Corporate America ‘in limbo’ as IRS punts on foreign tax issue

U.S. companies anxiously awaiting guidance on how hard they’ll be hit by a new foreign levy in the tax overhaul will have to stay tuned for at least another two months.

The Internal Revenue Service proposed regulations on Thursday spanning 157 pages that provide some details on which assets are subject to the tax on GILTI, or global intangible low-tax income, and how to calculate it. But one of the most pressing questions — to what extent multinational companies can use foreign tax credits and business expenses to offset the levy — remained unanswered.

“It’s a very big deal that the FTC and expense allocation issues have been left out,” said Andrew Silverman, a Bloomberg Intelligence analyst who focuses on tax policy. The regulations are “not a great answer for companies who are essentially left in limbo.”

The rules provide a starting point for how to calculate what they owe, but without the additional information companies still won’t be able to get to a level of comfort to complete tax returns and file documents with the Securities and Exchange Commission, Silverman said.

Corporations don’t want to underestimate their GILTI liability because they could be hit with a penalty if they pay too little in their quarterly tax installments to the IRS. The deadline for two portions has already passed and the next payment is due Sept. 15. Treasury officials said during a call with reporters Thursday that the additional guidance will be coming in about 60 days.

The Republican tax overhaul slashed the corporate rate to 21 percent from 35 percent, and shifted the U.S. to a system of taxing its companies on their domestic profits only. Those changes required guardrails — like the tax on GILTI — to ensure multinationals pay at least something on their future overseas profits.

The piecemeal guidance process, and the lack of understanding about the ultimate amount of tax that will be paid until all the parts are finalized, underscore the complexity of the tax law’s international provisions.

Tax advisers have been modeling the effects of the new law for their multinational clients, but because many of the new provisions are interconnected, and implementation may be governed by old tax regulations still on the books, they’re only able to estimate the amount of tax due.

That’s been a frustration for many publicly traded companies and their investors, who are anxious to understand how the new tax law affects them.

Companies are hesitant to record a tax hit for GILTI that they don’t think they should pay, so they’re waiting for the clarification in the regulations, said Brent Felten, managing director of international tax at accounting firm Crowe.

‘Taxpayer Friendly’

Still, Thursday’s regulations signal some good news could be ahead for multinationals. The rules indicate that companies can “gross up” their foreign income by the amount of foreign tax paid, a move that would result in a lower GILTI bill, said Mitch Thompson, a tax partner at Squire Patton Boggs.

“It’s taxpayer friendly,” Thompson said.

The GILTI levy effectively sets a 10.5 percent rate to apply to a company’s “excess” profits earned overseas through some of its foreign subsidiaries.

GILTI was intended to prod American technology and pharmaceutical companies into holding their valuable intellectual properties in the U.S. Currently, many hold their patents in subsidiaries in Ireland or other low-tax countries. The tax is intended to apply only in cases where a company’s cumulative overseas tax bill is below 13.125 percent, or 16.4 percent after 2025.

However, tax lawyers and accountants say quirks in the way the tax is calculated mean it will likely hit other companies, such as big banks with offshore operations, even when they already pay effective foreign tax rates above the threshold.

Bank lobbyists have urged the Treasury to come up with a fix that would lessen the pain from GILTI, saying an adjustment is needed to make the tax consistent with the intent of Republican lawmakers who wrote the legislation.

Repatriation Refunds

Pass-through entities such as partnerships and limited liability companies could fare even worse than corporations under the GILTI tax, but they won’t want to restructure their business without knowing how the foreign tax credit guidance will work, said David Shapiro, a partner at the law firm Saul Ewing Arnstein & Lehr.

That could create a rush of companies looking to reform as corporations after the regulations come out and before the end of 2018, Shapiro said.

Even after all of the GILTI questions are answered, companies will still be trying to figure out how they fare under the new international tax regime.

Treasury officials have said they plan to issue proposed regulations later this year on the other two major international provisions in the tax overhaul — a tax break encouraging companies to export U.S.-made goods, known as the foreign derived intangible income deduction, and the base-erosion and anti-abuse tax on payments corporations make to foreign subsidiaries.

The need to pay estimated taxes before receiving guidance has already caused headaches for some corporations that overpaid their repatriation taxes on profits accrued offshore since 1986. Some companies had overpaid to avoid penalties and were hoping for a refund. Instead, the IRS said in August it wouldn’t send the excess funds back and would apply them to a future installment of the repatriation tax bill.

“The more guidance you get from IRS and Treasury, the better, and the sooner you get it the better,” said Joe Calianno, a tax partner and international technical tax practice leader in BDO’s Washington office.

— With assistance from Isabel Gottlieb

Source: Bloomberg News Via:Accountingtoday.com 

Small businesses need major tax help

Despite the widespread belief that small businesses are a target for IRS audits, nearly a third of small-business owners think they overpay their taxes, according to a survey by B2B research firm Clutch of over 300 small-business owners and managers.

“If they think they’re paying too much, they’re questioning the accuracy of their tax return,” said Roger Harris, president of Padgett Business Services. “They’re somehow missing a deduction, or there are parts of the code they just don’t know about. If a business owner did their own accounting and bought a piece of equipment in October 2017, what’s the chance they knew the rules for the new 100 percent bonus depreciation?”

The small businesses in the survey listed unforeseen expenses (35 percent) as their top financial challenge, followed by the mixing of business and personal finances (23 percent) and the inability to receive payments on time (21 percent). Clerical errors in financial records, and outdated financial records, were both listed by 11 percent of respondents.

The majority of small businesses in the survey said they use the accrual method for tracking finances, although the smallest businesses, with fewer than 10 employees, were more likely to use the cash basis method.

“Actually, use of the cash method versus the accrual method has nothing to do with number of employees but with revenue,” said Harris. “In fact, the Tax Cuts and Jobs Act increased the ability to use the cash method for businesses with up to $25 million in annual revenue. Cash accounting is available to many businesses, and many small businesses prefer it because it’s simpler. They like taxable income to track as closely as possible to their checkbooks. In fact, most of our clients would be happy with a simple profit and loss financial statement: Money in minus money out equals money left, or what some of them call ‘my money.’”

“But the accrual method creates expenses that sometimes aren’t yet paid and sometimes defers costs that are already paid, and defers them into the future,” he continued. “In that case, taxable income can vary dramatically from using the cash method.”

“The cash method is easier for everyone to understand,” he said. “Money in is income, money out is expense, and what’s left is your money, which is what you pay taxes on.”

Most use a hybrid method — accrual for income because they have inventories, and cash for expenses, according to Harris.

“If I asked what method of accounting they use, most small-business owners would just stare at me,” Harris said. “But if I explained it to them and they made a pick, most would choose cash. I would be stunned if I asked a small-business owner without giving a choice, and anyone said ‘accrual.’ Most of them wouldn’t even know the term. If you go to the coffee shop in your building and ask the owner what method they use, they won’t know what you’re talking about.”

“In a classroom or to an accountant, the accrual method is favored,” said Harris. “But in the eyes of most owners, if they don’t have the money it’s not income, and if they haven’t paid money, it’s not an expense.”

Surprisingly, the survey found that more than a quarter — 27 percent — of small-business owners and managers said they do not have a separate bank account for their business. Naturally, established businesses are more likely to have separate bank accounts than start-ups. Nearly 80 percent of small-business owners of five years or more said they have separate accounts, compared to 68 percent of small-business owners of two years or less.

Source: accountingtoday.com Written by: R. Russell

Tech will lead the way with new lease accounting guidance

Accounting professionals, as the stewards of financial information, have a unique opportunity to take the lead in adopting the new lease guidance and implementing lease accounting software. Approaching the adoption methodically, which includes collecting data, making policy decisions, and applying operational realities, accountants play a distinct role in developing the processes and implementing the systems that guide an organization into the future. In doing so, accountants can help companies capture the benefits of enhanced, centralized processes, improved lease management and increased data visibility that ultimately lead to cost savings and more accurate financial data and disclosures.

One of the keys to realizing these benefits is for accountants to embrace technology as part of the implementation process. Unlike cumbersome and error-prone spreadsheets, lease accounting software that is effectively implemented will allow accountants to efficiently analyze vast amounts of asset data and make informed decisions. Empowered by the centralized data from the lease accounting software, accounting professionals are positioned to add valuable insights on lease spend, advise on both operational and financial decisions and provide more in-depth and accurate financial analysis.

Selecting and implementing lease accounting software

Lease accounting software, when judiciously selected, enables accountants to help their organizations capitalize on streamlined data. At the highest level, the most appropriate solution will come from a financially stable vendor with lease experience and be SOC 1 compliant. When evaluating software options, understanding your company’s business requirements is critical. Specific items to consider include the lease portfolio characteristics, international reporting requirements and foreign currency translation needs. To cement the selection process, users need to be able to easily input data, navigate the modules, and produce disclosure reporting.

Beyond ensuring that a solution meets your company’s requirements, a system should be easy to implement. Employing a lease accounting system requires organizations, specifically accountants, to coordinate cross-departmental teams that will assess the current state and inform the development of future state processes around procurement, month-end close journal entries and asset management. Leading the implementation presents a strong opportunity for accountants to move beyond the numbers and partner with upstream functions that often do not understand how their processes impact financial information.

Enhanced, centralized processes

Creating more efficient, centralized processes to not only collect information but to accurately input data into a system will pay dividends. On the front end, by working with procurement and operations, accounting can implement processes that ensure compliance with the new standard. This approach paves the way for accountants to be the Center of Excellence and subject matter experts for advising both operational and financial decisions. For example, as part of a monthly or quarterly process, accountants can utilize a lease system to provide more timely and accurate analysis of lease spend, ultimately leading to cost savings and an improved bottom line.

Additionally, the new guidance has a significant impact to the financial statements and disclosures, requiring accountants to thoughtfully strengthen internal controls and improve reporting processes. For instance, lease information that previously resided only in the footnotes is now presented as a liability that will be subject to increased scrutiny from internal and external stakeholders. Through heightened attention and robust processes around lease terms and details of lease transactions, accountants can make certain the financial statements under the new guidance are accurate.

Improved lease management

Lease accounting software and centralized lease management allows accountants to monitor and make educated decisions on lease events. Typical events include amendments to add or remove assets, altering length of term and middle- or end-of-term options such as terminations or renewals. Specifically, with lease accounting software, companies can produce standardized and customized reports to assist in presenting actionable information. A common benefit to these operational reports are their assistance to inform decisions on whether to renew or end a lease agreement prior to the lease end date, ultimately reducing unwanted month-to-month lease expenses which may have previously gone unnoticed.

More complete and accessible lease data will position accountants to assist their companies with proactively managing assets. To illustrate, lease versus buy decisions may oftentimes be uninformed because of the lack of data and decentralized lease management, resulting in inefficiencies and overspending. The centralized monitoring of lease events will help inform lease versus buy strategies that produce efficiencies and cost savings related to common challenges like evergreen leases, vendor management for similar leases and end-of-term options such as lease extensions.

Increased data visibility

Cross-departmental collaboration and an effective lease accounting software implementation will lead to a more cohesive and efficient data flow. This improved workflow creates on-demand access into lease data and knowledge sharing between previously disconnected areas of an organization like purchasing, real estate, IT and accounting. Currently, accountants are often delayed in receiving information that could impact timely journal entries. In the case of leases, communication about a new contract may not occur until after the month closes, resulting in catch-up entries and the risk of misstatements in financial reporting. With a new lease accounting solution and efficient workflow, accounting groups will have visibility into upcoming and recently transacted agreements to influence management with concrete financial analysis on lease spend.

As accountants take leadership roles in the adoption of the new guidance and the system selection and implementation processes, companies will realize value from enhanced, centralized processes, more robust management of leases and more in-depth visibility to lease data. These improvements provide accountants with the opportunity to provide their companies with analysis and insights on critical capital-asset procurement and spending. Ultimately, successful adoption of the lease guidance will yield cross-departmental collaboration and efficiencies, more cost-effective lease decisions, and increased accuracy in financial reporting.

Source: accountingtoday.com Written by: Bill Maloney

Blockchain: A 'significant evolution' accountants can't afford to ignore

Blockchain might be the most buzzworthy word in accounting today, if its prominence at the Accounting and Finance Show L.A. last week is any indication.

Multiple sessions covered the emerging technology, with one keynote speaker, Robert Massey, a partner at Deloitte, giving a primer on the hot topic.

“Blockchain is one of the most significant evolutions we’ve seen,” said Massey, who leads the Big Four firm’s cryptocurrency and blockchain practice globally. “Blockchain is to value as the internet is to information. It’s an exponential change, to share information between decentralized parties, in real time. It decentralizes the ability to record information, and enable transactions. It’s the next step in the evolution of commerce.”

Massey finds it helpful to think of blockchain as a “big shared ledger” -- more specifically, “a distributed ledger which allows digital assets to be transacted in real time, in an immutable manner.”

Smarter agreements

Members of another panel on blockchain focused more on how accountants should plan to harness the technology within their practices.

Practitioners should start with educating themselves on the blockchain, all panelists agreed. David Cieslak, chief cloud officer and executive vice president at business consulting firm RKL eSolutions, suggested that firms add a blockchain leader, while Ron Quaranta, chairman of the Wall Street Blockchain Alliance, recommended seeking resources on the topic from the American Institute of CPAs.

“Technology has disrupted the profession previously — this is not a new conversation,” said Danetha Doe, founder of financial mentorship program Money and Mimosas. “It’s the speed of the change. The next generation is adopting quickly, and you’re going to start to see a shift in the profession … how blockchain can be applied to different use cases outside the box.”

“All of us need to be thinking a lot more about value, and a lot less about tasks, [which] are often much more transactional,” said Cieslak. “Blockchain is really going to accelerate that. How can we leverage the technology to bring that greater value?”

It was a question asked frequently throughout the two days of the Accounting and Finance Show, with speakers attempting to provide guidance on a bold, and still mysterious, new frontier. But the technology’s novelty and unrealized potential only energized both panelists and attendees.

The conference’s thought leaders were most enthusiastic about blockchain as it related to new ways of conducting business, such as its use in smart contracts.

Smart contracts take “key terms in a legal agreement, and embed [them] in software, creating link dependencies in the agreements,” Massey explained in his keynote session. He offered the example of a farmer buying crop insurance, which will pay him if it doesn’t rain for 100 days.

Smart contracts utilize blockchain to connect to outside, trusted “sources of truth” to facilitate, enforce and verify terms of an agreement, thus removing the need for third parties or middlemen. In Massey’s farmer example, one of those sources of truth would be regional weather data.

“Blockchain is very effective connective tissue,” Massey explained. “We see, in all industries, the use of smart contracts enabling better relationships.”

Smart contracts “are happening organically anyway,” he continued. “It’s not just the systems, but the organizations that are decentralized. It’s likely now that transactions are validated somewhere other than where management is sitting.”

“There’s a real variety of use cases, and those are what are super-exciting,” said Cieslak during the panel discussion. “Some of what is going to be done with blockchain, has never been done before.”

The implications are especially exciting for certain industries, like the recording industry, an example many speakers cited when describing how intellectual property, like songwriting credits, can be coded into blockchain-enabled smart contracts. Speakers and panelists urged attendees to educate themselves on the technology and assess how it can apply to their clients and industry verticals.

“Every company innovation in this space is putting forth solutions,” said Massey. “In L.A., in entertainment, in media, [you can] lock down intangibles like the rights of a song or movie. What if you lock that down in a blockchain solution, before you had to pay for it? It’s a significant evolution in song and movie rights. It’s hitting every industry. It’s relevant to every single one of them. Think about your clients, and what’s relevant to them.”

Crypto, currently

Many people are familiar with blockchain as the technology behind cryptocurrencies like bitcoin and ethereum, and Deloitte's Massey dedicated a portion of his session to addressing those virtual currencies, as did other panelists at the conference.

All panelists stressed the status of cryptocurrency as property, based on guidance issued by the Internal Revenue Service in 2014.

Stephen Turanchik, an attorney in the tax practice at law firm Paul Hastings, spoke about the perplexing nature of cryptocurrency taxation during another conference session. He explained that virtual-currency exchanges are not required to report to the IRS, so “a lack of detection, and the ability to hide it, still exists.” But, he continued, “if you think that gives you the license to commit tax fraud, think again.”

On July 2 of this year, the IRS announced its virtual currency compliance campaign, and it will be conducting more audits on virtual currencies, Turanchik warned the audience.

The IRS is also stepping up outreach and education efforts, and soliciting taxpayer and practitioner feedback for these campaigns. The service is urging taxpayers with unreported virtual currency transactions to “correct their returns as soon as practical,” Turanchik reported, though the IRS is not contemplating voluntary disclosure programs.

“The IRS simply doesn’t have the technical expertise to give guidance in this area,” Turanchik said. He cited a “John Doe” summons the IRS served to virtual-currency exchange Coinbase in November 2016, seeking customer data. Before the petition was granted, the IRS had to narrow the scope of the summons, to Coinbase users with accounts of at least $20,000 in any one transaction type, in any single year between 2013-15.

Overall, Turanchik explained, there is a “significant lack of transparency” in the cryptocurrency space, which he said keeps him busy, and provides big opportunities for tax preparers.

Source: accountingtoday.com Written by: Danielle Lee

The opportunities and challenges facing your entrepreneur clients

American entrepreneurship is on the rise. Based on a historical analysis of a subset of Paychex clients, in the first quarter of 2018, small business entrepreneurship was near its best pace since the recession. Odds are you’re seeing more entrepreneurs walk through your doors looking for financial guidance as they start and run their business, but are you aware of the current state of entrepreneurship, as well as the opportunities and barriers your clients face?

A new report by Paychex analyzes American entrepreneurship during the past decade and the state of small business today, including today’s business owners’ attitudes and perceptions of the current business environment.

Overall, the majority of business owners feel positively about the state of business as a whole. More than three quarters of small business owners (79 percent) would recommend starting a business today, and 71 percent of business owners describe today’s business environment as either better or the same compared to when they started their business. Most business owners (74 percent) cited the satisfaction of working for themselves as a reason they’d recommend starting a business today. However, the age and size of the business impacts business owners’ outlook:

• Business owners who started their company during or closely following the recession (four to nine years ago) were more likely (57 percent) to say the business environment is better today than when they started, compared to only 32 percent of those who started their companies 20 or more years ago.

• Eighty-one percent of business owners with 100 to 500 employees say the business environment is better today than when they started, compared to 46 percent of owners with one to 19 employees.

• Owners of larger businesses were also more likely to recommend starting a business today. Ninety-four percent of owners with 100 to 500 employees and 91 percent with 20 to 99 employees would recommend starting a business today compared to 78 percent of owners with one to 19 employees.

From an individual standpoint, business owners today also have a positive outlook on their future. Nearly two-thirds (64 percent) are optimistic or very optimistic about their ability to make a profit, and 58 percent are optimistic or very optimistic about their prospects for growth. Half of business owners are optimistic or very optimistic about the U.S. economy, but they face some barriers to starting and running a business too:

• Ninety percent of business owners are at least slightly concerned about rising costs and 84 percent of business owners are at least slightly concerned about taxes.

• In today’s tightening labor market, 67 percent of business owners are at least slightly concerned with finding quality employees (30 percent are very concerned).

• Additionally, approximately 25 percent of business owners are at least somewhat pessimistic about their ability to hire and raise wages.

Each business owner seeks different outcomes from their entrepreneurial endeavors. Only 11 percent of business owners say rapid growth is their top priority at this time. The majority are happy to remain comfortably profitable or grow at a moderate rate.

• Remaining “comfortably profitable” was the top choice for male owners, owners in business 10 or more years, and owners age 50 or older.

• Growing at a “manageable rate” was the top response from female business owners, owners in business nine or fewer years, and owners 18 to 34 years old.

Knowing how today’s business owners are feeling and what they’re facing can help you as you advise them in starting and growing their business. Though business owners know that rising costs and taxes are impacting their business success, your expertise can guide them to best manage and plan for the expected and unexpected barriers they face. 

Source: Accountingtoday.com, Written by: F. Fiorille

Bitcoin is property, not currency

The tax implications of cryptocurrency have become increasingly important as the Internal Revenue Service and other government agencies step up their scrutiny of transactions involving bitcoin or other forms of virtual currency.

Despite the fact that the IRS said everything it planned to say about the tax aspects of cryptocurrency nearly four years ago, in Notice 2014-21, there is a mismatch between the number of U.S. citizens who have bought, sold, mined, or received or spent cryptocurrency in transactions, and the number who have reported it on their tax returns.

According to Credit Karma, only .04 percent of the tax returns that they have filed for clients so far this year reported cryptocurrency transactions. Meanwhile, Coinbase, a cryptocurrency exchange, is estimated to have had 11.7 million users by the end of October 2017. And since Notice 2014-21 says that cryptocurrency is property, not currency, any transaction likely results in a reportable gain or loss.

“When you exchange currency for currency, it’s not a taxable transaction,” said Ryan Losi, a CPA and executive vice president of accounting firm Piascik. “But when you exchange property for property, it is a taxable transaction. You have to identify every piece you have, how it was acquired, was the way you acquired it a taxable transaction, and was it a taxable transaction when you disposed of it. You need to compute the gain or loss, and the character of the gain or loss. When you acquire cryptocurrency on a daily basis, this can become a nightmare.”

“And the Tax Cuts and Jobs Act made a major change to the code under Section 1031, which allows businesses and investors to exchange like-kind property tax-free,” he said. “Since 2014, many practitioners took that to mean that if you exchange virtual currency for other virtual currency, then any gain can be tax-free or deferred under Section 1031.” That possibility no longer exists as a result of tax reform, Losi noted.

On top of that, he pointed out that the largest custodian of virtual currency, Coinbase, lost a legal battle with the IRS requesting a subpoena of their records, so now they have to disclose the vast majority of their U.S. users.

“So the IRS will have data to determine if Americans are reporting gain from virtual currency,” said Losi. “Now, U.S. account holders with balances of $20,000 or higher are covered by the subpoena.”

“It’s up to the individual to keep records,” he added. “If you bought a house using bitcoin, it’s as if you sold the bitcoin and used the proceeds to buy the house. You’re liable for tax on the gain between when you acquired it and when you bought the house.”

MINING TROUBLE?

Taxpayers who “mine” virtual currency realize gross income upon receipt of the virtual currency resulting from those activities, according to Notice 2014-21. Mining includes using computer resources to validate bitcoin transactions and maintain the public transaction ledger. Moreover, if a taxpayer’s “mining” constitutes a trade or business, and the mining activity is not undertaken by the taxpayer as an employee, the net earnings from self-employment resulting from those activities constitute self-employment income and are subject to the self-employment tax.

“Bitcoin miners use computing horsepower to solve complex algorithms,” Losi said. “If they do this successfully, the community reward for solving the problem and creating the block sequence of the next block in the chain is their currency, which had a value in 2017 of $8,000 to $19,000. Each algorithm gets exponentially harder to solve than the last.”

In this area, practitioners disagree with the IRS’s approach, according to Losi. “If I mine for precious metals, when I strike gold or diamonds or copper or zinc, the mere striking does not equal a taxable event. It goes into inventory and it’s not until I sell that it’s a taxable event. But when I receive a bitcoin credit to an online wallet, the IRS treats it as a taxable event. When you are credited with the coin it’s treated as service income.”

“This is wrong — when you make an exchange you need two parties,” he said. “When a bitcoin miner receives a coin, all it does is expand the number of bitcoins in circulation.”

Chuck Sockett, a managing director at UHY Advisors, agreed: “Someone who mines uses equipment to go into the ground and mine, and bring gold or diamonds to the surface. There’s no gain until the miner disposes of the mineral. If you mine virtual currency you can deduct the expenses of the computer, but the IRS considers anything you mine to be immediately taxable. That troubles me.”

A SURPRISING SUBPOENA

Investors in cryptocurrency assumed that they had complete privacy because of blockchain technology, according to Marvin Kirsner, a shareholder in Greenberg Traurig.

“But they didn’t consider that the IRS would issue summonses to get information from a virtual currency exchange, and many investors are having their information disclosed to the IRS by the exchange,” he said. “The subpoena to Coinbase will likely be the first of many subpoenas, so now the IRS knows the names and identities of investors. They will start getting audit notices as to why they didn’t report these transactions.”

“I advised my clients a year ago to file amended returns to reflect all their trading,” he added.

Kirsner believes that the IRS will eventually come out with a voluntary disclosure program, similar to the Offshore Voluntary Disclosure Program in place since 2014 (which the IRS just announced that it would wind down by Sept. 28, 2018 — see page 15).

Most transactions are likely to generate short-term capital gain at ordinary income rates, according to UHY’s Sockett. “People in the office who are buying and selling very quickly — that’s all short-term. And if it’s treated as inventory, it’s just ordinary income from the sale.”

WIDER INTEREST

It’s not just the IRS that has increased its scrutiny of cryptocurrency, Sockett noted, adding that both the Securities and Exchange Commission and the Commodities Futures Trading Commission have taken recent action on cryptocurrencies.

The SEC issued two investor alerts in 2013 and 2014 to make investors aware of the potential risks of investments involving bitcoin and other virtual currencies, and in July 2017 it stated that initial coin offerings can sometimes be considered securities. In February 2018, it issued 80 subpoenas to companies and promoters involved in issuing cryptocurrency. “It comes down to classification as a security,” said Sockett. “If the SEC wins out, ICOs will have to be registered as a security. Their concern is whether any of the offerings involve fraud or misrepresentation that might hurt investors.”

“After the SEC goes through the different ICOs, they will come out with a position that will likely change the playing field,” he said. “And the IRS may give additional guidance after the SEC takes a position.”

Source, accountingtoday.com 

Top tips for working with tax pros

The National Association of Enrolled Agents asked its tax experts the best practices clients should follow when working with a tax professional, and gave some helpful advice from an online survey whose results were released Monday.

Twenty percent of the enrolled agents surveyed by the NAEA strongly agreed with the notion that all clients should sort their documents using an organizer or organizing system provided by their tax professional, while 21 percent agreed with the statement that “it is impractical to expect new clients to organize their materials using the system with which I am most comfortable.”

However, 47 percent strongly agreed with the statement, “I work more effectively with clients who are willing to learn and adjust the way they organize their documents so that I can serve them better.” In addition, 51 percent strongly agree that taxpayers should schedule an appointment with tax professionals early in the filing season to avoid undesirable outcomes.

“Your willingness to adapt the way you organize your tax documents will help you get the best result from your work with a tax professional, often at a lower cost,” said NAEA President James Adelman in a statement. “Have a conversation with your tax professional at the outset to clarify expectations and preferences on all sides.”

Eighty-three percent of tax pros said clients should use separate bank accounts for business and personal funds, while 81 percent recommended clients should keep their receipts in case their tax returns are examined, and 75 percent said clients should use a mileage log or smartphone app to record the business miles they have driven.

Identifying preferred communication channels and technologies is crucial, along with respecting deadlines and sharing time-sensitive information promptly are also essential. Ninety-six percent of the enrolled agents polled said clients should notify tax pros as soon as they receive a letter or notice from the IRS, while 82 percent said they should tell tax pros about significant life changes such as a retirement or divorce. Eighty percent said clients should consult with tax pros before starting a side job, while 78 percent said clients shouldn’t respond to notices from the IRS without consulting a tax pro.

Enrolled agents prefer to maintain a professional relationship with clients. The survey found 83 percent of the enrolled agents polled agreeing with the statement that advice from tax pros may be quite different from the tips that clients get from friends. Seventy percent of tax pros said their clients should not expect to get the same refund that a neighbor or coworker told them they had received, while 69 percent said “same as last year” is not an acceptable answer to questions from tax pros. In addition, 60 percent said tax pros cannot tell clients how the new tax bill impact their 2018 taxes until they run the numbers, while 52 percent agreed that a “quick question” a client asks a tax pro rarely has a quick or simple answer. 

Source: accountingtoday.com,  Michael Cohn

How is big business using the Trump tax cut? What we know so far

President Donald Trump’s corporate tax cuts are already having a big impact.

The main takeaway at the halfway point of earnings season is that corporations are going to make more money—lots more—as their statutory tax rate gets axed to 21 percent from 35 percent. Corporate chiefs already are making plans for the windfall, with some detailing specific investments in infrastructure or technology along with their one-time charges and benefits.

So far a record 75 percent of companies have raised their profit guidance, according to strategists at JPMorgan Chase & Co. Taking into account the benefits of lower corporate taxes, Wall Street expects U.S. firms to increase capital expenditures by as much as 6.8 percent this year—more than five times the projected growth in 2017.

There are other needs too beyond capital spending: Higher pay for workers in a tight labor market, balance-sheet repair and returns to investors through buybacks and dividends. Many of the big announcements so far represent multiyear plans with big headline numbers but only broadly sketched details.

Cash Flow

Citing the lower tax rate, AT&T Inc. said free cash flow this year will surge almost 20 percent to $21 billion, giving the phone carrier more financial flexibility.

The telecom giant had already announced it would invest an additional $1 billion in the U.S., helping the company prepare for the transition to a new fifth-generation mobile network, and give $1,000 bonuses to workers, thanks to reforms that Chief Executive Officer Randall Stephenson called “capital freeing.”

Chief Financial Officer John Stephens also made clear the company sees reform strengthening AT&T’s financial position. “We see a significant boost to our balance sheet, reducing $20 billion of liabilities and increasing shareholder equity by a like amount,” he said last week on a call.

Lockheed Martin Corp., the world’s largest defense contractor, is earmarking some of its expected windfall for pensioners. The company plans to contribute $5 billion in cash, satisfying its required obligations until 2021.

The company is also increasing its commitment to initiatives like employee training, charitable contributions for education in science and math, and the Lockheed Martin Ventures fund by $200 million, CEO Marillyn Hewson said on a call.

Lockheed projects earnings will more than double this year to $15.50 a share, buoyed by the U.S. tax cuts and higher deliveries of its F-35 Lightning II fighter jet.

Pharma’s Plans

Merck & Co. expects its tax rate will fall to about 20 percent from 35 percent, providing added flexibility for major capital expenditures, in addition to research and development.

The drugmaker expects to spend $12 billion over five years, including $8 billion in the U.S., with oncology, vaccines and animal health targeted for investment, CFO Rob Davis said on a call. Merck will also pay one-time bonuses to some of its 69,000 employees.

Priorities also include the dividend, business development deals and repurchases, to the extent possible.

Merck finished the year with $21 billion in cash, and plans to repatriate about $17 billion over time. The proceeds will be invested in the company, its dividend, and remaining money will go toward deals and share repurchases.

AbbVie Inc., maker of the top-selling drug Humira, plans to spend $2.5 billion on capital projects in the U.S. as a result of tax reform and is evaluating expansion of its U.S. facilities, according to CEO Richard Gonzalez. The drugmaker also will accelerate pension funding by $750 million and increase non-executive pay, though it didn’t provide details.

AbbVie said on Jan. 26 its tax rate will plummet to 9 percent this year. It was 19 percent in 2017. As a result the company boosted its annual profit guidance to as much as $7.43 a share, a 13 percent jump.

“U.S. tax reform enables more efficient access to our foreign cash, and the ability to deploy it in the United States,” Gonzalez said on the call.

Foreign Companies

Roche Holding AG’s tax rate will drop from 26.6 percent last year to the low 20 percent range. The tax cut means core earnings per share will rise by a high single-digit rate this year; without the reduction, earnings might have been little changed. The drugmaker didn’t announce any increase in investment.

“We do benefit from the U.S. tax reform,” Severin Schwan, CEO of Roche, said in a conference call. “We have been one of the biggest taxpayers in the United States.”

Diageo Plc, British American Tobacco Plc and Societe Generale SA also said the tax law would lower their rates. Lenovo Group Ltd. posted a surprise loss after taking a $400 million charge related to the tax-law changes, while adding that its U.S. operations may benefit from a lower rate in the longer term.

The Big Gorilla

The company with the biggest decision to make is Apple Inc., with a net cash position of $163 billion—the sum of its $285 billion cash hoard and debt of $122 billion. Apple’s aim is to reduce that to zero and will announce more specific plans when it reviews results for the current quarter ending in March, Chief Financial Officer Luca Maestri said on a call.

“When you look at our track record of what we’ve done over the last several years, you’ve seen that effectively we were returning to our investors essentially about 100 percent of our free cash flow,” Maestri said. “And so that is the approach that we’re going to be taking.”

Last quarter, Apple paid $3.34 billion in dividends and repurchased more than $10 billion of its stock.

The company had no difficulty financing acquisitions before tax reform, he said, and doesn’t see any now, either. Apple made 19 acquisitions last year.

“It’s always the customer experience in mind, right, that we make acquisitions,” Maestri said. “We look at all sizes and we will continue to do so.”

—With assistance from Jing Cao, Mark Gurman, Blaise Robinson, Jared S. Hopkins, Julie Johnsson, Caroline Chen, Brandon Kochkodin, Phil Serafino and Scott Moritz

Source: Bloomberg News via Accounting Today

AFWA announces 2017 'Women Who Count Awards' winners

The Accounting & Financial Women’s Alliance announced the recipients of its 2017 Women Who Count Awards during the organization's annual Women Who Count Awards luncheon, held October 30 in Alexandria, Virginia.

The annual award ceremony recognizes female leaders in the profession who not only set examples in their "companies and communities," but who have also "earned the trust and respect of their clients and peers," according to the Alliance.

“Our members succeed as we encourage and empower them to take on challenges for personal and professional growth," said AFWA national president, Lori Kelley, per a statement. "I could not be more proud to celebrate these brilliant women. Their work exemplifies the values that define our organization, and the impact we as women hope to make in the profession.”

The 2017 Women Who Count Awards recipients are as follows:

• Emerging Leader: Jennifer Brodmann - PhD candidate/dissertation fellow, the University of New Orleans, New Orleans, La.
• Industry Professional: Grace Staten - marketing director, MassMutual, San Diego, Calif.
• Public Practice Professional: Kelly Haden - manager, Ericksen Krentel, New Orleans, La.
• Woman of the Year: Dr. Marilyn Willis - professor emeritus, University of Tennessee at Chattanooga, Chattanooga, Tenn.

Source: Accounting Today

Thomson Reuters offers new audit management tool

Thomson Reuters has added an Audit Management solution to its Connected Risk platform to help firms better assess risks and increase the efficiency of their audit process.

Thomson Reuters launched its Connected Risk platform in the first quarter of 2017 following its acquisition of Empowered Systems, whose proprietary technology underpins the offering. Connected Risk is designed to help customers tailor solutions to meet specific risk-use cases.

The new Audit Management addition is designed to facilitate the role of an audit advisor to their business clients by providing information to support strategic decision-making.

Auditors can use the tool to adjust audit plans in cycle to reflect changes in risk profiles, and where applicable, assessments can be informed by the broader business risk through use of the underlying Connected Risk platform’s data mapping and aggregation capabilities, according to Thomson Reuters. Audit professionals can also execute audits underpinned by electronic work-papers and subsequent audit findings management, which is all tracked and reported through the integrated dashboards and reporting engine and/or integrated into existing business intelligence tools.

“There is no denying that both the financial services and corporate sectors continue to experience unprecedented volumes of regulatory change and complexity,” said Gareth Evans, managing director, enterprise risk management at Thomson Reuters, in a statement. “The amount of data our customers must understand shows no sign of abatement. What they need more than ever are ways to better make sense of what matters.”

He added that the Audit Management tool will allow auditor customers to apply “the deep expertise that Thomson Reuters is known for in managing and interpreting unstructured data.”

Source: Accounting Today

Pathways to Growth: Want to land that big fish?

It drives me crazy to hear complaints about lost business opportunities when there was very little understanding about how to land that big fish. If you’ve got something of value to offer and are approaching the right buyer, reeling in the big ones isn’t rocket science. It’s a proven process based on doable steps and learning moments.

I often hear partners blame missed opportunity on issues like price pressures or competition. But I can count on one hand the number of times I’ve heard, “You know, Gale, I blew this one.”

Recently I got a call from a CPA I had coached years ago who eventually left public accounting to serve as CFO of a large, publicly held company. He couldn’t wait to tell me about a request for proposal that he and his company sent to their current provider, as well as some of the other largest CPA firms in the country. Breathlessly he exclaimed, “I just walked out of the orals, and you’d be shocked and horrified at what I saw!”

He described an anemic sales process and pathetic presentations by all of them that demonstrated no understanding of the client. When he asked several pointed questions, none of the presenters could muster a substantive response.

Tired of landing in the ditch?

He and I had a good laugh, but neither of us were shocked. He said, “These firms haven’t innovated their sales process since the 1970s.”

In the mid-market where I reside, this is life as we know it. Partners call me after the fact, constantly in despair, having watched one and then another opportunity roll into the ditch. It’s especially disheartening to see this happen to partners who hear what they need to do, but constantly revert to dated approaches — like poring over records rather than interviewing senior executives, including the CEO, to shine light on what the business seeks to accomplish, and learning everything possible about context and strategy.

Listening for the main mega-themes in the interviews is the clue to a winning strategy, not the fact that you (think you) have better auditors.

Instead of conversations with executives about the company and the context of the decision, contenders often come to the conference table with a well-dressed entourage and lots of technology. They mistakenly assume that chest-thumping and digital bells and whistles will secure the opportunity.

When I was with IBM, we called this approach “spray and pray.” The tactic involves showering your prospect with information about how wonderful you are, and praying they find something relevant to grab onto. What clients really want is something solid and relevant to them — value, innovation and customization. To achieve this, you have to crawl into your buyer’s head to uncover deep, often hidden needs. The name for this is strategic solutions selling, and I describe the process in detail in a document I call the “Big Fish Emergency Toolkit.”

Listen close

Truth is, your prospect knows something about you or you wouldn’t be a contender. Instead of the “me and us show,” you need to become the producer of the “you and your challenges show.” The way to do this throughout the sales process includes key principles such as:

• Qualify the opportunity. Make sure it’s worthy of pursuit by going one-on-one with decision-makers, influencers and others who have a vested interest in the outcome.
• Get comfortable talking about your competitors. Ask the prospect about the competition, which helps put you in a consultative, rather than a vendor, position. During your one-on-ones, don’t hesitate to learn about other firms under consideration and what they bring to the table.
• Find an advocate. Identify and cultivate someone who can help you navigate the minefield of confusing and wrong information that will come your way. Like the real estate agents say, “Buyers are liars.” It’s not that they’re bad people, they just sometimes forget to tell you the truth or may not know it! An advocate can come from anywhere in (or sometimes outside of) the organization.

These techniques will serve you well as you pursue opportunities of all sizes, not just the big ones. Also, note that strategic selling can be especially useful down market, where fewer of your competitors will know and use the approach.

You’re not going to land that grown-up fish using a kid’s rod and reel. You need big ideas, robust tools and fresh solutions that distinguish you from the crowd. There’s a big ocean out there, and there’s no reason the biggest fish in it shouldn’t be yours.

Source: Accounting Today