Thursday, September 28, 2017

What accountants need to know about blockchain

The phrases blockchain and artificial intelligence are mentioned so frequently in academic articles, practitioner publications and the general media landscape that they may have overshadowed the previous hot topic of data analytics.
With all of the coverage, debate and questions surrounding these areas, it would be relatively easy to get lost in the weeds with what these technologies mean for the accounting profession. In addition to, and compounding, the potential confusion surrounding these topics is the somewhat justifiable fear that these technologies will automate large functions of the accounting profession. Accounting professionals, trained and educated in quantifying data, analyzing different streams of information, and increasingly technology savvy, are facing the reality that technology may surpass, and ultimately, replace many practitioners.
Such a perspective, however, only represents a partial and incomplete view of the implications that blockchain and artificial intelligence will have on the profession. Bitcoin may be the most commonly associated term and aspect of blockchain technology, but that only represents the proverbial tip of the iceberg. Although some organizations are indeed using bitcoin for processing transactions, are accepting payment from customers in bitcoin, or the other various cryptocurrencies, this is only one potential implication for the accounting profession. Regardless of whether an accountant works in public practice, private industry, academia or a consultative capacity, it is critically important to understand the potential changes that are coming.
Blockchain technology has the potential, and already is, changing how the accounting profession operates and will navigate the business landscape moving forward. While the specific implications of these changes will differ from organization to organization, and some of these changes will occur faster than others, there are some themes that appear to be consistent. Clearly, this short list is not meant to be all-encompassing, but rather is meant to focus the conversation on the changes blockchain is having in a manner that is productive and applicable to practitioners.
To do that, however, accountants need to understand what exactly blockchain technology is, and what is might mean for the profession. Let’s take a look at three things every accountant needs to know about blockchain
1. Blockchain secures information and reduces alterations.
Although the basis for the spread of blockchain technology is the internet, and some uses have involved criminal enterprises, the basis of the technology is the encryption that secures transactions and records. To put it simply, every transaction that is conducted using blockchain technology is encrypted, the involved participants are identified by a string of characters, and after a certain period of time has passed (which may vary) all of these transactions become part of the block. After this block has been finalized, it is broadcast to all parties associated with that network, or chain. If it is altered at a future date, reviewers of the block (record) will be able to identify when due to time stamp functionality. Clearly this technology will lead to changes in not only how audits are performed, but will also drastically reduce the amount of time needed to verify or confirm certain balances.
2. Blockchain will reduce errors.
Especially as it pertains to accounts payable or accounts receivable, the potential for blockchain to be accretive from the very beginning is a relatively straight forward concept. Building on point 1, if the participants in a certain transaction are identified, the time and date of the transaction is verified, and the associated data is secured, the possibility of errors decreases dramatically. Specifically, the number of transposition corrections, verification of payments, and other lower-value activities can be automated by blockchain and ultimately replaced with higher-value activities. Reducing errors, both during the audit process itself as well as during ongoing operations, will add value to clients in a quantifiable manner. This may certainly place some current accounting jobs in jeopardy, but also provides numerous opportunities for accounting practitioners willing to learn, and eventually master, blockchain technology.
3. Accounting will become real time.
Just like doctors are increasingly able to monitor the health of patients in real time thanks to advances in technology, blockchain technology will help enable accountants to monitor financial performance in real time. Due to the fact that blockchain technology is based on, and leverages, an internet-based and decentralized platform, it will be simpler than before to track and monitor the inflows and outflows from a business. Building on the increasing utilization of cloud computing technology by both accounting organizations and client firms, this facet of blockchain represents a logical step in this same direction. Leveraging these advances in technology, and the ability for both business owners and accountants to keep abreast of changes in the business will only help accountants elevate their position to that of trusted business advisor.
Blockchain technology is already disrupting the accounting profession, and will continue to do so moving forward, but it will deliver both opportunities and challenges. Understanding the implications and possibilities of this technology on the profession is essential for practitioners seeking to keep up to date and relevant in a rapidly changing marketplace. Technology tools can provide opportunities, and CPAs have both the mindset and opportunities to take advantage of them.

Wednesday, September 27, 2017

IRS looking for help with tax treaty arbitration

Image: Bloomberg News
The Internal Revenue Service is looking for people who are interested in serving as U.S. members of arbitration boards, along with non-U.S. citizens who would like to serve as arbitration board chairs, for U.S. tax treaties providing mandatory binding arbitration.
Some U.S. income tax treaties with other countries provide for mandatory binding arbitration to resolve cases in which the authorities have tried but were unable to reach a complete agreement. So far, arbitration is included in the U.S. income tax treaties with Belgium, Canada, France, and Germany. Most tax treaties aim to avoid double taxation of companies and individuals in different countries.
A case is settled through an arbitration board made up of three members chosen by the various authorities. Depending on the treaty, within 60 to 90 days of the appointment of the arbitration board chair, each authority will submit for the board’s consideration a proposed resolution paper and a supporting position paper with annexes.
The arbitration panel needs to select one of the two proposed resolutions for each issue presented and inform both competent authorities of its determination in writing, depending on the treaty, within six and nine months of the appointment of the chair. The written determination shouldn’t include any rationale or analysis for the selection and won’t be considered precedential. No information relating to the arbitration proceeding, including the written determination, should be disclosed by the board members.
The arbitration board will likely conduct its meetings through telephone and video conferences. Board members will be compensated for up to three days of preparation, up to two days of meetings, and, if applicable, and depending on the treaty, certain travel days and travel expenses. The IRS expects applicants to be ready to serve on at least one arbitration board any time within three years after being named to the registry.
Anyone who is interested should send an email to For questions, contact Anthony Ferrise at or call him at (202) 317-8622.

Tuesday, September 26, 2017

Ted on Tech: When the power goes out

Daniel Acker/Bloomberg

With the United States under siege by hurricanes this season, individuals, businesses and accounting firms in affected regions are finding their disaster plans tested to their limits. While firms can back up data, operate in a cloud hosted environment, invest in generators and take other such measures, there are always gaps during disasters of scale that make it difficult to continue operations seamlessly. What’s the solution?
I have to admit (and tempt the fates) that I’ve been pretty lucky over the years as far as power failures go. Through blizzards, superstorms and hurricanes, I’ve suffered the occasional blackout and power outage. But for the most part, they haven’t lasted more than a day or so. At the time I was originally writing this, I was thinking about coming up with a more formal plan for those times when the power goes away.
When the power goes out, it’s a real pain. I have several UPS systems on my network, but to be honest, they aren’t really helpful except to let me power down the PCs that are connected to them. But about a week after I originally submitted this blog entry, Texas was hit by Hurricane Harvey. Then Hurricane Irma decimated the Caribbean and large areas of Florida. Given the magnitude of the disasters, it was time to rethink my initial blog entry.
My main concern is that just about all of my work is done on computer, and a good deal of that necessitates using the Internet and especially email. So when the power goes down, I can work on a laptop, at least to some degree. But my entire network goes down since very few of the switches, access points, or my cable modem are on a UPS. And without the network, my Internet access also disappears. Even more problematic is that my Internet gateway/router is a server mounted on a server rack in the basement. There’s an APCC UPS proving backup power, but it’s not going to keep the gateway server running for very long even if I have a UPS on the cable modem. Creating a low power-draw network with a second router in parallel with the current one is a possibility, but kind of defeats the whole purpose of having the gateway on a server.
So I need to think about a new strategy. APCC sent me an new 50 watt BackUPS-Connect model that has a built-in removable battery pack which can be used to charge a cell phone or tablet. It’s going between my Griffin Technology Power Dock and the wall outlet. The Power Dock is a neat little storage device that holds five tablets vertically and lets you plug in all of the power cords from the tablets into the base. A single power supply then plugs into the wall outlet and keeps everything charged. I’ve had this for several years, it’s relatively inexpensive, and it works great for organizing and powering my tablet collection.
It should work even better with a UPS to keep the charging current going during a power failure. One of my tablets is an iPad Air with a keyboard case that has a much longer battery run time (when fully charged) than my laptop. Another is a Microsoft Surface 3, again with a keyboard. So between the two of them I actually have several days of usable computing time.
I can keep working for a day or two during a power outage using a laptop and/or tablet plugged into a hefty UPS to keep the laptop battery topped off. And that might be an affordable power plan for some of you with fairly simple computing needs.
But Internet access is the part where I get stuck. In the past, I’ve occasionally turned my iPhone into a hotspot that connects to my cellular service and provides Wi-Fi access to my laptop or tablet. If I plug my phone’s charger cable into the removable charger pack on the new APCC UPS, it should give me more than enough hours of connectivity. That’s a solution, but not an optimum one. Tethering to my phone provides internet service but it’s fairly slow, even at 4G cellular data speeds, and the data charges add up quickly on my plan. But it does provide Internet connectivity in many instances if I really need it. And the data charges are just something I have to eat if I need the Internet to finish an assignment or engagement, or need to use my email accounts. A stand-alone wireless hotspot is another option, but I don’t know if these work any better than just tethering my laptop or tablet to my iPhone. It doesn’t seem that they would, as both are 4G devices.
But given what happened in Texas and Florida, that’s not a guaranteed way to provide access to the Internet and your critical business emails. In a real disaster, the cellular infrastructure goes away along with the power. Your clients will probably understand if you have a disaster plan in place and need some time to recover. Contacting them, though, is a concern, especially if you don’t have access to your email.
There is a viable alternative, but it’s expensive and not 100 percent reliable — and that’s satellite phone and data. The Iridium network provides both voice and data accessibility, and is billed on a per minute basis. It’s not cheap, but there’s a large network of satellites orbiting the planet, so there’s usually one in range of your device. As a backup for critical communications, it’s worth looking at. The downside, aside from cost, is that in a real disaster there’s a fair chance that the available bandwidth will be swamped and you might not be able to get through or check email immediately. Still, it’s better than nothing.
Continuing to operate during a power outage that lasts beyond a few minutes or so is a real problem without a simple and affordable solution that I can see, especially if the infrastructure is damaged. With much of our livelihood so closely tied to the use of advanced technology, we’re in a real bind when the power goes out. We all need some sort of backup plan to deal with this kind of problem. I’ve yet to come up with a good affordable one for my set of needs and circumstances that I feel positive about.

Monday, September 25, 2017

Tax Fraud Blotter: Good will gets 40 months

Off by $10 million-plus; theft by template; coupons, strawmen and the eclipse; and other highlights of recent tax cases.
Suffolk, Va.: Preparer Kevin Towns, 44, has been sentenced to 40 months in prison for his role in a fraud scheme that prepared hundreds of false returns that resulted in a loss of approximately $1.6 million to the U.S.
According to court documents, Towns, who pleaded guilty in June, was one of the principal preparers at A Plus Tax Service and NN Financial, which operated as prep businesses at different periods between July 2009 and February 2014. Towns, along with co-defendants Stephanie Towns and Brenda Benn, conspired to operate a business based on creating false returns that inflated refunds for clients to cultivate good will and generate repeat business.
They used methods such as claiming false education-related expenses, stating excessively high amounts of charitable contributions and manipulating the amount of income to take advantage of certain tax credits. The clients did not persuade or instruct the tax preparers to generate the false returns, authorities said.
New Orleans: CPA Brendel Deemer, 49, has pleaded guilty to one count of willfully filing a false return for herself.
According to court documents, Deemer operated Deemer CPA & Consulting Services LLC since at least 2009. From 1999 through 2005, she also operated Building Blocks Academy, a day care center. Deemer stopped operating Building Blocks Academy after Hurricane Katrina and did not resume operating the business.
Deemer admitted that for tax years 2009 and 2010 she filed individual income tax returns that falsely reported her Schedule C income from Deemer CPA and Consulting and her expenses for Building Blocks Academy.
Sentencing is Dec. 12, when she faces up to three years in prison, followed by one year of supervised release, as well as potential fines and other monetary penalties. As part of her plea agreement, Deemer agreed to pay $88,651.22 restitution to the IRS.
Circleville, Ohio: Local businessman John Anderson Rankin, 54, has been convicted of 17 tax-related charges.
A federal grand jury indicted Rankin in 2015 on seven counts of failing to account for and pay over employment taxes to the IRS, six counts of willfully filing false federal individual income tax returns, three counts of willfully filing false federal corporate income tax returns, and one count of obstructing and impeding the due administration of the IRS.
According to court documents and testimony, Rankin operated a number of businesses, including Connectivity Systems Inc., a mainframe software company that provides Internet protocol development and servicing. Rankin Enterprises LLC was a shell corporation that included several local businesses.
Between June 2008 and April 2011 Rankin failed to account for and pay over to the IRS all federal income and FICA taxes. He also filed false amended individual income tax returns with the IRS for the 2005, 2006, 2007, 2008 and 2009 income tax years. He claimed a corrected AGI of -$1.7 million when his actual corrected AGI exceeded $8.9 million. In 2010, Rankin filed a false individual income tax return that reported an AGI of nearly $27,000; his actual gross income was nearly $1.6 million.
He also filed false U.S. corporation income tax returns with the IRS for Connectivity Systems Inc. for the 2008, 2009 and 2010 income tax years. These false forms claimed a fraudulent accelerated R&D credit of $1.7 million against the corporate taxes due and owing of Connectivity Systems Inc.
Between January 2005 and July 2015 Rankin made false and misleading statements to agents of the IRS and concealed information from agents of the IRS.
Failing to account for and pay over employment taxes to the IRS carries a maximum penalty of five years in prison and a fine of up to $250,000. Willfully filing a false individual and corporate federal income tax return with the IRS and obstructing and impeding the due administration of the IRS carries a maximum of three years in prison and a fine of up to $250,000.
Temple Hills, Md.: Local resident Timothy West, 43, has been sentenced to 21 months in prison for mail fraud in connection with a stolen ID refund fraud.
According to documents filed with the court, from approximately November 2011 through March 2013, West and others engaged in a scheme to file fraudulent federal returns claiming refunds. On two separate occasions, West hired a local preparer to complete returns falsely claiming, among other things, that two individuals were his dependents.
As part of the scheme, West and others then used these false returns as templates to prepare and file hundreds of additional fraudulent returns with the IRS seeking more than $413,000 in refunds.
West caused a tax loss of approximately $284,706 as a result of his actions as part of the scheme.
West was also ordered to serve three years of supervised release and to pay $284,706 restitution to the IRS.
Hermosa Beach, Calif.: A couple has been sentenced for filing fraudulent federal returns that sought millions in refunds and for using bogus financial instruments in an attempt to pay off debt.
Sean David Morton, 59, was sentenced to six years in prison and was ordered to pay $480,322 in restitution to the IRS. His wife Melissa Ann Morton, 51, who was convicted of conspiracy, two counts of filing false claims and 25 counts of passing false or fictitious financial instruments, received two years in prison and was also ordered to pay $480,322 in restitution to the IRS.
Sean Morton was found guilty earlier this year of one count of conspiracy to defraud the U.S., two counts of filing false claims against the U.S. and 26 counts of passing false or fictitious financial instruments. Sean Morton was originally scheduled to be sentenced in June, but he failed to appear for that hearing and was a fugitive for over two months — during which time, authorities said, he appeared on social media and YouTube to brag about being a fugitive.
The Mortons operated a “redemption” scheme, in which proponents falsely claim that the federal government controls bank accounts — often referred to as “U.S. Treasury Direct Accounts” — for U.S. citizens that can be accessed by submitting paperwork with state and federal authorities. Individuals promoting this scam frequently cite bogus legal theories and may refer to the scheme as “Redemption” or “Strawman.” This scheme predominately uses fraudulent financial documents that appear to be legitimate.
Evidence showed that the Mortons filed federal income tax returns that falsely claimed they had income from various banking institutions reported on 1099-OIDs. As part of the scheme, the Mortons falsely reported large withholdings and claimed they were owed refunds from the IRS, which erroneously issued a refund of $480,322.55 to Sean Morton for a 2008 income tax return.
On the same day the refund was deposited into the Mortons’ joint bank account, the couple took steps to conceal the money, opening new accounts, transferring over $360,000 to the two new accounts and withdrawing $70,000 in cash.
When the IRS subsequently placed a levy on the couple’s joint bank account, the couple repeatedly sent letters to the IRS that falsely claimed it was Melissa Morton’s sole and separate account. When the IRS attempted to collect the erroneous refund, the Mortons presented to the IRS “coupons” and “bonds” that purported to pay off their debt with the IRS. The Mortons created and submitted these bogus documents to the IRS, instructing the agency to draw upon funds with the United States Treasury to satisfy their debt.
The Mortons also sold the bond scheme to others who were in debt to governmental organizations, such as the IRS and the State of California, and private bank institutions for mortgage or credit card debt. The Mortons charged clients thousands of dollars to prepare and file useless UCC-1 documents declaring their clients’ “strawman” status.
Prosecutors said Sean Morton “touted he was a ‘paper terrorist’” looking to clog the court system “and make it more difficult to efficiently resolve cases, especially tax cases.”
The Mortons were arrested in August while observing the solar eclipse poolside in Desert Hot Springs, Calif.

Friday, September 22, 2017

IRS proposes rules for truncated SSNs on W-2 forms

The Internal Revenue Service has proposed regulations allowing truncated Taxpayer Identification Numbers on the Form W-2 to help protect people’s Social Security Numbers from identity theft.
The proposed regulations enable employers to voluntarily truncate their employees’ SSNs on copies of the Form W-2, Wage and Tax Statement, given to employees so the truncated SSNs appear in the form of IRS truncated taxpayer identification numbers, or TTINs.
The proposed rules would also amend the regulations under section 6109 of the tax code to clarify the application of the truncation rules to Forms W-2, adding an example illustrating how the rules could be applied.
The proposed amendments also would delete some obsolete provisions and update cross-references in the existing regulations.
The IRS is asking for comments on the proposed regulations by Dec. 18, 2017.

Thursday, September 21, 2017

SEC announces Edgar hack

The vulnerability of governments and businesses to cyberattacks was exposed again Wednesday when a top U.S. financial regulator said hackers had breached its electronic database of market-moving corporate announcements, and may have profited from the information they stole.
The hack of an aspect of the U.S. Securities and Exchange Commission’s Edgar filing system occurred last year, the regulator said in a statement. While the SEC has been aware of the breach since 2016, it wasn’t until last month that the agency concluded that the cybercriminals involved may have used their bounty to make illicit trades. The regulator disclosed the intrusion for the first time Wednesday.
Edgar houses millions of filings on corporate disclosures ranging from quarterly earnings to statements on mergers and acquisitions. Infiltrating the SEC’s system to review announcements before they are released publicly would serve as a virtual treasure trove for a hacker seeking to make easy money.
SEC Chairman Jay Clayton said the agency’s review of the breach is ongoing and that it’s “coordinating with the appropriate authorities.”
‘Everyone Vulnerable’The SEC’s disclosure comes just two weeks after credit-reporting company Equifax Inc. said it had been a victim of a hack that may have led to the theft of personal data on 143 million Americans. With the public and lawmakers still reeling from Equifax’s breach, the SEC intrusion is almost certain to trigger additional questions over whether the U.S. government can do more to protect data.
"This hack illustrates that protecting against hackers isn’t as easy as the government sometimes expects of companies,” said Bradley Bondi, a former SEC enforcement attorney now in private practice. “Everyone is vulnerable at any time."
The SEC didn’t say which companies may have been impacted by the 2016 intrusion. Chris Carofine, a spokesman for Clayton, declined to comment when asked what type of information was improperly accessed.
The breach occurred because of a software vulnerability in Edgar, the SEC said in its statement. While the weakness was “patched promptly after discovery,” it still resulted in hackers gaining access to nonpublic information, according to the agency.
Security ConcernsThe SEC discussed the 2016 hack in a lengthy statement by Clayton on the agency’s cybersecurity efforts. He described some of the threats and data that the agency routinely handles, its role in policing the online world, and how it coordinates with other federal agencies.
While the SEC handles non-public drafts of rules and personally identifiable information, it said it doesn’t believe the breach led to unauthorized access of that type of data, endangered the operations of the agency, or resulted in “systemic risk.”
Still, Wednesday’s disclosure may heighten concerns around the Consolidated Audit Trail, an enormous database of equity trades that is being built to give regulators better transparency into markets and help them figure out more quickly the causes of disruptions.
Financial firms have expressed concern about data breaches once the new database is completed. The repository could include personal information such as names and addresses from more than 100 million customer accounts.
The SEC has had other issues with Edgar, including people posting phony takeover offers and other hoaxes on the system that have temporarily driven up companies’ share prices. A number of filings are immediately posted on Edgar when they are submitted to the database, so it’s unclear what kind of information is kept non-public that could be a target for hackers.
‘Substantial Risks’The SEC said it has been conducting an assessment of its cybersecurity since Clayton took over as chairman in May. The former Wall Street deals lawyer has discussed cyberrisks on multiple occasions in the context of the threats public companies face and their responsibilities to protect themselves. The SEC regulates what companies must disclose to shareholders about breaches.
Last week, in response to a reporter’s question about the fallout from the recent Equifax hack, Clayton said the agency was working to increase public awareness of the “substantial systemic risks” associated with cybersecurity.
The data stolen from Equifax included Social Security numbers, drivers license information and birth dates. Banks rely on the information that Equifax and other credit-reporting companies provide in determining whether consumers should get loans.
Bloomberg News

Wednesday, September 20, 2017

How to prevent a client’s life insurance policy from expiring prematurely

I recently met a senior partner at a small CPA firm who was adamant about letting me know he never gets involved with a client’s life insurance, almost as if it were taboo to do so. I say to him and to others of a similar mindset: Since you are your client’s most trusted advisor and meet with your client at least once a year, you are in the best position to alert your client to the actions they need to take to prevent their life insurance from expiring years earlier than anticipated.
For those who purchased a life insurance policy between 1983 and 2003, there’s a 45 percent chance they purchased a “flexible premium/universal life” policy. Unlike its more expensive predecessor, “whole life insurance,” flexible premium life insurance was not guaranteed to last for the rest of one’s life.
Today approximately 23 percent of these policies are expiring prematurely due to reduced, sustained interest rates and neglect on the part of the amateur trustee. Usually a client’s eldest son or daughter who wasn’t aware that life insurance needed to be actively managed just like any other stock, bond or real estate portfolio. The American Bar Association referenced this situation in a Flagship book it published earlier this year, “The Life Insurance Policy Crisis.”
A recent Harris poll found that 65 percent of the insurance-buying population mistakenly thought the price initially established with an insurer for a universal life policy was set in stone and would last for the insured’s entire life. However, 70 percent of this group hasn’t reviewed the performance of their life insurance portfolio, including their expiring term policies, for more than 12 years. Lastly, over 90 percent of the trustees of all irrevocable life insurance trusts and special needs trusts are managed by the insured’s eldest son or daughter acting as the “amateur trustee,” often to avoid paying a fee to an institutional trustee. While these amateur trustees may be well intentioned, they rarely if ever have the skills or knowledge to do what’s in their beneficiary’s best interest, primarily because no one is advising them what needs to be done.
To make matters worse, many insurers are now exercising their contractual right to increase the internal cost of insurance, or COI, further exacerbating an already deteriorating situation for many insureds and their beneficiaries.
Why haven’t CPAs focused on this insidious growing problem that can so adversely affect the families and businesses they’ve been protecting for years? Why do many choose to draw the line at providing guidance concerning a client’s life insurance portfolio, when their values exceed upwards of 40 to 50+ percent of a client’s net worth?
There are many reasons why accountants have decided against including the subject of life insurance when counseling their clients about various financial matters.
Perhaps it’s the complexities and unique workings of a product many CPAs may not fully understand nor have the resources in place to refer a client to. Perhaps many accountants are under the misimpression that the agent or broker who sold their client a life insurance policy, or the insurance company itself, was monitoring the policy to make certain it would remain in force. However, that’s not the case. The agent is contracted with and obligated to the insurance company, not the insured. It’s the agent’s or broker’s job to merely market and deliver the insurance policy to customers. It’s the insurance company’s responsibility to merely provide coverage and an annual statement, not to manage the policy. Putting that aside, the insurer benefits significantly when a policy lapses, as it can keep the premiums and never have to pay a death claim.
It’s the responsibility of the insured, owner or trustee to manage the performance of their life insurance policy, but most aren’t aware there is an underfunding problem or an expiring term life insurance policy that requires attention. That’s where a client’s CPA can advise that the sooner a problem is discovered and addressed, the more options the client will have available, and the less costly it will be to fix the problem.
The accountant should first determine if the client’s policy is a non-guaranteed flexible premium universal policy, and if so suggest the client retain a trusted independent insurance consultant or their former agent or broker to order and review the policy’s “historic projection” to determine how much longer the current contract will remain in force based on the current and past premiums paid. They can then determine how much in additional premiums will be necessary to keep the policy in force for the duration desired.
There are three variables attributable to any universal policy: death benefit, premium and duration. Below are several alternatives to obtain the desired effect using a combination of options:
1. Clients can pay a higher premium to keep the same death benefit in force for a longer duration.
2. Clients can reduce the death benefit to maintain the same premium to keep the coverage in force to a specified time period.
3. Depending on the clients’ health, they can purchase a new policy, with various updated benefits as well as the ability to extend their guarantees until a later date.
4. If over age 70, they may be able to sell their life insurance policy as a life settlement in which case they may receive more than if the policy was merely surrendered for its cash value
5. An arbitrage strategy, where all or part of an existing life policy is sold in conjunction with the purchase of an additional life policy, at a reduced cost.
For more information, see this article in the August 2017 New York State Society of CPAs’ Tax Stringer publication.

Tuesday, September 19, 2017

IRS criminal investigators hurt by budget and staff cuts

The decreasing budget and staffing of the Internal Revenue Service’s Criminal Investigation unit are leading to a decline in the number of cases that special agents are able to handle, according to a new report.
The report, from the Treasury Inspector General for Tax Administration, pointed out that since FY 2011, reductions in staffing and funding for Criminal Investigation activities contributed to a decrease in the number and size of CI field offices throughout the country. For fiscal year 2016, the unit’s budget was approximately $576 million, down from $586 million in fiscal years 2015 and 2014, and $593 million in fiscal years 2012. Since FY 2012, the attrition of field special agents has also led to a decline in the number of cases initiated and completed by CI. In FY 2016, the unit initiated 3,395 cases, an overall decrease of 34 percent compared to the 5,125 cases initiated in fiscal 2012.
The percentage of cases initiated from functions within the IRS has decreased 5 percent from fiscal year 2012 to FY 2016. On the other hand, the percentage of cases initiated from the U.S. Attorney’s Offices and other government agency sources rose, representing 64 percent of the 3,395 cases initiated.
Overall, field special agents have consistently needed to maintain an average of 5.30 cases apiece, including international cases. In FY 2016, international cases that resulted in sentencing improved approximately 33 percent from FY 2012.
TIGTA identified a trend of special agents taking longer to turnover cases because of the extra time it takes for special agents to determine whether a case has prosecution potential. In FY 2016, it took an average of 540 days (or 1.5 years) to determine there was no prosecution potential, while it took an average of 422 days in FY 2012.
The head of CI contended the unit is using its resources wisely. “CI has pursued strategies to maximize the impact of our resources through conduct of investigations and support of the resulting DOJ prosecutions,” wrote IRS Criminal Investigation chief Don Fort in response to the report.
He noted that the unit has ensured that 70 percent of its direct investigative time is spent on tax-related charges. “CI’s 90 percent or higher prosecution referral and conviction rates, among the highest in federal law enforcement, further maximizes the impact of CI resources to help ensure the integrity and fairness of the U.S. tax system.”

Monday, September 18, 2017

Increasing the CPA pipeline through early-stage accounting education

Developing a pipeline of CPA candidates is critical, now more than ever. In July, the American Institute of CPAs responded to this need by announcing the acquisition of the Accounting Pilot and Bridge Project (APBP), a training program developed by Dr. Dan Deines of Kansas State to bring higher-quality accounting curriculum to high school educators across the country. The overall goal is to expand the number of state societies educating high school teachers so that they can begin teaching early-stage accounting fundamentals in the classroom.
Still, despite all-time highs in college-level accounting program enrollment, the number of candidates taking the CPA Exam has remained flat over the past five years. And even though last year’s exam numbers showed signs of life — participation was up 9 percent, according to NASBA’s 2016 Candidate Performance on the Uniform CPA Examination – Jurisdiction Edition — these numbers should be taken with a grain of salt, due to the significant exam changes that went into effect in April.
How can the industry increase the number of CPA Exam candidates on a year-over-year basis? The answer is simple: Broach the topic early and often while candidates are still learning the ropes.
Considering the amount of time it takes to study for all four parts of the CPA Exam — on average, 300-400 hours — early awareness can only benefit candidates and, ultimately, the profession. If a college freshman or sophomore accounting student hears about the laborious process of earning a CPA credential after graduation, they would likely understand the importance of adopting exam-specific concepts sooner rather than later. Most students know whether accounting is their calling during their first few college years — based on family background or a specific interest in numbers — so being able to hear about the required steps and what it will take to succeed on the CPA Exam is to their advantage.
Furthermore, accounting professors are active participants in the community, and often, their work sparks students’ passions for careers in accounting, making professors best equipped to prepare the next generation of accountants for what lies ahead. If accounting professors incorporated a handful of exam questions — or expanded course curriculum to include exam specifics — during each required course after the intermediate level, student confidence in their ability to complete the exam changes drastically.
How can professors help change the narrative? Here are a few high-level ideas to incorporate into classroom dialogue:
  • Make it personal. Share real life stories with students that showcase positive experiences (achievements/victories) about the education to profession transition, not just war stories of the exam.
  • Gold-standard license. Explain the strength of the CPA credential and why it’s been the “gold standard” for decades.
  • Now or later: Discuss the short- and long-term rewards of completing the exam and being able to fully focus on their career as close to graduation as possible.
There are a number of accounting programs — St. John’s University and the University of California at Berkeley, to name a few — out in front of the CPA candidate pipeline issue that are already incorporating concepts at a baseline level. The starting pointing is easy: Speak up! Mentioning “The CPA Exam requires X, Y and Z and you will see 1, 2 and 3” is the most important step in the process. Planting the seed and managing expectations up front will not only allow professors to add to their expertise, but also increase their level of interaction with students.
There are a couple of easy ways that professors can add to existing accounting courses. Students in intermediate courses learn about a variety of topics they will also encounter on the CPA Exam and throughout their career — for example, the statement of cash flows. Based on the difficulty of the subject matter, students often welcome additional resources, such as video lessons and memory aids. By pairing these resources with exposure to CPA Exam questions, students are introduced to a difficult concept early on, helping expand their abilities to succeed on the exam.
In addition, the CPA Exam went through drastic changes in April, with the primary goal of ensuring that the exam better reflects the skills required of a newly licensed CPA. A great example of immediate application in the classroom has been in auditing courses and the new “Document Review Simulations.” Professors are now able to present the new question types to students, while also building bridges to the topics taught to the CPA Exam.
The reality is that the CPA community hasn’t seen a flat CPA pipeline like this before. There may not be a direct solution to the problem because there will always be changes that ultimately impact any industry. That said, there is a clear opportunity to bridge the concepts of the exam with the standard accounting curriculum. Encouraging early knowledge of the CPA Exam will provide students with a deeper understanding of the higher-level skills needed to make the transition from academia into the accounting business world as a CPA. After all, if students are already required to take a number of accounting course credits, why not integrate the concepts and questions that they’re more likely to be asked during the early stages of their career?
Increasing the CPA pipeline through early-stage accounting education

Friday, September 15, 2017

FASB sets up web page for implementing new standards

Courtesy of GASB
The Financial Accounting Standards Board has created a new web page to help companies implement its new standards.

FASB has been rolling out a series of important new accounting standards in recent years, including revenue recognition, leasing, credit losses and hedging, and they are set to take effect over the next few years. Companies have been getting ready to implement them, starting with the revenue recognition standard, which goes into effect next year for public companies. The new web page, Implementing New Standards, includes links to educational materials and implementation guidance for FASB’s major standards about the new standards.
The web page also deals with how FASB handles outreach and implementation assistance. The web page includes links on FASB’s outreach to stakeholders,transition resource groups, and technical inquiry servicefor implementation questions.
FASB has also produced a short video offering a brief overview of FASB’s implementation assistance efforts.

Thursday, September 14, 2017

Talk Accounting rolls out debit cards

Talk Accounting now offers debit cards that connect directly to its accounting app, recording each transaction as it’s swiped. The cards can be white-labeled for firms so accountants can offer the cards to their clients.

Talk Accounting’s app allows users to verbally speak their transactions into their smart phone’s microphone, recording the transaction and inputting it into either QuickBooks or an Excel spreadsheet.
The new cards will be issued by Mastercard, and are electronically connected to the user’s Talk app, recording each transaction as it’s completed.
Rollout of cards for a firm will take about 90 days, Travis Beaulieu, co-founder of Talk Accounting, told Accounting Today at this week’s Accountex conference in Boston, where the company announced the news.

Wednesday, September 13, 2017

Together or alone? Preparing returns in front of clients

A tax preparer advising a client.
Bloomberg News
Is it better or worse to prepare returns in front of clients? Tax pros differ over whether it’s better to have the client present so they can answer questions, or to prepare the return distraction and check their work before sharing it with the client.
“I prepare returns in front of clients most of the time and have for about 50 years,” said Marilyn Meredith, of Michigan-based Meredith Tax Service. “This is the most efficient and most thorough way of preparing returns.”
“We prepare as many tax returns with the client present as possible,” said Enrolled Agent Debra James at Genesis Accounting & Management Services, in Lorain, Ohio. “It enables us to do a higher volume of work, ask questions while we work and get to know our clients better not just on a business level but a personal level – which I believe helps retain clients.”
“My goal is to complete the return with the client during our scheduled appointment,” added Marilyn Heller Ayers, a CPA in Brick, N.J. “During our conversation, I usually learn important facts that affect the return or will affect it in the following year.”
“My preference is to prepare returns as part of a face-to-face interview,” said Jeff Gentner, an EA in Amherst, N.Y. “I feel most confident when I sit with the taxpayers and do a thorough interview while entering data. I also know that my clients want to leave with results, as well as knowing that it is complete.”
“Having my clients sitting at my desk from start to finish is my preferred method of preparation,” said Kathy Hallford, an EA at Kathy’s Tax Service in Gilbertown, Ala. “Time is saved when questions can be asked, answered and documented all at the same setting.”

Time to double-check work figures is top of mind for preparers who don’t prepare returns in front of clients. “I’ll give an estimate of refund or amount due in most circumstances, but as a rule I take the return and process it in a few days and get it back to the client,” said Joel Grandon, an EA in Marion, Iowa. “It gives me a chance to review the final product and I find I make fewer errors when I’m not trying to carry on a conversation and enter data at the same time.”
Said Nicole Green, an EA at NGG Tax Group in Easton, Mass., “I prepare less than 1 percent of my returns face to face. As a solo practitioner, I want to be able to prepare the return, put it down and then review at a later time for possible errors.”
CPA Brian Stoner, in Burbank, Calif., will sometimes prep in front of clients “if the client is rushed and needs to file that day or has a pressing issue, but I prefer to not handle the returns that way,” he said. “If I do prepare the returns that way, I’ll review the returns then and discuss with the client before we sign the e-file forms.”
A recent practitioners’ survey by the National Society of Accountants revealed that slightly fewer than half of respondents (45.7 percent) collect client data in person to prepare a return. The survey didn’t specify actually preparing the return in front of the client.
“Not my style,” said Morris Armstrong, an EA and registered investment advisor with Armstrong Financial Strategies in Cheshire, Conn. “I interview a client, collect documentation and an organizer, review it and make notes and then do the return in private.”
Said Chris Hardy, an EA in Suwanee, Ga., “Most times clients don’t have all the necessary items ready to complete a return even if they complete the organizer.”
“I used to do it all the time. I was doing a quick and dirty calculation before they left anyway, to give them an idea of what they would owe or get back,” recalled EA Terri Ryman, of Southwest Tax & Accounting in Elkhart, Kan., whose husband asked why she didn’t just finish the return in front of the client and probably get paid faster. “Very seldom would it be incorrect when I reviewed it later that day before transmitting,” Ryman said.

EA William Keats of Keats Tax & Financial Service in North Merrick, N.Y., prepares about three-quarters of personal returns in front of clients. “Estate returns and corporation returns, as well as payroll and sales tax returns, are usually dropped off or mailed in to me,” he said.
With complex returns such as those corporations or partnerships, EA Laura Strombom at All About Numbers in Stockton, Calif., gets the information for the entity or complex portion of the return on a 1040 either through her bookkeeper or from the client, “and then we review their books and ask questions before going with the books on a return,” she said. “I then prepare the return outside of the client appointment … and then present the return to them in the appointment.”
Those trained in some chains were used to the face-to-face. “Ninety-five percent of the returns I prepare are done in front of my clients,” said Frederick Reynolds, an EA in Utica, N.Y. “I work for H&R Block, and that’s just the nature of the beast.”
“The first year that I did taxes was at H&R Block, in 2000,” Armstrong recalled. “We did do most returns with the client sitting there – and they’d interrupt all the time and ask, ‘What are you doing?’ One person wanted to watch everything and have everything explained to him so that he could do the returns for his friends … .”
“A key motivation is that by reviewing a return as a whole, without the pressure of the client, there’s a better chance of spotting something else in the big picture that would be beneficial, said EA Richard Ogg at The Master’s Tax & Financial Services in Santa Rosa, Calif. “Another downside is if you are too quick, some clients may wonder why they’re paying the fee that we charge.”
“Preparing returns in front of clients could have a downward pressure effect on fees for preparers,” added Stephen Mead, an EA in Bradenton, Fla. “Time trumps knowledge in [clients’] value equation.”
“I do 80 percent of my clients’ returns in my office while they wait,” said Patrick O’Hara, an EA in Poughkeepsie, N.Y. “These are clients that we can prepare, print and review returns within an hour or less. Many of my peers disapprove of this model,” he added, “but I believe it’s a more efficient use of my time and I’m able to get paid on the spot. It’s also a good opportunity to reinforce relationships and ask for referrals or a review of our service.”
“I do prepare returns in front of clients, generally speaking. But I do give them an option to … send it via mail, fax it, scan and e-mail it or we can even do a Skype meeting,” said Theodore Prioleau, an EA at Hunt Valley, Md.-based Teddy The Tax Man and Hunt Valley Retirements. “I find that the more flexible I am, the more options they have, the more they love it.”

Tuesday, September 12, 2017

Why your child won’t be an accountant

Seriously. Your child won’t be an accountant.
Not because your child wants to go into some other profession.
Even if your child loves what you do as an accountant today, is inspired by you and wants to follow your footsteps in the accounting profession, your child won’t be an accountant.
According to “The Future of Employment: How susceptible are jobs to computerisation?” research report from the Oxford Martin School (a research and policy unit of the world-renowned University of Oxford), technology will create the danger of replacing:
  • 94 percent of accountants and auditors;
  • 97 percent of payroll and timekeeping clerks;
  • 98 percent of bookkeepers/bookkeeping, accounting, and auditing clerks; and,
  • 99 percent of tax preparers.
That is scary!
Let us dive a bit deeper into what exactly is in the danger of being replaced by technology. It is not that technology will replace “accountants and auditors.” It is what they do as work that is being examined for possibilities of replacement by technology.
And therein lies the good news.
Interestingly, the American Institute of CPAs has focused its descriptions more on the “impacts” that accountants’ work has on their clients’ lives and businesses. For example, the institute says, “Accounting deals with interpreting and communicating information, which, as interpreted by CPAs, allows executives to make informed business decisions-decisions that help those companies become more successful. ….Accounting links the past with the future. …. A CPA is a trusted financial advisor who helps individuals, businesses, and other organizations plan and reach their financial goals.”
But it appears that the replacement potentials are based not on the AICPA’s description but on some other definitions of the occupations of “Accountants and Auditors” that need serious updating.
Here is how narrowly these accounting profession-related occupations are defined (mainly because accounting professionals were indeed performing the activities and tasks mentioned in these definitions).
According to the U.S. Bureau of Labor Statistics:
  • 13-2011 Accountants and Auditors. Examine, analyze, and interpret accounting records to prepare financial statements, give advice, or audit and evaluate statements prepared by others. Install or advise on systems of recording costs or other financial and budgetary data.
  • 43-3031 Bookkeeping, Accounting, and Auditing Clerks. Compute, classify, and record numerical data to keep financial records complete. Perform any combination of routine calculating, posting, and verifying duties to obtain primary financial data for use in maintaining accounting records. May also check the accuracy of figures, calculations, and postings pertaining to business transactions recorded by other workers.
  • 13-2082 Tax Preparers. Prepare tax returns for individuals or small businesses.
  • 43-3051 Payroll and Timekeeping Clerks. Compile and record employee time and payroll data. May compute employees’ time worked, production, and commission. May compute and post wages and deductions, or prepare paychecks.
Fortunately, there is a key flaw in the calculation of replacement potential projections. The replacement potential percentages mentioned above are based on these narrow (and seemingly somewhat outdated) definitions of what these professionals (are assumed to) do. The AICPA’s “impact-driven” descriptions do not seem to have been fully considered in these projections. This flaw has skewed the replacement potential percentages way beyond realistic estimates, which, fortunately, is a good news!
In my experience of working with accounting professionals day in and day out, they do far more than what is mentioned in these definitions. Their roles are evolving. The positive impacts they deliver on the lives of their clients are also evolving. These definitions/descriptions do not truly capture the new and evolved functions accounting professionals perform.
Hence, the good news is that these high-percentage, grim-looking projections of replacement potential are not truly reflective of the replacement of accounting professionals. At best, these percentages may, somewhat, reflect the replacement potential of what accounting professionals do as described in these definitions. In other words, there are no predictive models to show what future accountants will do that capture the essence of the evolving roles and responsibilities of accountants.
I mentioned that accounting professionals were indeed performing the activities and tasks. They are, increasingly, not performing these activities and tasks, as technology has evolved to do some of them. But, for whatever reasons, the definitions to describe these occupations have not evolved, at least at the same pace as technology has evolved to make a serious dent in what humans did in these professions.
Let's distill what accountants, auditors, bookkeepers, payroll processors and tax preparers did as work: examine, analyze, interpret, prepare, give advice, audit, evaluate, install or advise on systems, compute, classify, record, keep records complete, calculate, post, verify, obtain primary financial data, maintain accounting records, check the accuracy, prepare tax returns, compile and record time and payroll data, compute time worked, compute production, and commission, compute and post wages and deductions, or prepare paychecks.
Now, think how many of these things the software you use at your firm do right now. Take a look at how Blockchain can impact several of these tasks.
Next, think of how many of the tasks you and your people do that are not currently included in the above list.
You now know that all these “definitions and descriptions” do need serious change – like seriously quickly. Do you agree?
Honestly, if your children – mostly Gen Y and Gen Z - are reading the current definitions of these jobs, not only are they getting perplexed (“Why aren’t these tasks being done by technology?”) but they are also getting disillusioned about what you – their parents – are doing as accounting professionals. Your child would not want to do those things that define these occupations. The perceptions of what accountants do are far from reality. And perceptions will drive away new talent from the profession.
It is year 2017. The time has come to more accurately define what accountants, auditors, bookkeepers and tax preparers do. Otherwise, the perceptions caused by these current definitions are extremely potent in their ability to scare the future generations away from the accounting profession. The very same perceptions will make future clients wonder why should they go to accountants if technology ends up doing everything that clients perceive accountants are doing. According to the AICPA’s PCPS Top Issues Survey 2017, “finding qualified staff (at all levels) and retaining qualified staff” are among the top five issues for firms of all sizes. Perception about the accounting profession is surely one of the key causes that have accentuated this talent issue.
Your child won’t be an accountant – certainly not as per the current definitions and descriptions of what “accountants” do.
What should be the new definitions and descriptions?