July 2014 Newsletter
June 30th: Hanging out on the Gulkana River; too bad it rainted for 48 hours straight after this.
President's Message
Lance Bodeen, CPA
Each state has autonomy in making its own laws governing public accountancy and becoming a CPA. It has been more than a few years since the State of Alaska adopted the AICPA-NASBA Uniform Accountancy Act and passed substantial equivalency legislation in this State to align with the other 54 State/Territory Jurisdictions in mobility of the Practice of Public Accounting. The Uniform Accountancy Act is now on its 7th Edition as of May 2014. (http://www.aicpa.org/advocacy/state/downloadabledocuments/uaaseventhedition.pdf).
The advancement in technology and the way our clients do business continues to evolve the way we practice public accounting. . In order to meet the needs of our clients today is different than even a few years ago. We are in a global marketplace and need the ability to cross State/Territory Borders without worrying about the ability to practice public accounting.
The Alaska State Board of Accountancy is looking to identify how it can assist our CPAs in performing public accounting in today’s marketplace. One item of interest is the process of becoming a CPA in the State of Alaska versus other U.S. Jurisdictions.
There are three distinct requirements that need to be met to become a CPA in the State of Alaska.
- Pass the Uniform Certified Public Accountant Examination
- Meet the appropriate Education Requirements
- Meet the appropriate Experience Requirements
The State of Alaska is consistent with the other United States Jurisdictions on Requirements #1 and #2.
Alaska is one of only a handful (5, I do believe) of U.S. Jurisdictions that requires more than one year of experience and a minimum number of attest hours to obtain licensure in order to meet its Experience Requirements.
The Alaska Society has been asked to review the experience requirements to see what can be done to align the State of Alaska Regulations (http://commerce.alaska.gov/dnn/portals/5/pub/CPARegulations.pdf) with the other U.S. Jurisdictions. Recommendations on any changes to the experience requirements from the Alaska Society will go to the State Board of Accountancy.
This is a very exciting time to be practicing public accounting. As we have clients that cross many State and Territorial Jurisdictions, the more that can be done to protect us as CPAs in performing services, the better we can serve the public.
Please look for future correspondence on this issue and enjoy your July.
Thank you.
Theresa Harris, Kelly Ward, Thomas Huling,Sarah Villalon and Rosny Rizk
“Awareness. Incredible. Inspiring. Motivating. Opportunity.”
~ Academy Participants
AKCPA Inaugural Leadership Academy
The Society’s first Leadership Academy, AkLA, kicked off with an opening reception on Sunday, June 1, at the Glacier Brewhouse in Anchorage. Good food and fun conversation was a great way for the participants to reunite and meet the presenters, Donna Salter from the AICPA and Donny Shimamoto from Intraprise TechKnowlogies. Irina Morozova, one of the members of the AKCPA Board of Directors, joined us. For the next two days, the participants went through numerous sessions, including team and leadership challenges; self-analysis; exercises to overcome glossophobia; crucial conversations; and a workshop for creating an AKCPA Young CPA Network.
On Tuesday, several CPAs joined us for a luncheon and roundtable discussion. It was so exciting to see the participants interact with some of the CPAs who have contributed much to our Society. I would like to thank Lance Bodeen, Cindy Coulter, Cathleen Hahn, Josh McIntyre, and Dean Nelson for giving their time and having lunch with us.
As part of their involvement in AkLA, the participants are working on a project they picked – creating a sustainable Young CPA Network for the Society. Their enthusiasm and desire for this project is contagious and I am thrilled to work with them on this crucial piece of the Society’s future. Please stay tuned for more information in future newsletters and emails.
At the closing session, the participants were asked to describe their experience in one word - “Awareness. Incredible. Inspiring. Motivating. Opportunity.” I hope that you find these words as exciting and encouraging as I do as the Society looks forward to its next 50 years.
“The AkLA was an inspiring experience. I left having learned a lot more about myself and with skills and an awareness I am eager to incorporate personally and professionally.”~Kelly Ward
“The Academy helped me understand and learn that regardless of your awareness we are all leaders in our own way, personally and/or professionally.”~Sarah Villalon
Donna Salter, Theresa Harris, Kelly Ward, Thomas Huling, Sarah Villalon, Rosny Rizk and Donny Shimamoto
June 3, 2014
Alaska Practitioner Liaison Meeting
Virtual Meeting via WebInterpoint
Attendees:
Internal Revenue Service
- Kristen Hoiby, NW Area Manager, Stakeholder Liaison
- Mike Cvitkovic, Stakeholder Liaison
- Kris Ashley, W&I, SPEC Senior Consultant
- Kristia Douts, Local Taxpayer Advocate
- Alicia Eyler, SBSE Counsel
- Therese Fulton, W&I, Taxpayer Assistance Center Manager
- Sonia Oen, SBSE Examination Group Manager
- Julie Payne, SBSE Associate Area Counsel Managing Counsel
- John Williamson, SBSE Collection Group Manager
Practitioner Representatives
- Therese Sharp, Chair, ASCPA,AlaskaSociety of CPAs
- Karen Ague, ASCPA
- Cynthia Coulter, ASCPA
- Shelda Duff, ASCPA
- Tom Hartshorn, ASCPA
- Robert Rehfeld, ASCPA
- John Rodgers, ASCPA
- Lisa Rogers, ASCPA
- Chuck Schuetze,ABA,AlaskaBar Association
- Christy Lee,ABA
- Paula Laurion, EA,AlaskaSociety of Independent Accountants
- Barbara Hompesch, EA,ASIA
- Kathie Riley, EA, ASIA
- Sherry Whah, EA, National Association of Tax Professionals
Meeting Summary
Mike Cvitkovic, Stakeholder Liaison, Seattle
Mike announced that his travel to Anchorage for this fall’s Alaska Tax Practitioner Symposium and Practitioner Liaison Meeting has been approved. He stated the need for a phone call with the ASIA planning group to set a date, secure a location, and discuss event arrangements. He asked that PLM attendees consider preference for a virtual PLM or an in-person PLM (typically the day after the Symposium).
Monday, June 16th is the upcoming due date for taxpayers abroad who qualify for an automatic two-month filing extension on Form 1040. The deadline applies to U.S. citizens and resident aliens living overseas, or serving in the military outside the U.S. on the regular April 15 due date. Taxpayers must attach a statement to their tax return explaining which of these two situations applies. Taxpayers who cannot meet the June 16 deadline can get an automatic extension until Oct. 15, 2014. When submitting Form 4868 be sure to check box 8.
The next due date to remember is the Report of Foreign Bank and Financial Accounts (FBAR). U.S. persons with foreign accounts whose aggregate value exceeded $10,000 at any time during 2013 must file with the Treasury Department a Financial Crimes Enforcement Network (FinCEN) Form 114. Form 114, which replaces the now obsolete TD F 90-22.1, is due to the Treasury Department by Monday, June 30, must be filed electronically, and is only available online through the BSA E-Filing System website. This due date cannot be extended and tax extensions do not extend the FBAR filing due date. For details on FBAR requirements, see Report of Foreign Bank and Financial Accounts (FBAR).
IRS is now well into the 2014 Service Approach. IRS tries to balance anticipated customer service needs against available resources to determine the right mix of technology and employees to meet taxpayer needs in the most effective and efficient way. Given the resources available at the start of filing season in combination with shifting taxpayer demands, the IRS announced a number of taxpayer service changes. These changes reflect the need for increased use of automated self-service options. One example is the new “Get Transcript” Service. This allows individual taxpayers to instantly view and print a copy of their tax transcripts all in one online session. Publication 5136 provides a listing of self-service options.
The newest self-service online tool is IRS Direct Pay. This web-based system lets taxpayers pay their tax bills or make estimated tax payments directly from checking or savings accounts without any fees or pre-registration.
Qualified tax professional who have a Form 8821, Tax Information Authorization, on file may now request a client’s account transcript using the Transcript Delivery System (TDS). Form 8821 must be on file with the Centralized Authorization File (CAF) naming the individual, not the individual’s business, as the appointee for the client. TDS transcripts can be requested if either Form 8821 or Form 2848 is on file with the CAF.
Exempt Organizations that have had their tax-exempt status automatically revoked for not filing required 990 series returns may apply for reinstatement. Revenue Procedure 2014-11 provides four options for applying for reinstatement and explains how the new procedures apply to pending and recently approved applications. For more information see Automatic Revocation - How to Have Your Tax-Exempt Status Retroactively Reinstated
The draft Form 1023-EZ, "Streamlined Application for Recognition of Exemption Under Section 501(c)(3) of the Internal Revenue Code," announced in the Federal Register March 31, is a shorter and less burdensome version of the Form 1023. Most small exempt organizations will be eligible to use the Form 1023 EZ. The IRS expects the Form 1023-EZ to be in use by eligible organizations this summer.
Virtual Currency is treated as property for U.S. federal tax purposes. General tax principles that apply to property transactions apply to transactions using virtual currency. Notice 2014-21 provides answers to frequently asked questions (FAQs) on virtual currency, such as bitcoin. These FAQs provide basic information on the U.S. federal tax implications of transactions in, or transactions that use, virtual currency.
The Affordable Care Act (ACA) tax provisions that went into effect this year will occupy a lot of time as the year moves forward. Publication 5120 explains the Premium Tax Credit. Publication 5152 discusses how changes in the Marketplace can impact tax credits. Publication 5156 provides information on the Individual Shared Responsibility Provision. To stay current on ACA visit the Affordable Care Act Tax Provisions Home Page on IRS.gov which provides complete information on the tax provisions included in the law. Three topics are shown – Individuals & Families, Employers, and Other Organizations.
Employers often outsource some of their payroll and related tax duties to third-party payroll service providers, who administer payroll and report, collect and deposit employment taxes. However, employers are ultimately responsible for the payment of payroll taxes. To allow employers oversight, when payroll service providers enroll clients in the Electronic Federal Tax Payment System, the IRS will automatically send an Inquiry PIN to the employer’s IRS address of record. Employers who have had activity on their EFTPS account over the prior 12 months will also receive Inquiry PINs.
Social Security Administration is also changing its Service Approach. Beginning August 1, 2014, Social Security will no longer issue Social Security number (SSN) verification printouts in their field offices. Beginning October 1, 2014, Social Security field offices will stop providing benefit verification letters in field offices. Opening a My Social Security Account is recommended.
The IRS invites enrolled agents, certified public accountants, and other tax professionals to register for the 2014 IRS Nationwide Tax Forums. The west coast session will held in San Diego from July 15-17.
Revenue Procedure 2014-18 provides an automatic extension of time for certain estates without a filing requirement to elect portability of the decedent’s unused exclusion amount for the benefit of the decedent’s surviving spouse. No user fee is required for submissions filed under this revenue procedure.
The Allowable Living Expense Standards are used to reduce subjectivity in determining what a taxpayer may claim as basic living expenses necessary to avoid undue hardship when the taxpayer must delay full payment of a delinquent tax. The standard allowances provide consistency and fairness in collection determinations by incorporating average expenditures for basic necessities for citizens in similar geographic areas. More information on the ALE standards and the collection process is available at Collection Financial Standards and Collection Procedures for Taxpayers Filing or Paying Late.
The new IRS Tax Map is an online tax topic map that organizes tax-related information around subjects of interest to taxpayers. Each Tax Map topic page contains all the information currently available for the topic, including links to related information, forms, publications and instructions.
The Online Payment Agreement application is available to businesses which owe $25,000 or less in combined tax, penalties and interest, and have filed all required returns.
The Internal Revenue Service will begin a one-year pilot program in June to help small businesses with retirement plans that owe penalties for not filing annual Form 5500 series returns. By filing current and prior year forms during this pilot program, they can avoid penalties. This program is open only to retirement plans generally maintained by certain small businesses, such as those in an owner-spouse arrangement or eligible partnership. More information on how to participate in the program can be found in Revenue Procedure 2014-32.
Kristen Hoiby, Stakeholder Liaison, Seattle
Kristen spoke about the Return Preparer Initiative. On Feb. 11, 2014, the U.S. Court of Appeals for the District of Columbia Circuit upheld the decision of the lower court in the case of Loving vs. IRS, finding insufficient statutory support for the IRS’ regulation of federal tax return preparers. IRS Commissioner Koskinen has informed Congress that IRS is considering a voluntary program of oversight. Further word on this topic is expected.
IRS is continuing efforts on Identity Protection. IRS Criminal Investigation has started 295 new identity theft investigations since January 2014, pushing the number of active cases to more than 1,800. A new and key component this year’s effort is to investigate the misuse of Electronic Filing Identification Number (EFINS). IRS recognized an increase in the filing of tax returns utilizing stolen or fraudulently acquired EFINs. Since the start of the fiscal year through March 31, 2014, the IRS has revoked or suspended 395 EFINS based on recommendations from CI, and CI has initiated 60 EFIN source investigations involving EFINS used by individuals involved in refund fraud and identity theft schemes.
The Taxpayer Protection Program involves letters being sent to taxpayers to verify identity in order to process their tax returns. Letter 4883C provides a toll-free IRS Identity Verification telephone number to call. Letter 5071C provides the toll-free IRS Identity Verification telephone number and a secure Identity Verification Service website idverify.irs.gov.
The IRS is offering a limited pilot program to help taxpayers thwart identity theft. Taxpayers who filed their returns last year from Florida, Georgia and the District of Columbia and obtain an e-file PIN this year from the IRS may be offered an opportunity to apply for an Identity Protection PIN (IP PIN). This pilot is in addition to the 1.2 million taxpayers who received an Identity Protection PIN from the IRS for this filing season as victims of identity theft with already resolved cases. The knowledge gained from the pilot will help the IRS determine if or when the IP PIN can be offered to a larger number of taxpayers.
Issues & Status
Practitioners commented on the delays encountered when attempting to retrieve transcripts from clients’ accounts that have been affected by identity theft. Since January of this year the IRS is no longer processing transcript requests through the Transcript Delivery System (TDS) in cases where an identity theft indicator has been placed on a taxpayer’s account. Instead, the taxpayer will receive notice that a request was made for his or her transcript. The notice will instruct the taxpayer to contact the Identity Protection Specialized Unit (IPSU) at 1-800-908-4490. Upon authentication, the IRS will issue a transcript to the taxpayer. Practitioners with valid POAs may call IPSU on behalf of their clients. The transcripts sent may look different than the usual TDS transcript because they are being retrieved from a different database. The same restrictions will apply to the new Get Transcript Service on IRS.gov. These changes are required by IRC Section 6103.
Practitioners sought more information on the treatment of crewmember business expenses. An audit resulted in expenses taken on a Schedule C being disallowed and directed to Schedule A. The question was does the IRS now require all crewmembers to report business expenses as itemized deductions. IRS does not take a position reclassifying all fishing crewmembers’ expenses on Schedule A; however, the appropriate treatment of business expenses is fact-intensive and is considered on a case-by-case basis. Practitioners pressed for more guidance on what facts to look at. IRS staff indicated that requests have been made for an update to the Audit Technique Guide elucidating IRC Section 3121(b)(20).
A number of contacts from Alaska practitioners echo a trend that Stakeholder Liaison has been tracking on its national bulletin board. Notices, whether from Submission Processing, Exam, Underreporter, etc., are questioning items that have already been clarified via statements or attachments on the original return. This results in a duplication of time and effort as the practitioners resubmit the same clarification documents. The matter is being addressed with IRS business owners.
Some practitioners are using third-party e-faxing services to transmit sensitive information to IRS personnel. When an information exchange involves more than just the practitioner and the IRS, such as a third party e-faxing provider, a written consent signed by the taxpayer must be provided as described in IRM 21.2.2.5.5. Since IRS now has its own e-fax system, practitioners are encouraged to use it and avoid the third party issue. Using the office fax machine, enter the IRS employees e-fax number (for example, mine is 877-477-8368#).
Roundtable & Comments
Kris Ashley, Stakeholder Partnership Education and Communication (SPEC)
The VITA program filed over 14,000 tax returns this season. Traditional VITA production at military sites is decreasing as more soldiers are taking advantage of on-line self-help. Collaborations continued with United Way to improve financial literacy, and with the Better Business Bureau at the Financial Fitness Fair (an event in Fairbanks in October is in planning). Carol Saunders retired at the end of January.
Julie Payne, Counsel (written submission)
Both Counsel and the Tax Court are encouraging use of the Tax Court’s electronic courtroom. This resource allows our office to work with taxpayers’ representatives to arrange electronic hearings with the Court. We can work together with practitioners to have motions (e.g., for summary judgment, in limine, to dismiss) heard well before Anchorage’s annual trial session, requiring that the taxpayer and the government expend fewer resources than we would otherwise. Not to mention that taxpayers may not need to travel to Anchorage for the session and they may have their tax matters resolved earlier. Similarly, practitioners can better represent their clients and can better prepare for trial (if there has to be one). It really is a win-win for the government and the private sector.
Sonia Oen, Examination
Current staffing has six Revenue Agents in Anchorage, two of whom are finishing training. The focus is mainly on business returns. An announcement recently closed for a local Tax Compliance Officer (office auditor). TCOs from Seattle will visit for three weeks durations, twice in Fairbanks and thrice in Anchorage. The focus will be on non-filers and abusive transactions. LB&I staffing is three in Anchorage and one in Fairbanks.
John Williamson, Collection
Announcements closed recently for two new Revenue Officer positions. Two retirements are expected in 2015, one of whom is Janice Stowell from Fairbanks. Janice has a new phone number – (907) 459-9307 (fax number unchanged). John stated his appreciation for the good relationship with the practitioner community.
Therese Fulton, Taxpayer Assistance Center
Since May 1, as part of the 2014 IRS Service Approach, tax law inquiries are being referred to the Interactive Tax Assistant on IRS.gov or to tax professionals. The emphasis on online service options will continue. Training on the Affordable Care Act will be delivered this summer/fall. New staff is expected in Fairbanks by the end of June. Until September the Fairbanks office will remain closed on Wednesdays and open from 8:30-12:30 and 1:30-4:30 on the other weekdays.
Kristia Douts, Taxpayer Advocate (written submission)
Staffing remains the same. The TAS Virtual Service Delivery (VSD) at the Kenai Community Library was used 10 times over the last few months. Service is available Monday, Wednesday, and Friday from 9 a.m. to 1 p.m.
Sherry Whah
Sherry commented on a problem with obtaining an ITIN via the Anchorage TAC. She was advised to contact Therese Fulton.
Tom Hartshorn
Tom spoke of the service from Practitioner Priority Services (PPS). Assistors are reluctant to handle more than one client issue per phone call. PPS has to follow the 2014 Service Approach so no tax law, no transcript requests, and ACS/AUR/RO/RA cases will be transferred. However, per IRM 21.3.10.1.1, PPS assistors are directed to work up to five client cases per call.
Barbara Hompesch
Barbara asked if IRS has issued any guidance regarding financing mechanisms, such as Crowdfunding. Nothing has appeared yet, but her inquiry will be elevated.
Next Scheduled Meeting
The date and manner (in person or fully virtual) is to be determined.
GETTING TO KNOW REGULATION CROWDFUNDING
FINANCIAL DISCLOSURE REQUIREMENTS
by Robert W. Walter, Esq.
Title III of the Jumpstart Our Business Startups Act added Section 4(a)(6) to the Securities Act to exempt certain crowdfunding transactions from the registration requirements of the Securities Act. New Section 4(a)(6) requires the issuer seeking crowdfunding to meet several requirements, e.g., a limit on crowdfunding of not more than $1 million in a 12-month period; limits on individual investments (if investor annual income or net worth is less than $100,000, then the limit is the greater of $2,000 or 5% of annual income or net worth; if investor annual income or net worth is $100,000 or more, then the limit is 10% of annual income or net worth, not to exceed an amount sold of $100,000); and transactions must be conducted through a registered broker-dealer or a new entity known as a “funding portal.”
On October 23, 2013, the SEC issued a proposed rule, Crowdfunding, to adopt Regulation Crowdfunding (“Regulation CF”), implement new Section 4(a)(6), and adopt companion exemptions under Exchange Act Section 12(g). The comment period for the proposed rule ended February 3, 2014, meaning that unless the comment period is re-opened, it is likely that Regulation CF will be issued in final form later this year.
At 585 pages, the proposed rule contains a myriad of issuer disclosure mandates, prohibitions, safe harbors, and record-keeping provisions, as well as requirements for funding portals. In this article, let’s focus on Regulation CF’s financial disclosure requirements which the SEC refers to as “tiered financial disclosure.” The tiers are based on the offering amount and the actual dollar amount of securities sold in all other crowdfunding offerings, if any, undertaken by the issuer within the preceding 12 months. In each case, required financial disclosures must be filed with the SEC, provided to investors and intermediaries such as broker-dealers and funding portals, and made available to potential investors. The table below outlines the mandated financial disclosures for each offering tier.
Tier Financial Disclosure Required
$100,000 or less Income tax returns for most recently completed fiscal year (if any), and financial statements certified by the principal executive officer as being true and complete in all material respects
More than $100,000 Financial statements reviewed by a public
but less than $500,000 accountant that is independent of the issuer
More than $500,000 Audited financial statements
The financial statements required of the issuer include a balance sheet, income statement, statement of cash flows, and statement of changes in owners’ equity presented in accordance with U.S. GAAP. Those statements must cover the shorter of the period since inception, or the two most recently completed fiscal years. An issuer undertaking a crowdfunding within the first 120 days of the fiscal year can use financial statements for the fiscal year prior to the most recently completed fiscal year if the statements for the most recent fiscal year are not available or required to be filed. And – as always – an issuer which has had material changes in financial condition, reported revenue, or net income will still be required to inform investors of such material changes even if the financial statements for the most recently completed fiscal year are not yet available.
Each issuer also is required to provide a section described as a “narrative discussion of financial condition.” This the SEC described as a simplified, principles-based section that will discuss the issuer’s prior operations, if any, planned operations, use of proceeds, and other financial resources. The SEC expressly stated that this section is not expected to be as lengthy or detailed as Management’s Discussion and Analysis in public filings made by issuers traded on the national stock exchanges.
Notably, the SEC proposed that the term “independent,” when used in reference to public accountants, would be construed in accordance (and the accountants must comply) with the SEC’s independence rules under Rule 2-01 of Regulation S-X. When reviewed statements are required, the SEC also stated that an issuer must present financial statements reviewed in accordance with Statements on Standards for Accounting and Review Services (“SSARS”) issued by the ARSC of the AICPA. The review report rendered by the CPA firm would also be required to be filed with the SEC, provided to investors, broker-dealers, and funding portals, and made available to potential investors. Audits would have to be conducted in accordance with AICPA or PCAOB audit standards, with auditor independence again being defined by reference to Rule 2-01 of Regulation S-X.
Although many CPAs are intimately familiar with reviews conducted in accordance with SSARS and audits conducted in accordance with the Clarified Statements on Auditing Standards, CPA firms that do not audit public companies (and therefore are not registered with the PCAOB) may be unfamiliar with the content of Rule 2-01 of Regulation S-X. For this reason, CPAs in public practice that do not audit public companies should carefully review Rule 2-01 of Regulation S-X prior to undertaking a review or audit engagement connected to an issuer’s proposed crowdfunding. Many Big Four and other accounting firms have learned – the hard way – that the SEC’s independence rules have a much wider scope, and longer reach, than the independence rules in the AICPA Code of Professional Conduct and state codes of professional conduct.
Regulation CF is likely to open up exciting new avenues for start-up entities to access “the crowd” for funding which previously might have come from family, friends, and angel investors. The burden of careful compliance with all of the requirements of Regulation CF will primarily fall on issuers, their affiliates, and intermediaries. However, as the amount sought and raised in prior crowdfundings increases, accounting firms will play an important role in providing review or audit services to issuers. While adherence to relevant AICPA review standards and AICPA or PCAOB audit standards is “par for the course,” accounting firms new to the SEC independence rules will want to carefully read, understand, and ensure compliance with these rules – and make conforming changes to their independence-related policies, procedures, and quality control systems.
