May | June 2020 | Vol. 16 No. 3 A publication of the Wisconsin Institute of CPAs | wicpa.org
Passion for the
Profession Wendi Unger, CPA | 8
Plus: Shattering CPA firm stereotypes | 14 Changes to LLC member duties | 18 CARES: QIP technical correction | 22 Retirement plans and SECURE | 38
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A publication of the Wisconsin Institute of CPAs | wicpa.org
May | June 2020 Vol. 16 No. 3
8 Features
Columns
8 Passion for the profession Wendi Unger, CPA, chair of the WICPA board of directors, strives to help stem the shrinking pool of college accounting majors and CPA candidates. By Marcia Tillett-Zinzow
24 FINANCIAL PLANNING The new 10-year IRA distribution rule The SECURE Act’s new rule eliminates the “stretch IRA,” which allowed nonspousal beneficiaries to pace distributions. By Robert S. Keebler, CPA/PFS, MST, CGMA
14 The evolving CPA profession Firms are taking steps to make accounting careers more attractive and fulfilling. By Ken Wysocky 18 Advising clients in a shifting sea Find out what limited liability company members should be thinking about in 2020. By Joseph W. Boucher, CPA, MBA, JD, and Eric W. Klemm, JD 22 CARES Act: The QIP technical correction Commercial property owners who made interior improvements in the last two years are in for a federal tax deduction. By Mark Vorkapich, ASA
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30 TECHNOLOGY Multi-factor authentication From the perspective of data security, today’s world is dangerous. Multi-factor authentication offers protection. By Thomas G. Stephens, CPA, CITP, CGMA 34 FEDERAL TAXATION Estate tax returns for nontaxable estates Estate tax exemptions have been raised once again by the Tax Cuts and Jobs Act. But you may want to file a return for other reasons. By Maureen L. O’Leary, JD, and Peter J. Smiley, JD 38 HUMAN RESOURCES Retirement plans and the SECURE Act The SECURE Act makes it easier for employers to offer a retirement benefit and improves plan design and operation. By Joseph Topp, CPA
30 Departments 3 Outlook | chair’s letter 4
In Touch | president & CEO’s message
12 Kudos | members in the news 23 Welcome | new members 32 Memorials | departed members
On Balance
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2020-2021 WICPA OFFICERS/BOARD MEMBERS Chair Wendi M. Unger, CPA
On Balance is published five times a year by the Wisconsin Institute of Certified Public Accountants (WICPA). Change of address should be sent to: Membership, W233N2080 Ridgeview Pkwy, Suite 201, Waukesha WI 53188; Phone: 262-785-0445 or 800-772-6939; Fax: 262-785-0838; email: jessica@wicpa.org. Statements and opinions expressed are those of the authors and not necessarily those of the WICPA. Publication of an advertisement does not constitute an endorsement of the product or service by On Balance or the WICPA. Articles may be reproduced with permission. © Copyright 2020 On Balance.
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INSIDE STAFF
President & CEO Tammy J. Hofstede
Chair-elect Angela C. Thomas, CPA
Design & Layout Brett Stallman
Past Chair Neil R. Keller, CPA/ABV, CVA
Advertising Sue Daniels
Secretary/Treasurer Lucien A. Beaudry, CPA, JD Directors Jeff Dewane, CPA, CGMA, CMA, MBA John R. Heindel, CPA Daniel Holzhauer, CPA Ruth A. Kallio-Mielke, CPA Wendy A. Peters, CPA Steven A. Pullara, CPA Matthew J. Schaefer, CPA, CGMA Kyle R. Stephens, CPA
Editor Marcia Tillett-Zinzow Printing Delzer
AICPA Council Ryan J. Hanson, CPA, CGMA Neil R. Keller, CPA/ABV, CVA
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HOLE & EVENT PRIZES $500 Inside the Circle Contest $500+ in Individual Awards $500+ in Team Awards
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OUTLOOK | CHAIR’S LETTER “At the end of the day, we all want what is right for ourselves and the profession we have dedicated a lot of time and effort to.”
Getting back to the business at hand
A
s I write this column, we are in the midst of a pandemic. This is something I never thought I would experience and hope I never do again. As we struggle day to day, even hour by hour, to know what will be the next challenge we need to consider, our profession continues to surprise me. As a partner in a public accounting firm, I see daily how the dynamics of my own organization have changed. Whether the changes are permanent or temporary remains to be seen, but the care and compassion that have been exhibited for our clients and our employees has been amazing. As I embark on my term as chair of the WICPA board of directors, I look for and hope to see the same amazing results. Our immediate focus is the current situation and how that has and will continue to affect our profession. We will continue to keep our members up to date on late-breaking news that will affect each and every one of us in some manner. And then — when all is said and done and the world we live in returns to what may be a new normal — we will get back to the business at hand. We will continue the “normal” business of the WICPA. When I applied for the chair position, I knew I was going to have my hands full. As this profession is ever-changing, the challenges the WICPA faces are also ever-changing. When asked what my goals were for my term as chair, I thought long and hard. My first thought was that it had to be low-hanging fruit, something that could be started and finished within my one-year term. But when I considered what those things might be, I struggled. The WICPA is an exceptional organization that is run by an amazing group of board members and an excellent management team. The low-hanging fruit I was looking for did not exist. I took a step back then and thought about what challenges I face each and every day as partner in a public accounting firm. The first thing that came to mind was our ability (or perhaps more so our inability) to find, interview
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and hire quality candidates that are as passionate about our profession as we are. So I decided that one of my goals as the new board chair will be to evaluate the barriers and reasons that are limiting the number of young people who decide to become a CPA. Once those barriers and reasons are determined, the next step is to eliminate the barriers and educate young people on the many benefits of our profession. I have no silver bullets, and I am hoping that by working closely with the WICPA management and board of directors, we can come up with some great ideas to move our profession forward. My goals are lofty, and I am confident they cannot be completed in a one-year term, but I hope we can move the dial just a little. When my term as chair is complete, I hope to be able to look back and say that I left the organization in a better place than it was when I assumed my position. At the end of the day, we all want what is right for ourselves and the profession we have dedicated a lot of time and effort to. I look forward to working with you all. Stay safe. Stay healthy.
Wendi Unger, CPA, is a partner with Baker Tilly in Milwaukee and the chair of the WICPA board of directors. Contact her at 414-777-5423 or wendi.unger@bakertilly.com.
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IN TOUCH | PRESIDENT & CEO’s MESSAGE “As you have observed over the last year, and especially the last few months, the influence of the WICPA and its members has been able to provide support and protection for our members, their clients, businesses and the public.”
Protecting your future as a CPA
T
he WICPA advocacy objective is to establish the accounting profession as a concerned, involved political resource.
As you have observed over the last year, and especially the last few months, the influence of the WICPA and its members has been able to provide support and protection for our members, their clients, businesses and the public. The WICPA, along with the other state CPA societies and the AICPA, were able to successfully extend the IRS tax filing deadline and payments with no penalties or interest and to encourage our members of Congress to support proposed legislation to assist individuals and businesses in this difficult time. The WICPA also was able to work with Gov. Tony Evers, leadership of both parties in the legislature and Department of Revenue Secretary Barca to successfully achieve extending the Wisconsin filing deadline and payments without penalty or interest, include accounting service as an essential business in the Safer at Home order, and provide extensions and waivers for CPA Exam candidates. We could not have done this without continued membership support and contributions to our legislative funds, CPAC and LIF. The funds provide the opportunity
to have a statewide impact on the election of candidates who will shape the legislation and laws that affect our businesses and the accounting profession. When you contribute, you support legislation that impacts your profession. A strong, well-supported fund relies on CPAs being willing to invest in protecting the future of the CPA profession in Wisconsin. The WICPA is nonpartisan in the selection of state legislators to support. The WICPA legislative funds help to elect candidates who philosophically agree with our pro-business, pro-economic growth mindset. If we can help these candidates get elected in the upcoming elections, they could be the deciding vote on a tough issue, whereas other candidates might continuously be on the opposite side of our issues. There are many key issues that could impact the way you do business, and the WICPA is your advocate when these issues come up. Consider the following: • If there was a proposed sales tax on audit, tax or consulting services, which would hinder operations and increase the cost of doing business, the WICPA would actively oppose that tax. • Recently, when members wanted clarifying language about Wisconsin Act 368 and pass-through entity elections, the WICPA was able to propose new legislation.
I personally want to thank our staff and members for their calm and patience in these unforeseen and unprecedented events with COVID-19. I also appreciate everyone’s understanding of this ever-changing situation while we took steps to protect our staff, our members and our communities.
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• Similarly, the WICPA was able to remove from the DOR tax package language that would have had a negative impact on our members. On page 6 of this issue, you will find a listing of the 2019 CPAC/LIF contributors. If you see a fellow WICPA member whose name is on this list, please thank them for their support. These members are helping protect your profession and your livelihood, and they have made a significant difference in our ability to represent your interests. Consider contributing to CPAC or LIF at wicpa.org/give/cpac-lif, and join hundreds of committed members in influencing the future of your profession and ensuring that your voice continues to be heard and your interests represented.
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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Thank you 2019 CPAC & LIF Contributors! Visit wicpa.org/Advocacy to learn more and make a contribution.
INNER CIRCLE Katherine Hauser Frederick Sitzberger
LEADERSHIP Neil Keller Carl Marzolf Josh Mueth
PACESETTERS Heather Acker Christine Anderson Brandon Andries Roberta Bastle Paul Batchelor Mary Behling Danny Beine Timothy Beine Donald Bernards Todd Bernhardt Douglas Berry Jeffrey Blattner Kelly Bradley James Brandenburg Erik Bunnell Daniel Buttke Todd Carpenter Justin Chesbrough Christine Dahlhauser Jeffrey Danen Brad DeNoyer Chad Derenne Jeff Dewane 6
On Balance
Andrew Dilling Jodi Dobson Jeffrey Dvorachek Barbara Ecklond Wayne Ehlert Brigid Elliott-Boger Christine Fenske Michael Fitzpatrick Paul Frantz Michael Friedman Karin Gale Kathryn Gannon Joshua Ganshert Lynn Gardinier Stephanie Gensler Daniel Glomski Carla Gogin Nicole Gralapp Steven Grover Michael Gustafson Douglas Haag Ryan Hanson Monica Hauser Vicki Hellenbrand Kevin Heppner Tammy Hofstede Kirsten Houghton Laura Huggett Tina Huisman Wade Huseth Bruce Hutler Andrea Jansen Henry Jasper Michael Kendhammer David Kerber Karen Kerber Tricia Knight May | June 2020 John Krause
Eric Kroll Cynthia Lamphere Wendy Landrum Brian Lange Nicholas Lascari David Laske Abraham Leis Bonnie Lilley Alan Mader James Malczewski Ryan Maniscalco James Mathes Martin Mathias Michael Matuszak Joshua Meinen Deanna Merryfield Jennifer Miller Mark Miller Randall Miller Mary Miske Wayne Morgan Craig Nelson Joel Nettesheim William Nortman Karen Novak Chad O’Brien Daniel O’Connor Jason Page Krista Pankop Bryan Pautsch Donald Pedersen Jacob Peters Steven Pullara Norman Roller Jamie Rosin Michael Ruby Kevin Schalk Christopher Schmidt
Gerald Schmit, Jr. Eugene Schramka Paul Senger Thomas Sheahan Jill Sherry Kimberly Shult Andy Slinger Carrie Small Carver Smith III James Smolinski Mark Sobczak Gregory Sofra Corey Tremaine Eric Trost Wendi Unger Thomas Unke Christopher Van Straten Matthew Vanderloo Brent Wagner James Wagner Roberta Ward Peter Wautlet Theran Welsh Glen Weyenberg Russell Wolff William Wong Aaron Worthman Laura Zach Chad Zeller
PACESETTER LEVEL ORGANIZATIONS Baker Tilly Behling, Jasper & Selberg LLC Hawkins Ash CPAs, LLP KerberRose S.C. Scribner, Cohen and Company S.C. Sikich LLP Sitzberger & Company S.C. SVA Certified Public Accountants S.C.
OTHER ORGANIZATIONS WITH EMPLOYEE CONTRIBUTIONS Baker Tilly Search & Staffing BDO USA LLP BKD LLP CLA Herzing University MGIC Investment Corp. RitzHolman CPAs Vinton Construction Co. WICPA
OTHER CONTRIBUTORS Anthony Balistreri Matthew Macdonald David Weber wicpa.org
Introducing your WICPA Board of Directors The WICPA Board of Directors provides strategic governance in accordance with the WICPA strategic plan, mission and vision. The board ensures the WICPA serves the diverse needs of members, enhances professional competency, promotes the value of members and the profession, advocates on behalf of the profession and builds community among members.
CHAIR Wendi M. Unger, CPA, partner, Baker Tilly, Milwaukee
CHAIR-ELECT Angela C. Thomas, CPA, expenditure & revenue accounting section chief, Wisconsin Department of Natural Resources, Madison
PAST CHAIR Neil R. Keller, CPA/ABV, CVA, partner-in-charge, tax services, Sikich LLP, Brookfieldd
SECRETARY/ TREASURER Lucien A. Beaudry, CPA, JD, equity shareholder, Reinhart Boerner Van Deuren s.c., Milwaukee
DIRECTOR Jeff Dewane, CPA, CGMA, CMA, MBA, assistant controller, Vinton Construction Company, Manitowoc
DIRECTOR John R. Heindel, CPA, vice president, finance and administration, Zoological Society of Milwaukee, Milwaukee
DIRECTOR Daniel Holzhauer, CPA, senior vice president & commercial lender, Associated Bank, Milwaukee
DIRECTOR Ruth A. Kallio-Mielke, CPA, director, Deloitte & Touche LLP, Milwaukee
DIRECTOR Wendy A. Peters, CPA, accounting manager, Kohler Credit Union,
DIRECTOR Steven A. Pullara, CPA, CGMA, tax partner, BDO USA LLP, Middleton
DIRECTOR Matthew J. Schaefer, CPA, CGMA, vice president of regulator risk and internal audit, Bank of Wisconsin Dells, Wisconsin Dells
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DIRECTOR Kyle R. Stephens, CPA, vice present of finance and administration, Good City Brewing LLC, Milwaukee
AICPA COUNCIL Ryan J. Hanson, CPA, CGMA, financial accounting manager, MGIC Investment Corporation, Milwaukee
Given the Wisconsin and United States national COVID-19 emergency, the WICPA has rescheduled its annual member meeting to Oct. 16, 2020 (previously scheduled for May 8, 2020). To provide an opportunity for board and officer nominees to serve a full term in their new positions, the WICPA officers and directors with terms that were set to expire on May 8, 2020, have resigned. The WICPA Bylaws permits the board of directors to fill the vacancies, and the board has filled such vacancies as of May 8, 2020. The board filled the vacancies until the next scheduled member meeting (currently scheduled for Oct. 16), when the membership will elect the slate of nominees.
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Photography by Front Room Photography
Passion for the
Profession
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By Marcia Tillett-Zinzow
W
endi Unger, CPA, spent four years at Oconomowoc High School dreaming of becoming a veterinarian. She had never taken an accounting course before she got to college. Then, as a freshman at Marquette University, she took Introduction to Accounting and aced the course. That ended any thoughts she had about working with animals. As it turned out, acing that course was the spark that lit a flame that’s burned for more than 30 years. And this year, she brings her passion to the WICPA board of directors as chair. Unger — now a partner with Baker Tilly, Milwaukee — graduated from Marquette in 1990 with a degree in accounting. She married her high school sweetheart shortly after. While still in college, she worked part time for William Rewolinski, CPA (then a sole practitioner, now with Chortek LLP), and after graduation she stayed on with his firm for six more years. Being newly married, starting a new career and commuting downtown every day from her home in Erin left little time for studying, so she took her time when it came to the CPA Exam and eventually got her CPA license in 2000. Then she joined the WICPA. Like many WICPA members, Unger believes in giving back, whether it’s volunteering her time for a good cause, contributing financially to charitable organizations or helping move the CPA profession forward. In her involvement with the WICPA, Unger has walked the talk in the following roles: • School District Audit Conference Planning Committee, 2008–2020 o Chair, 2009–present • WICPA Educational Foundation board of directors, 2018–2019 o Strategic Planning Task Force o Scholarship Selection Committee • WICPA board of directors, 2014–2017 and 2018–present
o o o o
Director, 2014–2017 Nominations Committee, 2018–2019 Chair-elect, 2019–2020 Chair, present
“I think it’s important to give back to a career and a profession that I’m very proud of and that I think has unlimited benefits for the people who decide to enter it,” she said. “So whatever I can do to move that forward so our profession continues to thrive, I’m going to do it.”
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One of the aspects of Unger's job that she loves most is mentoring young professionals.
“
I think it’s important to give back to a career and a profession that I’m very proud of and that I think has unlimited benefits for the people who decide to enter it. Paul Frantz, CPA, also a partner with Baker Tilly and a member of the WICPA Educational Foundation board, said Unger’s passion for the industry drew him in very early in his career. “I would not be where I am today without her guidance and the empowerment she offered during my growth in our profession,” he said. “I am blessed to call her a friend and have her as a role model in my career on a daily basis.”
Crystallizing a vision Unger’s vision for her term as board chair is simple: She wants to leave the organization and the profession in Wisconsin a little better than she found it. She’s not sure yet what the details of that will be, but she’s determined to make a difference. Once crystallized, her agenda just might include strategies to make the profession more appealing to high school students and encourage college students to take the CPA Exam.
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Photography by Front Room Photography Unger, who once thought she could never work for “a big firm,” has been with Baker Tilly for 22 years.
“I think we’ve had enough discussions about the decrease in enrollment in college accounting programs,” she said. “Now we need to ask ourselves why that is. What can we as an organization do to better promote our profession? How do we break the stereotypes and effectively deliver our message about what this profession really is?” Frantz, who has worked with Unger for more than 15 years, is confident she will achieve this goal and more. “She approaches life with full enthusiasm and with a mindset of collaboration and integrity to ensure appropriate outcomes are reached,” he said. “She will be a wonderful ambassador for our industry and the WICPA and a role model for our future leaders.” Unger’s enthusiasm for her own work as a partner with Baker Tilly speaks loudly about what the profession really is. She’s been with the firm since it was still Virchow Krause (VK), having come on board in 1998 when VK acquired Conley McDonald, where Unger had been working since 1996. “At that point, I contemplated whether or not I wanted to be in a ‘big’ firm,” she said. “We were nowhere near the size we are now, but VK was hundreds of people, and I thought Oh my gosh, I could never be part of a big firm! And now here I am — 4,000 people later, and Baker Tilly is going strong.” Unger explained why the profession is much more than being “just” an auditor or a tax preparer, which is what many
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young people may think. “It’s the involvement you have with your clients. It’s the people you meet, the conversations you have. It’s seeing the look on a client’s face when you’ve helped them through a problem they thought nobody could ever help them through,” she said. Her enthusiasm doesn’t stop there. It goes beyond the clients to the young professionals she works with and mentors at Baker Tilly. “Helping mold them into something that is so much better than just ‘OK.’ Developing them, educating them, seeing the aha moment when they say ‘Oh! That’s what that means!’ It’s tremendously gratifying,” she said.
A supportive family — with Bavarian roots When she isn’t working with the WICPA or her clients or mentoring young professionals, you might find Unger spinning around on a stage or a dance floor with husband Joe at a Bavarian schuhplattlering (pronounced “shoe-plotteling”) event. The Unger family belongs to B.G.T.E.V. D’Holzhacker Buam, a Bavarian dance club established in 1935 to preserve the Bavarian culture. Both Wendi and Joe have Bavarian roots. Their group performs at several local Milwaukee functions, including German Fest and Holiday Folk Fair. The organization also holds its own anniversary festival and dance each spring. The traditional Bavarian dance consists of men dressed in lederhosen stomping, clapping and striking their thighs, knees
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and the soles of their shoes (schuhe) with their hands held flat (platt) while the women spin across the stage, dressed in colorful dirndls. For the Ungers, schuhplattlering is a family activity that stretches back to the previous generation on both sides. In fact, Wendi and Joe first met while attending a schuhplattlering event with their families and schools. “That was 36 or 37 years ago, and we’ve been together ever since,” she said. “Both of our daughters dance and have been involved since birth. Like any organization, it’s a lot of work, a lot of time and a lot of effort. But it’s something we enjoy.” Joe Unger is self-employed. Early in their marriage, the couple had discussions about what Wendi wanted to do with her career and what her goals were. When the time came to make a decision about whether Wendi should move forward with her career, Joe encouraged her aspirations.
The Unger family in Bavarian dance costume at last year’s Holiday Folk Fair.
“He became Mr. Mom. He’s the one who did the pick-ups and the drop-offs and really took care of things on the home front. My daughters haven’t known anything different. They’ve gotten very used to the fact that Mom can’t be at some of their events, and they accept that. They understand the importance of my career to me, and they have been very supportive.”
Back to the future Will either of her daughters (Leslie, 21, and Elizabeth, 16) follow in Mom’s footsteps? Well, that remains to be seen, at least for one of them. “My children watch what I do every day, and the older one says, ‘There is not a chance that I would ever do what you do!’ And my younger one says, ‘You know, I want to be an accountant.’ But she’s still young,” Unger said. “Remember, at her age I was going to be a veterinarian!” Unger sees apprehension and lack of enthusiasm for accounting among high school students in general. It’s what keeps her thinking that something has to change. “What do we need to do differently? You can’t do the same thing over and over again and expect a different result,” she said. “So what do we need to do? Again, I don’t know what that is right now, but I believe we’ll figure it out.”
Spinning is 90% of the woman’s part in Bavarian dance. The secret to not toppling over, Wendi said, is to keep your eyes from focusing.
Photography by Mark Hines
As Unger leads the board this year, it will be no surprise to see her make some positive changes that lead to fulfilling her vision of leaving the profession and the WICPA a little better than she found them. “It’s her passion, ambition and charisma that will make that happen,” said Frantz.
Marcia Tillett-Zinzow is a Wisconsin freelance writer and editor. Contact her at mtzinzow@icloud.com. Wendi with daughters Leslie (21) and Elizabeth (16).
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kudos Lacey Bell, CPA, has been named director of finance and accounting at Security Health Plan of Wisconsin, Marshfield.
Rachel Blumenshine
Rachel Blumenshine, CPA, an associate with Hawkins Ash CPAs, recently received her CPA license from the Wisconsin Department of Safety and Professional Services. She joined the firm in 2018.
Wayne Link, CPA, was recognized by the Forest County Chamber of Commerce with the 2019 Legacy Award for providing 40 years of business service to Forest County. Bradley A. Quade, CPA, has been appointed chief credit officer of First Business Financial Services Inc.
Thomas Grimm, CPA, who retired from CliftonLarsonAllen LLP (CLA) in December 2019, was appointed to the board of directors of Marathon Bank, Wausau. He is also active in the Woodson YMCA of Marathon County and the Entrepreneurial Education Center.
Eric Trautman
Tim Hanley, CPA, a former Deloitte senior partner, has been named interim dean of business administration at Marquette University. He also is a member of the President’s Advisory Council and Campaign Executive Committee at the university.
Shane Weiske
Randy Juedes
Randy Juedes, CPA, will serve as the chairperson for the executive committee of Hawkins Ash CPAs, succeeding Randall Miller, CPA, who served in that role for 16 years. Juedes is a partner in the firm’s Medford office.
Jake Kneusel, CPA, has joined Porter & Sack CPAs, Madison. He is a UW–Whitewater graduate who interned with the firm while in college. Bryan Kronberger, CPA, has joined Northland CPAs. He was formerly an audit associate with a Minnesota CPA firm. Bryan Kronberger
Rick Krueger, CPA, was promoted by CLA, Milwaukee, to principal in the firm's National Assurance group. His role focuses on strategic assurance initiatives. Arthur Lee, CPA, founder of Alliance Tax & Accounting Service, Brookfield, was interviewed by CBS-58 (Milwaukee) for a Wednesday, Feb. 5, report on tax-season fraud.
Eric Trautman, CPA, a senior tax associate at Hawkins Ash CPAs, La Crosse, recently achieved his CPA license from the Wisconsin Department of Safety and Professional Services. He has been with the firm since joining as an intern in 2016. Shane Weiske, CPA, MSA, was promoted to senior manager of Wipfli’s commercial audit group, where he manages and executes financial statement audits, reviews and compilations. Laurie Winger, CPA, was promoted to CEO by CUNA Mutual, Madison. She is the company’s first female CEO, a role she combines with the position of chief product officer.
Laurie Winger
ORGANIZATION NEWS Hawkins Ash CPAs, with offices in Wisconsin and Minnesota, has been selected by Forbes magazine to be included in its 2020 list of recommended tax firms in the U.S. Of more than 18,000 tax firms in the U.S. that were considered for the award, only 202 firms were recognized. Selections were based on an independent survey of 1,800 CPAs, enrolled agents, tax lawyers, accountants and CFOs. Wegner CPAs, headquartered in Madison, has been named to INSIDE Public Accounting’s 2019 All-Stars List in Niche Specialization as one of the top five firms for not-forprofit services. Based on a survey of approximately 550 of the largest CPA firms in the U.S. (excluding the Big 4 and national firms), the firms that made the list derive a higher percentage of their revenue from specialty practices than all other participating organizations. For Wegner CPAs, the nonprofit revenues as a percentage of total firm revenue are in the top five firms of all that took part in the survey.
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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CAN WE
HELP OUR CLIENTS EXPAND WITHOUT ESCALATING THEIR DEBT?
In Wisconsin®, we can. The Wisconsin Economic Development Corporation and our network of local and regional business development organizations are here to help you help your clients expand their operations. We’ll work with you to identify and implement financial assistance programs and provide technical assistance to meet your clients’ goals. Learn more at WEDC.com/psp.
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The evolving CPA profession From flex time to high-tech tools, firms are taking steps to make accounting careers more attractive and fulfilling. By Ken Wysocky
S
ome Wisconsin accounting firms are adopting more employee-friendly policies and integrating high-tech tools to combat perceptions that the profession is demanding and stressful due to long hours, poor worklife balance and insufficient job flexibility. At the same time, some colleges are working more closely than ever with accounting students to ensure they’re taking courses as efficiently as possible in order to minimize the costs of fulfilling the 150-hour requirement for taking the CPA exam. Industry observers believe that workplace concerns coupled with the higher costs associated with the 150-hour coursework requirement have contributed to recent drops in exam
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candidates and accounting graduates, as well as a decrease in enrollees in bachelor’s and master’s programs for accounting. According to the 2019 Trends report, published by the Association of International Certified Professional Accountants (AICPA), candidates for the CPA Exam decreased 7% between 2017 and 2018, the latest years for which figures are available (partly explained by the adoption of a new CPA Exam effective in April 2017). And during the same time period, the number of CPA Exam candidates who passed the fourth section of the exam dropped 6%. Furthermore, projected accounting graduates in the 2017–18 academic year were 4% lower at the bachelor’s and
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master’s levels and overall; and enrollees in bachelor-level accounting programs in 2017–18 dropped to 207,806,1 a 4% drop compared to the 2015–16 academic year. (Data from the 2016–17 academic year were absent from the report.) During the same period, enrollees in accounting-related master-level programs dipped to 27,482 — a nearly 7% drop. That pushed the level of accounting-related master’s degrees to the lowest level since the 2009–10 academic year, AICPA statistics show.
New recruiting approaches David Gay, CPA, managing partner at the Milwaukee office of Ernst & Young LLP and an accountant for 24 years, disagrees with the perception that accounting careers are too demanding to attract college students. “At one time that may have been a fair representation, but now it’s a stereotype that the profession hasn’t been able to debunk,” he said.
David Gay, CPA
Nonetheless, Ernst & Young has taken steps to engage both prospective and existing employees in different ways. On the recruiting level, recruiters talk more about business processes in public accounting than the nuts and bolts of debits, credits and financial statements, he explained. That means emphasizing things like the chance to talk to senior executives at companies to explain the “why” behind their financial results as well as opportunities for personal and professional development, upward mobility and travel, he noted. “We tell them that they’re going to get to see how multiple businesses operate and be able to compare and contrast them,” Gay said. “They’ll also be in the room with senior executives at a very young age.” Huberty CPAs also has changed its recruiting approach during campus visits, said Nathan Volkomener, CPA, a managing shareholder at the firm’s Plymouth office. Because competition for talent is keen, the firm felt compelled to update how it talks about its services and the company.
To reinforce that accounting these days is more than just getting numbers to foot, the company also emphasizes that it wants people with analytical, planning and strategic skills in addition to basic accounting skills, he added.
Career, quality-of-life enhancements After recruits are on board, Ernst & Young offers an array of benefits aimed at making accounting a more user- and family-friendly career. For starters, the company is “laserfocused” on broadening employee skills, especially in the area of digital technologies. “We’re also all about accelerating and personalizing their career paths, including regular career conversations,” Gay said. “We want to make sure we’re working together toward the bigger picture, as well as making them comfortable and helping them develop a greater sense of belonging, which also manifests itself in inclusion and diversity efforts.” In terms of boosting work-life balance, the company also offers winter and summer breaks, in which it actually closes down for one week at the end of each calendar year and for one week over the Fourth of July holiday. Employees also get four-day weekends for the Memorial Day and Labor Day holidays, he said. Conscious about the increasing demands employees face between work and home, the company has empowered teams to develop their own flexible work schedules. It also provides technologies that support working remotely, such as videoconferencing capability or a phone app that allows accountants doing in-the-field inventory work to scan and upload data directly into company software systems. “It’s just a more efficient way for employees to capture that information versus the old way of taking notes with paper and pen or by computer,” Gay said. Employees receive 16 weeks of extended maternity or paternity leave, and the company also reimburses employees for 75% of gym memberships to support physical well-being.
Nathan Volkomener, CPA
During the past several years, Huberty has transitioned from talking to students about open positions to articulating a story about the company — creating a brand awareness that emphasizes all the new skill sets required compared to a traditional firm. “We don’t fit in that box anymore,” Volkomener said. “We prefer to call ourselves a CPA-led professional services firm. We find that students are more interested in a story than a position. We also don’t call [entry-level] employees staff accountants. We 1
call them consultants, which speaks more to our approach of not being in a conventional box.”
Realizing that millennials also want to be part of something bigger than themselves, the company staunchly supports employee volunteerism. It holds an annual day of volunteer service, called EY Connect Day, when all employees do volunteer work, he said. “We’ve focused a lot on these issues over the last decade,” he noted. “One way we’re able to do this is by constantly seeking feedback from employees.” Are older employees — baby boomers, for instance — resentful that all these policies weren’t available to them earlier in their careers? “That’s a fair question,” Gay said. “But I don’t
It should be noted that 207,806 enrollees still marked the second-highest number in history.
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feel like there’s a level of resentment toward a younger cohort getting benefits an older cohort didn’t get. Instead, there’s a sense of pride about the fact that we’re willing to invest in all of our people and obtain the best possible talent.”
Flexible schedules At Huberty, millennials are represented in the shareholder group. As such, Volkomener said, the company already has a different perspective than some accounting firms about how to better connect with the next generation of talent: Gen-Z employees, loosely defined as people born between 1995 and 2010. One big employee benefit is alternative work arrangements. Here’s how it works: Employees are eligible to work two days a week remotely. In addition, they can create their own 40-hour-aweek flexible schedules to accommodate their family dynamics. “Virtually anything is on the table,” Volkomener said. As examples, he cites working four 10-hour days or working 8-hour days Monday through Thursday and on Saturday. However, during tax season from January 1 to April 15, employees are expected to work 55 to 60 hours a week. But flexible scheduling still remains an option. “How you get to those 55 or 60 hours a week is entirely your own choice,” he said. Employees then get a breather during a 15-week period in summer when they work only 36 hours a week, courtesy of halfday Fridays, he added. To meet younger employees’ demands for better transparency and more communication, the company also does more internal communications regarding big-picture, long-term strategies. “We now present annual three- to five-year strategic plans, which we never did before,” Volkomener noted. “We also hold a staff retreat every year during which we roll out strategic initiatives and take a deeper dive into long-term strategies. Younger employees want to know how they fit in and where the company is going,” he said.
High-tech approach To address younger employees’ desire for all things technological, Huberty has developed new products, such as virtual bookkeeping and data-analytics platforms that require users to possess new and different skill sets. “We’re working with large data sets to solve problems, which is a lot different than what we’ve done in the past,” Volkomener explained. “These kinds of investments show we’re committed to staying relevant. Technology is critical to how you show up and attract talent.” To dispel the notion that accounting firms are hidebound and resistant to change, Huberty also continues to examine how work will change in the future. The upshot? More investments in improving accounting tools and integrating new technologies into existing processes.
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As examples, he cites cloud infrastructure, machine learning/ artificial intelligence and optical character reading (OCR) textrecognition software. The latter eliminates the need to handkey data into software, a time-saving technology that allows employees to focus on more important tasks that better benefit clients. “It’s essentially automated data collection,” he noted.
New education strategies On the other end of the issue, colleges and universities continue to strive to help students reach the magic 150-hour credit level as efficiently and cost-effectively as possible. Schools also encourage students to pair their accounting major with an accounting-related major, which can make them more attractive to potential employers. In other words, if students must be in school for five years, they should earn second majors that will bolster their accounting bona fides. At the University of Wisconsin– Eau Claire, where the number of accounting majors has stayed fairly constant for the last seven academic years, officials encourage students to take the CPA Exam as soon as they meet the requirements, said accounting professor DeeAnne Peterson, CPA, MBA. Many states — including Wisconsin — allow students to take the exam after completing 120 hours of coursework but require 150 hours to become fully licensed as CPAs.
DeeAnne Peterson, CPA, MBA
Underway for some time, that effort subsequently led faculty to integrate CPA Exam material into upper-level courses. The result? Students are taught at a level comparable to the CPA Exam, which enhances their ability to take the exam while still in school.
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150 hours too high a bar? Now in place nationwide for roughly two decades, the 150-hour requirement remains a topic of debate. Proponents contend the additional education strengthens students’ competency and better prepares them — not only for the CPA Exam but for their careers. Opponents contend the 150-hour requirement makes less sense in the wake of ever-rising tuition costs and burgeoning student debt. They also note that the presumption students would compile the extra hours by completing graduate degrees has not played out as expected.
Peterson said that in order to meet the 150-hour requirement, the school encourages students to pursue a double major — in accounting and finance, for example, or perhaps accounting and information systems — or to simply add a minor in addition to an accounting major. “So if we can set up their classes the right way, they have the time they need and the required courses in place to take the exam here during their fifth year,” Peterson said. “But we work hard to get them finished in 4½ years. We’d rather do that than have them spend time after graduation [to finish] or do it while they’re working 40-plus hours a week at a new job.” Kevin Rich, CPA, PhD, chair and associate professor of accounting at Marquette University, also strongly supports carrying double majors on the way to earning 150 credit hours. “I advocate for a double major in accounting and information systems,” he said. “To me, they go together like milk and cookies.”
All this raises a thought-provoking question: Does the 150-hour requirement add value to becoming a CPA? Rich contends it does, noting that the requirement was changed 20 years ago specifically to add value. “It’s been in effect long enough to be a known commodity, and a lot of our students will still try to graduate in four years by taking advancedplacement credits and attending summer school.” But Rich concedes the standard is a double-edged sword. On one hand, it deters some students from pursuing accounting degrees. On the other hand, it ensures that students who want to become accountants are fully committed. “I’m sure the creators of the rule never thought that this question would be asked,” he added. “Quite frankly, we never worried about it because accounting has always been a very compelling career path.
Kevin Rich, CPA, PhD
To better mesh with new trends in the accounting field, Marquette recently started emphasizing more technology in its accounting curriculum. The school currently offers accounting analytics and fraud analytics courses and will add an audit analytics course in fall 2020, he said. “These courses teach thought processes that will prepare students for the jobs of tomorrow, taking advantage of big data and tools to improve efficiency, plus coverage of the kinds of audits that firms engage in,” said Rich. “I’d argue that when students get jobs, they’ll be able to hit the ground running in ways they otherwise couldn’t without these courses. “And we know it’s relevant material because we relied on guidance from accounting firms to inform what we teach,” he added.
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Why? Some studies show that entry-level salaries for accountants don’t vary significantly between those with undergraduate and graduate degrees. As such, there’s no real economic incentive for students to meet the 150-hour requirement by taking graduatelevel courses, which typically cost more than undergraduate courses, observers contend.
“Furthermore, the skill sets required of today’s accountants are much more complex than what’s required by the CPA Exam,” he noted. “So students greatly benefit from using those extra required credits to develop technology and software skills.” The downside is that nothing mandates what those 30 extra hours of coursework must include. As such, students don’t always take classes that will better position them to pass the exam and have successful careers. So the value of that extra coursework completely depends on how constructively students use it, Rich said. “That’s why we encourage them to marry degrees that give them more opportunities when they leave here,” said Peterson. “It gives them that much more expertise, which is an advantage over earning just an accounting degree. It opens more doors and opportunities.” Ken Wysocky is a freelance writer based in Whitefish Bay. Contact him at 414-962-6202 or kenwysocky@gmail.com
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Advising Clients in a Shifting Sea
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What LLCs should be thinking about in 2020
C By Joseph W. Boucher, CPA, MBA, JD and
Eric W. Klemm, JD
ertainly, the last few years have seen numerous changes to laws that affect limited liability companies (LLCs) and their members. From the 2017 Tax Cuts and Jobs Act to various states adopting the Revised Uniform Limited Liability Company Act, the people who advise LLC members have to stay on their toes to ensure that their advice is accurate and that it guides their clients through the maze of choices they face. In Wisconsin, the choices LLC members face became more complicated after a 2019 decision by the Wisconsin Supreme Court called into question the impact of some of the most fundamental and basic choices that LLCs must make.
Limited liability companies are one of the most popular business entities today because they offer flexibility, simplicity and protection for business owners. In 2017, over 93% of all new businesses registered in Wisconsin were LLCs, and over the past 20 years, an amazing 82% of all new businesses in the state have been LLCs.1 In 2018 and 2019, LLCs were roughly 90% of new entities created.2
Body of case law still sparse Certainly, CPAs know the popularity of the LLC and have become intimately familiar with their operation. However, relative to all the legal entities available to businesses, LLCs are still a relatively new phenomenon. As a result, Wisconsin’s body of case law on LLCs is still quite limited. Only three cases involving Wisconsin’s LLC law have come before the Wisconsin Supreme Court.3
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CPAs must be aware of this new rule and the grey area around it as they advise their clients. Unfortunately for lawyers as well as for other business service providers, such as CPAs, the Court’s most recent decision regarding Wisconsin LLCs could cause some future headaches. The Wisconsin Supreme Court decision in Marx v. Morris, 2019 WI 34, dealt primarily with who within an LLC had standing to sue managers and other members of the LLC and what duties members and managers of LLCs owed to the members of an LLC or to each other. Applying the results of that case to the day-today advice clients ask for will not be simple. The Court focused strongly on the tax treatment that the main LLC in Marx had elected to receive. The Court discussed pass-through taxation eight separate times at paragraphs 23, 25, 32, 34, 43 and 44 of its decision. Almost the entirety of the Court’s analysis with respect to standing, or who had the right to sue, involved examination of the tax status of the LLC rather than the language of the statute or the terms of the operating agreement. The Court reasoned that because the economic benefits of an LLC pass through to its members, the recourse for harms to that LLC also pass through to its members.4 This reasoning is extremely difficult to apply because the Court explicitly declined to address how it would apply to LLCs that have not selected pass-through taxation, stating the Court would not address “interesting hypotheticals about the financial choices that LLCs may elect …”5 CPAs must be aware of this new rule and the grey area around it as they advise their clients. After Marx, the law in Wisconsin regarding who can and cannot sue
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on behalf of an LLC or for harm they suffered as a member of an LLC may hinge, at least in part, on the tax treatment the LLC has selected. What application this has to LLCs that have selected entity-level taxation is as yet undetermined. The new legal default makes it extremely important to work with clients and legal counsel to craft operating agreements that can provide both the tax and accounting strategies clients want and the legal protections and safeguards they need.
The bottom line LLCs must now be sure to have clear provisions in their operating agreements governing who may sue on behalf of an LLC, when that may happen and what prerequisites there are to doing so. LLCs can still control when and how their own internal litigation occurs, but they must now be sure to do so in their operating agreement and not rely on statutory defaults. It is also important to note that Wisconsin law requires operating agreements to be in writing.6 It is more important than ever to ask clients how their operating agreements treat the LLC’s members and advise them to have a clear, written operating agreement protecting the LLC and its members. Finally, the Court confirmed that in Wisconsin the members of an LLC still owe each other a fiduciary duty and that this duty was not replaced or altered by the Wisconsin LLC law. This means that LLC members owe each other a duty to act fairly and in each other’s best interest. Clients may now ask whether they owe duties to each other to refrain from seeking other business ventures, whether they can vote in their own interest if another member would be harmed by the vote, or other questions regarding the legal impact of the business or management decisions they want to make.
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These decisions, more than ever, will depend not only on Wisconsin’s LLC statutes, but also on the language of the operating agreement and the specificity with which it addresses the situation at hand. Members are now clearly liable for actions they take that affect other members and that enrich themselves. For example, the legal impact of selling or transferring property from one LLC to another, where the second LLC has some common members and some different from the first LLC, could be extreme. Combined with the change to how members can sue each other and when they can sue each other, the added reasons for why they can sue each other made 2019 an extremely important year in Wisconsin LLC law. Now more than ever, LLC members must be aware of the duties they owe each other and the duties they have waived, and they must ensure they have the ability to control the internal functioning of their business. 1
Joseph W. Boucher et al., LLCs and LLPs: A Wisconsin Handbook, §2.33 (6th ed. 2018).
2 Wisconsin
Department of Financial Institutions, Division of Corporate and Consumer Services “New Business Formations,” accessed at https://www.wdfi.org/corporations/HistoricalStatistics2019.htm 3 See
Gottsacker v. Monnier, 2005 WI 69, 281 Wis. 2d 361, 697 N.W.2d 436; Kasten v. Doral Dental USA, LLC, 2007 WI 76, 301 Wis. 2d 598, 733 N.W.2d 300; Marx v. Morris, 2019 WI 34. 4 Marx
at ¶33-34.
5 Marx
at ¶33.
6 Wis. Stat. 183.102(16).
Joseph W. Boucher, CPA, MBA, JD, is a shareholder with Neider & Boucher S.C., a Madison law firm. Contact him at 608-441-2526 or jboucher@neiderboucher.com. Eric W. Klemm, JD, is an attorney with Neider & Boucher. Contact him at 608-441-2526 or eklemm@neiderboucher.com.
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Everything you care about is in this house. Things your family just can’t afford to lose.
We can help you protect it with a Home and HighwayÂŽ policy from West Bend. Get protection for your family pet ... and a discount for members of the WICPA. To find out what else the Home and Highway has to offer, contact this Official Supplier of the Silver Lining. Professional Insurance Programs at (414) 277-0154 or info@profinsprog.com Or to find an agency near you, visit thesilverlining.com.
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CARES Act: The QIP Technical Correction
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ommercial property owners who have spent money on improvements to the interior portions of their buildings in the last two years (after the property was already in service) are in for a windfall regarding their federal tax depreciation deduction. Congress recently passed a technical correction By Mark that will now allow many taxpayers to Vorkapich, ASA receive huge deductions for the costs of interior improvements they have made. To make things even better, if those deductions exceed the tax liability for the applicable year, they can be applied through the previous year — up to five tax years.
Background The Protecting Americans from Tax Hikes (PATH) Act of 2015 introduced the category of qualified improvement property (QIP) as any improvement to an interior portion of a building that is nonresidential real property, as long as that improvement is made after the building was first placed in service by any taxpayer (Section 168(k)(3)). It specifically excludes expenditures for (1) enlargement of a building, (2) elevators or escalators and (3) the internal structural framework of a building. The three-year in service requirement is not applicable, and it is not restricted to expenditures pursuant to a lease between nonrelated parties. This means that if a building owner constructs or acquires a property, it does not have to be held for three years before any interior improvements will qualify for the QIP classification. The QIP provisions are effective for property placed in service after Dec. 31, 2015. The 2017 Tax Cuts and Jobs Act (TCJA) combined qualified leasehold improvements (QLIP), qualified retail improvements and qualified restaurant property into one category and intended to speed up the depreciation on QIP. The depreciable life of QIP was to be reduced from 39 to 15 years, with 100% bonus depreciation being available for all assets with a life of 20 years or less. Unfortunately, Congress forgot to give QIP a 15-year life, so it remained 39 years and was not eligible for 100% bonus depreciation. As a result, a taxpayer who spent $2 million on qualified interior improvements to their property in 2018 did not receive a $2 million deduction in that current year but had to depreciate the entire amount straight-line over 39 years.
Solution The Coronavirus Aid, Relief, and Economic Security (CARES) Act provides a technical correction for QIP property. 22
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It allows bonus depreciation or special straight-line modified accelerated cost recovery system (MACRS) depreciation over 15 years instead of 39 years and makes the change retroactive to Jan. 1, 2018. Thus, taxpayers should be entitled to file amended returns to reap the benefits of accelerated depreciation in 2018 and 2019. The CARES Act also temporarily repeals the 80% of taxable income limitation enacted by the TCJA. This allows full use of net operating losses (NOLs) for taxpayers for 2018 through 2020. Further, for NOLs arising in a tax year beginning after Dec. 31, 2017, and before Jan. 1, 2021, taxpayers may carry back NOLs to the preceding five tax years. This is significant since corporations were generally subject to a top tax rate of 35% before 2018. Example: The taxpayer mentioned earlier, who spent $2 million on qualified interior improvements to their property in 2018, claimed only $51,000 of depreciation related to the $2 million spent on improvements. They may now file an amended return to take an additional deduction of $1.949 million in 2019, and any net operating loss generated by the additional depreciation may be carried back for up to five years to recover taxes previously paid.
Value of cost segregation A detailed cost segregation study identifies the correct units of property and components that make up a building and its site and assigns those assets their correct federal tax life for depreciation purposes. If a taxpayer has a qualified study performed for any QIP-related projects, they will now be able to correctly identify both the qualifying and nonqualifying improvements to that property. This should be a critical step, as the new QIP life and bonus depreciation will create significant depreciation deductions that can be validated through a detailed cost segregation study. Mark Vorkapich, ASA, is the director of cost segregation services at Gladstone Strategies & Solutions, Milwaukee. Contact him at 414-418-8953 or mvorkapich@gladstonestrategies.com.
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Welcome new members! Get to know the newest members of the WICPA. February 1, 2020 – March 31, 2020
Mario Ambrosio, Jr. Schreiber Foods Inc.
Stephanie Doerfert Sikich LLP
Mark Ampaw Ampaw & Associates LLC
Alex Eichelberger Baker Tilly
Tori Argue BDO USA LLP
Brian Ellenbecker Shakespeare Wealth Management Inc.
Luke Axtman S.C. Johnson & Son Inc. Kathryn Baca Sikich LLP Michael Bain Baker Tilly Susan Ball Sikich LLP Jane Barbeau Paper Machinery Corp. Rebecca Barr UW–Milwaukee
Darya Kazakova UW–Milwaukee Kathryn Ketchum Sikich LLP
Luke Ellis Baker Tilly
Michelle Kohls Sikich LLP
Joanne Ellis Sikich LLP
James Kohn Sikich LLP
Matthew Evanoff Sikich LLP
Brianna Krantz UW–Whitewater
Amanda Everly Baker Tilly
Zoe Kupfer Sikich LLP
Marilyn Ford Sikich LLP
Daniel La Nuez Landaas & Company
Lynn Fraaza
Patrick Lowney Palo Consulting LLC
Margret Bashirian Seeds of Health Inc.
McKinlee Franke BDO USA LLP
Kathryn Belli Sikich LLP
Nathan Frey Sikich LLP
Katie Belongia RSM US LLP
Michelle Gabor UW–Parkside
Kate Bemis BDO USA LLP
Nicole Garcia Sikich LLP
Andrew Bindl Strand Associates Inc.
Jacob Gause BDO USA LLP
Joseph Braatz Exact Sciences Corp.
Karen Geiszler Ascendium Education Group
Gabrielle Buege Sikich LLP
Stephen Grunewald Sikich LLP
Tonya Buford Messmer High School
Ross Helein McDonald Companies
Michael Caprario Sikich LLP
Sharon Hennings Quick Financial Solutions LLC
Robert Clark UW–Milwaukee
Seth Hillmer Sikich LLP
Alexander Colwell Hawkins Ash CPAs LLP
Collin Horlamus Sikich LLP
Jillian Davenport Baker Tilly
David Howell Hawkins Ash CPAs LLP
Brennon Dick BDO USA LLP
Jacob Hoyer Sikich LLP
Carolyn Digman WEA Member Benefits
Nicholas Jalensky Harley-Davidson Inc.
Mallory Dillman Baker Tilly
Michael Jones RSM US LLP
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Charles Kase California State University, Bakersfield
Courtney Malloy Carthage College Patrick Malone Wipfli LLP Kimberly McNulty Adesys Juan Medina UW–Milwaukee Michelle Mermolia Waukesha County Technical College Hope Merry Ascendium Education Group Heather Mezera WB Holdings Michael Mills Sikich LLP Ryan Muzik Wipfli LLP Jordan Nettesheim Sikich LLP Jenny Nielsen Wisconsin Department of Justice
Erin Ong MGIC Investment Corp.
Mitchell Swanson UW–Milwaukee
Chloe Otto UW–Milwaukee
Deanna Theyerl Badger Mining Corp.
Anne Paikowski Froedtert Health
Mitchell Tordoff BDO USA LLP
Garvit Patel BDO USA LLP
Eric Trautman Hawkins Ash CPAs LLP
Krishna Patel Sikich LLP
Lee Troz BDO USA LLP
Robert Plack Sikich LLP
Karyn Tylicki Sikich LLP
Lynn Rhode Sikich LLP
Mariiana Tzotcheva RitzHolman CPAs
Tyler Ristow Sikich LLP
Cole Vale UW–Milwaukee
Kao Saepharn Sikich LLP
Olivia VanZeeland CLA
Sarah Scheuer CNA Insurance
Victoria Vastalo Bottom Line Consulting Midwest
Tracy Scholz AcquireX Allison Schultz RitzHolman CPAs Heather Schwei Sikich LLP Stefan Scoon Krones Inc. Taylor Seidel Schreiber Foods Inc. Jennifer Siegmann BDO USA LLP Eric Sippel Spectrum Brands Theresa Slavek Lakeland University Jacob Smith Baker Tilly Geralyn Sorenson BDO USA LLP Rachel Steinke Hawkins Ash CPAs LLP
Maureen O'Leary Willms-O'Leary S.C.
Christyn Stephens Chris Stephens Consulting
Kelly Oliver Hawkins Ash CPAs LLP
Jennifer Stingle Aflac
Jacqueline Onan Farm Aid Equipment Inc.
Braeden Sucharski Wipfli LLP
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Jessica Vieni Sikich LLP Cody Vondrum Velvac Jordan Vorlob Sikich LLP Miranda White UW–Milwaukee Phillip Whitehead Blackhawk Bank Nicole Williams Sikich LLP Nicole Wiske UW–Milwaukee Connie Wislinsky CESA 10 Philip Wittliff Snap-on Inc. Wade Wolff Deloitte & Touche LLP Jill Wrensch Hawkins Ash CPAs LLP Chevon Young House of Harley-Davidson William Zeitler Sikich LLP Brittany Zeske Robert W. Baird & Co. Inc.
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{ Financial Planning | IRA Distributions }
The New 10-Year IRA Distribution Rule Planning strategies post-SECURE Act
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or tax planning purposes, the key change made by the SECURE Act is a new 10-year rule for distributions from most nonspousal inherited IRAs.1 All distributions from these accounts must now be distributed to beneficiaries within 10 years after the IRA owner dies. This By Robert S. eliminates the “stretch IRA,” which Keebler, CPA/PFS, allowed nonspousal beneficiaries to MST, CGMA stretch out distributions over their lifetimes. A young beneficiary could be named, allowing the account assets to grow at their pretax rate of return for a long period of time. For beneficiaries who didn’t need the money, stretch IRAs could be used as an
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inheritance vehicle to accumulate large amounts for future generations of the family. In this article we will suggest some strategies that IRA owners with large IRAs might use to maximize the wealth that can be accumulated from their IRAs for their families, following enactment of the SECURE Act. These strategies include (1) charitable remainder trusts, (2) Roth IRA conversions, (3) IRC Section 678 trusts, (4) multigenerational accumulation trusts and (5) life insurance.
Charitable remainder trust (CRT) as IRA beneficiary The stretch IRA was the ideal method for maximizing the time during which IRA assets could grow tax-free for nonspouse beneficiaries. Although the SECURE Act eliminated this strategy, its long tax deferral period can still
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be replicated to a large extent by transferring IRA assets to a charitable remainder trust (CRAT or CRUT). Spreading out distributions If a CRT is named the beneficiary of a traditional IRA, there is no tax when the funds in the IRA are distributed to the charitable trust. Tax is payable only when the beneficiaries receive distributions from the CRT. These distributions can be spread out over a term of up to 20 years or for the life or lives of a named individual or individuals, creating a long deferral period.
Although accumulation trusts increase costs and add complexity, they also create important nontax advantages for a family.
Charitable intent IRC Sections 664(d)(1)(D) and 664(d)(2)(D) require that the present value of the charitable remainder interest must be at least 10% of the initial value of the trust assets. Thus, charitable intent is generally necessary to make this strategy work.
Multigenerational accumulation trusts If an accumulation trust is named the beneficiary of an IRA, all the IRA funds would have to be paid to the trust by the end of the 10-year period, but the trustee would have the discretion to decide how much, if any, to pay to the beneficiaries and how much to keep in the trust. Although accumulation trusts increase costs and add complexity, they also create important nontax advantages for a family. They limit beneficiary access to funds, protect assets from creditors, provide professional management of trust assets and may enable the trustee to manage tax brackets. They may also provide divorce protection and dead-hand control and facilitate estate planning and planning for special-needs beneficiaries. The trust would be structured as a spray trust, naming a broad group of family members as beneficiaries and spraying distributions across the group according to instructions provided by the grantor to the trustee. These beneficiaries could include more than one generation of the IRA owner’s family. This would give the family the flexibility to vary the amount distributed to minimize income tax obligations. Thus, a spray trust could be used to combine the tax benefits of low tax rates with the nontax advantages of an accumulation trust. (The “kiddie” tax must be included in the analysis.)
SECURE Act strategies — Section 678 trust As noted above, accumulation trusts can provide important nontax benefits for a family. To get these advantages, however, the assets must stay in the trust instead of being distributed to the trust beneficiaries. Unfortunately, any amounts retained in the trusts would
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ordinarily be taxed at the high-trust tax rates. For 2020, all trust income above $12,950 is taxed at the top individual income tax rate of 37%. By contrast, if the required minimum distributions (RMDs) are distributed to the trust beneficiaries, they will be taxed at the beneficiaries’ individual tax rates, which might be substantially lower. Under IRC Section 678, a person other than the trust’s grantor is treated as the owner of a trust if that person is given a power to withdraw trust assets without the consent of any other person. If a trust beneficiary is treated as the owner of a trust under Section 678, all items of income, deductions and credits against tax of the trust would be reported on the beneficiary’s Form 1040 instead of on the trust’s tax return. This would enable the trust to retain and accumulate the RMDs in the trust without paying the high-trust rates. The family of the IRA owner would get the best of both worlds: the advantages of leaving the assets in the trust with the lower tax rates of the individual beneficiaries.
Life insurance IRA owners who don’t need the RMDs they receive from their IRAs may be able to increase the amounts accumulated for heirs by using some or all of the distributions they receive from the IRA to buy life insurance. The proceeds of the policy would be paid income-tax-free to the beneficiary’s heirs or to a trust for their benefit. An investment in life insurance has two advantages over a taxable investment. First, assuming that the contract meets the definition of life insurance, there is no tax on the buildup of the policy’s cash surrender value. Moreover, there is generally no income tax payable when the insured dies. Thus, as a general rule, the insurance proceeds are never subject to income tax. On the other hand, a taxable investment will generally produce a higher pre-tax return because the insurance
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{ Financial Planning | IRA Distributions }
company has to make a profit, pay commissions and cover overhead. Thus, whether investing distributions in life insurance will be a favorable strategy depends on whether its tax advantages outweigh the lower pre-tax return. This will depend in large part on how long the insured lives.
Roth IRA conversions An important advantage of a Roth IRA is that there are no RMDs. This enables the entire value of the IRA to grow tax-free until the beneficiary’s death, facilitating accumulation of wealth for the family. If the beneficiary doesn’t need distributions, the Roth IRA could be viewed more as a wealth transfer tool than as a retirement income vehicle. Roth IRA conversion vs. other strategies A Roth conversion has important advantages over other potential strategies. Investing traditional IRA assets in life insurance would provide continued tax-free growth, but returns inside the policy would typically be lower than returns inside the Roth IRA. Moreover, there is less mortality risk with the Roth IRA. If the beneficiary lived well beyond life expectancy,
life insurance would prove to be a less desirable investment. On the other hand, if the beneficiary died early, investing IRA funds in life insurance would prove to be the best strategy for passing wealth on to heirs. An advantage of a Roth conversion over a transfer to a CRT is that there is no need to transfer 10% of the value to charity. The full value can go to heirs. The advantage of transferring the IRA assets to an irrevocable nongrantor trust would be that distributions to beneficiaries could be spread out and state income tax could be avoided. The Roth IRA could avoid not only state income tax, but also federal income tax. An exception is made for “eligible designated beneficiaries.” These include beneficiaries who are disabled, chronically ill or less than 10 years younger than the IRA owner and minor children of an IRA owner. 1
Robert S. Keebler, CPA/PFS, MST, CGMA, is a partner with Keebler & Associates LLP, Green Bay, and the current chairman of the AICPA Advanced Estate Planning Conference. Contact him at 920-593-1701 or Robert.Keebler@KeeblerandAssocates.com.
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Your Top Clients Need a Fiduciary Advisor. Helping you add value after tax time. Call 262-814-1600 to learn more. www.ShakespeareWM.com | info@ShakespeareWM.com
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RESOLVING TAX CHALLENGES The Tax Section of von Briesen & Roper, s.c. has the knowledge and experience to resolve federal, state and local tax controversies. Whether providing tax assistance to businesses, business owners or individuals, we are your resource. Our experience allows us to handle all aspects of tax challenges including complex audits and audit support, administrative appeals, the courts and tax collection. The bottom line? We get results. To learn more about our Tax Section, please contact Robert Mathers, Tax Section Chair, at rmathers@vonbriesen.com.
vonbriesen.com/tax wicpa.org
Milwaukee • Madison • Waukesha • Oshkosh On Balance Green Bay • Appleton • Neenah
May | June 2020
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Accounting Career Awareness in the Classroom
W
isconsin high school accounting and business teachers who attended the High School Educators Accounting Symposium on Nov. 15, 2019, were eligible to apply for an Accounting Career Awareness Grant from the WICPA Educational Foundation. Nearly $45,000 in educator grants was awarded to 32 high school accounting and business teachers for classroom accounting projects in 2020. Many of the projects involve multiple teachers, administrators, college or technical school faculty, and CPAs. The WICPA Educational Foundation congratulates these educators and thanks them for cultivating the accounting profession in their classrooms. Following are the grant recipients and their projects: Kathryn Beres, Shawano Community High School, for a tour of Schneider National Inc. to learn about the accounting aspects of the trucking industry and participation in Green & Gold Career Day in Green Bay to learn about the accounting aspects of the professional sports industry. Nicole Berning, Big Foot High School, for participation in Lakeland University’s Forensic Accounting Competition and UW-Whitewater’s Explore Accounting Day and tours of Deloitte and Fay Servicing LLC to learn about careers in public accounting and corporate accounting.
Karen Eslinger, Stanley-Boyd High School, for tours of Culver’s corporate headquarters and Camp Randall Stadium to learn about differences between corporate and sporting industry accounting.
Mark Bichler, Port Washington High School, for participation in DECA district and state competitions and conferences and tours of Ernst & Young, UW-Milwaukee and Arandell Corporation to learn about the various accounting aspects among different industries.
Stacey Gardiner, Iowa-Grant High School, for tours of UW-La Crosse, Mayo Clinic Heath System and the La Crosse Loggers business office to learn about the various accounting aspects among different industries.
Sara Burling and Lisa Kiefer, Menomonee Falls High School, for tours of public accounting firms PwC and KPMG and equipment manufacturer Rockwell Automation Inc. to witness accounting processes in both the public and corporate accounting environments.
Samantha Goss, Fennimore High School, for tours of MBE CPAs, Kalahari Resorts and Outlets at The Dells to explore accounting careers in public accounting and the entertainment industry.
Tina Dilley, River Ridge High School, for tours of Wipfli LLP, Miller Park, Marquette University and Palermo’s Pizza to learn about accounting careers in different areas of the profession. Teresa Duda, Waupaca High School, for board games to provide classroom simulations of how accounting is involved in lifelike scenarios.
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David Haas, DeForest Area High School, for tours of Miller Park and Fiserv Forum to learn about accounting careers in the professional sports industry. Nicholas Heiting, Wauwatosa West High School, for tours of Ernst & Young and the UW-Milwaukee Panther Arena to learn about accounting careers in public accounting and the professional sports industry.
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Judy Holappa, Mayville High School, for tours of PwC and participation in UW-Whitewater’s Explore Accounting Day, UW-Oshkosh’s Titans Are Accountants Day and Green & Gold Career Day to learn about the journey from high school to the professional accounting world. Heidi Hubatch, Viroqua High School, for participation in Lakeland University’s Forensic Accounting Competition and UW-Whitewater’s Explore Accounting Day. Scott Hubatch, North Crawford High School, for participation in Lakeland University’s Forensic Accounting Competition and UW-Whitewater’s Explore Accounting Day. Stephanie Jahnke, Mosinee High School, for tours of UW-Madison, Epic Systems and Wipfli LLP to learn about and explore the various accounting aspects among different industries. Dawn Jameson, Wausau West High School, for participation in hands-on accounting case simulations at the Milwaukee Bucks business office and a tour of Peoples State Bank to learn about accounting careers in the banking industry.
Cheryl Muscha, Wittenberg-Birnamwood High School, for participation in Green & Gold Career Day and tours of Wipfli LLP and Wausau on Water restaurant to learn about accounting careers in public accounting and the hospitality industry. Teresa O’Dell, Sheboygan North High School, for participation in Lakeland University’s Forensic Accounting Competition.
Cynthia Jensen, Cambridge High School, for tours of Epic Systems and the Kohl Center to learn about accounting careers in corporate accounting and the sports industry.
Brandon Miles and Deb O’Leary, Craig High School, for participation in UW-Whitewater’s Explore Accounting Day and tours of Epic Systems and Sky Zone Trampoline Park to learn about corporate and entrepreneurial accounting.
Amber Laska, Hortonville High School, for participation in UW-Oshkosh’s Titans Are Accountants Day and to tour KPMG, the Milwaukee County Zoo and IKEA to consider the various accounting aspects among different industries.
Laura Olson, Edgerton High School, for participation in UW-Whitewater’s Explore Accounting Day and tours of Buffalo Wild Wings, Baker Tilly and LeMans Corp. to explore the various accounting aspects among different industries.
Deborah Leising, East Troy High School, for a dining etiquette workshop with CPAs to gain experience about various accounting career paths and learn how to be professionally presentable.
Richard Schuh, Parker High School, for participation in UW-Whitewater’s Explore Accounting Day and tours of Data Dimensions, Kalahari Resort and Moosejaw Pizza & Dells Brewing Co. to learn about the various accounting aspects among different industries.
Zachary Lynn, Potosi High School, for tours of Wipfli LLP and Epic Systems to learn about accounting careers in public accounting and corporate accounting. Tammy Makovec, Verona Area High School, for tours of Fiserv Forum, Miller Park, Deloitte and UW-Milwaukee Lubar School of Business to learn about accounting careers in different areas of the profession. Becky Marquardt, New London High School, for participation in a UW-Green Bay intermediate accounting class and for tours of Wipfli LLP and Associated Bank to learn about accounting careers in public accounting and the banking industry. Amy McCutchen, Holmen High School, for tours of Poppy CPA and Moosejaw Pizza & Dells Brewing Co. to learn about accounting careers in public accounting and the hospitality industry. Christina Mitchell, Iola-Scandinavia High School, for participation in UW-Oshkosh’s Titans Are Accountants Day and Finance and Investment Challenge Bowl and for tours of Wipfli LLP and an Amazon warehouse to learn about accounting careers in different areas of the profession.
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Elizabeth Tillema, Oconomowoc High School, for participation in Lakeland University’s Forensic Accounting Competition and Green & Gold Career Day in Green Bay and for tours of Baker Tilly and Madison Mallards to learn about accounting careers in public accounting and the sporting industry. Sharon Steinke, Osseo-Fairchild High School, for tours of Kalahari Resorts and Epic Systems to learn about differences between corporate and hospitality industry accounting. June Winkel, Plymouth High School, for participation in Lakeland University’s Forensic Accounting Competition and tours of Wipfli LLP, the Kohl Center and Epic Systems to learn about accounting careers in different areas of the profession. For more information how your organization can be included in the selection of high school accounting awareness activities, please contact Tammy Hofstede at tammy@wicpa.org. If you’d like to learn more or make a contribution to support this program and other similar activities, visit wicpa.org/EdFund.
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{ Technology | Data Security }
Multi-Factor Authentication: a necessity in today’s world
F
rom the perspective of data security, today’s world is an extremely dangerous one. It is hard to go a single day without hearing about yet another data breach, a phishing incident or some other form of security nightmare. Yet virtually all of us have a simple and highly effective By Thomas G. security option available in the Stephens, Jr., form of multi-factor authentication CPA, CITP, CGMA (MFA). In this article, we explore MFA and how and why you should implement it to improve the security of your data and reduce the likelihood that you will become yet another victim.
What is multi-factor authentication? MFA is a security protocol that requires you to log in (authenticate) to a website or application by using more than just your username and password. With MFA in place, you
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authenticate to a website or other application by using at least two of three of the following: 1. Something you know, such as a username/password combination. 2. Personal characteristics, such as a fingerprint, retina scan or facial recognition. 3. An item that you have in your physical possession, such as a key fob or a smartphone. A common form of MFA in use today begins by entering a username/password combination to log in to a website. Upon doing so, the user receives a numeric code on their smartphone and then enters that code into the website to complete the process of authentication. The advantage to MFA in this scenario is that someone attempting to hack their way into the user’s website would not only need to know the username/password combination, but they would also need to have the user’s smartphone in their physical possession in order to receive the text message that completes the authentication process. While this is not an
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website (assuming this feature is offered by their bank) by modifying their settings on the site. Notably, virtually all websites, applications and services through which sensitive information can be accessed offer some form of MFA today.
What should I do if multi-factor authentication is not available?
impossible scenario, it is a far less likely one than the hacker knowing only the user’s username/password combination. As a result, the risk of the hacker accessing the user’s account is diminished significantly.
Which apps and services offer multi-factor authentication? Maybe a better question is “Which ones don’t offer MFA?” because virtually all websites and applications that provide access to sensitive data today offer it in some form. For example, most banking and other financial websites support MFA as a means of making it more difficult for a hacker to gain unauthorized access to an account. Similarly, many accounting applications — both Cloud-based and desktop/ server-based — also offer MFA as a means of providing advanced security for the information stored in the database. Many mobile apps also offer MFA as a means of enhancing security. Even Windows 10 offers MFA as a security option through its “Windows Hello” feature. With this tool, users can log in using traditional username/ password combinations, PIN codes, fingerprint scans or facial recognition — or some combination of these factors. Further, Windows 10 allows users to pair their Bluetoothenabled smartphones to their computers so that if the smartphone is out of range of the PC, the PC automatically enters Device Lock status.
How do I activate multi-factor authentication? The process for enabling MFA will depend upon the application or service in question. However, in general it will be necessary for a user with administrative rights or privileges to activate MFA for an application or service in use by a business. For example, an Office 365 administrative user can enable MFA for a single Office 365 user or for all users in an organization. On the other hand, an individual user can enable MFA on their banking
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If a website, service or application that you use does not offer MFA, you should contact the publisher or provider to ensure that MFA is, indeed, not available. If it’s not available and you are committed to continuing to use that website, service or application, then you should ensure that you adhere to the principles of strong passwords, which include the following: • Passwords should be at least 12 alphanumeric characters in length. • Never write your passwords down or share them with anyone. • Change your passwords immediately if you suspect they may have been compromised. • Use a separate password for each website, service or application you access. From a practical perspective, most individuals simply cannot comply with the guidelines outlined above; to that end, password management tools such as Roboform, LastPass, KeePass, Dashlane and Zoho should be used to help manage passwords. Remember, if the websites, applications and services you use do not support MFA, the security of your sensitive data will be determined almost solely by the strength and security of your passwords. This is not a time to be lax with your passwords!
Summary Data security is a top-of-mind concern for all business professionals today. Yet, all too often professionals do not take advantage of the tools that are available to them — such as multi-factor authentication — that can strengthen data security. To the extent that you have access to MFA, ensure that you activate this feature everywhere so that you will reduce the chances of becoming yet another victim of a data breach. Remember, cyber criminals are always looking for the path of least resistance; and enabling MFA will make that path more difficult, if not impossible, for them to travel in order to steal your data. Thomas G. Stevens, Jr., CPA, CITP, CGMA, is a shareholder in K2 Enterprises (www.k2e.com), where he focuses on creating and delivering content and is responsible for many of the firm's management functions. Contact him at tommy@k2e.com.
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memorials Wayne W. Demuth, CPA (1940 – 2020)
Wayne W. Demuth, CPA, age 79, passed away on Monday, Feb. 24. A graduate of Loyal High School, Demuth enlisted in the United States Army after graduation. Following his service, he earned a bachelor’s degree in accounting from UW–Madison. Demuth worked as a CPA for Smith, Demuth & Black in Lake Geneva. He volunteered at FHN Memorial Hospital in Freeport, Illinois, and voluntarily prepared taxes at the community’s Senior Resource Center. He was a member of Faith United Methodist Church in Freeport; the Harvard, Illinois, Moose Lodge; and the Lake Geneva Kiwanis Club. Demuth is survived by his three children, six grandchildren, and other relatives and friends.
Thomas R. Shannon, CPA (1960 – 2020)
Thomas R. Shannon, CPA, passed away at the age of 60 on Wednesday, March 11, after a three-month battle with cancer. Born in Portage, Tom grew up in Pardeeville and graduated from Pardeeville High School in 1978. He attended UW–Eau Claire and earned his bachelor’s degree in business in 1982. After graduating, he attained his CPA designation and worked for Bauman Associates CPAs & Advisors. In 1987, he was hired by John Deere Financial and served as a compliance officer there for 33 years. Tom was an active member of St. Olaf ’s Parish in DeForest for 30 years, serving as a eucharistic minister and a member of the environment committee. He is survived by his wife, Susan; a son and daughter; and many other loving family members.
Donald C. Wrobbel, CPA (1934 – 2019)
Donald (Don) Wrobbel, CPA, died Oct. 16, 2019, at the age of 85. Don was raised in Milwaukee and graduated from Messmer High School. After serving in the U.S. Army, he attended Concordia University and earned his degree in accounting. He was a partner with Ernst & Young (and its predecessors) in Milwaukee for nearly his entire career. Don was actively involved in recruitment and
had the privilege of assisting many college graduates launch their professional careers. During retirement, he and his wife spent winters at their home in Naples, Florida. Don is survived by his wife, Dolly; three children; and eight grandchildren. His son Scott is also a WICPA member and U.S. central region managing partner at Deloitte in Milwaukee.
Lee Austin Troz (1995 – 2020)
Lee Troz, assurance associate with BDO Madison, died unexpectedly on Sunday, Feb. 23, in Madison. He was 24. Troz earned both Bachelor of Business Administration and Master of Accountancy degrees from the University of Wisconsin–Madison and passed all four parts of the CPA Exam on the first try. He died before he could obtain CPA licensure. In addition to his accounting acumen, Troz was a talented artist and musician who lived life passionately and cared deeply about his friends and family. His death was a surprise to those close to him, and he will be deeply missed by those he left behind, including his parents, brother and sister-in-law, niece, grandfather, and numerous loving cousins, aunts, uncles and friends.
John William Knuteson, CPA, MBA, JD (1949 – 2020)
John Knuteson, CPA, MBA, JD, a Wind Point Municipal Judge and private practice attorney, died at home in Racine on Friday, April 3, of COVID-19. He was 70. Knuteson graduated from UW–Madison with a Bachelor of Business Administration degree in 1972 and from Marquette University Law School with a Juris Doctorate in 1975. In 1986, he earned his MBA. Knuteson served his community as a member and past president of the Racine Downtown Rotary and as a past Wind Point village president. He coached his childrens’ t-ball, soccer and basketball teams when they were young and was a lifelong avid fan of the Wisconsin Badgers, Milwaukee Bucks, Milwaukee Brewers, Green Bay Packers and Horlick Rebels. Knuteson is survived by his wife, Cathy; two daughters; one son; eight grandchildren and many other relatives and friends.
If you are aware of a member obituary and believe it should be included in Memorials, please send a copy of the obituary or contact Marcia Tillett-Zinzow at mtzinzow@icloud.com.
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STATEWIDE MEMBERS
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33
{ Federal Taxation | Estate Tax }
Estate Tax Returns for Nontaxable Estates After the Tax Cuts and Jobs Act of 2017
T
By Maureen L. O’Leary, JD and
he saying goes that nothing is certain except death and taxes. One might think that where these two concepts meet would be doubly assured (i.e., death = taxes). However, since the Taxpayer Relief Act of 1997, there has been a rising estate tax exemption and a corresponding trend away from estates having to file estate tax returns and pay estate taxes.
The estate tax exemption amount is the amount of assets (minus the value of lifetime gifts made by that person) that a person can give away free of estate tax at their death (other than transfers that qualify for a deduction, credit Peter J. Smiley, JD or exclusion). The Tax Cuts and Jobs Act of 2017 increased the estate tax exemption to $11.58 million per person as of 2020 (that’s over $23 million for a couple). In contrast, back in 1997 the estate tax exemption was only $600,000 per person. As a result, far fewer practitioners are filing estate tax returns today than they did 25 years ago. The exemption amount is scheduled to drop to approximately $6 million per person effective Jan. 1, 2026, when many of the tax cuts of the Tax Cuts and Jobs Act of 2017 are scheduled
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to expire, but $6 million is still 10 times greater than the exemption amount back in 1997. If the value of an estate is less than the decedent’s estate tax exemption amount, it is easy to assume no estate tax return needs to be filed. After all, the IRS instructions for Form 706 [United States Estate (and Generation-Skipping Transfer) Tax Return] require an estate to file an estate tax return only when a decedent’s taxable estate exceeds the exemption amount. With the exemption as high as it
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currently is, there are relatively few estates required to file estate tax returns. In fact, less than 1% of estates are expected to be required to file an estate tax return this year. However, just because an estate is not required to file an estate tax return does not mean that it isn’t still a good idea to file an estate tax return for other reasons. For example, regardless of the size of an estate, an estate tax return must be filed if an estate wants to elect portability (i.e., transfer a deceased spouse’s unused estate tax exemption to a surviving spouse). The only way
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to elect portability is to make the election on a timely filed estate tax return, regardless of whether the estate is otherwise required to file an estate tax return. Example: • Assume a married couple has a $5 million estate. • Husband dies in 2020 and does not use any of his estate tax exemption because he left all his assets to wife (a transfer that qualifies for the unlimited marital deduction).
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{ Federal Taxation | Estate Tax }
• Wife, the executor of Husband’s estate, files a timely estate tax return and elects portability. As a result, she receives Husband’s unused $11.58 million estate tax exemption amount that she can add to whatever her own estate tax exemption is in the year of her death. • Wife dies in 2030. If the estate tax exemption at that time is $4 million, then Wife’s estate tax exemption alone would not be enough to fully shelter a $5 million estate from estate tax. However, Wife’s $4 million exemption, when combined with the $11.58 million exemption from Husband ($15.8 million of total exemption), is plenty to avoid estate tax on the full $5 million estate, with room to spare for asset growth. In addition to electing portability, it can be worthwhile to file an estate tax return for other reasons. These include documenting the adjusted basis of inherited assets, documenting the allocation of generation-skipping transfer tax exemption, disclosing appraised values and documenting the total estate value at death (especially if the total estate value is anywhere close to the exemption amount). The next time you meet with a surviving spouse, consider not only whether an estate tax return is required to be filed, but whether it would be advisable to file one even if it is not required. Typically, an estate tax return is due within nine months of the decedent’s death (with a six-month extension to file available). However, if the only reason an estate tax return is being filed is to elect portability, then IRS Revenue Procedure 2017-34 grants an automatic extension to file until two years following the decedent’s death, provided the following apply: • The deceased was a U.S. citizen or resident. • The executor wasn’t otherwise required to file an estate tax return and didn’t file one by the deadline. • The executor files a complete and properly prepared estate
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tax return on Form 706 within two years of the date of death. • The following language appears at the top of the return: “FILED PURSUANT TO REV. PROC. 2017-34 TO ELECT PORTABILITY UNDER §2010(c)(5)(A).” Unfortunately, some surviving spouses do not consult with a tax professional in time to be advised of the nine-month estate tax filing deadline. Hopefully, the extension of the deadline until two years after the death will allow more surviving spouses the opportunity to elect portability, should they choose to do so. When you meet with a client after their spouse dies, consider including on the meeting agenda a discussion of whether or not to file an estate tax return. That way, if the client decides not to file an estate tax return, they have made an informed decision. If a client chooses not to file an estate tax return (and therefore, chooses not to make a portability election), it is also a good practice for the client to sign a statement indicating that they have considered whether to make a portability election and chosen not to do so. Are some estates too small to consider making a portability election? Perhaps. Some clients believe their own estate tax exemption will exceed their estate value at the time of their death, regardless of how low the estate tax exemption might drop during their lifetime. This may be true. However, no one ever knows how large their estate may grow or how low the estate tax exemption may drop. After all, anyone can win the lottery! Maureen L. O’Leary, JD, is the owner of Willms-O’Leary S.C., a trust, estate, tax and business law firm in Thiensville. Contact her at moleary@wolawoffice.com. Peter J. Smiley, JD, is an attorney at Willms-O’Leary S.C. and focuses his practice on income tax and estate planning issues. Contact him at psmiley@wolawoffice.com.
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Investment advice offered through Spectrum Investment Advisors, a registered investment advisor. Registration with the SEC does not imply a certain level of skill or training. Spectrum has been named to the 2019 Future 50 list presented by the Metropolitan Milwaukee Association of Commerce (MMAC) and its Council of Small Business Executives (COSBE). The Future 50 program recognizes 50 companies in the seven-county Milwaukee Region that have been experiencing strong growth in both revenue and employment. To qualify for the award a company must be headquartered in the seven-county Milwaukee Region, independently owned and in business for at least three years. Spectrum was selected as a winner for 2019 Ozaukee Economic Development Business of the Year in the medium category. Winners were selected by the Business Development Committee, made up of business and government leaders throughout Ozaukee County, at Ozaukee Economic Development. The program recognizes companies that have seen significant business and job growth over the past five years and are strong community partners.
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37
{ Human Resources | Retirement Plans }
Retirement Plans and the SECURE Act: What employers need to know
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T
he SECURE Act (Setting Every Community Up for Retirement Enhancement), signed into law on Dec. 20, 2019, makes it easier for employers to offer a retirement benefit, improves plan design and operation and affords By Joseph Topp, participants more options and CPA flexibility. While the SECURE Act contains over 30 provisions, employers should focus on specific provisions that affect group benefit plans or enhance current offerings. The act’s provisions have various effective dates, some immediate and others delayed to as late as 2022.
Expanding access of employer-sponsored plans The act has several provisions intended to encourage organizations to implement a participant-directed retirement plan benefit for their employees and expand eligibility to participate. We detail four of these major provisions here. Pooled Employer Plans (Open Multiple Employer Plans) – effective for plan years after Dec. 31, 2020 This provision expands the existing Multiple Employer Plan provisions in an effort to simplify small employers collaborating in the formation of a single plan. Two or more unrelated employers may join together and offer their employees the benefits of participation in an employersponsored retirement benefit. When considering this provision, it’s important to understand the following: • Multiple Employer Plans (MEPs) can exist two ways – under current regulatory guidance or via a Pooled Employer Plan (PEP). • A PEP covers two or more unrelated employers that do not meet the regulatory commonality requirements of a traditional MEP and is sponsored by a Pooled Plan Provider (PPP). • The PPP must include a named fiduciary, the plan administrator and the party responsible for all administrative duties. • The act eliminates the “one bad apple” rule, which hindered the attractiveness for multiple employers to band together in offering a retirement plan.
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“
The SECURE Act makes it easier for employers to offer a retirement benefit, improves plan design and operation and affords participants more options and flexibility. Increased tax credits for small employer start-up plans – effective tax years after 2019 This provision increases the tax credits for start-up expenses paid in the establishment or administration of a new plan, including 401(k), 403(b), SIMPLE IRA and SEP-IRA. The following points summarize the changes: • Credits increase to the greater of 1) $500 or 2) the lesser of $250 times the number of employees eligible for participation, capped at $5,000. • Solo plans are not eligible for the credit. • An additional $500 credit applies to plans with an automatic enrollment feature. • Credits apply for up to three years. • A small employer is defined as one with no more than 100 eligible employees (excluding highly compensated employees) who received at least $5,000 in compensation in the preceding tax year. Long-term part-time employees – effective plan years after Dec. 31, 2020 This provision requires employers to allow part-time employees to make deferrals into their employer’s plan if they work at least 500 hours per year for three consecutive years, beginning January 2021. For employers, it’s important to note the following: • These employees can be disregarded for testing and top-heavy purposes. • These employees can be excluded from matching dollars and nonelective contributions from the employer. • This rule does not apply to collectively bargained plans.
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{ Human Resources | Retirement Plans }
Consolidated 5500 reporting – effective plan years after Dec. 31, 2021 This directs the IRS and the U.S. Department of Labor to effectuate the filing of a consolidated Form 5500 for similar plans. For plans to be eligible for consolidated filing, they must be defined-contribution plans with the same trustee, the same fiduciary (or named fiduciaries) under ERISA and the same administrator. Additionally, plans must use identical plan years and investment options offered to participants and beneficiaries.
Revenue-generating provisions It seems that no sweeping reform could pass without some impact on revenue collection. The act provides for the following increases in penalties for untimely filing: • Form 5500: The IRS penalty for late filing increased from $25 per day and a maximum fine of $15,000 to $250 per day and a maximum fine of $150,000. • Form 8955-SSA: The IRS penalty for failure to file increased from $1 per day and a maximum fine of $1,000 to $10 per participant per day to a maximum fine of $50,000.
Lifetime income investment options The act will likely lead to increased utilization of income annuity products in qualified plans, as there is added protection for plan fiduciaries and increased portability for participants. Safe harbor for the selection of a guaranteed retirement income annuity provider – effective immediately Effective immediately, this provision provides safe harbor protections for plan sponsors in the selection and monitoring of a guaranteed income annuity product offered as an investment alternative in their defined-contribution plan. The safe harbor would protect plan fiduciaries from liability for any losses that may result to the participant due to an insurer’s inability to satisfy its financial obligations under the terms of the contract. The following safe harbor protections are now allowed in the selection of a lifetime income provider: • Defined-contribution plan fiduciaries may rely on written representations from insurers regarding their status under state insurance law for purposes of considering the insurers’ financial capabilities.
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• A fiduciary is not required to select the lowest-cost contract but may consider the value provided by other features and benefits and attributes of the insurer. • Fiduciaries are not required to review the appropriateness of a selection after the purchase of a contract for a participant or beneficiary. • In general, fiduciaries would be deemed to have conducted a periodic review if the fiduciary obtains certain written representations from the insurer on an annual basis. While the provisions outlined here are especially relevant to employers, the SECURE Act is comprehensive legislation. We would encourage you to contact your plan recordkeeper as well as your plan advisor and legal and tax counsel to explore your options in implementing or amending your plan offering. Many provisions of the act require further guidance from regulators, which means you still have plenty of time to evaluate this comprehensive legislation and identify what works best for your organization.
Joseph Topp, CPA, is a principal and vice president – investment consulting services at Francis Investment Counsel LLC in Brookfield. Contact him at 262-781-8950 or joseph.topp@francisinvco.com.
wicpa.org
New date & location!
Friday, Oct. 16 at 5 p.m. Milwaukee Marriott West, Waukesha Join us for the WICPA’s signature event of the year to: • Recognize membership milestones.
• Present the 2020 Excellence Awards.
• Elect the 2020–2021 Board of Directors.
• Enjoy dinner, drinks and networking.
Complimentary for WICPA members. Registration is required to attend.
For more information and details, visit wicpa.org/banquet.
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