Disclosures: Winter 2021

THE OFFICIAL MAGAZINE OF THE VIRGINIA SOCIETY OF CPAs

WINTER 2021

VSCPA.COM/DISCLOSURES

GO SOLO! 6 STEPS TO BECOMING

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Financial exploitation of seniors Crash course in blockchain Opportunity zones

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CONTENTS

Features solo! 6 steps to 16 Go becoming your own boss

There’s no time like the present to strike out on your own. Follow this guide to create the solo career of your dreams.

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A chip off the old block: A crash course in blockchain accounting Yes, you can save seniors: Watch for warning signs of financial exploitation Opportunity knocks: Tax savings in opportunity zones

Columns

FIND US...

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Remote Working Remote accounting teams

WEBSITE vscpa.com

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Technology The tech struggle

CONNECT connect.vscpa.com

Departments 4

From the CEO

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Line Items

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Tech Talk

10 Advocacy 34

VSCPA News

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Spotlight

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Classifieds

TWITTER @VSCPANews LINKEDIN tinyurl.com/ LinkedInVSCPA FACEBOOK facebook.com/VSCPA INSTAGRAM instagram.com/VSCPA PODCAST vscpa.com/ LeadingForward

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FROM THE CEO

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

disclosures vscpa.com/disclosures disclosures@vscpa.com WINTER 2021 Volume 34, No. 1 Managing Editor Jill Edmonds disclosures@vscpa.com Editorial Task Force Olaf Barthelmai, CPA Cheri David, CPA Melisa Galasso, CPA Genevieve Hancock, CPA Karen Helderman, CPA Harold Martin Jr., CPA Anthony Otaigbe, CPA David Peters, CPA Mark Plostock, CPA Zach Shoaf, 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 © 2020 Virginia Society of CPAs.

VSCPA Preferred Providers

A suite of ethics courses to suit you Since 2004, we’ve been providing Virginia CPAs with a course that fulfills the Virginia Board of Accountancy’s (VBOA) yearly requirement of 2 CPE credits in ethics. From those early days, in which the course was written by VSCPA member expert James M. Brackens Jr., CPA, to last year, when we had professional actors tackle case studies, the aim has been the same: To provide Virginia CPAs with the highest quality ethics education available in the state.

Now that it’s 2021, we still have the same aim, but our ethics universe is expanding.

And that’s a good thing! You’ll now be able to take an ethics course that fulfills your 2-credit requirement, but also provides you with super-specific education tailored exactly to your needs.

These changes couldn’t come at a better time. Expanding our delivery options in the wake of the pandemic means that you can get ethics whenever and wherever you like, and now we’ve got courses specifically written for different needs and perspectives.

Starting in March you can choose from four different courses: diversity, equity and inclusion; regulatory ethics; tax; and corporate finance. Are you a CPA CFO looking for a course with case studies just related to scenarios from the corporate finance world? We’ve got a class for you.

Maybe you’re a new CPA and you need to learn Virginia regulations from the ground up. We’ve got a course for you, too. Tax practitioner? You guessed it — a course with you in mind.

And we’re thrilled to bring you our DEI course. It’s an excellent opportunity to build a foundation of ethical conduct surrounding DEI issues in the workplace, profession and your community. If you’re

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in management and your firm or company is committed to educating your workforce around DEI, the course could help you support your goals.

The VBOA has to approve all sponsors and courses ahead of time, but it’s your responsibility to choose an ethics course from a VBOA-approved sponsor. Rest assured, all our courses meet the requirement.

You can find out more about all our ethics courses at cpaethics.com. Contact us anytime if you have questions! n

Stephanie Peters, CAE, has served as VSCPA’s president and CEO since 2007. speters@vscpa.com @StephPeters

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LINE ITEMS

Cross the bridge from managing to leading Organizations that focus

on identifying and developing emerging leaders are seven times more effective at producing business and talent outcomes like business growth and employee retention, says Gary Thomson, CPA, president & CEO of Thomson Consulting and former VSCPA chair.

“Opportunities to develop effective leadership are everywhere,” he said in his “Developing Leaders” session during the 50th Annual Virginia Accounting & Auditing Virtual Conference. Gary revealed traits that differentiate managers from leaders:

MANAGERS

LEADERS

Obtain influence by status and power

Obtain influence by the choice of followers

Set quantifiable goals to accomplish required tasks

Set goals that inspire commitment of others

Rely on rules and procedures

Rely on people and their potential

Hold others responsible

Hold themselves accountable

Create order and stability

Create ‘learning’ environments

Work within organizational boundaries

Cross and go outside organizational boundaries

TAKING THE PULSE OF AUDIT COMMITTEES The uncertainty unleashed by COVID-19 has affected every area of business — and audit committees are no exception. A survey from the KPMG Audit Committee Institute checked in with stakeholders to uncover the biggest challenges presented by the pandemic.

Takeaways include: • DISCLOSURES: Many audit committees are focusing on disclosures regarding the current and potential effects of the pandemic, including risk factors, MD&A, liquidity, forward-looking cash-flow estimates and more.

• INTERNAL AUDIT SHIFTS: Internal auditors are now assessing emerging risks posed by COVID, incremental fraud risks, return-to-work plans and much more.

• ENVIRONMENTAL, SOCIAL & GOVERNANCE (ESG) ISSUES: Areas surrounding ESG, like workforce health, safety and wellbeing and company diversity, are top-of-mind for company boards.

Check out a full breakdown of the Institute’s findings at tinyurl.com/KPMGAudit-Committee-study.

GOING ONSITE? TAKE PRECAUTIONS The pandemic created many challenges for firms, including a pivot to remote working for many. And while clients can be contacted via Zoom call or another remote way, sometimes visiting client sites is inevitable. So, how do you keep yourself and your staff safe? How do you know which visits are appropriate?

The American Institute of CPAs (AICPA) offers these four steps:

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1. Establish why and where staff should go onsite, such as to retrieve invoices, print client checks or for some other reason.

2. Find out about the client’s precautionary health measures.

3. Identify the risks of an on-site visit, including potential exposure.

4. Take it case by case and make decisions based on each client.

Learn more about these steps in-depth in “How to keep your staff safe during onsite client visits” at tinyurl.com/y6nfdaba, where you can also download a COVID-19 client visit safety checklist.

LINE ITEMS

TICKER 3,910 The number of bills and resolutions introduced in the 2020 Virginia General Assembly session.

2,218 The number of bills passed in 2020.

4 The number of bills vetoed by Gov. Ralph Northam.

97 The percentage of enterprise decision makers who said the pandemic sped up their company’s digital transformation.

79 The percentage of those decision makers who said their company increased their budget for digital transformation.

200 MILLION The number, as of mid-November, of taxpayers who successfully checked the status of their federal tax returns using the IRS online Get My Payment tool.

98 The percentage of the 157 million Economic Impact Payment amounts correctly computed by the IRS.

$300 MILLION The potential in annual state tax revenue for Virginia if the Commonwealth legalizes marijuana.

11,000 The number of jobs marijuana legalization in Virginia could create.

VSCPA COMMUNICATIONS IN THE DIGITAL AGE As with so many things

in our lives, the pandemic has changed how we work AND communicate. While delivering news and information to the VSCPA membership has undergone a digital transformation over the past decade, COVID-19 has necessitated we make a few more changes. Disclosures magazine will now be released in print on a quarterly basis, which is why this issue is now Winter 2021. But going quarterly does not mean we’re scaling back what we provide; now, we’re focusing on other methods of delivery. Here are a few ways you can continue to get news from the VSCPA: • More digital news and enewsletters: The Account, our biweekly enewsletter for all members, contains more articles and features than our previous enewsletter, eDisclosures. The monthly Center for Innovation enewsletter contains tech- and talent-related offerings and articles. And in the fall we launched CPA Voice to provide you important legislative and regulatory updates. Make sure your communication preferences are set to receive these emails by updating your preferences at vscpa.com/Account.

• Online news via social networks: We are posting important professional news every single day on our social platforms, which include LinkedIn, Facebook, Twitter and Instagram. (See page 2 for a list so you can make sure you’re following us.) The best thing about these pages is that you can share our posts with your followers and clients, as well as comment and engage with other members.

• Conversations with experts: Our monthly podcast series, Leading Forward, contains interviews with accounting thought leaders on issues related to technology and talent. Find it at vscpa.com/vscpa-leading-forward. And watch our social media channels for video content as well. We frequently release videos of conversations between staff and important figures, like our Facebook Live series this fall with VSCPA President & CEO Stephanie Peters, CAE, and distinguished guests, and various conversations between our Advocacy Team and legislative heavy hitters.

• VSCPA Knowledge Hub: This spring we’re excited to launch Knowledge Hub, an online source for cutting-edge whitepapers and ebooks, at vscpahub.com. Watch your email for information on new releases that can help you accelerate progress in your firms and companies.

Questions? Comments? Reach out to me anytime!

Jill Edmonds VSCPA Communications Director jedmonds@vscpa.com

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TECH TALK

Don’t get hooked by these phishing schemes “All technology can be used for good — and bad,” says Randy

Johnston, President & CEO of K2 Enterprises. During his session, “Current Tech Crimes — Ripped from the Headlines,” at the 50th Annual Virginia Accounting & Auditing Virtual Conference in November, he broke down major security incidents and discussed how they could have been prevented.

One culprit? The age-old phishing scheme. While phishing, hackers try to obtain someone’s sensitive information, such as usernames, passwords and banking details, by disguising themselves as a trustworthy person or company in an email or other type of message. Watch for these three different types of phishing: 1. Spearing: A fraudulent message targeted at one specific person.

2. Whaling: Message sent to senior execs or other highprofile targets (hence “whales”).

3. Cloning: A legitimate email is copied exactly (cloned) and redirected to a hacker’s fake website to gather log-in data.

Find more articles and info from Randy at k2e.com.

COOL TECH TOOL Do you avoid watching videos online but sometimes still want the info? There’s an easy way to turn YouTube videos into articles so you can read the transcript at your own leisure.

Visit videoticle.com; you’ll simply copy in the video URL, paste it into Videoticle and receive an article you can save to read anytime, anywhere.

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Working from everywhere?

Stay secure If your office has suddenly become mobile due to the

pandemic, make sure you’re focusing on six key areas to keep your data (and your company’s info) safe. Check out these areas of interest from the American Institute of CPAs (AICPA): 1. Hardware configurations 2. Personal devices connecting to the network 3. Infrastructure governance 4. The location of company data 5. Videoconferencing 6. Security awareness training

Consider your company’s vulnerabilities in each of these areas and determine recommendations. For more information, check out “A 6-point security checkup for working from everywhere” from the AICPA at tinyurl.com/6point-Security-Checkup.

new! VSCPA ETHICS COURSE OPTIONS Coming 2021

The VSCPA is offering six new expanded Virginia Board of Accountancy (VBOA)-approved ethics content options for Virginia CPAs — written by expert state, national and international authors — that will be available starting March 1, 2021.

• Gain peace of mind by taking ethics through the VSCPA! • More relevant content options.

• Receive high-quality, engaging courses.

• Guaranteed to qualify for the VBOA requirement.

• Increased flexibility with multiple formats available.

Take an ethics course individually or plan an in-house program for your team and leave the work to us!

DIVERSITY, EQUITY AND INCLUSION

• Builds a foundation of DEI in the workplace, profession and community around you.

• Discusses the AICPA Code of Professional Conduct through the DEI lens.

• Excellent opportunity to support your organization’s commitment to DEI. • Designed for CPAs, accountants and finance professionals.

• Live in-person, livestreaming and on-demand.

REGULATORY ETHICS (VIRGINIA-SPECIFIC)

• Describes the rules and regulations that govern the profession in Virginia.

• Ideal for newly-licensed CPAs, CPAs new to Virginia and those that need a refresher on rules and regulations specific to Virginia licensees.

• On-demand and webcast replay.

TAX

$

• Navigates client needs and the law relating to tax.

• Designed for CPAs, accountants and finance professionals with a focus in tax.

• On-demand and webcast replay.

CORPORATE FINANCE

• Three course options covering industry topics as they relate to ethics.

• Designed for CPAs, accountants and finance professionals working in corporate finance.

• On-demand.

Individual offerings will be available in March 2021 at CPAethics.com. For more information on in-house options, contact VSCPA Employer Outreach Specialist Janie Medley at jmedley@vscpa.com.

Note: The VBOA must approve any sponsors and courses ahead of time. It will be the CPA’s responsibility to choose an ethics course from a VBOA-approved sponsor. You can be assured that all VSCPA ethics courses meet the requirement.

ADVOCACY

2021 advocacy preview This year, we’re watching the governor’s race and pushing for quick tax conformity.

With the national elections behind us, all eyes shift towards the gubernatorial race in the Commonwealth.

As one of only two states to hold major elections in this off-year, Virginia may be a bellwether for the rest of the national landscape. Democrats still hold majorities in both chambers of the General Assembly and the governor’s mansion, so they have been able to set the tone of the new year. Several current and former members of the General Assembly have thrown their hats into the ring to contend for the governor’s seat. Their performance in the legislative session has been closely watched state-wide.

Emergency passage of fixed date tax conformity is again a major issue early in the session. With the accelerated pace of this 2021 session, we suspended our efforts around implementing rolling conformity for Virginia for the time being. Instead, we have focused on the complicated task of determining conformity with the CARES Act and other federal measures. We are working with Virginia Secretary of Finance Aubrey Layne, CPA, a VSCPA member, and his team as well as legislators from both parties to ensure they recognize the importance of this issue. At press time, achieving full conformity with the CARES Act and other federal provisions would have a negative fiscal impact of $763 million to the Commonwealth’s budget.

We also continue to monitor other issues’ potential effect on the profession, including COVID-

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related liability protections for businesses, license mobility, marijuana legalization, regulatory reform, procurement for professional services and broadband access.

On the federal side, we saw several CPAs up for election in November. Two CPA members of the U.S. House of Representatives and one accountant from the U.S. Senate retired, and one CPA in the House lost his seat — but we had a new representative join the 117th Congress from Indiana with the election of Victoria Spartz, CPA. This leaves the number of CPAs in Congress at six in the House and one accountant in the Senate. Mark Peterson, executive vice president for advocacy at the American Institute of CPAs, says other members of Congress go to elected CPAs for guidance on taxation — just like our Virginia General Assembly members look to you and the VSCPA for direction of tax policy for the Commonwealth.

The VSCPA has spent decades building relationships with key committee chairs regardless of party affiliation, and we expect to have great relationships moving forward. While we have had to do most of our advocacy via Zoom meetings, we have kept the priorities of the profession front and center.

Your continued outreach to elected officials via our VoterVoice tool (vscpa.com/voter-voice) is still a critical part of our advocacy efforts. Thank you for standing up for the profession! n

REMOTE WORKING

5 ways to thrive with your remote accounting team Remote work is here to stay even after COVID-19 is in the

rearview mirror, according to Jeff Phillips, founder of remote staffing platform AccountingFly. In his Nov. 4, 2020, VSCPA Virtual Tech Talk, “Thriving with Your Remote Accounting Team,” he detailed the emerging work landscape and what that means today for CPAs and the future of work.

“Remote work was well on its way to a solution to the talent crisis, and the pandemic accelerated it,” Phillips said. CPA firms looking for the best talent were already discovering they could find great team members by hiring remote employees out of their immediate geographic areas.

Why should accounting firms pivot and make flexible and remote work options available? Because they’re asking for it. Millennials now make up 51% of the workplace. The Gallup State of the American Workplace 2017 report reveals that 63% of millennials would change jobs for flextime, and 47% would change jobs for a flexible working location where they could choose to work off-site full time.

“U.S.-based remote work is the solution to the accounting talent shortage,” Phillips believes. It allows firms to find the best worker for every position, fill open positions quickly, prevent staff burnout and change their employment brands.

If your firm or company is ready to commit to remote work, there are ways to set yourself up for success. Phillips offers these five strategies:

1. CHANGE YOUR MINDSET. You must be really intentional, especially in what you communicate to your teammates. Be clear about your work rules so your team can succeed. Trust your team to get the job done. “Change how your team approaches availability and accessibility. Defaulting to trust will reduce employee turnover,” Phillips says. He recommends that leaders write a flexible work policy and systematically improve it over time — with your team members’ input.

2. SET UP THE RIGHT OFFICE. It may sound elementary, but getting the right tools at home for you and your employees will exponentially improve the remote work experience. Set yourself up for success by taking a home internet speed test and improving bandwidth. Invest in an expensive set of headphones that can drown out background noise while on calls. Consider tools that offer comfort, like a laptop riser to get your camera at eye level, dual monitors, or even a sound

machine to drown out distractions. As a manager, consider buying some of these things for your team members.

3. ADDRESS YOUR CULTURE. How do you connect with your team? It’s important to be intentional regarding your culture, just as it is with mindset. Use the first 10 minutes of meetings as “water cooler time.” Consider morning coffee check-ins or virtual happy hours. Determine what works for your team to stay connected and continue to build culture. Because there’s so much change, Phillips recommends CPA firm managing partners call their team members often and have open office hours. “It’s simple. We’ve got to communicate.

It’s incredibly important for leaders to be in touch.”

4. AUTOMATE WITH TECHNOLOGY. Fully committing to cloud accounting software helps to work both remotely and quickly. Use collaborative online documents so you can make changes in real time with your teammates. Implement chat features. In short, investigate which tech tools will work best for team and implement them.

5. MANAGE BY OBJECTIVE. Remote work requires rethinking what management and leadership look like. “We need to define new rules,” Phillips says. If you’re no longer popping by teammates’ desks and checking in, you need a new system. Decide from the outset: Who does what by when?

Make project management software do the heavy lifting. There are many applications that allow you to run by objective and pay attention to the results. Managing by objective “make you a better manager and makes better teams and happier employees,” he says.

WHERE TO GET STARTED If this seems overwhelming, don’t despair. Start with these three areas and go from there: 1. Document a flexible/remote work game plan.

2. Implement cloud accounting tools and add a project management tool.

3. Embrace managing by objective. n Find Jeff Phillips on Twitter @jeffphillips_ or @accountingfly.

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TECHNOLOGY

The technological struggle To stay relevant and keep clients’ trust and confidence, CPAs must adapt or risk falling behind.

In the fast-moving environment we often find ourselves operating in, it can be hard to overstate just how important the adoption of new technologies will be to the future of our profession. Certainly, we have all been exposed by now to a handful of technologies that will change how our industry works and indeed transform how our workplaces have been traditionally structured. However, this can often be easier to plan for than to execute. As a group, accountants have a tendency to be resistant to change — a result of our conservative nature and education.

Jordan C. Hartman, CPA

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As a client-server, I have seen how difficult these transitions can be for a company. It is typical for the adoption of a new piece of software to be planned far in advance. The decision to make a change to a business process is something management teams are often hesitant to do. Even the process of selecting

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a piece of technology can be a daunting challenge for teams, who are typically not versed in the latest innovations. The decision then becomes to hire consultants to make a recommendation and assist with adoption. Every part of this process costs the company time and money on top of the ultimate cost of the technology. The entire process from beginning to end will usually be measured in years; meanwhile the pace of progress in what is available continues.

The benefits of technological adoption can also sometimes be abstract while having visible consequences. In large part, the biggest impact on our profession will be process automation. And while computers are certainly great at taking simple repetitive tasks and performing them with a high degree of accuracy, behind those changes is work that used to be performed by a human. It is u

TECHNOLOGY

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TECHNOLOGY

an inescapable result that certain functions that have been a mainstay in finance departments around the country will be lost as the pace of adoption increases. This can have a real effect on the approach taken by management and risks creating luddites out of teams.

All of this is not to argue against the adoption of technology, but it is important to understand all the headwinds we face. When it comes to transforming the services we provide to our clients as CPAs, we must remember that this can be an excellent opportunity to differentiate ourselves. Everyone is approaching the digital transformation a little differently, and the variety of disciplines that collide to produce new methods of delivering our services will have effects on the structure of our organizations and the decisions that students we recruit make. The best thing you can is to determine what the goals of your organization are going to be and use that to develop a plan of adoption. The following points may help: • Determine the methodology: Your organization most likely already has methodology in place for how you deliver your services, even if informally. For assurance folks, this is how we ensure we are meeting regulatory requirements. The important first step is to look at how this is being applied in practice and where there might be room for improvement.

This will involve thinking through how you can utilize technology to either have better or more efficient service delivery. An important concept borrowed from the tech world is “don’t reinvent the wheel.” Always be innovative and build off what others have already learned the hard way.

• Develop your platform: This can mean anything from purchasing software to building up something from scratch depending on the scale of your organization. The important thing to keep in mind is that you are doing this after you set your goals and methodology. It can be very easy, especially when working with those from other expertise, to get sidetracked by features that sound impressive in a meeting but don’t clearly support the goal of your service. Remember that you are not buying a toy but a tool, and the reason you are doing so is to stay competitive within the market.

• Implement training: The best piece of technology is limited in the hands of a poorly trained team. Worse yet is a team that doesn’t use digital tools because they don’t know how they fit in with service delivery. Given the cyclical nature

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of a lot of the service we provide as CPAs, it is important to plan ahead to ensure your team is onboarded before they are too busy but not given enough time to forget everything they learned. Even then, it’s important to think about your teams’ backgrounds. For some, adoption can be difficult and repetition will be needed to ensure proper utilization.

• Track metrics: One of the most important concepts is to ensure you take a data-driven approach to evaluating the results of technological adoption. To that end, ensure that clear metrics and a method for tracking them have been established. Given the complexity involved, it cannot be assumed that changes will be a net benefit during the first iteration and understanding how to adjust will be important to success. It can also be important to determine why adoption is not taking place fast enough.

• Reevaluate, refine, expand: Finally, be sure to set up a process for continuous improvement and always be thinking ahead, because your competition surely will be. This is an important concept to keep in mind throughout the process.

How might your purchasing decisions be affected knowing you might find a better service provider next cycle?

It’s important to reflect on the following new take on an old adage. “You can build the lake, fill it with water, bring your horse, but you can’t always make him drink.” By nature, people, not just CPAs, are resistant to change — and it’s not because they are stubborn or set in their ways. Humans naturally build routines; it’s how our minds evolved to deal with complex situation, and its normally an efficient way of solving problems. It can be difficult to rework our way of thinking, especially when it comes to digital solutions. However, we need to remember that it is not optional if we want to keep our client’s trust and confidence. n

Jordan Hartman, CPA, is a finance plant controller within Corning Inc.’s Life Sciences Division in Manassas. He was previously an assurance manager with EY specializing in private clients and manufacturing. While at EY, Jordan worked with the EY Digital Advisors Network to help teams adopt the latest digital tools and prepare their engagements for EY’s transition to a digital methodology. jchartm@gmail.com

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CAREER

GO SOLO!

6 STEPS TO BECOMING YOUR OWN boss There’s no time like the present to strike out on your own.

Follow this guide to create the solo career of your dreams.

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CAREER

How many times have you dreamed of being more “work”-based than “time”-based? Do you dream of being your own boss? Do you want to create your own schedule and set your own vacation parameters? I had these same thoughts and my entrepreneurial spirit was yearning for something more. Something bigger. If you feel the same, it’s time to turn your vision into reality.

Amanda Phelps, CPA

Although it is scary to take the plunge, there’s no better time than the present. In fact, accounting is one of the easiest skill sets to go off and start your own business and there are few barriers of entry. This is my guide on how to get off the corporate treadmill and become your own boss.

STEP 1: WORK FOR SEVERAL DIFFERENT COMPANIES OR FIRMS FIRST. If you work at a large CPA firm, you may want to consider spending a few years at a smaller operation, which will give you a chance to acquire a wellrounded approach to handling clients. Also, take note on how many hands touch each client. Pay close attention to areas like who talks to the clients, who bills the clients, and how the firm secures more clients.

Notice on which services smaller firms focus. Notice what items they outsource, if any.

Pricing is something you should definitely research before starting your own accounting business. When you are first starting out, pricing can be one of your most difficult discussions. You do not want to price yourself out of the market. You also do not want to undervalue yourself. Come up with a strategy that works for you. Make sure to discuss pricing with clients and put it in writing before your start an engagement. There is no right or wrong way to determine pricing. You must figure out what works best for you and your clients. All the tools you learn at someone’s else firm will lend well to starting your own business.

STEP 2: PLAN YOUR DEPARTURE. Planning, planning, planning is the first step to starting your own accounting business. You may feel like a double agent, but the reality is: You must start planning for your own financial safety before you leave your current position. Benefits are a huge factor to consider.

What benefits are you currently taking advantage of at your company? What benefits are subsidized? Can you afford to pay for health insurance that is not subsidized by your current employer? Also, consider your cash flow safety net. How much capital do you need to start your business? Because you will no longer be receiving regular paychecks, what do your savings look like? What about retirement? What vehicle will you use to save for retirement once you have said bon voyage? These are very real factors to consider and can halt many people in their tracks. That’s why it is so important to plan. You may to even start planning years in advance.

STEP 3: SELECT A NAME AND AN ENTITY TYPE. Once you’re ready to set your business up, you need a name. CPAs often like to use their names as their business. This is a great way for people to remember your company. However, consider if a name change could be on the horizon through marriage before attaching yourself to a specific business name. Or, not using your name could work well if you plan on expanding in the future. Whatever you decide, make sure your business name is easy to pronounce, has a positive connotation, and is memorable. Before spending too much time on this, make sure your name is available for use. It is of the utmost importance to make sure your name is not misleading. If it just you in the business, make sure your business name does not imply multiple people.

Your business name will be on all your invoices, marketing materials and legal documents, so make sure it represents your company well.

When you start your own business, you will have to decide on an entity type, which affects tax and legal aspects. Typically, when you start out, you can start out as a sole proprietorship (an unincorporated business with a single owner). With a sole proprietorship, there is no legal protection. You could also consider forming a Limited Liability Corporation (LLC), which you would need to file with the State Corporation Commission. The LLC is governed by its operating agreement.

And if you are starting a business with more than one person, considering forming a Limited Liability Partnership (LLP). Check out your state website u

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for more guidance. For example, some states don’t allow LLCs. You also need to make sure you have all applicable city and/or county licenses. Acquiring business insurance is a good idea. You will want omissions and error insurance at the least. Cybersecurity insurance may also be something to consider.

Finally, the IRS may require you to register for an Employer Identification Number (EIN). Your EIN will come in handy when you go to set up a bank account and cash your first check.

STEP 4: START SMALL AND USE YOUR NETWORK. Pick your place.

This is where planning is crucial. You want to have a safety net of cash planned so you can start small.

The great thing about an accounting start-up is the few barriers of entry. You do not need to pay to rent office space in a busy city center. Your clients will be happy that you don’t have huge overhead expenses to cover. You can now run your entire operation from the comfort of your home. Worried about clients coming over and seeing your piles of laundry? No worries. There are many alternatives to meeting when you do not have an office space.

Starbucks, video conferencing, and collaborative places you can rent are available in several cities.

Better yet: Tell the client you will come to them for their convenience. And of course, with the pandemic, so many clients are becoming used to virtual meetings.

Pick your clients.

Is a client is weighing you down with stress? You can fire them (in a professional way). Not every client and accountant match is a good fit. Some clients may not be stressful, but may be money pits. These clients need to be fired as well. You have to learn how to professionally end relationships with clients who are not adding value to your firm and bringing in a profit.

Embrace social media.

You must take advantage of social media in today’s digital age. FaceTime, Instagram, LinkedIn and podcasts can be critical to marketing your business.

Use Squarespace, GoDaddy, Wix or another platform to quickly and easily launch a website. Go to as

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many networking events as possible. Use LinkedIn to join groups that include your target clientele.

Consider starting a blog so people can follow along on your journey. A blog is a great way to showcase your skills. When people think accounting, they will begin to think of you if you are leveraging social medica correctly.

Embrace the sell.

A lot of accountants are in fact great accountants, but lousy salespeople. Selling yourself is just as important and performing your services. The first place to go to sell your services is your own personal network. Tap into the network you have around you. Remember every individual files taxes, and every business needs bookkeeping and tax work. There are no shortages of needs in the marketplace for accountants. Ask for referrals! If you are focusing on real estate tax preparation, considering joining a group where you could showcase your skillset. Join any national, state and local society for CPAs. CPAs know other CPAs and refer them all the time. Do not be afraid to ask for referrals. Consider establishing a niche market. If you did specialize in something at a firm, consider carrying those skills into your business. Establish a digital and physical brand. Come up with a logo and colors that represent your business. Use complimentary colors and stay away from trends. When in doubt, keep it simple. Create and order business cards. Get your name out there in as many ways as possible.

STEP 5: CREATE A BUSINESS PLAN AND VALUE PROPOSITION. Establish a one-sentence value proposition about the services you offer. How you are different from your competitors? As a sole proprietor, I have less overhead because I work from home and can offer competitive prices. You will also want to outline a clear business plan to create your goals. Most people just keep a vague business plan in their heads; it is crucial to write it out. When you have a business plan in writing, you are more likely to succeed. Business are cyclical and you will have ups and downs; the important thing is to just keep going and stick to the plan.

STEP 6: GO AND DO IT! The right mindset is the most important factor in success. Start small and grow your business.

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Eventually, you may be able to add on employees to help you with the work. It is time to spread your entrepreneurial wings.

When I first started my business, I thought it would allow me more free time, flexibility and vacation. I am finding out that is the exact opposite. Servicing my clients is my primary objective and that can be more time-consuming than busy season in public accounting. Deciding to start your own accounting business should not be taken lightly. You will make mistakes and you will struggle — that is part of the process. Research, planning and mindset are the most crucial factors to success. Just get started. n

Amanda Phelps, CPA, owns Optimal Accounting, LLC, serving the Hampton Roads area. A previous VSCPA Top 5 Under 35 Award winner, she serves on the VSCPA Young Professionals Advisory Council.

AmandaPhelps3@gmail.com tinyurl.com/y4nokz7o

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TECHNOLOGY

A CHIP OFF THE OLD BLOCK: A CRASH COURSE IN blockchain ACCOUNTING

Blockchain technology is still relevant and will fundamentally change how transactions are recorded.

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TECHNOLOGY

The concept of blockchain, the hyped network

of interlinking underlying data that has no need for third-party assurance or even approval of transactions, has recently seemed to dwindle within the accounting world. For years, the accounting profession has been hearing and attempting to understand the impact that blockchain will make on the day-to-day lives of accounting professionals, but recently the discussions seem to have diminished.

Genevieve Hancock, CPA

Is blockchain the next step, or is it not likely to take off with a large population of companies? While the latest lull in how much accountants have been bombarded with blockchain may seem like it is dying out, this is not the case. Blockchain is likely here to stay, even with a potential slowdown in widespread implementation due to the current health and economic environments, as well as regulatory statutes on the topic being debated and published. Next up: A crash course in the basics of blockchain.

WHAT IS BLOCKCHAIN? To lay a base for more in-depth discussion, you first need to understand how cryptocurrency and blockchain are inter-related. Blockchain technology is, at its core, a decentralized ledger or database for transactional processing among multiple entities.

This means that a transaction that includes a supply received and a bill/cash transfer would no longer need a second party on the other end to approve the payment as all of the information from one entity to another would already be there and communicating between entities.

How it works: When a transaction is identified, a request (usually initiated by a person) is sent out on a “peer-to-peer” network — or likely, entity-to-entity network. Once the request is received, the other entity’s algorithms confirms the request by validating the information as correct. The transfer of information (or cryptocurrency, see below) occurs — this can be anything from records or contract requests to payments to other information. Once this is complete, the set of information and transactions is used to create a unique, permanent and unalterable new block of data that is added to the existing blockchain ledger — which can be visualized as a literal chain of blocks linked together. At this point, the transaction is complete. This can also be known as a distributed ledger technology.

CRYPTOCURRENCY AND THE BLOCKCHAIN Cryptocurrency is a currency of exchange, such as the U.S. dollar, which is created and stored electronically within blockchain technology. It has no intrinsic value like the U.S. dollar, as it can only be transferred electronically where accepted. While cryptocurrency is inherently correlated to blockchain technology, we’re going to stay away from talking too much about cryptocurrency as it relates to blockchain, so the only things to remember are 1) cryptocurrency is created by using encryption techniques (mined) by the blockchain functionality and 2) it is used to validate the transfer of funds in blockchain technology.

Tax impact with the recent IRS ruling Revenue Ruling 2019-24 was a decision by the IRS in reference to one type of cryptocurrency transaction, “hard fork,” which can be followed by an “air drop” of cryptocurrency, but not always. The ruling was in relation to inclusion in gross income for each of these types of transactional cryptocurrency. The examples given in the ruling are very principles-based, when it comes to whether or not the units of currency are able to be used or creates an increase in wealth for the taxpayer. A hard fork, for instance, without an airdrop, is generally a creation of a new cryptocurrency by the occurrence of an existing cryptocurrency in the distributed ledger technology resulting in a permanent change from the existing ledger. As this is essentially only a transaction, and there is no wealth which the taxpayer can access and increase their own position, so there would be no gross income inclusion.

Adversely, given the same fact pattern as laid out above, the second example diverts in that an airdrop of cryptocurrency follows the hard fork occurrence, resulting in the taxpayer being able to access cryptocurrency and increase their own wealth as they can direct the use of and dispose of the units of cryptocurrency after they are air dropped. This would result in an inclusion in gross (ordinary) income, at the fair market value of the new units as of the date they are air dropped.

IMPACT ON FINANCIAL STATEMENTS Due to the real-time nature of accounting, financial information will move toward becoming timelier as the distributed ledger technology becomes more u

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continuous. Operational information and up-to-date cash flow data will be available nearly at the drop of a … pardon the malaphor … block. This creates avenues to be able to analyze data in real time versus historical periodic reviews as are still being completed now. This is aligned with the recent implementation of accounting standards such as the Financial Accounting Standards Board’s Current Expected Credit Losses (CECL) standards, Revenue from Contracts with Customers and Leases, which are more forwardlooking for comparability and consistency within the financial statements.

CHANGE MANAGEMENT One of the theorized reasons for the delay in change happens to be not only the complexity and change management associated with implementation of blockchain, but also the implications to the workforce needed in accounting post-implementation. Once the system is working efficiently, it becomes a change in needed labor from managing and recording support for transactions, which would now be housed in the system, to a need for analysis around making the entity and business more profitable based on the data that is being recorded, and further implementation or updates.

The need for a workforce that posts entries for approval and billing departments, as well as reconciliations from the general ledger (non-distributed) to any outstanding balances, would be nearly eliminated under distributed ledger technology. Blockchain may fundamentally change our workforce needs at the foundation. This is not to say that this would be a reduction to the workforce, but rather a need for training around new skillsets to mold the workforce into what it needs to become.

TRANSPARENCY In distributed ledger technology, there is a level of transparency that entities would not be able to achieve otherwise because the data, or blocks, are immutable, irreversible and extremely costly to hide based on the economic rules built into a ledger that is distributed and across multiple entities. If you have ever been on an assurance engagement assigned to a company, you know that this is going to be viewed as both positive and negative, potentially on the same day for the same topic, and possibly by the same person. This makes

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documentation of anything that could be controversial for assurance or investment purposes all the more valuable to either include within the block or outside of the block within a timely manner.

THE IMPACT ON AUDITING? While many would love to believe that blockchain technology will decrease the assurance needed across organizations for auditing — both in a substantive testing and internal controls environment — we honestly won’t know for sure until auditing a blockchain environment is more common. What is likely to occur is a high level of assurance needed over the migration to a blockchain environment, then slowly identifying the need for higher assurance around the IT environment and transactional flow in more complex ways.

Regulatory implications are also still unknown and have yet to be written. Further, there will likely be more of an emphasis on data analytics within the audit and assurance world to ensure correlations make sense for the business being audited, which requires a more focused skillset by assurance teams.

As the American Institute of CPAs (AICPA) has noted in previous publications, distributed ledger technology does not eliminate illegal, fraudulent, related party, side agreement or incorrectly classified transactions within the ledger itself, and this will need to be heavily validated for accuracy as more entities adopt and move forward — both by auditors and the entity.

In conclusion, blockchain will be both an astronomical increase in efficiency and functionality for businesses but may fundamentally change our workforce needs for the accounting and finance professions. As more regulatory reporting requirements are issued, we will start to understand the strategy and impact of blockchain a bit better. We’ll likely start seeing the technology adoption life cycle exit the early adopter phase and enter the early majority time frame, when most entities start assessing the impact and adoption of distributed ledger technology. The complexities of auditing blockchain are still yet to be perfected, especially as more regulatory guidance is issued.

Here are the main takeaways: Don’t be afraid of the technology. Prepare for the changes coming.

Understand whether, and potentially when, blockchain may be right for your company.

TECHNOLOGY

Technology is making many advancements in the accounting field, so embrace inevitable changes by ensuring that you understand the impact. More advancements are afoot in the next few decades, including the already popular concept of applications of machine learning. Just as the adoption of the internet in the late 20th century, and the rapid change of computer processing and personal computers fundamentally altered the way accountants operate, assurance engagements document, and business partners and networks communicate, changes in technology are inescapable.

Blockchain is not going anywhere, and becoming an expert in a new and challenging area of accounting will create a higher level of credibility and trust with

your business partners as they also try to wrap their heads around this new technology. n

Genevieve Hancock, CPA, is the director of technical accounting for Brown & Brown Insurance in Daytona Beach, Fla. Genevieve is passionate about developing leadership skills and mentoring accounting students and young professionals and is a member of the VSCPA Disclosures Editorial Task Force and the Young Professionals Advisory Council. t.genevieve.hancock@gmail.com linkedin.com/in/genevievehancock

2016 Educational Foundation Scholarship Recipient

EDUCATIONAL FOUNDATION Join us in investing in future CPAs “I hope to become a faculty member at a research university after I graduate. As a faculty member, I hope to conduct research that contributes to the accounting profession and provide services to the profession and university by becoming a mentor. This scholarship will assist me in achieving my career goals. Thank you!”

— Carissa Malone, Virginia Tech, 2020–2021 VSCPA Past Presidents/Chairs Scholarship

VSCPA.com/ef-donation

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YES, YOU CAN SAVE SENIORS: WATCH FOR WARNING SIGNS OF FINANCIAL exploitation As trusted advisors, CPAs are in a unique position to help the growing older adult population and report suspected abuse.

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Studies show a person’s

financial decisionmaking peaks at age 53, or more generally in their 50s. With individuals in the United States living longer, we are seeing an increase in financial exploitation of seniors. In fact, financial exploitation is now the fastest growing category of elder abuse. Isolation and uncertainty resulting from the COVID-19 pandemic have further exacerbated this problem.

Ann Rankin, CPA, CFF, CFE

Recent responses to this crisis by the Virginia General Assembly, regulators and the financial industry create opportunities for CPAs. Early education, awareness and planning can help stem the tide of this crisis. CPAs are in a unique position to help safeguard the financial well-being of our growing older adult population.

I have an uncle (we’ll call him Uncle Bob) who was a victim of financial exploitation. All his life, Uncle Bob had a modest income. He was frugal with a modest pension, a brokerage account and some savings on which to live. Because he had been careful with his money, he had money to steal.

Amanda Blanks

Uncle Bob never had a trusted CPA or family member to help with his taxes or finances. As he aged, he was successful in concealing his cognitive decline from his primary care doctor. As his health declined, his drugaddicted daughter started to forge checks from his accounts, eventually stealing hundreds of thousands of dollars. Both Uncle Bob and his daughter tried to hide this situation from everyone.

Uncle Bob’s daughter financially exploited her father over several years. It was only discovered when Uncle Bob’s daughter no longer served as my uncle’s primary caregiver. At that time, we discovered that he significantly overpaid his taxes, too.

My family’s experience was not an anomaly.

Statistics support the widespread financial exploitation of older Americans.

• Uncle Bob’s extended family was unaware of the need to monitor or intervene.

Financial exploitation is far more common than you think. In fact, the rate of financial exploitation is extremely high, with one in 20 older adults indicating some form of perceived financial mistreatment occurring in the recent

past, according to the National Adult Protective Services Association (NAPSA).

• No one reported the financial abuse until it was almost too late.

According to NAPSA, elder abuse is vastly under-reported; only one in 44 cases of financial abuse is ever reported.

• The perpetrator was a family member.

Financial exploitation can be perpetrated by anyone — a professional con artist, a paid caregiver, a stranger or casual acquaintance, a professional serving in a fiduciary capacity, or even a son, daughter or other family member.

Unfortunately, most abusers are close friends, acquaintances or family members who take advantage of an individual’s cognitive decline and diminished capacity. In fact, NAPSA reports that 90% of abusers are family members or trusted others.

• The cost to Uncle Bob and our family was high.

The Virginia Department for Aging and Rehabilitation Services (DARS) estimates the costs in fiscal 2015 to elderly or incapacitated victims to be more than $1.2 billion. To put that number in context, $1.2 billion is 7% of all the taxes administered by the Virginia Department of Taxation that year.

Older Americans’ average financial loss from financial exploitation was $50,000 when they knew the suspect and $17,000 when the suspect was a stranger. These figures are based on Suspicious Activity Reports (SARs) involving elder financial exploitation from 2013 to 2017 from the U.S. Consumer Financial Protection Bureau.

WHAT EXACTLY IS FINANCIAL EXPLOITATION? The financial exploitation of older adults is also referred to as financial abuse and often occurs simultaneously with physical and emotional abuse and neglect.

What constitutes financial exploitation of an older adult is determined by state law (see Code of Virginia § 63.2100). Loosely stated, it is the illegal, unauthorized, u

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improper or fraudulent use of an adult or his funds, property, benefits or his/her resources for the benefit of someone other than that adult (including depriving the adult access to and use of their resources). Virginia expands protection by utilizing the term “vulnerable adults,” defined as a person who is at least 60 years or older or age 18 to 59 and incapacitated.

In Virginia, DARS administers the laws created to protect vulnerable adults. The Adult Protective Services (APS) Division is a part of DARS. The APS Division Manual provides the following examples of victims’ assets commonly involved in financial exploitation: credit cards, bank accounts, stocks and other investments, public assistance payments, jewelry and other valuables and personal property.

When the financial exploitation involves securities/investment products and the people offering them, the State Corporation Commission (SCC) Division of Securities and Retail Franchising steps in.

LEGISLATIVE AND POLICY RESPONSES In recognition of the fact that financial exploitation is the fasted growing category of elder abuse, the Virginia General Assembly, along with federal and state agencies and organizations, have responded with new and updated regulations and policies: • During the 2019 General Assembly, the legislature addressed the growing issue of financial exploitation of vulnerable adults by passing a new subsection L to § 63.2-1606 of the Code for the Protection of Aged or Incapacitated Adults.

This new subsection allows financial institutions to delay transactions and refuse disbursements from the accounts of vulnerable adults if the financial institution suspects financial exploitation. Accounting firms along with investment advisors, broker-dealers and banks are defined as financial institutions.

Anyone who suspects financial exploitation of a vulnerable adult and makes an APS report in good faith is protected from civil or criminal liability.

• The Virginia SCC added a subsection under its rules for investment advisors and broker-dealers to provide the same relief as provided under subsection L to § 63.2-1606 of the Code for the Protection of Aged or Incapacitated Adults.

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• In 2018 Congress passed a “Senior Safe Act” to empower financial professionals to act, although the accounting profession is not included in the definition of a financial professional. The Act reduced barriers to reporting to authorities by financial professionals, including investment advisors, bankers and broker-dealers, of suspected senior financial exploitation or abuse by addressing liability concerns and fears that a report could violate a privacy requirement.

• The Financial Industry Regulatory Authority (FINRA) responded in 2018 with a rule for broker-dealers requiring them to “make reasonable efforts” to acquire the name and contact information of a “trusted person” who they can contact if they feel financial exploitation is occurring or if they suspect the investor is suffering notable cognitive decline. Serving as a trusted contact may be an opportunity for CPAs to help address increasing financial exploitation.

Many financial institutions have emergency contact forms and policies. This is another opportunity for CPAs to protect client or their families’ assets. Trusted contacts do not have account access unless the person is a joint account holder.

COGNITIVE DECLINE INCREASES RISK Elderly people who live in social isolation, need help with the activities of daily living, or are experiencing declining mental or physical health are typically most vulnerable to financial exploitation.

The U.S. population is both aging and living longer. These demographic shifts bring with them an increased risk for diseases affecting cognition, the mental process by which knowledge and understanding are accumulated, actions are taken, and decisions are made.

As we age, our brains undergo changes that can inhibit cognitive abilities such as creative thinking, problem solving, and retaining new information. To some extent, these are considered normal.

However, progressive memory loss and abnormal declines in cognitive ability may signal the onset of mild cognitive impairment, a precursor to dementia.

Studies show that the ability to perform simple math problems, as well as handling financial matters, are typically among the first skills to decline in diseases of the mind. A person may appear to have the ability to handle their finances based on an overall cognitive assessment, but not have the ability to understand money. This was the case with Uncle Bob. During

FRAUD

his routine medical exams, his doctor did not detect cognitive declines; however, Uncle Bob was in fact having difficulties with his taxes.

Scientists don’t know why cognitive decline occurs, but they have found that those diagnosed with conditions such as dementia have experienced definite biological changes to their brain and its functioning — long before any formal diagnosis can be made. This creates serious financial risks for aging people, still at the helm of their own finances, unaware that impaired cognitive function may be affecting their decisions. Studies show a person’s financial decision-making peaks at age 53, or more generally in their 50s. In terms of preventive measures, this may be the sweet spot in which to begin education and planning.

COVID-19 AND FINANCIAL EXPLOITATION Further complicating the landscape in 2020 — COVID-19.

Social isolation has long been a leading factor contributing to the financial exploitation of older investors. With the COVID-19 pandemic, the associated social distancing and unprecedented quarantines, there are new degrees of social isolation even among those previously well connected.

Facing decreases in the stock market and seeing their savings and investments decline, older adults may suffer from financial insecurity, which is also known to make them more vulnerable to financial exploitation.

Furthermore, older adults may be experiencing increased health care concerns, like contracting COVID-19 and difficulty accessing health care and supplies to manage their existing conditions and stay healthy.

According to NAPSA, the effects of financial exploitation on a vulnerable adult are devastating and extend beyond the monetary value lost. The individual frequently experiences: • Loss of trust in others • Loss of security • Depression • Feelings of fear, shame, guilt, anger, self-doubt, remorse and/ or worthlessness • Financial destitution • Inability to replace lost assets through employment • Inability to hire attorney to pursue legal protections and remedies • Reliance on government ‘safety net’ programs • Inability to provide long-term care needs • Loss of primary residence Furthermore, in January 2020, the Nursing Home Abuse Center reported that elderly victims of financial abuse are three times more likely to die and four more times likely to enter a nursing home.

Uncle Bob entered a nursing home immediately after the fraud was discovered. Our family firmly believes his quality of life diminished more quickly as a result of the financial exploitation.

WHAT ARE THE RED FLAGS?

All of these conditions — social isolation, financial insecurity and concerns about health — create a perfect storm for financial exploitation.

My family’s experience has made us more aware of financial exploitation. With education and awareness, we can all do more to prevent, identify and respond to the financial exploitation of older adults.

WHY SHOULD I CARE?

Red flags of financial exploitation can include:

It is not a surprise how widespread the crisis of financial exploitation of older adults is becoming. The effects are far-reaching, for both the victims and their families.

• Changes in relationships with others that may or may not involve financial matters, such as new “friends” and new financial arrangements. u

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• Changes to assets or resources indicating financial exploitation, such as abrupt changes to financial documents like power of attorney, account beneficiaries, wills and trusts, property title, and deeds or unexplained disappearance of funds or valuable possessions.

• Changes in financial records such as checks written to “cash,” suspicious signatures on checks or other documents, or others using checks, debit or credit cards without permission.

In hindsight, we did not respond immediately to red flags and risk factors with Uncle Bob. He experienced the loss of a pet, developed a lack of interest in fitness and appearance, and became disorganized and messy, leaving his documents in disarray. In addition, his daughter became increasingly involved with control of his finances without any legal documentation. See the sidebar opposite for additional red flags.

We wish we had known before what we know now. Equally important is knowing how to prevent financial exploitation and, when necessary, where to report concerns.

AN OUNCE OF PREVENTION… With increased prevalence and acknowledgement of the financial exploitation of older adults, there are more resources available than ever to help prevent what happened to my Uncle Bob. As a CPA, you are in a position to promote proactive, preventive measures with your clients, their families and your community.

Prevention efforts should begin early, when a client or family member is in their 50s or even sooner since cognitive decline involving finances starts earlier than other cognitive diminutions.

Because of the impact on families, conversations can also be had with clients of aging parents or other relatives.

Often conversations regarding finances are nonexistent between family members. Some may consider it an invasion of privacy, or taboo to share their financial situation. Others may not feel they can trust another family member. Because of this, a trusted advisor like a CPA may be in a better position to present and discuss matters such as preventing financial exploitation.

As a CPA, you can encourage measures a person who is still mentally sharp can take to prevent financial exploitation.

Suggestions include: • Designate a power of attorney and establish health care directives.

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• Consult with an estate planning attorney as to available safeguards that can be built into legal documents (e.g., coagents, co-trustees, a monitor or trust protector).

• Designate an independent person (i.e., independent of the person serving as agent under the power of attorney) to receive financial documents.

• Offer to be designated as “trusted contact” to monitor bank account and brokerage activities.

• Consider arranging for one or more family members to receive bank statements, brokerage reports and other financial reporting documents for a comprehensive safety net.

• Create a team for checks and balances to include the person’s advisors, CPA, attorney, insurance consultant and family members.

• Provide a service such as EverSafe to track financial activity and notify an advocate of unusual withdrawals or spending. (A word of caution: EverSafe is a relatively new commercial product.)

• Set up direct deposit for checks and autopay so others are not involved.

• Consider setting limits on check amounts and account charges or using a pre-paid debit card for transactions.

• Ensure older adults are familiar with cybersecurity tools available to help prevent fraud.

There are simple, old-fashioned ways to help prevent financial exploitation, such as staying connected with older clients through regular phone calls, visits or emails — it is not the quantity of these connections but the quality. Once again, a CPA’s professional reputation puts them in a vital helping role.

REPORTING SUSPICIONS OF FINANCIAL ABUSE During our crisis with Uncle Bob, our family learned the importance of reporting our suspicions. As a CPA, reporting is consistent with your role in protecting your client and their family’s assets. It demonstrates your concern for your clients’ well-being and financial independence.

Although Virginia does have mandated reporters, CPAs are not so designated. Even though you are not a mandated reporter in your CPA role, if you suspect an older adult is being financially

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exploited, it is imperative to act. In general, any and all forms of elder abuse, including financial exploitation, is everyone’s duty to report to Adult Protective Services (APS).

CONCLUSION OR CALL TO ACTION CPAs are in a unique position to help with our growing older adult population.

Because of our professional reputation, we are already trusted advisors. We can see the entire picture — the economic impacts on the individual, their family and our economy. We understand the intricacies of financial fraud and how to work with regulators and we know about putting controls in place to protect assets.

The prevalence and projected growth of financial exploitation is a service opportunity. As this issue continues to evolve, serving as our clients’ “go-to” resource for preventive measures is an opportunity. If needed, CPAs are equipped to add value to multidiscipline enforcement teams set up, in part, to protect client assets.

Don’t let your family or clients become the next Uncle Bob. If you suspect financial exploitation, report it.

Your first call should be to Virginia’s Adult Protective Services hotline at (888) 832-3858. n

Ann Gresham Rankin, CPA, CFF, CFE, retired recently after 17 years with the State Corporation Commission’s Division of Securities and Retail Franchising where she served as manager of audit and previously, manager of enforcement. anngreshamrankin@gmail.com Amanda Blanks has been the investor education coordinator for the State Corporation Commission, Division of Securities for 20 years, where she generates public awareness about the Securities Division. amanda.blanks@scc.virginia.gov InvestWiselyVA.com, scc.virginia.gov @VAStateCorpComm

RESOURCES • Department for Aging and Rehabilitative Services, Virginia Adult Protective Services (vadars.org): To report suspected adult abuse, neglect or exploitation, call your local social services departments or the 24-hour, toll-free APS hotline at (888) 832-3858.

• Virginia Department of Social Services: dss.virginia.gov • Virginia Division of Securities & Retail Franchising’s Invest Wisely program: Provides investors with the information they need to make appropriate investment decisions for their financial future and avoid investment fraud. The program distributes educational information in the form of publications, brochures and teaching guides, and provides presentations, all free of charge. For more information, contact the Division at (804) 371-9051 or investoreducation@scc.virginia.gov.

• U.S. Department of Justice (justice.gov): The Department of Justice’s Elder Justice Initiative also maintains a handy “Report Abuse” page, which includes an interactive “roadmap” questionnaire to help you identify specific authorities to which you can report financial abuse: Find Help or Report Abuse. Visit justice.gov/elderjustice/financial-exploitation.

• National Adult Protective Services Association (napsa-now. org): napsa-now.org/get-informed/exploitation-resources/ • Consumer Financial Protection Bureau (CFPB) (consumerfinance.gov): consumerfinance.gov/practitionerresources/resources-for-older-adults/protecting-against-fraud • North American Securities Administrators Association (NASAA): ServeOurSeniors.org • Securities and Exchange Commission (SEC) (sec.gov): sec.gov/files/elder-financial-exploitation.pdf • Financial Industry Regulatory Authority (FINRA) (finra.org): inra.org/rules-guidance/key-topics/seniors-investors). Securities Helpline for Seniors, call toll-free: 844-57-HELPS (844-5743577), Monday to Friday, 9 a.m. – 5 p.m. (Eastern Time).

• Commodity Futures Trading Commission (CFTC): For example, beware of gold and silver schemes designed to drain retirement savings: cftc.gov/complaint.

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OPPORTUNITY KNOCKS: TAX SAVINGS IN opportunity ZONES Investors looking for tax-saving strategies may find Opportunity Zones to be beneficial.

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TAXATION

As the United States continues to cope with the

Bennett Dean, CPA

economic effects of the COVID-19 pandemic, a tax incentive created in the Tax Cuts and Jobs Act (“TCJA”) has the potential to provide relief to some of the hardest hit communities and businesses. That incentive is the Qualified Opportunity Zone (QOZ or OZ), which is a federal economic tax benefit designed to promote long-term, private investment and spur economic development in low-income communities. It aims to achieve this investment and development through the preferential treatment of certain capital gains that are invested in these low-income communities.1

But what exactly are Opportunity Zones, what are the tax benefits for investors, and how will the new political environment affect this tax incentive?

BACKGROUND AND INTENT In general, Opportunity Zones, which are defined in IRC Sections 1400Z-1 and 1400Z-2, are low-income census tracts that have been designated by the U.S. Treasury Department to receive tax-favored capital investment. The goal was and is to increase investment in areas that have been largely overlooked by private investors, with the ultimate aim of leveling the economic playing field for those who have historically been at a disadvantage.

Each state was allowed to choose its own zones for designation, with the idea being that the states themselves had better insight into communities that needed additional support. In total, approximately 8,700 Opportunity Zones were designated by Treasury across the United States, with 212 in Virginia.

To be eligible for Opportunity Zone tax benefits, taxpayers must invest in ventures that primarily conduct business in an Opportunity Zone. This will usually be done through an investment vehicle called a Qualified Opportunity Fund (QOF), which is an entity organized as a partnership or corporation with the purpose of investing in Qualified Opportunity Zone Property.2

Zone Property, Qualified Opportunity Zone Businesses and Qualified Opportunity Zone Business Property are outside the scope of this article.

THE THREE FEDERAL TAX BENEFITS OF OZs Deferral of capital gains The most readily attainable and immediate tax benefit is the deferral of capital gains. A taxpayer who has eligible gains can elect to defer those gains if they are rolled over and invested in a qualified opportunity zone within a 180-day investment period. There are several statutory rules and definitions that must be reviewed and understood to make sense of this deferral benefit.

First, eligible gains are generally any gains that would be treated as capital gains on the taxpayer’s return.

This includes Section 1221 gains from the disposition of capital assets (for instance, stocks) or Section 1231 gains from the sale of property used in a trade or business. It also includes capital gain distributions from corporations (typically reported to taxpayers on a Form 1099-DIV). However, eligible gains do not include any gain that is required to be treated as ordinary income, so any gain recaptured under Section 1245 would not be considered an eligible gain.

Another caveat — an eligible gain cannot be from a sale or exchange with a related party.

Furthermore, while it is usually necessary to net capital gains and capital losses, and Section 1231 gains and losses, on a taxpayer’s return, under the final Opportunity Zone regulations3 a taxpayer’s eligible gain can be determined without regard to any losses. If this method is chosen, the 180-day investment period (discussed next) begins on the sale date rather than the end of the year.

There are three primary tax benefits available to investors in QOFs (discussed in more detail below): 1) deferral of gain; 2) basis step-up; and 3) exclusion of appreciation.

After recognizing an eligible gain, taxpayers have 180 days to take that gain and reinvest it in a QOF. Usually, this is 180 days after the sale that triggered the gain, but in certain cases, the start of the 180-day investment period is delayed. For example, partners or shareholders in a pass-through entity can choose to start the 180-day investment period on the due date of the entity’s tax return (not including extensions).4

This article focuses on these three tax benefits. The rules and criteria concerning Qualified Opportunity

The election to defer the eligible gain is made on the taxpayer’s income tax return on Form 8949. u

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The instructions to Form 8949 describe how to make the election. The entire gain from a specific sale is not required to be deferred, and a partial gain can be deferred. Once the election to defer the eligible gain is made, though, the basis in the “new” QOF investment is zero. Starting in 2019, taxpayers who defer an eligible gain and hold a QOF investment will have to disclose that investment on Form 8997, which is also filed with the taxpayer’s federal income tax return.

As is the nature of a deferral, it does not last forever. The deferred gain will have to be recognized by the taxpayer eventually, and the date on which the gain becomes taxable is on the earlier of Dec. 31, 2026, or on an “inclusion event.” An inclusion event is one that reduces or terminates a qualifying investment in a QOF.5 Such an event would require the taxpayer to recognize part or all a deferred gain. Examples of inclusion events include a sale or exchange of the QOF interest or a gift of the QOF interest. If there is no inclusion event, the latest tax year to which an eligible gain can be deferred is 2026.

When the deferred gain is recognized in part or in whole, it is taxed at the applicable federal tax rate in place for that year, not at the tax rate when the gain was originally deferred. If capital gains tax rates go up prior to Dec. 31, 2026, it could increase the deferral benefit. This is discussed in more detail later.

Basis step-up The next tax benefit, the basis step-up, is an automatic adjustment that occurs after a QOF investment is held for five and seven years. For eligible gains that are reinvested in a QOF and held for at least five years in the QOF, the basis of the investment is stepped-up by 10% of the deferred gain.6 If the QOF investment is held for seven years, there is an additional 5% basis step-up , for a total basis step-up of 15%. It should be noted that if the Dec. 31, 2026, inclusion date arrives earlier than the five-year or seven-year investment “anniversary,” there is no basis step-up7, and this benefit is lost. It is possible to have the 10% basis step-up for a five-year investment but miss out on the extra 5% for a seven-year investment, depending on when the eligible gains were reinvested in the QOF.

Exclusion of appreciation The final tax benefit of Opportunity Zones is the permanent exclusion of any gain related to appreciation of the QOF investment, if the investment has been held 10+ years. The taxpayer can make a separate election to exclude any appreciation from

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gross income by stepping up the basis of the QOF investment to its fair market value. This won’t be an issue until 2028 at the earliest, however, due to the 10-year requirement.

There are two important factors to consider, however, regarding the exclusion: 1. Only a qualified investment — one for which a deferral election was made — can receive the step-up to fair market value after 10 years. If gains other than eligible gains (e.g. ordinary gains) are invested in the QOF, or if no deferral election is made for eligible gains, then the basis adjustment to fair market value isn’t available for the investment. This would be considered a “nonqualifying investment.”

2. While the first two tax benefits decrease in value as Dec. 31, 2026, draws nearer, the exclusion benefit retains its value. Qualifying investments made today are still eligible for the entire appreciation exclusion.

EXAMPLE Below is a simplified example of how the three tax incentives would work for a taxpayer that held its QOF investment for 10+ years.

• Investor A realizes a $5M long-term capital gain on the sale of stock it has held for several years. A’s basis in the stock was $1M, and the stock was sold in late 2019 for $6M. • A takes the $5M capital gain — note that it is not necessary to invest the $6M proceeds, just the amount of capital gain — and reinvests it in QOF B in December 2019.

• A elects to defer the $5M gain on its 2019 Form 8949 and reports the investment in QOF B on Form 8997.

• A keeps the $5M investment in QOF B through 2026.

Absent any other inclusion event, on Dec. 31, 2026, A will recognize the deferred gain in its income.

• But A will have received a 15% step-up in basis, or $750,000 (10% for holding the investment for five years, plus another 5% for holding it seven years). A and will only be taxed on $4.25M of capital gain. > Note that the maximum basis step-up of 15% requires that a taxpayer invests its eligible gains in a QOF by Dec. 31, 2019, to meet the seven-year requirement. To

TAXATION

meet the 10% basis step-up after five years, the QOF investment needs to be made by Dec. 31, 2021.

• A continues to hold the investment in QOF B for another three years and has now held the investment for more than 10 years. A sells its interest in the QOF for $15M. Upon making a valid election to exclude any gain related to appreciation, the $10M gain on the QOF investment is not taxed. > As noted previously, the deferral and reduction benefits decrease as Dec. 31, 2026, draws nearer, but the exclusion benefit for 10-year holding periods remains.

CHANGES ON THE HORIZON? With a changing political environment and the need to address the economic impact of the pandemic, there will likely be changes to tax rates and tax policy in the coming years. How will this affect the nascent Opportunity Zones?

It is unlikely that they will go away entirely since they were one of the few tax provisions in the TCJA that received bipartisan support. However, there have been criticisms of the program and whether it is attracting the right kind of investment to the affected areas. Despite the fact that President Trump’s Council of Economic Advisors has estimated $52 billion of new investment in Opportunity Zones as a result of the program as of 2019,8 critics worry that new investment is focused on projects with higher returns. Such projects generally include luxury real estate developments that could drive out current residents, as opposed to affordable housing or community businesses.

Congress may look to Treasury to gather more data on the types of activity in Opportunity Zones to provide more transparency into the impact the new investments are having on the communities.

Of course, the one item on many minds is the potential for an increase in the capital gains tax rate.

If capital gains rates do go up in the next few years, gains that have already been deferred and invested

in QOFs would be tax at higher rates when there is a recognition event in the future. However, investors could look to trigger deferred gains before the rate increase is effective. If an earlier recognition of gains is deemed to be more beneficial than the potential appreciation of the QOF investment, there could be a mass exodus of funds from the QOFs. On the other hand, a rate hike would add to the value of the gain deferral, at least through 2026, as the net present value of tax savings would increase.

In any event, Opportunity Zones can be a flexible and powerful tool, both as a tax-saving strategy for investors and as a means for states to direct investment to communities in need of support. With the economic fallout caused by the pandemic, it will be important to look for new ways to promote growth and recovery for those individuals and businesses hit the hardest.

And Opportunity Zones have already been floated as one item that could be expanded for future stimulus or COVID relief. n

Bennett Dean, CPA, is a tax director at PIASCIK, a premier provider of financial and tax services to a broad range of clients throughout the world, based in Glen Allen. He focuses on domestic and international tax consulting and compliance for both individuals and businesses. bdean@piascik.com (804) 527-1815 piascik.com 1. opportunityzones.hud.gov/sites/opportunityzones.hud. gov/files/documents/OZ_One_Year_Report.pdf 2. I.R.C. § 1400Z-2(d)(1) 3. Treas. Reg. § 1.1400Z2(a)-1(b)(11) 4. Treas. Reg. § 1.1400Z2(a)-1(b)(11 5. www.irs.gov/credits-deductions/opportunity-zonesfrequently-asked-questions 6. I.R.C. § 1400Z-2(b)(2)(B)(iii) 7. I.R.C. § 1400Z-2(b)(2)(B)(iv) 8. www.whitehouse.gov/wp-content/uploads/2020/08/TheImpact-of-Opportunity-Zones-An-Initial-Assessment.pdf

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VSCPA

Congratulations to the following members!

NEW HIRES Zach Webber, CPA, has joined Brown Edwards & Company, LLP, as a director in its Richmond office.

PROMOTIONS Maria Calloway, CPA, has ben named fiscal services manager in the Gloucester County Fiscal Services Department.

The following members have been promoted to partner at Baker Tilly in Tysons: Matt Gilbert, CISA, Liisa Warden, CPA, and Colleen Wevodau, CPA. Damian Klute has been named managing partner of EY’s Richmond office.

APPOINTMENTS & AWARDS Lynne Doughtie, CPA, former chair and CEO of KPMG, and AICPA Chair Tracey Golden, CPA, were named to the 2020 Most Powerful Women in Accounting list from the AICPA and CPA Practice Advisor.

Leslie Flanary, CPA, is secretary on the 2020–2021 Board of Directors of The Doorways in Richmond.

Steven Hollberg, CPA, president of Steven S. Hollberg, CPA, PC, in Urbanna, was elected to a seat on the Urbanna Town Council in November.

Pictured clockwise: Zach Webber, CPA, Matt Gilbert, CISA, Colleen Wevodau, CPA, Stephanie Saunders, CPA, Damian Klute, Liisa Warden, CPA,

LOOKING FOR THE LIST OF THE VSCPA’S NEWEST CPA LICENSEES? Unfortunately, we did not have information available to us from the Virginia Board of Accountancy at press time, but we will catch up with the licensee list in the next issue of Disclosures!

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Stephanie Saunders, CPA, shareholder at Saunders & Saunders, PC, in Virginia Beach, was reelected secretary of the National Association of State Boards of Accountancy (NASBA).

Elizabeth Lester Walsh, CPA, senior specialist of curriculum development for Becker Professional Education, was named to the Board of Directors of Carter Bank & Trust.

FIRM NEWS Matthews, Carter & Boyce in Fairfax was named No. 4 on the 2020 list of Accounting Today’s Best Accounting Firms for Women.

Tera D. Kovanes, CPA, was named best local accounting firm for 2020 by the Richmond Times-Dispatch. Financial Accounting Services and Keiter were first and second runners-up, respectively.

Rogers & Associates, PC, in Nellsyford, has officially changed its name to Piedmont CPA Group.

VSCPA

Staff news ANNIVERSARIES January 10: Jen Syer, technology director, 21 years February 7: Tina Bates, CAE, vice president, innovation, 21 years February 17: Amy Mawyer, vice president, learning, 27 years Julie Chamberlain 5 years

Talley King 10 years

February 20: Veronica Boyett, partnership & even specialist, three years March 1: Julie Chamberlain, executive assistant, five years March 9: Talley King, senior manager, marketing, 10 years March 12: Richard Gordon, learning & member services director, nine years

Catherine Meehan 10 years

Kate Eacho 5 years

March 14: Catherine Meehan, finance manager, 10 years March 14: Kate Eacho, event specialist, five years

IN MEMORIAM Frank Deal Jr., CPA, a Life member from Midlothian who owned his own practice. He served in the U.S. Air Force.

Richard Foote, CPA, from Vienna. Founder and president of Accounting Financial Ltd. for 45 years, he sang in the Vienna Choral Society and The Church of the Holy Comforter Choir.

William Jarrett Jr., CPA, a Life member and sole proprietor from Richmond who served in the U.S. Army. He served on VSCPA committees in the 1970s.

James Scearce Jr., CPA, a Life member from Roanoke. Retired from Anderson & Reed, LLP, he was an active Mason and a member of the Pioneer Hokie Club since 1963. He served on several VSCPA committees from the 1970s through the 1990s.

JULIE BROWN, CPA: 2020 VIRGINIA CFO AWARD WINNER Congratulations to VSCPA member Julie Brown, CPA, for winning the prestigious 2020 Virginia CFO Award from Virginia Business magazine in the large nonprofit category. She’s CFO of Farmington Country Club in Charlottesville. Winners are chosen

by Virginia Business editorial staff and previous CFO award recipients.

Brag, please!

Send your member news to disclosures@vscpa.com.

VOLUNTEER WITH US! We can’t run without members like you. By volunteering, you’ll gain additional leadership experience, forge new friendships and give back to the profession with your time and expertise.

Visit vscpa.com/volunteer for the latest opportunities! Right now we’re looking to fill: »

CPAs in the Classroom

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SPOTLIGHT

The VSCPA’s first-ever Women to Watch

As part of the VSCPA Virtual Women’s Leadership Forum held last December, we launched the Women to Watch Awards to highlight the accomplishments of two women in the accounting profession. Two awards, for established and emerging leaders, are given to members who demonstrate leadership and support the development of future female leaders.

Never stop setting outrageous goals and never let anyone tell you your goals are outrageous.

The CPA profession owes a lot to its female pioneers, past and present, and the VSCPA is committed to increasing their presence among the profession’s elite leadership.

practice and currently leads the firm’s accounting services department.

JOAN M. RENNER, CPA, CGMA Established leader honoree Joan is a shareholder with Renner and Company, CPA, PC, in Alexandria, a firm founded by her husband, John Renner. During the past 30 years as a shareholder, Joan has led the firm’s audit practice, quality control for 15 years, growth team and nonprofit

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— Joan Renner, CPA, CGMA

Over that time, she’s helped hundreds of nonprofits guide their organizations financially with her expertise in providing services to nonprofits in the areas of accounting, auditing, consulting and nonprofit taxation. She has encouraged, taught and trained young professionals as a firm leader, and has shared her expertise with hundreds of her fellow professionals as well as with nonprofit leaders and community organizations as a popular presenter at professional and industry conferences.

SPOTLIGHT

She has also been a leader in the community, chairing a number of nonprofit boards and raising money for nonprofits that help the needy in the community.

I am passionate about… Professionally, I am passionate about making financial information accessible and understandable to financial statement users, especially in nonprofits. CPAs are in a great position to use their experience and expertise to highlight key financial issues with narrative explanations and visuals to help management and those charged with governance exercise their responsibilities.

If I weren’t a CPA… For most of my youth, I was a serious ballet student, but I went to college and majored in accounting so I could always earn a living.

The expression in those days was that “it’s good for a girl to have something to fall back on.” My ballet

experience was not wasted, however. It advanced my career by giving me a sense of professional poise and helped me be comfortable as a speaker. I suppose I have become a very theatrical accountant.

My advice to women entering the CPA profession is… I succeeded in public accounting because I set the outrageous goal of becoming a CPA firm partner and worked very hard with someone who believed my goal was not outrageous. That person is now my husband, John Renner. My advice to women entering the CPA profession is to work with people who believe in you, never stop setting outrageous goals and never let anyone tell you your goals are outrageous. Be generous with your time and talent.

Remember that when we build up those around us, we all benefit.

IRIS W. LAWS, CPA Emerging leader honoree A tax senior associate in the Richmond office of DHG, Iris predominately works on partnership entities but reviews and manages returns of all industries and types. She is a member of DHG’s Construction and Real Estate Group and is fluent in the complexities of this industry. During her time at DHG, Iris has also been active in recruiting, the DHG Impact Committee, the DHG Emerging Leader’s Network and DHG University. Iris received a master’s degree in accountancy from Wake Forest University and is a CPA in North Carolina and Virginia.

I am passionate about… Creating meaningful relationships. Whether it be my coworkers, my clients or my community, at the end of the day to me it’s all about being a bright spot in someone’s day!

People don’t know this but… I’m an avid tennis player! I grew up in Texas traveling around the state for the sport, played club tennis at Wake Forest, and love to get out for a match whenever I can. I find it’s a wonderful way to connect with friends, both old and new.

If I weren’t a CPA, I would be… A jewelry designer! Ever since I was two my family has been taking an annual trip to Estes Park, Colo. It was there that I was able to learn how to make jewelry, and how healthy and invigorating it can be to take a creative break from real life. Normally you would not pair “tax advisor” with “jewelry designer,” but it’s exactly that inherent difference in what I love that keeps me going on both fronts.

My advice to women entering the CPA profession is… To find a mentor you trust (male or female!).

They will be your greatest teachers, advocates and confidantes both professionally and personally.

I never leave home without… Two things: 1) my phone (yes, I’m a millennial!) and 2) business cards.

The second probably sounds forced, but I’m usually that person to strike up a conversation in the Starbucks line and I’ve made more than one long-term friends because I carry my contact information with me.

During the pandemic, I… Added two new English Springer Spaniels to our little family. Opie and Fisher have been such a joy (granted, a handful) during a normally isolating time. n

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