October 2014 Newsletter

President's Message

Lance Bodeen, CPA

Lance’s First Bull Moose.  A 57 incher that provided a year’s worth of meat for the Bodeen family.

Happy October to everyone.  I cannot believe that extensions are coming to a close and that six months has already passed since April 15^th.

Legislative Committee

I would like to extend many “thank yous” to the Legislative Committee for their work in providing recommendations to the Society Board and ultimately the State Board of Public Accountancy on identifiable changes to the Alaska Statutes and Regulations.  These changes will put the State of Alaska in its best position to promote and regulate Certified Public Accountants. 

I will be putting a comprehensive list of changes and recommendations to the Alaska State Board of Public Accountancy in my November Newsletter.

Succession Planning

What a hard topic to think about!  I have been in numerous discussions with clients and advisors on succession planning.  From my discussions, there are a lot of creative ideas that I have heard, but typically owners either:   identify key employee(s), merge with/sell to a 3^rd party or liquidate.  I do not believe there is a best way to end a business, as each situation is different.

For CPAs, this can definitely be a hard topic to address.  In Alaska, there are many sole practitioners or small CPA Firms who need to address this topic.  What is your succession plan?

One thing I have noted in all my discussions is that there needs to be a plan.

If you do have key employee(s) or children, which aspire to be in the CPA profession, your actions may be to negotiate a buy-out or ownership transfer plan, whereas the business is passed on and the Firm continues forward.

This seems very simple, but how will this work. 

a. Have you identified employees that will move forward with your current client base?

b. Will the same rapport be established with your client base?

c. How will you introduce your key employee(s) to your client base?

d. Do additional employees need to be hired to support the key employee in moving forward with the client base?

 e. Can the key employee manage an accounting practice; client base management is only a portion of the responsibility in owning an accounting practice?

 f. Will there be a fixed price sale for the purchase of your Practice; will the sale be based upon recurring revenues or will the sale be based on both?

 g. How long will the payout last; do you want this to be a long term relationship?

h. Do you know if your key employee has the financial resources to ensure you will be paid?

 i. Have you performed the appropriate background checks on your key employee to ensure that you protect your financial interest?

 j. What is your responsibility; do you need to continue on as employee?  Do you need to sign a non-compete agreement?

Key Employee relationships can be a positive way to transfer interest in your practice, but as noted above there are a lot of questions that need to be addressed before this actually occurs.

If you are a small practitioner, have you considered merging your accounting practice with a 3^rd party or selling to a 3^rd party?

Merging with another accounting practice may have an advantage for your clients and for you.  Your clients will have an established accounting practice with which to continue and you have professionals to continue your accounting practice as well as a way to share overhead costs.

a. If you are looking to merge, will the accounting practice be able to support your client base?

b. What are the timeframes for the merged accounting practice and what will be the exit strategy?  

c. What does a buy-out look like in the merged accounting practice? 

 d. Do you need to hire additional staff to ensure that the new accounting practice is able to support your client base?

e. Can you structure the exit long-term or are you going for an immediate exit?

f. What is your responsibility; do you need to continue on as employee? 

g. If the merged accounting practice has significant changes and cannot support the client base, is there recourse on re-acquiring your practice?

Selling to a 3^rd party may be a way that you can move your accounting practice and client base in an arm’s length transaction.  There may be no relationship involved with the 3^rd party; this will allow you to keep the transaction as a business transaction.

a. If you are selling to a 3^rd party, do you use a broker to broker your business?

b.Do you structure a deal that pays you based upon client retention or do you structure a deal that pays you cash up front?

c.How long does your deal go with a 3^rd party; is it a short-term transaction? 

d. What is your responsibility in the sale?

                                i.            Are you introducing any clients to the 3^rd party?

                                ii.            Is there a non-compete agreement?

                                iii.            Are you going to continue to perform work for the 3^rd party?

 e. Are there any relationships with your clients that may be strained based upon the sale?

 f. If the 3^rd party does not perform on the contract, what will be the recourse for you to protect your financial interest?

From an exit strategy, a 3^rd party sale may be a clean option for you to leave your accounting practice. 

What if you chose to work until you are ready to retire and liquidate your practice; what happens to your practice?

 a. Are you going to refer your clients to a new CPA or an accounting practice?

 b. What happens to your staff?  Do you provide referrals to other accounting practices or just end your relationships?

 c. What happens with your collections?  Do you continue to pursue your receivables or do you hire a 3^rd party to assist?

 d. Do you have the necessary insurance for any lingering liabilities?

 e. Where do your files go?  Do you have a storage facility to hold your records?

 f. What about your data saved electronically; is there a cloud storage facility to maintain your records?

 g. Who is going to clean your computers and office equipment that may contain client data?

 h. Is there an easy way to remove your office equipment and furniture?  Where does it go?

 i. Have you discussed with your attorney that all final dissolution documents have been filed?

 The fact that you are ready to retire does not necessarily mean that you can just walk away.  There are many questions to answer to ensure you are protected in your retirement.

Succession Planning should be a very deliberate process where questions are being answered before any action is taken.  The more questions that are resolved before decisions are made the easier it will be to transfer your accounting practice.

To end this article, I would like to discuss the resources provided by the Alaska Society of CPAs in case of Emergency.   The Society offers an Emergency Assistance Program when personal disaster strikes and your CPA Practice is in jeopardy.  This is a great Program for sole practitioners and small accounting practices.

If you are a sole practitioner or a small accounting practice, it is a must to have an Emergency Plan in Place.  The Society offers an excellent opportunity to ensure that in case of Emergency, your practice is safe.  If you have not done so already and need an Emergency Plan, please go to the www.akcpa.org website to research the Emergency Assistance Program and take action. 

Have a great October and I will talk to you again in November.

University of Alaska Southeast Accounting Club

As the Faculty Director for the University of Alaska Southeast Accounting Club (the SEA-P.A. Club, which stands for Southeast Alaskan Prospective Accountants (pronounced “CPA”), on behalf of our club members, I would like to thank the Alaska Society of CPAs for their generous contribution of $500 to our club.  We have some fun events planned for this year, and your contribution will go a long way in supporting our activities.  Some of the things we’re planning include:

• Winter and spring bonfire and graduate sendoff
• Movie night
• Career information night
• Legislative audit on-site visit 

Last week we had our first meeting of the year – a welcome back pizza party.  Two representatives from the Alaska Society were there – Karen Tarver and Theresa Harris.

Thanks again, and we’ll be in touch over this academic year to let you know about our activities!

Julie A. Hamilton, CPA, MBA, CGMA
Assistant Professor of Accounting
University of Alaska Southeast - Juneau

Mark your calendar: December 5, 2014 Webinar:  Alaska Specific Ethics:  10 Ways to Lose your CPA License

The AKCPA has partnered with CPA Crossings to present a webinar on Alaska Specific Ethics presented by Gary Zeune.  The class will qualify for the Alaska Specific Ethics requirement for your license renewal in December 2015.  Plan ahead and get it earlier.  Check out the link below to register!

 http://cpe.cpacrossings.com/GZAKSE01W4

 IRS Updates and News Releases

New 1023-EZ Form Makes Applying for 501(c)(3) Tax-Exempt Status Easier

The Internal Revenue Service this week introduced a new, shorter application form to help small charities apply for 501(c)(3) tax-exempt status more easily.

NationalTaxpayer Advocate Identifies Priority Areas and Challenges in Mid-Year Report to Congress

National Taxpayer Advocate Nina E. Olson released her mid-year report to Congress this week, identifying the priority issues the Taxpayer Advocate Service (TAS) will address during the upcoming fiscal year.   The report praises the IRS for implementing the Advocate’s longstanding recommendation to adopt a Taxpayer Bill of Rights, running a “generally successful” 2014 filing season, and taking other recent actions. 

IRS Repeats Warning About Phone Scams

The Internal Revenue Service and the Treasury Inspector General for Tax Administration continue to hear from taxpayers who have received unsolicited calls from individuals demanding payment while fraudulently claiming to represent the IRS.

Taxpayer Bill of Rights Now Available in Six Languages

The IRS’ cornerstone document, "Taxpayer Bill of Rights,“ is now available in six languages.

New Pub 5172 – Facts about Health Coverage Exemptions Available on IRS.gov

New IRS Publication 5172, Facts about Health Coverage Exemptions, provides information for taxpayers who qualify for and may claim exemption from minimum essential coverage so that they do not need to make individual shared responsibility payments when they file their federal tax returns.  Publication 5156, Facts about the Individual Shared Responsibility Payment, an exemption chart, IRS You Tube video Individual Shared Responsibilities - Overview and Questions and Answers contain more information.

Notice About Backup Withholding for Form 1099-K Available

Notice 1430, Don’t Get Caught in Backup Withholding, contains information about the possible requirement to have BWH withheld from receipts.  The Third Party Reporting Information Center - Information Documents  has more information.

Technical Guidance

TD 9672 – Provides final regulations on the tax credit available to certain small employers that offer health insurance coverage to their employees. The credit is provided under section 45R of the Internal Revenue Code (Code), enacted by the Patient Protection and Affordable Care Act. These regulations affect small employers, both taxable and tax-exempt, that are, or might be, eligible for the tax credit. The final regulations generally incorporate the provisions of Notice 2010-44 and Notice 2010-82 as modified to reflect the differences between the statutory provisions applicable to years beginning before 2014 and those applicable to years beginning after 2013. The final regulations also add definitions for the term “tobacco surcharge,” which refers to the surcharge in addition to the premium that may be charged in the SHOP Exchange that is attributable to tobacco use, and for the term “wellness program,” which refers to a program under which discounts or rebates are offered for employee participation in programs promoting health.

Revenue Procedure 2014-46 provides the 2014 monthly national average premium for qualified health plans that have a bronze level of coverage for taxpayers to use in determining their maximum individual shared responsibility payment under § 5000A(c)(1)(B) of the Internal Revenue Code and § 1.5000A-4 of the Income Tax Regulations.  This revenue procedure also provides an explanation of the methodology used to determine the monthly national average premium amount. 

Revenue Procedure 2014-37 provides the methodology to determine the applicable percentage table in § 36B(b)(3)(A) of the Internal Revenue Code used to calculate an individual’s premium assistance credit amount for taxable years beginning after calendar year 2014.  It also provides the methodology to determine the required contribution percentage in § 36B(c)(2)(C)(i)(II) used to determine whether an individual is eligible for affordable employer-sponsored minimum essential coverage for purposes of § 36B for plan years beginning after calendar year 2014.  Additionally, Revenue Procedure 2014-37 reproduces the required contribution percentage, as determined under guidance issued by the Department of Health and Human Services, used to determine whether an individual is eligible for an exemption from the individual shared responsibility payment because of a lack of affordable minimum essential coverage under § 5000A(e)(1)(A) for plan years beginning after calendar year 2014.

Revenue Procedure 2014-41 provides calculation methods a taxpayer may use to resolve the interrelationship between the section 162(l) deduction and the premium tax credit under section 36B.  It provides an iterative calculation and alternative calculation taxpayers may use, as well as examples demonstrating the calculations.

Notice 2014-42 provides procedural guidance relating to the annual fee imposed on branded prescription drug manufacturers and importers under §9008 of the ACA.

Revenue Procedure 2014-43 provides guidance to individual payees on verifying social security numbers to prevent or stop backup withholding under section 3406 of the Internal Revenue Code.