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Tax Matters Tax Update: A Year of Landmark Decisions, p. 6 The Taxation of Cloud Computing, p. 8 Bulk Sales: You Are on Notice, p.10 Guard Against Tax-Related Identity Theft, p.12

Nov â€˘ Dec 2014

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November • December 2014

features

Ralph Albert Thomas, CGMA Chief Executive Officer & Executive Director rthomas@njscpa.org

Ellen C. McSherry, CGMA

Don Meyer

Director, Communications & Marketing dmeyer@njscpa.org

David Plaskow

Managing Editor dplaskow@njscpa.org

Jeanette L. Miller Editorial Assistant jmiller@njscpa.org

Janice M. Celeste Multimedia Specialist jceleste@njscpa.org

Editorial Advisory Board Daniel R. Arcuri, CPA Neil B. Becourtney, CPA Timothy A. Burley, CPA Salvatore A. Collemi, CPA Rebecca B. Fitzhugh, CPA Catherine Z. Horn, CPA Bernard M. Kiely, CPA Ryan J. Lapinski, CPA Gregory Levine, CPA Marcella LoCastro, CPA David A. Lopez, CPA Anthony F. Marone, CPA Marc D. Mintz, CPA Margaret Van Brunt, CPA

The New Jersey Society of Certified Public Accountants 425 Eagle Rock Avenue Roseland, NJ 07068-1723 973-226-4494 njscpa.org #njcpamag ReadNew NewJersey JerseyCPA Read CPA digital at digital at njscpa.org/newjerseycpa. njscpa.org/newjerseycpa.

Design/Production/Advertising Lionheart Publishing Inc. 506 Roswell Street, Suite 220 Marietta, GA 30060 President – John Llewellyn 770-431-0867 x209 llewellyn@lionhrtpub.com

Tax Update: A Year of Landmark Decisions While the ACA remains at the forefront of federal tax legislation, a pair of recent state court decisions are sure to impact future tax planning.

Chief Operating Officer emcsherry@njscpa.org

The Taxation of Cloud Computing The lack of state uniformity is just one of the challenges when determining cloud computing taxation.

Bulk Sales: You Are on Notice Learn the bulk sale notification rules and helpful information resources for New Jersey and New York.

Guard Against TaxRelated Identity Theft See what the IRS is doing to combat tax-related ID theft and what you can do to help keep yourself and your clients safe.

Close Up A Conversation with Society CEO Ralph Albert Thomas

22 Tax Talk Six Reasons to Consider a Delaware Trust

News Briefs

23 Tech Center Important E-Nexus Flags

14 A&A Buzz A&A for Staffing Companies 16 Best Practices IRA Early Withdrawal Exceptions 18 Business & Industry Insights Three Ways to Make Annual Reporting More Manageable 19 Financial Planning Don’t Overlook the “CHIC” for Estate Planning

Oops …

20 Forensic File How to Value Entities with Complex Capital Structures

In the September/October issue, page 31 of the CPA-List, Robert W. Allison, CPA, was listed with the incorrect firm. It should be Holman Frenia Allison, P.C. Our apologies.

21 Small/Sole Practitioner Travel and Entertainment Reminder

34 Student Outlook How Much Does an Accounting Professor Influence a Student’s Career Path? 35 Legislative Views Are You Reaping the Benefits of the PAC? 36 Member Profile Sing Along with the CPA Society Pages Year-End Financials, 25 CPE Offerings and Events, 28 Get Involved, 30 Member Benefits, 31 NJ State Board of Accountancy Report, 32 Classifieds, 33

New Jersey CPA (ISSN 1534-6692) is published six times per year by the New Jersey Society of Certified Public Accountants, 425 Eagle Rock Avenue-Suite 100, Roseland, NJ 07068. Issue No. 48 Copyright © 2014 New Jersey Society of Certified Public Accountants. Annual membership dues includes $8 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, 425 Eagle Rock Avenue, Suite 100, Roseland, NJ 07068-1723. 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.

A Conversation with Society CEO Ralph Albert Thomas B y Don Meyer, NJS CPA C omm u nications & M arketing D irector

f all the questions surrounding the accounting profession, few impact the CPA credential more than (1) is the profession doing enough to cultivate the next generation of CPAs; and (2) what will learning look like for that next generation? I spoke with New Jersey Society of CPAs CEO & Executive Director, Ralph Albert Thomas, CGMA, to discuss these important issues. Does the CPA pipeline concern you? I’m concerned that the profession isn’t producing enough CPAs to replace Baby Boomers who’ll reach retirement age in the next 5-15 years. Despite the record number of college students graduating with accounting degrees, the number of CPA Exam sections being taken is flat. We know that some of this trend is due to the move to the computer-based exam. More flexibility means more procrastination by CPA candidates. But the profession and state societies need to champion more time for candidates to study and help with exam and study course costs. We need to incentivize accounting graduates to sit for the CPA Exam to ensure that our profession doesn’t suffer from a future talent shortage. I’m particularly concerned that the profession won’t be able to attract, retain and advance minority candidates if we don’t act. What do you advise young people entering the accounting profession today? Take and pass the CPA Exam as soon as possible. Too many young professionals job-hop without a career plan. Earning a CPA license demonstrates a commitment

The CPE trienniel ends on December 31, 2014. Make sure you’re compliant. Visit njscpa.org/education/triennial.

to one’s career path and shows a willingness to do what it takes to achieve career success. We need to do a better job of instilling the value of the license in our accounting graduates and young staff. Research shows that firm and company leaders place a premium on the CPA license. But that message isn’t trickling down to younger staff who need to know that the time and effort that they put into getting their licenses are worth it. What will professional development look like for the next generation of CPAs? Practitioners will have different expectations for learning. The American Institute of CPAs’ Task Force on the Future of Learning supports the assertion that the demand is high for changes to content and delivery when it reported that the traditional education model is unsustainable. There needs to be significant changes made to the professional development model within the industry. There is a move toward competencybased versus compliance-based approaches to content. Firms and companies just don’t want CPE credits. They want to develop better employees and prepare them to be leaders. Technology is dramatically changing delivery models. We’ve seen upticks in those who fulfill their CPE requirements via webcasts or on-demand self-study. Just-in-time and on-demand models, including nano learning, will eventually become part of the norm.

NASBA, state boards of accountancy and state CPA societies are looking at blended learning models that include traditional classroom education with e-learning and multimedia. We’re looking closely at what’s being done in Ohio, the first state to allow CPE in 10-minute increments for CPAs. Other states are working on similar initiatives. Ohio CPAs will be able to take self-study CPE in 10-minute blocks and accrue it toward the 120-hour CPE requirement. The Ohio Society of CPAs is already developing on-demand CPE in incremental blocks that CPAs can take when convenient. Now is the time to reinvent classrooms, rethink development models and embrace the future of learning.

Will the Society’s continuing education role change? The Society’s Chief Learning Officer, Jim Hardenberg, CPA, is serving on the National Association of State Boards of Accountancy’s (NASBA) CPE Task Force, which is monitoring current and future education trends. The AICPA,

NEW JERSEY CPA • NOVEMBER • DECEMBER 2014

2014/15 Board of Trustees Executive Committee President – Brad E. Muniz, CPA President-Elect – Frank R. Boutillette, CPA Secretary – Edward I. Guttenplan, CPA Treasurer – John M. Szczomak, CPA Immediate Past President – Gerard Abbattista, CPA CEO & Executive Director – R alph Albert Thomas, CGMA Trustees Sharon J. Bishop, CPA Leonard N. Brooks, CPA William A. Cadmus, CPA Joseph C. DiFalco, CPA Michael W. Gutwetter, CPA Robert P. Herman, CPA Sarah Krom, CPA Edward G. O’Connell, CPA William J. Ryan III, CPA Audrey J. Sherrick, CPA Lorenzo T. Vanore, CPA Joseph A. Zielinski, CPA

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NEWS

briefs

Governor Signs Bill Changing State Board Composition

Society CEO Meets NJ Movers and Shakers

Governor Chris Christie recently signed legislation (S2163) that makes important changes to the makeup of the New Jersey State Board of Accountancy. S2163, which was supported by the New Jersey Society of CPAs, amends the Accountancy Act so that the governor can appoint a CPA or Public Accountant (PA) to either of the two seats currently allocated to PAs. The bill also provides that at least one board member should possess a Registered Municipal Accountants license and a Public School Accountants license.

New Jersey Society of CPAs CEO Ralph Albert Thomas, CGMA (far left), chats with TV news anchor Steve Adubato (top right) about the state budget at the Legislative Dinner co-hosted by the Society and talks with U.S. Senator Cory Booker (bottom) at a recent New Jersey Chamber of Commerce Cornerstone event.

AICPA Seeks Input on CPA Exam Revisions

The American Institute of CPAs is requesting feedback from key stakeholders to shape the next version of the Uniform CPA Examination. The Invitation to Comment – Maintaining the Relevance of the Uniform CPA Examination is the first document available for public comment in the Practice Analysis, a comprehensive research study the AICPA is conducting to determine the outline for the next exam. The Invitation to Comment is accessible at aicpa.org/nextcpaexam. The comment period runs through December 2.

New Jerseyans’ Top Fear Is Going Broke in Retirement A 2014 Merrill Edge Report found that mass-affluent NJ residents’ primary worry (67 percent) is running out of money in retirement, which is 12 percentage points higher than the national average of 55 percent. New Jerseyans second greatest fear is job

loss at 43 percent. The main reasons Garden State residents fear a potential retirement shortfall are other financial commitments, such as unexpected costs (37 percent), paying for a child’s college education (35 percent) and paying off large debts (34 percent). Interestingly, NJ’s mass affluent consider saving for the future (62 percent) just as important as having enough money to live comfortably today (61 percent). Nationally, those numbers are 48 percent and 63 percent, respectively. Bank of America’s Merrill Edge Report is a biannual study that provides an in-depth review of the financial concerns, priorities and behaviors of mass-affluent consumers, defined

New Jersey’s Crumbling Infrastructure by the Numbers 70,000,000,000 Dollars needed to repair the state’s infrastructure 6,000

Number of jobs major infrastructure projects could create

651

Bridges considered structurally deficient

Percent of roads in poor or mediocre condition

as individuals with $50,000 to $250,000 in total household investable assets. Read more at njscpa.org/media.

Reciprocity and “CPA Death Penalty” Legislation Takes Effect

P.L. 2013, c. 182, legislation which eliminates the “five-year death penalty” provision for CPAs and other licensed professionals and streamlines the reciprocity process for out-of-state professionals applying for licensure in New Jersey, is now in effect. The new law eliminates the current requirement that licensees who let their licenses lapse for more than five years must retake the CPA Exam to get their licenses back. Under the law, a licensing board will review the circumstances of each lapsed licensee and tailor remediation to address the specific situation of the licensee before reactivating or reinstating a lapsed license. The law also streamlines reciprocity by allowing for quick licensure upon proof of out-of-state licensure from states with “substantially equivalent” standards. The NJ State Board of Accountancy recommends that professionals who want to learn more about reciprocity or reinstating a

NEW JERSEY CPA • NOVEMBER • DECEMBER 2014

lapsed CPA license should contact the state board directly at 973-504-6380.

FASB Proposes Simplifying Accounting for Cloud Computing Fees

The Financial Accounting Standards Board (FASB) issued a proposed Accounting Standards Update intended to simplify the accounting for a customer’s fees paid in a cloud computing arrangement Intangibles – Goodwill and Other – Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Fees Paid in a Cloud Computing Arrangement is intended to improve financial reporting of fees paid by public and private companies and not-for-profit organizations that are customers in a cloud computing arrangement. The proposed guidance would help customers determine whether a cloud computing arrangement includes a software license. If it does, then the customer would account for the software license consistent with other software licenses. If a cloud computing arrangement does not include a software license, the customer would account for the arrangement as a service contract. Learn more at fasb.org.

IRS Needs to Improve Medical Device Excise Tax Program

The Internal Revenue Service (IRS) needs to improve its strategy to ensure accurate reporting and payment of the Medical Device Excise Tax, according to a Treasury Inspector General for Tax Administration (TIGTA) report. The TIGTA found that both the number of Forms 720 filed reporting the medical device excise tax and the amount of associated revenue reported were lower than estimated. In addition, processing controls do not ensure the accuracy of medical device excise tax figures reported on paper-filed Forms 720. The IRS had also erroneously assessed failure-to-deposit penalties against numerous businesses filing a Form 720 during a designated penalty-relief period. The TIGTA recommended that the IRS continue refining its compliance strategy to include actions that can be taken to identify noncompliant manufacturers. Additionally, the TIGTA recommended that the IRS establish a process to verify the accuracy of the medical device excise tax amount for paper-filed Forms 720 and initiate a process to correspond with taxpayers to obtain missing taxable sales or tax amounts. Visit irs.gov.

PCAOB Issues Staff Audit Practice Alert No. 12

The Public Company Accounting Oversight Board (PCAOB) issued a Staff Audit Practice Alert to highlight for auditors the requirements for auditing revenue under PCAOB standards, in light of significant audit deficiencies in this area that have been frequently observed during PCAOB inspections. PCAOB inspection reports have consistently identified revenue as one of the most common areas for audit deficiencies. Staff Audit Practice Alert No. 12, Matters Related to Auditing Revenue in an Audit of Financial Statements, discusses the application of certain requirements in PCAOB standards when auditing revenue that are relevant to the significant audit deficiencies frequently found during inspections. Due to the significance of revenues to many companies’ financial and operating results, auditing revenue also raises matters of potential interest to audit committees. Audit committees might wish to discuss with their auditors their approach to auditing revenue, including the matters addressed in this alert. Visit pcaobus.org.

njscpa.org Spotlight

Rely on the NJSCPA for Tax Season Success As you gear up for another tax season, make it even more productive by turning to these Society resources:

our website (njscpa.org/news), Twitter feed (twitter.com/njscpa) and your personal issue of NJCPA Pulse (delivered via email every other Thursday) to stay in the know. Be sure you’re receiving the information you want in Pulse by updating your Areas of Interest at njscpa.org/profile.

Fulfill Your Staffing Needs – or Find a Job If you’re looking for a job, post your résumé and search the available jobs in the NJSCPA Job Bank at njscpa.org/jobs. If you’re an employer, the Job Bank can help you find the staff you need for tax season and beyond. You can search the résumés and post your job openings. To help you prepare for tax season, we are offering employers two free résumés (a $60 value) now through March 31, 2015. Go to njscpa.org/jobs, sign up as an employer (or sign in if you’ve previously created an account), search the résumés and use coupon code Resume100 during checkout.

Market Your Firm NJSCPA members are entitled to a free listing in the Find-A-CPA online directory. Sign up at findacpa.org so your firm is included when we market the directory to consumers and small business owners this tax season. Get Technical Help from Your Peers Turn to your fellow NJSCPA members when you have tax, accounting, software or other questions. Post a question on the Open Forum on Connect (njscpa.org/connect), and your question will be sent to your 15,000 fellow members.

Stay Informed The NJSCPA scours accounting, tax and business news and regulatory sources daily to bring you the latest news and developments. Check

NEW JERSEY CPA • NOVEMBER • DECEMBER 2014

Tax Update: A Year of Landmark Decisions While the Affordable Care Act (ACA) remains at the forefront of federal tax legislation, a pair of recent state court decisions are sure to impact future tax planning. Federal

By Gary N. Bagoff, CPA Citrin Cooperman & Company, LLC

One major area of Internal Revenue Service ACA guidance relates to Section 4980H, which was added to Section 1513 of the Internal Revenue Code (IRC) dealing with the shared responsibility provision for employers – aka the employer mandate. Transition relief provided by final regulations TD 9655 allows large employers to comply with the employer mandate starting in 2015, while midsized employers with fewer than 100 employees can delay employer manadate compliance until 2016. The final regulations allow large employers to avoid a penalty for failing to offer health insurance coverage if the employer offers coverage to 70 percent of its full-time employees in 2015, and 95 percent for large and mid-sized employers in 2016 and thereafter. Employers with fewer than 50 full-time or full-time equivalent employees are permanently exempt from the employer mandate. The final regulations provide for two methods to determine full-time employee status: (1) the monthly measurement method; and (2) the lookback measurement method. Under the monthly measurement method, fulltime employees are identified based on service hours of each calendar month. The look-back measurement method

allows employers to determine a full-time employee during a future period – referred to as the stability period – based on the service hours of the employee in a prior period – referred to as the measurement period. The applicable large employer determines each ongoing employee’s full-time employee status by looking back at a standard measurement period of at least three but not more than 12 months. The final regulations provide that service hours do not include those performed as a volunteer and clarify the treatment of members of religious orders, student employees, seasonal workers and others. A full-time employee pursuant to IRC Sec. 4980H(c)(4) means with respect to any month an employee who is employed an average of at least 30 hours of service per week. Under the monthly measurement method in the final regulations, an employer will not be subject to an assessable payment under Sec. 4980H(a) with respect to an employee because of a failure to offer coverage to that employee before the end of three full calendar months. The period begins with the first full calendar month in which the employee is otherwise eligible for an offer of coverage under a group health plan of the employer, if the employee is offered coverage no later than the day after the end of the three-month period. Under the look-back measurement method in the proposed regulations, if an employee is reasonably expected at his/

NEW JERSEY CPA • NOVEMBER • DECEMBER 2014

her start date to be full-time, an employer that sponsors a group health plan that offers coverage to the employee at or before the conclusion of the employee’s initial three full calendar months of employment will not be subject to an assessable payment under Sec. 4980H.

New Jersey

A limited partnership interest creates nexus for a corporation. Village Super Market Inc. (INC), a New Jersey corporation that operates supermarkets throughout New Jersey, reorganized in 1999 and created a wholly owned subsidiary: Village Super Market of PA, Inc. (PA), a Pennsylvania corporation that operated a supermarket in Pennsylvania. Eight days after PA formed, both INC and PA formed a NJ limited partnership known as Village Super Market of NJ, LP (LP) to operate 25 supermarkets throughout NJ. PA maintains a limited partnership interest of more than 83 percent. PA asserted that this is not enough to subject it to the corporation business tax because it is a passive investor. PA argued it is similar to the case of BIS LP, Inc. v. Director where a corporation’s 99-percent limited partnership interest was insufficient to create nexus with NJ because (1) the corporation was not involved in the

same business; (2) there was no officer overlap between the corporation and limited partnership; and (3) there was no overlap of operational facilities, technology or know-how between the corporation and limited partnership. The court concluded that PA’s interactions with LP and INC establish sufficient minimum contacts to meet the requirement of presence-based nexus with New Jersey. PA and LP are not discreet and independent entities because they are in the same line of business and executed a joint cash management agreement. All of PA’s cash assets are held in NJ as a subsidiary loan to INC. The substantial interest income generated from these loans remains in NJ because it is added to the loan’s principal balance and not paid to PA. Moreover, PA and LP share a principal place of business in NJ and have common officers, directors and employees.

New York

A long-disputed case was resolved this year regarding statutory residency and permanent place of abode. The issue of whether an individual is a statutory resident was decided in John Gaied v. New York State Tax Appeals Tribunal. The tribunal ruled that the main issues were whether the taxpayer had property

rights to a dwelling and whether it could be used by the taxpayer as a permanent residence, regardless of whether the taxpayer actually used the property. Gaied domiciled in New Jersey and owned an apartment building on Staten Island where he also managed a business. His parents lived in one unit, and the other two units were leased to tenants. Gaied would occasionally stay in the apartment. During the years in question, he spent more than 183 days in New York. The tribunal ruled Gaied was a statutory resident based upon the time spent in New York and that he maintained a permanent place of abode. The New York Court of Appeals reversed the decision. It concluded that in order to qualify as a statutory resident, there must be evidence that the taxpayer used a dwelling as a residence. The court ruled the statute’s legislative history supports the view that for a taxpayer to have maintained a permanent place of abode in New York, the taxpayer must have a “residential interest” in the property. Gary N. Bagoff, CPA, is a tax director with Citrin Cooperman & Company, LLC. He is a member of the New Jersey Society of CPAs. Contact him at gbagoff@citrincooperman.com.

NEW JERSEY CPA • NOVEMBER • DECEMBER 2014

The Taxation of Cloud Computing As technology continues to rapidly improve and change, states struggle to keep up with how to tax new products and services. New technologies typically do not fit into a predefined product or service for which the states have provided guidance. One of these recent technological areas is cloud computing. The question of how cloud computing is taxed is a challenging one for businesses and practitioners, since there is no uniformity between the states on how to tax these items. This leads to potentially drastic differences from state to state. Cloud Computing Defined

The National Institute of Standards and Technology (NIST) defines cloud computing as a “model for enabling ubiquitous, convenient, on-demand network access to a shared pool of configurable computing resources that can be rapidly provisioned and released with minimal management effort or service provider interaction.”

By Leonard J. Nitti, CPA Wilkin & Guttenplan, P.C.

A Trio of Service Models

The NIST also discusses the three service models for cloud computing. The first is Software as a Service (SaaS) where the purchaser uses the seller’s software through a cloud computing infrastructure (e.g., QuickBooks Online).

The second is Platform as a Service (PaaS) where the purchaser uses selfcreated or acquired applications on the cloud utilizing programs supported by the seller. The third is Infrastructure as a Service (IaaS) where the purchaser is provided fundamental computing resources to deploy and run arbitrary software, such as operating systems and applications.

Questions

For a business to determine how cloud computing is taxed, it needs to consider a number of questions. Is the property, service or intangible subject to sales and use tax? Which state has the right to tax the sale? Does the activity give rise to nexus for the business to be subject to either income or sales and use tax?

Is the Property, Service or Intangible Subject to Sales and Use Tax?

We must first determine how a state defines cloud computing. States like New Jersey view cloud computing as a service, while other states, such as New York and Missouri, view it as a sale of tangible personal property. New Mexico is an example of a state that considers cloud computing an intangible asset. Other states, including Kentucky and Maine, have still not provided any guidance for taxing cloud computing, leaving the business or practitioner to interpret how to categorize it. Once you understand the state’s classification of cloud

NEW JERSEY CPA • NOVEMBER • DECEMBER 2014

computing, then you can conclude if it is subject to sales or use tax. Let’s now examine the general rules for sales tax. Sales of tangible personal property are generally taxable, unless an exception applies. Sales of services and intangibles are generally not subject to tax, unless specifically identified as taxable. Unfortunately, there are many exceptions to the general rules, so we must continue to dig further to determine if cloud computing is subject to sales tax in a particular state. Missouri defines cloud computing as prewritten computer software that is considered tangible personal property, but exempts it from sales tax based on its electronic delivery. New Jersey looks at each model separately and only subjects certain SaaS transactions to tax as an information service. An example of SaaS models subject to tax are the tax research services utilized by many practitioners. New Mexico provides an exception for intangibles, as the state’s law defines sales of intangible assets as taxable.

sales and use tax purposes. For states that have provided guidance, the determination is generally focused on the location of the server or the purchaser. Pennsylvania and Tennessee are two states that source the sale to the location of the server, while Arizona and Utah source the sale to the location of the purchaser. New York sources the sale to where the purchaser’s employee is using the property. When addressing states that do not provide specific guidance for sourcing of sales for cloud computing, practitioners may consider the general rules each state provides. Generally, for sales of tangible personal property, the sale would be to source where the customer is located. Each state should be reviewed as some states have “throwout” or “throwback” rules for income tax purposes. For services, sourcing is generally determined by cost of performance (where the work is performed) or by a market-based approach (where the benefit is received) depending upon the state.

Which State Has the Right to Tax the Sale?

Does the Activity Give Rise to Nexus?

The majority of the states have not provided sufficient guidance to determine which state has the right to tax a particular cloud computing transaction, whether for income or

The final question to consider is whether or not cloud computing will create nexus in a state that a taxpayer has not previously established nexus for either income or sales and use

tax based on other activities of the business. Generally, a taxpayer is required to have a physical presence in a state to create nexus, although guidance has created certain protected activities, such as P.L. 86-272 and court rulings. Some states have also been moving to try to establish nexus for a business based on other considerations, including economic and affiliate nexus. Unfortunately, very few states have provided any guidance when it comes to cloud computing and nexus, leading to difficult decisions needing to be made as to whether or not cloud computing by itself creates nexus in any state for a purchaser or a seller. While cloud computing has become a popular model for conducting business, the states’ slow response to providing guidance in this area has been frustrating to many businesses and practitioners. The taxation of cloud computing is an area that should continue to be monitored because the states will provide additional guidance in the future. Leonard J. Nitti, CPA, M.S.T., is a manager at Wilkin & Guttenplan, P.C. He is a member of the New Jersey Society of CPAs Federal Taxation and State Taxation interest groups. Contact him at lnitti@wgcpas.com or 732-846-3000.

NEW JERSEY CPA • NOVEMBER • DECEMBER 2014

Bulk Sales: You Are on Notice Both New Jersey (N.J.S.A. 54:50-38) and New York (Tax Law, Section 1141(c)) statutes are virtually identical and state the following: “Whenever a person required to collect tax shall make a sale, transfer or assignment in bulk of any part or the whole of his business assets, otherwise than in the ordinary course of business, the purchaser, transferee or assignee shall at least 10 days before taking possession of the subject of said sale, transfer or assignment, or paying therefore, notify the respective taxing authority by registered mail of the proposed sale and of the price, terms and conditions thereof whether or not the seller, transferor or assignor has represented to or informed the purchaser, transferee or assignee that he owes any tax, and whether or not the purchaser has knowledge that such taxes are owing, and whether any such taxes are, in fact, owing.”

By Neil B. Becourtney, CPA CohnReznick LLP

While other states have bulk sale notification requirements, here we will only address the rules in New Jersey and New York. Purchasers are obligated to notify the New Jersey Division of Taxation or the New York State Department of Taxation & Finance at least 10 days prior to consummating an asset purchase that is outside the ordinary course of business so an escrow can be established if the taxing authority determines that the seller has potential tax liabilities. If the purchaser fails to notify the state as required and it is subsequently determined that the seller has tax liabilities, the purchaser will become liable for specified tax liabilities of the seller – all taxes for

New Jersey, and sales and use taxes for New York. What would seem to be a relatively simple procedure is apparently often overlooked, based on the number of cases involving the nonfiling of a notice of bulk sale. Buyers’ accountants often assume the buyers’ attorneys have taken care of filing the Notification of Sale, Transfer or Assignment in Bulk (identical name in both states), New Jersey Form C-9600 and New York Form AU-196.10 and vice versa. Purchasers sometimes believe that they are not subject to the bulk sale notification rules because rather than purchasing an entire business they have only purchased certain assets, such as furniture and fixtures or inventory.

NEW JERSEY CPA • NOVEMBER • DECEMBER 2014

Litigation often focuses on whether the asset sale was outside the ordinary course of business. Each form can be obtained from the respective state taxing authority websites at state.nj.us/ treasury/taxation or tax.ny.gov. Both forms request information pertaining to the purchaser and seller involved in the transaction. A breakdown of the sales price is required, and a copy of the contract of sale must be provided. New Jersey asks for information pertaining to the attorney or agent for the seller. New York asks for information regarding the bank in which escrow funds will be deposited. The forms themselves are rather straightforward and can be completed without the assistance of an attorney. While both statutes refer to registered mail, both states accept the form via certified mail. New Jersey also allows it to be filed using an overnight courier, whereas New York does not. The New Jersey Division of Taxation has posted FAQs pertaining to the

filing of Form C-9600. These FAQs reference Technical Bulletin 60-R as providing additional guidance. Within 10 days of receiving the filing, the division will issue one or more of the following notices: • Escrow Letter to the purchaser stating the amount of money to be held at the transfer. • Returns Required Letter to the seller outlining which tax returns must be filed and paid to obtain clearance. • Clearance Letter to the purchaser stating that the bulk sales case has been closed. • Insufficient Notice to the purchaser listing items that are missing from the notification. • Unreported Bulk Sales Letter notifying the purchaser of the assets of the assumption of the seller’s liability. Several years ago, the NJ Division of Taxation unveiled Form TTD, Asset Transfer Tax Declaration, a form that sellers in bulk sale transactions submit

to the division with information on the gain on the sale of business assets to assist the division and the seller in calculating a more accurate amount of the tax due. This is filed independently of Form C-9600. The TTD form is submitted to the Bulk Sale Section after the case has been assigned to a caseworker. The completed Form TDD may result in the escrow being adjusted. Where the seller is a Form NJ-1065 filer, the instructions to Form TDD state that if any member/ partner is not an individual or if the number of nonresident member/ partners exceeds five, to attach the most current membership directory rather than making partner-by-partner calculations. The division will calculate and communicate the estimated tax for resident filers and/or withholding amount for nonresident filers. Additional information pertaining to New York bulk sales can be found in Tax Bulletin ST-70. Within five business days after receiving Form AU-196.10, the New York State Department of Taxation & Finance will issue the purchaser either Form AU-197.1, Purchaser’s and/or Escrow Agent’s Release – Bulk Sale, if the seller has no unpaid sales taxes; or Form AU-196.2, Notice of Claim to Purchaser, if the seller owes unpaid sales tax or is under audit. If the latter, the purchaser is instructed not to pay the seller until the tax department completes its review of the seller’s sales tax account. A seller is instructed to give all prospective purchasers Form TP-153, Notice to Prospective Purchasers of a Business or Business Assets, which outlines the purchaser’s responsibilities in a bulk sale. Failure of the seller to give this notification does not relieve the purchaser of its bulk sale obligations or the potential bulk sale liability. Contact the New Jersey Bulk Sales Unit at 609-292-6604 and the New York Bulk Sales Unit at 518-485-2889. Neil B. Becourtney, CPA, is a tax partner at CohnReznick LLP. He is a member of the New Jersey Society of CPAs Federal Taxation and State Taxation interest groups and the Editorial Advisory Board of New Jersey CPA magazine. Contact him at neil.becourtney@cohnreznick.com.

NEW JERSEY CPA • NOVEMBER • DECEMBER 2014

Guard Against

Tax-Related Identity Theft Identity theft is one of the fastest growing crimes nationwide, and refund fraud caused by identity theft is one of the biggest challenges facing the Internal Revenue Service (IRS). Although receiving far less attention than the loss of credit card information, tax-related identity theft has significantly increased. In fact, it topped the list of the IRS Dirty Dozen Tax Scams for 2013 and 2014, and probably will make the list again in 2015. Let’s examine how individuals fall victim to tax-related identity theft and steps to take if you or a client becomes a victim.

By Margaret Van Brunt, CPA Rowan University

Identity thieves often use a legitimate taxpayer’s identity to fraudulently file a tax return and claim a refund. However, many individuals who are identity theft victims are unaware that their identities have been stolen to file fraudulent tax returns. It is not until legitimate taxpayers file returns resulting in duplicate filings under the same names and Social Security numbers that they realize they are victims of identity theft. While the IRS is working to address the issue, affected taxpayers experience delays, often significant, in any refunds owed them.

IRS Filters

The IRS continues to expand the number of ID theft filters it uses to identify potentially fraudulent tax returns and prevent the issuance of fraudulent tax

refunds. According to a Government Accountability Office report, the IRS prevented the issuance of approximately $24.2 billion in fraudulent tax refunds as a result of ID theft filters for the 2013 tax filing season. The identity theft filters incorporate criteria based on characteristics of confirmed ID theft tax returns, including amounts claimed for income and withholding, filing requirements, prisoner status, taxpayer age and filing history. Tactics also include filters, such as clustering techniques, to target multiple refunds, particularly those refunds that are scheduled to be deposited into a single account or mailed to a single address. Tax returns identified by these filters are held during processing until the IRS can verify the taxpayer’s identity. The IRS attempts to contact the individual who filed the tax return, and if this individual’s identity cannot be confirmed the IRS removes the tax return from processing.

IRS Account Flags

If you are an actual or potential victim of identity theft and would like the IRS to mark your account to identify questionable activity, file an Identity Theft Affidavit (Form 14039) with the IRS. The IRS has also issued to those taxpayers who have been identified as victims an Identity Protection PIN (IP PIN) for use when filing their federal tax returns that shows that a particular taxpayer is the rightful filer of the return. Returns filed with the IP PIN will be processed as a legitimate return with no delays.

NEW JERSEY CPA • NOVEMBER • DECEMBER 2014

Equifax, equifax.com, 800-5256285; Experian, experian.com, 888-397-3742; and TransUnion, transunion.com, 800-680-7289. • Close any accounts that have been tampered with or opened fraudulently.

IRS Notices

You and/or your clients should also be alert to possible tax-related identity theft upon receiving an IRS notice or letter that states any of the following: • More than one tax return for you was filed. • You have a balance due, refund offset or have had collection actions taken against you for a year you did not file a tax return. • IRS records indicate wages received from an unknown employer.

Remember, the IRS does not initiate contact with taxpayers by email to request personal or financial information. This includes any type of electronic communication, such as text messages and social media channels. More information is available at irs.gov.

IRS Tips

Should you or your clients receive any of the above notices or believe there has been ID theft, contact the IRS Identity Protection Specialized Unit immediately at 800-908-4490 x245 so that steps can be taken to secure tax accounts and match Social Security numbers or Individual Taxpayer Identification Numbers. In addition to affecting credit, tax records and earnings records, a criminal record may even be established in someone’s name. So, how can you protect yourself and your clients? The IRS provides a number of tips to protect individuals and recommends steps to take if you think someone may have filed a tax return using your name. • Don’t carry your Social Security card or any documents that include your Social Security number or Individual Taxpayer Identification Number. • Don’t give personal information over the phone, through the mail or on the Internet unless you have initiated the contact or you are sure you know who you are dealing with. • Protect your financial information. • Check your credit report every 12 months. • Secure personal information in your home. • Use firewalls and anti-spam/virus software, update security patches and change passwords for Internet accounts on your personal computer.

Other Actions to Take

Unfortunately, the aforementioned list is not all-inclusive. Identity thieves are constantly looking for new sources of information and new forms of technology. If you become a victim of

identity theft, the IRS recommends you take the following additional steps: • Report ID theft incidents to the Federal Trade Commission (FTC) at consumer.ftc.gov or the FTC Identity Theft Hotline at 877-438-4338. • File a report with the local police. • Contact the fraud departments of the three major credit bureaus:

To see a video of Van Brunt’s tips, visit njscpa.org/ newjerseycpa/novdec14. Margaret Van Brunt, CPA, is the assistant dean at the Rohrer College of Business at Rowan University. She is the immediate past president of the Southwest Jersey Chapter of the New Jersey Society of CPAs and is on the Editorial Advisory Board of New Jersey CPA magazine. Contact her at vanbrunt@rowan.edu.

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NEW JERSEY CPA • NOVEMBER • DECEMBER 2014

A&A

buzz

A&A for Staffing Companies By Michael J. Napolitano, CPA, Citrin Cooperman & Company, LLC

ver the last several years, many industries have struggled to rebound from the Great Recession. We are continually reminded of the snail’s pace of economic growth and continued uncertainty businesses are facing. One industry, however, has not only withstood these tough economic times, but has actually experienced double-digit growth. The staffing industry has been able to grow by capitalizing on businesses changing their employee strategies. Some large businesses are reluctant to hire full-time employees, and many have turned to staffing agencies to provide labor on a short-term basis or for specific projects. This allows those businesses to quickly react to increasing or reducing payroll and, in turn, provides great opportunities for staffing agencies.

Key Segments

Staffing agencies have diversified their niche segments, with the top three being health care, information technology and clinical/scientific. Other segments include office/clerical, industrial, finance/accounting and legal, to name a few. The majority of staffing agencies are still under $25 million in revenues, and average revenue growth over the last three years has been approximately 12 percent.

Placement Services

The typical agency will have revenues related to various placement services: permanent placement/direct hire (assisting companies with full-time hires), temporary staffing (providing temporary staff) and managed services (staffing firm takes primary responsibility for managing an

organization’s contingent workforce). The cost structure and gross profit could vary greatly, depending on the revenue source. Understanding the contractual relationship between an agency and its client is key to understanding each segment’s effect on financial statements.

Contracts

With varying client demands and different forms of agreements, it has become increasingly difficult for staffing firms to protect themselves. Many staffing firms will enter into managed contracts and not fully understand their contractual obligations or exposure to the risk transferred to them. We have recently seen more staffing firms entering into “model

NEW JERSEY CPA • NOVEMBER • DECEMBER 2014

contracts” with their customers. Staffing firm clients are looking to be indemnified from various types of liability, and model agreements have become their way of creating a contractual obligation between them and the staffing firm. These contracts are based on the simple principle: “Whose employee is it?” Each party is responsible for the risks associated with its own business and is looking to indemnify those risks. Staffing firms should not be expected to cover risk beyond those inherent in the staffing business. Those risks typically relate to being the employer, which means paying wages and payroll taxes and all other burdens associated with payroll, as well as damages related to a staffing firm’s failure to properly screen employees. Staffing firms should not assume risk beyond their basic services, such as liability for their clients’ products or services.

The typical model contract will outline the staffing firm’s duties and responsibilities. The contract addresses employee supervision and work to be performed. It will also include payment terms, bill rates and fees. Other important features include conforming to state laws – overtime pay will be based on state law – and fees related to the hiring of any employees by the contracted client. The most important feature of the model contract might be the indemnification and liability limitation. This part of the model contract outlines how each party will indemnify the other. This is specific to each engagement and is typically not a one-size-fits-all. Once there is model contract, a staffing firm can add amendments to the client’s staffing agreement. This is intended to be used when there is an existing contract and the staffing firm wants to correct certain language in the original agreement.

Many larger customers of staffing firms now require model contracts. So, before a staffing firm enters into this agreement it is imperative customers fully understand the key components of the contract. A company’s legal counsel must assist and review all agreements before they are signed by the company. We have seen too many broad-based contracts that ignore the pitfalls of a contract and put a business at risk. Parties should have counsel (with industry experience) to assist them so that they can execute an agreement that is mutually beneficial to both. Michael J. Napolitano, CPA, is a partner at Citrin Cooperman & Company, LLC. He is a member of the New Jersey Society of CPAs. Contact him at mnapolitano@ citrincooperman.com.

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BEST

practices

IRA Early Withdrawal Exceptions By Jo Anna M. Fellon, Friedman LLP

rawing a Monopoly “Chance” card could bear negative results, perhaps even send you straight to jail. Accordingly, the phrase “do not pass go, do not collect $200” has been adopted by popular culture to describe a forced event that bears a negative outcome. Similarly, choosing an early withdrawal from your Individual Retirement Account (IRA) can be a costly move, often resulting in unfavorable consequences, such as tax penalties and loss of future growth. In an effort to discourage the early collection of designated retirement money during taxpayers’ working years, Uncle Sam imposes a 10-percent penalty in addition to one’s regular tax bill. A withdrawal made earlier than age 59½ could qualify for such a penalty unless an available exemption criterion is met. However, taking money from your IRA doesn’t necessarily have to become the nuclear option. So, the question becomes, “When is it okay to pass go and collect $200?” In some cases, the workaround merely requires an understanding of the available exceptions embedded within the Internal Revenue Servise (IRS) tax code; others require some preplanning measures. Although not all early withdrawals will be absolved from the additional tax expense, some will. The following are some examples:

College Tuition

It’s okay to make an early withdrawal to pay costs relating to higher education for you, your spouse, your children or your grandchildren. As long as the eligible student attends an accredited school, either private or public, you can use your retirement money to pay for tuition and fees, books, equipment and other expenses, such as class supplies. Additionally, distributions to pay for room and board are also exempt from

the 10-percent penalty as long as the recipient is at least a half-time student. These distributions are included in your taxable income and will be subject to regular tax. Since federal financial aid is based on your income situation, early draws have the ability to negatively impact a student’s chances of qualifying for financial aid and even push the IRA holder into a higher tax bracket. As such, you could end up

paying more money overall.

First Home Purchase

You can use $10,000 toward the purchase of your first home. If you are married, this amount becomes $20,000 since you may each pull $10,000 from your respective retirement accounts. The early withdrawal money can be used to meet down payment requirements, pay for groundbreaking

NEW JERSEY CPA • NOVEMBER • DECEMBER 2014

costs on new construction and even rebuild your white picket fence. What is most exciting is the IRS’ interpretation of “first-time homebuyer.” You do not have to be buying, building or rebuilding your first home. Instead, you qualify for the exemption as long as you or your spouse did not own a home during the prior two-year period. Not only can you use your IRA funds toward a down payment, but so may your spouse, children, grandchildren and parents. The timing of the early withdrawal is important, since the IRS requires your funds to be used within 120 days of the distribution. During that timeframe, should you cancel or reschedule the purchase or construction project, the money can be returned to your IRA without penalty.

exceed 10 percent of your adjusted gross income. Timing is again important as early withdrawal money for medical expenses must be utilized in the year the medical expenses are incurred.

Doctor Bills

Medical Insurance

You can use your IRA for medical expenses. The IRS will not penalize you should you need to pay for unreimbursed medical expenses that

IRAs in U.S. households in billions of dollars $4.8

$4.4

$4.9

$5.4

$3.7

2008 2009 2010 2011 2012

Finally, withdrawals made following a period of unemployment are acceptable if used to pay for health insurance for you, your spouse or your dependents.

Deciding when to “pass go” and withdraw IRA funds early should be based on a methodical approach in which financial advisors work with clients to consider not only the immediate benefits, but the long-term impacts. Jo Anna M. Fellon is a senior tax manager at Friedman LLP. Contact her at jfellon@ friedmanllp.com.

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BUSINESS & INDUSTRY

insights

Three Ways to Make Annual Reporting More Manageable B y A nthony F. Marone, C PA, The B lackstone Gro u p L . P.

challenges of researching transactions that occurred 10 or more months ago. Another strategy is to meet with business stakeholders around midquarter to discuss their thoughts on ways to modify or improve SEC reporting. This allows their input in the first draft of the report, rather than as a last-minute revision to the final draft.

2. Leverage Technology

veryone knows about the annual work overload associated with tax season. However, for CPAs working in Securities and Exchange Commission (SEC) reporting, there is also the dreaded annual report, commonly known as a Form 10-K. Putting aside the challenges of accurately closing the books or complying with ever-increasing disclosure requirements, the very act of compiling the necessary information to produce a 10-K involves significant effort and is a pressure point for all involved. There are three ways, however, you can simplify the 10-K process: (1) make the 10-K a year-round project; (2) invest in technology; and (3) organize processes.

1. Make It Year-Round

Many organizations think of their annual reports as just that – an annual project. Similarly, these organizations may not turn to their quarterly reports until just before quarter-end. However, the workload associated with these reports can be spread throughout the year with advanced planning. One strategy is to include additional disclosures in quarterly reports, even if they are not required. Although this may sound like creating additional work, by developing a fulsome quarterly process, there are less year-end surprises or

To further streamline the annual report process, CPAs can upgrade the tools they use to produce the document beyond basic Word. Although any investment in technology requires time and money, it can pay large dividends in future periods. One option that is labor-intensive, but generally has no financial cost, is to embed Excel tables into the Word document of the annual report. These Excel tables can be linked to each other such that a change in one table would similarly modify the numbers in other sections of the 10-K. Excel can also be used to prevent footing errors, confirm that note totals tie to the primary financial statements and, for the advanced user, even insert numerical values into the text surrounding disclosure tables. Software, such as IBM’s Cognos Financial Statement Reporting or Workiva’s WebFilings SEC Reporting, can significantly improve the 10-K production process. These tools are designed specifically for managing document production and have numerous benefits, including version control, document security, concurrent multi-user access, data validation and others. Perform a critical analysis and costbenefit of these tools before making the investment. Smaller companies, particularly those with simple financial statements and small accounting departments, may not see the benefits from these tools. However, medium-

sized SEC registrants can significantly streamline their annual report production using such software.

3. Organize Processes

The 10-K production process can also be improved with proper forethought and organization. Producing a quality annual report that is timely and errorfree is a major undertaking that is often underestimated because of its recurring nature. Strategies to organize the 10-K process include delegating responsibilities to other departments, ensuring there is sufficient staff to handle quarterly and annual reporting (aka “staffing the peak”) rather than only the regular month-ends, and setting interim deadlines. Communicate early and often with external service providers, including auditors, lawyers and printers. This will help eliminate unexpected logjams in the process. Lastly, updating dates and other references during the relatively slower months, rather than at quarter-end, will save time for when it is most needed. With any of these strategies, it is important to think of how the 10-K process intersects with other parts of the business. Make it part of the overall workflow, rather than something that is tacked on at the end of the year. This critical mindset for both CPAs and other business stakeholders is fundamental to improving the 10-K process. Anthony F. Marone, CPA, CGMA, is a vice president at The Blackstone Group L.P. He is a member of the New Jersey Society of CPAs Student Programs & Scholarships Committee, Scholars Institute Advisory Board and the Editorial Advisory Board of New Jersey CPA magazine. Contact him at 212-6550246 or tony.marone@blackstone.com.

NEW JERSEY CPA • NOVEMBER • DECEMBER 2014

FINANCIAL

planning

Don’t Overlook the “CHIC” for Estate Planning B y Guy McPhail, CPA , The GM Gro u p

closely held insurance company (CHIC), often called a “captive” insurance company, is a strategy for managing risks that also offers significant tax and possible estate planning advantages. Practitioners are often unaware of how small business owners can now use unitized CHICs to take advantage of this strategy, which was originally designed for larger companies.

How To

First, identify the specific insurable business risks that businesses face. These may be conventional risks, like premises liability or professional malpractice, that the businesses are already insuring commercially. There may be lesser, but still-significant, risks, such as tax audit expense or cyberspace liability that the businesses aren’t currently insuring. Next, establish an actual property/ casualty insurance company to insure one or more of those risks. Typically, clients establish CHICs to supplement, rather than replace, their existing commercial coverages. Once you’ve established the CHIC, clients pay premiums from the operating business to the CHIC, just as you would pay premiums to a commercial insurer. Then, deduct those premiums under Code Section 162, just as you would with commercial insurance premiums. Ultimately, CHIC clients avoid or defer taxes on the premiums they pay to the CHIC.

Technical Requirements

There are some specific technical requirements for the CHIC to qualify for preferential tax treatment. There has to be bona fide risk sharing and bona fide insurance coverage. Internal Revenue Code section 831(b) grants favorable treatment to companies earning up to

$1.2 million per year in premiums. Thus, clients can choose to deduct any amount up to that $1.2 million limit. Clients can deduct more by establishing multiple CHICs.

Unitized CHICs

Most clients don’t need $1.2 million per year in coverage. To service that market, a new generation of financial consultants has emerged offering unitized CHICs where the $1.2 million is sliced and diced into separate units, typically in $100,000 increments. This is not a novel strategy. More than 80 percent of the companies in the S&P 500 have established CHICs. What’s new is the emergence of the unitized CHICs that makes the strategy affordable for your clients by cost sharing. There’s no shortage of coverages you can establish. The key is that there is bona fide risk sharing and insurance coverage.

Tax Advantages

The CHIC will elect to be taxed under Code Section 831(b). There will be no tax on premium income up to $1.2 million per year. However, the CHIC will pay tax on any income earned on premium reserves that is not invested in

a tax-deferred vehicle. You can invest those reserves in a variety of ways. There comes a point when you no longer need the insurance coverage. If you’re a surgeon, for example, and you’ve established the CHIC to cover malpractice risk, you’ll retire and won’t need the coverage. At that point, you’ll have a CHIC full of cash or investments. What then? Typically, you’ll dissolve the CHIC and withdraw the proceeds. Those proceeds will be taxed – but not as ordinary income, rather as capital gains. This means you’ve gotten a current deduction up front for your premiums, plus tax-deferred growth and preferential treatment on withdrawal. This tax treatment means the CHIC can be an attractive supplemental retirement tool.

Estate Planning

The CHIC can also be a wonderful estate planning technique. If the captive is owned directly or indirectly by, or for the benefit of, the business owner’s children or grandchildren, there will be a net wealth transfer without gift, estate or generation-skipping tax consequences. Since the captive’s assets are outside the taxable estate of the business owner and beyond the scope of the generationskipping tax, this offers additional estate planning opportunities, such as the purchase of life insurance. It also creates an asset that is ideal for a generationskipping dynasty trust, since there is no need to apply generation-skipping tax exemption to the premium payments, although it may be necessary to do so with respect to the initial capitalization of the captive. Guy McPhail, CPA, PFS, CFP, is the president of The GM Group. He is a member of the New Jersey Society of CPAs. Contact him at gmcphail@ njbizcpa.com or 609-737-6600 x801.

NEW JERSEY CPA • NOVEMBER • DECEMBER 2014

Forensic

file

How to Value Entities with Complex Capital Structures B y Charles N. Persing , C PA, and C harles Lu nden , C PA , B ederson L L P

he first step in valuing entities with complex capital structures is to perform a valuation of the subject entity. Most valuations begin with the valuator selecting one or more traditional valuation approaches: income approach, market approach and/or asset approach. The use of each depends on the subject company, subject interest and valuation use. The person performing the valuation must perform “reasonable valuation methods, reasonably applied.” The second step in valuing complex capital structures is to allocate fair market value (FMV) of the enterprise value among the various classes of securities. Some difficulties in assessing various types of securities include misunderstanding of deal terms or their effects, bridge financing issues and differing voting rights. Capital structure complications include dealing with convertible debt, preferred stock and common stock. The rights associated with common stock can include founder stock, restricted stock and general common stock. The types of associated debt and terms require careful analysis. Debt is typically nonconvertible or convertible; preferred stock is nonconvertible or convertible and nonparticipating or participating. Also consider any options and warrants. Three common methods of allocation are the current value method (CVM), the option pricing method (OPM) and the probability weighted expected return method (PWERM). A company’s capital structure drives the need for an allocation approach. If a simple structure (common stock only) value divided by shares outstanding or if a complex structure (common and preferred stock), the value needs to be allocated among the various classes of

securities. The more complex the capital structure, the greater effect the capital structure will have on the common share price.

Current Value Method

The CVM is where the equity value is reduced by the senior claims of preferred shares, with the remaining balance allocated to common shares (or common and preferred, if there is participation). This is similar to the old “waterfall” analysis. For example: Assume FMV of $5 million with 2 million shares of common, then add 3 million preferred shares with $1 liquidation participation. Finally, add full participation so that each preferred share gets one share of common. • No Preferred – Common value per share is $2.50 ($5M/2M common shares). • Preferred Nonparticipating – Common value per share is $1.00 (($5M - $3M)/2M common shares). • Preferred Fully Participating – Common value per share is $0.40 (($5M - $3M)/(2M common shares plus 3M common shares to preferred)).

Option Pricing Method

The OPM values each class of stock as a call option with a distinct claim on the enterprise value of the company. The Black-Scholes option pricing can assist in this method. Exercise prices are based on the liquidation preferences and conversion value of the securities. You must determine volatility and pricing term use of the OPM. Selecting the proper peer group requires extensive analysis and determination of term length, liquidity and another funding round or date.

OPM is a five-step process: 1) analyze the capitalization table; 2) make OPM assumptions (Black-Scholes assumptions); 3) calculate breakpoints; 4) make Black-Scholes calculation of tranche; and 5) allocate tranche values.

Probability Weighted Expected Return Method

PWERM weighs estimated values for several likely liquidity scenarios, or lack thereof, including IPO, acquisition, dissolution and private (no exit). The value of the common stock is determined for each scenario at the time of each future liquidity event and discounted back to the present using a risk-adjusted discount rate.

What to Use? When should you use CVM, OPM or PWERM? CVM is preferred at an extremely early stage or liquidity event. OPM is preferred at a mid-stage or when the CVM equals $0 for common stock or as a “back-solve” on a recentfunding round. PWERM is preferred at an extremely late stage or if there is an expected exit within five years. The American Institute of CPAs has published the Valuation of Privately Held Company Equity Securities Issued as Compensation. Chapter six discusses complex capital structures, and the appendix includes detailed samples. Charles N. Persing, CPA, CFF, CIRA, CVA, CFE, and Charles Lunden, CPA, CFF, ABV, CFE, FLMI, CGMA, CMA, CLU, are partners with Bederson LLP. Both are members of the New Jersey Society of CPAs. Contact the authors at 973-736-3333.

NEW JERSEY CPA • NOVEMBER • DECEMBER 2014

Small/Sole

practitioner

Travel and Entertainment Reminder B y F rank J. Centrella, C PA, Gramkow, C arnevale , S eifert & C o. , L L C

t tax time, clients may tell you of their travels to Hawaii, their box seats at Met Life Stadium and the wonderful Broadway shows they’ve attended. You can best plan for a review of your clients’ travel and entertainment records by answering the following questions: • Is there an accountable plan? • How are expenses documented? • Is there a business purpose for these expenses? If the Internal Revenue Service (IRS) finds your clients’ records to be inadequate, the employee reimbursements will be reclassified as compensation. The employee will then have to pay income taxes on the reclassed amount, and the employer will be liable for payroll taxes – plus penalties and interest. In order to avoid the IRS spotlight, make sure each of your clients has adequate controls and records to substantiate travel and entertainment deductions. Here are some steps to strengthen your clients’ expense reimbursement policies: • The expenses must demonstrate that they are related to the business. • The employee must keep adequate records for all expenses and submit an expense report within a reasonable period of time. • If the employee receives an allowance, he or she must return any excess reimbursement or allowance within a reasonable period of time. Proving a business purpose can often be the most time consuming and important aspect of an accountable plan. An expense report is one of the first things the IRS will review. When an employee submits a report, he or she should provide any log books, meal receipts, toll receipts, hotel receipts and so on. All records should reflect the amount, time, place and essential

business purpose of the expense. These requirements apply to both business owners and their employees. When discussing travel expense, we cannot forget about the accounting for automobile expenses. Any amounts deemed personal by the IRS will be treated as compensation. During an audit, the IRS will request the weekly or monthly business logs, receipts (including E-ZPass records) and all other records to confirm the tax deduction. Note: Commuting expenses from a person’s residence to his or her workplace are never deductible. Here are a few other miscellaneous travel and entertainment expenses that have been and may be questioned during an audit: • With regards to travel to a convention or trade show, your clients will need to show that the convention is directly related to or associated with their businesses. A client having a sales booth at a convention would qualify. If a client is a convention delegate, the purpose of the convention must relate to the business. The IRS also looks at spousal or family travel. If the business deducted these expenses, they could be added back to compensation under an audit. • Travel costs on cruise ships, even for direct or associated business purposes, are to be limited. The cost should be limited to a total of $2,000 for

the cruise. Clients need to provide documentation that the cruise activities were related to business purposes. • A private luxury box has special limitations. The deduction is limited to the face value of non-luxury box seats. The net deduction is reduced by 50 percent. For example, if you pay $25,000 for a luxury box that seats 20 people, you need to examine the value of a non-box-seat ticket. If we assume that the value of the non-box seat is $100, your deduction would be limited to $2,000. This $2,000 is further reduced because it is entertainment. Regarding recent court cases (Humphrey, Kenneth, 2013, TC Memo 2013-198 and Rundlett, Douglas, 2011, TC Memo 2011-229), the IRS focused on the lack of documentation for the travel and entertainment expenses and was successful in disallowing the expenses. Be proactive in reviewing your clients’ travel and entertainment expenses to make sure that they do have an accountable plan and that their plans provide enough substantiation to pass an audit. Frank J. Centrella, CPA, M.S.T., is the tax director at Gramkow, Carnevale, Seifert & Co., LLC. He is a member of the New Jersey Society of CPAs. Contact him at fcentrella@gcs-cpa.com.

NEW JERSEY CPA • NOVEMBER • DECEMBER 2014

TAX

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Six Reasons to Consider a Delaware Trust B y John P. Petrozzino, O ’ C onnor Davies, LLP

elaware, along with a few other states – Nevada, Alaska and South Dakota – has one of the most advantageous trust laws in the country. Delaware’s relative proximity to New Jersey makes it a common trust forum for New Jersey residents for the following reasons:

1. Tax Treatment

Delaware-resident trusts do not impose a state income tax on capital gains or ordinary income that is actually distributed or set aside for future distribution to nonresident beneficiaries. Therefore, a Delaware-resident trust without any Delaware-resident beneficiaries will have no Delaware state income tax. In addition, a Delaware Incomplete Non-Grantor (DING) trust can be used to shift individual state income tax consequences from the grantor’s state of domicile to a trust located in a more favorable tax jurisdiction, such as Delaware.

2. Silent Trusts

Delaware statutes do not require trustees to notify trust beneficiaries of their interests “for a period of time,” as long as a provision for this is drafted into the document. A trust with this type of provision is called a “silent trust.” Grantors can use these silent trusts to fund a trust for a young family member without that beneficiary

discovering the trust’s existence until a much later date. While Delaware law is unclear as to when exactly a beneficiary must be notified of his or her interest, immediate notification is not required.

3. Decanting

Delaware statutes also provide for flexibility through decanting. Decanting is the process of distributing some or all of the principal of an irrevocable trust into a new or existing trust with similar terms. Specifically, Delaware’s decanting statutes allow for the decanting of a trust as long as the trustee has the right to distribute principal, regardless of the existence of an ascertainable standard. New Jersey has no decanting statute; however, it has allowed decanting under case law based on a “best interest” standard provided in the trust and only when the trustee had an absolute and unfettered power to distribute principal.

4. Directed Trust Statutes

Directed trust statutes are a major advantage for Delaware trusts over New Jersey trusts. Directed trust statutes give the settlor or another named individual the power to direct trust investments. In New Jersey, trustees are held to the prudent investor rule, which normally implies a cautious, diversified investment strategy. In Delaware, however, the trustees are relieved of liability if a trust director or trust advisor is appointed

Get to Know Delaware …

Population......................................... 925,749 State Bird ......................................... Delaware Blue Hen State Flower...................................... Peach Blossom Nickname.......................................... The First State Number of Counties......................... Three Annual Gross State Product............ $60 billion Highest Point .................................... 447 feet above sea level

and the instrument provides that the trustee may rely on his or her direction. Therefore, a grantor can act as the trust advisor and direct the trustee on investments in the trust, such as closely held business interests, without the trustee being liable for not following the prudent investor rules.

5. Asset Protection

Asset protection may be the most favorable advantage of having a trust in Delaware versus New Jersey. Unlike New Jersey, Delaware permits selfsettled trusts that let a settlor retain a benefit from the trust while still protecting the assets in trust from potential creditors. As long as certain statutory requirements are met, assets in a self-settled trust will be beyond a creditor’s reach. However, in order to be protected it is important that the facts surrounding the creation of a selfsettled trust are not abusive and that the creation of the trust is not for the sole purpose of shielding assets from known or potential creditors.

6. Court System

Finally, the Delaware Court of Chancery, which is famous for its corporate law decisions, has consistently been the most progressive jurisdiction for trust law legislation and adjudication. You should analyze in depth and discuss with an expert in Delaware trust law the details of the aforementioned topics. As a CPA, your basic knowledge and awareness of the benefits of using a Delaware trust could prove very useful when providing estate planning services to your clients. John P. Petrozzino, J.D., LL.M., is a senior in the trust and estate group at O’Connor Davies, LLP. Contact him at jpetrozzino@odpkf.com or 908-272-6200.

NEW JERSEY CPA • NOVEMBER • DECEMBER 2014

TECH

center

Important E-Nexus Flags B y Victoria Kos uda , C PA, B eyond F inancials C ons u lting , L L C

he 2013 Marketplace Fairness Act placed a spotlight on e-commerce and sales tax. While the act passed in the U.S. Senate, it’s currently stalled in the House. However, the issue of sales tax and e-commerce isn’t going away. The Marketplace Fairness Act challenges the concept of a business needing physical nexus in a state in order to be required to collect sales tax. In Quill v. North Dakota (1992), nexus was defined as a “substantial physical presence.” States are now challenging this definition to make up for lost online sales revenue. As Congress deals with sales tax at the federal level, states are expanding their definitions of nexus beyond just

a physical presence. Relationships with distributors, remote workers or marketing affiliates are being viewed as creating nexus. For businesses, sales tax responsibilities are no longer limited to the state(s) where they reside.

Affiliate Nexus Versus Click-Through Nexus

Several states, including New Jersey, require out-of-state retailers who have an affiliate relationship in their states to collect sales tax. An affiliate relationship typically means there is a connection with an entity in the state that directly benefits the out-of-state seller. If sales are made due to this association, then the states contend the relationship

establishes “affiliate nexus” and they are required to collect sales tax. Although there have always been affiliate nexus laws in many states relating to sales agents, installation services or employees, the nexus triggers still had a physical component. The online version of affiliate nexus is called “click-through nexus.” If a business advertises on a website, states are challenging that the server where the website is hosted established nexus in that state. If a consumer clicks on the link, the online seller must collect sales tax for the state where the website is hosted. This interpretation of the law is commonly known as the “Amazon Law” – named after online

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To learn more about special benefits for NJSCPA members from ADP, go to adp.com/njscpa

*All insurance products will be offered and sold through Automatic Data Processing Insurance Agency, Inc., or its licensed insurance partners. The ADP logo and ADP are registered trademarks of ADP, LLC. Copyright © 2014 ADP, LLC.

NEW JERSEY CPA • NOVEMBER • DECEMBER 2014

HR. Payroll. Benefits.

retail giant Amazon.com â€“ based on the legal proceedings when New York and California pushed their versions of affiliate nexus.

Drop Shipments

Online retailers can sell products to customers through third-parties (drop shipping) so that they never physically touch customers. The sales tax implications to drop shipments continue to get more complex. If a business uses a drop shipper, the location of the warehouse where the product is housed and shipped triggers nexus. In the case of Amazon, it cannot tell the seller which distribution center its product will be shipped from. Therefore, the seller must assume nexus in all states where an Amazon fulfillment facility is located. As Amazon expands its reach, sellers will be required to collect sales tax in all states where Amazon has a warehouse. Amazon recently completed construction on a one-million-squarefoot warehouse in Robbinsville, NJ.

E-tail sales in the U.S. in billions of dollars

$130 $142

2009

$162

2010

2011

$186

2012

Digital Products

$211

2013

Digital products (e.g., audio, video, books) introduce additional layers of complexity relating to sales tax nexus. Here, nexus is established when a digital product is sold into a state that taxes these types of products, regardless of whether or not the seller is located in or affiliated with the state. The definition of digital products and whether or not they are subject to sales tax differs greatly among the states. An online seller must have the capability to determine if its product is subject to sales tax based on a buyerâ€™s zip code.

For example, New Jersey defines a digital product as a â€œspecified digital goodâ€? that is electronically transferred. This definition includes digital products transferred via the Internet or via a tangible form. Both versions are subject to sales tax if sold to a consumer in New Jersey. In New York, digital goods are currently not subject to sales tax, regardless of delivery method. Until federal legislation is passed and states are required to conform, the definition of nexus will continue to be debated and there will be varying rules based on the state in which business is transacted. Both small and large businesses should understand how the current and proposed sales tax laws pertain to them to ensure tax compliance. Victoria Kosuda, CPA, CITP, is the owner of Beyond Financials Consulting, LLC. She is the leader of the New Jersey Society of CPAs Technology Interest Group. Contact her at 908-358-4680.

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NEW JERSEY CPA â€˘ NOVEMBER â€˘ DECEMBER 2014

Highlights of Financial Results For the Year Ended May 31, 2014

he New Jersey Society of CPAs management and Board of Trustees are pleased to present the annual report for the Society and affiliates (NJSCPA Education Foundation and NJSCPA Scholarship Fund) for the year ended May 31, 2014. The financial results for fiscal 2014 exceeded expectations as each entity outperformed its budget from a bottom-line perspective. When compared to last year, there were modest increases in unrestricted revenues due in part to higher educational program volume in the second year of the triennial cycle and new affinity programs. Contribution revenue trailed last year, which included two sizeable nonrecurring gifts. Investment returns on long-term reserves were again strong, with each of the global diversified portfolios returning in excess of 10 percent. The Society continued efforts on its two major strategic programs: member engagement and firm outreach. Approximately 2,000 members volunteered as writers, speakers, bloggers, interest group members, leaders, mentors, scholarship interviewers, Pay It Forward presenters and more. Comprehensive research was conducted in the area of young CPAs to better understand and respond to the needs of this vital constituency. On the legislative front, the Society successfully lobbied against the five-year “death penalty,” defeated legislation that would have mandated audit firm rotation for local governments, and worked with other pro business groups to build support for legislation that would place a cap on appeal bonds and help reduce abusive lawsuits in New Jersey. The Society’s net assets increased approximately $419,000, compared to a budgeted increase of $50,000, including unrealized investment gains of $177,000. The NJSCPA Education Foundation completed the second year of the triennial reporting cycle, with more than 27,000 registrants, and delivered more than 129,500 credit hours of CPE. Solid program execution and

strong investment returns allowed the foundation to trim its budgeted deficit. Net assets decreased by approximately $97,000 versus a budgeted deficit of $125,000. The NJSCPA Scholarship Fund continued to benefit from the strong support of the Society’s chapters, as well as from members and their firms and companies. For the third year in a row, the fund awarded in excess of $500,000 to more than 100 eligible students, including awards by three chapters. Temporarily restricted net assets increased approximately $96,000, versus a budgeted deficit of $126,000, largely due to the returns on the investment portfolio, including unrealized gains of $200,000. Membership Dues Income from membership dues remained essentially flat, with a stable membership and no change in rates from last year. Recruitment of new members exceeded budget by 100 members, while overall member retention improved from 92 percent last year to 93 percent in fiscal 2014. Retention of fellow members increased from 94 percent last year to 95 percent in 2014, and total membership remained at approximately 15,300. Educational Program Fees Income from educational program fees increased approximately 5 percent from last year, while course prices remained the same. This was slightly below budget expectations for the second year of the triennial cycle, reflecting the impact of the 20-credit annual minimum requirement introduced last year. Live training program attendance was basically unchanged, while attendance at web-based training programs continued to increase. Direct expenses of educational programs increased proportionately.

REVENUES AND OTHER SUPPORT

2014

2013 4% 1%

40%

37%

4% 11%

10%

Membership Dues 41%

Educational Program Fees Peer Review Fees Publication and Advertising Special Events and Contributions Investment, Royalties and Other NEW JERSEY CPA • NOVEMBER • DECEMBER 2014

40%

Highlights of Financial Results For the Year Ended May 31, 2014 Other Revenues The decrease in publication revenues is mainly due to a change in the publisher for New Jersey CPA magazine. The Society no longer receives a share of advertising revenues in exchange for the publisher assuming all expenses, including design, printing, mail shop and postage. The decrease in special events revenue is due mainly to the fact that last year included an additional Scholars Institute event when the timing shifted from June to May.

FUNCTIONAL EXPENSES 20%

2014

15% 8%

5% 9% 4% 39%

2013 20%

Operating Expenses Total expenses for 2014 increased 2 percent from 2013; exclusive of the increase in direct costs of education programs, expenses increased only 1 percent.

15% 9%

4% 10%

The increase in salaries and wages includes an average merit increase of 3 percent, full-year impact of a multimedia specialist and part-year impact of a new IT programmer. Printing and distribution was lower than 2013, mainly due to the change in magazine publisher, as noted, and the impact of a branding project on both the amount and timing of printed pieces. The decrease in special events was due to the additional Scholars Institute event last year, offset in part by an additional social event by the Monmouth/Ocean Chapter. While the Combined Statements of Activities present expenses by natural classification, below are the combined expenses of the Society, the Education Foundation and the Scholarship Fund, summarized by each major functional area.

Program Services Membership activities Communications and public relations Educational activities Peer review Career awareness Total Program Services Support Services Membership recruitment and fundraising Management and general Total Support Services Total Program and Support Services

4% 38% Membership Activities Communications and Public Relations Educational Activities Peer Review Career Awareness Recruitment and Fundraising Management and General

2014

2013

$1,291,000 705,000 3,337,000 352,000 756,000 6,441,000

$1,252,000 729,000 3,198,000 336,000 806,000 6,321,000

382,000 1,752,000 2,134,000 $8,575,000

369,000 1,698,000 2,067,000 $8,388,000

Combined Statements of Financial Position New Jersey Society of Certified Public Accountants and Affiliates May 31, 2014

May 31, 2013

$ 7,018,000

$ 7,201,000

5,902,000

5,187,000

Assets Cash and cash equivalents Investments Other Total Assets

714,000

781,000

$13,634,000

$13,169,000

Liabilities and Net Assets $ 2,753,000

Deferred revenue

2,790,000

958,000

873,000

Total Liabilities

3,711,000

3,663,000

Unrestricted net assets

6,901,000

6,579,000

Temporarily restricted net assets

3,022,000

2,927,000

Total Net Assets

9,923,000

9,506,000

$13,634,000

$13,169,000

Other

Total Liabilities and Net Assets

NEW JERSEY CPA â€˘ NOVEMBER â€˘ DECEMBER 2014

Highlights of Financial Results For the Year Ended May 31, 2014 Combined Statements of Activities New Jersey Society of Certified Public Accountants and Affiliates Year Ended May 31, 2014

Year Ended May 31, 2013

$3,670,000

$3,668,000

3,627,000

3,453,000

Peer review fees

336,000

356,000

Publication, directory and website advertising

117,000

135,000

Investment income

335,000

408,000

Royalties and commissions

224,000

192,000

Special events

179,000

277,000

75,000

64,000

334,000

181,000

8,897,000

8,734,000

Salaries, payroll taxes and employee benefits

3,855,000

3,724,000

Direct costs of educational programs

2,480,000

2,353,000

447,000

432,000

89,000

140,000

Scholarship awards

450,000

443,000

Office and supplies

259,000

242,000

Professional fees

231,000

273,000

Travel and meetings

120,000

112,000

Special events

188,000

204,000

Other general

456,000

465,000

8,575,000

8,388,000

322,000

346,000

Contributions

173,000

334,000

Investment income

256,000

313,000

Net assets released from restrictions

(334,000)

(181,000)

95,000

466,000

Changes in Unrestricted Net Assets Revenues and other support Membership dues and other fees Educational program fees

Other Net assets released from restrictions Total Unrestricted Revenues and Other Support Expenses

Rent and occupancy Printing and distribution

Total Expenses Increase in Unrestricted Net Assets Changes in Temporarily Restricted Net Assets

Increase in Temporarily Restricted Net Assets Changes in Net Assets Net assets at beginning of year Net assets at end of year

417,000

812,000

9,506,000

8,694,000

$9,923,000

$9,506,000

These condensed financial statements are derived from the Society’s audited financial statements, which received an unqualified opinion. A complete copy of the financial statements is available by contacting the Society at 973-226-4494 or mdonohue@njscpa.org. NEW JERSEY CPA • NOVEMBER • DECEMBER 2014

SOCIETY

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CPE Offerings and Events Upcoming Education Foundation Events Date

Event/Code

Location

CPE Credit

12/10

Social Security, Medicare and Prescription Drug Retirement Benefits: What Every Baby Boomer Needs to Know Now (E1412251)

Iselin

8/TX

12/10

Annual Financial Management Spotlight: 4 Current Topics (E1412593)

Voorhees

6/MT, 2/AA

12/10

Gary Zeune’s Controller to CFO: 11 Skills to Make the Trip (E1412723)

Roseland

8/AA

12/10

New Jersey Law and Ethics Webinar (E1412044)

N/A

4/PE

12/11

Private Company Accounting: New Directions, New Challenges (E1412293)

Voorhees

6/MT, 2/AA

12/11

Gary Zeune’s Fraud in the Affordable Care Act: 15 Biggest Risks for 2014 (E1412732)

Roseland

8/AA

12/11

Loscalzo’s Deceptive Revenue Recognition and Other Accounting Techniques – Recognizing the Warning Signs (E1412083)

Roseland

8/AA

12/11

Common Frauds and Internal Controls for Revenue, Purchasing and Cash Receipts (E1412553)

Jamesburg

8/AA

12/11

iPad Symposium – Leveraging This Powerful Business Tool (E1412803)

Iselin

8/CS

12/11

Technology Conference (E1412010)

Edison

8/SK

12/12

Transforming Your Busy Season with Technology Tools You Already Use (E1412813)

Iselin

8/CS

12/12

Loscalzo’s Tax Practitioner’s Guide to Accounting and Reporting Issues (E1412141)

Iselin

8/AA

12/12

Frequent Frauds Found in Governments and Not-for-Profits (E1412621)

Jamesburg

8/AA

12/12

GAAS from A to Z (E1412261)

Roseland

8/AA

12/12

Advanced Form 1041 Practice Workshop (E1412651)

Roseland

8/TX

12/12

Lean Accounting: Apply Lean Thinking to Financial Management (E1412272)

Voorhees

4/TX

12/15

Multistate Income Tax (E1412531)

Voorhees

8/TX

12/15

Buying and Selling a Business: Critical Tax and Structuring Issues (E1412633)

Iselin

8/TX

12/15

Loscalzo’s Improve Your Accounting and Finance Teams’ Effectiveness (E1412133)

Roseland

8/AA

12/15

The Best Individual Income Tax Update Course by Surgent (E1412191)

Freehold

8/TX

12/16

Choosing the Best Entity Structure Under the New Tax Law in 2014 (E1412311)

Jamesburg

8/TX

12/16

Loscalzo’s Disclosure – The Key to Financial Statements (E1412121)

Iselin

8/AA

12/16

AICPA’s Annual Federal Tax Update (E1412521)

Voorhees

8/TX

12/17

Determining How Much Money You Need to Retire, and Tax Ideas and Money Management in Retirement (E1412421)

Roseland

4/CS, 4/TX

12/17

The New Controllership: Keys to Boosting Corporate Performance (E1412513)

Freehold

8/MT

12/17

Surgent’s Handbook for Mastering Basis, Distributions and Loss Limitation Issues for S Corporations, LLCs Iselin and Partnerships (E1412381)

8/TX

12/17

Streamlined Tax Staff Training: Level 4 – Tax Research and Quality Control Issues (E1412561)

Voorhees

8/TX

12/18

Streamlined Tax Staff Training: Level 3 – Complex Return Issues (E1412571)

Voorhees

8/TX

12/18

Loscalzo’s Financial Reporting Framework for Small and Medium-Sized Entities and Professional Ethics for New Jersey CPAs (E1412461)

East Hanover

4/AA, 4/PE

12/18

Advanced Technical Tax Forms Training – LLCs, S Corporations and Partnerships (E1412331)

Iselin

8/TX

12/18

Lean Accounting: Higher Profits by Streamlining Operations (E1412503)

Freehold

8/MT

12/18

Fundamentals of Governmental Accounting and Reporting (E1412491)

Jamesburg

8/AA

12/18

Process Improvement for Financial Managers: Enhance Your Bottom Line (E1412603)

Roseland

6/MT, 2/AA

12/18

Getting Ready for Busy Season: A Guide to New Forms, Filing Issues and Other Critical Developments (E1412411)

Roseland

8/TX

12/19

IssuesWatch with Ralph Thomas (E1412614)

N/A

1/SK

NEW JERSEY CPA • NOVEMBER • DECEMBER 2014

Date

Event/Code

Location

CPE Credit

12/19

The Top 10 Tax Topics of 2014 (E1412401)

Roseland

8/TX

12/19

Financial Analysis in a Metrics-Driven World: “Run the Numbers” Effectively (E1412282)

Roseland

4/TX

12/19

Governmental Accounting and Reporting (E1412481)

Jamesburg

8/AA

12/19

Loscalzo’s Special Purpose Frameworks (E1412113)

Iselin

8/AA

12/19

Current Federal Tax Developments (E1412581)

Freehold

8/TX

12/19

Advanced Technical Tax Forms Training – Form 1040 Issues (E1412341)

Iselin

8/TX

12/22

Shortcuts to Tax Cuts: Individual Tax, Social Security, and Retirement Planning Tools and Strategies (E1412391)

Voorhees

8/TX

12/22

Surgent’s Advanced Individual Income Tax Return Issues (E1412351)

Jamesburg

8/TX

12/22

Loscalzo’s 2014 FASB and AICPA Update (E1412091)

Iselin

8/AA

12/23

Loscalzo’s GAAP Refresher (E1412101)

Iselin

8/AA

12/23

New Jersey Law and Ethics Webinar (E1412054)

N/A

4/PE

12/29

Getting More Active with the Passive Activity Rules and the New Net Investment Income Tax (E1412291)

Jamesburg

8/TX

12/29

Hot IRS Tax Examination Issues for Individuals and Businesses (E1412361)

Iselin

8/TX

12/30

The Best Federal Tax Update Course by Surgent (E1412321)

Jamesburg

8/TX

Upcoming Chapter Events Date

Chapter

Event/Code

Location

CPE Credit

12/5

Southwest Jersey

Annual Tax Seminar (E1412959)

Cherry Hill

5/TX

12/5

Essex

Succession and Estate Planning (E1412869)

East Hanover

4/AA

12/5

Atlantic/Cape May

Annual Tax Seminar (E1412909)

Mays Landing

5/TX

12/8

Monmouth/Ocean

Compilation and Review Update (E1412779)

Neptune

4/AA

12/11

Bergen

New Jersey Law and Ethics (E1412769)

Paramus

4/PE

12/11

Passaic County

IRS Dos, Don’ts and Nevers (E1412089)

Paterson

4/AA

12/11

Monmouth/Ocean

New Jersey Law and Ethics (E1412759)

Neptune

4/PE

12/12

Hudson

All Day Tax and Accounting Seminar (E1412059)

Secaucus

4/TX, 4/AA

12/13

Union County

Annual Tax Seminar (E1412949)

Kenilworth

6/TX

12/16

Southwest Jersey

New Jersey Law and Ethics (E1412039)

Voorhees

4/PE

12/16

Hudson

Technology Update (E1412049)

Jersey City

2/CS

12/17

Mercer

New Jersey Law and Ethics (E1412069)

West Windsor

4/PE

12/19

Monmouth/Ocean

Networking – Working the Room (E1412109)

Neptune

2/AA

12/19

Essex

New Jersey Law and Ethics – Last Call (E1412859)

East Hanover

4/PE

12/20

Union County

New Jersey Law and Ethics (E1412939)

Garwood

4/PE

12/22

Passaic County

New Jersey Law and Ethics (E1412789)

Paterson

4/PE

12/29

Hudson

New Jersey Law and Ethics (E1412029)

Secaucus

4/PE

12/29

Middlesex/Somerset

New Jersey Law and Ethics (E1412999)

Bedminster Township

4/PE

AA – Accounting & Auditing MT – Management

CS – Consulting Services PD – Personal Development SK – Specialized Knowledge

KEY

EC – Economics PE – Professional Ethics TX – Taxation

MC – Multiple Categories PM – Practice Management

Please note: Events are subject to change. For a full listing of all NJSCPA events, visit njscpa.org/catalog. N E W J E R S E Y C P A • november • december 2 0 1 4

SOCIETY

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Get Involved An Inside Look at Interest Group Leaders The New Jersey Society of CPAs ongoing interest groups help members build a network of people who face the same challenges and opportunities you do every day in the technical areas you specialize in or want to learn more about. Interest group members benefit from: • In-person networking meetings • Discussions and access to experts on Connect • Customized CPE • Shared resources • Hands-on projects like writing comment letters and technical articles But none of this happens without interest group leaders. NJSCPA volunteer leaders are actively finding ways to bring more to their interest groups. Their challenges vary, but Federal Taxation Interest Group Vice-Leader Shaune Scutellaro, CPA, and Business Valuation Forensic Litigation Services (BVFLS) Interest Group Vice-Leader Megan Cicchetti, CPA, share a similar challenge. “I was unexpectedly challenged by trying to find interesting topics and speakers for international tax issues,” says Scutellaro. Cicchetti has been looking for speakers for the BVFLS roundtable series, and Scutellaro is looking at bringing in more outside speakers. He has also been able to assist members with international tax questions and concerns through his role as International Taxation Sub-Committee Chair. And the BVFLS Interest Group developed the NJSCPA Annual Business Valuation Forensic Investigation and Litigation Services Conference, which took place in September. With any leadership role, there’s always something to learn. Nonprofit Interest Group Leader Amy Both, CPA, says, “I’ve already learned that my group is a source of knowledge and always willing to assist and support me.” “Keeping the momentum for the group will be a challenge when James Lawrence, CPA, passes the leader responsibilities over to me,” adds Scutellaro. The NJSCPA primes its leaders for success. The NJSCPA Committee Operations Committee is comprised of all the interest group leaders and vice-leaders. They gather three times per year to discuss leadership issues. Kelly Kennedy-Ryu, CPA, chairs the Committee Ops Committee: “Our group will listen to members’ challenges and assist with the allocation of resources, experts and speakers. We’ll share successes and find answers together.” So what’s on the horizon for these leaders? “I’m looking forward to finding ways to better refine our approach to providing digital content to Society members,” notes Scutellaro. Check out the Federal Taxation Interest Group’s playlist at youtube.com/njscpa. The group will continue to provide CPE covering Internal Revenue Service issues; international tax; estate, trust and gift tax; and other federal tax issues. “I’m looking to enhance our 10-minute updates by providing handouts and supplements,” adds Scutellaro. Cicchetti is working on connecting with more members: “Their participation is diverse. Some members are active and respond to

They're Number One! EisnerAmper celebrates after winning this year’s Young Professionals Kickball Tournament. Fifteen teams battled it out as well as collected gift cards and toys to benefit The Valerie Fund. posts on Connect, and some don’t. I’ve only met the group members who come to the roundtable discussions. As vice-leader, it’ll be nice to get to build more relationships with members online and in person.” Amy is also looking forward to meeting more members and sharing in their knowledge and expertise. “This includes partnering with other interest groups,” she says. “Our group will work with the A&A Interest Group on a comment letter for the new nonprofit financial statements when issued.” Group leadership is open to any active interest group member. The leader role is a two-year appointment; vice-leaders are appointed during the second year. The vice-leader works alongside the current leader for one year before moving up to the leader position. The NJSCPA is committed not only to identifying leaders, but providing ongoing leadership training to assist them in their various leadership roles, including attendance at the annual NJSCPA Convention & Expo. Complete your NJSCPA Volunteer Interest Profile at njscpa.org/ getinvolved to join or to be considered for an interest group leadership position. You can also contact Carolyn Hook, NJSCPA Membership/ Operations Director, at chook@njscpa.org or 973-226-4494 x221.

Get Involved Now Volunteer opportunities are available throughout the year. Let us know how you’d like to be involved at njscpa.org/getinvolved. Here are a few activities that need your support now: Toy/Food Drives – Many of the NJSCPA chapters will be hosting toy and food drives at their annual tax seminars November through January. If you are interested in participating, visit njscpa.org/chapters to check out the annual tax seminar in your area. Contact Theresa Hinton at thinton@njscpa.org or 973-226-4494 x212. Be a Mentor and Make a Difference – CPA members under age

NEW JERSEY CPA • NOVEMBER • DECEMBER 2014

36 are needed to be mentors for the 2015 NJSCPA high school scholarship recipients to provide guidance throughout their college careers. Apply online by Friday, December 12, at njscpa.org/mentor. Contact Lauren Matullo at lmatullo@njscpa.org or 973-226-4494 x241. Read and Rank Essays from NJSCPA High School and College Scholarship Candidates – Volunteers are needed to read essays, which are limited to 500 words, from high school scholarship candidates on Saturday, January 3, from 9:00am to 1:00pm at NJSCPA headquarters in Roseland. College essays can be read electronically from Friday, January 9, to Thursday, January 15. Contact Janice Amatucci at jamatucci@njscpa.org or 973-226-4494 x209. Interview NJSCPA College Scholarship Candidates – Society members are needed to interview candidates for NJSCPA college scholarships. College interviews will be held on Saturday, January 24, at EY in Iselin, with a snow date of Saturday, January 31. Contact Janice Amatucci at jamatucci@ njscpa.org or 973-226-4494 x209.

The NJSCPA Rx for a Stress-Free Tax Season The New Jersey Society of CPAs has several ways for you to stay current on federal and state tax laws and regulations and remove some of the stress that comes with tax season. These and other benefits are available to Society members and designed to fit your busy schedule: Collaborate with Members Just Like You – Tap into the knowledge of other tax experts by joining the NJSCPA State Taxation and/ or Federal Taxation interests groups. Join at the groups/committees page on njscpa. org/groups. You’ll have ongoing access to an online forum to discuss and learn from other members about taxation issues through Connect at njscpa.org/connect. Find Per Diem Staff – Reach the most qualified candidates by posting your per diem or permanent job openings on our

online Career Center. Search for résumés and only pay for the ones that interest you. Visit njscpa.org/jobs. Get two free résumés when you use code Resume100 at checkout now through March 31, 2015. Learn and Earn CPE Credits on Relevant Tax Topics and Trends – Find upcoming tax-related CPE courses by searching the taxation category in the CPE catalog at njscpa.org/catalog. Keep track of all your CPE credits through the CPE Tracker at njscpa.org/cpetracker. Read Tax Guides and Other Publications – NJSCPA members save 30 percent at the CCH online store on more than 175 CCH tax and accounting books. Visit njscpa.org/ marketplace to access the store and your members-only priority code.

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SOCIETY

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NJ State Board of Accountancy Report NASBA’s “State Board Advocate” Gives Presentation Newark (September 18) President's Remarks

State Board President John F. Dailey Jr., CPA, mentioned the governor’s signing of S2163, which revises the Accountancy Act of 1997. The revisions include changing the composition of the board, expanding the amount of time a new licensee can take the required orientation course and updating verbiage pertaining to required credits for Registered Municipal Accountants (RMAs).

NASBA

Dan Dustin, CPA, from the National Association of State Boards of Accountancy (NASBA) gave a presentation discussing (1) the importance of

NASBA engagement, such as leveraging NASBA assets for state board needs, getting input from boards on issues and policy, and attending meetings and conferences; (2) NASBA’s Accounting Licensee Database, which helps link CPAs across jurisdictions; and (3) communication activities, including NASBA assistance to state boards in creating newsletters and e-blasts. Dailey had echoed the need for the NJ State Board to consider adding a communications committee.

Committees

RMA – The annual exam is scheduled for the first Friday in December. Peer Review Oversight – As of July 2014, there were 149 firms that were in noncompliance. This number is down from 700 firms from

July 2013. There was a discussion on a lack of awareness regarding the need for peer reviews of firms that audit employee benefit plans.

Public

New Jersey Society of CPAs Government Relations Director Jeffrey T. Kaszerman mentioned that Society CEO & Executive Director Ralph Albert Thomas, CGMA, had spoken at a rally at the NJ State House, along with other business leaders and legislators, calling for a repeal of the estate tax. NJSCPA President-Elect Frank R. Boutillette, CPA, responded to the report from the Peer Review Oversight Committee indicating that a big issue on the horizon will be peer reviews of firms that do government audits.

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CLASSIFIEDS Mergers/Acquisitions New Jersey practices for sale: Washington, NJ, Warren County; gross $113K; loyal, quality client base, 78-percent tax, 20-percent accounting, good fee structure, cash flow over 50 percent. For more information, call Bradley Holmes 800-397-0249 or visit accountingpracticesales. com to view all listings and register for free email updates. Small Bergen County CPA firm looking for a CPA to work per diem; must have own client base; to eventually take over practice in two years. Email: gpcpa207@gmail.com. An established, 20-plus years, southern NJ CPA firm looking for the right firm or person to buy out. Heavy tax and accounting, some audit. Possible negotiation for established wealth management practice. Gross $750K. File 188 North NJ CPA is looking for retirement succession. Grossing over $400K, no audits or reviews. Established practice with staff. Owner will stay on during transition and will continue working part-time for a limited number of years. I am looking for a small CPA firm that is looking to merge-in and eventually take over this growing CPA practice. Great opportunity for the right CPA or firm. Reply to cpanj2010@gmail.com. Bergen County small size, peer reviewed CPA firm is seeking association with same for office/ practice sharing of space. Will consider future merger of practices. Contact Bruce Kaminer at 201-794-6400 or bruce@brucekaminercpa.com. Parsippany, NJ. Three-partner CPA firm seeks retirement-minded practitioner to merge/acquire practice ranging from $100K and up. Please contact Carl Gutt, 973-451-0800 x22 or cgutt@ dglcpa.com. The Curchin Group, LLC, a central NJ, Monmouth County firm is seeking to merge-in near-retirement sole practitioners and small firms needing succession planning. Other individuals seeking growth and expansion are welcome to inquire. Initial practice continuation also an option. Reply in confidence to Peter Pfister, CPA, at 732-747-0500 or ppfister@ curchin.com. Young Union County CPA firm is looking to acquire a firm in the $300,000 to $800,000 range. Please contact Spiro Leunes at 908-358-0503 or sleunes@llicpa.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 bradley@apsleader.com. Buyers see listings and register for free email notifications at accountingpracticesales.com. Seize a merger/acquisition opportunity with benefits for you. Tired of dealing with issues of running a firm? 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 glcpas.com; email me, Phillip Goldstein, CPA, managing partner, philg@ glcpas.com; or call 800-839-5767 to have a confidential conversation. Well-established Essex County firm seeks small to medium-sized firms contemplating client services succession and/or expansion. We put our clients above all else. Office space accommodates 30-plus. Contact us to align with a growing brand of CPAs like you. File 12213

Professional Services Save 20 percent on PR, marketing, branding and coaching services with PRCounts, an NJSCPA Member Benefit Provider. Contact Eileen Monesson at 609-570-2150 or emonesson@ prcounts.com; prcounts.com. Add a wealth management division to your accounting practice. Successful Bergen County high net worth financial planning and money management firm wants to work with your firm to create a financial services division. For 30-plus years, we have been successfully implementing professional partnerships with CPA firms to increase their revenues by offering financial products to their clients. Contact Steven Kolinsky at 201-474-4012 or skolinsky@ kolinskywealth.com.

Classified Advertising Replies to ads with file numbers should be sent to: File______________________ New Jersey CPA Classifieds 425 Eagle Rock Avenue, Suite 100 Roseland, NJ 07068-1723 To see additional classified listings or to place an ad, visit njscpa.org/classifieds.

ADVERTISERS INDEX New Jersey CPA is the only way to reach each of the 15,500 members of the New Jersey Society of CPAs, and 55 percent of readers take action after seeing an advertisement in the magazine – by either purchasing the product, contacting the advertiser, visiting a website or recommending the product or service to a client. For advertising opportunities, contact: Companies A-L Aileen Kronke 770-431-0867 x212/aileen@lionhrtpub.com Companies M-Z John Davis 770-431-0867 x226/jdavis@lionhrtpub.com Accounting Practice Sales accountingpracticesales.com

ADP 23 adp.com/njscpa Electronic Office Systems 15 eosnj.com Estate Planning Team defercapitalgainstaxes.com

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Real Estate Certified financial planner with master’s in financial planning is looking to rent space in an accounting office in NJ. Possible business synergy? Contact Bruce at 973-652-1136.

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N E W J E R S E Y C P A • november • december 2 0 1 4

STUDENT

outlook

How Much Does an Accounting Professor Influence a Student’s Career Path? B y Jeremy I. Kaye, L ehigh University

ollege is a time in young people’s lives when they are making important decisions that will impact them for decades to come. Let’s face it, the vocation you pursue to help support yourself, a potential future family and your retirement is a pretty profound decision. Luckily, family members, friends, career counselors and professors can play an important role in helping students shape such decisions. Professors, due to their status and profile, are in a unique position to shape a college student’s career path. But do accounting professors at universities promote a specific type of accounting practice area over another? Do they push the Big Four over small firms? Tax over auditing? Public or private accounting? What role do professors actually play in a student’s decision-making process? Professors are generally on the front lines of a student’s decision-making journey. Various professors have made great impressions on me when I was trying to decide what I wanted to do after college. Luckily, I have known that I wanted to be an accountant since before college. However, I had no idea what kind of accountant I wanted to be. Should I go into public accounting or the private sector? Do I want to try a Big Four firm or smaller boutique firm? What about governmental accounting or academia? What’s the real-life difference between tax and auditing? These are all questions that I asked myself, and this is where my professors’ guidance and personal experiences really came into play. I’ve had numerous professors who’ve held a variety of public and private accounting positions. Their “real-world” positions ranged from audit and tax partners at public accounting firms, chief financial officers and controllers of private companies, academic accounting fellow at the Securities and Exchange

Commission and others. What all my professors have had in common is that they used their prior personal experiences to make their lessons in the classroom more realistic and applicable. A residual impact of that approach may help to promote a particular accounting niche. Some college professors play a very large role in a student’s choice of career path. “Due to my professors’ guidance, I’ve decided to go into the audit practice at a Big Four accounting firm,” says Ishaq Pitt, an accounting student at the University of Maryland Eastern Shore. However, an accounting professor doesn’t have to be the first, last and only word when it comes to career guidance. “In selecting a field within accounting to start his or her career, a student should be exposed to all of the various career options within accounting, typically through various outside-ofclass activities (e.g., workshops and internships), the classroom experience, as well as conversations with practicing professionals, faculty, family and other students,” says Kenneth Sinclair, an accounting professor at Lehigh University. “As a result of that process, students should then select whatever field of accounting suits them the most.”

The accounting profession has so many different avenues that can be explored, which is why faculty, like professor Sinclair, make sure students are familiar with every aspect of the profession so that they can then make informed decisions when choosing a particular career path within accounting. Due to all of the discussions I’ve had with professors, practitioners, family members and other students, I decided to go into public accounting. I saw how successful my accounting professors were who started out at Big Four accounting firms, so I decided that was the route I wanted to go. Accounting professors will continue to be an incredible influence on students in helping them narrow their many career choices within the profession. However, other factors – such as family/friends, career-related events and internships – should continue to be a large part of the equation. Jeremy I. Kaye is an accounting student at Lehigh University. He is a New Jersey Society of CPAs Student Member and an NJSCPA High School Scholarship recipient. Contact him at jik215@ lehigh.edu.

N E W J E R S E Y C P A • november • december 2 0 1 4

LEGISLATIVE

views

Are You Reaping the Benefits of the PAC? B y Gail Rosen, CPA, Gail Rosen C PA, PC

re you sitting on the sidelines while more and more New Jersey Society of CPAs members are joining the NJ-CPA-PAC? Those PAC members realize that we are the only organization in New Jersey dedicated solely to fighting for the interests of CPAs in the legislative arena. All it takes to join the PAC is holding a valid CPA certificate and making a contribution of any size. We suggest that each CPA contributes $75, but many members start off at $10 or less. Why do we want you to join, even if you can’t contribute that much money? Because the PAC is fighting to protect our CPA profession, and each additional member makes a huge difference. When NJSCPA representatives meet with legislators, they often want to know how many of our members contribute to our PAC. They ask this question because they want to see whether NJSCPA members are politically supportive of their profession. They know that PAC contributors care about the future of their profession and aren’t going to stick their heads in the sand when it comes to supporting the profession in the legislative arena. The PAC is nonpartisan and supports candidates – Republicans, Democrats and independents – who have proven that they understand and support the CPA profession. There are numerous examples of how the PAC has helped our profession. One that specifically touches my heart is that our PAC helped stop numerous attempts by lawmakers who wanted to impose a sales tax on accounting services. To see other PAC success stories, visit njscpa.org/pac. The bottom line is that the best way to stand up for your profession in the extremely competitive legislative arena

is by contributing to the PAC. No one else is going to do it for us. We need to put our money where our mouths are. So, join the PAC today. It’s in your own interest to do so. Sign up online at njscpa. org/pac or contact NJSCPA Government Relations Director Jeff Kaszerman at 973-226-4494 x210 or jkaszerman@njscpa.org. I look forward to seeing your name added to the list of PAC contributors.

Do You Have a Relationship with Any of These Lawmakers? Robert Andrzejczak Robert Auth Daniel R. Benson Anthony M. Bucco Herb Conaway Jr. BettyLou DeCroce John DiMaio

Timothy Eustace Samuel L. Fiocchi Carmelo Garcia Angelica Jimenez Vincent Mazzeo Raj Mukherji Nancy J. Pinkin

Eliana Pintor-Marin Maria Rodriguez-Gregg Donna Simon Troy Singleton Parker Space

No group has more impact on your profession than the governor and members of the NJ Legislature. One of the most powerful methods we use to influence this group is through direct contact made by CPAs who have existing relationships with lawmakers. If you have a relationship with any of the lawmakers listed above, please join our Keyperson Program. By “relationship” we mean anything from knowing the legislator on a casual basis because, for example, you live in the same neighborhood or attend the same house of worship, to sharing a closer relationship based on longstanding personal or business ties. Being an NJSCPA Keyperson is simple. Once a year or less, we’ll ask you to communicate the Society’s position on an issue to the lawmaker you know. You don’t need to be an expert on the issue. We give you sample letters and other materials you’ll need to briefly inform the lawmaker how the CPA profession feels about a particular issue. NJSCPA staff are available to answer any questions lawmakers may have. To become an NJSCPA Keyperson, contact Jeff Kaszerman at 973-226-4494 x210 or jkaszerman@njscpa.org. Gail Rosen, CPA, is the principal of Gail Rosen CPA, PC, and a former NJ-CPA-PAC Chair. She is currently a member of the NJSCPA State Taxation and Federal Taxation interest groups. Contact her at grosen@gailrosencpa.com.

N E W J E R S E Y C P A • november • december 2 0 1 4

MEMBER

profile

Sing Along with the CPA By David Plaskow, NJSCPA Communications Manager

owie Kutcher’s childhood almost sounds like a Neil Simon play or Woody Allen movie. He grew up an only child in Brooklyn. His dad, Marvin, was a professional drummer who played at presidential inaugurations and at Carnegie Hall; his mom, Natalie, was a homemaker. Musicians and other creative types often visited the Kutcher household. “My parents always encouraged me to play an instrument,” says Kutcher. “But they said I shouldn’t make it a career because it’s a tough life.” Kutcher decided to major in accounting at Baruch College. “I’ve always liked quantifying, sorting and putting things in order,” says Kutcher. After receiving a B.B.A. in accounting in 1981, Kutcher joined the audit staff of the firm where he had been an intern: Marks Paneth LLP in New York. “Unfortunately, the firm lost its largest client that year and let go many of the staff, me included,” notes Kutcher. For the next several years, Kutcher worked at KPMG in tax. At night, he went to Pace University where he received an M.S.T. in 1988. “I started in audit, but switched to tax because I simply found tax more interesting,” says Kutcher. Kutcher left KPMG for greener pastures and became a tax manager at Sterling Drug. Kutcher was again downsized when Sterling was acquired by Kodak in the late 1980s. “Despite that experience, I wanted to stay in industry,” says Kutcher. Kutcher discovered an opportunity when he noticed a dearth of recruiters in corporate taxation. “There were maybe 20 of these recruiters in the country, and I also had a few ideas about how to enhance the process,” he notes. So, in 1990, the Briarcliff Manor, NY, resident started his own tax

recruiting company in the NY metro area. “It was tough in the beginning,” says Kutcher. “But I tirelessly networked, built a database and have been active on social media. These days, all I do is recruiting. I don’t even do my own taxes anymore.” Being a member of the New Jersey Society of CPAs has also helped. “The personal development and networking events have been tremendous assets to my practice,” says Kutcher. When he’s not matching tax accountants with companies looking to add personnel, Kutcher likes to travel and stay in shape by playing tennis and walking. “I’ve walked a mile every weekday for 10 years, even if I was sick or there was a blizzard outside,” states Kutcher. Kutcher’s original passion, playing the piano, nearly fizzled before it got a chance to blossom. “When I was in grade school, practicing Bach and Beethoven every day got boring,” says Kutcher. “However, I got a new piano teacher who was a hippie, and he introduced me to The Beatles, Billy Joel, Elton John and other rock musicians, and it renewed my interest in playing.” It may not have hurt that Kutcher’s father told young Howie that “knowing how to play an instrument could one day come in handy with the ladies.” “I went into the school auditorium one morning. It was dark and quiet. I began playing, and after a while

I looked up and there was a crowd watching me perform. I have to admit, it was quite exhilarating,” recalls Kutcher. These days, Kutcher (singalongwithhowie.com) gives his time playing at schools, nursing homes and private parties. “One day, I played kids songs at a nursery school at 8:00am, then at 8:00pm I played show tunes at a nursing home – talk about the circle of life,” he says. Kutcher’s song catalog is decidedly eclectic: hits, doo-wop, TV theme songs, holiday music and more. While most of his gigs are nonpaying, he definitely derives a benefit. “It’s a great feeling when you play at a nursing home and you see someone who is frail and sullen one minute and smiling and tapping his toes the next,” he adds. What does Kutcher’s family think of his performing? “My wife, Barbara, and kids, Matt and Hayley, love it. And having two teenage kids lets me stay current with popular music.”

N E W J E R S E Y C P A • november • december 2 0 1 4

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