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CPA Report South Carolina

South Carolina Association of Certified Public Accountants Magazine • November/December 2009

Sampling of 2009 Tax Law Changes Payment Card Security TIPRA 2005 and Roth Conversions

South Carolina Association of Certified Public Accountants Magazine Vol. 39, No. 6, November/December 2009 Officers Charles M. Redfern III, CPA President Charles E. Brown, CPA President-Elect Timothy L. Baker, CPA Vice-President Michael R. Putich, CPA Secretary-Treasurer Sylvia G. Kitchens, CPA Immediate Past President BOARD OF DIRECTORS Anne P. Bunton, CPA Clarence Coleman, PhD, MBA, CPA Alys Anne Dennis, CPA J. Bratton Fennell, CPA Malynda M. Grimsley, CPA Penny A. Lewis, CPA Sharon E. Mann, CPA David A. Masters, CPA L. Kent Satterfield, CPA Phillip R. Snipes, CPA Michael J. Targia, CPA, Cr.FA Robert M. Tilton, CPA V. Carroll Webster, MBA, CPA Jada C. Wood, CPA Chapter Presidents Beth T. Zamorski, CPA, CFP, Catawba Philip A. Betette Jr., CPA, Central      Sheryl G. McAlister, CPA, Coastal  Wendy L. Hancock, CPA, CVA, Foothills                                    Callie C. Coyne, CPA, Grand Strand         Charles A. “Arden” Gatchell, CPA, CVA, Pee Dee Cara T. Hamilton, CPA, Piedmont       Patrick P. Carey Jr., CPA, Sea Island  SCACPA EXECUTIVE DIRECTOR Erin P. Hardwick, CAE EDITOR Katherine M. Swartz, CAE ASSISTANT EDITOR Allison K. Caldwell GRAPHIC DESIGNER Lisa S. McGee Contributing writers Neil Brown, MAcc, CPA, CFP Erin P. Hardwick, CAE Mark T. Hobbs, CPA Angela L. Polk, MAcc, CPA Don West, CPA, CISA, CISSP, PMP, CITP

Statements of fact and opinion are made by the authors alone and do not imply an opinion on the part of the officers or members of the SCACPA. Advertising rates will be furnished on request to SCACPA, 570 Chris Drive, West Columbia, SC 29169, (803) 791-4181. Publication of an advertisement in The CPA Report does not constitute an endorsement of the product or service by The CPA Report or the SCACPA. For more information, visit

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On the Inside FO CUS: TA X PL ANNING & TECHNO LO G Y 8 14 20

Sampling of 2009 Tax Law Changes Payment Card Security TIPRA 2005 and Roth Conversions


Worth Watching: Legislative and Regulatory Issues Hot Topics: Pricing New Partner Admissions 2009 A & A Conference Preview

IN E VER Y ISSUE 5 6 22 26 28 30 32 34

From the President Association News Board of Accountancy News Member News SCACPA Member Profile Chapter Connections Upcoming CPE Classifieds

SCACPA ADMINISTRATION Erin P. Hardwick, CAE, Executive Director Reva E. Brennan, MPA, CAE, IOM, Associate Director Karen M. Hancock, CPA, Finance Director Glenna P. Minor, Peer Review and Member Services Manager Katherine M. Swartz, CAE, Member Services Director April M. Cox, Education Manager Emily M. Allen, Communications Coordinator

Ext. 104 Ext. 103 Ext. 108 Ext. 107 Ext. 105 Ext. 110 Ext. 106

Contact SCACPA staff members by phone at (803) 791-4181 or (888) 557-4814.

South Carolina CPA Report w November/December 2009


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From the President

It’s Been Grand


his year has certainly gone by quickly, and I want to borrow a phrase of a friend of mine from Rock Hill: “It’s been grand.” I still feel honored to have served as president of SCACPA—the primary volunteer organization of the profession—but my position was made easy with the help of many others. I was lucky to have had a strong, vocal, energetic Board of Directors, a willing and capable staff at SCACPA, and a dedicated group of committee chairs that stayed on task for the year. I would not be telling the truth if I said there was no stress involved with leading the association, but I definitely feel that it was well worth the time and effort.

I still feel honored to have served as president of SCACPA— the primary volunteer organization of the profession—but my position was made easy with the help of many others.

Over the past couple of years I have traveled to Washington, New York, Dallas, Amelia Island, Tampa, Tucson and Las Vegas to work with the AICPA and to add a voice from South Carolina. During the last five years the SCACPA Board has met in Charleston, Flat Rock, Asheville, Tryon and Columbia for productive planning retreats. The guidelines from the AICPA and retreats have kept the Board and staff on target over the years. I have witnessed changes in SCACPA over the past couple of years which deserve recognition. Our CPA Day at the State House event has improved every year and certainly helps our legislative efforts, which are an important role of SCACPA. The Peer Review program has grown due to new legislation, and SCACPA has not only taken this on but also improved the program. CPE had remained on the leading edge of professional issues and has stayed competitive in this new environment. We now have a Young CPA Leadership Cabinet, which will bring a younger voice into the leadership of SCACPA. We have worked hard to assist and work with the local chapters, which in effect helps improve the entire Association. The SCACPA staff and Erin Hardwick’s leadership should be commended for all their good work in these endeavors. As I mentioned in my last article, the Board has made great strides in all of our Five Bold Steps for 2009. We are already focused on our priorities for 2010, and have developed attainable goals to achieve our agenda. I want to thank the Board again for their commitment to SCACPA, and encourage them to keep up the good work. As I said, it’s been grand. n Pictured Top: AICPA CEO Barry Melancon, SCACPA President Charlie Redfern, SCACPA Executive Director Erin Hardwick and AICPA Board Chair Bob Harris. Middle: SCACPA members delivering the 2009 Tax Guide to South Carolina Legislators at the State House. Bottom: Charlie Redfern speaking with fellow CPAs at the 2009 CPA Day at the State House.

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Charles M. Redfern III, CPA SCACPA 2009 President Charlie is the president of Charles M. Redfern, CPA in Rock Hill, SC. He has been a member of SCACPA since 1977.

South Carolina CPA Report w November/December 2009


Association News



November 19-20 Embassy Suites – Columbia SC

December 10-11 Francis Marion Hotel – Charleston, SC



December 1 Embassy Suites – Columbia SC

December 29-30 SCACPA Headquarters – West Columbia, SC

Register at today! 2009 FEDERAL TAX UPDATE ROAD SHOW WITH WALTER NUNNALLEE DECEMBER 14: Florence – Southeastern Manufacturing & Technology Institute

15: Bluffton – USC Beaufort at Bluffton 16: Columbia – Embassy Suites 17: Greenville – Embassy Suites

Sea Island Chapter of SCACPA Establishes Scholarship

WANTED: A Few Good Men & Women

The SCACPA Educational Fund Trustees are pleased to announce the establishment of Sea Island Chapter of SCACPA endowed scholarship. The Chapter presented a check to SCACPA at its September 3 annual business meeting. The first Sea Island Chapter scholarship will be awarded in 20102011. The SCACPA Educational Fund scholarship recipients are students with tremendous intellectual talent, who are attending college to enter the accounting profession. Scholarships are awarded to college students who are South Carolina residents and are a rising junior, senior or Master’s Degree candidate majoring in accounting at a South Carolina college or university. Scholarship recipients must have a minimum GPA of 3.25 overall and 3.50 in accounting. Contributions and endowments help secure the Educational Fund’s future. Contributions may be directed to the general or endowment funds at any time, or new endowment funds may be established ($10,000 minimum). Staff contact: Glenna Minor

No Experience Necessary! SCACPA’s Legislative Committee needs your help! We are actively seeking Key Person Contacts (KPCs) for all members of the South Carolina General Assembly. Do you have a legislator as a client? Know them through a civic or religious organization? Have mutual friends? Live or work in their district? It’s important to all CPAs that we maintain a strong advocacy to protect the profession and the clients we represent. SCACPA needs your help to contact your legislator when key issues arise. Become a KPC today, and let your voice be heard! Staff contact: Glenna Minor

Welcome New Peer Reviewers! The SCACPA Peer Review Committee is pleased to welcome the following new peer reviewers:


Monica Rockwell, CPA Cox & Company, PA Anderson, SC

Robin R. Poston, CPA Harper, Poston, & Moree, PA CPAs Georgetown, SC

Stacey C. Moree, CPA Harper, Poston & Moree, PA CPAs Pawleys Island, SC

Carol S. Hubbard, CPA Carol S. Hubbard, CPA, LLC Mount Pleasant, SC

Staff contact: Glenna Minor

Howard N. Nichols, CPA Lexington, SC

South Carolina CPA Report w November/December 2009

Sign Up Now for Tax Season Help Whether your firm needs part-time tax season help, or you’re an individual seeking additional hours during tax season, SCACPA’s Tax Season Assistance Program can help. As requests are received, SCACPA compiles and distributes a master list to connect you with interested firms or CPAs. Online registration is quick and easy, and this annual program is offered at no cost to our members. Staff contact: Emily Allen (888) 557-4814 |

SCACPA: Your Source for Customized Training On-site, off-site, online—whatever your preference, SCACPA offers a wide range of innovative, effective professional development opportunities designed to meet your needs and keep your staff on the leading edge of financial practices. Designed for groups of 10 or more, courses range from four hours to multiple days with more than 100 topics available! Discounts are available for large groups, and Discussion Leader Guides can be purchased if you want to conduct the training yourself. Save time and money with SCACPA’s customized training program! Staff contact: Reva Brennan

Annual CPE Renewal Alert The SC Board of Accountancy has implemented a biennial renewal for your CPA license. However, CPAs must still earn a minimum of 40 hours of continuing professional education annually (January 1 through December 31). The aggregate total for reporting with the renewal will be 80 hours for the two-year cycle, with 40 hours earned each calendar year. SCACPA is prepared to help you meet this requirement with timely, high quality courses offered year round. Check page 32 for Upcoming CPE, or browse course descriptions and register online. Staff contact: April Cox

570 Chris Drive West Columbia, South Carolina 29169 (803) 791-4181 or Toll-free (888) 557-4814 Fax (803) 791-4196

South Carolina


Invest in Yourself, Your Profession and Your Association: 2010 Membership Dues Notice Your 2010 SCACPA membership dues statement will soon be e-mailed (week of November 16) and mailed (week of November 30). Please remember that prompt payment saves the Association the cost of additional mailings – your timely payment means you won’t miss a beat when it comes to CPE discounts, your subscription to this magazine, The South Carolina CPA Report, SCACPA insurance and discount programs, outstanding networking opportunities and dozens of other benefits of membership. The fastest and easiest way to renew is on our new Web site, To renew (effective November 16) follow these four steps: (1) Log into your membership account; (2) Select “Manage My Membership”; (3) Select “Pay My Dues”; and (4) Either renew for yourself or multiple people within your firm or organization. Be sure to check out our Membership Frequently Asked Questions (FAQs) at Content/Join/FAQs.aspx, where we’ve printed the commonly asked questions and answers regarding payment procedures and billing classifications. Staff contact: Katherine Swartz

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South Carolina Association of CERTIFIED PUBLIC ACCOUNTANTS

To support all CPAs – whether in public practice, industry, government or education – with lifelong learning opportunities necessary for their success and to promote high ethical standards and legislative advocacy for both the public good and the profession. We accomplish this mission through the following activities: n n n n n

Advocacy Certification & Licensing Communications Recruiting & Education Standards & Performance

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Sampling of 2009 TAX LAW CHANGES by Angela L. Polk, MAcc, CPA SCACPA member since 1988

This article is a brief introduction to various law changes impacting 2009 made by the American Recovery and Reinvestment Act of 2009—which for the purposes of this article is referred to as “the Act.” ENHANCED TAX CREDIT FOR FIRST-TIME HOMEBUYERS In an attempt to help the housing industry, the Act included an enhanced tax credit for first-time homebuyers. The new credit applies to homes purchased on or after January 1, 2009, through the end of November 2009. This also includes residences under construction, as long as the taxpayer owns and occupies by the November 30 deadline. The law raises the maximum credit amount from the 2008 limit of $7,500 to $8,000. It also provides that this revised credit does not have to be repaid. Further, the revised credit only has a three-year recapture provision, versus the 15-year period that applies for 2008. The new credit may also be claimed on an amended 2008 return if the taxpayer does not want to wait until 2009 to claim the credit. Please note, however, that the IRS is reviewing the returns with additional scrutiny due to


South Carolina CPA Report w November/December 2009

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the number of fraudulent claims that have been filed. The Service says that the processing time is longer—12 to 16 weeks instead of the usual eight to 12 weeks. AMERICAN OPPORTUNITY TAX CREDIT The Act also includes a measure aimed at making college more affordable for low and moderate-income students. The new provision temporarily replaces the Hope tax credit with the American Opportunity tax credit for 2009 and 2010. The maximum amount of the American Opportunity tax credit is $2,500. The credit is 100 percent of the first $2,000 of qualifying expenses and 25 percent of the next $2,000—so the maximum credit of $2,500 is reached when a student has qualifying expenses of $4,000 or more. The tax credit is available for up to four years. The Act expands the qualifying expenses from just tuition and fees to include textbooks. Forty percent of the credit is also refundable, and adjusted gross income limits were expanded. The credit begins phasing out at $80,000 for single to $160,000 for joint filers. CHANGES TO SECTION 529 Additionally, the definition of higher education expenses under Section 529 (qualified tuition) plans was expanded to cover computer technology and equipment, internet access and other related services for 2009 and 2010. Prior to the Act, a computer did not qualify unless it was required by the college or by a specific degree program or course. NET OPERATING LOSS (NOL) PAYBACK PERIOD EXTENDED Small businesses were also extended a longer net operating loss (NOL) carryback period for 2008 losses. Normally, losses are only carried back two years. The Act allows an

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election to be made to carry the NOL back three to five years. The election is required to be filed no later than the due date, including extensions for filing the tax return for the tax year of the NOL. If the business has a fiscal year beginning in 2008, they still have an opportunity to benefit from this expanded carryback period. Small businesses are defined in terms of gross receipts. The average gross receipts for the three years prior to the year generating the NOL has to be $15 million or less. ALTERNATIVE MINIMUM TAX RELIEF The Act provides temporary relief from alternative minimum tax (AMT) for 2009 by increasing the exemption amounts above last year’s levels and allowing nonrefundable credits to offset AMT as well as regular tax. Without this relief, it was previously estimated that more than 20 million additional taxpayers would have faced paying the tax on their 2009 returns. For tax years beginning in 2009, the AMT exemption amounts are increased as follows: $70,950 in the case of married individuals filing a joint return and surviving spouses; $46,700 in the case of unmarried individuals other than surviving spouses; and $35,475 in the case of married individuals filing a separate return. VARIOUS OTHER CREDITS There are numerous other credits—far too many to cover in one article—such as extension of the 50 percent bonus depreciation, the $250,000 179 expense limitation, and others included in this legislation impacting numerous individuals and businesses. There are also other law changes such as the “Worker, Retiree, and Employer Recovery Act of 2008” that also have an impact in 2009. For example, that act included provisions for required

minimum distributions (RMDs) in 2009. Retirement plan and IRA account owners and their beneficiaries are allowed to waive their required minimum distributions for 2009. If distributions have already been taken in 2009 (that are not RMDs for 2008) and the taxpayer would benefit from the deferral, the distribution may qualify for a rollover to another eligible retirement plan, thereby saving the deferral. Please note that individuals who chose to delay taking their 2008 RMD until April 1, 2009 (e.g., retired employees and IRA owners who turned 70 ½ in 2008) are still required to take those distributions in 2009. If a beneficiary, on the other hand, is receiving distributions over a five-year period from an inherited account, he or she can waive the distribution for 2009, effectively permitting the beneficiary to take distributions over a six-year period. Additionally, designated beneficiaries of Roth IRAs may also waive their RMDs, thereby allowing them to avoid selling reduced value assets to make an otherwise required distribution. The main idea here is to note that there are a lot of changes this year that we need to be aware of. Unfortunately or fortunately, depending on your view, that means a lot of reading. n ANGELA L. POLK, MAcc, CPA, is a tax manager with WebsterRogers, LLP, specializing in estate, trust and gift taxation. She is an alumna of Francis Marion University and the University of South Carolina. Angela has served on SCACPA’s CPE, Membership and Emergency Professional Assistance committees.

South Carolina CPA Report w November/December 2009


Compiled by Executive Director Erin P. Hardwick, CAE Serving SCACPA since 2005

South Carolina Tax Realignment Commission Convenes The South Carolina Tax Realignment Commission (TRAC) held its first organizational meeting on September 9, 2009. Burnie Maybank with Nexsen Pruitt Law Firm, former director of the state Department of Revenue, was elected TRAC chairman. Bob Steelman, with Michelin North America, was elected vice chairman. After the election of officers, Commission staff presented the legislation behind their creation and reiterated their charge to make recommendations to the General Assembly for changes to the state’s tax structure by March 2010. The legislation requires that the recommendations ensure a system that is adequate, equitable and efficient.


The Commission began their discussions by looking at the state’s sales tax exemptions. It was pointed out that South Carolina has exemptions totaling some $2.7 billion, while actual sales tax collections were only $2.3 billion. Chairman Maybank said he expected the next two meetings of the Commission would focus on discussing each and every one of the exemptions. After reviewing sales tax—including admissions, accommodations and fuel tax—the Commission will then look at the corporate tax structure. The TRAC met again on September 30, 2009. The Commission heard a presentation from the state’s Chief Economist, Dr. Bill Gillespie, on South Carolina’s revenue situation. Gillespie presented information pertaining to

South Carolina CPA Report w November/December 2009

At the current rate of six percent, sales and use tax exemptions represent approximately $2.7 billion in unrealized revenue. The state Department of Revenue began a line-by-line review of the exemptions, explaining each and giving a brief background on the history of the exemption.

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how we tax, revenue generated and the current economic climate. Gillespie noted that of the 170 professional services recognized by the state, only 35 of them are currently taxed. The Commission began the review of state’s sales tax exemptions. At the current rate of six percent, sales and use tax exemptions represent approximately $2.7 billion in unrealized revenue. The state Department of Revenue began a line-by-line review of the exemptions, explaining each and giving a brief background on the history of the exemption. The Commission completed preliminary review of roughly half of those, and will hear the remainder of the exemptions at the next meeting.

devices, radiopharmaceuticals used in cancer treatment, diabetic supplies, samples distributed by pharmaceutical representatives and other items fall in this category. The annual exemption estimate is $585 million. 4) Electricity and Heating Fuels for residential, commercial and industrial purposes. The annual exemption represents $102 million in the manufacturing sector, and $188 in residential.

TRAC RESOURCES To view the current state tax exemptions, visit http://www. pdf. To review all information presented to the Commission, visit http://www.scstatehouse. gov/citizensinterestpage/TRAC/ TRAC.html

The Commission is scheduled to meet again October 28, November 12 and December 2, when they will continue their review of the various exemptions currently on the books.

from several different professional associations that have similar concerns to discuss ways to address these concerns in a collaborative approach.



Several of the larger exemptions, or categories of exemptions, generated a number a questions prompting the Chairman to announce they would have separate discussions. Based on the meeting, four categories have been identified for more in-depth discussion:

Federal/State Tax Conformity

Proposed Registration of Tax Preparers

SCACPA continues to work toward early confirmation of federal-state tax conformity. Discussions with the state Department of Revenue and key legislators are now taking place to lay the groundwork for the introduction of conformity legislation early in 2010.

1) Motor Fuel Tax. While there is currently a state motor fuels tax that directly funds roads and bridges, sales tax is not applied. Currently, the exemption represents $500 million annually.

Helping the SC Board of Accountancy Meet its Mission

In testimony before the House Ways and Means Oversight Committee on June 4, 2009, Internal Revenue Service Commissioner Douglas Shulman announced that the IRS plans to make recommendations to ensure that tax preparers adhere to high ethical standards. Legislation to regulate preparers has generally been proposed by members of Congress as a partial response to 1) the high error rate associated with Earned Income Tax Credit (EITC) claims; and 2) consumer protection concerns associated with refund anticipation loans (RALs).

2) Communications Services. This includes land line and wireless toll charges, internet use, broadband, voice messages, texts and other services, with exemptions representing approximately $73 million annually. 3) Medical/Prescription. Prosthetic

As the state Department of Labor Licensing and Regulation seeks economies of scale by consolidating the licensing, renewals, administration, investigative and legal representation functions for the 40 boards and commissions under its jurisdiction, regulating boards are becoming increasingly frustrated by their own inability to meet their respective missions of protecting the public. SCACPA recently convened a meeting with representatives

The IRS has authority to regulate tax return preparers through the penalty authority under current law. The Internal Revenue Code permits the IRS to assess (among others) penalties for the understatement of a taxpayer’s liability (section 6694); the continued next page

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South Carolina CPA Report w November/December 2009


The current

...continued from previous page failure to furnish a copy or to sign the return (section 6695); the promotion of abusive tax shelters and gross valuation overstatements (section 6700); the aiding and abetting of the understatement of tax liability (section 6701); and actions to enjoin certain conduct by preparers or promoters (sections 7407 and 7408).


The federal government also regulates CPAs, attorneys and enrolled agents through the IRS’s Office of Professional Responsibility (OPR). OPR enforces Circular 230, which governs the practice these professionals before the Service. OPR has the authority to identify standards of performance and discipline these Circular 230 practitioners through disbarment and other sanctions.

House nor Senate

The IRS announcement did not offer specifics on what the proposals may entail, though unconfirmed reports indicate that registration, an exam, a requirement for continuing professional education and possibly the granting of a certificate are being considered. AICPA representatives are meeting with congressional staff and IRS officials to discuss tax preparer registration in the past, and will continue to do so.

Proposed Consumer Financial Protection Agency (CFPA) As the proposed legislation—H.R 3126—read in September 2009, it had the unintended consequence of going beyond the regulation of the sale of products related to consumer credit and finance and impacted independent services provided in the context of professional relationships.


and Congress have stated that they do not want the estate tax to expire; however, neither the has taken any steps legislatively. The proposed legislation would have resulted in redundant regulation of CPAs and certified public accounting firms that are already subject to appropriate oversight by the IRS, Treasury, state boards of accountancy and AICPA’s professional and ethical standards. In early October as a result of intense advocacy efforts by AICPA and SCACPA, CPAs are currently exempted from the legislation. CPAs should not, of course, be exempt from the Consumer Financial Protection Agency’s regulation when acting in other capacities and AICPA would support additional oversight of financial products, such as refund anticipation loans. The legislation continues to be discussed in Congress as we go to publication of The SCCPA Report. See SCACPA’s Web site for emerging information on this topic.

South Carolina CPA Report w November/December 2009

President’s Budget Proposal for Mandatory E-File for Individuals President’s Obama’s fiscal year 2010 budget contains a proposal which gives the IRS the authority to draft regulations requiring tax return preparers who file more than 100 returns to e-file all individual, estate and trust returns. The 100-return threshold is defined as all returns filed by the preparer, which may include corporate, partnership, individual and other returns. For example, a preparer may file 40 corporate, 40 partnership and 21 individual returns on a yearly basis. Since the preparer files over 100 returns on a cumulative basis, he will be required to e-file all individual tax returns (as well as any estate, and trust returns that he might prepare). The proposal also would allow regulations requiring tax return preparers who file more than 100 returns (or any other person who files more than 250 returns) to e-file tax returns for individuals, estates or trusts.

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Estate Tax Developments In 2001, Congress enacted legislation designed to phase out the estate tax by 2010. Over these eight years the estate exemption has been increasing in increments, and is currently $3.5 million per person. Not only is the estate tax set to expire in 2010, but so is the rule that allows a step up in basis at death. That means that all would then come under a carryover basis regime that will be complex and difficult to implement. Wills and estate plans will all have to be redrafted if the repeal takes place beginning January 1, 2010, because Congress only repealed the estate tax for one year. If left alone, in 2011 the estate tax is reinstated at the levels that existed in 2001, meaning a $1million exemption and a 55 percent top rate. The current administration and Congress have stated that they do not want the estate tax to expire; however, neither the House nor Senate has taken any steps legislatively. Senate finance chair Max Baucus is supporting a permanent fix that encompasses much of a proposal

made by the AICPA. It would continue the $3.5 million exemption and would make it fully transferable between spouses, indexed for inflation along with an equivalent gift tax exemption, while maintaining step up in basis. House Ways and Means chairman Charles Rangle is proposing a one year extension of the current rules.

Tax Strategy Patents The patentability of tax planning methods is a growing concern among tax practitioners and taxpayers. In 1998, the U.S. Federal Circuit Court of Appeals, in State Street Bank & Trust v. Signature Financial Group, Inc., held that business methods could be patented. Since then, 78 patents for tax strategies have been granted and 132 patent applications for tax planning methods are pending as of August 2009. Patents for tax planning methods have already been granted in a variety of areas, including the use of financial products, charitable giving, estate and gift tax, pension plans, tax-deferred real estate exchanges and deferred

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compensation. For example, one patent granted is for the process of computing and disclosing the federal income tax consequences involved in the conversion from a standard individual retirement account (IRA) to a Roth IRA. Many more tax planning method patents are expected to be issued, directly targeting average taxpayers in a host of areas including income tax minimization alternative minimum tax (AMT) minimization and income tax itemized deduction maximization. The AICPA believes that patents granted for tax planning methods 1) limit the ability of taxpayers to fully utilize interpretations of tax law intended by Congress; 2) may cause some taxpayers to pay more tax than Congress intended and may cause other taxpayers to pay more tax than others similarly situated; 3) complicate the provision of tax advice by professionals; 4) mislead taxpayers into believing that a patented strategy is valid under the tax law; and 5) preclude tax professionals from challenging the validity of tax planning method patents. The AICPA and SCACPA believe that patents for tax planning methods undermine the integrity, fairness, and administration of the tax system and are contrary to sound public policy. n Reference: The AICPA’s Tax Section provided information on federal issues. Erin P. Hardwick, CAE Executive Director Erin has served as executive director of SCACPA since December 2005.

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Tips from the PCI Security Standards Council by Don West, CPA, CISA, CISSP, PMP, CITP SCACPA member since 2001


lbert Gonzalez and two others were charged in August with hacking into the computer systems of Heartland Payment Systems, 7-Eleven and Hannaford Brothers and stealing data on over 130 million credit and debit cards. Gonzalez was already in jail on charges that he had hacked TJX (T.J. Maxx, Marshals and more). That case involves 47.5 million cards. In each case, the intrusions went on for months before being detected. If an organization stores, processes or transmits payment card Primary Account Numbers (PAN), it must comply with the industry requirements for data security. Compliance doesn’t guarantee security, but it helps. Not complying can result in fines, adverse publicity and loss of the ability to accept payment cards. Compliance is difficult and expensive, even for larger merchants. It can be prohibitive for smaller ones. You can greatly reduce the cost and effort and


If an organization stores, processes or transmits payment card Primary Account Numbers (PAN), it must comply with the industry requirements for data security. Not complying can result in fines, adverse publicity and loss of the ability to accept payment cards. reduce your exposure by not storing cardholder data electronically. PAYMENT CARD INDUSTRY (PCI) SECURITY STANDARDS COUNCIL The payment card industry has been working for years to increase the security of card data. At first, the card associations established their own policies and standards. In 2006 Visa Inc., MasterCard Worldwide,

South Carolina CPA Report w November/December 2009

American Express, Discover Financial Services and JCB International formed the PCI Security Standards Council and agreed to incorporate the resulting standards and certifications into their compliance programs. PCI DATA SECURITY STANDARD (DSS) The foundation of the Councils’ work is the Data Security Standard (DSS). Version 1.2.1 was released in July 2009. It is a very specific and detailed list of requirements for securing card holder data and contains hundreds of requirements, organized as follows: Build And Maintain A Secure Network Requirement 1: Install and maintain a firewall configuration to protect cardholder data. Requirement 2: Do not use vendorsupplied defaults for system passwords and other security parameters. Protect Cardholder Data Requirement 3: Protect stored cardholder data.

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Requirement 4: Encrypt transmission of cardholder data across open, public networks.

companies and individuals certified by the Council to perform required services for the higher level merchants.

Maintain a Vulnerability Management Program Requirement 5: Use and regularly update anti-virus software or programs. Requirement 6: Develop and maintain secure systems and applications.

APPLICABILITY Applicability of the standards to a particular entity can be confusing. The main rule states that “PCI DSS requirements are applicable if a Primary Account Number (PAN) is stored, processed, or transmitted. If a PAN is not stored, processed, or transmitted, PCI DSS requirements do not apply.� Generally, the deadlines for compliance with the DSS have passed, and all merchants who meet this rule should be compliant now. Estimates of actual compliance vary. The issuing associations direct the acquiring banks as to how they manage merchant compliance. An

Implement Strong Access Control Measures Requirement 7: Restrict access to cardholder data by business need to know. Requirement 8: Assign a unique ID to each person with computer access. Requirement 9: Restrict physical access to cardholder data. Regularly Monitor and Test Networks Requirement 10: Track and monitor all access to network resources and cardholder data. Requirement 11: Regularly test security systems and processes. Maintain an Information Security Policy Requirement 12: Maintain a policy that addresses information security for employees and contractors. PCI PAYMENT APPLICATION DATA SECURITY STANDARD (PA-DSS) This standard started as the Visa Inc. program known as Payment Application Best Practices. Its goal is to help software vendors and others develop secure payment applications that support compliance with the PCI DSS. QUALIFIED SECURITY ASSESSORS, PAYMENT APPLICATION QSAS AND APPROVED SCANNING VENDORS QSAs, PA-QSAs and ASVs are

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example is merchant levels based on card acceptance volume. Table A shows the Visa levels and validation requirements. Notice that Level 1 merchants, those with the highest volume, are required to employ QSAs and ASVs and submit reports. Level 4 merchant validation requirements, on the other hand, are either recommended or set by their acquiring bank. Each card association sets its own levels and validation requirements. American Express, for example, only has three levels. The rule of thumb is that each merchant should consult their acquiring bank. Requirements also vary greatly depending on how you handle cardholder data (CHD). continued next page






Merchants processing over 6 million Visa transactions annually (all channels), or Global merchants identified as Level 1 by any Visa region.

Annual Report on Compliance (ROC) by Qualified Security Assessor (QSA)

Merchants processing 1 million to 6 million Visa transactions annually (all channels).

Annual Self-Assessment Questionnaire (SAQ)

Merchants processing 20,000 to 1 million Visa e-commerce transactions annually.

Annual SAQ

Quarterly network scan by Approved Scan Vendor (ASV) Attestation of Compliance Form

Quarterly network scan by ASV Attestation of Compliance Form

Quarterly network scan by ASV Attestation of Compliance Form


Merchants processing less than 20,000 Visa e-commerce transactions annually, and all other merchants processing up to 1 million Visa transactions annually.

Annual SAQ recommended Quarterly network scan by ASV if applicable Compliance validation requirements set by acquirer

South Carolina CPA Report w November/December 2009


Feature SELF-ASSESSMENT QUESTIONNAIRE (SAQ) The Self Assessment Questionnaire referred to in the table above is actually four different questionnaires depending on how CHD is handled. Table B shows the SAQ Validation Types. Type 1 merchants outsource everything and never have CHD in their systems. SAQ-A has 13 questions. Types 2 and 3 either use paper only or the small terminals that are not connected to the Internet or internal systems and do not store CHD electronically. SAQ-B has 26 questions. Type 4 merchants use a Point of Sale (POS) system connected to the Internet, but no internal systems. They do not store CHD electronically. SAQ-C has 41 questions.Type 5 merchants store CHD electronically and must answer 225 questions. Obviously, the key is to not store CHD electronically. Note: Service providers are entities that process CHD for merchants. They are outside of the scope of this article. ONEROUS REQUIREMENTS FOR SMALL MERCHANTS The requirements of the DSS for merchants that store CHD electronically are extremely complex and expensive. Here are a just a few examples: 1) DSS 1.3 requires segregating the CHD network from the Internet and passing all inbound and outbound traffic through a Demilitarized Zone (DMZ). This means additional hardware, configuration and management. 2) DSS 10.5.5 requires file integrity monitoring. This means adding systems that constantly monitor




SAQ: V1.2


Card-not-present (e-commerce or mail/telephone-order) merchants, all cardholder data functions outsourced. This would never apply to face-to-face merchants.



Imprint-only merchants with no electronic cardholder data storage



Stand-alone terminal merchants, no electronic cardholder data storage



Merchants with POS systems connected to the Internet, no electronic cardholder data storage



All other merchants (not included in Types 1-4 above) and all service providers defined by a payment brand as eligible to complete an SAQ.


critical files within the CHD system (operating system files, for instance) and notify you of any changes. More hardware, software and management. 3) DSS 10.6 requires that log files for all components in the CHD system are kept for months and reviewed daily. This can be thousands of entries per day. More hardware, software and management. ALTERNATIVES FOR SMALL MERCHANTS Large merchants can justify implementing and maintaining compliant systems, but many smaller, Level 4 merchants can’t. The answer is to not store CHD electronically. In other words, don’t be a SAQ-D merchant. If you accept cards online, there are two basic ways to do it. Take PayPal as an example. PayPal offers “PayFlow Pro” and “PayFlow Link” as ways that a Web site can accept payment cards. With PayFlow Pro, buyers enter their card data on your Web site. Your system sends the data to PayPal for

South Carolina CPA Report w November/December 2009

processing, and PayPal sends the results of the transaction back to your system. Your system therefore stores CHD electronically, and you are a SAQ-D merchant. If you use PayFlow Link, the buyer is sent to a PayPal Web page for check out. All card data is entered into PayPal’s system, not yours. Your system still receives transaction results, but does not store CHD electronically. If you choose this method, you are now a SAQ-A merchant. If you are a face-to-face merchant like a retail store or a restaurant, it can be more complicated. Do you really need to store CHD electronically? There are several reasons to do so. One is as a service to the buyer, to make it easier to make a purchase on your Web site. Amazon’s “One Click Ordering” is an example. This feature is automatically enabled on your account the first time you place an order and enter your information. Some people love it. It can’t work without storing your CHD electronically. Even without the one click service, a lot of sites store your

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data just to make it easier for you to make a purchase. If you go into a sports bar and order a drink, you may be asked for a card before you are served. Some just put them in a box and hold them (the wisdom of that and you allowing it is outside the scope of this article). Some pre-approve an amount on the card. That POS system is storing your CHD. They do it to prevent you from walking out without paying. A very popular reason to store CHD is to handle charge backs. Frequently people will make a purchase and then claim they didn’t do it. Many merchants think they have to have the card data to prove it was a valid purchase. This is not true, and even if it was the merchant would have to compare the cost of charge backs to the cost of PCI compliance. After telling a small merchant that compliance would cost him tens of

thousands of dollars, he said he had to have the CHD to fight charge backs. But when asked how many charge backs he had, there were only a couple per month. His average charges are under $100. CONCLUSION Payment card data security is a huge concern, and will get worse before it gets better. All organizations that store, process or transmit Cardholder Data must comply with the PCI DSS. Compliance is either relatively painless or an expensive, demanding, ongoing process—depending on how you accept and process cards. BREAKING NEWS! This article mentions earlier that Level 4 validation requirements were set by the acquiring banks. Until recently, this has remained mostly a voluntary process of self assessment with no requirement to submit the forms to anyone. On August 1, 2009, BB&T

notified all of its merchant account holders that they had to complete and submit the self assessment forms, including an Attestation of Compliance by the Executive Officer. First National Merchant Services and First American Payment Systems have done the same thing. Voluntary selfassessment for the smallest merchants is quickly becoming a thing of the past. n

Don West, CPA, CISA, CISSP, PMP, CITP, has 30 years experience in project management and information technology with Daniel Construction, Fluor Daniel, Jacobs Engineering, GE and BlueCross BlueShield of SC and is currently employed with Blytheco, LLC. Don is chairman of the SCACPA Technology Committee, and a member of the Long Range Planning and Web site Task Forces. He is also a SCACPA CPA Ambassador and has previously served on the Financial Planning for Disaster Task Force.

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Valuing an Accounting Practice The members of SCACPA’s Business Valuation Task Force are sharing the expertise on valuing an accounting practice. Each task force member was asked this same question regarding pricing a new partner admission. Their individual responses are listed below. Staff Contact: Reva Brennan HOW DO ACCOUNTING FIRMS PRICE A NEW PARTNER ADMISSION? George DuRant, CPA/ABV/CFF, ASA, Columbia: Usually, one way or another, a new partner will pay for an interest via reduced earnings for some period of time. It is rare in my experience (but I have seen it) where a new partner is asked to buy-in based on some multiple of revenues and other factors. Growing and expanding firms seem more focused on retaining talent and receiving working capital contributions from new partners as opposed to “selling” an interest at pro rata firm market value. Non-growing firms admitting new partners are focused on old partner retirements, which are usually paid for on a retention basis over 2-5 years (out of earnings). James D. Ewart, CPA/ABV/CFF, CVA, Charleston: I believe what George is suggesting has roots in other industries such as physician practices, and has proven to be cost effective to the new partner and acceptable to the “old” partners because, all things being equal, income is not reduced in the first year. Additionally, how profits are divided could affect this approach. Finally, whether the “old” partners are selling a portion of their interest or the practice is expanding would impact this question. Don M. Hollerbach, CPA/ABV/ CFF, CFE, FCPA, CVA, CDFA, Charleston: A buy-in arrangement of some description is the norm in my experience, but I have seen a number of examples where the members of


a firm have the “eat what you kill” approach where there are revenue centers tied to the individual partners. In this arrangement, which is a form of cost sharing, the partners each maintain a client base, recognize revenue on an individual basis, pay for staff that are dedicated to their particular clients, allocate the overhead costs that are common to the partnership and share any value that is derived through cross-pollination of skill sets. New partners either bring a client base with them, and/or a specific skill set that adds value. Then they develop the client base to certain level while on staff, with a final transition to the process as defined above. The cost and revenue synergies created in this arrangement are of value to a partner, as opposed to a different business form such as a solo practice. Hendrikus E.J.M.L. van Bulck, MBA, Ph.D., CPA/ABV, Sumter: I have observed three general “models” for partner admissions: reduced earnings (as described by George DuRant), buyins (as described by Don Hollerbach) and mentorship. The size of the practice may be a determinant. Large, multi-partner accounting firms may be more concerned about preserving senior partners’ equity and retirement provisions. It is likely that these firms are fairly structured, and are more likely to have a formal recruitment plan, a buy-in plan or some form of “tenure track” (to borrow an academic term). Compared to solo practitioners, large firms may be able to distinguish

South Carolina CPA Report w November/December 2009

more clearly between the professional and corporate components of the firm’s goodwill. The corporate goodwill may be an important consideration in the buy-in formula. Conversely, the sole practitioner may bring along a young CPA not only to share the workload, but also to groom this individual to eventually take over the practice. This sometimes resembles the father-son relationship. As retirement approaches, the practitioner shifts more of the income and perhaps partnership interest to the junior CPA. Scott Hendrix, MBA, CPA, CVA, West Columbia: Admitting a new partner and how to price that admission generally is a function of two dimensions: the operating environment and the perceived value-drivers. For the most part, small to mid-size accounting firms will fall into one of three categories: sole practitioner, single-entity/multiplepartner, or multiple-entity/ multiplepartner. The value to be derived from a new partner may also span a broad array of possibilities. Obviously, a sole practitioner would most likely be looking to develop a partner to whom he or she could eventually sell the practice. Firms in the other two categories may be looking to replace a retiring partner, or seeking new and complementary talent to expand a niche or exploit a new and growing revenue stream. Notwithstanding, the commonly exercised historical imperative has been to admit new partners at a reduced earnings rate, with the difference between tenured average partner earnings and the reduced earnings representing a buy-in amount or a premium to the existing partners. Depending upon the size and profitability of the firm, this buy-in period may span multiple years, but generally not less than five years. n

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Charleston and Grand Strand Region Victoria G. Dotson – Vice President & Manager of Trust Services Peter Alan Curcio – Senior Trust Officer 843.724.0801

Elsewhere in South Carolina Mary Ann Brown – Senior Trust Officer 843.815.5507

Our trust officers provide the same level of personal service that you do. When you recommend a trust manager to your clients, you’re putting your relationship on the line. You want to refer them to a trust officer who looks out for them the same way you do. At First Federal, we do. Our trust officers are easily accessible and they’re always glad to meet when it is most convenient for your client. We can establish a trust with fewer assets than you might think – and at First Federal, all of our trust clients receive the same high level of personal service. That’s a level of service other banks can’t match. We’re one of the strongest and most trusted banks in South Carolina, with the resources to help our clients accumulate, preserve and protect their wealth with all the trust services you’d expect, plus: • Conservatorships • Special Needs Trusts • Irrevocable Life Insurance Trusts And through our Estate Settlement Services, we even work on a contract basis with clients who don’t have a First Federal trust account. If you’re interested in referring a prospective trust client to First Federal, please call one of our trust officers today. They’re looking forward to hearing from you.


Commentary On TIPRA 2005 and Roth Conversions by Neil Brown, MAcc, CPA, CFP SCACPA member since 1994

The current market environment may provide some sophisticated taxpayers a unique opportunity to pay taxes at today’s low rates on a depressed account value and capture tax free growth.


n January 1, 2010, thanks to TIPRA 2005, anyone with a tax-deferred retirement account that can be rolled over will be eligible to convert those assets to a Roth IRA. Now, higher income taxpayers will be able to take advantage of a conversion opportunity that was once limited to those with an AGI of less than $100,000. There is no better time to build a better future for your clients. Our role as advisors will be to determine if and how much to convert, and when to pay taxes. The factors to consider when converting to Roth include (but are not limited to) the taxpayer’s timeframe, source for payment of taxes and current vs. future tax rates. There is no certain set of circumstances where one should convert or not convert—instead, it will depend upon a client’s specific needs, desires and assumptions. The current market environment may provide some sophisticated taxpayers a unique opportunity to pay taxes at today’s low rates on a depressed account value and capture tax free growth. An IRA worth $100,000 in


2007 may now be worth $60,000. By converting the $60,000 retirement account to a Roth IRA, the taxpayer is locking in his tax liability at the lower amount. Should the $60,000 Roth IRA eventually recover its losses and grow back to $100,000, the taxpayer will avoid paying taxes on the $40,000 difference.

calculating MAGI for social security purposes, all taxable and taxexempt income and 50 percent of an individual’s social security benefits are included, but Roth IRA distributions are not. Therefore, a Roth IRA can prove to be a tax-friendly asset for managing the taxation of social security benefits.

Additionally, you can actually request a “mulligan” or a “do over” by performing a recharacterization, thereby reversing the original conversion back into a traditional IRA with no tax consequences. A Roth IRA can be recharac¬terized back into a traditional IRA up to the tax filing deadline—including extensions, whether extended or not. For example, if an investor converts a traditional IRA to a Roth IRA in February 2009, they will have until October 15, 2010 to decide whether to take the “doover.”

When paying taxes for the conversion, one could use assets from the IRA, or outside of the IRA. Using IRA assets to pay the tax liability results in a smaller Roth IRA balance, and any money not kept in the Roth conversion upon the rollover will be subject to an additional 10 percent penalty if under age 59 ½. If a taxpayer uses outside assets to pay the conversion tax, they are essentially allowing more assets to remain in the Roth IRA and effectively making a contribution to their retirement account.

A conversion could also help with the future taxation of Social Security benefits. Up to 85 percent of social security benefits are taxable if MAGI exceeds certain amounts. When

South Carolina CPA Report w November/December 2009

For 2010 only, a taxpayer who converts can include half of the conversion on the 2011 taxes and the balance on the 2012 taxes, thus slowing the tax payments. However, with the expected increase in tax rates

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in the coming years, most scenarios point to 100 percent inclusion in 2010 versus using the default spread. Of course, the spread could prove beneficial if one will be in lower future tax brackets due to reduced income or retirement. A Roth IRA will grow tax-free if all qualifications are met, and there are certain tax benefits. By utilizing a tax-free Roth IRA, retirees have more flexibility and control in managing their taxes. Most of us believe tax rates will be higher in the future. As such, now may be a great time to convert retirement assets to a Roth IRA. Many people currently consider our tax rate structure to be high, but historically we have seen top marginal tax rates as high as 50, 70 and 90 percent. Actually, for the last 50 years, there have been only a handful of years where the top tax rate was lower than we have now (1988-1992). By coordinating NOLs, loss carryovers and other tax items, a person can reduce or eliminate taxable income and thus the tax that would be associated with any Roth conversion. For instance, a business owner with taxable income of $75,000 and a NOL of $100,000 would have an adjusted gross income of negative $25,000. The business owner may wish to convert up to $25,000 of taxable retirement assets at little or no tax costs. Even small capital loss carryovers utilized against $3,000 of ordinary income would allow $3,000 to be converted with no tax increase if comparing to the tax due without the loss. The Roth conversion helps taxpayers realize favorable tax attributes, while paying little or no income taxes on the conversion. Now would be a great time to contact your clients with retirement accounts

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Most of us believe tax rates will be higher in the future. As such, now may be a great time to convert retirement assets to a Roth IRA. and negative taxable income and work with them to rollover enough assets to push the taxable income to at least zero. Some clients want to pay no taxes and others would prefer to at least roll over some IRA assets in the 10 or 15 percent brackets. Again, this depends on the individual taxpayer, but we did so for many clients at the market bottoms in November 2008 and March 2009. Clients who want to leave a large estate to their heirs should consider this strategy as well. While all owned assets are included in the deceased’s estate, the Roth IRA could reduce estate tax as well as the future income tax of the beneficiary. First, the taxes paid for the conversion are no longer in the estate and the estate tax is higher than the income tax rate, and the heirs receive a tax free account they can stretch. While naming a trust as a beneficiary of a retirement account is a complex matter, a Roth conversion can help. Distributions from an IRA that are maintained in the trust are taxed at the trust tax rate, which reaches the 35 percent level quite quickly. With a Roth IRA, any distributions actually maintained in the trust are tax-free upon the initial distribution.

not. This tax-free feature can magnify the stretch provisions greatly. For example, assume a 70 year old with a $1,000,000 IRA would like to leave as much as possible to his 40 year old daughter at death. If he took only his required minimum distribution at age 70½, died at age 86, the account grew at 7 percent and the daughter stretched the traditional IRA, she would have received a total of $983,859 of after-tax distributions over her lifetime. However, had the Roth been converted prior to the father’s death, the daughter would have received a total of $1,492,920 of taxfree distributions, or 65 percent more, over her lifetime. Time, tax law and planning are moving quickly. For those advisors willing to provide great advice to their clients, now is the best time. If you simply want to do compliance work, there are many advisors who would love to add value to your former clients. We can no longer simply meet with our clients to do last minute tax planning or after the fact compliance work. We must add value—that is our goal. n

Neil A. Brown, MAcc, CPA, CFP, is a Certified Financial Planner® for Burkett Financial Services and a national instructor for Keir Educational Resources, Surgent McCoy, the AICPA and Jeff Rattiner’s Financial Planning Express™. Neil is currently a member of SCACPA’s Editorial Board and the Personal Financial Planning Committee.

Lastly, the stretch IRA left to an heir is taxable, but the stretch Roth IRA is

South Carolina CPA Report w November/December 2009


Board of Accountancy

by Mark T. Hobbs, CPA, Vice Chairman, SC Board of Accountancy SCACPA member since 1981


he Board of Accountancy (BOA) met on August 27, 2009 in Columbia. The agenda consisted of a review of complaint and investigative activity from Board Staff personnel. After approving minutes from the June 23, 2009 board meeting, the Board then received a presentation from accounting educators requesting additional CPE credit for those instructors meeting certain criteria. The Board is currently reviewing changes to the Accountancy Law and Regulations, and this is one area being reviewed for possible modification. The Board Administrators’ report was presented by Randy Bryant, and the following committee updates were given: • Regulation/Legislative by Donnie Burkett, CPA • Peer Review by Mark Hobbs, CPA • Education/Experience by Bobby Creech, CPA • Examination/CBT by Tony Callander, CPA • Other Professional Issues by Wendell Lunsford • Qualification of Licensure by Tony Callander, CPA In addition to regular business matters, the Board conducted two disciplinary hearings. The next Board of Accountancy Meeting is scheduled for Thursday, October 22, 2009. ADMINISTRATOR UPDATE BOA Administrator Doris Cubitt, CPA has been out for the past several months on medical leave and is


The BOA will be making a presentation at SCACPA’s CPA Summit and Member Meeting on Thursday, November 19, 2009. Board members will be available to discuss any concerns or issues

South Carolina Department of Labor, Licensing and Regulation Board of Accountancy (803) 896-4770

The following are key employees of LLR who are assigned to assist the Board in fulfilling its mission: Doris Cubitt, CPA, Administrator (803) 896-4770 or Michael Teague - Amy Holleman - Tiear Williams -

concerning licensure in South Carolina. expected to return to her duties hopefully in early 2010. While Doris is away, Michael Teague and Amy Holleman are working overtime to assist in Board of Accountancy matters. Please feel free to contact Michael Teague at (803) 896-4557 should you need immediate action or assistance. BOA PRESENTATION AT SCACPA SUMMIT & MEMBER MEETING The BOA will be making a presentation at SCACPA’s CPA Summit and Member Meeting on Thursday, November 19, 2009. In addition to discussing recent disciplinary cases and current issues facing accounting regulators in South Carolina, Board members will be available to discuss any concerns or issues concerning licensure in South Carolina. Please be reminded that Board of Accountancy members must

South Carolina CPA Report w November/December 2009

retain their objectivity, and cannot get involved in an active investigation or case. This is to assure that Board members will not have to excuse themselves if the case progresses to an official hearing. What’s Important to You? The Board of Accountancy is committed to serving the public while keeping open channels of communications with our licensees. Please help us serve the public and the citizens of South Carolina by keeping us informed of areas that you believe warrant more regulations and Board of Accountancy involvement. n Mark Hobbs, CPA is the managing partner of The Hobbs Group, PA in Columbia. A past president of SCACPA, Mark currently serves on SCACPA’s Nominating and Investment Committees as well as the Long Range Planning Task Force. He may be reached at

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EW In ‘A’ su ra ra No nc ted w e

Av a




Pr o


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by Bratton Fennell, CPA SCACPA member since 1989

December 10-11, 2009 FEATURED A&A SESSIONS by presenter QUINTON BOOKER, PhD, CPA (1) IFRS Update, (2) FASB UPDATE DAVID BURKE, CPA (1) NC Ethic, (2) General Ethics DENNIS DYCUS, CPA, CFE, CGFM (1) How to Analyze Red Flags, (2) Things Everyone Needs to Know About Fraud, (3) Some of My Favorite Frauds/Why & How They Occurred CARLTON COLLINS, CPA The Tech Savvy CPA MARK HOBBS, CPA Peer Review Update IAN MACKAY, CPA Employee Benefit Plans Audits DEAN MEAD GASB Update BRADLEY NEWKIRK, CPA (1) A&A Update, (2) A&A Update Continued-In Depth Drill Down On Auditing and SSARS G. ROBERT “SMITTY” SMITH Jr., PhD, CPA, CGFM (1) GASB Statement Number 54, (2) Common Reporting Errors In Financial Statements



have now been a member of SCACPA for more than 20 years, but did not really take advantage of my membership until the last six years. By being more active in the organization, I have gotten much more out of my membership. For the past three years, I have been lucky enough to serve on SCACPA’s Technical Standards committee. Our group has 19 members and is chaired by Ellen Adkins. We meet via teleconference six to eight times a year and act as a technical resource for members, reviewing exposure drafts on technical standards and recommending a response. Additionally, the Committee plans the annual Accounting and Auditing Conference each December. Prior to joining the Technical Standards committee, I regularly attended the Accounting and Auditing Conference and was twice a speaker (for those who attended, I am sure it was a treat!). In all seriousness, I attended the conference to receive 12-16 hours of quality CPE and gain some insight into what other CPAs in the state are doing to meet some of the challenges we are all facing today. Our committee has planned another high quality CPE event to take place December 10-11, 2009. I am excited about the program and look forward

South Carolina CPA Report w November/December 2009

to the offerings that will be provided. I have heard a number of our speakers in the past, and they have the ability to make a seemingly boring topic interesting. In addition, I believe the topics we are offering provide real value to us in our jobs, whether we are in public or private practice. Each year that I have attended the conference, I can truly say that I have learned something that was immediately applicable to me at my job in industry. Whether the topic is fraud, technology or accounting rules, the subjects will apply to us in our roles as CPAs and trusted business advisors. As a member of the committee and the SCACPA board, I hope to see many of you at the conference. I always look forward to getting reacquainted with old friends and making new ones in the profession. I believe you will find the conference well worth your time, and you might just learn a thing or two! Please review complete session details online at n Bratton Fennell, CPA is the CFO of Burroughs & Chapin Company, Inc. He currently serves as the Chapter Board Representative for SCACPA’s Grand Strand Chapter and Board Liaison to the Members in Industry Committee and the SCACPA BEGIN Campaign. He also serves on SCACPA’s Behavioral Standards and Technical Standards committees. (888) 557-4814 |

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South Carolina CPA Report w November/December 2009


Member News

Focus On Membership Saunders



H. Kyle Anderson, CPA, MPA, CMA, is now serving as a SCACPA Campus Champion at Anderson University. Stephen U. Davis, CPA of PricewaterhouseCoopers, LLP of Atlanta became licensed in Georgia in July. Leon W. Maginnis, CPA, CFE, has recently been awarded the Certified in Financial Forensics (CFF) Credential by the American Institute of Certified Public Accountants (AICPA). Established by the AICPA, the CFF credential is granted to CPAs with considerable professional experience in financial forensics. Matthew Madden, CPA of Elliott Davis, LLC, has been named among Greenville First’s Best & Brightest 35 and Under. Established by Greenville Magazine in 1994, the annual awards honor 25 men and women under the age of 35 as growing leaders in Greenville. Selection is based on business success and volunteer efforts in the community. Madden is currently serving a three-year term on the board of directors for Professionals United for Leadership and Social Enrichment (PULSE). This year, he co-chaired a PULSE mentoring program designed to give Greenville young professionals the opportunity to learn from seasoned business and community leaders. He is also involved with the History Makers of the Upcountry History Museum. At Elliott Davis, Madden is a tax manager in the Greenville office, serves on the United Way fundraising committee and plays a key role in the recruiting, training and development of new team members. He is a member of AICPA, SCACPA and the Urban Land Institute (ULI).


The Blue Ridge Council, Boy Scouts of America honored Irvine T. “Buck” Welling Jr. as the council’s 2009 Distinguished Citizen of the Year. Welling, 92, was employed by Elliott Davis LLC, with which he was associated for 61 years and is a retired partner. He is a past president of SCACPA and has been an active member since 1947. During his tenure with Elliott Davis, he served as a naval officer in World War II in the South Pacific. In 1964, Welling began working with John D. Hollingsworth, a textile machinery executive. He assisted in the creation of Hollingsworth Funds Inc., a charitable foundation of which he has served as chairman and president since 1996. The foundation has donated millions of dollars to Furman University, the YMCA and public charities in Greenville County. At an early age he earned his Eagle rank, the highest rank attainable in scouting.


Scott McElveen, L.L.P. recently announced two new associate accountants: Chris Halkowitz and Cynthia Saunders. Chris graduated from Coastal Carolina University with a Bachelor of Science degree in Accounting, and completed his Masters of Business Administration with a concentration in Accounting. Cynthia graduated from North Carolina State University with a Bachelor of Science degree in Accounting, and completed her Master of Accountancy degree at Georgia Southern University.

Paul D. Lister, CPA of Greer has retired.


Robert P. Schlau with Baldwin & Associates, LLC in Charleston has graduated and is pursuing licensure.

The new artwork in SCACPA’s offices is provided by the Trenholm Artists Guild (www.trenholmartistsguild. org). Special thanks to SCACPA member William “Bill” Arnott IV, CPA of DuRant, Schraibman & Lindsey in Columbia for making these arrangements.

South Carolina CPA Report w November/December 2009

Anthony A. Callander, CPA of Greenville has retired.

Thomas M. Carabo, CPA of Blenheim has retired. Hazel A. Catoe, CPA, MBA of Lando has retired. Obed A. Cramer, CPA of Augusta has retired. Minnetta J. Davis, CPA of Ocean Isle Beach, NC has retired. Paula Farrell with Elliott Davis, LLC in Columbia has graduated and is pursuing licensure. Robin M. Goff with KPMG LLP in Greenville has graduated and is pursuing licensure. J. Kirk Jennings with Grant Thornton, LLP in Columbia has graduated and is pursuing licensure.

William Matthews Jr. with Moore Beauston & Woodham, LLP, CPAs in West Columbia has graduated and is pursuing licensure. Milne R. McCallum, CPA of Isle of Palms has retired. Virginia F. Milam, CPA of Greenville has retired. Joshua M. Price with Grant Thornton, LLP in Columbia has graduated and is pursuing licensure.

Fred R. Seale, CPA with Burch Oxner Seale Company, CPAs in Florence has retired. Tarang A. Sharma with Grant Thornton, LLP in Columbia has graduated and is pursuing licensure. David R. Smith, CPA of Lake City has retired.

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Member News

Focus On Membership

Andrew B. Sprenger with Dixon Hughes PLLC in Greenville has graduated and is pursuing licensure.

Alicia M. Smith has joined GlaserDuncan, CPAs in Mount Pleasant.

Harvey B. Studstill, CPA of Columbia has retired.

Laura M. Spells, CPA has joined The Hobbs Group, PA in Columbia.

Alan J. Taylor, MAcc of Greenville has graduated and is pursuing licensure.

Barbara B. Windham, CPA has joined Blue Cross Blue Shield of SC in Columbia.

Murrell C. Timmons of Sullivans Island has graduated and is pursuing licensure. Carla A. Walker with William Levan Byrd, CPA, PC of Sumter has graduated and is pursuing licensure. Jerry C. Whitley, CPA of Columbia has retired. Bo Zhao with Trane in Columbia, has graduated and is pursuing licensure.



Harriet L. Goldberg, CPA has opened Harriet L. Goldberg, CPA, LLC in Charleston. W. Michael Hamilton, CPA has opened Michael Hamilton, CPA, PA in Columbia. Lynne D. Jones, CPA has opened Lynne D. Jones, CPA, LLC in Greenville.

John E. Altman III, CPA is now with Milliken & Company.

Frans R. Moorrees, CPA has opened Frans R. Moorrees, CPA, PA in Asheville, NC.

E.H.M. Booth, CPA has reopened E.H. Marlene Booth, PA in Greer.


George L. Counts Jr., CPA is now with CA Consulting, LLC in Greenville. Susan D. Eidson (CPA Candidate) is now with Fred J. Adams, CPA in Greenville. Stuart W. Ford, CPA is now with the Town of Lexington. Ryan D. Foster, CPA is now with UCI Medical Affiliates in Columbia. Colleen A. Handy, CPA is now with Palmetto Surety Corporation in Charleston. Joel A. Owens, MAcc, has graduated from the University of South Carolina and joined Elliott Davis, LLC in Greenville. Kimberly L. Reeves, CPA is now with Ameco in Greenville. Mark A. Rhoden, CPA is now with MBI Financial Staffing in Columbia. Rachel Shaw, CPA is now with Lexington Medical Center in West Columbia. (888) 557-4814 |

Byron Henry Coffin III, 69, died September 29, 2009. He was born May 5, 1940, in Alameda, CA and served his country as a cartographer in the Air Force. For the past 27 years, Mr. Coffin worked as a sole practitioner CPA, serving clients in the Irmo area. He became licensed and joined SCACPA in 1968. Byron is survived by his wife, Torrence R. Coffin; daughters Cindy Steiner (Bob) of Burke, VA, and Donna Bobinski (Mitch) of Charlotte, NC; son Byron (Donna) of Irmo; stepdaughter Jennifer Moore (Eric) of Chapin; mother Daisie Brown of Oakland, CA; sisters Marion Miller of Alameda, CA, and Gayle Paoletti of Hayward, CA; seven grandchildren and two stepgrandchildren. Memorials may be made to the Children’s Ministry at Cornerstone Presbyterian Church, 5637 Bush River Road, Columbia, SC 29212 or to the American Lung Association, 1817 Gadsden Street, Columbia, SC 29201.

Joe Francis Dean Jr., 89, died September 30, 2009. Born in Sumter, he was a son of the late Joe Francis Dean, Sr. and Margaret Dawkins Dean. Mr. Dean was a member of Trinity United Methodist Church and a retired certified public accountant. He joined SCACPA in 1966 and became a Lifetime Member in 2008. He was a 60-year Mason, Shriner and a member of the Sumter Lions Club. Surviving are his wife, Mae Cummings Dean of Sumter; brother Harold Dean (Sadie) of Myrtle Beach; brother-in-law James McLane, Jr. of Houston, TX and numerous nieces and nephews. Memorials may be made to Trinity United Methodist Church, 226 W. Liberty Street, Sumter, SC 29150, or to the Sumter County Genealogical Society, 219 W. Liberty Street, Sumter, SC 29150. On-line condolences may be sent to James T. “Jim” Lowery, Jr., 66, died August 6, 2009 in Boone, NC. Born March 26, 1943 in Rock Hill, SC, he was the son of James T. Lowery, Sr. and Opal Reynolds Lowery. Jim was a self-employed CPA who became licensed and joined SCACPA in 1975. He served in the U.S. Air Force during the Vietnam War, was a graduate of the University of South Carolina and a member of Surfside United Methodist Church. He is survived by his wife of 45 years, Betty Baldwin Lowery; sons James T. “Trip” Lowery III (Eileen) of Kill Devil Hills, NC, and Rad Lowery (Adrienne) of Surfside Beach; sister Rosemary Sullivan (Tim) of Rock Hill; brothers Joseph Lowery (Lea) of Rock Hill, and Lanny Lowery (Denise) of Spartanburg; and three grandchildren. Online condolences may be sent and Memorial contributions may be made to the Jimmy V Foundation, 106 Towerview Court, Cary, NC 27513, or to the Valle Crucis Community Park, P.O. Box 581, Valle Crucis, NC 28691.

Continued on page 34. South Carolina CPA Report w November/December 2009


Member Profile

Focus On Membership

Ken L. Newhouse Jr., CPA SCACPA member since 2001

HOMETOWN Gilbert, SC EMPLOYER Sellars, Cole & Bachkosky, LLC CURRENT SERVICE Financial Literacy Task Force, Chairman Favorite Book Bible FAVORITE MOVIE Hoosiers

What made you choose to become a CPA? During my senior year in high school, I decided to take an elective course in accounting. Debits and credits came naturally to me, and I really enjoyed the class. After further research, I determined that the accounting field offered many opportunities that interested me, which lead to my decision to become a CPA. What do you believe are the keys to a successful career? • Find your passion. It is easier to stay focused and meet deadlines when your work is your passion. • Never stop learning. Focus on your passion, but also spend quality time in all areas of life so that you are a well-rounded person. • Learn how to communicate effectively. • Set goals. Live with a vision, because if you aim for nothing you will hit it every time. What do you believe are the major concerns of CPAs today, and how can they be addressed? Accountants have many concerns on the horizon, from international accounting standards to compliance legislation and tax law changes. The current economic climate is likely to create another mandate for more legislative control over the accounting systems of businesses. Another more individual issue was reinforced by a CNN Money article ranked Certified


South Carolina CPA Report w November/December 2009

Public Accountants as the sixth best job in America. It was not the positive ranking but the quality of life ratings, however, that got my attention. The CPA profession received two average ratings in the categories of benefit to society and stress. I believe that each of us can reduce the work-related stress level by maintaining a healthy balance between our professional and personal lives. What have you accomplished that makes you proud to be a CPA? While I enjoy my day-to-day work experiences, I am most proud of participating each fall in various financial literacy programs. I receive a great deal of personal gratification if I can assist someone in developing a life skill that will make an impact on that person’s financial future. Whom do you admire most, and why? My wife, Tina, is a very hard worker and loving mother of our son and soon to be daughter, due in January. When I met her, she had a math degree from USC but was going back to school at night to be a MCSE (Microsoft Certified Systems Engineer) and CCNA (Cisco Certified Network Administrator). I have seen her study and work very hard to keep current with her profession. Tina is organized and always has a detailed list together before we go on vacation trips. She reads to our son every night before bed, and makes sure his school bags and lunch are packed. I am proud of her and admire her more than anyone I know. What advice do you have for young CPAs? Always look to understand “why” something was done. Don’t accept SALY (same as last year) as an answer. Investigate, review the final report or return to determine the “if and why” of any changes that a reviewer may have made. Reviewers do not always have a chance to send changes back to you. What do you do for fun? I spend time with my family going to football games, movies and just playing in the back yard with my son. I also enjoy running, hiking and gardening.

Ken also served on the following SCACPA committees: Web site Task Force (2007-2008); Information Technology Task Force (2003-2008; Chairman 2005-2006). He received the SCACPA President’s Award in 2003 and 2006.

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Chapter Connections

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CATAWBA CHAPTER Dues: $60 includes discounted registration to CPE seminars and free family/networking event • November 30: Annual Tax Update with Bill Grooms (8 hours, CA113009)

ed nt Public Accou

2008 Quality Chapter Award Winners


Focus On Membership


CENTRAL CHAPTER Dues: $50 includes discounted registration to CPE seminars, free Oyster Roast, Family Day and Business Meeting Dinner; invitation to Entertainment Night and Golf Tournament • December 2: Tax Update with Dr. Caroline Strobel (8 hours, CE120209)


COASTAL CHAPTER Dues: $130 includes free registration to CPE seminars (additional registration fee for Tax Update with Jack Surgent) and free registration to family/networking event • Stay tuned for 2010 events!

FOOTHILLS CHAPTER Dues: $40 includes discounted registration to CPE seminars and three free social/networking events • December 4: Within the Red Zone of Your Retirement: Tax Planning Strategies for Getting to the Goal Line Without Fumbling (8 hours, FO120409) • December: Holiday Bowling Party at Star Lanes

GRAND STRAND CHAPTER Dues: $75 includes free registration to CPE seminars; Holiday Party and Student Recruitment Fair • December 4: Holiday Dinner/Social (GRHP09) • January 2010: Annual Tax Update

PEE DEE CHAPTER Dues: $50 includes discounted registration to CPE seminars and student event at Francis Marion • Stay tuned for 2010 events!

PIEDMONT CHAPTER Dues: $50 includes registration for CPE at a nominal fee and free holiday luncheon • December 2: BPEN—Billiards, Pizza, Education and Networking (1 hour, PI082409) • December 17: Fourth Annual Holiday Charity Luncheon in conjunction with Tax Update with Walter Nunnallee (PIHP09)

SEA ISLAND CHAPTER Dues: $135 includes free registration to CPE seminars and two special events, Night at Comedy Club and Professionals’ Night • December 15: Federal Tax Update with Walter Nunnallee (8 hours, 58309HH, $50 discount for chapter members)

Register for chapter events online or by phone. Questions, comments or special needs? Contact Katherine Swartz, CAE at

Pictured left: Members of the Piedmont Chapter of SCACPA at the BPEN Series – Billiards, Pizza, Education and Networking. The next BPEN event is December 2.


South Carolina CPA Report w November/December 2009

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South Carolina CPA Report w November/December 2009


Upcoming CPE

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Opportunity Knocks 2009 Federal Tax Update Road Show with Walter Nunnallee


sing a combination of humor and examples, the Farmer/Nunnallee Tax Seminars review

current year federal tax developments, recurring problems and planning ideas affecting individuals,

Dates and Locations Florence (12/14): Southeastern Manufacturing and Technology Institute (58309FF)

on tax developments having the greatest impact

Bluffton (12/15): USC Beaufort at Bluffton (58309FH) New! Co-sponsored by the Sea Island Chapter

on 2009 tax return preparation and tax planning.

Columbia (12/16): Embassy Suites (58309FC)

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Greenville (12/17): Embassy Suites (58309FG)

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Course Information Field: Tax (8 hours) Fees: CC $190, EB $195, M $220, NM $270




Instructor: Rebecca Lee Location: SCACPA Office, West Columbia Accommodations: Hampton Inn @ I-26 1094 Chris Drive West Columbia, SC 29169 (803) 791-8940 Room Rate: $79

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Meeting Workpaper Documentation Requirements (59109N)

Various standard setting bodies are expanding the requirements for both workpaper preparation and retention. Samples of key workpapers will be included in the manual. Field: Auditing (2 hours) Fees: EB $75 (expires 12/8/09), M $100, NM $150 (CC not applicable)

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South Carolina CPA Report w November/December 2009

Develop an understanding of the International Accounting Standards and their differences between U.S. GAAP. Field: Accounting (2 hours) Fees: EB $75 (expires 12/9/09), M $100, NM $150 (CC not applicable)

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January 7, 2010

January 4, 2010

Tax Planning Based on Form 1040 (60010) - Art Werner, JD Learn how to chart alternatives and guide clients through these complex tax times. Topics include the Alternative Minimum Tax, charitable giving, tax-saving strategies for real estate owners and investors, and more.

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The Complete Guide to the Preparation of Form 1041 (60110) Art Werner, JD Gain a practical understanding of the issues involved in preparing the U.S. Income Tax Return for Estates and Trusts (Form 1041).

January 6, 2010

Surgent McCoy’s 1040 Tax Season Survival Guide (60210) Dorita Estes, CPA Get up-to-date with the changes and major issues in preparing individual income tax returns for the 2009 tax year.

The Best Individual Income Tax Update Course by Surgent McCoy (60310) - Dorita Estes, CPA Learn the latest in tax law developments, including discussions of the planning opportunities and tax-saving ideas available to your individual tax clients.

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The Best Income Tax, Estate Tax, & Financial Planning Ideas of 2009 (60410) - Dorita Estes, CPA Explore practical tax-planning ideas to assist clients with their needs—crucial for CPAs looking for good ideas that can save clients money!

January 14, 2010

The Complete Guide to Preparing Limited Liability Company, Partnership, and S Corporation Federal Income Tax Returns (60710) Bart Carson, CPA In one day, learn how to prepare S corporation, LLC, and partnership tax returns with a case study on both Form 1120S and Form 1065.

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South Carolina CPA Report w November/December 2009


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Member News continued from page 26. Samuel “Ludie” Watkins died September 4, 2009 after a courageous battle with cancer. Ludie was a graduate of Furman University with a degree in Business Administration. He was a practicing CPA with an office at Clinton, and a member of SCACPA and the AICPA since 1973. He was also an active member of Sons of Confederate Veterans and a civil war reenactor. He spent 48 years as organist at New Prospect Baptist Church, and was a member of Beaverdam Baptist Church. Surviving are his wife, Mary Lee Ricketts Watkins; daughters, Beth (Chad) Thomas of Clarksville, GA and Sarah (Phalen) Satterfield of Ocala, FL; and five granddaughters. Memorials may be made to Beaverdam Baptist Church Building Fund, 1555 Beaverdam Church Road, Mountville, SC 29370 or New Prospect Baptist Church, 4996 Hwy 221 S, Laurens, SC 29360.

Greenville; sons, Charles W. Whitmire, Jr. (Diane) of Taylors and Steve Allen Whitmire (LuAnne) of Greenville; brother Jerry Wilie (Pat) of Madison, WI; nine grandchildren and four greatgrandchildren. Condolences may be made at

Karen Michelle Young, 21, died January 24, 2008 in Rome, Italy while studying abroad. She is survived by her parents, Thomas and Patricia Young and brother James of North Attleboro, MA; grandparents Robert L. and Bonnie Hoy; numerous aunts and uncles; 17 cousins and other extended family. Karen graduated from Bishop Feehan in Attleboro where she excelled in academics and art. She was a junior at the University of South Carolina in Columbia, majoring in Business and Finance and a student member of SCACPA. She was a dedicated and ambitious young woman who set high standards and goals in her life, and Gail Wilie Whitmire, 68, of Townville, SC, died October 6, 2009. Born December touched many lives with her wit and sense of fashion. Memorials may be 5, 1940 in Plymouth, WI, she was the daughter of the late Alfred and Melinda made to Bishop Feehan, 70 Holcott Street, Attleboro, MA 02703 or YoungLife. Hesse Wilie. A graduate of Furman (Editor’s note: SCACPA was just recently University, she was owner of Gail W. Whitmire CPA, became licensed in 1977 notified of Karen’s death.) n and joined SCACPA in 1978. Surviving Members are encouraged to promote their accomplishments is her husband, C. Wofford Whitmire; in The SC CPA Report. Please send announcements or press daughters Debbie Whitmire Brantley releases to Katherine Swartz at (Mike) of Cumming, GA, and Linda Whitmire Vander Wood (Tony) of


South Carolina CPA Report w November/December 2009

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570 Chris Drive, West Columbia, SC 29169 ADDRESS SERVICE REQUESTED


Est. 1980

Nov-Dec 2009 CPA Report  

Distributed to over 3,800 accounting professionals, the CPA Report magazine is a much anticipated quarterly publication.

Nov-Dec 2009 CPA Report  

Distributed to over 3,800 accounting professionals, the CPA Report magazine is a much anticipated quarterly publication.