On Balance Magazine - March/April 2022

March | April 2022 | Vol. 18 No. 2 A publication of the Wisconsin Institute of CPAs | wicpa.org

A Lesson in

Hard Times Holly Hoffman | 8

Plus: WICPA and DOR collaborate on important legislation | 14 Corporate Transparency Act | 24 CPA Evolution and you | 30

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

March | April 2022 Vol. 18 No. 2

8 Features

Columns

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30 THE PROFESSION CPA Evolution: What it means for you The profession is evolving, as more firms need professionals with digital acumen, data analytics skills and an understanding of IT controls and cybersecurity.

By Carl Mayes, CPA

A lesson in hard times Sales tax expert Holly Hoffman has had her share of ups and downs in life, but when she started getting accounts to balance, she finally hit her stride.

By Marcia Tillett-Zinzow

14 WICPA & DOR collaborate on pass-through entity audits WICPA members and the DOR recently teamed up to work on issues impacting Wisconsin taxpayers, tax practitioners and the DOR.

By James D. Brandenburg, CPA, MST 20 The calculated exit CPAs must have meaningful discussions with clients and create plans for their ultimate exit from their businesses if they are to do their jobs well.

By David Richards, CPA, MST 24 Corporate Transparency Act of 2020 The CTA could impact Wisconsin CPA firms and their clients this year. Learn what it entails — and what noncompliance could cost you.

By Joseph W. Boucher, CPA, MBA, Esq. and Sam Wayne, Esq. 28 2021 Wisconsin Act 87 New law gives unclaimed property holders through February 2023 to apply for voluntary disclosure agreement.

By Wisconsin Department of Revenue wicpa.org

34 HUMAN RESOURCES Desperately seeking revenue Consolidation and fee compression are forcing recordkeepers to create new sources of revenue that plan fiduciaries need to recognize and monitor.

By Joseph Topp, CPA 38 TAXATION Legally separated filing options For clients who are legally separated, the tax laws around filing status can be confusing. This article provides the details needed to help them.

By Dawn Thompson, CPA 42 ACCOUNTING & AUDITING Upcoming audit changes As the effective date of SAS 134–140 arrives, auditors should prepare for the biggest changes to the audit process and auditor’s report.

By Andrea Wright, CPA, MBA

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38 Departments 3

Outlook | chair’s letter

4

In Touch | president & CEO’s message

12 Welcome | new members 33 Kudos | members in the news 37 Memorials | departed members

Our Apologies In our November/December issue of On Balance, a letter was inadvertently dropped from the firm name Porter & Sack CPAs. Our apologies go to Janet Hartung Renfert, CPA, managing shareholder of the firm.

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2021-2022 WICPA OFFICERS/BOARD MEMBERS Chair Angela C. Thomas, 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 2022 On Balance.

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INSIDE STAFF

President & CEO Tammy J. Hofstede

Chair-elect Steven A. Pullara, CPA, CGMA

Design & Layout Brett Stallman

Past Chair Wendi M. Unger, CPA

Advertising Sue Daniels

Secretary/Treasurer Lucien A. Beaudry, CPA, JD Directors Jeff Dewane, CPA, CGMA, CMA, MBA John R. Heindel, CPA Ruth A. Kallio-Mielke, CPA Kyle R. Stephens, CPA Stacy A. Stinson, CPA

Editor Marcia Tillett-Zinzow Printing Delzer

AICPA Council Ryan J. Hanson, CPA, CGMA Neil R. Keller, CPA/ABV, CVA

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OUTLOOK | CHAIR’S LETTER “If we are to survive change, we must continue to find and develop talent, to re-evaluate our business models, to evolve existing skills and to fill the pipeline.”

Board Chairperson Year in Review

By Angela C. Thomas

A

s the end of my term as chair of the WICPA board draws near, I reflect on the past year and its successes and challenges (or, as I always say, opportunities). What did we accomplish, and what did we learn? How did we move toward our long-term shared missions and goals?

This past year I had two mantras. The first was “Just keep moving forward.” I learned this from a fellow triathlete, and it has carried me forward in athletics and life. In 2021, I trained for and completed my third IRONMAN Triathlon®.

My athletic experience helped me to bring enthusiasm and determination to the board table over the last year, and I will continue to show my passion for our profession in my continued service. My second mantra, “Adopt an attitude of gratitude,” has helped me through many of life’s opportunities, positively changed my perspective and led me to more successes.

I also attended each WICPA conference during my year as chair, and like everyone else, I missed the great conversations and networking that happens at our in-person gatherings. But I think we all can appreciate the WICPA conducting virtual meetings to provide safety for everyone. The outcome has been that members still could be connected to content and fellow members while earning their CPE credits.

I’ve had the pleasure of connecting with many members over our shared interests and professional involvements this past year, and I will continue to do that. I had the opportunity to guide and facilitate productive group discussions for the good of the profession and provide leadership to the board of directors, the highest decision-making body in the WICPA. For these opportunities and the trust placed in me by our membership, I am sincerely grateful.

Whenever you commit yourself to something, you must be motivated to get it done. What is your “why”? It’s not always easy to answer this question. Sometimes going through the process is when you discover your “why.” One of the greatest lessons I learned while training for the IRONMAN Triathlon was that who I became in the process was more important than the destination.

It has been a pleasure to work with esteemed WICPA President & CEO Tammy Hofstede each month, and my gratitude and appreciation extends also to the many staff members who keep the business operations in motion. To our many members who have contributed articles to the magazines, advice via Connect or testimony during legislativerelated matters, I thank you for your extra efforts and contributions to the success of our profession.

Take a moment to reflect on why you joined the WICPA. Are you getting what you expected from the organization, and are you ready to give back? Each of us has a skill set that is valuable, and I encourage you to share your talents with others.

You could start by joining a committee or writing an article for one of the WICPA publications. The information sharing, professional growth and friendships that result are well worth your effort.

Before I close my last message as chair, I want to remind you of a couple upcoming opportunities: Don’t forget to sign up for the April 28 bowling outing, and mark your calendars for the evening of May 5 for the Member Recognition Banquet & Annual Business Meeting, during which we will recognize our Excellence Award recipients and longevity members. I will also pass the baton to the next board chair, Steve Pullara. I hope to see you there!

My “why” was to help others discover a rewarding CPA career. I wanted to get back into the schools and help continue efforts to build relationships, promote the profession and fill the pipeline. One of my most enjoyable successes this past year was doing just that.

Angela C. Thomas, CPA, is the expenditure and revenue accounting section chief for the Wisconsin Department of Natural Resources and the 2021–2022 chair of the WICPA board of directors. Contact her at 608-318-3881 or angela.c.thomas@gmail.com.

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IN TOUCH | PRESIDENT & CEO’s MESSAGE “Thank you for your continued membership and your commitment to the accounting profession, for your donations to the WICPA Educational Foundation and contributions to our legislative funds, and for making these initiatives possible.”

WICPA 2021–2022 YEAR IN REVIEW

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s we wrap up our fiscal year on April 30, I’m excited to share what we’ve accomplished for members over the last year.

Despite the prolonged pandemic and its challenges, we continued to promote the profession; connected with members, including newly licensed CPAs; provided quality CPE; served as a resource to answer licensing questions with the new CPE requirement in place; started to hold some in-person programs; evaluated and discussed the pipeline issue; and continued advocacy successes that promoted efficiency, consistency and better business in Wisconsin and protected the CPA Exam and license in Wisconsin.

CPA pipeline The CPA pipeline is the subject of an ongoing discussion among the WICPA board of directors, staff and educators as well as with other state CPA societies. We are continuing to evaluate and develop strategies for the implementation of a WICPA plan.

Connecting An opportunity arose to promote the profession during an “Executive Insights” video, advertisement and article with the Milwaukee Business Journal. My highlights for the interview included the numerous areas of opportunity and careers for CPAs as well as promoting the resilience of the profession and how CPAs are essential to the success of businesses and the economy – both coming out of the pandemic and going forward.

WICPA Connect, the members-only online community, featured daily news posts to our website; and emails kept members updated with current news, legislation and IRS updates. Connect has continued to be a valuable resource for immediate and timely updates as well as in providing members a setting to ask questions and converse among their peers,

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especially at this time of uncertainty. The private communities were also beneficial in keeping educators up to date with the significant CPA Exam changes coming in 2024 and financial literacy opportunities for their students.

Although we could not meet in person, we continued our outreach to every newly licensed CPA from 2020 and 2021 to recognize their accomplishments and sent each of them a governor-signed wall certificate and some WICPA-branded congratulatory items.

CPA2b added a new column called “Note to Self,” in which CPA professionals write notes to their college-student selves to give them a glimpse into the future. And for some accounting humor, we added a regular cartoon, “Incremental Maturity,” from a CPA cartoonist to our publications. We hope you have enjoyed them!

As COVID restrictions opened up, we started to get back into the colleges in late fall to promote the CPA profession to college students. Our Educational Foundation board also took a deep dive into scholarships and updated the criteria to allow students pursuing the CPA credential to apply for scholarships sooner in their accounting education.

As we continue to explore benefits and discounts for services relevant to our members, we added new affinity partners: BankA-Count and LibertyID. The Reading Makes Cents program is back for Money Smart Week and Financial Literacy Month in April. This financial literacy activity involves simply visiting one of your local elementary school (grades K–4) classrooms, reading a book to the class and discussing the basics of money and savings. The WICPA Educational Foundation provides everything you need: a money-themed book, a teacher/parent guide and a gift for each student. Email Devin Yates at devin@wicpa.org to sign up today!

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Continuing professional education (CPE) and events Wisconsin is no longer the outlier of the 55 licensing jurisdictions that have CPE requirements for CPA licensure.

However, as the new Wisconsin CPE requirements for CPA license renewal took effect on Dec.14, 2021, CPAs had numerous questions about the renewal form and CPE compliance and sought answers from the WICPA. I worked collaboratively with the Accounting Examining Board to address any questions, update the FAQ on the WICPA website and clarify the renewal process.

We provided quality CPE in a virtual format in convenient time increments and on a variety of topics. We also were able to put out immediate programs on current issues, such as the K-2/K-3 filing. We were excited to hold the Individual Income Tax Update breakfast program in multiple locations across the state. Participants were able to attend in person or virtually.

We continue to offer several free programs to members to assist with completing CPE requirements. The programs included a technology series and those on ethics, fraud, remote work and cybercrime, to name a few.

Although we were not able to hold the 2021 Member Recognition Banquet in-person, I took the opportunity to (safely) hand-deliver the excellence awards to the recipients and take some photos to incorporate into the virtual Member Recognition Meeting.

We are very excited to be planning our next in-person events, which are the Business and Industry Spring Conference (March 16), Bowling Night (April 28) and the Membership Recognition Banquet (May 5).

Tammy Hofstede presents Joe Boucher with the 2021 Distinguished Career Award.

Advocacy: enhancing member success We’ve had success with advocacy efforts and continue to build valuable relationships with legislators, leaders and agencies.

Advocacy promotes the profession and protects its credibility, and it is a powerful benefit of your membership.

wicpa.org

Rep. Robert Wittke, Tammy Hofstede, Ruth Kallio-Mielke and Rep. John Macco testified and supported AB816/SB794 at the Assembly Committee on Ways and Means hearing.

Maintaining a strong presence in Madison and Washington 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 WICPA members as a resource, we succeeded in presenting our positions on legislation impacting CPAs, their clients and the business community. These included the following: • We supported a rule for the Accounting Examining Board to extend the 18-month window for CPA Exam completion for appropriate reasons.

• We supported successful legislation permitting accredited higher education 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.

• Back in 2020, we were successful in having language removed from a bill that would have impacted passthrough entity tax, audits, partnership audits, additional assessments and refunds at the entity level and sections related to the situs of income derived in Wisconsin by nonresidents. Since then, our task force has collaboratively worked with the Wisconsin Department of Revenue (DOR), and both organizations have come to mutual agreement in developing new policy language that has achieved better public policy for CPAs and more efficiency for the state. We anticipate this bill (SB794/ AB816) to be signed into law in the coming weeks after this publication is printed. (See article on page 14.)

• In November, meetings were held with all 10 federal legislators, with several members of Congress present during the meetings. Members of the WICPA board who are on AICPA Council and I represented the WICPA, state CPA societies and the AICPA on four topics, including COVID-19 tax penalty relief, filing relief for natural disasters, the fiscal state of the nation and the recognition of accounting as a STEM occupation.

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need to be changed anytime a new exam change occurred.

Under the proposed legislation, the new CPA Exam changes coming in 2024 would be prohibited from being offered in Wisconsin, and Wisconsin candidates for CPA licensure would be forced to take the exam in another state unless subsequent legislation was enacted. Moreover, any future CPA who took the exam in another state and wished to serve clients in Wisconsin would be unable to, resulting in a loss of talent from Wisconsin and harm to competition and businesses.

Tammy Hofstede testified at the Assembly Committee on Regulatory Licensing Reform hearing to oppose AB857/SB824.

• In collaboration with the Business Law Section of the State Bar of Wisconsin, we have introduced legislation to update outdated uniform laws for Wisconsin’s business entity statutes. The legislation would make clearer and easier to understand Wisconsin’s rules on how to incorporate; it would establish Wisconsin as a businessfriendly state; and it would allow Wisconsin-based businesses with a corporate structure to easily adapt to work in other states if they become multi-state or national.

We anticipate this bill (SB566/AB566) to be signed into law in the coming weeks after this publication is printed.

(See article in the January/February issue of On Balance.)

• Due to our positive and collaborative relationship with the DOR, a meeting was held with members of the WICPA Wisconsin Taxation Committee and State Bar to discuss and provide input on the replacement of the Secretary of Tax Appeals.

Stopping egregious legislation The most significant advocacy successes were in opposition to recent proposed legislation that would have negatively impacted the CPA Exam, the CPA license and business in Wisconsin.

With a strong, concentrated education campaign, several meetings with legislators and written and verbal testimony at hearings, we were able to show the detrimental impact the bills would have had to a profession like Certified Public Accounting and pointed out the unintended consequences these bills would impose on CPAs — effectively stopping this egregious legislation.

• The most concerning bills (SB824/AB857) would have prohibited the Department of Safety and Professional Services and its examining boards from requiring the passage of an examination as a condition of obtaining an occupational licensing credential. Specifically, the bills would have allowed for a change in examination only through the passage of a subsequent law. The law would

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• Another bill was the “universal licensure” legislation (SB469/AB902). The main concern was that the bill did not account for professions with an existing mobility system.

Moreover, the bill could have negatively impacted the existing system for CPAs of reciprocity that for decades has successfully allowed credential holders from other states to practice in Wisconsin. Furthermore, the legislation required a one-year residency requirement for any individual seeking a reciprocal license — a more restrictive law than the current Accountancy Practice Act in Wisconsin.

• A third bill (SB232/AB217) would have provided “provisional licensure,” which would require the Department of Safety and Professional Services to create rules allowing an initial credential or reciprocal credential to be granted with provisional status to an applicant who has applied for the credential. Again, the negative impact on the existing systems for CPAs was not considered.

Although we were able to stop these bills in the current legislative session, they will be back. You will continue to hear terms such as “universal licensure,” “provisional licensure,” and “removing barriers.” We recognize the efforts of legislators to assist occupations that may not have models in place; however, imposing the same laws on the CPA profession will have many unintended consequences for the state and the profession in Wisconsin.

Diversity The WICPA and WICPA Educational Foundation continued our more than 25-year partnership and support of the Young Entrepreneurial Scholars (YES) program. The goal of the YES program is to expand opportunities for minority students and increase diversity in the accounting profession. We also partnered with the National Association of Black Accountants (NABA) and James Madison High School to provide volunteers and mentors to assist with their Career Day and entrepreneur series.

Thank you for your continued membership and your commitment to the accounting profession, for your donations to the WICPA Educational Foundation and contributions to our legislative funds, and for making these initiatives possible.

Tammy J. Hofstede is president & CEO of the WICPA. Contact her at 262-785-0445, ext. 4518, or tammy@wicpa.org.

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Photography by Rick Swearingen 8

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A Lesson in

Hard Times

By Marcia Tillett-Zinzow

H

olly Hoffman has had her share of ups and downs. But when she started getting accounts to balance, she finally hit her stride.

Today, Hoffman has her own business in Amherst called Sales Tax Advisory Network, in which she provides “sales tax audit insurance.” First, she gets her clients’ books in order; then she educates them in the importance of sales tax compliance and how to do it, and she adds a guarantee that she will represent them should they be audited by the state. "They’re really buying my advice and training, but they don’t realize it," she said. “In their minds, they’re buying the guarantee.” she smiled.

She got the idea to specialize in sales tax while working for the Wisconsin Department of Revenue (DOR), where she was a sales tax specialist and speaker’s bureau coordinator for more than seven years after earning both bachelor’s and master’s degrees in accounting. Her work with the DOR set her up with a solid knowledge base to consult, and she gained significant speaking experience in that and prior jobs that honed her training skills.

Hoffman is married to a law enforcement officer, has three daughters (Taylor, 25; Sydney, 14; and Payton, 13) and absolutely loves what she does.

“Most people don’t realize how wonderful sales tax is,” she said. “I think they get scared of it, but I enjoy it. It’s not as brutal as income tax, which has an intense busy season.

Sales tax is fun, it’s challenging, and it’s all year round.”

All that said, the early years threw Hoffman some serious curve balls.

Fighting a rare disease When she was in 9th grade at Merrill High School, she contracted blastomycosis — a rare fungal disease primarily affecting the lungs — at an October church

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“

Holly Hoffman has had her share of ups and downs. But when she started getting accounts to balance, she finally hit her stride. camp event. “It was the 17th case in my town but the worst case they saw,” she said.

It went undiagnosed for some time because the doctors didn’t want to do a lung biopsy on such a young girl.

Consequently, the fungus spread to her skin and bones, producing bumps on her shins and forearms. After injuring her knee working out, the fungus destroyed her right knee joint and anterior cruciate ligament (ACL). Hoffman had knee surgery that March, and a week later she was finally diagnosed — having been ill for about five months — but not until she had endured a frightening episode.

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“When my mom brought me into the ER, I had a quarter of one lung left to breathe with,” Hoffman said. “I had 11 surgeries in one year, was in the ICU 11 days, had several blood transfusions, underwent chemotherapy and was in the hospital for a month and a half. After I was out of the hospital for one week, I almost died again because my trachea scarred shut, and I had to have two inches of it removed and reconstructed.”

But, she said, “the experience saved my life and gave me the power to face pretty much anything.” She would need that strength for the next decade.

Finding her way Hoffman attended Winona State University in Minnesota after graduating from high school in 1991. She was a Spanish major until 1993, thinking teaching would be her career. But then she met someone, fell in love, dropped out of college and got married in 1994. The couple moved to La Crosse at her husband’s urging. Hoffman planned to return to school and had just started classes at UW–La Crosse when she found out she was pregnant. She gave birth to her daughter, Taylor Patel, in 1996, and the family moved to Milwaukee that same year. Eventually, Hoffman got a job tending bar to help pay the bills.

She was working as a bartender at The Chancery Restaurant & Pub on Downer Avenue when word came down that the restaurant needed someone to enter their accounts payables. No one else wanted to do it, and Hoffman needed a little extra cash. “It was extra hours, and you could come in and do it anytime. It was only two hours a week, so I volunteered,” she recalled.

At minimum wage ($6.10 an hour at the time), it didn’t amount to much, but it was something to help put food on the table. Her husband wasn’t contributing much.

Hoffman enjoyed the work, and she discovered she was good at it. She started noticing things, like a bill for something they never received or a price that didn’t seem right. Management loved her. “My numbers always came out right,” she said.

Another one of the chain of four restaurants asked her to do their payables, and it didn’t end there. “I ended up doing three of them,” she said. “And I started thinking, ‘Hey, I’m pretty good at this!’”

Soon, however, she had to make a change. After discovering her husband had been unfaithful, she and her daughter left. She confided in a customer at the bar.

“I told him I was going through a divorce and couldn’t continue working evening hours anymore because I didn’t have a sitter. And he said, ‘Well, a 9-to-5 office job doesn’t bring in much money. You need to do accounting.’”

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Hoffman checks her schedule often to make sure she’s still on track.

Hoffman told him she didn’t have a degree and didn’t think she was qualified. But he said he had heard her managers talk about her doing their accounts payables and urged her to pursue it. Recalling his words, she said, “He told me to go down to Robert Half and take the test and said, ‘Holly, you’re intelligent, and you’re a hard-worker — you can do this!’

“And that’s how I got into accounting,” she said.

Hoffman’s first official accounting job with Robert Half paid $12.25 an hour and was for a local law firm. Her second job as a temp was with J.M. Brennan Co., a local mechanical contractor, which brought her on full time. Twenty years later, the company is a client of hers.

College … and then more college After three-plus years with Robert Half, she moved on to regular employment and changed jobs numerous times, each job paying a little more than the last — struggling to support herself and her daughter. She had no family nearby to help.

“We made it — but often on sheer grit,” Hoffman admitted.

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Photo provided by Holly Hoffman

The Hoffman family: Taylor, Ryan, Payton, Holly and Sydney.

Some of the places she worked included The Mark Travel Corp., where she traveled globally to train the company’s marketing departments on how to write contract language; M&I Bank, where she processed thousands of invoices per month; and GMR Marketing, where she served as compliance manager and developed and implemented a Sarbanes-Oxley training program for all 400 employees — from vice presidents to receptionists.

“Everyone there got the same training,” she said. “I wanted to be consistent in my messaging across all levels of the company, and they really appreciated that.”

In 2003, she met her current husband, Ryan Hoffman, who at the time was in the Air Force Reserves and part of the 440th Airlift Wing at General Mitchell International Airport. They married in 2005, just before he was deployed to the Middle East to provide personal security detail to Gen. John Abizaid, then commander of the U.S. Central Command.

After GMR, Hoffman worked as a financial specialist at UW–Milwaukee, where she managed all financial transactions for the Physics Department. When her husband came home, they moved to Amherst so he could take a job as a deputy with the Portage County Sheriff ’s Office, where he is now a sergeant.

“I thought that since I was already with the state at UWM, I could easily just transfer my employment to UW–Stevens Point,” Hoffman said. “But it wasn’t that easy. I actually interviewed there 11 times before I finally got a position!”

That was 2009. In the meantime, she had given birth to two more daughters — Sydney and Payton — and that year, she also enrolled at DeVry University. By 2012, she truly had earned her bachelor’s degree. And then she earned a master’s in 2016.

“I worked full time, had three children at home (two were babies) and took classes online full time,” she remembered. “It

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“

I worked full time, had three children at home (two were babies) and took classes online full time,” she remembered. “It was hard times, but when you want something so badly, you commit to the work. was hard times, but when you want something so badly, you commit to the work.”

Hoffman credits the “job hopping” of her early career with much of her success today. “Having worked in various types of businesses in different roles has provided me insight into how data flows through accounting systems, how errors occur, how departments communicate and generally how people interact with each other.”

She credits her earlier hardships with the positive outlook she has today.

“Every day is a choice to be happy,” she said. “Always. That is what I learned.”

Marcia Tillett-Zinzow is a Wisconsin freelance writer and editor.

Contact her at mtzinzow@icloud.com.

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Welcome new members!

Get to know the newest members of the WICPA. December 1, 2021 – January 31, 2022

Mic Bauer Engelson & Associates Ltd. Dean Beaudoin

Marilou Davido WFA Asset Management Corp.

James Deuster Schmidt Custom Floors

James R. Behrend Loretta A. Blankenheim TASC

Shannon M. Dougherty SVA Certified Public Accountants S.C.

Kathy M. Blaszczyk Pope Scientific Inc.

Christopher Earle Franklin High School

Maranda G. Brandt RSM US LLP

Colin D. Enz

Jessica Brockway KPMG LLP

Margaret A. Esser Brookdale Senior Living

Grace A. Butler Landmark Services Co-op

Stephen Fabal Noah D. Fischer Madison Emergency Physicians S.C.

Tim P. Calkins Candice Coughlin Johnson Block & Co. Inc. Kyle S. Cowling Honkamp Krueger & Co. P.C. Nicole Crusing

Robert J. Gitter Badger Liquor Co. Inc. Tiffany N. Haumersen Northwestern Mutual

Nicholas Heger Milwaukee Bucks LLC

Craig N. Lamers Bassett Mechanical

Michael J. Reichert The Osthoff Resort

Mitchell J. Heidemann The Okay Cool Group

Lisa Leutenegger Destinations Career Academy of Wisconsin

Kelsey Schaefer Johnson Health Tech of North America

Hannah Nale

Karen L. Schroeder

Heidi L. Nell Nicolet National Bank

Jewel Severson Robert W. Baird & Co. Inc.

Arthur E. Karus Jr.

Alexander J. Nicholas Metso Outotec USA Inc

Sarah B. Kimmel FIS

Christopher R. Ourada OneAmerica

Christopher A. Shales National Guardian Life Insurance Co.

Heather J. Kraeuter CESA 1

Bruce G. Plante III Nelson Tax and Accounting

Adam M. Updike RitzHolman CPAs

Amy J. Krall Physicians Accounting

Matthew A. Porcaro Towne Ford Inc. (dba Porcaro Ford)

Courtney Van Telephone & Data Systems Inc.

Edward A. Henning Ellenbecker Investment Group Inc. Paul J. Hopman Wipfli LLP

Matthew S. Kulasa Wesco Distribution Inc. Christina M. Kunda Spaulding Clinical Research

Samuel H. Predayna Wipfli LLP Mark A. Prividera Indiana Department of Revenue

Austin J. Stanwick

Kurt A. Van De List Honkamp Krueger & Co. P.C. Ben T. Weisel Crescent Grove Advisors

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13

WICPA and DOR Collaborate on Legislation re: Audits of Pass-through Entities

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By James D. Brandenburg, CPA, MST

ax practitioners and the Wisconsin Department of Revenue (DOR) are often on opposite sides of a tax matter or dispute. Each is trying to resolve the matter, but from a different perspective. Be that as it may, the two groups frequently work together to address current tax issues.

Individuals from the WICPA and the DOR recently teamed up to work on issues impacting Wisconsin taxpayers, tax practitioners and the DOR.

Background

Wisconsin

Federal The centralized audit regime for partnerships was established in the Bipartisan Budget Act of 2015 (BBA). The BBA changes were effective for taxable years after Dec. 31, 2017. The Internal Revenue Service (IRS) implemented new partnership audit procedures as described in the BBA. The new procedures allow the IRS to assess and collect tax at the entity level; thus, the partnership would pay the tax assessment on behalf of its partners. The new procedures are designed to reduce the administrative burdens of audits on taxpayers, tax practitioners and the IRS. This is especially the case with audits of larger partnerships.

Throughout the audit, the IRS deals with the “partnership representative,” or designated individual who makes decisions on behalf of the partnership. The partnership could be assessed with additional tax at the entity level, but it also has the option to push out the adjustments and amounts to the “reviewed-year” partners. While the BBA may eventually reduce administrative burdens on partnership audits, there are still many issues and complexities to understand during these initial years.

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Individuals from the WICPA and the DOR recently teamed up to work on issues impacting Wisconsin taxpayers, tax practitioners and the DOR.

March | April 2022

Many DOR audits are performed on pass-through entities that have many owners. In addition, there are tiered entity structures that require adjustments to be made to multiple tax returns before tax can be assessed and collected.

Under current law in Wisconsin, the provisions for statutes of limitations, assessments, appeals, etc. require the DOR to administer the audit of a pass-through entity by contacting each separate member and, often, indirect members of the entity. This creates a significant amount of inefficiency and complication for taxpayers, tax practitioners and the DOR.

States, including Wisconsin, explore BBA Following the enactment of the BBA, states began exploring how they might adopt similar provisions at the state level. Each state’s tax laws are different, and each state has its own legislative process to enact changes. So it often takes several years for a state to assess what changes it will make (if any) in response to federal changes and what specific changes would apply in that state.

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Jim Brandenburg testifies to members of the Senate Committee on Financial Institutions and Revenue.

The state of Wisconsin needed to look at the federal BBA and determine if Wisconsin should adopt similar legislation. If so, what similarities and differences would it establish in its audits? Further, how might these changes compare with what other states are doing? How might these changes impact Wisconsin taxpayers? These questions and many others needed to be explored.

Two years ago, members of the WICPA and associates of the DOR began examining how audits of pass-through entities should be handled in Wisconsin. Taxpayers, tax practitioners and the DOR all had concerns they wanted considered.

This task force explored many aspects of making changes for Wisconsin. The group met virtually numerous times to address assorted topics, and there was honest communication among all involved in the process. It was a collaborative effort, with each side offering suggestions on what to change and listening to responses from the other side. At times, the process moved slowly, as there were many issues and details to address. While the group did not always agree completely, it was encouraging to see the respect and professionalism participants contributed to the process and the collaboration to reach the final proposed legislation. It was a group effort, and the group should be commended for its diligence.

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Members of the task force from the DOR’s Division of Income, Sales & Excise Tax were as follows: From the Office of Technical Services • Nate Weber • Craig Kvammen • Joe Wasicak From the Audit Bureau • Wendy Miller • Jayne Kulberg • Kurt Schirmer DOR Secretary Peter Barca was also instrumental in the process.

WICPA task force members were as follows: • Ruth Kallio-Mielke, Deloitte & Touche LLP • William Nolan, Ernst & Young LLP • Linda Feirn, Wipfli LLP • Bradley Wilhelmson, KPMG LLP • Donna Scaffidi, Baker Tilly • Jim Brandenburg, Sikich LLP

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Michael Goller, JD, and Lucien Beaudry, CPA, JD, also contributed. WICPA President & CEO Tammy Hofstede was responsible for initiating the collaboration and the process from the start and should be applauded for her efforts.

The following members of the Wisconsin legislature introduced and sponsored the legislation of AB816/SB794: State Senators Dale Kooyenga, CPA, and Howard Marklein, CPA, and State Representatives Robert Wittke, David Armstrong, Robert Brooks and Daniel Knodl. They, too, should be commended for their key role in the process.

Proposed new Wisconsin law for audits of pass-through entities The provisions in this Wisconsin tax bill permit administrative functions of a DOR audit of a pass-through entity to be centralized at the entity level while still maintaining the pass-through status of the entity. Further, some of the key provisions in the bill are as follows:

Ruth Kallio-Mielke testifies to members of the Assembly Committee on Ways and Means.

• Designates a “state representative” who does not have to be the same representative for federal tax purposes and who may delegate responsibilities to an agent, such as an employee, the entity or a power of attorney • Allows the DOR to assess and collect additional tax from a pass-through entity on income otherwise reportable by its pass-through members • Provides for an election for pass-through entities with 25 or fewer members to require the DOR to assess the members directly rather than through the pass-through entity • Directs the secretary of the Department of Administration for Wisconsin to refund to a pass-through entity the portion of an overpayment paid by the pass-through entity and not by the entity’s pass-through members • Makes an assessment to reduce a tax credit to a passthrough entity if the pass-through entity previously computed the tax credit and reported the tax credit to its pass-through members • Makes an adjustment to increase a tax credit to offset additional tax assessed to a pass-through entity In addition, if the DOR determines the liability may be owed by more than one pass-through member of a pass-through entity, the DOR may assess any pass-through member of the pass-through entity for their allocated portion of additional tax otherwise due.

Next steps We anticipate this bill (SB794/AB816) to be signed into law in the coming weeks after this publication is printed.

WICPA members Ruth Kallio-Mielke and Jim Brandenburg

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Jim Brandenburg, Rep. Robert Wittke, Tammy Hofstede and DOR Secretary Peter Barca pose for a photo after testifying to members of the Senate Committee on Financial Institutions and Revenue.

testified at Senate and Assembly committee hearings, with assistance from Tammy Hofstede. DOR Secretary Peter Barca also testified in support of the bill and commended the collaboration with the WICPA. While few look forward to tax audits, steps taken by the WICPA and the DOR should make the process less burdensome in the future. The collaborative efforts of all involved in this process should be commended.

James D. Brandenburg, CPA, MST, is a tax partner with Sikich LLP, Brookfield. Contact him at 262-754-9400 or jim.brandenburg@sikich.com.

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THANK YOU 2021 Donors!

Your donation to the WICPA Educational Foundation sends a clear message that you believe in the future of the accounting profession. We appreciate your commitment and THANK YOU FOR YOUR SUPPORT.

Michelle M. Adams William R. Ahlstrom Karl T. Ahonen Michael D. Akers Margaret Albrecht John C. Andres Laura J. Arnow Harold B. Averkamp Douglas J. Baker Charles R. Barney Keith H. Baumgartner Donald J. Becker William C. Beisenstein David A. Benner Michael J. Berns Sr. Lawrence C. Bittner Karla E. Blair Jennifer M. Bogli James J. Bolgert Barry E. Borchert Richard J. Boulay James D. Brandenburg Suanne M. Cain David G. Chapman Stephan J. Chevalier Christopher M. Cholka Timothy L. Christen Edward H. Cichurski Michela J. Cobb William B. Coleman Dorothy A. Conduah Cheryl A. Connor Robert E. Cook Jeffrey A. Davis Curtis M. Day Barbara A. DeBaere-Poppy Gerald E. Denor Suzanne M. Denzine Patti L. Desrosier Jeff Dewane Linda S. Dicks Richard A. Dieffenbach Peter J. Doemel Michael D. Donahue Sean P. Donahue Lynn M. Dorner Benjamin E. Douglas David M. Duehr Dale L. Ebert

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Katherine L. Hauser Kristin Heelan Daniel J. Heerey Dennis J. Heim William G. Heinrich Keith D. Helm Glen V. Helmbrecht John M. Hicks Patrick G. Hoffert Kathleen J. Hoffman Allyson J. Hofstede Tammy J. Hofstede Steven A. Hollmann Katy Hook Jessica M. Horning Wayne N. Huberty Patricia R. Huettl Thomas Iannacone Joseph P. Imhoff George S. Jaloviar Bradley J. Jansen Maria Jarvi Jeffrey A. Jaschinski David R. Johnsen David M. Johnson Elizabeth R. Johnson Renee M. Johnson Robert W. Jonet Ruth A. Kallio-Mielke David A. Kamke Carl F. Kantner Lawrence M. Kean John R. Kellerman Paul F. Kersten Louis J. Kisielewski Kenneth D. Klemm Fr. Kurtis J. Klismet William L. Komisar Michael W. Konecny Thomas L. Koops Thomas H. Koplin Rosanna L. Kopling Thomas G. Kortas Nicole C. Kraus Jason R. Krentz Glenn R. Krieg Bernard Kristal John A. Kuhn Mary L. La Macchia

Gregory P. LaFreniere John G. Lauber David P. Lauer Jack G. Lee III Charlotte J. Liddicoat Ronald A. Ligman Terri M. Lillesand Ariel M. Lorge Karen P. Loth Patrick R. Lyons Bradford E. Macfarlane Muriel L. Marx Hoffmann Lucretia S. Mattson Robert T. McGrane Krista M. McMasters Donald M. Meier William P. Merrick Seth R. Mickelson Thomas L. Mickelson Darci L. Middaugh Howard C. Miller James P. Miller Jay A. Momberg Jean M. Mosher Chad S. Neumann Terence A. Niewolny Gary J. Nilles William C. O’Loughlin Wayne E. Olsen Danica E. Olson Jade W. Olson Gerald A. Ontko Andrew P. Osterberg Dana S. Outhouse David G. Page Thomas J. Pamperin Sandra M. Peterson Ray Petkovsek John W. Pierquet Terrie A. Pohjola Thomas J. Polacek Robert R. Porter James L. Possin Daren J. Powers Gerald E. Powers Steven A. Pullara Brian H. Pulvermacher Keith A. Radke Thomas G. Ragatz

Richard A. Reale II Ralph R. Redlin Glenn E. Reinl Michael J. Roberts Joseph A. Rock Connie L. Roedel Douglas W. Rogers Michael R. Ronk Kenneth P. Rose Henry A. Rueden Jose E. Saenz John G. Sawtell Thomas A. Scheidegger David K. Schlichting Eli H. Schmukler Robert A. Schneider Harold L. Schroeder Vernon R. Schroth Jayna K. Schultz Richard B. Schultz Frank R. Scott Steven B. Seymour Dan E. Smith Jane M. Somers Katy L. Sommer Richard W. Spencer Patricia H. Spragg Alex G. Stewart Thomas R. Stolper Terry T. Strittmater Mary E. Stroud Tim D. Sweemer William S. Tatman Edward M. Terry Angela C. Thomas

Martin C. Thomas Dennis F. Tomorsky Lawrence A. Totsky Kim L. Tredinnick Debra M. Trost James F. Tullis Marlene Udovich Carol A. Valley Gerald R. Van De Kreeke Jon G. Van Drisse Paul G. Van Ess Jim Van Pelt Denise A. Vandenbush Susan G. VetrovskyGoldstone Lynn T. Visser-Young James J. Wagner Roberta A. Ward Paula A. Wegner Thomas H. Weingarten Joseph P. Wenzler Lori A. Wermuth Sarah R. Whyte Thomas G. Wieland George R. Wiesner Susan M. Wilcox Clifford A. Williams Dennis N. Winkler Dennis G. Wojahn James W. Woloszyk Adam J. Woznicki Michael S. Yankunas Stephen J. Ziegler Michael A. Zongolowicz

Special thanks to donating organizations: Deloitte & Touche LLP Ernst & Young LLP Grant Thornton LLP KPMG LLP PwC Wipfli Foundation Inc.

Show your commitment and support of the accounting profession today at wicpa.org/EdFund.

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2021. March | April 2022 On Balance

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THE

CALCULATED

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E

very CPA I speak with would agree that tax and generally accepted accounting principles (GAAP) compliance have become more difficult to keep up with than ever before. Unfortunately, despite this fact, there’s a lot more we need to worry about than tax

By David returns and financial statements.

Richards, CPA, We need to engage our clients MST in meaningful discussions about their ultimate exit from their businesses. Without these conversations and proper planning, we just aren’t doing our jobs.

Navigating the mergers and acquisitions (M&A) landscape for your clients Anyone servicing business clients certainly knows by now that the M&A environment has been very active for the last few years and reached a boiling point during the fourth quarter of 2021. Let’s review how we got here and the key pain points that CPAs are hired to help alleviate — and hopefully eliminate — during the transaction process.

First off, how did we get here?

Deal activity Our transaction advisory team saw a very active 2020 deal climate grow substantially in 2021. We have been active in dozens of 2021 deal closings and have several still in process as we head into 2022. I’m writing this article before 2021 has closed and before tax legislation has been finalized, but as we stand today, substantial momentum in deal activity continues to occur heading into 2022. Many of these deals did not close in 2021 despite any possible changes to tax law. These changes are beginning to look less consequential, but only time will tell.

Valuations Valuations have generally continued to be strong, with little to no decrease in valuation multiples and buyer appetite in sight. Some sectors have seen an increase in both over the last 18 months, while cash surpluses and public and private sector pressure on investment returns continue to fuel acquisition deal flow, as does the proposed tax legislation.

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“

We need to engage our clients in meaningful discussions about their ultimate exit from their businesses.

Without these conversations and proper planning, we just aren’t doing our jobs.

What do our clients need from us?

Clients need us to engage them in discussions around their ultimate exit from the business. The topic I get involved in most with clients lately circles around the timing of their business exit. It used to be a discussion centered around the age of the owner, personal goals and the readiness of the business to undergo a changing of the guard. Now these conversations focus more on the markets, interest rates and, most certainly, taxes.

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I get asked questions along these lines: • What do you think about tax legislation?

• Is it the best time to sell? (Notice I didn’t say the “right” time.)

• What would you do if you were me? (Isn’t this always the ultimate question?)

These and other questions that are on the minds of many business owners need several counter-questions to be answered before they can be evaluated in a constructive way.

“

Taxes and interest rates should be part of this analysis for sure, but more importantly, are the client and business truly ready to be transitioned?

These are my questions to clients: • Are you ready to give up control yet still participate in the growth of the business?

• Is your team able to thrive in what will likely be a larger, more corporate environment?

• Is your business mature and stable enough to withstand a productive change in control?

• Are you ready to withstand buyer due diligence and retain your value through negotiations?

• Have you dotted all your I’s and crossed all your T’s?

• Do you know where the skeletons lie and how to evaluate their impact on the deal?

Are both the client and the business ready?

Taxes and interest rates should be part of this analysis for sure, but more importantly, are the client and business truly ready to be transitioned? If the client is the head cook

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and chief bottle washer, and all institutional knowledge rests with them, the business isn’t ready. Even if this is the case, it takes more than a day to get the business ready, so a proactive approach is needed to obtain the desired result for our clients.

The importance of financial reporting Every deal I have ever been involved in centered largely around what the business has historically done financially and what the business forecasts it can do in the future. These are simple concepts; however, they become much less simple when the pains of due diligence set in on an unprepared seller. Your client must have solid numbers, and they can’t get caught ill-equipped to substantiate them. A material adjustment to the reported financial statement earnings can be the kiss of death in a deal. An accountant preparing a tax return is generally not concerned with whether their reported net income will withstand a due diligence audit

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or what is called a “quality of earnings” review. Revenue recognition, inventory valuation, missed accrued expenses and many more items can be easily missed during the tax preparation — and even during the financial statement review and audit process at times. These factors could have a material impact on their earnings and, therefore, their valuation.

Determining adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) EBITDA can be calculated straight from the client’s financial statements. Adjusted EBITDA is a step beyond this, taking into account all expenses of the business that are in excess of what the business actually needs to be successful. There are countless examples, but a few common ones include: • Excessive owner compensation. (Would someone do the job for less?)

• Excessive vehicle expenses (or personal cars in some cases).

• Excessive travel, meals, entertainment expenses or other personal items.

• One-time or extraordinary legitimate business expenses, such as a lawsuit, anniversary party, failed marketing campaign, etc.

“

In many cases, it can take years of planning and fine-tuning to properly position a business for a successful exit, and we have found that business owners who plan ahead are overwhelmingly more successful in the end.

Is your client able to segregate duties and document the key financial control functions? This is seen as an enterprise strength to a discerning buyer. While some entities are just too small to truly segregate all the major control functions, you still need to have the conversation and try to instill best practices in your client’s business wherever possible.

Make sure your client is prepared

Have you or your client done an analysis of these types of expenses for the last three or four years and the current year to date? They will need it for the sale of the business efforts when they move forward with the sale process.

As they say, proper preparation prevents poor performance. For most business owners, their exit from the business can be the most financially rewarding event of their lives. The question is, why don’t more owners focus on this and help maximize the outcome? Another question is, why don’t the trusted advisors of these owners help them realize where their focus should be?

The importance of internal controls

The longer view

Internal controls are procedures and documentation that are put in place for many reasons. They include:

Now is the time to plan and strategically enhance your client’s enterprise value by helping them focus on driving EBITDA, cutting costs and enhancing existing margins.

Our team works with M&A clients on both the seller and buyer side. In many cases, it can take years of planning and fine-tuning to properly position a business for a successful exit, and we have found that business owners who plan ahead are overwhelmingly more successful in the end.

• Relatives on the payroll who aren’t really working and won’t go with the acquiring company.

• Safeguarding assets, including cash and physical assets such as inventory.

• Integrity of the processes and procedures.

• Onboarding new personnel and getting them up to speed.

• Safeguarding against the sudden loss of a key person who handles key business functions.

• Giving the buyer a good look into how you run your business and how secure it is against the risks noted above and many more.

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David Richards, CPA, MST, is managing partner at CRR LLP. Contact him at david.richards@crrcpa.com.

Reprinted with permission from the Massachusetts Society of CPAs.

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Corporate Transparency Act of 2020 The CTA could impact Wisconsin firms and their clients this year.

I

n January 2021, the U.S. Congress passed the Anti-Money Laundering Act, which was part of the National Defense Authorization Act for Fiscal Year 2021 and included the Corporate Transparency Act of 2020 (CTA).

This law is intended to prevent fraudulent actors from using business entities to launder money and hide assets and empowers the U.S. Treasury Department to deal with these activities through its Financial Crimes Enforcement Network (FinCen).

By Joseph W. Boucher, CPA, MBA, Esq. and

Sam Wayne, Esq.

With this article we hope to enlighten you as to how the CTA may impact both your CPA firm and your clients — especially since it may become effective as early as Q1 2022.

What is required?

The information to be gathered by FinCen will not be generally available to the public, but information on beneficial ownership will be made available upon request to certain federal intelligence, national security, law enforcement and regulatory agencies; as well as to state, local or tribal law enforcement agencies with a court order; and to financial institutions with the consent of the company.

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Under the CTA, all companies will have reporting obligations unless they qualify for an exemption. Exempt companies include regulated entities such as banks, insurance companies, investment advisors and others.

Under the CTA, all companies will have reporting obligations unless they qualify for an exemption. Exempt companies include regulated entities such as banks, insurance companies, investment advisors and others. CPA firms registered under Sarbanes-Oxley Act of 2002 are also exempt.

Businesses that do not qualify for an exemption will be required to file CTA reports unless the business has all of the following: 1. More than $5 million in revenue 2. 20 or more employees 3. A physical presence in the United States These requirements mean that very few small businesses, including CPA firms, will be exempt — and most will be required to file reports with FinCen naming their entity’s “beneficial owners” and “applicants.”

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Beneficial owners are individuals who directly or indirectly exercise substantial control over the entity or who own or control 25% or more of the company’s equity.

Second, it applies to not only CPA firms themselves (unless the CPA is registered under Sarbanes-Oxley) but also to the CPA firm’s clients.

Applicant is defined broadly to mean any individual who files an application to form an entity, including entities’ owners or staff; outside lawyers or CPAs as well as their staff; and third-party vendors, such as corporate services organizations.

While the CPA firms themselves are exempt if they meet all three of the tests listed above, we venture to say that most Wisconsin CPA firms will not meet all three requirements for exemption and will therefore be required to file within two years of the CTA’s effective date.

Also important to note is that the required registration is retrospective: A nonexempt company formed prior to the effective date will have two years to report its beneficial owners and applicants to FinCen. A nonexempt company formed after the effective date will have just 14 days to file this report.

The information to be reported for each applicant and beneficial owner is as follows:

a. The identification number from an acceptable identification document, such as a valid passport or driver’s license, or

Another key issue is whether individual CPAs must be listed as the applicant for reporting companies. If the CPA filed the original organizational documents for the entity, then the CPA is an applicant and also must be included by the reporting company in their submission to FinCen, even if the CPA’s firm is exempt from reporting its own beneficial owners and applicants.

b. A FinCen identifier assigned by FinCen

Harsh penalties for noncompliance

1. Each person’s full legal name, date of birth and current residential street address 2. Either:

What does this mean for Wisconsin CPAs? First, since it is a federal law, it applies to all Wisconsin entities.

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For CPA firms’ clients, a similar analysis applies. If they are not exempt, then they must report within two years of the effective date. This will be a very important administrative deadline for CPA firms that work with small businesses and will also serve as a touch point with dormant or past clients — and it could be used as a marketing tool if done effectively.

Compliance will be extremely important, as penalties include fines as high as $500 per day and the possibility of imprisonment for up to two years.

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If an individual CPA is an applicant (meaning they created or possibly even helped create the entity that needs to report), the CPA must provide the necessary information to the reporting company in a timely fashion to allow for accurate filing.

Though all CPAs will have to comply for entities they have already created, they must consider whether these requirements will cause them to cease forming entities for clients in the future. Some will simply not form any entities for clients in the future. Others will do so and comply with the new regulations requiring the disclosures described above.

Still others will ignorantly or willfully fail to comply — that will be a dangerous place to be.

The CTA will be effective when final regulations are implemented, which may be as early as Q1 2022 but more likely later this year or next. We should all monitor this effective date.

Will you and your firm be ready?

Joseph W. Boucher, CPA, MBA, Esq., is a shareholder of Neider & Boucher S.C., a Madison law firm. Contact him at 608-661-4535 or jboucher@neiderboucher.com. Sam Wayne, Esq., is an attorney with Neider & Boucher and can be reached at 608-441-2523 or swayne@neiderboucher.com.

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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.

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2021 Wisconsin Act 87 New law gives unclaimed property holders through February 2023 to apply for a voluntary disclosure agreement.

U

nder new Wisconsin laws (2021 Wis. Act 87), all businesses, organizations and governmental units holding unclaimed property in Wisconsin are given the opportunity to apply for an Unclaimed Property Voluntary Disclosure Agreement (VDA) with the Wisconsin Department of Revenue (DOR).

Unclaimed property holders can submit an application from Feb. 1, 2022, through Feb. 28, 2023, by following these three steps: 1. Go to DOR’s Unclaimed Property page at revenue.wi.gov/UCP. 2. Under the Holder section, select the Voluntary Disclosure Agreement Application link.

3. Complete and submit the Voluntary Disclosure Agreement application.

Unclaimed property specialists are available to help: • Through online live chat on DOR’s Unclaimed Property page at revenue.wi.gov/UCP • By email at DORWIHolderReports@wisconsin.gov • By phone at (608) 264-4594

Program details The voluntary disclosure program: • Increases awareness of requirements to report unclaimed property to DOR. • Helps unclaimed property holders come into compliance with the law by reporting unclaimed property to DOR without late filing fees and penalties.

The property holder must follow requirements under the completed agreement by: 1. First attempting to locate the property owner within 30 days.

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2. Submitting a holder report and remitting unclaimed property within 120 days.

3. Continuing to report and deliver for at least the next four reporting periods.

Who must report unclaimed property?

In general, any business, organization or governmental unit that holds property or money unclaimed by the owner for a period specified by law must report and deliver that property to DOR if they are unable to contact the owner.

Common unclaimed property holders include: • Banks • Businesses • Credit unions • Governments • Insurers • Mutual funds • Savings institutions • Security brokerages • Utilities

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What is unclaimed property?

Unclaimed property is generally any financial asset belonging to another person. Common unclaimed property types: • Annuities • Bonds • Checks • Certificates of deposit • Checking or savings accounts • Customer overpayments • Insurance payments or refunds • Life insurance policies • Money orders • Mutual funds • Refunds • Safe deposit box content

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• Stocks • Unclaimed loan collateral • Uncashed payroll checks • Utility security deposits The Unclaimed Property Holder Report Guide has a list of properties and the periods that must pass before unclaimed property is reportable to DOR.

Connecting owners with property If a holder cannot locate the abandoned property owner, the unclaimed property program requires the holder to deliver the property to DOR. The DOR has the following tools to help find owners: • A searchable database of property and owners • Advertisements online and in newspapers • Auto-matching program that unites unclaimed property holder report information to DOR tax and other available information. Many properties are paid to owners without submitting a claim.

DOR top-ranked in property returns The DOR is efficient at locating and returning property to rightful owners. Notable statistics include: • Successfully returning 65% of properties received to owners • Returning $67 million in property to owners between 2019 and 2020

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Reporting and delivering unclaimed property to DOR is in the holder’s best interest. Businesses can get the property and debts off their financial records and focus more time doing what they do best — running their business.

Helping Wisconsin The DOR has the technology and tools to reunite owners with their property, but the agency can do so only if the property is reported and delivered to them. Getting these properties to DOR so they may be returned to their rightful owners will further strengthen the economy and help families, communities and businesses grow stronger as Wisconsin continues to recover from the pandemic.

Helping holders Reporting and delivering unclaimed property to DOR is in the holder’s best interest. Businesses can get the property and debts off their financial records and focus more time doing what they do best — running their business.

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{ The Profession | CPA Evolution }

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CPA Evolution what it means for you

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here’s never been a more exciting time to pursue the CPA license. The role of today’s CPA has evolved, and newly licensed CPAs are taking on new responsibilities that were traditionally assigned to more

By Carl Mayes, experienced staff. Becoming a CPA CPA means you’ll need deeper skill sets, more competencies and a greater knowledge of emerging technologies. We’ve heard from accounting firms that they are looking for professional staff with digital acumen, data analytics skills and an understanding of IT controls and cybersecurity. That’s why the CPA licensure model is changing.

CPA Evolution is a joint initiative of the National Association of State Boards of Accountancy (NASBA) and the American Institute of Certified Public Accountants (AICPA). The initiative is transforming the CPA licensure model to reflect the rapidly changing skills and competencies the accounting profession requires today and will require in the future. It will put in place a flexible and adaptable licensure approach that will serve as the foundation for future-proofing the CPA profession.

• The new CPA licensure model should position the CPA for the future.

• The new CPA licensure model should continue to protect the public interest.

Based on this feedback and lessons learned from studying other international and domestic licensure models, NASBA and the AICPA developed a new approach to CPA licensure. In 2020, both the AICPA Governing Council and the NASBA Board of Directors voted to support advancement of the CPA Evolution initiative. The AICPA and NASBA are now moving forward with implementing the new model.

What is the new licensure model?

The new CPA licensure model takes a core + discipline approach, starting with a deep and strong core in accounting, auditing, tax and technology that all candidates will be required to complete. Each candidate will also choose a discipline in which to demonstrate deeper skills and knowledge. Regardless of chosen discipline, this model leads to full CPA licensure, with rights and privileges consistent with any other CPA. A discipline selected for testing will not mean the CPA is limited to that practice area.

Over the past three years, NASBA and the AICPA gathered input from more than 4,000 stakeholders from across the profession on how to transform CPA licensure and meet the needs of the marketplace. During these conversations, several key themes became clear:

= CPA

• The profession supports the need to change the CPA licensure model.

• Newly licensed CPAs should all demonstrate strong common core competencies.

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{ The Profession | CPA Evolution }

This model: • Enhances public protection by producing candidates who have the deep knowledge necessary to perform high-quality work, meeting the needs of organizations, firms and the public.

• Is responsive to feedback, as it builds accounting, auditing, tax and technology knowledge requirements into a robust common core.

• Reflects the realities of practice, requiring deeper proven knowledge in one of three disciplines that are pillars of the profession.

• Is adaptive and flexible, helping to future-proof the CPA as the profession continues to evolve.

• Results in one CPA license.

the CPA Exam when it launches in 2024. Current CPA candidates will be able to sit for the current CPA Exam until the launch of the new exam. A transition plan for those who have begun but not completed the CPA Exam will be announced later this summer.

Where can I go for more information?

As CPA Evolution continues to progress, please check back for updates at EvolutionofCPA.org. If you have any questions, please reach out to us at Feedback@ EvolutionofCPA.org.

Carl Mayes, CPA, is senior director of AICPA – Audit & Accounting Quality.

What does this mean for the Uniform CPA Examination?

The specific content of the core and the disciplines will be determined by a CPA Exam practice analysis, which is currently underway.

Practice analyses — gathering information about the current and future state of the profession and the work of newly licensed CPAs — are conducted periodically as part of the AICPA’s ongoing efforts to make sure the exam is current and to maintain its validity and reliability. The current practice analysis will likely wrap up in 2022, and an exam blueprint will be exposed for public comment in mid-2022.

The AICPA and NASBA expect the new exam will launch in January 2024.

Will the new licensure model impact accounting firm hiring?

We surveyed accounting firms with 100 or more CPAs, and 88% told us that if university accounting programs aligned with CPA Evolution, their hiring of new accounting graduates would likely increase, accounting program graduates would be considered more valuable than they are today, or both.

What’s next for students and CPA candidates?

If you are an aspiring CPA and a college freshman, you will be among the first to take the overhauled version of

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It’s time to

renew your membership

keep your member benefits coming If you have not yet renewed your 2022–2023 membership, visit wicpa.org/renew for quick and easy online payment to keep your valuable member benefits coming, including On Balance magazine.

Pay your dues in the “My WICPA” section on the WICPA website. For information regarding your membership, contact Devin Yates at 800-772-6939 ext. 4511 or devin@wicpa.org.

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kudos

Brittany Leonard

Tom Magnor

Britany Morrison

Holly Muehl-Pett

Eric Neuman

John Scheid

Judith Anderson, CPA, will be promoted to chief financial officer for Weyco Group Inc., effective May 6, 2022, when John Wittkowske, CPA, CGMA, who is currently senior vice president, CFO and secretary, retires from the organization.

Britany Morrison, CPA, JD, was elected to shareholder at the Milwaukee law firm of O’Neil, Cannon, Hollman, DeJong & Laing SC. She also was recently selected for inclusion in the 2021 Wisconsin Super Lawyers Rising Stars List.

Rick Austin, CPA, has retired as CFO of Fort Community Credit Union, effective Jan. 15, after more than 30 years of service to the organization.

Holly Muehl-Pett, CPA, EA, was recently promoted to partner at Hawkins Ash CPAs. She was previously a senior manager in the firm’s Mequon office.

Jim Brandenburg, CPA, MST, was consulted for his expertise in an article for Ohio’s Akron Beacon Journal about the new tax reporting requirement for payment apps.

Eric Neuman, CPA, has been promoted to principal in the Audit & Assurance Department at Chortek LLP in Waukesha.

Aaron Cullen, CPA, has been promoted to partner at Honkamp Krueger & Co. P.C., Madison.

Kevin Fischer, CPA, has been promoted to partner at Honkamp Krueger & Co. P.C., Madison.

Patrick Harden, CPA, has been promoted to senior manager at Dwayne Johnson & Associates, Waukesha.

Stephanie Imhoff, CPA, CVA, has been promoted to partner at Honkamp Krueger & Co. P.C., Madison.

Bryan Johnsen, CPA, vice president – finance for Tri City National Bank, was named to the Milwaukee Business Journal’s annual “People to Know in Banking and Finance” list.

Jenna Kruschel, CPA, was recently promoted to assurance partner at BDO USA LLP. She is also one of the firm’s audit quality directors and a regional leader in the firm’s Women’s Inclusion program.

Brittany Leonard, CPA, was recently promoted to partner at Hawkins Ash CPAs. She was previously a senior audit manager in the firm’s La Crosse office.

Joseph Niemann, CPA, has been promoted to accounting supervisor at Dwayne Johnson & Associates, Waukesha.

Dawn Peterson, CPA, MST, has joined Alverno College as vice president of finance and administration.

Karen Prochaska, CPA, has been promoted to shareholder at Porter & Sack CPAs, Madison.

Douglas Rogers, CPA, has been promoted to partner at Honkamp Krueger & Co. P.C., Madison.

John S. Scheid, CPA, has been elected to the boards of directors for Catholic Relief Services, a global service and emergency response organization, and Groupware Technologies Holdings Inc., a care management software organization.

Dennis Schweiger, CPA, has been promoted to vice president and treasurer of corporate finance and accounting at Sargento Foods Inc. in Plymouth.

Brian Wilson, CPA, has been promoted to partner at Ritz Holman CPAs, Milwaukee. He has 20 years of public accounting experience.

Tom Magnor, CPA, has been promoted to tax partner at Sikich in Brookfield.

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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{ Human Resources | Retirement plans }

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Retirement plan recordkeeping may get more expensive in 2022.

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f your retirement plan recordkeeper wasn’t acquired within the past few years, don’t be surprised if it happens in 2022. The frenzied M&A activity across corporate America has been particularly evident in the retirement plan recordkeeping industry, and

By Joseph Topp, industry observers predict CPA continued consolidation in the years ahead. The reasons industry stalwarts like Prudential, Wells Fargo (Wachovia) and Mass Mutual have exited the recordkeeping business are many, but a primary contributor has been the intense fee compression seen by the industry over the past decade. The organizations that remain are desperately seeking alternative revenue sources, leaving plan sponsors with several new concerns.

Emboldened by the proliferation of Employee Retirement Income Security Act (ERISA) class-action lawsuits, plan sponsors have had great leverage to reduce the base recordkeeping costs of their plans. As recordkeepers look for alternative sources of revenue, their focus has turned to plan participants. A cautionary reminder for all plan sponsors: ERISA clearly mandates that plan fiduciaries must act in the sole interest of their participants and, therefore, are duty-bound to understand and monitor all revenue sources their plan administrative service provider avails itself of.

Revenue sources from participants In addition to the base plan administrative fees, which most plan sponsors have paid from participant accounts, participants are also assessed transaction fees based on individual activity within the plan. Initiation of a loan and a corresponding annual maintenance fee, processing any form of distribution and splitting accounts as the result of a qualified domestic relations order (QDRO) are all examples of fee-generating activities charged by the recordkeeper on top of the negotiated base administrative fees charged to the plan. These fees have seen upward pressure recently and will continue to be eyed by the recordkeepers, as most plan sponsors review only individual transaction fee amounts and

not the aggregate annual revenue the collective fees generate.

We advise clients to track the aggregate amount and weigh it when evaluating the plan’s total cost competitiveness in the current market.

Managed account services The fastest-growing trend we are seeing is a push by recordkeepers to add a managed account service to the plan features. A managed account entails a plan participant turning over full discretion for the investment and asset allocation of their accounts. The service comes with an ongoing fee that ranges from 20 to 50 basis points (0.20% – 0.50%).

This fee is applied to the entire account balance, so for a participant with a balance of $129,000,1 utilization of this service would cost between $258 and $645 per year. At first glance, this fee may not appear meaningful, but remember, this fee is in addition to embedded investment manager fees (fund expense ratios), the base annual recordkeeping fee and participant transaction fees. The recordkeepers’ hard push for the managed account service is positioned as their response to participant requests for more help managing their retirement savings and serves as a solution for plan sponsors who do not have a well-developed strategy to provide participants with ongoing general education or opportunities to receive individual help in managing this aspect of their financial situation. The revenue potential is elevated by a 1

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Vanguard’s How America Saves 2021 report average participant account balance

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{ Human Resources | Retirement plans }

strong push from recordkeepers to make the managed account service the qualified default investment alternative (QDIA) offered by the plan, often replacing a target retirement date solution. Across our client base, for plans with assets between $20 and $100 million, the average investment management expense is 0.55%. The addition of a managed account service significantly increases the overall cost to the participant, and most managed account services we’ve evaluated have little or no track record that suggests superior investment returns.

Cross-selling services to participants One of the greatest attractions for an organization to provide recordkeeping services to a participant-directed retirement plan is the proximity it affords to the individual plan participants, who represent potential retail clients for the organization. In performing their services, recordkeepers have access to a tremendous amount of information on individual plan participants: age, job title, income, account balance and outside financial information. This information is willingly provided by participants who contact the call center, complete retirement readiness calculators or utilize the account aggregation tools. Margins on retail services tend to be meaningfully higher than those on retirement plan administration, so the temptation to aggressively pursue these opportunities is difficult to ignore, particularly in a period of aggressive fee compression. Access to and use of valuable participant information has become the subject of ERISA litigation. In 2019, Vanderbilt University settled a class-action suit involving their two 403(b) plans. One of the complaints listed was the university’s plan fiduciaries allowing one of the plan’s recordkeepers to use participant data to cross-sell services outside the plan. As part of the settlement agreement, Vanderbilt agreed to explicitly prohibit all future service providers from using participant personal data to promote services and products outside the plan.

Plan sponsor action steps As fiduciary to your organization’s plan, your primary responsibility is to the participants. Diligence over plan assets and recordkeeping fees extends well past simply benchmarking the recordkeeping base fee to the organization and must include an understanding of all revenue generated by your service providers resulting from their affiliation with your organization. If you are utilizing or considering a managed account service, you have the dual task of evaluating the service’s investment performance and measuring the fee revenue generated from plan participants. Diligent fiduciaries will also closely review their services agreement for language allowing the recordkeeper to directly use or share

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“

The addition of a managed account service significantly increases the overall cost to the participant, and most managed account services we’ve evaluated have little or no track record that suggests superior investment returns. participant personal information across their organization for retail purposes. Plan sponsors uncomfortable allowing these practices have successfully negotiated with their providers to end unwanted conduct and amend the contract accordingly.

Knowing that participants often use other services and products offered by plan recordkeepers, you should request information on the scope of these activities and any revenue generated. All of these revenue sources should be evaluated in aggregate when determining whether your retirement plan’s fees are reasonable and competitive in today’s marketplace.

Joseph Topp, CPA, is a principal and vice president – investment consulting services at Francis Investment Counsel LLC (Brookfield), an investment consulting firm that focuses solely on ERISA fiduciary services.

Contact him at 262-781-8950 or joseph.topp@francisinvco.com.

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memorials Janice Leigh Froelich, CPA (1963 – 2022)

Janice “Jan” Leigh Froelich, CPA, age 58, died on Saturday, Jan. 1.

She graduated from Middleton High School in 1981, obtained an accounting degree from the University of Wisconsin and quickly became a CPA. She began her accounting career in Los Angeles at Coopers & Lybrand. Upon returning to Madison, she became a devoted employee for 30 years at Johnson Block & Co., becoming a partner in 2005. Froelich specialized in auditing nonprofit organizations and over the years mentored young professionals, whom she referred to as “her kids.” Several of her mentees are now partners in the firm.

Her last years were spent as president of the company. In addition to her career, Froelich served on the boards of multiple nonprofits, including one of her favorites, the Ice Age Trail. Her community service included brush management projects along the trail. Froelich is survived by her husband, Robert Novy Jr.; both parents; four brothers and one sister; nieces and nephews; and many other relatives and friends.

Donald Howard, CPA (1929 – 2022)

Donald Howard, CPA, age 92, passed away on Thursday, Jan. 6, in Wausau. He graduated from Wausau East High School in 1947 and went on to earn his BA from Valparaiso University in 1951. He then enlisted in the United States Marines and served his country during the Korean War. Howard worked as a CPA until his retirement at age 87. He began his career as a member of a general accounting firm and later become partner and owner of Krause, Howard & Co. In addition to his WICPA membership, Howard was active in Good Shepherd Lutheran Church, American Legion Post 10, the VFW, the Town of Texas Lions Club and the Wausau Elks Club. He is survived by his wife of 67 years, Mary Ann; their daughter and two granddaughters; their son and two grandsons; his brother; and several nieces, nephews and cousins.

Bruce Roberts, CPA (1936 – 2022)

Bruce Roberts, CPA, 85, passed away on Saturday, Jan. 29.

Roberts graduated from Madison East High School in 1955 and obtained a degree in geophysics from UW–Madison in 1960. He worked in the oil fields of Laramie, Wyoming, for a year before returning to Madison to earn a master’s degree in business and accounting in 1962. After graduating, he worked for Arthur Andersen in Milwaukee and Chicago and Ronald Mattox & Associates in Madison. In 1968, Roberts began teaching accounting at UW–Whitewater while concurrently pursuing a PhD at UW–Madison. He returned to his career in accounting by obtaining employment at Rural Insurance and

relocated his family to Madison. Later, he co-founded the Fitzpatrick and Roberts Certified Public Accounting firm. He was a lifetime WICPA member and served on the WICPA board of directors from 1976 to 1977. After retiring, Roberts taught accounting at Edgewood College and was nominated by his students for the Teacher of the Year Award. He is survived by his wife of 43 years, Chris; two daughters and two stepchildren; six grandchildren; his sister; and a niece and nephew.

Raymond Schmitz, CPA

(1932 – 2021)

Raymond “Ray” Schmitz, CPA, passed away on Christmas Eve, 2021. He was 89. Schmitz was co-salutatorian of his 1950 Sauk City High School graduating class and went on to earn his degree in accounting from UW–Madison in 1954. He was a member of three national scholastic honorary fraternities, including Phi Beta Kappa. Prior to receiving his CPA certification in 1957, Schmitz served two years as an officer in the Army Transportation Corps, during which time he served as comptroller of the U.S. Army base in Fort Story, Virginia. He was employed with Ronald Mattox & Associates in Madison upon his return and in 1961 became CFO of the University Book Store, where he stayed until joining Gilson Medical as controller and VP of finance in 1966. He remained with Gilson until his semi-retirement in 1996; he then went on to serve several Madison organizations as a part-time consultant before completing his accounting career in 2018. He is survived by his wife of 67 years, Jenny; two children; three grandchildren; one brother and one brother-in-law.

Victor Weiler, CPA (1936 – 2022)

Victor Weiler, CPA, a lifetime WICPA member, passed away Thursday, Jan. 6. He was 85. After graduating from St. Mary’s High School in Kenosha, Weiler went to Marquette University and earned a BBA in accounting in 1958. From 1958 to 1964, he proudly served in the National Guard. Afterward, Weiler worked as a CPA for 30 years. He was promoted to partner at Conley, McDonald, Sprague within 10 years of starting his career and was the lead partner of the Kenosha office from 1983 to 1993.

In 1993, he formed his own firm, Victor N. Weiler S.C., and in 1998, he merged his firm with Clifton Gunderson, which later became Clifton Larson Allen. He retired as a partner in 2001.

Weiler was a board member of the Kenosha Foundation, past president of the Wauwatosa Chamber of Commerce and past president of the Kenosha Chamber of Commerce. He was actively involved for over 50 years with Rotary International, National Ski Patrol and South Shore Yacht Club, where he was a lifetime member and past commodore. Weiler is survived by his wife, Donna; his four children; his two grandchildren; his sister; and numerous nieces, nephews, great-nieces and great-nephews.

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 | Filing status }

Tax Laws and Legally Separated Clients

By Dawn Thompson, CPA

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ccording to federal and Wisconsin tax laws, legally separated clients can use the single or head of household filing status and cannot use the married filing jointly, married filing separately or qualifying widow(er)/surviving spouse filing status.

Single filing status is available to taxpayers who do not qualify to use the head of household or qualifying widow(er)/surviving spouse filing status and are unmarried or are considered unmarried as of the last day of the tax year. Considered unmarried for this filing status means the client is legally divorced or legally separated under state law.

Head of household filing status is available to taxpayers who are unmarried or considered unmarried as of the last day of the tax year and maintained a household for a qualifying individual. Considered unmarried for this filing status means the client is legally divorced or legally separated under state law or the spouse was not a member of the household for the last six months of the year and the household was the principal residence of a qualifying child.

Married filing jointly filing status is available to taxpayers who are married under state law as of the last day of the tax year, use the same tax year and agree to file jointly. A married couple can file a joint return if they are not living together but are not legally separated or legally divorced under state law as of that date. Taxpayers who are separated under an interlocutory (not final) decree of divorce can also file a joint return.

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Married filing separately filing status is available to married taxpayers on an elective basis and is required when spouses have different tax years or do not agree to file jointly.

Qualifying widow(er)/surviving spouse filing status is available to taxpayers who have a dependent child and whose spouse died within the previous two tax years, assuming other requirements are met. One of the other requirements is the taxpayer must have been entitled to file a joint return with the deceased spouse for the year of his or

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her death regardless of whether a joint return was actually filed for that year.

The Internal Revenue Code and Treasury regulations look to state law to determine whether a taxpayer is married, divorced or legally separated. Some states, such as Texas, recognize only marriage and divorce. In such states, a marital separation is an informal agreement between the spouses, and the state’s laws continue to recognize the couple as married. Other states, including Wisconsin, recognize marriage, divorce and legal separation. The Wisconsin legal system refers to legal separation as a “judgment of legal separation.” Other states refer to legal separation differently; for example, Maryland has “limited divorce,” Oregon has a “separation order,” and other states have “separate maintenance action.” The title used to refer to marital separation under state law is unimportant. The issue is whether the marriage remains intact under state law.

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The Internal Revenue Code and Treasury regulations look to state law to determine whether a taxpayer is married, divorced or legally separated.

There are three types of separation: 1. Trial Separation — In a trial separation, the spouses may live together or separately. They might have a written separation agreement that provides specifics regarding child custody, division of assets and debts, etc., but no paperwork is filed with the court.

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{ Taxation | Filing status }

2. Permanent Separation — In a permanent separation, the spouses live apart from one another and have no intention of reconciling. Some states require couples to separate for a period of time before a divorce can be finalized. Depending on the state law, the separation date can be quite important. In some states, property, income and debt acquired, received or incurred after the separation date belong to and are the responsibility of the spouse who acquired, received or incurred it.

3. Legal Separation — A legal separation is a formal petition with the court to separate from a spouse under state law. The paperwork is almost identical to paperwork filed in a divorce; both outline division of assets and debts, alimony, child custody and support, etc. However, a legally separated person cannot remarry until a divorce is finalized.

CCH AnswerConnect. (n.d.). 15-305 Wisconsin: Filing status. Retrieved October 15, 2021, from https://answerconnect.cch.com/state/jwi0109013e2c84f5c720/explanations? searchId=824038275&disableHighlight=false

In 16 years as a tax professional, I’ve rarely encountered legally separated clients. Within the past six months, two clients have asked about the effects of legal separation. It’s important to consider the implications of the client’s filing status because the wrong filing status can have a significant impact on the client’s tax liability, cost the client tens of thousands of dollars in health insurance subsidies, impact the type of health insurance coverage purchased, hurt the firm’s relationship with the client and cause any number of problems for the client.

CCH AnswerConnect. (n.d.). Explanation : § 2, Filing status. Retrieved October 20, 2021, from https://answerconnect.cch.com/federal/arp1209013e2c83d8fbda/explanations/ arp28313bb6da7b68100093f5001b78be8c780fcCOPY/2-filing-status?single=1&search Id=824080634&disableHighlight=false

To determine the best filing status in compliance with the Internal Revenue Code and Treasury regulations, tax preparers first need to know the client’s legal marital status.

If a separation is involved, the preparer needs to know if the client’s state recognizes legal separation, the type of separation at play and the status of any court proceedings or judgments. The preparer can then ask about dependents and living arrangements. If a client is married under state law, the married filing jointly or married filing separately filing status can be used. If a client is legally separated under state law, the Internal Revenue Code and Treasury regulations consider them unmarried, and only the single or head of household filing status can be used.

Internal Revenue Service. (2021, February 16). Publication 504: Divorced or Separated Individuals. https://www.irs.gov/pub/irs-pdf/p504.pdf

Dawn Thompson, CPA, is the senior accountant at Gillette & Associates (La Crosse). She has worked in public accounting for 14+ years and previously worked as a field auditor for the Wisconsin Department of Revenue. Contact her at dawn@gillettecpas.com.

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Resources:

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Heinig, M. J. (2021, September 15). A guide to different types of separation: Trial, permanent, and legal separation. DivorceNet. Retrieved October 21, 2021, from https://www.divorcenet.com/resources/family/types-separation.htm Internal Revenue Service. (2013, February 13). IRS Tax Tip 2013-13 – Determining your correct filing status. Retrieved October 15, 2021, from https://answerconnect.cch.com/ standalone_document/rrx027cf5de367c011000844c90b11c2ac4f10104/irs-tax-tip-201312-determining-your-correct-filing-status?searchId=824065900&disableHighlight=false Internal Revenue Service. (2021, January 26). Publication 501: Dependents, standard deduction, and filing information. https://www.irs.gov/pub/irs-pdf/p501.pdf

Internal Revenue Service. (2021, April 6). Interactive tax assistant tool: What is my filing status?. Oracle Web Determinations. Utilized October 20, 2021, from https://www.irs. gov/help/ita/what-is-my-filing-status Otterstrom, K. B. (2018, April 30). Legal separation in Oregon FAQs. DivorceNet. Retrieved December 2, 2021, from https://www.divorcenet.com/resources/legalseparation-in-oregon-faqs.html Otterstrom, K. B. (2021, September 26). Separate maintenance and legal separation.

DivorceNet. Retrieved October 21, 2021, from https://www.divorcenet.com/resources/ divorce/separation/separate-maintenance-legal-separation Wisconsin Department of Health Services. (2019, June). Wisconsin county clerk vital records marriage handbook. https://dhs.wisconsin.gov/publications/p01086.pdf Wisconsin Department of Revenue. (2020, December). Publication 109: Tax information for married persons filing separate returns and persons divorced in 2020. https://www.revenue.wi.gov/DOR%20Publications/pb109.pdf Wishnia, J. (2019, November 21). Legal separation laws. LegalMatch. Retrieved December 2, 2021, from https://www.legalmatch.com/law-library/article/maritalseparation-laws.html Wolters Kluwer Editorial Staff. (2020). 2021 U.S. Master Tax Guide (104th Edition, 152, 154, 173, 175, and 176). CCH Incorporated.

Wood, R. W. (2011, January 14). Consider tax filing status carefully. Forbes. Retrieved October 20, 2021, from https://www.forbes.com/sites/robertwood/2011/01/14/ consider-tax-filing-status-carefully/?sh=7ddfcb71b10c

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2022

Member

Recognition Banquet & ANNUAL BUSINESS MEETING

Thursday, May 5 at 5 p.m.

Brookfield Conference Center Join us for the WICPA’s signature event of the year to: • Recognize membership milestones.

• Present the 2022 Excellence Awards.

• Elect the 2022–2023 Board of Directors.

• Enjoy dinner, drinks and networking.

Complimentary for WICPA members.

Registration is required to attend.

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On Balance For more information and details, visit wicpa.org/banquet.

March | April 2022

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{ Accounting & Auditing | Audit changes }

SAS 134-140: A Review of Upcoming Audit Changes As the effective date of SAS 134–140 arrives, auditors should prepare for the biggest changes to the audit process and auditor’s report.

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n light of challenges arising from the coronavirus pandemic, the implementation of SAS 134–140 was effectively delayed by one year. According to SAS 141: Amendments to the Effective Dates of SAS Nos. 134–140, SAS 134–140 are effective for audits of financial statements for periods ending on or after Dec. 15, 2021. As auditors prepare to implement SAS 134–140, here is a summary of the most significant changes to the auditor’s report and the audit process.

By Andrea Wright, CPA, MBA

SAS 134: Auditor Reporting and Amendments, Including Amendments Addressing Disclosures in the Audited Financial Statements SAS 134 changes the layout and the content of the auditor’s report to align more closely with the standards of the Public Company Accounting Oversight Board and the International Auditing and Assurance Accounting Standards Board. The new standard suggests reporting the content in the following sequence:

Opinion

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Basis for Opinion

Key Audit Matter (Optional)

Responsibilities of Management for the Financial Statements

Auditor’s Responsibilities for the Audit of Financial Statements

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The auditor’s report suite supersedes several AU-C sections in their entirety and introduces AU-C Section 701, “Communicating Key Audit Matters in Independent Auditors Report.” The communication of key audit matters (KAMs) is optional and included in the auditor’s report following the “Basis for Opinion” paragraph only when those charged with governance have engaged the auditor to report on KAMs. The determination of KAMs is a matter of professional judgment; and, therefore, the reporting of KAMs will vary between entities even within the same industry, as well as from period to period for the same entity. In determining which matters to report when engaged to report on KAMs, the auditor should evaluate matters that required significant attention during the audit, such as areas of high assessed risk of material misstatement, significant risks, areas requiring significant auditor judgment and the impact of significant transactions and events. Auditors should note that an item reported as a KAM should not also be included in an emphasis-of-matter or other-matter paragraph in the auditor’s report.

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There is a new statement under the “Responsibilities of Management for the Financial Statements” section of the auditor’s report, making it clear that management has the responsibility for evaluating a going concern.

The “Auditor’s Responsibilities for the Audit of Financial Statements” section has been expanded to include descriptions of the following: • Reasonable assurance • Circumstances that may prevent material misstatements from being detected • Materiality • Requirement to conclude on the entity’s ability to continue as a going concern • Exercising professional judgment and maintaining professional skepticism • Required communications with those charged with governance

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{ Accounting & Auditing | Audit changes }

SAS 136: Forming an Opinion and Reporting on Financial Statements of Employee Benefit Plans Subject to ERISA SAS 136 applies to audits of employee benefit plans that are subject to the Employee Retirement Income Security Act of 1974 (ERISA) and will impact both auditors and administrators of ERISA plans; it addresses the following: • Changes to the form and content of the auditor’s report, including when management elects to have an audit performed pursuant to ERISA Section 103(a)(3)(c), formerly known as “limited scope” • Conforming modifications to the engagement letter, communications to those charged with governance and management’s representation letter

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As we gear up for adoption, take the time to carefully review and effectively implement these auditing standards changes to ensure that we all uphold the integrity of the profession and the quality of the audit process.

• New audit procedures related to audit risk assessment and response • Considerations related to the IRS Form 5500 filing The most significant change of SAS 136 is to the auditor’s opinion. After implementation of SAS 136, when management elects to have auditors exclude testing of certain investment information prepared and certified by a qualified institution as described in 29 CFR 2520.103-8, this will no longer constitute a scope limitation and thus eliminates the disclaimer of opinion.

The auditor’s responsibility for “other information” Many organizations issue annual reports that include other information, defined as financial and nonfinancial information other than financial statements and the auditor’s report. When other information is included in an annual report and the annual report is available before the auditor’s report is issued, the auditor’s report is required to include an “Other Information” section. This section is required to detail management’s and the auditor’s responsibilities regarding the other information included in the annual report and a statement that the auditor’s opinion does not cover the other information. The new standard defines “annual report” and provides examples of reports that do not meet the definition, such as IRS Forms 990 and 5500.

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On Balance

March | April 2022

The call for increased communications As a result of the changes to the auditor’s report under SAS 134 and 136, changes will have to be made to audit engagement letters, communications with those charged with governance and management’s representation letter. Auditors will be required to communicate to those charged with governance any significant risks identified when planning the audit and any expected modifications to the auditor’s report. Worth mentioning is that several amendments were made to direct the auditor’s attention to the notes on the financial statements throughout the audit process.

As we gear up for adoption, take the time to carefully review and effectively implement these auditing standards changes to ensure that we all uphold the integrity of the profession and the quality of the audit process.

Andrea Wright, CPA, MSA, is partner-in-charge of the Illinois office of national CPA firm Johnson Lambert LLP. Reprinted courtesy of Insight, the magazine of the Illinois CPA Society. For the latest issue, visit www.icpas.org/insight.

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