2014 On Balance January|February

January|February 2014 | Vol. 10 No. 1 A publication of the Wisconsin Institute of CPAs | www.wicpa.org

AHEAD OF THE CURD ADAM A. LIEBL, CPA, CISA, ASSISTANT CONTROLLER, SARGENTO FOODS INC.

PLUS:

Top tax issues for 2014 Expanding your accounting practice Saving beyond 401(k) and IRA plans

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A publication of Wisconsin Institute of CPAs | www.wicpa.org

January/February 2014 Vol. 10 No. 1

6 Features

Columns

6 Ahead of the curd Adam A. Liebl, CPA, CISA carves out a career as the assistant controller at Sargento Foods Inc.

By Cynthia M. Hodnett

28 TAX

Top five tax issues of 2014 This year’s hot tax issues include tax and health care reform and tangible property.

By Brad Bertler, CPA

10 Four strategies to grow your accounting business Take steps to grow your accounting practice and stand out from your competition.

By Stephanie J. Geurts, CPA, CITP

30 INDUSTRY

Does the new AICPA ethics codification still need work?

A reorganized, user-friendly AICPA ethics code is on the horizon.

By John L. Daly, MBA, CPA, CMA, CPM Executive Education, Inc.

16 State and local tax due diligence: What’s the exposure? Part 2 This last of two articles further explains tax due diligence for selling, buying or restricting businesses.

By Jon P. Skavlem, CPA and Phillip A. H. Roemaat, J.D., CPA 20 What’s new with Microsoft Office 2013?

The latest version of the software offers touch-screen, cloud and mobility.

By Cindy Prindle, MEPD

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32 TECHNOLOGY

Keep your eyes “OPENED” in international cloud computing U.S. companies with foreign offices in the cloud should be aware of six emerging legal risks.

By Andrew J. Schlidt, J.D.

Departments

34 FINANCIAL PLANNING

Cash balance plans: A powerful new tool in retirement planning Go beyond 401(k) and IRA accounts to create a smart retirement savings plan.

By James K. Schneider, CFP®

24 Kudos | members in the news

3 Outlook | chair’s letter 5 Spotlight | from the editor 15 In Touch | president & ceo’s message

24 Odds & Ends | news briefs 25 Membership Matters | member benefits 26 Memorials | departed members

On Balance

January|February 2014

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2013 Apex Award for Publication Excellence

2013-2014 WICPA OFFICERS/BOARD MEMBERS Chair Robert A. Gruber, Ph.D., CPA, CGMA Chair-elect Jean M. Hansen, CPA, MBA, CGMA Past-chair Danica E. Olson, CPA, CGMA Secretary-treasurer Joy L. Hertlein, CPA, CGMA Directors Kyle J. Beld, CPA Greta C. Diercks, CPA Katherine L. Hauser, CPA, MBA, CGMA Kelly K. Miller, CPA Joan M. Phillips, CPA Matthew I. Raunio, CPA Gregory L. Ryan, CPA Carver Smith, CPA Martin D. Verhelst, CPA AICPA Council Nicholas S. Lascari, CPA, CEA, CGMA Karla E. Blair, CPA President & CEO Dennis F. Tomorsky, CPA, J.D., CGMA Vice President of Communications Amy E. Gaeth Vice President of Membership & Marketing Barb Gamez Editor Cynthia M. Hodnett Copy Editor Joan Bahr Design & Layout Angela Wade Advertising Manager Ellen Engel Printing Marek Printing Join us online!

On Balance is published six times a year by the Wisconsin Institute of Certified Public Accountants (WICPA). Change of address should be sent to: Membership, 235 N. Executive Drive, Suite 200, Brookfield WI 53005; Phone: 262-785-0445 or 800-772-6939 (WI/MN); Fax: 262-785-0838; email: jessica@wicpa.org. Statements and opinions expressed are those of the authors and not necessarily those of the WICPA. Publication of an advertisement does not constitute an endorsement of the product or service by On Balance or the WICPA. Articles may be reproduced with permission. © Copyright 2014 On Balance.

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On Balance

January|February 2014

Write away!

On Balance writers needed Are you interested in writing for On Balance magazine?

You should be. The benefits of writing an article include: • Exposure to nearly 8,000 members, peers and clients.

• Opportunity for you and your firm or company to gain visibility with potential clients.

• Enhanced research and written communication skills.

• A reputation of giving back to the profession.

The magazine features peer-written columns on tax, technology, fraud and industry. If you are interested in sharing your expertise and experiences in the CPA profession by writing an article, we’d love to hear from you. Contact Editor Cynthia M. Hodnett at 262-785-0445 ext. 3004 or cynthia@wicpa.org for more information.

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{ Outlook | chair’s letter } “Participating in a professional organization allows members to have more influence on their profession instead of ‘going at it alone.’”

DON’T GO AT IT ALONE: Get connected to the WICPA

W

hat is a professional organization?

Professional organizations, i.e. associations, are nonprofit organizations that promote a particular profession, the members of that profession and/ or the public interest. There are a plethora of professional organizations, especially within the accounting discipline.

The focus of these organizations includes public accounting, internal auditing and fraud examinations. For example, each jurisdiction that grants a CPA license has a corresponding professional accounting institute or society.

WICPA member Michael I. Sattell, CPA, CFE leads a financial literacy class. Photography by Mark Hines

What are the benefits?

The adage “it’s not just what you know, but who you know” certainly applies to membership in professional organizations. Thus, three reasons for joining are:

1. Opportunity for networking This is probably the most important function of professional organizations, i.e., providing a mechanism for people in the same profession to gather and exchange ideas of mutual interest. Building relationships with other professionals is especially important, as economic downturns affect job or promotion availability. Often, professional organizations are the first places people go for accounting advice because of the brand value associated with the CPA designation.

2. Professional development One way that professional organizations add value for members is by offering educational and advancement opportunities for competency enhancement. This includes annual conferences, technical workshops, and instructional materials for self-paced, individualized learning.

3. Updated information about the profession One of the most efficient ways to keep up-to-date with developments in the profession is to interact with one’s peers at technical conferences sponsored by professional organizations. This is especially important in knowledge-

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intensive professions, like accounting, and in business environments that are complex and constantly changing.

What are the costs?

The most obvious cost associated with professional organizations is membership dues. Other costs are more intangible, such as the opportunity costs of serving committees and attending conferences instead of “going to work.” But the biggest costs are simply joining and not getting involved! In my opinion, every member of a profession has the responsibility to participate and give back to that profession. Participating in a professional organization allows members to have more influence on their profession instead of “going at it alone.”

Robert A. Gruber, Ph.D., CPA, CGMA is a professor and Master of Professional Accountancy program On Balance January|February 2014 coordinator at the University of Wisconsin-Whitewater.

Contact him at 262-472-5463 or gruberr@uww.edu.

3

www.wicpa.org/CPE

se Don’t forget to save the

2014 conference dates!

CPAs in Industry Spring

l Financia ions Institut

ay 15 Thur., M

Tue., March 18

Not-for-Profit & Health Care Tue., Sept. 30

School Distric t Audit

Wed., M ay 28

Tax Thur., Nov . 6 & Fri., Nov . 7

Scho o Distr l ict Audi t

Thur

., Ma y

CPAs in Industry Fall

29

Tue., Sept. 23

ing, Account & Auditing l ia Financ e m nt Manage

Technology Thur., Dec. 4 & Fri., Dec. 5

ov. 19 Wed., N

COMING IN APRIL

Reading Makes ¢ents

Read-A-Thon Help Wisconsin kids become money smart! Visit the local elementary school of your son, daughter, niece, nephew or neighbor during the month of April and read to students about the basics of money. Select a book from a recommended reading list or choose your own book with a money-related theme.

Borrow a book from your

In conjunction with Financial Literacy Month,

To pledge your participation,

Money Smart Week and Teach Children to Save Day,

email Mary Murray at

the WICPA will host its sixth Read-A-Thon in April.

4

local library or purchase a book and leave it with the teacher.

WICPA members will receive handouts to bring to class, including information for parents, a piggy bank for students and financial literacy curriculum for teachers. For more information, visit www.wicpa.org/Reading.

On Balance

January|February 2014

mary@wicpa.org.

www.wicpa.org

{ Spotlight | letter from the editor } “Now that we’re a few weeks into 2014, what kind of a year are you looking back on, and what kind of a year are you looking forward to?”

A new year with a renewed promise

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T

he start of a new year is a good time to reflect on how much you’ve grown or achieved, mistakes you’ve made, lessons you’ve learned and new goals you aspire to achieve.

Now that we’re a few weeks into 2014, what kind of a year are you looking back on, and what kind of a year are you looking forward to?

It’s an annual tradition for most of us to try to improve at least one area of our lives. Common resolutions include adapting a healthier lifestyle, finding more work-life balance and professional development. Making these types of personal resolutions is good, but I don’t often hear people making resolutions to serve others.

How we can accomplish a selfless resolution to help others? Each of us can share our gifts and talents. It can be volunteering at a nonprofit or supporting a fundraiser a few hours a month. Personally, I enjoy participating in my church’s monthly food and clothing drive for low-income families.

Many of you are already involved in your community. Often, I receive emails about members like you who support various causes, including building homes for low-income families and serving on boards of nonprofit organizations. No matter how you choose to serve, you realize that giving back helps those in need and encourages your peers to get involved too.

If you need ideas about volunteering with the WICPA, visit www.wicpa.org/volunteer. There, you can learn about the institute’s boards and committees and how to join. You can also promote the accounting profession as a high school speaker or read

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a book with a financial literacy theme to grade school students during the annual Reading Makes Cents event in April. You can also do probono work, such as helping a local nonprofit with its accounting tasks.

Speaking of a new year, read this year’s first issue of On Balance. In these pages, you can read about WICPA member Adam A. Liebl, CPA, CISA and his role as assistant controller at Plymouth-based Sargento Foods Inc. You can also read about this year’s top tax issues. Then, discover how to grow your accounting practice, how U.S. companies with international offices can work effectively in the cloud and how to choose retirement planning options beyond the traditional 401(k) and IRA.

Cynthia M. Hodnett is editor of On Balance magazine. Contact her On Balance ext.January|February 2014 at 262-785-0445 3004 or cynthia@wicpa.org.

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Ahead

Photography by John Nienhuis

6

On Balance

January|February 2014

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of the curd Adam A. Liebl, CPA, CISA carves out a career as assistant controller at Sargento Foods Inc. By Cynthia M. Hodnett

MANY PEOPLE HAVE SOME UNCERTAINTY WHEN CHOOSING A CAREER. HOWEVER, ADAM A. LIEBL, CPA, CISA, ASSISTANT CONTROLLER AT PLYMOUTH-BASED SARGENTO FOODS INC., SAW THE BENEFITS OF AN ACCOUNTING CAREER AT A YOUNG AGE.

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On Balance

January|February 2014

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reaching a goal that benefits the overall team.”

Liebl graduated with a Bachelor of Business Administration in accounting and computer end user technologies from the University of WisconsinWhitewater in 2005. He graduated from UWWhitewater’s Masters Accountancy program the following year. In 2006, Liebl joined what is now Baker Tilly Virchow Krause in Milwaukee for about five years.

He earned his certified public accounting license and certified information systems auditor accreditation.

He then joined Reinhart Boerner Van Deuren, s.c., in Milwaukee two years later to serve as controller.

Then he later moved to Sargento to assume the role of assistant controller.

A future full of possibilities Liebl, a WICPA member, credits his earlier “I was probably one of the few who came out of college being what I expected to be,” Liebl said.

“I’ve always had an entrepreneurial spirit and saw accounting as the language of business and a means to better enable myself to understand the financial operation of an organization and become a more valuable leader.”

Recipe for success Liebl’s responsibility as assistant controller of the $1.2 billion food company includes overseeing financial processing and reporting, financial planning, as well as helping to manage its financial risks. He manages approximately 10 employees, including several accountants. Although he enjoys the accounting aspects of his role, it’s the people who matter most.

“People are the most important component of any business,” he said. “Both successful and unsuccessful organizations are defined and exemplified by the people

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experiences in public accounting for preparing him for his current role in industry.

“Baker Tilly provided a great professional foundation,” he said. “I was afforded many stretch opportunities by my mentors to participate in and lead a wide variety of financial and IT audits. Additionally, these same mentors invested a tremendous amount of time and effort in helping me to refine my communication, leadership and project management skills by placing me in challenging situations, which had complex client needs and compelled me to quickly enhance these, as well as my technical skills.”

“Due to my dual background and experiences in accounting and IT, I was able to play unique and expanded roles in engagements,” he said. “I was able to participate in strategy and business consulting related projects during the non-busy season to assist clients with important business process improvement, tax and strategy-related initiatives. I viewed these

who drive them — people make the difference. The

experiences as tremendous opportunities, which

concept of stewardship and talent development has been

uniquely differentiated my career path from that

instilled into me early in my career in public accounting.

of a typical accountant. I still view these unique

I take a great deal of pride in helping someone to grow/

experiences as some of the most challenging and

stretch their personal skill sets while concurrently

rewarding of my career.”

On Balance

January|February 2014

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George H. Hoff, CPA, executive vice president and

“There’s a lot of balancing when it comes to work and

chief financial officer at Sargento, said Liebl is an asset to

family,” he said. “Being a new father doesn’t leave much

the company.

extra free time, but I have never had a more rewarding role and am happy to put in any

“He is high energy, very positive and quite talented,”

overtime I can get.”

Hoff said. “What he brings to the table at Sargento is a variety of experiences from public accounting. We already had a very strong core team of professionals before, but since he’s been here, he’s complemented that core team because of those experiences.”

job, the same can’t be said about his choices of cheese.

“I suppose I like the Colby Jack mix, it’s pretty mild, not too spicy, not too out there,” he

Enjoying the flavor of life

said jokingly. “It’s pretty standard. Maybe I should

When he’s not working, Liebl enjoys spending time with his wife Stephanie, who is also a CPA, and their 10-month-old daughter, Emma.

Although Liebl enjoys variety in his current

branch out a little more.”

Cynthia M. Hodnett is editor of On Balance magazine.

Contact her at 262-785-0445 ext. 3004 or cynthia@wicpa.org.

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On Balance

January|February 2014

9

Four strategies to

GROW YOUR ACCOU

By Stephanie J. Geurts, CPA, CITP

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On Balance

January|February 2014

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UNTING BUSINESS There are two traditional ways that accounting practices achieve growth: expansion of the existing client base (targeted marketing, referrals and sales strategies) or mergers, and acquisitions with existing practices that have similar business models. However, maintaining or increasing opportunities for growth will depend on the following four factors.

Human capital Let’s start with our foundation, our employees. We know we have to provide quality products in a timely matter. But that is not possible without our most important asset: our staff. Investing in people who are committed and hardworking is the first step in building your foundation. But, maxing out your best people prevents growth. It is crucial to keep a pulse on work load so you do not hit critical mass.

This also includes purging the “bad clients.” Most firm leaders do not like to lose business, but we all have those clients who consume the most resources, stress out our staff and are the most fee sensitive. Purge them! In a recent seminar, the instructor advised us to keep our competitors’ business cards on hand. While that is certainly a humorous idea, there is some truth to the concept of not bogging down our staff with those types of clients.

Partnering and networking Our practice partners with other CPA firms. We perform a significant amount of payroll, write-up work and consulting on Quickbooks and Creative Solutions products, and we offer those services to firms that need to maintain their independence.

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On Balance

January|February 2014

11

You have to determine your strengths and focus on

with the responsibility of upgrading and maintaining

what you do best. You need to be a visionary for your

programs. Cloud-based solutions give us access to data

firm and know that you can’t chase all types of work.

more efficiently. We can eliminate some of the paper

Learn to say no when it’s not a good fit. It’s helpful to

flow, which benefits us and our clients. Efficiency

have a “target market” and know when to outsource.

in our operations and our clients’ operations lies in

Networking with other CPAs in your community — not

technology.

just traditional referral sources of attorneys, bankers

Value-added services

and financial advisors — is a beneficial growth strategy.

Technology

Clients are demanding services beyond regulation and compliance. They are often looking for a business consultant who will offer planning tools such as tax

Workflow efficiency within our firms is critical.

projections, cash flow analysis, budgeting, hiring

Streamlining our systems, improving productivity

practices and training. They are also looking for

and avoiding downtime from IT interruptions are also

services they deem valuable, not just an audit report

key. A firm cannot stay competitive with outdated

or a tax return. Few businesses will be impressed with

technology. Clients also benefit from using current

the standard required regulatory procedures. However,

technology and are increasingly looking for advice

most will be impressed if you can find them a way

on how to improve their work efficiency. They need

to save money or train them how to better use their

a leader who can advise them in making technology

technology.

decisions.

Advertising dollars are best spent with your clients

In the past, our industry typically let the client make

by offering referral fees in place of traditional

the IT decision and then we adapted to it. But now, the

advertising. Your existing book of business can be

better answer is to lead our clients. Today, clients are

your best referral source, so it’s important to find the

looking for help with maximizing process efficiencies

time to build relationships and deliver services that

in areas such as online banking integration, automating

will benefit your clients. Finding extra time can be

the accounts payable cycle, use of mobile devices

challenging, but it is important when seeking growth.

and virtual accounting. In a world of ever-changing

You need to set yourself apart from the competition.

technology, clients want strategic direction for their infrastructure. Many business owners do not have the time or capacity to keep up with current trends.

The U.S. Department of Labor predicts 17 percent

We need to understand their workflow and identify

growth in the business and financial operations

areas where they can eliminate manual processes by

occupations (including accountants and auditors)

using technology solutions. They expect us to have

through 2020. Being part of this growth means

an understanding of remote access, integration of

implementing the strategies that will grow our

systems, data backup procedures and Web-based

client bases through retaining quality employees,

solutions.

implementing current technology, referrals and

With the increase in popularity of cloud computing, computers are not always used in the traditional

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We are fortunate to be part of a growing industry.

ultimately client satisfaction.

way. Cloud computing offers the flexibility of renting

Stephanie J. Geurts, CPA, CITP is an account director at Suttner Accounting, Inc., in Oshkosh. Contact her at

versus purchasing applications and leaves the provider

920-233-4260 or sjg@suttnercpa.com.

On Balance

January|February 2014

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On Balance

January|February 2014

13

2013 Past Chairs’ Dinner

Past chairs of the WICPA Board of Directors and the WICPA Educational Foundation, Inc. Board gathered for an annual photo at the WICPA Past Chairs’ Dinner on Sept. 26 at the Grand Geneva Resort in Lake Geneva.

WICPA Board of Directors Past Chairs

Front row L-R: Eugene Recknagel (‘64-‘65), Joe Sperstad (retired executive director), Donald Wagner (‘92-‘93), Duane Kuehl (‘81-‘82), Lucretia Mattson (‘98-‘99), LeRoy Schmidt (retired executive director) and William Heinrich (‘10-‘11) Back row L-R: Danica Olson (‘12-‘13), John Hicks (‘88‘89), Karin Gale (’03-’04), Joe Stienessen (‘02-‘03), Daniel Heerey (‘07-‘08), Eugene Miller (‘90-‘91), Robert Albrecht (‘80-‘81), Kim Tredinnick (‘97-‘98), Nicholas Lascari (’11-’12), David Christianson (‘05-‘06), Thomas Mickelson (‘01-‘02), Douglas Haag (‘00-‘01) and William Goodman (‘99-‘00)

WICPA Educational Foundation, Inc. Board Past Chairs

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On Balance

January|February 2014

L-R: Eugene Recknagel (‘74-‘75), James Miller (‘08-‘10), Robert Albrecht (‘90-‘91), Robert Gruber (‘10-‘12) and Duanewww.wicpa.org Kuehl (‘87-‘88)

{ In Touch | president & CEO’s message } “The WICPA created the Hot News section of our home page to give you only those timely professional news items that most CPAs should know about, without having to skim through extra information.”

WICPA Hot News: Your quick daily professional update

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I

f you subscribe to any print or email publications, you’ve experienced information overload. It’s time-consuming to filter out the many ads and irrelevant items in multiple daily newsletters to find those few mission-critical developments you need to know about each day.

The WICPA created the Hot News section of our home page to give you only those few timely professional news items that most CPAs should know about, without having to skim through extra information. These few important daily news items are also posted to the WICPA LinkedIn Group and WICPA Twitter account, and can be emailed to you at the time intervals selected in your LinkedIn and Twitter settings. Your time is valuable, and saving you a few minutes a day by avoiding the need to filter through multiple daily newsletters looking for the occasional critically-important news item can increase your efficiency.

Items posted in Hot News are identified by me after scanning five to 10 daily electronic CPA newsletters. Each e-newsletter contains more than 30 news items and many advertisements.

My experience as a CPA, attorney and WICPA CEO gives me a background and awareness of the issues that are likely to affect most CPAs as they serve their employers and clients.

Also, my familiarity with continually evolving professional CPA issues helps me quickly scan these daily e-newsletters and share links to valuable information and authoritative resources in the posts on our home page and social media feeds.

www.wicpa.org

You can have one or two top daily news stories for CPAs emailed to you whenever you choose (immediately, daily or weekly) by joining the WICPA LinkedIn Group. You can do this by adjusting your settings for the timing of updates you wish to receive from the group.

Since LinkedIn is the most widely accepted social media vehicle for business professionals around the world, all CPAs should have a LinkedIn account. Like the fax machine of the 1980s, Internet and email addresses in the 1990s, cell phones in the millennium and smart phones today, a LinkedIn account is the equivalent of having indoor plumbing in the 1920s and a rotary telephone in the 1940s.

Consider leveraging LinkedIn to get the most from your WICPA membership.

Dennis F. Tomorsky, CPA, J.D., CGMA is president & CEO of the Wisconsin Institute of CPAs. Contact him at 262-785-0445 ext. 3014 or dennis@wicpa.org.

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BY JON P. SKAVLEM, CPA AND PHILLIP A.H. ROEMAAT, J.D., CPA

P

art one of our article, which appeared in November/ December 2013 On Balance, highlighted the importance of state and local taxes when purchasing or selling a company. That part of the article focuses on due diligence generally and income/franchise taxes. This part focuses on sales and use tax and concludes with recommendations on how to mitigate the exposures prior to a sale.

SALES AND USE TAXES Increasingly, sales and use taxes are a major exposure item for businesses. As the number of businesses operating as pass-through entities has grown, the yield to states from corporate income tax audits has diminished.

Attention and audit resources have shifted to sales and use taxes. In addition, new sales tax jurisdictional standards such as “affiliate” and “click through” nexus have dialed up exposure for businesses. Under Generally Accepted Accounting Principles, material sales and/or tax exposure should be recorded on a target’s books as a contingent liability pursuant to ASC 450, formerly FAS 5.

Nexus is an especially key issue for retailers since they are primarily liable for remitting sales tax on sales of taxable goods or services, regardless of whether the tax is or is not collected. Due diligence requires that a retailer’s nexus footprint be mapped and material liability for unfiled returns be computed, including tax, interest and

potential penalties. This can be a challenge for certain businesses such as equipment leasing where the location of the lessor’s property might change during the course of the lease.

Another key exposure factor for retail businesses is the maintenance of exemption certificates. State and local tax authorities will assess sales that qualify as non-taxable, e.g. resale or manufacturing exemption, in the absence of valid, properly executed exemption certificates.

Additionally, some states provide exemptions to manufacturers that acquire tangible personal machinery, equipment and supplies used in the production process.1 It can be a nasty surprise for the seller to find out that its sales to manufacturers were not exempt during the years under scrutiny. It is a due diligence red flag if a target company’s exemption certificate files are in poor condition and procedures for obtaining certificates are faulty.

For all types of businesses, use tax must be selfassessed and paid on purchases of taxable goods and services where the retailer does not collect sales tax.

Surprisingly, this is a major area of audit exposure, and states continuously issue large assessments for failure to report use tax. Even if the target business self-assesses use tax, certain industries face major challenges in determining the proper amount to accrue. Additional

1

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On Balance

January|February 2014

See, e.g. Tex. Tax Code Ann. § 151.318(a)(2); Wis. Stat. § 77.54(6)(a)

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vigilance is required when analyzing the use tax accruals of construction contractors and manufacturers due to complexity of state and local tax codes. The complexity extends to select purchases such as software or advertising services where the line between taxable and exempt is often blurred.

Similar to sales tax, the lack of clear documentation and procedures for accruing use tax signals a due diligence problem. The sales and use tax compliance function should be documented in the company’s policies, tax files and related work papers. This includes maintaining a tax calendar of the applicable due dates and having an organized collection of past filed returns (both in paper and electronic copies). A company’s audited financial statements, including management comments, might make note of any concerns that exist about the target’s sales and use tax compliance efforts because of their tie-in to the company’s system of internal controls.

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OTHER TAXES Companies may be subject to other taxes based on the states where it does business. Examples of these types of taxes include property taxes (both personal property and real property), unclaimed property and specific excise taxes if the company is in a specialized industry. Unclaimed property audits are growing in frequency, even in states that traditionally have not been active in the area such as Wisconsin and Michigan. As a result of recent legislation, the enforcement and compliance responsibilities in Wisconsin have been transferred to the Department of Revenue, likely signaling more audit activity on holders’ unclaimed property in the state.

Like income tax and sales and use tax, documenting the process and procedures surrounding the filing of the required returns is imperative. This includes keeping a compliance calendar, copies of the particular returns that have been filed, related work papers and notices from state and local tax officials.

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17

Prior to selling, companies should identify the risks they face related to state and local taxes. The first phase in this process is defining the scope of material risk. For some companies, having $10,000 of past exposure is material, but for others this amount might be $100,000.

Understanding the company’s materiality level ultimately helps guide the decision process once risk is identified.

Given the impact it could have on the earnings multiple of a deal, it is important to define and understand materiality.

The second phase in this process is analyzing specific areas of exposure. The risk assessment starts with cataloging the company’s activities and their locations.

Questions should include (and often mirror state nexus questionnaires): •

What is the nature of the target’s product or service?

•

Is the company an industry with special state and local tax concerns such as financial services, franchising and regulated transportation?

•

Where does the company have employees?

•

What are the employees doing outside the company’s home state?

•

Where does the company own or lease property outside its home state?

•

Where does the company maintain inventory?

•

Does the company render repair, maintenance or installation services through employees or subcontractors?

•

Does the business sell or license intangible assets such as software or patents?

The company’s tax adviser can provide advice as to whether the company has risk in certain states and localities and special industries. Additionally, the company’s tax adviser might perform a nexus study, tax procedures review or reverse audit to get an understanding of the business’s overall state and local tax exposure.

The last phase in the process is developing ways to mitigate the company’s risk. After the initial exposures are found and they are determined to be material, it might warrant entering into a voluntary disclosure agreement or amnesty program with select states and localities.

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Voluntary disclosure and amnesty programs are offered by states to encourage taxpayers, often anonymously, to file prior year returns and pay the related taxes. Most states will limit the prior filings to a look-back period, ranging from three to six years (or higher depending on the state). The state will also waive any penalties associated with the taxes due.

Voluntary disclosure agreements are often executed by potential sellers of a business in order to “clean up” its balance sheet. The removal of ASC 740 or ASC 450 tax liabilities prior to or as part of due diligence can lead to smoother negotiations with interested buyers.

Pre-sale state and local tax due diligence by a seller might only lead to the recognition of unrecorded tax exposures if the proposed sale falls through. However, the process helps in setting a realistic selling price and the drafting of appropriate buy-sell warranty provisions.

Again, the final result will likely be better for the seller and the buyer.

The state and local tax due diligence investigation should not be the end of the process for the target.

Leveraging off the findings, the new owners and management of the company should develop appropriate state and local tax compliance procedures, including an annual nexus review for the various types of tax. They can be carried out as a part of year-end planning for the company. It should document its state and local tax compliance systems in the same way that other internal controls are documents as part of a financial audit.

CONCLUSION If you are contemplating buying or selling a company, it is important to understand the company’s state and local tax exposure. Given the impact on deal multiples, coupled with an ever-increasing difficult compliance environment, buyers and sellers need to be aware of the possible existence of unrecorded liabilities. Advance planning can go a long way toward a successful outcome for both sides of the deal.

Jon P. Skavlem, CPA is a director in the State and Local Tax Group at Baker Tilly Virchow Krause, LLP in Milwaukee. Contact him at 414-777-5333 or jon.skavlem@bakertilly.com.

Phillip A.H. Roemaat, J.D., CPA is a manager in the State and Local Tax Group at Baker Tilly Virchow Krause, LLP in Milwaukee.

Contact him at 414-777-5445 or phillip.roemaat@bakertilly.com.

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West Bend. Insurance you buy when you can’t afford anything less.

To find out more, contact the official supplier of the Silver Lining®.

Professional Insurance Programs at 414-277-0154 or info@insuranceformembers.net www.wicpa.org

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WHAT’S

NEW WITH

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OFFICE 2013?

T

By Cindy Prindle, MEPD

he interface in Office 2013速 includes thousands of commands. While many of these commands are similar to past versions, new enhanced commands and features make Office 2013 applications more functional and efficient. The applications are redesigned to work better on tablets and other touchscreenequipped devices and make it easier to collaborate through the cloud. You can effortlessly switch between using a mouse to touch mode in one tap of an icon. In touch mode, both the size and spacing of all commands increase, making it easier to work by touch.

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“Office 2013 provides more effective ways to share your information.”

To leverage many of the new features in Office 2013, you

In Excel, three of the most powerful new features are flash

must log in using a Microsoft account. If you don’t have a

fill, quick analysis and chart tags. Flash fill makes the process

Microsoft account, you can follow simple on-screen instructions

of changing how data appears more efficient. For example,

to set up one. Once logged in, you can store your files on the

after an import, you might want to add dashes to a list of

cloud using Microsoft’s SkyDrive storage and synchronize files

numbers, remove or add formatting or punctuation, extract

between multiple devices. You can also connect to other online

parts of a text string or combine columns. Flash fill allows you

content and sharing services such as Facebook, Flickr, YouTube,

to select an adjacent cell and type in the data formatted how

LinkedIn and Twitter. Plus, you can open and save files to your

you would like it to appear. It will automatically complete

SkyDrive account just like files on your own computer from all

the series. Another new and powerful tool is quick analysis.

Office 2013 applications.

Instantly analyze selected data and preview how it will look

Office 2013 provides more effective ways to share your information. You can send files by email in a variety of formats, send by instant message or post to a blog. You can present and share your Word documents and PowerPoint presentations online in real time, even with users without a Microsoft account, by using a free office presentation service. You can also collaborate in real time by using Microsoft Lync. Lync enables users to communicate securely and collaborate on office files anywhere they have network connectivity.

In Word, three of the most useful new features are alignment guides, layout options tag and editing PDFs. Alignment guides appear automatically when moving a graphic so you can easily align them with other elements. These guides indicate when the graphic is aligned with the center of the page, horizontally and/or vertically, as well as within the paragraph.

The layout options tag appears automatically once any object has been inserted into the document. In a single tap, you can control how the text wraps around that object. The ability to convert PDF documents to editable Word documents is a

using formatting, charts, totals, tables, sparklines and more with the tap of a finger.

Finally, chart tags automatically appear once you have created any type of chart. You can choose the chart you want or use the recommended charts command to select a chart from a suggested list based upon analysis of the data. The three tags that appear are chart elements, chart styles and chart filters.

In PowerPoint, three handy new tools are the eyedropper tool, smart guides and merge shapes feature. By first selecting a color from an image file embedded in a slide or found in another application, the eyedropper tool allows you to precisely match a color for use in your presentation. The eyedropper tool can be found on any menu that allows you to pick a color, such as borders, text, fill or color effects. The smart guides appear temporarily and automatically to help you match alignment and spacing with other objects placed relative to a selected object on the slide. Merge shapes are added to the insert shapes group. This feature allows you to create your own customized shape by overlapping two or

major enhancement in Word 2013. To convert a PDF to a Word

more shapes. You can combine them in one of five different

document, open the PDF document in Word. This process is not

ways: union, combine, fragment, intersect and subtract.

the same as editing a PDF in Adobe Acrobat Pro. The ability to convert in Word allows you to change a PDF and save it again as a PDF.

Cindy Prindle, MEPD is the training and professional development manager at Hawkins Ash CPAs in La Crosse.

Contact her at 608-793-3120 or cprindle@hawkinsashcpas.com.

WICPA CPE with Cindy Prindle, MEPD

The Benefits of Cloud Computing, 8–10 a.m., March 12, 2014, Onalaska Course also offered 8–10 a.m., April 9, 2014, Eau Claire 22

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January|February 2014

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Escape to

Excellence Be our GUEST at the WICPA’s largest membership event of the year. All

members are invited to gather with us and recognize the accomplishments of our peers, elect the leaders of tomorrow and revel in the spirit of the profession.

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kudos James D. Broughton, CPA was recently promoted to tax manager at Vrakas/Blum, S.C. in Brookfield.

Nicole A. Doescher, CPA was recently hired as a senior accountant at Honkamp Krueger & Company in Waunakee, according to the Waunakee Tribune.

Rick E. Dreher, CPA

Rick E. Dreher, CPA, managing partner and chair at Wipfli LLP in Green Bay, was recently selected as one of 2013’s Most Admired Peers in the accounting profession by Inside Public Accounting.

Jacquie A. Fossett, CPA was recently promoted to vice president-finance at Assurant Health in Milwaukee.

Amy J. Gallagher, CPA was recently hired as director of administration and finance at Special Olympics Wisconsin in Madison.

Jacquie A. Fossett, CPA

John F. Hager, CPA, J.D. of Hager, Dewick & Zuengler, S.C. in Green Bay, was recently selected by his peers for inclusion in The Best Lawyers in America 2014.

Brad J. Hermes, CPA was recently named as a new shareholder at Vrakas/Blum, S.C.in Brookfield.

Sara M. Johnson, CPA was recently promoted to audit senior at Vrakas/Blum, S.C. in Brookfield.

John F. Hager, CPA

Brian M. Kaker, CPA was recently promoted to tax senior at Vrakas/ Blum, S.C. in Brookfield.

Thomas P. Luken, CPA was recently named chief operating officer of Sikich LLP. Julie M. Ripple, CPA was recently promoted to audit senior at Vrakas/ Blum, S.C. in Brookfield.

Jennifer M. Schultz, CPA was recently named principal at Sitzberger Widmann & Company, S.C. in Brookfield.

Brad J. Hermes, CPA

Howard D. Siegal, CPA was recently promoted to assurance director at McGladrey LLP in Milwaukee.

Ryan Sneed, CPA was recently promoted to audit senior at Vrakas/ Blum, S.C. in Brookfield.

Mark S. Sobczak, CPA was recently named partner-in-charge of Sikich LLP’s Milwaukee office.

Scott M. Syrjala, CPA was recently promoted to tax manager at Vrakas/ Blum, S.C. in Brookfield.

Janean A. Robenhorst, CPA Howard D. Siegal, CPA

Claudia S. Weinberger, CPA of the audit team at Hawkins Ash CPAs in La Crosse recently earned her certified public accountant designation.

Matthew D. Werner, CPA was recently promoted to assurance senior associate at McGladrey LLP in Milwaukee.

Brian T. Wilson, CPA was recently promoted to manager at RitzHolman CPAs in Milwaukee.

Jennifer L. Ziech, CPA

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Odd & Ends CPAs merge accounting firms Christopher E. Platten, CPA LLC and Batley CPA, LLC have merged and now operate under Batley CPA, LLC. Brien P. Batley, CPA is principal of the firm, which has offices in Appleton, Green Bay and Neenah. Chris Platten, CPA is a member of Batley CPA, LLC and manager of the Appleton office at 2919 N. Ballard Road. He replaces Mark Danielski, who relocated to California.

Susan Hintz, CPA, CGMA is manager of the Neenah office at 630 S. Green Bay Road.

Batley CPA’s Green Bay office is at 100 Packerland Drive.

Wipfli LLP named a top 23 firm Wipfli LLP was ranked among the top 23 firms on Inside Public Accounting’s 100 Largest Accounting Firms list for 2013.

The firm moved up two places from last year when it ranked No. 25 and was the top Wisconsin-based firm on the list. The rankings were based on U.S. net revenue.

Magazine ranks accountant among best business careers Accountant ranked No. 3 on the 2013 list of best business careers by U.S. News & World Report. The magazine highlighted data by the U.S. Department of Labor that projects the accounting profession will increase by about 16 percent in next few years. Market research analyst and financial advisor ranked No. 1 and No. 2 respectively.

AICPA: Many small firms lack succession plan Seventy-five percent of all CPAs in the U.S. will be near or at retirement in less than five years, according to recent data from the American Institute of Certified Public Accountants (AICPA). The AICPA also notes that 67 percent of small accounting firms don’t have a formal succession plan.

Jennifer L. Ziech, CPA was recently named partner at Pinnacle Consulting Group, LLC in Green Bay.

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MembershipMatters

By Barb Gamez, vice president of Membership & Marketing, WICPA

HAPPY NEW YEAR! A new year often brings new ideas, new initiatives and of course, new resolutions. Some of these may be carry-overs from last year. Each year, I resolve to eat healthier and exercise more regularly. I find a renewed sense of determination to approach these repeat resolutions in new ways.

The WICPA is no exception. You’ll see new ideas and initiatives this year regarding your membership, including new benefits, new CPE offerings and more. By sharing those with you throughout the year, I hope you’ll resolve to take advantage of your WICPA membership through the myriad benefits and opportunities available.

NEW EMAIL DESIGNS One of the first new initiatives you’ll notice is a redesign of your e-newsletters, beginning with Frequency, My CPE Alternatives and My CPE Connections. The new designs will feature a more consistent and cohesive look and feel, so you can easily recognize them as being from the WICPA. They’re also designed for quicker, easier reading with the content on the left, links to the right and quick links to the WICPA website.

NEW EMAIL PREFERENCES Along with the new e-newsletter designs, the WICPA has a new email service provider, allowing you to choose each type of email you want to receive. You can now subscribe to only the emails of interest to you. To select all of the emails you wish to receive, simply log into your membership

profile on the WICPA website and go to the “Communications Preferences” section. You can change your selections at any time. While you’re updating your preferences, it’s also a good time to make sure we have your current contact information and email address. You can also change the address at which you’d like to receive WICPA emails.

NEW POSITIONING The WICPA is also implementing a new tagline this year: The Standard Above™. This bold, new statement sets WICPA members apart and positions them as the best of the best. The WICPA represents members who are The Standard Above™. This phrase also reinforces the value that the WICPA brings to key stakeholders, including current and prospective members, the business community and the public.

Watch for print advertisements featuring this new statement in various business publications throughout the year, including The Business Journal, InBusiness Madison, and Insight on Business in the Fox Valley area, as well as WICPA publications.

MEMBER BENEFIT SPOTLIGHT:

Save 25-40 percent on CCH orders, including the 2014 Master Tax Guide. Visit www.wicpa.org/memberbenefits, under the “Save Time and Money” section for the link to CCH.

What’s new with you?

Update your membership profile and stay connected >

Help us and your fellow members get to know you better for greater networking opportunities and greater control of the communications you want to receive from us.

Update your member profile today by logging in to www.wicpa.org/memberprofile with your WICPA username and password.

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memorials Joseph C. Boehme, CPA (1940–2013) Joseph C. Boehme, CPA died Oct. 4, 2013, according the Milwaukee Journal Sentinel. He was 73.

Boehme operated his accounting practice, initially named Joseph C. Boehme, CPA, S.C., then expanding it with his daughter, Mary Jo Boehme-Taylor, CPA, MBA as Boehme & Taylor, CPAs S.C. in Brookfield. He earned his certified public accounting license in 1967. The Oconomowoc resident joined the WICPA in 1966.

Nell Ann R. Grant, CPA (1933–2013) Nell Ann R. Grant, CPA died Sept, 14, 2013, according to the Green Bay Press-Gazette. She was 80.

Grant earned an accounting degree from the University of Wisconsin-Green Bay in 1976. She earned her certified public accounting license in 1980. According to the newspaper, Grant worked with her husband, Alexander, and his partner at their law firm. She later worked as an accountant at Bellin Hospital in Green Bay. She retired in 1997. The DePere resident joined the WICPA in 1980.

Donald R. Henrickson, CPA (1939–2013) Donald R. Henrickson, CPA died Sept. 22, 2013, according to the Green Bay Press-Gazette. He was 74. Henrickson graduated from the University of North Dakota in Grand Forks, N.D., and later from Western Michigan University in Kalamazoo, Mich. He earned his certified public accountant license in 1966. He was an accounting professor at St. Norbert College in De Pere for many years.

The De Pere resident joined the WICPA in 1969.

Duane C. Louison, CPA (1935–2013) Duane C. Louison, CPA died Oct. 28, 2013, according to the Milwaukee Journal Sentinel. He was 78.

Louison, a Marine, graduated from the University of Wisconsin-Whitewater. His accounting career includes a position as controller at Erie Manufacturing. He earned his accounting degree in 1969.

The Brookfield resident joined the WICPA in 1969.

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WICPA print publications go digital!

Access On Balance, your No. 1 publication for Wisconsin CPA news, and The Bottom Line, your continuing education magazine, any time or place.

View the current issue and browse the archives at www.wicpa.org/NewsPublications.

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Download a PDF to print or save.

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Zoom in to see larger type.

Register for a course immediately by clicking on its description.

Jump to online links.

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Belong to something more!

View the current issue and browse the archives at www.wicpa.org/NewsPublications.

PEAK PERFORMANCE IS HUMANLY POSSIBLE What are you doing to launch your business forward?

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{ Tax | tax planning }

“Smart companies will use the next 12 months to test the waters and assess how prepared they are for the multitude of reporting requirements that occur in January 2015.�

Top five tax issues of 2014

W

ith the new year, there are many changes and new regulations expected in the tax landscape.

Therefore, companies should be closely monitoring and become engaged when opportunities arise. As you look at your tax-planning activities for 2014, keep your eyes on the following five issues.

1. Affordable Care Act While the employer mandate excise tax and information reporting are delayed until January 2015, many aspects of the act remain unchanged and require employer action. Viewing this delay as an opportunity to sit idle is ill advised.

Instead, employers should remain focused on compliance activities and prepare for the new normal. Smart companies will use the next 12 months to test the waters and assess how prepared they are for the multitude of reporting requirements that will occur in January 2015.

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2. Tangible property Final and re-proposed tangible property regulations generally are effective for tax years beginning on or after Jan. 1, 2014.

Therefore, taxpayers can rely on and early-adopt both the final provisions and the proposed disposition rules to facilitate implementation efforts. These regulations affect taxpayers owning or leasing tangible property and apply to all industries.

Implementing the regulations will be time consuming and require system and business process changes that will affect a number of departments within your company. Tangible property regulations depart from previous law and affect some permanent items and contain many elections. They also provide a number of opportunities to change to new methods or make special elections that may be favorable. Understanding, modeling and implementing all of this requires swift attention.

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By Brad Bertler, CPA

{ Tax | tax planning }

what is happening in the United States and in other countries will make your company more nimble when reform occurs.

4. Tax controversy

3. Tax reform As we have seen recently with the debt ceiling debate, tax reform continues to be a hot topic. Tax reform hinges on complex political dynamics and a fundamental partisan dispute over whether tax reform should be a vehicle to raise additional revenue.

And, although many believe we are on the cusp of reform activity, the future remains unclear.

The prospect of House Ways and Means Committee Chairman Dave Camp (R-MI) and Senate Finance Committee Chairman Max Baucus (D-MT) unveiling comprehensive tax reform legislation and processing that legislation through their respective committees is significant. The process requires each committee to decide which current tax provisions will be retained, modified or eliminated. It is also likely to produce winners and losers. Being engaged with

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Rapid globalization has brought increasing interconnectivity between businesses and permanent shifts in the flow of capital. Tax departments now are bearing the responsibility of more corporate risk, and tax now has a higher profile with company management, shareholders, regulators, the media and other industry observers. With more countries participating in exchange of information programs, companies must have a global approach to managing controversy.

It is important to note that several countries have announced that they are either proposing or reforming General Anti-Avoidance Rules and other anti-abuse measures, which can be extremely subjective. In addition, taxpayers likely will see increasing audit activity in developing markets as those tax administrations mature and/or receive assistance from the Organization of Economic Cooperation and Development (OECD) through the newly announced program, Tax Inspectors Without Borders. This program is designed to increase the availability and sharing of experienced tax administration personnel to developing nations, particularly in the field of cross-border tax audits.

5. Base erosion and profit shifting The OECD has taken up an action plan for base erosion and profit shifting.

The organization’s work plan covers 15 action items on several topics, including addressing challenges of a digital economy, hybrid instruments, limiting base erosion through interest payments and other financial payments, and transfer pricing outcomes regarding intangibles, risks and capital. These action items will have specific outputs that are to be completed in 2014 and 2015.

Many countries have passed legislation limiting (or eliminating) the deductibility of interest payments.

Many more are already addressing the topics of digital commerce and intangibles, including the shifting of intangibles and profits. Taxpayers will need to closely monitor the progress of the OECD action plan and any resulting legislation that countries may pass as a result. In some cases, significant planning may be needed to avoid adverse tax consequences.

This list is a sampling of critical tax issues that likely will remain at the forefront in 2014. Approaching these and other tax issues with a global mindset and understanding how they affect your business operations here and outside the United States is critically important. Because the cost of not taking proactive steps can be high, it’s also essential that you consider adopting policies to manage reputational risk and controversy in the coming year.

Brad Bertler, CPA, international tax partner, is the Wisconsin tax market leader for Ernst & Young LLP. Contact him at 414-223-7264 or brad.bertler@ey.com. The views expressed herein are those of the author and do not necessarily reflect the views of Ernst & Young LLP.

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By John L. Daly, MBA, CPA, CMA, CPM Executive Education, Inc.

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S

everal years ago, GAAP codification reorganized U.S. accounting standards from more than 100 separate pronouncements into a single 90-section resource. Now, the AICPA Professional Ethics Executive Committee (PEEC) is close to finalizing an ethical standards codification. Like the GAAP codification, the PEEC does not intend the codification to change standards, but make them more useful.

Following a format similar to the International Ethics Standards Board for Accountants (IESBA) ethics code, the PEEC sought to organize the AICPA Code of Professional Conduct (the “code”) into four sections: • Preface • Part 1: Members in public practice • Part 2: Members in business • Part 3: Other members The 25-page preface largely consists of principles and definitions.

Beyond the preface, the remaining three sections deal with members according to their work status. It defines “public practice members” as providing covered services to clients. The “members in business” section applies to any AICPA member working in industry, education, nonprofit or any other area not included under public practice, even as a volunteer. The “other members” section applies only to people who are retired or unemployed.

While the codification improves the old code in several ways, other opportunities remain. Here are some key issues you may want to understand about the codification.

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{ Industry | AICPA ethics code }

Does the new AICPA ethics codification still need work?

{ Industry | AICPA ethics code }

“Since the ‘accounting crisis’ of 2001–2002, many people have argued that accountants should have some moral duty to report illegal acts to government authorities, particularly when internal processes fail to correct the problem.”

Accessibility The AICPA bills the codification as intuitively organized.

The new code makes finding some issues much faster. It does not mean the revision is more readable. The AICPA sought to improve readability, eliminating legal terms and speaking an active voice. While AICPA staff created a better-organized standard, the codification is actually less readable according to the widely-accepted Flesch Reading Ease score.

Some states require insurance contracts to have a Flesch score of 40 on a 100-point scale. One hundred is very readable.

A document with a 40 reading ease score would test a high school graduate’s reading ability. The old AICPA code had a low 20.8 Flesch score, challenging most CPAs’ comprehension. The proposed codification’s score is lower, earning 19.0.

The independence section is particularly confusing. Generally, accounting ethics rules expect independence only for accountants doing attestation work, such as external and internal auditors.

The codification appears to expect independence from all public practice CPAs, including management consultants. An AICPA staff person confirms this is not the codification’s intent. We may see revised independence wording when the PEEC finalizes the revisions in the first quarter of 2014.

Threats-based approach Like the previous AICPA code, the codification takes a threats-based approach, identifying six types of threats to ethical behavior: • Adverse interest threat • Advocacy threat • Familiarity threat • Self-interest threat • Self-review threat • Undue influence threat These threats appeared in the old ethics code’s definitions section. The codification integrates the threats discussion into the sections covering both public practice CPAs and members

and business. The net result is a greater emphasis on the threatsbased approach and greater clarity about how they apply to each member category.

This approach resembles the risk-based approach used in audits or enterprise risk management. The codification expects members to identify threats to their ethical behavior and attempt to remove or mitigate them.

While there has been no real change in expectations of how accountants should behave, the improved format is likely to increase dialog about threats to ethical behavior.

Whistleblowing Our profession has long recognized the conflict between an accountant’s duty to protect the public and the duty to protect a client or employer’s secrets. Ethics experts know that protecting the public is a key characteristic of professional professions.

Since the “accounting crisis” of 2001–2002, many people have argued that accountants should have some moral duty to report illegal acts to government authorities, particularly when internal processes fail to correct the problem.

Generally, accounting ethical standards do not allow public practice accountants to report their client’s illegal acts to government agencies. However, ethical standards sometimes allow corporate accountants to become whistleblowers. Past AICPA staff opinions acknowledged that blowing the whistle might be appropriate, given the right facts. The codification conspicuously avoids this issue.

In the recent Penn State scandal, we clearly saw the public expected individuals to report illegal acts to outside authorities when necessary to prevent further wrongdoing. As long as our profession’s ethical standards require us to protect clients or employers who break the law, the public will sometimes view us as part of the problem, rather than part of the solution.

John L. Daly, MBA, CPA, CMA, CPIM is the founder of Executive Education, Inc. in Chelsesa, Mich. Contact him at Daly@ExecutiveEducationInc.com.

WICPA CPE with John L. Daly, MBA, CPA, CMA, CPIM Chief Financial Officer: Executive Level Skills for Financial Managers, 8:30 a.m.–4 p.m., April 21, Rothschild

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By Andrew J. Schlidt, J.D.

I

Ownership By definition, a cloud vendor will host your corporate content and material. Such content could include strategic information and intellectual property such as customer lists, pricing, trade secrets, and product designs and specifications that are of strategic, proprietary and economic value. Consider the variety of country laws regarding intellectual property ownership that might apply to a U.S. customer whose cloud vendor is based in India with data centers in Vietnam and contractors from Pakistan. Before storing critical assets in a foreign cloud, be sure that the underlying cloud contract and applicable foreign intellectual property laws support your continuing ownership of those assets.

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{ Technology | cloud computing }

Keep your eyes “OPENED” in INTERNATIONAL cloud computing

s cloud computing hanging over your corporate IT department like a looming storm on the horizon? In Gartner, Inc.’s Top 10 Strategic Technology Trends for 2014, the most widely anticipated technology trends all rely upon cloud computing as a platform for supporting key IT initiatives.

For U.S. companies with operations in multiple countries, cloud computing offers significant efficiencies and economies of scale.

Yet, the international application of the cloud brings added legal complexity. In capitalizing on these opportunities, U.S. companies supporting foreign offices through the cloud should keep their eyes “O-P-E-N-E-D” to the following six emerging legal risks.

{ Technology | cloud computing }

"For U.S. companies with operations in multiple countries, cloud computing offers significant efficiencies and economies of scale."

Privacy Just as loose lips sink ships, weak privacy creates liability.

This is particularly so in foreign jurisdictions such as the European Union (EU), which impose heavy regulations and penalties for unauthorized disclosure of personal information.

Under the EU Privacy Directive, U.S. companies must qualify for a safe harbor with the U.S. Department of Commerce or otherwise negotiate data control agreements with vendors before transferring personal information of EU residents electronically across borders. Many U.S. companies are not yet compliant with the EU directive and may entirely forget about the need for compliance in a cloud setting.

Export regulations In transferring content through the cloud to foreign jurisdictions, a U.S. company will need to consider application of the U.S. Export Administration Regulations (EAR). The EAR regulates exports of U.S. origin goods, software, technical information and military items. The U.S. Office of Foreign Asset Control further restricts exports of items to specific destinations and entities. Finally, the U.S. Department of State imposes more restrictions on exports through the International Traffic in Arms Regulations. While most corporate content may be freely exported, certain software or other technical information may rise to the level of a regulated item. Furthermore, the location of the cloud vendor may increase regulatory compliance obligations.

Network security Before entrusting U.S. corporate assets to a foreign cloud vendor, a U.S. company will want to conduct sufficient due diligence to ensure the vendor’s networks and systems are sufficiently secure. Many countries, including the U.S., have enacted data breach statutes that require notification to individuals if a company has lost or disclosed in authorized fashion the individual’s personal information. If a data breach occurs, it may be difficult to ascertain which data breach statutes apply. Laws of multiple countries may apply and enforcement actions from multiple jurisdictions may ensue.

To minimize this risk, U.S. companies should conduct basic

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due diligence as to the vendor’s security measures, including negotiating appropriate security covenants and warranties in the underlying contract, and requiring that the vendor conduct annual security audits (such as SSAE 16 Type II audits).

Enforcement U.S. companies should also consider the likelihood of being able to enforce an agreement against a foreign cloud vendor if the vendor has no presence or assets in the United States. Conflict of law principles may require that an action be brought in the vendor’s country. Furthermore, bankruptcy and insolvency laws of the vendor jurisdiction may trump U.S. law and hinder the ability to recover from a financially troubled vendor. For these reasons, it may be preferable to engage a cloud vendor with a U.S. office and reasonable U.S. assets from which to collect. Alternatively, a U.S. company may insist that a foreign vendor carry sufficient professional liability and cyberrisk insurance to provide another path of recovery through an insurer.

Data Lastly, data storage methods of foreign-based cloud vendors are often a riddle, wrapped in a mystery inside an enigma. U.S. companies must answer the question, “Where is my data?”

In the event of litigation, a U.S. company will be required to put a hold on the destruction of all pertinent data (including data held by a cloud vendor). Opposing parties in litigation will require access to pertinent data and the failure to provide it may result in sanctions by the court. In entering into cloud deals, be sure to know where your data is stored so you can retrieve it as needed.

While U.S. companies may outsource IT functions to the four corners of the world to support their global operations, these companies may not outsource their legal obligations under applicable law. If the cloud has your IT department wide-eyed, keep your legal department’s eyes O-P-E-N-E-D. Andrew J. Schlidt, J.D. is a corporate lawyer specializing in technology law, commercial transactions, corporate governance and regulatory compliance matters at Whyte Hirschboeck Dudek S.C. in Milwaukee. Contact him at 414-978-5515 or aschlidt@whdlaw.com.

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33

{ Financial planning | cash balance plans }

CASH BALANCE PLANS: A powerful new tool in retirement planning

By James K. Schneider, CFP速

A

re you looking for ways to help clients save a lot more money for retirement besides the typical 401(k)/profit sharing plan, currently defer more

taxes or a unique way to fund a business succession plan? Starting a cash balance plan (CBP) may be the answer.

CBPs are defined benefit plans introduced in 1985 and affirmed by the Pension Protection Act of 2006.

While they are a defined benefit (DB) plan, they share some flexibility and features of a defined contribution (DC) plan. Though these plans can stand on their own, they are typically offered in conjunction with a 401(k)/ profit sharing plan.

With a typical 401(k)/profit sharing plan, it is possible to use advanced plan designs, such as cross tested (or new comparability), to increase the portion of total benefit going to different groups of employees.

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{ Financial planning | cash balance plans }

“

NEW COMPARABILITY ALLOWS THE EMPLOYER TO DESIGNATE DIFFERENT CONTRIBUTION PERCENTAGES TO SPECIFIC EMPLOYEE GROUPS. which is based on planned contributions and assumed

401(k)/profit sharing may help the overall plan pass

returns. Contributions are mandatory for a continuing

all of the necessary testing. Keep in mind, DC plans are

plan, and this means that if the investments do not

limited to $51,000 in contributions for 2013, but CBPs

perform as expected, the business may need to

are not since they are a form of DB plan. The maximum

contribute more money than originally planned to

annual benefit for a CBP would be the lesser of 100

fully fund the benefits. Therefore, the investments

percent of employee compensation or $205,000.

used are carefully tailored to the goals of the plan.

Compensation can include W-2 wages, Schedule C net

There are also minimum inclusion requirements,

profits, or certain self-employment earnings up to a

and these plans must undergo discrimination testing

maximum level of $255,000.

in conjunction with the 401(k)/profit sharing if such a

The CBP guarantees employees a specified benefit shutterstock.com

�

When used with a CBP, the contributions to the

plan exists. CBPs tend to be most beneficial to smaller,

in the form of an account balance at the specified

professional type businesses, including accounting/

retirement age. The business can also separate

law firms, medical/dental groups and engineering

employees into different groups and, if desired,

firms. The rules around distributions and ability to do

greatly direct the benefits of the plan toward

IRA rollovers are similar to traditional DC plans, such

owners and other key employees, although some

as 401(k) plans.

benefits most likely will have to be provided to other

Let us consider an example with some numbers

employees. Different groups can be created to benefit

where we can see the benefits of combining a

various classifications of employees, but all groups

CBP with some DC plan elements. In the following

must be defined using objective criteria in a manner

example, the owner was able to put $205,000 into

that precludes employer discretion.

the combined retirement plans versus only $51,000

Since a CBP targets a guaranteed retirement

under the typical DC plan limits. Plus the spouse

benefit, the business needs to put in more money for

also received a contribution. While some money was

older employees as they have less time to build their

contributed for all employees under the cash balance

accounts up to that benefit. By the same token, the

plan and various buckets under the safe-harbor

business is taking the risk of ensuring each employee

401(k), 92 percent of the overall contributions were

has the promised account balance at retirement age,

for the business owner and spouse. The safe harbor

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On Balance

January|February 2014

35

{ Financial planning | cash balance plans }

“

THESE PLANS ARE COMPLEX AND REQUIRE CAREFUL CONSIDERATION, PLANNING, AND CONSULTATION WITH PROFESSIONALS SUCH AS CPAS AND ACTUARIES BEFORE IMPLEMENTATION.

”

401(k) plan features help ensure that all necessary

complex and require careful consideration, planning,

discrimination tests are passed.

and consultation with professionals such as CPAs and

There are also some major tax advantages in this

actuaries before implementation.

next example, especially in light of the recent tax rate

James K. Schneider, CFP® is associate vice president - investment officer of Schneider Wealth Management Group of Wells Fargo Advisors in Waukesha. Contact him at 800-323-1410, 262-798-3759 or jim.schneider@wellsfargoadvisors.com.

increases. In this example, the company contributed $220,800 ($256,500–$35,700 of elective deferrals) to the CBP/401(k) profit sharing. This would be fully tax-deductible, and at a 35 percent tax rate, saves

Note: Wells Fargo Advisors does not render legal, accounting, or tax advice. Please consult your tax or legal advisors before taking any action that may have tax consequences. Information has been obtained from sources considered reliable, but its accuracy and completeness are not guaranteed. All figures noted are as of 2013.

the company roughly $77,000. The business had to contribute $16,800 for the employees, but there is still a net savings of roughly $60,000. These plans are

Sample combined cash balance and safe harbor 401(k) with new comparability profit sharing allocation* Cash balance plan contribution (pay) credit assumptions Group A: Owner 70% of W-2 earnings Group B: Spouse 40% of W-2 earnings Group C: Non-owners 3% of W-2 earnings

New comparability profit sharing contribution assumptions Group A: Owner 0.0% of W-2 earnings Group B: Spouse 0.0% of W-2 earnings Group C: Non-owners 4.5% of W-2 earnings

Cash balance plan

Safe harbor 401(k) plan New comparability profit sharing Employee 3% nonelective Total contribution elective deferrals contribution contributed

Name

Age at end of plan year

Owner

58

$250,000

$175,000

$22,500

$7,500

$0

$205,000

Spouse

58

$50,000

$20,000

$10,000

$1,500

$0

$31,500

Employee 1

65

$20,000

$600

$400

$600

$900

$2,500

Employee 2

60

$20,000

$600

$400

$600

$900

$2,500

Employee 3

55

$20,000

$600

$400

$600

$900

$2,500

Employee 4

50

$20,000

$600

$400

$600

$900

$2,500

Employee 5

45

$20,000

$600

$400

$600

$900

$2,500

40

$20,000

$600

$400

$600

$900

$2,500

Employee 7

35

$20,000

$600

$400

$600

$900

$2,500

Employee 8

30

$20,000

$600

$400

$600

$900

$2,500

$460,000

$199,800

$35,700

$13,800

$7,200

$256,500

Employee 6

Total

W-2 earnings

Estimated contribution

*Prepared by McCloud & Nichols, Inc.

36

On Balance

January|February 2014

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?

Do you have clients who are unhappy with their investments or investment advisor?

Do you have clients who need a comprehensive plan?

Maybe you’d just like a resource to help with investment related questions?

Let us help you ADD VALUE to your practice & clients during busy season We’re available and happy to help. We offer our resources and will arrange initial consultations for free with no obligations.

Individuals: • Wealth Management

• Annuities • 529 Plans

• Investments – Equities & Fixed Income/Bonds

Businesses:

• Insurance Reviews

• Retirement Plans/IRA’s (401(k), SEP, SIMPLE, etc.)

• Succession Planning

• Estate Strategies

There are no costs or obligations for these review services — CALL US TODAY! Kenneth J. Schneider, MBA Managing Director - Investments 20800 Swenson Drive, Suite 200 Waukesha, WI 53186 262-798-3730 • 800-323-1410 kenneth.schneider@wfadvisors.com

James K. Schneider, CFP® Associate V.P. - Investment Officer WICPA member 20800 Swenson Drive, Suite 200 Waukesha, WI 53186 262-798-3759 • 800-323-1410 james.schneider@wfadvisors.com

Wells Fargo Advisors, LLC, Member SIPC, is a registered broker-dealer and a separate non-bank affiliate of Wells Fargo & Company.

The Magazine for Wisconsin CPAs A publication of the

Wisconsin Institute of Certified Public Accountants 235 N. Executive Drive Suite 200 Brookfield, WI 53005 www.wicpa.org

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