2017 Tax Conference
November 12-15 | Tucson, AZ
Keynote Presentation | Current Issues in Flow Through Entities | Significant Developments in Individual Income Taxation | How to Maximize Social Security, Medicare and Medicaid Benefits for Clients | SALT Update Parts I & II | CyberSecurity for Accounting Firms: How to Reduce Your Risks and Still Stay Sane | IRS Audit Issues & Hot Topics | Member Sharing Breakouts by Firm Size | Tech Update 2017 | Tax Executive Committee | Ways & Means – International Update | Estate, Gift and GST Tax Planning for High- Net Worth Individuals | The Economic Consequences of Charitable Remainder Trusts | Member Sharing Breakouts by Topic Table of Contents
Session Title Facilitator(s) / Speaker(s) Page
Thank you to our Sponsors 3
4 New Tax Resources Guide
5 CPAmerica Mobile App
6 2018 Events and Meetings
CPE/Evaluation Instructions 7
Attendee Directory 8
Agenda 30
Keynote Presentation Congressman David Schweikert 34
Current Issues in Flow Through Entities Jim Hamill, Reynolds Hix & Co. 37 Significant Developments in Individual Income Taxation Richard Kaplan, University of Illinois College of Law 95 How to Maximize Social Security, Medicare and Medicaid Benefits for Clients Steve Siegel, The Siegel Group 132
SALT Update Parts I & II Jordan Goodman, Horwood Marcus & Berk 226 CyberSecurity for Accounting Firms: How to Reduce Your Risks and Still Stay Sane Tim Weidman, Frankel Zacharia 251 Chuck Rettig, Hochman Salkin Rettig Toscher & IRS Audit Issues & Hot Topics Perez PC 293 Member Sharing Breakouts by Firm Size: Tim Kenyon, Cummings, Keegan & Co., P.L.L.P. <$5M Raleigh Cutrer, Matthews, Cutrer & Lindsay, P.A. 398 Member Sharing Breakouts by Firm Size: Brent Blacklock, TPP Certified Public Accountants, $5-8M LLC; Coleen Krogen, HBL CPAs, P.C. 401 Member Sharing Breakouts by Firm Size: Mike Abramson, Frankel Zacharia, LLC $8-12M Barbara Bass, Gollob Morgan Peddy PC 404 Member Sharing Breakouts by Firm Size: Karen Thurman, Frazier & Deeter, LLC >$12M Charlie Welborn, DMJ & Co., PLLC 407
Tech Update 2017 Randy Johnston, NMGI 410
Tax Executive Committee 570
Ways & Means – International Update Sean King, Align Global Consulting 593 Estate, Gift and GST Tax Planning for High-Net Worth Individuals Marvin D. Hills, Crowe Horwath LLP 635 The Economic Consequences of Charitable Remainder Trusts Chris Cline, Riverview Trust Company 732 Member Sharing Breakouts by Topic – Advanced S Corp & Partnership Issues Carl Harper, Pulakos CPAs, PC 765 Member Sharing Breakouts by Topic – How Are You Prepping to be a Firm of the Future? Sol Green, Gray, Gray & Gray, LLP 767
Manual Disclaimer:
CPAmerica makes every effort to ensure the accuracy and the timeliness of the materials in this manual. From time to time, presenters will make edits and/or updates to the materials that are not reflected herein. While the link to the manual is dynamic and updates are made as quickly as possible, there may still be differences between the manual and the live presentations. All edited, missing or omitted materials will be available immediately following the conference. 2017 Tax Conference Presenting Sponsor
Exhibitors
Thank You to our Sponsors! Be sure to stop by the CPAmerica table for a copy of our brand new Tax Resources booklet!
4 of 781 CPAmerica Mobile App
The CPAmerica mobile app is not just an event app, this is your secret to year-round access to your association resources!
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5 of 781 Marketing Roundtable Central Mountian/West Partners Annual Global Conference May 14 July 26-27 October 14-17 Portland, Oregon San Diego, California Berlin, Germany Focus: Marketing Focus: Partner-Level Member Sharing Focus: International Practice Growth & Management
Next Generation Conference Southeast Partners CPAConnect Roundtable May 17-19 August 16-17 October 31 - November 2 Denver, Colorado Atlanta, Georgia New Orleans, Louisiana Focus: Senior/Manager Growth & Focus: Partner-Level Member Sharing Focus: Practice Growth & Management Leadership
A&A Conference Leading Partners Retreat Tax Conference June 6-8 September 26-28 November 4-7 Miami Beach, Florida Tucson, Arizona New Orleans, Louisiana Focus: Audit Focus: Practice Growth and Management Focus: Tax
Technology Roundtable Firm Administrators Roundtable International Group Meeting June 6-8 September 26-28 Date: TBD Miami Beach, Florida Tucson, Arizona Atlanta, Georgia Focus: Technology Focus: Firm Administration Focus: International
Northeast Partners June 14-15 2018 Events and Meetings Hudson Valley, New York
Focus: Partner-Level Member Sharing
6 of 781 www.cpamerica.org CPAmerica International CPE/Evaluation Instructions
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7 of 781 2017 Tax Conference November 12-15 - Tucson, Arizona
Mark Birge [email protected] Aldrich Group (503) 620-4489 Lake Oswego OR
Andrew Davidson [email protected] Aldrich Group (760) 431-8440 Escondido CA
Peter DeFrancesca [email protected] Aldrich Group (760) 431-8440 Carlsbad CA
Amber Esquivel [email protected] Aldrich Group (760) 268-0213 Carlsbad CA
Kathy Gordon [email protected] Aldrich Group (503) 585-7774 Salem OR
Marcy Lantz [email protected] Aldrich Group (503) 620-4489 Lake Oswego OR
Sean King [email protected] Align Global Consulting (919) 987-1790 Raleigh NC
Jennifer Groff alliantgroup [email protected] (713) 877-9600 Houston TX 8 of 781 = Speaker 2017 Tax Conference November 12-15 - Tucson, Arizona
Saarah Sadaruddin [email protected] alliantgroup (713) 350-3394 Houston TX
Missy Waites [email protected] alliantgroup (949) 809-2170 Houston TX
Tracy Sams Anglin-Reichmann-Snellgrove & Armstrong P.C. [email protected] Huntsville AL (256) 533-1040 Spouse/Guest: Lisa Sams
Alex Bybee [email protected] Barnard, Vogler & Co. (775) 786-6141 Reno NV
Leslie Daane [email protected] Barnard, Vogler & Co. (775) 786-6141 Reno NV
Roy Kershaw Jr. Baum, Smith & Clemens, LLP [email protected] Lansdale PA (215) 368-5755 Spouse/Guest: Kim Kershaw
Donald Beasley [email protected] Beasley, Mitchell & Co., LLP (575) 528-6700 Las Cruces NM
Francisco Moran [email protected] Beasley, Mitchell & Co., LLP (575) 528-6700 Las Cruces NM 9 of 781 = Speaker 2017 Tax Conference November 12-15 - Tucson, Arizona
Christopher Salcido [email protected] Beasley, Mitchell & Co., LLP (575) 528-6700 Las Cruces NM
Christine Esquibel Wright [email protected] Beasley, Mitchell & Co., LLP (575) 528-6700 Las Cruces NM
Peter Harrington [email protected] Black Line Group (763) 550-0111 direct Plymouth MN
Don Johnson [email protected] Bolar Hirsch & Jennings LLP (949) 224-3300 Irvine CA
Katherine Neil [email protected] Bolar Hirsch & Jennings LLP (949) 224-3300 Irvine CA
Julissa Quirk [email protected] Bolar Hirsch & Jennings LLP (949) 224-3300 Irvine CA
Mike Atkinson [email protected] Brickley DeLong, PC (231) 726-5868 direct Muskegon MI
Chuk Gottschall [email protected] Brickley DeLong, PC (231) 726-5800 Muskegon MI 10 of 781 = Speaker 2017 Tax Conference November 12-15 - Tucson, Arizona
Jennifer Insalaco [email protected] Brock, Schechter & Polakoff, LLP (716) 854-5034 Buffalo NY
Peter Ruocco [email protected] Brock, Schechter & Polakoff, LLP (716) 854-5034 Buffalo NY
Robert Sommer [email protected] Brock, Schechter & Polakoff, LLP (716) 854-5034 Buffalo NY
Joseph DeYulis [email protected] Catanese Group (814) 255-8400 Johnstown PA
Sean Wonderling [email protected] Catanese Group (814) 255-8400 Johnstown PA
Joel Wiegand Contryman Associates, P.C. [email protected] Grand Island NE (308) 382-5720 Spouse/Guest: Terry Wiegand
Kevin McCollum Coulter & Justus, P.C. [email protected] Knoxville TN (865) 637-4161 Spouse/Guest: Tonya McCollum
Marc Zuckerman [email protected] Coulter & Justus, P.C. (865) 637-4161 Knoxville TN 11 of 781 = Speaker 2017 Tax Conference November 12-15 - Tucson, Arizona
Michael DeMola Cowan, Gunteski & Co., P.A. [email protected] Toms River NJ (732) 349-6880 Spouse/Guest: Fran DeMola
Lisa Browne [email protected] CPAmerica International (352) 727-4160 Gainesville FL
D'Yãn Davis [email protected] CPAmerica International (352) 727-4151 Gainesville FL
Alan Deichler [email protected] CPAmerica International (352) 727-4156 Gainesville FL
Grace Horvath [email protected] CPAmerica International (352) 727-4157 Gainesville FL
Dana Plotke [email protected] CPAmerica International (352) 727-4152 Gainesville FL
Marvin Hills [email protected] Crowe Horwath, LLP (574) 236-7605 Chicago IL
Lou Miller [email protected] Crowe Horwath, LLP (574) 232-3992 South Bend IN 12 of 781 = Speaker 2017 Tax Conference November 12-15 - Tucson, Arizona
A.J. Schiavone [email protected] Crowe Horwath, LLP (614) 469-0001 Columbus OH
Lisa Johnson [email protected] CS&L CPAs (941) 748-1040 Bradenton FL
Susan Thompson [email protected] CS&L CPAs (941) 748-1040 Bradenton FL
MaryGen Hoehn [email protected] Cummings, Keegan & Co., P.L.L.P. (952) 345-2500 St. Louis Park MN
Tim Kenyon Cummings, Keegan & Co., P.L.L.P. [email protected] St. Louis Park MN (952) 345-2500 Spouse/Guest: Karin Lindberg-Kueng
Liz Hedden Dennis, Gartland & Niergarth [email protected] Traverse City MI (231) 946-1722 Spouse/Guest: Chris Hedden
R. Milton Howell, III DMJ & Co., PLLC [email protected] Greensboro NC (336) 275-9886 Spouse/Guest: Angie Howell
Keith Jarmusch [email protected] DMJ & Co., PLLC (336) 275-9886 Greensboro NC 13 of 781 = Speaker 2017 Tax Conference November 12-15 - Tucson, Arizona
Susan Miller [email protected] DMJ & Co., PLLC (336) 275-9886 Greensboro NC
Charlie Welborn [email protected] DMJ & Co., PLLC (919) 774-4535 Sanford NC
Amy Allen [email protected] DZH Phillips LLP (415) 781-2500 San Francisco CA
Karisa Chin [email protected] DZH Phillips LLP (415) 781-2500 San Francisco CA
Bruce Ferry DZH Phillips LLP [email protected] San Francisco CA (415) 781-2500 Spouse/Guest: Cherie Chan
Gary Jang [email protected] DZH Phillips LLP (415) 781-2500 San Francisco CA
Alicia On DZH Phillips LLP [email protected] San Francisco CA (415) 655-6381 Spouse/Guest: Dave Cheng
Alan Smith [email protected] Ernst & Morris Consulting Group, Inc. Marietta GA (770) 427-9677 ext. 13 14 of 781 = Speaker 2017 Tax Conference November 12-15 - Tucson, Arizona
Michael Odom [email protected] Fouts & Morgan, CPAs, P. C. (901) 761-2110 Memphis TN
Mike Abramson [email protected] Frankel Zacharia, LLC (402) 496-9100 Omaha NE
Jeff Hoffman Frankel Zacharia, LLC [email protected] (402) 496-9100 Omaha NE
Ryan Luetkenhaus Frankel Zacharia, LLC [email protected] Omaha NE (402) 496-9100 Spouse/Guest: Pam Luetkenhaus
Tim Weidman [email protected] Frankel Zacharia, LLC (402) 496-9100 Omaha NE
Donna Beatty [email protected] Frazier & Deeter, LLC (404) 253-7500 Atlanta GA
Roger Lusby [email protected] Frazier & Deeter, LLC (404) 573-4200 Atlanta GA
J.R. Miller Frazier & Deeter, LLC [email protected] Atlanta GA (404) 253-7500 Spouse/Guest: Linda Miller15 of 781 = Speaker 2017 Tax Conference November 12-15 - Tucson, Arizona
Karen Thurman Frazier & Deeter, LLC [email protected] Alpharetta GA (404) 573-4200 Spouse/Guest: Mark Thurman
Barbara Bass [email protected] Gollob Morgan Peddy PC (903) 534-0088 Tyler TX
Kristen Gusa Gollob Morgan Peddy PC [email protected] Tyler TX (903) 534-0088 Spouse/Guest: Scott Gusa
Robert Peddy Gollob Morgan Peddy PC [email protected] Tyler TX (903) 534-0088 Spouse/Guest: Sharon Peddy
Gregory Richbourg [email protected] Gollob Morgan Peddy PC (903) 534-0088 Tyler TX
Brad Carlson [email protected] Gray, Gray & Gray, LLP (781) 407-0300 Canton MA
Bobby Garrett, Jr. Gray, Gray & Gray, LLP [email protected] Canton MA (781) 407-0300 Spouse/Guest: Julia Garrett
Donna Green [email protected] Gray, Gray & Gray, LLP (781) 407-0300 Canton MA 16 of 781 = Speaker 2017 Tax Conference November 12-15 - Tucson, Arizona
Sol Green [email protected] Gray, Gray & Gray, LLP (781) 407-0300 Canton MA
Mike Koppel Gray, Gray & Gray, LLP [email protected] Westwood MA (781) 407-0300 Spouse/Guest: Tina Koppel
Derek Rawls Gray, Gray & Gray, LLP [email protected] Canton MA (781) 407-0300 Spouse/Guest: Robin Rawls
Venice Touze [email protected] Gray, Gray & Gray, LLP (781) 407-0300 Canton MA
Stephen Williams [email protected] GYL Decauwer LLP (909) 948-9990 Ontario CA
Mary Anne Petesch Hagen, Kurth, Perman & Co., P.S. [email protected] Seattle WA (206) 682-9200 Spouse/Guest: Doug Petesch
James Ramborger Hagen, Kurth, Perman & Co., P.S. [email protected] Seattle WA (206) 682-9200 Spouse/Guest: Esther Lee Ramborger
Guy Tabor [email protected] Harper & Pearson Company, P.C. (713) 622-2310 Houston TX 17 of 781 = Speaker 2017 Tax Conference November 12-15 - Tucson, Arizona
David Oleasz Harper & Whitfield, P.C. [email protected] Farmington CT (860) 677-9188 Spouse/Guest: Lori Oleasz
Michael DeVries [email protected] HBL CPAs, P.C. (520) 886-3181 Tucson AZ
Jacquie Ivey [email protected] HBL CPAs, P.C. (520) 886-3181 Tucson AZ
Coleen Krogen [email protected] HBL CPAs, P.C. (520) 886-3181 Tucson AZ
John Lauer [email protected] HBL CPAs, P.C. (520) 886-3181 Tucson AZ
Daniel Rock [email protected] HBL CPAs, P.C. (520) 886-3181 Tucson AZ
Mark Wight [email protected] HBL CPAs, P.C. (520) 886-3181 ext. 130 Tucson AZ
Chuck Rettig [email protected] Hochman Salkin Rettig Toscher & Perez, PC (310) 281-3200 Beverly Hills CA 18 of 781 = Speaker 2017 Tax Conference November 12-15 - Tucson, Arizona
Keith Habel [email protected] Honkamp Krueger & Co., P.C. (563) 556-0123 ext. 1359 Dubuque IA
Stephanie Mettille [email protected] Honkamp Krueger & Co., P.C. (563) 556-0123 ext. 1115 Dubuque IA
Kevin Schmitt [email protected] Honkamp Krueger & Co., P.C. (563) 556-0123 ext. 1109 Dubuque IA
Jordan Goodman [email protected] Horwood Marcus & Berk (312) 606-3225 Chicago IL
Lawrence Hamilton [email protected] Hughes Pittman & Gupton, LLP (919) 232-5900 Raleigh NC
Beth Traynham [email protected] Hughes Pittman & Gupton, LLP (919) 232-5900 Raleigh NC
Laura Frost [email protected] Hughes, Snell & Co., P.A. (239) 939-2233 Fort Myers FL
David Bergstein [email protected] Intuit (954) 614-1116 Mountain View CA 19 of 781 = Speaker 2017 Tax Conference November 12-15 - Tucson, Arizona
Nicholas Barley [email protected] Kentner Sellers, LLP (937) 898-1376 Vandalia OH
Gregg DeVilbiss [email protected] Kentner Sellers, LLP (937) 898-1376 Vandalia OH
Kelly Blocker Krikorian & Company AC [email protected] (559) 252-1800 Fresno CA
Craig Fabacher [email protected] Kushner LaGraize, L.L.C. (504) 838-9991 Metairie LA
Mary Anne Garcia [email protected] Kushner LaGraize, L.L.C. (504) 838-9991 Metairie LA
William Hamilton [email protected] Kushner LaGraize, L.L.C. (504) 838-9991 Metairie LA
Mary May [email protected] Kushner LaGraize, L.L.C. (504) 838-9991 Metairie LA
Scott Rogers Larson & Company, PC [email protected] Sandy UT (801) 313-1900 Spouse/Guest: DeAnne Rogers20 of 781 = Speaker 2017 Tax Conference November 12-15 - Tucson, Arizona
Raleigh Cutrer [email protected] Matthews, Cutrer & Lindsay, P.A. (601) 898-8875 ext. 210 Ridgeland MS
Brett Matthews [email protected] Matthews, Cutrer & Lindsay, P.A. (601) 898-8875 ext. 209 Ridgeland MS
Mike Hoover [email protected] Maxwell Locke & Ritter LLP (512) 370-3200 Austin TX
Steve Knebel [email protected] Maxwell Locke & Ritter LLP (512) 370-3200 Austin TX
Kyle Parks [email protected] Maxwell Locke & Ritter LLP (512) 370-3200 Austin TX
Nathan Beck [email protected] McGowen, Hurst, Clark & Smith, P.C. (515) 288-3279 West Des Moines IA
Michael Brinker [email protected] McGowen, Hurst, Clark & Smith, P.C. (515) 288-3279 West Des Moines IA
Nick Finkenauer McGowen, Hurst, Clark & Smith, P.C. [email protected] (515) 288-3279 West Des Moines IA 21 of 781 = Speaker 2017 Tax Conference November 12-15 - Tucson, Arizona
Kris Houghton [email protected] Meyers Brothers Kalicka, P.C. (413) 536-8510 Holyoke MA
Rebecca Rhodes Miller & Company, CPAs, PC [email protected] Wilmington NC (910) 452-5260 Spouse/Guest: Ronnie Rhodes
Phillip Beaman Monroe Shine & Co., Inc. [email protected] New Albany IN (812) 945-2311 Spouse/Guest: Amy Beaman
Wesley Hiyane N&K CPAs, Inc. [email protected] Honolulu HI (808) 524-2255 Spouse/Guest: Elyne Hiyane
Randy Johnston [email protected] Network Management Group, Inc. (620) 664-6000 Hutchinson KS
Jennifer Berberich O'Malley & Berberich CPAs, P.C. [email protected] Scottsdale AZ (480) 778-1751 Spouse/Guest: Don Hedges
Michael O'Malley O'Malley & Berberich CPAs, P.C. [email protected] Scottsdale AZ (480) 778-1751 Spouse/Guest: Kathy O'Malley
Debra Liggett [email protected] Packer Thomas (330) 533-9777 Canfield OH 22 of 781 = Speaker 2017 Tax Conference November 12-15 - Tucson, Arizona
Jennifer Barnes [email protected] Pease & Associates, Inc. (216) 348-9600 Cleveland OH
Charles Federanich [email protected] Pease & Associates, Inc. (216) 348-9600 Cleveland OH
Joe Pease Pease & Associates, Inc. [email protected] Cleveland OH (216) 348-9600 Spouse/Guest: Rosina Pease
Bill Proper [email protected] Pease & Associates, Inc. (216) 348-9600 Cleveland OH
Alexandar Semerano [email protected] Pease & Associates, Inc. (216) 348-9600 Cleveland OH
Carl Harper [email protected] Pulakos CPAs, PC (505) 338-1500 Albuquerque NM
Russ Hiller [email protected] Pulakos CPAs, PC (505) 338-1500 Albuquerque NM
Jim Hamill [email protected] Reynolds Hix & Co., CPAs (505) 828-2900 Albuquerque NM 23 of 781 = Speaker 2017 Tax Conference November 12-15 - Tucson, Arizona
Chris Cline [email protected] Riverview Trust Company (503) 558-6484 Vancouver WA
Mike Gallagher [email protected] Robinson, Grimes & Company, P.C. (706) 324-5435 Columbus GA
Ronald Thomas, Jr. Robinson, Grimes & Company, P.C. [email protected] Columbus GA (706) 324-5435 Spouse/Guest: Kim Thomas
Rick Schenkel [email protected] Sobul, Primes & Schenkel, CPAs, APC (310) 826-2060 Los Angeles CA
John Gilbert Sol Schwartz & Associates, P.C. [email protected] San Antonio TX (210) 384-8000 Spouse/Guest: Sheila R. Gilbert
Jim Rice Sol Schwartz & Associates, P.C. [email protected] San Antonio TX (210) 384-8000 Spouse/Guest: Maria Diana Rice
Roberta Gerou [email protected] Stratagem Certified Public Accountants (720) 445-3404 Lakewood CO
Leslie Schaus [email protected] Stratagem Certified Public Accountants (720) 445-3404 Lakewood CO 24 of 781 = Speaker 2017 Tax Conference November 12-15 - Tucson, Arizona
Jacob Potter [email protected] Swink Smith Coplen & Company, P.C. (314) 842-2001 Sunset Hills MO
Leah Gillham [email protected] Teal, Becker & Chiaramonte, CPAs, P.C. (518) 456-6663 Albany NY
Gretchen Guenther-Collins [email protected] Teal, Becker & Chiaramonte, CPAs, P.C. (518) 456-6663 Albany NY
Benjamin Henderson Teal, Becker & Chiaramonte, CPAs, P.C. [email protected] Albany NY (518) 456-6663 Spouse/Guest: Leah Henderson
John McCann [email protected] Teal, Becker & Chiaramonte, CPAs, P.C. (518) 456-6663 Albany NY
Mark Vena [email protected] Teal, Becker & Chiaramonte, CPAs, P.C. (518) 456-6663 Albany NY
Steven Siegel [email protected] The Siegel Group (201) 401-5552 Morristown NJ
Chip Helme Thompson Greenspon [email protected] Fairfax VA (703) 385-8888 Spouse/Guest: Mary Helme25 of 781 = Speaker 2017 Tax Conference November 12-15 - Tucson, Arizona
Thomas Miller III Thompson Greenspon [email protected] Fairfax VA (703) 385-8888 Spouse/Guest: Melanie Miller
Carolyn Quill [email protected] Thompson Greenspon (703) 385-8888 Fairfax VA
Gregory Peterson [email protected] Thomson Reuters (800) 968-8900 Ft. Worth TX
Brent Blacklock [email protected] TPP Certified Public Accountants, LLC (913) 498-2200 Overland Park KS
David Workmon TPP Certified Public Accountants, LLC [email protected] Overland Park KS (913) 498-2200 Spouse/Guest: Theresa Belland
Ron Crabtree [email protected] Tri-Merit R&D Tax Credit Services (630) 263-9200 Arlington Heights IL
Andy Lane [email protected] Tri-Merit R&D Tax Credit Services (248) 703-2853 Arlington Heights IL
Robin Bodine [email protected] Trout, Ebersole & Groff LLP (717) 569-2900 Lancaster PA 26 of 781 = Speaker 2017 Tax Conference November 12-15 - Tucson, Arizona
Ginny McGrody [email protected] Tyler, Simms & St. Sauveur, CPAs, P.C. (603) 653-0044 Lebanon NH
David St. Sauveur Tyler, Simms & St. Sauveur, CPAs, P.C. [email protected] Lebanon NH (603) 653-0044 Spouse/Guest: Molly St. Sauveur
Richard Kaplan [email protected] University of Illinois, College of Law (217) 333-2499 Champaign IL
Nicholas Dallas [email protected] VonLehman CPA & Advisory Firm (317) 469-0169 Indianapolis IN
Michael Gould [email protected] VonLehman CPA & Advisory Firm (317) 469-0169 Indianapolis IN
Kathleen Dreier VonLehman CPA & Advisory Firm [email protected] Ft. Wright KY (859) 331-3300 Spouse/Guest: Jon Dreier
Scott Bromley [email protected] Wallace, Plese + Dreher, L.L.P. (480) 345-0500 Chandler AZ
Steven Buel [email protected] Wallace, Plese + Dreher, L.L.P. (480) 345-0500 Chandler AZ 27 of 781 = Speaker 2017 Tax Conference November 12-15 - Tucson, Arizona
Chris Coots [email protected] Wallace, Plese + Dreher, L.L.P. (480) 345-0500 Scottsdale AZ
Michelle Flynn [email protected] Wallace, Plese + Dreher, L.L.P. (480) 345-0500 Chandler AZ
Sara Nance [email protected] Wallace, Plese + Dreher, L.L.P. (480) 345-0500 Chandler AZ
Anthony Plese [email protected] Wallace, Plese + Dreher, L.L.P. (480) 345-0500 Chandler AZ
Stephen Rodis Wallace, Plese + Dreher, L.L.P. [email protected] Chandler AZ (480) 345-0500 Spouse/Guest: Anne Rodis
Katy Mering Wegner CPAs [email protected] Baraboo WI (608) 356-3966 Spouse/Guest: Doug Mering
Mike Scholz Wegner CPAs [email protected] Madison WI (608) 442-1967 direct Spouse/Guest: Kelly Scholz
Kathleen Corcoran [email protected] Wheeler Wolfenden & Dwares, CPAs (302) 254-8240 Wilmington DE 28 of 781 = Speaker 2017 Tax Conference November 12-15 - Tucson, Arizona
Christopher Daney [email protected] Wheeler Wolfenden & Dwares, CPAs (302) 254-8240 Wilmington DE
Terry Golling [email protected] Widmer Roel PC (701) 237-6022 Fargo ND
Gail Gubbels Williams & Company, P.C. [email protected] Yankton SD (605) 665-9401 Spouse/Guest: Deb Gubbels
29 of 781 = Speaker 2017 Tax Conference Agenda Loews Ventana Canyon Tucson, AZ
Sunday, November 12 Keynote takes place in the Grand Ballroom BC 5:00 – 6:30 p.m. Keynote Presentation For an insider’s view on what the new administration and the 115th United States Congress has in store for the American people, we are thrilled to announce a special keynote session on Sunday evening with Congressman David Schweikert (R), Arizona. Congressman Schweikert currently holds a seat on the House Ways and Means Committee where he is able to use his expertise in finance and tax policy to lend his voice towards pressing issues such as meaningful tax reform and reducing trade barriers for U.S. businesses. Having previously served on the Financial Services Committee, and as the current Republican Co-Chair of the recently formed Blockchain Caucus, Congressman Schweikert will be sharing his keen perspective on what CPAmerica members can expect in the coming year.
6:30 – 8:00 p.m. Welcome Reception – Cascade Terrace
Monday, November 13 Due to the timely nature of these sessions, content is subject to change All sessions are located in the Grand Ballroom BC unless otherwise noted 6:30 – 7:30 a.m. Registration and Breakfast – Foyer B
7:30 – 7:45 a.m. Opening Remarks Alan Deichler, CPAmerica International
7:45 – 9:25 a.m. Current Issues in Flow Through Entities This session reviews current partnership tax issues. Topics include the centralized audit rules, self- employment tax, changes in debt share determinations, the increasing use of “hypothetical transactions” and other issues. Jim Hamill, Reynolds Hix & Co.
2 CPE │ Field of Study Taxes Intermediate Pre Req: │ Experience with partnership returns Adv Prep: None
9:25 – 9:45 a.m. Break – Foyer B
9:45 – 11:25 a.m. Significant Developments in Individual Income Taxation In this presentation, Richard Kaplan will analyze the tax law changes enacted this year and will examine recently decided cases on business expense deductions; charitable contributions; IRA investments, loans, withdrawals, and penalties; and other issues. Richard Kaplan, University of Illinois College of Law
2 CPE │ Field of Study Taxes Update Pre Req: Tax Practice │ Adv Prep: None
11:25 a.m. – 12:25 p.m. Lunch – Cascade Terrace
12:25 – 2:15 p.m. How to Maximize Social Security, Medicare and Medicaid Benefits for Clients With the Baby Boom generation hitting retirement years, you are likely getting more questions about the benefit programs that apply to America’s older population — Social Security, Medicare, and Medicaid. These federal benefit programs are a core part of retirement planning, but they bring many complex rules and requirements you need to be able explain for your clients or their aging parents. Steve Siegel, The Siegel Group
2.2 CPE │ Field of Study Taxes Basic Overview Pre Req: None │ Adv Prep: None
2:15 – 2:35 p.m. Break – Foyer B
2:35 – 3:25 p.m. SALT Update, Part I: From Here to There and Back Again This presentation will get the audience up to date on recent state and local tax cases and statutory changes that will affect their client's business. The discussion will cover such topics as when a state can impose its taxing jurisdiction on an out-of-state business and what taxpayers can do to protect themselves. We will also cover the latest in apportionment issues paying particular attention to sourcing of sale other than tangible personal property including cost of performance, market-based sourcing and alternative apportionment. We will examine the latest in retroactive law changes and how best businesses can avoid historical liability. The discussion will include the latest in qui tam and class actions that are becoming popular by non-tax enforcers. We will also examine the latest in transaction taxes both from a nexus and situsing perspective. The presentation will look at ways to comply with state law and hopefully avoid double taxation. Finally, the latest in audit developments and how best to prepare our clients for the more aggressive state audits. Jordan Goodman, Horwood Marcus & Berk
1 CPE │ Field of Study Taxes Overview Pre Req: None │ Adv Prep: None
3:25 – 4:15 p.m. CyberSecurity for Accounting Firms: How to Reduce Your Risks and Still Stay Sane • Understanding real-world cyber threats to your firm • How to reduce risk and stay productive during busy season and why that is important • Why it is more difficult AND more important to avoid downtime and keep client data safe Tim Weidman, Frankel Zacharia
1 CPE │ Field of Study Information Technology Basic Overview Pre Req: None │ Adv Prep: None
6:00 – 9:00 p.m. Stargazing with Astronomers at Loews Ventana Canyon (Optional) – Coyote Corral Spend an amazing evening outdoors overlooking the Catalina Mountain range with an astronomer- guided tour of the skies. Don’t miss this fun event that includes an open bar and local food trucks!
Tuesday, November 14 All sessions are located in the Grand Ballroom BC unless otherwise noted 6:30 – 7:30 a.m. Breakfast – Foyer B
7:30 – 9:10 a.m. SALT Update, Part II: Now That We Are Here, What Can We Do? This presentation will get the audience up to date on recent state and local tax cases and statutory changes that will affect their client's business. The discussion will cover such topics as when a state can impose its taxing jurisdiction on an out-of-state business and what taxpayers can do to protect themselves. We will also cover the latest in apportionment issues paying particular attention to sourcing of sale other than tangible personal property including cost of performance, market-based sourcing and alternative apportionment. We will examine the latest in retroactive law changes and how best businesses can avoid historical liability. The discussion will include the latest in qui tam and class actions that are becoming popular by non-tax enforcers. We will also examine the latest in transaction taxes both from a nexus and situsing perspective. The presentation will look at ways to comply with state law and hopefully avoid double taxation. Finally, the latest in audit developments and how best to prepare our clients for the more aggressive state audits. Jordan Goodman, Horwood Marcus & Berk
2 CPE │ Field of Study Taxes Overview Pre Req: None │ Adv Prep: None
9:10 – 9:25 a.m. Break – Foyer B
9:25 – 11:05 a.m. IRS Audit Issues & Hot Topics Practical advice for real life client issues, focusing on current IRS tax enforcement priorities & procedures, practitioner representation strategies & techniques, and recent developments in tax controversy and procedure. IRS Wealth Squad examination issues and techniques and responding to difficult Information Document Requests (IDRs). Voluntary disclosures and IRS examinations of previously undeclared offshore financial accounts and assets (FBARs). Chuck Rettig, Hochman Salkin Rettig Toscher & Perez PC
2 CPE │ Taxes Overview Pre Req: None │ Adv Prep: None
11:05 – 11:55 a.m. Lunch – Cascade Terrace
11:55 a.m. – 1:35 p.m. Member Sharing Breakouts by Firm Size <$5 M Facilitators: Tim Kenyon, Cummings, Keegan & Co; Raleigh Cutrer, Matthews, Cutrer and LIndsay Room: Sonora
$5-8M Facilitators: Brent Blacklock, TPP Certified Public Accountants; Coleen Krogen, HBL CPAs Room: Salon E
$8-12M Facilitators: Mike Abramson, Frankel Zacharia; Barbara Bass, Gollob, Morgan Peddy Room: Salon D
>$12M Facilitators: Karen Thurman, Frazier & Deeter; Charlie Welborn, DMJ & Co. Room: Salon F
2 CPE │ Field of Study Business Management & Organization Overview Pre Req: None │ Adv Prep: None
1:35 – 1:50 p.m. Break – Foyer B
1:50 – 2:40 p.m. Tech Update 2017 In this session, you will learn about the technologies that can solve many of the problems facing today's CPA firm. Included in the technologies discussed in this session are workflow, practice management, document management, scan-and-populate, engagement planning and management, and tax notice responses. What new hardware and software technologies should I incorporate into my plans? If you work in public accounting, you can't afford to miss this eye-opening session! Randy Johnston, NMGI
1 CPE │ Field of Study Business Management & Organization Overview Pre Req: None │ Adv Prep: None
2:40 – 3:30 p.m. Tax Executive Committee
4:15 – 9:00 p.m. Special Event at Cocoraque Ranch & Pavilion Nestled in a majestic saguaro forest with the surrounding beauty of the desert, the historic architecture and the rustic setting will transpire you to “the cowboy life of a century ago. We will arrive at the ranch at 5:00 p.m. to enjoy cocktails and an action-packed rodeo, followed by a gorgeous sunset over the desert. Then we will enjoy a delicious Western-inspired meal that will be sure to please.
Busses will arrive at 4:15 p.m. Please meet in the hotel lobby.
Wednesday, November 15 All sessions are located in Kiva B unless otherwise noted 6:30 – 7:30 a.m. Breakfast – Foyer B
7:30 – 7:35 a.m. 2017 Chair Recognition Alan Deichler, CPAmerica International
7:35 – 9:15 a.m. Ways & Means – International Update The Trump administration and Congressional leaders continue to promise meaningful tax reform as an urgent legislative priority, including moving from a worldwide income regime to a territorial system. By late November, we may have a better understanding of whether, and to what extent, tax reform will impact U.S. multinational companies in 2018 and beyond. The session will also provide a fresh perspective on BEPS by considering a radically and fundamentally changed landscape for international planning, thereby demanding practical, operational, and non-academic tax structuring to meet the demands of this new global environment. Sean King, Align Global Consulting
2 CPE │ Field of Study Taxes Overview Pre Req: None │ Adv Prep: None
9:15 – 9:30 a.m. Break – Kiva Terrace
9:30 – 11:10 a.m. Estate, Gift and GST Tax Planning for High-Net Worth Individuals This session will address Estate, Gift and Generation-Skipping Transfer (GST) tax planning issues for clients with net worth above $5.5 million, particularly in light of the uncertainty regarding potential repeal of the Estate and GST taxes. It will cover background on how the taxes are calculated, and provide planning ideas including Grantor Retained Annuity Trusts (GRATs), sales to Intentionally Defective Grantor Trusts (IDGTs), and utilizing Dynasty Trusts. Marvin D. Hills, Crowe Horwath LLP
2 CPE │ Field of Study Taxes Overview Pre Req: None │ Adv Prep: None
11:10 a.m. – 12:10 p.m. Lunch – Kiva Terrace
12:10 – 1:50 p.m. The Economic Consequences of Charitable Remainder Trusts Charitable remainder trusts (CRTs) are often suggested to a client when he or she is considering selling a highly appreciated asset as a way of deferring or possibly avoiding income tax on the sale. However, such a superficial overview hides a much more complicated operation. This program will analyze the financial consequences of using a CRT to handle the sale of appreciated assets, and some of the surprising economic consequences that can arise. Chris Cline, Riverview Trust Company
2 CPE │ Field of Study Taxes Basic Overview Pre Req: None │ Adv Prep: None
1:50 – 2:10 p.m. Break
2:10 – 3:00 p.m. Member Sharing Breakouts by Topic (attendees choose 1 of 3) • Improving Tax Return Prep and Programs to Accelerate Team Development (1) Facilitator: Scott Bromley and Chris Coots, Wallace, Plese + Dreher, L.L.P. Room: Kiva A
• Advanced S Corp & Partnership Issues (2) Facilitator: Carl Harper, Pulakos Room: Ventana Dining Room
• How Are You Preparing to be a Firm of the Future? (3) Facilitator: Sol Green, Gray, Gray & Gray, LLP Room: Kiva B
1 CPE │ Field of Study (1) Production, Non-Technical | (2) Taxes, Technical | (3) Business Management & Organizational, Non-Technical Pre Req: None │ Adv Prep: None
3:00 – 3:05 p.m. Transition Break
3:05 – 3:55 p.m. Member Sharing Breakouts by Topic (attendees choose 1 of 3) • Improving Tax Return Prep and Programs to Accelerate Team Development (1) Facilitator: TBD Room: Kiva A
• Advanced S Corp & Partnership Issues (2) Facilitator: Carl Harper, Pulakos Room: Ventana Dining Room
• How Are You Preparing to be a Firm of the Future? (3) Facilitator: Sol Green, Gray, Gray & Gray, LLP Room: Kiva B
1 CPE │ Field of Study (1) Production, Non-Technical | (2) Taxes, Technical | (3) Business Management & Organizational, Non-Technical Pre Req: None │ Adv Prep: None
3:55 – 4:00 p.m. Transition Break
4:00 – 4:50 p.m. Wrap-Up, Takeaways and 2018 New Orleans Meeting Ideas Dana Plotke, CPAmerica International
Keynote Presentation
Congressman David Schweikert
* Please note that due to the timely nature of the material and ongoing legislative activities, this presentation will not be made available to attendees in advance. Attendees will have access to this material during and following the session.
2017 Tax Conference
34 of 781 David Schweikert is serving his fourth term in the United States Congress. He holds a seat on the Ways and Means Committee, having previously served on the Financial Services Committee. He also sits on the bicameral Joint Economic Committee, Co-Chairs the Valley Fever Task force with House Majority Leader Kevin McCarthy, and is the Republican Co-Chair of the Blockchain Caucus, the Tunisia Caucus and the Caucus on Access to Capital and Credit.
Among his legislative accomplishments, David was instrumental in authoring and passing the JOBS ACT into law. The bill was signed by the President in April 2012.
A national leader on tribal policy, David draws on a unique background working with Arizona’s tribal communities on important priorities.
As a strong advocate for efficiencies in the 21st Century economy, David collaborates with entrepreneurs and innovators in Arizona and around the world on ways to increase trade and drive economic growth. David has long championed technological innovations as the solution to the problems of over-burdensome government regulations.
David holds a seat on the Government and Oversight Subcommittee and the Social Security Subcommittee on the House Ways and Means Committee, where he is able to use his expertise in finance and tax policy to lend his voice towards pressing issues such as meaningful tax reform and reducing trade barriers for U.S. businesses.
David Schweikert has always been committed to public service and he has an impressive record as an effective reformer and problem solver.
By the age of 30 years old, David was serving as the Majority Whip in the Arizona state legislature. There, he Chaired the Indian Affairs Committee and rolled up his sleeves working on the state budget, healthcare system, and passed landmark tax reform and second amendment legislation.
Over the years, Arizona’s governors have appointed David to numerous posts. He served as Chair of the state’s tax court and helped negotiate Arizona federal compact with tribal communities.
35 of 781 After being out of public life for 14 years building a successful Arizona business, David was called to serve as Treasurer of Maricopa County. One of the largest counties in the country, David has been heralded for his pragmatic decision making leading up to the fiscal crisis. Maricopa County increased revenue at a time when municipalities all around the country were going deep into the red.
Whether serving in elected office, or running a successful Arizona-based family real estate business with his wife Joyce, David Schweikert has been an integral voice in shaping Arizona’s healthy and growing economy.
As a Member of Congress, David works to remove government barriers to innovation and free enterprise. He is a budget hawk and is continuously fighting for solutions to curb federal spending and reduce American debt.
David and his wife Joyce enjoy backpacking. They host overnight hikes down the Grand Canyon, and are constantly spending time outdoors with their daughter.
36 of 781 Current Issues in Flow Through Entities
Jim Hamill, Reynolds Hix & Co.
2017 Tax Conference
37 of 781 James R. Hamill, Ph.D., CPA
Jim Hamill is the Director of Tax Practice at Reynolds Hix & Co., P.A., in Albuquerque, New Mexico, where he provides tax consulting services for real estate, partnership and corporate clients and also provides estate planning services for families. He is also a managing member of Exchange Facilitators, LLC, which provides qualified intermediary and exchange accommodation titleholder services for Section 1031 exchanges. Jim is the author of over 30 CPE courses and more than 100 articles in professional tax journals and writes a weekly column on tax issues for the Albuquerque Journal. He has lectured on structuring tax transactions throughout the country for over 25 years and does web-based learning for CCH. He is a CPA in New Mexico, a past Chair of the New Mexico Society of CPA’s, has 35 years of experience as a tax practitioner and also taught university tax courses for more than 20 years.
38 of 781 PARTNERSHIP TAX UPDATE - 2017 James R. Hamill, CPA, Ph.D. Director of Tax Praxctice Reynolds Hix & Co. Albuquerque, NM
39 of 781 TOPICS
Section 754 Election Requirements Relaxed
Partnership Activity Groupings
Partnership Debt Share Update
Centralized Audit Provisions
Review of Agreements
SE Tax Update
Increasing Use of Hypothetical Transactions
40 of 781 SECTION 754 ELECTIONS
Current Regulations require a signature on a Section 754 Election
Treasury indicates growing use of Section 9100 relief for improper elections
October 12 proposed regulations eliminate the need for a signature
These are “reliance” regulations, so they may be relied upon immediately
As a curious aside, it has never been clear who is required to sign a Section 754 election
41 of 781 PARTNERSHIP ACTIVITY GROUPINGS
The passive loss regulations define an activity
There is flexibility in grouping operations into an activity
The activity must be an “appropriate economic unit,” or AEU
Factors are used to determine AEUs
Consistency rules apply
42 of 781 ACTIVITY GROUPINGS: (5) FACTORS
Similarities and differences in type of business
Common control
Common ownership
Similar geographic location
Interdependencies in operations
43 of 781 INTERDEPENDENCIES: (5) FACTORS
Purchase and sale between the operations
Goods and services provided together
Same customers
Same employees
Single set of accounting records
44 of 781 SOME FLEXIBILITY IN ACTIVITY GROUPINGS
The final regulations changed the rigid approach of the temporary regulations
Few examples provided
One example concludes four different groupings may be reasonable depending on the facts and circumstances
Once a grouping is selected, it cannot be changed unless Material change in facts and circumstances Original grouping was clearly inappropriate
45 of 781 PARTNERSHIP GROUPINGS
Partnership groupings matter for the partner, not the partnership
Once the partnership groups, the partner Cannot disaggregate But may further aggregate
So generally, the partnership should disaggregate, limited by The AEU standard based on facts and circumstances The ability to separately report income and deduction
46 of 781 WHY DO GROUPINGS MATTER?
Passive loss considerations, obviously
NIIT, avoid if Trade or business Taxpayer materially participates in activity
Section 761(f) Husband and wife joint venture Both materially participate in activity
SE tax using 1997 proposed regulations – 500 hours?
47 of 781 PARTNERSHIP DEBT SHARES
Recourse debt shares based on anti-Raphan regulations from 1984 Act
Nonrecourse debt shares Step 1: Share of Section 704(b) minimum gain Step 2: Section 704(c) gain as if property sold for nonrecourse debt Step 3: Profit share, with some flexibility
Two problems identified Section 707(a)(2)(B) disguised sale abuses Bottom dollar guarantees for recourse debt
48 of 781 REGULATORY FIXES
First effort would have changed all debt share determinations
Guarantees and other risk of loss would need “proof”
This would create the pro-Raphan rules
End result – in general, old rules stay
However, bottom dollar guarantees will not be respected
49 of 781 REGULATORY FIXES
Disguised sale issue is different
Debt-financed distributions can create disguised sale consideration Nonqualified debt Qualified debt and drag along rule
Regulations provide that, for disguised sale purposes, step 3 (profit share) of nonrecourse debt rules will apply
Now rollback under October 2017 regulatory burden evaluations
50 of 781 CENTRALIZED AUDIT RULES
Effective post-2017, the TEFRA audit rules, using a Tax Matters Partner, are replaced
Attempt to deal with increasing use of partnerships, low partnership audit rate and mega-partnership growth
New “partnership representative” has broad authority
Need for revision to agreements to deal with adjustment year partner effects and other administrative aspects of the new rules
51 of 781 UNCERTAINTIES
Regulations are only in proposed form
JCT estimates $9.3 Billion increase in revenue over 10 years
Acquisition of a partnership may mean acquisition of a tax liability
ASC 740 issues, including uncertain tax positions
State conformity to centralized audits, or centralized audits with non- conformity are open issues
AICPA (and others) request deferral of implementation
52 of 781 ELECTION OUT OF CENTRALIZED AUDITS
Requires Fewer than 100 K-1 forms Husband and wife partners count as two S corporation shareholders looks through to S corporation K-1 Only individuals, corporations, estates
Tiered partnership structures, without regard to number of direct and indirect partners, prevent election out
53 of 781 BASIC STRUCTURE
Assessments are made against the partnership
Tax is collected from partnership
Partners in adjustment year responsible for funding tax payment
Partnership representative deals with IRS and the partnership is bound by the decisions made by the partnership representative
The selection of the partnership representative is critical
54 of 781 NOTICE OF PROPOSED PARTNERSHIP ADJUSTMENTS (NOPPA)
Sent to PR at completion of audit
Imputed underpayment calculated Total netted partnership adjustment times Highest federal income tax rate
This is a very complicated computation
Modifications can then be made to the imputed underpayment
55 of 781 PUSH OUT ELECTION
Following the NOPPA the PR may elect to “push out” all or a portion of the imputed underpayment to one or more partners
Underpayments may be specific to one or more partners or may be general partnership underpayments
Adjustments may be made for partnership actions, such as amended returns, or partner characteristics, such as tax-exempt partners or partners subject to lower rates (e.g., corporate partner)
56 of 781 PARTNERSHIP REPRESENTATIVE
Does not need to be a partner
There is only one partnership representative
There is an annual designation on the Form 1065
The PR will be able to bind all of the partners
The PR for the reviewed year handles that audit, even if a successor has been appointed
The PR has significant powers, more than a TMP
57 of 781 PARTNERSHIP REPRESENTATIVE
The power of the PR cannot be limited by agreement
The PR can make the “push out” election for some items (e.g., partner specific underpayments) but not for others (e.g., general underpayments)
The PR is responsible for requesting adjustments to NOPPA Tax-exempt partner proof Proof of rate adjustments for partners Adjustments for amended returns by partners
58 of 781 PARTNERSHIP REPRESENTATIVE
In addition to addressing the PR and centralized audits in the partnership agreement (discussed next), there should be a separate contract with any PR who is not also a partner (and maybe with one who is a partner)
An agreement cannot limit the authority of the PR with respect to IRS but can provide for possible claims against the PR
Need to address Indemnity of the PR PR involvement of others in decision-making Protection against actions by the PR
59 of 781 Partner Self-Employment Tax
• The “general rule” is clear – • The “exception” is less clear a partner is subject to SE tax on his share of partnership . A “limited partner” is income attributable to the subject to SE tax only for operation of the trade or guaranteed payments for business [§1402(a)] services rendered [§1402(a)(13)] • Income from rents, dividends, interest, capital • The application of the gains, and so on are not exception to a LLC member is subject to SE an issue of great debate
60 of 781 The Limited Partner Exception
• Enacted in 1977 to prevent abuses where partners wanted SE income • LLCs did not exist in 1977 • RESULT: Congress did not consider the application of §1402(a)(13) to LLC members
61 of 781 1997 Proposed Regulations
• Apply to any tax law partnership • Ignore status as limited or general partner • Ability to bifurcate interests (general and limited) • SE tax may apply if . More than 500 hours participation . Liability is not limited . Member may contractually bind the entity . Professional service entity
62 of 781 LLC Member SE Tax??
• The proposed regulations are not the law (and never are), but are a statement of what IRS views as a reasonable position on this issue; note that they are 20 years old and IRS seems to understand there is no basis for adoption in temporary or final form
• There are other positions that may also be “reasonable” as well as “unreasonable”
63 of 781 LLC Member SE Tax
• Three court decisions have found that LLC members are not to be treated as limited partners for purposes of the material participation provisions for passive loss status
• The decisions (generally) found that LLC members have a dual status
. Like general partners in some respects, like limited partners in others
• I do not believe these decisions are directly applicable to the SE issue; some others worry about this
. In any event, even dual status would require an evaluation of what the LLC member did
64 of 781 Use of Guaranteed Payments
• A Guaranteed Payment operates similar to salary in an S corporation
• It is separately reported as ordinary income to the partner, and is deductible by the partnership
• If made for services, it is clearly subject to SE tax
65 of 781 Use of Guaranteed Payments
• If a guaranteed payment for services is specifically provided for, and is made with due consideration to the value of the services provided, it may serve as a good faith statement of income from services
• If one can then argue that SE tax should attach only to income from services, and not to income from capital, the guarantee may be a reasonable approach to set SE income
66 of 781 Use of Guaranteed Payment
• IRS was successful in a service LLP – Renkemeyer, 136 TC 137 (2011) seeking to limit SE
• In CCA 201640014 (9-30-2016) IRS extended logic to a restaurant franchisee LLC . Wife was owner but passive – no dispute that she had no SE . Husband was active • Sought to split capital-service income • Guaranteed payment used; not clear how reasonable • IRS concludes cannot split capital-service income
67 of 781 Real Trouble?
• Renkemeyer received a lot of attention, but it had an aggressive fact pattern where much of the income was allocated to an S corporation and no SE tax was reported
• In April 2017 the Tax Court decided Castigliola, a more troubling case . Law firm organized as LLC . Guaranteed payments of $150,000 and $120,000 used . Tax Court still held that ALL income is subject to SE tax . All members fully participated in the LLC
68 of 781 Why Review the Agreement?
You will prepare the tax return
The agreement will need to be consulted for items such as (this is NOT an exhaustive list)
Allocation of profit and loss
Section 704(b) safe harbor or target?
Do distributions match the economic deal?
Tax elections or choices to be made
Definitions, terminology, references
69 of 781 When to Review the Agreement The Best Option
If the agreement will at some time HAVE to be reviewed for its tax issues, then why wait?
If the agreement is instead reviewed in its draft form, and before it has been signed, the opportunity exists to suggest changes that
Will make it understandable (at least to you)
Will reflect the economic deal the partners think they have struck
Will avoid uncertainties when the return is prepared
70 of 781 What Could Possibly Go Wrong?
An expert in drafting partnership agreements once said the best way to compromise a partnership agreement is to
Draft it yourself and Don’t allow anyone else to look at it
If the above procedure is followed
Professional fees will be saved The agreement will be ready to go at an earlier date My experience has been, everyone wants to save money until they don’t (when trouble arises)
71 of 781 Partnership Agreements Is an Extension to a “Normal” Agreement
Many business agreements deal with a relationship between two parties at appoint in time
Contract to buy and sell property
Redemption agreement
A partnership agreement is a “living” document that must consider changing circumstances and relationships over the life of the entity
Drafting an agreement is challenging
One can never use a pure boiler plate agreement
Similarly, reviewing an agreement is challenging
A second set of eyes almost always will improve the document
72 of 781 So What Should We Look For?
Generally, anything that will affect the work that we do
This is because We will have to do this work and we want a well-defined roadmap to follow We should not be guessing when we do the return, or perhaps better said, “doing what we think is right (best)” when the agreement is not clear We have experience and expertise in the matters that we deal with, and can be a tremendous resource to the drafter of the agreement
However, along the way we can also be a generalist helper Are terms clearly defined and consistently defined (or used)? Might it be easier (and more accurate) to define certain terms by reference to how they are used in the Regulations
73 of 781 Ordering of Analysis By General Importance
Distributions
Allocations
Definitions/Terminology/References
Tax Elections 74 of 781 A Basic Approach We don’t have to be the problem solver
Our goal is just to understand the document as it affects our work
So a simple question is itself helpful when we can’t de-cipher the agreement
Illustration – Richard Feynman “what happens if this valve gets stuck”
“You try to find out whether it’s a valve or not”
75 of 781 Why Distributions First?
A CPA can be most helpful in analyzing whether the agreement matches the “deal”
The deal is best laid out in the sections dealing with distributions
This is so because the deal is who gets what and when do they get it
76 of 781 What Is the Deal?
There are two ways to decipher the deal
Read the agreement and assume that the deal inferred from that reading is the deal
Ask first what the deal is, and then analyze the agreement to see if it is that deal
The best way is to ask for an explanation before reading the agreement
77 of 781 Allocations
We distribute cash and property and we allocate profit and loss
The economic deal will be set by the distributions
It is best to first review the economic deal and then evaluate whether the distributions match this deal
After we understand the deal, and have convinced ourselves the distributions match the deal, we can move on to allocations
This ordering is useful because
Allocations of income should match the partner(s) who enjoy the economic benefits associated with that income
Allocations of loss should match the partner(s) who suffer the economic detriment associated with that loss
78 of 781 Why Allocations Must Match the Deal
Section 704(a) allows partners to allocate items by agreement
Section 704(b) limits this power when the agreement lacks substantial economic effect
The Section 704(b) regulations are the source of evaluating the economic effect of the allocations and whether that economic effect is substantial
79 of 781 How to Evaluate Economic Effect
While the Section 704(b) regulations have safe harbors for both recourse and nonrecourse allocations, they are grounded in “fundamental principles”
These basic principles are stated in the Section 704(b) regulations, at Regs. Section 1.704-1(b)(2)(ii)(a)
80 of 781 Economic Effect Fundamental Principles
Must be consistent with the underlying economic arrangement of the partners
This means
If there is an economic benefit corresponding to the allocation, the allocation must be made to the partner who receives the economic benefit
If there is an economic burden corresponding to the allocation, the allocation must be made to the partner who bears the economic burden
81 of 781 Economic Effect Applying Fundamental Principles
Without understanding the “deal,” we cannot apply, or even attempt to apply, the fundamental principles of the Section 704(b) regulations
So by starting with an understanding of the distribution plan, as well as the contributions made or to be made, we can best understand
Benefits, which should track distributions
Burdens, which should track contributions
82 of 781 Safe Harbor Allocations
Beyond the simple level, we should look for
A cross reference to the regulations to define what is meant by capital account maintenance, to define a liquidating distribution, to define a qualified income offset, and to define a minimum gain chargeback
Additional definitions of, and treatment of
Nonrecourse deductions
Partner nonrecourse deductions
Nonrecourse debt
Partner nonrecourse debt
Again, why not just cross reference the Section 704(b) regulations for these terms
83 of 781 Other Terms Used for Profit and Loss Allocations These might include
Sharing ratios Economic Interests Member Interests
All fine but
They need to be CLEARLY defined Definitions should also envision changes to these terms as the game is played New contributions New members 84 of 781 What Profits and Losses Are We Talking About?
Section 704(b) allocations are “book” items
This is not the same as tax items
Drafters sometimes do not understand the difference
Do we mean net profits and losses or gross income or deduction?
Drafters sometimes do not understand the difference
We may also have different ratios for
Normal operations
Major capital events
Sale of property (especially with “layer cake” allocations)
Drafters sometimes do not understand the difference
85 of 781 Target Allocations of P&L
Target allocations mean that
The agreement focuses on distributions, not P&L shares
Then allocations of P&L are made so that a “target” capital is achieved that matches the distributions that would be made at the end of each year
The agreement then does not specify a P&L sharing but instead
Assumes a hypothetical sale of assets and a hypothetical liquidation
Determines distributions to each partner based on that hypothetical sale and liquidation
Then plugs allocations of (actual) P&L to achieve hypothetical capital accounts matching those hypothetical distributions
86 of 781 Target Allocation Issues
The first significant review issue is whether terms are defined
What target capital?
Usually 704(b) book
What P&L?
Usually book items
Must separately provide for Section 704(c), nonrecourse deductions, partner nonrecourse deductions
Cannot be reflected in book target capital
87 of 781 Target Allocation Issues
The second is whether items of P&L may be used to reach targets
Capital shifts and guaranteed payments may arise without this clause
However, this clause creates odd results when tested (see final step below)
Absence of items to hit targets may also raise economic effect issue sunder the so- called “equivalence test” of the Section 704(b) regulations
The final step is to taste the pudding, that is, test the allocations under a variety of scenarios to make sure the members understand what they have agreed to
88 of 781 CENTRALIZED AUDIT RULES • Consider the election out, if available
• Restrict transfers that would jeopardize election out?
• Consider push out election
• Recovery of tax from partners for no push-out
• Designation of partnership representative
• Rights and responsibilities of partnership representative
89 of 781 HYPOTHETICAL TRANSACTIONS INCREASE
Hypothetical transactions rely on certain assumptions that may be difficult to support
Determinations of FMV may be the most difficult issues, particular when not based on arm’s-length bargaining
Nonetheless, there is increasing use of hypothetical transactions, either by agreement (e.g., target allocation clauses) or, more commonly, by regulation
Treasury seems to like hypothetical transactions to determine economics
90 of 781 HYPOTHETICAL TRANSACTIONS
Section 704(b) regulations protect substantiality of many otherwise “transitory” allocations by a value-equals-basis assumption, so that a hypothetical sale of the property creates no gain to satisfy a chargeback
Section 752 recourse debt determination regulations use a hypothetical sale of partnership assets at zero value to create a scenario where one or more partners bear an economic risk of loss for partnership recourse debt
Target allocation clauses in partnership agreements rely on a hypothetical sale at Section 704(b) book value at the end of each period to determine required allocations of book income and loss
91 of 781 Hypothetical Transactions
That’s nine in the previous two slides
Most hypothetical sales are At FMV, which is difficult to prove By regulation
We may expect to see growth in the use of hypothetical transactions, including in measuring a partner’s interest in capital Example: Section 706 tax year selection Example: Section 267 relationships, affecting Section 707, Section 1239, etc.
92 of 781 Hypothetical Sales at Fair Market Value
Sections 751(a) and (b) shares of “hot” and “cold” assets
Section 743 to determine previously taxed capital
Section 755 allocation scheme to determine unrealized gains and losses within two asset classes
Section 1411 proposed regulations to determine application of NIIT to gains from a sale of a partnership interest
Revenue Procedure 93-27 definition of a profits interest
Section 956 share of CFC income (related party testing)
93 of 781 CONCLUDING THOUGHTS
Much of the complexity discussed in this session is “new,” measured relative to the 1954 birth of subchapter K
The increase in complexity tracks the increasing sophistication of the types of taxpayers using the partnership form, including through LLCs
The increasing complexity is often found in regulations, as Treasury fights a back-and-forth battle with sophisticated tax advisers Example: Centralized audits Example: Debt shares for disguised sales (leveraged partnerships) Example: Hypothetical transactions
94 of 781 Significant Developments in Individual Income Taxation
Richard Kaplan, University of Illinois College of Law
2017 Tax Conference
95 of 781 Richard L. Kaplan is the Guy Raymond Jones Chair in Law at the University of Illinois, specializing in the areas of Federal income taxation and Elder Law. He is also a C.P.A. and practiced in Atlanta before going to Yale Law School. After graduating from Yale, he practiced law for three years in Houston before coming to the University in 1979. He is the author of FEDERAL TAXATION OF INTERNATIONAL TRANSACTIONS and a co- author of two volumes in the WEST’S FEDERAL TAXATION textbook series. In addition, he has testified before the House Committee on Ways and Means and the Senate Committee on Finance at the Committees’ request.
Since 1992, Professor Kaplan has taught an innovative course on “Elder Law” that focuses on the legal and financial implications of people living longer. He is the co-author of ELDER LAW IN A NUTSHELL, published by West Publishing Co. (6th ed. 2014), and serves as faculty advisor to The Elder Law Journal, the nation’s oldest scholarly publication devoted to this subject. He is a Fellow of the Employee Benefits Research Institute and a member of the National Academy of Social Insurance.
96 of 781 SIGNIFICANT DEVELOPMENTS IN TAXATION OF INDIVIDUALS Professor Richard L. Kaplan University of Illinois College of Law
CPAmerica Intl. Tax Conference Tucson, AZ November 13, 2017 © Copyright 2017 by Richard L. Kaplan. All rights reserved. 97 of 781 Contents
I. Tax Legislation in 2017? II. Recent Cases
98 of 781 2017 Reform Act: Where We Are
1. House Ways and Means Committee 2. House of Representatives → 3. Senate Finance Committee → 4. Senate → 5. Conference Committee → 6. Revote by House of Representatives → 7. Revote by Senate → 8. President 99 of 781 House GOP Tax Reform Bill
Four tax brackets: Rate Single Joint 12 First $45,000 First $90,000 25 Up to $200,000 Up to $260,000
35 Up to $500,000 Up to $1,000,000
39.6 Over $500,000 Over $1,000,000
No Alternative Minimum100 of 781 Tax First-Year Depreciation Depreciable property can be expensed up to $5 million, phasing out dollar-for-dollar after $20 million of equipment is placed in service. Parameters to be adjusted for inflation Includes energy efficient heating and air conditioning equipment after Nov. 2, 2017 Full (i.e., 100%) expensing allowed for equipment acquired after Sept. 27, 2017 through 2022. Need only be the first use by this taxpayer
101 of 781 Pass-Through Entity Income
Income from proprietorships, partnerships, and S corporations to be taxed at a maximum rate of 25% Business income must be separated from compensation by: (a) treating 70% of net income as wages, or (b) determining a ratio based on amount of invested capital. Selection cannot be changed for 5 years. Does not apply to personal service companies
102 of 781 Capital Gains
Dispositions of self-created intellectual property, including a “patent, invention, model or design (whether or not patented), a secret formula, or process” will be taxed as ordinary income. As will be the transfer of a patent prior to commercial exploitation Like-kind exchanges to be limited to real estate (i.e., no artwork)
103 of 781 Home Sale Exclusion
Required periods for ownership and use as a principal residence would be 5 of the previous 8 years (vs. current 2 of 5). Exclusion could be used only once every 5 years (vs. current 2). Exclusion would be phased out, dollar-for- dollar, after the taxpayer’s AGI exceeds $500,000 (or $250,000 for singles).
104 of 781 Employee Exclusions Eliminated Educational assistance (i.e., up to $5,250) Qualified tuition reductions Achievement awards Dependent care assistance (after 2022) Adoption assistance Moving expense fringe benefits Provided housing would be limited to $50,000. Phases out for “highly compensated” individuals at $1 for $2 of AGI beyond the defining threshold 105 of 781 Business Deductions and Credits Repealed
Deduction for certain costs unless they are included in the recipient’s income: Entertainment expenses (!) Qualified transportation fringe benefits Qualified parking On-premises use of athletic facilities Credit for employer-provided child care Credit for providing access to disabled persons
106 of 781 Non-Itemized Deductions
Many “above-the-line” deductions (i.e., to AGI) are eliminated. Employee trade or business expenses, other than reimbursements Moving expenses Archer Medical Savings Accounts Alimony no longer deductible No longer taxable to the alimony recipient Existing divorce decrees are grandfathered, unless modified after 2017 to this effect. 107 of 781 Itemized Deductions
Most itemized deductions are eliminated, including: Medical expenses Casualty losses Tax preparation costs State and local taxes: only property taxes remain deductible, up to $10,000. Same limit for joint and single returns
$5,000 for married108 offiling 781 separately Home Mortgage Interest Interest on home mortgage acquisition indebtedness obtained after November 1, 2017 is limited to debt of $500,000 ($250,000 for married filing separately). Deductible interest is limited to acquisition indebtedness on the taxpayer’s principal residence after 2017. Exception for pre-Nov. 2, 2017 binding contract to close before 2018 if the home is purchased by March 31, 2018. 109 of 781 Charitable Contributions
The 50%-of-AGI limit for contributions to public charities would increase to 60%. The special deduction for the right to purchase college sports tickets would be repealed. The mileage rate for charitable work would be adjusted for inflation going forward. A donee organization’s filing required returns would not relieve the donor from having a receipt for gifts of $250 or more. 110 of 781 Standard Deduction
Personal exemption and standard deduction would be effectively combined: $12,200 (singles), $24,400 (joint filers) Compared to $10,400 (singles), $20,710 (joint filers) in 2017 No additional exemptions for dependents, but single filers with at least one child may claim $18,300. Impact on itemization decision
111 of 781 Child Credit Amount of credit to increase to $1,600, but only $1,000 (inflation-adjusted) will be refundable. Phase-out parameters to be increased to: Singles: $115,000 - $130,000 (from $75,000 - $95,000); Joint filers: $230,000 -$250,000 (from $110,000 -$130,000) Non-refundable credit of $300 for non-child dependents Through 2022 only112 of 781 Educational Incentives - I
The Hope Scholarship Credit and the Lifetime Learning Credit would be repealed in favor of the existing American Opportunity Tax Credit. This credit, however, would become available for a 5th year of post-secondary education at half the rate for the first 4 years. Interest on student loan indebtedness repealed. Same for exclusion of interest on U.S. bonds No contributions to Coverdell savings
accounts may be made113 of 781after 2017. Educational Incentives - II Withdrawals may be made from § 529 plans for up to $10,000 per year for elementary and high school expenses. A child in utero may be a designated beneficiary of a § 529 plan. A child in utero is “at any stage of development, who is carried in the womb.” Student loan debt discharged because of the student’s disability or death would be excluded
from income. 114 of 781 Estate and Gift Taxes
Estate and Generation-Skipping Taxes: Exemption = $10 million, adjusted for inflation Eliminated in 2024 Current step-up in basis is retained Gift Tax: Lifetime and annual exclusions retained at inflation-adjusted amounts Rate = 35% 115 of 781 116 of 781 The commission will “investigate and report on the operation, effects, and administration of the Federal system of income . . . taxes and upon any proposals or measures which might be employed to simplify or improve the operation or administration of such . . . taxes.”
Senate Committee on Finance December 1925
117 of 781 Returned Receipts Facts: The court-appointed receiver sought to obtain a tax refund based on damage payments the Taxpayer paid to its defrauded customers. Those payments reflected income the Taxpayer had reported and paid taxes on when they were originally received. Held: The special tax relief provision does not apply here, because Taxpayer never had the required “unrestricted right” to the amounts. Robb Evans & Associates v. United States, 850 F.3d 24
(1st Cir. 2017) 118 of 781 Business Expenses Facts: Taxpayers filed their tax returns for the 3 years under review late and had no records for any of claimed deductions pertaining to business expenses. The IRS assessed deficiencies of $183,796 and penalties of $74,717. Held: The Cohan rule does not apply when there is no “sufficient evidence in the record to provide a basis for the estimate” of Taxpayer’s claimed deductions.
Wages v. Commissioner, T.C.119 of 781 Memo. 2017-103 Business Meals Facts: Taxpayer owns an NHL franchise and contracts with out-of-town hotels to “use and occupy” meal rooms when playing away games. He deducted the entire $270,000 cost of the meals furnished to players and other team employees during away games. Held: These meals qualify for 100% deduction as de minimis fringe benefits provided at a facility that is “on or near the business premises of the employer” per §132(e)(2).
Jacobs v. Commissioner, 148120 of 781T.C. No. 24 (2017) Deduction Timing Facts: Taxpayers participate in an ESOP that owns all the stock of an S-corporation. The S- corporation accrued payroll expenses owed to Taxpayers, but did not pay all those expenses by the end of the year. Held: The ESOP beneficiaries own the stock of the S-corporation per §267(c)(1) and are therefore “related parties” to the S-corporation per §267(e)(1)(B)(ii). Accordingly, the unpaid payroll expenses cannot be deducted this year.
Petersen v. Commissioner,121 148 of 781 T.C. No. 22 (2017) Charitable Contribution Facts: Taxpayer purchased a property interest in 2002 for $2.95 million and deducted $33 million when it donated that same property interest 17 months later. It left blank the space for donor’s adjusted basis on Form 8283. Held: Failure to list the donor’s basis results in the complete denial of the claimed deduction. Moreover, the court’s determination of market value of ~ $3.5 million means that the 40% penalty for a 400% overvaluation applies.
RERI Holdings I, LLC v. Comm122 of 781 ., 149 T.C. No. 1 (2017) Medical Expenses Facts: Taxpayer is a gay man who paid $36,538 for in vitro fertilization of an egg donor and a gestational surrogate to father a child. Held: These costs do not qualify as medical expenses, because the medical services in question did not affect any bodily function of “the taxpayer, his spouse, or a dependent,” and the U.S. Constitution’s Equal Protection Clause does not require a contrary result. Morrissey v. United States, 871 F.3d 1260 (11th Cir. 2017) 123 of 781 Retirement Plan Loans Facts: Taxpayer borrowed $40,000 from her 401(k) plan to finance a leave of absence to care for her new baby. Her employer failed to deduct repayment payments until Taxpayer returned to work, but she then repaid the loan. Held: When no payments were made by Taxpayer, the loan was in default and the entire balance was deemed a plan distribution. The 10% early distribution penalty applies but not the 20% accuracy-related penalty. Frias v. Commissioner, T.C.124 of 781Memo. 2017-139 IRA Asset Purchase Facts: After the custodian of Taxpayer’s IRA declined to purchase stock in a privately held corporation for the IRA, Taxpayer initiated a wire transfer for $50,000 from his IRA to the corporation to purchase its stock. Held: At no time did Taxpayer have actual or constructive receipt of any cash or other assets of the IRA, so there was no distribution to Taxpayer from this IRA. McGaugh v. Commissioner, 860 F.3d 1014 (7th Cir.
2017) 125 of 781 IRA Withdrawals - I Facts: Taxpayers withdrew funds from their IRAs to meet living expenses after losing their long-held jobs and depleting their savings. Held: There is no economic hardship exception to the taxation of retirement plan withdrawals or the early distribution penalty that applies to taxpayers under age 59½. The negligence penalty, however, is abated due to Taxpayers’ good faith efforts to comply with the tax laws. Cheves v. Commissioner, T.C. Memo. 2017-22
Also: Elaine v. Commissioner126 of 781, T.C. Memo. 2017-3 IRA Withdrawals - II Facts: Following the death of Taxpayer’s husband, the custodian of his IRA erroneously transferred those funds into Taxpayer’s IRA. She then withdrew ~ $142,000 from her IRA and paid $110,000 to her stepson to settle probate litigation. Held: The full amount of the distribution from taxpayer’s IRA is taxable and also subject to the 10% early distribution penalty, because the funds came from what was now her IRA.
Ozimkoski v. Commissioner,127 of 781T.C. Memo. 2016-228 IRA Hardship Penalty Facts: A 47-year old retired police officer received $100,000 from his retirement plan but did not roll over these funds within 60 days, because he suffered from “major depressive disorder.” He did not apply for a hardship waiver prior to being audited, so the IRS assessed tax and an early distribution penalty. Held: Rev. Proc. 2003-16 does not preclude a taxpayer from claiming a hardship waiver during the course of an examination.
Trimmer v. Commissioner,128 148 of 781 T.C. No. 14 (2017) Dependency Deductions Facts: Taxpayer claimed dependency deductions and child tax credits (as well as head-of- household filing status) for her 2 minor grandchildren who lived with her the entire year. The children’s parents also lived with Taxpayer and had already claimed them. Held: The tie-breaker provision in §152(c)(4)(A) designates the parents when multiple persons can claim the same “qualifying children.” Smyth v. Commissioner, T.C. Memo. 2017-29 129 of 781 Filing Status Facts: Taxpayer filed a joint tax return with his wife, but she refused to sign it. She later filed a separate return claiming a large theft loss from the Bernie Madoff fraud, even though she was not involved in that investment scheme. Held: Taxpayer cannot file a joint return with his wife, because she did not consent to file jointly with him and he was not an authorized agent for her. Moss v. Commissioner, T.C. Memo. 2017-30 130 of 781 Innocent Spouse Relief Facts: Taxpayer filed a joint tax return with her husband and sat through the entire trial of the tax deficiency relating to that return. She is an attorney/M.B.A. who took 4 additional college courses in accounting and now handles property tax appeals. Held: Taxpayer does not qualify for innocent spouse relief, because she “participated meaningfully” in the prior tax proceeding. Rogers v. Commissioner, T.C. Memo. 2017-130 131 of 781 How to Maximize Social Security, Medicare and Medicaid Benefits for Clients
Steve Siegel, The Siegel Group
2017 Tax Conference
132 of 781 Steven G. Siegel, JD, LLM [email protected]
Steven G. Siegel is president of The Siegel Group, which provides consulting services to attorneys, accountants, business owners, family offices and financial planners. Based in Morristown, New Jersey, the Group provides services throughout the United States.
Mr. Siegel is the author of many books, including: The Grantor Trust Answer Book (2017 CCH); The CPA’s Guide to Financial and Estate Planning (AICPA 2017); Federal Fiduciary Income Taxation (Foxmoor 2017;) Federal Estate and Gift Tax (Foxmoor 2016)).
He is the co-author with Richard Oshins, Esq. of The Anatomy of the Perfect Modern Trust, Estate Planning Magazine, January and February 2016.
In conjunction with numerous tax planning lectures he has delivered for the National Law Foundation, Mr. Siegel has prepared extensive lecture materials on the following subjects: Planning for An Aging Population; Business Entities: Start to Finish; Preparing the Audit-Proof Federal Estate Tax Return; Business Acquisitions: Representing Buyers and Sellers in the Sale of a Business; Dynasty Trusts; Planning with Intentionally- Defective Grantor Trusts, Introduction to Estate Planning; Intermediate-Sized Estate Planning; Social Security, Medicare and Medicaid: Explanation and Planning Strategies; Subchapter S Corporations: Using Trusts as Shareholders; Divorce and Separation: Important Tax Planning Issues; The Portability Election; and many other titles.
Mr. Siegel has delivered hundreds of lectures to thousands of attendees in live venues and via webinars throughout the United States on tax, business and estate planning topics on behalf of numerous organizations, including The Heckerling Institute on Tax Planning, CCH, National Law Foundation, AICPA, The Kansas City Estate Planning Symposium, Western CPE, the National Society of Accountants, Cohn- Reznick, Foxmoor Education, many State Accounting Societies and Estate Planning Councils (including: The California CPA Society, The Southern Nevada Estate Planning Council; the Oregon CPA Society; the Southern Arizona Estate Planning Council; the Stanislas County (CA) Estate Planning Council) as well as on behalf of many private companies.
He is presently serving as an adjunct professor of law in the Graduate Tax Program (LLM) of the University of Alabama (teaching Income Taxation of Trusts and Estates), and has served as an adjunct professor of law at Seton Hall and Rutgers University law schools.
Mr. Siegel holds a bachelor’s degree from Georgetown University (magna cum laude, phi beta kappa), a juris doctor from Harvard Law School and an LLM in Taxation from New York University Law School.
133 of 781 SOCIAL SECURITY, MEDICARE AND MEDICAID ADVISING CLIENTS ON CRITICAL ISSUES
SPEAKER: STEVEN G. SIEGEL, J.D., LLM (TAXATION)
134 of 781 Baby Boomers and Social Security
135 of 781 Application
The Social Security Administration estimates that baby boomers are becoming eligible for Social Security benefits at the rate of about 10,000 each day for the next 20 years Go to www.socialsecurity.gov and click on “Applying Online for Retirement Benefits” If the applicant has a special consideration it will be necessary to visit a local office i.e., name change, applying for benefits on someone else’s record, utilizing a special strategy for benefits, etc.
136 of 781 Credits Needed for Coverage
The number of credits (formerly referred to as “quarters of coverage”) needed to be fully insured under the Social Security system is 40
Once the required number of credits has been earned, the worker is insured for life. A maximum of four credits may be earned in any one year.
To qualify for a credit in 2017, a client must earn $1300. The dollar amount required to earn a credit is recalculated in October each year, based on a set formula. 137 of 781 A client must have 40 credits to be fully insured for Medicare benefits as well
138 of 781 Did the Client Accumulate Social Security Credits at the Maximum Rate?
Maximum earnings subject to Social Security for 2017 $127,200 For 2018: $128,700
139 of 781 Social Security Retirement Benefits Available for the Worker
General Eligibility
A worker must be at least age 62 and deemed fully covered at that time
If the worker retires between ages 62 and his or her “normal” retirement age, such retirement is considered “early retirement” and means a reduced benefit for the worker
140 of 781 Worker
Full Retirement Availability for persons born in 1955 is 66 years, 2 months.
Most Baby Boomers born between 1946 and 1954 have age 66 as their full retirement age.
If a worker elects to receive benefits prior to attaining his or her full retirement age, the benefits are reduced.
If the worker decides to delay benefits beyond the normal retirement age, the benefit payable to such person increases by 8% per year, until the worker attains age 70
141 of 781 Social Security Retirement Benefits Available for the Worker
Today, for one-third of Americans over 65, Social Security benefits constitute 90 percent of their total income In 2017, the maximum monthly benefit an individual may collect on his or her own record at full retirement age is $2,687 To calculate a worker’s benefit, earnings are indexed to bring each of those prior year’s earnings to near-current wage levels (basically adjusting for inflation) The highest 35 years indexed earnings are then added together and divided by 420
142 of 781 Social Security Retirement Benefits Available for the Worker
It is always possible for a worker to increase his or her benefit by improving the earnings record, even after the worker started receiving benefits
143 of 781 Benefit Reduction for Early Retirement
Early vs. Normal Retirement Age — “Catch Up Period”
A worker who elects to retire before reaching normal retirement age will receive more lifetime benefits for the first 15 years from the initial date of entitlement before the early retirement reduction causes a lifetime loss of benefits
The breakeven point is approximately age 77 144 of 781 Benefit Reduction for Early Retirement
Additional Reduction at Age 62 for Continued Earnings
In 2017, one dollar in benefits is withheld for every two dollars in earnings above the threshold limitation
For 2017, the threshold limitation is $16,920 per year, or $1,410 per month
145 of 781 Benefit Reduction for Early Retirement
No Earnings Limit Once Full Retirement Age Reached There is no limit on earnings beginning in the months that an individual attains full retirement age For the year in which the client reaches full retirement age, the earnings limit is increased to $44,880 (for 2017) before a reduction applies and the reduction is $1 of Social Security benefit for every $3 of earned income over the limit The limit applies only to the months before reaching full retirement age Starting with the month full retirement age is reached, the client can have unlimited earned income and still receive 146 of 781 his or her full Social Security benefit Extra Benefits for Delayed Retirement
Year of Birth Credit for Delayed Retirement
1943 and later 8.0% • It is estimated that when comparing the benefit received by a person who began collecting at age 66 vs. one who began collecting at age 70, the person who waited until age 70 gets “ahead” at age 81/82 • Social Security benefits are not retroactive
Extra Benefit If Wait Until Age 70 147 of 781 How Social Security Benefits Are Taxed
Federal Income Taxation About one-third of the persons who collect Social Security benefits pay federal income taxes on them Client’s “combined income”, defined as adjusted gross income plus tax-exempt interest plus one-half of their Social Security benefits If that total combined income exceeds the amounts in the following chart, the portion of the client’s Social Security benefits will be taxable
148 of 781 How Social Security Benefits Are Taxed
Taxpayer who is ... Percentage of benefits that are taxable ... 50% 85% Single or Head-of-Household Over $25,000 Over $34,000 Married filing jointly taxpayer Over $32,000 Over $44,000
For those who are married and filing separately, 85% of the Social Security benefits are fully taxable at any income level
• There is no uniformity among the states with respect to the taxation of Social Security benefits
149 of 781 Rights and Opportunities for Divorced Spouses
A divorced client is entitled to spousal or survivors Social Security benefits based on the earnings of the ex-spouse if: He or she was married for at least 10 years before the finalization of the divorce Had been divorced from the ex-spouse for at least two years before applying for benefits and Has not remarried before age 60 Remarriage before age 60 will not disqualify an individual from a survivor’s benefit if the subsequent marriage(s) end in death or divorce before applying for benefits
150 of 781 Rights and Opportunities for Divorced Spouses
Social Security benefits received by an ex-spouse have no effect on what may be received by children or a new spouse An ex-spouse can begin collecting spousal benefits even if the working spouse has not yet begun taking his or her own benefits If a client remarries after age 60, they can choose the better spousal benefit between their new spouse and any previous qualifying ex-spouse The restricted application rules enacted in 2015 limit the options of divorced spouses born after January 1, 1954
151 of 781 The Lump-Sum Death Benefit
A one-time $255 lump-sum death benefit is payable to a spouse or children under age 18 who lived with a covered worker who died
152 of 781 Survivors’ benefits are available as long as the deceased worker earned the required number of Social Security credits
Eligible Recipients:
The following people can receive Social Security survivors’ benefits on the earnings of a deceased worker A widow or widower A surviving divorced spouse Unmarried children Dependent parents
153 of 781 Benefits for Survivors
U.S. Supreme Court ruled unanimously in Astrue v. Capato, 132 S. Ct. 2021 (2012) that a child artificially conceived after the death of the father was not a “dependent child” under the Social Security laws A widow or widower can receive full benefits at full retirement age or reduced benefits as early as age 60 The marriage must have lasted at least nine months to qualify for this benefit
154 of 781 Benefits for Survivors
A surviving widow or widower who is at or above full retirement age generally receives 100% of the highest benefit received by the couple before the spouse’s death Assuming the person’s own benefit is lower than the survivors benefit, there are three options to consider Begin the survivor’s benefit at age 60 as allowed; Begin the survivor’s benefit at full retirement age; or Begin their own benefit at age 62 and switch to the survivor’s benefit at full retirement age
155 of 781 Benefits for Survivors
Taking one’s own reduced benefit at age 62 and then switching to the survivor’s benefit at full retirement age is always going to be better than waiting to full retirement age to begin the survivor’s benefit
Starting to collect survivor’s benefits at age 60 results in a 30% reduction (assuming age 66 is full retirement age) in benefits from the amount that would be received at full retirement age
156 of 781 Benefits for Survivors
A widow or widower can begin collecting Social Security benefits at any age if he or she is taking care of the deceased worker’s child who is eligible for the children’s benefit and is under age 16 or disabled
If there are no children under age 16, then the widow or widower can begin benefits at age 60 or age 50 if the widow or widower is disabled
157 of 781 Benefits for Survivors
Unmarried children who are younger than 18 can receive Social Security survivor’s benefits on the deceased worker’s record
Dependent parents of the deceased qualify if they are age 62 or older and the deceased or disabled worker was providing more than ½ of their support
158 of 781 The Windfall Elimination Provision
• Limits social security benefits for persons earning a pension in a job where they didn’t pay social security taxes – and also worked in other jobs long enough to qualify for social security benefits.
• The otherwise available social security benefit is reduced. • It does not apply to survivors – but the government pension offset may affect survivors’ benefits.
159 of 781 The Government Pension Offset
Many federal government employees hired before 1984 are not part of the Social Security system and receive only a government pension
The Government Pension Offset was instituted to reduce the amount of Social Security benefit received by anyone who gets a government pension and a spousal or widow or widower benefit
160 of 781 The Government Pension Offset
The Government Pension Offset only applies to the government employee that receives survivor’s or widow or widower benefits, not the worker’s own benefit
Under the Government Pension Offset, the Social Security spousal or widow or widower’s benefit is reduced by 2/3 of the individual’s government pension benefit 161 of 781 Social Security Strategy Repay and Reapply
162 of 781 Changes in Social Security Strategies
File and Suspend The popular File and Suspend strategy has been eliminated for persons other than those who were age 66 or older and who filed to suspend their benefits by April 29, 2016 Other Strategies The strategy to file for a restricted claim for spousal benefits is limited to people who were 62 and older in 2015 The strategy of having retroactive benefits paid in a lump-sum has been eliminated
163 of 781 Medicare The National Health Insurance Program
164 of 781 Overview The Parts of Medicare
Medicare is a federal health insurance program for persons 65 years of age and over, as well as persons under age 65 considered permanently disabled for purposes of the Social Security Act, and persons with end-stage renal disease
Medicare is not needs based 165 of 781 Overview The Parts of Medicare
NOTE
• Medicare is considered minimum essential health coverage under the Affordable Care Act
• Accordingly, persons covered under Medicare are not required to purchase health insurance under the Act
166 of 781 Overview The Parts of Medicare
Medicare Part A is the hospital insurance part of Medicare It is free to everyone eligible No premium to pay for Part A is required from persons entitled to retirement or disability benefits from either the Social Security or the Railroad Retirement systems Part A covers institutional care in hospitals and skilled nursing facilities, limited care offered by home health agencies, and hospice care
167 of 781 Overview The Parts of Medicare Medicare Part B is a Supplementary Medical Insurance Benefit program Part B covers items such as physician visits, outpatient services, ambulance transportation, and durable medical equipment Part B Medicare beneficiaries typically pay a portion of the cost of the service they are receiving as a deductible or a co-payment Part C – Medicare Advantage – Is a voluntary supplemental managed care or fee for services program Medicare Part D is a voluntary prescription drug program that provides assistance to persons168 of 781 eligible for Medicare to pay for their drugs Eligibility
Persons eligible for Medicare include Residents of the United States who have reached age 65 Disabled persons of any age who have been entitled to either Social Security benefits, widows or widowers benefits, or Railroad Retirement disability benefits for 25 months
A person eligible for Medicare may not be rejected or limited in treatment due to any pre-existing health conditions, and may not be charged more for
Medicare coverage due to age or health169 of 781 status Application for Enrollment
To avoid delays in coverage, or premium charges for late enrollment, a person should apply for Medicare not earlier than three months prior to attaining age 65, and not later than three months after attaining age 65
170 of 781 Application for Enrollment
Persons who voluntarily purchase Medicare Part A through the payment of a premium must also purchase Medicare Part B However, those persons can choose to enroll only in Medicare Part B If a person has reached age 65 and does not qualify for Medicare (i.e., has accumulated less than 40 quarters of Social Security coverage), that person can purchase Part A Medicare coverage by paying a monthly premium ranging from $227 to $413 per month (2017)
171 of 781 Application for Enrollment Penalties for Late Applications
There are penalties imposed where the Medicare application is late For each year that a beneficiary fails to enroll during his or her initial or special enrollment period, a 10% lifetime penalty (Part B) on premium costs is applied once the beneficiary does enroll. A lesser penalty applies for late Part A enrollment A person that has group health coverage through one’s own or one’s spouse’s employer upon reaching age 65 qualifies for a “special enrollment period” that avoids the late application penalty
This does not apply to self172 of 781-employed persons Benefits Available under Medicare Part A
Hospitalization Insurance Hospital Stays The patient pays a deductible of $1,316 (in 2017) for a “benefit period” (the first 60 days) There is a coinsurance payment of $329 (in 2017) per day for days 61-90 (for a total of $9,870) After a patient has been hospitalized for 90 days in a benefit period, there are 60 “reserve days” available Coinsurance payment of $658 per day (2017)
173 of 781 Benefits Available under Medicare Part A
Beyond 150 days there are no benefit payments. Patient pays all costs Medicare will pay for a semi-private hospital room, and all routine hospital services Part A does not cover the services of doctors These services may be covered under Part B If a person is discharged from a hospital, remains out of the hospital for at least 60 days, and then is readmitted to the hospital, a new benefit period begins for Part A purposes 174 of 781 Benefits Available under Medicare Part A
Skilled Nursing Home Stays For stays in a skilled nursing home to be covered by Medicare, the patient must Have spent at least three consecutive days in a hospital, Be admitted to the nursing home within 30 days after having been discharged from the hospital, and Require skilled nursing care
175 of 781 Benefits Available under Medicare Part A
Skilled Nursing Care
Medicare will pay in full for this care for the first 20 days of each benefit period
For days 21 through 100, the person pays co-insurance of $164.50 per day, a total of $13,160
After 100 days, the patient pays the entire cost
176 of 781 Benefits Available under Medicare Part A
Home Health Visits
Hospice Care
No charge for home health visits or hospice care
177 of 781 Benefits Available under Medicare Part B
Voluntary Insurance Program
Part B of Medicare is a voluntary insurance program,
A monthly premium ($104.90 in 2017 for most recipients who are enrolled in Part B) is deducted from the beneficiary’s Social Security check
$134.00 per month for new enrollees
178 of 781 Benefits Available under Medicare Part B
Premiums Are Partially Means-Based In 2017, higher income beneficiaries will pay a monthly premium equal to 35, 50, 65 or 80 percent of the total actual cost of the Part B premium These rules are said to affect less than five percent of Medicare beneficiaries Single persons whose adjusted gross income exceeds $85,000 and married persons filing jointly whose income exceeds $170,000 (for 2017) must pay an additional 2017 Medicare Part B premium based on their 2015 AGI The highest monthly premium is $428.60 in 2017 – charged
to singles over $214,000179 AGI;of 781 Married file jointly over $428,000 AGI Benefits Available under Medicare Part B
Part B Coverage
Part B of Medicare covers payments for physicians, durable medical equipment, ambulances, diagnostic, blood, laboratory and X-ray tests, outpatient hospital care, mammography, outpatient physical and speech therapy, home health aides, and various shots
The patient pays a 20% co-payment, and a $183 (in 2017) annual deductible, while Medicare pays 80% of the physician’s “reasonable” charge
180 of 781 Benefits Available under Medicare Part B
Part B of Medicare does not cover custodial care, acupuncture, insulin injections, eye, and dental examinations, dentures, eyeglasses, contact lenses, hearing aids, private hospital rooms and private-duty nurses For 2011 and thereafter, Medicare has added preventative care and wellness care
181 of 781 Benefits Available under Medicare Part B Physician Charges; Assignment; the Limiting Charge Rule If the physician accepts assignment, he or she is agreeing to accept what Medicare has established as the appropriate charge for the service provided, of which Medicare pays 80% directly to the physician, and the physician charges the patient the remaining 20% If the physician does not accept assignment, Medicare pays the patient 80% of the customary charge, and the patient is responsible for dealing with the physician to satisfy the bill Even if doctors do not accept assignment, if they treat Medicare patients, they are subject to limitations (generally not in excess of 115% of the approved Medicare charge) on the amount they may charge above the 182 of 781 approved Medicare charge Medicare Part C
Medicare Advantage Plans
A private managed care plan or a private fee-for-services plan
If you have Medicare Parts A and B, you can join a Medicare Advantage Plan
183 of 781 Medicare Part C
Variety of Part C Coverages
They are not available in all areas of the country
They typically offer all of the Part A and Part B coverage, possibly the Part D coverage, as well as additional benefits
In some cases, deductibles will be lower or waived
In some cases, there may be little choice of care providers (HMOs)
184 of 781 Benefits under Medicare Part D Prescription Drug Plan
Part D, which provides a voluntary prescription drug program
This program will be available to persons either entitled to Part A or enrolled in Part B
185 of 781 Benefits under Medicare Part D Prescription Drug Plan
The Part D Drug Benefit Part D plans do have some discretion in determining which specific drugs will or will not be covered (the “formulary”) This may make evaluating each plan difficult In 2017, the standard drug benefit requires the payment of a $400 deductible The participant than pays 25 percent of the cost of a covered Part D prescription up to the initial coverage limit of $3,700 (for 2017) 186 of 781 Benefits under Medicare Part D Prescription Drug Plan
Once the participant reaches the initial coverage limit, the participant enters a second deductible period of a coverage gap, commonly referred to as the “donut hole” which requires the participant to pay the full cost of the medicine between $3700 and $4950 When the total out-of-pocket expenses for the year reaches $4,950 (for 2017), the beneficiary pays a minimal charge for each prescription, or a five percent coinsurance (sometimes referred to as the “catastrophic amount”), whichever is greater
187 of 781 Benefits under Medicare Part D Prescription Drug Plan
There is no set premium amount that must be paid for a Part D plan It varies from region to region and is set by the company offering the plan The cost paid to Medicare is based in part on the participant’s income. The maximum monthly cost is $76.20 (singles over $214,000, MFJ over $428,000) Payments by participants for prescriptions not included in their plan, do not count toward the out-of-pocket limit 188 of 781 Benefits under Medicare Part D Prescription Drug Plan
Enrollment in Part D Enrollment in Part D requires a person to act affirmatively to choose a plan from those available in the area, and enroll through the selected plan The general enrollment period (for 2017 enrollment) is October 15 through December 7 A person who fails to enroll in a Part D Plan within 63 days of initial eligibility is assessed a late penalty if he or she subsequently enrolls in a Part D plan
189 of 781 Benefits under Medicare Part D Prescription Drug Plan
Persons who delay enrollment because they have insurance coverage comparable to the Part D plan are not assessed a penalty if they later enroll in Part D
Full and partial subsidies of the Part D costs are available to low-income individuals
190 of 781 Medicare will not pay for hospital or medical services outside of the United States, Puerto Rico, the U.S. Virgin Islands, Guam, American Samoa, and the Northern Mariana Islands. If a person moves outside the United States (and the above territories), eligibility for Part D ends, as well. If a person leaves the United States, and then returns, eligibility is restored, but there will be a penalty imposed (reflected as an increased premium) under Parts B and D that reflects the time a person could have been enrolled, but was not.
191 of 781 Medicare Supplemental Insurance — Medigap Plans
Private insurance companies sell Medigap coverage These are supplemental insurance plans regulated by the federal government Medicare does not pay for any of the costs of a Medigap policy The companies may offer standard Medigap insurance plans, designated A through N Each plan has a different set of benefits
192 of 781 Medicare Supplemental Insurance — Medigap Plans
Medigap Plans A through N All of the 14 Medigap policies cover basic benefits, but each has additional benefits that vary according to the plan None of the standard Medigap plans cover private-duty nursing services, hearing aids, vision or dental care or long-term care Supplementing the Part A Hospitalization Coverage
193 of 781 Medicare Supplemental Insurance — Medigap Plans
Supplementing the Part B Medical Coverage
Supplementing Skilled Nursing Home Coverage
Supplementing Physicians Who Do Not Accept Assignment
Supplementing Skilled Home Care
Supplementing Foreign Travel Care
Supplementing Preventive Care
Differences in Medigap Policy Costs
194 of 781 Medicare Supplemental Insurance — Medigap Plans
Renewals of Medigap Coverage
• Once a Medigap Plan has been purchased, the insurance company must offer ongoing renewals
• The insurance company can increase the premium and must notify the patient in advance of any such increases
195 of 781 Medicare Supplemental Insurance — Medigap Plans
Premium Costs Will Vary • Premium costs of comparable Medigap programs vary widely — by company, region of the country and age of the person insured
• Medigap Plan F with the standard deductible attracts 41 percent of all Medigap enrollees . It was recently announced that Plan F will not be available after 2020
196 of 781 Medicare Coverage Question
Is a Non-Working Spouse Eligible for Medicare at Age 65?
• A non-working spouse is eligible for Medicare based on a working spouse’s work history when the non-working spouse turns age 65 in certain circumstances
Caution: Premium increases coming for 2018!
197 of 781 Medicaid Government Provided Health Care Assistance
198 of 781 Overview
Federal and State Program
The Medicaid program is a joint federal and state program created by the federal government
It is funded jointly by federal and state governments
Medicaid is a state-administered program and each state sets its own guidelines regarding eligibility and services
199 of 781 Overview
There are differences in Medicaid eligibility rules and reimbursement rules from one state to another
Medicaid must be distinguished from Medicare
Medicaid is based on strict eligibility requirements relating to available income and resources
70 million Americans are covered by Medicaid. The cost is $500 billion
200 of 781 Medicaid is considered minimum essential health coverage under the Affordable Care Act
This Act has expanded eligibility for Medicaid to more people—if the individual states accept that expansion
If a person is covered by Medicaid, he or she is not eligible for a subsidy under the Act
201 of 781 Overview
Medicaid as a Poverty Program Medicaid was designed to be a poverty program to assist the neediest members of society to address their medical issues However, planning for asset protection and asset divestiture has allowed many middle class persons to “become” impoverished within the Medicaid rules, and hence eligible for Medicaid benefits
202 of 781 Medicaid Eligibility
A person must be a United States citizen or resident alien; and satisfy other Medicaid eligibility requirements as permitted to be established by the states
Illegal aliens are not eligible for Medicaid
States may vary the amounts of resources and income a person may have to be Medicaid eligible
203 of 781 Medicaid Eligibility
As a general rule, the families of elderly patients can not be required to pay for the patients’ medical expenses However, Pennsylvania recently brought a successful action under a “filial responsibility law” to require an adult son to pay his mother’s $93,000 unpaid nursing home bill HCRA v. Pittas, 2012 PA Super. 96 (5/7/12) Many states have similar statutes
204 of 781 Medicaid Eligibility
Poverty Level Requirements The ACA expanded Medicaid eligibility for the ACA for persons at 138% of the federal income poverty level – not all states accepted the increase – so eligibility varies by states As a general rule, there are no enrollment fees, premiums, or similar charges imposed on Medicaid recipients
205 of 781 Medicaid Qualification Resource Testing
Resources in General
A person is permitted to retain a very limited amount of resources if Medicaid eligibility is to be approved
The amount of assets that may be retained varies among the states from $2,000 to $5,000 for a single person and from $3,000 to $7,000 for a married couple
“Countable” Resources
206 of 781 Medicaid Qualification Resource Testing
Exempt Resources
Broad list of “exempt resources” that may not be counted when determining if an applicant’s resources render the applicant eligible for Medicaid (discussed below)
207 of 781 Medicaid Qualification Resource Testing
Estate planning when Medicaid recipient is an heir Intentionally excluding such a person as a beneficiary There are cases where disclaimers filed by or on behalf of a Medicaid-eligible spouse have been ignored or disallowed Other cases where despite a spouse being excluded under a will, the State has brought an action on behalf of the Medicaid-eligible spouse to elect against the will
208 of 781 Medicaid Qualification Resource Testing
• Forum Shopping
. The rules of the states as to countable resources are not uniform
209 of 781 Medicaid Qualification Exempt Assets Exempt assets (i.e., those that may be retained and not counted in testing for Medicaid eligibility) include the following The individual’s principal residence, if occupied by the applicant or the applicant’s spouse, or minor children under age 21, or blind or disabled adult children, or a sibling having an ownership interest in the residence who has resided in the residence at least one year, or a caregiver child who has been living in the residence for the two-year period before the parent entered a nursing home The equity in the home may not exceed $560,000 (2017) Unless the state allows up to $840,000 (2017) in equity to be retained —these210 of 781 numbers are indexed for inflation Medicaid Qualification Exempt Assets
Household goods having a value of up to $2,000 One automobile Limited personal keepsakes and jewelry Medical equipment and devices A burial fund of $1,500 for each person Burial spaces Life insurance having cash value of up to $1,500
211 of 781 Medicaid Qualification The Community Spouse
As a general rule, when spouses are living together, their resources are pooled for determining Medicaid eligibility The income and resources of one spouse are “deemed” available to the other spouse when the spouses live together However, when one spouse is institutionalized and the other spouse is not, provides relief for the spouse who is not institutionalized This spouse is referred to as the “community spouse”
212 of 781 Medicaid Qualification The Community Spouse Monthly Allowances for the Community Spouse In addition, the community spouse is entitled to a minimum monthly maintenance needs income allowance as a protected share of the institutionalized spouse’s income for his or her support The maximum monthly allowance was capped at $3,022.50 for 2017 The 2017 minimum allowance is $2002.50 The community spouse is also entitled to an “excess shelter allowance” The amount as of July 1, 2016 is $600.75 (Higher in Alaska and HI) There is a personal needs allowance of $69 per month 213 of 781 ***These figures are adjusted annually as of July 1 Medicaid Qualification The Community Spouse
Resources of the Community Spouse The community spouse is also permitted to retain a “community spouse resource allowance” as a further protection against impoverishment The community spouse may retain a minimum allowance of $24,180 (2017 figure) of non-exempt resources, and a maximum allowance of up to one-half of the couple’s total non-exempt resources, not to exceed $120,900 (2017 figure) again somewhat variable, depending on state law
214 of 781 Medicaid Qualification The Community Spouse
If the community spouse has less than the available income or resource allowances, some states permit income or assets to be transferred from the institutionalized spouse to the community spouse
215 of 781 Transfers of Assets to Achieve Medicaid Eligibility
Many persons desire to transfer assets to other family members to protect those assets from being exhausted for medical care expenses before Medicaid eligibility is established DRA Five-Year Look-Back; Tougher Penalties The look-back period has been extended to five years for all transfers The period of ineligibility for Medicaid benefits will not begin until the transferor is both receiving institutional care and becomes eligible for Medicaid coverage, i.e., the penalty period begins on the date on which the Medicaid application is filed and the individual would otherwise become eligible to receive benefits,
were it not for the216 transfers of 781 Transfers of Assets to Achieve Medicaid Eligibility
Medicaid Ineligibility as the Penalty for Transfers
The period of ineligibility is determined by aggregating all transfers within the 60-month look-back period, and then dividing the amount of such uncompensated transfers by the average monthly cost of private nursing care in the state of residence
217 of 781 Transfers of Assets to Achieve Medicaid Eligibility
Hardship waivers
The DRA requires each state to provide a hardship waiver process
Planning points
Timing the Medicaid Application and Transfers
The best strategy is to time the Medicaid application so that it falls outside the look-back period for transfers made earlier 218 of 781 Recovery of Medicaid Costs Federal law requires states to recover the cost of Medicaid benefits from either the recipients themselves, or from the estates of deceased recipients
219 of 781 Strategies to Achieve Medicaid Qualification
Strategies to Gain Medicaid Eligibility
Pay bills
Acquire exempt assets
Fix up the Home
220 of 781 Strategies to Achieve Medicaid Qualification
Purchase a New Home Caution re: Homes Planning re: Homes Transfer the Home Purchase Household or Personal Goods Purchase a Car Prepay Funeral Expenses Purchase a Qualified Annuity
221 of 781 Strategies to Achieve Medicaid Qualification
Cash in or Assign Life Insurance Policies
Purchase a Life Estate in a Child’s Home
Enter into a Care Agreement
Create a Trust for a Disabled Person
Consider Notes and Loan Transactions
222 of 781 Strategies to Achieve Medicaid Qualification
Creation of a Self-Settled Trust Revocable Trusts Irrevocable Trusts Consider an income only trust for the grantor with a duration limited to five years Trusts with No Retained Interest Disability Trusts Half-a Loaf Strategy
223 of 781 Strategies to Achieve Medicaid Qualification
Divorce A far more drastic way to achieve a greater asset balance for the community spouse is to have him or her divorce the institutionalized spouse A community spouse may receive an equitable distribution settlement in a divorce which may exceed the Community Spouse Resource Allowance The community spouse may obtain an alimony award that may exceed the Minimum Monthly Needs Allowance
224 of 781 Thank You for Attending Today’s Program
225 of 781 SALT Update Parts I & II
Jordan Goodman, Horwood Marcus & Berk
2017 Tax Conference
226 of 781 Jordan M. Goodman Direct: 312-606-3225 | Email: [email protected] State & Local Taxes
Jordan M. Goodman co-chairs Horwood Marcus & Berk's State and Local Tax Group and resolves state and local tax controversies for multistate and multinational corporations, including Fortune 1000 clients with complex operations, in industries such as manufacturing, retailing, financial services, e-tailing, broadcasting and telecommunications. As both an attorney and a CPA, Jordan has a comprehensive view of tax planning issues and strategies. His experience and education enable him to deliver a creative, complete and practical approach to limiting the full range of tax exposures. He was recently elected as a fellow in the Litigation Counsel of America, an invitation only trial lawyers honorary society that includes less than one-half of one percent of American Lawyers.
Jordan is one of the nation's most sought after lecturers and authors on multi-state tax issues, controversies and planning. He has lectured on numerous state and local tax topics before business and professional associations, including the Council on State Taxation, the Tax Executives Institute, the Chicago Tax Club, Georgetown University Institute on State and Local Taxation, the National Institute Symposium, and annual meetings for CPAmerica, AGN International and CRI, LLC. In addition, Jordan continuously creates and presents accredited state and local tax seminars throughout the country and has been recognized as an "Illinois Super Lawyer" by his clients and peers.
227 of 781 www.SALTLAWYERS.com SALT Update – Parts 1 & 2 From Here to There and Back Again and Now That We Are Here, What Can We Do?
Presenter:
Jordan M. Goodman Horwood Marcus & Berk Chartered 500 W. Madison Street, Suite 3700 CPAmerica 2017 Tax Chicago, IL 60661 Conference (Nov. 2017) (312) 312-3225 [email protected] 228 of 781 Jordan M. Goodman Direct: 312-606-3225 | Email: [email protected] State & Local Taxes
Areas of Concentration Jordan M. Goodman co-chairs the firm's State and Local Tax (SALT) Group. Jordan resolves state and local tax controversies for multistate and multinational corporations, including Fortune 1000 clients with complex operations, in industries such as Litigation and Support manufacturing, retailing, financial services, e-tailing, broadcasting and telecommunications. Multi-State Tax Planning and Assessment Mergers & Acquisitions Restructuring Jordan has successfully resolved tax controversies in virtually every state and counsels businesses on the tax ramifications Tax Risk Management and benefits of various organizational structures. Clients seek him out for ideas and resolutions on a range of tax issues, Accounting for Income Taxes including: corporate income taxes, sales and use taxes, franchise taxes, local license taxes, gross receipts taxes, business Unclaimed Property and occupation taxes, single business taxes, capital stock taxes, unclaimed property matters, nexus, apportionment, business Franchise Tax Compliance income, unitary business groups and residency, credits, losses, exemptions, and the tax base. Bar Admissions As both an attorney and a CPA, Jordan has a comprehensive view of tax planning issues and strategies. His experience and Illinois, 1985 education enable him to deliver a creative, complete and practical approach to limiting the full range of tax exposures. He was recently elected as a fellow in the Litigation Counsel of America, an invitation only trial lawyers honorary society that includes Honors less than one-half of one percent of American Lawyers. Illinois Super Lawyers, 2005-2006, 2010-2013
Jordan is one of the nation's most sought after lecturers and authors on multi-state tax issues, controversies and planning. Education His speaking and writing style is approachable and enjoyable, though never short on content or practical ideas. University of Illinois, J.D., 1985 Indiana University, B.S. in Accounting with He is a member of the Editorial Boards for The Journal of Multistate Taxation and CCH State Tax Income Alert and is a high honors, 1982 Contributing Editor for Commerce Clearing House's State Tax Report. He is the author of the chapter entitled "Other State Taxes and Unclaimed Property" in Illinois Institute of Continued Legal Education's Illinois Taxes and co-author of the chapter Licenses entitled "Illinois Income Tax Considerations" for the publication Organizing and Advising Illinois Businesses. He is also co- Certified Public Accountant, Illinois author of the Tax Management Multistate Tax portfolios entitled "Sales and Use Taxes: The Machinery and Equipment Exemption," "Illinois Income Tax," and "Illinois Sales and Use Tax." Jordan has also authored the chapter entitled "Illinois Sales and Use Tax" in the American Bar Association's Sales and Use Tax Handbook and multiple articles on the unitary Memberships business principle, non-business income, apportionment irregularities, and situsing of services for income and sales tax The Journal of Multistate Taxation, Editorial purposes. He has also written dozens of other articles on a variety of state and local tax issues. Board CCH State Tax Income Alert, Editorial Board Jordan has lectured on numerous state and local tax topics before business and professional associations, including the National Multistate Tax Symposium, Advisory Council on State Taxation, the Tax Executives Institute, the Chicago Tax Club, Georgetown University Institute on State and Board Local Taxation, the National Institute Symposium, and annual meetings for CPAmerica, AGN International and CRI, LLC. In addition, Jordan continuously creates and presents accredited state and local tax seminars throughout the country and has been recognized as an "Illinois Super Lawyer" by his clients and peers.
229 of 781 www.SALTLAWYERS.com U. S. Supreme Court Cases ◦ Retroactivity DOT Foods, Inc. v. WA Dept. of Revenue (WA 3/16) (cert. denied) Michigan cases (IBM and Gillette) (cert. denied) ◦ Wynne First Marblehead Corp. v. Commissioner of Revenue (MA 8/16) (cert. denied) Brillenz v. Dept. of Revenue (OR T.C. 9/16) (final) Matkovich v. CSX (W. Va. 11/16) (cert. pending) ◦ Disassociation Avnet, Inc. v. WA Dept. of Revenue (WA 11/16) (final) Norton Co. v. IL Dept. of Revenue (1951)
230 of 781 U. S. Supreme Court Cases ◦ South Dakota v. Wayfair, Overstock.com and Newegg (32CV 16-000092) On September 14, 2017, the South Dakota Supreme Court ruled that the state’s economic nexus legislation is unconstitutional. The legislation (effective May 1, 2016) required remote sellers without a physical presence in the state to collect and remit SD S&U tax on sales in the state if retailer: makes in-state sales exceeding $100,000, or makes 200 or more separate sales transactions in the previous or current calendar year
231 of 781 U. S. Supreme Court Cases ◦ American Catalog Mailers Ass’n v. Dept. of Rev., NF No. 17-307-IV (Tennessee Chancery Court, 4/20/17) The Tennessee Department of Revenue recently created Rule 129, Tenn. Comp. R. & Regs, 1320-05-01.129(2). Rule 129 provides that out-of-state dealers making sales in excess of $500,000 to Tennessee customers in a one year period must register with the Department of Revenue and begin collecting and remitting Tennessee sales and use tax. The American Catalog Mailers Association have filed suit and argued that Rule 129 is unconstitutional because it is at odds with the nexus requirements of the Commerce Clause.
232 of 781 U. S. Supreme Court Cases ◦ American Catalog Mailers Ass’n, con’t On April 10, 2017, a Tennessee Chancery Court entered an agreed order preventing the enforcement of Rule 129 while the case is pending. Rule 129’s constitutionality is questionable. Members of the Tennessee Joint Government Operations Committee voiced opposition to the Rule at a hearing on December 15, 2016 in order to consider whether the rule should be enacted. Alabama passed Rule 810-6-2-.90.03, which provides for the same type of rule except the base amount is only $250,000.
233 of 781 State Remote Seller Collection Authority
Since 2005, the following federal legislation has been proposed: ◦ Main Street Fairness Acts (MSFA) ◦ Marketplace Equity Act (MEA) ◦ Marketplace Fairness Acts (MFA) ◦ Remote Transactions Parity Act (RTPA) ◦ Online Sales Simplification Act (OSSA - draft) ◦ No Regulation Without Representation Act (Keep Quill).
234 of 781 Current Legislation in the Congress
Remote Transactions Parity Act, H.R. 2193, introduced by Rep. Kristi Noem (R-SD) on April 27, 2017 – 26 Cosponsors Marketplace Fairness Act of 2017, S. 976, introduced by Sen. Mike Enzi (R-WY) and Dick Durbin (D-IL) on April 27, 2017 – 24 Cosponsors No Regulation Without Representation Act, H.R. 2887, introduced by Rep. Sensenbrenner (R-WI) on June 12, 2017 – 9 Cosponsors
235 of 781 8 Nexus (other than sales tax)
Crutchfield Corp. v. Testa (OH 11/16) (final)
◦ Effect of Settlement
Swart Enterprises, Inc. v. FTB District Court (final)
WA Dept. of Revenue Appeals Division, Determination No. 15- 0251, May 31, 2016
Irwin Naturals v. WA Dept. of Revenue (WA App. Ct. 7/16)(cert. denied)
Factor presence for income tax
FTB Ruling 2016-03 (7/16)
Capital One Auto Finance v. Dept. of Revenue (OR T.C. 12/16) (final) 236 of 781 Combined Reporting – Unitary Analysis
ComCon Production Services I, Inc. v. FTB (CA Ct. App. 12/16) (final)
Ashland Inc. v. Commissioner of Revenue (MN T.C. 6/16) (appeal pending)
Indiana Revenue Ruling No. 02-20150653 (9/16)
California FTB Notice 2016-02 (9/16)
Labelle Mgmt., Inc. v. Dept. of Treasury (MI Ct. App. 3/16) (cert. denied)
237 of 781 Loss Carryforward Issues
Nextel Comm’n of the Mid-Atlantic Inc. v. Com. (PA Commw. Ct. 11/15) (appeal pending)
Hillenga v. Dept. of Revenue (OR 11/15) (on remand - Hillenga v. Dept. of Revenue (OR T.C. 10/16))
RB Alden Corp. v. Com. (PA Commw. Ct. 6/16) (appeal pending)
Branch Banking and Trust Co. (BB&T) v. Comptroller of the Treasury (Md. Tax 9/16) (final)
238 of 781 Addback Statutes
Kohl’s Department Stores, Inc. v. Dept. of Revenue (VA Sup. Ct. 9/17) (motion for rehearing pending)
Staples, Inc. v. Comptroller (MD T.C. 2015) (aff’d Petition of Staples Inc. and Staples the Office Superstore, LLC, and the Decision of the MD Tax Court, No. C-02-CV-15-002009 (MD Cir. Ct. 12/16))
Massachusetts Mutual Life Ins. v. Commissioner of Revenue (MA App. Tax. Bd. 6/15) (final)
Kraft Foods Global, Inc. v. Dir. Div. of Taxation (NJ Tax Ct. 4/16) (final)
Current Massachusetts and Maryland audit positions
239 of 781 Apportionment Issues
Alternative Apportionment ◦ Corporate Executive Board v. VA Dept. of Revenue (VA Cir. Ct. 9/17)
◦ Comcast Corp. and Subsidiaries v. Dept. of Revenue (OR T.C. 10/16) (final)
◦ Vodafone Americas Holdings, Inc. & Subsidiaries v. Roberts (TN. 3/16) (final)
◦ Rent-A-Center West Inc. v. Dept. of Revenue (SC Ct. App. 10/16) (rehearing denied 1/17)
◦ Canon Financial Services, Inc. v. Dir, Div. of Taxation (NJ Tax Ct. 10/16) (final)
240 of 781 Apportionment Issues
Alternative Apportionment (Cont’d)
◦ Quest Diagnostics Clinical Laboratories, Inc. v. Barfield (LA Ct. App. 9/16) (final)
◦ Genentech, Inc. v. Commissioner of Revenue (MA 2017) (final)
◦ Bank of America Consumer Card Holdings v. Div. of Taxation (NJ Tax Ct. 10/16) (final)
◦ In the Matter of the Petitions of Checkfree Services Corp. (NY Div. Tax App. 1/17) (final)
◦ S&P Global v. NYC (Tax App. Trib. 2/17)
241 of 781 Apportionment Issues
Factor Composition ◦ Comcast Corp. v. OR Dept. of Revenue (OR Tax Ct. 10/16) ◦ Hallmark Marketing Co. v. Hegar (TX 4/16) (final) ◦ Duke Energy Corp. v. SC Dept. of Revenue (SC 2/16) (final) Throwback: ◦ Indiana Memorandum Decision 02-20160336R (8/17) ◦ Appeal of Craigslist, Inc. (CA BOE 12/15) (final) ◦ Lorillard License Co. v. Dir., Div. of Taxation (NJ Super. Ct. App. 12/15) (cert. denied)
242 of 781 Apportionment Issues
Market Based Sourcing ◦ Direct TV, Inc. v. SC Dept. of Rev. (SC Sup. Ct. 8/17) ◦ Rent-A-Center West Inc. v. Dept. of Revenue (SC Ct. App. 10/16) (rehearing denied 1/17)
243 of 781 16 Discrimination
Cable v. Satellite TV Incentives v. Interstate Commerce Treatment of Interstate Carriers
244 of 781 17 Miscellaneous Income Tax Issues
In the Matter of Haliburton Energy Services, Inc. (AK Off. Admin. Hearings 12/15) (final)
MS Dept. of Revenue v. AT&T Corp. (MS 10/16) (final)
Hegar v. CGG Veritas Services (U.S.), Inc. (TX App. 3/16) (final)
Corrigan v. Testa (OH 5/16) (final)
245 of 781 State Income Tax Initiatives
Definition of Tax Haven ◦ Taxation of Foreign Source Income
Transfer Pricing Project by MTC
◦ District of Columbia Office of Tax & Revenue v. ExxonMobil Oil Corporation et.al., Court of Appeals Dkt. June 30, 2016 New Partnership Audit Rules – State Implications
246 of 781 Sales and Other Transaction Taxes
No one understands the cloud: ◦ Lucent Tech. v. SBE, CA Ct. of App. (1/16) ◦ Chicago Transaction Tax and Amusement Tax ◦ Auto-Owners, Inc. v. MI Dept. of Treasury, MI Ct. of App (10/15) Timely Assessments: ◦ Verizon Bus. Purchasing LLC v. FL Dept. of Revenue, FL Dist. Ct. (9/15)
247 of 781 Sales and Other Transaction Taxes
Tax Base: ◦ Rent-A-Center West, Inc. v. Utah State Tax Comm’n, 367 P.3d 989 (UT 2016) ◦ Regency Transp., Inc. v. Comm’r of Revenue, 473 MA 459, 42 N.E.2d 1133 (MA. 2016) ◦ In the Matter of GKK 2 Herald LLC, No. TAT (E) 13-25 (RP) (NYC Tax App. Trib. July 15, 2016) Drop Shipments: ◦ D & H Distributing Co. v. Massachusetts Comm’r of Revenue, MA Appellate Tax Board, Docket No. C314566 (April 4, 2016) Resales: ◦ Fitness International, LLC v. Hegar, State of Texas, No. 03-15- 00534-CV (June 16, 2016)
248 of 781 Sales and Other Transaction Taxes
Nexus: ◦ Scholastic Book Clubs, Inc. v. State of Alabama, Dkt. No. 14-374, AL Tax Tribunal (3/25/16) ◦ American Catalog Mailers Association and NetChoice v. Gerlach, 6th Circuit S.D. (4/29/16) Economic Nexus for sales tax (AL, WA, OK) ◦ Florida Department of Revenue v. American Business USA Corp., FL S. Ct., SC14-2404, 05/26/2016 ; 191 So 3d 906,(2016)
249 of 781 Thank you!
Jordan M. Goodman Horwood Marcus & Berk Chartered 500 W. Madison Street, Suite 3700 Chicago, IL 60661 Direct: 312-606-3225 Email: [email protected]
250 of 781 CyberSecurity for Accounting Firms: How to Reduce Your Risks and Still Stay Sane
Tim Weidman, Frankel Zacharia
2017 Tax Conference
251 of 781 Tim Weidman Certified Ethical Hacker and Penetration Tester Security+ Network+ A+ and CISSP Linux, Microsoft, Apple Novell Certifications and Others
Tim Weidman is the Director of Information Technology at Frankel Zacharia Tech Services, a department of Frankel Zacharia, LLC. Tim has a technology career spanning over 25 years and has worked as a technology consultant in a wide variety of industries.
Although Tim has worked extensively in all aspects of Accounting Industry technology, he and his team have worked in a large cross section of industries to make technology a productive aspect of the organizations they serve.
Tim holds multiple cyber-security certifications including Certified Ethical Hacker, Certified Penetration Tester and CISSP. Tim also holds certifications in Microsoft, Apple, Linux and Novell technologies, as well as A+, Network+ and Security+ and others.
Areas of Focus:
Cybersecurity and Defense Strategy Incident Response and Mitigation Technology assessment and planning Backup and disaster recovery Network design, implementation and administration
252 of 781 CYBERSECURITY IN THE CPA FIRM
253 of 781 Tim Weidman - Frankel Zacharia, LLC 402-963-4375 [email protected]
Certified Ethical Hacker and Pen Tester Security+ Network+ A+ & CISSP Linux, Microsoft, Apple, Novell, etc. Web: www.uplinkme.com
254 of 781 Disclaimer – The Fine Print This Presentation:
• Is not security awareness training – (but you need to do that) • Is not intended to provide technology answers for your particular firm – need to see your firm to do that • Will not guarantee you to be immune from cyber-attacks - nothing will GUARANTEE immunity, But you CAN lower your risk • Contains statistics obtained from a variety of public sources – actual results may vary • Has statements based on my opinions based on my own field experience – actual results may vary
255 of 781 Disclaimer – The Fine Print This Presentation: • Is not security awareness training – (but you need to do that) • Is not intended to provide technology answers for your particular firm – need to see your firm to do that • Will not guarantee you to be immune from cyber- attacks - nothing will GUARANTEE immunity, But you CAN lower your risk • Contains statistics obtained from a variety of public sources – and has statements based on my own experience and opinions- actual results may vary
256 of 781 Goals:
• Provide an awareness of the current state of cybercrime and cyber-defense
• Provide practical, easy to understand concepts to lower risk for you and your firm
• Encourage you to think and act differently when making technology decisions
257 of 781 258 of 781 Things are Different Now • Anonymous payment (Bitcoin) • Some estimates 150 Billion per year • Six TRILLION IN 2021? • Smaller targets • Personalized and end user focus • Advanced Persistent Threat • Attack tools easy to find and use • What you did in the past is NOT good enough for the future
259 of 781 What are the Threats?
RANSOMWARE BANKING INFORMATION ATTACKS THEFT?
260 of 781 Ransomware 2017
• Still an active threat • 50% of US businesses • 600% Increase • 68% Odds of being repeat customer • Demand $900 - $50,000 • Extended downtime in all cases • May 2017 – “Weaponized”
261 of 781 Ransomware
262 of 781 Ransomware
263 of 781 Banking and Identity Attacks
264 of 781 High-Tech Banking Attack
• Hides and waits for banking site • Takes money directly from account • Malvertising delivered • Instant and irreversible • Skips 2-Factor Auth • Avoids AV detection • 46% increase in 2016
265 of 781 Low Tech Attacks
• Seeking money or identity info • Fastest growing threat • Creative and diverse • Start by hacking Office 365 • Spoofed emails and spoofed domains • M.I.T.E attacks
266 of 781 IDENTITY THEFT You are always you
267 of 781 Tax Return Fraud
• More valuable than stolen CC • Millions of returns per year • Months to mitigate • Difficult to prevent • Motivation for early filing
268 of 781 Identify Theft Phishing
• “CEO” Impersonation • Attempts to get you to send W2, SS Number or other sensitive info by spoofing the sender • Could spoof a vendor or a client • Could really be from a vendor, client or your own leadership (or you)
269 of 781 CEO Impersonation
Simple but Effective
270 of 781 Business Email Compromise - BEC • Attack script customized to the email at hand: CEO, CFO, Vendor, Client • Register multiple new domains – myfimr.com vs myfiirm.com • Lengthy research • 365 heavy target - check for rules and “Secure Score”
271 of 781 Attack Vectors have Not Changed
WEB EXTERNAL EMAIL MEDIA CONTENT
272 of 781 Attack Vectors • External Media – Test flash drives – Disable autorun • Web Content – Content Filtering – Reduce Attack Surface – Staff education • Email Phishing – Advanced spam filtering – Staff education
273 of 781 274 of 781 You Are a Target • Your busy season is also cybercrime busy season • Cyber criminals are early filers • Tax fraud is not limited to tax season • 400% surge in attacks during busy season • As a Tax Partner – Your name IS on the list
275 of 781 Your Current Password May be for Sale • 55% of users have the same password on business and personal accounts • Basically all Yahoo account passwords are available (3 Billion) • Many sites have admitted to passwords being exposed • Certainly other unknown breaches • Personal info in a password is dangerous • Multi-Factor-Auth adds major protection • Frequent changing can help 276 of 781 Known Breaches
277 of 781 Known Breaches
278 of 781 Content Filtering is NOT About Content • “Bad” sites are not the problem • 75% of ALL US sites have vulnerabilities which allow malware deployment – 30% of malware on the web is hosted right here in U.S.A. • Many major sites have admitted to Malvertising
279 of 781 Content Filtering is NOT About Content • Advanced content filtering options help • The point is to reduce the attack surface • How bad do you need to buy shoes on your work computer? • Everyone has a phone • Mobile or other devices on separate network are best
280 of 781 Spam Filtering is NOT About SPAM
• Attachment sandboxing • Additional documentation before, during and after an attack • Outbound email filtering – Data Leak Prevention • Anti-Spoofing • Manually scan and identify trends
281 of 781 Hotel WI-FI is Dangerous
• Greatest danger is a Windows computer on a public network • Attack techniques are widely available and quick to learn • Danger is increased at conventions and gatherings • VPN helps but not always • Hotspots are cheap • You may already have a hotspot and not know it
282 of 781 Ransomware Also Steals Your Info
• Ransomware is so common some accept it as routine • Also uploading your data • Could take years to become a problem • Restore from backup is not an adequate ransomware solution • Prevention is the best solution • Security Awareness Training is still the best prevention
283 of 781 Your info is Instant Cash to Criminals • Basic identity info, CC Info and “FULLZ • Certain “FULLZ” can be resold for $1000+ • Instantly monetized • Could deploy in minutes, or years later • Equifax breach brought price down • Credit freeze helps, but not always • Identity monitoring adds a layer of protection
284 of 781 285 of 781 286 of 781 287 of 781 People are Always the Weakest Link
• No amount of technology can protect you without the help of the people who use it • Most people realize a mistake immediately after it happens • Staff may not always tell you… • 30% of phishing emails get opened • 9 out of 10 phishing emails are malicious • Security awareness training is ongoing and NOT optional - Follow up with testing
288 of 781 Anyone can be Fooled
• 1 in 3 companies have been victims of CEO impersonation • Criminals are patient – sometimes recon for months or years before striking • Wait for the right opportunity – CEO out of reach, employees on vacation or out of office, individual distracted • NOT amateurs – They are creative and talented teams of criminals
289 of 781 DEFENSE IN DEPTH
EMPLOYEE SECURITY AWARENESS TRAINING AND TESTING
PASSWORD MANAGEMENT & MFA
ADVANCED CONTENT FILTERING
ADVANCED SPAM FILTERING
AVOID HOTEL WIFI
DECISION MAKER BUY-IN 290 of 781 SECURITY IS A TEAM EFFORT
NOT Just the responsibility of tech staff or tech vendors
291 of 781 292 of 781 IRS Audit Issues & Hot Topics
Chuck Rettig, Hochman Salkin Rettig Toscher & Perez PC
2017 Tax Conference
293 of 781
CHARLES P. RETTIG / Hochman, Salkin, Rettig, Toscher & Perez, PC, Beverly Hills, CA
Office 310.281.3200 / [email protected]
Chuck Rettig specializes in civil and criminal tax controversies as well as tax, business and estate planning, and family wealth transfers. His representation includes Federal and state civil and criminal tax controversy matters and tax litigation, including sensitive tax-related examinations and investigations for high-wealth individuals and their closely held entities. Chuck is internationally recognized for his expertise in the representation of US Persons having undeclared interests in foreign financial accounts and assets, including sensitive civil examinations, IRS voluntary disclosure programs and procedures as well as criminal tax investigations. He continues to provide tax advice to taxpayer’s and their advisors throughout the world. Chuck is a frequent lecturer before national, state and local professional organizations and has authored numerous articles in many national, state and local publications.
Mr. Rettig is a Past-Chair of the IRS Advisory Council (IRSAC); a Member of the Advisory Board of the California Franchise Tax Board; a Past-Member of the Advisory Council of the California State Board of Equalization; Institute Chair for the UCLA Extension 35th Annual Tax Controversy Institute; served as Co-Chair of the 4th Annual NYU Tax Controversy Forum; a Planning Committee Member for the USC School of Law, Annual Institute on Federal Taxation (Institute Chair, Subcommittee on Ethics, Compliance and Enforcement); a Planning Committee Member and the “Tax Controversies” Chair for the 76th NYU Institute on Federal Taxation; Institute Co-Chair of the ABA 34th Annual National Institute on Criminal Tax Fraud and Tax Controversy; a Past-Member of the Board of Trustees for the California CPA Education Foundation and a Past-Chair of the Taxation Section for the State Bar of California.
Chuck Rettig is Vice-President and a Regent (Past-Chair, Nominating Committee) of the American College of Tax Counsel (ACTC); Vice Chair - Administration of the ABA Section of Taxation, Past-Chair of the Committee on Civil and Criminal Tax Penalties for the ABA Taxation Section; served on the National Board of Advisors for the Graduate Tax Program (LL.M. in Taxation) at New York University School of Law; is on the Board of Advisors for the CCH Journal of Tax Practice and Procedure and is listed by Chambers USA as the only Eminent Practitioner in the Chambers Category “Tax: Fraud – Nationwide.” He authors the Practice Column for the CCH Journal of Tax Practice and Procedure, a co-author of "Tax Crimes," BNA-Tax Management, Publication 636, and recently co-authored the “Tax Practice & Procedure” 14-volume treatise for the CCH Expert Treatise Library. Chuck is a Certified Specialist both in Taxation Law and in Estate Planning, Trust & Probate Law by the State Bar of California, Board of Legal Specialization.
294 of 781 2017 Tax Conference CPAmerica International,Inc. IRS Audit Issues and Hot Topics 35+ Years in the Tax Trenches
November 14, 2017 (9:25am – 11:05am) Loews Ventana Canyon Tucson, Arizona
Charles P. Rettig Hochman Salkin Rettig Toscher & Perez, PC www.taxlitigator.com 295 of 781 Charles P. Rettig, Esq. Hochman Salkin Rettig Toscher & Perez, PC, Beverly Hills, CA Telephone: (310) 281-3200 E-Mail: [email protected] Chuck Rettig is a Certified Specialist in Taxation Law and in Estate Planning, Trust & Probate Law by The State Bar of California, Board of Legal Specialization. Chuck is internationally recognized for his expertise in the representation of US Persons having undeclared interests in foreign financial accounts and assets, including sensitive civil examinations, IRS voluntary disclosure programs and procedures as well as criminal tax investigations. As the only Eminent Practitioner in the US listed Chambers Category “Tax: Fraud – Nationwide,” he was selected by his peers as the 2016 and 2017 “Tax Lawyer of the Year" (Litigation and Controversy, Los Angeles) and was included Nationwide in both “Litigation and Controversy – Tax” and “Tax Law” by Best Lawyers in America. Mr. Rettig is a Past-Chair of the IRS Advisory Council (IRSAC); a Member of the Advisory Board of the California Franchise Tax Board and a Past-Member of the Advisory Council for the California State Board of Equalization; Vice Chair, Administration of the ABA Tax Section; Vice-Chair of the American College of Tax Counsel (Past-Chair, Nominating Committee); Institute Chair for the UCLA Extension 34th Annual Tax Controversy Institute; an Executive Committee/Planning Committee Member for the USC School of Law, 56th Annual Institute on Federal Taxation (Institute Chair for the Subcommittee on Ethics, Compliance and Enforcement); Institute Co-Chair and the “Tax Controversies” Chair for the 76th NYU Institute on Federal Taxation; Institute Co-Chair for the 34th Annual National Institute on Criminal Tax Fraud and Tax Controversy, ABA Criminal Justice & ABA Tax Section; Past-Chair, Taxation Section of the State Bar of California and a Past-Member of the Board of Trustees for the California CPA Education Foundation. Chuck is on the Board of Advisors for the CCH Journal of Tax Practice and Procedure; authors the Practice Column for the CCH Journal of Tax Practice and Procedure; a co-author of "Tax Crimes," BNA-Tax Management, Publication 636, and recently co-authored the “Tax Practice & Procedure” treatise for the CCH Expert Treatise Library. Proud supporter of the UCLA Extension vets count scholarship fund on behalf of active and retired military personnel. 296 of 781 Bruce I. Hochman The lighter side of a sometimes difficult tax practice . . .
￭ LIFE IN THE TAX TRENCHES . . . ￭ The difficult will be done immediately, the impossible will take a little more time ￭ Denial of a problem will not solve it ￭ I didn’t want it to go unnoticed given the fact that I’m some sort of tax attorney ￭ The war stories will never stop and I can tell you some that will cause the hair on the back of your head to rise as if you were Don King ￭ Our ship may have sprung a leak, but …[we are] very good at bilge pumping ￭ We are still a collegial bunch of attorneys--even if we are tax people ￭ It may be hard to put together witnesses to support Eric's contention and I remind you of Learned Hand's dictum to the effect that, "When the play is cast in hell, the actor's can't be angels.” ￭ A father can support four sons but four sons can’t support their father
297 of 781 Bruce I. Hochman The lighter side of a sometimes difficult tax practice . . . ￭ GOVERNMENT DELAYS - ￭ While Rome was not built in a day, I don’t think it took this long ￭ Seemingly, IRS takes forever, and then compliments itself ￭ In my mind, he is the crown prince of procrastination, and therefore, I would urge you to start putting together the materials which I want to review and which I wish to instruct a CPA to handle. In the words of Frank Sinatra, I want it done, "my way!”
￭ IRS APPEALS - I have a situation in which the IRS logistical bureaucracy (I’m also a neologist) is frustrating me beyond belief. I have a woman who has a serious illness and who has a very limited budget. She lives about 20 to 25 minutes from my Beverly Hills office and, lo and behold, I end up with an appeals officer in Fresno, California! Why? Because allegedly, L. A. and Glendale are too busy. I’m a fairly active practitioner and I have to tell you that that’s balderdash. I’m also a former Canadian and that’s why I use the expression, “balderdash” (you’re at liberty to substitute any word that you may deem more American)
298 of 781 Bruce I. Hochman The lighter side of a sometimes difficult tax practice . . . ￭ USE OF THE KOVEL ACCOUNTANT - ￭ [The accountant] continues to confound me. I don’t understand how someone can be involved with so much for so long and know so little. He is the worst litigation support I’ve encountered in 25 years. ￭ . . . and you can better understand why I will not submit a schedule employing the logic of "six cows plus six boys equal twelve cowboys." ￭ The only comment that I wish to make turns on whether or not you have had control of all bank deposits made to any of his accounts in order that all those deposits have a "mother and father." By that expression, I mean that the item has already been picked up in income or is a non-income item.
￭ BEWARE OF AGGRESSIVE TAX TRANSACTIONS - ￭ Like literally scores of other folks, [the client] was mesmerized by the pied piper of tax mischief, and therefore, he cannot be the source of precise information.
299 of 781 Bruce I. Hochman The lighter side of a sometimes difficult tax practice . . . ￭ WORKING WITH CLIENTS - ￭ Please! Get off your derriere and get it done ￭ I happen to like you and I like your fighting spirit, but I have to tell you that you're a tax mess and close to a tax anarchist. You don't mean to be, but you sure get yourself in a mess ￭ Morally, you are both fine people and no more need be said on that issue. As tax people, you didn't graduate kindergarten ￭ Honestly, gentlemen, if everyone around you doesn’t like you, then just maybe it’s you and not them. They thought they were getting a Cadillac and you gave them a Chevrolet ￭ Please continue to ask questions. I have absolutely no trouble with your questions--I am having trouble with my answers. They’re simply not as good as your questions. That’s what’s upsetting me ￭ Finally, shave! The beard that you're trying to grow will make you look like Santa Claus
300 of 781 Bruce I. Hochman The lighter side of a sometimes difficult tax practice . . .
￭ LIVING WITH DIFFICULT DECISIONS - ￭ Where the attorneys win, obviously, everyone concludes that the decisions the lawyers made were correct; where a case is lost, then everyone concludes that the decisions were wrong. The latter comment is normally by laymen or attorneys who don't have a notion of how to try a case. Where there's a fork in the road and the decision is made to take the right fork and success does not result, everyone assumes that if you took the left fork, you would have won. To me, that's absolute nonsense. If you took the left fork in my example, you could have lost faster!
￭ It is reminiscent of a story to the effect that in the Court of Appeals, a lawyer started to define the elements of a contract. When he got to “acceptance,” one of the judges interrupted to indicate that the lawyer should assume that the three judges knew the elements of a contract. The lawyer’s response, of course, was to the following effect: “That’s the mistake I made in the Court below!”
301 of 781 Bruce I. Hochman The lighter side of a sometimes difficult tax practice . . . ￭ WORKING WITH THE GOVERNMENT - ￭ We’re meeting with Robin Hood and her band of followers or superiors (I can’t tell which yet) on Wednesday, December 6th, at 2 p.m. in Sherwood Forest ￭ At our end, we are prepared to be reasonable, but unquestionably, it will take two to tango. The revenue agent has not attended any of the Arthur Murray Schools ￭ Forgive me, sir, but I don’t trust you at this juncture. I need a response in writing. This country is having a fiscal crisis and as of this junction I think your office should be complete furloughed. To repeat: I am an unsecured creditor who is being abused and you’re doing absolutely noting about it. If you have no duty to us, then I want to see it in writing and I’ll take it up with my Senators and Congressmen. I’ll take it up with Janet Reno. I don’t understand why, as a taxpayer, I’m paying for a function of the United States government that is contrary to my best interest as an unsecured creditor. The gentleman from your office who attended the hearing knew as much about the file as your left toe. If he is going to substitute for you on matters such as this then, let him read the file and be prepared to take appropriate positions. You make no sense to me--none whatsoever. BRUCE I. HOCHMAN, A very unhappy unsecured creditor 302 of 781 Bruce I. Hochman The lighter side of a sometimes difficult tax practice . . . ￭ HANDLING CRIMINAL TAX CONTROVERSIES - ￭ We may end up in a urological contest with the government on the concept of "tax loss" as it manifests itself in a 26 U.S.C. §7203 case (willful failure to file a tax return) ￭ On one hand, they tell a federally-insured financial institution that they’re making monthly income, and on the other hand, they’re filing tax returns showing they’re not making monthly income. IRS has reconciled these two factors and have, in effect, stated the following: “All right, wise guy, you say you’re making money--good--we want to tax it, plus penalties plus interest!” ￭ RESOLVING THE CRIMINAL INVESTIGATION - ￭ Gentlemen, we negotiated the mine field without losing life or limb ￭ The group manager reluctantly authorized a settlement! This means that you're entitled to celebrate no referral to the Criminal Investigation Division! Honestly, you can open a split of champagne and toast each other. I'm not suggesting a big bottle of champagne because you may not be able to afford it
303 of 781 For Additional Inspiration . . . ￭ OLIVER WENDELL HOLMES, Jr. - The power of tax is not the power to destroy while this court sits . . . ￭ JUDGE LEARNED HAND - There is nothing sinister in so arranging one’s affairs as to keep taxes as low as possible. Everyone does so, rich and poor, and all do right, for nobody owes any public duty to pay more than the law demands ￭ The words of such an act as the Income Tax *** merely dance before my eyes in a meaningless procession: cross-reference to cross-reference, exception upon exception - couched in abstract terms that offer no handle to seize hold of - leave in my mind only a confused sense of some vitally important, but successfully concealed, purport, which it is my duty to extract, but which is within my power, if at all, only after the most inordinate expenditure of time. I know that these monsters are the result of fabulous industry and ingenuity, plugging up this hole and casting out that net, against all possible evasion; yet at times I cannot help but recalling a saying of William James about certain passages of Hegel: that they were, no doubt, written with a passion of rationality; but that one cannot help wondering whether to the reader they have any significance save that the words are strung together with syntactical correctness. *** [Hand, “Thomas Walter Swan,” 57 Yale L. J. 167, 169(1947). 304 of 781 For Additional Inspiration . . .
￭ ARTHUR GODFREY - I am proud to be paying taxes in the United States. The only thing is . . . I could be just as proud for half of the money ￭ SIR WINSTON CHURCHILL - . . . this is the lesson: never give in, never give in, never, never, never, never- in nothing, great or small, large or petty—never give in except to convictions of honour and good sense. Never yield to force; never yield to the apparently overwhelming might of the enemy. . . . This is not the end. It is not even the beginning of the end. But it is, perhaps, the end of the beginning. ￭ BABE RUTH - It’s hard to beat a person who never gives up ￭ UNKNOWN - ￭ The whale only gets harpooned when it comes up for air ￭ Take no action until you have a clear objective ￭ People who complain about taxes can be divided into two classes: men and women ￭ A fine is a tax for doing wrong; A tax is a fine for doing something right
305 of 781 For Additional Inspiration . . .
￭ JOHN F. KENNEDY - Forgive your enemies, but never forget their names ￭ RONALD REAGAN - ￭ Trust, but verify – When you can't make them see the light, make them feel the heat - There is no limit to the amount of good you can do if you don't care who gets the credit ￭ SUN TZU - ￭ Move not unless you see an advantage; use not your troops unless there is something to be gained, fight not unless the position is critical. ￭ The general who wins a battle makes many calculations before the battle is fought ￭ GEORGE S. PATTON - If everyone is thinking alike, then somebody isn't thinking. Better to fight for something than live for nothing. Always do everything you ask of those you command. The object of war is not to die for your country but to make the other bastard die for his. ￭ WARREN BUFFETT - Be fearful when others are greedy and greedy only when others are fearful
306 of 781 For Additional Inspiration . . .
￭ ALBERT EINSTEIN - Logic will get you from A to B. Imagination will take you everywhere ￭ SATCHEL PAIGE - How old would you be if you didn't know how old you are? ￭ YOGI BERRA - ￭ It ain't over till it's over ￭ If you don't know where you are going, you might wind up someplace else ￭ I never said most of the things I said ￭ Always go to other people's funerals, otherwise they won't come to yours ￭ Half the lies they tell about me aren't true ￭ If you come to a fork in the road, take it ￭ You can observe a lot by just watching ￭ The towels were so thick there I could hardly close my suitcase ￭ I wish I had an answer to that because I'm tired of answering that question ￭ If you ask me anything I don't know, I'm not going to answer ￭ NAVY SEALS - The only easy day was yesterday
307 of 781 Presentation Overview
￭ IRS Overview – 16 ￭ Best Practices - 22 ￭ Practical Representation Advice – 24 ￭ Automated Correspondence Examinations – 25 ￭ Pre-Audit Considerations – 27 ￭ The Audit – 29 – Interviews, Indirect Methods, Penalties, Waiver of Statute of Limitations, QARs and Audit Techniques Guides ￭ IRS Appeals – 40 ￭ Appeals Conference Practice and AJAC – 41 ￭ Foreign Accounts and Assets - FBAR Overview – 47 ￭ Interium Guidance re FBAR Penalties- 53
308 of 781 Presentation Overview
￭ Options for Taxpayers with Undisclosed Foreign Financial Accounts and Assets – 57 ￭ Historic Voluntary Disclosure Overview (IRS and DoJ) - 59 ￭ Form 8300 - Reporting Cash Payments Over $10,000 – 67 ￭ FinCEN Geographic Targeting Orders - 72 ￭ Cannabis Industry and the Federal Government - 74 ￭ Cannabis Industry and California Excise Taxes – 80 ￭ Freedom of Information Act Requests - 84 ￭ When Problems are Likely to Occur in a Tax or Estate Planning Practice -85 ￭ Unlawful Disclosures – IRC §7216 - 90 ￭ Preparer Penalties & IRC §6694 Recommendations - 91 ￭ Current IRS Enforcement Procedures and Priorities - 94
309 of 781 INTERNAL REVENUE SERVICE Operating Divisions
￭ Wage and Investment Division (W & I)
￭ Tax Exempt / Governmental Entities (TEGE)
￭ Large Business & International (LB&I)
￭ Small Business / Self-Employed (SB/SE)
310 of 781 INTERNAL REVENUE SERVICE
￭ Appeals ￭ Chief Counsel ￭ National Taxpayer Advocate ￭ Office of Professional Responsibility ￭ Criminal Investigation ￭ Whistleblower Office
311 of 781 Current IRS Environment ￭ SEVERE BUDGET & STAFFING CONSTRAINTS - FY 2016 - $11.7 billion ($13.4 billion in 2010) - $311 million more than FY 2015 but a $1.7 billion drop from 2010 - Impacts hiring, training, etc. throughout - 75% of IRS budget is personnel related - Total staffing declined to 77,924 (2016) from 94,711 (2010) - Revenue Agents(10,862), Revenue Officers (3,994), Tax Examiners (8,294), Customer Service (8,441), Special Agents (2,326) - 193 million returns filed in CY 2015, 1.1 million (0.6%) examined overall, 342,297 field examinations, 824,082 correspondence examinations ￭ NEW COMMISSIONER & NEW CHIEF COUNSEL IN 2017
312 of 781 Current IRS Environment ￭ SIGNIFICANT ONGOING SCRUITNY – 501(c)(4) [250 employees spent 100,000 hours complying with the investigations costing $14+ million delivering 700,000 pages of documents] – Affordable Care Act roles & responsibilities – FATCA implementation ￭ WORKFORCE ATTRITION – 46% of overall IRS leadership -- 101 executives -- have left since October 2011 – 80% of IRS SBSE leadership have left since December 2010 – 25% of workforce eligible to retire in 2017 – 40+% of workforce eligible to retire as of 2019 – More than 50% of IRS workforce are age 50+ – Less than 3% of workforce are under age 30 313 of 781 Tax Planning in a “Tax Gap” Environment “It is no surprise that a knowledgeable tax attorney would use numerous legal entities to accomplish different objectives. This does not make them illegitimate. Unfortunately such 'maneuvering' is apparently encouraged by our present tax laws and codes." Ballard v. Commissioner 522 F. 3rd 1229 (11th Circuit, April 7, 2008)
314 of 781 Duty of the Tax Professional
￭ “Attorneys and accountants should be the pillars of our system of taxation, not the architects of its circumvention” – Former IRS Commissioner Mark Everson, March 18, 2003
￭ “The more we can work with you to help you and your clients get it right, the less time we need to spend dealing with problems after the fact.” - IRS Commissioner Doug Shulman, May 9, 2008
315 of 781 BEST PRACTICES CIR 230 §10.33
￭ Clearly communicate with clients and IRS ￭ Establish relevant facts, evaluate reasonableness of assumptions or representations, apply relevant legal authorities in arriving at a conclusion supported by the law and the facts ￭ Advise the client re potential penalties ￭ Act fairly and with integrity in dealings with the IRS
YOUR REPUTATION COUNTS !
316 of 781 Practical Representation Advice ￭ Respond timely - by the date requested ￭ Use the response forms/envelopes IRS provided ￭ Write clear, simple and concise responses ￭ Securely staple attachments ￭ Include a copy of your POA . . . again and again ￭ Separate envelopes for different years/clients ￭ Certified mail for time sensitive responses ￭ Cite to IRS Pubs with copy of relevant page ￭ Online IRS Transcript Delivery System (TDS) ￭ Return transcript – line items from return ￭ Account transcript – payments, assessments, adjustments ￭ Record of Account – combination of line items and adjustments ￭ NEVER file original returns with the agent
317 of 781 Practical Representation Advice ￭ Maintain timely communications with IRS and the client – confirm statements in writing ￭ Know your case and your client ￭ Taxpayers should not meet directly with agents ￭ Maintain copies of all documents provided ￭ Do your due diligence ￭ Remain professional with the appearance of cooperation at all times ￭ Be aware of relevant privileges ￭ Be cautious in extending the statute of limitations ￭ Conclude the examination ASAP ￭ Prepare, prepare, and then . . . prepare some more!
318 of 781 TAXPAYER REPRESENTATION AUTOMATED CORRESPONDENCE EXAMINATIONS (ACE) ￭ 71+% of all examinations are ACE – limited issues, specific items – often questionable deductions, expenses or credits such as EITC, non-filing issues, Sch A, employee business expenses, charitable contributions, alimony adjustments, first time home buyers credit ￭ GAO – IRS fails to timely respond 50+% contacts from TPs ￭ Centralized and automated in large IRS campuses ￭ ACE batch processing to fully automate the initiation, processing, and closing of ACE cases with minimal to no involvement by a Tax Examiner - receipt of written correspondence moves case from an electronic format into a paper file, triggering assignment of a Tax Examiner for review - ALWAYS respond in writing ￭ An initial call in response to notice of a correspondence examination, although productive, may not result in the case being assigned to a tax examiner 319 of 781 TAXPAYER REPRESENTATION AUTOMATED CORRESPONDENCE EXAMINATIONS (ACE) ￭ Request a face-to-face audit if books and records too voluminous to mail ￭ Reply early, if possible ￭ NEVER mail original receipts ￭ ALWAYS confirm in writing - don’t assume: ￭ anything was received or understood ￭ a request for an appeals conference was granted ￭ Write clear, simple and concise responses ￭ Retain copies of documents provided to IRS ￭ If fail to timely respond, IRS will issue an adjustment notice ￭ Practitioner Priority Service 1-866-860-4259 -staffed by specially trained IRS customer service representatives, available to all tax professionals with valid third party authorizations, i.e., Forms 2848, 8821 and/or 8655
320 of 781 TAXPAYER REPRESENTATION Pre-Audit Considerations ￭ Complete IRS Authorization Form ￭ Form 2848, Power of Attorney ￭ Review large, unusual or questionable return items ￭ Review returns of all related entities and taxpayers ￭ Review returns for other tax years ￭ Pattern of errors? (3-year review) ￭ Review all related State and local returns ￭ Were related returns internally prepared? ￭ Review prior examination reports, if any ￭ Sensitive Issues? ￭ Schedule C taxpayer ￭ Cash intensive business
321 of 781 TAXPAYER REPRESENTATION Pre-Audit Considerations ￭ Identify all potentially applicable privileges ￭ Evaluate internal controls that might support the accuracy of return information - if strong, let 'em know! ￭ Reconciliation of bank deposits? ￭ 14 months of deposits ￭ Consider pre-filing analysis ￭ Taxpayer History Questionnaire ￭ Source of cash evident? ￭ Expenditures analysis ￭ Meet and discuss your review of all relevant information with the taxpayer before the audit begins
322 of 781 TAXPAYER REPRESENTATION The Audit ￭ ￭ GOAL: EARLY RESOLUTION ! ￭ ￭ ￭ Humanize the audit process ￭ Cooperate with the examiner in a timely manner ￭ The audit is not intended as an adversarial process ￭ Avoid misleading information ￭ Do your homework before providing information to the examiner – they have a right to believe you verified accuracy of information provided ￭ Document control ￭ Make duplicate copies of all documents provided
323 of 781 TAXPAYER REPRESENTATION The Audit ￭ ￭ INTERVIEWS – TAXPAYER & PREPARER! ￭ ￭ ￭ Written questions in advance? ￭ Timing? (Near end of the audit) ￭ Place? (Where is TP comfortable?) ￭ IRS interview techniques ￭ Maintain appearance of cooperation ￭ Act dumb ￭ Be personable but persistent ￭ Use appropriate small talk ￭ Ask for clarity if you don’t understand the question
324 of 781 TAXPAYER REPRESENTATION The Audit ￭ Anticipate tours of the business sites ￭ Knowledgeable individuals present ￭ Explain business practices ￭ Should not disrupt business operations ￭ Information Document Request (IDR) ￭ Timely, narrative responses ￭ Summons – have there been reasonable responses to the IDRs? ￭ Extensions of the Statute of Limitations ￭ How much time is reasonable? ￭ Request restricted extension?
325 of 781 TAXPAYER REPRESENTATION The Audit ￭ ￭ Indirect Methods of Determining Income ￭ ￭ ￭ Unexplained bank deposit analysis ￭ 14 months divided by 14 times 12 ￭ Always, always, always . . . ￭ Expenditures exceed known financial resources ￭ Cash hoard? ￭ Unexplained increases in net worth ￭ Mark-Up analysis
326 of 781 TAXPAYER REPRESENTATION The Audit – ￭ ￭ Badges of Fraud ￭ ￭ Internal Revenue Manual (IRM) 25.1.6.3 ￭ Conduct during the examination – evasive? ￭ Implausible or inconsistent explanations ￭ “Pattern” of errors ￭ Inadequate / multiple sets of books & records ￭ Misrepresentations – taxpayer or representative, diversion or omission ￭ Income omissions – specific items, sources or large amounts ￭ False invoices, deductions, documents ￭ Concealment of assets ￭ Check cashing, dealing in cash, etc.
327 of 781 TAXPAYER REPRESENTATION Penalties ￭ IRC §6664(c ) - No accuracy-related (IRC §6662) penalty if there was reasonable cause and that the taxpayer acted in good faith See Treas Reg §§1.6664-4(a) and 1.6662-3 ￭ First Time Abate – IRM 20.1.1.3.6.1 ￭ No prior penalties assessed (except the Estimated Tax Penalty) for previous 3 years ￭ Full abatement of Failure to File (FTF), Failure to Pay (FTP), and Failure to Deposit (FTD) penalties ￭ Reasonable cause – reliance – good faith or “too good to be true”? See IRS PENALTY HANDBOOK - IRM 20.1.1 / Reg. 1.6664-4(a) ￭ Disclosure Statement ￭ Form 8275 / 8275-R; See also Rev. Proc. 2016-13 ￭ Don’t get cute! ￭ Whistleblower Rewards - IRC §7623 -Watch the “Exes”! ￭ Financial mercenaries are everywhere! ￭ Up to 30% of IRS recovery of collected taxes, interest and penalties 328 of 781 TAXPAYER REPRESENTATION ￭ Penalties – Reasonable Cause ￭ Established if the taxpayer exercised “ordinary business care and prudence,” but due to circumstances beyond the taxpayer’s control, they were unable to comply ￭ What happened and when did it happen? ￭ During the relevant period what facts and circumstances prevented the taxpayer from complying with the law? ￭ How did the facts and circumstances result in the taxpayer not complying? ￭ How did the taxpayer handle the remainder of their personal and business affairs during this time? ￭ Once the facts and circumstances changed, what attempt did the taxpayer make to comply?
329 of 781 TAXPAYER REPRESENTATION ￭ Penalties – Reliance ￭ “When an accountant or attorney advises a taxpayer on a matter of tax law, such as whether a liability exists, it is reasonable for the taxpayer to rely on that advice. Most taxpayers are not competent to discern error in the substantive advice of an accountant or attorney. To require the taxpayer to challenge the attorney, to seek a "second opinion," or to try to monitor counsel on the provisions of the Code himself would nullify the very purpose of seeking the advice of a presumed expert in the first place (citations omitted). ‘Ordinary business care and prudence’ do not demand such actions” United States v. Boyle, 469 U.S. 241, 251 (1985); Henry v. Comm., 170 F. 3d 1217, 1220 (9th Cir. 1999). ￭ Was the advice “too good to be true”? ￭ Was the reliance “in good faith”? ￭ Did the advisor know all relevant facts? ￭ Was the advisor competent to render the advice provided?
330 of 781 TAXPAYER REPRESENTATION
￭ Waiving Applicable Statute of Limitations
￭ Form 872 – Consent to Extend the Time to Assess Tax – to a specific date ￭ Form 872 – A (Special Consent to Extend the Time to Assess Tax) – Indefinite extension until 90 days after either party mails Form 872-T to the other or IRS mails a Notice of Deficiency ￭ Restricted - can restrict extension to certain potential adjustments or years (request restriction if IRS has had sufficient opportunity to review other potential issues)
331 of 781 IRS Audit Technique Guides (ATGs)
• ATGs assist IRS examiners during audits by providing insight into issues and accounting methods unique to specific industries • Explain industry-specific examination techniques and include common and unique industry issues, business practices and terminology • Provide guidance re the examination of income, interview techniques and evaluation of evidence • Publically available at IRS.gov, search “ATG”
332 of 781 QUALIFIED AMENDED RETURNS Treasury Regulation § 6664-2(c)(2) - (4)
• Timely filed amended return may reduce or eliminate accuracy-related penalties – BUT no automatic impact on civil fraud penalty
• The “amount shown as the tax by the taxpayer on his return” includes an amount shown as additional tax on a QAR
• Except that such amount is not included if it relates to a fraudulent position on the original return
333 of 781 IRS APPEALS ■ MISSION: Resolve tax controversies, without litigation, on a basis which is fair and impartial to both the government and the taxpayer and in a manner that will enhance voluntary compliance and public confidence in the integrity and efficiency of the Internal Revenue Service ■ Prohibition of ex parte communications between appeals officers and other IRS employees – taxpayer/representative have right to participate in the communication, Rev Proc 2012-18 ■ Advice - maintain reasonable in expectations, be prepared, determine who will participate in conferences for the taxpayer and for Appeals (issue specialists – international, engineers, economists, financial products specialists, domestic issue specialists; Review & Concurrence for coordinated issues?) ■Large case – pre-opening conference includes exam team to explain positions to Appeals (often a Powerpoint presentation), taxpayer/representative invited to attend but not to participate ■Post-Appeals Mediation – requires specific request for PAM to AO and written statement detailing position on issues in dispute; AO as mediator and often resolved w/in 60-90 days
334 of 781 IRS APPEALS CONFERENCE PRACTICE IRM 8.6.4.1 (10-01-2016) ■ Internal Revenue Manual 8.6.1.4.1 (10-01-2016) - Conference Practice ■ “Except as set forth below, hold conferences by telephone.” I.R.M., pt. 8.6.1.4.1 (10-01-2016) ■ Appeals will consider the following facts and circumstances in making the decision to hold an in-person conference: ■ There are substantial books and records to review that cannot be easily referenced with page numbers or indices ■ The ATE cannot judge the credibility of the taxpayer’s oral testimony without an in-person conference ■ The taxpayer has special needs (e.g. disability, hearing impairment) that can only be accommodated with an in-person conference ■ There are numerous conference participants (e.g., witnesses) that create a risk of an unauthorized disclosure or breach of confidentiality ■ An alternative conference procedure (e.g., Post Appeals Mediation (PAM) or Rapid Appeals Process (RAP)) involving separate caucuses will be used ■ Another IRM section specific to the workstream calls for an in-person conference ■ The ATE will communicate the decision regarding the in-person conference to the taxpayer and/or representative
■ Section 7521 – Recording taxpayer interviews335 of 781 / right of representation IRS APPEALS CONFERENCE PRACTICE IRM 8.6.4.1 (10-01-2016)
■Make multiple attempts to initiate a personal contact with the taxpayer or representative by telephone or by correspondence. ■During personal contact, discuss whether an alternative conferencing method (other than telephone) is necessary based on the unique facts and circumstances of the case. ■Hold conferences on dates that are reasonably convenient for taxpayers and representatives and the ATE. ■Appeals has the discretion to invite Counsel and/or Compliance to the Appeals conference. 336 of 781 IRS APPEALS CONFERENCE PRACTICE IRM 8.6.4.1 (10-01-2016) ■Offer a taxpayer requesting an in-person conference a virtual conference as an alternative when the technology for a virtual conference is available (see Virtual Service Delivery (VSD), discussed below). There may be situations in which an in-person conference, including circuit riding should be held to help reach resolution. ■The decision to hold an in-person conference can be made upon the request of the taxpayer or at the suggestion of the ATE (Appeals Team Employee) - the ATM (Appeals Team Manager) must concur with the decision.
337 of 781 APPEALS JUDICIAL APPROACH and CULTURE (AJAC) PROJECT ■Appeals hearing officers are not investigators or examining officers - will not take investigative actions or analyze new information or new issues ■Resolved that Compliance is to be the “first finder of fact” ■Appeals will not: – Raise new issues – Do the job of the compliance function – Develop evidence that is not in the case file ■An underdeveloped case submitted to Appeals in which the taxpayer has not presented new evidence – will be evaluated and settled by Appeals on the basis of the factual hazards present in the case ■However, when taxpayer submits new information – case returned to exam ■Debate brewing over definition and impacts of new evidence versus new arguments
338 of 781 APPEALS (AJAC) – PHASE 2 (IRM 8.2.1.5) Grounds For Returning a Case to Exams
■Appeals discovers potential fraud, malfeasance or misrepresentation of a material fact ■ The taxpayer provides new information or evidence ■ The taxpayer raises new issue(s) that the originating function has not considered ■ Failure to secure timely consents extending the period of limitation for assessment unless the statute is open for other reasons, e.g., fraud, IRC 6501(e) ■ Technical advice was pending at the time of the referral
339 of 781 APPEALS (AJAC) – PHASE 2 (IRM 8.6.1.6.5) Taxpayer Provides New Information ■New information or new evidence is any item or document related to a disputed issue that the taxpayer did not previously share with the examiner, and in the judgment of the Appeals hearing officer, merits additional analysis or investigative action by Examination. - Additional analysis means anything that is not self-evident, or involves voluminous information. Simply adding up items that are not voluminous does not constitute additional analysis. Categorizing, sorting, reviewing large volumes of records, or requiring additional steps or reasoning to reach a conclusion constitutes additional analysis - Investigative action means actions required for fact finding, to make inquiries or to verify the authenticity of an item
340 of 781 FOREIGN ACCOUNTS & ASSETS Who Has Money Abroad?
• Historical reasons • War and persecution • Families with international presence • Americans living overseas for a time • American business interests • Inheritance, gifts • Diversification • Tax Cheats (sometimes referred to as “clients”) . . .
341 of 781 FBAR OVERVIEW Who Must File? • A United States person must file an FBAR if that person has: – A financial interest in; – Signature authority over; or – Any other authority over any financial account(s) in a foreign country if their aggregate value exceeds $10,000 at any time during the calendar year
342 of 781 FBAR OVERVIEW Sanctions - Civil Penalties • FBAR -- penalties up to 50% of account balances per year for willful failure to file • Six year statute of limitations, even for non-filers • Non-willful penalties – warning or $10,000/per account • Need to reduce to judgment to enforce collection • Mitigation guidelines for smaller accounts in IRM • Definition of Willfulness • Williams, McBride, Zwerner & Moore broaden the test • What did the return preparer know? • Was the box on Sch. B, Line 7 checked “no”? • Badges of fraud – concealment, tax loss, etc.
343 of 781 Recent Involving Failure to File FBARs
• U.S. v. Williams 489 Fed. App. 655 (4th Cir., 2012), 10 AFTR 2d (RIA) 5298 • U.S. v. McBride 908 F. Supp. 2d 1186 (U.S. Dist. Ct. of Utah, Cent. Div., 2012), 110 AFTR 2d (RIA) 6600 • U.S. v. Zwerner Case No. 13-22082-CIV, Feb. 18, 2014 (U.S. Dist. Ct. for Southern Dist. Of Fla., Miami Div.) • U.S. v. Moore Case No. C13-2063RAJ, (U.S. Dist. Ct. for West. Dist. Of Wash. At Seattle)
344 of 781 Sanctions — Civil Penalties Tax Returns • Accuracy — 20% of the tax + interest • Fraud — 75% of the tax + interest • Failure to File/Failure to Pay – up to 25% • Understatement due to omission of income from foreign sources— 40% (effective 2011) • Form 8938 (effective 2011) • $10,000, doubled after notice up to $50,000/return
345 of 781 FBAR Penalties for Non-Compliance • Potential civil penalties of: – $10,000 per year for non-willful violations – Up to 50% of the aggregate account value, per year, for willful violations
• Potential criminal sanctions for a willful violation
346 of 781 IRS INTERIUM GUIDANCE re FBAR Penalties (May 13,2015, Control Number: SBSE-04-0515-0025)
NOT applicable to OVDP or Streamlined Procedures cases • Examiners to use “best judgment” • Willful penalties mostly limited to 50%, single year (not to exceed 100% of high account value) • Non-willful penalties mostly limited to $10,000 per open year, regardless of number of unreported accounts • Review applicability of IRS Internal Revenue Manual mitigation provisions - IRM 4.26.16.4.7
347 of 781 TAX ENFORCEMENT FOCUS ON UNDECLARED FOREIGN FINANCIAL ACCOUNTS
“If you are a US individual holding overseas assets, you must report and pay your taxes or we will be increasingly focused on finding you” Douglas H. Shulman, Commissioner of Internal Revenue Washington, D.C. , Oct. 26, 2009
348 of 781 TAX ENFORCEMENT FOCUS ON UNDECLARED FOREIGN FINANCIAL ACCOUNTS “U.S. taxpayers have been given ample opportunity to come forward, disclose their secret foreign accounts, and come into compliance . . . Those individuals and entities who rolled the dice in the hope of remaining anonymous are facing the consequences. The Tax Division remains committed to investigating and prosecuting individual taxpayers with undeclared foreign financial accounts, as well as the financial institutions, bankers, financial advisors and other professionals who facilitate the concealment of income and assets offshore. And as today’s guilty plea clearly indicates, the department’s reach is well beyond Switzerland.” CAROLINE D. CIRAOLO Acting Assistant Attorney General, Tax Division February 3, 2016 (DOJ TAX “Former U.S. Citizen Pleads Guilty to Tax Fraud Related to Swiss Financial Account”)
349 of 781 TAX ENFORCEMENT FOCUS ON UNDECLARED FOREIGN FINANCIAL ACCOUNTS ￭ If the initial contact is by the IRS, a purely civil tax resolution is no longer certain and significant civil penalties are likely ￭ If the initial contact is by the Department of Justice, a purely civil tax resolution is anything but certain and is perhaps unlikely. DoJ Letter Re Investigation of undeclared Foreign Financial Accounts The Department of Justice is conducting an investigation of U.S. taxpayers who may have violated federal criminal laws by failing to report they had a financial interest in, or signature authority over, a financial account located in a foreign country. We have reason to believe that you had an interest in a financial account in India that was not reported to the IRS on either a tax return or FBAR, Department of Treasury Form TD F 90-22.1, report of Foreign Bank and Financial Account. You are advised that the destruction or alteration of any document that may relate to this investigation constitutes a serious violation of federal law, including but not limited to obstruction of justice . . . You are further advised that you are a subject of a criminal investigation being conducted by the Tax Division [of the Department of Justice].”
350 of 781 OPTIONS FOR TAXPAYERS WITH UNDISCLOSED FOREIGN FINANCIAL ASSETS
￭ 2014 Offshore Voluntary Disclosure Program
￭ Streamlined Filing Compliance Procedures
￭ Delinquent FBAR Submission Procedures
￭ Delinquent International Information Return Submission Procedures
351 of 781 Professional Responsibility and the FBAR ￭ U.S. persons required to file FBARs may claim a reasonable cause defense against penalties by blaming their preparers, on whom they reasonably relied, for failing to ask about the existence of a foreign bank account or to advise re the FBAR filing requirement ￭ Per OPR - Practitioners who prepare U.S. persons’ Forms 1040, 1065, or 1120 series have a Cir 230 duty to inquire with sufficient detail to prepare correct responses to the FBAR questions on Form 1040 Schedule B, in box 3 on Form 1041 “Other Information” section, on Form 1065 Schedule B, or on Form 1120 Schedule N. ￭ Cir 230 §10.22 - Diligence as to accuracy ￭ Cir 230 §10.34(c) - Notwithstanding the lack of obligation to prepare the FBAR, the practitioner does have an affirmative obligation to advise the client of the need to file the FBAR form and the consequences of failing to do so ￭ Cir 230 §10.34(d) - May reply on information provided by the client in good faith. However, a practitioner may not ignore the implications of any information provided to or actually known by the practitioner. If the information furnished by the client appears to be incorrect, inconsistent with other known facts, or incomplete, the practitioner is required to make further inquiry
352 of 781 IRS VOLUNTARY DISCLOSURE PRACTICE IRM 9.5.11.9 (12-02-2009)
￭ Informal – an issue to be considered in decision re criminal prosecution referral by IRS to the Department of Justice
￭ No substantive or procedural rights for taxpayers
￭ Cannot rely on the fact that other similarly situated taxpayers may not have been recommended for criminal prosecution
￭ Requires truthful, timely and complete disclosure
353 of 781 IRS VOLUNTARY DISCLOSURE PRACTICE IRM 9.5.11.9 (12-02-2009) ￭ IRS practice since 1952 - encourage voluntary compliance • Legal source income • Timely – disclosure before IRS has initiated an examination or otherwise has information re taxpayer (Informant?) • Truthful and complete ￭ Taxpayer must • Fully cooperate with IRS • Make good faith arrangements to pay any tax, interest, and penalties determined by the IRS to be due • Disclose every aspect of noncompliance
354 of 781 IRS VOLUNTARY DISCLOSURE PRACTICE IRM 9.5.11.9 (12-02-2009)
￭ Will not automatically guarantee immunity from prosecution - however, a voluntary disclosure may result in prosecution not being recommended by IRS (no “referral” the Department of Justice for prosecution)
￭ IRS representatives to refrain from offering opinions or discussing hypothetical investigations with anonymous taxpayers or his/her representatives – may inquire as to reasons why they are making the voluntary disclosure
355 of 781 VOLUNTARY DISCLOSURE COMMUNICATIONS IRM 9.5.11.9.6 (11-01-2011) ￭ No specified format required – information may be provided either verbally or in writing - must identify taxpayer and provide a brief description of all omitted income, the tax scheme used by the taxpayer, and a dollar estimate of the total taxes owed ￭ Statement must be made by the taxpayer (either verbally or in writing) that they are willing to cooperate with the IRS in determining the correct tax liability and make good faith arrangements to pay in full, the tax, interest, and any penalties determined by the IRS to be applicable in full. This is critical ￭ TP may submit amended returns with their voluntary disclosure communication or wait to submit amended returns until after Criminal Investigation evaluates the communication and makes a recommendation to SB/SE Planning and Special Programs Unit (PSP) or LB&I Offshore Identification Unit (POIU)
356 of 781 IRS VOLUNTARY DISCLOSURES Disqualifying Factors IRM 9.5.11.9.5 (12-02-2009) ￭ Are you currently the subject of a criminal investigation or civil examination? (If yes, specify) ￭ Has the IRS notified you that it intends to commence an examination or investigation? (If yes, specify) ￭ Are you under investigation by any law enforcement agency? (If yes, specify) ￭ Is the source of any of your income from illegal activity? (The IRS voluntary disclosure practice does not apply to taxpayers with illegal source income) (If yes, specify) ￭ Do you have any reason to believe that the IRS has obtained information concerning your tax liability? (If yes, specify) 357 of 781 IRS VOLUNTARY DISCLOSURE PRACTICE Examples of timely voluntary disclosures include . . . IRM 9.5.11.9 (12-02-2009)
“(6) Examples of timely voluntary disclosures include: (A). A letter from an attorney which encloses amended returns from a client which are complete and accurate (reporting legal source income omitted from the original returns), which offers to pay the tax, interest, and any penalties determined by the IRS to be applicable in full and which meets the timeliness standard set forth above. This is a voluntary disclosure because all of the elements of a voluntary disclosure have been met”
Practice Note - IF PURSUING A VOLUNTARY DISCLOSURE – SPECIFICALLY REFERENCE EXAMPLE 6(A) IN THE LAWYERS COVER LETTER ACCOMPANYING THE AMENDED RETURNS
358 of 781 Department of Justice VOLUNTARY DISCLOSURE POLICY Section 4.01, Criminal Tax Manual, U.S. Department of Justice (2008) Whenever a person voluntarily discloses that he or she committed a crime before any investigation of the person’s conduct begins, that factor is considered by the Tax Division along with all other factors in the case in determining whether to pursue criminal prosecution. If a putative criminal defendant has complied in all respects with all of the requirements of the Internal Revenue Service’s voluntary disclosure practice, the Tax Division may consider that factor in its exercise of prosecutorial discretion. It will consider, inter alia, the timeliness of the voluntary disclosure, what prompted the person to make the disclosure, and whether the person fully and truthfully cooperated with the government by paying past tax liabilities, complying with subsequent tax obligations, and assisting in the prosecution of other persons involved in the crime.
359 of 781 Department of Justice POLICY DIRECTIVES AND MEMORANDA Section 3, Policy Directives and Memoranda Tax Division, U.S. Department of Justice (02/17/1993)
. . . the Service's voluntary disclosure policy remains, as it has since 1952, an exercise of prosecutorial discretion that does not, and legally could not, confer any legal rights on taxpayers.
If the Service has referred a case to the Division, it is reasonable and appropriate to assume that the Service has considered any voluntary disclosure claims made by the taxpayer and has referred the case to the Division in a manner consistent with its public statements and internal policies. As a result, our review is normally confined to the merits of the case and the application of the Department's voluntary disclosure policy set forth in Section 4.01 of the Criminal Tax Manual
360 of 781 Form 8300 - Reporting Cash Payments Over $10,000 in a Trade or Business • Report payments if all of the following criteria are met: – Amount of cash exceeds $10,000 – Received in the ordinary course of a trade or business – Received in a single transaction or in related transactions as: • Lump sum exceeding $10,000, or • Installment payments exceeding $10,000 within 12 months of the initial payment
361 of 781 Form 8300 - Reporting Cash Payments Over $10,000 in a Trade or Business • “Cash” includes: – Coins and currency of the U.S. or a foreign country – Cashiers checks, travelers checks, bank drafts and money orders if: • Customer is trying to avoid filing of Form 8300, • Involves retail sale of consumer durable for personal use expected to last more than one year and has a sales price exceeding $10,000 • Collectibles such as artwork, rug, stamp or coin, or • Travel or entertainment if total sales price of all items (airfare, hotel, etc.) exceeds $10,000
362 of 781 Form 8300 - Reporting Cash Payments Over $10,000 in a Trade or Business
• “Cash”does not include: – Personal checks drawn on the account of the writer – Cashiers checks, travelers checks, bank drafts and money orders with a face value exceeding $10,000 • If the customer uses currency to purchase a monetary instrument the financial institution is required to report the transaction on FinCEN Form 104 – Currency Transaction Report
363 of 781 Form 8300 - Reporting Cash Payments Over $10,000 in a Trade or Business
• “Related transactions” – – Occur within 24-hour period – Or if business knows, or has reason to know, that each is a series of connected transactions • File Form 8300 within 15 days after payment received – If the initial payment is less than $10,000 the Form 8300 is due 15 days after receipt of later payment made within one year which causes all related payments to exceed $10,000
364 of 781 Form 8300 - Reporting Cash Payments Over $10,000 in a Trade or Business • Written statement required to be provided to the customer by January 31 of next calendar year indicating – – Name, address and contact person for seller’s business – Amount of reportable cash received within 12-month period – Seller is reporting the information to the IRS • Form 8300 and the written statement are required to be retained for 5 years • Potential civil penalties and criminal sanctions for noncompliance
365 of 781 FinCEN Geographic Targeting Order dated 08/22/17 for Title Insurance Companies - Form 8300 • Covered Transaction – Important as guide to perceived non- compliance - any transaction in which: • a Legal Entity (corporation, limited liability company, partnership or other similar business entity, whether formed under the laws of a state or of the United States or a foreign jurisdiction) • purchases residential real property, • without a bank loan or other similar form of external financing; and such purchase is made, at least in part, using currency or a cashier’s check, a certified check, a traveler’s check, a personal check, a business check, or a money order in any form, or a funds transfer, • the total purchase price is (i). $2,000,000 or more in the California county of San Diego, Los Angeles, San Francisco, San Mateo, or Santa Clara, (ii). $3,000,000 or more in the City and County of Honolulu in Hawaii, (iii). $3,000,000 or more in the Borough of Manhattan in New York City, New York, (iv). $1,500,000 or more in the Borough of Brooklyn, Queens, Bronx, or Staten Island in New York City, New York, (v). $1,000,000 or more in the Florida county of Miami-Dade, Broward, or Palm Beach, and (vi). $500,000 or more in the Texas county of Bexar. • Term - September 22, 2017 to March 20, 2018; Form 8300 required within 30 days of closing the Covered Transaction 366 of 781 FinCEN Geographic Targeting Order dated 09/26/14 for Covered Businesses - Form 8300 • Covered Business – Important as guide to perceived non- compliance – Garment & textile stores – Transportation Companies – Travel agencies – Perfume stores – Electronic stores (including those selling cell phones) – Shoe stores – Lingerie stores – Flower/silk flower stores – Beauty supply stores, and – Stores bearing “Import” or “Export” in their name • Covered Geographic Area – portion of downtown Los Angeles (“garment district”) effective for 180 days from 10/09/14 – 04/06/15 • Form 8300 (marked “LAGTO2014”) required for receipt of currency in excess of $3,000 • Questions: FinCEN Resources Center 800.767-2825
367 of 781 CANNABIS a Schedule I Federally Controlled Substance ￭ Controlled Substances Act (CSA) render it a criminal violation of federal law to manufacture, distribute, or dispense marijuana. Many states have and enforce similar criminal laws. ￭ 21 U.S.C. § 841 Unlawful Acts: . . . [I]t shall be unlawful for any person knowingly or intentionally – (1) to manufacture, distribute, or dispense, or possess with intent to manufacture, distribute, or dispense, a controlled substance . . . ￭ Schedule I Controlled Substance - The federal government lists marijuana as a Schedule I controlled substance under the CSA even though more than one-half of the states have legalized marijuana in some form. Financial institutions that provide services to marijuana-related businesses continue to face serious pressure from federal authorities.
368 of 781 CANNABIS a Schedule I Federally Controlled Substance ￭ 26 U.S.C. § 6050I (f) Structuring Transactions to Evade Reporting - (1) In General: No person shall for the purpose of evading the return requirements of this section (A) Cause or attempt to cause a trade or business to fail to file a return under this section; (B) Cause or attempt to cause a trade or business to file a return required under this section that contains a material omission or misstatement of fact; or (C ) Structure or assist in structuring, or attempt to structure or assist in structuring, any transaction with one or more trades or businesses. Cannabis slides prepared with the assistance of Bill Taggart ([email protected])
369 of 781 CANNABIS a Schedule I Federally Controlled Substance ￭ 18 U.S.C. § 1956 Money Laundering - (a)(1) Whoever, knowing that the property involved in a financial transaction represents the proceeds of . . . [an] unlawful activity, conducts or attempts to conduct such a . . . transaction . . . Involv[ing] the proceeds . . . – (A)(i) with the intent to promote the carrying on of the specified unlawful activity…; (B)(i) knowing the transaction is designed . . . to conceal or disguise the nature, the location, the source, the ownership, or the control of the proceeds . . . ; or (B)(ii) to avoid a transaction reporting requirement under State or Federal law…
370 of 781 CANNABIS a Schedule I Federally Controlled Substance ￭ 18 U.S.C. § 371 Conspiracy - If two or more persons conspire either to commit any offense against the United States, or to defraud the United States, or any agency thereof in any manner or for any purpose, and one or more of such persons do any act to effect the object of the conspiracy, each shall be fined under this title or imprisoned not more than five years, or both, If, however, the offense, the commission of which is the object of the conspiracy, is a misdemeanor only, the punishment for such conspiracy shall not exceed the maximum punishment provided for such misdemeanor.
371 of 781 CANNABIS – Cole Memorandum
• On August 29, 2013, then Deputy Attorney General James Cole issued a memorandum to all United States Attorneys relating to marijuana providing guidance enforcement priorities under the CSA.
• For matters falling outside federal enforcement priorities, federal law enforcement historically has relied on state and local law enforcement agencies to address marijuana activity through enforcement of their own drug laws.
372 of 781 CANNABIS – Cole Memorandum • The Federal Enforcement Priorities include: • Preventing the distribution of marijuana to minors; • Preventing revenue from the sale of marijuana from going to criminal enterprises, gangs, and cartels; • Preventing the diversion of marijuana from states where it is legal under state law in some form to other states; • Preventing state-authorized marijuana activity from being used as a cover or pretext for the trafficking of other illegal drugs or other illegal activity; • Preventing violence and the use of firearms in the cultivation and distribution of marijuana; • Preventing drugged driving and the exacerbation of other adverse public health consequences associated with marijuana use; • Preventing the growing of marijuana on public lands and the attendant public safety and environmental dangers posed by marijuana production on public lands; and • Preventing marijuana possession or use on federal property.
373 of 781 ￭ New CA CANNABIS Taxes beginning 01/01/2018 ￭ ￭ 15% excise tax imposed upon purchasers of cannabis and cannabis products. Retailers of cannabis and cannabis products are required to collect the 15 percent excise tax from the purchaser based on the average market price of any retail sale and pay it to their cannabis distributor. ￭ A cultivation tax is imposed upon cannabis cultivators on all harvested cannabis that enters the commercial market. Cannabis cultivators are required to pay the cultivation tax to either their distributor or their manufacturer. The rate of the cultivation tax is: - $9.25 per dry-weight ounce of cannabis flowers that enter the commercial market - $2.75 per dry-weight ounce of cannabis leaves that enter the commercial market
374 of 781 ￭ New CA CANNABIS Taxes beginning 01/01/2018 ￭
￭ Cannabis distributors are required to collect and remit the cannabis excise tax and the cultivation tax to CDTFA. Therefore, if you are a cannabis distributor, you are required to: • Register online with CDTFA for a cannabis tax permit (online registration should be available the end of November 2017). • Register online with the CDTFA for a seller’s permit, if you don’t already have one.
375 of 781 ￭ New CA CANNABIS Taxes beginning 01/01/2018 ￭
• Beginning 01/01/2018, – collect the 15 percent excise tax from cannabis retailers that you sell or transfer cannabis and/or cannabis products to. The excise tax is collected based on the average market price of any retail sale of cannabis and/or cannabis products. – collect the cannabis cultivation tax from cultivators, or collect the cultivation tax from manufacturers if the cannabis is sold or transferred to a manufacturer first. The manufacturer is required to collect the cultivation tax from the cultivator when the cannabis is transferred or sold to the manufacturer. – Electronically file both your cannabis tax return and your sales and use tax return and remit any tax amounts due and/or collected to the CDTFA by the due date.
376 of 781 ￭ New CA CANNABIS Taxes beginning 01/01/2018 ￭
• Cannabis cultivators, manufacturers, and retailers are also required to obtain and maintain a seller’s permit as part of the licensing requirements for cannabis businesses. You can register online by using the “New Registration” button on the homepage of our website at www.cdtfa.ca.gov.
• Sign up for the CDTFA Cannabis Outreach email listserv at www.cdtfa.ca.gov/cannabis/subscribe/ to receive the latest news on cannabis tax compliance and related issues like CDTFA-issued special notices and news releases. The email listserv will also be used to inform those in the industry about opportunities to comment and weigh in on policy updates related to the taxation of cannabis and cannabis products.
• Information will also be posted, as it becomes available, in the online Tax Guide for Cannabis Businesses at www.cdtfa.ca.gov/cannabis.
377 of 781 FREEDOM OF INFORMATION ACT REQUESTS 5 U.S.C. § 552 (See irs.gov “FOIA” for filing address) ￭ When to file? ￭ Where to file? ￭ Request the Examination Division Administrative File for the audit. This information should include any worksheets, work papers, notes, emails, documents, memoranda, computations and other materials prepared or accumulated relative to this examination by employees of the Internal Revenue Service, any other governmental agency, or otherwise, including internal documents, memoranda, memoranda of all interviews of persons regarding the individual income tax liabilities of the taxpayer, copies of all statements (sworn or otherwise) given by individuals in connection with the investigation of the individual income tax liabilities of the taxpayer, Case Activity record, written reports and recommendations concerning the proposed assessment of additional tax and penalties and any other information that is related to the determinations by the Internal Revenue Service set forth in the Revenue Agents Report (30 Day Letter) dated ______, ____.
378 of 781 When Problems are Likely to Occur in a Tax or Estate Planning Practice ￭ Inappropriate reliance on: ￭ Information provided by the taxpayer ￭ Unreasonable factual assumptions ￭ Did you act in good faith? ￭ Positions in returns prepared by others ￭ Inability to control client expectations ￭ Objective view of the facts ￭ Overly aggressive clients ￭ Professional relationship compromised ￭ Failure to limit nature and scope of your representation . . . in writing
379 of 781 When Problems are Likely to Occur in a Tax or Estate Planning Practice ￭ Lack of diligence in representation, pre and during the audit ￭ Failure to inquire re additional facts ￭ Failure to discover contrary legal authorities ￭ Failure to adequately prepare - review large, unusual or questionable items in the return, prior year returns ￭ Review potentially applicable IRS Audit Technique Guidelines (ATG) ￭ Failure to identify sensitive issues or “patterns” over multiple years ￭ Failure to cooperate with the examiner in a timely manner ￭ Audit need not be an adversarial process ￭ Maintain appearance of reasonableness throughout
380 of 781 When Problems are Likely to Occur in a Tax or Estate Planning Practice ￭ Lack competence to handle representation ￭ Conflicts of Interest ￭ Inadequate new client review procedures ￭ Knowing and intelligent conflict waiver? ￭ Failure to inquire re foreign asset reporting requirements (FBAR, Form 8938, etc.) ￭ If in doubt, recommend filing ? ￭ April 15, with automatic six-month extension to October 15, for tax years beginning after 12/31/2015 ￭ Potential FBAR civil penalties of (i) $10,000 per year for non-willful violations, or (ii) Up to 50% of the aggregate account value, per year, for willful violations
381 of 781 When Problems are Likely to Occur in a Tax or Estate Planning Practice ￭ Inadequate return disclosures – Don’t be cute! ￭ Form 8275 / 8275-R, Rev Proc 2016-13 ￭ Remote relationship with client ￭ Meet in person (“make eye contact”) when asking important questions re return preparation or pre-examination ￭ Termination of client relationship ￭ Failure to return client records and documents ￭ Failure to terminate IRS authorization ￭ “Tax season” deadline - pressure to file return ￭ Rush to prepare returns - intention to amend later when additional information is available . . . but fail to amend return 382 of 781 When Problems are Likely to Occur in a Tax or Estate Planning Practice
￭ Interviews of the Taxpayer or Return Preparer ￭ If, when, where, scope / limitations? ￭ Inadequate internal office supervision
￭ Failure to assert potential privileges
￭ Unauthorized disclosure of return information ￭ IRC §7216 ￭ Preparer filing non-compliance
383 of 781 IRC §7216 - UNLAWFUL DISCLOSURES
￭ Return preparers who “knowingly or recklessly” make “unauthorized disclosures or use” of “information furnished in connection with the preparation of an income tax return” are subject to criminal sanctions (i.e., imprisonment!)
￭ See Revenue Procedure 2008-35 and Treas. Reg. §301.7216-1, et. seq. for further information and pro forma taxpayer consent forms
384 of 781 PREPARER PENALTIES - IRC §6694
￭ Standards of Conduct to Avoid §6694 Penalty ￭ Disclosed - Reasonable Basis Standard ￭ Undisclosed – Substantial Authority Standard ￭ Tax Shelters – More Likely Than Not Standard ￭ Adequate Disclosure - Don’t Be Cute! ￭ Form 8275, Form 8275-R See Treas. Reg. §§ 1.6662-3(c) and 1.6662-4(f) ￭ Rev. Proc. 2016-13 ￭ Erroneous disclosures are worse then no disclosure ￭ Reasonable Cause and Good Faith Exception
385 of 781 IRC §6694 RECOMMENDATIONS
￭ Think “Substantial Authority” ￭ Think Disclosure – Form 8275 ￭ Tax Advice is Sufficient for IRC §6694 ￭ Document Your Advice in Writing ￭ Limit the Nature and Scope of Services to be Provided in the Engagement Letter
386 of 781 IRC §6694 RECOMMENDATIONS ￭ Establish a system of checklists for advice . . . and FOLLOW THE SYSTEM
￭ Use YOUR best judgment . . . a tax return is NOT an offer to negotiate with the government
￭ Your client is not your friend! . . . if you need a friend, GET A DOG!
How will IRC §6694 be enforced longterm? Feel Lucky?
387 of 781 CURRENT IRS ENFORCEMENT PROCEDURES
￭ Expanded use of soft notices and other non- audit contacts ￭ Aggressively target areas of significant risk ￭ Enhanced coordination with treaty partners and international organizations ￭ All LB&I Counsel lawyers have been trained in the fundamentals of international taxation ￭ Revise & enhance case selection procedures to better identify high-risk transactions
388 of 781 CURRENT IRS ENFORCEMENT PROCEDURES
￭ Continue focus on corporations, high-income individuals, business income, and flow-through entities
￭ Implement a comprehensive non-filer program ￭ Increase criminal investigations of existing and emerging high-risk areas ￭ Identify & pursue promoters of tax schemes
389 of 781 CURRENT IRS ENFORCEMENT PROCEDURES
￭ Identify & pursue misuse of tax-exempt organizations
￭ Develop & implement a coordinated preparer plan across the IRS and preparer community ￭ Diligently administer a system of preparer sanctions ￭ Leverage research to identify areas of abuse and non-compliance by return preparers
390 of 781 CURRENT IRS ENFORCEMENT PRIORITIES
￭ Mortgage Interest Limitations, IRC §163(h)(3) ￭ Acquisition & refinance indebtedness
￭ §1031 Like-kind Exchanges ￭ 45-Day Rule - Treas. Reg. §1.1031(K)-1 ￭ Not like-kind interests ￭ Replacement property not held for investment ￭ States looking at sourcing of gain on disposition
391 of 781 CURRENT IRS ENFORCEMENT PRIORITIES
￭ Real Estate Dispositions ￭ Verifying the amount realized for the property ￭ Verifying the adjusted basis of the property ￭ Final Year Returns - Ensuring the proper recapture of items when a negative capital account exists ￭ Real Estate Professional
392 of 781 CURRENT IRS ENFORCEMENT PRIORITIES ￭ Employment Taxes and Worker Classifications ￭ 6,000 NRP examinations focused on issues including worker classifications, executive compensation and fringe benefits (See IRS VCSP) ￭ Mandatory IRC §6694 Consideration ￭ S-Corporations ￭ Built-in-gains tax with emphasis on asset valuations for the C-Corp assets on S-Corp conversion ￭ Salary Compensation for S Corp Officers
393 of 781 CURRENT IRS ENFORCEMENT PRIORITIES ￭ Partnership Interests ￭ Sales of Partnership Interests - Percentage interests are properly reflected, income is properly recognized on distributions of installment notes, and that debt cancellation is correctly reported ￭ General income & expense items reported on partners' returns, including proper reporting from K-1 ￭ Significant increase in the filings of partnership returns
￭ NOL Carry forwards ￭ Verification of losses incurred in the down economy of 2008-2015
394 of 781 CURRENT IRS ENFORCEMENT PRIORITIES
￭ Estates and Trusts ￭ Valuations and discounts associated with closely-held entities and properties ￭ Fractional interests ￭ Sales that occur close to death ￭ Under-funded marital trusts and over-funded bypass trusts upon the death of the surviving spouse ￭ Foreign Source Earnings and Bank Accounts ￭ FBAR Reporting Requirements ￭ April 15, automatic extension to October 15
395 of 781 CURRENT IRS ENFORCEMENT PRIORITIES
￭ Tax Exempt Entities - Revised Form 990 ￭ Executive compensation (upper management and key employees) - Reasonable? ￭ Conflicts of interest & Donor-Advised Funds ￭ Non-Filers ￭ Schedule C Taxpayers & “Cash Intensive” Businesses ￭ Return Preparers & Advisors
396 of 781 "Things turn out best for the people who make the best of the way things turn out" John Wooden
CHARLES RETTIG Hochman Salkin Rettig Toscher & Perez, PC Office: (310) 281-3200 Fax: (310) 859-1430 [email protected] www.taxlitigator.com Tax Controversy BLOG www.taxlitigator.me
397 of 781 Member Sharing Breakouts by Firm Size: <$5M
Tim Kenyon, Cummings, Keegan & Co., P.L.L.P. Raleigh Cutrer, Matthews, Cutrer & Lindsay, P.A.
2017 Tax Conference
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Tim Kenyon, CPA Partner, Cummings, Keegan & Co., P.L.L.P. Iowa roots. Business preservation. Outdoor fitness. Cash flow solutions. Triathlete. Tax/estate Planning. Courage Kenny supporter.
Tim guides his clients via planning strategies– in all tax areas from business inception through the sale of that treasured business. His ideas include cash flow strategies, strategic planning, personal and family structure planning, and education planning. Ultimately, his clients preserve their earnings and investments, allowing them to maximize their wealth building. Tim brings more than 30 years in the industry, almost all of it spent at CK&Co. Although he has never forgotten his northern Iowa roots.
areas of expertise
Tax planning Family businesses High-Tech, Manufacturing Estates/trusts Succession planning
“Through the tax and estate planning process, I’m trusted with my clients’ personal stories. This trust motivates me to always find the right solutions for each client.”
Tim is an active volunteer with Allina Courage Kenny Center and has served as a board member for a non-profit organization that assists hearing and vision impaired individuals with living independently. Tim enjoys a wide range of outdoor activities including golf, mountain biking, hiking, and kayaking.
contact details
(952) 345-2500 [email protected] 600 South Highway 169 Suite 1625 St. Louis Park, MN 55426
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RALEIGH CUTRER, CPA/PFS/ABV SHAREHOLDER/TREASURER 601-898-8875 Ext 210 [email protected]
Raleigh brings over 35 years of experience in public accounting to our firm and oversees the firm’s tax planning and preparation practice. In addition, Raleigh directs the firm’s business valuation services. He earned the Accredited in Business Valuation (ABV) designation as recognized by the American Institute of Certified Public Accountants (AICPA) as well as the Personal Financial Specialist (PFS) designation. Raleigh has significant experience in consulting with closely-held businesses, estate and trust planning as well as other areas of taxation. Additionally, Raleigh serves his clients in the restaurant industry by providing both attestation and assurance services, and tax preparation services.
Raleigh earned his Bachelor of Science in Accounting from Mississippi State University and is a licensed CPA in the State of Mississippi. His professional memberships include the American Society of Certified Public Accountants and the Mississippi Society of Certified Public Accountants. He is currently serving on the Advisory Board for the Adkerson School of Accountancy at Mississippi State University. Raleigh also serves on the AICPA's Tax Practice Management Committee.
Raleigh has been a member of the North Jackson Kiwanis Club, where he served as President, Treasurer, and Lieutenant Governor. He has served on the Board of Directors of the Madison County Chamber of Commerce, is the Past-President of the Ridgeland Chamber of Commerce and Past- Treasurer of the Ridgeland Tourism Commission. He is also a former instructor for the Becker CPA Review course. He currently serves on the Advisory Board to the Physician's Assistant School at Mississippi College.
Raleigh is a native of Magnolia, MS but has resided in Ridgeland, MS for over 30 years. He and his wife, Donna, have three children, Mallory, Clark and Jack. He and his family attend First Baptist Church in Jackson, MS. He currently serves as a deacon and has served as Sunday school teacher and chairman of the Personnel Committee.
400 of 781 Member Sharing Breakouts by Firm Size: $5-8M
Brent Blacklock, TPP Certified Public Accountants, LLC Coleen Krogen, HBL CPAs, P.C.
2017 Tax Conference
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Brent R. Blacklock, CPA
Brent joined TPP Certified Public Accountants in 1999, and has significant accounting and income tax compliance experience. He has a passion for developing ideas and recommendations for business owners that save them time and money. Through his consultative approach, Brent also helps clients get the most out of their accounting and financial reporting systems. He works with privately held companies, with a niche in physician owned medical practices as well as professional service firms and construction companies. Brent also leads the business development efforts for TPP.
A CPA since 1999, Brent received the highest score on the Uniform CPA Exam in the State of Idaho, where he took the exam. Earlier that year, he graduated from MidAmerica Nazarene University with a Bachelor’s degree in both Accounting and Business Administration. While attending MNU, Brent was a 4- year member of the men's varsity basketball team and received Academic All-American honors. Brent currently serves as a member of the Board of Trustees of JayDoc, a free health care clinic run by medical students from the University of Kansas School of Medicine. He is also a member of the Greater Kansas City Chamber of Commerce Centurions Program. Brent serves on the Industry Advisory Board of the Department of Business Administration for MidAmerica Nazarene University in Olathe, Kansas. He is an active participant in the Northland Regional Chamber of Commerce, Greater Kansas City Medical Managers Association and the Northland Medical Managers Association.
Brent enjoys golf, tennis, biking and riding roller coasters with his oldest daughter. Brent and his wife Audrey
402 of 781 Coleen A. Krogen, CPA Shareholder & Chief Operating Officer
Coleen A. Krogen is a shareholder of HBL CPAs, P.C. in Tucson, Arizona. She joined the firm in 2000 as an accounting department staff member. As a single mother with two small children, she worked her way up from the accounting department and became a shareholder in 2010. She is only the second woman to be a shareholder of HBL in its more than 40-year history. Coleen specializes in serving the consulting, tax and accounting needs of small to mid-sized businesses and individuals throughout our community. She focuses on helping business owners maintain and improve their accounting systems and tax compliance so that they can focus on the core elements that drive their success. Her ability to meld the practical aspects of running a business with the complexity of tax regulations allows her to add the value clients seek. Coleen studied at the University of Minnesota, Winona, and the University of Phoenix. She has a Bachelor of Science in Accounting and is a member of the American Institute of Certified Public Accountants and the Arizona Society of CPAs. She serves as the Treasurer for the Parent Teacher Organization at her daughter’s high school and co-chairs our firm’s commitment during the United Way’s annual Days of Caring campaign.
EDUCATION: University of Arizona, Bachelor of Science in Business Administration: Accounting AREAS OF SERVICE SPECIALTY: Tax planning Corporate Taxation Individual Taxation High-Wealth Individuals Accounting & Bookkeeping Services Controllership Services Payroll Taxes Sales Taxes INDUSTRIES OF EXPERTISE: Retail Construction Professional Services Healthcare PROFESSIONAL MEMBERSHIP ASSOCIATIONS AICPA ASCPA COMMUNITY INVOLVEMENT: Treasurer, Marana High School PTO
403 of 781 Member Sharing Breakouts by Firm Size: $8-12M
Mike Abramson, Frankel Zacharia, LLC Barbara Bass, Gollob Morgan Peddy PC
2017 Tax Conference
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[email protected] 402.963.4307 MICHAEL ABRAMSON
Mike specializes in general business and tax matters and is a member of the firm's Executive Committee. Mike is a member and past president of B'nai B'rith, past Treasurer for the Jewish Federation of Omaha and the Rose Blumkin Home, past chairman of the Workforce Development Board for the City of Omaha, past president of Beth El Synagogue and the past Chair of the Metropolitan Community College Foundation Board. Mike currently serves on the CPAmerica Tax Advisory Committee. Mike graduated from the University of Nebraska at Lincoln with a B.S.BA.; he then obtained his law degree from Creighton Law School. He is a member of the AICPA, the NSCPA and the Omaha Bar Association.
405 of 781 Barbara R. Bass, CPA Experience Barbara was part of the core group that opened the doors of Gollob Morgan Peddy in 1982. She now has over 35 years of experience in public accounting.
Barbara is currently responsible for a variety of tax clients and enjoys helping her business clients succeed as they plan and achieve their long-term goals. Barbara has been involved in the Tyler community for many years. She has served on and chaired the boards of several community organizations.
She was Mayor of Tyler from May 2008 until May 2014 when she completed the allowable terms.
Education
Barbara graduated from Texas A&M University - Commerce with a BBA in Accounting. Barbara R. Bass, CPA [email protected] Professional Associations and Activities
Past President of East Texas Chapter of the Texas Society of CPAs Past Board Member of the Texas Society of CPAs Former Mayor of City of Tyler Member of the Tyler Economic Development Council Board Foundation Treasurer of Pollard United Methodist Church Past Chairman of Hospice of East Texas Past Chairman of Pollard United Methodist Church Administrative Board Past Chairman of Tyler Economic Development Council Past Chairman of Tyler Area Chamber of Commerce Past Chairman of Better Business Bureau of Central East Texas
406 of 781 Member Sharing Breakouts by Firm Size: >$12M
Karen Thurman, Frazier & Deeter, LLC Charlie Welborn, DMJ & Co., PLLC
2017 Tax Conference
407 of 781 Karen Thurman CPA CGMA Tax Partner 404.253.7580 Alpharetta, GA [email protected]
Services Business Tax, Individual Tax, Personal Financial Services, Tax,
Industries Construction, Healthcare, Professional Services, Real Estate
Experience
Karen Thurman began working with Frazier & Deeter in 1989. She became a Tax Partner in the firm in 2000. She specializes in working with closely-held businesses and their owners.
Karen has extensive experience with the preparation and review of complex individual tax returns and large corporate and partnership tax returns. She also advises clients in all aspects of financial business management. Working with company owners and executives, Karen coordinates and analyzes clients’ financial information, provides tax planning services with an emphasis on the minimization of corporate taxes and personal income taxes, and offers broad-based consulting and succession planning services.
Of the variety of industries the firm serves, Karen works primarily with construction, real estate, law and medical practices.
Before joining the firm, Karen was a senior member of the tax staff in the Atlanta office of an international accounting firm.
408 of 781 Charlie L. Welborn, CPA
Partner at DMJ & Co., PLLC | Sanford, NC
P: 919.774.4535 | F: 919.776.5929
Charlie Welborn was born and raised in Yadkinville, North Carolina. He attended
Guilford College in Greensboro where he attained a Bachelor of Administrative
Science in Accounting.
In 1983, Charlie joined the staff of DMJ in Greensboro, transferring to the Sanford office in 1990. He was named partner in 1991, focusing his work on audits and financial accounting in addition to individual and corporate income taxes. He works extensively with privately held businesses, their owners, and industry leaders in professional services, manufacturing, distribution, transportation, and real estate.
Charlie also serves on the boards of directors of the Sanford Area Chamber of Commerce, Lee County
Economic Development Corporation/Sanford Area Growth Alliance (SAGA), and the local advisory board for First Citizens Bank and Trust.
Charlie and his wife, Debbie, live in Sanford.
Memberships
American Institute of Certified Public Accountants (AICPA)
North Carolina Association of Certified Public Accountants (NCACPA)
Professional & Community Involvement
Sanford Area Chamber of Commerce, Board of Directors
Lee County Economic Development Corporation
Sanford-Lee County Partnership for Prosperity
First Citizens Bank and Trust, Local Advisory Board
Leadership North Carolina, Graduate
Education
Guilford College, B.S. in Accounting
409 of 781 Tech Update 2017
Randy Johnston, NMGI
2017 Tax Conference
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Randy Johnston Network Management Group, Inc. [email protected] 620-662-2700
Randy Johnston has been an entrepreneur, technologist, and teacher for most of his career. He has helped start and run many businesses, and currently owns both Network Management Group, Inc. and part of K2 Enterprises. Randy is not afraid to tackle a business management problem or to get his hands dirty answering a low-level technical question. He is best known for his early and on-going expertise in networks, accounting software, paperless, and CPA Firm technology. His expertise has grown to touch virtually every technology in the marketplace. He is particularly well known for his Technology Update overview presentation. He helps businesses with strategic technology planning, accounting software selection, document management selection and planning, and business continuity planning.
He has the ability to make complex technology understandable to any person. No wonder he is often referred to as The Last Renaissance Man. He has consulted for most leading technology companies in the U.S. Randy still likes answering questions one-on-one so he can fulfill his personal mission: To help as many people as possible to use technology in the way that benefits them most. He always takes time away from work to enjoy his family, church and civic organizations.
411 of 781 Tech Update 2017
November 14, 2017
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Copyright © 2017 K2 Enterprises, LLC. Reproduction or reuse for purposes other than a K2 Enterprises’ training event is prohibited. What About Randy? Inducted Accounting Hall of Fame, Feb 2011 2004-2017 Accounting Today 100 Most Influential in Accounting for fourteen years Top 25 Thought Leader 2011-2017 40+ years of technology experience, Top rated speaker for over 30 years Monthly columns on technology in CPAPractice Advisor Published author of six books, From Hutchinson, KS [email protected] or [email protected] 620-664-6000 x 112
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Copyright © 2017 K2 Enterprises, LLC. Reproduction or reuse for purposes other than a K2 Enterprises’ training event is prohibited. What About NMGI? CRN top 100 technology company MSPMentor top 100 company NetCare – National CPA support services NetRescue and NetStore – Backup Appliances and web-based backup Boutique Technology and Business Continuity consulting – CPA Firm Technology Assessments, Paperless, Accounting Software Selection (ERP, BI, HR, SaaS, CRM) WebCare and NetHosting – Custom Web site and Cloud services
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Copyright © 2017 K2 Enterprises, LLC. Reproduction or reuse for purposes other than a K2 Enterprises’ training event is prohibited. About K2 Enterprises Provides live and on-demand Continuing Professional Education (CPE) in 48 U.S. states and in Canada Largest provider of technology-focused CPE for accountants and financial professionals in North America Services Offered Live in-person presentations (conferences & seminars) Webinars On-site training On demand self-study materials www.k2e.com for more information
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Copyright © 2017 K2 Enterprises, LLC. Reproduction or reuse for purposes other than a K2 Enterprises’ training event is prohibited. K2 Enterprises Web Sites – No Tracking (75% of all web sites do!) www.k2e.com - CPE Info www.CPAFirmTech.com – CPA Firm Info www.AccountingSoftwareWorld.com – Accounting Software Info www.TotallyPaperless.com – Paperless Info https://www.youtube.com/user/K2Enterprises - The K2 Enterprises YouTube channel with over 160 free technology training videos
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Copyright © 2017 K2 Enterprises, LLC. Reproduction or reuse for purposes other than a K2 Enterprises’ training event is prohibited. Tech Update 2017
• In this session, you will learn about the technologies that can solve many of the problems facing today’s CPA firm. Included in the technologies discussed in this session are workflow, practice management, document management, scan-and- populate, engagement planning and management, and tax notice responses. What new hardware and software technologies should I incorporate into my plans? If you work in public accounting, you can’t afford to miss this eye-opening session!
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Copyright © 2017 K2 Enterprises, LLC. Reproduction or reuse for purposes other than a K2 Enterprises’ training event is prohibited. Learning Objectives
• Identify key technologies to implement and avoid • Differentiate between “must have” and “nice to have” technology options • List evolving technologies with potential • Apply various tools to solve real-world business problems
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Copyright © 2017 K2 Enterprises, LLC. Reproduction or reuse for purposes other than a K2 Enterprises’ training event is prohibited. www.CPAFirmSoftware.com
• Maintained by K2 Enterprises • Product Listings • Reviews and Analysis • Industry Solutions • Other information
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Copyright © 2017 K2 Enterprises, LLC. Reproduction or reuse for purposes other than a K2 Enterprises’ training event is prohibited. Session Overview - Topics To Be Covered
• CPA Firm Trends from the Accounting Firm Ops and Tech Survey • App Strategy: Suite or Best in Breed? • Workflow and E-Signature • Document Management, Portals, and Encrypted E-mail • Tax Software, Payroll, and Practice Management • Technology Innovations – Rethinking the CPA-Client Experience with Tax Caddy – Automating Tax Controversy with Canopy Tax • Audit Tools • Accountant Programs • Cloud Options for CPAs • Supplemental Materials
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Copyright © 2017 K2 Enterprises, LLC. Reproduction or reuse for purposes other than a K2 Enterprises’ training event is prohibited. Don’t Miss Hardware Changes
• Ultraportables with Kaby Lake and HIPAA hardware filters • New processor chips – Intel Coffee/Kaby Lake-X vs. AMD Ryzen • NVMe over PCIe M.2 – new way to hook up SSD • Microsoft 365 (W10, MDM, Office 365) • Mesh networks • Multi-factor authentication • New phone choices – iPhone 8/X, Samsung, Google Pixel
• Things of interest to you?
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Copyright © 2017 K2 Enterprises, LLC. Reproduction or reuse for purposes other than a K2 Enterprises’ training event is prohibited. Industry Technology Trends CPA FIRM OPERATIONS AND TECHNOLOGY SURVEY
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Copyright © 2017 K2 Enterprises, LLC. Reproduction or reuse for purposes other than a K2 Enterprises’ training event is prohibited. CPA Firm Ops and Tech Survey • The definitive tech survey Participate in the of hundreds of US 5th annual survey accounting firms, in its now and get a fourth year free digital copy • More info at of its results when they are www.cpaoptech.com published in early 2018. bit.ly/afot5
Source: CPA Firm Operations & Technology Survey © NMGI/Insight Research. 423 of 781
Copyright © 2017 K2 Enterprises, LLC. Reproduction or reuse for purposes other than a K2 Enterprises’ training event is prohibited. 2017 CPA Firm Operations and Technology Survey • Conducted Q4 2016 • 301 firms participated, which were located in 45 US states • The fourth annual version of this leading survey
Source: CPA Firm Operations & Technology Survey © NMGI/Insight Research. 424 of 781
Copyright © 2017 K2 Enterprises, LLC. Reproduction or reuse for purposes other than a K2 Enterprises’ training event is prohibited. Firm Mix By Firm Size Group
Firm Size Groups in Survey 2017 2016 2015 Solo Practitioners 14.6% 12.1% 26.1% 1-10 Employees 49.2% 43.4% 44.6% 11-50 Employees 21.3% 29.9% 16.0% 51+ Employees 15.0% 14.6% 13.3% Total 100.0% 100.0% 100.0%
Source: CPA Firm Operations & Technology Survey © NMGI/Insight Research. 425 of 781
Copyright © 2017 K2 Enterprises, LLC. Reproduction or reuse for purposes other than a K2 Enterprises’ training event is prohibited. Top Services by Firm Size Segment
Source: CPA Firm Operations & Technology Survey © NMGI/Insight Research. 426 of 781
Copyright © 2017 K2 Enterprises, LLC. Reproduction or reuse for purposes other than a K2 Enterprises’ training event is prohibited. Top Five Challenges of Managing Your Firm
• Solo Practitioner Challenges • Small Firm Challenges 1. Attracting new clients 1. Managing workflow 2. Staying informed about current techs 2. Attracting new clients 3. Understanding tech and selecting 3. Identifying opportunities for the right tech for the practice practice improvement/cost 4. (tie) Marketing, advertising savings 5. (tie) Identifying opportunities for 4. Recruiting and retention practice improvement/cost savings 5. Driving/implementing change
Source: CPA Firm Operations & Technology Survey © NMGI/Insight Research. 427 of 781
Copyright © 2017 K2 Enterprises, LLC. Reproduction or reuse for purposes other than a K2 Enterprises’ training event is prohibited. Top Five Challenges of Managing Your Firm
• Mid-Sized Firm Challenges • Large Firm Challenges 1. Recruiting and retention 1. Recruiting and retention 2. Attracting new clients 2. Attracting new clients 3. Identifying opportunities for 3. Identifying opportunities for practice improvement/cost practice improvement/cost savings savings 4. Managing workflow 4. Managing workflow 5. Driving/implementing change 5. Driving/implementing change
Source: CPA Firm Operations & Technology Survey © NMGI/Insight Research. 428 of 781
Copyright © 2017 K2 Enterprises, LLC. Reproduction or reuse for purposes other than a K2 Enterprises’ training event is prohibited. Q18: To Generate Revenue, Please Rate The Following Initiatives You Might Use.
Source: CPA Firm Operations & Technology Survey © NMGI/Insight Research. 429 of 781
Copyright © 2017 K2 Enterprises, LLC. Reproduction or reuse for purposes other than a K2 Enterprises’ training event is prohibited. Top Technology Challenge For Next 1-3 Years
Source: CPA Firm Operations & Technology Survey © NMGI/Insight Research. 430 of 781
Copyright © 2017 K2 Enterprises, LLC. Reproduction or reuse for purposes other than a K2 Enterprises’ training event is prohibited. STRATEGIES: MAJOR PUBLISHER SUITE OR INDEPENDENT BEST IN BREED APPS
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Copyright © 2017 K2 Enterprises, LLC. Reproduction or reuse for purposes other than a K2 Enterprises’ training event is prohibited. Single Publisher Or Best Of Breed?
• Single • Best of Breed –Integration –Each application chosen by –Support from a single source team affected –Customized for the profession –Potential scalability –Can’t get every application –Integration easier today needed because of SQL back end –Potential of using non-CPA Firm Centric applications
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Copyright © 2017 K2 Enterprises, LLC. Reproduction or reuse for purposes other than a K2 Enterprises’ training event is prohibited. Suites Versus Best In Breed Solutions
SUITES BEST IN BREED SOLUTIONS • Wolters Kluwer Tax & • Literally everyone else fits Accounting (CCH) into this category, and the • Thomson Reuters Tax & products/brands are too Accounting • Intuit ProConnect numerous to list here • AccountantsWorld (but no tax software available in suite) • Doc-IT (but no tax, T/B, G/L SW) • Drake
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Copyright © 2017 K2 Enterprises, LLC. Reproduction or reuse for purposes other than a K2 Enterprises’ training event is prohibited. End-to-end Solutions for All Tax, Accounting and Audit Professionals
Single-service Multiple Service Full-Service Organization Provider Provider
Mom & Pop • Small-Intermediate • Consultants • Progressive • Full Service • Professional • Advanced • Established • Corporate TaxWise® ATX™ CCH® ProSystem fx® CCH® Axcess CCH iFirm CCH® SalesTax CCH® SureTax®
CCH® US Master Tax Guide CCH® IntelliConnect CCH iQ TeamMate
434 of 781 Wolters Kluwer Tax & Accounting (CCH)
• Expansion of CCH Axcess • Adoption of Workstream • Improvements in CCH Scan • IntelliConnect expansion including BEPS and other usability • More mobile applications • From their conference: –Global Master Tax and Business Guide –Axcess Practice, Document and Workstream feature additions –Portal renamed Client Axcess, new Document Share Safe –New ARM (Accounting Research Manager)
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Copyright © 2017 K2 Enterprises, LLC. Reproduction or reuse for purposes other than a K2 Enterprises’ training event is prohibited. CCH Axcess Home Screen
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Copyright © 2017 K2 Enterprises, LLC. Reproduction or reuse for purposes other than a K2 Enterprises’ training event is prohibited. CCH Axcess Tax
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Copyright © 2017 K2 Enterprises, LLC. Reproduction or reuse for purposes other than a K2 Enterprises’ training event is prohibited. CCH Axcess Mobile Time Entry
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Copyright © 2017 K2 Enterprises, LLC. Reproduction or reuse for purposes other than a K2 Enterprises’ training event is prohibited. Thomson Reuters
• Announcement and initial delivery of ONVIO • Performance and usability enhancements throughout CS Suite • Additional focus on sales tax • From their conference: –Multi-factor authentication, CheckPoint Engage and Answer Path
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Copyright © 2017 K2 Enterprises, LLC. Reproduction or reuse for purposes other than a K2 Enterprises’ training event is prohibited. Thomson Reuters Onvio
• Cloud-based platform, development run out of Switzerland • Unlike the CS Suite, this product is designed to be natively global and is initially targeted at firms with < 10 people • Has been in development for 3+ years • Current offerings in use by < 50 firms in US market • Looks interesting in intermediate to long term, but would avoid this product in the short term while Thomson debugs the apps
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Copyright © 2017 K2 Enterprises, LLC. Reproduction or reuse for purposes other than a K2 Enterprises’ training event is prohibited. Intuit
• Broader adoption of QuickBooks Online –We estimate still ~2:1 in favor of desktop apps, but QBO has an advantage of 3:1 or more against competitors on desktop or in cloud • Improved features in QB Online Accountant Edition (QBOA) • Intuit Trial Balance integrated with QBOA, now generally available • Wholesale pricing for acct-pay QBO accounts, lifetime discount • Bank feeds and rules in QB desktop and QBO • Intuit Tax Online making progress • Discontinuation of QuickBooks for Mac, end of support in 2019
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Copyright © 2017 K2 Enterprises, LLC. Reproduction or reuse for purposes other than a K2 Enterprises’ training event is prohibited. QuickBooks Online For Accountants
• This new version of QBOA was rolled out to all current QBOA users in 2015 • Free, along with QBO ProAdvisor Certification, to accounting pros with one or more clients using QBO
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Copyright © 2017 K2 Enterprises, LLC. Reproduction or reuse for purposes other than a K2 Enterprises’ training event is prohibited. AccountantsWorld Power Practice System
• Suite of tools which is used for firms who need tools for production work on the following: – Client bookkeeping (collaborative or outsourced) with bank feeds, optional automated statement and check image copy retrieval, as well as integration tools for QuickBooks Desktop and Sage 50 US – Client bill pay with integrated document management and portals – Sophisticated real time and after-the-fact payroll – Trial balance work (book-tax, consolidations) • The Power Practice system also has – Multi-client dashboarding with sophisticated alerts and security controls – Practice management (Practice Relief) – Client portal and document storage (Cloud Cabinet) – An integration with the Trello project management system
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Copyright © 2017 K2 Enterprises, LLC. Reproduction or reuse for purposes other than a K2 Enterprises’ training event is prohibited. The Power Practice System© Banks/Cr Cards Clients Outbound (Data, Stmts, (Info Requests, Alerts Check Images) Delivery) (E-mail/SMS) Employees (HR/Payroll Portal)
Accounting Website Cloud Power Relief Cabinet
Banks Practice After-the- Directory (Payments) Relief Fact Payroll Listing
Income Tax Dashboards Payroll Software Relief Payroll Tax Authorities (Workflow)
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Copyright © 2017 K2 Enterprises, LLC. Reproduction or reuse for purposes other than a K2 Enterprises’ training event is prohibited. Accounting Power In YOUR Hands
34
Professional Bookkeeping System Module • Write-up • Banking • Trial Balance • Sales • Financial • Expenses Statements • Job Costing • Alerts • Inventory • Client Management
445 of 781 www.accountantsworld.com Copyright © 2017 K2 Enterprises, LLC. Reproduction or reuse for purposes other than a K2 Enterprises’ training event is prohibited. Bill Paying
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Copyright © 2017 K2 Enterprises, LLC. Reproduction or reuse for purposes other than a K2 Enterprises’ training event is prohibited. Virtual CFO – Dashboard
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Copyright © 2017 K2 Enterprises, LLC. Reproduction or reuse for purposes other than a K2 Enterprises’ training event is prohibited. Customize The DDIY System
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Copyright © 2017 K2 Enterprises, LLC. Reproduction or reuse for purposes other than a K2 Enterprises’ training event is prohibited. About AccountantsWorld
• Uncompromising commitment to accountants • They put accountants first –They do not sell any products directly to your clients • Serving accountants for over 30 years • Pioneer of cloud-based solutions for 17 years –Complete suite of solutions for accountants—accounting, live payroll, document management, portals, website builder, after-the-fact payroll, practice management, and PFP
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Copyright © 2017 K2 Enterprises, LLC. Reproduction or reuse for purposes other than a K2 Enterprises’ training event is prohibited. The Doc.It Suite
• Established in 2002, they only serve accountants • Doc.It® Suite is document management, workflow and document storage – holistic approach to ones business • Award-winning software
450 of 781 WHY DO ACCOUNTANTS USE Doc.It®?
• Improve firm efficiency as you Gather, Process, Store and Deliver documents • To ensure firm-wide consistency • Leverage a complete suite of products including PDF editor, Client Web portals, project and document workflow, document storage, and much more.
451 of 781 DOCUMENT MANAGEMENT FOR ACCOUNTANTS
5% - 15% Efficiency gains 80% - 90% Efficiency gains
GATHER PROCESS STORE REFERENCE / DELIVER
452 of 781 A FULL SUITE OF DOCUMENT MANAGEMENT AND WORKFLOW PRODUCTS
453 of 781 A revolution is taking place before your eyes. Are you participating, or are you losing? WORKFLOW AND E-SIGNATURE
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Copyright © 2017 K2 Enterprises, LLC. Reproduction or reuse for purposes other than a K2 Enterprises’ training event is prohibited. Workflow Management
• Workflow is the process of routing information around a firm and monitoring and controlling engagements and projects • Workflow management software and services are often tightly-integrated with document management software and services
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Copyright © 2017 K2 Enterprises, LLC. Reproduction or reuse for purposes other than a K2 Enterprises’ training event is prohibited. Industrialization of Knowledge Work An Evolution Over Time Predictive Analytics: Automate, Intelligence: Maximize Track, Automation: Understand, Efficiency, Standardize, and Manage and Predict Process Tracking: Simplify, and Know What is Quality Future Specialize Occurring Outcomes
As Work is Industrialized, More of It Can Be Performed By Less Knowledgeable Team Members at Lower Cost
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Copyright © 2017 K2 Enterprises, LLC. Reproduction or reuse for purposes other than a K2 Enterprises’ training event is prohibited. Industrialization of Knowledge Work An Evolution Over Time
Predictive Analytics: Can’t do this Intelligence: box unless you Automation: XCM have some ShareFile* Process Tracking: Workstream standardization FirmFlow Practice CS and transaction eFileCabinet Canopy Tax* pfx Practice history Doc.IT Conarc iChannel Office Tools * Service has limited scope and is not specifically configured for general audit/tax engagements – Sharefile ( does well at PBC lists, general approvals), Canopy Tax (tax controversy resolution) 457 of 781
Copyright © 2017 K2 Enterprises, LLC. Reproduction or reuse for purposes other than a K2 Enterprises’ training event is prohibited. What Workflow Tool Are Your Peers Using?
Please Identify Your Firm’s WORKFLOW Software
The most popular solution is “None” – with 47% of firms, including 20% of large firms, and 76% of solo practitioners 32% of small firms are considering solutions, along with 14% of mid-sized and large firms and 22% of solo practitioners
Source:458 Accounting of 781 Firm Operations and Technology Survey © NMGI/Insight Research
Copyright © 2017 K2 Enterprises, LLC. Reproduction or reuse for purposes other than a K2 Enterprises’ training event is prohibited. Workflow Tools
Some of today’s leading workflow tools • FirmFlow ES and Practice CS • ProSystem fx Workstream • XCM –XCM Workflow Management Software –XCMessential for small firms –XCM Corporate for finance departments –XCM Outsource to facilitate outsourcing services • Doc.It DM • Others include Office Tools, Conarc iChannel, and homegrown systems
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Copyright © 2017 K2 Enterprises, LLC. Reproduction or reuse for purposes other than a K2 Enterprises’ training event is prohibited. XCM
• Improvements in due date monitoring and scheduling • Expanded support into industry workflows • Market leader at most firm sizes • New interface and responsive design
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Copyright © 2017 K2 Enterprises, LLC. Reproduction or reuse for purposes other than a K2 Enterprises’ training event is prohibited. ShareFile
• Tight integration with QuickBooks, Results CRM, Right Signature, many other solutions • Strong mobile app enables doc capture with phone camera • New PBC List Tool, contact [email protected] if you want to use • Integrated tool bar in Outlook 2010-2016 can convert attachments in composed e-mails to ShareFile files –Toolbar can also convert the entire message to an encrypted e-mail, with message still archived in Outlook • Integrated Right Signature eSignature (extra charge) • Unlimited, cloud-based backup/sync on some plans
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Copyright © 2017 K2 Enterprises, LLC. Reproduction or reuse for purposes other than a K2 Enterprises’ training event is prohibited. CCH Axcess Workstream
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Copyright © 2017 K2 Enterprises, LLC. Reproduction or reuse for purposes other than a K2 Enterprises’ training event is prohibited. CCH Axcess Workstream
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Copyright © 2017 K2 Enterprises, LLC. Reproduction or reuse for purposes other than a K2 Enterprises’ training event is prohibited. Workflow-Based 1040 Routing Slip
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Copyright © 2017 K2 Enterprises, LLC. Reproduction or reuse for purposes other than a K2 Enterprises’ training event is prohibited. eSignature Options
• CCH • CPA SafeSign • Docusign • Echosign • Right Signature • SignatureFlow • Thomson
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Copyright © 2017 K2 Enterprises, LLC. Reproduction or reuse for purposes other than a K2 Enterprises’ training event is prohibited. DOCUMENT MANAGEMENT, PORTALS, AND ENCRYPTED E-MAIL
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Copyright © 2017 K2 Enterprises, LLC. Reproduction or reuse for purposes other than a K2 Enterprises’ training event is prohibited. Document Management
• For many firms, still a tremendous opportunity to ramp- up productivity • It’s truly about managing documents, not just storing and retrieving them –Paperless 3.0 instead of Paperless 2.0 • As such, document management in today’s productive CPA firm often includes a workflow component
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Copyright © 2017 K2 Enterprises, LLC. Reproduction or reuse for purposes other than a K2 Enterprises’ training event is prohibited. Document Management
• Consider how your firm currently processes documents – electronic and paper-based – for the following transactions –An individual income tax return –A QuickBooks-based compilation –A corporate tax return –Internal transactions such as accounts payable and billing approvals • Are there opportunities for efficiency gains?
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Copyright © 2017 K2 Enterprises, LLC. Reproduction or reuse for purposes other than a K2 Enterprises’ training event is prohibited. Document Management
Some possible solutions in this area include • AccountantsWorld Cloud Cabinet • CCH ProSystem fx Document • Doc.It DM • eFileCabinet • FileCabinet CS • GoFileRoom ES • iChannel (Conarc) • Interwoven iManage • Intuit DMS • Office Tools • Reckon Virtual Cabinet
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Copyright © 2017 K2 Enterprises, LLC. Reproduction or reuse for purposes other than a K2 Enterprises’ training event is prohibited. Doc.It
• Tight integration with CCH Engagement and CaseWare • Integrated and included –Workflow –Binder –PDF Editor –1040 workpaper organization –Portal • Simple and efficient
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Copyright © 2017 K2 Enterprises, LLC. Reproduction or reuse for purposes other than a K2 Enterprises’ training event is prohibited. eFileCabinet
• Tight integration with Salesforce and QuickBooks • Superb mobile app • Integrated and included –Workflow –Tool bar integration in Outlook –Portal (extra charge) • Cloud-based backup/synchronization
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Copyright © 2017 K2 Enterprises, LLC. Reproduction or reuse for purposes other than a K2 Enterprises’ training event is prohibited. Client Portals
Client Firm Downloads Uploads Data Data
Database Accessible Through Web
Client Firm Uploads Downloads Data Data
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Copyright © 2017 K2 Enterprises, LLC. Reproduction or reuse for purposes other than a K2 Enterprises’ training event is prohibited. Portal Usage
Source: CPA Firm Operations & Technology Survey © NMGI/Insight Research. 473 of 781
Copyright © 2017 K2 Enterprises, LLC. Reproduction or reuse for purposes other than a K2 Enterprises’ training event is prohibited. Portal Usage
Source: CPA Firm Operations & Technology Survey © NMGI/Insight Research. 474 of 781
Copyright © 2017 K2 Enterprises, LLC. Reproduction or reuse for purposes other than a K2 Enterprises’ training event is prohibited. E-mail And Tax Return Delivery By Firm Size
Assuming they are not using an encrypted e-mail solution, 70% of CPA firms have a compliance problem.
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Copyright © 2017 K2 Enterprises, LLC. Reproduction or reuse for purposes other than a K2 Enterprises’ training event is prohibited. Portal Delivery Of Tax Returns By Firm Size
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Copyright © 2017 K2 Enterprises, LLC. Reproduction or reuse for purposes other than a K2 Enterprises’ training event is prohibited. Client Portals
• We simply cannot continue to exchange confidential information via email! • The risks are too high! • Plus, email can be cumbersome and inefficient –What if your client needs to send a 100 MB QuickBooks file to you…will email handle that? • Portals are the solution!
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Copyright © 2017 K2 Enterprises, LLC. Reproduction or reuse for purposes other than a K2 Enterprises’ training event is prohibited. ShareFile
• Tight integration with QuickBooks, Results CRM, Right Signature • Strong mobile app • New PBC List Tool • Integrated and included –Encrypted email –Tool bar integration in Outlook –eSignature (extra charge) • Unlimited, Cloud-based backup/synchronization at no charge
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Copyright © 2017 K2 Enterprises, LLC. Reproduction or reuse for purposes other than a K2 Enterprises’ training event is prohibited. Collaboration & Document Storage
CCH Axcess Portal
CCH Axcess Portal
CCH Axcess Document
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Copyright © 2017 K2 Enterprises, LLC. Reproduction or reuse for purposes other than a K2 Enterprises’ training event is prohibited. RIVIO For Audit PBC And Deliverables vs. Portals
Financial Statement Firm Portals Bank Portals Clearinghouse • Designed for CPA firm to client • Designed for bank to client • Designed for 3 distinct user communication communications groups with features relevant to each • Limited system controls • Limited system controls governing document and file governing document and file • Sophisticated controls regarding exchange exchange document exchange (ability to recall, limit access, etc.) • Client may not have ability to • Potential to create bottle necks in release documents to third parties workflow situations. • Master console capabilities to facilitate sharing of documents • Does not validate users • Does not validate source of client provided financial documents • Validates and authenticates the CPA firm as the source and ensures unaltered documents are provided to 3rd parties
• Highest level of security
• Real-time, collaborative communication 480 of 781
Copyright © 2017 K2 Enterprises, LLC. Reproduction or reuse for purposes other than a K2 Enterprises’ training event is prohibited. Encryption Options
• Citrix ShareFile encrypted email • Protected Accountant • Reflexion • SafeSend • Zix
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Copyright © 2017 K2 Enterprises, LLC. Reproduction or reuse for purposes other than a K2 Enterprises’ training event is prohibited. Steps to Create a Secure E-mail with the ShareFile Outlook Add-in
• Make sure that ShareFile Add-in for Outlook is installed and configured. • Compose the message in Microsoft Outlook (as shown on left) • Click on “Encryption Off” so that it says “Encryption On” in upper left corner of screen (Note “Send” button changed to “Send Secure”) • Click “Send Secure” and be happy!
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Copyright © 2017 K2 Enterprises, LLC. Reproduction or reuse for purposes other than a K2 Enterprises’ training event is prohibited. Message Sent Through E-mail
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Copyright © 2017 K2 Enterprises, LLC. Reproduction or reuse for purposes other than a K2 Enterprises’ training event is prohibited. Message View on ShareFile Portal
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Copyright © 2017 K2 Enterprises, LLC. Reproduction or reuse for purposes other than a K2 Enterprises’ training event is prohibited. TAX SOFTWARE, PAYROLL, AND PRACTICE MANAGEMENT
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Copyright © 2017 K2 Enterprises, LLC. Reproduction or reuse for purposes other than a K2 Enterprises’ training event is prohibited. Tax Software – U.S.
• More complete and robust • Special capabilities –CCH Axcess Tax –Oil & Gas – Lacerte –Intuit Tax Online –Consolidations – GoSystem RS • SaaS options –Integration with research – CCH –GoSystem RS Tax ProSystem fx Tax –Intuit Tax Online –Electronic import – Lacerte & ProSeries • Lower Cost • Traditional –Intuit ProSeries –CCH ProSystem fx Tax –Drake –UltraTax CS –CCH Small Business Services –Lacerte
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Copyright © 2017 K2 Enterprises, LLC. Reproduction or reuse for purposes other than a K2 Enterprises’ training event is prohibited. Tax Software
• Tax prep software is still important, because it is often the driver for other decisions, such as document management and write up • Now we are moving beyond just tax prep software and into other markets, including –Post tax filing management –Scan and populate –Property tax appeals –Sales tax compliance consulting
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Copyright © 2017 K2 Enterprises, LLC. Reproduction or reuse for purposes other than a K2 Enterprises’ training event is prohibited. Practice Management
• APS • Practice Engine • Commercial Logic • ProSystem fx Practice Management and Practice Intelligence • Practice CS • Templeton TC Practice Management • TPS • BillQuick • Office Tools - Syncs with Lacerte, QuickBooks, and Outlook • AccountantsWorld Practice Relief
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Copyright © 2017 K2 Enterprises, LLC. Reproduction or reuse for purposes other than a K2 Enterprises’ training event is prohibited. BillQuick Core
• In business for over 19 years • Over 300,000 active users • 105 employees at four locations • Flagship product is BillQuick Core • Award-winning QuickBooks integration • Strengths –Time & expense tracking –Billing –Project management –Scheduling & forecasting
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Copyright © 2017 K2 Enterprises, LLC. Reproduction or reuse for purposes other than a K2 Enterprises’ training event is prohibited. Commercial Logic Practice Management
• Hosted offering • Available for all size firms with TrakTime Central, PowerPM and APS • Billing for any style you can name or imagine
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Copyright © 2017 K2 Enterprises, LLC. Reproduction or reuse for purposes other than a K2 Enterprises’ training event is prohibited. Commercial Logic – PowerPM
PowerPM is a Cloud-hosted time and billing application which includes time tracking, due date tracking, and the PowerForecast budgeting and scheduling solution More information available at www.cli-usa.com
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Copyright © 2017 K2 Enterprises, LLC. Reproduction or reuse for purposes other than a K2 Enterprises’ training event is prohibited. Commercial Logic – APS Suite
• APS Advanced Practice Suite includes tools for managing medium and large firms • Modular application, which has an available business intelligence suite which provides a dashboard-based balanced scorecard • More information is available at www.cli-usa.com
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Copyright © 2017 K2 Enterprises, LLC. Reproduction or reuse for purposes other than a K2 Enterprises’ training event is prohibited. PDF Editor Tools
• Acrobat Add-ins –PDFlyer –Tic, Tie, Calculate (TTC) • Acrobat Replacements –SPbinder (only available on SurePrep returns) –Doc.It PDF Editor (only available with Doc.IT Suite) –Nitro PDF, Foxit, many other substitutes
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Copyright © 2017 K2 Enterprises, LLC. Reproduction or reuse for purposes other than a K2 Enterprises’ training event is prohibited. Tax Workpapers
Technology/Intern Review/Internal Outsource/Internal
Per Return $5-50 $52-80 $120-280
Staff Costs $15-25 $50-200 $200-800
Other factors Simple/Complex/ABC Staffing shortage Skill set/capacity
Cost per hour (blend) Number of returns Pages/return Hours/return Projected cost
$100 1000 55 2-8, assume 4
Internal $400/return $400,000
Full Outsource $100/for an hour $280/return $380,000
Tech/external $50,000 $100/for an hour $52,800 for verify $202,800
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Copyright © 2017 K2 Enterprises, LLC. Reproduction or reuse for purposes other than a K2 Enterprises’ training event is prohibited. SurePrep
• Technology – SPbinder, 1040SCAN ORGANIZE, 1040SCAN PRO • On shore or off shore services – Verification – Full preparation • Hybrid - 1040SCANverify • Integration with all of the top tax products • Usually less expensive than interns and more accurate • Provides scale to your tax practice
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Copyright © 2017 K2 Enterprises, LLC. Reproduction or reuse for purposes other than a K2 Enterprises’ training event is prohibited. 1040 Scan And Populate
• It’s here and it’s working moderately well • Eliminates tedious task of keypunching W-2s, 1099s, 1098s, etc. • Leading players include SurePrep, ProSystem fx Scan, Copanion GruntWorx Populate and UltraTax Source Document Processing • Others include –ProSeries Tax Import –Lacerte Tax Import
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Copyright © 2017 K2 Enterprises, LLC. Reproduction or reuse for purposes other than a K2 Enterprises’ training event is prohibited. Full Outsourced
• Guidance –Consider labor shortages and expertise needed –Look at the costs for full outsource vs. partial outsource –You’ll have to have workflow to control things • Providers –CCH –Xpitax –SurePrep –AKT and other private groups
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Copyright © 2017 K2 Enterprises, LLC. Reproduction or reuse for purposes other than a K2 Enterprises’ training event is prohibited. Rethinking The Data Flows Between the CPA and the Client • Significant new products have been released and they are worth reviewing for your extended returns –SurePrep TaxCaddy –ShareFile PBC list tools –CCH My1040Data for Axcess –cPaperless SafeSend Returns –Pascal Workflow “Payment Protection” –Karbon Practice Management/CRM/Workflow –Canopy Tax
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Copyright © 2017 K2 Enterprises, LLC. Reproduction or reuse for purposes other than a K2 Enterprises’ training event is prohibited. Example: SurePrep TaxCaddy
• A rethinking and digitization of many routine CPA-client ministerial interactions for seamless data transfer • Creates a digital organizer that uploads data directly into tax software after it is filled out on a mobile device or PC • Answers are imported into a number of supported tax applications, including solutions from CCH, Thomson Reuters, and Intuit • Documents can be automatically retrieved as PDF and CSV files from the client’s brokerage account and placed in TaxCaddy with no client or staff intervention required • E-Signature integrated for engagement letters, 8879, etc. • Final “as filed” returns are delivered/stored permanently to client using TaxCaddy • Data feeds into SurePrep 1040 Scan automatically, and can also be used with SurePrep outsourcing services 499 of 781
Copyright © 2016 K2 Enterprises, LLC. Reproduction or reuse for purposes other than a K2 Enterprises’ training event is prohibited. Introducing The SurePrep Tax Process
SurePrep makes your tax practice more productive and profitable. As the leader in tax automation for CPA firms, SurePrep solutions are not secondary products in a tax software suite — they’re the primary focus. That’s why SurePrep automates the processing of three times as many documents as competitors and streamlines the collection of those documents with software your clients will use and love.
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Copyright © 2016 K2 Enterprises, LLC. Reproduction or reuse for purposes other than a K2 Enterprises’ training event is prohibited. Gather With TaxCaddy TaxCaddy helps Tom Taxpayer gather tax documents year- round.
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Copyright © 2016 K2 Enterprises, LLC. Reproduction or reuse for purposes other than a K2 Enterprises’ training event is prohibited. Gather With TaxCaddy When tax time comes, Tom and his CPA are freed from the hassles of an old-fashioned organizer. Everything Tom’s CPA needs is conveniently listed in TaxCaddy.
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Copyright © 2016 K2 Enterprises, LLC. Reproduction or reuse for purposes other than a K2 Enterprises’ training event is prohibited. Gather With TaxCaddy Engagement letters can be signed with a few taps, questionnaires can be completed on the go, and requested documents can be provided in several convenient and automated ways.
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Copyright © 2016 K2 Enterprises, LLC. Reproduction or reuse for purposes other than a K2 Enterprises’ training event is prohibited. Gather With TaxCaddy Tom can photo-scan documents with the TaxCaddy app for iPhone and Android. Tom can upload documents from his PC or Mac. Tom can even set TaxCaddy to automatically retrieve his W-2s, 1099s and 1098s from over 300 banks, brokerages and payroll service providers.
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Copyright © 2016 K2 Enterprises, LLC. Reproduction or reuse for purposes other than a K2 Enterprises’ training event is prohibited. Gather With TaxCaddy TaxCaddy saves Alice Admin time, too. She no longer needs to print and mail organizers, or receive and scan source documents. Everything is requested and delivered through TaxCaddy.
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Copyright © 2016 K2 Enterprises, LLC. Reproduction or reuse for purposes other than a K2 Enterprises’ training event is prohibited. Automate Preparation With 1040SCAN
Paul Preparer gets access to Tom’s documents as soon as they’re uploaded or retrieved so he can start the return sooner, reducing his tax season workload compression.
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Copyright © 2016 K2 Enterprises, LLC. Reproduction or reuse for purposes other than a K2 Enterprises’ training event is prohibited. Automate Preparation With 1040SCAN
Since Paul uses 1040SCAN, he finishes the return faster as well. 1040SCAN automates three times as many tax documents as its competitors.
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Copyright © 2016 K2 Enterprises, LLC. Reproduction or reuse for purposes other than a K2 Enterprises’ training event is prohibited. Streamline Review With SPbinder
Robin Reviewer loves the time saved by SPbinder’s easy-to- review workpapers.
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Copyright © 2016 K2 Enterprises, LLC. Reproduction or reuse for purposes other than a K2 Enterprises’ training event is prohibited. Streamline Review With SPbinder
Standardized workpaper organization and tickmarking tools speeds up review.
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Copyright © 2016 K2 Enterprises, LLC. Reproduction or reuse for purposes other than a K2 Enterprises’ training event is prohibited. Streamline Review With SPbinder
Open items and review notes facilitate collaboration between the engagement team.
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Copyright © 2016 K2 Enterprises, LLC. Reproduction or reuse for purposes other than a K2 Enterprises’ training event is prohibited. Streamline Review With SPbinder
Up to four levels of workpaper sign- offs across all file types (PDF, Excel, Word & Email workpapers) make it easy to know where you left off or what’s changed since your last review.
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Copyright © 2016 K2 Enterprises, LLC. Reproduction or reuse for purposes other than a K2 Enterprises’ training event is prohibited. Deliver With TaxCaddy
When the return is done, Alice simply uploads PDFs of the tax return and 8879 to TaxCaddy.
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Copyright © 2016 K2 Enterprises, LLC. Reproduction or reuse for purposes other than a K2 Enterprises’ training event is prohibited. Deliver With TaxCaddy
Tom reviews his return and e- signs the 8879 with supreme ease and convenience. Tom loves how TaxCaddy simplifies tax time.
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Copyright © 2016 K2 Enterprises, LLC. Reproduction or reuse for purposes other than a K2 Enterprises’ training event is prohibited. The SurePrep Tax Process
CPA firms that use a combination of TaxCaddy, 1040SCAN and SPbinder benefit at each phase of the tax return process. Administrative costs are reduced. Workpaper preparation is automated. Review efficiency is maximized. And client service is improved. SurePrep delivers seamless integration with your existing tax software to automate and streamline the entire 1040 process for both the taxpayer and CPA.
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Copyright © 2016 K2 Enterprises, LLC. Reproduction or reuse for purposes other than a K2 Enterprises’ training event is prohibited. Example: ShareFile PBC List Tool
• Available to all customers on request, no additional charge • Can create a PBC list in Excel, upload into ShareFile • At a glance tracking of the status of requests, multi-file uploads permitted • ShareFile will track, organize list for you by who responsible, due date, request category (e.g. investments, A/R, inventory) • You can be alerted when documents arrive • All docs in the list can be downloaded in a single zip file organized by category so staff can get started • Reminder tools embedded in the application
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Copyright © 2017 K2 Enterprises, LLC. Reproduction or reuse for purposes other than a K2 Enterprises’ training event is prohibited. Example: Sage View Dashboarding Portal
• New dashboard portal for accounting professionals • Both multi-client and multi-platform (e.g. more than one publisher’s accounting software is supported in a common platform) • Aggregates statistics across multiple clients • Turns data into actionable advice with programmable alerts • Currently pulls data from Sage One, Sage 50 U.S., and QuickBooks Desktop (Pro, Premier, and Enterprise), more products coming soon • Provides secure data platform and analytics engine for computing and presenting daily, weekly, monthly, quarterly, and annual stats to accountants and their clients through a secure portal • Analytics can be consumed on mobile devices as well
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Copyright © 2017 K2 Enterprises, LLC. Reproduction or reuse for purposes other than a K2 Enterprises’ training event is prohibited. Sage View Multi-Client Or Client-Specific Dashboard
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Copyright © 2017 K2 Enterprises, LLC. Reproduction or reuse for purposes other than a K2 Enterprises’ training event is prohibited. Example: Tax Controversy Resolution
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Copyright © 2017 K2 Enterprises, LLC. Reproduction or reuse for purposes other than a K2 Enterprises’ training event is prohibited. The Problem Tax pros need 10 different apps to do their jobs – and few of the stock tools handle practice niches like tax controversy and appeals • Huge amounts of Excel, email, and paper • No easy way to work with clients online • Big inefficiencies in the way software speaks to each other • IRS more difficult than ever to reach • More important than ever to get things right the first time 519 of 781
Copyright © 2017 K2 Enterprises, LLC. Reproduction or reuse for purposes other than a K2 Enterprises’ training event is prohibited. The Solution
We’re building a solution that people want and need. “Canopy is the single best case work management platform I’ve ever used.” -Jassen Bowman, EA, Tax Author • A delightful, modern interface • Easy-to-use tax intake surveys • A better way to work with clients
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Copyright © 2017 K2 Enterprises, LLC. Reproduction or reuse for purposes other than a K2 Enterprises’ training event is prohibited. Tax Resolution • Purpose-built by a team led by a former practicing tax attorney • Robust tax analytics • Auto-populated IRS forms • Automated client intake surveys • Tax recommendation engine
ROI: 3-4 hours saved per case and improved client retention.
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Copyright © 2017 K2 Enterprises, LLC. Reproduction or reuse for purposes other than a K2 Enterprises’ training event is prohibited. Practice Management
• CRM • Calendars & reminders • To-do lists and client follow up • Document management • Billing & invoicing
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Copyright © 2017 K2 Enterprises, LLC. Reproduction or reuse for purposes other than a K2 Enterprises’ training event is prohibited. Real-Time Auditing/DOL Quality/Advisement AUDITING TOOLS
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Copyright © 2017 K2 Enterprises, LLC. Reproduction or reuse for purposes other than a K2 Enterprises’ training event is prohibited. Audit Technology
• Engagement management tools –ProSystem fx Engagement –CaseWare –Engagement CS –AdvanceFlow • All four serve as hub of audit engagements, and integrate with other tools, including Microsoft Office, to provide 360° management of audits and reviews
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Copyright © 2017 K2 Enterprises, LLC. Reproduction or reuse for purposes other than a K2 Enterprises’ training event is prohibited. IBM Watson Use By KPMG
• “The cognitive era has arrived,” said Lynne Doughtie, KPMG LLP Chairman and CEO. • “KPMG’s use of IBM Watson technology will help advance our team’s ability to analyze and act on the core financial and operational data so central to the health of organizations and the capital markets. In addition to the unprecedented possibilities for enhancing quality, the potential for cognitive and related technologies to help us pursue new business offerings is extraordinary.” • Watson is further advancing improvements to sampling processes, in which auditors review subsets of data to analyze thousands or millions of actions to draw conclusions
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Copyright © 2017 K2 Enterprises, LLC. Reproduction or reuse for purposes other than a K2 Enterprises’ training event is prohibited. DOL Audit Quality Update
• Standards still under review • Issues predominantly in Employee Benefit Plans • Initial reporting requirements will drive up costs of audits further • Still progressing through committees
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Copyright © 2017 K2 Enterprises, LLC. Reproduction or reuse for purposes other than a K2 Enterprises’ training event is prohibited. Advisement And WorkPaper Options
• CCH KnowledgeCoach • CaseWare Optimizer for SSARS21, Accounts Production • PPC’s SMART Practice Aids, Checkpoint Catalyst (cloud only)
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Copyright © 2017 K2 Enterprises, LLC. Reproduction or reuse for purposes other than a K2 Enterprises’ training event is prohibited. Knowledge Coach
Risk assessment and planning • For example, using ProSystem fx Knowledge Coach, an audit team can tailor an engagement based on answers to questions associated with risk assessment standards • Additionally, can link specific audit procedures back to documented risk, helping to ensure that all risks are addressed and unwarranted work is eliminated • Coverage for 17+ industries
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Copyright © 2017 K2 Enterprises, LLC. Reproduction or reuse for purposes other than a K2 Enterprises’ training event is prohibited. Validis – Real Time Auditing?
• Interfaces to a number of accounting software products • Can roll up financials to produce consolidations, BS, IS, Statement of Cash Flows • PBC automation tool • Can easily export information into CCH Engagement, Engagement CS and CaseWare
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Copyright © 2017 K2 Enterprises, LLC. Reproduction or reuse for purposes other than a K2 Enterprises’ training event is prohibited. Introduction
Cloud-based Financial Data Sharing Software • Launched in the US in 2015 • HQ in London with offices in the USA, and presence in Canada and Ireland
Peachtree
SME Audit Manager
530 of 781 Our Software
531 of 781 Our Software
Retrieve
532 of 781 Audit Accelerator From CCH
• CCH announced a relationship with Validis • They will add unique features only available through the CCH offering • The relationship is to be exclusive
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Copyright © 2016 K2 Enterprises, LLC. Reproduction or reuse for purposes other than a K2 Enterprises’ training event is prohibited. Other Audit Tools
• DisclosureNet – A&A research with integrated collaboration tools for CPA, Attorney, client • Confirmation.com • RIVIO – Electronic financial statement delivery for clients to forward on to third parties without loss of privity defense
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Copyright © 2017 K2 Enterprises, LLC. Reproduction or reuse for purposes other than a K2 Enterprises’ training event is prohibited. The Research & Analysis Challenge – Current State
Generic Search Tools
AIFs Proxies Contracts
Professional Advisors – Legal, Accounting ($$$) 10Ks Prospectuses
Quarterlies Exhibits Colleagues / Peers
Technical Reports MICs
Standards, Rules & Regulations
Peer Analysis 535 of 781
Copyright © 2017 K2 Enterprises, LLC. Reproduction or reuse for purposes other than a K2 Enterprises’ training event is prohibited. The DisclosureNet Research Solution Research & Analysis What does it all mean? Higher productivity
Lower costs Generic Search Tools Peer Analysis Lower risk
Standards, Rules & Better quality disclosures Regulations, Professional Information – Document Alert Legal, Accounting Monitors Efficient peer analysis
Knowledge captured & retained for Colleagues / Peers Disclosure future reference Precedent Library Peer analysis, compliance with external rules, precedents Rules and Regulations Peer Websites & Accounting536 of 781 Standards Filings Copyright © 2017 K2 Enterprises, LLC. Reproduction or reuse for purposes other than a K2 Enterprises’ training event is prohibited. Randy Johnston, NMGI, 620-664-6000 x 112, [email protected] THANK YOU!
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Copyright © 2017 K2 Enterprises, LLC. Reproduction or reuse for purposes other than a K2 Enterprises’ training event is prohibited. More Good CPA Firm Technology SUPPLEMENTAL MATERIALS
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Copyright © 2017 K2 Enterprises, LLC. Reproduction or reuse for purposes other than a K2 Enterprises’ training event is prohibited. These Have Been Created To Help Your Firm And Your Clients ACCOUNTANT PROGRAMS
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Copyright © 2017 K2 Enterprises, LLC. Reproduction or reuse for purposes other than a K2 Enterprises’ training event is prohibited. Accountant Programs • Discounts on products & services for you & clients • Special tools to help you work with client data • Training and certification for you and staff • Referrals from publisher websites • Examples include: – Avalara Accounting & Consulting Partner – Bill.com Accountant Program – Sage Accountants Network – QuickBooks ProAdvisor Program – FreshBooks Accountant Network – Xero Accounting Advisor Program • Price, features, and commitments for membership vary
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Copyright © 2017 K2 Enterprises, LLC. Reproduction or reuse for purposes other than a K2 Enterprises’ training event is prohibited. Example: Sales Tax Compliance
• For clients with sales tax compliance needs, consider tools such as Avalara’s AvaTax Cloud-based solution for calculating and delivering accurate tax rates to invoices • Integrates with AvaTax Returns to automate filing sales tax returns and making sales tax payments • Accounting and Advisory Services Program information at www.avalara.com/aasp –Free rates tables –Free address-based jurisdiction lookup utility –Tools and education for sales tax consulting
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Copyright © 2017 K2 Enterprises, LLC. Reproduction or reuse for purposes other than a K2 Enterprises’ training event is prohibited. Example: QBO For Accountants
• Improvements to multi-client dashboard • Permits two-way communication with clients with attachments • Offers some integration with Box Cloud storage • Integrated single sign on experience, with security tools for adding/deleting staff from client access • Clients available to staff can be limited via permissions within app
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Copyright © 2017 K2 Enterprises, LLC. Reproduction or reuse for purposes other than a K2 Enterprises’ training event is prohibited. QuickBooks Online For Accountants
Once a client is associated with your firm through QBOA, the contact person at your firm’s picture and your firm’s name appear in the upper right corner of their dashboard in QBO
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Copyright © 2017 K2 Enterprises, LLC. Reproduction or reuse for purposes other than a K2 Enterprises’ training event is prohibited. [email protected] REQUEST “ASSOCIATING A CLIENT WITH YOUR FIRM IN QBOA” FOR STEP-BY-STEP INSTRUCTIONS
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Copyright © 2017 K2 Enterprises, LLC. Reproduction or reuse for purposes other than a K2 Enterprises’ training event is prohibited. ProAdvisor Plans From Intuit
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Copyright © 2017 K2 Enterprises, LLC. Reproduction or reuse for purposes other than a K2 Enterprises’ training event is prohibited. Others
• Drake – Hosting facilities seem to be working well • ProStaff – scheduling for tax • Karbon – introduced a new social practice management system • Pascal Workflow – workflow integrated with portal, e-signature and third-party products • Receipt Bank – Invoice data extraction for QB • Intapp – workflow plus other integrations • Fathom – Reporting tool for QBO, Xero • Qvinci – Consolidations for QBO
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Copyright © 2017 K2 Enterprises, LLC. Reproduction or reuse for purposes other than a K2 Enterprises’ training event is prohibited. Each Has Their Own Speed And Reliability Factors SaaS, HOSTED, MANAGED & REMOTE ACCESS
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Copyright © 2017 K2 Enterprises, LLC. Reproduction or reuse for purposes other than a K2 Enterprises’ training event is prohibited. Cloud Computing
Pure SaaS vs. hosted solutions • In simple terms, hosting means taking a traditional solution (e.g. QuickBooks) and making it available through remote access. http://www.intuithostingprogram.com/index.php • SaaS means developing a solution from the ground-up that is optimized to run over the web (e.g. QuickBooks Online Edition) • Some software providers for CPA firms are focusing on hosting, while others are focused on the pure SaaS model
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Copyright © 2017 K2 Enterprises, LLC. Reproduction or reuse for purposes other than a K2 Enterprises’ training event is prohibited. Private Cloud, Hybrid, Hosted, Public Cloud SaaS Options
1. Private Cloud with managed care (in your office) (NMGI, in- house, or local/regional provider) 2. Hosted (Your equipment in a colocation facility, managed by NMGI or other local/regional provider) 3. Hybrid (In-house, Cetrom, NMGI) 4. Hosted with managed care on someone else’s equipment (Cetrom, Cloudnine/NMGI, Insynq, Xcentric) 5. Server leasing (Amazon, Azure, Rackspace, Google) 6. SaaS (Intuit Tax Online, GoFileRoom, GoSystem RS Tax, XCM, CCH Global fx, TR Virtual Office CS)
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Copyright © 2017 K2 Enterprises, LLC. Reproduction or reuse for purposes other than a K2 Enterprises’ training event is prohibited. Cloud Computing
Virtual desktops and servers • For some firms, the era of running applications from a traditional desktop is over –You can run traditional desktop software virtually off your own servers or from off-premise servers –For example, Cetrom • Private Clouds are dedicated resources for a particular organization, potentially including on-site resources, that provision a Cloud without ceding control and security to a third-party
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Copyright © 2017 K2 Enterprises, LLC. Reproduction or reuse for purposes other than a K2 Enterprises’ training event is prohibited. Cetrom As A Hosting Example
• Redundant data centers, geographically separated • All applications updated in the data center • All support included • Pricing is approximately $150/user/month
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Copyright © 2017 K2 Enterprises, LLC. Reproduction or reuse for purposes other than a K2 Enterprises’ training event is prohibited. Who we are
• Founded in 2001, cloud model from the beginning
• Focus on reliability, availability, customer service
• Private company, veteran owned
• Headquarters in Vienna, VA
• Datacenters in VA and CO
• K2 “Top Hosting Provider” 2015 & 2016
• CPA Practice Advisor – 5 Star Rating
Passionate about doing things the right way, always!
552 of 781 Award-Winning Service Provider
553 of 781 What we do
Custom Outsourced Cloud Solution
■ Deliver turn-key IT solutions, securely accessible anywhere in the world
■ Customize virtual desktops applications (MS Office, Exchange, CCH/Reuters/Intuit, etc.)
■ Proactive monitoring of workstations (Managed Services)
■ Perform daily backups built into disaster recovery plan
■ Offer support 24/7/365 – You call, we answer PERIOD
■ Update all your hosted software (i.e. - Tax updates)
Virtual CIO Services – We want to help take you to the next level
Cetrom Hybrid Cloud Solution
554 of 781 The Cetrom Value
We understand your urgency – You are our priority
We are your Advocate – No Finger pointing
Senior Level Engineers, US-based Support – 24/7/365
Proactive management of all IT solutions
Virtual CIO – IT consulting/advising, planning “Road Map”
Built-in disaster recovery and business continuity included
Flexible Desktop options – VDI or Published Applications
555 of 781 Why Cetrom?
■ Leader in Cloud Hosting experience – Since 2001 ■ Hire and retain best engineers in the market – 5-star support ■ Unmatched record of ZERO downtime, always accessible ■ Innovate and adapt to our clients needs ■ Experience with all of YOUR applications ■ Fast transaction speeds, optimized via our data center locations 97% Customer ■ Award-winning solution provider Retention Rate! ■ Personal extension of your company
All backed by a 6-month no hassle guarantee.
556 of 781 How we achieve ZERO downtime
Only hire senior-level engineers with multiple certifications
Test, Test, Test before deployment
Constantly reinvesting in the best hardware, software available in the market and staff development
Proactive monitoring of all hardware and software systems
Redundancy at every level:
■ Our datacenters have multiple ISPs, dual power supply, dual battery back-up, dual generators, dual switch fabric, dual firewalls
■ Multiple geographically disparate datacenters in Denver, CO and Sterling, VA
= Zero Downtime
557 of 781 Don’t just take our word for it
SOC 2 Type ll compliant – Company & Data Centers
HIPAA compliant
SSAE 16 compliant
FIPS 140 compliant hardware and software
558 of 781 Real-time data and app replication = Redundancy
559 of 781 How secure is our cloud?
We use multiple technologies to achieve security:
■ Full anti-virus protection, updated multiple times per day
■ Firewalls, hacker and intrusion detection and prevention
■ Experience in preventing Ransomware Virus
Physical security measures:
■ Round-the-clock, onsite security guard, indoor and outdoor security monitoring with high-end surveillance equipment
■ Biometric and badge/picture ID access screening and escort requirements for raised floor areas
256-bit SSL encryption on all traffic transmitted and received from Cetrom
Two-Factor Authentication
560 of 781 Cetrom Hybrid Cloud Solution
Real-time Replication
Data Centers On Premise
561 of 781 How are we different? Help desk manned with Senior-level engineers
5-star rated customer support team
90% of support tickets RESOLVED within 30 minutes
Constantly 2-3 years ahead of the industry
First to be SOC 2 and HIPPA Compliant We offer custom,
First to have Two-Factor Authentication creative, innovative and
Geographically dispersed redundant data centers proactive solutions.
Cetrom Hybrid Cloud (option) = Best of both worlds
“Speed. Uptime. Support.”
562 of 781 Cloudnine As An Example Of Hosting
• 16,000 users, 2,300 companies – 70% of users and 40% of companies are public accountants • Over 10,000 QuickBooks seats hosted • Over 875 different applications are supported • Two data centers – San Diego, CA and Austin, TX
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Copyright © 2016 K2 Enterprises, LLC. Reproduction or reuse for purposes other than a K2 Enterprises’ training event is prohibited. Limitless Possibility
Stats
Users Accounts ~16,000 ~2,300 70%Accountants 40%Accountants
QuickBooks® Applications ~10,000 875+
Data Center Data Center San Diego, CA Austin, TX
564 of 781 Cloudnine Realtime www.Cloudninerealtime.com Limitless Possibility
Our Customers
Turner+Cleveland Krause CPAs Solve Services Hallman Law Office
Turner+Cleveland has real- Krause CPAs became client Solve Services’ business Hallman Law Office is free time collaboration through oriented and has fewer IT model was made possible from internal IT worries with Cloudnine technology. issues thanks to Cloudnine. through Cloudnine Realtime. Cloudnine Realtime.
565 of 781 Cloudnine Realtime www.Cloudninerealtime.com Limitless Possibility
What We Do
• Accredited managed services and DaaS provider delivering and maintaining over 875+ business applications, in the cloud, serving 2,300 customers, which represents 16,000+ users and growing
• Delivering cloud services out of two Tier 3 data centers, using top of the line infrastructure and software including VMware and Microsoft RDP; Compliance/security certifications include SSAE 16 audit, PCI, HIPAA
• Custom built cloud management portal providing customers access and control over their infrastructure, applications and user environments, furthering customer engagement and automating support.
566 of 781 Cloudnine Realtime www.Cloudninerealtime.com Limitless Possibility
How We Simplify
567 of 781 Cloudnine Realtime www.Cloudninerealtime.com Limitless Possibility
Challenges CPAs Face in the Cloud
Service Quality Security • Where does the data reside? • What are your minimum service • Is the data encrypted? levels? • How do you move data from the • What is your termination policy? cloud? • How quickly do you identify and • What are the governance solve problems? policies and procedures? • What are your infrastructure and security standards?
Transition Anytime, AnywhereAccess • What type of Internet connection • What are your demand patterns? do I need? • When do I move my data? • How often do you have server • What is your SLAexpectation? outages?
568 of 781 Cloudnine Realtime www.Cloudninerealtime.com Limitless Possibility
Multi-DeviceAccess In-Portal Purchasing From desktops to tablets, the Apps, users, and licenses will C9 Portal is designed for any soon be available for purchase internet-enabled device. with just a few clicks.
Ticket Management Administrative Tools Support tickets can be opened Cloud Admins can manage and managed entirely from users, app permissions, billing, within the portal. server resources, and more.
Global Messaging Help Desk & FAQs Cloud Admins can relay Find the answers you need announcements and fast with the global C9 Help messages to their users. Desk.
569 of 781 Cloudnine Realtime www.Cloudninerealtime.com Tax Executive Committee
2017 Tax Conference
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Tax Executive
Committee Meeting
Agenda and Related Materials
T u e s d a y , November 14, 2 0 1 7 T u c s o n , A Z
OUR MISSION
Each member firm's association with CPAmerica is a commitment toward continuous improvement.
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Tax Executive Committee Agenda The Loews Ventana Canyon Resort – Tucson, AZ Tuesday, November 14, 2017
I. 2:40 p.m. CALL TO ORDER Record Attendance
II. APPROVE AGENDA 2
III. APPROVE MINUTES 3-7
IV. REVIEW OF CPAMERICA ONGOING TAX SERVICES a. Tax Advisory Committee 8 b. Tax Experts 9-12 c. Crowe Horwath LLP National Tax Office (NTO) 13 d. Tax Adviser Tax Clinic 14 e. Tax Webinars 15 f. Preferred Providers 16-18
V. CONFIRM COMMITTEE CHAIR AND VICE-CHAIR FOR 2017-2018 (terms effective November 16, 2017 – tax conference, 2018) Pete Oettinger, Chair – to serve second term Vice Chair, Incoming Chair (vacant) NOMINEE TO BE NAMED – Nominate Vice Chair
VI. COMMITTEE GOAL REVIEW – a. Review 2017 Committee Goals, status update 19-21 b. 2018 Committee Goals 22
VII. 2019 CONFERENCE PLANNING SUGGESTIONS VIII. ADJOURN
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2016 Tax Executive Committee Meeting Minutes 2016 Tax Conference The Westin Savannah Harbour Resort Tuesday, November 8, 2016
2016 Tax Executive Committee
First Name Last Name Company Michael Abramson Frankel Zacharia, LLC Amy Allen DZH Phillips LLP Jennifer Barnes Pease & Associates, Inc. Phillip Beaman Monroe Shine & Co., Inc. J. David Beasley Beasley, Mitchell & Co., LLP Mark Birge Aldrich Group Kelly Blocker Krikorian & Company AC Kristine Braxton Robinson, Grimes & Company, P.C. Dale Cox Maxwell Locke & Ritter LLP Leslie Daane Barnard, Vogler & Co. Peter DeFrancesca ALDRICH GROUP Gregg DeVilbiss Kentner Sellers, LLP Matthew Dover CF & Co., L.L.P. Steve Drucker Williams & Company, P.C. Charles Federanich Pease & Associates, Inc. Bruce Ferry DZH Phillips LLP Michael Gatti Hunter Group CPA LLC Michael Gillis DMJ & Co., PLLC Kathy Gordon Aldrich Group Gail Gubbels Williams & Company, P.C. Keith Habel Honkamp Krueger & Co., P.C. Lawrence Hamilton Hughes Pittman & Gupton, LLP Carl Harper Pulakos CPAs, PC James Haynes Pulakos CPAs, PC Jeff Hoffman Frankel Zacharia, LLC Grace Horvath CPAmerica International Kristina Houghton Meyers Brothers Kalicka, P.C. Teresa Juarez Krikorian & Company AC Timothy Kenyon Cummings, Keegan & Co., P.L.L.P.
573 of 781 Roy Kershaw Jr. Baum, Smith & Clemens, LLP Jay Kloster Erickson Brown & Kloster, P.C. Steven Knebel Maxwell Locke & Ritter LLP Michael Koppel Gray, Gray & Gray, LLP Coleen Krogen HBL CPAs, P.C. Marcy Lantz Aldrich Group Michelle Le Harper & Pearson Company, P.C. Brent Lewis GYL Decauwer LLP Ryan Luetkenhaus Frankel Zacharia, LLC Lauren Lui N&K CPAs, Inc. Roger Lusby, III Frazier & Deeter, LLC Helena Lynch Hunter Group CPA LLC Kevin McCollum Coulter & Justus, P.C. Stephanie Mettille Honkamp Krueger & Co., P.C. William Miles Wallace, Plese + Dreher, L.L.P. Todd Miller Maxwell Locke & Ritter LLP Michael Miranda Williams & Company, P.C. Alton Miyashiro N&K CPAs, Inc. Jeremy Mosteller Anglin-Reichmann-Snellgrove & Armstrong P.C. Michael Odom Fouts & Morgan, CPAs, P. C. Joseph Pease Pease & Associates, Inc. Thomas Pflanz McGowen, Hurst, Clark & Smith, P.C. Anthony Plese Wallace, Plese + Dreher, L.L.P. Daniel Rock HBL CPAs, P.C. Stephen Rodis Wallace, Plese + Dreher, L.L.P. Scott Rogers Larson & Company, PC Elsa Romero Aldrich Group W. Barclay Rushton Rushton & Company, LLC Tracy Sams Anglin-Reichmann-Snellgrove & Armstrong P.C. Mike Scholz Wegner CPAs Alexandar Semerano Pease & Associates, Inc. Loretta Sharp Beasley, Mitchell & Co., LLP Andrew Small Karp, Ackerman, Skabowski & Hogan, CPAs, P.C. Guy Tabor Harper & Pearson Company, P.C. James Taylor Dennis, Gartland & Niergarth Ronald Thomas, Jr. Robinson, Grimes & Company, P.C. Karen Thurman Frazier & Deeter, LLC Thomas Vereecke Brickley DeLong, PC Joel Wiegand Contryman Associates, P.C. Mark Wight HBL CPAs, P.C.
574 of 781 2016 Chair Marcy Lantz, AKT 2017 Incoming - Mike Abramson, Frankel Zacharia sat in for Ann Behrens, Mueller & Co.
CPAI Staff in attendance: Alan Deichler Grace Horvath D’Yan Davis Lisa Browne
Lantz called meeting called to order 4:10
Agenda Motion to approve passed
Minutes Motion to approve passed
Review ongoing services
Thanks to CPAI staff for not letting anything lapse with sudden and unexpected departure of Joyce Arthur.
President Alan Deichler reported on staff support transitioning. Referred to past survey that defined needs of tax support role as that of administrative support. Arthur made a career choice based on work at home opportunity. Interviewed quality candidate from an association services vendor. Candidate highly trained in member engagement and association relationship environment. Can train on profession. In interim, Deichler and Horvath available for support.
Reviewed Tax Experts and Consultants Crowe NTO o Abramson (FZ) and Lantz (AKT) shared success experience with value of NTO o Monaco (415 Group) expressed value and satisfaction. o Cox (MLR) shared his opinion that more if not all CPAI firms should be members of the alliance. It’s been money very well spent. Encouraged calls to him if anyone wants to know of how they’ve helped. o Lantz - IC-DISC – far more efficient to use firm who has done complicated work 100’s of times rather than something AKT has limited experience; also noted value of User’s Conference in June 2016. If we will get volume of commitment, NTO will hold meeting again. No new providers or consultants added 2016
Reviewed 2016 programs and services Tax Advisor contributors – thanked all contributors – CPAI members listed in manual. Koppel has told TA he will stay in his role as editor for one more year. Lantz noted it is an honor to get published. Great PR for firm to be published in one of most prestigious journals in the professions. Webinars - call for suggestions o State, Nexus issues, non-resident withholdings
575 of 781 o Partnerships and S-corps – more detailed from multi-state standpoint o Foreign reporting (incomplete K-1’s, hedge funds, what to file, what to ignore, etc.) o Alternative minimum tax o Crowe NTO webinars – 101-501 basic to complex topics o 1040 passive activity, grouping elections, publicly traded partnerships, REIT’s o 1031 Exchanges
2016 Chair and 2017 incoming Ann Behrens, Mueller & Co. - motion made and passed for Behrens Motion made and passed for Pete Oettinger, Wegner, as 2107 incoming chair Karen Thurman nominated Michael Odum, Fouts & Morgan to fill outgoing seat on Tax Advisory Committee.
TEC 2016 Goals and Status Update (see update attached in manual) For 2016 status Lantz noted downturn in tax discussion list participation. Very important that you respond, if you can, if you can be helpful on an inquiry For 2017 Goals – no comment from committee on changes or additions to 2017 o Christine Wright, Beasley Mitchell noted positive experience with mentor/mentee program making communication easy, and adding pictures to the back of nametags of mentor/mentee o Bruce Ferry, DZH commented on tax discussion list opportunity of maybe having younger folks have to do research and reply to encourage active participation. Lantz polled if joining discussion lists was a part of onboarding and no one indicated such o Kerry Kulp, BSC asked for updated list of firms’ list subscribers o Dale Cox, MLR gently requested some forethought before posting based on complexity of questions that could be answered with small amount of research on their own including referring to master tax guide o Mike Gillis, DMJ suggested a guideline to appropriate questions be developed for distribution to new people to the list. Deichler recommended guideline be developed by Tax Advisory Committee. o Horvath offered to send discussion list subscribers and liaisons to all in attendance at this meeting – everyone would like to have that post-meeting to update 2018 Locations - Vote o New Orleans 45 o Sarasota 16 o Charlotte 7 o (Koppel write-in) St. Thomas, Virgin Islands 10 . Lantz asked for show of hands - it stays on list to vote 2018 Date selection o Mon – Wed 34* o Wed – Fri 34* o November 5-9 43 o November 12-16 . *Group agreed on recommendation from member to let staff and committee decide on date pattern based on best hotel rate during the week of November 5-9
576 of 781 Dale Cox let group know of Anita Motloch’s poor health due to stroke during last year’s tax conference. Anita no longer able to work. Peter DeFrancisco asked for tax update after election. Koppel offered to put it together with help of Roger Lusby, Milton Howell and a few others who have done in the past.
Meeting adjourned 5:00
577 of 781 Pete Oettinger, Chair Tim Kenyon Wegner CPAs Cummings, Keegan & Co., PLLP 123 Second Street 600 Highway 169 S., 1625 Baraboo, WI 53913 St. Louis Park, MN 55426
Phone: 608-274-4020 Phone: 952-345-2500 Email: [email protected] Email: tkenyon@ckco -cpa.com
Marcy Lantz, Past Chair Lisa Johnson AKT , LLP CS&L CPAs 5665 SW Meadows Road, Suite 200 1001 3rd Avenue W., Ste. 700 Lake Oswego, OR 97035 Bradenton, FL 34205
Phone: 503-620-4489 Phone: 941-748-1040 Email: [email protected] Email: [email protected]
Dale Cox Michael T Odom
Maxwell Locke & Ritter LLP Fouts & Morgan, CPAs, P.C. 401 Congress Avenue, Suite 1100 1725 Aaron Brenner Drive Austin, TX 78701 Memphis, TN 38120
Phone: 512-370-3200 Phone: 901-761-2110 Email: [email protected] Email: [email protected]
578 of 781 CPAmerica Tax Experts International Sean King President & Managing Director, Align Global Consulting 8480 Honeycutt Road, Suite 200 Raleigh, NC 27615 (919) 987-1790 [email protected] Sean King is a renowned legal, tax and business advisor who brings to his clients not only technical expertise, but also a cultural and commercial awareness that can only be gained by living and working in numerous countries and on multiple continents. For nearly twenty years, Sean has been counseling organizations ranging from emerging growth companies to one of the world’s largest private equity firms with more than US$40 billion under management.
In addition to his firm leadership responsibilities, Sean’s globally recognized practice focuses on international corporate structuring for both the outbound operations of U.S. multinationals and the inbound operations of foreign multinationals. This includes advice on structuring cross-border ventures, mergers and acquisitions, supply chain management, cross- border financing, and transfer pricing matters, including the international licensing of intellectual property.
Sean has completed transactions in more than 75 countries and has been included in The International Who’s Who of Corporate Tax Lawyers.
CPAmerica responded to the enhanced demand for Mr. King by establishing a relationship with Align Global Consulting which will allow our members to pose brief questions and have initial consultations under 30 minutes at no cost to our members. International Shawn Wolf Attorney of Packman, Neuwahl & Rosenberg, P.A. 1500 San Remo Avenue, Suite 125 Coral Gables, FL 33146 (305) 665-3311 [email protected]
Shawn Wolf concentrates his practice in the area of U.S. Federal income taxes, international and domestic estate planning and corporate matters. He devotes a large part of his practice to the U.S. Federal income tax rules applicable to U.S. taxpayers doing business abroad, as well as the income and estate tax issues to foreign persons passively investing in the United States or those foreign persons who are looking to invest in more active business opportunities or move to the United States. Shawn is a Florida Bar Board Certified Tax Lawyer. CPAmerica members may contact Shawn directly with any international tax questions. Members may obtain quick 15- minute consultations on a complimentary basis. Extended services are also available.
579 of 781 State and Local Taxes Jordan Goodman Attorney & Partner at Horwood Marcus & Berk Chartered
500 West Madison, Suite 3700 Chicago, IL 60661 (312) 606-3225 [email protected]
Jordan resolves state and local tax controversies for multistate and multinational corporations, including Fortune 1000 clients with complex operations, in industries such as manufacturing, retailing, financial services, e- tailing, broadcasting and telecommunications. Jordan has successfully resolved tax controversies in virtually every state and counsels businesses on the tax ramifications and benefits of various organizational structures. As both an attorney and a CPA, Jordan has a comprehensive view of tax planning issues and strategies. His experience and education enable him to deliver a creative, complete and practical approach to limiting the full range of tax exposures. He was recently elected as a fellow in the Litigation Counsel of America, an invitation only trial lawyers honorary society that includes less than one-half of one percent of American Lawyers.
Jordan provides a two level State and Local Tax consulting service to member firms and/or their clients, as follows: either a complimentary 30-minute brief oral consultation, or engagement support when the brief oral consultation would be insufficient. In the event of engagement support, the CPAmerica member firm will determine whether the firm or its clients should retain Mr. Goodman. The duration and fees related to this type of support and the work product delivered will be agreed upon in advance for each inquiry.
Comprehensive Tax Advisory Ken Bezozo Managing Partner, NY Office, Haynes & Boone, LLP 30 Rockefeller Plaza 26th Floor New York, NY 10112 (212) 659-7300 [email protected]
Ken Bezozo is the managing partner of the New York office of Haynes and Boone. He has extensive experience in representing companies and individuals in business planning and taxation matters including structuring, formations, operations, acquisitions, mergers, restructurings, dispositions, family business separations, bankruptcies and workouts. He also has substantial experience in handling all types of federal and state tax controversies and tax litigation. Ken is a frequent speaker on business transactions and taxation law topics.
Haynes and Boone, LLP shall provide a three level consulting service to member firms and/or their clients. The consultation can either be a complimentary 15 minute brief oral consultation, an extended consultation of under 2 hours for a fixed fee of $900 per consultation, or if extended consultation is insufficient then the member firm will be charged the attorney's standard hourly rate for engagement support.
580 of 781 Comprehensive Tax Advisory
Crowe Horwath, LLP National Tax Office A.J. Schiavone, Director 10 West Broad Street Suite 1700 Columbus, OH 43215 (614) 469-0001 [email protected]
Crowe Horwath LLP is a top-10 firm with more than 3,000 employees. For a modest, annual fee, CPAmerica member firms gain direct access to the Crowe Horwath LLP National Tax Office (NTO) and are able to leverage its expertise to address a number of complex tax issues.
The tax services group at Crowe is comprised of more than 600 professionals, with 35 professionals solely dedicated to the National Tax Office. They are available to consult on issues such as international taxation, expatriate tax, family wealth planning, transfer pricing, nonprofit taxation, mergers and acquisitions, accounting methods and periods, high-level partnership issues, accounting for income taxes and more.
Direct access to Crowe’s Top 10 expertise combined with inherent knowledge-sharing between independent CPAmerica firms, make this a unique pairing for CPAmerica members.
Technology Network Management Group, Inc. (NMGI) Randy Johnston 324 East Fourth Avenue Hutchinson, KS 67504-1343 (620) 664-6000 [email protected]
Best known for his early and on-going expertise in networks, accounting software, paperless, and CPA Firm technology, Randy Johnston’s expertise has grown to touch virtually every technology in the marketplace. NMGI offers the following to CPAmerica member firms:
Technology Assessment for a fee of $4,000 ($800 per day) plus expenses. Other consulting firms that could provide these services typically charge from $2,000 - $5,000 per day. Instant access to NMGI's support system and staff of technology experts via a special email address set up for CPAmerica members. Use [email protected] to quickly reach the technology experts at NMGI and receive advice or help with technology in your firm. If NMGI cannot answer your questions quickly but you have a need for which you'd like to engage NMGI, they offer CPAmerica members a preferred rate for the following services: Partner Consulting: $300 per hour / $2,500 per day Application/Network Consulting: $180 per hour / $1,500 per day Technician Consulting: $150 per hour / $1,200 per day
581 of 781 Estate & Gift Tax Planning Gary A. Zwick 1301 East 9th Street Suite 3500 Cleveland, OH 44114-1821 (216) 928-2902 [email protected]
Voted as one of the top 100 attorneys servicing wealthy clients by Worth Magazine, Gary Zwick was formerly an adjunct professor of law teaching both Wealth Transfer Taxation and Income Tax at both Case Western Reserve University School of Law and Cleveland-Marshall College of Law. He spent the last 21 years in public accounting where he was director of tax operations for a large regional CPA firm until he left to practice law in 1997. Currently, Gary is head of the Tax and Wealth Management Section of Walter Haverfield where he has been since 1997. Gary is co-author of two legal treatises published by ALI-ABA and Editor of the 15th Edition of Tools & Techniques of Estate Planning by Stephen Leimberg and published by National Underwriter Company; author of many feature articles in major tax publications, and frequent nationally-known speaker.
Gary has agreed to be a resource to member firms on matters related to Estate and Gift Tax Planning for you or your clients. Members may contact Gary either by phone or email. There will be no charge for a consultation of a reasonable length. If the matter requires additional research or extensive time and review, Gary will discuss with you whether a fee will be charged and if so, how much. Unless the matter requires interaction with the client or engagement of Walter Haverfield on behalf of the client, there will be no attorney client relationship between your client and Walter Haverfield. Historic / Low Income Housing / New Market Tax Credits Anthony Marshall Attorney of Harris Beach PLLC Attorneys at Law 333 West Washington Street, Suite 200 Syracuse, NY 13202 (315) 214-2033 [email protected]
Anthony (Tony) Marshall leads the firm’s Tax Credit practice, is co-leader of the Tax Group practice, and is a member of the Corporate, Public Finance and Economic Development; Commercial Real Estate; and Life and Asset Planning Practice Groups. Tony also serves on the Real Estate Developers Industry Team. Tony, and the Credit Practice Group members, serves CPAmerica member firms in connection with the federal New Markets Tax Credit (NMTC), Historic Tax Credit (HTC) and Affordable Housing (low income housing) Tax Credit. Firm services include transaction structure, transaction closing and related services. Special offer to all CPAmerica members: Brief Oral Consultation. This would normally be a telephone call or e-mail between Anthony P. Marshall and a representative of a member firm, in which questions of a general nature are asked and answered. The typical duration of this consultation would be approximately 15 minutes in length. Anthony P. Marshall would not normally provide any memo or other written work product. No fee would be charged for this consultation.
Engagement Support. The duration and fees related to this type of consultation and the work product of Anthony P. Marshall will deliver will be agreed upon in advance of each inquiry by the member firm. This agreement would be subject to applicable conflict of interest inquiries and will be reflected in a separate engagement letter with Anthony P. Marshall.
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Lou Miller, CPA Crowe Horwath LLP National Tax Office Partner Office: (574) 236-8661 [email protected]
A.J. Schiavone, CPA
Crowe Horwath LLP National Tax Office Managing Director Office: (614) 280-5276 [email protected]
Nicole Zurawski Crowe Horwath LLP Senior Associate, National Tax Office Office: (574) 236-2465 [email protected]
583 of 781 2017 Contributions to Tax Advisor
A very special thanks to Mike Koppel, of Gray, Gray & Gray, LLP, for his service as Editor of the Tax Clinic portion to the Tax Advisor, the tax magazine of the AICPA. Additional thanks to each of the following individuals who contributed an article to this year’s Tax Clinic, either independently or in conjunction with another individual from the same firm. In all, there were ten articles submitted from CPAmerica writers this year.
Steve Drucker, CPA, Williams & Company, P.C.
Audrey Griffin, Wegner CPAs
Russel Hiller, CPA,/ABV, CGMA and Liz Farr, CPA, Pulakos CPAs PC
Elizabeth Hutchison, CPA, CDFA, Aldrich
Amy I. Kinkaid, CPA, J.D., MT, Pease & Associates Inc.
Michael Koppel, CPA/CITP/PFS, MBA, Gray, Gray & Gray, LLP
584 of 781 2017 CPAMERICA TAX WEBINARS
# Firms # Attendees Date CPE Webinar Participating Participating
5/10/2017 2 Foreign Reporting: Outbound Compliance Update 22 198
5/24/2017 2 Foreign Reporting: Cross-Border M&A Transactional Reporting 15 118
6/7/2017 2 Legislative and Regulatory Update 17 149
6/21/2017 2 Current Updates at the IRS 18 199
7/12/2017 2 North American Tax Update 17 118
7/26/2017 2 A Primer on Tax Capital Accounts 28 257
8/9/2017 2 International Business and Tax Ramifications of Exporting 18 152
8/23/2017 2 State and Local Tax Update: Emerging Trends and Sticky Issues 25 264
585 of 781 Preferred Providers & Consultants
1st Global CPA Mutual 12750 Merit Drive 4923 NW 43rd Street Suite 1200 #C Dallas, TX 75251 Gainesville, FL 32606 (800) 959-8461 (800) 543-3029
AICPA CPA Leadership 1211 Avenue of the Institute, Inc. Americas 200 E. Randolph St 19th Floor 24th FL New York, NY 10036 Chicago, IL 60601 (212) 596-6200 (888) 406-0088
Align Global Consulting, Crowe Horwath, LLP Sean King National Tax Office 9121 Anson Way 330 E. Jefferson Suite 200 Boulevard Raleigh, NC 27615 South Bend, IN 46624 (919) 987-1790 (574) 232-3992
alliantgroup DataMotion
Suite 2000 200 Park Avenue Houston, TX 77056 Suite 302 (713) 877-9600 Florham Park, NJ 07932 (973) 455-1245 x510
Becker Professional Ernst & Morris Education Consulting Group, Inc. 395 N. Service Rd. 2190 Dallas Highway
Suite 402W Marietta, GA 30064 Melville, NY 11747 (800) COST-SEG (860) 583-8399
586 of 781 Black Line Group (ACTIFI, Gary A. Zwick Inc) 1301 East 9th Street 3030 Harbor Lane N., Suite 3500 Cleveland, OH 44114 Suite 216 (216) 928-2902 Plymouth, MN 55447
(763) 550-0111
Harris Beach PLLC, Network Management Anthony Marshall Group (NMGI) 333 West Washington 324 East Fourth Avenue Street, Suite 200 Hutchinson, KS 67504 Syracuse, NY 13202 (620) 664-6000
(315) 214-2033
Haynes & Boone LLP, Ken Packman, Neuwahl & Bezozo Rosenberg, Shawn Wolf 30 Rockefeller Plaza 1500 San Remo Avenue 26th Floor Suite 125 New York, NY 10112 Coral Gables, FL 33146 (212) 659-7300 (305) 665-3311
Infinite Solutions LLC State Tax Advisors 222 Pearl Street, Suite 104 1308 Kingwood Drive
New Albany, IN 47150 #102 812-948-0838 Kingwood, TX 77339 (281) 358-1060
Intuit The Cost Segregation Group/A Member 2632 Marine Way Mountain View, CA 94043 Preferred Provider
(650) 944-6000 555 E Main Street Suite 1600 Norfolk, VA 23510 (757) 533-4156
587 of 781 Jordan Goodman Thomson Reuters Horwood Marcus & Berk PPC, Checkpoint Chartered Learning & Marketing 500 West Madison, P.O. Box 966 Suite 3700 Ft. Worth, TX 76101
Chicago, IL 60661 (800) 968-8900 (312) 606-3225
Tri-Merit R&D Tax Credit Services Lorman Education Services 847 E. Rand Rd., Ste 270 2510 Alpine Rd. Arlington Heights, IL Eau Claire, WI 54703 60004 (800) 678-3940 (480) 205-9322
Wolters Kluwer Yaeger CPA Review 2700 Lake Cook Road 500 Highland Street,
Riverwoods, IL 60015 Suite D (800) 344-3734 Frederick, MD 21701 (800) 824-2811
588 of 781 2017 Executive Committee (TEC) Goals and Status Update
Goals will be established by the Executive Tax Committee and will be recorded for 2017 implementation. The following items are suggested or possible goals for 2017.
1. Encourage Active Participation. Encourage active participation from firms who have not previously been active by: a. Recognizing prior year’s active participants at the Tax Conference, to illustrate the small number of repetitively active members, and the benefits to be gained by more active involvement; b. Have committee members’ call and/or email tax partners that have not been active to personally encourage participation. c. Have webinars/tutorials from CPAmerica Tax Coordinator to show what opportunities for involvement are available. Continued efforts to grow and enhance services such as the tax webinars, sharing call participation and facilitation, discussion list participation, member facilitation at events, tax preferred providers and consultants in the areas of International, SALT, Estate Planning, Historic/Low Income Housing & New Market Tax Credits; Legal, Comprehensive Tax Advisory and Technology.
2. Encourage Active Participation from the Millennial Group [younger staff and partners] in an effort to get “fresh blood” in the association. Discuss various ways to encourage this at the TEC meeting. This year’s NextGen meeting was a great success with participants positively rating their experience with the meeting and CPAmerica. 3. Sharing Member Expertise a. Online Sharing Library. Continue submissions to the online sharing library from the tax group. b. List Serve. Encourage participation from all firms. At TEC meeting: probe as to why there is a decline in responses, seek to understand what provokes response, and what types of questions are ignored. c. Tax Sharing Calls. Encourage tax members to facilitate sharing calls in specific areas of specialties. CPAmerica completed development on a new database, which contains ways to identify and search for member expertise across the association. Documents/items submitted through the tax discussion list were added to the online sharing library when applicable. Staff continued to monitor discussion list and followed up with members to solicit help/answers as needed. Sharing calls held in 2017 included several practice management topics applicable to tax professionals who are also responsible for business development and firm management. A webinar is scheduled for November 29 called, “Tax Season and Scheduling: What’s Your Plan?” and the 2017 Tax Technology Call is scheduled for December 6. 4. Tax Advisor Tax Clinic. Continue to get representation from CPAmerica member firms to write articles. Have a new representative to “shadow” current lead Mike Koppel for continued success of the program. Discuss at TEC to find a candidate to “shadow.”
589 of 781 Encouraged members at tax conference and through email/calls throughout the year. Mike Koppel of Gray, Gray & Gray heads up this program. Seven individuals from CPAmerica member firms have written or co-written ten articles this year. The individuals are as follows: Steve Drucker, CPA, Williams & Company, P.C. ; Audrey Griffin, Wegner CPAs; Russel Hiller, CPA,/ABV, CGMA and Liz Farr, CPA, Pulakos CPAs PC; Amy I. Kinkaid, CPA, J.D., MT, Pease & Associates Inc.; Elizabeth Hutchison, CPA, CDFA, Aldrich ; Michael Koppel, CPA/CITP/PFS, MBA, Gray, Gray & Gray, LLP
5. Membership has its Benefits a. CPAmerica Tax Benefits and Services. Encourage staff to participate in association overview and website training to reveal benefits of membership, tax resources and preferred providers available. b. Discount Opportunities. Promote discount to membership on tax-related services. Members are requested to suggest discount opportunities to Executive Office staff. c. Preferred Providers. d. Tax Experts/Consultants. Promote availability of the consultants CPAmerica has on retainer for member questions. e. Crowe National Tax Office. CPAmerica hired a new senior services manager whose primary focus is to support Tax services. They worked to develop a new Tax Resources Brochure, which will serve as an awareness piece and reminder of the depth of resources members have relative to Tax. There was also a renewed focus on preferred provider benefits, and the 2018 sponsorship opportunities available to them. Relationships continue to be built among Providers and Consultants to ensure their continued focus on CPAmerica member needs.
6. Tax Technology Calls with Randy Johnson. This call is scheduled for December 6, and will be hosted by Brian Tankersly
7. CPE Training shared between CPAmerica firms. In-person training for Tax did not gain traction in 2017, however, the summer webinar series did serve as group training for more than 40 member firms: # Firms # Attendees Date CPE Webinar Participating Participating
Foreign Reporting: Outbound 5/10/2017 2 22 198 Compliance Update
Foreign Reporting: Cross- 5/24/2017 2 Border M&A Transactional 15 118 Reporting
Legislative and Regulatory 6/7/2017 2 17 149 Update
6/21/2017 2 Current Updates at the IRS 18 199
590 of 781 # Firms # Attendees Date CPE Webinar Participating Participating
7/12/2017 2 North American Tax Update 17 118
A Primer on Tax Capital 7/26/2017 2 28 257 Accounts
International Business and Tax 8/9/2017 2 18 152 Ramifications of Exporting
State and Local Tax Update: 8/23/2017 2 Emerging Trends and Sticky 25 264 Issues
8. Seek to Provide Adequate Tax Support to all Member Firms. Identify what type of support may be lacking for individual firms. On-going conversations were had between CPAmerica staff, leading partners and members who focus on tax to uncover what type of support was missing. These conversations resulted in the hiring of the new senior member services manager as well as content that was developed for the 2017 Tax Conference.
591 of 781 2018 Proposed Executive Committee (TEC) Goals
Goals will be established by the Executive Tax Committee and will be recorded for 2018 implementation. The following items are suggested or possible goals for 2018.
1. Encourage Active Participation. Encourage active participation from firms who have not previously been active by: a. Recognizing prior year’s active participants at the Tax Conference, to illustrate the small number of repetitively active members, and the benefits to be gained by more active involvement; b. Have committee members’ call and/or email tax partners that have not been active to personally encourage participation. c. Have webinars/tutorials from CPAmerica Tax Coordinator to show what opportunities for involvement are available. 2. Encourage Active Participation from the Millennial Group [younger staff and partners] in an effort to get “fresh blood” in the association. a. Discuss various ways to encourage this at the TEC meeting. What’s helpful? What topics could compel you to take part? b. Staff to target group of NextGen Meeting attendees to hear what’s important 3. Sharing Member Expertise a. Online Sharing Library. Assist with review of current material, followed by an active campaign to solicit new materials. b. Discussion List. Encourage participation from all firms. At TEC meeting, seek to understand what provokes response, and what types of questions are ignored. Solicit feedback on whether to allow/encourage preferred consultants to contribute to conversations. c. Tax Sharing Calls. Encourage tax members to facilitate sharing calls in specific areas of specialties. Discuss possible sharing call topics at meeting 4. Tax Advisor Tax Clinic a. Continue to get representation from CPAmerica member firms to write articles. Staff can solicit contributions at NextGen meeting, highlighting this as an opportunity to establish expertise and credibility.” What else can staff do to assist? b. Find a new representative to “shadow” current lead Mike Koppel for continued success of the program. Discuss at TEC to find a candidate to “shadow” 5. Membership has its Benefits a. Re-focus Attention Towards Comprehensive Benefits from Tax Products, Services and Providers. Highlight expertise from members, as well as from preferred providers and consultants, to convey the comprehensive CPAmerica tax products, services and community. b. Engage and Educate. Encourage staff to participate in association overview and website training to reveal benefits of membership, tax resources and preferred providers available. c. Discount Opportunities. Promote discounts to membership on tax-related services. Members are requested to suggest discount opportunities to Association. d. Value for Preferred Providers and Consultants. Ensure providers and consultants are also deriving value from their relationship with CPAmerica members. Obtain more useful content from preferred providers and consultatns to share with members. e. Crowe National Tax Office (NTO). Encourage member sharing around experience working with NTO to highlight additional benefit. 6. Tax Technology Calls with Randy Johnson 7. CPE Training shared between CPAmerica firms. Find member firm to host other firm for regional training 8. Seek to Provide Adequate Tax Support to all Member Firms. Identify what type of support may be lacking for individual firms.
592 of 781 Ways & Means—International Update
Sean King, Align Global Consulting
2017 Tax Conference
593 of 781 Sean M. King
President & Managing Director P: + 1 919 987 1790 E: [email protected]
Sean King is a renowned legal, tax and business advisor who brings to his clients not only technical expertise, but also a cultural and commercial awareness that can only be gained by living and working in numerous countries and on multiple continents. For nearly twenty years, Sean has been counseling organizations ranging from emerging growth companies to one of the world’s largest private equity firms with more than US$40 billion under management.
In addition to his firm leadership responsibilities, Sean’s globally recognized practice focuses on international corporate structuring for both the outbound operations of U.S. multinationals and the inbound operations of foreign multinationals. This includes advice on structuring cross-border ventures, mergers and acquisitions, supply chain management, cross-border financing, and transfer pricing matters, including the international licensing of intellectual property. Sean has completed transactions in more than 75 countries and has been included in The International Who's Who of Corporate Tax Lawyers.
Sean is the author of multiple publications on international taxation and is a widely known speaker on the cross- border structuring of investments. In this capacity, Sean has been asked to speak worldwide for numerous Fortune 100 audiences.
He received his master of laws degree in taxation, magna cum laude, from the Chicago-Kent School of Law. He received his juris doctor degree, cum laude, from Michigan State University College of Law and his Bachelor of Arts degree from the University of Michigan at Ann Arbor.
Sean is a member of the State Bar of Michigan and is admitted to practice before the U.S. Tax Court. He is also a member of the North Carolina Bar Association where he has served as Vice-Chair of the International Law Section.
594 of 781
Education
Chicago-Kent College of Law; (LL.M.); magna cum laude
Michigan State University College of Law; (J.D.); cum laude
University of Michigan; (B.A.)
Professional Affiliations
Inter-Pacific Bar Association
North Carolina Bar Association
CPAmerica/Horwath
World Trade Association, Triangle Chapter
Bloomberg BNA
Awards and Honors
The International Who's Who of Corporate Tax Lawyers
NCACPA's Outstanding Conference Speaker Award
595 of 781 D I F F E R E N T • S T R A T E G I C • PROVEN
Ways & Means: International Update
Sean M. King
© Align Global Consulting 2017
596 of 781 Agenda
. Current Congress . Ways & Means . Recent history of proposed legislation . Where we stand now . The new world order?
597 of 781 © Align Global Consulting 2017 2 Current Congress
598 of 781 © Align Global Consulting 2017 3 The Push for Tax Reform: A Perfect Storm
. For the first time since 2006, the Republican Party (GOP) controls the House, Senate, and White House simultaneously. . The United States now has the highest statutory corporate rate in the Organisation for Economic Co-operation and Development (OECD). . Gross domestic product (GDP) growth continues to lag behind historical averages. . The U.S. manufacturing sector continues to decline. . Significant migration of business income into partnerships and other pass-throughs has eroded the U.S. tax base. . Corporate inversions further erode the tax base and raise questions of fairness. . Speaker of the House Paul Ryan was a driving force behind the development of the House GOP “Blueprint on Tax Reform” released in June 2016. . Donald Trump’s campaign tax plan borrowed heavily from the Blueprint’s concepts. . On April 26, 2017, the Trump Administration released its principles for tax reform which, although very high level, largely echo the Trump campaign plan. . On September 27, 2017, the negotiating team of congressional Republican leaders and White House officials released a long-awaited tax reform framework.
599 of 781 © Align Global Consulting 2017 4 Senate
Democrats 48
Republicans 52
Majority Leader: Mitch McConnell (R-KY) Chairman, Senate Finance: Orrin Hatch (R-UT)
600 of 781 © Align Global Consulting 2017 5 House
Democrats 194*
Republicans 240*
* Totals do not add to 435 due to vacancy
Speaker: Paul Ryan (R-WI) Chairman, Ways and Means: Kevin Brady (R-TX)
601 of 781 © Align Global Consulting 2017 6 Ways & Means
602 of 781 © Align Global Consulting 2017 7 Ways and Means: Current Composition
Democrats 16
Republicans 24
Chairman: Kevin Brady (R-TX) Ranking Member: Richard Neal (D-MA)
603 of 781 © Align Global Consulting 2017 8 Ways and Means: Current Members
Republicans Democrats Kevin Brady, Texas's 8th, Chairman Richard Neal, Massachusetts's 1st, Ranking Member Sam Johnson, Texas's 3rd Sander Levin, Michigan's 9th, Former Chairman Devin Nunes, California's 22nd John Lewis, Georgia's 5th Pat Tiberi, Ohio's 12th Lloyd Doggett, Texas's 35th Dave Reichert, Washington's 8th Mike Thompson, California's 5th Peter Roskam, Illinois's 6th John B. Larson, Connecticut's 1st Vern Buchanan, Florida's 16th Earl Blumenauer, Oregon's 3rd Adrian Smith, Nebraska's 3rd Ron Kind, Wisconsin's 3rd Lynn Jenkins, Kansas's 2nd Bill Pascrell, New Jersey's 9th Erik Paulsen, Minnesota's 3rd Joseph Crowley, New York's 14th Kenny Marchant, Texas's 24th Danny K. Davis, Illinois's 7th Diane Black, Tennessee's 6th Linda Sánchez, California's 38th Tom Reed, New York's 23rd Brian Higgins, New York's 26th Mike Kelly, Pennsylvania's 3rd Terri Sewell, Alabama's 7th Jim Renacci, Ohio's 16th Suzan DelBene, Washington's 1st Pat Meehan, Pennsylvania's 7th Judy Chu, California's 27th Kristi Noem, South Dakota's at-large George Holding, North Carolina's 2nd Jason T. Smith, Missouri's 8th Tom Rice, South Carolina's 7th David Schweikert, Arizona's 6th Jackie Walorski, Indiana's 2nd Carlos Curbelo, Florida's 26th Mike Bishop, Michigan's 8th
604 of 781 © Align Global Consulting 2017 9 Importance of Ways and Means
. Article I, Section 7, of the Constitution of the United States provides that all bills regarding taxation must originate in the House of Representatives. The Committee of Ways and Means is the chief tax- writing committee of the United States House of Representatives. . As such, all tax legislation originates at Ways & Means. . The roster of committee members who have gone on to serve in higher office is impressive. Eight Presidents and eight Vice Presidents have served on Ways and Means, as have 21 Speakers of the House of Representatives, and four Justices of the Supreme Court.
605 of 781 © Align Global Consulting 2017 10 Recent History of Proposed Legislation
606 of 781 © Align Global Consulting 2017 11 Congressional Blueprint
. House Republicans on June 24, 2016, released their highly anticipated tax reform blueprint. The blueprint called for: • Lower the top corporate tax rate to 20 percent and would replace the current six individual tax brackets with three brackets, with rates set at 12 percent, 25 percent, and 33 percent. • A new 25-percent pass-through business tax rate, and provide full expensing for business costs (with no deduction for net business interest expense). • Move the United States from a worldwide international tax system to a “territorial” dividend-exemption system, and impose a mandatory “deemed” repatriation tax (8.75% for cash or cash equivalents and 3.5% for other accumulated foreign earnings).
607 of 781 © Align Global Consulting 2017 12 International Reform
. The blueprint proposed to overhaul the international tax rules by moving toward a territorial system with a 100 percent tax exemption on dividends received from foreign subsidiaries. This regime would replace the current international tax system which generally taxes U.S. firms on their worldwide income—subject to deferral and an allowance for foreign tax credits.
. Deferred foreign earnings generated prior to enactment would be subject to a mandatory “deemed” repatriation tax at a rate of 8.75 percent if held as cash or cash equivalents, or 3.5 percent if held in another form. At their election, firms could pay this deemed repatriation tax over a period of eight years. (The provision is similar to one included in former Ways and Means Chairman Camp’s 2014 comprehensive tax reform proposal.)
608 of 781 © Align Global Consulting 2017 13 Many Base Erosion Protections Repealed
. The blueprint indicates that by providing a border adjustable mechanism, the revised corporate tax will obviate the need for many current-law base erosion safeguards and therefore calls for repealing most current-law rules under subpart F, although it would retain the current-law “foreign personal holding company income” rules, possibly in modified form, in order to limit deferral on certain types of passive income. No other protections against base erosion are discussed in the blueprint.
609 of 781 © Align Global Consulting 2017 14 International Provisions
Provision Current Law Camp 2014 Proposal (H.R. 1) House GOP Blueprint Regime Type Worldwide with deferral Move toward a territorial Territorial system with 100% system with a 95% participation exemption for participation exemption for foreign dividends foreign dividends
Repatriation Repatriated foreign-source One-time deemed repatriation Generally follow Camp income taxed at full corporate tax with differential rates for proposal rate with allowance for foreign cash (8.75%) and noncash tax credits assets (3.5%), payable over 8 years at the taxpayers election
Prevention of base erosion Subpart F rules limit deferral New category of subpart F Eliminate most subpart F rules; for certain mobile and passive income for “foreign base retain foreign personal holding foreign income; U.S. interest company intangible income”; company rules for passive deductions for inbound firms deny interest deductions in income shifting may be limited by Section cases where U.S. entities are 163(j) excessively leveraged relative to worldwide group
Border adjustability of tax base N/A N/A Destination-based cash flow tax based on jurisdiction of consumption and not production; thus imposed on value of imports but not on value of exports, similar to how many other nations implement Value Added Taxes
610 of 781 © Align Global Consulting 2017 15 Then, Along Came This Guy:
611 of 781 © Align Global Consulting 2017 16 Shock Ensued…
612 of 781 © Align Global Consulting 2017 17 And Tax Policy Upheaval Followed
613 of 781 © Align Global Consulting 2017 18 Trump Tax (Campaign) Proposals
. Then-candidate Trump proposed large corporate and individual tax cuts intended to promote economic growth and domestic investment. • Reducing the U.S. corporate tax rate from 35 percent to 15 percent. • He also would repeal the corporate alternative minimum tax (AMT).
. Under his plan, owners of sole proprietorships, partnerships, S corporations, and other pass-through businesses could elect to be taxed on their pass- through business income at the 15-percent corporate rate, rather than individual tax rates.
. Then-candidate Trump’s tax plan also would impose a one-time, 10-percent repatriation tax on overseas corporate profits. Earlier in his campaign, Trump’s tax plan specifically called for the repeal of tax deferral on the foreign earnings of U.S.-based companies, but his most recent plan does not include this proposal.
614 of 781 © Align Global Consulting 2017 19 Position on Worldwide v. Territorial Regime Unclear
. Iterations of Trump’s tax proposals – immediately after being elected– did not address the broader issue of how to tax active foreign-source income of U.S. multinationals. . The proposal Trump outlined in 2015 called for retaining the worldwide tax regime and the foreign tax credit while eliminating deferral of US tax on active foreign-source income (a policy his campaign contended would be made less onerous by his proposed 15 percent business rate), but it soon became unclear in statements post-election if this was still his position. . As you can see, tax reform plans emerging from Capitol Hill in recent years were headed in a distinctly different direction: the House GOP blueprint, for example, called for adopting a border- adjustable territorial tax system with a 100 percent participation exemption for foreign dividends. . Former Ways and Means Chairman Camp’s 2014 proposal called for moving toward a territorial system with a 95 percent participation exemption; and the recommendations of the 2015 bipartisan Senate Finance Committee working group on business tax reform, co-chaired by Sens. Rob Portman, R-Ohio, and Charles Schumer, D-N.Y., called for a territorial system and a participation exemption at an unspecified percentage.
615 of 781 © Align Global Consulting 2017 20 Then, Presto: Thumbs Up on Tax Reform
616 of 781 © Align Global Consulting 2017 21 U.S. Tax Reform Framework Released
. On September 27, the negotiating team of congressional Republican leaders and White House officials released a long-awaited tax reform framework that calls for sweeping tax cuts for corporations, pass- through entities, and individuals. https://waysandmeansforms.house.gov/uploadedfiles/tax_framework.pdf)
. Highlights of the plan include the following:
617 of 781 © Align Global Consulting 2017 22 Individuals
. Create a larger “zero” tax bracket by increasing standard deductions to $24,000 married filing jointly, and $12,000 for single taxpayers;
. Consolidate current seven tax brackets to three brackets of 12%, 25% and 35%, but leaves congress the option of creating an additional higher bracket for higher income taxpayers;
. Repeal personal exemptions for dependents and increase the Child Tax Credit;
. Repeal Alternative Minimum Tax;
. Eliminate most itemized deductions, but retain tax incentives for home mortgage interest and charitable contributions;
. Retain tax benefits that encourage work, higher education and retirement security; and
. Repeal death tax and generation skipping transfer tax.
618 of 781 © Align Global Consulting 2017 23 Corporations
. Eliminate Corporate Alternative Minimum Tax; . Immediate expensing of the cost of new investments in depreciable assets other than structures made after September 27, 2017 for at least five years; . Limit deduction for net interest expense incurred by C corporations; . Retain Research and Development and Low-Income Housing Credits; and . “Modernize" rules related to special tax regimes for specific industries.
619 of 781 © Align Global Consulting 2017 24 International Provisions
. The framework proposes switching from a worldwide system, where all profits are subject to the US statutory rate upon repatriation regardless of where they were earned, to a territorial system that provides for a 100 percent exemption for dividends paid by a foreign subsidiary to a U.S. parent with at least 10 percent ownership.
. To transition to the new system, accumulated overseas earnings would be deemed repatriated and taxed over an unspecified period at one of two rates (one for earnings held in illiquid assets and one for cash or cash equivalents). The framework does not specify the rates, but presumably, as in prior proposals, the rate for cash and cash equivalents will be higher.
. The framework calls for “rules to protect the U.S. tax base by taxing at a reduced rate on a global basis the foreign profits of U.S. multinational corporations,” but leaves the specifics of those rules—including the applicable rate—to Ways and Means.
620 of 781 © Align Global Consulting 2017 25 Initial Observations
. The framework is long on policy but short on specifics.
. The specifics are, for now, left to Ways and Means.
. No anti-inversion provisions were included.
. The so-called “border adjustment tax” has disappeared from the conversation.
. There is no mention of how existing voluminous provisions of the code would be phased out: • Subpart F • Sourcing of Income • Section 367(e) implications on inbound liquidations for companies choosing to unwind existing offshore structures.
621 of 781 © Align Global Consulting 2017 26 Where We Stand Now
622 of 781 © Align Global Consulting 2017 27 Finally…a Bill
623 of 781 © Align Global Consulting 2017 28 Tax Cuts and Jobs Act (TCJA)
. House Ways and Means Committee Republicans have unveiled a tax reform legislative draft November 2 that, among other things, calls for ambitious cuts to tax rates for corporations, passthrough entities, and individuals; a more generous expensing regime; significant increases to the individual standard deduction and the child tax credit; repeal of the estate tax and the individual alternative minimum tax; and a shift to a territorial system for taxing foreign- source income of US multinationals.
. The legislation – formally known as the Tax Cuts and Jobs Act (TCJA) – advances the objectives of the tax reform framework put forward in late September by the “Big Six” team of congressional Republican leaders and White House officials (that is, House Speaker Paul Ryan, R-Wis., Senate Majority Leader Mitch McConnell, R-Ky., House Ways and Means Committee Chairman Kevin Brady, R-Texas, Senate Finance Committee Chairman Orrin Hatch, R- Utah, Treasury Secretary Steven Mnuchin, and National Economic Council Director Gary Cohn.)
624 of 781 © Align Global Consulting 2017 29 Territoriality
. One of the TCJA’s key reforms for businesses is a transition from the current worldwide regime to a territorial system for taxing foreign-source income of US multinationals – a change intended to make US businesses more competitive on a global playing field. . Dividends received deduction: Under the provision, any US corporation that is a US shareholder of a foreign corporation (other than passive foreign investment companies that are not controlled foreign corporations) (“10- percent-owned foreign corporation”) shall be entitled to a 100 percent dividends received deduction on the foreign- source portion of any dividends paid by the foreign corporation. . No foreign tax credit is allowed for any dividend with respect to which the dividends received deduction applies and such dividend is not treated as foreign-source income for purposes of the general foreign tax credit limitation.
625 of 781 © Align Global Consulting 2017 30 Deemed Repatriation
. Deemed repatriation of deferred foreign income upon transition to territoriality: A US shareholder owning at least 10 percent of a foreign subsidiary would generally include in income, in its year in which the subsidiary’s last tax year beginning before 2018 ends, the shareholder’s pro rata share of the accumulated post-1986 deferred foreign income of the foreign subsidiary, net of the shareholder’s share of deficits of other foreign subsidiaries allocated to the first foreign subsidiary. . The amount of such deferred income generally takes into account earnings and profits as of November 2, 2017, or December 31, 2017 (whichever is higher), without diminution by reason of dividends distributed in the year that includes such date. The netting of earnings and deficits takes into account the US shareholder’s earnings and profits deficits of foreign subsidiaries of the US shareholder or members of the US shareholder’s affiliated group. . The US shareholder can claim a deduction against this inclusion, sufficient to reduce the resulting US tax to 12 percent of the inclusion (to the extent of the shareholder’s shares of its subsidiaries’ “cash positions”) and to 5 percent for the remainder of the inclusion.
626 of 781 © Align Global Consulting 2017 31 In the Senate
. Senate Finance Committee Chairman Orrin Hatch, R-Utah, on November 9 released his version of a comprehensive tax reform proposal aimed at reducing rates and providing other tax relief for corporations, individuals, and passthrough entities that would be paid for in large part by eliminating or paring back dozens of current-law deductions, credits, and incentives. . The Tax Cuts and Jobs Act, which was released as a technical summary rather than in legislative language. (The Finance Committee typically marks up “conceptual” language and releases a formal statutory proposal closer to the time a bill is ready to move to the Senate floor.) . The measure broadly follows the contours of the tax reform bill bearing the same name authored by the House Ways and Means Committee. . But the Finance proposal also lives up to Hatch’s oft-repeated promise that Senate Republican taxwriters would not simply “rubber stamp” any tax reform legislation put forward by their House counterparts. Most notably, the Finance Committee proposal, like the Ways and Means bill, would reduce the corporate tax rate to 20 percent; however the Finance proposal would delay implementation of the rate cut until 2019, while the Ways and Means provision would be effective beginning in 2018.
627 of 781 © Align Global Consulting 2017 32 Still a Long Way to Go…
. The most glaring hole in the proposal is its overall net impact on the U.S. federal budget. As the one article notes, it is likely that the revenue-losing policies in the plan would cost several trillion dollars over the next decade. Republicans are hoping to move a tax bill through the Senate on a simple- majority basis. . Legislation generally cannot increase the deficit in any year beyond the budget window (typically 10 years) without being subject to procedural hurdles under the so-called “Byrd Rule” that require 60 votes to waive. . Because Republicans only control 52 of 100 seats (and the recent Obamacare repeal efforts show that Democrats coming across the aisle is highly unlikely), Byrd Rule waivers seem nearly impossible at this time. . This means that Republicans will need to find several trillion dollars worth of revenue-raising provisions if they want to enact the framework’s tax cuts on a permanent basis. . Alternatively, they could scale back their tax-cutting ambitions to something they can finance over the long-run. . Realistically (or mathematically), the lowest top corporate rate achievable on a long-run revenue- neutral basis is 26 percent. Plus state. So, effective rates still approaching 30%.
628 of 781 © Align Global Consulting 2017 33 The Roadmap
The House The Senate Conference Signature
— Ways and Means releases — Senate Finance releases — House and Senate call for — Conference report sent to tax reform draft mark (could be similar to or conference to reconcile President for signature, different from House bill) — Ways and Means chairman differences between the two veto, or nonaction versions of the bill releases chairman’s mark — Senate Finance chairman — Treasury and Internal and/or modified mark releases modified mark — House and Senate Revenue Service begin — Ways and Means “marks — Senate Finance “marks up” Republicans and Democrats process of implementing up” tax reform bill, its own tax reform bill, appoint conferees to the new law including amendments including amendments negotiate conferencereport — Full House of — Full Senate considers bill — If conferees resolve their Representatives passes bill approved by Senate differences, the negotiated approved by Ways and Finance (further Conference Report sent back Means (further amendments amendments possible) to House and Senate for unlikely) approval — If bill achieves 60 votes, then — House bill sent to Senate to conference with the House — No amendmentsto Conference Report — Alternatively, “budget permitted reconciliation” vehicle to achieve Senate approval — Senate may achieve 60 votes or 51 (via — Senate considers policy Reconciliation) for changes to conform with passage Budget Reconciliation rules — If approved, the bill is sent to President
629 of 781 © Align Global Consulting 2017 34 Lining Up the Arguments
Factors favoring reform Countervailing factors
Increased urgency around tax reform Repeal and replacement of the Affordable Care Act a higher GOP priority
U.S. statutory corporate tax rate highest in the OECD U.S. multinationals’ effective rates largely in line with OECD averages—could erode political support
Unified GOP control of House, Senate, and White House Senate rules generally require 60 votes (8 Democrats) to pass most legislation
GOP may have “budget reconciliation” option to avoid Budget reconciliation rules can impose budgetary “straitjacket,” Senate 60-vote filibuster threshold making policy options less desirable
Mandatory repatriation of foreign earnings to pay in part for Use of repatriation revenue to pay for spending could be viewed as a infrastructure investment could draw bipartisan support violation of the pledge not to raise taxes signed by more than 250 members of Congress
Use of new rules requiring dynamic scoring could reduce Little precedent for use of dynamic scoring in official revenue costs of rate reduction estimates – benefits could prove to be de minimis
Goal of revenue neutrality reduces budgetary pressures of rate Revenue neutrality increases likelihood of losers and winners cuts
630 of 781 © Align Global Consulting 2017 35 The New World Order?
631 of 781 © Align Global Consulting 2017 36 This week
. House leaders plan to put their bill on the floor tomorrow (Thursday). . In the House, effort is being made to lock up the votes to pass their tax proposal on the floor. . Leaders know anywhere between five and seven New York lawmakers are "no" or "leaning no." A handful of New Jersey lawmakers are right there with them. . The issue isn't new -- the partial repeal of the state and local tax deduction, which disproportionately hits their high-tax states. But leaders can survive losses in those two states. . Keep a close eye on the California delegation. They stuck with Republicans, largely out of loyalty to majority leader (and fellow Californian) Kevin McCarthy. But several GOP districts in California -- represented by some of the most endangered GOP lawmakers in the conference -- come from districts that would also be hit hard by this repeal. . In the Senate, the finance committee began the markup of the GOP proposal on Monday. What kind of an experience is that? Well, there are 355 amendments that have been filed for consideration.
632 of 781 © Align Global Consulting 2017 37 The Crystal Ball…Stay Tuned…
. Tax reform in 2017—2018 is far from a certainty. • Failure to achieve revenue neutrality could undercut prospects for passage of the Bill. • Achieving passage in the Senate will be a complex task—for both procedural and political reasons. • Mid-term elections are right around the corner. . Other global initiatives will also impact the thinking of U.S. multinational corporations on a macro- planning level: • The development of the base erosion and profit shifting (BEPS) recommendations puts effective rate pressures on U.S. multinationals. • The European Commission’s State Aid cases cast doubt on the predictability of the global tax system. . On its face, one could argue that (if passed into law) U.S. shareholders would have less incentive to implement structures that defer cash offshore. . However, this would ignore the fact that many U.S. multinationals have genuine, non-tax operational cash needs outside of the U.S. and a platform for efficient cash redeployment would still be necessary.
633 of 781 © Align Global Consulting 2017 38 Thank you! Sean M. King [email protected] + 1 919 987 1790 www.alignglobalconsulting.com
DIFFERENT STRATEGIC PROVEN
634 of 781 Estate, Gift and GST Tax Planning for High-Net Worth Individuals
Marvin D. Hills, Crowe Horwath LLP
2017 Tax Conference
635 of 781 PROFILES Marvin D. Hills, CPA/PFS, CLU, ChFC Partner, Private Client Services Leader 320 East Jefferson Boulevard Post Office Box 7 South Bend, Indiana 46624-0007 UNITED STATES +1 574 236 7605 Email Connect
Marv Hills is a partner in the Crowe Horwath LLP private client tax services group and also leads the service delivery team. He joined Crowe in 1981 and specializes in estate planning and tax consulting for high-net-worth individuals, particularly owners of closely held businesses.
Client Focus
Services Tax Private Client
Professional Affiliations
American Institute of Certified Public Accountants member Personal Financial Planning Section member Indiana Society of Certified Public Accountants member
Society of Financial Service Professionals member
636 of 781 Michiana Estate Planning Council past president and board of directors member
Education
Bachelor of Arts, Accounting and Business Administration, summa cum laude Anderson University
In accordance with applicable professional standards, some firm services may not be available to attest clients.
© 2017 Crowe Horwath LLP, an independent member of Crowe Horwath International.
637 of 781 Estate, Gift and GST Tax Planning for High-Net-Worth Individuals November 15, 2017 Marvin D. Hills, CPA/PFS, CLU, ChFC
638 of 781 ©2017 Crowe Horwath LLP Marvin D. Hills – Partner
Crowe Horwath LLP NOTE: Not all materials 330 E. Jefferson Blvd below will be covered P.O. Box 7 South Bend, IN 46624-0007 during the actual Tel: (574) 236-7605 presentation. Cell: (574) 360-8300 Fax: (574) 236-8692 Email: [email protected]
Crowe Horwath LLP is an independent member of Crowe Horwath International, a Swiss verein. Each member firm of Crowe Horwath International is a separate and independent legal entity. Crowe Horwath LLP and its affiliates are not responsible or liable for any acts or omissions of Crowe Horwath International or any other member of Crowe Horwath International and specifically disclaim any and all responsibility or liability for acts or omissions of Crowe Horwath International or any other Crowe Horwath International member. Accountancy services in Kansas and North Carolina are rendered by Crowe Chizek LLP, which is not a member of Crowe Horwath International. This material is for informational purposes only and should not be construed as financial or legal advice. Please seek guidance specific to your organization from qualified advisers in your jurisdiction. ©639 2016 of Crowe781 Horwath LLP ©2017 Crowe Horwath LLP 2 Agenda: Transfer Tax Planning for High-Net-Worth Individuals
• Background / Overview of Tax Concepts • Gift Tax • Estate Tax • Generation Skipping Transfer Tax • Tax Reform Framework • Planning • GRAT’s • IDIT’s • Dynasty Trusts
• Questions?? 640 of 781 ©2017 Crowe Horwath LLP 3 Overview of Transfer Taxes
Time of Transfer Recipient During Lifetime Upon Death
Anyone Gift Tax Estate Tax
“Skip Person” Generation Skipping (grandchild) Transfer (GST) Tax
641 of 781 ©2017 Crowe Horwath LLP 4 Exemptions and Exclusions
Note: Three items (the $5 million Gift and Estate Tax lifetime exclusion, the $5 million Generation-Skipping Transfer Tax exemption, and the $10,000 gift tax annual exclusion) are all indexed for inflation. The actual amounts are as follows: CALENDAR LIFETIME / GST ANNUAL Max YEAR . EXEMPTION. EXCLUSION Rate 2018 $ 5,600,000 $ 15,000 40% 2017 $ 5,490,000 $ 14,000 40% 2016 $ 5,450,000 $ 14,000 40% 2015 $ 5,430,000 $ 14,000 40% 2014 $ 5,340,000 $ 14,000 40% 2013 $ 5,250,000 $ 14,000 40% 2012 $ 5,120,000 $ 13,000 35% 642 of 781 ©2017 Crowe Horwath LLP 2011 $ 5,000,000 $ 13,000 35% Definition of “Taxable Gifts”
Total Transfers (Reg. 25.2511-1(a) LESS: Exclusions (IRC Sec 2503(b)) Equals: Total Gifts LESS: Deductible Gifts (Secs. 2522/2523) Equals: Taxable Gifts (IRC Sec 2503(a))
Donative intent is NOT required!! 643 of 781 ©2017 Crowe Horwath LLP Reg. §25.2511-1(g)(1) 6 Definition of “Taxable Gifts”
Total Transfers (Reg. 25.2511-1(a) LESS: Exclusions (IRC Sec 2503(b)) Equals: Total Gifts LESS: Deductible Gifts (Secs. 2522/2523) Equals: Taxable Gifts (IRC Sec 2503(a))
CHARITABLE MARITAL 644 of 781 ©2017 Crowe Horwath LLP 7 Definition of “Taxable Gifts”
Total Transfers (Reg. 25.2511-1(a) LESS: Exclusions (IRC Sec 2503(b)) Equals: Total Gifts LESS: Deductible Gifts (Secs. 2522/2523) Equals: Taxable Gifts (IRC Sec 2503(a))
$14,000, if gift of a Tuition or
645 of 781 “Present Interest” Medical 8 ©2017 Crowe Horwath LLP Cumulative Nature of Lifetime Estate/Gift Exclusion
Dad made taxable gifts to son of $414,000 in 2013, and $614,000 in 2015
2013 Gift 2015 Gift Lifetime Exclusion $ 5,250,000 Lifetime Exclusion $ 5,430,000 Previously Used ( - 0 - ) Previously Used (400,000) Unused exclusion (5,250,000) Unused exclusion (5,030,000) Taxable Gift (400,000) Taxable Gift (600,000) Exclusion Remaining $ 4,850,000 Exclusion Remaining $ 4,430,000
Gift tax is owed only if the taxable gifts in a year exceed the previously unused exclusion for that year. Utilization of exclusion is mandatory, not optional. 646 of 781 ©2017 Crowe Horwath LLP 9 Gift-Splitting
• Election to “Gift Split” (IRC section 2513) • Treats gifts to any person other than the spouse as made one-half by each spouse. • Applies to all gifts made during the year. • Cannot “gift-split” on transfers into a trust to the extent the donee spouse has an “interest in the trust.”
647 of 781 ©2017 Crowe Horwath LLP 10 Gift-Splitting Example
Husband gifts $35,000 to a Trust in which the ONLY Crummey Withdrawal Right was for Wife to withdraw $5,000; trust then held for their children. Gift Tax Returns for: ANALYSIS: Husband Wife Total Transfer $35,000 Gifts Made $20,000 $15,000 Less: gift to wife (5,000) Annual Excl. (5,000) - 0 - Eligible to Gift-Split 30,000 Taxable Gift-Split Election X 50% Gift $ 15,000 $15,000 . Gift by EACH $15,000 . However, if Crummey Right was to SON, and wife was a permissible beneficiary
(with the children), only the $5,000 interest648 of 781 for Son could be gift-split. ©2017 Crowe Horwath LLP 11 Definition of “Taxable Estate”
Gross Estate (IRC Sec. 2033 to 2044) Less: Debts / Expenses (IRC Sec 2053) Less: Charitable Deduction (IRC Sec 2055) Less: Marital Deduction (IRC Sec 2056) Less: State Death tax paid (IRC Sec 2058)
Equals: Taxable Estate (IRC Sec 2051)
Net Tax = (Taxable – unused lifetime exclusion) X 40% rate. 649 of 781 ©2017 Crowe Horwath LLP 12 Generic Estate Plan * Dad’s Estate $16,000,000 Tax Paid = $0 Marital Trust $10,400,000
“Credit Shelter” Upon Mom’s death or “Family Trust” $5,600,000 Mom’s Estate $10,400,000 Tax Paid = $1,920,000
* = Assuming Children Net = $8,480,000 death in 2018 $14,080,000650 of 781 ©2017 Crowe Horwath LLP 13 Marital Deduction (IRC Sec. 2056)
• General Rule (2056(a)) • Unlimited deduction for property (included in gross estate) passing to a citizen spouse. No deduction for assets passing to a non-citizen.
• Exception to General Rule (2056(b)(1)) • No deduction if there is a possibility that the property might not be taxable in second spouse’s estate. (“Terminable Interests”)
651 of 781 ©2017 Crowe Horwath LLP 14 Marital Deduction (IRC Sec. 2056)
• Exceptions to the Exception (2056(b)(3)-(8))
• Terminable interests ARE deductible if either:
(3) Conditioned upon survival (< 6 mos.) (5) Life estate with Power of Appointment (6) Estate Trusts (Reg. 20.2056(e)-2(b)(1)) (7) Qualified Terminable Interest Prop. (8) Charitable Remainder Trusts (1 life only)
652 of 781 ©2017 Crowe Horwath LLP 15 Qualified Terminable Interest Property (IRC 2056(b)(7))
QTIP is property: 1. which passes from the decedent, 2. in which surviving spouse has a qualifying income interest for life, (defined as: a. the spouse is entitled to all of the income, payable annually or more frequently and b. no person has a power to appoint any part of the property to any person other than the surviving spouse), and 3. for which an election is made
653 of 781 ©2017 Crowe Horwath LLP 16 Generation Skipping Transfer (GST) Tax
• A separate and additional tax imposed at the highest estate tax rate on transfers to “skip persons”, which include:
• A NATURAL PERSON “assigned to” a generation which is four or more generations below the transferor’s grandparent. • A TRUST if all interests in such trust are held by skip persons.
• GST Tax is not assessed when property is transferred INTO a trust, but rather the tax is paid on the value of the property when received FROM the trust by a “skip person.” 654 of 781 ©2017 Crowe Horwath LLP 17 Generation Skipping Transfer Tax Skip Person - Natural Person Related Parties Unrelated (Deemed 25 year Generations) First Generation: Donor Transferor Brother 1st Cousin Predeceased Parent Rule Child 12½ to 37½ Niece or Nephew Years Younger 1st Cousin - Once Removed
Grandchild Grandniece - Grandnephew Over 37½ 1st Cousin - Years Younger Twice Removed (Skip Person)655 of 781 (Skip Person) ©2017 Crowe Horwath LLP 18 Generation Skipping Transfer Tax Skip Person - Trust
Donor
(No Interest Irrevocable Trust In Trust) Skip Person Child
Grandchild (or other656 Skip of 781 Persons) ©2017 Crowe Horwath LLP 19 Exemption From GST Tax
• Every individual is currently allowed a GST Exemption of $5,600,000 (cumulative lifetime and death-time) for 2018 which can be “allocated” to any transfer of property. • Same amount as Applicable Exclusion for regular estate and gift tax purposes, but the GST tax is a separate tax system; therefore, a separate exemption applies for GST tax purposes. • Married couples are (in effect) allowed a combined GST exemption of $11.2 million in 2018.
657 of 781 ©2017 Crowe Horwath LLP 20 Example of Interplay of GST Tax with Gift Tax
Grandpa previously made a taxable gift to son of $1,000,000. He now is gifting $7,615,000 directly to grandson in 2018
Gift Tax GST Tax Value of taxable gift $ 7,600,000 Value of taxable gift $ 7,600,000 Unused exclusion (4,600,000) Unused exemption (5,600,000) Taxable amount $ 3,000,000 Taxable amount $ 2,000,000
Gift tax due $ 1,200,000 GST tax due $ 800,000
$2,000,000
Total Taxes658 of 781 on $7,600,000 Transfer ©2017 Crowe Horwath LLP 21 $14,000 Annual Exclusion From GST Tax
• General Rule: Direct Skip transfers are automatically GST-exempt if they qualify for regular gift tax $14,000 annual exclusion.
• Exception: Transfer to TRUSTS are not exempt, unless GST exemption is allocated. (IRC §2642(c)(2))
• Exception to the Exception: If a trust has a Skip Person as its only beneficiary AND the trust is taxable in that beneficiary’s estate, then the general rule applies (i.e. gift is eligible for Annual Exclusion for GST purposes).
659 of 781 ©2017 Crowe Horwath LLP 22 Gift Splitting Example – Regular Tax
Assume wife (age 68) is a beneficiary of trust created by husband. Wife has Crummey Withdrawal right, plus mandatory right to income for life, but cannot receive principal. Gift to Trust (November, 2017) $ 2,000,000 Crummey Withdrawal Right (5,000) Value of Income for Life (2.4% AFR) (595,000) Gift to Other Beneficiaries $ 1,400,000
Regular Gift Tax: Husband Wife Total Wife’s Interest $ 600,000 -0- $ 600,000 Other Benef.’s (split) 700,000 700,000 1,400,000 Total Gifts 1,300,000 700,000 2,000,000 Annual Exclusion (5,000) -0- (5,000) 660 of 781 ©2017 Crowe Horwath LLP Taxable Gift $ 1,295,000 $700,000 $1,995,000 23 Gift-Splitting for GST Tax Purposes
• IRC §2652(a)(2) says if “one-half of a gift is treated as made by [each spouse], such gift shall be so treated for [GST] purposes.”
• However, Reg. §26.2652-1(a)(4) says that if “donor’s spouse makes an election” to gift split, each spouse allocates exemption to “one-half of the entire value of property transferred.… regardless of the interest the electing spouse is actually deemed to have transferred” for regular gift tax purposes.
661 of 781 ©2017 Crowe Horwath LLP 24 Gift-Splitting for GST Tax Purposes
Therefore, two rules seem to exist: (1) If any portion is ascertainable for non-spouse beneficiaries, Gift-Splitting for GST purposes applies to the entire trust. See PLR’s 200218001, 200345038, 200422051 and 200616022
Husband Wife Total Wife’s Interest $ 600 $-0- $ 600 Other Beneficiaries 700 700 1,400 Total 1,300 700 2,000
GST Allocation $1,000 $1,000 $2,000 662 of 781 ©2017 Crowe Horwath LLP 25 Gift-Splitting for GST Tax Purposes
Therefore, two rules seem to exist: (2) If no portion is ascertainable for the non-spousal beneficiaries, then Gift-Splitting apparently does not apply to this gift at all for GST purposes. See PLR’s 200551009, 201108010, 201125016
Husband Wife Total Wife’s Interest $2,000 - 0 - $2,000 Other Beneficiaries - 0 - - 0 - - 0 - Total $2,000 - 0 - $2,000
GST Allocation $2,000 $- 0 - $2,000 663 of 781 ©2017 Crowe Horwath LLP 26 The Looming Possibility of Tax Reform
Leimberg Information Services October 16, 2017
Based upon slides published by Leimberg Information
Services, Inc. and produced664 of 781 by John J. Scroggin Memorable Quotes “Anyone who says they know what is going to happen next is either Clairvoyant or Deranged.”
Leimberg Information665 of 781 Services October 16, 2017 Transfer Tax Reform
Leimberg Information666 of 781 Services October 16, 2017 Tax Facts
Only 0.2% of all Decedents are subject to a Federal Estate Tax (4,918 estates in 2015)
Annual Revenue Impact of $17-19 billion – less than 1% of total Federal Revenue
Leimberg Information667 of 781 Services October 16, 2017 The “United Framework for Fixing our Broken Tax Code” contains 12 words regarding Transfer Taxes: The framework repeals the death tax and the generation–skipping transfer tax.
Leimberg Information668 of 781 Services October 16, 2017 Nuances of the Plan (Tax Policy Considerations)
The Plan does not mention a Repeal of the Gift Tax
Leimberg Information669 of 781 Services October 16, 2017 Prediction Expect the Restoration of Estate & GST Taxes in the Future
Leimberg Information670 of 781 Services October 16, 2017 Prediction Estate Tax Repeal will cause a Change in the Step-Up in Basis Rules
671 of 781 Impact of Potential Changes IF ESTATE TAXES ARE REPEALED: • Step-up at Death – moderate likelihood • But only if coupled with a Canadian-Style “gain recognition at death” income tax • Carryover Basis – low likelihood • Defers income tax until property is actually sold. • Modified Carryover Basis – Probable • Use of the 2010 Modified Carryover Rules (§1022)? • Special Exemptions for Family Businesses?
Leimberg Information672 of 781 Services October 16, 2017 Memorable Quotes “Tax reform is absolutely, totally, completely impossible, until 15 minutes before it happens.”
Ron Wyden, Democratic Chairman of the Senate Finance Committee, as reported in the New York Times, November 7, 2014
Leimberg Information673 of 781 Services October 16, 2017 Common Estate Planning Techniques
.QTIP .ILIT .Credit Shelter .CRAT .GRAT’s .FLP .Crummey Power .SCIN .IDIT (or IDGT) .NIMCRUT .Living Will .GST .Living Trust .QPRT .Dynasty Trusts .CLUT .SpLAT’s .GRIT’s 674 of 781 ©2017 Crowe Horwath LLP 37 Four Ways to Achieve Tax Benefits from Making Lifetime Gifts
1. Achieving Valuation Discounts 2. Utilizing Annual Exclusions 3. Removing Future Appreciation 4. “Tax Burn” by having the transferor pay the income tax on future profits and gains that are earned by the transferee after the gift.
675 of 781 ©2017 Crowe Horwath LLP 38 Gift Strategies
• Discounting opportunities • Minority Interest (a/k/a “lack of control”) • What would you pay for 49% of a company? Same concept applies for 99% of the company if it is all non-voting stock. • Rev. Ruling 93-12 requires the IRS to ignore “family attribution”; thus minority discounts are authorized. §2704 Regs. withdrawn. • Lack of Marketability • It takes time to find a buyer for a closely-held business. • Professional valuation is important • “What is a business worth?” (Depends who’s asking.) • Providing “adequate disclosure” to IRS on Form 709 will start the
three-year gift tax statute of limitations.676 of 781 ©2017 Crowe Horwath LLP 39 Lifetime Gifting Strategies
• Two Methods of Gifting (Control Issues): • Outright Direct Gift – Recipient Controls Property • (Less of an issue/concern for Non-Voting Stock) • Gift to a Trust – Recipient is merely a beneficiary • (Trustee manages the property, and cash received)
• Timing and Amount • Annual exclusion gifting program • Lifetime exclusion gifting program
677 of 781 ©2017 Crowe Horwath LLP 40 Annual Gift Tax Exclusion
• The first $14,000 of gifts of a present interest made by a donor to each donee in each calendar year is excluded from the amount of the donor’s taxable gifts
• This amount is indexed for inflation, and will become $15,000 as of Jan 1, 2018.
678 of 781 ©2017 Crowe Horwath LLP 41 Annual Gift Tax Exclusion
Dad Mom
$14,000 $14,000
Son Daughter
Gifts made = $ 56,000 Gift tax due = $0 679 of 781 ©2017 Crowe Horwath LLP Lifetime Exclusion Used = $0 42 Annual Exclusion Gifting Program
Why?
Potential to transfer significant value that would otherwise be subject to estate tax.
680 of 781 ©2017 Crowe Horwath LLP 43 Annual Exclusion Gifting Program -- impact over time*
Without Gifting After Gifts
1/1/2017 2,000,000 2,000,000 2017 2,160,000 2,099,520 2018 2,332,800 2,207,002 2019 2,519,424 2,323,082 2020 2,720,978 2,448,448 2021 2,938,656 2,583,844 2022 3,173,749 2,730,072 2023 3,427,649 2,887,997 2024 3,701,860 3,058,557 2025 3,998,009 3,242,762 Estate value 2026 4,317,850 3,441,703
Estate Tax at: 40% 1,727,140 1,376,681
Tax savings = $ 350,459
681 of 781 ©2017 Crowe Horwath LLP *Assumes 8% Growth Rate. Assumes $56,0000 per year gift. 44 Additional Gifting to Use Lifetime Exclusion
• Make gifts in a year that exceed the $14,000 exclusion, and thus utilize up to $5,490,000 of lifetime gift exclusion. • No gift tax due, provided that the cumulative gifts are less than the $5.49 million exemption. • Total gift/estate tax burden will be reduced by removing future appreciation from estate. • Use discounted value of assets if possible.
682 of 781 ©2017 Crowe Horwath LLP 45 $1 Million Outright Gift - Example
Without Gifting After Gifting Jan. 1, 2017 $ 10,000,000 $ 9,000,000
Estate value at Death $30,000,000 $ 27,000,000
Remaining Exemption (5,490,000) (4,490,000)
Taxable Amount $24,510,000 $ 22,510,000 Estate tax: $ 9,804,000 $ 9,004,000
Tax savings = $ 800,000 Assumes 40% 683 of 781 ©2017 Crowe Horwath LLP estate tax rate 46 Characteristics of Selected Estate Tax Planning Techniques
Included in Appreciation Future Cash Income tax Techniques Estate? goes to: Flow paid by:
No…Reduces Recipient / Recipient / Recipient / Outright Gift / ILIT Exemption Donee Donee Donee
Unpaid Note Note Payoff, Installment Sale Buyer Buyer Balance then Buyer
Grantor Retained Term – Yes Trust &/or Annuity Pmts, Transferor Annuity Trust (GRAT) After – No Beneficiaries then Trust During Term++
Sale to an Intentionally Unpaid Note Trust &/or Note Payoff, Seller’s Defective Trust (IDGT) Balance Beneficiaries then Trust Discretion
Qualified Personal Term – Yes Heirs after Term – Donor Term – Donor Residence Trust (QPRT) After – No trust term After – Trust After – Trust++ 684 of 781 47 ©2017 Crowe Horwath LLP ++ = If property remains in trust, donor can choose to be treated as the “Grantor” Grantor Retained Annuity Trust (GRAT)
• Straight GRAT
• “Walton” GRAT
• Rolling GRAT’s
685 of 781 ©2017 Crowe Horwath LLP 48 Grantor Retained Annuity Trust (GRAT)
• Transfer assets to an irrevocable trust, in exchange for a series of payments from the trust. Payments can be for any period, but most planners will set the payments for at least two years minimum. • Taxable gift is the difference between the value of property given versus the Present Value of the series of payments to be received. • Donor is treated for income tax purposes as if he/she still owns the assets until all payments have been made. (§677(a)(1)) • Payments must be made as scheduled, not delayed or accelerated; although a 105-day “grace period” delay is allowed. (Reg. § 25.2702- 3(b)(4) and (d)(5)) 686 of 781 ©2017 Crowe Horwath LLP 49 Grantor Retained Annuity Trust (GRAT)
• Payments are typically defined as a percentage of the initial gift, rather than a fixed dollar amount.
• Therefore, if an IRS audit causes a changes in the FMV of the property, the payments simply change accordingly. (Reg. §25.2702-3(b)(2))
687 of 781 ©2017 Crowe Horwath LLP 50 Grantor Retained Annuity Trust (GRAT)
• If Donor dies during the payment term: • some or all of the trust assets are included in Donor’s taxable estate (IRC §2036) • the initial gift is ignored, and • any lifetime exclusion used against that initial gift is treated (at death) as still being available.
• Therefore, Donor is basically in the same position tax-wise as if she had done nothing. This can be described as wagering with the IRS on a coin flip with the stakes being “heads I win, tails we break even”.
688 of 781 ©2017 Crowe Horwath LLP Grantor Retained Annuity Trust (GRAT)
The two keys to making the technique work:
(1) The assets placed in the trust must appreciate faster than the IRS assumed interest rate (used to calculate the “Present Value” of the annuity payments), and
(2) Donor must live longer than the specified period that the trust is making payments.
GRAT’s are particularly useful in situations where the transferor has previously utilized all his/her $5.25MM lifetime exclusion.
689 of 781 ©2017 Crowe Horwath LLP “Regular” Grantor Retained Annuity Trust (GRAT)
Example: • Stock in a S Corp worth $5,000,000 is gifted to a 15-year GRAT in September 2017 (§7520 rate = 2.4%) • The donor will receive payments of $400,868 per year for the lesser of 15 years or until the donor’s death. If donor dies during the term, the trust assets are immediately paid to his estate. • The taxable gift is reduced by the PV (at 2.4%) of the anticipated payments back to the donor, which is $4,484,825 if the donor is age 60. (If donor were older, higher risk of death would reduce PV of anticipated payments, thus increasing the gift) 690 of 781 ©2017 Crowe Horwath LLP “Regular” Grantor Retained Annuity Trust (GRAT)
• As such, the taxable gift is not $5,000,000 for the stock, but rather is only $515,175 ($5,000,000 less $4,484,825).
• The net tax savings to the family will depend on the appreciation rate of the stock during the term of the trust. For example, if the stock in the GRAT grows at 10% per year, the stock received by the heirs will be worth $8,149,686 (rather than the initial gift of $515,175).
• Using a 40% estate tax rate, this represents tax savings of $3,053,804.
691 of 781 ©2017 Crowe Horwath LLP Grantor Retained Annuity Trust (GRAT)
Dad Dad’s Age 60 Stock Estate $5,000,000
GRAT - 15-Year Term Principal Stock FMV $ 5,000,000 $5 MM PV of annuity 4,484,825 $400,868 Taxable gift $ 515,175 If dad does not live per year 15 years, payments If dad lives 15 end, the stock will be years paid to his estate, and the trust closes
$ 8,149,686 Assumes: 10% Growth Child Discount rate 2.4% 692 of 781 ©2017 Crowe Horwath LLP “Walton” Grantor Retained Annuity Trust (GRAT)
Example: • Stock in an S Corporation worth $5,000,000 is gifted to a 15-year GRAT in September 2017 (AFR=2.4%) Payments of $400,868 per year for 15 years will be paid to the donor OR HIS ESTATE. Even if donor dies during the term, the trust continues for the full 15 years. • The taxable gift is reduced by the PV of the anticipated payments back to BOTH the donor and his estate, which is $4,999,980. (Since payments continue for 15 years in all cases, the donor’s age is immaterial).
693 of 781 ©2017 Crowe Horwath LLP “Walton” Grantor Retained Annuity Trust (GRAT)
Dad
Dad’s Age Stock Estate 60 $5,000,000
GRAT - 15-Year Term Payments Stock FMV $ 5,000,000 $5 MM PV of annuity 4,999,980 $400,868 Taxable gift $ 20 If dad does not live 15 per year years, the payments are made to his estate At the end of 15 instead. The trust is years taxable in his estate, but does not close before 15 Assumes: 10% Growth $ 8,149,686 yrs. Child Discount rate 2.4% 694 of 781 ©2017 Crowe Horwath LLP Two-Year “Rolling GRAT’s”
Donor
Initial (2) (1) (2) Gift (1) (1)
2017 GRAT 2018 GRAT 2019 GRAT 2020 GRAT
BALANCE
Process can BALANCE 2016 FAMILY continue TRUST indefinitely. 695 of 781 ©2017 Crowe Horwath LLP 58 Two-Year “Rolling GRAT’s”
47 Initial Gift 21 48 (2) (1) (2) (1) 23 (1) 31 2017 2018 2019 2020 Initial 100 From 2017 48 From 2017 47 From 2018 21 2018 (48) 2019 (23) From 2018 23 From 2019 31 2019 (47) 2020 (21) 2020 (31) Remaining 52 Balance 5 . Balance 4. Remaining 39
Balance 4 RESULT FAMILY TRUST Inside 2019 39 Balance 5 units From 2017 5 Inside 2020 52 From 2018 4 In Family 9 Total 9 Total 100 696 of 781 ©2017 Crowe Horwath LLP 59 Grantor Retained Annuity Trust -- TAX ISSUES
Income Tax “Grantor Trust” filing rules apply*.
Gift Tax Adequate Disclosure helpful, and not “risky” (since gift self-adjusts) Should not elect “Gift-Splitting”.
GST Tax Cannot allocate GST exemption to initial gift; can only allocate AFTER trust is no longer includible in donor’s taxable estate (ETIP rule of IRC §2642(f))
* See article in the Tax Adviser Magazine, September 2013 697 of 781 ©2017 Crowe Horwath LLP 60 Method for Extra Reduction in Value of a Gift?
• Taxable gifts include any transfer “to the extent that the value of the property transferred by the donor differs from the value…of the consideration given therefore. “ (Reg. § 25.2512-8) • “Consideration” includes Donee’s promise to pay Donor’s Gift Tax: i.e. a “Net Gift”. (Rev. Rul. 75-12) • Consideration can also include Donee’s promise to pay any potential additional estate tax (IRC §2035) on gift taxes paid for gifts within 3 years of death. (Steinberg vs. Comm., 141 T.C. No.8, 9/30/13, and 145 TC 184 9/16/2015) • Requires an actuarial calculation of likelihood of additional estate tax liability. 698 of 781 ©2017 Crowe Horwath LLP Intentionally Defective Irrevocable Trust (IDIT)*
• Straight Sale Distinguished • IDIT Example • Benefits • Contrast IDIT vs. GRAT
* a/k/a Intentionally Defective Grantor Trust (IDGT)
699 of 781 ©2017 Crowe Horwath LLP Straight Sale Transaction
Stock $5MM Seller $5MM note payable over 9 years with 2.7% interest Buyer Income Tax Result: 1. Seller pays ordinary rates on interest, and capital gain tax on principal 2. Buyer pays income tax on future profits. Estate Tax Result:
Only remaining note balance (and unspent700 of 781 proceeds) are taxable. ©2017 Crowe Horwath LLP 63 Transfers with Retained “Control”
• In general, both the income tax and estate tax laws provide that if a taxpayer transfers property to a trust but continues to “control” either the trust or the property, the IRS will simply ignore the existence of the trust. (See Rev. Rul. 85-13)
• However, the test for what constitutes “control” for income tax purposes (§671-679) is different than the definition for estate and gift tax purposes. (§2036-2044)
701 of 781 ©2017 Crowe Horwath LLP 64 “Intentionally Defective” Irrevocable Trust
•Taxpayers can take advantage of these rules to make the trust intentionally defective for income tax purposes. •It still is a valid transfer for legal purposes, as well as for estate and gift tax purposes. •Therefore, it must be “arms’-length” and for full consideration.
702 of 781 ©2017 Crowe Horwath LLP 65 Intentionally Defective Irrevocable Trust
Example:
Stock in an S Corp (representing 40% of a $10 million company) is sold to an IDIT in June 2010 in exchange for 9-year note, bearing interest at mid-term A.F.R.
703 of 781 ©2017 Crowe Horwath LLP 66 Intentionally Defective Irrevocable Trust - Example
Dad (1) Initial Gift: $280,000 Cash
IDIT
$280,000 Cash
Optional: Allocate GST Exemption to Initial Gift 704 of 781 ©2017 Crowe Horwath LLP 67 Intentionally Defective Irrevocable Trust - Example
Value of Total Company $10,000,000 Portion of Stock Sold X 40% “Gross” FMV 4,000,000 Dad Valuation Discounts (30%) (1,200,000)
Stock Net Fair Market Value $2,800,000 $2,800,000 IDIT
Stock $2,800,000
9 Year 2.7% Note $2,800,000 $280,000 Cash
705 of 781 ©2017 Crowe Horwath LLP 68 S Corp Distribution ($800,000)
S Corp
Dad 60% ($480,000)
(3) 40% IDIT ($320,000)
Stock $2,800,000 9 Year 2.7% Note $2,800,000 $280,000 Cash
706 of 781 ©2017 Crowe Horwath LLP 69 Optional Purchase of Life Insurance
Dad
IDIT
Stock Life Insurance $2,800,000 Policy $2,500,000 9 Year 2.7% Note $2,800,000 $600,000 Cash
Insurance Company
707 of 781 ©2017 Crowe Horwath LLP 70 Intentionally Defective Irrevocable Trust - Example S Corp Dad
IDIT
Stock $2,800,000 Life Insurance Policy 9 Year 2.7% Note $2,800,000 $2,500,000
* Cash: $595,000 Gift $280,000 Cash * (4) Insurance Company Dividend 320,000 $5,000 Insurance (5,000) Annual Net $595,000 708 of 781 Premium ©2017 Crowe Horwath LLP 71 I.D.I.T. Note Payment S Corp
Dad IDIT
Stock Life Insurance $2,800,000 Policy 9 Year 2.7% $2,500,000 Note $2,550,000 $270,000 Cash $325,000/year Principal (5) & Interest (Income Tax Free) Principal $250,000 Interest 75,000) 709 of 781 Total ©2017 Crowe Horwath LLP $325,000 72 I.D.I.T. – Summary of Year One S Corp
(1) Initial Gift: Dad $280,000 Cash
Stock (3) Annual $2,800,000 IDIT Dividend $320,000 Stock $2,800,000 Life Insur. Policy $2,500,000 9 Year 2.7% Note End of Yr.: $2,550,000 $270,000 Cash (4) Insurance Company (5) $5,000 Annual $325,000/year Principal & Interest Premium (Income Tax Free) 710 of 781 ©2017 Crowe Horwath LLP 73 I.D.I.T. Income Taxes S Corp Dad Dad taxable on S Corp Income: Directly owned (60%) $ 1,200,000 Owned by IDIT (40%) 800,000 Total $ 2,000,000 Total Profits $2,000,000 IDIT IDIT Income (40%) $800,000 Tax Owed (40%) $ (320,000) Stock (40%) $2,800,000 Cash Received (Note) 325,000. Increase in Cash 5,000. Ultimate Reduction in Note (250,000) Beneficiaries Change in Net Worth $ (245,000) 711 of 781 Children / Heirs ©2017 Crowe Horwath LLP 74 I.D.I.T. – End of Year Nine (for 40% Block of Stock)
Dad IDIT
Stock Annual 9 Years $2,800,000 (in ‘000’s) Total Note Pmts Rec’d $325. $2,925. Income Tax Paid (320) (2,880) Net included in Estate 5. 45 . Stock Rec’d by Heirs(1) (9,900) Ultimate Net Assets removed Beneficiaries from Taxable Estate $ 9,855 Children / Heirs
(1) Represents 10.6% annual growth in712 value, of 781 undiscounted ©2017 Crowe Horwath LLP 75 Results of Sale to Intentionally Defective Trust End of 9 Years (in ‘000’s) Without Sale With Sale Stock Owned 100% $24,800 60% $14,900
Beginning Cash $280 . $Gifted . Div’s Rec’d ($800/yr) 7,200 . $480/yr 4,320 . Note Pmts ($325/yr) None . 2,925 . Taxes Paid (7,200) (7,200) Cash on Hand 280 45 Gift Made None 280 Taxable Estate $25,080 $15,225 Estate tax: $ 10,032 $ 6,090 Tax savings = $ 3,942
713 of 781 ©2017 Crowe Horwath LLP Assumes 10.6% Growth for Stock, and 40% Estate tax rate 76 Benefits of the IDIT Technique
• No taxable gift on sale of assets to trust, provided it is a bona fide sale for full fair market value of property. • No income tax on sale, or on the note payments. • Ability to sell assets at discounted values. Any future increase in the value of the original asset sold to the trust avoids estate tax. • The only asset included in taxable estate is the note. • The value of the note does not appreciate, other than for interest earned on the note. • Grantor pays all income taxes on profits or gains on trust assets, resulting in a further reduction of his estate with no gift tax. 714 of 781 ©2017 Crowe Horwath LLP 77 Intentionally Defective Irrev. Trust -- Tax Issues
Income Tax Grantor Trust Filing Rules apply*
Gift Tax Adequate disclosure important, but some clients choose not to “red flag” a non-gift
Can “Gift-split”
GST Tax No ETIP, so therefore can allocate GST exemption to the Initial Gift
* See article in Tax Adviser715 of 781 Magazine, September 2013 ©2017 Crowe Horwath LLP 78 Overview: Differences Between GRAT's vs IDIT's
1. Interest rate: The GRAT uses the section 7520 rate. IDIT uses AFR (which depends on term of the note)
2. Mortality risk: If the Grantor dies during the term of the GRAT, the majority (and probably all) of the trust assets will be included in the estate. (Reg §20.2036-1(c)(2)(i) and §20.2039-1(e))
With an IDIT, the current note balance is included.
716 of 781 ©2017 Crowe Horwath LLP 79 Overview: Differences Between GRAT's vs IDIT's
3. Payment requirement With a GRAT, the full payment MUST be made annually. If not fulfilled with cash, the trustee must give assets back (other than notes). If stock of the company is repaid to the grantor, an annual valuation of that stock would be required. With an IDIT, the trust could pay nothing, or (preferably) at least interest.
4. Initial Gift at Creation A GRAT can be “zeroed out” with little or no gift. An IDIT generally needs a “seed money gift”, typically 10% of sale price. 717 of 781 ©2017 Crowe Horwath LLP 80 Overview: Differences Between GRAT's vs IDIT's
5. Gift-splitting A GRAT should not elect Gift-Splitting since the Non-donor spouse’s lifetime exclusion is not restored upon premature death of donor.
6. GST Exemption Allocation With a GRAT, the GST allocation is not “effective” until after all the payments have been fulfilled, due to the “ETIP” rules.
With an IDIT, GST exemption can be allocated against the initial gift to the Trust, thus exempting all future growth.
718 of 781 ©2017 Crowe Horwath LLP 81 Overview: Differences Between GRAT's vs IDIT's
7. Income taxation upon death during term. With a GRAT, there is no income tax caused by death. Since the assets are included in the taxable estate, this would result in a “step-up in basis” for those assets.
With an IDIT, some (most?) commentators believe gain will be recognized for income tax purposes for the difference between the note balance owed, versus the basis of the assets inside the trust at the time of death. However, this is still unsettled.
719 of 781 ©2017 Crowe Horwath LLP 82 Overview: Differences Between GRAT's vs IDIT's
8. IRS assurance
The GRAT is described (i.e. approved) in IRC § 2702(b).
The IDIT has not been approved, in total, by the IRS. However, Rev. Ruls. 2004-64 and 2008-22 verify that income taxation to the Grantor does not cause the trust property to be included in the estate. There has not been, however, any definite guidance regarding income taxation at death.
720 of 781 ©2017 Crowe Horwath LLP 83 Overview: Differences Between GRAT's vs IDIT's
9. Risk of unexpected gift upon IRS audit. If the IRS audits the gift tax return involving a GRAT and increases the value, the payment changes automatically, resulting in little, or no additional gift currently. This will, however, result in higher annual payments to the grantor (thus causing more to be included in the Grantor's subsequent estate).
With an IDIT, an increase in valuation of the gifted property will result in an additional gift, unless the note is structured with a clause that will cause the note "face value" to increase to the value determined upon audit. (See “King” case). 721 of 781 ©2017 Crowe Horwath LLP 84 Planning with “Dynasty Trusts”
• A “Dynasty Trust” typically refers to a trust that meets two criteria: • Continues to the end of (or is formed in a state which does not have a) Rule Against Perpetuities • Is exempt from the GST Tax (i.e. has a “Zero Inclusion Ratio”). • GST Tax assessed when property is transferred to Skip Person, computed as the highest estate tax rate (now 40%) multiplied by the “Inclusion Ratio”, which is the portion of the trust not previously exempted from GST tax. • Inclusion Ratio is recomputed at the time of each contribution to the trust; and/or at the time of each allocation of exemption to the trust (timely or late) • Thus, once a transfer is designated as exempt from GST tax, all future appreciation in the value of the exempt722 of 781 property is also exempt. ©2017 Crowe Horwath LLP 85 Effect of Allocating Exemption from GST Tax
Grandpa GST exemption equal to the value of the gift is “allocated to the trust” effective as of the date of funding. $1,100,000 Thus inclusion ratio of the trust is zero (i.e. “GST-Exempt”). Trust
$3,000,000 Future fair Value rec’d by grandchild = $3,000,000 market value GST exemption utilized = $1,100,000 GST Tax Owed = $0 Grandchild
723 of 781 ©2017 Crowe Horwath LLP 86 Effect of Allocating GST Exemption to a Life Insurance Trust
GST exemption Grandpa equal to annual $14,000 gift of premiums annual Value rec’d by is allocated to the gifts grandchildren =$3,000,000 trust each year (5 yrs.) Irrevocable GST exemption used Life Insurance ($14,000 x 5) = $70,000 Trust Future life $3,000,000 GST tax owed = $0 insurance death benefits
Grandson 724Granddaughter of 781 ©2017 Crowe Horwath LLP 87 $14,000 Annual Exclusion From GST Tax
• General Rule: Direct Skip transfers are automatically GST-exempt if they qualify for regular gift tax $14,000 annual exclusion.
• Exception: Transfer to TRUSTS are not exempt, unless GST exemption is allocated. (IRC §2642(c)(2))
• Exception to the Exception: If a trust has a Skip Person as its only beneficiary AND the trust is taxable in that beneficiary’s estate, then the general rule applies (i.e. gift is eligible for Annual Exclusion for GST purposes).
725 of 781 ©2017 Crowe Horwath LLP 88 $14,000 Exclusion (Direct Skip) From GST Tax
Crummey withdrawal rights granted to Grandfather each grandchild. Therefore, eligible for gift tax annual exclusion. Also eligible for GST annual exclusion, since only $14,000 $14,000 $14,000 one beneficiary per trust, provided the trust is includible in grandchild’s estate. Trust Trust Trust
Amount transferred: $42,000 GST exemption used: $0 Grandchild Grandchild Grandchild GST Tax payable $0 726 of 781 ©2017 Crowe Horwath LLP 89 GST Exemption Allocation (Prior to 2001 Tax Act)
Crummey withdrawal rights granted to Grandfather each grandchild. Therefore, eligible for gift tax annual exclusion, but not eligible for GST annual exclusion. $30,000 Trust Amount transferred: = $30,000 GST exemption used: = $30,000 GST Tax Owed: = $0
Must file a gift tax Grandchild Grandchild Grandchild return to allocate 727 of 781 ©2017 Crowe Horwath LLP exemption!! 90 Generation Skipping Transfer Tax – Changes in 2001
• 2001 Tax Act created “Automatic Allocations” of GST exemption for transfers to trusts which constitute an “indirect skip.”
• Applies if the trust “could have” a GST transfer to a Skip Person in the future, unless one of six exceptions apply, such as: • 25% of the trust will pass to non-skip person(s) by age 46 or upon the death of a person more than 10 yrs. older than the Skip Person, or • CRAT, CRUT or CLUT
• In effect, changes the “default assumption” from: (1) “No Allocation”, to instead be (2) “Automatic Allocation” 728 of 781 ©2017 Crowe Horwath LLP 91 GST Exemption (After 2001 Tax Act)
Crummey withdrawal rights granted to each grandchild. Therefore, eligible Grandfather for gift tax annual exclusion, but not eligible for GST annual exclusion. $30,000 Trust Amount transferred: = $30,000 GST exemption used: = $30,000 GST Tax Owed: = $0
No gift tax return required. Grandchild Grandchild Grandchild 729 of 781 Allocation is automatic!! ©2017 Crowe Horwath LLP 92 Generation Skipping Transfer Tax (The Proverbial “DILEMMA”)
Should GST exemption be allocated when trust is initially funded? Grandfather
Principal payable Trust to child at age 45 Grandchild Principal payable to grandchild if child dies before reaching age 45. Child Predeceased Parent rule is not available since child is 730 ofstill 781 alive upon initial funding. ©2017 Crowe Horwath LLP 93 Questions
More Information Marvin D. Hills, CPA/PFS, CLU, ChFC Crowe Horwath LLP 330 E. Jefferson Blvd. South Bend, IN 46624 574.236.7605 [email protected]
Crowe Horwath LLP is an independent member of Crowe Horwath International, a Swiss verein. Each member firm of Crowe Horwath International is a separate and independent legal entity. Crowe Horwath LLP and its affiliates are not responsible or liable for any acts or omissions of Crowe Horwath International or any other member of Crowe Horwath International and specifically disclaim any and all responsibility or liability for acts or omissions of Crowe Horwath International or any other Crowe Horwath International member. Accountancy services in Kansas and North Carolina are rendered by Crowe Chizek LLP, which is not a member of Crowe731 of Horwath 781 International. © 2013 Crowe Horwath LLP ©2017 Crowe Horwath LLP 94 The Economic Consequences of Charitable Remainder Trusts
Chris Cline, Riverview Trust Company
2017 Tax Conference
732 of 781 Christopher P. Cline President & CEO
Riverview Trust Company 900 Washington St. Suite 900 . Vancouver, WA 98660 360.624.3705 | [email protected] riverviewtrust.com
EXPERTISE Chris joined Riverview Trust Company in April 2016 as President and CEO after heading up the trust department in Oregon and Southwest Washington for a national bank for 8 years. Prior to joining the wealth management industry, Chris was an estate planning attorney for 17 years, working with ultra high net worth families. In addition to overseeing all aspects of the company’s operations, Chris works with Riverview’s clients, helping them navigate through the challenges of estate planning and trust administration. In particular, Chris assists clients with business succession, trust design and charitable planning.
BACKGROUND Chris is a nationally recognized speaker and author on estate planning topics. He has written seven books on estate planning, including The Law of Trustee Investments, published by the American Bar Association. He has been active in drafting trust and probate legislation for the State of Oregon.
EDUCATION •B.A. English, San Francisco State University •J.D. Hastings College of the Law, San Francisco, CA
MEMBERSHIPS & AFFILIATIONS •Fellow, American College of Trust and Estate Counsel •Past President, Estate Planning Council of Portland •Past Chairman, Estate Planning and Administration Section of the Oregon State Bar •Current Newsletter Editor, Estate Planning and Administration Section of the Oregon State Bar •Member, Southwest Washington Estate Planning Council
733 of 781 The Economic Consequences of Charitable Remainder Trusts
Christopher P. Cline President and CEO, Riverview Trust Company 900 Washington Street, Suite 900 Vancouver, WA 98660 [email protected] (360) 759-2478
Charitable remainder trusts (CRTs) are often suggested as a way to help defer or avoid capital gains tax on the sale of a highly appreciated asset, retain an income stream and benefit charity. Although they have become a less popular strategy in recent years, due to the low interest rate environment, as interest rates begin to increase again, so will their usage.
But as with most estate planning techniques, the devil is always in the details. And before recommending CRTs, advisors should consider the real economics of the transaction, not just the short-hand narrative just described. It can take many years before these transactions can break even and access to the funds is extremely limited. These facts point to the most important aspects of CRTs: they are vehicles for charitable giving only, and should be approached as such.
Section One of this article provides some background on how CRTs work. Section Two lists the income tax consequences of creating a CRT. Section Three examines some of the limitations on CRTs. Finally, Section Four looks at some the economic consequences of some CRT planning scenarios.
Section One: CRT Basics.
CRTs have a number of fairly technical requirements that they must meet in order to qualify under Code section 664.
Generally
Under Internal Revenue Code (“Code”) section 664, a CRT is an irrevocable trust that distributes a specified amount at least annually to one or more persons, at least one of which is an individual rather than a charity. The CRT lasts for: (a) the life or lives of the individual beneficiaries (all of whom must be alive when the CRT is created); or (b) for a fixed term of 20 years or less. When the trust terminates, it must be distributed to one or more charities described in Code section 170(c).
The trust must pay, at least annually, a percentage of the trust assets that is at least 5% and not more than 50%. The way that this percentage is calculated depends upon which type of CRT is used.
734 of 781 The present value on the date of trust creation of the remainder interest passing to charity when the trust terminates must equal at least 10% of the initial value of assets contributed to the trust. This present value is determined by taking into account the length of the trust term (either the term of years chosen or the life expectancy of the noncharitable beneficiary for whose life the trust exists), the size of the payment made to the noncharitable beneficiaries and the prevailing rate under Code section 7520 (the rate to be used is the prevailing rate for the month the trust is created or for either of the prior two months).
Important tip: This combination of using payments, life expectancies and 7520 rates limits the ways in which CRTs can be constructed. If the 7520 rate is 2.2% and the trust pays the minimum 5% annually, then the beneficiary must be at least 27 years old. Any younger and the value of the remainder interest will drop below the 10% threshold. If two lives are used (husband and wife, typically), then they each must be at least 39 years old (because the life expectancy for two lives is longer than that for just one).
Types of CRTs
There are two main categories of CRT: unitrusts and annuity trusts. The percentage distribution of a unitrust to the noncharitable beneficiary is recalculated each year, based on the value of the trust assets on the last business day of the prior year. An annuity trust values the percentage distribution on the date of trust creation and the distribution amount never changes.
Examples: Assume a donor creates a charitable remainder annuity trust for her lifetime, paying 5% to her each year, and she funds the trust with $1,000,000. Her 5% payment is $50,000 and it never changes (it becomes an “annuity”). Now assume that she does the same thing, but structures the trust as a charitable remainder unitrust. Her payment for the first year is $50,000. Assume that the trust has an amazing investment return that year of $150,000, so that the trust asset value at the end of year 1 is $1,100,000 ($1 million plus $150,000, minus the $50,000 payment). The unitrust payment is 5% of that year-end value, or $55,000.
It’s more complicated than that, however, because there are three different types of unitrust beyond the plain, garden-variety version. First, there are “net income charitable remainder unitrusts,” or “NICRUTS,” under which the trust pays the lesser of the net trust accounting income or the unitrust amount to the noncharitable beneficiary. This has the benefit of never requiring the trustee to distribute more than the liquidity on hand. However, donors never really took to the idea, so they are very seldom used.
Second, there are “net income with make-up charitable remainder unitrusts,” or “NIMCRUTS,” which also pay the lesser of net income or the unitrust amount each year, but with the refinement that, for any year in which the net income is lower than the unitrust amount, the difference is tracked in a “make-up” account. So for years in which net income exceeds the unitrust amount, the difference can be distributed to the noncharitable beneficiary until the make-up account is used up.
735 of 781 Example: Assume the donor creates a NIMCRUT with a 5% annual payout, funded initially with $1,000,000. The unitrust payment is $50,000. Assume also that the assets generate $40,000 of net income. So the first year distribution is $40,000 (the lesser of the unitrust amount and the net income), and the difference of $10,000 is accounted for in the make-up account. Assume that in year two, the value of the assets stayed at $1 million, so the unitrust amount stayed at $50,000, but the trust generated $55,000 of net income. The payment in year two would be $50,000 (the lesser of unitrust amount and net income) PLUS an additional $5,000 draw-down of the make-up account (the excess net income, which is less than the make-up account). The make-up account is reduced by $5,000 to $5,000.
Practice tip: It is very hard for net income to exceed 5% of the trust assets, because “net income” under the Uniform Principal and Income Act includes interest, dividends, rents and royalties, but not capital gains. Therefore, although the NIMCRUT sounds good, it can be a challenge to generate enough net income to match the unitrust amount, and can be an even bigger challenge to exceed the unitrust amount and dip into the make-up account. As discussed below, however, capital gains may be deemed in the trust agreement to be “income.”
Third, there is a “flip” charitable remainder unitrust that begins life as a NIMCRUT, but upon the occurrence of an event stated in the document, the trust becomes a “straight” unitrust, paying the percentage as recalculated each year. The event triggering the flip is usually the sale of an appreciated, often unproductive asset, like bare land. This allows the trustee to distribute only net income (if any) to the noncharitable beneficiary while the trust property is illiquid (or inadequately liquid), and then “flip” it to a straight unitrust when the trust assets become liquid and able to support the payment.
Regulations under Code section 664, issued in 1998, spell out the rules for the flip. The change from NIMCRUT to straight unitrust must be triggered on a specific date, or by a single event, the occurrence of which is NOT within the control of the trustee or another person (known as the “triggering event”). This is a difficult rule, because the sale of a trust asset, which is within the control of the trustee, is a valid triggering event. The conversion from NIMCRUT to straight unitrust must occur at the beginning of the taxable year following the year during which the triggering event occurs (so if the asset sale which is the triggering event happens in November 2017, the conversion must be effective January 1, 2018). Finally, once the conversion is effective, any remaining make-up amount that has not been paid is forfeited. So in the example above, the trustee could distribute a make-up amount in December 2017 only; after that, the make-up amount would be lost.
Examples in the regulations of permissible triggering events include:
Sale of an unmarketable asset (like closely-held stock, a personal residence or other real estate); Marriage, divorce, birth or death of a noncharitable beneficiary or a member of his or her family; A noncharitable beneficiary reaching a given age.
736 of 781
Section Two: Tax Treatments of CRTs.
The main reason for using a CRT lies in its income, estate and gift tax treatment.
Income tax treatment to the trustee and the noncharitable beneficiary.
If qualified under Code section 664, the income of a CRT is not taxable to the trustee. Instead, the income is passed out to the noncharitable beneficiary under a “worst in, first out” type ordering system:
First, from ordinary income from the current year; Second, from undistributed ordinary income from prior years; Third, from long-term capital gains from the current year; Fourth, from long-term capital gains from prior years; Fifth, from tax-exempt income; and Finally, as a return of principal.
This combination of tax-exempt treatment to the trustee and taxable distributions to the noncharitable beneficiary creates one of the traditional hallmarks of CRT use. The donor contributes a highly appreciated asset that she intends to sell. If she instead transfers the appreciated asset to a CRT, and then the trustee sells the asset, no capital gains tax liability is incurred. Instead, the trustee must keep track of the amount of capital gains and can then invest the entire amount of the sale proceeds, unreduced by tax cost. If the investments generate enough current year ordinary income and capital gains, very little of the gain from the sale of the original asset may ever be taxed.
The one exception to the “nontaxability” of the trustee is when the trust assets generate unrelated business taxable income, or UBTI as defined under Code section 512. Under prior law, even $1 of UBTI could subject all of the trust income for that year to tax. This would be a devastating result if that dollar of UBTI occurred in the year the highly appreciated asset was sold, because all of the gains on sale would be taxed in the current year, thus defeating the whole purpose of the trust.
This lead to challenging questions: what if you wanted to fund a CRT with a highly appreciated apartment building, but it had profits from parking rentals or coin-operated laundry?
Under current law, however, the UBTI is subject to a 100% excise tax but the balance of the income remains tax exempt at the trust level. 1 This is mainly a problem now in funding a CRT with S corporation stock, partnerships and debt-financed income.
1 Treas. Reg. §1.664-1(c).
737 of 781 Income tax deduction to the donor.
The donor is entitled to an income tax deduction for the present value of the remainder interest passing to charity. The value of this present interest is calculated in the same way as the 10% remainder interest test, described above: it takes into account the size of the unitrust or annuity payments to the noncharitable beneficiaries, the prevailing discount rate under Code section 7520 and the term of the trust (either the term of years or the life expectancies of the noncharitable beneficiaries).
When choosing the appropriate discount rate, the donor may choose to use rate in effect for the month in which the trust is created or one of the two preceding months. Choosing the highest of those rates maximizes the amount of the charitable income tax deduction available to the donor.
As a practical matter, then, the income tax deduction to the donor will be relatively small; in the current low interest rate environment, the value of the remainder interest usually doesn’t get too much higher than the 10% minimum. In fact, in the author’s experience, using the 10% amount is a good rule of thumb to use when introducing a client to the idea of the CRT.
There is, however, a trap for the unwary here. The remainder interest passing to charity can pass either to a public charity or to a private foundation. However, the deductions are subject to the same limitations imposed on the charity itself. To qualify for any kind of charitable income tax deduction, the remainder interest must pass to an organization described under Code section 170(c). However, that section encompasses both public charities (which are also described under Code section 170(b)(1)(A)) and private foundations. Unless the trust agreement specifically states that the charitable remainder beneficiary must qualify under Code section 170(b)(1)(A), the charitable deduction for the donor for the contribution to the CRT will be subject to all the limitations that apply to donations to a private foundation.
This is important because donations of appreciated property to a private foundation (other than donations of publicly-traded securities) can be deducted only to the extent of the donor’s basis in the property. So if a donor owns a piece of commercial real property that has been fully depreciated, the value of the charitable income tax deduction could be close to zero. Such assets often are contributed to CRTs, so it is critical that the document require that the charitable remainder beneficiary be an organization qualified under Code section 170(b)(1)(A). The sample forms created by the IRS only require that such organizations qualify under Code section 170(c), so a drafter who isn’t careful and simply adopts the sample form language, he or she could inadvertently create this problem. Finally, charitable deductions for contributions to private foundations are limited to 30% of modified AGI, while those to public charities are limited only to 50%, another possible issue.
Estate and Gift Tax Consequences.
If a donor creates a CRT solely for his or her own benefit, there are no gift or estate tax consequences: the trust property is includable in the donor’s estate, and there is an
738 of 781 offsetting estate tax charitable deduction. If there is another noncharitable beneficiary that is entitled to trust payments after the donor’s death, then the actuarial present value of the remainder to charity still generates a charitable deduction, but the difference between the remainder interest and the value of the trust property includable in the donor’s estate (which will be equal to the present value of the noncharitable beneficiary’s interest) will not generate a deduction UNLESS the noncharitable beneficiary is the donor’s spouse, in which case the spouse’s interest will generate an estate tax marital deduction.
If the donor is not the noncharitable beneficiary , then the present value of the noncharitable beneficiary’s interest will be subject to gift tax (again, unless the noncharitable beneficiary is the donor’s spouse, in which case there will be an offsetting gift tax marital deduction).
Note, however, that in order to generate the gift or estate tax marital deduction, there cannot be an intervening noncharitable beneficiary interest between the spouse’s interest and the interest of the charitable remainder. In other words, if the noncharitable beneficiary is the spouse and then the charity, there will be a marital deduction for gift or estate taxes, but if the noncharitable beneficiary is the spouse for his or her life, then the donor’s child and then the charity, no marital deduction is available.
For a discussion of estate and gift tax planning for the marital deduction, see Cline, Accelerated Charitable Trust Provide New Gift Giving Opportunities, 26 Estate Planning, 59 (Feb. 1999).
Section Three: CRT Limitations.
There are several limitations created by CRTs, especially on the use of and access to trust property by the donor. The first limitation is obvious: the donor is entitled only to the unitrust or annuity trust payment. This will have been explained to the donor and will not be an issue during the first year or two of the trust. However, as the donor’s life and financial needs change, the donor may have second thoughts about how worthwhile the CRT was.
There are only two things that can help minimize this problem. First, be very clear about the fact that the donor is giving up all access to the funds in exchange solely for the unitrust or annuity amount. Second, and more importantly, make sure that the donor can support himself or herself without the trust distributions. That way, the donor will be much more likely not to need larger distributions in the future than the trust will allow.
A bigger limitation is that CRTs are subject to certain restrictions applicable to private foundations (see Code section 4947). The most significant of these restrictions is the excise tax imposed upon disqualified persons for any act of “self-dealing” between the trust and that person (see Code section 4941). Such acts include making loans, even with below- market rates, to the trustee, or using trust assets as collateral for personal loans taken out by the donor or his or her family. The details of these private foundation restrictions are beyond the scope of these materials. The important thing to remember is that donors
739 of 781 should be advised that they cannot use the trust assets in any way, or have any involvement in investments that are out of the ordinary.
The final set of limitations involves the timing of the contribution of appreciated assets to the trustee. As already noted, most CRTs are funded with highly appreciated assets that are sold shortly after they are contributed to the trust. This allows the built-in gain to be deferred or avoided. If the appreciated assets are publicly traded securities, then sale after contribution is easy. If, however, the asset is less marketable (like real estate or a closely- held business), problems can arise. The donor would usually prefer that the asset be sold shortly after the trust is created, so that there is enough liquidity to meet the annual trust payment obligation. This could mean lining up a buyer before the trust is created.
Doing so, however, can create an “assignment of income” (or “anticipatory income”) problem. If the donor identifies the buyer, creates a binding sale contract and then contributes the appreciated asset subject to the contract, the IRS will deem the donor to have sold the property and incurred the gain himself or herself. This, obviously, defeats the purpose of the trust, but also leaves the donor with a significant tax bill AFTER having contributed the sale proceeds to the trust. This serious potential pitfall opens the question of how far along in the negotiation process can a donor go and still avoid this anticipatory income problem?
Several cases have addressed this problem. The first, Palmer v. Commissioner,2 held that, in order for the anticipatory income doctrine to apply, the charity (or CRT trustee) must have the binding obligation to sell the property upon contribution. Absent such a binding obligation, the gain from sale would be triggered in the charity’s hands, not the donor’s. The IRS acquiesced in this case, which should have put the issue to rest.
However, two subsequent cases are troubling. In Blake v. Commissioner,3 the court held that even a pre-contribution “understanding” between the charity and the donor would be sufficient to tax sale proceeds to the donor after the charity sold the property. In this case, the charity agreed not only to surrender the shares for redemption, but also to use the redemption proceeds to buy the donor’s yacht at an above-market price. More troubling is Ferguson v. Commissioner4 in which the tax court held that stock redemption proceeds following a tender offer and merger agreement were taxable to the donor. This was true despite the fact that the tender offer was still conditional at the time the donor contributed the stock, and therefore the charity did not have a binding obligation to sell.
A later case,5 however, upheld the “binding obligation” test in Palmer. In this case, the donor contributed warrants to the charity, and although there were “nonspecific” allegations of an informal agreement between the parties, the charity hadn’t entered into agreements at the time of contribution, and the sale hadn’t “ripened to practical certainty” at that point.
2 62 T.C. 684 (1974). 3 697 F.2d 473 (2nd Cir. 1982) 44 108 T.C. 244 (1997). 5 Rauenhorst v. Commissioner, 119 T.C. 157 (2002).
740 of 781 The lesson from all these cases is to err on the side of caution. If a donor identifies a buyer for property that the donor wants to contribute to a CRT, serious negotiations should be entered into by the CRT trustee after the contribution of the property, not by the donor beforehand.
Section Four: CRT Illustrations.
So now that we know some of the basics, let’s talk about the economic consequences. The following are just a few of the surprises that can occur when you actually run some numbers for CRT results.
CRT vs. Sale of Asset.
As we know, the most frequent use of CRTs is to fund it with an appreciated asset, sell that asset without immediately incurring capital gain, and then get an income stream from the CRT on the full value of the property, unreduced by capital gain tax. But how long does it take for the CRT strategy to outperform simply selling the asset, paying the tax and investing the proceeds?
In order to do this calculation, many assumptions must be made. First, let’s assume the donors are husband and wife, ages 64 and 65, and that the trust pays to both of them for their joint lifetimes at 7%. Assume further that their sole asset is a piece of fully depreciated real estate, with a fair market value of $1 million and a zero basis. Assume that, under the CRT scenario, they fund the trust with the asset and immediately thereafter they are able to sell the asset (without an assignment of income problem), so that they have no problem with meeting the unitrust payment.
But the assumptions don’t end there. First, assume that the investment account is invested 60% in an S&P 500 index fund and 40% in a Barclay’s Aggregate fixed income fund, with a total return each year of 6.5%. Such an account would probably generate 1% of the total value in qualified dividends, 1% in interest from the fixed income and 2.5% in the form of capital gains (5% annual turnover in the account, and the basis in the sold assets is 50% of the value). Assume, too, that they live in a state like Oregon with a 9% income tax, so their blended capital gains rate is 23.9%, their effective blended ordinary income tax rate is 28%.
Finally, let’s assume that they’re philanthropically minded and want to leave $750,000 to charity and the balance to their kids at death under all scenarios.
Whew! That’s a lot of assumptions. Which is why any illustrations of this type are highly speculative. There is a wide margin for error whenever you assume straight-line growth (rather than running a Monte Carlo illustration of returns) and when you arbitrarily pick a portfolio blend and blended effective income tax rates. Nevertheless, such an exercise can provide a decent sense of scope, if not an accurate forecast of future results.
There are two different ways to look at this comparison. The first is that they already have enough income in retirement from other sources, and that they will therefore simply save
741 of 781 everything they receive and invest it, whether from the CRT or from after-tax sale proceeds. In the second scenario, we will assume that they spend every nickel of the CRT distributions. In this case, we must take a corresponding amount from the after-tax sale proceeds and invest the difference.
Save It All
In this case, under the CRT scenario assume they immediately put all unitrust payments into an investment account and never touch that account. Similarly, assume under the sale scenario that they put all of the after tax proceeds into that same type of investment account. As shown in Appendix A, the CRT strategy generates a lower net balance than the sale strategy over 23 years (the joint life expectancy of the couple according to the IRS).
Under the CRT strategy, the net amount passing to charity is about $800,000 (from the CRT itself) and the accumulated distributions of $2.446 million pass to the kids. Under the sale scenario, the total amount available is $2.496 million, so after the distribution of $750,000 to the charity the kids are left with $1.746 million, or $700,000 less than under the CRT scenario.
In addition, the CRT strategy imposes the following additional limitations:
They lose access to the trust assets, beyond the annual unitrust payment, so they can’t access the funds for emergencies. They are limited, through the self-dealing rules, in the ways they can use the trust assets (as security for loans, for example). The assets all pass to charity at their deaths, even if that occurs shortly after the trust is created, and none of the assets pass to heirs. In other words, it’s a bad way to make a charitable gift if they had a particular purpose or specific dollar amount for their charitable gift in mind.
So what can we conclude from this? Looking purely at the donors’ situation during their lifetimes, it is better to simply sell the asset and reinvest the proceeds. They have more wealth, and complete access to it, throughout their lives. However, purely from a legacy standpoint, the CRT strategy probably wins. So establishing a CRT probably makes sense for a couple like this if they have strong legacy goals and sufficient other assets to cover emergencies.
Spend It All
Now let’s flip the script, and assume that the donors under the same assumptions spend every nickel of their distributions, and assume that they take this same amount out of the after-tax proceeds. Appendix B addresses this scenario. Under the CRT strategy, the donors have access only to the unitrust distributions and not the principal. They have access to these distributions throughout their lives (although the payments dwindle from a high of $70,000 in year one to $46,000 in year 22). Under the sale scenario, the distributions keep up with the CRT distributions until year 21, at which point all the assets have been spent down.
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The estate plan consequences are more significant. Under the CRT strategy the charity gets the same $800,000 from the trust; under the sale strategy it gets nothing. The kids get nothing under either strategy.
What lessons does this scenario provide? First, neither scenario is particularly good for a donor who wants to rely solely on the distributions described in Appendix B: the CRT strategy provides distributions to the donors for their entire lives, but no access to additional principal if needed, and the payments diminish significantly over time. Under the sale strategy, the donors run out of money before the end of their lives and neither charity nor their kids get anything.
Looking at both the “accumulate” and “spend” approaches together, the general conclusion may be that creating a CRT makes sense for the client who:
Has a high value, highly appreciated, not very productive asset in their estate; Needs some additional income for retirement, but has sufficient other assets outside of the asset to be transferred to the CRT to cover living expenses or emergencies that may come up; and Has significant charitable intent.
How Much Capital Gain is Avoided Using a CRT?
Appendix A is useful not only for comparing CRT vs. sale, but also for showing the collective amount of capital gains tax that is ultimately paid from the original asset sale. Remember that the distribution from the CRT is taxed first on the current year’s ordinary income and capital gain, and then, to the extent that the distribution exceeds that amount, the distribution is taxed on the unrecognized gain from the original sale.
As the far right column shows, about $146,000 of capital gain is paid over 23 years of the trust. This is almost half of the $239,000 that would have been paid had the donors simply sold the appreciated asset. Using a discount rate of 3%, the present value of the capital gain paid is roughly $102,000. Which is the tax on gain of about $427,000. Put another way, a donor would, under these assumptions, obtain a tax advantage if his or her basis in the property was worth 57% or less of the total value.
As the prior illustration shows, however, simple capital gains savings on a present value basis isn’t enough to make the CRT financially beneficial to the donor, because there the donor saved $137,000 in capital gains on a present value basis over 23 years, yet didn’t break even overall. It does have an effect, however, on the estate planning goals.
Which Unitrust Percentage Should a Donor Choose?
Assuming the client wants to go ahead with establishing a CRUT, he or she must choose a unitrust percentage that will dictate the amount that he or she will receive. Inevitably, the donor will look to his or her advisors to help with that decision. Which means that this is another time when we as advisors have to run the numbers ahead of time.
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Instinctively, one might assume that the higher the percentage payout, the more beneficial the trust is for the donor. However, that intuition is often wrong. Using commercially available software, some basic calculations show the best percentage choice. To begin, let’s assume that our 64 and 65 year old married clients create a unitrust for their joint lives that invests in a balanced portfolio of low-cost index funds. Such a portfolio might generate 5% annually. In that case, a unitrust with a 7% payout (a “7% unitrust”) funded with $1 million would generate $70,000 in unitrust payment its first year, while a unitrust with a 5% payout (a “5% unitrust”) would generate only $50,000. However, by year 18, the payout from the 7% unitrust would equal only $68,417, while the 5% unitrust payout would be $69,065 (this is the year the 5% unitrust begins to outperform). At the end of the donors’ 23-year joint life expectancy, the 7% unitrust would have paid a total of $1,586,000, while the 5% unitrust would have paid $1,429,000, a spread of $157,000. And in fact this difference is even wider on a present-value basis, since the 7% unitrust pays much larger amounts in the early years of the trust.
However, this does not necessarily mean that the 7% unitrust is the better choice. Many donors who create CRUTs do so when they are older, as a means of supplementing retirement income. As we all know, retirement expenses tend to increase as people age, so there may well be a benefit to having the income stream increase over time, rather than decrease, even if the overall present value comparison doesn’t look good.
“Ah,” you say, “but you’ve only assumed a 5% growth rate. Surely the 7% unitrust would greatly outperform if you upped your growth assumption to 7%.” Let’s try. Under this scenario, the initial year one payments are the same. However, the 5% unitrust begins outperforming the 7% unitrust in year 18. In other words, the 5% unitrust still begins outperforming the 7% unitrust at the same point.
The total amounts paid to the donors over a 23-year life of the 7% unitrust are about $1,980,000, while those of the 5% unitrust are $1,809,000, for a cumulative difference of $171,000 (only $14,000 more than under the 5% growth scenario). And again, although this spread is even greater on a present value basis, retired clients may prefer to give up the slightly higher overall return in favor of a payment stream that increases over time.
Looking at it from the charity’s perspective, the 5% unitrust is a total home run. Under the 5% growth scenario, a 5% unitrust results in $1.548 million to the charity at the end of the trust term, as compared to only $970,000 under a 7% unitrust. Under the 7% growth scenario, the 5% unitrust generates $2.411 million to the charity, as compared to only $1.518 million from the 7% unitrust.
So, all in all, a 5% unitrust is probably a better choice than a 7% unitrust in most cases.
What About CRATs?
In this low interest rate environment, CRATs are still mostly a bad idea. Remember that, in addition to the 10% remainder test under the Code and regulations, the Rev. Rul. 77-374 probability test also must be passed. This means that our hypothetical 64 and 65 year old
744 of 781 couple that has been creating all the CRUTs in our illustrations above are out of luck if they wanted to create a CRAT. In fact, the youngest a couple could be to create a CRAT with a 5% annuity amount (the lowest allowable) would be age 73 for both of them.
In other words, CRATs are mostly not a good idea, both because the amount distributable stays the same over the life of the trust, and thus loses pace to inflation, and because only older clients can even create them in the first place.
But wait, there’s more! If our 73 year old couple really wanted the reliability of the annuity stream, as opposed to the moving percentage (which could drop) of a unitrust, they aren’t limited to using their life expectancies. They could instead create a CRAT for a term of years (for a maximum of up to 20 years). If they were to create such a trust, they would no longer be subject to the probability test. Which means that they could create a trust with a payout of 5.667%, higher than the 5% they could get if they used their lifetimes to measure the term. This, despite the fact that the IRS actuarial tables set their joint life expectancies at only 16 years.
Put another way, as a result of the Rev. Rul. 77-374 test, the IRS would rather that this couple create a trust that pays out to them $56,670 for 20 years than one that pays $50,000 for 16 years. Who says the IRS isn’t on our sides?
There is a way to avoid this counterintuitive result. Effective in August of 2016, Rev. Proc. 2016-42 (2016-34 IRB 269) allows a donor to avoid having to pass the “probability of exhaustion” test IF the CRAT he or she is creating contains the precise language in the Revenue Procedure to require a contingent termination. Essentially, the document has to provide that the trust will terminate in the year that the trust corpus, after being reduced by the annuity amount, falls below 10% of the actuarial value of the original trust corpus.6
Using this actual termination method, however, does not provide any guarantee that the results to the donor would improve much over the result using the probability of exhaustion test. It has the further complication of the trustee having to make the calculation every year to ensure compliance.
In light of all this, what can we say about CRATs?
They are far more limited in terms of who can create them for their lifetimes, and in terms of how much can be paid out if they are created; The only way for most people to create them is to use a term of years, not life expectancy; Because they create a fixed annuity amount, the payments can’t increase over time, so they will lose pace to inflation.
6 See Rev. Proc. 2016-42 for the precise calculation method and the language to be included in the document. See also Schlesinger & Goodman, CRATs and an Alternative to the Probability of Exhaustion Test, 44 Est. Plan. J. 32 (Feb. 2017).
745 of 781 As a result, the main use for CRATs will be for older clients who have charitable intent and who greatly fear another recession. And with this kind of profile, using the clients’ life expectancies is probably a better choice than using a term of years, even though the latter may give them a better payout, because there is always a chance that they could outlive that term (thus running afoul of their general risk aversion).
Allocating Capital Gains to Income to Time Distributions
A NIMCRUT can be used to affect the timing of trust distributions. This might be useful, for instance, if the donor wants to let the assets in the trust grow and then trigger larger distributions in the future. But, as discussed above, in order to tap into the “make-up” account, income must exceed the unitrust payout in a given year. As the minimum unitrust payout is 5%, it is extremely challenging to find any publicly-traded investment that will generate “income” as defined under state principal and income acts in excess of that amount.
However, if capital gains, which typically are categorized as a return of principal under principal and income acts, were somehow deemed to be “income,” then sales of highly appreciated assets could generate adequate income to not only meet the unitrust payout but exceed it, allowing for the timing of distributions in years when the donor may have additional needs or is in a lower tax bracket.
The preamble to the Section 664 final regulations (T.D. 8791, 12/9/1998) state that
[t]he final regulations maintain the prohibition on allocating precontribution gain to trust income for an income exception CRUT. However, the governing instrument, if permitted under applicable local law, may allow the allocation of post-contribution capital gains to trust income.
The document can provide that all capital gains resulting after the time an asset is acquired by the trust can be allocated to income if the drafting instrument says so. However, this is not a cure-all. There has to be enough post-contribution capital gain to make a meaningful dent in the make-up amount. If, shortly after the CRUT is created, a recession hits, it might be years before this happens.
Using a Flip Unitrust for Retirement
Another, possibly more interesting, approach is to use a flip unitrust with a triggering event tied to a donor reaching a given age (typically some point around retirement). For example, a 65-year-old client might create a flip unitrust that “flips” upon the donor reaching age 75. For the first ten years of the trust, only income would be paid from the trust (perhaps around 2% under current assumptions) and then in year eleven (when the donor’s income needs more supplementing) the trust “flips” to a standard unitrust.
Appendix C illustrates how this might work. We have again assumed our 64 and 65 year old couple who have created two different flip unitrusts, one with a 5% and the other with a 7% payout, and a triggering event 10 years out. Note that the sum of payments from the 5% flip
746 of 781 unitrust is smaller than those of a standard 5% unitrust, while the sum of payments from the 7% flip unitrust is higher than those of a standard 7% unitrust.
This might be a useful tool for clients who don’t need the money immediately, want to ensure their retirement liquidity and have significant charitable intent.
Using a Flip Unitrust for a Surviving Spouse
A variation on the theme in our last example is to make the triggering event the death of one of the donors, rather than a set age. This allows the surviving spouse to supplement income at the first spouse’s death.
This also can present challenges. If both spouses live long lives, the trust might not flip in time for it to be very useful. The triggering event has no predictable outcome, other than generalized actuarial life expectancies. Nevertheless, it could provide a good safety net for clients with significant charitable intent.
747 of 781 Appendix A CRUT vs. Sale, State Income Tax Applied, Accumulate
Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 CRUT Beginning balance $ 61,144.00 $ 117,431.55 $ 179,499.37 $ 244,374.03 $ 312,211.61 $ 383,176.57 $ 457,442.14 $ 535,190.83 $ 616,614.93 Unitrust payment $ 74,550.00 $ 73,838.05 $ 73,132.89 $ 72,434.48 $ 71,742.73 $ 71,057.58 $ 70,378.98 $ 69,706.86 $ 69,041.16 Less: current tax due from payment $ (11,200.00) $ (11,093.04) $ (10,987.10) $ (10,882.17) $ (10,778.25) $ (10,675.32) $ (10,573.37) $ (10,472.39) $ (10,372.38) Less: capital gain from initial sale $ (7,062.45) $ (6,995.00) $ (6,928.20) $ (6,862.04) $ (6,796.50) $ (6,731.60) $ (6,667.31) $ (6,603.64) $ (6,540.57) Subtotal added to outside investment $ 117,431.55 $ 173,181.55 $ 234,716.96 $ 299,064.29 $ 366,379.59 $ 436,827.24 $ 510,580.44 $ 587,821.66 $ 668,743.14 Annual growth from outside investment $ - $ 7,633.05 $ 11,667.46 $ 15,884.31 $ 20,293.75 $ 24,906.48 $ 29,733.74 $ 34,787.40 $ 40,079.97 Less: tax due on growth $ - $ (1,315.23) $ (2,010.39) $ (2,736.99) $ (3,496.77) $ (4,291.58) $ (5,123.35) $ (5,994.14) $ (6,906.09) Total $ 117,431.55 $ 179,499.37 $ 244,374.03 $ 312,211.61 $ 383,176.57 $ 457,442.14 $ 535,190.83 $ 616,614.93 $ 701,917.02
Sale Beginning balance $ 760,000.00 $ 800,334.72 $ 842,810.08 $ 887,539.70 $ 934,643.21 $ 984,246.59 $ 1,036,482.53 $ 1,091,490.73 $ 1,149,418.32 Annual growth $ 49,400.00 $ 52,021.76 $ 54,782.66 $ 57,690.08 $ 60,751.81 $ 63,976.03 $ 67,371.36 $ 70,946.90 $ 74,712.19 Less: tax due on growth $ (9,065.28) $ (9,546.39) $ (10,053.04) $ (10,586.57) $ (11,148.42) $ (11,740.09) $ (12,363.16) $ (13,019.30) $ (13,710.26) Total $ 800,334.72 $ 842,810.08 $ 887,539.70 $ 934,643.21 $ 984,246.59 $ 1,036,482.53 $ 1,091,490.73 $ 1,149,418.32 $ 1,210,420.25
Benefit of sale over CRUT $ 682,903.17 $ 663,310.71 $ 643,165.67 $ 622,431.59 $ 601,070.02 $ 579,040.39 $ 556,299.90 $ 532,803.40 $ 508,503.23
CRT Unitrust Calculation Beginning balance $ 1,000,000.00 $ 990,450.00 $ 980,991.20 $ 971,622.74 $ 962,343.74 $ 953,153.36 $ 944,050.74 $ 935,035.06 $ 926,105.47 Annual growth $ 65,000.00 $ 64,379.25 $ 63,764.43 $ 63,155.48 $ 62,552.34 $ 61,954.97 $ 61,363.30 $ 60,777.28 $ 60,196.86 Less: unitrust payment $ (74,550.00) $ (73,838.05) $ (73,132.89) $ (72,434.48) $ (71,742.73) $ (71,057.58) $ (70,378.98) $ (69,706.86) $ (69,041.16) Total $ 990,450.00 $ 980,991.20 $ 971,622.74 $ 962,343.74 $ 953,153.36 $ 944,050.74 $ 935,035.06 $ 926,105.47 $ 917,261.17
Amount of CRT generating taxable income $ 45,000.00 $ 44,570.25 $ 44,144.60 $ 43,723.02 $ 43,305.47 $ 42,891.90 $ 42,482.28 $ 42,076.58 $ 41,674.75 Amount of excess unitrust payment $ 29,550.00 $ 29,267.80 $ 28,988.29 $ 28,711.45 $ 28,437.26 $ 28,165.68 $ 27,896.70 $ 27,630.29 $ 27,366.42
Assumptions: Returns Investment return (60% S&P 500, 40% Barclay's Agg.) =6.5% Interest from portfolio = 1% Qualified dividends from portfolio = 1% Realized capital gain from portfolio = 2.5% (5% average portfolio turnover, assume half is built-in gain)
Rates State and federal capital gains rate = 23.9% Effective state and federal ordinary rate = 28% Tax rate on portfolio growth = 1.12% ((.239 x .01) + (.28 x .01) + (.239 x .025))
Initial transaction Sale of $1 million property, fully depreciated (zero basis) Beginning balance on CRT scenario = tax savings from deduction ($218,370 x .28) Beginning balance on sale scenario = after-tax sale proceeds (1,000,000 x .72)
748 of 781 Appendix A CRUT vs. Sale, State Income Tax Applied, Accumulate
Year 10 Year 11 Year 12 Year 13 Year 14 Year 15 Year 16 CRUT Beginning balance $ 701,917.02 $ 791,310.54 $ 885,020.36 $ 983,283.41 $ 1,086,349.31 $ 1,194,481.08 $ 1,307,955.83 Unitrust payment $ 68,381.82 $ 67,728.77 $ 67,081.96 $ 66,441.33 $ 65,806.82 $ 65,178.36 $ 64,555.91 Less: current tax due from payment $ (10,273.33) $ (10,175.21) $ (10,078.04) $ (9,981.80) $ (9,886.47) $ (9,792.05) $ (9,698.54) Less: capital gain from initial sale $ (6,478.11) $ (6,416.25) $ (6,354.97) $ (6,294.28) $ (6,234.17) $ (6,174.63) $ (6,115.67) Subtotal added to outside investment $ 753,547.40 $ 842,447.85 $ 935,669.31 $ 1,033,448.66 $ 1,136,035.48 $ 1,243,692.75 $ 1,356,697.53 Annual growth from outside investment $ 45,624.61 $ 51,435.18 $ 57,526.32 $ 63,913.42 $ 70,612.71 $ 77,641.27 $ 85,017.13 Less: tax due on growth $ (7,861.47) $ (8,862.68) $ (9,912.23) $ (11,012.77) $ (12,167.11) $ (13,378.19) $ (14,649.11) Total $ 791,310.54 $ 885,020.36 $ 983,283.41 $ 1,086,349.31 $ 1,194,481.08 $ 1,307,955.83 $ 1,427,065.56
Sale Beginning balance $ 1,210,420.25 $ 1,274,659.68 $ 1,342,308.42 $ 1,413,547.41 $ 1,488,567.20 $ 1,567,568.43 $ 1,650,762.43 Annual growth $ 78,677.32 $ 82,852.88 $ 87,250.05 $ 91,880.58 $ 96,756.87 $ 101,891.95 $ 107,299.56 Less: tax due on growth $ (14,437.89) $ (15,204.14) $ (16,011.05) $ (16,860.79) $ (17,755.63) $ (18,697.96) $ (19,690.29) Total $ 1,274,659.68 $ 1,342,308.42 $ 1,413,547.41 $ 1,488,567.20 $ 1,567,568.43 $ 1,650,762.43 $ 1,738,371.69
Benefit of sale over CRUT $ 483,349.14 $ 457,288.06 $ 430,264.00 $ 402,217.89 $ 373,087.36 $ 342,806.59 $ 311,306.13
CRT Unitrust Calculation Beginning balance $ 917,261.17 $ 908,501.32 $ 899,825.13 $ 891,231.80 $ 882,720.54 $ 874,290.56 $ 865,941.08 Annual growth $ 59,621.98 $ 59,052.59 $ 58,488.63 $ 57,930.07 $ 57,376.84 $ 56,828.89 $ 56,286.17 Less: unitrust payment $ (68,381.82) $ (67,728.77) $ (67,081.96) $ (66,441.33) $ (65,806.82) $ (65,178.36) $ (64,555.91) Total $ 908,501.32 $ 899,825.13 $ 891,231.80 $ 882,720.54 $ 874,290.56 $ 865,941.08 $ 857,671.35
Amount of CRT generating taxable income $ 41,276.75 $ 40,882.56 $ 40,492.13 $ 40,105.43 $ 39,722.42 $ 39,343.08 $ 38,967.35 Amount of excess unitrust payment $ 27,105.07 $ 26,846.21 $ 26,589.83 $ 26,335.90 $ 26,084.39 $ 25,835.29 $ 25,588.56
Returns
Rates
Initial transaction
749 of 781 Appendix A CRUT vs. Sale, State Income Tax Applied, Accumulate
Total Capital Gain Year 17 Year 18 Year 19 Year 20 Year 21 Year 22 Year 23 Recaptured CRUT Beginning balance $ 1,427,065.56 $ 1,552,117.90 $ 1,683,437.03 $ 1,821,364.49 $ 1,966,260.17 $ 2,118,503.28 $ 2,278,493.40 Unitrust payment $ 63,939.40 $ 63,328.78 $ 62,723.99 $ 62,124.97 $ 61,531.68 $ 60,944.05 $ 60,362.04 Less: current tax due from payment $ (9,605.92) $ (9,514.18) $ (9,423.32) $ (9,333.33) $ (9,244.20) $ (9,155.91) $ (9,068.48) Less: capital gain from initial sale $ (6,057.26) $ (5,999.41) $ (5,942.12) $ (5,885.37) $ (5,829.17) $ (5,773.50) $ (5,718.36) $ (146,460.59) Subtotal added to outside investment $ 1,475,341.78 $ 1,599,933.09 $ 1,730,795.57 $ 1,868,270.76 $ 2,012,718.48 $ 2,164,517.92 $ 2,324,068.60 Annual growth from outside investment $ 92,759.26 $ 100,887.66 $ 109,423.41 $ 118,388.69 $ 127,806.91 $ 137,702.71 $ 148,102.07 Less: tax due on growth $ (15,983.13) $ (17,383.72) $ (18,854.49) $ (20,399.28) $ (22,022.11) $ (23,727.24) $ (25,519.13) Total $ 1,552,117.90 $ 1,683,437.03 $ 1,821,364.49 $ 1,966,260.17 $ 2,118,503.28 $ 2,278,493.40 $ 2,446,651.54
Sale Beginning balance $ 1,738,371.69 $ 1,830,630.55 $ 1,927,785.78 $ 2,030,097.22 $ 2,137,838.54 $ 2,251,297.91 $ 2,370,778.79 Annual growth $ 112,994.16 $ 118,990.99 $ 125,306.08 $ 131,956.32 $ 138,959.51 $ 146,334.36 $ 154,100.62 Less: tax due on growth $ (20,735.30) $ (21,835.76) $ (22,994.63) $ (24,215.00) $ (25,500.14) $ (26,853.48) $ (28,278.65) Total $ 1,830,630.55 $ 1,927,785.78 $ 2,030,097.22 $ 2,137,838.54 $ 2,251,297.91 $ 2,370,778.79 $ 2,496,600.76
Benefit of sale over CRUT $ 278,512.65 $ 244,348.75 $ 208,732.74 $ 171,578.38 $ 132,794.63 $ 92,285.39 $ 49,949.22
CRT Unitrust Calculation Beginning balance $ 857,671.35 $ 849,480.59 $ 841,368.05 $ 833,332.98 $ 825,374.65 $ 817,492.32 $ 809,685.27 Annual growth $ 55,748.64 $ 55,216.24 $ 54,688.92 $ 54,166.64 $ 53,649.35 $ 53,137.00 $ 52,629.54 Less: unitrust payment $ (63,939.40) $ (63,328.78) $ (62,723.99) $ (62,124.97) $ (61,531.68) $ (60,944.05) $ (60,362.04) Total $ 849,480.59 $ 841,368.05 $ 833,332.98 $ 825,374.65 $ 817,492.32 $ 809,685.27 $ 801,952.78
Amount of CRT generating taxable income $ 38,595.21 $ 38,226.63 $ 37,861.56 $ 37,499.98 $ 37,141.86 $ 36,787.15 $ 36,435.84 Amount of excess unitrust payment $ 25,344.19 $ 25,102.15 $ 24,862.43 $ 24,624.99 $ 24,389.82 $ 24,156.90 $ 23,926.20
Returns
Rates
Initial transaction
750 of 781 Appendix B CRUT vs. Sale, State Income Tax Applied, Spend Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 CRUT Beginning balance $ 61,144.00 $ - $ - $ - $ - $ - $ - $ - $ - Unitrust payment $ 74,550.00 $ 73,838.05 $ 73,132.89 $ 72,434.48 $ 71,742.7 3 $ 71,057.58 $ 70,378.98 $ 69,706.86 $ 69,041.1 6 Less: current tax due from payment $ (11,200.00) $ (11,093.04) $ (10,987.10) $ (10,882.17) $ (10,778.25) $ (10,675.32) $ (10,573.37) $ (10,472.39) $ (10,372.38) Less: capital gain from initial sale $ (7,062.45) $ (6,995.00) $ (6,928.20) $ (6,862.04) $ (6,796. 50) $ (6,731.60) $ (6,667.31) $ (6,603.64) $ (6,540. 57) Total Distribution $ 117,431.55 $ 55,750.00 $ 55,217.59 $ 54,690.26 $ 54,167.9 7 $ 53,650.67 $ 53,138.30 $ 52,630.83 $ 52,128.2 1
Sale Beginning balance $ 760,000.00 $ 682,903.17 $ 663,396.20 $ 643,386.38 $ 622,841.91 $ 601,729.41 $ 580,013.72 $ 557,657.91 $ 534,623.10 Annual growth $ 49,400.00 $ 44,388.71 $ 43,120.75 $ 41,820.11 $ 40,484.7 2 $ 39,112.41 $ 37,700.89 $ 36,247.76 $ 34,750.5 0 Less: tax due on growth $ (9,065.28) $ (8,145.67) $ (7,912.99) $ (7,674.31) $ (7,429. 26) $ (7,177.43) $ (6,918.40) $ (6,651.74) $ (6,376. 98) Less: After-tax unitrust withdrawal $ (117,431.55) $ (55,750.00) $ (55,217.59) $ (54,690.26) $ (54,167.97) $ (53,650.67) $ (53,138.30) $ (52,630.83) $ (52,128.21) Total $ 682,903.17 $ 663,396.20 $ 643,386.38 $ 622,841.91 $ 601,729.41 $ 580,013.72 $ 557,657.91 $ 534,623.10 $ 510,868.41
Net Benefit to Charity from Sale vs. CRT $ (307,546.83) $ (317,595.00) $ (328,236.36) $ (339, 501.83) $ (351,423.95) $ (364,037.02) $ (377,377.15) $ (391, 482.38) $ (406,392.76)
CRT Unitrust Calculation Beginning balance $ 1,000,000.00 $ 990,450.00 $ 980,991.20 $ 971,622.74 $ 962,343.74 $ 953,153.36 $ 944,050.74 $ 935,035.06 $ 926,105.47 Annual growth $ 65,000.00 $ 64,379.25 $ 63,764.43 $ 63,155.48 $ 62,552.3 4 $ 61,954.97 $ 61,363.30 $ 60,777.28 $ 60,196.8 6 Less: unitrust payment $ (74,550.00) $ (73,838.05) $ (73,132.89) $ (72,434.48) $ (71,742.73) $ (71,057.58) $ (70,378.98) $ (69,706.86) $ (69,041.16) Total $ 990,450.00 $ 980,991.20 $ 971,622.74 $ 962,343.74 $ 953,153.36 $ 944,050.74 $ 935,035.06 $ 926,105.47 $ 917,261.17
Amount of CRT generating taxable income $ 45,000.00 $ 44,570.25 $ 44,144.60 $ 43,723.02 $ 43,305.4 7 $ 42,891.90 $ 42,482.28 $ 42,076.58 $ 41,674.7 5 Amount of excess unitrust payment $ 29,550.00 $ 29,267.80 $ 28,988.29 $ 28,711.45 $ 28,437.2 6 $ 28,165.68 $ 27,896.70 $ 27,630.29 $ 27,366.4 2
Assumptions: Returns Investment return (60% S&P 500, 40% Barclay's Agg.) =6.5% Interest from portfolio = 1% Qualified dividends from portfolio = 1% Realized capital gain from portfolio = 2.5% (5% average portfolio turnover, assume half is built-in gain)
Rates State and federal capital gains rate = 23.9% Effective state and federal ordinary rate = 28% Tax rate on portfolio growth = 1.12% ((.239 x .01) + (.28 x .01) + (.239 x .025))
Initial transaction Sale of $1 million property, fully depreciated (zero basis) Beginning balance on CRT scenario = tax savings from deduction ($218,370 x .28) Beginning balance on sale scenario = after-tax sale proceeds (1,000,000 x .76)
751 of 781 Appendix B CRUT vs. Sale, State Income Tax Applied, Spen Year 10 Year 11 Year 12 Year 13 Year 14 Year 15 Year 16 Year 17 Year 18 CRUT Beginning balance $ - $ - $ - $ - $ - $ - $ - $ - $ - Unitrust payment $ 68,381.82 $ 67,728.77 $ 67,081.96 $ 66,441.33 $ 65,806.82 $ 65,178.3 6 $ 64,555.91 $ 63,939.40 $ 63,328.7 8 Less: current tax due from payment $ (10,273.33) $ (10,175.21) $ (10,078.04) $ (9,981.80) $ (9,886.47) $ (9,792.05) $ (9,698.54) $ (9,605.92) $ (9,514. 18) Less: capital gain from initial sale $ (6,478.11) $ (6,416.25) $ (6,354.97) $ (6,294.28) $ (6,234.17) $ (6,174.63) $ (6,115.67) $ (6,057.26) $ (5,999. 41) Total Distribution $ 51,630.38 $ 51,137.31 $ 50,648.95 $ 50,165.25 $ 49,686.18 $ 49,211.6 7 $ 48,741.70 $ 48,276.22 $ 47,815.1 8
Sale Beginning balance $ 510,868.41 $ 486,350.83 $ 461,025.13 $ 434,843.70 $ 407,756 .47 $ 379,710.75 $ 350,651 .08 $ 320,519.13 $ 289,253.51 Annual growth $ 33,206.45 $ 31,612.80 $ 29,966.63 $ 28,264.84 $ 26,504.17 $ 24,681.2 0 $ 22,792.32 $ 20,833.74 $ 18,801.4 8 Less: tax due on growth $ (6,093.64) $ (5,801.19) $ (5,499.11) $ (5,186.82) $ (4,863.72) $ (4,529.19) $ (4,182.57) $ (3,823.15) $ (3,450. 22) Less: After-tax unitrust withdrawal $ (51,630.38) $ (51,137.31) $ (50,648.95) $ (50,165.25) $ (49,68 6.18) $ (49,211.67) $ (48,741 .70) $ (48,276.22) $ (47,815.18) Total $ 486,350.83 $ 461,025.13 $ 434,843.70 $ 407,756.47 $ 379,710 .75 $ 350,651.08 $ 320,519 .13 $ 289,253.51 $ 256,789.59
Net Benefit to Charity from Sale vs. CRT $ (422,150.49) $ (438,800.01) $ (456,388.10) $ (474,964.07) $ (494,579.81) $ (515,290.00) $ (537,152.21) $ (560, 227.08) $ (584,578.46)
CRT Unitrust Calculation Beginning balance $ 917,261.17 $ 908,501.32 $ 899,825.13 $ 891,231.80 $ 882,720 .54 $ 874,290.56 $ 865,941 .08 $ 857,671.35 $ 849,480.59 Annual growth $ 59,621.98 $ 59,052.59 $ 58,488.63 $ 57,930.07 $ 57,376.84 $ 56,828.8 9 $ 56,286.17 $ 55,748.64 $ 55,216.2 4 Less: unitrust payment $ (68,381.82) $ (67,728.77) $ (67,081.96) $ (66,441.33) $ (65,80 6.82) $ (65,178.36) $ (64,55 5.91) $ (63,939.40) $ (63,328.78) Total $ 908,501.32 $ 899,825.13 $ 891,231.80 $ 882,720.54 $ 874,290 .56 $ 865,941.08 $ 857,671 .35 $ 849,480.59 $ 841,368.05
Amount of CRT generating taxable income $ 41,276.75 $ 40,882.56 $ 40,492.13 $ 40,105.43 $ 39,722.42 $ 39,343.0 8 $ 38,967.35 $ 38,595.21 $ 38,226.6 3 Amount of excess unitrust payment $ 27,105.07 $ 26,846.21 $ 26,589.83 $ 26,335.90 $ 26,084.39 $ 25,835.2 9 $ 25,588.56 $ 25,344.19 $ 25,102.1 5
752 of 781 Appendix B CRUT vs. Sale, State Income Tax Applied, Spen Year 19 Year 20 Year 21 Year 22 Total Capital Gain Recaptured CRUT Beginning balance $ - $ - $ - $ - Unitrust payment $ 62,723.99 $ 62,124.97 $ 61,531.68 $ 60,944.05 Less: current tax due from payment $ (9,423.32) $ (9,333.33) $ (9,244.20) $ (9,155.91) Less: capital gain from initial sale $ (5,942.12) $ (5,885.37) $ (5,829.17) $ (5,773.50) $ (140,74 2.23) Total Distribution $ 47,358.55 $ 46,906.27 $ 46,458.32 $ 46,014.64
Sale Beginning balance $ 256,789.59 $ 223,059.38 $ 187,991.31 $ 151,510.07 Annual growth $ 16,691.32 $ 14,498.86 $ 12,219.44 $ 9,848.15 Less: tax due on growth $ (3,062.99) $ (2,660.65) $ (2,242.36) $ (1,807.21) Less: After-tax unitrust withdrawal $ (47,358.55) $ (46,906.27) $ (46,458.32) $ (46,014.64) Total $ 223,059.38 $ 187,991.31 $ 151,510.07 $ 113,536.37
Net Benefit to Charity from Sale vs. CRT $ (610,273.60) $ (637,383.34) $ (665,982.25) $ (696,148.90)
CRT Unitrust Calculation Beginning balance $ 841,368.05 $ 833,332.98 $ 825,374.65 $ 817,492.32 Annual growth $ 54,688.92 $ 54,166.64 $ 53,649.35 $ 53,137.00 Less: unitrust payment $ (62,723.99) $ (62,124.97) $ (61,531.68) $ (60,944.05) Total $ 833,332.98 $ 825,374.65 $ 817,492.32 $ 809,685.27
Amount of CRT generating taxable income $ 37,861.56 $ 37,499.98 $ 37,141.86 $ 36,787.15 Amount of excess unitrust payment $ 24,862.43 $ 24,624.99 $ 24,389.82 $ 24,156.90
753 of 781 Appendix C Flip CRUT vs. Straight CRUT Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 5% Distribution Scenario
Flip CRUT Beginning balance $ 1,000,000.00 $ 1,045,000.00 $ 1,092,025.00 $ 1,141,166.13 $ 1,192,518.60 $ 1,246,181.94 Annual growth $ 65,000.00 $ 67,925.00 $ 70,981.63 $ 74,175.80 $ 77,513.71 $ 81,001.83 Less: income/unitrust payment $ (20,000.00) $ (20,900.00) $ (21,840.50) $ (22,823.32) $ (23,850.37) $ (24,923.64) Total $ 1,045,000.00 $ 1,092,025.00 $ 1,141,166.13 $ 1,192,518.60 $ 1,246,181.94 $ 1,302,260.12
Straight CRUT Beginning balance $ 1,000,000.00 $ 1,015,000.00 $ 1,030,225.00 $ 1,045,678.38 $ 1,061,363.55 $ 1,077,284.00 Annual growth $ 65,000.00 $ 65,975.00 $ 66,964.63 $ 67,969.09 $ 68,988.63 $ 70,023.46 Less: unitrust payment $ (50,000.00) $ (50,750.00) $ (51,511.25) $ (52,283.92) $ (53,068.18) $ (53,864.20) Total $ 1,015,000.00 $ 1,030,225.00 $ 1,045,678.38 $ 1,061,363.55 $ 1,077,284.00 $ 1,093,443.26
Yearly Benefit of Flip $ (30,000.00) $ (29,850.00) $ (29,670.75) $ (29,460.60) $ (29,217.81) $ (28,940.56)
7% Distribution Scenario
Flip CRUT Beginning balance $ 1,000,000.00 $ 1,045,000.00 $ 1,092,025.00 $ 1,141,166.13 $ 1,192,518.60 $ 1,246,181.94 Annual growth $ 65,000.00 $ 67,925.00 $ 70,981.63 $ 74,175.80 $ 77,513.71 $ 81,001.83 Less: income/unitrust payment $ (20,000.00) $ (20,900.00) $ (21,840.50) $ (22,823.32) $ (23,850.37) $ (24,923.64) Total $ 1,045,000.00 $ 1,092,025.00 $ 1,141,166.13 $ 1,192,518.60 $ 1,246,181.94 $ 1,302,260.12
Straight CRUT Beginning balance $ 1,000,000.00 $ 995,000.00 $ 990,025.00 $ 985,074.88 $ 980,149.50 $ 975,248.75 Annual growth $ 65,000.00 $ 64,675.00 $ 64,351.63 $ 64,029.87 $ 63,709.72 $ 63,391.17 Less: unitrust payment $ (70,000.00) $ (69,650.00) $ (69,301.75) $ (68,955.24) $ (68,610.47) $ (68,267.41) Total $ 995,000.00 $ 990,025.00 $ 985,074.88 $ 980,149.50 $ 975,248.75 $ 970,372.51
Yearly Benefit of Flip $ (50,000.00) $ (48,750.00) $ (47,461.25) $ (46,131.92) $ (44,760.09) $ (43,343.77)
754 of 781 Appendix C Flip CRUT vs. Straight CRUT Year 7 Year 8 Year 9 Year 10 Year 11 Year 12 5% Distribution Scenario
Flip CRUT Beginning balance $ 1,302,260.12 $ 1,360,861.83 $ 1,422,100.61 $ 1,486,095.14 $ 1,552,969.42 $ 1,576,263.96 Annual growth $ 84,646.91 $ 88,456.02 $ 92,436.54 $ 96,596.18 $ 100,943.01 $ 102,457.16 Less: income/unitrust payment $ (26,045.20) $ (27,217.24) $ (28,442.01) $ (29,721.90) $ (77,648.47) $ (78,813.20) Total $ 1,360,861.83 $ 1,422,100.61 $ 1,486,095.14 $ 1,552,969.42 $ 1,576,263.96 $ 1,599,907.92
Straight CRUT Beginning balance $ 1,093,443.26 $ 1,109,844.91 $ 1,126,492.59 $ 1,143,389.98 $ 1,160,540.83 $ 1,177,948.94 Annual growth $ 71,073.81 $ 72,139.92 $ 73,222.02 $ 74,320.35 $ 75,435.15 $ 76,566.68 Less: unitrust payment $ (54,672.16) $ (55,492.25) $ (56,324.63) $ (57,169.50) $ (58,027.04) $ (58,897.45) Total $ 1,109,844.91 $ 1,126,492.59 $ 1,143,389.98 $ 1,160,540.83 $ 1,177,948.94 $ 1,195,618.17
Yearly Benefit of Flip $ (28,626.96) $ (28,275.01) $ (27,882.62) $ (27,447.60) $ 19,621.43 $ 19,915.75
7% Distribution Scenario
Flip CRUT Beginning balance $ 1,302,260.12 $ 1,360,861.83 $ 1,422,100.61 $ 1,486,095.14 $ 1,552,969.42 $ 1,545,204.57 Annual growth $ 84,646.91 $ 88,456.02 $ 92,436.54 $ 96,596.18 $ 100,943.01 $ 100,438.30 Less: income/unitrust payment $ (26,045.20) $ (27,217.24) $ (28,442.01) $ (29,721.90) $ (108,707.86) $ (108,164.32) Total $ 1,360,861.83 $ 1,422,100.61 $ 1,486,095.14 $ 1,552,969.42 $ 1,545,204.57 $ 1,537,478.55
Straight CRUT Beginning balance $ 970,372.51 $ 965,520.65 $ 960,693.04 $ 955,889.58 $ 951,110.13 $ 946,354.58 Annual growth $ 63,074.21 $ 62,758.84 $ 62,445.05 $ 62,132.82 $ 61,822.16 $ 61,513.05 Less: unitrust payment $ (67,926.08) $ (67,586.45) $ (67,248.51) $ (66,912.27) $ (66,577.71) $ (66,244.82) Total $ 965,520.65 $ 960,693.04 $ 955,889.58 $ 951,110.13 $ 946,354.58 $ 941,622.81
Yearly Benefit of Flip $ (41,880.87) $ (40,369.21) $ (38,806.50) $ (37,190.37) $ 42,130.15 $ 41,919.50
755 of 781 Appendix C Flip CRUT vs. Straight CRUT Year 13 Year 14 Year 15 Year 16 Year 17 Year 18 5% Distribution Scenario
Flip CRUT Beginning balance $ 1,599,907.92 $ 1,623,906.54 $ 1,648,265.14 $ 1,672,989.12 $ 1,698,083.95 $ 1,723,555.21 Annual growth $ 103,994.01 $ 105,553.93 $ 107,137.23 $ 108,744.29 $ 110,375.46 $ 112,031.09 Less: income/unitrust payment $ (79,995.40) $ (81,195.33) $ (82,413.26) $ (83,649.46) $ (84,904.20) $ (86,177.76) Total $ 1,623,906.54 $ 1,648,265.14 $ 1,672,989.12 $ 1,698,083.95 $ 1,723,555.21 $ 1,749,408.54
Straight CRUT Beginning balance $ 1,195,618.17 $ 1,213,552.44 $ 1,231,755.73 $ 1,250,232.07 $ 1,268,985.55 $ 1,288,020.33 Annual growth $ 77,715.18 $ 78,880.91 $ 80,064.12 $ 81,265.08 $ 82,484.06 $ 83,721.32 Less: unitrust payment $ (59,780.91) $ (60,677.62) $ (61,587.79) $ (62,511.60) $ (63,449.28) $ (64,401.02) Total $ 1,213,552.44 $ 1,231,755.73 $ 1,250,232.07 $ 1,268,985.55 $ 1,288,020.33 $ 1,307,340.64
Yearly Benefit of Flip $ 20,214.49 $ 20,517.70 $ 20,825.47 $ 21,137.85 $ 21,454.92 $ 21,776.74
7% Distribution Scenario
Flip CRUT Beginning balance $ 1,537,478.55 $ 1,529,791.16 $ 1,522,142.20 $ 1,514,531.49 $ 1,506,958.83 $ 1,499,424.04 Annual growth $ 99,936.11 $ 99,436.43 $ 98,939.24 $ 98,444.55 $ 97,952.32 $ 97,462.56 Less: income/unitrust payment $ (107,623.50) $ (107,085.38) $ (106,549.95) $ (106,017.20) $ (105,487.12) $ (104,959.68) Total $ 1,529,791.16 $ 1,522,142.20 $ 1,514,531.49 $ 1,506,958.83 $ 1,499,424.04 $ 1,491,926.92
Straight CRUT Beginning balance $ 941,622.81 $ 936,914.69 $ 932,230.12 $ 927,568.97 $ 922,931.12 $ 918,316.47 Annual growth $ 61,205.48 $ 60,899.46 $ 60,594.96 $ 60,291.98 $ 59,990.52 $ 59,690.57 Less: unitrust payment $ (65,913.60) $ (65,584.03) $ (65,256.11) $ (64,929.83) $ (64,605.18) $ (64,282.15) Total $ 936,914.69 $ 932,230.12 $ 927,568.97 $ 922,931.12 $ 918,316.47 $ 913,724.89
Yearly Benefit of Flip $ 41,709.90 $ 41,501.35 $ 41,293.85 $ 41,087.38 $ 40,881.94 $ 40,677.53
756 of 781 Appendix C Flip CRUT vs. Straight CRUT Year 19 Year 20 Year 21 Year 22 Year 23 Total Benefit 5% Distribution Scenario
Flip CRUT Beginning balance $ 1,749,408.54 $ 1,775,649.67 $ 1,802,284.41 $ 1,829,318.68 $ 1,856,758.46 Annual growth $ 113,711.56 $ 115,417.23 $ 117,148.49 $ 118,905.71 $ 120,689.30 Less: income/unitrust payment $ (87,470.43) $ (88,782.48) $ (90,114.22) $ (91,465.93) $ (92,837.92) Total $ 1,775,649.67 $ 1,802,284.41 $ 1,829,318.68 $ 1,856,758.46 $ 1,884,609.84
Straight CRUT Beginning balance $ 1,307,340.64 $ 1,326,950.75 $ 1,346,855.01 $ 1,367,057.83 $ 1,387,563.70 Annual growth $ 84,977.14 $ 86,251.80 $ 87,545.58 $ 88,858.76 $ 90,191.64 Less: unitrust payment $ (65,367.03) $ (66,347.54) $ (67,342.75) $ (68,352.89) $ (69,378.18) Total $ 1,326,950.75 $ 1,346,855.01 $ 1,367,057.83 $ 1,387,563.70 $ 1,408,377.15
Yearly Benefit of Flip $ 22,103.40 $ 22,434.95 $ 22,771.47 $ 23,113.04 $ 23,459.74 $ (10,024.94)
7% Distribution Scenario
Flip CRUT Beginning balance $ 1,491,926.92 $ 1,484,467.29 $ 1,477,044.95 $ 1,469,659.72 $ 1,462,311.43 Annual growth $ 96,975.25 $ 96,490.37 $ 96,007.92 $ 95,527.88 $ 95,050.24 Less: income/unitrust payment $ (104,434.88) $ (103,912.71) $ (103,393.15) $ (102,876.18) $ (102,361.80) Total $ 1,484,467.29 $ 1,477,044.95 $ 1,469,659.72 $ 1,462,311.43 $ 1,454,999.87
Straight CRUT Beginning balance $ 913,724.89 $ 909,156.26 $ 904,610.48 $ 900,087.43 $ 895,586.99 Annual growth $ 59,392.12 $ 59,095.16 $ 58,799.68 $ 58,505.68 $ 58,213.15 Less: unitrust payment $ (63,960.74) $ (63,640.94) $ (63,322.73) $ (63,006.12) $ (62,691.09) Total $ 909,156.26 $ 904,610.48 $ 900,087.43 $ 895,586.99 $ 891,109.06
Yearly Benefit of Flip $ 40,474.14 $ 40,271.77 $ 40,070.41 $ 39,870.06 $ 39,670.71 $ 92,864.71
757 of 781 Appendix D CRUT vs. Sale, State Income Tax Applied, Accumulate Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 CRUT Beginning balance $ 61,144.00 $ 117,431.55 $ 179,499.37 $ 244,374.03 $ 312,211.61 $ 383,176.57 $ 457,442.14 $ 535,190.83 Unitrust payment $ 74,550.00 $ 73,838.05 $ 73,132.89 $ 72,434.48 $ 71,742.73 $ 71,057.58 $ 70,378.98 $ 69,706.86 Less: current tax due from payment $ (11,200.00) $ (11,093.04) $ (10,987.10) $ (10,882.17) $ (10,778.25) $ (10,675.32) $ (10,573.37) $ (10,472.39) Less: capital gain from initial sale $ (7,062.45) $ (6,995.00) $ (6,928.20) $ (6,862.04) $ (6,796.50) $ (6,731.60) $ (6,667.31) $ (6,603.64) Subtotal added to outside investment $ 117,431.55 $ 173,181.55 $ 234,716.96 $ 299,064.29 $ 366,379.59 $ 436,827.24 $ 510,580.44 $ 587,821.66 Annual growth from outside investment $ - $ 7,633.05 $ 11,667.46 $ 15,884.31 $ 20,293.75 $ 24,906.48 $ 29,733.74 $ 34,787.40 Less: tax due on growth $ - $ (1,315.23) $ (2,010.39) $ (2,736.99) $ (3,496.77) $ (4,291.58) $ (5,123.35) $ (5,994.14) Total $ 117,431.55 $ 179,499.37 $ 244,374.03 $ 312,211.61 $ 383,176.57 $ 457,442.14 $ 535,190.83 $ 616,614.93
Sale Beginning balance $ 880,000.00 $ 926,703.36 $ 975,885.36 $ 1,027,677.55 $ 1,082,218.45 $ 1,139,653.95 $ 1,200,137.66 $ 1,263,831.37 Annual growth $ 57,200.00 $ 60,235.72 $ 63,432.55 $ 66,799.04 $ 70,344.20 $ 74,077.51 $ 78,008.95 $ 82,149.04 Less: tax due on growth $ (10,496.64) $ (11,053.72) $ (11,640.36) $ (12,258.14) $ (12,908.70) $ (13,593.79) $ (14,315.24) $ (15,074.98) Total $ 926,703.36 $ 975,885.36 $ 1,027,677.55 $ 1,082,218.45 $ 1,139,653.95 $ 1,200,137.66 $ 1,263,831.37 $ 1,330,905.43
Benefit of sale over CRUT $ 809,271.81 $ 796,385.99 $ 783,303.52 $ 770,006.84 $ 756,477.38 $ 742,695.53 $ 728,640.54 $ 714,290.50
CRT Unitrust Calculation Beginning balance $ 1,000,000.00 $ 990,450.00 $ 980,991.20 $ 971,622.74 $ 962,343.74 $ 953,153.36 $ 944,050.74 $ 935,035.06 Annual growth $ 65,000.00 $ 64,379.25 $ 63,764.43 $ 63,155.48 $ 62,552.34 $ 61,954.97 $ 61,363.30 $ 60,777.28 Less: unitrust payment $ (74,550.00) $ (73,838.05) $ (73,132.89) $ (72,434.48) $ (71,742.73) $ (71,057.58) $ (70,378.98) $ (69,706.86) Total $ 990,450.00 $ 980,991.20 $ 971,622.74 $ 962,343.74 $ 953,153.36 $ 944,050.74 $ 935,035.06 $ 926,105.47
Amount of CRT generating taxable income $ 45,000.00 $ 44,570.25 $ 44,144.60 $ 43,723.02 $ 43,305.47 $ 42,891.90 $ 42,482.28 $ 42,076.58 Amount of excess unitrust payment $ 29,550.00 $ 29,267.80 $ 28,988.29 $ 28,711.45 $ 28,437.26 $ 28,165.68 $ 27,896.70 $ 27,630.29
Assumptions: Returns Investment return (60% S&P 500, 40% Barclay's Agg.) =6.5% Interest from portfolio = 1% Qualified dividends from portfolio = 1% Realized capital gain from portfolio = 2.5% (5% average portfolio turnover, assume half is built-in gain)
Rates State and federal capital gains rate = 23.9% Effective state and federal ordinary rate = 28% Tax rate on portfolio growth = 1.12% ((.239 x .01) + (.28 x .01) + (.239 x .025))
Initial transaction Sale of $1 million property, fully depreciated (zero basis) Beginning balance on CRT scenario = tax savings from deduction ($218,370 x .28) Beginning balance on sale scenario = after-tax sale proceeds (1,000,000 x .88)
758 of 781 Appendix D CRUT vs. Sale, State Income Tax Applied, Accumula Year 9 Year 10 Year 11 Year 12 Year 13 Year 14 Year 15 Year 16 CRUT Beginning balance $ 616,614.93 $ 701,917.02 $ 791,310.54 $ 885,020.36 $ 983,283.41 $ 1,086,349.31 $ 1,194,481.08 $ 1,307,955.83 Unitrust payment $ 69,041.16 $ 68,381.82 $ 67,728.77 $ 67,081.96 $ 66,441.33 $ 65,806.82 $ 65,178.36 $ 64,555.91 Less: current tax due from payment $ (10,372.38) $ (10,273.33) $ (10,175.21) $ (10,078.04) $ (9,981.80) $ (9,886.47) $ (9,792.05) $ (9,698.54) Less: capital gain from initial sale $ (6,540.57) $ (6,478.11) $ (6,416.25) $ (6,354.97) $ (6,294.28) $ (6,234.17) $ (6,174.63) $ (6,115.67) Subtotal added to outside investment $ 668,743.14 $ 753,547.40 $ 842,447.85 $ 935,669.31 $ 1,033,448.66 $ 1,136,035.48 $ 1,243,692.75 $ 1,356,697.53 Annual growth from outside investment $ 40,079.97 $ 45,624.61 $ 51,435.18 $ 57,526.32 $ 63,913.42 $ 70,612.71 $ 77,641.27 $ 85,017.13 Less: tax due on growth $ (6,906.09) $ (7,861.47) $ (8,862.68) $ (9,912.23) $ (11,012.77) $ (12,167.11) $ (13,378.19) $ (14,649.11) Total $ 701,917.02 $ 791,310.54 $ 885,020.36 $ 983,283.41 $ 1,086,349.31 $ 1,194,481.08 $ 1,307,955.83 $ 1,427,065.56
Sale Beginning balance $ 1,330,905.43 $ 1,401,539.24 $ 1,475,921.73 $ 1,554,251.85 $ 1,636,739.10 $ 1,723,604.12 $ 1,815,079.24 $ 1,911,409.12 Annual growth $ 86,508.85 $ 91,100.05 $ 95,934.91 $ 101,026.37 $ 106,388.04 $ 112,034.27 $ 117,980.15 $ 124,241.59 Less: tax due on growth $ (15,875.04) $ (16,717.56) $ (17,604.79) $ (18,539.12) $ (19,523.02) $ (20,559.15) $ (21,650.27) $ (22,799.29) Total $ 1,401,539.24 $ 1,475,921.73 $ 1,554,251.85 $ 1,636,739.10 $ 1,723,604.12 $ 1,815,079.24 $ 1,911,409.12 $ 2,012,851.43
Benefit of sale over CRUT $ 699,622.22 $ 684,611.19 $ 669,231.49 $ 653,455.70 $ 637,254.81 $ 620,598.16 $ 603,453.29 $ 585,785.87
CRT Unitrust Calculation Beginning balance $ 926,105.47 $ 917,261.17 $ 908,501.32 $ 899,825.13 $ 891,231.80 $ 882,720.54 $ 874,290.56 $ 865,941.08 Annual growth $ 60,196.86 $ 59,621.98 $ 59,052.59 $ 58,488.63 $ 57,930.07 $ 57,376.84 $ 56,828.89 $ 56,286.17 Less: unitrust payment $ (69,041.16) $ (68,381.82) $ (67,728.77) $ (67,081.96) $ (66,441.33) $ (65,806.82) $ (65,178.36) $ (64,555.91) Total $ 917,261.17 $ 908,501.32 $ 899,825.13 $ 891,231.80 $ 882,720.54 $ 874,290.56 $ 865,941.08 $ 857,671.35
Amount of CRT generating taxable income $ 41,674.75 $ 41,276.75 $ 40,882.56 $ 40,492.13 $ 40,105.43 $ 39,722.42 $ 39,343.08 $ 38,967.35 Amount of excess unitrust payment $ 27,366.42 $ 27,105.07 $ 26,846.21 $ 26,589.83 $ 26,335.90 $ 26,084.39 $ 25,835.29 $ 25,588.56
759 of 781 Appendix D CRUT vs. Sale, State Income Tax Applied, Accumula Year 17 Year 18 Year 19 Year 20 Year 21 Year 22 Year 23 CRUT Beginning balance $ 1,427,065.56 $ 1,552,117.90 $ 1,683,437.03 $ 1,821,364.49 $ 1,966,260.17 $ 2,118,503.28 $ 2,278,493.40 Unitrust payment $ 63,939.40 $ 63,328.78 $ 62,723.99 $ 62,124.97 $ 61,531.68 $ 60,944.05 $ 60,362.04 Less: current tax due from payment $ (9,605.92) $ (9,514.18) $ (9,423.32) $ (9,333.33) $ (9,244.20) $ (9,155.91) $ (9,068.48) Less: capital gain from initial sale $ (6,057.26) $ (5,999.41) $ (5,942.12) $ (5,885.37) $ (5,829.17) $ (5,773.50) $ (5,718.36) Subtotal added to outside investment $ 1,475,341.78 $ 1,599,933.09 $ 1,730,795.57 $ 1,868,270.76 $ 2,012,718.48 $ 2,164,517.92 $ 2,324,068.60 Annual growth from outside investment $ 92,759.26 $ 100,887.66 $ 109,423.41 $ 118,388.69 $ 127,806.91 $ 137,702.71 $ 148,102.07 Less: tax due on growth $ (15,983.13) $ (17,383.72) $ (18,854.49) $ (20,399.28) $ (22,022.11) $ (23,727.24) $ (25,519.13) Total $ 1,552,117.90 $ 1,683,437.03 $ 1,821,364.49 $ 1,966,260.17 $ 2,118,503.28 $ 2,278,493.40 $ 2,446,651.54
Sale Beginning balance $ 2,012,851.43 $ 2,119,677.48 $ 2,232,173.00 $ 2,350,638.89 $ 2,475,392.00 $ 2,606,766.00 $ 2,745,112.29 Annual growth $ 130,835.34 $ 137,779.04 $ 145,091.25 $ 152,791.53 $ 160,900.48 $ 169,439.79 $ 178,432.30 Less: tax due on growth $ (24,009.29) $ (25,283.51) $ (26,625.36) $ (28,038.42) $ (29,526.48) $ (31,093.50) $ (32,743.70) Total $ 2,119,677.48 $ 2,232,173.00 $ 2,350,638.89 $ 2,475,392.00 $ 2,606,766.00 $ 2,745,112.29 $ 2,890,800.89
Benefit of sale over CRUT $ 567,559.58 $ 548,735.98 $ 529,274.40 $ 509,131.83 $ 488,262.72 $ 466,618.89 $ 444,149.34
CRT Unitrust Calculation Beginning balance $ 857,671.35 $ 849,480.59 $ 841,368.05 $ 833,332.98 $ 825,374.65 $ 817,492.32 $ 809,685.27 Annual growth $ 55,748.64 $ 55,216.24 $ 54,688.92 $ 54,166.64 $ 53,649.35 $ 53,137.00 $ 52,629.54 Less: unitrust payment $ (63,939.40) $ (63,328.78) $ (62,723.99) $ (62,124.97) $ (61,531.68) $ (60,944.05) $ (60,362.04) Total $ 849,480.59 $ 841,368.05 $ 833,332.98 $ 825,374.65 $ 817,492.32 $ 809,685.27 $ 801,952.78
Amount of CRT generating taxable income $ 38,595.21 $ 38,226.63 $ 37,861.56 $ 37,499.98 $ 37,141.86 $ 36,787.15 $ 36,435.84 Amount of excess unitrust payment $ 25,344.19 $ 25,102.15 $ 24,862.43 $ 24,624.99 $ 24,389.82 $ 24,156.90 $ 23,926.20
760 of 781 Appendix D CRUT vs. Sale, State Income Tax Applied, Accumula Total Capital Gain Recaptured CRUT Beginning balance Unitrust payment Less: current tax due from payment Less: capital gain from initial sale $ (146,460.59) Subtotal added to outside investment Annual growth from outside investment Less: tax due on growth Total
Sale Beginning balance Annual growth Less: tax due on growth Total
Benefit of sale over CRUT
CRT Unitrust Calculation Beginning balance Annual growth Less: unitrust payment Total
Amount of CRT generating taxable income Amount of excess unitrust payment
761 of 781 Appendix E CRUT vs. Sale, State Income Tax Applied, Spend Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 CRUT Beginning balance $ 61,144.00 $ - $ - $ - $ - $ - $ - $ - $ - Unitrust payment $ 74,550.00 $ 73,838.05 $ 73,132.89 $ 72,434.48 $ 71,742.73 $ 71,057.58 $ 70,378.98 $ 69,706.86 $ 69,041.16 Less: current tax due from payment $ (11,200.00) $ (11,093.04) $ (10,987.10) $ (10,882.17) $ (10,778.25) $ (10,675.32) $ (10,573.37) $ (10,472.39) $ (10,372.38) Less: capital gain from initial sale $ (7,062.45) $ (6,995.00) $ (6,928.20) $ (6,862.04) $ (6,796.50) $ (6,731.60) $ (6,667.31) $ (6,603.64) $ (6,540.57) Total Distribution $ 117,431.55 $ 55,750.00 $ 55,217.59 $ 54,690.26 $ 54,167.97 $ 53,650.67 $ 53,138.30 $ 52,630.83 $ 52,128.21
Sale Beginning balance $ 880,000.00 $ 809,271.81 $ 796,471.48 $ 783,524.22 $ 770,417.16 $ 757,136.76 $ 743,668.86 $ 729,998.55 $ 716,110.20 Annual growth $ 57,200.00 $ 52,602.67 $ 51,770.65 $ 50,929.07 $ 50,077.12 $ 49,213.89 $ 48,338.48 $ 47,449.91 $ 46,547.16 Less: tax due on growth $ (10,496.64) $ (9,652.99) $ (9,500.31) $ (9,345.88) $ (9,189.54) $ (9,031.13) $ (8,870.48) $ (8,707.42) $ (8,541.76) Less: After-tax unitrust withdrawal $ (117,431.55) $ (55,750.00) $ (55,217.59) $ (54,690.26) $ (54,167.97) $ (53,650.67) $ (53,138.30) $ (52,630.83) $ (52,128.21) Total $ 809,271.81 $ 796,471.48 $ 783,524.22 $ 770,417.16 $ 757,136.76 $ 743,668.86 $ 729,998.55 $ 716,110.20 $ 701,987.39
Net Benefit to Charity from Sale vs. CRT $ (181,178.19) $ (184,519.72) $ (188,098.51) $ (191,926.58) $ (196,016.59) $ (200,381.88) $ (205,036.51) $ (209,995.27) $ (215,273.77)
CRT Unitrust Calculation Beginning balance $ 1,000,000.00 $ 990,450.00 $ 980,991.20 $ 971,622.74 $ 962,343.74 $ 953,153.36 $ 944,050.74 $ 935,035.06 $ 926,105.47 Annual growth $ 65,000.00 $ 64,379.25 $ 63,764.43 $ 63,155.48 $ 62,552.34 $ 61,954.97 $ 61,363.30 $ 60,777.28 $ 60,196.86 Less: unitrust payment $ (74,550.00) $ (73,838.05) $ (73,132.89) $ (72,434.48) $ (71,742.73) $ (71,057.58) $ (70,378.98) $ (69,706.86) $ (69,041.16) Total $ 990,450.00 $ 980,991.20 $ 971,622.74 $ 962,343.74 $ 953,153.36 $ 944,050.74 $ 935,035.06 $ 926,105.47 $ 917,261.17
Amount of CRT generating taxable income $ 45,000.00 $ 44,570.25 $ 44,144.60 $ 43,723.02 $ 43,305.47 $ 42,891.90 $ 42,482.28 $ 42,076.58 $ 41,674.75 Amount of excess unitrust payment $ 29,550.00 $ 29,267.80 $ 28,988.29 $ 28,711.45 $ 28,437.26 $ 28,165.68 $ 27,896.70 $ 27,630.29 $ 27,366.42
Assumptions: Returns Investment return (60% S&P 500, 40% Barclay's Agg.) =6.5% Interest from portfolio = 1% Qualified dividends from portfolio = 1% Realized capital gain from portfolio = 2.5% (5% average portfolio turnover, assume half is built-in gain)
Rates State and federal capital gains rate = 23.9% Effective state and federal ordinary rate = 28% Tax rate on portfolio growth = 1.12% ((.239 x .01) + (.28 x .01) + (.239 x .025))
Initial transaction Sale of $1 million property, fully depreciated (zero basis) Beginning balance on CRT scenario = tax savings from deduction ($218,370 x .28) Beginning balance on sale scenario = after-tax sale proceeds (1,000,000 x .88)
762 of 781 Appendix E CRUT vs. Sale, State Income Tax Applied, Spe Year 10 Year 11 Year 12 Year 13 Year 14 Year 15 Year 16 Year 17 Year 18 CRUT Beginning balance $ - $ - $ - $ - $ - $ - $ - $ - $ - Unitrust payment $ 68,381.82 $ 67,728.77 $ 67,081.96 $ 66,441.33 $ 65,806.82 $ 65,178.36 $ 64,555.91 $ 63,939.40 $ 63,328.78 Less: current tax due from payment $ (10,273.33) $ (10,175.21) $ (10,078.04) $ (9,981.80) $ (9,886.47) $ (9,792.05) $ (9,698.54) $ (9,605.92) $ (9,514.18) Less: capital gain from initial sale $ (6,478.11) $ (6,416.25) $ (6,354.97) $ (6,294.28) $ (6,234.17) $ (6,174.63) $ (6,115.67) $ (6,057.26) $ (5,999.41) Total Distribution $ 51,630.38 $ 51,137.31 $ 50,648.95 $ 50,165.25 $ 49,686.18 $ 49,211.67 $ 48,741.70 $ 48,276.22 $ 47,815.18
Sale Beginning balance $ 701,987.39 $ 687,612.88 $ 672,968.56 $ 658,035.40 $ 642,793.40 $ 627,221.55 $ 611,297.78 $ 594,998.87 $ 578,300.44 Annual growth $ 45,629.18 $ 44,694.84 $ 43,742.96 $ 42,772.30 $ 41,781.57 $ 40,769.40 $ 39,734.36 $ 38,674.93 $ 37,589.53 Less: tax due on growth $ (8,373.31) $ (8,201.85) $ (8,027.17) $ (7,849.05) $ (7,667.24) $ (7,481.50) $ (7,291.56) $ (7,097.15) $ (6,897.97) Less: After-tax unitrust withdrawal $ (51,630.38) $ (51,137.31) $ (50,648.95) $ (50,165.25) $ (49,686.18) $ (49,211.67) $ (48,741.70) $ (48,276.22) $ (47,815.18) Total $ 687,612.88 $ 672,968.56 $ 658,035.40 $ 642,793.40 $ 627,221.55 $ 611,297.78 $ 594,998.87 $ 578,300.44 $ 561,176.82
Net Benefit to Charity from Sale vs. CRT $ (220,888.44) $ (226,856.57) $ (233,196.41) $ (239,927.14) $ (247,069.01) $ (254,643.30) $ (262,672.47) $ (271,180.15) $ (280,191.23)
CRT Unitrust Calculation Beginning balance $ 917,261.17 $ 908,501.32 $ 899,825.13 $ 891,231.80 $ 882,720.54 $ 874,290.56 $ 865,941.08 $ 857,671.35 $ 849,480.59 Annual growth $ 59,621.98 $ 59,052.59 $ 58,488.63 $ 57,930.07 $ 57,376.84 $ 56,828.89 $ 56,286.17 $ 55,748.64 $ 55,216.24 Less: unitrust payment $ (68,381.82) $ (67,728.77) $ (67,081.96) $ (66,441.33) $ (65,806.82) $ (65,178.36) $ (64,555.91) $ (63,939.40) $ (63,328.78) Total $ 908,501.32 $ 899,825.13 $ 891,231.80 $ 882,720.54 $ 874,290.56 $ 865,941.08 $ 857,671.35 $ 849,480.59 $ 841,368.05
Amount of CRT generating taxable income $ 41,276.75 $ 40,882.56 $ 40,492.13 $ 40,105.43 $ 39,722.42 $ 39,343.08 $ 38,967.35 $ 38,595.21 $ 38,226.63 Amount of excess unitrust payment $ 27,105.07 $ 26,846.21 $ 26,589.83 $ 26,335.90 $ 26,084.39 $ 25,835.29 $ 25,588.56 $ 25,344.19 $ 25,102.15
763 of 781 Appendix E CRUT vs. Sale, State Income Tax Applied, Spe Year 19 Year 20 Year 21 Year 22 Total Capital Gain Recaptured CRUT Beginning balance $ - $ - $ - $ - Unitrust payment $ 62,723.99 $ 62,124.97 $ 61,531.68 $ 60,944.05 Less: current tax due from payment $ (9,423.32) $ (9,333.33) $ (9,244.20) $ (9,155.91) Less: capital gain from initial sale $ (5,942.12) $ (5,885.37) $ (5,829.17) $ (5,773.50) $ (140,742.23) Total Distribution $ 47,358.55 $ 46,906.27 $ 46,458.32 $ 46,014.64
Sale Beginning balance $ 561,176.82 $ 543,601.05 $ 525,544.77 $ 506,978.16 Annual growth $ 36,476.49 $ 35,334.07 $ 34,160.41 $ 32,953.58 Less: tax due on growth $ (6,693.72) $ (6,484.07) $ (6,268.70) $ (6,047.24) Less: After-tax unitrust withdrawal $ (47,358.55) $ (46,906.27) $ (46,458.32) $ (46,014.64) Total $ 543,601.05 $ 525,544.77 $ 506,978.16 $ 487,869.87
Net Benefit to Charity from Sale vs. CRT $ (289,731.94) $ (299,829.88) $ (310,514.16) $ (321,815.40)
CRT Unitrust Calculation Beginning balance $ 841,368.05 $ 833,332.98 $ 825,374.65 $ 817,492.32 Annual growth $ 54,688.92 $ 54,166.64 $ 53,649.35 $ 53,137.00 Less: unitrust payment $ (62,723.99) $ (62,124.97) $ (61,531.68) $ (60,944.05) Total $ 833,332.98 $ 825,374.65 $ 817,492.32 $ 809,685.27
Amount of CRT generating taxable income $ 37,861.56 $ 37,499.98 $ 37,141.86 $ 36,787.15 Amount of excess unitrust payment $ 24,862.43 $ 24,624.99 $ 24,389.82 $ 24,156.90
764 of 781 Member Sharing Breakouts by Topic—Advanced S Corp & Partnership Issues
Carl Harper, Pulakos CPAs, PC
2017 Tax Conference
765 of 781 Carl D. Harper, CPA Shareholder, Tax Certified Public Accountant Email: [email protected]
Expertise
Mr. Harper joined Pulakos in 1979 after completing two years as a tax specialist with an international accounting firm. He was elected a shareholder in the firm in 1993. Carl currently serves as director of Pulakos’ Tax Department. Mr. Harper’s areas of specialization include Federal and New Mexico taxation for partnerships, S Corporations, and limited liability companies; bankruptcy & corporate taxation; and New Mexico Gross Receipts taxation. Mr. Harper serves the construction and light manufacturing industries as well as real estate development and tax-exempt organizations.
Industries Served
Construction Real Estate Operations and Development Foundations Not for Profit Organizations Manufacturing
Accomplishments
Board Secretary and Member of the Rio Rancho Public Schools Board and its Past President Member, Tax Committee, New Mexico Society of CPAs Past Vice President, New Mexico Society of CPAs Past Chair of the Tax Committee of the New Mexico Society of CPAs Sunday School Instructor Member, Association of Insolvency & Restructuring Advisory Council Member, American Institute of Certified Public Accountants Member, New Mexico Society of CPAs Member, Albuquerque BYU Management Society Board Past Member, Rio Rancho High School Parent Advisory Council Former treasurer and co-founder of the National Atomic Museum Foundation
Why Performance Matters
Many times I see the result of clients not getting good advice from their CPA, paying too much in taxes or too much in fees. The Tax Code is a complex, inter-related structure that requires continuous study and updates to stay current. Bad advice is typically the result of a failure to listen and a lack of expertise in a specific area to be able to offer the best solution. At Pulakos, we know that we must listen and understand our clients and their needs before offering any solution. Our team approach allows us to vet clients’ situations and develop strategies that make sense for them.
Education
Bachelor of Science in Business Sciences, cum laude, Brigham Young University
766 of 781 Member Sharing Breakouts by Topic—How Are You Prepping to be a Firm of the Future?
Sol Green, Gray, Gray & Gray, LLP
2017 Tax Conference
767 of 781 Sol Green Partner, Gray, Gray & Gray, LLP
As a partner in Gray, Gray & Gray’s renowned Tax Department, Sol Green lends his more than 30 years of experience in the accounting, audit and tax profession. This experience coupled with his “hands-on” approach, genuine desire to help others achieve success, and keen ability to foster strong, mutually-beneficial relationships makes Sol an asset to the Gray, Gray & Gray team and clients alike.
Sol specializes in business tax and business planning matters for both domestic and international clients in a variety of industries, and has extensive experience in all aspects of the public accounting industry. This knowledge enables him to assist clients with not only ensuring tax compliance on a local and international level, but also with identifying potential ways to improve efficiencies and profitability, and attain short- as well as long-term goals.
Having begun his career with Laventhol & Horvath in 1972, Sol worked in private accounting practices prior to forming Green & Green, LLC in 2001. He served as a founding manager of Green & Green, LLC until 2014 when the firm merged with Gray, Gray & Gray, LLP.
Sol earned a Bachelor’s degree in Accounting from the University of Illinois and a Master of Science in Taxation from Bentley College. He is a member of the American Institute of Certified Public Accountants and the Massachusetts Society of Certified Public Accountants.
In his spare time, Sol enjoys racquetball and the outdoors in the form of sailing, skiing and golf
768 of 781 How are You Preparing to be a Firm of the Future?
Panel Discussion Facilitated by: Sol Green, CPA, MST
November 15, 2017
769 of 781 Welcome
• PR Restaurant Group Sol Green, CPA, MST Gray, Gray & Gray, LLP 781.407.0300 [email protected]
770 of 781 Preparing to be a Firm of the Future
Culture ▪ Values ▪ Work/Life Balance (Seeing is Believing) ▪ Millennial Generation ▪ Dress for Your Day ▪ Work Environment
771 of 781 Preparing to be a Firm of the Future
Recruiting & Retaining Talent ▪ Sourcing ▪ Millennial Generation ▪ Retaining Women ▪ Benefits• PR Restaurant Group
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Succession Planning/Leadership Void ▪ Bench Strength ▪ Training & Development ▪ Coaching & Mentoring ▪ The•TimePR Restaurant Sheet Debate Group ▪ Lateral Hires
773 of 781 Preparing to be a Firm of the Future
Technology ▪ Automation of compliance work ▪ Cyber Security ▪ Cloud • PR Restaurant Group
774 of 781 Preparing to be a Firm of the Future
Growth ▪ Organic Growth ▪ Mergers & Acquisitions ▪ Specialization ▪ Marketing• PR Restaurant Group ▪ Business Development
775 of 781 Preparing to be a Firm of the Future
Client Retention ▪ Adding Value ▪ Trusted Advisor ▪ Consulting vs. Compliance • PR Restaurant Group
776 of 781 Preparing to be a Firm of the Future
Profitability ▪ Efficiencies ▪ Outsourcing ▪ Pricing ▪ C &•DPRClient Restaurants Group
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Other Ideas – What are you doing at your firm? ▪ ▪ ▪ ▪ • PR Restaurant Group
778 of 781 Preparing to be a Firm of the Future
Stumbling Blocks to Transformation ▪ Complacency ▪ Resistant to Change ▪ Trying to be all things to all people (Differentiation is key- internally & externally!) • PR Restaurant Group ▪ Relying on past successes to lead the way for future accomplishments. Be innovative!
779 of 781 Thank You!
• PR Restaurant Group Sol Green, CPA, MST Gray, Gray & Gray, LLP 781.407.0300 [email protected]
780 of 781 Contact Us
LET’S MEET
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• PR Restaurant Group LET’S CONNECT
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