January | February 2021 | Vol. 17 No. 1 A publication of the Wisconsin Institute of CPAs | wicpa.org
From Winnipeg to Milwaukee: One CPA’s Journey Marc Cadieux, CPA | 6
Plus: Critical role of CPAs | 12 Economic forecast | 16 Estate planning strategies | 26 Business development | 38
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A publication of the Wisconsin Institute of CPAs | wicpa.org
January | February 2021 Vol. 17 No. 1
6 Features
Columns
6 From Winnipeg to Milwaukee Marc Cadieux, CPA, now CFO of Children’s Wisconsin, took the long way around to wind up a Wisconsin CPA. By Marcia Tillett-Zinzow
26 ESTATE PLANNING Estate and tax planning in the time of COVID-19 How do you plan when you can’t meet face-to-face with advisors? By Patrick Gosz, CPA; Melissa Kampmann, JD; and Shanna N. Yonke, JD
12 Critical condition CPAs have played and continue to play a critical role in helping the public navigate changes brought by the pandemic. By Marcia Tillett-Zinzow 16 What about the economy? The economy began to slide when the pandemic hit last spring. What can we expect in 2021? By Clare Zempel, CFA, CBE 20 GASB revisions to lease accounting standards A deep dive into GASB Statement 87, Leases, which has been delayed but is causing a fair bit of heartburn in the industry. By Michael Anderson, CPA, and Jordan Boehm, CPA
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30 INDUSTRY Top trends and topics for manufacturers After a turbulent 2020, here’s what manufacturers should be aware of in 2021. By Cheryl Aschenbrener, CPA 34 TAXATION Restructuring to prepare for sale of interests in S corporation For many S corporations, shareholder restrictions are innocuous in the day-to-day operation of the business. By Curtis C. Walther, JD, and John A. Sikora, JD 38 PRACTICE MANAGEMENT It’s time to rev your business development engine Don’t let your business development practices metaphorically rust on the side of the road. By Art Kuesel
30 Departments 3 Outlook | chair’s letter 4
In Touch | president & CEO’s message
11 Kudos | members in the news 19 Welcome | new members 25 Memorials | departed members
On Balance
January | February 2021
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2020-2021 WICPA OFFICERS/BOARD MEMBERS Chair Wendi M. Unger, CPA
On Balance is published five times a year by the Wisconsin Institute of Certified Public Accountants (WICPA). Change of address should be sent to: Membership, W233N2080 Ridgeview Pkwy, Suite 201, Waukesha, WI 53188; Phone: 262-785-0445 or 800-772-6939; Fax: 262-785-0838; email: amanda@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 2021 On Balance.
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Chair-elect Angela C. Thomas, CPA Past Chair Neil R. Keller, CPA/ABV, CVA Secretary/Treasurer Lucien A. Beaudry, CPA, JD Directors Jeff Dewane, CPA, CGMA, CMA, MBA John R. Heindel, CPA Daniel Holzhauer, CPA Ruth A. Kallio-Mielke, CPA Wendy A. Peters, CPA Steven A. Pullara, CPA Matthew J. Schaefer, CPA, CGMA Kyle R. Stephens, CPA
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OUTLOOK | CHAIR’S LETTER “When I look back at 2020 and note the losses so many of us had, I also think of all the gains we made.”
Looking at a glass half full
H
appy New Year! I hope you enjoyed a wonderful holiday season and are now well equipped to tackle the challenges that 2021 may bring. I am sure your holiday traditions, much like mine, had to be modified to accommodate the ever-challenging pandemic. As I attempted to deal with the frustration of significant changes to past traditions, I decided it was best to take a step back and re-evaluate the feelings of disappointment. For the first time since my children were born — over 17 years ago — we got to sleep in Christmas morning and celebrate our good fortune on not just one day but two. We slowed down and took the time to stop and smell the proverbial roses. We talked, we laughed, and sometimes we cried, but we were all together, all healthy and all happy. I understand that not everyone was as fortunate to have that, and to those people I say, “I am sorry,” and I hope and pray that 2021 will bring better days. 2020 was a year of unprecedented events. We started with a pandemic and ended with an unusual and, perhaps, unexpected election and a vaccine that we hope will slow down the coronavirus pandemic. Our businesses suffered unexpected consequences. Some thrived, some failed, and some continue to struggle. We have been on the receiving end of local, state and even federal mandates to assist in ensuring people’s safety. Many of us feel we have paid a price because of all of this. But what price have we really paid? In the past, I considered myself to be a glass-half-empty person most of the time, but over the last nine months, I have had a lot of time to reflect and re-evaluate life. I am hoping 2021 transforms me into a glass-half-full person. When I look back at 2020 and note the losses that so many of us had, I also think of all the gains we made, the dinners and game or movie nights with our spouses and children because there was no place to go … no meetings, no work events … the multiple conversations we had with our family members, which in the past would occur only occasionally during the year but now were more frequent just to ensure everyone was doing all right.
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We supported local businesses that in the past we may have forgone for something bigger and better. And we gave back. We supported charities that were in need of our support to help those less fortunate. Do not get me wrong. The pandemic has been tragic, and I would not ever want the world to have to endure something like it again. However, let’s look at it from a glass-half-full perspective. It allowed us all to slow down and enjoy the little things — all the things we took for granted in the past. I sincerely hope and pray for each and every one of you that your 2021 is prosperous, positive, healthy and safe. I also encourage us all, before reverting back to a life filled with regret or void, to think about where we are now and consider the positives that came out of our 2020 experience. Take care. Be safe, and stay healthy! Wendi Unger, CPA, is a partner with Baker Tilly in Milwaukee and the chair of the WICPA board of directors. Contact her at 414-777-5423 or wendi.unger@bakertilly.com.
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IN TOUCH | PRESIDENT & CEO’s MESSAGE “The accounting profession has evolved in many ways, and I am thankful to be working in an industry that has been able to continue moving forward.”
Looking forward after a very tough year
I
’ve heard it for months: “I just want 2020 to be over!”
As we head into a new calendar year, I would like to reflect on the past year – and how it’s impacted us personally and professionally. 2020 will be remembered as a year of loss and challenges in many ways. It’s also been a year of enduring a never-ending tax season, figuring out how to work remotely and home school children at the same time, adjusting to a change in traditions with friends and family, wearing face masks and going through countless bottles of hand sanitizer. Despite the challenges we have all encountered, I’ve heard comments about several things to be grateful for as well. Many of us have gained more time with our families, which means we have new memories we would have otherwise missed. We also gained new insights, new forms of entertainment and new appreciation for the little things — like going for walks outside or dining out with friends. Many were fortunate to have been able to move quickly to a remote work environment and maintain employment
throughout the pandemic. Although the pandemic limited our ability to engage with people, it has allowed us to stay connected and learn to work differently. This has challenged us to rethink how we advise, how we develop new relationships, how we deliver goods and services and how we create value for our organizations. These changes created opportunities for us to grow our skills and abilities. We have seen processes and work environments previously thought to be impossible or inefficient now become the norm. The accounting profession has evolved in many ways, and I am thankful to be working in an industry that has been able to continue moving forward. As we embark on 2021, let’s remember the things we have gained and learned. The future of our profession is bright, as our role continues to be critical in serving our organizations, clients and communities. I wish each of you a healthy and prosperous new year! Tammy J. Hofstede is president & CEO of the WICPA. Contact her at 262-785-0445 ext. 4518 or tammy@wicpa.org.
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Photography by John Sibilski 6
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From Winnipeg to Milwaukee: One CPA’s Journey By Marcia Tillett-Zinzow
M
arc Cadieux, CPA, was born and raised in a country where hockey is the national sport. It should be no surprise, then, that hockey is part of what brought him to Wisconsin from his home in Winnipeg, Manitoba, Canada. As Cadieux prepared to graduate from high school, Marian University found him in College Prospects of America, a service that connects high school students with colleges that are prospecting for student athletes who also excel academically. Marian had a golf team, and Cadieux had played on his high school’s team. They were also starting a hockey program, and — of course — that was a sport Cadieux had also played. So Marian recruited him, and in the fall of 1992, he moved in, eager to experience campus life. “It was an opportunity for me to go away and grow up a little bit,” he said. “I didn’t know anything about Marian University or Fond du Lac, Wisconsin, but it seemed like a perfect fit.” Cadieux had also considered the University of Minnesota, which has an in-state tuition reciprocity agreement with Manitoba — the Canadian province directly above that state. And, of course, he could have chosen to stay at home and attend college locally, like everyone else. “In Canada, going to college was just what you did after high school, and the University of Manitoba is where you went. I would say that 95% of my graduating class went there,” he said. But Cadieux had a special place in his heart for the U.S., and he felt that college was not just about learning but also about growing up and becoming self-sufficient. Going away to school, Cadieux thought, would accomplish that. “I thought maybe I should learn how to do my own laundry, live with a roommate and get up and go to class without Mom and Dad having to remind me,” he said. “So when Marian called, I said yes.”
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Major decisions Two different sources are responsible for Cadieux’s interest in accounting and eventual career as a CPA. One of those sources was his father, who was a retired Pricewaterhouse Coopers partner; and the other was his Intro to Accounting instructor: Wendy Potratz, CPA, CGFM, CMA, MBA, who now teaches at UW–Oshkosh. “I started out with an interest in business, and then I took Wendy’s class. I told my dad how much I enjoyed it, and he gave me some good advice. He told me if I went into accounting, I could always go into business; but if I went into business and decided accounting was what I really wanted, I’d have to go back to school and get all those credits. So I declared as an accounting major by the end of the first semester — and it’s all because of Wendy. I blame it all on her,” Cadieux joked.
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Photos provided by Marc Cadieaux
The family stands with Cadieux's parents on a trip back home to Canada.
At Marian, Cadieux made lasting friendships, including some with other Canadian student athletes who were apparently also recruited by the university. In addition to making friends and deciding to major in accounting, he also met his Wisconsin-born wife, Monica, there. “So my Marian experience is near and dear to my heart,” said a smiling Cadieux. After graduating from Marian with a Bachelor of Science degree in accounting in 1996, Cadieux went home to Canada and got a job with Deloitte’s Winnipeg office, with the notion of becoming a chartered accountant (CA) — a designation that is now known as chartered professional accountant (CPA). At that time, prospective CAs were required to take courses in accounting, auditing, tax and business over two years and accrue a set number of hours working for one of the larger CPA firms before they could take the CA exam. “We went through a two-year program, which was basically like getting a master’s degree,” Cadieux said. “We worked for the firm during the day and went to school at night, and then in the second year, they’d give us a paid summer off to take the Common Final Examination (CFE), which is the Canadian equivalent of the Uniform CPA Exam.” Also during this time, he and Monica — who by then was a registered nurse working at Columbia St. Mary’s Hospital in Milwaukee — nurtured their relationship by phone, using MCI prepaid long-distance calling cards. Cadieux said their conversations were getting expensive, so they had “the talk”: Were they going to take their relationship to the next level or say goodbye and move on? “I somehow convinced her to marry me,” Cadieux said. “So I took a year off school, and we got married.” Monica moved to Winnipeg, took the Canadian nursing board exams and went to work in an area hospital. Because of her low seniority there, she got the worst shifts and was
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Cadieux with his wife, Monica, at Sand Valley Golf Resort in Nekoosa.
working days and nights on alternate weeks, while Marc was taking CA classes at night and working during the day. It wasn’t working out as planned. “Here I had moved this girl up to Winnipeg — to a foreign country — and then we never saw each other,” he said. As a result, after Cadieux passed the CFE in 2000, the couple decided to move back to the States. They considered Minnesota because it was about halfway between their parents’ homes. By that time, Monica had left nursing for a job in pharmaceutical sales with Merck. So she inquired about jobs in the U.S., and Marc reached out to a colleague at Deloitte. It turned out both companies were hiring — in Milwaukee. “We drove down to Wisconsin to visit her family, and the next thing we knew, we were leaving with job opportunities and trying to figure out how to tell my parents we were moving to Wisconsin,” Cadieux said. The couple has been married for 20 years now and lives in Cedarburg with their three children: two sons who play hockey and golf (of course) and a daughter who plays volleyball. Cadieux no longer plays hockey himself and plays golf only occasionally, stating his kids take up much of his and Monica’s free time.
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“You only have them for so long before they go off to school,” Cadieux said. “I just love being with them and watching them compete or do whatever they’re doing. I spend a lot of time with our family.”
A man on a mission
As a CPA, Cadieux is now chief financial officer at Children’s Wisconsin, the only health system in our state dedicated to the health and well-being of children and teens, headquartered in Milwaukee. He’s been there since 2005, when he came into the organization as director of physician financial services and worked his way up to his current position as CFO. In that role, he is responsible for strategic and operational matters related to finance in the health system, including financial planning and budgeting, financial reporting, treasury, revenue cycle management, corporate real estate, supply chain and strategic initiatives. Children’s is well-known throughout the state and the region as a place where miracles can happen. When asked, many people have heartwarming stories of the ways in which the health system has touched their lives. It could be their child was seen in the emergency department after an accident, or their neighbor’s child was treated successfully for cancer or a heart defect. These are things for which most people know Children’s Wisconsin. But unbeknownst to many, the health system provides many community services — including operating one of the largest foster care and adoption agencies in the state, according to Cadieux. “How Children’s impacts kids and families across the state is mind boggling — from being the first in the country to save a child born without a trachea to helping middle school students know how to confront bullying and so much in between. It is a unique asset that I’m proud to support,” he said. What must it be like to work in a place like that — a place that is 100% devoted to children and teens, their families and the communities they serve? “Well, I’ll tell you,” Cadieux said. “If you have a bad day here — and everyone has them once in a while — all you have to do is walk over to the hospital and see all the great work those caregivers are doing. The compassion, the dedication and the way they surround the patients and the families are second to none. We do phenomenal work here.”
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Photo provided by Marc Cadieaux
Cadieux started at Deloitte in Milwaukee in May 2001 and was there until November 2005. There he provided business advisory and assurance services to a variety of industries, including health care, not-for-profit organizations, professional services, manufacturing and municipal governments. He obtained his U.S. CPA license in 2004.
Cadieux with his family. From left: daughter Madelyn, 15; son Luc, 18; wife Monica; and son Ryan, 12.
“
How Children’s impacts kids and families across the state is mind boggling — from being the first in the country to save a child born without a trachea to helping middle school students know how to confront bullying and so much in between. It is a unique asset that I’m proud to support. Cadieux noted that the Children’s Wisconsin mission is rooted in everything they do, and that includes ensuring the health system generates a margin — “not to pay shareholders or to pay dividends,” he said, “but to reinvest back into the organization and back into the community. As we say in health care, ‘No margin, no mission.’” And that is something phenomenal a CPA can do. Marcia Tillett-Zinzow is a Wisconsin freelance writer and editor. Contact her at mtzinzow@icloud.com.
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kudos
Jim Brandenburg
Kelly Dolphin
Holly Johnson
Neil Keller
Travis Olson
Lauren Poppen
Pamela Schneider
Daniel Walsh
Jim Brandenburg, CPA, MST, a partner with Sikich LLP, Brookfield, was interviewed for two separate articles in FA Financial Advisor online magazine: Oct. 19, 2020, “Tax Moves That Advisors Should Consider Before the Elections”; and Nov. 2, 2020, “Presidential Race Upends Year-End Tax Planning.”
Travis Olson, CPA, an associate with HawkinsAsh CPAs in La Crosse, recently received his CPA license from the Wisconsin Department of Safety and Professional Services, having passed the CPA Exam. In addition to a BS in accounting and mathematics, Olson also holds an associate’s degree in law enforcement and criminal justice.
Keith Breunig, CPA, CGMA, has retired from his position as chief financial officer at the Gordon Flesch Co. Kelly Dolphin, CPA, will replace him. She joined the firm as controller in 2014.
Lauren Poppen, CPA, was named CFO of TEB Bancorp Inc. and The Equitable Bank, Wauwatosa, as of Sept. 1, 2020. She began with the bank in 2014 as assistant controller and was most recently treasurer and controller.
Kelly Dolphin, CPA, was recently named by Madison’s In Business magazine as a member of the 40 Under 40 Class of 2020, which recognizes the most successful and civicminded young professionals under the age of 40 in the Greater Madison area. Dolphin was recently promoted to CFO at the Gordon Flesch Co. Nick Hammer, CPA, has joined KerberRose’s Fox Cities office as a senior manager. He has 10 years’ experience in accounting and taxation. Holly Johnson, CPA, recently joined Michael Best & Friedrich LLP as director of accounting. She also has been appointed to the board of directors for Betty Brinn Children’s Museum in Milwaukee. Neil Keller, CPA/ABV, CVA, a partner with Sikich LLP, Brookfield, was interviewed for an Oct. 15, 2020, Bloomberg Tax article titled “Busy Tax Pros Buried in IRS Push to Finish Tax Overhaul Rules.” Kelli M. Keys, CPA, has joined Vrakas CPAs + Advisors as an audit principal. She will provide audit, review and compilation services, and plan and supervise engagements and training. Bill Kocha, CPA, was promoted to vice president of accounting and financial planning and analysis by Werner Electric Supply, Appleton. James M. Ledvina, CPA, JD, a shareholder with the Green Bay law firm of Conway, Olejniczak & Jeffy S.C., was added to the Bank of Luxemburg’s board of directors. Nicole L. Linssen, CPA, was promoted to director of finance for the Greater Green Bay Habitat for Humanity.
Kenneth E. Robertson, CPA, was promoted to executive vice president, chief operating officer and chief financial officer (CFO) of the Greater Milwaukee Foundation. He had been president and CFO of the organization since October 2015. Pamela W. Schneider, CPA, CMA, MST, LLM, JD, has joined the law firm of von Briesen & Roper s.c. as a non-lawyer professional in the business practice group at the firm’s Green Bay office. Martha L. Sullivan, CPA/AVB, CVA, CEPA, CVGA, a partner with Honkamp Krueger & Co. P.C., Waunakee, moderated a program for the Wisconsin chapter of the Exit Planning Institute on Tuesday, Nov. 10, 2020. She is currently chapter president. Daniel J. Walsh, CPA, JD, an attorney with One Law Group SC, was selected by his peers for inclusion in the 2021 Wisconsin edition of The Best Lawyers in America® in the Elder Law field. Walsh has been included in Best Lawyers every year since 2010. Steve Wierschem, CPA, has joined First Federal Bank of Wisconsin as chief financial officer. Tim Christen, CPA, CGMA, chairman of Baker Tilly International, has been appointed as one of five new trustees to the Financial Accounting Foundation, which is the independent private-sector organization Tim Christen responsible for the oversight, administration and finances of the Financial Accounting Standards Board (FASB), the Governmental Accounting Standards Board (GASB) and their advisory councils. His term will run from Jan. 1, 2021, to Dec. 31, 2025.
Want your new job, promotion or award mentioned in Kudos? H Email your announcement and photo in JPG format to mtzinzow@icloud.com. H
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CRI TICAL CONDI TI ON CPAs have played and continue to play a critical role during the coronavirus pandemic.
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By Marcia Tillett-Zinzow Note: The interviews for this article were conducted in November 2020.
L
ast fall, Gov. Tony Evers declared the week of Nov. 16, 2020, CPA Week in Wisconsin, recognizing CPAs “for their hard work and the positive impact they have in communities and businesses throughout Wisconsin.”
At no time have CPAs worked harder, been more necessary or provided greater value than they have during the coronavirus pandemic. The avalanche of new legislation, changing tax deadlines, and loan eligibility and forgiveness requirements boggled the minds of business owners in all sectors of the business community — and they turned to CPAs for help. WICPA President & CEO Tammy Hofstede called this “a historic time” for the CPA profession, noting how the pandemic has enhanced the CPA’s role as the most trusted strategic advisor.
“Our members reacted quickly to the pandemic and are very actively engaged in what needs to be Tammy Hofstede done to provide guidance and leadership. The CPA’s expertise in interpreting and providing guidance for their companies and clients defines a critical role for the CPA during this pandemic, both now and into the foreseeable future,” she said.
Overnight — everything changed The pandemic created a tsunami of work for CPAs, as worried clients called with questions and requested assistance in completing loan applications and projecting the future impact of shutdowns, employee furloughs and lost customers as a result of stay-at-home orders and general public fears of COVID-19. It became imperative that accounting services be added to the list of “essential services” that were allowed to remain open so they could assist their clients. The WICPA was largely responsible for making it happen.
Neil Keller
“Many businesses were going through unprecedented disruption and hardship and were relying on their CPAs to help them make crucial business decisions and plan for the future. But what was even more important at that moment was making sure their employees were still getting paid,” said Neil Keller, CPA/ABV, CVA, a partner with Sikich LLP in Brookfield.
Firms were being disrupted as well, as many employees were forced to transition to working from home. Some that had not yet implemented work-from-home capabilities for their staff had the challenge of ramping up quickly. Still others had been in the process. Sikich was one of them. “For the past several years we had been working diligently to get the right software and procedures in place so we could have people work remotely, and at the time of lockdown some people were already successfully doing that, Keller said. “But there was still some apprehension about whether it would work for the full department.
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Fortunately, we were able to move to fully remote with limited problems.” While the delayed April 15 deadline created some turmoil, it actually took some of the pressure off normal busy season for tax staff, who were adapting to their new remote work environment, enabling them to focus on managing client work around summer projects, vacations and training. But there was one drawback. “With the extended due date, a lot of us in public practice just felt like it was a never-ending busy season right through Oct. 15,” Keller said.
A lending landslide When the CARES Act created the Paycheck Protection Program (PPP), banking institutions were inundated with loan requests. “We had a pretty robust loan business coming into it, but when PPP came along, it just blew up,” said Scott Rockwell, president of the Bank of Wisconsin Dells. Rockwell said the sheer number of loans booked in that time frame was phenomenal. “We did approximately 320 to 330 PPP loans for a total of $35 million in that six- to eight-week period,” he said. Also during that March–April time period, Kohler Credit Union processed 172 PPP loans for a total of $5.2 million, according to Wendy Peters, CPA, accounting manager at the credit union.
Cash is still king
According to David Dedrick, the credit union’s director of business services, during the PPP loan application and submittal period the credit union’s business team worked six to seven days a week, 14 hours a day, with two business lenders and the manager each working eight hours on Easter Sunday. The process was labor intensive and stressful for both lenders and small business owners. “It required lenders to become familiar with payroll records, benefits, insurance and taxation documents. Working with each business owner, the lenders listened to concerns, explained the program, provided information and collected required documentation,” Dedrick said. “The quick rollout of PPP loan legislation required research and reliance on CPA firms and the SBA to assist with interpretation and implementation,” Peters noted. “The guidance and webinars provided by the WICPA and CPA firms have enabled our credit union to adjust and respond to quickly changing conditions in the financial world of COVID,” she said. Rockwell also praised CPAs. He said local CPA firms in his area stepped up for both their clients and the bank. “They broke the ice and got all the documentation put together, expediting that process for their clients as well as the bank in getting them approved. They did a great service for the banks and their customers. We have great working relationships with them and certainly appreciate their expertise,” Rockwell said.
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Jim Woloszyk
Jim Woloszyk, CPA, vice president of finance and accounting for the Milwaukee Bucks basketball team, said his organization has been hard-hit by the pandemic. He pointed out that the lack of games since March 13 has had an economic impact on both the team and the arena, creating a need for some hard looks at financial planning.
“We’ve spent a lot of time looking at different scenarios — what a financial plan would look like with fans in the building and without fans in the building — and what impact each would have on our operations, our financials, cash flow and other areas,” he said. Woloszyk pointed out that CPAs’ required continuing education, their expertise and experience enable them to “see the big picture,” which has helped them provide value to their organizations during this difficult period. “We see the causes and effects of expenses going up or revenue going down and how it affects our cash flow,” he said. “Right now, I think cash is more important than what the income statement says because cash is the lifeblood of any organization — you can’t operate without it. I think our training as CPAs helps us to project out and forecast that and figure out how to adjust other operational items to maximize cash flow.”
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“
When you are there for a client when they really need it, it’s only going to strengthen that bond you already have with them. And the pandemic isn’t over yet — the CPA’s work is far from done. — Neil Keller, CPA/ABV, CVA
Planning for future impact Industries that have not yet felt the pandemic’s economic impact are planning for the future now, and CPA expertise plays a big part in that. For example, the commercial construction industry has continued to work on the jobs they planned out two or more years ago. But the extent to which architects and others have been impacted by the pandemic will affect their pipeline, and the jobs they thought they’d start next year likely will be pushed out accordingly.
Todd Rakowski
Todd Rakowski, CPA, chief financial officer for the construction management and general contracting firm of C.G. Schmidt Inc., said in November that the company was re-evaluating their plan for 2021 for that reason.
“We’ll look at everything, and we’ll project revenue and profits out two to three years, and then we’ll develop a one-year plan. But it’ll be a rolling plan that we’ll update every quarter,” he said. “As a CPA, you’re not a historian. The historical stuff helps you project the future, but you don’t get buried in the past — your focus is really on the future.” Rakowski said understanding the operational side of the business is an important component to planning, and his CPA skill sets have enabled him to do that. “You’re not just concentrating on the numbers; you’re getting to know and understand operations. Having trusted relationships throughout the operations side, and not just working with the executives, is key for me,” he said.
Strengthening bonds In public accounting, the value CPAs have provided their clients can be measured by the glut of phone calls and requests for assistance that started coming when the pandemic began. The continued uncertainty about the future keeps the phones ringing, albeit at a slower pace. Keller noted that CPAs may know more
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about what is happening legislatively, but they don’t have a crystal ball to predict the future for their clients. "What we do have is a calming presence to be able to logically walk through scenarios, help to rationally work through difficult decisions and just be there for our clients, whether that means answering tax questions or just listening,” Keller said. “I have often joked about a big part of my job being that of therapist, and that was definitely true as we navigated the pandemic. “When you are there for a client when they really need it, it’s only going to strengthen that bond you already have with them,” he said. “And the pandemic isn’t over yet — the CPA’s work is far from done." Marcia Tillett-Zinzow is a Wisconsin freelance writer and editor. Contact her at mtzinzow@icloud.com.
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What About the Economy? Expect sustained economic recovery in 2021.
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Beneath the many now-diminished uncertainties, the economy has continued to recover from last spring’s devastation and decline, and it has done so faster than most expected. Further economic advances seem all but certain in 2021.
O
n Thanksgiving eve, as this is being written, COVID-19’s thirdwave casualty list is lengthening alarmingly, while neardaily announcements about successful antivirus vaccine developments provide considerable hope that the pandemic will be tamed in the notBy Clare W. too-distant future. Election-related Zempel, CFA, CBE questions have all but been resolved, with the exception of the two senators remaining to be chosen in Georgia’s special election early in 2021. The new president is a familiar politician who has chosen familiar names for his cabinet. With Democrats controlling the House and Republicans likely to control the Senate, gridlock in Washington is far more likely than radical shifts in fiscal policies. Beneath the many now-diminished uncertainties, the economy has continued to recover from last spring’s devastation and decline, and it has done so faster than most expected. Further economic advances seem all but certain in 2021. Economic activity plummeted under “safer-at-home” admonitions last spring. The slide started around mid-March and ended when April did. Non-farm employment fell from 152 million in February to 130 million in April. October’s employment level — the latest available at this writing — was 142 million. Twelve million jobs were added within six months, but 10 million more are needed for full recovery. Some sectors — housing, consumer durables and capital goods — have experienced robust upturns since April. Others — travel and entertainment in particular — are recovering but remain weak. On balance, economic activity is on a path to full recovery by mid-2021. The economy’s path in 2020 was similar to but much more extreme than past “shock-and-rebound” episodes. Declines in economic activity caused by “shocks” like major hurricanes and blizzards are always followed by sharp rebounds when repairs are made and supply lines are refilled. Widespread compliance
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with “safer-at-home” admonitions had the same downward and upward economic consequences that would be expected from a severe nationwide storm. As bad as the economic downdraft was in March and April, it would have been much worse had financial markets and institutions ceased to function. The financial system did all but cease to function in the 2007-2009 recession because the Federal Reserve was slow to ease effectively (to slash interest rates and supply liquidity) in response to the subprime mortgage loan crisis and its international ramifications. In stark contrast, the Federal Reserve slashed rates and supplied abundant liquidity in a near-immediate reaction to COVID19’s spread last winter. To be sure, special unemployment benefits and other supportive policies played a positive role, but it was the Fed’s actions that prevented collapse and provided fuel for recovery. With COVID-19 the sole exception, all nine earlier recessions since 1955 were caused by restrictive monetary (Federal Reserve) policies. Ample advance warning that monetary policy was too restrictive came from sharp increases in interest rates and from an inverted yield spread. Now, interest rates (like the federal funds rate) and corporate bond yields have been falling, not rising. And the critical yield spread — the 10-year Treasury Note yield minus the 1-year
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“
The most important conclusion remains that economic recovery will continue uninterrupted in 2021.
Treasury note yield — is positive, not negative (not inverted). Moreover, the Fed has announced that it intends to keep interest rates low and that it will maintain easy policies in 2021 and quite possibly in 2022-2023 as well. Tight money is not a threat to the economy now and seems unlikely to become a problem in the next few years. Meanwhile, COVID-19’s threat seems set to diminish as vaccinations become available. Recession risk is nil now, and the economy is highly likely to continue to recover in 2021. Monetary policy seems sufficiently stimulative to support a 3-4% increase in real GDP in 2021, especially if the pandemic fades soon as a real and feared threat. If the pandemic is slow to fade, then real GDP’s advances will likely be restrained to 2-3%. Growth in 2021 is likely to be strongest where it has been strong in the recent past: housing, consumer durables and capital goods. World trade has been rebounding and should continue to do so in the new year. The decline in the dollar’s value in foreign exchange — a decline that reflects the Fed’s easy policies and improvement in worldwide economic prospects — should benefit exporters. Travel, entertainment and the like will profit substantially from considerable pent-up demand when COVID-19 does in fact retreat. Since the broad outlook is
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more favorable than not, and because gridlock should preclude major increases in tax rates, the stock market should do well — unless and until “irrational exuberance” overinflates valuations. An important unknown is the extent to which the pandemic will permanently alter behaviors. Will consumers return in person to shopping in malls and food stores, to dining out, to movie theaters, to airplanes, hotels and cruise ships? Will workers return to offices? Will manufacturers make major operational shifts to better secure supply chains? Another important unknown is whether major new federal initiatives — on health care, climate change, unemployment, infrastructure and so on — are likely or not. The view here is that permanent behavioral changes will be modest on balance and that gridlock will preclude or limit major new federal initiatives. The most important conclusion remains that economic recovery will continue uninterrupted in 2021.
Clare Zempel, CFA, CBE, principal of Zempel Strategic, is an independent consultant in economics and investment strategies and a frequent and popular WICPA speaker. Prior to establishing his consultancy, Zempel was chief investment strategist and chief economist for Robert W. Baird & Co. Contact him at 414-351-1250 or czempel@zempelstrategic.com
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Welcome new members! Get to know the newest members of the WICPA. Oct. 1, 2020 – Nov. 30, 2020
Hannah Adalance
Jared Enevold SVA Certified Public Accountants S.C.
Bradley J. Bermke CLA
Tabitha T. Exum
Mardee L. Blattner Baker Tilly
James P. Fahley
Josiah Boucher SVA Certified Public Accountants S.C.
Devon Fisher Wegner CPAs
Michael W. Brendel Viroqua Area Schools Steven A. Brokish Wegner CPAs
Erin E. Goebel Michael P. Hammond Broesch & Co. S.C.
Casandra C. Chase Baker Tilly
David A. Hansen PPG Partners, L.L.C.
Cory J. Ciha W.M. Sprinkman LLC Phuong Dang Reilly, Penner & Benton LLP Ryan M. Dixon Dwayne Johnson & Associates
Joanne G. Fritsch KJ Tax & Accounting LLC
Barbara J. Head Maitland, Singler & Van Vlack S.C. David J. Henke Natalie A. Herrera Scott P. Hoover Scott Hoover CPA
Ashley T. Jacobs Guaranty Service Group Inc.
Robert P. Lyons
Holly M. Jones
Daniel D. Mael Bank of Wisconsin Dells
Anthony R. Karl Batley CPA LLC
Takuro Matsuda KPMG LLP
Miranda Kemp
Alexander E. Meyer Kwik Trip Inc.
Kip K. Kennedy Reinders, Inc. Kelly L. Kirtley Davis | Kuelthau s.c. David R. Klein City of Milwaukee Office of the Comptroller Christopher C. Kortbein McMahon, Schleifer & Wood LLC Erin E. Krysinski SVA Certified Public Accountants S.C. Moriah Lakeman Vrakas CPAs + Advisors Taylor Liddicoat
Brianne Raimer Atwood Tax Maura K. Rich BDO USA LLP Pamela W. Schneider von Briesen & Roper s.c. Amy R. Seibel Seibel Law Offices LLC
Megan Michaelis Baker Tilly Peter J. Muro Unity Health Plans Insurance Corporation Phuong N. Nguyen Sitzberger & Company S.C. Mark G. Novotny Derco Aerospace Inc.
Aaron H. Simanek SVA Certified Public Accountants S.C. Emily J. Tym PyraMax Bank Holly Wiese The VanderBloemen Group LLC David J. Winkler BDO USA LLP
Nick Oliphant The Suby Group
Charles K. York RSM US LLP
Theodore T. Pyzyk CLA
Lauren K. Zimmerle Spring Bank
Carrie L. Racine
Interested? Contact Marcia Tillett-Zinzow, editor, at mtzinzow@icloud.com. wicpa.org
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GASB REVISIONS
TO LEASE ACCOUNTING STANDARDS
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B By Michael Anderson, CPA and
Jordan Boehm, CPA
oth the Financial Accounting Standards Board (FASB) and the Government Accounting Standards Board (GASB) have published new standards that will impact accounting for leases. This article will focus on the less-oftendiscussed GASB revisions to lease accounting through the issuance of GASB Statement No. 87, Leases, in June 2017. This standard will fundamentally change lease measurement, recognition and related disclosures for issuers of financial statements in conformity with generally accepted accounting principles (GAAP) as issued by GASB.
For municipalities in Wisconsin, GASB 87 was originally scheduled for implementation in the year ended December 31, 2020. The COVID-19 pandemic created a significant additional burden on business and finance departments during 2020. As a result, GASB issued Statement No. 95, Postponement of the Effective Dates of Certain Authoritative Guidance, which went into effect immediately upon issuance in May 2020. With the lease standard postponed, Wisconsin issuers of GASB financial statements in accordance with GAAP must now implement the standard for year-ends June 30, 2022, and later. GASB 87 provides an initial definition of a lease as a “contract that conveys control of the right to use another entity’s nonfinancial asset (the underlying asset) as specified in the contract for a period of time in an exchange or exchange-like transaction.” Although this definition is not materially different from the historic understanding of leases, implementing the new lease standard will modify the accounting classification of these contracts, putting focus on the lease term (duration) and control of the underlying assets (possession). Historically, governments classified leases as either operating or capital leases based on a four-factor test. The new lease standard will eliminate these two classifications, along with the four-factor test, and categorize lease agreements into three classifications: short-term leases, contracts that transfer ownership and all other leases.
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A short-term lease is defined as a lease that, at the commencement of the lease term, has a maximum possible term under the lease contract of 12 months or fewer, including any options to extend, regardless of the probability of being exercised. Leases that are month to month are considered short term. Short-term leases will be accounted for similarly to what has been historically classified as an operating lease, with lease payments being recorded as expense or revenue by the lessee or lessor. Contracts that transfer ownership — that is, leases in which the lessor transfers ownership of the underlying asset to the lessee by the end of the contract — should be reported as a financed purchase of the underlying asset by the lessee or sale of the asset by the lessor. All other leases that do not qualify as either a short-term lease or a contract that transfers ownership will require that the lessee recognize an intangible right-to-use lease asset and a lease liability and that the lessor recognize a lease receivable and a deferred inflow of resources. This new treatment will require those leases historically disclosed in the notes to the financial statements to be incorporated on the face of the financials. The implementation of this third lease classification has the potential to be very time intensive, especially if you have a number of agreements that you currently record as operating leases. Historically, operating leases were not considered lease liabilities, even though the issuer had a legal commitment to a set stream of cash payments as set forth in a lease contract. Alternatively, the commitment of the cash flows related to these lease agreements were disclosed in the notes to the financial statements. This required a user of the financial statements to consider both the liabilities presented on the statement of net position and the lease commitments disclosed in the notes to the financial statements to understand the future commitment of cash flows related to lease contracts. Subsequent to the implementation of the new lease standard, the lessee will record a lease liability measured as the present value of lease payments expected to be made during the lease term. Payments over the course of the lease will result in reduction of the lease liability and recognition of interest expense. A right-to-use asset will be recognized as equal to the initial recognition of the lease liability, with adjustments necessary for payments made to the lessor prior to commencement, lease incentives and initial direct costs to place the asset into service. The right-to-use asset will be amortized over the shorter of the lease term or the useful life of the underlying asset. The notes to the financial statements should include a description of leasing arrangements, the amount of lease assets recognized and a schedule of future lease payments to be made.
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For a lessor, the operating lease was recognized as revenue, as the right to use the asset is provided in accordance with the payment schedule in the lease contract. Subsequent to the implementation of the new lease standard, the lessor will record a receivable measured as the present value of lease payments expected to be received during the lease term, with an offsetting deferred inflow of resources. Generally, a deferred inflow of resources will be measured as the sum of the initial measurement of the lease liability and lease payments received at or prior to commencement that relate to future periods less any lease incentives paid to the lessee at or before commencement. Receipt of cash related to the lease contract from the lessee will result in a reduction of the lease receivable and deferred inflow and recognition of interest revenue. The assets to which a right to use is being provided to the lessee will remain on the books of the lessor and will be depreciated over its estimated useful life. The notes to financial statements should include a description of leasing arrangements and the total amount of inflow of resources recognized from leases. Michael Anderson, CPA, is a manager at CLA. Contact him at 414-721-7542 or Michael.Anderson@claconnect.com. Jordan Boehm, CPA, is a principal at CLA. Contact him at 414-721-7510 or Jordan.Boehm@claconnect.com. The information contained herein is general in nature and is not intended, and should not be construed, as legal, accounting, investment or tax advice or opinion provided by CliftonLarsonAllen LLP (CliftonLarsonAllen) to the reader. For more information, visit CLAconnect.com.
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You have years of memories in this house. The most valuable things your family will ever own. We can help you protect it with a Home and HighwayŽ policy from West Bend. Get a portion of your annual premium back in cash if you don’t have a claim ... and a discount for members of the WICPA. To find out what else the Home and Highway has to offer, contact this Official Supplier of the Silver Lining. Professional Insurance Programs at (414) 277-0154 or info@profinsprog.com Or to find an agency near you, visit thesilverlining.com.
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2021 WICPA CONFERENCES IMPLEMENT
SUCCEED
LEARN
NETWORK
MARK YOUR CALENDARS! Business & Industry Spring Conference Tuesday, March 23
Not-for-Profit Accounting Conference Thursday, Sept. 23
Financial Institutions Conference Friday, May 21
Tax Conference Monday, Nov. 15 - Tuesday, Nov. 16
School District Audit Conference Tuesday, May 18
Accounting & Auditing Conference Thursday, Nov. 18
Business & Industry Fall Conference Tuesday, Sept. 21 & Wednesday, Oct. 20
Technology Conference TBD
2021 conferences will be available via WICPA CPE Livestream! For the safety of attendees, presenters, staff and vendors during the uncertainty of the COVID-19 pandemic, we’ll be holding the 2021 conferences via WICPA CPE Livestream so you can still get the updates and insights you need on timely issues! We will continue to frequently evaluate the safety of in-person attendance.
WICPA members save on registration! Use your WICPA membership to save on conferences! Registration opens approximately eight weeks prior to On a conference. View conferences currently open for registration at wicpa.org/conferences. Balance January | February 2021 wicpa.org 24
memorials Joe Sperstad (1927 – 2020)
Omer “Joe” Sperstad, 93, a past executive director of the WICPA, passed away peacefully on Tuesday, Nov. 3. He was a friend to many WICPA members and staff during the years he served.
Joe graduated from Menomonie High School and then from St. Olaf College before joining the U.S. Navy in 1945. After serving his country, Joe worked for a labor union in Toledo, Ohio. He married Nancy Hansen on Oct. 16, 1954, and together they raised four children. In 1963, Joe became executive director of the WICPA, and the family moved to Mukwonago. He led the organization until his retirement in 1990. A believer in “giving back,” Joe served on several Mukwonago government committees, the public library and school boards and was involved in local fundraising efforts. He was a lifetime member of Mt. Olive Lutheran Church and served on the church council.
Joe expressed himself as a writer, playwright and actor through the Mukwonago Village Players’ theater group, writing and acting in plays for the WICPA annual meetings and his church, and writing poetry throughout his lifetime. He also loved fishing.
Most of all, Joe valued relationships and connection. He often shared advice, philosophical views and especially kindness with those he met. During his retirement, he continued to read widely, write poetry and project his philosophy of life to all who would listen. Joe made friends everywhere he went, as people were attracted to his positive attitude and infectious inspiration. Joe is survived by his sister and brother, four children, seven grandchildren and six great-grandchildren.
Wayne J. Christman, CPA (1939 – 2020)
Wayne J. Christman, CPA, passed away Saturday, Nov. 7, at age 81. Christman graduated from St. Mary’s High School in Burlington and went on to serve in the U.S. Marine Corps for three years. Later, he studied accounting at Marquette University, graduating with a Bachelor of Science degree in 1964. He worked for the Internal Revenue Service before opening his own tax and accounting business in Burlington in 1966; then he became a CPA in 1970. Christman sold his business in 2000 and later retired. He is survived by his wife, Nancy; two siblings; three children; six grandchildren and numerous other relatives and friends.
Jerome J. Maller, CPA (1932 – 2020)
Jerome J. Maller, CPA, 88, passed away at his home on Saturday, May 9, 2020, the WICPA learned only recently. Born and raised in Racine, Maller graduated from St. Catherine’s High School in 1950 and proudly served during the Korean War with the U.S. Marine Corps from 1952 to 1954. He attended Marquette University and graduated in 1957 and then became a CPA. Maller spent 34 years as the first finance director and treasurer of the City of Racine. He was the former Commandant of the Agerholm Marine Corps League as well as a member of the Marine Corps Honor Guard and the VFW Post 1391. He is survived by his wife of 64 years, Eleanor; three daughters; three sons; and 15 grandchildren as well as many other relatives and friends.
John L. Rosenheim, CPA (1953 – 2020)
Joe (front row, far right) at the 2018 Past Presidents gathering.
Joe became the new Executive Director in 1963.
Joe (second from left) at the 2013 Past Chairs gathering.
Joe (second from left) at a bill-signing with acting governor Martin Schreiber.
John L. Rosenheim, CPA, age 67, passed away Thursday, Oct. 22. Rosenheim graduated from UW–Milwaukee with a degree in accounting and became a CPA. He worked for various companies, including Don Schreiber Accounting and Seagrave Fire Apparatus in Clintonville, serving as a controller for many years. For some time, he did financial work for Great Lakes Calcium, Green Bay, and GreenStone Farm Credit Services, Clintonville. Rosenheim never truly retired, and he stayed active by doing seasonal tax work for Heling & Associates CPAs in Neenah. His community service included volunteering with the Clintonville Optimist Club and serving on the board of the FWD Seagrave Museum Foundation. Rosenheim is survived by his wife of 23 years, Janice; one sister; one daughter; four sisters-in-law and two brothers-in-law; and numerous friends and relatives.
If you are aware of a member obituary and believe it should be included in Memorials, please send a copy of the obituary or contact Marcia Tillett-Zinzow at mtzinzow@icloud.com.
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{ Estate Planning | Documentation }
Estate and Tax Planning in the Time of COVID-19
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I By Patrick G. Gosz, CPA
n the midst of the global COVID-19 pandemic, people are concerned about planning for potential incapacity or even death. So what can be done during this time when it may be uncomfortable or impossible to meet face to face with an attorney or financial advisor? Many clients are not comfortable meeting with those outside their families for hours at a time in order to discuss their estate and financial plans. Some individuals also cannot meet with advisors because of a mandatory quarantine from COVID-19 exposure, a positive COVID-19 diagnosis or restrictions placed on visitors by residential facilities.
Many legal and financial advisors have the technological capabilities that allow them to easily communicate with clients from afar. They can use video or telephone conferences to meet with clients to create estate and financial plans or advise them on their plans. But what about signing documents? How can that be done when people have concerns about meeting face to face with multiple witnesses and notaries? Further, Wisconsin is not one of the Shanna N. Yonke, many states that took emergency JD action to authorize the execution of estate planning documents electronically. Yet witness and notary formalities guarantee the authenticity of clients’ documents and limit the opportunity for disgruntled beneficiaries or other interested individuals to challenge the documents in the future. Additionally, a notary is required on any document that will be recorded in the Register of Deeds office.
Melissa S. Kampmann, JD and
If it is not possible to meet with witnesses or notaries — even when outdoors or utilizing a drive-through service at a financial institution — we recommend that clients should nevertheless proceed to sign their documents without witnesses
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In the midst of the global COVID-19 pandemic, people are concerned about planning for potential incapacity or even death. and a notary. This is better than not signing them at all. Some documents do not necessitate witnesses and notaries. When we recover from COVID-19 and normalcy returns, it is best that clients re-sign the documents along with witnesses and notaries. Many people use revocable trusts to transfer their assets upon their deaths. A trust does not need to be witnessed or notarized to be valid in Wisconsin. In addition, for those individuals who already have a trust, the document can be amended or modified without witnesses or a notary. Revocable trusts are a popular estate planning tool because
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{ Estate Planning | Documentation }
they can be used to avoid probate, which is the court process of transferring assets upon death. However, simply having a trust does not avoid probate. In order to avoid probate, clients’ assets need to be transferred to the trust during lifetime or upon death by a nonprobate transfer document. • For married couples, a Wisconsin marital property agreement can be used to transfer assets to a revocable trust upon death without probate. A marital property agreement also does not need to be notarized or witnessed to be valid — but if it will be used to transfer real estate upon death, it does need to be notarized. • For unmarried individuals, a document authorized under Wis. Stats. § 705.10 may be used to transfer assets to a revocable trust upon death without probate. Witnesses and notaries also are not required to sign this document, but again, the document must be notarized if it will be used to transfer real estate upon death. • Anyone can avoid probate by transferring assets to a trust during their lifetime. If an attorney is familiar with an individual’s signature, the attorney may authenticate
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the individual’s signature on a deed that may be recorded in the Register of Deeds office without being physically present when the deed is signed. Bank and brokerage accounts are easy to retitle in the name of a trust, and beneficiary designation forms may be completed for life insurance policies and retirement accounts, generally without any need for witnesses or notaries. Another important estate planning document that can be executed without witnesses or notaries is a durable power of attorney for finances and property. If an individual becomes incapacitated, the agent that individual has appointed in the document is able to carry out the individual’s financial affairs without the need for a court-appointed guardian. This document saves time, expense and anxiety during a time that is already stressful for loved ones. What documents cannot be signed without witnesses? A will cannot be signed without two witnesses. However, in most circumstances, a will is not necessary if the individual has a trust and assets have been transferred to the trust during the individual’s lifetime or will be transferred to the trust by a nonprobate transfer document upon his or her death. Two witnesses also are required to sign a health care power of attorney, which appoints an agent to make health care
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Advisors must stay on top of new legislation that is constantly coming from the federal and state governments to make sure our clients are aware of all planning alternatives for 2020 into 2021.
decisions without the need for a court-appointed guardian for an individual if he or she becomes incapacitated. Note that neither a will nor a health care power of attorney requires notarization in order to be valid in Wisconsin. The execution of estate planning documents is just one step in the estate planning process. Often, we are asked about tax planning strategies, whether those strategies revolve around estate tax planning or income tax planning. The year 2020 has been a year of monumental change. Staying on top of the various acts passed by the federal government has been extremely important for advisors. For example, in 2020, we advised many clients to make charitable contributions to offset their adjusted gross income (AGI), the deductibility of which was sweetened by the Coronavirus Aid, Relief, and Economic Security (CARES) Act. As a result of the high standard deductions, many taxpayers choose not to itemize deductions, including charitable contributions. The CARES Act provides an above-the-line deduction for charitable contributions of up to $300 ($600 for those filing jointly) to taxpayers who do not itemize deductions. Taxpayers who itemize deductions may deduct charitable contributions of up to 100% of their AGI, an increase from the previous cap of 60% of their AGI. Note that these new charitable giving incentives apply only to cash contributions to public charities. In 2020, the CARES Act also provided favorable retirement planning and relief opportunities. Required minimum distributions (RMDs) from retirement accounts
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were not required in 2020 but will resume in 2021. While the best result of this provision is additional income tax deferral, the CARES Act also allowed an individual to take special distributions and loans if the individual, his or her spouse, or a dependent was diagnosed with COVID-19 or if the individual experienced financial hardships due to coronavirusrelated quarantines, furloughs and such. An individual could withdraw up to $100,000 from his or her retirement account without incurring the 10% early withdrawal penalty, even if the individual was under the age of 59½. As long as the individual pays back the distributions within three years, he or she will be able to recover the federal and state income taxes that apply to the withdrawal. Alternatively, the individual could borrow up to $100,000 from his or her retirement account (although the deadline for this opportunity was September 23, 2020). If an individual took a loan by this date, the individual will not owe income taxes on the amount borrowed from the retirement account if he or she pays off the loan within five years. In addition, if an individual already had a loan from his or her retirement account, loan payments due in 2020 may be delayed for a year, although interest will continue to accrue on those deferred loan payments. It is everyone’s hope that we reach a semblance of normalcy in 2021. Until that time, advisors must continue to seek opportunities to creatively work with clients to execute their estate and financial plans. In addition, advisors must stay on top of new legislation that is constantly coming from the federal and state governments to make sure our clients are aware of all planning alternatives for 2020 into 2021. Patrick G. Gosz, CPA, is fiduciary services administrator with Ruder Ware, LLSC, in Wausau. Melissa S. Kampmann, JD, and Shanna N. Yonke, JD, are both attorneys with the firm. Contact them at 800-477-8050.
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{ Manufacturing | Top trends }
TOP TRENDS AND TOPICS FOR MANUFACTURERS After a turbulent 2020, here’s what to be aware of in 2021
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F
rom a life-altering global pandemic to the tumultuous 2020 election, manufacturers and distributors experienced a year unlike any other. It should be no surprise that planning for 2021 and beyond will be different than it has been in the past.
By Cheryl Aschenbrener, CPA
As a result of these changes, we’ve identified topof-mind trends and topics manufacturers should pay attention to, including the following: • Potential tax implications resulting from the recent election and what manufacturers can expect for the next four years
• The Cybersecurity Maturity Model Certification — a crucial topic that will affect manufacturers beginning in 2021 • Best practices to prevent against ransomware and phishing attacks at the company level, especially in a remote working world
Bracing for a new tax landscape Throughout the 2020 presidential campaign, President Joe Biden proposed various tax law changes for individuals and businesses. While new tax reform would require support from the House and Senate, we can presume Biden will be eager to implement his proposed tax changes. Biden’s campaign proposed a tax increase to fund a clean energy program that combats climate change. Biden also advocated imposing higher Social Security taxes for individuals earning more than $400,000 and taxing capital gains as ordinary income for individuals with higher incomes. According to his campaign website, Biden will look to repeal aspects of the Tax Cuts and Jobs Act and enact higher individual income tax rates for taxpayers with incomes over $400,000. His plan will also increase the corporate tax rate to 28% from 21% and impose a 15% minimum tax on companies’ book income. These proposed changes would alter the current tax landscape, as Biden supersedes a Republican president mostly in favor of supporting Big Business. However, Biden has supported an implementation of manufacturing incentives that would induce demand for U.S. products, expand the R&D credit and strive to revitalize manufacturing facilities.
Preparing for the Cybersecurity Maturity Model Certification (CMMC) Although this is a new area of compliance, manufacturers whose products are involved in any way in the supply chain of the Department of Defense (DOD) should become familiar with this important certification. The CMMC verifies that the confidential and personal material of companies that maintain contracts with the DOD are protected from misuse, thus meeting cybersecurity standards of protecting the companies. According to the Office of the Under
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{ Manufacturing | Top trends }
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While the cyber protections on servers and computers in your corporate office or warehouse might be top-notch, remote employees may be lacking proper security at home, leaving your company vulnerable.
Secretary of Defense for Acquisition & Sustainment, “The CMMC is intended to serve as a verification mechanism to ensure appropriate levels of cybersecurity practices and processes are in place to ensure basic cyber hygiene as well as protect controlled unclassified information (CUI) that resides on the Department’s industry partners’ networks.” For those manufacturers providing contractual or vendor services to this branch of the U.S. government, this compliance requirement is expected to go into effect in early 2021. Certification assessments will be performed by a third-party organization and are mandatory.
Preventing ransomware and phishing attacks While most manufacturing companies still have the majority of their employees on the floor, it’s likely that at least some of their back office, accounting or human capital staff are working from home during this ongoing pandemic. We’ve seen an increase in phishing attacks — which is when hackers send your employees (sometimes convincing) emails that contain a malicious link or embedded attachment. Phishing attempts increased significantly in 2020 as many Americans began working from home, and email is the preferred and most utilized form of communication. While the cyber protections on servers and computers in your corporate office or warehouse might be top-notch, remote employees may be lacking proper security at home, leaving your company vulnerable. You may not think a compromised remote employee’s access is an issue for your company as a whole, but it is. If a hacker can access your organization’s server by guessing or obtaining
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an employee’s password, they are likely able to access the critical application servers that keep your manufacturing business running. With this comes the risk that your confidential employee, financial and customer information can be read, copied or deleted. In many scenarios, factories are forced to shut down temporarily to retroactively address a compromise. Best practices to prevent against costly and dangerous cyber breaches include implementing a multi-factor authentication system, in which remote employees can access company files only after providing a password on two devices (a computer and phone, for instance). You can also hire a third party to simulate a phishing attack: The third party would send a mock phishing email to your company’s employees and determine how many people click the link and fall victim to the artificial attack. This could assist in analyzing your current cybersecurity strategy and showing you where improvements may be necessary.
Conclusion 2020 has been a year we won’t soon forget. As manufacturers dive full-steam ahead into 2021, they should develop thorough, strong cybersecurity practices, prepare for the CMMC requirements and carefully analyze their tax situations for opportunities and shortfalls. Cheryl Aschenbrener, CPA, is a partner and the national leader of transaction advisory services at Sikich LLP in Brookfield. Contact her at 262-317-8514 or cheryl.aschenbrener@sikich.com.
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33
{ Taxation | S corporations }
Restructuring to Prepare for Sale of Interests in S Corporation
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M By Curtis C. Walther, JD and
any businesses have elected to be taxed as an S corporation for federal income tax purposes for the benefits of pass-through taxation and relative simplicity compared to partnerships. However, S corporations present a unique set of restrictions on eligible shareholders. Generally, only individuals, estates and certain trusts and tax-exempt entities are eligible to be shareholders of S corporations.1
For many S corporations, these restrictions are innocuous in the day-to-day operation of the business. These restrictions can become more problematic when John A. Sikora, JD an S corporation desires to attract equity investors or when the shareholders desire to sell some or all of their ownership in it. Many types of investors, such as those taxed as partnerships or corporations, cannot own interests in an S corporation. An S corporation that has an ineligible shareholder will lose its S corporation status. Moreover, buyers of interests in an entity often want the tax basis in assets it holds (the “inside” basis) to reflect the purchase price they pay for interests in it. Purchases of interests in S corporations generally do not affect inside basis.2,3 Assume a sale of an S corporation business is being considered in which the owners will continue to hold a 40% interest in the resulting business enterprise. It has been an S corporation for more than five years. The purchase price for the 60% interest is significant, but the inside basis of the S corporation’s assets is negligible. A potential buyer is a company taxed as a partnership. The owners of the S corporation do not want its pass-through treatment terminated, so a sale of 60% of its stock is not acceptable. The 1
“
Generally, only individuals, estates and certain trusts and taxexempt entities are eligible to be shareholders of S corporations. buyer also prefers pass-through status and wants to enjoy depreciation and amortization deductions commensurate with the purchase price. The simplest option, from a tax perspective, is to form a wholly owned LLC, transfer the S corporation’s assets to this new LLC and then have the buyer purchase 60% of the interests in the new LLC. The S corporation status of the original entity will continue, as the buyer will not have acquired interests in it; and the LLC, which will then be taxed as a partnership, will essentially have an inside basis in 60% of its assets based on the price paid by the buyer.4 Pass-through income tax treatment for all the parties will be secured.
Internal Revenue Code Section 1361(b)
See, however, IRC Sections 338(h)(10) and 336(e) and associated regulations for tax elections that, if made, would result in a change to the inside basis in the assets. 2
3 This
general principle differs from the opportunities available with respect to purchases of interests in entities taxed as partnerships. See IRC Sections 754 and 743.
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4
See Rev. Rul. 99-5
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35
{ Taxation | S corporations }
After the merger, the buyer will purchase interests in NewCo from HoldCo. NewCo will remain a disregarded entity for income tax purposes until that time. However, the sale transaction will cause NewCo to be taxed as a partnership under principles discussed in Rev. Rul. 99-5, Situation 1. The buyer is treated as purchasing a proportionate interest in each of NewCo’s assets from HoldCo, and HoldCo and the buyer are then treated for income tax purposes as contributing the assets to NewCo. HoldCo recognizes gain on the sale of the portion of its assets deemed to have been sold to the buyer. The deemed contribution by HoldCo and the buyer should result in nonrecognition treatment under Section 721.11 However, this option is sometimes not practical, as nontax obstacles to the formation of the LLC may exist. For example, tangible property will need to be conveyed, and transfer tax, title and other issues may be associated with doing so. The assignment of contracts and intangibles may require the consent of third parties or be difficult for other reasons. A variety of other issues — many associated with the fact that assets and rights need to be transferred by a conveyance or assignment document — are often present. A restructuring alternative to address these problems, which involves use of Internal Revenue Code Section (IRC) 368(a)(1)(F) and tax principles associated with disregarded entities, has gained favor over the years. In this approach, the shareholders of the S corporation (“OldCo”) form a new corporation (“HoldCo”) and OldCo’s shareholders contribute 100% of OldCo stock to HoldCo in exchange for 100% of the stock in HoldCo. This should qualify as a Section 351 nonrecognition transaction.5 Immediately upon the contribution, HoldCo makes a qualified subchapter S subsidiary (“QSub”) election for OldCo. HoldCo should survive to OldCo’s S corporation status,6 but it may be better to file an S election for HoldCo. The completion of these steps should constitute a nonrecognition transaction described in IRC 368(a)(1)(F).7 HoldCo should succeed to OldCo’s tax attributes.8 Additionally, the arrangement at this point continues passthrough treatment with respect to all business activity. HoldCo then forms a new wholly owned LLC (“NewCo”), which is a disregarded entity for tax purposes. OldCo is merged into NewCo, OldCo’s legal existence ceases, and NewCo will hold all of the assets and liabilities previously held by OldCo.9, 10 The transfers of the assets and liabilities occur by operation of law, not by conveyance or assignment instruments.
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Ultimately the shareholders and buyer achieve the business and tax outcomes they desire. The assets and liabilities will have moved to the new operating entity (NewCo) in a manner that is likely to be easier than alternative structures. The S corporation status is preserved for the initial owners of the business, and pass-through treatment for the new and prior owners of the business enterprise is achieved. NewCo will have an inside basis for 60% of the assets based on the purchase price the buyer paid. There are, of course, many matters to negotiate in structuring such a transaction, both nontax and tax. Appropriate representation and warranties, and indemnifications, relating to both will need to be included in transaction documents.12 But these are similar in kind to those that arise in connection with any equity interest purchase. This “F reorganization” transaction structure has proven a valuable tool in appropriate circumstances. 5
All conditions for nonrecognition treatment will, however, need to be confirmed.
6
See Rev. Rul. 2008-18, Situation 1
7
See Rev. Rul. 2008-18
8
See IRC Section 381
See Wis. Stat. § 180.1106. The merger of the disregarded entities owned by the taxpayer (here, of OldCo, which is a QSub, and NewCo) generally has no federal income tax consequences. 9
An alternative to the formation of NewCo and merger of OldCo into Newco is a state law conversion of OldCo from a corporation under state law to a limited liability company. See Wis. Stat. § 180.1161. 10
11
However, liability issues and nonrecognition requirements will need to be examined.
As to tax matters, for example, IRC Section 704(c) disparities relating to HoldCo’s interest in Newco will exist, and the parties will need to discuss the 704(c) method that is to be employed by NewCo. Anti-churning issues may exist under IRC 197 with respect to long-held intangibles. 12
Curtis C. Walther, JD, is an attorney with von Briesen & Roper s.c. Contact him at 414-287-1279 or cwalther@vonbriesen.com. John A. Sikora, JD, is a shareholder of the firm. Contact him at 414-270-2512 or jsikora@vonbriesen.com.
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Terri S. Boxer, J.D.
Robert E. Dallman, J.D., LL.M.
Thomas P. Guszkowski, J.D., LL.M.
Megan K. Heinzelman, J.D., LL.M.
Jeffrey L. Hesson, J.D., CPA
Courtney A. Hollander, J.D.
Megan L.W. Jerabek, J.D.
Thomas J. Kammerait, J.D., CPA
Benjamin D. LaFrombois, J.D.
Marcus S. Loden, J.D., LL.M.
Thomas A. Myers, J.D.
Randy S. Nelson, J.D., CPA
Thomas J. Phillips, J.D., LL.M.
David J. Roettgers, J.D., CPA
John A. Sikora, J.D.
Adam N. Skarie, J.D.
Steven M. Szymanski, J.D., MBA
Robert B. Teuber, J.D.
Peter J. Walsh, J.D., LL.M.
Curtis C. Walther, J.D.
Daniel S. Welytok, J.D., LL.M.
Tax Lawyers for Taxing Times. von Briesen’s team of experienced tax lawyers, many of whom have advanced designations, help businesses and individuals navigate the increasingly complex tax laws. The bottom line? We get results. To learn more about our Tax Law Section and the services we offer, please contact Robert Mathers, Tax Section Chair, at rmathers@vonbriesen.com.
Robert A. Mathers, J.D., CPA, Section Chair
vonbriesen.com/tax wicpa.org
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January | February 2021
37
{ Practice Management | Business development }
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Your business development practices may be metaphorically rusting on the side of the road, but now is the perfect time to bring the engine roaring back to life.
W
hat happens if you park your car and don’t start it for several months? You might cross your fingers when you eventually try to start it, right? It could have a dead battery, a flat tire, a mouse living under the hood — any number of the maladies that By Art Kuesel come with a neglected car. In the worst-case scenario, it could have parking tickets, a boot, or simply be gone! The same thing can happen in business development: When it’s neglected, it can become ineffective, broken, or could disappear altogether. Listen, I get it. I have lived the same nightmare as you since March 2020. I understand why business development has fallen to the bottom of your to-do list, but it cannot be neglected forever, or you risk much more than a dead battery or flat tire. Anyone who has been active at business development in the past has gone through a drought: several weeks without networking, months without a referral, several proposals lost in a row. But when you combine ongoing economic uncertainty with a lack of business development effort, you risk a new kind of drought. Forget about new business for a second. What about your current clients? What if your largest client asks for a new bid in an effort to mitigate their costs? I’ve seen it happen with some of my clients, and it will most certainly continue as the pandemic slows cash flow to a trickle. If you ignore business development too long, these problems combined could become the equivalent of a car thief — when you finally show
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“
Anyone who has been active at business development in the past has gone through a drought: several weeks without networking, months without a referral, several proposals lost in a row. But when you combine ongoing economic uncertainty with a lack of business development effort, you risk a new kind of drought. up to go for a spin, you’ll find your ride has evaporated into thin air. So, how do you restart your business development engine? Here are some tried-and-true recommendations that will get you up to speed:
Make sure your clients feel the love This is where your client goodwill efforts, like inviting them to a pertinent webinar or sharing a helpful article, come into play. Schedule calls “just to check in” and see how their business is doing, given all the disruption in our world right
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39
{ Practice Management | Business development }
now. Don’t fear bad news. You aren’t expected to solve every problem, but you are expected to be empathetic and listen. Make sure your clients know about some of the newer services your firm has launched in the past few years — maybe your cross-selling efforts here can land a project or two. Finally, remember that approximately 50% of all your business development time should be spent with your existing clients.
Don’t neglect relationships Pull up a list of anyone who has sent you a referral in the past few years, and reach out to check in. It’s been difficult to get the scuttlebutt on the street without our usual coffees, lunches and networking events, but I suspect you haven’t been trying hard enough. Also, now is a great time to help your referral sources make new connections. Make introductions within your network to fuel some activity. Remember that approximately 25% of your business development time should be spent here, as nonclient referral sources influence a considerable amount of your new business.
Commit to writing and speaking (via webinar) to your target audiences No networking? No sponsorship events? No seminars? No award ceremonies? Just because we aren’t meeting in large groups doesn’t mean there isn’t a desire for valuable information. In fact, the thirst for knowledge is high! It could be a great time to build a strong personal brand around a topic
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that serves as a magnet for new business going forward. While rarely instant, new business opportunities can trickle in for years from something you wrote or a webinar you presented.
Rethink prospect development First, touch base with any prospective client you didn’t win in the past few years. Check in to see how they are doing and if they need any help. If they chose the low-cost provider, it’s possible they have been neglected in the past several months. Second, consider your ideal client. Create a list of individuals and organizations that you would like to do business with and reach out to them, or utilize your client and referral source network to open doors for you. Just like a car, allowing your business development to lie dormant for too long can cause serious problems. Now that you recognize these potential risks, as well as what you can do about them, it’s time for a jump-start. Commit to spending up to eight hours a week on a few of these activities, and before long your business development engine will roar back to life.
Art Kuesel is president of Kuesel Consulting, Fox Point. Contact him at 312-208-8774. This article is reprinted from Insight, a publication of the Illinois CPA Society, and is used with their permission.
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