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The Far-Reaching Impact of Wayfair
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4 The Wayfair Decision and Its Effect on Retailers RALPH RALPH ALBERT ALBERT THOMAS, THOMAS, CPA CPA (DC), (DC), CGMA CGMA Chief Chief Executive Executive Officer Officer & Executive & Executive Director Director firstname.lastname@example.org email@example.com ELLEN ELLEN C. C. McM SHERRY cSHERRY Chief Chief Operating Operating Officer Officer firstname.lastname@example.org email@example.com DON DON MEYER, MEYER CAE Chief Chief Marketing Marketing Officer Officer firstname.lastname@example.org email@example.com RACHAEL RACHAEL BELL BELL Managing Managing Editor Editor firstname.lastname@example.org email@example.com KATHLEEN KATHLEEN HOFFELDER HOFFELDER Senior Content Content EditorEditor firstname.lastname@example.org email@example.com MARC DIANE L.ESPIRITU REIN Multimedia Senior Graphic Specialist Designer firstname.lastname@example.org email@example.com WALT HARTSFIELD Junior Graphic Designer firstname.lastname@example.org THE NEW JERSEY SOCIETY OF CERTIFIED PUBLIC ACCOUNTANTS 425 EAGLE ROCK AVENUE SUITE 100, ROSELAND NJ 07068 THE NEW JERSEY SOCIETY 973-226-4494 | NJCPA.ORG OF CERTIFIED PUBLIC #NJCPAMAG ACCOUNTANTS 105 EISENHOWER PARKWAY SUITE 300, ROSELAND NJ 07068 READ NEW JERSEY CPA 973-226-4494 | NJCPA.ORG ONLINE AT NJCPA.ORG/ #NJCPAMAG NEWJERSEYCPA DE SIGN / P RODUCT I ON / READ NEW JERSEY ADVERTISIN G CPA ONLINE AT NJCPA.ORG/ NEWJERSEYCPA THE YGS GROUP 3650 WEST MARKET STREET YORK, PA 17404 TO A DVERTI SE I N Advertising Contact: NEW J E R S E Y C PA LAURA GAENZLE Visit njcpa.org/advertising ACCOUNT EXECUTIVE or contact Eileen Proven at717-430-2351 email@example.com firstname.lastname@example.org or 862-702-5640
The fundamental change in the sales tax nexus standard resulting from South Dakota v. Wayfair represents an opportunity for states to determine how they will collect and enforce the collection of sales tax. States now have the authority to require out-of-state retailers to collect and remit sales tax on sales to in-state residents. See what the impact is on states and retailers.
6 Leveraging Software for Sales Tax Compliance
As states continue to adapt to Wayfair, it can feel next to impossible for businesses to stay on top of sales tax law so that they properly collect, file and remit sales tax to the various states in which they operate. Fortunately, there are various software apps to help automate the sales tax filing and collection process.
8 How Wayfair Risks Can Lead to Opportunities
There are new risks in the landscape of state income tax with Wayfair. The evolving progression of economic nexus is amplified, signaling to all states that economic nexus is sound law. This has furthered states’ aggressiveness in enforcing broad nexus provisions. Also, more businesses are being required to register with revenue departments for sales tax.
10 The Impact of Wayfair on New Jersey and its Neighbors
New Jersey has not yet adopted a bright-line economic nexus sales threshold for corporate income tax purposes. New York implemented its own economic nexus standard. In contrast, Connecticut requires remote sellers to determine nexus based on a specified 12-month period. And Pennsylvania was one of the later states to adopt it. See where else they differ.
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Challenges Lie Ahead as Businesses Reopen
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12 ACCOUNTING, AUDITING & ATTEST
The CPA Exam is Changing — Again 14 BUSINESS MANAGEMENT
Key Considerations to Successfully Outsource Accounting 15 FINANCIAL PLANNING SERVICES
Artful Account Rebalancing 16 FIRM MANAGEMENT
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Post-TCJA Tax Considerations in Divorce Matters 20 PROFESSIONAL DEVELOPMENT
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IRS Steps Up Cryptocurrency Tax Enforcement Efforts
Jay Lauretta, CPA
Challenges Lie Ahead as Businesses Reopen BY RALPH ALBERT THOMAS, CPA (DC), CGMA, CEO AND EXECUTIVE DIRECTOR, NJCPA
As we begin to return to our workspaces safely, albeit with a lot more remote working than ever imagined amid the new COVID-19 reality, I want to ponder what we have been through and get energized for the next few months. While the road ahead may not be what we expected the fall to bring — evaluating growth strategies, investigating M&A or organizing volunteer commitments, to name a few — we are inevitably now tasked to do more with less. Our members lost family, friends and colleagues to COVID-19 as well as revenue, clients or cash flow, leading us to tighten belts or implement cost-saving strategies. All of us at the NJCPA want to acknowledge the selfless efforts of members throughout these trying times — like our State Taxation Task Force that helped inform lawmakers and the Division of Taxation about tax deadline extensions, the group of members who provided input to Senate President Sweeney, and those who have provided guidance on the Open Forum. You also assisted with loan calculations; helped fellow members better understand withdrawals or payroll questions; assisted with relief applications; attended virtual board and interest group meetings; helped out on many nonprofit boards and even kept us fit. For these and other initiatives, we thank you. Here are some of our members who deserve special acknowledgement during this unprecedented time: y Karen Artasanchez, CPA, WilkinGuttenplan y James Bartek, CPA, Withum
y Frank Boutillette, CPA, Withum y Zachary Cohen, CPA, Prudential Financial, Inc. y Melissa Dardani, CPA, Baker Tilly y Nicole DeRosa, CPA, Withum y Barry Horowitz, CPA, Withum y Michael Karu, CPA, Levine, Jacobs & Company, LLC y John Kelly, CPA, John D. Kelly, CPA LLC y Daniel Mayo, CPA, Withum y Leonard Nitti, CPA, WilkinGuttenplan y Ed Zollars, CPA, Thomas Zollars & Lynch Ltd. And the list goes on. As businesses start back up and continue to adhere to Governor Murphy’s reopening guidelines, there are undoubtedly some issues that remain for owners, managers and their CPAs. Questions revolving around staffing, new workspace requirements, placating clients and remaining economically viable need to be answered. Indeed, in a survey of our members in May, respondents cited a need for lawmakers to pivot to a business-focused strategy to begin the recovery process. More than 65 percent of the 305 CPAs who responded noted that a timeline to allow their clients’ businesses to reopen would help small businesses more than other forms of economic relief. Deferring tax payments or extending deadlines was ranked second by more than 47 percent of respondents. But the road back may not be an easy one. Survey respondents said it will take 39 percent of their business clients six to 12 months to recover to pre-crisis levels
once the stay-at-home restrictions begin to be lifted, while another 34 percent of clients will need more than 12 months to recover. Respondents said that 12 percent of clients will not recover and will most likely go out of business. The economic crisis is weighing heavily on the minds of business owners. Respondents said that 27 percent of clients are worried about the survival of their business. Accounting firms of all sizes share their clients concerns; 40 percent of survey participants indicated that they expect their firm’s revenue to decrease by 11 to 25 percent during the pandemic. However, New Jersey accounting firms remain committed to clients, with half of respondents indicating that their firms had not made changes to their staffing levels. We have told Governor Murphy and his administration that the NJCPA stands ready to offer assistance in meeting the multitude of business challenges ahead.
New Jersey CPA (ISSN 1534-6692) is published six times per year by the New Jersey Society of Certified Public Accountants, 105 Eisenhower Parkway, Suite 300, Roseland, NJ 07068. Issue No. 82 Copyright © 2020 New Jersey Society of Certified Public Accountants. Annual membership dues include $9 for a one-year subscription to New Jersey CPA magazine. Members may not deduct subscription price from dues. Periodicals postage paid at Roseland, NJ, and at additional mailing office. POSTMASTER: Send address changes to New Jersey CPA, 105 Eisenhower Parkway, Suite 300, Roseland, NJ 07068-1640. The materials and information contained within New Jersey CPA are offered as information only and not as practice, financial, accounting, legal or other professional advice. The opinions expressed herein are those of the authors and not necessarily those of the New Jersey Society of CPAs. Publication of an advertisement in New Jersey CPA does not constitute an endorsement of the product or service by the New Jersey Society of CPAs.
JULY/AUGUST 2020 | NEW JERSEY CPA
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THE WAYFAIR DECISION AND ITS EFFECT ON RETAILERS By MATTHEW S. RHEINGOLD, ESQ.
EINHORN BARBARITO, FROST & BOTWINICK, PC
In the landmark decision of South Dakota v. Wayfair, the U.S. Supreme Court overturned the long-standing physical presence test which was utilized in establishing nexus for sales and use tax.
In Wayfair, the Court upheld a South Dakota law that required certain out-ofstate sellers to collect and remit sales tax regardless of whether the business had a physical presence in South Dakota. For over 50 years, since the Supreme Court’s decision in National Bellas Hess v. Department of Revenue of Illinois, the standard for whether an out-of-state retailer could collect and remit sales tax was based upon whether a seller had property, people or some other physical connection within the taxing state. This standard was later upheld by the Supreme Court in Quill v. North Dakota. Quill established that a state government could only tax businesses that had a “physical presence” in the state. If the seller did not have a physical presence in the state, the seller was generally not required to collect any sales tax. The burden was on the buyer to report and pay the sales or use tax to the respective state. TIME FOR A CHANGE Since 1992, Quill was the accepted practice for sales tax collection. Yet, over the years, new technology and the substantial growth of e-commerce made it increasingly difficult for local retailers to compete with online retailers who could sell their products to customers without the imposition of a sales tax, which local retailers were required to collect. A customer in
JULY/AUGUST 2020 | NEW JERSEY CPA
one state could purchase goods online via the seller’s website, regardless of where the seller was located. If the seller did not have a physical presence in the customer’s state, then sales tax could be avoided since the seller was not required to collect and remit the sales tax to the state. As a result, states, such as South Dakota, lost billions of dollars of revenue each year. In 2016, South Dakota enacted S.B. 106, which directly contradicted the physical presence standard established by the Court in National Bellas and Quill. The law required out-of-state sellers to collect sales tax as if they had a physical presence in South Dakota if the seller either 1) delivered more than $100,000 of goods or services into South Dakota or 2) engaged in 200 or more separate transactions for the delivery of goods or services into South Dakota. Additionally, S.B. 106 did not apply retroactively. Following the enactment of the law, South Dakota then sued three online remote companies, Wayfair, Overstock.com, Inc. and Newegg (each of which had over $1 billion in annual sales) seeking a declaration that such companies were required to comply with the statute. IMPACT ON RETAILERS AND STATES In Wayfair, the Supreme Court sought to level the playing field among retailers. The Court reversed earlier precedent and
permitted states to require out-of-state businesses to collect sales tax based solely on the connection created by selling goods to state residents. The Court noted that the physical presence rule created market distortions because it discouraged out-of-state sellers from having an in-state physical presence and encouraged customers to buy from out-of-state vendors. In their decision, the Court analyzed the U.S. Constitution’s Commerce Clause and found that the Court’s prior decision in Quill was flawed. Specifically, the Court stated that physical presence in a state is no longer required before a state can force a remote seller to collect sales tax. Nevertheless, the Court also said that states could not require a remote seller to collect sales tax unless the seller has “substantial nexus” with the state and the tax collection does not place “undue burdens” on the remote seller. In Wayfair, the Court set a new standard known as an “economic nexus” which expanded the reach of states across the country and permitted states to impose sales and use taxes on retail and other businesses, regardless of the physical location of the business. In overturning the Court’s precedent in Quill and National Bellas Hess, the Court concluded that “the physical presence rule of Quill is unsound and incorrect.” This fundamental change in the sales tax nexus standard represents an opportunity
for states to now determine how they will collect and enforce the collection of sales tax. The Court determined that states now had the authority to require out-of-state retailers to collect and remit sales tax on sales to in-state residents. The Court also noted that its decision “should not prevent states from collecting lawful taxes through a physical presence rule that can be satisfied only if there is an employee or building in the state.” Following the Wayfair decision, it is abundantly clear that the physical presence requirement has been overturned. While the Court did not clearly articulate nor define “substantial nexus” or “undue burdens,” the Supreme Court held that South Dakota’s law was permissible because it had several distinct features which prevented it from violating the Commerce Clause: 1. A safe harbor provision for retailers that transact a limited amount of business in the state (e.g., annual in-state sales that exceed $100,000 or 200 or more transactions into the state). 2. The law was not retroactive. 3. South Dakota was one of more than 20 states that had adopted the Streamlined Sales and Use Tax Agreement, which reduces administrative and compliance costs for taxpayers. Nevertheless, the Court did not articulate any specific guidelines with respect
to whether lower thresholds would be sufficient, or if $100,000 in sales or 200 in transactions would be an adequate threshold in a more populous state. Post-Wayfair, every retailer, including brick and mortar stores, must now consider how they handle sales across state lines. The economic nexus standards are applied broadly to all remote sellers. As a result, each retailer must keep records pertaining to every state in which their business transacts sales. Matthew S. Rheingold, Esq., is a trust and estates/ tax attorney at Einhorn Barbarito, Frost & Botwinick, PC. He can be reached at mrheingold@ einhornlawyers.com
LEARN MORE AUG. 20, 24 OR 27, WEBINAR SALES TAX/WAYFAIR UPDATE AND OTHER TAX CHANGES Free Membership+ Event njcpa.org/events
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NEW JERSEY CPA | JULY/AUGUST 2020
LEVERAGING SOFTWARE FOR SALES TAX COMPLIANCE By CHRISTOPHER R. CICALESE, CPA
ALLOY SILVERSTEIN ACCOUNTANTS AND ADVISORS
Sales tax collection can be one of the most daunting tasks in operating a business. But software can provide some relief.
New Jersey’s general sales tax guide contains over 30 pages of guidance listing various items that are either taxable or non-taxable. Often, an item will not even be on the list, leaving CPAs to interpret the other items on the list and apply it to the item. CPAs also sometimes receive unofficial guidance from state auditors during a routine audit. In some cases, without a ruling from the tax director, the unofficial guidance may not be enough. As states continue to adapt to the Wayfair court case ruling, it can feel next to impossible to stay on top of sales tax law. In addition to staying up to date on the law, businesses also need to collect, file and remit sales tax to the various states in which they operate. Fortunately, there are various apps to help automate the sales tax filing and collection process. THINGS TO CONSIDER When evaluating the various software options, keep the following in mind: y Free trial and initial set up. When looking to implement any software, it’s important to do research. Almost all apps provide a free trial so users can get the hang of the app before implementing it for everyday operations. Sales tax software can be bulkier
JULY/AUGUST 2019 | NEW JERSEY CPA
depending on how many items or services the company sells, so setup is key. Whether fully implementing the software or just doing the free trial, there will be an initial process that must be completed. If the software is set up wrong, it can create a bigger mess than not using the software at all. Prior to finalizing the software choice, see if there is an onboarding team that can help with the set up. y Integrations. To fully automate, the software needs to integrate into the company’s app stack. While there will be some initial manual setup, overall the only ongoing manual input should be when setting up new products or services. The three integrations that should be considered are the e-commerce stores, invoicing/payment software and accounting. Each integration needs to be thoroughly tested to prevent errors while the app is live. If, during operation, the app has an error, it could miss transactions or even prevent the processing of sales. y Learning center and live events. With any software it is important to see what kind of guidance or
learning center is available to stay up to date on any software changes. Live or recorded webinars offer the ability to work through a problem or scenario. Live events offer a more diverse community base to connect with other users. Hearing other users’ challenges and success stories can be very beneficial. y Customer service. The biggest selling point of any software besides pricing should always be customer service. When an issue or problem arises, waiting hours or even a day could make or break a business. For some tax professionals, it could mean keeping or losing a client while trying to problem solve with them. Although many vendors will say they have 24/7 support, unless there is a live chat or phone hotline always available, response time could be delayed. Often the live chat feature can be a lifesaver. Even more important, though, is whether the vendor provides their own support or outsources it. Outsourced support and agents are often limited to scripts or knowledge-base articles. Ideally, the support team will be able to problem solve or provide temporary solutions while they work to provide a permanent fix.
y Pricing. Each software package will offer various pricing tiers that may fit certain clients. In some instances, if the pricing is based on the number of transactions, a high-dollar, low-volume client may not be able to use the software package. The various tiers may provide different features, and the cost per state filings can vary. When considering a package, it is important to plan for the future as well, in case the need arises to add another state or add more products. At the end of the day, while the software needs to be a good fit for a business, the business also needs to be a good fit for the software company. y Wishful thinking. A common misconception is that sales tax compliance software will automatically identify what is and isn’t taxable. Unfortunately, there most likely will always be some human interaction required to verify what is and is not taxable. Businesses will still be required to keep up to date on the current tax laws for each state and maintain their product and service list. At the same time, sales tax is often considered a trust fund tax, which means business owners will need to know the law or can be held personally responsible
for the tax. Those companies that use software to automate the process will most likely still need to work to decide what is and isn’t taxable. POPULAR SOFTWARE OPTIONS Three key players in the sales tax automation world are: y Taxify (taxify.co) y Avalara (avalara.com) y Taxjar (taxjar.com) At their core, each solution will essentially accomplish the same thing. While it may be tempting to pick the low-cost software package, it is important to evaluate how the software integrates with the rest of the company’s app stack. Some may not integrate smoothly or may require some manual work. At the same time, some software options may not be a good fit based on the business’s overall operations or a client’s technological skill set. Much like any business decision, before committing to any one solution, all options should be considered thoroughly. Ultimately, if the sales tax is filed incorrectly, the blame typically falls on the taxpayer. Christopher R. Cicalese, CPA, MSTFP, is a manager at Alloy Silverstein Accountants and Advisors. He is a member of the NJCPA and can be reached at email@example.com.
NEW JERSEY CPA | JULY/AUGUST 2020
HOW WAYFAIR RISKS CAN LEAD TO OPPORTUNITIES By JAMES A. BARTEK, CPA, AND JASON ROSENBERG, CPA, CGMA, EA, MST WITHUM
The landmark Wayfair case has had far-reaching impact, but along with the expansion of nexus comes planning opportunities for both income tax and sales tax.
The Supreme Court’s June 2018 decision in South Dakota v. Wayfair, Inc. was a significant reversal of the Court’s earlier judicial rulings, suddenly enabling states to impose economic nexus on remote sellers and requiring them to collect and remit sales tax if they met certain thresholds. This was a fundamental shift in how nexus had been interpreted, and it effectuated many reporting challenges for small and midsize businesses. No longer was physical presence required for sales tax imposition, and no longer was any state prohibited from taxing businesses it viewed as doing business within its borders. Because of this ruling, most states established economic nexus thresholds for sales tax. In addition, states have adopted economic nexus standards for income tax, which many states have enacted prior to Wayfair. INCOME TAX Today, a vast number of states impose economic nexus for income tax. However, unlike sales tax, it has been a much longer road for the widespread adoption of economic nexus for income tax. Wayfair overturned the 1992 Supreme Court case in Quill v. North Dakota, which had affirmed the “physical presence” requirement
JULY/AUGUST 2020 | NEW JERSEY CPA
as the law of the land under the Commerce Clause. Back when Quill was decided, the Court explained that, “although we have not, in our review of other types of taxes, articulated the same physical-presence requirement…established for sales and use taxes, that silence does not imply repudiation of the…rule.” Many states capitalized on this, opening the door for states to augment economic income tax nexus standards into practice, either by statute, case law or interpretation. The outset of this movement is often referenced to the 1993 South Carolina case in Geoffrey Inc. v. S.C. Tax Comm’n, where it was determined the taxpayer established nexus, even though the taxpayer lacked physical presence in the state, but its licensing of intangibles was sufficient in establishing nexus. As many states look to balance their budgets, with invoking “doing business” standards within broad income tax nexus provisions, businesses, in turn, have a filing requirement with any in-state sourced sales. Other states use bright-line thresholds, similar to sales tax economic nexus thresholds, which establish nexus when either factors of sales, payroll or property are exceeded in a state. Many businesses mistakenly assume only states with these
bright-line factor presence thresholds result in economic nexus, but many other states are equally aggressive in enforcing broad economic nexus provisions on virtual presence. Certainly, there are new risks in the landscape of state income tax with Wayfair. First, the evolving progression of economic nexus is amplified, signaling to all states that economic nexus is sound law. This has furthered states’ aggressiveness in enforcing broad nexus provisions. Second, with sales tax economic nexus, coupled with the trend of states imposing sales and use tax on services, more businesses are being required to register with revenue departments for sales tax. This has resulted in increased audit detection risks for income tax as more businesses register for sales tax. All told, the state income tax landscape has certainly been impacted as a result of Wayfair, resulting in an increased reliance of federal law protection, known as P.L. 86272. However, such protection is limited to income taxes, not taxes such as gross receipts, and only to remote sellers of products, leaving service providers exposed. REFOCUSING ON MARKET SOURCING FOR OPPORTUNITY With risks comes opportunity. As in-state sales could result in income nexus, the crux of the matter with sourcing in-state sales across the states often leads to many issues. Jurisdictions across the country use different sourcing rules for service industries, which are found to be both complex and vague, while often lacking adequate guidance. Frequently, businesses apply generic sourcing rules across states with similar methodologies.
However, it is incredibly important to highlight that no state statute is the same, as each jurisdiction has their own case law, guidance and interpretations. The adoption of market-based sourcing has been one of the most significant trends in state income tax in recent years. Conceptually, market sourcing assigns sales based on the location of the customer or where the customer receives the benefit of such services. The states’ rules attempt to identify the marketplace location for the service transaction. However, there may be countless sourcing rule variations across jurisdictions. These variations may include customer types (i.e., individual versus business), revenue streams and look-through rules (i.e., direct customer or ultimate consumer), in addition to cascading rules that many states employ that often lead to subjective sourcing application. This lack of uniformity could benefit businesses with planning opportunities. For example, does a service provider contracting with a health plan provider source its sales to the location of the health plan’s headquarters, the health plan provider’s offices where the services are delivered, by billing location or should it look-through to the ultimate beneficiary of the health plans? The divergence of rules could allow for planning opportunities to shift revenue into low-tax states and/or result in untaxed revenues for multi-state businesses. SALES AND USE TAX With sales tax, to further confuse matters, states have different enactment dates, sales and transaction nexus thresholds, as well as different rules regarding taxability of
products and services. Businesses that are unaware of these changes run the risk of under-collecting sales tax if not registered or not properly identifying the applicable tax rules. While automation and technology are available, full implementation may be a protracted process. Absent a thorough understanding of the countless solutions that are suitable for the business model, companies risk substantial assessments. Although Wayfair afflicted businesses, there is some good with the bad. With many revenue streams comprising of services and digital products, its more crucial than ever that a taxability review is performed. As states are scarce with guidance, or employ ambiguous statutes, opportunities exist to assert non-taxability in many instances. Further, businesses should understand that vendors may be just as confused by the taxability. Therefore, businesses should review the taxability of their purchases with vendors to determine if a conventional position is being applied to an area of the law that might be grey. PLANNING IN A WAYFAIR WORLD Performing income tax and sales tax reviews in a Wayfair world may help alleviate some of the burden. These steps could assist in reducing tax liabilities, improving organizational cost efficiencies and determining potential refunds. In turn, such reviews may also identify exposures, enabling businesses to possibly mitigate liabilities to a defined look-back period with state amnesty programs or the like. James A. Bartek, CPA, is a partner in the State and Local Tax Practice at Withum. He is a member of the NJCPA Department of Labor Work Groups, Directors Work Group and the State Taxation Interest Group. He can be reached at firstname.lastname@example.org. Jason Rosenberg, CPA, CGMA, EA, MST, is a senior manager in the State and Local Tax Practice at Withum. He is a member of the NJCPA and can be reached at email@example.com.
LEARN MORE AUG. 20, 24 OR 27, WEBINAR SALES TAX/WAYFAIR UPDATE AND OTHER TAX CHANGES Free Membership+ Event njcpa.org/events
NEW JERSEY CPA | JULY/AUGUST 2020
THE IMPACT OF WAYFAIR ON NEW JERSEY AND ITS NEIGHBORS By MEGAN CHESLEY, CPA WILKINGUTTENPLAN
More than two years have passed since the landmark South Dakota v. Wayfair, Inc. case was decided which dramatically altered the sales tax landscape, not only in New Jersey and its surrounding states, but across the entire country.
JULY/AUGUST 2020 | NEW JERSEY CPA
Prior to Wayfair, the same sales tax landscape had been in place for 26 years, ever since Quill Corp. v. North Dakota established the physical presence requirement for sales tax purposes with its 1992 Supreme Court decision. Under Quill, a business needed to have a storefront or other location in the state, an in-state employee or another form of physical connection to a state, otherwise the business would be exempt from having to collect and remit sales tax to that particular jurisdiction. Wayfair found the physical presence standard to be unsound and incorrect in the current age of internet services and brought forth the economic nexus standard in determining a businessâ&#x20AC;&#x2122;s sales tax obligation. Economic nexus applies to remote sellers and is determined by either a dollar sales or a transaction volume threshold. Although the exact thresholds vary by state, many states have adopted South Dakotaâ&#x20AC;&#x2122;s model of $100,000 of revenue or 200 separate transactions, which was the standard reviewed in the Wayfair case. As e-commerce continues to compete with its brick and mortar counterparts, supplementing the physical presence standard with the economic nexus standard for sales tax purposes has allowed states to cast a much wider net on businesses that are economically benefitting from sales
within the state. Although Wayfair was decided with regard to sales tax, it is also important to consider the implications that this decision currently has or may have in the future with regard to corporate income tax. NEW JERSEY Like many other states, New Jersey adopted the economic nexus model of $100,000 of revenue or 200 separate transactions to determine which remote sellers have a sales tax obligation in the state. The standards were effective as of Nov. 1, 2018, and nexus is determined based on sales during the current or prior calendar year. New Jersey has not yet adopted a bright-line economic nexus sales threshold for corporate income tax purposes. NEW YORK New York, on the other hand, implemented its own economic nexus standard. As of June 21, 2018, which was the date that the Wayfair case was decided, a remote seller has a sales tax obligation in New York if it has gross receipts in excess of $500,000 and more than 100 sales that were delivered to New York customers. Rather than using calendar years as the testing period, New York instead requires remote sellers to determine nexus based on the immediately preceding four sales quarters. The sales quarters in New York
are for the three-month periods ending May 31, Aug. 31, Nov. 30 and Feb. 28. Just as New York employs a bright-line economic nexus threshold for sales tax purposes, the state also applies a brightline standard for corporate income tax. A taxpayer has economic nexus if its New York receipts exceed $1 million during the taxable year. CONNECTICUT Connecticut applies an economic nexus threshold for sales tax purposes of $100,000 in gross receipts and 200 or more retail sales into the state, which was effective July 1, 2019. In contrast to its neighboring states, Connecticut requires remote sellers to determine nexus based on the 12-month period ended on Sept. 30 immediately preceding the monthly or quarterly period with respect to which the sellerâ&#x20AC;&#x2122;s tax liability was determined. An out-of-state corporation will satisfy the bright-line economic nexus standard for corporate income tax purposes if it has $500,000 or more in gross receipts from Connecticut customers during the tax year. However, it is important to note that taxpayers who merely solicit orders of tangible personal property in a state have protection under Public Law 86-272 and are therefore not required to pay corporate income tax in a state where their activities do not extend beyond mere solicitation, regardless of
any bright-line nexus standard in place. Protection under Public Law 86-272 applies to all states that impose tax based on net income. PENNSYLVANIA As one of the later states to adopt economic nexus for sales tax purposes for transactions occurring on or after July 1, 2019, Pennsylvania applies only a $100,000 gross receipts threshold, without consideration for the number of sales transactions made to Pennsylvania customers. In contrast to its neighboring states, Pennsylvania requires remote sellers to determine nexus based on the preceding 12 month period, which is a rolling period as compared to a calendar year. For tax years beginning on or after Jan. 1, 2020, an out-of-state corporation will satisfy the bright-line economic nexus standard for corporate income tax purposes if it has $500,000 or more in gross receipts from Pennsylvania customers during the tax year. COMPLIANCE Even though it has been two years since the Wayfair case was decided and states have responded with their respective economic nexus standards, it is not uncommon for taxpayers to either be unaware of their current sales tax obligations or to simply not know how to get into compliance, particularly if they are
operating in numerous states or nationwide. There are three options for taxpayers that are seeking to get into compliance for sales tax purposes: y Registration and prospective filing when the economic nexus standard for a state has been exceeded y Registration and back filing y Voluntary disclosure agreements and amnesty programs There is no one-size-fits-all approach for determining which option should be pursued, and a taxpayerâ&#x20AC;&#x2122;s potential tax exposure, which includes late filing and late payment penalties and related interest, should be factored into the ultimate decision. For taxpayers operating in numerous states or nationwide, the time spent on monthly or quarterly sales tax filings certainly adds up. E-commerce companies without dedicated accounting or tax departments may want to consider outsourcing this function to an accounting firm that specializes in sales tax or utilizing automated tax compliance software that integrates with their specific accounting, e-commerce, shopping cart or other applications. Megan Chesley, CPA, is a tax supervisor at WilkinGuttenplan. She is a member of the NJCPA State Taxation Interest Group and can be reached at firstname.lastname@example.org.
NEW JERSEY CPA | JULY/AUGUST 2020
ACCOUNTING, AUDITING & ATTEST
Clients Can Benefit from a Review or a Compilation BY RICHARD HIGGINS, CPA, McCARTHY & COMPANY, PC
While an audit provides the highest level of assurance that a client’s financial statements are fairly stated and free of material misstatements, many companies do not have an audit of their financial statements performed. A review or compilation could be enough to satisfy their stakeholders (employees, customers, suppliers, bankers, sureties and the community). All public companies are required to be audited annually. Certain nonpublic entities also must have an annual audit including local governments, nonprofits and organizations receiving government grants. Although some financial institutions require an audit of nonpublic companies to obtain financing, others do not. It depends on the amount of the loan and/or the bank’s assessment of the company’s risk. An audit might also be required if the company has a surety company and/or absentee owners such as investment firms or individuals who are not involved in the daily operations. It is important to determine why a client wants an audit. Depending on the answer, CPAs can save clients money while providing some level of assurance on their financial statements. REVIEW A review engagement consists primarily of analytical procedures applied to financial statements and various inquiries into the client’s management team. A review is less extensive than an audit but more involved than a compilation. A review provides limited assurance from a CPA without the expense of an audit. If the financial statements or supporting information appears inconsistent or otherwise questionable, additional procedures may need to be performed. This could include questioning the accounting practices and principles of the business. The client will need to provide a trial balance, bank reconciliations, accrual schedule, deferred revenue income statement and additional information for the CPA to conduct a review of their financial statements. A review does not require a study or evaluation of the client’s internal controls.
JULY/AUGUST 2020 | NEW JERSEY CPA
Third-party data does not have to be verified. A physical inspection of company assets also does not have to be done. Because the same level of testing is not done as in an audit, a review report expresses limited assurance in the form of the statement: “We are not aware of any material modifications” for the financial statements to be in conformity with Generally Accepted Accounting Principles (GAAP). However, reviewed financial statements must include all required footnotes and other disclosures. A review will usually satisfy lenders and investors who do not have a lot at stake. Generally, reviewed financial statements are used for seeking a small bonding line and a business loan or line of credit. When the loan requires a company to comply with certain loan covenants, a review versus an audit discussion is probably needed. COMPILATION A compilation requires the CPA to simply present financial statements based on the representations made by management. This information is not verified. The CPA expresses no opinion or assurance on the financial statements. Compilations do not require inquiries of management or analytical procedures. Instead, the CPA relies on their knowledge of accounting principles and a general understanding of their client’s business. Banks often require compilations from an independent CPA as part of their lending covenants. Although a compilation provides the lowest level of assurance, banks like to know that a CPA looked over the financial statements. FOOTNOTES AND DISCLOSURES The footnotes to the financial statement describe the practices and reporting policies of the company’s accounting methods. Additional information that cannot be shown in the financial statements is sometimes also disclosed. The footnotes describe the company’s accounting methods, revenue recognition policies, and important company operational and financial results. Companies can provide detailed information on the
impact that the COVID-19 pandemic had on their business and why they have reduced revenue and earnings forecasts. Increased borrowing, closures, staff reductions and any changes to internal controls can be explained. Each type of financial statement report is applicable for certain situations. It depends on the requirements of the client’s bank or other parties and budgetary needs. Although an audit engagement is the highest level, it may not be necessary to perform, and a review or compilation may satisfy the client’s needs. Richard Higgins, CPA, is the managing principal of the New Jersey office of McCarthy & Company, PC. He is a member of the NJCPA and can be reached at 732-3413893, ext. 17, or Richard.Higgins@MCC-CPAs.com. LEARN MORE JULY 13, 16, 22, WEBCAST AND ON DEMAND COMPILATIONS, REVIEWS AND PREPARATIONS: ENGAGEMENT PERFORMANCE AND ANNUAL UPDATE
AUG. 6, WEBCAST COMPILATION AND REVIEW PRACTICE GUIDE
AUG. 7, WEBCAST COMPILATIONS, REVIEWS AND AUDITS: HOW THEY DIFFER
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BECOMING A CPA
The CPA Exam is Changing — Again BY STEPHEN McCARTHY, CPA, MBA, THE PRESIDENTS FORUM
The American Institute of CPAs (AICPA) Examination Team is responsible for maintaining the validity and relevance of the Uniform CPA Examination (CPA Exam). The team conducts periodic research to assess the current state of the profession and the evolving requirements for newly licensed CPAs. In this endeavor, the team’s primary research vehicle is called a Practice Analysis (PA), a comprehensive project to document the state of the profession and the current role and requirements for a newly licensed CPA. Similar comprehensive exercises led to the computerization of the CPA Exam in 2004 and major CPA Exam updates in 2011 and 2017. The team began a new PA in early 2019 with a goal of introducing an updated exam later in 2020. An observant student will notice from the above dates that the pace of change to the exams seems to be accelerating, something long-time practitioners have observed about the requirements of the accounting profession. As the rate of change accelerates, that acceleration itself is a new challenge. Adaptability and the ability to constantly learn throughout our careers are becoming increasingly important.
requisite knowledge and skills at lower levels (e.g., entry-level courses). The AICPA has adopted a skill framework for the CPA Exam based on Bloom’s Taxonomy. The use of a framework like this ensures that core knowledge and essential skills are properly evaluated.
THE EXAMINATION BLUEPRINTS The AICPA developed the Uniform CPA Examination Blueprints to organize the content of the CPA Exam and assess the minimum knowledge and skills required of newly licensed CPAs. Changes in the workplace, especially the impact of technology, require changes in the exam and this Blueprint.
In general, the new Exam questions involve moving higher in Bloom’s Taxonomy, from remembering to applying, from applying to analyzing, and beyond analyzing to evaluating.
BLOOM’S TAXONOMY Another tool employed by the Examination Team is Bloom’s Taxonomy: remember and understand; apply and analyze; evaluate and create. This classification of different objectives and skills is used by educators across many different disciplines, not just accounting. In this hierarchy, learning at the higher levels (e.g., in the final year of an accounting program) is dependent upon attaining pre-
WHAT IS CHANGING? The challenge for this PA is to decide which topics to retain and which to remove from the Exam. There is a more comprehensive look at technology, data analytics and automation. In the PA’s first phase, several findings were identified that more broadly demonstrate technology’s impact on CPA practices. These findings, leading to new Exam questions, include: y Understanding the business. It is not business knowledge for the sake of business, but rather applying business knowledge in financial reporting, tax preparation, audit, attest and review services. y The need for a digital and data-driven mindset and the use of data analytics. y Increased reliance on internal control over financial reporting — System and Organization Controls (SOC 1 reports).
WHAT TO EXPECT “Candidates can expect to see more and more content related to technology going forward — from your more basic IT-related terminology, to understanding and analyzing automated processes and controls,” says Catherine Miskiv, CPA, exam content manager at the AICPA. “We also encourage all candidates to take the sample test. It will provide you with a good idea of how the exam works and includes Excel for you to use when answering questions.” The sample test is available at aicpa.org/becomeacpa/cpaexam/ forcandidates/tutorialandsampletest.html.
HOW TO PREPARE FOR CHANGE Educators must enhance the curriculum by incorporating higher-order skills into the coursework. Group projects and presentations may be particularly helpful in applying business knowledge. The biggest burden of these changes will, of course, fall on the candidates. The Exam was already rigorous, and, for many, it will be even more demanding. Yet, there are more resources available for candidates to help them understand the material. Those candidates who have practical experience will undoubtedly have an advantage. Without a doubt, these changes will create distress for some candidates. However, in keeping with the desired goal to see that the Exam remains current, relevant and reliable, these changes are necessary. Moreover, everyone will benefit if standards remain high and a steady pool of candidates successfully completes the Exam. Stephen McCarthy, CPA, MBA, is the owner of The Presidents Forum. He is a member of the NJCPA and can be reached at stevemccarthy@ thepresidentsforum.com. READ MORE CPA EXAM INFORMATION AND RESOURCESS njcpa.org/cpaexam DO MORE SAVE ON CPA EXAM REVIEW COURSES njcpa.org/discounts
NEW JERSEY CPA | JULY/AUGUST 2020
Key Considerations to Successfully Outsource Accounting BY AURORA ROSADO LAZZARO, CPA, SOBELCO
Accounting is an operational function that requires expertise but, unfortunately, may not always be allocated the financial resources to get the level of attention it requires. One trending solution for companies is to outsource an internal accounting function to an accounting firm or specialized accounting company. Outsourcing can provide an excellent way to get high-level talent at a fraction of the cost. As with anything in business, the relationship must be mutually beneficial, particularly if the outsourced accounting is structured properly and matched to the business’ needs. Several key considerations to successfully outsource accounting are with the development and retention of the talent pool, use of technology to gain efficiencies and focusing services in a specific industry. TALENT POOL People are, without a doubt, integral to the success of outsourced accounting. Companies looking to hire an outsourced accounting firm should look for teams that are created to service clients and remain consistent. Consistency helps establish institutional knowledge and trust. The team structure allows for flexibility while being able to address critical business needs with the highest level of responsiveness. The team structure also allows companies to have access to an immense range of talent, experience and specialties. Outsourcing talent works particularly well when an individual retires or moves on, for example. TECHNOLOGY As businesses continue to be driven by technology, the accounting profession needs to keep pace. Keeping in mind that many accounting tasks can be replaced by technology, it is key to make sure that technology is being used effectively and efficiently. An outsourced accountant needs to have access to a company’s
JULY/AUGUST 2020 | NEW JERSEY CPA
standardized technology platform to help save time for other tasks. Standardization helps bring new people onto the team seamlessly. Onboarding an outsourced accountant can become a very time-consuming process without the use of technology. Delegating and leveraging human capital are also difficult without standardization. If the wheel must be reinvented every time a new relationship is started, it makes it impossible to hire more accountants. Choosing what kind of technology to use should be based on factors that will impact the business for the long term. Technology has to be accessible and easy to use by both the outsourced accountant and staff. The outsourced accountant must be able to save in the format the company prefers so the information they need for decision making is always there. The software that an outsourced accountant uses should also check a few more boxes. The software should continue to be supported and updated by the developer. Without support and enhancement, the technology will not be able to keep up with the changes today’s business environment demands.
industry knowledge. For an accountant, being specialized helps to create internal efficiencies while providing the highest level of service to clients. They can leverage knowledge between clients and respond to any accounting nuances particular to an industry. Specialization is what can take an outsourced accounting practice to the next level by providing a seemingly transactional service offering with the knowledge to open the door to higher-level consulting and advisory services. For companies, it often helps to fill a necessary skills gap.
NICHE INDUSTRIES Companies can easily outsource accounting when they are in need of specialized
Aurora Rosado Lazzaro, CPA, MBA, CGMA, is a partner at SobelCo. She works with clients across a range of industries, such as manufacturing, distribution, retail, software, professional services and the nonprofit community. She is a member of the NJCPA and can be reached at aurora. email@example.com.
LEARN MORE JULY 15 OR AUG. 19, WEBCAST OUTSOURCING RELATIONSHIPS: ENJOY BENEFITS, AVOID PITFALLS njcpa.org/events READ MORE BUSINESS MANAGEMENT ARTICLES AND RESOURCES njcpa.org/topics/businessmanagement
Artful Account Rebalancing BY DAVID TEPP, CPA, PFS, MBA, TEPP FINANCIAL PLANNING
One surefire way to initiate an awkward discussion with a client is to advise selling off part of an investment that is earning an excellent return. Particularly during bull markets, seldom does proper account rebalancing lead to improved near-term rates of return. Instead, the objective of rebalancing is to reduce the risk within a portfolio. SECURITY SELECTION AND PORTFOLIO TESTING Before selecting individual securities for a portfolio, investment correlation should be carefully considered. For example, large cap and mid cap equities have a relatively high positive correlation, so shifting assets from one to the other may not reduce the client’s risk. However, shifting from equities to certain bond securities where the correlation is lower will likely reduce risk. Once you have assessed the client’s risk tolerance and constructed a portfolio, it is critical to analyze how it would have responded to past financial crises. Investment analysis software can enable you to calculate how the portfolio would have performed during the COVID-19 outbreak, the 2008 mortgage crisis and the 2001 tech bubble, to name a few. Once the portfolio is stress tested, the investment manager should then analyze security correlation and adjust the holdings as necessary to reduce risk. TIMELY REBALANCING Investment managers will often choose to rebalance quarterly, semi-annually or annually depending on the size of the account. However, far more important than the time interval is the timeliness of rebalancing. The primary objective of all investors is, naturally, to “buy low and sell high.” Rebalancing accounts based on price volatility enables the investor to trim holdings that have grown beyond their intended target (selling high) and acquire less expensive diversifying assets (buying low). For volatility-focused rebalancing, it is critical to establish parameters that trigger activity only when appropriate. Overly sensitive parameters will result in heavy trading that can increase costs. Alternatively,
if the parameters are too broad, the account will drift beyond the intended allocation and increase risk. “Account rebalancing should be designed to evaluate the account perpetually but to trade only when necessary,” says Dan Skiles, president of Shareholders Service Group, a San Diego-based broker-dealer which specializes in serving independent advisors. “Further, it is critical to have trading desk support that can assist advisors with establishing model portfolios and determining best practices.” MITIGATING TAXES For taxable investment accounts, the obvious initial objective when rebalancing is to avoid generating too high a tax liability for the investor. When taxable accounts have positions with unrealized losses, the investor can sell these investments, wait for the wash sale period to end and re-purchase the assets within the same account. This generates a useful capital loss while enabling the investor to continue holding the desired securities, albeit with a reduced tax basis. The greater challenge is when the account has accumulated gains, particularly to such a degree that it enhances the inherent portfolio risk. When this occurs, it is necessary to do two things simultaneously: strategically reduce the position of the inflated asset, and look for sale opportunities throughout the year that will generate losses which can offset the gains from the previous step. Sachin Shah, chief operating officer of 55ip, a Boston-based software company that engineers automated investment rebalancing strategies for financial advisors, recommends a three-step approach: 1. A tax-prudent transition that pivots clients from their current strategy to one that is better aligned to their risk profile while adhering to a specific tax budget established by their CPA. 2. Ongoing tax management that entails tax gain and loss harvesting throughout the course of the year. 3. Tax-focused withdrawals which enable
clients to access funds without accruing a heavy tax liability. The need for consistent rebalancing was readily apparent earlier this year when financial markets fell sharply due to the COVID-19 outbreak. Disciplined investors rebalanced their portfolios after the S&P fell by nearly 30 percent. Rebalancing at that point was unusually tricky since virtually every security type lost value during the collapse. Yet, adhering to the target allocation enabled investors to acquire high-value securities at bargain prices. Throughout this process, client communication is critical. It falls upon the investment manager to explain why rebalancing is necessary even though it may adversely affect investment returns during bull markets. The conversations may be difficult, but the benefits are especially apparent during retractions. David Tepp, CPA, PFS, MBA, is the managing member of Tepp Financial Planning, an independent wealth management firm in Westfield, NJ. He is a member of the NJCPA and can be reached at firstname.lastname@example.org. LEARN MORE AUG. 5, WEBCAST SECURING A COMFORTABLE RETIREMENT IN THE AGE OF SPENDING njcpa.org/events
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NEW JERSEY CPA | JULY/AUGUST 2020
6 Ways to Help Staff Get Through the CPA Exam Process BY JESSICA L. LEVIN, SEVEN DEGREES LLC
The CPA Exam. What used to be a fundamental part of working in an accounting firm is now considered a polite suggestion by many new graduates. For those individuals who have a few years of experience under their belt, sitting down and studying can be even more of a challenge. Heavy workloads and family responsibilities often get in the way of pursuing the credential. Yes, I know you walked barefoot, uphill, in the snow to take your Exam. But times have changed, and firms need to adapt to recruit, retain and advance CPAs. The good news, there are ways that firms can help their staff earn those coveted three letters and be the hero of their dreams. Here are some practical ways to support CPA candidates throughout the process: 1. Review courses get results. Taking a review course is proven to increase the chances that a candidate will pass the Exam, but it comes with a price tag. The average review course is $1,500, and shelling upwards of $3,000 for a high-end course can be a burden — especially for those already managing a mountain of student loan debt. Providing financial assistance demonstrates support and reduces one of the obstacles associated with becoming a CPA. Worried that they might leave once they pass? Create a written agreement that they are responsible for the course fees if they leave within a specific time frame. NJCPA has discount arrangements with several reputable providers that provide study materials in multiple formats. Visit njcpa.org/cpaexam. 2. Manufacture time. The billable hour is so ingrained in CPA firm culture that it can be hard to ignore. The mere thought of pulling a new hire off an engagement to study is enough to cause a cold sweat for some firm leaders. It’s hard enough to find employees, and now you want me to pay them to study? Yes, that’s precisely it. Law firms often bring on recruits and assign them one job — study for the bar exam.
JULY/AUGUST 2020 | NEW JERSEY CPA
There is no reason why CPA firms cannot do the same. Especially in a competitive market, you can quickly become an employer of choice by taking the stress away from finding time to study. Get creative with this. The AICPA estimates that passing all four parts of the CPA Exam requires 300 to 400 hours of study, so firms should determine how much time they are willing to provide to staff members. Whether it’s one hour a day or one day a week, build a plan that can work for everyone. Make sure to create a code in your time and billing system so they can get credit for their time. 3. Encourage study groups. Beyond a review course, create opportunities for people to study together. Some firms even bring in a review course instructor if they have enough candidates. A nice added touch is to provide healthy study snacks and a quiet room where candidates can gather without interruption. 4. Be a tutor. One of the best ways to develop a rapport with new team members is to share knowledge. Have senior staff members and firm leadership take turns tutoring, going over practice questions or just sharing tips on how they passed the Exam. Keep it real, and don’t forget to include funny stories and anecdotes that remind them that it’s not easy for anyone.
5. Celebrate success. With four parts to the Exam and the actual licensure, there are at least five opportunities to recognize team members. Share the news internally and/or send them a congratulations card; acknowledgment goes a long way. 6. Communicate expectations. Being very clear about time frames, support and compensation during the recruiting process can go a long way. For current staffers who have yet to pass one or more parts of the Exam, take the time to explain how it can help or hurt their career. Explain the correlations between bonuses and salary increases and passing the Exam. Firm leaders need to recognize that supporting staff during the CPA Exam process is an investment. Like any investment, there is a cost and a return. In this instance, you are attracting and keeping talent while potentially gaining another licensed professional. Jessica L. Levin, MBA, CMP, CAE, DES, is president and chief connector of Seven Degrees, LLC, specializing in marketing, public relations, events and technology. She can be reached at email@example.com
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Finding the Way Back: Disaster Recovery Planning BY MARC DOVI, PAYCHEX
As CPAs and their clients continue to navigate the business world created by the COVID-19 pandemic, they’re dealing with a constant flow of information from federal, state and local governments. Couple that with the actions clients will be required to take to re-open, and it has the potential to be overwhelming. Businesses of all sizes will need direction from CPAs and other trusted advisors so they can focus on getting back to business and getting their employees back to work. THE WAY BACK After a pandemic such as COVID-19 that resulted in mandated business closures, the first question companies start asking is “when,” but equally important will be “how” can they re-open their businesses. Here are some questions business owners need to be prepared to answer: y I will likely bring back some, but not all, of my workforce. What should I consider? y What date should employees be recalled or rehired? y What do I have to communicate to returning employees? y I am ready to bring employees back, but our workload and workflow will likely change. What should I consider if I change my employees’ duties to fit our new needs? LOOKING FORWARD The impact of this pandemic could not have been predicted, but if clients are asking how to be better prepared, now’s a good time to discuss documenting policies and developing a business continuity plan (BCP) to help offset any future disruptions. A BCP can help set a business on the right path to recovering from an unexpected interruption of normal operations. The following actions should be considered in any disaster recovery: y Assess risk. Business continuity management often begins with risk identification and assessment. For
instance, companies located away from earthquake zones or common hurricane paths might still have to deal with the power being out. Develop internal and external communications plans. In the face of an infectious disease outbreak or weather-related disaster where a business might have been damaged, it’s important to think about employees and others, such as vendors. They, too, might have suffered damage to or loss of their property — homes, vehicles, etc. Have data backup and accessibility. Companies must safeguard confidential information and develop procedures to quickly recover data if a natural disaster, such as a fire or hurricane, occurs or during an infectious disease outbreak. Access to data from alternative locations is crucial and can be accomplished by working through cloud-based applications. Consider business process or unit relocation. Business relocation should be considered well in advance of any event necessitating a move. For example, a construction company working in a beach town may want to store equipment far enough inland to avoid damage to equipment caused by flooding. Set up an employee action plan. Employees should be informed of their roles and given the opportunity to practice business continuity procedures. It is wise to document the intended methods of communication with workers in the event of
an emergency — via text message, phone or email. y Review cash flow. Even if a business stays relatively intact, a drag in consumer spending after a disaster can affect cash flow. Employers must also review their obligations under federal, state and local laws related to paying workers during periods of shut down. y Update customers. To maintain customer relationships through a crisis, businesses should communicate with customers in a variety of ways — by updating website information, using social platforms, by email or by phone. Providing alternate methods of communication before a business interruption encourages customers to reach a business in case of an emergency. Marc Dovi is the marketing content program manager at Paychex and can be reached at firstname.lastname@example.org.
Paychex, an NJCPA member benefit provider and national leader in payroll services, offers discounts on integrated payroll, retirement and HR services for small and midsize businesses. Visit paychex.com/coronavirus-resources and paychex.com/accounting-professionals/ knowledge-center for updated daily news, state law summaries on compliance topics, upcoming webinars and eventually a COVID-19 special edition of the 2020 U.S. Master Tax Guide that will help in consultations with clients later this year. Learn about Paychex discounts for NJCPA members at njcpa.org/benefits.
NEW JERSEY CPA | JULY/AUGUST 2020
State Registration for Nonprofits BY LEN SPRISHEN, J.D. LL.M., MSPC CERTIFIED PUBLIC ACCOUNTANTS AND ADVISORS, P.C.
A CPA who has just secured tax-exempt status for a nonprofit organization from the IRS should recognize that their initial compliance work might not yet be done. The vast majority of states require nonprofits to register with the applicable state agency if they are soliciting contributions in that state, or if they plan to do so. This includes online solicitation, such as websites allowing for electronic donations via a “Donate Now” button. Furthermore, many states require soliciting nonprofits to provide specific disclosures to donors, others have additional rules regarding the use of professional fundraisers and arrangements with so-called “commercial co-venturers” and others still require out-of-state nonprofits to file for permission to conduct business in the state and to appoint an in-state registered agent. DETERMINING WHERE TO REGISTER First, the nonprofit should be registered in its state of organization, if that state requires it. Next, identify whether the nonprofit has donors residing in other states or expects contributions from the same in the near future. If the number of such donors is more than a few, the nonprofit should register with the relevant states. Subsequently, confirm the amount of contributions from outside of the nonprofit’s primary state of operations, and, here again, if the amount (or expected amount) of contributions is more than trivial, or otherwise exceeds a statutorily specified limit, the nonprofit should register with the applicable states. Finally, some donors’ states require a nonprofit to register based on its annual budget, irrespective of the contribution amounts from those donors, and the CPA must verify any need to register in such states as well. Given the disparate laws of every state and their associated nuances, it can make sense to simply register in all of the states that require it, especially if the nonprofit’s activities will be widespread. Otherwise, instead of performing extensive state-by-state research, it is often easier to simply register in the nonprofit’s state of incorporation, in the
JULY/AUGUST 2020 | NEW JERSEY CPA
states where it solicits or intends to solicit and in the states where more than a handful of donors reside. HOW TO REGISTER A nonprofit registers with a state by completing, signing and mailing certain forms and questionnaires (available on the websites of states’ nonprofit or charities divisions), though some states, like New Jersey, now mandate online registration, while others permit filing by email or fax. Additionally, various supplemental documents, including a nonprofit organization’s articles of incorporation (or other organizing document), bylaws, IRS determination letter and financial statements, among others, are generally required. A registration fee may also need to be paid. An officer of the nonprofit must usually sign the submission documents, sometimes under penalty of perjury, so it becomes especially important for CPAs to make sure that the information provided to the states is complete and current. Should any questions arise during the registration process, it is often prudent to contact the state’s nonprofit division (which is often an agency under the state Attorney General’s office) for assistance. Once the nonprofit is registered with a state, that registration must typically be renewed on annual basis. This renewal process can also be complicated, often necessitating submission of the nonprofit’s most recently filed IRS Form 990, any updated governing documents and, in some cases, the nonprofit’s most recent financial audit, the rules for which again vary state to state. Some states permit online renewal in lieu of mailed submissions and many impose a renewal fee as well. Renewal deadlines vary among the states and are subject to change. FAILING TO REGISTER Nonprofits that fail to register in states where they are engaging in solicitation face monetary fines, state investigations, loss of exemption from state income tax and potential personal liability for corporate officers who knowingly allow a nonprofit to
solicit in a state without registering there. Moreover, because many states have online databases of registered nonprofits, a failure to register may result in foregone donation opportunities, while state investigations for unregistered activity can reflect poorly on the nonprofit and its board of trustees. Conversely, complying with state charitable solicitation laws, such as through registration and renewal, will continue to qualify a nonprofit for contributions and grants, maintain its legitimacy, foster positive donor relations and, of course, avoid penalties for non-compliance. Len Sprishen, J.D., LL.M., is a tax manager at MSPC Certified Public Accountants and Advisors, P.C., a Moore Global firm. He can be reached at email@example.com.
LEARN MORE JULY 21, WEBCAST FUNDAMENTALS OF PUBLIC CHARITY TAXATION AND FORM 990
DEC. 3, WEBCAST NONPROFIT CONFERENCE njcpa.org/events
DO MORE JOIN THE NJCPA NONPROFIT INTEREST GROUP njcpa.org/groups
EARN AN AICPA NONPROFIT CERTIFICATE Save 25% with code NFP25 through Aug. 31 njcpa.org/certificates
LITIGATION SERVICES & BUSINESS VALUATION
Post-TCJA Tax Considerations in Divorce Matters BY ADAM L. SANDLER, ESQ., EINHORN, BARBARITO, FROST & BOTWINICK, PC
The 2017 Tax Cuts and Jobs Act (TCJA) was one of the most comprehensive changes to the Internal Revenue Code (IRC) in history. Several changes implemented by the TCJA, including the taxation of alimony, greatly affect divorce and matrimonial practices. For divorces occurring on or before Dec. 31, 2018, alimony (or separate maintenance) payments made by one exspouse to another are treated as income to the payee and a deduction to the payor. Generally, the payor of alimony is the higher wage earner and likely has a higher effective tax rate than the payee. As a result, pre-TCJA treatment of alimony is a form of “income shifting,” which potentially causes a loss in federal revenue. The TCJA, however, changed that. For divorces occurring on or after Jan. 1, 2019, alimony is no longer treated as income to the payee, nor a deduction to the payor. As such, it is necessary to consider TCJA tax treatment of alimony when structuring marital or property settlement agreements. Practically speaking, the amount of post-TCJA alimony should be less because the payor must now pay income tax on every dollar, with no offsetting deduction, while the alimony payment is tax-free to the payee. The only winner, of course, is the federal government. NEW JERSEY VERSUS FEDERAL There are several caveats practitioners should consider. The first wrinkle is that under New Jersey law, the tax treatment of alimony has not changed. For New Jersey purposes, alimony is still treated as income to the payee and a deduction to the payor. Therefore, it is helpful to prepare pro forma federal and state returns for both spouses when negotiating the amount of alimony. MODIFICATION AGREEMENTS Second, the amount of alimony is often subject to subsequent modification. If a divorce occurs on or before Dec. 31, 2018, and the terms of alimony are modified
on or after Jan. 1, 2019, then alimony is still taxed under pre-TCJA rules unless the modification agreement specifically states that TCJA rules apply to the modification. If the parties intend to maintain pre-TCJA rules, it is best practice to draft the modification agreement clearly stating such intent, as well as specifically citing the pre-TCJA date of the original settlement agreement. CHANGES TO AFTER-TAX INCOME Finally, settlement agreements for divorces occurring pre-TCJA were based upon the parties’ after-tax income at the time of divorce. While the TCJA not only changed taxation of alimony, it also drastically altered the overall income tax system. As such, each party’s after-tax income may be significantly different (for better or worse) when considering the changes implemented by the TCJA. These changes include the following: y Reduced individual and corporate tax rates y Revised marginal tax brackets y Increased standard deduction y Elimination of the personal exemption y Limit on the state and local tax (SALT) deduction y Increased child tax credit y Increased Alternative Minimum Tax (AMT) limits y Section 199A deduction for Qualified Business Income (QBI) y Elimination of miscellaneous deductions. To further complicate matters, numerous changes implemented by the TCJA will sunset after Dec. 31, 2025. TAXATION OF TRUSTS Another change dealing with divorce under the TCJA involves the taxation of trusts. If, for example, John establishes a trust for the benefit of his wife, Mary, during the marriage, and the income of that trust can be distributed to Mary without the consent of an adverse party (as defined in the IRC and the regulations thereunder), then
John is treated as the owner of the trust for income tax purposes under IRC § 677(a) (1). As a result, any income earned by assets held in the trust will be included on John’s personal income tax return. IRC § 677 is part of what are commonly referred to as the “grantor trust rules,” which specify the circumstances in which the grantor of a trust (also known as a settlor or trustor) is treated as the owner of the trust for income tax purposes. Such a trust is known as a “grantor trust.” However, the grantor trust rules also prescribe “once a spouse, always a spouse,” which means that the trust in the above example continues to be a grantor trust even after John and Mary are divorced. Prior to the TCJA, IRC § 682 fixed this result and “turned off ” the grantor trust status upon divorce. Unfortunately, the TCJA repealed IRC § 682. Therefore, in addition to the changes to taxation of alimony, practitioners must be mindful of any tax implication resulting from grantor trusts after divorce, otherwise the client may receive an unwelcomed surprise when filing their first post-divorce income tax return. Adam L. Sandler, Esq. is an associate at Einhorn, Barbarito, Frost, & Botwinick, PC, specializing in wills, trusts and estates and taxation. He can be reached at firstname.lastname@example.org.
NEW JERSEY CPA | JULY/AUGUST 2020
3 Top-Secret LinkedIn Techniques to Gain Leads BY BECKY LIVINGSTON, PENHEEL MARKETING
According to Hootsuite, when it comes time for B2B companies to gain leads via social media, 89 percent of marketers trust LinkedIn to get the job done. For those looking to increase leads this year, one of these three top-secret techniques might be the solution. 1. LEAD GENERATION FORMS Unlike the more common LinkedIn advertising options (i.e., paid), this technique allows a company to collect information about the lead prior to them accessing the offer. The form can be customized to gather the information needed to make an educated decision before contacting anyone. Once submitted, the form is stored in LinkedIn for downloading and vetting. All of the lead’s contact information is available to send an email, add to a newsletter list or give a call. The most important step in this process is creating something of value for the target audience. Stumped? Consider the pain points for which the target audience needs solutions and then create that item, e.g., ebook, webinar or podcast series, checklist, etc. AnswerThePublic.com can also be used to find the most common questions people ask about a topic. For example, entering “payroll taxes” results in over 79 questions that could be tackled in an ebook, blog series, infographics, tip sheets, videos, podcasts, webinars and more. Learn more about setting up the ads, creating the form and accessing leads at business.linkedin.com/marketing-solutions/ native-advertising/lead-gen-ads. 2. SPONSORED CONTENT This advertising technique posts sponsored content within the target market demographic’s personal news stream. To most effectively use this option, write a concise and engaging headline, use a relevant photo and include a clear call to action. In addition, define a target market using a maximum of three criteria like location and two others, such as demographic, company, job experience or interest. To help with this, LinkedIn also offers pre-defined audience
JULY/AUGUST 2020 | NEW JERSEY CPA
templates, including event planners, doctors, recent college graduates, millennials and more. The goal with this technique is to drive people to your website’s landing page where you collect information while giving them something of value, such as registering for an event, downloading a document and/or accessing a workbook. Learn more about sponsored content at business.linkedin.com/marketing-solutions/ native-advertising/lead-gen-ads. 3. SCRIPTS AND FORMS TO VET LEADS Most professionals get several connection requests on LinkedIn per week. In order to bifurcate the wheat from the chaff and to vet the contact, ask them to complete a simple form. Keep a draft message to make it easy to respond. Here’s the process: y Use a free form-building tool, like SurveyMonkey or Typeform, or an email service provider’s landing page, like Mailchimp, to create a simple form that collects information. Include the fields that are needed to determine if the person is worth the connection and is a potential lead, such as first/last name, email, company, revenue, industry, phone and an optional, “What can I help you with?” field. y Craft the script, such as: “Thanks for the connection request and your interest in
working together. I’d like to jump on a call with you to learn more. In preparation, can you fill out this quick survey [insert link]? It’s a few basic questions so I can get a better feel for your business and how we might best work together. Thanks.” The people who take the time to complete the form and who are in your target market are worth a conversation. The first two techniques require an advertising budget. The good news is, it doesn’t have to be a lot of money, e.g., $100. The third technique takes diligence and time but doesn’t cost money. SET A GOAL Before moving ahead with any of these techniques, define a goal that answers the following questions: y Who are you trying to attract? y What services, industry or revenue targets must they meet? y How do you plan to continue your conversation once you connect? y What are you going to offer them to begin building a relationship? Clearly defining the goal will help with gaining the right leads. Becky Livingston is the owner of Penheel Marketing, a virtual CMO for CPAs and small business owners. She can be reached at email@example.com.
IRS Steps Up Cryptocurrency Tax Enforcement Efforts BY MARCUS E. DYER, CPA, ESQ., WITHUM
When the first versions of cryptocurrency were formulated back in the 1980s, scant evidence of concern could be found from the government. In 2017, after the Treasury Inspector General for Tax Administration criticized the IRS for failing to develop a coordinated virtual currency strategy, the IRS announced concern over “massive” underreporting of income generated by cryptocurrencies. Today, a question appears at the top of Schedule 1 of Form 1040 inquiring if the taxpayer engaged in any virtual currency transactions during the year. This article addresses the current efforts the IRS is making to stay ahead of the cryptocurrency curve and promote compliance with income tax laws applicable to virtual currency. HOW IS CRYPTOCURRENCY TAXED? The IRS explains the taxation of cryptocurrency in Notice 2014-21. It says virtual currency is treated as property, not as currency, for U.S. federal tax purposes. Generally, this means payments made using virtual currency to independent contractors are taxable, and self-employment tax rules generally apply. Wages paid to employees using virtual currency are taxable to the employee and must be reported by an employer on a Form W-2. Transactions involving an exchange between cryptocurrency and other property are taxable as gains or losses. WHAT CRYPTOCURRENCY ENFORCEMENT CHALLENGES EXIST? In recently published guidance, the IRS addresses some of the common misunderstandings taxpayers have with respect to the taxation of cryptocurrency transactions. Common areas of confusion exist with respect to “coin-to-coin” exchanges, hard fork transactions and the determination of basis. y Currency-to-currency exchanges. Some taxpayers mistakenly believe coin-to-coin trades, such as Bitcoin for Ethereum cryptocurrency, is a nontaxable exchange of essentially the same kind of currency. According to the IRS,
currency exchanges are subject to the same capital gains and loss rules of property exchanges generally. y Hard forks (chain splits). Taxpayer uncertainty abounds on a common cryptocurrency transaction called a hard fork. A hard fork occurs when cryptocurrency on a distributed ledger undergoes a protocol change resulting in a permanent diversion from the legacy or existing distributed ledger. Surprisingly, the IRS didn’t provide comprehensive guidance on this topic until 2019 in Rev. Proc. 2019-24. y Tracking basis. According to the IRS, tracking basis is essential for reporting crypto transactions accurately. Yet, the IRS suspects some virtual currency users have gone years without keeping track of basis out of confusion about its relevance or sheer negligence. HOW THE IRS IS ENFORCING THE LAW The IRS has developed a multi-prong approach to prevent the evasion of tax laws applicable to cryptocurrency. Elements of the strategy include data analytics, tax examinations, soft letters and criminal charges. y Soft letters. In 2019, the IRS sent letters to more than 10,000 holders of cryptocurrency warning that audits and other enforcement actions may result if the taxpayer failed to report income from virtual currency transactions and corrective actions are not taken. y Data analytics. Since 2015, the IRS has contracted with Chainalysis, a company that provides data and analysis services to help the government identify
cryptocurrency users with unreported income. y Tax examinations. In 2018, the IRS announced a Virtual Currency Compliance Campaign. Through this program, the IRS is conducting exhaustive issue-based examinations of tax returns designed to address noncompliance related to the use of virtual currency. y Criminal prosecutions. In extreme cases, taxpayers may be subject to criminal prosecution for failing to properly report income from virtual currency transactions. Criminal charges could include tax evasion and filing a false tax return. IRS Criminal Investigation reported in its Fiscal Year 2019 Annual Report that a key focus for the organization is cybercrimes, with an emphasis on cryptocurrencies. Taxpayers who have traded or received cryptocurrency should make sure they have reported their income properly given the IRS’s increasing interest in virtual currency. Marcus E. Dyer, CPA, Esq., is the team leader of tax controversy at Withum. He is a member of the NJCPA Federal Taxation Interest Group and can be reached at firstname.lastname@example.org.
LEARN MORE JULY 2 AND SEPT. 1, WEBCAST ETHICS: IRS AND GLOBAL TAX ENFORCEMENT FOR ACCOUNTANTS njcpa.org/events READ MORE CRYPTOCURRENCY ARTICLES AND RESOURCES njcpa.org/topics/cryptocurrency
NEW JERSEY CPA | JULY/AUGUST 2020
TECHNOLOGY & INFORMATION MANAGEMENT
When to Say Last Rites Over Your Electronic Devices BY ANTHONY MONGELUZO, PCS
When purchasing a new electronic device, we seldom think deeply about its EOL (end of life). This is unsurprising because we usually focus on how the device will make our life easier. Over time, however, we must deal with the issue of when to discard the device. The question gains steam as the device ages because we’ve already made a financial and, for some, an emotional investment in it. (Didn’t we have a U.S. president who “loved” his Blackberry and didn’t want to give it up?) Here are several guidelines that will provide clarity about when to replace your devices. y It’s getting funky on me. When your device fails to perform the task(s) for which it was intended, it’s probably replacement time. Rare is the cost of repair worthy of the effort. And that presumes you can find a repair person who will fix it. Occasionally, sentimentality overrides common sense, so just be sure that you understand that reasoning is from the heart and not the head. y Obsolescence. Sometimes your device simply doesn’t deliver what a newer model will. I know a journalist who switched to a different cell phone because he claims the newer model has the best telephoto lens, a frequent job requirement and a feature his current phone apparently lacks. y The “hidden” life cycle. I’m referring to outdated software. It’s out of sight, though its effects are visible when operating your device. I started warning clients years ago — including accountants in this publication — that Microsoft would no longer support Windows 7. (Yes, some accountants are still on the system.) That day has arrived. Of course, you can get the support, but only if you’re willing to pay. The warning signal is simple. If the software company no longer supports the software on your device, I strongly urge you to consider an upgrade. I have discovered that if the software is
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performing as it should regardless of age, most accountants are unwilling to switch unless they know a peer who has a newer version that allows them to complete tasks with more efficiency. That’s when the light bulb goes off, and they suddenly consider “retiring” their current version. y Give me the numbers. There is no perfect timeline for devices. Yet I get the question frequently, and here is my rule of thumb: y Servers, networks, any infrastructure devices: five to seven years y Laptops, desktops, tablets: three to five years y Cell phones: every two years (True confession: I get a new one annually because I live off of it, but I don’t recommend following my practice.) y My simple solution. There is an uncomplicated answer to a device’s life cycle: Buy the most extended warranty possible when purchasing it. You now have a fixed cost — the price of the item and any insurance costs. Then you no longer have to think about any expenses for the life of the warranty. I have a friend who also just did it. He purchased the longest warranty — four years — and every day the device works after the warranty expires is
a plus. If it fails before the warranty expires, it’s fixed or replaced for free. If this happens after the expiration, he buys a new one. y Business versus personal. Who pays for the device affects the life cycle. As a general rule, I would venture the opinion that if it’s a personal device, we tend to hold on to it longer. If the boss pays for it, you might decide to upgrade sooner. If the boss buys the device, the way to a quicker upgrade is to convince him or her that a newer device will save money, increase efficiency and produce faster results. Always give examples when making this pitch. y Last rites. This is the end game that many forget. DON’T just toss your device into the garbage. Each product has a safe and environmentally sound way to dispose of it. Your product information should give you an option. Call2Recycle provides dropoff locations for batteries and cell phones, for example. You can also often donate to a nonprofit, such as the World Computer Exchange, or sell it on eBay for Charity. Anthony Mongeluzo is the CEO and president of Moorestown, New Jersey-based IT company, PCS. Contact him at Anthony@helpmepcs.com, follow him on Twitter @PCS_AnthonyM or visit helpmepcs.com.
2020/21 NJCPA Chapter Presidents ATLANTIC/CAPE MAY
TATIANA SAFRYGINA, CPA
MICHELE THEUERKAUF, CPA
MATHEW CENTENO, CPA
MICHAEL LAMELA, CPA
Capaldi Reynolds & Pelosi CPAs, P.A.
Michele Theuerkauf, CPA LLC
Smolin, Lupin & Co.
Michael Lamela CPA, LLC
STEPHEN NOON, CPA
KEVIN FELLIN, CPA
AMBER PAPP, CPA
PETER HERBST, CPA
Kevin Fellin, CPA LLC
Parsippany Tax and Accounting Corp
RUDY IPEKCIAN, CPA
GLEN WALTON, CPA
BDO USA, LLP
Bowman & Company LLP
MARIA PATRIARCA, CPA PKF Oâ&#x20AC;&#x2122;Connor Davies, LLP
Learn more about our chapter presidents and the activities taking place in their chapters at njcpa.org/chapters. NEW JERSEY CPA | JULY/AUGUST 2020
NJCPA Members: Making a Difference and Building Career Skills More than 2,000 members volunteer their time and talents to the NJCPA each year. Firm leaders and members often ask the best way to get their people or themselves involved. Common ways include participating in committees/interest groups; getting involved at the chapter level; being a content contributor (e.g., speaking, writing articles or blogs, videos); and supporting our student programs (e.g., mentoring, college campus visits, high school career awareness presentations). These opportunities can all help members build their skills as professionals, but how do they impact the profession or make a difference for the general public? We reached out to a few members who have recently had some success in these areas.
income taxes at the entity level instead of the personal level. This helps business owners mitigate the negative impact of the SALT deduction cap since there is no cap on SALT deductions for businesses. It’s estimated to save New Jersey business owners $200 to $400 million annually, and it won’t cost New Jersey a dime because it’s revenue neutral for the state. It was really exciting to see an idea I had go through the process and be enacted as a state law. Learn more about the Pass-Through Business Alternative Income Tax Act at njcpa.org/pass-through.
ers that asked about student loan debt. I was working with a group in central New Jersey to deliver student loan and debt education. So I reached out to the Society and volunteered to help in any way I could. Zach: Melissa came to an Emerging Leaders Council meeting in November 2018 and discussed her involvement in Credit Abuse Resistance Education (CARE), a program that brings financial literacy programming to high schools throughout the state. She suggested partnering with the Council to bring awareness to the issue of student loan debt to our members, and I volunteered to be the Council’s point person. Learn more about the NJCPA’s student loan debt initiatives at njcpa.org/ studentloans.
Alan Sobel, NJCPA President and Managing Partner of SobelCo. on the Pass-Through Business Alternative Income Tax Act NJCPA: Alan you worked very closely with the NJCPA’s advocacy team on getting this Act signed into law. How did this come about? Alan: The Tax Cuts and Jobs Act limited the state and local tax (SALT) deduction available to taxpayers. In a high-property-tax state like New Jersey, this disproportionately impacted our clients. I wrote a letter to Governor Murphy’s office proposing to allow businesses to pay
Zach Cohen, Prudential Financial, Inc., and Melissa Dardani, Baker Tilly, on the Student Loan Debt Task Force NJCPA: Zach and Melissa, your involvement with student loan debt stemmed from a personal desire to help others avoid this trap. You’ve met with lawmakers about possible legislation, consulted with senior staff at the Department of Higher Education about ensuring students have all the facts before taking on student loans, and produced a webinar on the topic that we shared with students and educators. You both understand firsthand the impeding nature of student loan debt on college graduates’ livelihoods. Can you tell us a little bit about how you got involved with this initiative? Melissa: In 2018, I completed an NJCPA survey sent to emerging lead-
ALAN SOBEL, CPA, CGMA
ZACHARY COHEN, CPA
MELISSA DARDANI, CPA
JULY/AUGUST 2020 | NEW JERSEY CPA
Sean Stein Smith, Lehman College, and Mark Eckerle, Withum, on the Emerging Technologies Interest Group (ETIG) NJCPA: You have both had a productive year as leaders of the ETIG. What inspired you to get involved with this group and help move its mission forward? Sean: I have always had an interest in how accountants could make better use of technology tools to make our work lives easier and allow us to focus on tasks that were more rewarding and — frankly — more fun. Once Bitcoin entered the mainstream accounting/
finance conversation in 2016, I knew that the combination of blockchain, crypto and automation at large were topics we needed to be proactively addressing. When the opportunity was presented to become leader of the ETIG, I immediately jumped at it. The group provides an open forum where members from across the accounting landscape — private industry, audit, tax, advisory and academia — can swap notes, compare ideas and discuss just how to leverage the emerging technology tools that we hear about on a daily basis. Technology changes fast, and the ripple effects of these changes are always difficult to foresee perfectly, but the enthusiasm and expertise of the interest group, alongside the support of members and the Society team, have made the group a success and a fun part of my NJCPA experience. Mark: I was looking for a group that shares my interest in the current emerging growth marketplace and learned that the Society was forming the ETIG. During our meetings, we discuss a variety of topics from blockchain technology and robotic process automation to data analytics and process efficiencies. Our goal is to bring our ideas and thoughts in the accounting and finance world to NJCPA members in order to help educate our members on the emerging technology industry. It’s a great environment to brainstorm ideas that we can then utilize in our everyday lives within the workplace. Join the Emerging Technologies Interest Group at njcpa.org/groups.
SEAN STEIN SMITH, CPA, CFE, CGAM, CMA Lehman College
Susan Firriolo, CPA, CITP, CGMA, CISA, president of Tax Correspondence Service and a leader of the Technology Work Group within the NJCPA Accounting & Auditing Standards Interest Group. NJCPA: As a leader of the Technology Work Group, you are working on a comment letter to the AICPA on the 2019 Practice Analysis (PA) which is different from CPA Evolution. Can you tell us a little bit about what the PA and CPA Evolution are trying to accomplish? Susan: A PA happens regularly to improve the CPA Exam. The 2019 PA was started to examine the effect technology is having on the work CPAs are expected to do. It is proposing changing Exam sections to include advances in technology and remove sections where the Exam has become too general. Changes from the PA will affect the Exam in 2021. CPA Evolution was organized by the American Institute of CPAs (AICPA)
and the National Association of State Boards of Accountancy (NASBA). The project is concerned with changing the whole licensing format, including the structure of the exam and education requirements. It may recommend a licensing approach similar to that of professional engineers. This includes testing a basic understanding of accounting, auditing, tax and technology. Then candidates would choose another exam area to test in either, business reporting; information systems or tax to get their CPA license. CPA Evolution is a big job and will take years to accomplish. Learn more about CPA Evolution at evolutionofcpa.org.
MARK ECKERLE, CPA
SUSAN FIRRIOLO, CPA, CITP, CGMA, CISA
Get involved: Visit njcpa.org/volunteer and complete your volunteer interest profile to learn about the opportunities that align with your interests, talents and goals.
Tax Correspondence Service JULY/AUGUST 2020 | NEW JERSEY CPA
NJCPA Members Wear Multiple Hats and Are Valued More Amid Coronavirus Crisis BY KATHLEEN HOFFELDER, NJCPA CONTENT EDITOR
NJCPA members are used to putting in long days helping clients keep up on everything from new tax laws and M&A strategies to divestiture transactions, but even that looks easy compared to the hoops they continue to jump through amid the COVID-19 pandemic. The shuttering of offices and work-at-home measures has made life particularly trying, but it also made CPAs invaluable to their companies and their clients. COVID-19 changed almost everything work related, but NJCPA members proved just how resilient they can be — juggling bankruptcy filings, paperwork for furloughed employees, loan applications and more while working remotely. Whether working in public practice or in a CFO, controller or other finance function, they have been committed to getting answers, solving problems and finding solutions. In short, they have come to wear many hats — and most don’t expect that to change anytime soon. As one sole practitioner says, she has been spending more time advising and planning with her clients. “More of my clients finally are beginning to understand the value I add to their business,” she says. E. Martin Davidoff, CPA, Esq., partner-in-charge of national tax controversy at Prager Metis CPAs, LLC, agrees. “We are becoming financial advisors and lights through the tunnels of darkness more than ever before.” John Dispenziere, CPA, managing partner of Dispenziere & Company, notes how crucial it was to advise on relief recovery loans. “Our role has been critical in assisting clients with procuring Paycheck Protection Program loans and evaluating and planning so that the loan will be forgivable.” PERSONAL CONNECTIONS While some CPAs struggle with the loss of meeting clients face-to-face, others say their clients have adjusted to Zoom or
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other virtual meeting setups quite nicely. Some have even asked for more virtual meetings and less in-person meetings going forward — an unforeseen turn of events. According to Richard Beeferman, CPA, managing member of Beeferman Huber, LLC, once the pandemic passes, he expects to have more personal contact with clients. “We will spend much more telephone time with our clients advising them. Where in the past email and text were a favorite, they now love to speak with us more than ever; I expect that will continue,” he says. And having a personal connection with staff solved a multitude of problems as well. As Ted Carnevale, CPA, CEO of Gramkow, Carnevale, Seifert & Co, LLC, says, “when your engagement teams are disbursed, you have to be able to plan and manage your time effectively. There also has to be a heightened level of communication by and amongst team members.” But not everyone has been content with the current work-at-home arrangements. One CPA complains that attracting new business and pitching new clients with a lack of in-person meetings can be next to impossible, which is hurting growth prospects. DISTRACTIONS One of the most problematic areas for CPAs during this pandemic has been
working amid a myriad of distractions at home and having issues with technology. Ineffective WiFi; paying vendors electronically; helping mature clients keep up; and making sure children, dogs, cats and whatever else is in a household doesn’t interrupt work calls has been problematic. These distractions and the ability to reach clients and staff at all hours of the day and night has further blurred the line between work and life commitments. As one CPA from industry notes, “there is no leaving the office these days when you need to clear your head or get in some family time.” Work never stops when working remotely. He adds, “I spend more time responding to emails and telephone calls and I cannot finish the task at hand without several interruptions.” Teaching technical information remotely has also been hard. As one CPA explains, “supervising younger staff members is more difficult and that makes delegating complex tasks less of an option. Therefore, I am certainly doing a lot more than I had to under normal conditions.” Jim Ruitenberg, CPA, partner at Bederson LLP, agrees that working at home has not been ideal. According to Ruitenberg, it’s been “more stressful working at home since issues could not be efficiently addressed as they could be in the office.”
Seize a merger/acquisition opportunity with benefits for you. We are looking for firms ranging from $300,000 to $5,000,000 eager to combine forces as we continue to grow across northern NJ, Westchester and the Hudson Valley region. Goldstein Lieberman & Company is ideally situated to service all types of industries. Visit www.glcpas.com; email me, Phillip Goldstein, CPA, Managing Partner, email@example.com; or call me at 800-839-5767 to have a confidential conversation. Matthews, Panariello P.C., a well-established Bergen County firm located in Paramus, is looking to acquire small firms and sole practitioners ranging in size from $100,000 to $550,000. We are a full service, peer reviewed firm with a strong track record of client satisfaction and retention. We have been successful in prior acquisitions; letâ&#x20AC;&#x2122;s talk. Please visit our website at www.mpcpas.com. To confidentially discuss this opportunity email us at firstname.lastname@example.org. Monmouth County tax and wealth advisory firm seeking partnership with CPA practice(s): looking for an additional source of recurring revenue to complement your tax practice? Looking to enter the wealth advisory business without the costs and complexities? Do you have a succession plan for incapacity or retirement? Contact Gregg at gshaw@ hstaxwealth.com,732-268-8813; www. hstaxwealth.com
Traphagen CPAs & Wealth Advisors, a well-established firm in Bergen County with diverse client base and credentialed support staff is seeking small firms and sole practitioners for acquisition or merger. We are looking for firms ranging in size from $300K to $700K. This is an opportunity to align with a quality peer- reviewed firm, while continuing to provide your clients with exceptional service. To confidentially discuss this opportunity, please email us at email@example.com. Union County accounting and tax practice seeks growth through retirement-minded practitioners looking to transition toward retirement. Ideal annual billing should range from $250K to $750K, but would welcome all discussions. Please reply in strict confidence to firstname.lastname@example.org. To learn more about us, please visit www.mlcpanj.com. Thinking of selling your practice? Accounting Practice Sales is the leading marketer of accounting and tax practices in North America. We have qualified buyers waiting and the experience to help you find the right fit for your firm and negotiate the best deal possible. For information about our risk-free and confidential services, call Bradley Holmes at 800-397-0249 or email email@example.com
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NEW JERSEY CPA | JULY/AUGUST 2020
ing, but auditing taps into my social skills,” he says. His love for teaching was further evidenced in his volunteer work at the NJCPA. Since 2008, Jay has been an NJCPA career awareness program speaker, where he presents the benefits of becoming a CPA to high school students around New Jersey. He was also the leader of the Emerging Leaders Council from 2013 to 2018, where he helped those new to the profession develop their careers.
Always the Teacher BY KATHLEEN HOFFELDER, NJCPA CONTENT EDITOR
While some professionals know from the start that they want to be CPAs, others end up there after going in another direction. Still others never stop using their original talents and simply apply them to their new accounting roles. That’s the case with Jay Lauretta, CPA, director of risk strategy at ADP. While Jay chose not to be an art teacher like he originally planned while attending Monmouth University, he has decidedly been “teaching” most of his life. At ADP, Jay enjoys being the advisor to an audit staff on all things related to Sarbanes-Oxley and career development. Previously, as an audit manager at Baker Tilly, he developed a specialty in healthcare and performing audits of employee benefit plans (EBP), eventually representing his region as part of the firm’s EBP Center of Excellence Group. There, he annually trained all levels
JULY/AUGUST 2020 | NEW JERSEY CPA
of associates, including partners, and trained others on auditing standards and data analysis software. What he likes best about auditing is the “dynamics of it, or the problem-solving.” According to Jay, “I like being the guy who helps people figure out their problems so they can go and execute on what they need to do.” At ADP, he enjoys “taking people under his wing and understanding the why of how we do something,” he says. “I’m constantly educating people or advising them. As an auditor I get to do that almost every day.” When starting out in his career, Jay was unsure if he wanted to be an auditor or tax accountant. By the time he joined Baker Tilly, he knew he wanted to be an auditor. “I like the way accounts are balanced, exact and precise. I’m a very detail-oriented person, which served me well in account-
WHERE IT ALL BEGAN “I did a lot of painting and drawing,” explains Jay, noting that he went from wanting to become an art teacher to math teacher then science/pre-med before settling in at Monmouth University’s music industry program. Either by coincidence or by fate, half of that program was filled with business courses. “I took accounting because it was required by the music industry program,” he adds. “I remember sitting in the class on the first day thinking I’m probably not going to like this,” remembering the horror stories of his friends who hated accounting. But he couldn’t have been more wrong. “I gravitated towards it pretty naturally and I really enjoyed it,” he says, noting that he could tell he liked it since it was the first homework that he did every night. When the professor found out that he wasn’t an accounting major, he phoned Jay directly to say, “You’re an accountant. The way you are in class, the way you do your work, you are an accountant. When you finally come to that realization, you let me know.” Jay eventually did switch majors. GIVING BACK Even his love for video games is still put to good use. For the past eight years, Jay has helped raise money for Children’s Miracle Network Hospitals through its “Extra Life” 24-hour video game marathon. “Video games are probably my favorite hobby. I knew this was something I could do and ask my friends to be a part of,” he says. Helping sick children also gives him more appreciation for his own family — wife Kyleen; daughters, Abby, 7, and Zoey, 4; and son, James, 10 months.
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