enforcement program and Peer Review, by providing the highest quality ethics training each year and by promoting the ethical core of the profession to lawmakers, students and the public at large. The VSCPA works hard to ensure the profession remains steadfast and respected, but, ultimately, it’s each of you, our members, whose hard work and daily decisions truly matter in the end. Despite many changes and challenges, the CPA profession is strong and poised for an exciting and prosperous future. As we look to the future, let’s take time to reflect on how far the profession has come. Let’s be thankful for what past practitioners have done day-in and day-out over decades to make this profession one of the most trusted and respected in the country. And let’s continue to put in the hard work and be the trusted advisors our future needs. n

Stephanie Peters, CAE, has served as VSCPA president and CEO since 2007. speters@vscpa.com @StephPeters connect.vscpa.com/StephaniePeters

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April is Financial Literacy Month

CHARTING VIRGINIA’S BUSINESS FUTURE

It’s time to celebrate financial literacy in Virginia! The VSCPA and citizens from across Virginia will focus on financial literacy throughout the month of April during the annual Virginia Financial Literacy Month, as proclaimed by Virginia Gov. Ralph Northam.

Ensuring the Commonwealth has a strong, vibrant and competitive economy is a priority for the state’s businesses. In its Blueprint Virginia 2025, the Virginia Chamber of Commerce recommends action items new Virginia Gov. Ralph Northam can take to face Virginia’s economic challenges. The document updates the Chamber’s first Blueprint, released in 2013.

The award-winning Financial Fitness initiative is just one of the ways the VSCPA helps Virginia taxpayers increase their financial acumen. The VSCPA helps encourage wise money management during Financial Literacy Month through the Ask a CPA Email Program, media relations around the state and a social media campaign. To volunteer for the Ask a CPA Email Program, contact VSCPA Public Affairs & Communications Director David Bass at dbass@vscpa.com or (804) 612-9440.

Recommendations are given in a variety of categories: workforce and education, business climate, transportation, health care, energy, technology, manufacturing, environment and military and veterans affairs.

Creating the blueprint was a year-long effort and involved more than 6,000 businesses around the state. Some specific actions include: • Create connections to jobs and business, like enhancing work-based learning opportunities, internships and apprenticeships. According to a Chamber survey, businesses cite maintaining a skilled workforce as their No. 1 issue. • Grow target industries, such as information technology, transportation and logistics, high-growth manufacturing and business services and operations. • Comprehensively review Virginia’s tax system. • Focus on current and emerging technology sectors where Virginia regions have competitive advantages. Continue to focus on opportunities in cybersecurity. • Promote policies that help Virginia create a culture of entrepreneurship.

Testing: 1, 2 3 CPA Exam gets enhancements Beginning in April, CPA Exam candidates will have an even more high-tech test-taking experience. New Exam software will have a modernized format, functionality and design. There are also enhanced, high-definition monitors at the Prometric testing sites. Larger screens allow test takers to have a bigger, separate workspace opposite the response areas. In addition, users will be able to use Microsoft Excel through the Exam. In other hot Exam news: >> CPA candidates will be tested on the Tax Cuts and Jobs Act — just not until Jan. 1, 2019. >> The 2018 CPA Exam blueprints are now available for those planning to sit for the Exam prior to July 1, 2018. New blueprints will become effective July 1 for those planning to take the test after that date. All Exam candidates can find out the latest news at aicpa.org/becomeacpa/cpaexam.html.

To read Blueprint Virginia 2025 in full, visit vachamber.com.

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TICKER 5 Virginia’s ranking on Forbes magazine’s 2017 Best States for Business list, moving up one spot from last year but not reclaiming the title, which it held in previous years.

$76,260 The 2016 median household income in the highest-ranked state: New Hampshire. $66,451 The 2016 median household income in Virginia (state rank: 14).

34 The number of VSCPA members ages 90 and older, as of Jan. 3, 2018. 5 The number people who have been a member of the VSCPA between 70 and 79 years.

$14.50 The average price a commuter paid on Dec. 4, 2017, the first day of tolling, to drive on Interstate 66 into and out of Washington, D.C., during rush hour. $132,777 The total amount collected by the Virginia Department of Transportation from I-66 tolls on the day they opened.

Where’s the IRS money? National Taxpayer Advocate Nina Olson sounded the alarm in her 2017 Annual Report to Congress that the U.S. Internal Revenue Services (IRS) needs more money now. Funding shortages have led to staffing and investigation cutbacks and leave the agency woefully unprepared to handle the changes from the new Tax Cuts and Jobs Act. “In recent weeks, there has been considerable discussion about how the IRS has been beaten down by continuing funding cuts and about concerns the agency is stretched so thin it will not be able to properly implement tax reform,” Olson wrote. “I cede to no one in my advocacy for increased IRS funding. As the National Taxpayer Advocate, I see daily the consequences of reduced funding of the IRS and the choices made by the agency in the face of these funding constraints.” The report details 21 serious problems facing taxpayers and offers 11 legislative recommendations. Find the full report at taxpayeradvocate.irs.gov.

VSCPA offers sexual harassment resources Sexual assault and harassment are in the news more than ever with the rise of the #MeToo movement and the wave of allegations against famous and powerful people. While the issue of sexual harassment in the workplace is not new, the recent headlines are a good reminder to take stock of your own organization’s sexual harassment policies. A well-planned policy can help you prevent harassment before it happens, support victims when it does and protect your organization in the event of an accusation. The VSCPA has created its Sexual Harassment Resource Center to collect resources and learning opportunities on the topic. Visit vscpa.com/ SexualHarassmentResources for more.

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tech talk

EXCELLENT EXCEL...

Finding which individual amounts are summed together

Is your password ‘letmein’?

Do you ever have a list of transactions that are subtotaled into various amounts, but you need to determine which amounts are summed together to make each subtotal? Before you start randomly adding numbers together, consider using Excel’s analysis add-in called Solver. After you add it, Solver will be located on the Data toolbar. While Solver may save you time in the long run, you will need to prepare your worksheet to get the intended results. I prefer to have all the amounts in a single column. Assume column A. Leave column B blank. Then, in each row of column C, I would write a formula that multiplies the amount in column A by its corresponding blank cell in column B. Then I would insert an Auto Sum formula to the bottom of the formulas in column C to sum the amounts above (currently all zeros). Last but not least, I would subtract the cell with the Auto Sum from the cell of the subtotal I am attempting to have Excel solve. With the workbook set up, you can click Solver under the Data toolbar. (Remember, you will need to add it under File>Options>Add-ins.) With the Solver dialog box open, “Set Objective” to reference the cell that subtracted the Auto Sum in column C from the subtotal it is attempting to solve for, select “Value OF:” and type in zero. If this cell equals zero, Excel has found the amounts in the subtotal. Then, in the “By Changing Variable Cells:” box, select the blank column B cells between the amounts in column A and formula in column C. These are the cells that Excel will keep changing until it finds which amounts are in the subtotal. Additionally, I need to ‘Add’ two “Subject to the Constraints:” for it to work correctly. The constraints are that the changing cells, cells in column B, must be “<= 1” and “= integer.” Lastly, ensure “Make Unconstrained Variables Non-Negative” is selected. These settings cause Excel to use only 0 or 1 to include or exclude an amount from its solution. Now, click “Solve” and hopefully there is now a 1 next to each of the numbers summed together to make the subtotal. Sorry, this tip does not work with a list with repeating amounts, and if you know of a less complicated approach, please let me know. George D. Strudgeon, CPA, CGFM, is an audit director at the Virginia Auditor of Public Accounts in Richmond. Email him if you have Excel topics you want him to cover. george.strudgeon@gmail.com connect.vscpa.com/GeorgeStrudgeon

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If so, you’re not alone — and hackers could be on to you. SplashData released its list of the worst passwords of 2017; some of them appear each year, like the No. 1 worst password, “123456,” but others are more creative. No. 16? “Starwars.” No. 18? “Dragon.” In case you were wondering which sports team makes an appearance first, it’s “lakers” at No. 37. And finally, several swear words are on the list, which will remain unmentionable. Here are the top 10 worst, which don’t win any words for creativity: 1. 2. 3. 4. 5. 6. 7. 8. 9. 10.

123456 password 12345678 qwerty 12345 123456789 letmein 1234567 football iloveyou

Remember, never use the same password for multiple websites. Create complex passwords by using a variety of characters and numbers, or create a sentence as your password. And finally, use a secure password manager to help you remember them all. More resources are available in a quick online search.

Visit vscpa.com/PAC

HELP KEEP OUR VOICES HEARD This year, many officials from the House of Delegates whom we’ve built strong relationships with over the past several years did not return to the General Assembly. This means the we will need to increase our efforts to forge new relationships with legislators. VSCPA PAC contributions are a key part of this effort. Whether you make a $50 or $100 contribution, every dollar helps build strong ties with legislators and keeps important issues at the forefront of this evolving political environment. Contribute online at vscpa.com/PAC.

Virginia Society of Certified Public Accountants Political Action Committee

advocacy

Tax conformity delayed in Richmond VSCPA members and staff navigate new legislative landscape during 2018 General Assembly session.

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s discussed in this space in the January/February issue of Disclosures, the VSCPA and everyone who works with the Virginia General Assembly are adjusting to the new normal. While the Republicans retained control of the House of Delegates by a 51–49 margin — and needed a random drawing in one tied race to do so — the House welcomed 19 freshman legislators in January and introduced several new committee chairs.

Unfortunately, the House and Senate substitutes didn’t match exactly — the Senate bill deconforms with the temporary reduction in the medical deduction floor. That discrepancy further delayed the bills’ passage, with the patrons — Del. Lee Ware (R-Powhatan) and Sen. Emmett Hanger (R-Augusta) — having to reconcile the language before the bills could be taken up on the opposite chamber.

All the turmoil has thrown a wrench into the annual issue of tax conformity, the 2017 version of which became law Feb. 3. Further complicating matters was the passage of the federal tax reform bill, the Tax Cuts and Jobs Act. As originally introduced, the House and Senate conformity bills set the fixed date of conformity at Dec. 1, 2017, instead of the usual Dec. 31 date, in order to deliberately exclude the federal tax reform bill from conformity while still including federal disaster relief measures passed in October 2017. However, early in the session, it became evident that the elements of the federal tax reform bill that pertained retroactively to 2017 returns would need to be included in conformity bills, necessitating substitute legislation.

When this issue went to print in mid-February, HB 154 was on Gov. Ralph Northam’s desk to sign with a deadline of midnight Feb. 19. SB 230 had passed both chambers. However, after passage of both bills Congress passed the Bipartisan Budget Act of 2018 (BBA), which includes several extenders impacting tax year 2017. The VSCPA expects Northam to send amendments back on one or both bills to accommodate the extenders included in the BBA, further delaying the enactment date of tax conformity. For the most up-to-date information on conformity and other issues, keep an eye on the Session Watch page at vscpa.com/SessionWatch as well as the Tax Community on Connect.

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advocacy

LICENSING LEGISLATION

OTHER BILLS

The VSCPA introduced two bills on behalf of the Virginia Board of Accountancy (VBOA), with one bill changing the VBOA’s schedule for license renewal with the goal of allowing the board to set one annual renewal date for all licensees and the other adding the board to the list of agencies that can decrease license fees without going through the Administrative Process Act. The annual renewal date bills, HB 752 and SB 428, contain an emergency clause and require the VBOA to promulgate regulations to be effective no later than July 1. As with conformity, the Senate version of the bill is moving more quickly, passing the Senate on Jan. 19. When this issue went to print, HB 752 had passed the Senate General Laws Committee and was under discussion in the Senate, while SB 428 was due for discussion in a House General Laws subcommittee.

Regulatory reform was a major focus in the 2017 session, and Northam raised the issue on the campaign trail before being elected in November. Numerous regulatory reform bills were introduced for 2018, and while the VSCPA did not take a position on any of those bills, we will continue to monitor them for any impacts on the VBOA and, by extension, the CPA profession. One bill of note is HB 883, which directs the Virginia Department of Planning and Budget to establish a regulation baseline budget and requires the elimination of two regulations for each proposed new regulation. This bill is expected to pass. We are also watching several tax reform bills and have several tax preparation bills on our radar, including one that requires paid return preparers to notify the Virginia Department of Taxation in the event of a data breach, triggered when any unencrypted or unredacted personal information is accessed by an unauthorized person. Another bill would require the use of federal Preparer Tax Identification Numbers (PTIN) when preparing state returns.

While the licensing fees bill is moving at a similar pace, it does not contain an emergency clause, so it won’t go into effect until July 1. The Senate version, SB 279, passed the Senate on Jan. 19 and was under discussion in the House General Laws Committee when we went to print. The House version, HB 753, was still in its chamber of origin.

CPA ASSEMBLY WEEK

Tax Season Cessation Program Experiencing: • Stress? • Lack of Sleep? • IRS induced Nausea?

CPA Assembly Day has always been a cornerstone of VSCPA advocacy efforts, bringing our practitioners to the General Assembly for a day of meetings with legislators. Logistical issues created by the rebuilding of the General Assembly office building forced us to reimagine the event, with large crowds not feasible due to the temporary quarters in the smaller Pocahontas Building. CPA Assembly Day became CPA Assembly Week, a series of smaller meetings between members, staffers and legislators. The good news is that members who attended sessions the week of Jan. 22 reported that legislators were still just as engaged with the profession and view the profession just as positively as before.

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We’re working to deal with the new normal in the General Assembly through innovative methods like CPA Assembly Week and our online Take Action tool, and we appreciate the efforts of all members who work with both. Keep an eye out for more ways you can help protect the CPA profession! n

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virginia taxation

Merging or acquiring? Don’t forget state and local taxes.

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otential state and local tax considerations are often given only cursory attention in a merger or acquisition. If the transaction is structured as the acquisition of stock (or ownership interest in the case of a non-corporate entity), the acquiring company is obtaining the target and all of its tax liabilities and exposures, except for those which may be mitigated or limited through the purchase agreement. Therefore, it is very important that the acquiring company identify — and, if possible, quantify — potential liabilities and exposures before finalizing the transaction.

Terry Barrett, CPA

Obtaining the information necessary to do this, though, is often hampered by the confidentiality of the proposed transaction and cooperation on the part of the target company. However, given the potential exposure, it’s imperative to analyze the target’s tax situation as thoroughly as possible. This article focuses on some of the state and local tax issues that may represent potential exposure or liability. In M&A, a wide range of taxes may come into play, such as income/franchise taxes, gross receipts, state/local business license fees, property taxes, sales and use tax and miscellaneous local taxes. Depending upon the nature of the business and the states or localities involved, there may also be other transactional taxes, such as utility, lodging/ meals or admissions, to name a few. Other non-tax — but often considered “tax-like” — issues are state

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business registrations and unclaimed property. And, there may be others depending on the industry and states involved. To say that it is complicated is an understatement. One of the key issues to consider in any acquisition is whether the target company has been properly reporting and paying taxes where the company has nexus. Nexus is a connection with a taxing jurisdiction sufficient to create a tax registration and reporting requirement. Today, it is rare for a business to be operating only in one state. Consider Internet transactions, traveling sales people, traveling employees, the storage of inventory in another state, work performed for customers located in other states — all have the potential to create nexus. In addition, states have adopted a variety of nexus standards, with some traditional (physical presence) and others focusing on economic activity (sales). These all must be considered in light of a business’s operations/ activities and compliance efforts. From an income tax perspective, federal law (Public Law (PL) 86-272) provides protections from income tax filing requirements when the only activity of a business in the state is the solicitation of sales of tangible personal property. However, there is generally an income tax filing requirement when the in-state activities go beyond mere solicitation. Further, PL 86-272 does not extend to sales of services or

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virginia taxation

annual fees that must be paid to bring a business into good standing with a state.

intangibles. In addition, PL 86-272 does not afford any protections against state franchise, gross receipts or other alternate base income tax. Many businesses try to claim the PL 86-272 exclusion even if their activities in a state go beyond “mere solicitation” or they are providing services in a state. Consideration must be given, however, to the actual activities and level of business in the states and the state-specific taxes (income, franchise, gross receipts).

Unclaimed property is property that is held by one person (the holder) that belongs to someone else (the owner). Examples of property unclaimed by the owner are payroll checks, customer credits, gift cards and deposit checks. While holders are required to report unclaimed property to the state of the last known address of the owner, often this property is not reported — whether intentional or unintentional — and is taken back into “income.” Depending upon the nature of the business, unclaimed property may present a significant liability. The increased use of gift cards across many businesses makes this an issue of increasing importance.

Sales tax is often viewed as unimportant, but the failure of a business to properly collect and remit sales tax on taxable sales or services or report use tax due on purchases can give rise to large tax liabilities. This issue frequently arises with businesses that have sales representatives traveling to multiple states, that are selling over the Internet or that are providing services by their own employees or through independent contractors in other states. A close examination of the target business’s operations from a sales tax perspective and a determination of corrective measures, if necessary, can help mitigate potential liabilities down the road.

There may be state and local tax implications if the transaction is structured as the sale of assets. Transactional or transfer taxes may apply, depending upon the states and localities involved. The sale of business assets may be subject to the sales tax in some states unless certain exemptions apply. Many states have occasional or casual sale exemptions that typically apply to the sale of assets not normally sold in the ordinary course of business, such as capital assets, or the sale of all or substantially all the assets of a business. These exemptions generally do not apply, however, to vehicles where taxes typically are due upon the transfer of owner. Inventory typically is not covered by these exemptions but may be exempt under a resale exemption. The states’ rules where assets are located should be carefully considered as a seller generally is required to collect the tax unless an exemption applies, however, the state may pursue the payment of the tax from the buyer. The sale of real property may be subject realty transfer taxes. These taxes generally must be paid at the time a deed is recorded.

Keep in mind, PL 86-272 does not provide protection from the collection of sales tax. If a business is noncompliant, the sales tax liability often shifts from a customer tax to a company tax if the company chooses not to “go after” the customer to pay the sales tax. As it relates to use tax, more and more purchases are from online businesses that may not properly assess sales tax or are not required to collect in a certain state. In this case, the business must review invoices for goods purchased to be certain proper sales tax has been paid or to self-assess and remit the use tax. Often states or localities have business license taxes and property taxes (real and personal). These taxes may be overlooked if the target does not have a physical office in the state, but merely has property or business activity. Consider situations in which a business leases personal property to others. In most cases, the business owner is subject to the tax, but can by law pass the tax through to the customer. Local taxes due to individual states in any given year may not be significant, but often localities will not compromise on taxes due or waive interest or penalties when they identify noncompliant taxpayers or these noncompliant taxpayers voluntarily turn themselves in. Catching up on these taxes may be costly.

In recent years, some states have enacted controlling interest transfer taxes. These are imposed on transfers of an ownership interest in an entity that directly or indirectly owns real estate, unlike the realty transfer taxes that are imposed only when the real estate itself is transferred. The intent of these controlling interest laws is to capture tax that may be avoided by a taxpayer who contributes property to an entity and then sells an equity interest in the entity. These laws are all different and complicated but should be considered, if applicable.

Non-tax issues that should also be considered are state registrations and unclaimed property. Most states take the position that registration with the Secretary of State is required if a business is “transacting business” in the state. The term “transacting business” may or may not be defined by the state and often the Secretary of State offices provide limited guidance as to whether a particular business should be registered. However, the penalties for noncompliance can be rather substantial in some states; for example, in Connecticut, the penalties for failing to register with the Secretary of State are $300 per month for periods beginning October 2009 and after. These penalties are in addition to the

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State and local tax considerations should not be overlooked in any business acquisition. n

Terry Barrett, CPA, is a tax senior manager at Keiter in Glen Allen. She focuses on state and local tax consulting and primarily non-income tax issues, such as sales and use tax and business license and personal property tax, in Virginia and other states. tbarrett@keitercpa.com (804) 273-6254

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connect.vscpa.com/TerryBarrett keitercpa.com

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cpa pipeline

CPAs head back to class CPA members school students about why they should consider accounting as a career.

Phil Umansky, CPA, a VSCPA member and retired accounting professor from Virginia Union University, presented to students at Hermitage High School in Henrico County on Jan. 3.

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ne of the four bold strategies of the VSCPA2025 strategic plan is “influence students to become CPAs.” While our work on college campuses remains a major pillar of that strategy, another way we’ve tried to encourage students to check out the profession has been getting our members in front of students at a younger age.

“Having a VSCPA member speak to students has a tremendous impact on the pipeline,” said VSCPA Academic Engagement Director Molly Wash, CAE. “Members help students better understand the various career paths available to CPAs, and CPAs give students a glimpse into the day-to-day life of a CPA and real-life insights on preparing for the CPA Exam.”

Even though VSCPA staffers are devoted to the profession and eager to talk about it with students, it doesn’t carry the same weight as an actual CPA talking about what he or she does. CPAs can speak from experience, are better equipped to answer many questions and offer a level of authenticity that VSCPA staff can’t match.

Phil Umansky, CPA, is used to being in front of the CPAs of tomorrow. He spent 27 years as an accounting professor at Virginia Union University in Richmond, helping train countless students for the profession. So it was a natural step for him to speak to high school students about what CPAs do and what students need to do to enter their ranks.

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cpa pipeline

DO YOU WANT TO DO THIS?

Umansky retired at the end of 2015 and has filled a significant portion of the newly found free time in his schedule with VSCPA speaking engagements. Some of those include financial literacy presentations — which the Society has traditionally used as an indirect way to promote the profession — but many were explicitly aimed at educating students about the profession. A non-exhaustive list of the schools he’s hit include:

The next generation of accountants wants to hear from you! Sign up for school speaking engagements using the VSCPA’s Volunteer Manager system at vscpa.com/Volunteer. Already takling with students? Email VSCPA Student & Member Engagement Specialist Lauren Simonetti at lsimonetti@vscpa.com and let us know!

• John Tyler Community College in Midlothian • Wakefield High School in Arlington • Hermitage High School in Henrico County • J.R. Tucker High School in Henrico County (in conjunction with Junior Achievement of Central Virginia and Glen Allen firm Keiter)

and James River High School — has kept her coming back even now that her sons are grown. “I love expressing what we do in the form of stories,” she said. “Teachers learn, too. They appreciate the out-of-classroom perspective on the profession.”

• Deep Run High School in Glen Allen He’s got another engagement coming up in March at Douglas Freeman High School in Henrico County. Some of those presentations also involved his wife, Carol, a non-CPA accounting instructor (and VSCPA member) who retired from Virginia Union at the same time he did.

In addition to her classroom work, Germano — president of Actuarial Benefits & Design Company in Midlothian — has helped high school students get some early on-the-job training. She works with groups of students to run the concession stand at James River baseball games and during summer tournaments — she’s rarely on site, but teaches them how to manage a grill and menu and, most importantly, get direct, hands-on experience with cash management, marketing, cost/profit margin, spoilage and reconciliation.

“Most of the questions I receive relate to entering career opportunities and salaries, career progression and skills, knowledge, behaviors and attitudes needed for success,” he said. “But, most importantly, what is the function of accounting in an organization and society and how it guides resource allocation.”

Germano speaks with high school groups about twice a month during the school year, but the baseball concession stand represents a unique labor of love for her. Her sons played baseball at James River, and she’s served on the board of directors for Huguenot Little League. But her devotion to the profession is what keeps her coming back to classrooms and career days.

Umansky is used to working to attract students to accounting. He was involved in freshman recruitment at Virginia Union and often worked open houses for prospective students, where he would discuss the profession with them. Part of his work in teaching introductory and intermediate accounting courses also involved going over the career opportunities that come with the CPA credential.

Other VSCPA members have gone the career-day route. Barbara Cole, CPA, of Bowlmor-AMF in Mechanicsville, spoke at Caroline Middle School last November. She had mixed results, noting that many of the students were probably too young for her table, but plans to return for the career day at Caroline High School in March.

Umansky’s speaking engagements cover a wide range of student ages and backgrounds, but it’s not even the full breadth of the students he and his wife encounter. They’ve volunteered with Junior Achievement to present money management courses to Richmond-area elementary-school students, during which they touch on how accountants “keep track of the money and resources.”

Two VSCPA members from Richmond helped volunteer at Mission Tomorrow last November, a similar event held for middle-school students at Richmond International Raceway. Darron Chapman, a staff accountant at PBMares, and Vishali Kachiraju, CPA, a sole practitioner, were on hand to explain the profession to students from across Central Virginia. u

Another VSPCA member, former Board of Directors Chair Lisa Germano, CPA, started speaking in elementary school classrooms and career days when her sons were going through school in Chesterfield County. The reception she’s gotten at Midlothian schools — Robious Elementary School, Robious Middle School

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cpa pipeline

While those types of events tend to be chaotic and fast-paced, they’re still an important way to expose students to the profession. The VSCPA had success at the Mission Tomorrow event using a life-sized, custom-made Monopoly board showcasing different career paths CPAs can take. A pair of gigantic novelty dice may have had something to do with that, and those kinds of enticing goodies can help accountants draw students to their presentations among flashier professions.

That’s where you come in. You can sign up for school speaking engagements using the VSCPA’s Volunteer Manager system at vscpa.com/Volunteer, and if you’re already talking with students, we want to hear about it. Email VSCPA Student & Member Engagement Specialist Lauren Simonetti at lsimonetti@vscpa.com so we know you’re doing your part to influence students to become CPAs. It’s informative for the students, it helps protect the future of the profession — and you might just enjoy yourself a little bit.

Some aspects of the profession are “sexier” than others — students who attended Mission Tomorrow got excited when they landed on the “FBI Agent” square of the Monopoly board, and Umansky says he tends to get questions about the role forensic accountants play in detecting and investigating financial crimes — but real-world, honest stories and experiences from real CPAs are the most effective way to attract students to the profession.

“I have always enjoyed interacting with young people, as it keeps me young, at least at heart and mind,” Umansky said. “More importantly, I feel that I am helping the profession and the student.” n

It’s Time to Renew! Annual renewal is due by May 31, 2018 Online: vscpa.com/Renew Phone: (800) 733-8272 Benefits: vscpa.com/Benefits

Thank You for being a member!

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taxation

Safe harbor available for R&D Qualifying taxpayers may avoid challenge to their R&D credit.

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here’s a new favorable change in the area of the research and development (R&D) tax credit.

Issued on Sept. 11, 2017, a U.S. Internal Revenue Service (IRS) directive (LB&I Memorandum No: LB&I04-0917-005) creates a new safe harbor whereby the IRS will accept as sufficient evidence of Qualified Research Expenses (QRE) the adjusted ASC 730 financial statement R&D expensed for the credit year. Michael Krajcer, JD, CPA

The IRS created this safe harbor to address the significant burden taxpayers and the IRS face in determining the correct amount of R&D credits. The directive is intended to relieve some large business and international (LB&I) company audit resources that have historically been devoted to auditing this area, and to create an efficient manner for determining QRE for applicable taxpayers. Although this safe harbor may be popular with taxpayers in this area, there are definitely some restrictions on its application and limitations to the expenses it will cover. Below is a quick overview on these requirements and limitations.

• For qualified individual contributors, QRE are limited to 95 percent of W2 wage amount included under ASC 730. • For first-level supervisor managers, QRE are limited to 95 percent of W2 wage amount included under ASC 730. • For upper-level managers, QRE are limited to the lesser of 10 percent of the amount claimed for qualified individual contributors and first-level supervisor manager QRE, or 100 percent of the actual upper level managers’ W2 compensation included as R&D under ASC 730. • Contract research expenses are explicitly excluded from the directive on safe harbor.

EFFECTIVE DATE The provisions described in this directive may be claimed on original returns and timely filed (including extensions) now. The effective date was Sept. 11, 2017.

CONCLUSION

DIRECTIVE REQUIREMENTS The directive does not apply to all taxpayers. Specific requirements identified include: • The taxpayer must be an LB&I taxpayer with assets equal to or greater than $10,000,000. • The taxpayer must follow U.S. Generally Accepted Accounting Principles (GAAP) to prepare certified audited financial statements. • The taxpayer’s financial statements must identify the amount of expensed R&D per Accounting Standards Codification (ASC) 730 on a separate line item on the income statement or in note to statement. For taxpayers meeting these requirements, the directive is optional. The decision to elect the directive will likely require a balancing of the certainty the safe harbor offers with the QRE limitations that the directive demands. These limitations are listed below.

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It is encouraging that the IRS is addressing the significant resource burden that both taxpayers and the government are expending in the related compliance efforts associated with the R&D credit. A safe harbor provision will allow eligible taxpayers to enjoy some level of certainty in the amount of their claimed credit amounts. Qualified taxpayers would be wise to consider this directive and weigh the benefits of this certainty and saved compliance costs versus the cost of the limited QRE that the safe harbor election will require. n

Michael Krajcer, JD, CPA, is president of Tax Credits Group. He has specialized in the R&D tax credit since he started with IRS in 1986 and was the Cleveland large case technical specialist on the issue. michael@taxcreditsgroup.com.

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young professionals

It’s about the people The best managers work on developing the people who work for them into managers themselves.

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ecoming a successful manager of people seems like a straightforward task. One: Identify the manager who you prefer to work under. Two: Do exactly what they do.

Suraj Naik, CPA

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leaders of the firm. Organizations spend countless resources on recruiting, training and retaining staff. But in the end, even if staff receive an outstanding benefits package, they will consider leaving if they are working under ineffective managers.

So why do organizations spend countless dollars training managers on how to work with those under their supervision? After all, managers are required to possess the technical expertise relevant to their field and organization. For example, Ernst & Young (EY) requires applicants to be licensed CPAs to even qualify for a manager role.

PAYING ATTENTION

Yet a large extent of what supervisors do each day is manage people. Consequently, EY not only has continuing professional education for managers but counselors, counselor training, feedback training, regular coaching surveys and mentorship groups — all of which are designed to develop current and future

Listening to and learning from those we manage is critical. Opinions generally come from one of two types of employees: Brand-new, entry-level staff and experienced individuals. Whereas the green staff may be best at proposing how to onboard newly hired employees, an experienced supervisee may be able to

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So how do great managers develop people? Three continuous activities seem to be most effective: listening and learning from one’s employees, providing useful feedback and preparing others for leadership.

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young professionals

provide the manager with better ideas on assigning roles for the project or filling out mandatory documentation. Actively involving staff in decision-making is an excellent development tool for future managers. Additionally, by not having staff merely complete an assignment, they will instead learn to analyze opportunities to simplify and improve the work product.

and requested that I “approve” their legitimacy in a subsequent sit-down meeting. Overall, the managers identified problems immediately with the same goal — they wanted me to succeed and show me how to do so.

On the other hand, managers must tactfully draw the line when required. With my firm, for example, assisting new hires and orientation does have limits. Those joining the engagement in October do so during federal assurance busy season, so a proper orientation from leadership is not possible. Circumstances may prevent good ideas from coming to fruition, but to keep employees engaged, managers can explain why the plan is not feasible and offer a compromise or a better timeframe for the idea. For example, a manager could use the lunch hour to explain the firm’s goals rather than a traditional office setting. As a result, the project can stay on track, but the staff does not feel brushed off or that their opinion was entirely ignored.

While listening to one’s employees and providing appropriate feedback are two important actions for good managers of people, the most important is preparing future managers. No doubt, firms offer hours of training to develop managers, but I believe organizations can only accomplish this goal by allowing those being managed to act as managers before they are promoted to that role.

CULTIVATING NEW LEADERS

I see well-liked, highly regarded managers routinely offer opportunities to younger employees at EY. As early as in their second year, staff usually take charge of an audit task or project and oversee a fellow staff to complete the task. They predictably struggle, as they would rather perform the work the way they learned it and also fix a supervisee’s tasks if not completed within the guidelines. But eventually, staff learning to become managers begin to understand that listening to others’ considerations and offering feedback are the most efficient choices.

PROVIDING FEEDBACK Another key aspect of managing people is the ability to coach. We often consider end-of-year feedback and counseling as the end-all, be-all. And while there is some truth that one’s yearend rating often determines compensation and job advancement, good managers understand that coaching is a continuous process. Informal, timely feedback can develop employees throughout the year.

Allowing space to let others supervise smaller projects might lead to mistakes and maybe more time resolving problems in the short-term. In the long-term, however, the manager can prioritize engagement-level concerns while the daily activities are performed by those staff.

As a CPA, I know the hours we spent to earn the license and, consequently, we tend to mirror that effort in our work. I also know that struggling early in your career or with a new firm is common, and I experienced that first-hand by joining the federal practice with no federal audit experience. So how do managers inform high achievers that their initial work may need many revisions, while still recognizing their efforts?

BUILDING BETTER MANAGERS Based on the opinions of far more knowledgeable writers and thinkers out there, there are a multitude of traits good managers possess. They have strong ethics, exude the “tone-at-the-top” mentality, credit their staff routinely, accept responsibility for project failures and so forth. Most agree, though, that being a manager requires a skill set composed of more than just the knowledge gleaned from four (very difficult) accounting exams. As a result, firms spend hundreds of thousands of dollars on competitive benefits, only to realize employees continue to leave with a poor manager at the helm. In the end, managers who successfully retain employees listen, critique in order to improve and nurture and develop the leadership skills of others. n

Identification of the problem is only the first step; managers developing people must include both a potential solution and future recommendation. Managers must be truthful and state the facts as soon as possible. Not clearly explaining the problem or waiting too long to express an opinion will result in the employee repeatedly producing low-quality work. Many of these disconnects are not the fault of either party, and rather are a misunderstanding based on how different individuals receive and communicate information.

Suraj Naik, CPA, is a senior auditor in Ernst & Young’s Government and Public Sector practice. He serves on the VSCPA Young Professional’s Advisory Council.

Frank discussions offering insight to encourage better work in the future can be accomplished in many ways. I had one manager evaluate my first interactions with clients by inviting me to practice conference calls and in-person discussions. Another manager preferred to note his review workpaper comments

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snaikcpa@gmail.com connect.vscpa.com/SurajNaik linkedin.com/in/surajunaik

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industry

LIGHTS, CAMERA, CPA ACTION! CPAs are an integral part to helping film companies in Virginia take advantage of tax incentives.

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I

f you were in the right place at the right time over the past few years, you might have seen Claire Danes or Daniel Day-Lewis in costume in the streets of downtown Richmond or Ashley Judd plying her trade in scenic Wise County. Less than a year ago, Ruth Negga was nominated for an Academy Award for work she did all over central Virginia in Loving.

But did you know that accountants play a role in bringing a piece of Hollywood to Virginia? Chip Knighton

Since 2012, Virginia has ramped up its use of tax credits and other incentives to lure film productions to the Commonwealth. The Virginia Motion Picture Tax Credit Fund provides refundable tax credits to qualified productions, while the Motion Picture Opportunity Fund provides grants, to the tune of more than $6 million in tax credits given out in fiscal 2017. The credit, originally scheduled to sunset at the end of 2018, is now available through Jan. 1, 2022, creating a great opportunity to provide what Virginia Film Office (VFO) Director Andy Edmunds says can be a boon to a region. “When a production comes to a region or a state, they’re like super tourists with a payroll,” he said. “They do everything that tourists do, but they also hire people and do everything from buying paper clips to renting helicopters.” Virginia is far from the only state to offer tax incentives for film production. Louisiana started the trend in 2001 in response to the rise of the film industry in Canada, and more than 40 states currently offer some form of tax incentives or credits. Film Production Capital, a

tax credit brokerage company specializing in state tax incentives for film and other arts, rates Virginia a twostar state (out of five), with only Georgia and Kentucky earning five-star ratings, largely because of a lack of a cap on credits awarded. “Canada had successfully attracted productions outside of California,” said John Bails, executive vice president of Film Production Capital. “States looked at that and said if they can convince them to go to British Columbia and Toronto and places like that, it’s probably not that far off to get them to go to Georgia or Louisiana.” Even California, the traditional home of American filmmaking, has jumped into the fray in response to so-called “runaway” productions fleeing the state for Canada or other states. That program, aimed at protecting workers and infrastructure based in the state, limits which productions can take advantage of the credit and specifically targets series that had left Hollywood. Virginia currently offers a refundable tax credit of 15 percent (20 percent for productions filming in economically distressed areas), with the potential of an additional credit of 10 to 20 percent of total Virginia resident aggregate payroll, depending on how much money is spent. Productions can claim a further 10 percent of total aggregate payroll for Virginia residents who are employed as actors or crew members for the first time. Productions that receive the credit must spend at least $250,000 and make an effort to have 50 percent of filming take place in Virginia. u

Know this... • The Virginia Motion Picture Tax Credit Fund provides refundable tax credits to qualified productions, while the Motion Picture Opportunity Fund provides grants. • Film companies submit proposed budgets to the Virginia Film Office, which reviews them and handles the tax credits. In an Agreed-Upon Procedures engagement, CPAs ensure the companies follow their budgets. • Virginia spent about $43 million on film incentives from fiscal 2012–2016.

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Economic impact by the numbers According to the Motion Picture Association of America, in 2016 film and television projects were responsible nationally for: • 2.1 million jobs in 50 states • $139 billion in wages • $49 billion to more than 300,000 businesses (87 percent of which are small businesses, with 10 employees or fewer) In Virginia: • 12,329 in direct jobs • $632.98 million in wages • 2,592 production-related jobs In 2015–2016, 12 movies and 4 television series were shot in Virginia, including the films Loving and Jason Bourne. TV series included Turn: Washington’s Spies and Rebel Gold.

The exemptions go beyond that. Productions that require actors or crew members to stay in Virginia hotels or motels for 90 consecutive days aren’t required to pay lodging taxes after that point, with the amount already paid credited back to the bill. Most Virginia localities exempt productions from those taxes after stays of 30 consecutive days. Companies submit a proposed budget, at which point the VFO reviews it and sets aside tax credits for the production, with the credits and grants actually awarded after the production’s documents are reviewed. That’s where CPAs enter the picture (from stage left?) — making sure the production companies are living up to their end of the bargain. Richmond firm Garner, Adams & Associates is one of the CPA firms in Virginia working on the film production credit, and VSCPA member George Garner, CPA, the firm’s managing director, is responsible for this attest engagement. “Technically, it is an Agreed-Upon Procedures engagement,” he said. “The film office has a list of procedures that have to be followed, and the work is the work of the film production company. We’re verifying and making sure that they meet the criteria set up by the film office.” Garner, Adams & Associates typically performs accounting, tax, review and CFO services for individuals and businesses. Stacy Cooper, an enrolled agent who works with Garner on the firm’s film production work, says that sifting through a production’s payroll expenses is the most time-consuming part of any film production engagement. “If the film is shooting inside and outside of Virginia, any specific reports that show what days were shot in Virginia versus out of Virginia will factor into the credit or grant calculations,” she said. “That tends to be the hardest part of it — trying

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to tear apart payroll reports to get the relevant information for the Virginia film office criteria and making sure they get what they’re entitled to, but nothing more and nothing less. Depending on who they have do their payroll, it may or may not be an easy report for them to run.” “We’re testing that they are complying with these procedures,” Garner said, “which are broken down into the areas of the production qualification procedures, the cost review procedures and the calculation of the credit.” In total, Virginia spent about $43 million on film incentives from fiscal 2012–2016. The Virginia Joint Legislative Audit and Review Commission (JLARC) estimated that 95 percent of productions would not have filmed in Virginia without those incentives. The picture JLARC painted wasn’t completely rosy. The agency estimated that the film industry has returned about 20 cents for every dollar it received in tax credit and 30 cents for every dollar in grants over a study period from 2012–2016. Edmunds accepts those numbers, but pointed out that it’s difficult to capture the full picture of what the film industry can offer the state. “The challenge of the JLARC report is that it looked at film production through the lens of traditional manufacturing, and it’s not traditional manufacturing,” he said. “No one is going to plan a vacation to visit a coat-hanger factory.” He assessed the tax credits as a money loser on tax revenue, but said the increased exposure brings the money back in increased tourism. “They assigned it a dollar value, but didn’t include that in their equation by which they compared the industry to traditional manufacturing,” he said. “The conclusion on the front page is that compared to traditional manufacturing,

industry

Anthony Platt/AMC

Courtesy PBS

Mercy Street (left), a Civil War drama that filmed in Petersburg and Richmond, aired on PBS from 2016–2017. Turn: Washington’s Spies, a Revolutionary-era drama on AMC, was filmed in Richmond, Williamsburg, Yorktown and Petersburg. it’s not as much of a return. We’re all about making it more efficient and we look forward to working with JLARC to implement that. But the fact remains that the data that’s in that report shows that the value that was in the tourism piece that they recognize and they celebrate was not used in the calculation on which the conclusions were drawn.” Edmunds noted Georgia’s burgeoning film industry as a success story for tax incentives, citing the state’s transferrable tax credit that can be sold at 85 cents on the dollar to anyone who has tax liability in the state. Georgia also doesn’t cap its tax credit program, allowing it to lure major film productions such as the Marvel superhero movies and spurring production of the state-of-the-art Pinewood Studios outside Atlanta. Georgia awarded an average of more than $200 million a year in film tax credits from 2014–2016, with the productions spending more than $2 billion in the state and employing more than 25,000 people in 2016. Edmunds cited a Georgia production as an example of how film production can have ripple effects on a state or community. Senoia, the Atlanta suburb that hosts Riverwood Studios and AMC’s The Walking Dead, had a 40 percent downtown

storefront occupancy rate when the show began filming in 2010. The occupancy rate has grown to 100 percent in the last eight years. With its capped credit, Virginia can’t compete with Georgia and other traditional film hotbeds like California and New York. To compensate, Edmunds targets smaller productions like Loving and Big Stone Gap, the film that brought Judd to the eponymous town in Southwest Virginia. “You’re not going to attract a whole lot of volume when you’re capping your program funding where only one small film can take advantage of it,” Bails said. “They don’t know how much funding year to year they’re going to have, and for independents that plan one or two years out, they don’t have the luxury of guessing whether Virginia’s going to have money.” One example of a successful television partnership is AMC’s Turn: Washington’s Spies, a Revolutionary War-era drama filmed in Richmond, Williamsburg, Yorktown and Petersburg. The VFO cut a unique deal with AMC that called for the channel to film and air 200 Virginia tourism commercials. The first three seasons of Turn, which

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wrapped up its four-season run last April, occupy the second, third and fourth spots on the list of productions which spent the most money in Virginia, trailing only Lincoln, the 2012 Steven Spielberg movie nominated for Best Picture at the Academy Awards. That production spent more than $32 million in the Commonwealth and earned Day-Lewis his third Oscar as Best Actor for his portrayal of President Abraham Lincoln. While $32 million is a large number, it pales in comparison to the nearly $74 million Turn spent when producing its first three seasons. That kind of consistent spending is why Edmunds looks to bring television production to the Commonwealth. “We want to target series television for the unique jobs it creates year after year,” he said. “It’s almost a factory when you have a television show.” Virginia’s move to a more sustainable model has been echoed nationwide as states move away from what had been a period of explosive growth in tax incentives. “That’s kind of how it was in the run-up to the financial crisis,” Bails said. “States were saying, ‘I’ve got a 30 percent credit, u

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Ben Rothstein/Focus Features (both pictures)

The 2016 critically acclaimed film Loving, starring Ruth Negga and Joel Edgerton, was filmed around central Virginia. I’ve got a 40 percent credit, I’ve got a 50 percent credit.’ Now you’re seeing, ‘We can consistently provide this every year’ versus ‘We have to check our funding for next year.’ It’s a sustainability and survival competition rather than a ramping-up competition.” The shows filmed in Virginia share a common thread — they’re historical in nature, as is Loving, which tells the story of a Caroline County couple who were the plaintiffs in Loving v. Virginia, the Supreme Court case that invalidated laws prohibiting interracial marriage. The two biggest film production grants the VFO has awarded were outlays of $2.8 million for the two seasons of Mercy Street, a Civil War drama that filmed in Petersburg and Richmond and aired on PBS from 2016–2017. Virginia is a natural choice for those kinds of productions, with its rich Colonial history and wealth of historical sites. Attracting productions to film those stories at those sites can have ancillary benefits — Edmunds cites the example of Mount Vernon, President George Washington’s house outside Alexandria, which initially didn’t want to be involved with the National Treasure movies with Nicolas Cage, but has run a popular tour based on the movies for the past 11 years. Proximity to Washington, D.C., is another plus for the Commonwealth, and Richmond and Alexandria can serve as stand-ins for the nation’s capital. That’s a big reason why Danes was in Richmond last year filming scenes for Showtime’s spy thriller Homeland. And Virginia’s topography means that a film crew can get

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historical sites, beaches and mountains in relatively short order. “It’s projects that have a logistical reason to film there in the first place,” Bails said. “Maybe they’re filming outside of D.C. It’s more of a windfall than it is an actual incentive to go to Virginia versus some other place.” The VFO also works with localities to incentivize filming, often through the use of municipally owned assets that can serve as temporary local production offices. State agencies also enter the mix in that way, providing unused assets for production. Edmunds said that 22 different state agencies had a role in the production of Lincoln. “We get really creative with what we’ll provide in the location fee so the budget will work,” he said. “In lieu of a check, we’ll provide these things to help the bottom line, and we feel we do those things better than any other state.” Add in the extra tax break for hiring Virginia residents, which rises even more if they’re working in film production for the first time, and it’s a lot to keep track of. Cooper is used to chasing down disparate employees in various facets of the film industry who return to their home state when production is done, and she says open, reliable communications are the biggest key to getting the information she needs. But beyond that, she welcomes her film production work as a palate cleanser and a window into a world

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most people only see on screens and read about in magazines. “The most interesting thing about it is just the industry itself,” she said. “You’re sitting here doing tax returns and accounting, and it’s really a nice shift in perspective whenever you get to look at some of these different arenas. That, to me, is more interesting — getting to talk to and actually be a part of the film office and how they run their operations. “It’s not your business-suit-and-tie kind of clientele. When you’re dealing with numbers all day, you have to be more logical. These people are very creative and artistic and just a nice change of pace.” n

“Every single person loved being in Richmond. It’s part of the movie. It really is.”

Chip Knighton is communications manager at the VSCPA, as well as contributing editor at Disclosures magazine.

— Sally Field, Lincoln (quote courtesy of Virginia Film Office)

cknighton@vscpa.com connect.vscpa.com/ChipKnighton @ChipKnighton

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client relations

WHEN THEY DON’T WANT TO HEAR WHAT YOU HAVE TO SAY Navigating difficult client conversations is part of being a CPA, but that doesn’t make it easy.

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client relations

We all have had them.

David R. Peters, CPA

Those moments when we know we have to tell a client something they do not want to hear. Perhaps it is when we have to tell the client that an expenditure is not deductible, like they were hoping. Perhaps it is that hot-button issue we know the client is not going to be terribly open to discussing. Perhaps it is when we have to admit we made a mistake. In those moments, we wish we could be anywhere else — instantaneously teleported to our couch at home, halfway around the world or a deserted island. Anywhere would be fine, as long as we are away from the gaze of the soon-to-be unhappy client. When we know that a client is not going to like the news we must deliver, communication can be difficult. The prospect of having to talk to a client about a sensitive topic can be intimidating. While some CPAs may take some degree of pride in their ability to “let things roll off their back,” the fact is that we all want to be liked. We want our clients to think we are smart. We want our clients to feel that their money is well spent with us. Simply put, we want our clients to like us. However, how can our clients like us when we have to tell them bad news? Before I went into the accounting profession, I briefly worked as a hospital chaplain in Pittsburgh. The University of Pittsburgh Medical Center is a huge hospital composed of several smaller hospitals that, over time, had merged into one enormous complex. I used to cover three different floors, talking to patients and their families about everything from the bad hospital food to issues of life and death. Difficult

conversations were the norm in that environment, especially when I would make my daily rounds in one of the intensive care units. Emotions often ran high on that floor, and, similar to the accountant who is only interpreting what the tax code means, I was often guilty by simply walking in the patient’s room after they had found out something they didn’t want to hear. I was guilty by association. At first, I would try to counter their anger by trying to help the patient see how illogical it was to be mad at me. However, similar to the way a client is not really open to hearing how a Financial Accounting Standards Board (FASB) rule is equitable in most circumstances, patients were not really open to hearing logic. Through these experiences, I developed a new approach to successfully get through those moments. While the conversations have gone from being about life and death to taxable income and deductible expenditures, many of the concepts I used as a chaplain are still applicable when I walk into the room to give difficult news to one of my clients today.

ACKNOWLEDGING THE MOMENT For a long time, I thought the key to talking about a difficult topic was finding the magic words that would instantly make the conversation comfortable. But here’s the truth: There are no magic words. A tense room is a tense room. There is nothing you can say that will make that disappear. However, acknowledging the difficulty of the moment is helpful. Tell the client this is going to be a hard conversation. Tell the client they are probably not going to like what you are about to tell them. Tell them you wish that you had better u

Know this... • At some point, all CPAs will have to sit down with a client to discuss a sensitive topic or deliver bad news. • When having difficult conversations, acknowledge to your listener that you understand the gravity of the situation and then give them space to digest and react. • Being genuine is the key to effectively communicating bad news, which demonstrates that you care for your client’s well-being.

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O news to offer. Saying these things acknowledges the situation you are both in by describing what you are both likely feeling in the heat of the moment. It reinforces the fact that you are being genuine and honest. You are not trying to pretend that the situation is anything but what it actually is — a difficult conversation. Let me be clear: Saying these things will not make the conversation less heated and also does not give you license to say anything less than what you need to say to the client. You need to tell them what they need to hear (bad news and all) right after you acknowledge the moment. If you don’t, you will ruin the credibility you just helped build. You just acknowledged the moment as hard, and established that you are an honest professional who genuinely wants to help. If you don’t follow that up with an honest, straight-forward message to the client, you lose everything you just established. However, when you acknowledge that a situation is difficult, you can more easily make the transition in the client’s mind to someone who is genuinely looking to help. You are not a cold professional. You understand that the moment is hard, and you simply want to help if you can.

GIVE THE CLIENT ROOM Have you ever been in a room where you are constantly interrupted? If you have, then you know how frustrating it can be to feel like you are not being heard or are not an equal. You are not being recognized as someone who can legitimately contribute to the conversation with ideas and thoughts. This is obviously a terrible feeling; one we hope none of our clients would ever have. In the heat of delivering hard news to a client though, we are often so worried about the client being mad that we may try to keep talking. It is almost as if we think that if we never end our sentence, the client won’t have a chance to be angry or upset.

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Such reasoning, whether conscious or not, is clearly illogical. In truth, we do more damage by not giving the client room to react to our news. We inadvertently send the message that their feelings and concerns do not matter enough for us to listen to them. While this can be difficult, especially if the client is likely to be angry, it is important to give them the space to say what they need to say. It is important for you to acknowledge that you hear them and understand their frustration. Obviously, a big part of successfully giving a client space to react to bad news involves listening. As a chaplain, one of the most important things I learned from some of my colleagues is that if you listen to someone long enough, they will tell you everything. If you want to get a complete idea of what the client is feeling, just listen. Don’t feel the need to fill an awkward silence. You don’t need to respond to everything that is said. Just listen. Let the client be angry, sad or frustrated, and acknowledge it. By doing this, the client knows you respect their feelings and thoughts.

BE CLEAR YOU WANT A BETTER OUTCOME You want to get the client to the point that they are no longer looking at you as adversary — the person who has delivered bad news. Once you have acknowledged the difficulty of the moment and truly listened to their response, use what they have told you to find workable solutions. Be clear that this is what you want to do, even if not in the heat of the moment. For example, as a tax practitioner, I often run across situations in which a client is not in an ideal tax situation. There may not be much I can do on the current year’s return, but I always offer a plan for how we can improve going forward. I also tell them I want to help them achieve a better outcome on future returns. While this may not stop a client from being unhappy about the current situation, it does send the

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message that you want to help. You are in their corner and looking out for their wellbeing going forward. The key to all of these approaches is being genuine. Most people can tell if you are not being honest with them, or simply trying to give them a line. So don’t do that. Only say things you mean, be truthful and show genuine concern for your client’s well-being. While this will not make you an expert at navigating difficult conversations — I don’t think such a person exists — it will help you to get your point across and send the message that you value the person sitting across the table from you. n

David Peters, CPA, is the sole proprietor of Peters Tax Preparation & Consulting, as well as an outside representative for Carroll Financial Inc. He is an adjunct professor in accounting, insurance and ethics, and a doctoral student in financial planning. He sits on the VSCPA Editorial Task Force. dpeters@carrollfinancial.com connect.vscpa.com/DavidPeters The information discussed herein is general in nature and provided for informational purposes only. There is no guarantee as to its accuracy or completeness. Nothing in this article constitutes an offer to sell or a solicitation of any offer to buy any type of securities. Registered representative offering securities through Cetera Advisor Networks LLC, Member SIPC/FINRA. Advisory services offered through Carroll Financial Associates, Inc., a Registered Investment Advisor. Carroll Financial and Cetera Advisor Networks LLC are not affiliated. Registered Branch Address: 4201 Congress St, Suite 210, Charlotte, NC 28209.

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Why leave your future to chance? If you’re seriously interested in making the “right” move for your next hire, I can help you. I am an actively licensed CPA in Maryland and Virginia and CGMA with over 20 years of experience including public accounting (E&Y) and consulting (KPMG), financial accounting (American Cancer Society), internal audit (Telerate, now part of Thomson Reuters), and recruiting. As a networker who truly enjoys helping others and sharing my career experiences to guide fellow professionals, including writing articles for the AICPA, here is how I can help you: Decision Makers:  Ask you questions, and most likely ask many more questions than other recruiters about your company, duties involved, skills required, corporate culture and more  Work with you on finding the “right” professional that is the “right fit”  Provide you with valuable information about the professionals I work with, the marketplace, what your competitors pay, and more Career Seekers:  Guide you on career paths available in public accounting and industry  Enable you to capitalize on your strengths  Coach you on how to put your best foot forward to find the “right fit”  Advise you when to stay in your current position if that is the right move If you’re interested in working with a recruiter who understands your background, skills, and is genuinely interested in helping you find the “right fit”, then I welcome meeting you!

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vscpa news

VSCPA to hold Bylaws vote at annual meeting On Jan. 22, the VSCPA Board of Directors approved a proposal to amend the VSCPA Bylaws to allow the Society to be more nimble and future-focused to meet the rapidly changing needs of the CPA profession. As part of developing the VSCPA2025 strategic framework, the Board discussed the challenges the VSCPA currently faces with its membership model and the need for more flexibility to ensure long-term viability and relevance. The proposed changes include: • Life Member dues waiver: The proposal eliminates the Life Member status and requirement to waive membership dues for individuals that have been a member for 40 consecutive fiscal years. Based on association trends, indepth research and financial analysis, the Board determined the waiver is not sustainable and the VSCPA must focus resources on building our pipeline of future CPAs, growing membership in new and innovative ways and increasing meaningful engagement at all stages of membership. The Society will continue to honor members obtaining the 40year milestone for their loyalty and commitment, including special recognition at the VSCPA’s annual Honors & Awards dinner and a renewed focus on engagement. The waiver would discontinue effective for the 2019–2020 membership year, and current Life Members would be grandfathered and maintain their $0 dues rate. • Fellow membership criteria: The proposal simplifies the language for Fellow members, since all CPAs must meet all licensing requirements to obtain membership. Peer review requirements for membership will be included in Board policies.

• Student membership criteria: The proposal allows for additional flexibility for membership options to support the VSCPA strategy to encourage students to become CPAs. Specific student membership requirements will be included in Board policies. • Dues tied to fiscal year: The proposal removes provisions that aligns dues payments to the VSCPA fiscal year. This supports a more future-forward, flexible membership model. • Dues refunds: The proposal eliminates the provision that mandates dues refunds in the Bylaws, which is typically determined by operational and Board policies. • Language changes: The Bylaws proposal also includes several changes aimed at modernizing, rephrasing, cleaning up and simplifying language to align with nonprofit organization best practices as recommended by VSCPA legal counsel. Members in attendance at the VSCPA’s annual meeting May 10 at the Omni Richmond Hotel will vote on the proposed changes. If the motion carries to send to a member vote, the entire membership will receive ballots via email or through mail, depending on communication preferences. Two-thirds of ballots received must be in favor to enact the changes. The proposed Bylaws amendments with redlined changes can be viewed in full at vscpa.com/Bylaws. If you have any questions on the proposed changes or the voting process, please contact VSCPA Vice President, Innovation Tina Bates, CAE, at tbates@vscpa.com.

VSCPA ANNUAL MEETING AND 2018–2019 BOARD OF DIRECTORS The VSCPA’s Annual Meeting will be held Thursday, May 10, 2018, at 11:55 a.m. at the Omni Richmond Hotel. During the meeting, the Nominations Committee will present the following nominated members for election as 2018–2019 officers and directors: Chair: Richard Groover, CPA, Wall, Einhorn & Chernitzer, Norfolk Chair-Elect: Gary Thomson, CPA, Dixon Hughes Goodman, Richmond Vice Chairs: Henry Davis III, Virginia Commonwealth University, Richmond Jaime Lynn Dernar, CPA, The Siegfried Group, Vienna Anne Hagen, CPA, Masonic Home of Virginia, Henrico

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Krystal McCants, CPA, CST Group, CPAs, Reston At-Large Directors: David Bendahan, CPA, General Dynamics, Charlottesville Melinda Coley, CPA, Anthem, Inc., Virginia Beach Hope Cupit, CPA, SERCAP, Roanoke George Forsythe, CPA, WellsColeman, Richmond Melisa Galasso, CPA, CGMA, Galasso Learning Solutions, Charlotte, N.C. Ali Gunbeyi, CPA, Jones CPA Group, Norfolk Gabriele Lingenfelter, CPA, Christopher Newport University, Newport News Aaron Peters, CPA, Peters & Associates, Falls Church Stephen Theuer, CPA, Deloitte, Richmond Rick White, CPA, Dixon Hughes Goodman, McLean

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vscpa news

Congratulations to the following members!

STAFF NEWS

NEW HIRES David Swartz, CPA, has joined Mitchell Wiggins in Richmond as a manager.

PROMOTIONS Carolyn Irwin, CPA, was named partner at PBMares in Fredericksburg. John Sheehan, CPA, was promoted to supervisor at DeLeon & Stang CPAs in Leesburg.

MERGERS & ACQUISITIONS Roanoke-based Brown Edwards has added Charleston, W.Va.based firm Gibbons & Kawash, effective Jan. 1.

Top: Emily Walker, CAE, Talley King, Catherine Meehan Bottom: Richard Gordon, Kate Eacho, Lauren Simonetti

Richmond-based Cherry Bekaert has added Windward Tax LLC in Alpharetta, Ga., effective Dec. 31, 2017.

ANNIVERSARIES

PHILANTHROPY

March 9: Marketing Manager Talley King, 7 years

More than 125 PBMares employees volunteered at numerous charities in December as part of the firm’s PBMares Cares initiative. Organizations helped in Virginia were the Embry Rucker Shelter, Fredericksburg Regional Food Bank, Blue Ridge Area Food Bank, Virginia Peninsula Foodbank, Southeast Virginia Foodbank, Chesterfield Food Bank, Fauquier Fish and Grove Christian Outreach.

March 12: Senior Manager, Member Services & Operations Richard Gordon, 6 years March 14: Event Coordinator Kate Eacho, 2 years; Finance Specialist Catherine Meehan, 7 years; and Student & Member Engagement Specialist Lauren Simonetti, 2 years April 1: Vice President of Advocacy Emily Walker, CAE, 15 years

NEW HIRE We want to hear from you! The VSCPA prints news of members’ awards, appointments and promotions as well as new hire and job change announcements. Firm news, such as mergers and acquisitions and community service activities, is also welcome. Email disclosures@vscpa.com if you have exciting news to share.

The VSCPA has hired Veronica Boyett as learning manager. She is joining the VSCPA staff for the second time, having served as conference planner before leaving in 2015. Welcome back, Veronica!

WE MOURN THE LOSS OF...

ONLINE CPE TEST Bob Gardner, CPA, of Roanoke. The managing partner at Barber & Gardner, he graduated from Virginia Tech and Liberty Baptist Theological Seminary and was an active volunteer at Shenandoah Baptist Church.

Visit vscpa.com/CPE. Choose “On Demand” from the side filters to find the exam and others from previous Disclosures issues.

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vscpa news

OPEN VSCPA VOLUNTEER POSITIONS $50,000 in scholarships available College is an expensive investment in a student’s future, and the Virginia Society of Certified Public Accountants (VSCPA) Educational Foundation has several scholarships available ranging from $1,000 to $5,000. If you know a student who demonstrates academic excellence or financial need, encourage them to apply! All applicants must be members of the VSCPA. Scholarship applications must be submitted by April 1, 2018, at vscpa.com/scholarships.

Visit the Volunteer Manager on Connect to see the full list of current opportunities at vscpa.com/volunteer. • • • •

Ask a CPA Email Program Speaking & Community Engagement Online Programs Planning Task Force Chapter Officer

THE VSCPA’S NEWEST CPAs Kenneth Blankenship, Williamsburg Gregg Cothran, Richmond Tyler Dunn, Arlington Laura Elledge, North Chesterfield Sarah Felmly, Washington Andre Fletcher, Sperryville Brian Garrison, Charlottesville DeAnna Hilton, Virginia Beach Milly Ikundi, Alexandria Macy Irvin, Glen Allen Inra Jang, Arlington Dayana Marquina, Bristow Sone Massango, Henrico Aaron Meer, Falls Church Beenish Meghani, Richmond Amy Menerick, Wytheville Joel Mullen, Roanoke Thien Huong Nguyen, Springfield William Palmer, Bristol, Tenn. Robert Patten, Woodbridge David Ritz, Petersburg Lindsay Roche, Washington Thais Salomao Ribeiro, Woodbridge Rebecca Soder, Washington Nicole Taylor, Henrico

List from December and January. Compiled Feb. 2, 2018.

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Classified ads are a great way to reach VSCPA members — 94 percent rate the information in Disclosures as excellent or good. What are you waiting for? Contact us at classifieds@vscpa.com or visit vscpa.com/Classifieds for rate information. Members receive a discount.

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i am the vscpa

Two minutes with Lauren Johns, CPA

Lauren Johns, CPA, CITP, CFE, is finance director at Vulnerability Research Labs in Reston. She serves on the VSCPA’s Professional Ethics Committee and is a board member of BENEFIT Live, a group dedicated to giving back to Loudoun County nonprofits. I AM PASSIONATE ABOUT… Giving back to my community and self care. In order to give to others, you must first take care of yourself. It’s important that I take time for myself so that I can be my best professionally and to my family. Secondly, giving back to nonprofits in my community through our music festival, BENEFIT Live, a coalition of bands and community leaders uniting people with music to raise funds and awareness for nonprofits that make a difference in our community. PEOPLE DON’T KNOW THIS, BUT… I danced in the 1995 halftime show of the Hula Bowl at Aloha Stadium in Hawaii. IF I WEREN’T AN ACCOUNTANT… I entered college wanting to be an occupational therapist. I injured my hip in high school and found occupational therapy to be fascinating. Now, if I wasn’t in the accounting field, I would open a small coffee shop that would have a featured food item of my husband’s and offer yoga classes. Maybe even own a few horses.

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MY ADVICE TO FELLOW CPAs … Feed your passion, whatever that may be. I WISH CPAs KNEW… It’s okay to have a niche. Previous generations of CPAs were all-encompassing (personal tax, audit, small business, consulting, estate planning, etc). Now having a specialization is what makes CPAs special and unique. Find what you truly enjoy and pursue it! That has changed for me over the years, but internal control work and value-added process improvement is what I enjoy. THE MOST SPECIAL GIFT I’VE EVER RECEIVED WAS… A pencil box from my aunt Alice. I’ve never opened the pencil box and I look at it daily to remind me to try my best in all I do. It says, “For our future CPA or CEO, Just a little something to help you through the next couple of years. Try to wear out the points, not the erasers.” I’M A CPA BECAUSE… Of my father. When I was in elementary school, my dad was comptroller of a town in New Jersey. He would bring bank statements home to reconcile and I would line up the checks in numerical order on the floor in the family room. Looking back, this was the moment I knew I would be a CPA. n

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