Skoda Minotti

This month's issue of Valuation & Litigation Advisory Insights includes the following articles:

• IP Valuation Using the Relief From Royalty Method
• Valuation Critical Under New M&A Rules
• Putting a Price on Technology

Click here to read this article.

Valuation Critical Under New M&A Rules  

Sweeping changes to the accounting rules for mergers and acquisitions (M&A) will start affecting many companies that are closing deals this year. FASB SFAS No. 141(R), Business Combinations, was issued in late 2007, but it applies to deals closing on or after the first day of the first annual reporting period beginning after Dec. 15, 2008. This article explains how many of the changes prescribed in this 358-page document increase the importance of having accurate valuations.      

Click here to read this article.

Putting a Price on Technology

Valuing technology-related intellectual property (IP) can be an enormous challenge for lawyers and valuation experts. It considers the degree of legal protection associated with technology IP as well as the economic benefits a company is expected to derive from that protection. Typically, valuation experts analyze the various economic benefits associated with a technology IP asset separately, and will use different approaches depending on whether  a patent is associated with developed technology, in-process research and development, or future technology. There are a variety of contexts in which the need to value technology IP can arise.

Click here to read this article.

Prior issues are available at our E-Newsletter Archive. If you would like to subscribe to this free monthly e-newsletter, send an email to info@skodaminotti.com.

If you have any questions about any of these articles, post a comment below or please contact our Valuation & Litigation Advisory Services Group at 440-449-6800.

AFFECTING

Certain taxpayers with foreign financial accounts

DETAILS

On February 25 and 26, 2010, the Treasury Department and Internal Revenue Service issued three items of guidance concerning the filing of Form TD F 90-22.1, Report of Foreign Bank and Financial Accounts (“FBAR”). The Service first issued Notice 2010-23 and Announcement 2010-16, which generally extend the relief granted in prior guidance. The other guidance consists of proposed regulations concerning the FBAR filing requirements. Notice 2010-23

In August 2009, the Service issued Notice 2009-62, which extended until June 30, 2010, the filing date for certain individuals (1) with signature authority over (but not a financial interest in) a foreign financial account, or (2) with signature authority or a financial interest in a foreign commingled fund. To address public comments received since the issuance of Notice 2009-62 and to provide immediate guidance in answering tax-return specific questions concerning investments in foreign financial accounts, Notice 2010-23 provides the following relief:

1. The filing date for persons with signature authority over (but not a financial interest in) a foreign financial account is extended to June 30, 2011. The extended date applies to reporting for such accounts for the 2010 and prior calendar years. When filing an FBAR under this extension, the FBAR guidance in effect at the time the FBAR is filed must be followed.

Click here to read the rest of this article.

Investment banking fees are one of the biggest costs in any acquisition.  Since the 263(a) regulations were issued in December, 2003, the documentation requirements for deducting such fees under Treasury Regulation §1.263(a)-5(f) have resulted in significant controversy between taxpayers and the IRS.

In general, under Treasury Regulation §1.263(a)-5(a), a taxpayer must capitalize amounts paid to facilitate an acquisition of assets that constitute a trade or business and stock acquisitions.  An amount is paid to facilitate a transaction if it is paid in the process of investigating or otherwise pursuing the transaction.  With respect to an amount paid that is contingent on the successful closing of a transaction, Treasury Regulation §1.263(a)-5(f) provides the documentation requirements to support a deduction for fees allocable to activities that do not facilitate the transaction.  In short, the documentation, which must be completed contemporaneously with the tax return for the taxable year in which the transaction closes, must consist of more than merely an allocation between the activities that facilitate the transaction and activities that do not facilitate the transaction.  The documentation must consist of supporting records such as time records, itemized invoices, or “other records.”

Under a recent Technical Advice Memorandum’s (“TAM”) facts, a taxpayer hired a private equity firm and investment banker to assist with a potential sale of the Company.  The Company agreed to pay the private equity firm and investment banker a lump-sum contingent fee if a sale was consummated within a certain time frame.  After the successful transaction, the private equity firm and investment banker invoiced the Company, but neither provided a detailed breakdown of the services rendered by time or fee.  The Company then hired an accounting firm to conduct a transaction cost study to determine what portion of the fees was deductible or capitalizable.  At issue were spreadsheets created in connection with the study, based on discussions and correspondence with representatives of the private equity firm and investment bankers. 

The IRS said the Company was required to capitalize costs incurred to facilitate the transaction.  To the extent the Company could demonstrate that some activities provided by the private equity firm and the investment banker were allocable to activities that did not facilitate the transaction, the Company could deduct a portion of the fees paid.  The IRS argued that the Company failed to provide sufficient documentation that a portion of the success-based fees was attributable to non-facilitative activities and thus amounts were to be capitalized under §263(a).  The Company argued that the spreadsheets prepared by the accounting firm qualified as “other records” and hence were sufficient to meet the documentation requirements even though the documentation did not include time records or detailed invoices.  Since private equity firms and investment bankers do not keep time records or provide itemized invoices like law firms and accounting firms, the Company was unable to provide time records or itemized invoices to support its allocation.

The TAM acknowledges that the term “other records” is not defined, and there are no limitations on the type or source of documentation that can qualify for such.  Thus, any document, whether or not labeled a “time record” or “itemized invoice,” can serve to establish the deductible portion of success-based fees, and this is true even where the document was not produced directly by the service provider (i.e., private equity firm or investment banker) but was based on interviews of employees who had worked for the service provider.

The TAM is favorable to taxpayers because it makes it easier to support a deduction for success-based fees.  The IRS National Office has clearly stated that Treasury Regulation §1.263(a)-5(f) should not be read in a manner that would automatically preclude the deductibility of non-facilitative costs simply because the taxpayer is unable to provide time records or itemized invoices.

For more information on fees related to mergers and acquisitions, post a comment below or contact our Transaction Advisory Services Group at 440-449-6800.

Internet Explorer users with the Windows XP operating system need to practice caution around web sites that prompt them to press the F1 key (the key for Help) due to a new vulnerability that has been discovered in Internet Explorer. The vulnerability would allow a hacker to highjack your PC if you press F1 when prompted on a malicious web site.

Microsoft issued a security advisory on Monday. According to the advisory, “Microsoft is investigating new public reports of a vulnerability in VBScript that is exposed on supported versions of Microsoft Windows 2000, Windows XP, and Windows Server 2003 through the use of Internet Explorer. Our investigation has shown that the vulnerability cannot be exploited on Windows 7, Windows Server 2008 R2, Windows Vista, or Windows Server 2008. The main impact of the vulnerability is remote code execution.”

According to this article from Computerworld, Microsoft acknowledged that Internet Explorer 6, 7 and 8 users are all at risk.

The article also states that Microsoft has not set a timeline for the fix. The next scheduled security patch from Microsoft is due to be released on March 9.

Until that time, it is highly recommended that Windows XP users do not press the F1 key while using Internet Explorer.

Are you finding it difficult to keep your systems up to date with vital fixes like the one described above? Skoda Minotti’s maintainIT is a comprehensive managed solution that ensures your computer network is being proactively maintained, including installation of Microsoft Updates, by our IT professionals.  For more information on maintainIT or the rest of our Information Technology Services, contact one of our IT service professionals at 440-605-7280.

Although the restaurant industry is expected to show gradual improvement in 2010, according to the National Restaurant Association’s 2010 Restaurant Industry Forecast, the industry is still facing challenges including increased competition from grocery stores and warehouse clubs, increased commodity and fuel costs, and a more health-conscious society. Click here to learn how restaurants can adapt, succeed and even thrive in this economy.

For more information, post a comment below or contact our Restaurant/Food Service Industry Group at 440-449-6800.
 

This issue of Construction Connections includes the following articles:

• 2010 Construction Outlook
• Ten Steps to Safety
• Lost Productivity Damages
• Surety Market Update

The construction market ended 2009 in as bad a shape as it has been in for almost two decades, with non-residential construction plummeting and housing construction at record post-World War II lows. For the overall economy, however, the year ended with a host of indications that recession was morphing into recovery.

Some of the boldest pronouncements came from the National Association of Business Economists (NABE).  NABE conducted its annual meeting in October in St. Louis, and made headlines by declaring that the Great Recession was over. On the heels of their annual meeting NABE published its 2010 outlook. The forecast contained a number of major points:

• Gross domestic product will grow at a 3.2% rate for all of 2010 (this is an upward adjustment from NABE's earlier forecast).
• The jobless recovery will turn to a recovery adding jobs in the first quarter of 2010. NABE's economist panel predicted a decline in unemployment to 9.6% by fourth quarter 2010.
• Household spending will remain sluggish but the housing will gain momentum. Experts forecast a 38% jump in housing starts and an 8% increase in residential investment in 2010 due to low prices and low interest rates.
• Business investment will be the main engine of growth in 2010
• Corporate profits will climb 12.4% in 2010
• The dollar will remain weak. Short-term interest rates will remain below one percent and inflation will not be a problem in 2010.

Click here for more of this article.

Ten Steps to Safety
By Joseph Ventura, Safety Controls Technologies

The construction industry has struggled for many years with the answer to the question, "Can Management Prevent Accidents or Are Workers Responsible for Their Own Actions?" In the litigious society that we live, it has become more important to find someone "at fault" for an accident than it is to find out how we can prevent it from ever happening again.  Consider this:

• 20% of the nation's workplace fatalities occur in the construction industry
• The construction industry has the highest number of occupational injuries - 10% of all industries
• The cost of accidents accounts for approximately 6.5% of all construction dollars spent
• Construction companies with an effective written safety program have 36% lower accident rates, on average
• Maintaining a good safety record for at least two or three years can reduce a company's workers' comp and general liability insurance (GLI) premiums by as much as 40%

Most successful companies subscribe to the theme that "all accidents can be prevented." They institute training and qualification programs, safe performance incentives, and culture change; yet we still see construction accidents that result in lost time, and occasionally death, which is extremely costly in the shortsighted measure of money and, in real terms, impact to the worker's family.

Click here for more of this article.

Constructing a Claim for Lost Productivity Damages
(as seen in our Valuation & Litigation Advisory Insights e-newsletter)

Quantifying the cost of lost productivity when a construction project is disrupted through no fault of the contractor is a difficult challenge. An unanticipated disruption of the project typically causes the contractor to work less efficiently, which can lead to additional labor, equipment and material costs. This article explains that appraisers can use several methods when quantifying lost productivity damages, depending on the particular job's facts and circumstances and also notes that lawyers and damages experts need to work together closely to establish lost productivity and measure it appropriately.

Click here to read this article.

Surety Market Update

In early fall 2009 the National Association of Surety Bond Producers (NASBP) held it national seminar in Washington DC and, as you might imagine, the mood was less than cheery.

The association released its mid-year and 2009 projected results, which showed a 28.9% loss ratio, more than double the loss ratio for 2008. Beyond the negative results, the prevailing feeling that losses will continue to mount throughout the coming year influenced the mood. After five straight years of significant profits the surety industry is bracing for a difficult year in 2010; and it's making the kinds of adjustments that usually accompany a recessionary cycle.

Click here for more of this article.

Prior issues are available at our E-Newsletter Archive. If you would like to subscribe to this free quarterly e-newsletter, send an email to info@skodaminotti.com.

If you have any questions about any of these articles, post a comment below or please contact our Real Estate & Construction Group at 440-449-6800.

This month's issue of Valuation & Litigation Advisory Insights includes the following articles:

• Constructing a Claim for Lost Productivity Damages
• Marketability Discounts
• Clues Abound

Constructing a Claim for Lost Productivity Damages           

Quantifying the cost of lost productivity when a construction project is disrupted through no fault of the contractor is a difficult challenge. An unanticipated disruption of the project typically causes the contractor to work less efficiently, which can lead to additional labor, equipment and material costs. This article explains that appraisers can use several methods when quantifying lost productivity damages, depending on the particular job’s facts and circumstances and also notes that lawyers and damages experts need to work together closely to establish lost productivity and measure it appropriately.

Click here to read this article.

Marketability discounts: Appraisers relying less on empirical study averages 

With the widespread availability of public market databases, spreadsheet software and other analytical tools, valuators are no longer relying solely on empirical study averages to determine marketability discounts. They’re now placing greater emphasis on how to identify what truly affects marketability and how to better match empirical data to the specific attributes of each subject company. However, though pre-IPO and restricted stock studies may be somewhat under siege, their data is still worthwhile. Research has generated several insightful hypotheses.     

Click here to read this article.

Clues abound: The tax return as an investigative tool

Tax returns can be a highly effective investigative tool in fraud and divorce cases, shareholder litigation, and other situations in which a defendant may have hidden assets. In fact, virtually every page of a tax return can provide clues to hidden assets. Income from wages, taxable refunds of state or local taxes, and retirement plan distributions are just a few of the items on a 1040 that a valuator will review.
 
Click here to read this article.

Prior issues are available at our E-Newsletter Archive. If you would like to subscribe to this free monthly e-newsletter, send an email to info@skodaminotti.com.

If you have any questions about any of these articles, post a comment below or please contact our Valuation & Litigation Advisory Services Group at 440-449-6800.

AFFECTING:

IRS Considering Heightened Disclosure of Taxpayers’ Uncertain Tax Positions

DETAILS:

On January 26, 2010, the Internal Revenue Service issued Announcement 2010-9, in which the Service has indicated that it is considering changes to reporting requirements regarding certain taxpayers’ uncertain tax positions. The Service is developing a new tax-reporting schedule with which taxpayers would report with their annual federal income tax return their uncertain tax positions and the potential magnitude of tax positions.

In announcing the changes it is considering, the Service refers to the requirement under Financial Accounting Standards Board Interpretation No. 48, Accounting for Uncertainty in Income Taxes, an Interpretation of FASB Statement No. 109 (“FIN 48”),1 that taxpayers identify and quantify their uncertain tax positions for financial accounting purposes. The Service believes that the information reported under FIN 48 would assist in the examination of tax returns by bringing to light areas of interest or magnitude to warrant further inquiry, as well as assisting examination teams in identifying all issues more efficiently.

Click here for more of this article.

For more information, post a comment below or contact our Tax Planning and Preparation Group at 440-449-6800.

If you asked my Grandpa what the rate of return on his investments is, he would probably scratch his head and say, “Huh?” The only return that he knows (even though he doesn’t necessarily understand it) is the .5% that he earns on his savings account with the local bank. If you asked my Dad the same question, he might say that he earns a few percentage points per year. His investments are being allocated in a more conservative fashion as he nears retirement. In my case, most of my retirement investments are in equities. My investments have much greater risks than my Dad and Grandpa’s, but they also present opportunities for much greater returns.

Out of my family’s three generations of investments, the “safe” savings account investment of my Grandpa (which could be debated in light of the wave of bank failures over the past year), has the lowest levels of both risk and return. My Dad’s investments have a higher level of risk, but a correspondingly higher rate of return. Finally, my investments have the highest rate of return out of the group, but also the most risk that the return will not be realized (leaving me with less money than I invested).

The concept of risk vs. return is important in the valuation of any business. The lower the risk associated with an investment, the lower the required returns. In contrast, the riskier that an investment is, the higher the return it should provide to an investor. The value of an ownership interest in a company typically moves opposite of the level of risk and required return, as summarized below:

High Risk = High Required Returns = Lower Company Value

Low Risk = Low Required Returns = Higher Company Value

One of the abilities that a valuation analyst brings to the table is his or her ability to determine an appropriate rate of return for an investment in a company. As discussed above, once the rate of return is determined (as a function of the level of risk), it plays a key role in concluding on the value of a business. Keeping in mind the general relationship between risk and return can help anyone better understand the value of a business, regardless of their level of valuation experience. 

Looking for business valuation assistance in Cleveland or Akron? Contract our Business Valuation Group at 440-449-6800 for more information.

Click the links below for more information on each topic.

Recent Employee Benefit Plan Developments

• Electronic Filing of Form 5500s now required
• Additional changes to 2009 Form 5500
• Fee disclosures
• 403(b) plans
• Deadline extended for certain retirement plan amendments
• EBSA's 2010 priorities
• DOL withdraws final investment advice regulations
• PBGC flat-rate increase

Accounting, Auditing and Reporting Update

• FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes—an interpretation of FASB Statement No. 109 [FASB ASC 740 and 805]
• FASB Statement No. 165, Subsequent Events [FASB ASC 855]
• FASB Accounting Standards Codification
• SAS No. 115, Communicating internal control related matters identified in an audit

For information, post a comment below or contact our Benefit Plan Audit Group at 440-449-6800.

President Obama presented Congress with his fiscal year (FY) 2011 federal budget proposals on February 1, and the $3.83 trillion budget emphasizes job creation and deficit reduction. Tax incentives for individuals and businesses total approximately $300 billion with an additional $100 billion allocated to job creation. On the other hand, proposed tax increases would raise $1.4 trillion. Although rate increases for higher-income taxpayers would bring in the lion’s share of that revenue, the budget calls for over $450 billion in other revenue raisers. Those increases impact many categories of taxpayers but, perhaps most directly, those with international operations.

IMPACT: While many of the president’s FY 2011 tax proposals previously appeared in his FY 2010 budget, notable differences are apparent not only in scope but also in details. Also different from last year is that many of the president’s proposals are likely to be enacted this year. The administration must show that it can get something done on the legislative front. With job creation front-andcenter on the national stage, success in passing high-profile tax legislation this year is a likely priority for the president and the Democratic- controlled Congress. More tax legislation this year is guaranteed by the expiring Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA) income tax rate cuts, the already expired estate tax, and a long list of other must-pass “expiring provisions” –including an alternative minimum tax (AMT) patch—that will all need retroactive treatment.

COMMENT: Some of the president’s tax proposals have already gained momentum on Capitol Hill. The Senate may vote on the jobs creation component of the president’s FY 2011 budget before mid-February. Senate Democrats are drafting a jobs bill, which is expected to include a credit for small businesses that hire new employees, along with an extension of bonus depreciation and enhanced Code Sec. 179 expensing.

• Individuals – Tax Breaks
• Retirement Savings
• Individuals – Tax Increases
• Business Incentives
• Financial/Insurance Products
• International Tax Reform
• “Loophole Closers”
• Compliance/Enforcement
• Other Revenue Raisers
• Estate/Gift Taxes
• Energy Taxes
• Other Initiatives

Source: CCH, a Wolters Kluwer business

Often times when negotiating financing terms for commercial real estate, prospective buyers assume that simply classifying the debt on a building as “Non-Recourse” debt will remove the personal liability of the owners.  As many potential investors have come to realize, banks and other lending institutions are becoming increasingly savvy in the wording of their lending documents with the use of “Carve Out” clauses.  Carve out clauses attempt to protect that lending institutions rights, as well as the value of the property.  In most cases, the carve out clause ultimately forces the borrower to either (1) continue paying the mortgage or (2) forfeit the property to the bank.  In either case the Carve Out clauses protect the bank from costly litigation.

Below is a list of popular carve out clauses that recently appeared in our Real Estate Monitor e-newsletter (click any of the clauses for a link to the full article with further detail):

• Initial term recourse
• Top-of-the-loan recourse
• Property taxes and mechanics liens
• Fraud or misrepresentation
• Milking the property

If you are interested in receiving our Real Estate Monitor on a regular basis, please click here to send us an email with “Real Estate Monitor” in the subject line and we’d be glad to add you to our list. You can also contact our Real Estate and Construction Group at 440-449-6800.

Our 2009 Real Estate and Construction Survey results support the belief that there is a lack of work and that the work that is available is bid extremely competitively. 81% of respondents chose "lack of work" as the biggest threat to their business over the next 12 months and 78% of jobs are seeing five or more bidders. 29% are even seeing 10 or more bidders.

For more survey results, click here to read, "Looking at the Future" from the January 2010 issue of Builders Exchange Magazine or contact our Real Estate and Construction Group at 440-449-6800.
 

As a Colts fan, Super Bowl XLIV was a huge disappointment (Peyton agrees, he did say “disappointing” 18 times during his 11-minute postgame interview). And even though there were more commercials about underwear than many of us may have liked, there were some pretty good commercials…which is nice.

How much did these commercials cost advertisers? 30-second spots cost up to $3.01 million this year which is just slightly above the max cost of $3 million in Super Bowl XLIII. The number of viewers jumped up much more than that, increasing from 98.7 million in 2009 to 106.5 million in 2010 which makes it the number one telecast of all time – till yesterday, that honor went to the M*A*S*H series finale in 1983 which had 106 million viewers.

In addition to record-breaking viewership, a recent survey conducted by The Nielsen Company indicates that 51% of those viewers, or 89.6 million, enjoy the commercials more than game indicating that advertisers are purchasing a very receptive audience, along with 30 seconds of air time. Some advertisers took full advantage of that, especially Anheuser-Busch, who ran eight ads, and Denny’s and Doritos who both ran four.  Several advertisers ran two ads including E-Trade, Coca-Cola, Bridgestone, GoDaddy.com and Hyundai.

Which commercials were the most popular? Ads by the above companies were preferred by a (very small) sample of my friends with “Girlfriend” by E-Trade getting three votes for best commercial. “Dog Collar” and “House Rules,” both by Doritos, got two votes and “T-Pain” by Bud Light and “Hard Times” by Coca-Cola each got one vote. There was some overlap between their votes and USA Today’s Super Bowl Ad Meter results which list these commercials as the Top 5:

1. Snickers – “Football”: Octogenarian actors Betty White and Abe Vigoda play in a casual football game
2. Doritos – “Dog Collar”: Dog with bark collar rules
3. Bud Light – “House”: Man builds a house out of beer cans
4. Anheuser Busch – “Fence”: Clydesdale’s friend
5. Coca-Cola – “Sleep Walker”: Sleepwalker going through rough terrain gets cold Coke

Click here to see how the rest of the most expensive commercials were rated, including which five were the least popular or click here to watch these ads.

Personally, my favorite was “Green Car” by Audi which was #6 on this list and, strangely enough, was rated both the best ad and the worst ad according to The Wall Street Journal.

Which ad was your favorite? Which was your least favorite? Post a comment below letting us know. Or contact our Marketing Services Group at 440-449-6800.

On December 16, 2009, the Securities and Exchange Commission ("SEC") issued final regulations related to annual disclosure of executive compensation matters and corporate governance. These regulations, which are effective for proxy statements and annual reports filed after February 28, 2010, contain some significant changes from the proposals in this area that the SEC issued in July 2009. The final regulations focused on several areas, and this Tax Alert will briefly summarize the provisions of the regulations concerning executive pay and the impact on corporate filers.

Click below to view each section:
 

• Management of Compensation Risk (and other risks)
• Changes to the Summary Compensation Table
• Enhanced Disclosure of Director Qualifications
• Corporate Structure
• Fees Paid to Compensation Consultants
• What Employers Should be Doing Now

In the fourth quarter or 2009, Northeast Ohio saw a decrease in vacancy rates and an increase in net absorption, indicating that things may be turning around. When the economy will fully recover, though, has yet to be determined with certainty, and real estate companies are still suffering from various challenges including the absence of credit and the economic loss in the value of underlying real properties. Companies can adapt to these challenges and survive in this market, though; click here to learn more.

For more information, post a comment below or contact our Real Estate and Construction Group at 440-449-6800.
 

SFAS 157 – A Not-for-Profit Perspective
By Dick Larkin

Nonprofit organizations use fair value accounting when they are:
(1) required by certain accounting standards to use fair value for certain transactions and balances, and
(2) permitted by certain other accounting standards to use fair value for certain other transactions and balances.

Click here for more of this story.

Endowment Funds and FSP 117-1
By Dick Larkin

A question has come up as to just what constitutes an endowment fund for purposes of application of Financial Accounting Standards Board (FASB) Staff Position (FSP) 117-1, Endowments of Not-for-Profit Organizations: Net Asset Classification of Funds Subject to an Enacted Version of the Uniform Prudent Management of Institutional Funds Act (UPMIFA) and Enhanced Disclosures for All Endowment Funds, (now part of ASC 958-205). For example,must a perpetual, irrevocable third-party trust be included with endowments?

Click here for more of this story.

Budgeting in the Current Economic Environment
By Lee Klumpp

In the not-for-profit world it is often the case that the budget is not issued on time, nor is the first issuance typically the last. Instead there are a multitude of last minute changes that force the budget process to continue into the next year. As a result the budget may not be usable on a comparison basis as an effective management tool until several months into the next year.

Click here for more of this story.

GAAP Codification

The Financial Accounting Standards Board (FASB) has issued its "Accounting Standards Codification" (ASC) which includes all Statements on Financial Accounting Standards and Interpretations (SFAS’s and FIN’s), Emerging Issues Task Force (EITF) consensuses, Accounting Principles Board (APB) opinions, American Institute of Certified Public Accountants (AICPA) Statements of Position (SOP) and AICPA Audit Guides and other literature. The codification was formally issued July 1, 2009 and is effective for all periods ending after September 15, 2009.

Click here for more of this story.

Summary of Recent Accounting Pronouncements and Effective Dates
By Tammy Ricciardella

There have been numerous accounting pronouncements issued and the following is a brief summary of those applicable to nonprofit organizations and their effective dates.

FIN 48, Accounting for Uncertainty in Income Taxes

Effective for fiscal years beginning after December 15, 2008 for a nonpublic entity unless they are a consolidated entity of a public enterprise or have already issued a full set of financial statements in accordance with generally accepted accounting principles that included the disclosure requirements of FIN 48. A nonpublic entity is one that does not have (a) debt or equity securities that are traded in a public market or (b) whose financial statements are filed in accordance with a regulatory authority.

The effective date above reflects the two deferrals of FIN 48 for nonpublic entities addressed by FSP FIN 48-2 and FSP FIN 48-3.

Click here for more of this story.

Schedule of Expenditures of Federal Awards Illustrative Auditee Practice Aids
By Tammy Ricciardella

In response to the federal study on the quality of audits performed under Office of Management and Budget (OMB) Circular A-133, Audits of States, Local Governments, and Non-Profit Organizations (OMB Circular A-133) the American Institute of Certified Public Accountants’ Governmental Audit Quality Center (GAQC) launched a series of task forces to address the deficiencies noted in the study. One of the task forces established was the SEFA (Schedule of Expenditures of Federal Awards) task force.

Click here for more of this story.

IRS Extends FBAR Filing Deadline for Persons with Signature Authority
By R.Michael Sorrells

With the growing number of investments in offshore funds, the IRS is boosting its scrutiny of accounts established in certain tax havens to identify possible sources of income that are not currently being taxed. As part of its efforts, the IRS is focusing more attention on Form TD 90-22.1, Report of Foreign Bank and Financial Accounts ("FBAR"). The FBAR is required to be filed by US persons (including tax-exempt organizations) having a financial interest in or signature authority over any financial account in a foreign country if the aggregate value of those accounts exceeded $10,000 at any time during the calendar year. The FBAR is due annually on June 30, with no permissible extension. Penalties for failure to file this form are significant: $10,000 per return.

Click here for more of this story.

403(b) News
by Bob Lavenberg

On July 20, 2009 the Department of Labor ("DOL") Employee Benefits Security Administration ("EBSA") issued Field Assistance Bulletin ("FAB") 2009-02 Annual Reporting Requirements for 403(b) Plans which provides some relief with regard to the reporting requirements for 403(b) plans beginning with the 2009 plan year.

Click here for more of this story.

Update on Management and Governance
By Laura Kalick

Although there is no specific Internal Revenue Code section that grants IRS authority to ask management and governance questions on the new Form 990, IRS takes the position that a well-governed organization is more likely to be tax compliant. In fact, the IRS has agent training materials on its website and will produce a post-audit checklist to see if an organization has fewer adjustments to an audit if the organization has used best management and governance practices.

Click here for more of this story.