March | April 2021 | Vol. 17 No. 2 A publication of the Wisconsin Institute of CPAs | wicpa.org
The
Tax Man Jim Brandenburg, CPA, MST | 8
Plus: Summarizing the CAA | 14 CFOs managing risk | 20 2021 FASB update | 24 Banking and COVID-19 | 34
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A publication of the Wisconsin Institute of CPAs | wicpa.org
March | April 2021 Vol. 17 No. 2
8 Features
Columns
8 The tax man Jim Brandenburg, CPA, MST, is his firm’s go-to guy on all matters of federal taxation, and he’s written many tax-related articles for On Balance. What is it about taxation that lights his fire? By Marcia Tillett-Zinzow
28 PRACTICE MANAGEMENT Have a plan to pass the torch A well-thought-out succession plan is critical to a business’s long-term viability, but only 58% of organizations have one. By Paula K. Barrett, CPA, ABV, CEPA and William Onorato, JD
14 A summary of the Consolidated Appropriations Act (CAA) While most are familiar with the tax changes brought about by the pandemic, this article discusses other aspects of the CAA. By Christopher E. Rosborough, CPA, JD 20 The CFO as chief risk manager Disruption is driving risks for every organization. CFOs can play a critical role in helping them proactively manage risk and create value. By Paul L. Walker, CPA, PhD and Mark L. Frigo, CPA, CGMA, PhD 24 FASB update for 2021 While CPAs were dealing with tax changes and loan programs, the Financial Accounting Standards Board was busy making changes of its own. By Joann Noe Cross, CPA, CMA, CGFM, CGMA, PhD
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34 FINANCIAL INSTITUTIONS Banking and the pandemic The pandemic amplified challenges for financial crime management and compliance monitoring programs at financial institutions. By James Jarrett, CPA
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38 TAXATION Distribution strategies for IRAs post-SECURE Act The SECURE Act greatly limited the “stretch IRA” tax-planning strategy, but there are others IRA owners can use. By Peter J. Melcher, MBA, JD, LLM
Departments
42 TECHNOLOGY Five technology initiatives for today Technology marches forward with countless new opportunities to help improve efficiency and security. By Thomas G. Stephens, CPA, CITP, CGMA
37 Memorials | departed members
3 Outlook | chair’s letter 4
In Touch | president & CEO’s message
12 Welcome | new members 33 Kudos | members in the news
On Balance
March | April 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: comments@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
INSIDE STAFF
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March | April 2021
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OUTLOOK | CHAIR’S LETTER “We have proven that we can do anything we set our minds to, no matter what the situation may be.”
Embracing change and moving forward
A
s I write my final column as chair of the WICPA board of directors, I look back on a year unlike any other. It was a year full of change — and that’s an understatement. However, change for our profession is not unusual or unexpected. We adjust as needed to new regulations, new tax laws, new FASBs and new GASBs. We hire new people, and we see current employees decide to change their career paths. Change is normal and even needed to move our profession forward. The WICPA organization also saw significant change over the last year. • Conferences and training went to a 100% virtual format. • All our board and committee meetings also went virtual. The in-person networking we all enjoy so much came to a bit of a halt, but we did not let this discourage us. • The WICPA instituted new member orientation sessions and has since added member orientation virtual sessions for any member who is interested. • We continued our discussions with the Wisconsin Department of Revenue and local legislators to move forward the legislation and regulation discussions that had stalled due to the pandemic. • In addition, the WICPA and the board took a hard look at the organization’s diversity and inclusion practices and philosophies. We shared our personal thoughts and ideas as well as what each of our organizations was doing. Today, the pandemic is changing, too. We have two vaccines now, and it appears they are doing what they should: reducing the number of positive cases. Some school districts in the state are allowing or at least leaning toward returning to in-person learning. We may soon be able to go see our favorite sports teams play — and to once again network face-to-face with our fellow members. When I took over as chair last year, my goal was to leave the WICPA in a better position than I found it. Little did
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I know that a pandemic would try to throw a wrench into that commitment. So as I sit back and look at all the changes that have occurred, I think about what it all means. Are we better off than we were? Different — yes. Stronger — yes. Better off — definitely! We have survived a pandemic, and as an organization, we have come through stronger and more adaptable, flexible and resilient than ever before. We need not be afraid of change. We know how to handle it. We know how to react. We have proven that we can do anything we set our minds to, no matter what the situation may be. I have enjoyed my time as chair and look forward to handing the baton to the exceptionally qualified chairelect, Angela Thomas. As I leave, I would like to thank the WICPA’s amazing president and CEO, Tammy Hofstede. She has truly taken this organization to the next level. I appreciate all her hard work and all the guidance and patience she has afforded me in my role as chair. The sky is the limit for the WICPA and its members, especially when we embrace change. As Benjamin Franklin said, “When you’re finished changing, you’re finished.” We are not there, nor should we ever be. Wendi Unger, CPA, is a partner with Baker Tilly in Milwaukee and the 2020-2021 chair of the WICPA board of directors. Contact her at 414-777-5423 or wendi.unger@bakertilly.com.
On Balance
March | April 2021
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IN TOUCH | PRESIDENT & CEO’s MESSAGE
2020
“Thank you for your continued membership, your involvement, your commitment to the accounting profession and for making these initiatives possible!”
I
HHHHH
WICPA
YEAR IN REVIEW
t has been quite the year! While COVID-19 created many challenges and forced changes, it also shaped opportunities for us all. The WICPA had to quickly change course in many areas for our members.
As you have observed over the last year, and especially the last few months, the influence of the WICPA and its members has provided support and protection for our members, their clients, businesses and the public. Many of these successes were related to advocacy and our continued relationships with state and federal legislators and members’ involvement with expressing their voices to legislators. Despite the pandemic and its challenges, we did not eliminate opportunities to evaluate how we could continue to serve members in new ways. As we wrap up our fiscal year on April 30, I am pleased to share what we have accomplished for members over the last year.
Advocacy: enhancing member success Advocacy promotes the profession, protects its credibility and is a powerful benefit of your membership. Maintaining a strong presence at the State Capitol in Madison and Washington, D.C., and attending political events and fundraisers are critical to ensuring our voices are heard when it comes to legislation that impacts Wisconsin CPAs. In addition to offering the WICPA members as a resource, we successfully succeeded in presenting our positions on
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legislation impacting CPAs, their clients and the business community. • The WICPA and members' voices were heard to include accounting services as essential business in Gov. Evers’s “Safer at Home” order. • The WICPA, along with the other state CPA societies and the AICPA, were able to successfully extend the IRS tax filing deadline and payments with no penalties or interest and to encourage our members of Congress to support proposed legislation to assist individuals and businesses in this difficult time. • We worked with Gov. Tony Evers, leadership of both parties in the legislature and Department of Revenue Secy. Peter Barca to successfully achieve extending the Wisconsin filing deadline and payments without penalty or interest. • Conversations were held with DSPS and the Accounting Examining Board regarding cancellations of the CPA Exam due to the emergency declaration, which resulted in extensions and waivers for CPA Exam candidates. • We successfully implemented continuous testing of the CPA Exam, which went into effect July 1, 2020. Continuous testing allows candidates to sit for the CPA Exam year-round.
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Although the legislature did not come back into session last year to pass pending legislation once the pandemic occurred, two bills were immediately reintroduced in January 2021 and signed into law by Gov. Evers on Feb. 19. They were as follows: • Clarifying language for Wisconsin Act 368 regarding the treatment of pass-through entities. The changes we addressed in our legislation provide similar treatment in the rules that apply to both partnerships and tax-option corporations making the entity election to provide conformity, effective for years after Dec. 31, 2019. This bill was passed unanimously in the Assembly with votes of 94-0 and in the Senate with votes of 32-0 and is now 2021 Wisconsin Act 2. • Supported the Wisconsin Department of Revenue’s Taxpayer Enhancement Package because taxpayers and businesses benefit from this clarification and increasing compliance. The bill also simplifies the Department of Revenue’s administration to make the tax compliance process more effective and efficient as well as incorporates updates for Wisconsin tax code to follow the Internal Revenue Code. This will avoid taxpayer confusion. (This bill was included in 2021 Wisconsin Act 1). The most significant success revolves around the Paycheck Protection Program (PPP) relief funds: • The WICPA again worked closely with other state CPA societies and the AICPA to clarify the intent of the CARES Act regarding forgiveness and deductibility of PPP loan proceeds. This was accomplished at the federal level at the end of December 2020. • As timing was of the essence for our members, their clients, Wisconsin businesses and tax filing timing, we advocated for Wisconsin to be in conformity with the federal legislation. This did not come without significant opposition at the start. We joined a coalition with several other organizations, saw a record increase of member outreach and ultimately — through collaboration with key legislators and leaders — obtained bipartisan support. The legislation also excludes from taxable income all income received in the form of allocations issued by this state with moneys received from the coronavirus relief fund to be used for economic support, including broadband expansion, lodging industry grants, supplemental childcare grants, grants to small businesses, a rental assistance program, a farm support program and the grants awarded under the ethnic minority emergency grant program. The Assembly vote was 87-3, and the Senate vote was 27-5, and Gov. Evers signed the legislation (within an unbelievable 30 days) on Feb. 19, creating 2021 Wisconsin Act 1.
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Also in process is legislation introduced by Sen. Dale Kooygena: • In collaboration with the Accounting Examining Board, this legislation will allow accredited highereducation credits (such as from a technical college) that do not transfer to a four-year college to count toward the 150-hour requirement to obtain a CPA license in Wisconsin. There is bipartisan support for this bill. At the time of publication, this legislation is in the public hearing stage, and we anticipate it will pass within the next few months.
Celebrating the profession The WICPA celebrated its 115th anniversary by recognizing CPAs for their hard work and the impact they have on communities and businesses throughout Wisconsin, and we worked with Gov. Evers to issue a proclamation that recognized Wisconsin CPAs and designated an entire week in November as Wisconsin CPA Week. WICPA members, firms and companies are the economic engines of our state’s economy. With high standards of ethics and professionalism, CPAs are critical to the vitality and prosperity of the state and responsible for the fiscal health and well-being of individuals, businesses and institutions.
Connecting • A High School Educator Committee was formed to provide a setting in which high school educators can have a forum to discuss accounting in the classrooms and engage WICPA members to promote the profession at their schools through career fairs, speaking in the classrooms and providing input on topics for the Educator Accounting Symposium. • WICPA Connect, the members-only online community, proved very helpful in assisting members with questions and opportunities to collaborate. Connect was also a key resource in providing immediate communication to members regarding state and federal legislative updates. • Private communities were created in Connect for all committees and boards to communicate, track discussions and share materials more efficiently. • New-member virtual orientation meetings were developed to connect new members with WICPA staff, leadership and benefits of being a member. • Continued meetings with members and creating and enhancing relationships resulted in the WICPA being a key resource for assistance regarding licensure, CPE
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requirements and the CPA Exam. Presentations were given to groups throughout the state on the CPE requirements, the CPA Exam and the licensure process.
livestream events included the ability to ask questions of the speaker during the presentation. On-demand session recordings continued to be available afterward. • Our breakfast programs took on a new format with Wednesday/Friday livestream season passes available and covered a variety of topics.
• Due to the significant number of questions related to the CPA Exam and licensure, a CPA Exam Checklist and CPA Certificate & License Checklist were developed for high schools, colleges, students and aspiring CPAs to easily track the steps and requirements to become a CPA.
• Pricing was reduced for members and sponsors, to accommodate the financial impact of the pandemic and the WICPA incurring fewer expenses related to livestream programs.
• New members, CPAC/LIF contributors and Educational Foundation donors have been recognized on a regular basis in On Balance. In addition, the New Members and Kudos sections of On Balance have also been promoted through social media.
• Several free programs were offered to members to assist with completing CPE requirements. The programs included technology, guidance related to businesses and the impact of COVID-19, and legislation.
• Continued connections and relationships with legislators, leaders and agencies have also been instrumental to serving the CPA profession.
Diversity The WICPA is exploring opportunities with the National Association of Black Accountants (NABA) and the National Society of Black Certified Public Accountants (NSBCPA) on a CPA Breakthrough program to support CPA candidates with mentors, financial support and resources for the CPA Exam. We also offered members a free diversity series and unconscious bias program, which counted toward formal CPE credit.
• The WICPA partnered with WEDC and provided a free presentation to inform and answer questions about the “We’re All In” small business grant program, which assisted with the costs of business interruption, so that members were able to support their clients with the grant applications. • As we continue to explore benefits and discounts for services relevant to our members, we added new affinity partners: UWorld|Roger CPA Review, Wiley Efficient Learning and LibertyID.
Thank you for your continued membership, your involvement, your commitment to the accounting profession and for making these initiatives possible!
Continuing professional education and events Tammy J. Hofstede is president & CEO of the WICPA. Contact her at 262-785-0445 ext. 4518 or tammy@wicpa.org.
• We were able to quickly shift our CPE programs and events to livestream when the pandemic hit. Our
H The WICPA would like to extend special thanks to the following legislators for their leadership, support and committee work in regard to our legislation and for quickly introducing and obtaining bipartisan support for PPP conformity and tax relief for Wisconsin businesses: Senators Howard Marklein, Dale Kooyenga and Chris Kapenga; and Representatives Robert Wittke, John Macco, Jimmy Anderson, Gordon Hintz, Terry Katsma, Tip McGuire and Shannon Zimmerman. We would also like to thank the Department of Revenue and Gov. Tony Evers for his prompt attention and enacting into law what is now 2021 Wisconsin Act 1 and 2021 Wisconsin Act 2.
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On Balance
March | April 2021
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The
Photography by Rick Swearingen
Tax Man
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On Balance
March | April 2021
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By Marcia Tillett-Zinzow
J
“You take a topic and boil it down so it’s somewhat understandable and there’s something they can gain from it — whether it’s another practitioner, a business owner, a corporate CFO or someone in an accounting role in a company — so they can say, ‘OK, here’s what the change is, here’s how it might apply to me, and here’s what I need to know from it or how to benefit from it,’” Brandenburg said. He has been a member of the WICPA Federal Taxation Committee for about 25 years and said he has enjoyed working with that group, making connections, sharing information and finding out what others are doing — as well as taking a break from the office to come to meetings at the WICPA offices. He also pointed out the occasional participation in the committee’s meetings by former Speaker of the House Paul Ryan before he rose through the ranks on Capitol Hill. “We’d have 15 or 20 people in the meetings, so it was a pretty small group to be able to share and talk with him for an hour,” Brandenburg said. “I think he enjoyed the discussions, too. They were a little less intense than some of the politics he maybe got in Washington, just to come and sit down and talk with us. Ryan had a thorough insight on the tax law, as well as what he thought was going to happen and what changes he’d like to see happen. He also took genuine interest in our concerns as CPAs.” Ryan’s visits to the committee meetings continued when he became House Ways & Means Committee Chairman, but this ended as he spent more time in Washington, D.C., after he was selected as Speaker of the House.
Wit, wisdom and wives In many of his communications, the tax man’s intellect is matched only by his wit. You may have heard of the “fiscal cliff ” of 2012, which referred to more than $500 billion in tax
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Photo provided by Jim Brandenburg
im Brandenburg, CPA, MST, tax partner for the professional services firm Sikich LLP, is the firm’s resident tax expert. With a master’s in tax and more than 35 years’ studying corporate and partnership tax law and tax legislation, he knows his stuff. Working from Sikich’s Brookfield office, Brandenburg breaks down complex tax laws and tax law changes and translates them for his clients, his colleagues and the interested accounting and tax public, including other members of his firm. He does this through webinars and presentations; in articles posted on the firm’s website, in the WICPA’s On Balance magazine and Accounting Today; during interviews with reporters for major local and national business media outlets; and even teaching a tax class at UW–Milwaukee (UWM). The pandemic has given Brandenburg more time with his wife, Laurie, and grandchildren, AJ and Maya.
increases and across-the-board spending cuts that would be effective Jan. 1, 2013, unless the president and Congress could agree on an alternative deficit-reduction deal (which they did on New Year’s Day). “We were doing an article about it near the end of the year, and it was just before Christmas, so I mentioned it was ‘the night before cliff-mas,’” explained Brandenburg. “I got a couple of strange looks when I said it, and then our marketing team said, ‘OK, we can go with that,’” and the title became “The Night Before Cliff-mas.” In similar fashion, an article a few years ago on the new opportunity zones became “Game of Zones,” which was a play on the popular HBO series “Game of Thrones.” That was Brandenburg’s suggestion, too. “I had never seen the series, but the marketing team had seen it and knew a lot about it, so they said, ‘Let’s go with that.’ They are a very talented team. We have fun trying to make tax interesting. Sometimes they say, ‘No, that’s a stretch.’ We have a few other witty folks in the office, too,” he added. One of those witty folks is Mark Miller, CPA, a tax director with Sikich and a close colleague of Brandenburg. Miller is a big reason Brandenburg is working where he is today. Back in 1992, Miller was working for the Milwaukee CPA firm of Kolb Lauwasser & Co. (later Kolb+Co., which merged with Sikich in 2013), and Brandenburg was with Ernst & Young, having started his career with Arthur Young & Co. after graduating from UW–Madison in 1981 (Arthur Young
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merged with Ernst & Whinney in 1989). Miller’s wife, Kathy, and Brandenburg’s wife, Laurie, were friends back in college at UW–Madison. They ran into each other in 1992 and talked about families, including their husbands’ work. One thing led to another, and eventually Jim joined Mark at Kolb. “It was our wives that brought it up first — and then Mark and I talked,” said Brandenburg. “I started working for Kolb Lauwasser in January 1993.”
Just-in-time education Brandenburg’s 12-year stint with Arthur Young had been a productive one. He obtained his CPA license while working there and also earned his Master of Science in Taxation (MST). “I started out in accounting and audit and switched to tax after the first year,” said Brandenburg. “It took me three and a half years to get my master’s degree because I was working full time and attending night classes at UWM once or twice a week, as most students did. It’s only a year-and-a-half program for those who go through it full time.” He graduated with his MST in 1986, just in time to dive into one of the most comprehensive pieces of tax legislation in U.S. history: the Tax Reform Act of 1986. “There had been several changes before that — one in ’81 that President Reagan pushed through in his first term and others in ’82 and ’84. But the one in ’86 was the largest,” he said. “It brought about across-the-board change that affected individuals, businesses, international, retirement plans — and it had a significant impact to businesses. So there was much to learn and digest in order to help our clients.”
which took some time for the IRS and more time for CPAs to study and absorb. “You don’t see comprehensive change like that very often,” Brandenburg noted. “The next comprehensive tax law change didn’t come for another 30 years, and that was the Tax Cuts and Jobs Act in 2017.”
Why tax? Taxation is one of the most intricate fields of accounting, but the complexity of it is what made Brandenburg want to specialize in it in the first place. He enjoys the challenges involved in analyzing the legislative process, learning the new laws, keeping abreast of the never-ending changes and tweaks, explaining these to his clients and colleagues and working with clients to understand how the changes apply to them and what they may be able to do with them. “As difficult as it is for us practitioners to understand, it’s even more difficult for our clients. So it’s looking at how it works and how it affects their businesses and explaining what they should do with it. Sometimes you may not like the changes Congress makes, but one way or another you need to deal with these changes to help your clients,” Brandenburg said. The coronavirus pandemic blindsided everyone last year, not just tax practitioners; but they were among the hardest hit.
Photo provided by the WICPA
Back then, neither tax practitioners nor clients had the benefit of technology to help them learn and understand the changes. Brandenburg noted the absence of personal computers and internet access, which would not become part of the standard office setup until the 1990s. So to understand the Tax Reform Act of 1986, they had to rely on written materials —
“
Taxation is one of the most intricate fields of accounting, but the complexity of it is what made Brandenburg want to specialize in it in the first place.
Brandenburg with other members of the Federal Taxation Committee in February 2020
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“
Photo by Rick Swearingen
Sometimes you may not like the changes Congress makes, but one way or another you need to deal with these changes to help your clients.
"The tax man" in the lobby of the Sikich office
Just as the busy tax season was clutching into fourth gear in mid-March, the pandemic T-boned it. Everyone was urged to lock down and work from home whenever possible. For tax practitioners, that meant taking a lot of work home that had been started in the office. At the same time, many clients’ businesses were being shut down. Then Congress came up with a significant tax bill that went through in a matter of days — which is very unusual for the spring of the year, according to Brandenburg — and they all had to understand and interpret it right away. “Usually tax bills go through in the summer or fall,” he said. “The last few years it’s been November and December. They [Congress] debate these issues all year long, and it seems like no progress is being made, and then it all gets pushed through in a matter of days at the end of the year. It’s not too often you get legislation during tax season.” But the economy has never been devastated during tax season — not to mention as fast as COVID-19 devastated it. To assist taxpayers and businesses and try to stimulate the economy, Congress quickly put together the $2.2 trillion economic stimulus package known as the Coronavirus Aid, Relief and Economic Security (CARES) Act. And the news
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that it was coming moved tax practitioners into overdrive. They were anxious about the bill being enacted so rapidly at this time of year, and they weren’t sure what it entailed and when it would apply. “We needed to know just what was going to be in there, and we needed to get that information out,” said Brandenburg. “We prioritized writing articles, pulling some webinars together and assisting clients. And there was much uncertainty in the marketplace — businesses being affected in so many ways. Everybody wanted to know how this new law would apply to them, and at the same time we were trying to finish some of these tax returns that we were normally doing then. So this all snowballed at the same time while we were still adjusting to working remotely.” In the meantime, the IRS was going through the same issues as everyone else: staff working from home, empty offices and tax returns and letters piling up in the service centers. They postponed the April 15 tax deadline to July 15, which was helpful to everyone. But the IRS had to issue millions of rebate checks in a matter of weeks, as well as deal with the new PPP loans and other incentives contained in the CARES Act. The Small Business Administration also needed to issue
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guidance quickly and frequently, and they were not used to operating in this manner. Everyone was learning on the fly. “There definitely was a lot going on in the March-AprilMay time frame,” Brandenburg noted. He speaks about it in such a way that one may think he somewhat enjoyed the chaos. A tax-law hurricane like the one we’ve been through may be the stuff of a tax man’s dreams. For some, it may be just the opposite: a nightmare they hope will never come again.
Photo provided by Jim Brandenburg
To still others, it’s just boring complexity. Jim and Laurie Brandenburg have three children: Matt, 31; Katie, 34; and Annie, 35, as well as two grandchildren now — AJ and Maya. He chuckles as he recalls Katie asking him at times: “I’m getting ready to go to bed, Dad,” she’d say. “Can you tell me what you did today or read me some of your tax stuff — just to help me fall asleep?” Marcia Tillett-Zinzow is a Wisconsin freelance writer and editor. Contact her at mtzinzow@icloud.com.
The Brandenburg family
Welcome new members! Get to know the newest members of the WICPA. December 1, 2020 – January 31, 2021
Deanna Alexander Village of Newburg
Joshua S. Farnam FIS
Christopher T. Krumm Gressco Limited
Jon E. Apelgren Packaging Corporation of America
Lucas Fater Johnson Block & Co. Inc.
Nicole Kube
Korianne Fischer Breunig CPA LLC
Judy C. Kysely
Jamie Behnke Zero Zone Inc.
Tammy Kuester
Kevin E. Fountain Exact Sciences Corp.
Christine M. Landes Christine M. Landes CPA
Matthew Bomkamp Johnson Block & Co. Inc.
Roger A. Fuller Fuller CPAs LLC
Anne C. Larson
Kristi Brey Wipfli LLP
Katie A. Gee Marathon Cheese Corp.
Kari C. Brown Hancock & Robinson CPAs
Scott Glasgow Willms-O'Leary S.C.
Eric Brunner
James A. Heinrich
Kristen Caponi RitzHolman CPAs
Andrea D. Heise
Mary E. Boettcher
Susan R. Connor United Performing Arts Fund
Ethan Hoffman KerberRose S.C.
Debra K. Dahlby TDS Telecom Inc.
Maria Kang SVA Certified Public Accountants S.C.
Zachary S. Decker Woita & Associates
Thomas H. Kingston
Loraine N. Erickson
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On Balance
MacArthur Kirksey Robert W. Baird & Co. Inc.
March | April 2021
Jennifer A. LeCaptain Lakeland University Amanda Linam SVA Certified Public Accountants S.C. Beth M. Livingston Deloitte & Touche LLP Rebecca Mayo PwC Alexander McCarville Baker Tilly LLP Nathan J. Meyer Tobin & Hanson S.C. Brenda S. Morrell Green Lake Conference Center
Kathy L. Nelson Journey Mental Health Center Inc. Lori M. Nixon University of Wisconsin-River Falls Suzanne J. Ortega ABGi USA
Cameron Sawyer Baker Tilly LLP Jason Schmitt Jacobson & Schmitt Advisors LLC Lyndsey Streff Tushaus & Associates LLC
Michael E. Outcalt
Jessica Sura U.S. Venture
Kristi Parker Ruder Ware LLSC
Amber Tigert KerberRose S.C.
Erika Proehl PwC
Morgan Winter Cohen & Co.
Kurtis W. Raddant Curative Connections
Mark W. Wirtz Tri City National Bank
Lorn Randell Uline Inc.
Alyssa M. Witt U.S. Venture
Jane E. Reardon
Darlene Wood University of WisconsinMadison Medical School
Charles Roedel City of Milwaukee Office of the Comptroller Nicole M. Rotier Spring Bank
Panyia Yang Anna E. Zoellner
Kathleen A. Ruzicka K&M Tax Service
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A Summary of the
Consolidated Appropriations Act
A
lthough tax professionals are unfortunately starting to get used to the trend of eleventh-hour tax legislation, Congress really outdid itself this past year, passing the 5,500-page Consolidated Appropriations Act 2021 (the Act) shortly after By Christopher midnight on Dec. 22, 2020. By E. Rosborough, now, most of us are familiar CPA, JD with the advance tax credits for individuals, the expansion of the Payroll Protection Program (PPP) and the provision allowing for full deductibility of expenses paid with forgiven PPP funds, but this article will highlight/summarize some of the other aspects of the Act that many will find beneficial when filing 2020 and 2021 tax returns.
Charitable contributions • The Act extends through 2021 the $300 charitable contribution deduction for qualified contributions made by nonitemizers. • The Act extends the enhanced deduction limitations in place for 2020 for qualified contributions made in calendar year 2021 by individuals who itemize and corporations. Individuals may deduct up to 100% of their 2021 AGI and corporations up to 25% of their 2021 taxable income.
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PPP relief and beyond • PPP debt forgiveness was not the only provision granted favorable tax status. The SBA 7(a) debt relief program and emergency EIDL grants were also granted tax relief. • The Act also provides $15 billion for grants for shuttered venue operators and exempts the grant from gross income while allowing deductions for expenses paid with the grant. • The Act expanded PPP eligibility to FCC license holders and newspapers with more than one physical location, allowing greater access to PPP for these borrowers. • Small IRC Section 501(c)(6) organizations and destination market organizations that do limited lobbying are now also eligible for PPP loans. • Professional sports leagues and organizations with the purpose of promotion or participating in a political campaign were specifically made ineligible for PPP loans. • ASC 740 impact for fiscal-year companies: o Although an in-depth analysis of this issue is outside the scope of this article, fiscal-year companies with tax years that ended before Dec. 27, 2020, that record tax provisions should record a temporary item for PPP expenses when there is a timing difference in accordance with the tax law in effect at that time. They would then reflect the tax benefit of the deduction of the expenses in the provision for the period that includes Dec. 27, 2020.
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• Finally, the Wisconsin Department of Revenue has clarified that because Wisconsin has not adopted the Act, PPP-covered expenses are not currently deductible for Wisconsin taxable income. (It should be noted that at the time of writing, the Wisconsin legislature was considering a bill that would rectify this divergence from federal law, and this bill may have passed by the time of publication.)
Employee retention credit Outside of the PPP loan changes, the modification and extension of the CARES Act Employee Retention Tax Credit has the potential for the greatest impact. The highlights of these changes are as follows: • Wages through June 30, 2021, are now eligible for the credit. • The credit is now open to any employer, regardless of whether or not a PPP loan was taken. However, the same wages used in the PPP loan application cannot be used again here. (Hopefully, additional guidance on this issue has been provided by the IRS by the time this article is published.) • The Act reduced the 2020 eligibility requirement of a 50% quarter-over-quarter reduction in gross receipts to 20% for 2021. In addition, the new rule allows a company to elect to use the gross receipts from the immediately preceding quarter rather than the current quarter.
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• The definition of “small” employer was raised from no more than 100 employees to no more than 500. The advantage of this is that only “small” employers are allowed to use all qualified wages paid to employees rather than just compensation paid to employees for the time they were not working.
IRC Section 163(j) and electing real property trades or businesses • The Act retroactively amends the TCJA and requires an electing real-property trade or business to use a 30-year ADS recovery period for residential rental property placed in service before Jan. 1, 2018. • The IRS will need to provide taxpayers with procedures to apply the 30-year ADS recovery period retroactively. In the past, the IRS has allowed for amended returns, administrative adjustment requests (for partnerships and LLCs) or changes in accounting method.
Other credits and incentives The Act extended or modified a number of credits and incentives. A sampling of these include the following: • The applicable period for the FFCRA family and sick leave credit has been extended from Dec. 31, 2020, to Mar. 31, 2021.
• The Act raised the 2020 credit limitation of 50% of employee wages to 70% for 2021, meaning that the maximum credit will be $7,000 per employee per quarter.
• The Act extended the work opportunity tax credit for five more years and is now applicable to wages paid or incurred to a qualified individual who begins work through Dec. 31, 2025.
• For taxpayers who failed to take the credit on their 2020 Form 940s, they are now eligible to file amended Form 941-Xs and claim the refundable credit.
• Although the increased expensing under Section 179 and nonrecognition of gain on rollover of Empowerment Zone investments were terminated for tax years
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beginning after 2020, tax-exempt enterprise zone facility bonds and the empowerment zone employment credit were retained through 2025. • The Section 45S paid family and medical leave credit that was enacted with the TCJA has been extended for five additional years to apply to paid leave wages paid through Dec. 31, 2025. • The Act made the energy-efficient building deduction under Section 179D permanent and indexed it to inflation for tax years beginning after 2020. • The Act extends the credit allowed under Section 45 for one year for electricity produced from certain renewable resources. • The Section 30C credit for qualifying alternative fuel vehicle refueling property is extended for property placed in service by Dec. 31, 2021. • The energy-efficient home credit under Section 45L has been extended for one year and is applicable to homes acquired through Dec. 31, 2021.
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Although it is impossible to do complete justice to a 5,500page bill in a 1,200-word article, most taxpayers will find many provisions of the 2020 Consolidated Appropriations Act very beneficial as they try to manage cash flow and navigate their way out of the recession.
• The Section 25D credits for residential energy-efficient property is expanded and extended for property placed in service through Dec. 31, 2023. • The excise tax credits for alternative fuel used or sold for use as fuel in a motor vehicle and for alternative fuel mixtures produced are extended for one year, through Dec. 31, 2021.
Excise tax breaks for craft brewers, wineries and distillers Any article discussing the Act for an audience of Wisconsin CPAs would be remiss if it did not highlight the permanent reduction in excise taxes first introduced in the TCJA. In addition, under the UNICAP rules of Section 263A, the Act makes permanent the exclusion of aging periods for beer, wine and distilled spirits from the production period for purposes of interest capitalization rules. Although it is impossible to do complete justice to a 5,500page bill in a 1,200-word article, most taxpayers will find many provisions of the 2020 Consolidated Appropriations Act very beneficial as they try to manage cash flow and navigate their way out of the recession. While the looming national deficit has many concerned about the direction that the next set of tax legislation might take, let’s all hope that these bills start passing earlier in the year to allow more time for feedback from tax professionals and planning once the bills are signed into law. Christopher E. Rosborough, CPA, JD, is a senior tax director with RSM US LLP in Madison. Contact him at chris.rosborough@rsmus.com.
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By Paul L. Walker, CPA, PhD and Mark L. Frigo, CPA, CGMA, PhD
T
he role of the CFO in managing enterprise risk and creating future value continues to evolve in this dynamic and rapidly changing environment of disruption. Our research, which we released in a report by the Financial Executives Research Foundation (FERF), The Strategic Financial Executive: Managing Enterprise Risk in a Disruptive World, describes strategies CFOs can use to manage risk and create value in today’s dynamic landscape and discusses how CFOs can incorporate strategic risk themes emphasized in the new enterprise risk management (ERM) framework by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The research is based on extensive interviews with financial executives and other corporate stakeholders from leading companies. The takeaways in the report encompass four strategic themes: recognizing disruption, developing risk management maturity, communication and strategic thinking.
THEME 1
Recognizing disruption, the speed of change and underlying sources of disruption The roles and skill sets of the financial executive must swiftly adapt. CFOs bring value to the table by, among other things, informing the board and CEO regarding matters they may not be familiar with and providing insight to nuances they may not have seen. Fifty years ago, people managed physical assets to deliver cash flows, explained Corey West, CPA (inactive), chief accounting officer and corporate controller for Oracle. “Today, you manage intangible assets to deliver cash flow. Those intangible assets can be valuable one day, and it can go ‘bye-bye’ the next, depending on who enters a marketplace where you’re competing. ... The importance about understanding the business you’re in, the competitive landscape and where your competition might be coming from, [from] a strategic standpoint, is a lot more important now. I think CFOs need to be part of that thought process.” (See “Dealing with disruption” later in this article for actions to take to recognize and cope with change.)
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ERM THEME 2
Increasing the enterprise’s risk IQ and capabilities ERM is evolving and becoming more strategic in its efforts and results. Given the efforts of COSO to highlight strategic risk dimensions, executives should expect board members to ask more strategic risk questions and be prepared to address them when asked. The ERM framework developed by COSO points out that strategic risks can be sourced as follows: • Strategy and business objectives not aligning with mission, vision and values • The implications from the strategy chosen • The risk involved with executing the strategy Executives and board members should seek or reconfirm their knowledge related to those strategic risk dimensions. To get this right, financial executives should look to leverage their current ERM processes to determine what strategic risk help and analysis is being developed. Some advanced companies already use strategic risk analysis tools, such as workshops on strategic disruption, black swan events and emerging trends practices. (See “Boosting risk IQ.”)
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“
The more senior role that you play in the organization, the more time you should spend looking forward versus looking in the rear-view mirror. It’s really about proactively determining where you are going with your responsibility [and] your business. — Bob Verbeck, Boeing
THEME 3
Thinking and communicating strategically With the proper strategic thinking, noise and signals can help your organization to know where the market is heading and where to compete. Consider all the factors, such as customers, the global economy, foreign currency hedging and contracts with escalations. (See “Thinking strategically.”) Financial executives are in a unique position to take advantage of an integrated approach that sees changes, identifies the risks and links them to the business model.
THEME 4
Developing skills to enable a forward-thinking finance organization Successful financial executives look toward future value creation. Decisions made with this risk information are aimed toward better business models and future strategy. “Enterprise risk management consists of a set of forward-looking tools for senior management,” said Jeff Pratt, general manager of enterprise risk management at Microsoft.
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Knowledge of accounting, finance, reporting requirements and related skills may have helped financial executives move to the top. But that knowledge is not enough to keep them successful and able to add the most value to their organizations. We recommend, based on work with CFOs, that they develop a professional development plan for their CFO team that incorporates strategy, strategic risk management and business model skills. Consider the profile of skills needed, and access the current skill set as a starting point. “The more senior role that you play in the organization, the more time you should spend looking forward versus looking in the rear-view mirror,” said Bob Verbeck, senior vice president of finance and corporate controller at Boeing. “... It’s really about proactively determining where you are going with your responsibility [and] your business.”
Dealing with disruption Financial executives can take the following steps to help recognize disruption, grapple with the speed of change and understand the underlying sources of change: 1. Periodically rethink and redefine your real competitors. Look outside of the normal channels.
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2. Get involved in the identification of signals of change facing your organization.
7. Ensure that risk thinking is seen as part of business thinking.
3. Ensure that you are looking at the right sources of change and disruption.
8. Review the smaller recurring risks for potential surprises. Look for a larger pattern or theme that could signal additional risks.
4. Build a sophisticated process to identify noise and potential changes. 5. Consider your company’s customers as a key source of information, not just about current sales but about future change and potential disruption. 6. Have contingency and resiliency plans based on the size of a disruption. 7. Factor in reaction time. It is more important for some areas than others. Identify when it is critical for your organization. 8. Survey the landscape. Look for disruptors in technologies. Look for disruptors in other industries that might indicate changes in your sector. 9. Build a method to link change and disruption to the business model and to your enterprise’s current strategy.
Boosting risk IQ Financial executives can take the following steps to help their organizations boost their risk IQ and capabilities: 1. Check with your board to determine what information they need about each of the three strategic risk dimensions. 2. Develop a plan to address those needs. 3. Compare your current risks with the three dimensions. Do they all fall into one of the dimensions (perhaps strategic execution risk)? Adjust for any areas that have no associated plans or tools. 4. Review how strategic risk is addressed in your ERM process. 5. Know the answers to the following questions: What tools have we applied to know that our strategy is the right one? What tools have we applied to determine if we are aligned? What tools have we applied to strategic execution risk? 6. Work with the ERM team to improve the risk IQ and broader risk thinking in the organization.
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9. Develop tactical strategies for known risks. Take the risk beyond a map and consider the longer-term budgeting and financial implications. 10. Identify the assumptions in the risk-profile rankings.
Thinking strategically Financial executives can take the following steps to think and communicate more strategically: 1. Ensure that identified risks are incorporated into the business units. 2. Have regular sessions to rethink derailment, opportunities, new business models and the related risks. 3. Understand the business’s view of the risk. Engage business units. Listen to their points of view. 4. Bring in subject-matter experts, futurists and others to validate the potential business model and strategic risks. 5. Review trends in cross-functional business teams to determine their impact and opportunities. 6. Measure each dimension of strategic risk. 7. Test new strategic risks. 8. Flesh out the financial implications of major risk assumptions. 9. Track identified risks to the strategic plan. 10. Have regular sessions to focus on leveraging the risks into new business models. Do this also with your key customers. Paul L. Walker is the executive director of the Center for Excellence in ERM at St. John’s University. Contact him at walkerp@stjohns.edu. Mark L. Frigo is the director of the Center for Strategy, Execution and Valuation and Strategic Risk Management Lab at DePaul University. Contact him at mfrigo@depaul.edu. © 2017 Association of International Certified Professional Accountants. All rights reserved. Reprinted with permission. This article first appeared in CGMA Magazine. For more articles, sign up for the daily email update CGMA Advantage at http://bit.ly/2svn2AY.
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FASB UPDATE FOR 2021
I By Joann Noe Cross, CPA, CMA, CGFM, CGMA, PhD
t certainly has been an unprecedented year. One would expect that the Financial Accounting Standards Board (FASB) would have had more important things to worry about, but it appears that they have soldiered on with their agenda, taking only some minor detours along the way. This article will outline their changes.
Effective dates deferred Most significant was the FASB’s realization that many organizations were struggling to adhere to CDC guidelines while at the same time trying to implement two very complex standards: leasing and revenue recognition. Revenue recognition
As originally issued, FASB ASU 2014-09 was intended to be effective for public1 entities for annual reporting periods beginning after Dec. 15, 2016, and for nonpublic entities for annual reporting periods beginning after Dec. 15, 2017. After considerable anxiety was reported by many entities, the FASB issued FASB ASU 2015-14, deferring the effective date for all entities by one year. In June 2020, FASB ASC 2020-05 again deferred the effective date to annual periods beginning after Dec. 15, 2019, for those entities (primarily nonpublic entities) which had not yet issued financial statements implementing the revenue recognition standard.
Dec. 15, 2018, and for nonpublic entities for annual periods beginning after Dec. 15, 2019. However, the FASB apparently recognized the importance for nonpublic entities of the negotiations with lenders arising from the lease liabilities the new standard would require, and in FASB ASC 2019-10 they deferred the effective date for nonpublic entities for a year. Thus, FASB ASC 2020-05 deferred the effective date of the leasing standard for nonpublic entities to annual periods beginning after Dec. 15, 2021. Insurance
The FASB has been working with the AICPA to update and improve accounting guidance for the insurance industry. With the issuance of FASB ASU 2018-12, Targeted Improvements to the Accounting for Long-duration Contracts, this effort was nearly complete. FASB ASC 2019-09 deferred the effective date of the long-duration contract guidance for public business entities2 to annual periods beginning after Dec. 15, 2021, and for “all others” to annual periods beginning after Dec. 15, 2023. FASB ASC 2020-11 deferred the effective date for an additional year.
Clarification updates As usual, much of the FASB’s work in 2020 comprised modifications to standards they had issued that allowed for multiple interpretations. Stakeholders — generally large public accounting firms or large public companies — were often uncomfortable with the ambiguity and litigation exposure that alternatives created. As a result, the FASB issued clarifications and corrections to indicate the “best” treatment of these alternatives: • FASB ASC 2020-01: Clarifying the Interactions between Topic 321,Topic 323 and Topic 8133
Leasing
• FASB ASC 2020-03: Codification Improvements to Financial Instruments
As originally issued, FASB ASC 2016-02 was effective for public entities for annual periods beginning after
Excluding entities known as “smaller reporting entities,” an SEC classification for smaller capitalized public organizations. SRCs are included for the purposes of this update in the “all other category.” 2
A “public entity” is essentially one that files with the SEC, a not-for-profit entity that is a conduit bond obligor, or an employee benefit plan that files a Form 11-K with the SEC. 1
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3 Topic
321 Equity Securities; Topic 323 Equity Method and Joint Ventures; Topic 815 Derivatives and Hedging
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• FASB ASC 2020-08: Codification Improvements to Subtopic 310-20, Receivables — Nonrefundable Fees and Other Costs Noteworthy among these updates is FASB ASC 2020-10: Codification Improvements. This update focuses on moving disclosure guidance from Section 45 (Other Presentation Matters) to Section 50 (Disclosure) to facilitate the ability of codification users to find all disclosure guidance in the same section regardless of topic. The balance of this update clarifies an additional 22 miscellaneous ambiguities within the codification. Two updates provided a mechanism to move the codification into conformity with changed SEC guidance. They were: • FASB ASC 2020-02: Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin No. 119 and Update to SEC Section on Effective Date Related to Accounting Standards Update No. 2016-02, Leases (Topic 842) and • FASB ASC 2020-09: Amendments to SEC Paragraphs Pursuant to SEC Release No. 33-10762.
Substantive standards Reference rate reform
In 2012, Ben Bernanke, then chairman of the U.S. Central Bank, expressed the opinion that the LIBOR rate was “structurally flawed.” This declaration followed revelation earlier that year that the LIBOR rate was not an accurate indicator of the cost of money but had been rigged to benefit the banks involved in its determination. As a result, the LIBOR, a benchmark for short-term lending, will cease to be reported by the end of 2021. All contracts carrying a LIBOR rate should be concluded by June 30, 2023, when the rate will cease to exist.4 Of course, this creates a dilemma for all those contracts currently utilizing the LIBOR rate — how to implement the transformation from LIBOR-denominated contracts to other reference rates. Over the years since 2012, the FASB has suggested (and approved the use of ) a variety of other rates for new contracts, but the problem of transitioning to a new rate for an old contract remains. This guidance is included in a pair of updates:
4
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https://www.cnbc.com/2020/11/30/key-bank-lending-rate-will-be-phased-out-by-june-2023.html
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• FASB ASC 2020-04: Facilitation of the Effects of Reference Rate Reform on Financial Reporting • FASB ASC 2021-01: Scope Both updates provide expedients and exceptions for existing LIBOR contracts that are modified between March 12, 2020, and Dec. 31, 2022. This includes a one-time election to sell, transfer, or both sell and transfer debt securities classified as held-to-maturity within that time frame. Others
• FASB ASC 2020-06: Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity
For convertible instruments that are not derivatives, this update no longer requires that the conversion feature be separated from the host contract and provides additional disclosure guidance for such contracts. The update is effective for annual periods beginning after Dec. 15, 2021, for public entities and annual periods beginning after Dec. 15, 2023, for all others. • FASB ASC 2020-07: Presentation and Disclosures by Not-for-Profit Entities for Contributed Nonfinancial Assets This update is part of the FASB’s continuing process of revising not-for-profit financial reporting to better reflect the
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This update is part of the FASB’s continuing process of revising not-for-profit financial reporting to better reflect the unique characteristics of those organizations. unique characteristics of those organizations. The guidance requires contributions of nonfinancial assets to be reflected as a single line item on the Statement of Activities and, in addition to other disclosures, requires the organization to disclose their policy on monetizing versus utilizing such contributions. The update is applied on a retroactive basis for annual periods beginning after June 15, 2021. Joann Noe Cross, CPA, CMA, CGFM, CGMA, PhD, is emerita professor of accounting in the College of Business at University of Wisconsin–Oshkosh. Contact her at crossj@uwosh.edu.
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YOUR PROPERTY TAX PARTNER The Property Tax Section of von Briesen & Roper, s.c. has extensive experience and is your comprehensive resource for property tax issues. From public to private entities, the Property Tax Section has assisted clients in contesting and defending property tax assessments, chargebacks, tax exemptions, and advising on PILOT agreements and TIF/TID districts. Our creative approach to the most complex matters has positioned us to be your trusted advisor on property tax. The bottom line? We get results. To learn more about our Tax Section, please contact Robert Mathers at rmathers@vonbriesen.com.
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{ Practice management | Succession planning }
Have a plan to pass the torch By Paula K. Barrett, CPA, ABV, CEPA and William Onorato, JD
H
aving a well-thought-out succession plan is critical to the long-term viability of a business. Yet according to PwC’s 2019 U.S. Family Business Survey, only 58% of family businesses have succession plans, and most of those are informal. What prevents so many business owners from considering and preparing for succession? On a daily basis, most are too busy working in the business handling routine tasks, immediate projects and customer service to work on the business (planning and progressing toward long-term vision and goals). On a more human and profound level, thinking ahead to the end of one’s involvement with the business can be an emotionally fraught subject. A minefield of complex personal and professional issues too often leads to a do-nothing approach. Here’s the thing about exits: They are inevitable. The only real choice owners have is whether the departure occurs on their terms or someone else’s. The best way to avoid the latter scenario is to lay a foundation for succession as early as possible. While it is important to develop a framework and a formal plan, keep in mind that the specific details may evolve over time as circumstances and events affect owners, their families and their businesses. Succession should be considered a process, not a transaction.
The basics Succession planning is daunting, so instead of constructing an entire plan all at once, take it step by step. The key is to identify core issues, prioritize them and then develop a manageable timeline. Be clear going in: The process may take years, not months.
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The first step in developing a foundation is to create a written plan that addresses the succession basics. Include all the major stakeholders in the development process and maintain a team approach throughout. Major stakeholders may include, but are not limited to, the owner, family members, key employees and advisers (such as a business attorney, CPA or family business consultant). What follows are some basic elements of a succession plan to serve as the building blocks for a strong foundation. Addressing each as a separate module makes the creation of a succession plan more plausible and manageable.
Values and vision Start by identifying the owner’s values and vision. As the cornerstone of the business, values and vision help the family navigate difficult decisions and set the tone for an organization and its culture. They also serve as guiding principles throughout the succession plan development process. After all, if all the stakeholders are not clear as to where the business and the family are headed, it’s far too easy to get lost or distracted along the way.
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Key objectives Objectives will vary from business to business and family to family based on a multitude of factors. They may be short term in nature (such as providing for an orderly transition in the event of a catastrophe) or longer term (such as providing for a transition to future generations).
Ownership Identify the intended recipients of the business, in both the short and long term. Legal ownership of the business can be transferred through wills, trusts, buy/sell agreements, shareholder agreements and other legal documents. If these documents already exist, review them to make sure they produce the desired result. If they do not, work with the legal adviser on the succession plan development team to compose the appropriate tools to achieve ownership objectives.
Leadership The legal owners of the business may not necessarily be the same individuals who lead it. For example, a spouse or children may not have the expertise or desire to run the business on a daily basis. That’s why it is critical to identify
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the next generation of leaders. If no leaders are identified or ready presently, assemble and train a team of advisers to step in and run the business in the event of a catastrophe.
Exit plan How will the owner transition leadership to a successor? Letting go of the business they created is one of the most difficult things an owner can do, but it is essential to the long-term viability of the enterprise. The dangers of an owner’s dependence on business value is discussed further down, as well as the significance of finding personal fulfillment and identity outside the business.
Successor and management plan How will the successor’s roles and responsibilities be expanded? How will this individual develop the skills and attributes necessary to lead the business? The transition from owner to successor cannot happen overnight; rather, it should be a gradual process in which the owner phases out and the successor takes on more responsibilities over a period of years. This is also the perfect time to clarify the organizational structure that will support the new
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{ Practice management | Succession planning }
owner. Consider the same questions around identification and expansion of roles and responsibilities to give the management team greater clarity and accountability.
Communication A plan does no good if it remains a secret. Start communicating as often as necessary before, during and after the succession planning process. Transparency and full knowledge are critical components to driving accountability and engagement with the process.
Regularly monitor and review Families and businesses change, and so must their plans. Make sure to review the succession plan at least annually, and adjust accordingly.
Accelerate business value No matter what type of transfer or exit an owner has in mind, its success or failure is related to the quality of the business and how well it is operating. That’s why business value acceleration is not a finite task or distinct project; rather, it is a process that should be ongoing throughout the life of the business. The acceleration process focuses on value growth and the alignment of business, personal and financial goals. With a constant focus on value, the timing of an exit matters less because the organization is always ready to adapt to new leadership. What’s more, the value acceleration process can serve as a leadership development tool to support succession, ease the transition and provide a measurement system for progress.
De-risk the business Value acceleration starts by identifying and mitigating risks. Consider the impact and response to unplanned events — whether that’s a natural disaster, economic risks, personnel changes or even a global pandemic. Are business insurance levels adequate to cover interruptions or losses? If you don’t have contingency or continuity plans in place, develop them now and revisit them annually for changes.
Tangible and intangible value drivers Once you’ve reduced risk, it is time to bolster assets and attributes. There are two categories of value drivers: tangible and intangible. The tangible portion includes cash, accounts receivable, inventory and fixed assets; the intangible portion includes assets such as brand name; supplier relationships; and proprietary formulas, technology or products. The nature of the business or industry will dictate whether it has more tangible or intangible value. For example, most service businesses will have greater intangible value, while physical asset-intensive businesses will have greater tangible value.
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No matter what type of transfer or exit an owner has in mind, its success or failure is related to the quality of the business and how well it is operating. Intangible assets are often the primary contributors to a company’s earning power, allowing it to create value through revenue growth, innovation and profitability. Following are three of the most common intangible assets that drive company value: • Customer relationships — Companies that measure and manage customer retention are making an investment that will reduce operating costs, generate referral activity and increase long-term profitability. • Trademarks — Respected and easily identifiable trademarks can help companies expand more easily into new products or services, attract top talent, influence buying decisions and enhance marketability in the event of a sale. • Workforce in place — Having a well-trained, highly skilled employee complement in place not only drives the inherent value of a company; it also attracts potential buyers who would be spared the considerable expense of investing in an entirely new team.
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Reduce owner dependence When taking stock of the tangible assets and intangible elements that drive value, make sure they are transferrable to future leaders or potential buyers. Owner dependence is a huge threat to succession plans and ongoing viability. To mitigate this, create a structure that will allow the business to function without the current owner playing an integral part. Start by building a talent pipeline that will identify and groom future leaders and facilitate the transfer of knowledge and connections. Bring emerging leaders into the decisionmaking process, and give them stretch assignments to fuel confidence and competence. Introduce more of the team to key suppliers or vendors so new relationships can develop. This process may uncover skill gaps, so allow for ample training and learning opportunities to address them.
Plan, execute and measure Planning and execution are key to achieving the valueacceleration strategies mentioned. Ideally, the succession planning process would begin three to five years before the owner’s departure time frame. A staggered and phased approach helps assuage worries associated with the ownership transition and provides everyone involved with a framework to track progress and achieve goals. Hold team members involved in the process accountable and aligned with regular checkpoints, forums for feedback, and clear roles and responsibilities.
Life after the business The post-work phase of succession planning is equally important, but it often receives far less attention. Many owners discount their future plans as something to be sorted out later, as something less worthy of their time during the planning process. In reality, owners should consider their options for their next act at the same time they are solidifying their exit strategy. Think about it. Much of an owner’s life revolves around the status of their business; remove that focus, and owners can be left with feelings of isolation or lack of purpose. Owners who prepare for the next phase of life are better equipped to counter these emotions with different ways to find meaning and motivation. Here are some suggestions to help maximize this new chapter.
Learn from others Reach out to peers who have been through an exit. Meet with them and ask about their experience. What went well for them? What would they do differently?
Develop a six-month game plan for after the transaction As the exit approaches, pull together a plan for the first 180 days. Before the transfer or sale, owners are generally in a positive frame of mind, which allows them to think favorably of the future and what they always wanted to do or accomplish if only there was more time. An extended vacation, visiting with family and friends, joining or coaching a recreational athletic league — a business owner should list several things they’d like to do and develop a plan to make it a reality. Above all, owners should take time to celebrate the success they worked so hard to achieve.
Personal reinvention For many owners, their identity is intertwined with their business, so an exit can feel like a loss. Reconnecting with things that spark joy and finding new sources of fulfillment will reduce the emotional toll. There are many opportunities for former business owners to pay their experience forward, stay engaged with peers and use their skills in different ways. Joining a local board is an opportunity for philanthropy, personal connection and intellectual challenge. Small-business incubators are another way to tap into mentoring or investment opportunities. Many colleges and universities have opportunities for retired business owners to get involved on campus. Reach out to alumni or community engagement offices to learn more.
Work with a coach Just as it is important to work with trusted advisers to plan and execute the transfer and sale of a business, it may be helpful to seek professional guidance on the transition out of ownership. Someone without a personal involvement or emotional attachment can serve as an unbiased sounding board, support the owners through decision-making processes and guide them as they build a new structure for their lives. It is best to start as early as possible, but it is never too late to get ready for an orderly and optimal succession. Putting energy into planning for an ownership exit will pay dividends for everyone. With the support of a team of professional advisers, owners and their families can lay the foundation for a business succession that addresses operational, financial and personal considerations and provide the peace of mind and satisfaction of ending this chapter on their own terms. Paula K. Barrett, CPA, ABV, CEPA, is a partner in the consulting services group of RKL Wealth Management in Wyomissing, Pennsylvania. Contact her at pbarrett@rklcpa.com. William Onorato, JD, is a senior wealth strategist with RKL in Lancaster, Pennsylvania. Contact him at wonorato@rklwealth.com. Reprinted with permission from the Pennsylvania Institute of CPAs.
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Streaming Live Friday, May 7 at 9 a.m. Join us for this year’s special event to: • Hear updates from WICPA President & CEO, WICPA Board Chair and WICPA Secretary/Treasurer. • Present the 2020 Excellence Awards.
• Elect the WICPA Board of Directors. • Recognize longevity members for their 5, 10, 25, 40 and 50 years of membership.
Attendance is complimentary for WICPA members. As an online-only membership event, guest tickets are not available this year.
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For more information, visit wicpa.org/banquet.
March | April 2021
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kudos
Michael J. Hall, CPA
Ruth Kallio-Mielke, CPA
Jennifer Lilla, CPA
Evan Y. Lin
Michael Ball, CPA, a partner with Edge Advisors, Appleton, was elected to the Wisconsin Dental Association board of directors. Michael W. Carr, CPA, president and CEO of IT company Naviant Inc., received an Executive of the Year award from In Business magazine. Jonathan S. Chamberlain, CPA, a partner with Chamberlain & Henningfield CPAs, was elected to the Vilas County Board of Supervisors. Heather Dunn, CPA, senior vice president and chief financial officer of West Bend Mutual Insurance Co., was tapped to serve as a co-chair for the United Performing Arts Fund Community Campaign. Ting Eaglin, CPA, has joined Draffin Tucker, a Georgia accounting firm, as a senior associate. Vickie Eppler, CPA, owner of Eppler CPA LLC, Platteville, has been appointed to a three-year term on the Platteville Regional Chamber of Commerce board of directors. Ryan Goerres, CPA, CFE, has been admitted as a partner with A&O Certified Public Accountants in Kenosha. He has been with the firm since 2016. Dan Glomski, CPA, MST, ABV, CVA, and Terry Hoover, CPA, ABV, shared their expertise in a Wisconsin Public Radio article titled “Wisconsin Small Business Owners May Have to Pay State Taxes on PPP Loans.” Michael J. Hall, CPA, has been promoted to shareholder of Vrakas CPAs + Advisors, Brookfield. He has been a member of the Vrakas Tax Department since 2004. Ruth Kallio-Mielke, CPA, was interviewed by WTMJ radio on Friday, Feb. 12, regarding “how the pandemic will affect filing your taxes.” Brian Koopman, CPA, CFP®, has been promoted to chief operating officer for Trust Point, a financial advisory firm headquartered in La Crosse. He has been with the company for 20 years. Jennifer Lilla, CPA, has been promoted to vice president of accounting and financial reporting at Organic Valley, La Farge. She joined the cooperative in July 2019 and was previously a senior manager with Baker Tilly Virchow Krause LLP.
Mary Ellen Michaelson, CPA
Michael Phalin, CPA
Scott M. Syrjala, CPA
Evan Y. Lin, CPA, JD, managing member of Lin Law LLC, Green Bay, was named to the 2020 Wisconsin Super Lawyers list by the publishers of Super Lawyers® magazine. Mary Ellen Michaelson, CPA, has been promoted to shareholder of Vrakas CPAs + Advisors, Brookfield. She has been a member of the Vrakas Tax Department since 1999. Karen A. Monfre, CPA, ABV, CFF, ASA, recently retired from Wipfli LLP, has been appointed to the board of directors for Denmark Bancshares Inc., in Denmark, Wisconsin. Michael Phalin, CPA, was promoted to partner with Siepert & Co. LLP, Beloit, effective Jan. 1. He joined the firm as an auditor in May 2011. Margo A. Rosen, CPA, CGMA, has been selected by her fellow partners to serve as managing partner of CarlsonSV, an accounting and advisory firm with offices in Wisconsin and Minnesota, effective April 1. She joined the firm in 1999 and became an audit partner in 2005. Terri Schmidt, CPA, retired as a partner with A&O Certified Public Accountants, Kenosha, effective Dec. 31, 2020, after 25 years of service with the firm. She will continue in her client service role. Derek A. Salzwedel, CPA, has been appointed a partner in Strohm Ballweg LLP in Middleton. He has more than 11 years of public accounting experience serving insurance entities. John Stetzenbach, CPA, has been promoted to assurance partner by RSM US LLP, Milwaukee. He has over 14 years of public accounting experience providing audit and consulting services. Scott M. Syrjala, CPA, has been promoted to shareholder of Vrakas CPAs + Advisors, Brookfield. He has been a member of the Vrakas Tax Department since 2009.
ORGANIZATION NEWS Chortek LLP, a CPA and business advisory firm headquartered in Waukesha, has acquired ToSolution, a service provider specializing in managed services and flatrate information technology (IT) support. The expansion adds four members to the firm’s growing IT team.
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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{ Financial institutions | Compliance }
Banking and the
Pandemic The impact of COVID-19 on compliance monitoring for banking institutions
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rom remote work to surging first-time online banking users, the COVID-19 pandemic has had a widespread impact on customer behavior and compelled financial institutions to adopt new business-as-usual processes and compliance monitoring procedures. However, these changes have also amplified the challenges for financial crime management and compliance monitoring programs at institutions of all asset sizes.
By James Jarrett, CPA
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Throughout 2020 and into 2021, financial institutions have struggled to manage and maintain processes with limited resources. COVID-19 has placed limitations on in-person customer interaction, including temporary closing of branch lobbies and permanent closing of some branches. Financial institutions are forced to work with skeleton staffing due to employees testing positive for the coronavirus or required quarantines due to exposure, and the limited staffing has forced management to adopt new processes and procedures. In addition, it has forced management to temporary halt or limit compliance monitoring procedures in lieu of completing daily business processing.
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Many financial institutions moved their back-office departments to remote working environments in an attempt to lessen the spread of COVID-19 within their institutions. One of the major hurdles that institutions faced was the lack of technology to adapt to remote working environments and an absence of secure means to perform required business and compliance-related functions. Information technology (IT) departments led the way through this transition process, and depending on the size of the institution and their IT department size, this could have taken weeks to months to transition all applicable employees to remote working environments. Also, during the transition process, management should have been managing and monitoring all manual processes to ensure that these procedures were being completed. This may have required rewriting, updating or enhancing processes and procedures along the way. For example, antimoney laundering (AML) software filtering criteria should have been reviewed and necessary changes made with respect to the change in operations and customer banking abilities during the pandemic.
Business continuity planning During the start of the pandemic, did your financial institution struggle to implement its business continuity plan? Did it struggle to transition to off-site or remote working environments? If so, now is the time to revisit your business continuity plan and make necessary updates. The Federal Financial Institutions Examination Council (FFIEC) agencies released an “Interagency Statement on Pandemic Planning,” which states that business continuity plans should address the threat of a pandemic influenza outbreak and its potential impact on the delivery of critical financial services. With respect to business continuity, regulators will want to know how COVID-19 is affecting your institution. Information that financial institutions should know and have readily available include the following: • the number of COVID-19 cases • any local outbreaks • staffing issues that impacted the financial institution and what product and/or service areas were impacted, including compliance You company’s Compliance Department should also be documenting any changes to compliance-related policies and procedures due to COVID-19. If compliance monitoring frequency or processes have changed, this should
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be documented by the Compliance Department with explanations for why they changed and discussion of the compensating monitoring controls that are in place.
Bank Secrecy Act (BSA) compliance Your company’s BSA Department is one of the high-risk areas that regulators will focus on. Your BSA Department should be documenting any Office of Foreign Assets Control (OFAC) filtering and transaction monitoring and any review backlogs that have been developed. If BSA/AML transaction monitoring alert or case backlogs develop, there should be an escalation process to devote additional resources to “cap” the backlog and bring about reduction. This should be documented within the BSA department, including an explanation as to why this occurred and how it was remediated. Additionally, business continuity planning within this department should take precedence, and plans should be in place to manage EDD reviews if self-quarantine of the BSA officer is required. If the BSA Department is large enough, it should be split into teams with an alternating on-site (if necessary) schedule. A recent Financial Crimes Enforcement Network (FinCEN) update declared that it “expects financial institutions to continue following a risk-based approach, and to diligently adhere to their BSA obligations.” However, FinCEN also states that it “appreciates that financial institutions are taking actions to protect employees, their families, and others in response to the COVID-19 pandemic, which has created challenges in meeting certain BSA obligations, including the timing
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{ Financial institutions | Compliance }
requirements for certain BSA report filings.” FinCEN also encourages financial institutions to contact their functional regulator(s) or other BSA examining authority as soon as practicable if a financial institution has BSA compliance concerns because of the COVID-19 pandemic.
Fair lending Fair lending is considered another high-risk area that regulators will place great focus and scrutiny on during examinations. Since March 2020, financial institutions have been flooded with consumer loan requests, and the pandemic resulted in a sharp inflow of consumer requests for forbearance or modifications that could result in increased fair lending issues. To ensure fair lending compliance, financial institutions should review and update policies and procedures to reflect temporary changes to the process. Additionally, any changes to policies and procedures should be properly communicated and documented with staff. This will ensure that lenders are offering customers a consistent product vs. one lender deciding to defer a payment while another is suggesting a partial payment. Another fair lending concern that should be reviewed is the denial process during the pandemic. A second review process should be implemented to verify that the reasons for denial are supported by information in the credit file. Additionally, the review should also ensure that adverseaction notices were delivered in a timely manner. Also, financial institutions should be monitoring and tracking complaints, with analysis of the complaints received helping to identify areas of risk that will need to be reviewed in greater detail. Additionally, compliant trends should be reported to senior management. Lastly, the Compliance Department or the fair lending officer should be completing internal compliance monitoring with respect to fair lending laws. With the influx of loans due to the pandemic, the bank’s assessment area should be reviewed to ensure it is still accurate. A detailed review should be completed and documented to identify potential redlining. This review should include Paycheck Protection Program (PPP) loans. In addition, the bank should ensure preferential treatment is not being given to PPP loan applicants who are bank customers vs. applicants who are not bank customers.
Conclusion Financial institutions should be aware that regulators may be delaying examinations due to the pandemic; however, they will always come back to fair lending laws. An example is the JPMorgan $53 million disparate treatment settlement with
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Financial institutions should be aware that regulators may be delaying examinations due to the pandemic; however, they will always come back to fair lending laws.
the Department of Justice (DOJ) in 2017. The DOJ alleged that the bank was recklessly disregarding the rights of at least 53,000 African-American and Hispanic borrowers and that JPMorgan failed to catch a disparate impact affecting a group of their customers due to lack of monitoring and loan file reviews. The time frame that was reviewed was between 2006 and 2009, which was during the 2008 financial crisis. James Jarrett, CPA, is firm director of Baker Tilly US LLP in Allentown, Pennsylvania. Contact him at 267-670-2376 or james.jarrett@bakertilly.com.
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memorials Thomas Bugel, CPA (1937 – 2020)
Thomas Bugel, CPA, passed away at age 83 Tuesday, Dec. 15, 2020. Bugel graduated from the University of Wisconsin–Madison in 1961 with a degree in accounting. He joined Hooper Corp. after becoming a CPA in 1964 and progressed to CFO, ultimately serving as secretary-treasurer on Hooper’s board. He retired from Hooper in 1999 and continued working as a tax practitioner for H&R Block in Hayward. Bugel is survived by his wife, Donna; four children; eight grandchildren and one great-grandson; two sisters and several nieces and nephews.
Steven Kaminski, CPA (1970 – 2021)
Steven Kaminski, CPA, passed away on Friday, Jan. 22, at the age of 50. He attended UW–Whitewater, earning his bachelor’s degree and a master’s in accountancy and later becoming a CPA. Kaminski worked at Alliant Energy in the Finance Department for most of his career and most recently in the Treasury Department. He volunteered as a youth soccer coach for many years and was an organ and tissue donor. Kaminski is survived by his wife, Lynn; two children; his parents; one sister; and many other relatives and friends.
Jon Robert Lindwall, CPA (1939 – 2020)
Jon Lindwall, CPA, a lifetime member of the WICPA, passed away Tuesday, Dec. 29, 2020, at the age of 81. He was a graduate of Lincoln High School, Manitowoc, and the University of Wisconsin, earning his accounting degree in 1961 and going on to become a CPA. Most of his career was spent working for Smith & Gesteland LLP in Madison, and he retired from the firm in 2004. Lindwall is survived by his wife of 59 years, Barb; two brothers; a son and a daughter; six grandchildren and one great-grandchild; as well as other relatives and friends.
Frank S. Macek Jr., CPA (1927 – 2021)
Frank S. Macek Jr., CPA, passed away Thursday, Feb. 4, at the age of 93. Macek served the U.S. Army during the Korean conflict and attended Marquette University on the G.I. Bill, earning his BBA and later becoming a CPA. He worked in finance for Harnischfeger Corp. (now P&H) for 30 years and then for Scribner, Cohen & Co. in Milwaukee. He volunteered for St. Joseph’s Parish in Cudahy and the Milwaukee Local Machinists Union and was a member of the Knights of Columbus and the Czech Catholic Union. Macek is survived by his wife, RoseMary; two children; a sister; many nieces and nephews; and former coworkers and colleagues.
Steven M. Plotz, CPA (1952 – 2020)
Steven Meehan Plotz, CPA, age 68, passed away Monday, Dec. 14, 2020. He attended UW–Madison and graduated with an accounting degree in 1974. Plotz began his career as
a CPA with PricewaterhouseCoopers in Milwaukee. After moving back to Madison, he worked as a CPA and tax practitioner and ultimately became a partner at Ragsdale, Spitz, Reuschlein & Assoc. In 1983, Plotz and his wife moved to North Carolina, where Plotz continued his career in tax. He is survived by his wife, Joan; a stepson and two grandchildren; a sister; two nieces and a nephew; and other relatives and friends.
Thomas H. Schmitt, CPA (1960 – 2021)
Thomas (Tom) Schmitt, CPA, age 60, passed away on Thursday, Jan. 14. He was an active member of the WICPA who served for many years on the Public Policy and Tax Conference Planning committees. Schmitt was a partner with The VanderBloemen Group in Mayville and served as a past president of Rotary International of Mayville, a director and treasurer of the Business Improvement District 10 in Milwaukee and the boards of South Side Guadalupe Inc., Smoke Free Inc., Dodge County United Way and USA Rugby Inc. He is survived by his wife, Linda Niemela; three children; three grandchildren; two siblings; and other relatives and friends.
Gregory A. Stein, CPA (1954 – 2021)
Gregory A. Stein, CPA, age 66, passed away on Saturday, Feb. 6. As a CPA, he worked as a consultant for Reinhart, Boerner Van Deuren s.c. in Waukesha. Stein was active for many years in the WICPA as a member of the Wisconsin Taxation Committee and in 1999 served as a speaker at the Public Utilities Conference. He was a member of Bethlehem Lutheran Church, where he served in various leadership capacities, including church president and treasurer. After his retirement, Stein volunteered at German Fest and enjoyed playing golf and spending time with his children and grandchildren. He is survived by his wife, Bonnie; four children; 14 grandchildren; his father and sister; and other relatives and friends.
Linda Welch, CPA (1963 – 2020)
Linda Welch, CPA, passed away Tuesday, Dec. 15, 2020, at age 57. She earned her accounting degree from UW–Whitewater in 1985 and was subsequently licensed as a CPA. Welch worked in finance at Case IH and TDS Telecom until she left the corporate world to raise her sons. She was an active volunteer for Agrace Hospice; the PTO and other parent groups at Thoreau Elementary, Cherokee Middle and West High Schools; the Nakoma League neighborhood association; and the Circle of Love group, which provides support for children from the Chernobyl region of Ukraine. She is survived by her husband, Jim; two sons; her mother; a sister and brother; many nieces and nephews; and numerous other relatives and friends.
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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{ Taxation | IRA distribution strategies }
IRC Section 678 trusts Multigenerational accumulation trusts
Charitable remainder trusts
Roth IRA conversions
Taking advantage of beneficiary exceptions
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B By Peter J. Melcher, MBA, JD, LLM and
efore the SECURE Act went into effect on Jan. 1, 2020, the “stretch IRA” was a popular tax-planning strategy for wealthy families. IRA owners could leave their IRAs to young, nonspousal beneficiaries when they died, minimizing required minimum distributions and maximizing the amount that could stay in the IRA to grow at a pre-tax rate of return. The SECURE Act greatly limited this strategy by providing that all amounts in nonspousal inherited IRAs must generally be distributed within 10 years after the IRA owner dies.
In this article, we will suggest some strategies that IRA owners Robert S. Keebler, might use to replicate the tax CPA/PFS, MST, deferral previously provided CGMA by stretch IRAs or otherwise improve the tax consequences for inherited IRAs. These strategies include the following: 1. Charitable remainder trusts 2. Multi-generational accumulation trusts 3. IRC Section 678 trusts
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In this article, we will suggest some strategies that IRA owners might use to replicate the tax deferral previously provided by stretch IRAs or otherwise improve the tax consequences for inherited IRAs.
4. Roth IRA conversions 5. Taking advantage of beneficiary exceptions
Charitable remainder trust (CRT) as IRA beneficiary If a CRT is named the beneficiary of a traditional IRA, there is no tax when the funds in the IRA are distributed to the trust. Tax is payable only when the beneficiaries receive distributions from the CRT. These distributions can be spread out over a term of years not to exceed 20 or for the life or lives of a named individual or individuals, creating a long deferral period. A potential downside of the strategy is that the present value of the remainder interest must be at least 10% of the value of the assets transferred to the trust. Thus, charitable intent might be necessary to make this strategy work.
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Multigenerational non-grantor trusts If a non-grantor trust is named the beneficiary of an IRA, all the IRA funds would have to be paid to the trust by the end of the 10-year period after the IRA owner died, but the trustee would have discretion to decide how much, if any, to pay to the beneficiaries and how much to keep in the trust. All amounts retained in the trust would be subject to the high trust income tax rates. For 2021, all trust income above $13,050 would be taxed at the top individual income tax rate of 37%. However, amounts distributed to the trust’s beneficiaries would be taxed at the beneficiaries’ tax rates. If the accumulation trust had multiple beneficiaries, including both children and grandchildren, distributions might be kept in low tax brackets.
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{ Taxation | IRA distribution strategies }
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Although the 10-year rule applies to Roth IRAs as well as to traditional IRAs, this might be a particularly good time to do a conversion. Tax rates are likely to be higher when distributions are received from the IRA than they are currently. Non-grantor trusts might also provide important non-tax benefits. They limit beneficiary access to funds, protect assets from creditors, provide professional management of trust assets and may enable the trustee to manage tax brackets. They may also provide divorce protection and dead-hand control and facilitate estate planning and planning for special-needs beneficiaries.
Section 678 trust As noted above, any amounts received from an IRA that are retained in a non-grantor trust are taxed at the trust’s high marginal rates. By making the trust an IRC Section 678 trust, however, it may be possible to accumulate amounts in the trust without paying a high rate of tax. Under Section 678, a person other than the trust’s grantor is treated as the owner of a trust if that person is given a power to withdraw trust assets without the consent of any other person. If a trust beneficiary is treated as the owner of a trust under Section 678, all items of income, deductions and credits against tax of the trust would be reported on the beneficiary’s Form 1040 instead of on the trust’s tax return. The beneficiary’s marginal tax bracket might be substantially lower than the marginal tax bracket of the trust, reducing the tax paid on any IRA distributions retained by the trust and perhaps making it feasible for the trust to retain some of the income received from the IRA.
Roth IRA conversions Following the 2020 election, Democrats now control both branches of Congress as well as the presidency. This, combined with spiraling budget deficits, makes it likely that tax rates will increase in the future. Although the 10-year rule applies to Roth IRAs as well as to traditional IRAs, this might be a
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particularly good time to do a conversion. Tax rates are likely to be higher when distributions are received from the IRA than they are currently.
Taking advantage of beneficiary exceptions The 10-year rule doesn’t apply if the beneficiary fits into the definition of an “eligible designated beneficiary,” providing an incentive to leave all or a portion of an IRA to one of these beneficiaries. An “eligible designated beneficiary” is any designated beneficiary who is one of the following: • The surviving spouse of the IRA owner • A child of the IRA owner who has not reached majority • Disabled • A chronically ill individual • An individual who is not more than 10 years younger than the IRA owner Note that a child will cease to be an eligible designated beneficiary as of the date the child reaches majority. At that time, any remaining portion of the individual’s interest shall be distributed under the 10-year rule.
Peter J. Melcher, MBA, JD, LLM, is a partner in Keebler & Associates LLP. Contact him at peter.melcher@keeblerandassociates.com or 414-421-4992. Robert S. Keebler, CPA/PFS, MST, CGMA, is a partner with Keebler & Associates LLP, Green Bay. Contact him at 920-593-1701 or Robert.Keebler@KeeblerandAssocates.com.
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Everything you care about is in this house. Things your family just can’t afford to lose.
We can help you protect it with a Home and Highway® policy from West Bend. One policy, one bill, one deductible, one agency ... 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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{ Technology | 2021 initiatives }
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TECHNOLOGY
INITIATIVES FOR TODAY
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echnology continues its march forward, with countless new opportunities in applications, security, hardware, communications, reporting and personal technologies. As evidence, consider all the latest tools that debuted at the Consumer By Thomas G. Electronics Show in January. Stephens Jr., CPA, CITP, CGMA Sometimes the choices can seem overwhelming and lead to “paralysis by analysis.” To address that issue, let us focus on five practical technology initiatives that you might consider implementing at the individual and organizational levels for improved efficiency and security.
Collaborate more effectively The first of our five technology initiatives centers on collaboration. In today’s work environment, collaboration is critical. Team members no longer work in isolation. Instead, they work collaboratively with customers, clients, vendors and others who work for different organizations. Recognizing this new reality, yesterday’s work methods are no longer optimal for today’s environment. To illustrate, the age-old practice of emailing documents to others for review and revision is outdated. Instead, we can take advantage of collaboration tools to enable simultaneous, multi-user collaboration. For instance, we can use the co-authoring feature in Excel, Word and PowerPoint to collaborate on common Microsoft Office documents. Likewise, we can use Adobe’s Creative Cloud to enable collaboration, too. Further, tools and platforms such as Google Workspace, Microsoft Teams and Zoho One provide excellent collaboration options. No matter the technology used, recognize the benefits of collaboration. A recent Forrester report indicated that team members save almost two hours per week using collaboration tools. Regardless of your type of business, prioritize opportunities to improve collaboration across your team.
Make information security a part of everything you do You have, no doubt, read the headlines and know that cybersecurity attacks continue to rise. Ransomware, spear phishing and Internet of Things attacks are just a few of
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Technology continues its march forward, with countless new opportunities in applications, security, hardware, communications, reporting and personal technologies. the threats we face from external forces. But we also need to address internal security issues. These risks include team members sending sensitive and confidential information as unsecured email attachments, failing to use encrypted internet connections and not taking advantage of multifactor authentication on a device or application. Information security must become an integral part of each of our businesses. A single security incident — such as a ransomware attack — could cost millions in remediation expenses and perhaps more in reputation damage. Further, with ever-expanding data privacy laws and regulations, fines for noncompliance could cripple organizations of all sizes. To address these threats, resolve to make information security a fundamental part of every activity in your organization. Among other actions, encrypt all your data, and mandate multi-factor authentication wherever possible. Consider adopting a “zero trust” security model to minimize risk. Above all, train every team member on identifying and responding to the dangers that will inevitably arise. The issue of information security is not going to disappear, so address it now to ensure that all business processes incorporate appropriate security measures and all data remains secure.
Equip team members appropriately In the understatement of the century, 2020 was a year of unprecedented business change. At the outset of the pandemic, business leaders told millions of workers to “pack up your computer, take it home and figure out how to work from there.” And these team members did an outstanding job of making the best of the situation. Along the way, many realized they prefer to work from home and will continue to do so, at least on a part-time basis, in the future. In
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COLLABORATION
INFORMATION SECURITY
EQUIP REMOTE WORKERS
these cases, we must ensure that our remote workers have the equipment and tools necessary for the “new normal.” Stated differently, they need to be at least as productive at home as they were in the office. In addition to addressing hardware issues and fast and secure internet connections, also carefully consider issues such as desks and chairs. Remember, employers typically have a responsibility to ensure that team members have the equipment they need to get their jobs done efficiently and safely. In most cases, workers’ compensation laws still apply, even if a team member works from home. Hence, it remains necessary to address workstation setup and safety measures, including those related to ergonomics. Further, do not let relatively inexpensive technology expenditures hamper productivity. For example, purchasing an inexpensive scanner or other hardware device may pay big dividends in increased productivity for team members working from home or other remote locations.
Leverage investments in existing technologies Most organizations have invested heavily in technology over the past two decades. But are these same organizations receiving the promised return on investment? The unfortunate answer is a resounding “no!” One of the biggest reasons for this failure is that most organizations have not committed to training their team members to use the tools provided or discover some of the newer features in core applications. For example, although almost all accounting and financial professionals use Excel daily, they do not know how to work with data models, create formulas based on dynamic arrays, utilize Flash Fill or perform “what-if analysis” using Solver. Thus, tasks take longer than necessary, and results are often not as precise as needed. Commit to leveraging the investments already made in core technologies such as Excel, Word, Outlook, PowerPoint, Adobe Acrobat DC and Windows 10. Incredible improvements in accuracy and efficiency await!
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LEVERAGE EXISTING TECHNOLOGIES
ADOPT NEW TECHNOLOGIES
Adopt new technologies Just as we leverage existing technologies, we also need to adopt innovative technologies, where appropriate, to improve productivity. One example lies in Robotic Process Automation (RPA). RPA allows businesses to automate rote, repetitive tasks such as manual data entry. With tools such as Automation Anywhere, Microsoft Power Automate and Blue Prism, you can build custom applications to automate virtually any repetitive task performed in your organization. But do not stop with RPA! Consider how you can use other technologies, such as machine learning and artificial intelligence, to improve productivity. For example, is there a role for artificial intelligence to help audit employee expense reports for errors, irregularities and fraud? Tools available from companies such as AppZen can help you do precisely that, identifying out-of-policy spending and enhancing internal control at the same time. Once considered to be “bleeding-edge” technologies, these tools are now mainstream and offer new productivity plateaus.
Summary Technology will forever be in a state of change, and it is challenging — to say the least — to keep up with all the options available to you. Fortunately, you do not have to become an expert on all things tech to realize many of the benefits. Resolve today to improve your business by prioritizing the five items outlined above: collaboration, information security, equipping remote workers, leveraging existing technologies and adopting new and transformative technologies. You and your bottom line will be delighted you adopted these five technology initiatives! Tommy Stephens Jr., CPA, CITP, CGMA, is a shareholder of K2 Enterprises, where he focuses on creating and delivering content and is responsible for firm management and marketing functions. Contact him at tommy@k2e.com.
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MARK YOUR CALENDARS! Business & Industry Spring Conference Tuesday, March 23
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