Skoda Minotti

Many executives are curious about cost segregation studies, but are unsure how they work, or even if their business would benefit from one.

Basically, a cost segregation study looks at specific components of your business’ facilities to find which components can be separated out and depreciated over shorter time periods therefore speeding up the related tax deductions. The true value of a cost segregation study is realized by looking at the time value of those tax deductions - being able to take the related tax deductions sooner provides more value for the taxpayer.

The benefit of a cost segregation study is that you would get more deductions in the first five, seven or 15 years than you would if you didn’t do one. Without one, you would get more deductions between years 15 to 39. When you’re looking at value of money over time, you’ve actually lost out without the cost segregation study.

What does a cost segregation study entail?

A cost segregation study is the review of a building by a qualified individual (engineer) to identify items qualifying for quicker depreciation. These studies are a combination of reviewing the blueprints and the cost report (for constructed buildings) or appraisal report (for purchased buildings) to evidence the building make-up and a visiting the actual building to see if there are any other items that can be split out even though that’s not clear in the source documents.

Click here for more FAQs about cost segregations and post a comment below or contact our Real Estate and Construction Group at 440-449-6800 with any questions.

Based on a recent ruling, taxpayers can now recover the cost of all newly-installed street light assets more quickly than if they were classified as land improvements.

The Tax Court recently ruled that street lights may be depreciated over seven years for federal tax depreciation purposes. This decision was based on the ruling that typical street light assets, which include poles, light fixtures, mounting hardware, and bases that can be relocated, and met the six criteria set forth in Whiteco Industries, Inc. v. Commissioner, 65 T.C. 664 (1975), are not inherently permanent. Therefore, because they are “property without a class life” they may be depreciated over seven years.

Click here to read the complete article.

To read more about how Skoda Minotti helped one family business use cost segregation to recognize tax savings, click here.

Do you have questions about cost segregation? Click here for answers to several frequently asked questions, or contact our Real Estate and Construction Group at 440-449-6800.

Deciding About a Roth IRA Conversion

Before you know it, the end of the year will be here. For many individuals contemplating a conversion from a traditional IRA to a Roth IRA, it is time to make some critical decisions.

Click here to read more.

Hiring Your Child: Answers to Tax FAQs

Suppose that your child needs an after-school job while your company is looking to hire extra help. Practical solution: If you are in a position of authority, you could put your child on the payroll.

There are several tax incentives for hiring a child to work for your business. In effect, you are "splitting income," by paying your child a salary instead of taking compensation and paying the child an allowance. In addition, your child may be in line for fringe benefits. Of course, the wages paid to the child are deductible by the business.

Here are the answers to some frequently asked questions on this topic.
 
Introduction to New Basis Reporting Rules

New basis reporting rules required by a 2008 law will ease some of the burden for establishing gains and losses from securities sales. But the new rules will coexist with the old rules, so it is still important to retain the necessary records. The IRS recently issued new proposed regulations on this complex issue. 

Click here to read more.

Aurum Capital Markets Summary

Please click here for a summary from Aurum Wealth Management Group on the performance of the major market indices through the end of July as well as a recap of the significant events influencing the markets.

Advanced Earned Income Credit Repealed

On August 10th, President Obama signed into law a provision of HR 1586 that repealed the Advance Earned Income credit.

According to the American Payroll Association:
"For tax-year 2011 and beyond, there will be no more advance payment of the earned income tax credit. Eligible individuals will still be able to claim it on their personal income tax returns, but employers may no longer advance a portion of it with each paycheck.

Besides requiring that this function of payroll systems be turned off, payroll professionals will need to communicate this change to their employees. Although it has not yet been officially announced by the Internal Revenue Service, this should involve a change to Forms W-2, W-3, 941, and 944, and the elimination of Form W-5. Forms W-2c, W-3c, 941-X, and 944-X will likely retain the box or line related to the advance earned income credit at least until the statute of limitations closes on tax-year 2010 (April 15, 2014)."

For more payroll news and updates, visit PayTech Online.

To read this issue of Special Delivery in its entirety, click here.

On August 19, 2010, the International Accounting Standards Board (IASB) published a staff draft of an upcoming International Financial Reporting Standard (IFRS) on fair value measurement.  The IASB draft is still subject to revision before the board issues a fair value measurement standard which will likely be identical to the Financial Accounting Standards Board (FASB) standard on fair value measurement which was issued June 2010.

The proposed changes to the current U.S. generally accepted accounting principles (GAAP) standards on fair value measurement are broad and are designed to ensure that "fair value" has the same meaning in U.S. GAAP and IFRS as it relates to fair value measurement and disclosure requirements.

Though there are a number of changes, we have summarized the most prominent of the changes below:

• Instruments classified in stockholders' equity: the proposed standards require a reporting entity to measure its equity instruments at fair value, which will be determined from the measurement perspective of a market participant holding the instruments as assets.  Current U.S. GAAP does not address how to measure the fair value of instruments classified in stockholders' equity.
• Blockage discounts: the proposed standards will not allow blockage discounts to be used in fair value measurements of securities. (A blockage discount is usually assigned when institutional investors want to unload a large number of securities but are limited by market volume so they sell the securities to another institutional investor at a discount.)  Current U.S. GAAP disallows the use of blockage factors for Level 1 measurements (assets that have readily observable prices) but there is no guidance for application of Level 2 (assets that do not have regular market pricing, but whose fair value can be determined based on other market data) or Level 3 measurements (assets whose fair value cannot be determined by using Level 1 or 2 measures).  Historically, blockage discounts in Level 2 measurements that use quoted prices has been allowed.
• Disclosures: the proposed standards require an entity to disclose additional information about fair value measurements including:
  - The categorization, by level in the fair value hierarchy, of items not measured at fair value in the statement of financial position for which fair value disclosure is required
  - The entity’s use of an asset in a way that differs from the asset’s highest and best use when the asset is measured at fair value in the balance sheet based on its highest and best use
  - The results of a sensitivity analysis of the uncertainty inherent in fair value measurements categorized in Level 3 of the fair value hierarchy. An entity would be required to disclose the effect on a Level 3 fair value measurement of changing one or more unobservable inputs that could have reasonably been used to measure fair value in the circumstances.

The intended results of the respective staff and exposure drafts are an IFRS/U.S. GAAP common fair value measurement standard expecting to be issued in early 2011.

For more information on IFRS, post a comment a below or contact us at 440-449-6800.

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

• FAQs About Business Valuations
• Measuring the Intangible: Valuation Issues in Health Care Transactions
• Single Price Quote Supports $10 Million Lost Profits Award
• Skoda Minotti Employee Recognized For Outstanding Report Writing

FAQs About Business Valuations

From business acquisitions to estate planning to shareholder transactions, executives often run into situations in which performing a business valuation is necessary.

The primary pressure point is when it is necessary to determine the value of an ownership interest in a private company (non publicly-traded) for any number of financial and business reasons. Not anything that is traded on exchanges; we're talking about closely-held companies and small businesses.

Click here for the answers to these FAQs:

• In what scenarios would a business valuation be needed?,
• What are some critical factors in determining the value of a business?
• Do values change over time?
• How can valuation discounts impact the value of a business?
• Who typically performs business valuations?
• Why are credentials important?

In the highly complex and heavily regulated world of health care, business valuations can be particularly challenging. This article looks at a recent U.S. Tax Court decision, Derby v. Commissioner, that illustrates this point. The case involved the sale of a medical group to a not-for-profit health care organization. The group claimed charitable tax deductions resulting from the transaction but the Tax Court denied the deductions, concluding that the physicians were unable to show that the value of what they received was less than the value of what they transferred. The article discusses the ins and outs of the case, noting that the court's decision demonstrates that valuation in the context of a health care transaction requires a valuator to look at intangible benefits and other relevant terms of the deal.

Click here to read the rest of this article.

Single Price Quote Supports $10 Million Lost Profits Award

A U.S. Court of Appeals affirmed a jury award of nearly $10 million in lost profits. Notably, the plaintiff's damages expert based his calculation on a single price quote by the plaintiff that had never been accepted by the defendant. This case confirms that companies are entitled to compensatory damages not only for designs and other confidential information they develop, but also for the profits their intellectual property is expected to generate.

Click here to read the rest of this article.

Skoda Minotti Employee Recognized For Outstanding Report Writing by National Association of Certified Valuation Analysts

We are pleased to announce that Sean Saari, CPA/ABV, CVA, MBA has received the 2010 Jeffrey R. Salins Report Writing Award from the National Association of Certified Valuation Analysts (NACVA).

Click here to read the rest of this release.

Prior issues are available in the E-Newsletter Archive of our Valuation & Litigation Advisory Services Resource Center. If you would like to subscribe to this free, monthly, business valuation and litigation support 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.

Like many Americans, at one time or another, you’ve probably responded to a mail-in offer expecting a rebate check in return. Perhaps like some Americans, you’ve received that check and, for one reason or another, have left it uncashed. Ever wonder where those unclaimed funds go?

In 2006, the State of Iowa, joined by 45 other states, instituted an action against the largest rebate processing company in the country and three of its largest customers for an amount over $120 million. This action claimed that funds from uncashed rebate checks constitute unclaimed property and that the states are entitled to that money. Additional controversy has arisen about which party, the rebate processing company or its customer, is responsible to remit the unclaimed property to the states.

In 2009, the court ruled in favor of the states saying that uncashed rebate checks do constitute unclaimed property and the states are entitled to those funds. Additionally, the responsibility to remit the unclaimed property depends on the agreement between the rebate processing center and the customer.

Since the statutory language in Iowa's unclaimed property provisions is very similar to other states' provisions, this decision has had an impact on the entire nation.

To read more about this topic, click here.

For more information on the Real Estate and Construction Group at Skoda Minotti, visit our web site or contact us at 440-449-6800.

• Building Information Modeling - Why Now?
• National Construction Industry Outlook
• Can Europe's Problems Slow Construction in the United States?

Building Information Modeling - Why Now?
by Donna L. Cahan, eBlueprint

As one of the most dominant trends impacting the Construction Industry, Building Information Modeling (BIM) is frequently discussed and debated among industry professionals.

While most of us clearly understand the potential of BIM - that adoption of the technology could definitively change current processes - there are many who are wondering what it means for us today. Questions like "What percent of the industry is already using BIM?," "How do I integrate with my back office processes?," and "How can BIM make a difference?," abound. After reading a recent post asking, once again, what percent of the industry has adopted BIM, I got to thinking about the subject and reached a few conclusions.

No one can state with any authority that a specific percent of the industry has already adopted BIM. The reason for this? The industry has not defined what it means to say "I've adopted BIM." The information that I read included everything from using a 3D design to review façade options, to the use of Revit® MEP, to design with Sketch-Up®, to a Microstation® object requirement from an owner - the list goes on and on and on.
No one can state with any authority the cost of integrating BIM within the industry, or within a specific type of business, or the cost if we don't.

Click here to read the rest of this article.

National Construction Industry Outlook

Like the national economy, the construction industry at mid-year is at a stage of moving somewhat laterally, trying to find a direction. Instead of having a clearer sense of the industry's health, there remains uncertainty about several key factors in the direction and trend for 2011.

At the end of June, the indicators of the health of the housing market were weakening. Always an indicator of the economy's direction, the housing market is even more important to the strength of this cycle's recovery than in previous cycles. Two key measurements - the sales of existing homes and the sales of new homes in May - were being anxiously anticipated to gauge how much of the early recovery in housing was sustainable once the $8,000 tax credit program expired. The provisions of the program required a contract by signed by April 30 so May's volume would be the first in eight months to show sales without the extra incentive.

The results were negative as expected; however, the degree to which the volume was seen as negative seemed to depend on how high your expectations were.

First, the results. Sales of single-family units, which are completed transactions that include single-family, townhomes, condominiums and co-ops, were at a seasonally adjusted annual rate of 5.66 million units in May, down 2.2 percent from an upwardly revised surge of 5.79 million units in April. May closings are 19.2 percent above the 4.75 million-unit level in May 2009. The decline from April seemed to catch many observers off guard, but NAR chief economist, Lawrence Yun sees the volume in May as elevated.

Click here to read the rest of this article.

Can Europe's Problems Slow Construction in the United States? 

There is an eerie similarity this summer to the summer of 2008. While the world's financial institutions have healed somewhat from the crisis of that fall, there remain some structural problems that haven't gone away. And like the summer of 2008, there is a financial issue that seems too small and complex to get so concerned about: sovereign debt.

In April, the world's stock exchanges discovered again what a relatively small amount of fear could do to investment and stock prices. On all American stock market indexes prices fell back over 10% in just a few weeks. For the better part of a month one country, Greece whose economy is small in comparison with the largest economies, dominated the financial headlines. Ironically, the markets had been hearing about Greece's debt problems for more than six months. During that time experts and heads of state assured us that the concerns were overblown, that Greece's problems were too small, and that even if the nation defaulted it would have little real effect other than unsettling still nervous investors.

Does any of this sound familiar? Remember the reassurances after Bear Stearns imploded? The scoffing at how small a share sub-prime mortgages were? How about the daily denials that (you fill in the blank here) had any liquidity problems?

Click here to read the rest 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.

The Earned Income Tax Credit (EIC) is a refundable tax credit for low-income workers and families.  The credit, originally enacted in 1975, was designed to both reduce the burden of payroll taxes and supplement wages of those who were eligible.

The credit is claimed on one's individual income tax return.  In the past, employers were able to advance a portion of the credit to their eligible employees.  For tax-year 2011 and beyond, this will no longer be an option.  Due to a provision of HR 1586 (Public Law 111-226, Section 219), signed into law by President Obama on August 10, 2010, employers may no longer advance payment of the earned income tax credit to employees.

As a result, those eligible for the earned income tax credit will receive larger refunds when they file their individual income tax returns.  On the flip side, although they are receiving more money at the end of the year, they are taking home less money each pay.  The difference is in timing only.  If the credit were paid in installments with each paycheck, or in one lump sum, the amount of the credit would be the same. 

Why is this important?  Employers must be aware of the change so that they can accurately process payroll.  They must also communicate the change with their employees who are currently receiving advance payment of the earned income tax credit, so that the employee can plan for 2011 and beyond when the advance is no longer available. 

Click here for more information on the tax planning and preparation services provided by Skoda Minotti, a CPA, business and financial advisory firm with offices in Cleveland and Akron.

The Environmental Protection Agency (EPA) has delayed enforcing its new Lead-Safe Renovation, Repair and Painting program. The new program requires contractors to be certified (through lead-safe training) to perform work that disturbs more than six feet of lead-based paint in a pre-1978 home, apartment, school, daycare center, or other facility occupied by a pregnant woman or child under the age of 6. The final rule implementing the program originally took effect in April, but will not be enforced until October.

Both general contractors and subcontractors working on a renovation covered by the rule must be certified and must have a certified individual work on the areas affected by the lead based paint. Contractors must pay a fee ($300) every 5 years to become certified and pay for employees to complete the certification training. Fines for noncompliance can reach up to $37,500 a day.

Lead-safe work practices are also expected to reach renovations on public and commercial buildings over the next few years. 

For more information and updates on these regulations, visit www.epa.gov/lead/pubs/renovation.htm, www.abc.org/rulemakings or see the July 2010 issue of Construction Executive Magazine.   

For more information on the Real Estate and Construction Group at Skoda Minotti, visit our web site or contact us at 440-449-6800.

Situation/Opportunity

After being in business for about five years, a local roofing contractor contacted us because they felt they had outgrown their current CPA. They were doing well and wanted to take their business to the next level. In order for the Company to realize its maximum potential, management concluded that they needed to surround themselves with an advisory team to assist them in understanding all of the financial factors that impact operations.

Skoda Minotti Solution

Many departments were involved, including accounting, tax, small business services, valuation advisory services, financial staffing and financial services. The following is a summary of the services we provided to assist the client in meeting its goals:

• Conducted a review of their QuickBooks files, accounting records, and sales and CAT tax reporting; began reviewing this information with management on a quarterly basis
• Helped structure a deal to bring in a new shareholder, including determination of an appropriate buy-in amount, and worked with the Company’s attorney to finalize operating agreements
• Advised management on structuring a real estate holding company for the purchase of a building
• Performed a job costing analysis
• Introduced management to commercial bankers to facilitate the financing process in a challenging credit environment
• Introduced management to insurance contacts
• Conducted a search for a new in-house accountant
• Structured a Simple IRA plan

Results

• Quarterly meetings are held to discuss tax and business planning, giving management a much clearer understanding of the Company’s financial position on an ongoing basis, as opposed to just an annual basis, and allowing them to better manage day-to-day operations
• Bringing in a new shareholder allowed them to continue to focus on growing the business
• Formation of a real estate holding company allowed the company to limit its liability exposure and maximize depreciation expense, resulting in significant tax savings
• Management has a better handle on their job costs which allows them to ensure jobs are profitable
• The Company was able to secure financing for the building despite the difficult lending environment
• Identification of an insurance agent who was able to help the Company secure bonding in the future and review property and casualty coverage
• Internal financial reporting was strengthened and enhanced through Skoda Minotti’s placement of a new accountant
• Management is now able to offer its employees the option to save for retirement. Management and employees alike are able to take advantage of the resulting tax benefits.

Some restaurants are re-sizing their portions' sizes due to the economy.  When the IRS updated the Form 990 in 2008, they designed it to re-size itself through 2010 – effectively having it apply to more nonprofit organizations each year.

The Form 990 EZ is a smaller version of the 990 (think of a kid’s meal vs. a double burger deluxe).  Initially, organizations with under a $1 million in revenue and under $2.5 million in assets could file the EZ.  In 2009, the threshold dropped to $500,000 in revenue and $1.25 million in assets.  And now, for the 2010 tax year (return filed in 2011 or later), the threshold drops to $200,000 in revenue and $500,000 in assets.

The result?  More nonprofit organizations will have to file the full form 990.  This requires planning and time.

Let us help make the process as smooth as possible for you. We are happy to walk you through the form and some of its nuances.  Please post a comment below or contact our Nonprofit Services Group at 440-449-6800 if we can help in any way. 

This issue of the Real Estate Monitor includes the following articles:

• What is Deconstruction?
• Understanding the Energy Efficient Tax Deduction
• Real Estate Workouts: Cash Flow Mortgages
• Leases: The Takeover Lease
• Mortgage Loans: Buying and Selling
• Mortgages: Buyer Contingency Clauses
• Loans: Prepayment Penalty Upheld
• Metropolis: Five New Realties

What is Deconstruction?
By Joe Rettman & Mark Rabkin, Deconstruction Management, Inc.

Deconstruction is the comprehensive dismantlement of building components, specifically for re-use, re-sale, recycling and waste management.  Deconstruction has also been defined as "construction in reverse" because of its careful and methodical disassembly of a structure.  Compared to traditional demolition in which a structure is torn down as quickly as possible and waste is deposited into commercial landfills, careful consideration is given during deconstruction to waste re-direction through the entire process.  Deconstruction focuses on giving salvageable materials a new life once the building as a whole can no longer continue and addresses appropriate disposal of waste.

Click here to learn the financial, social, and environmental benefits of deconstruction.

Understanding the Energy Efficient Tax Deduction 
By David R. Walter, CPA

Designers (architects, engineers, environmental consultants, and in some cases, contractors) of government buildings may want to take note of the recently extended Federal Energy Efficient Tax deduction (Section 179D). It now includes units completed or renovated between December 31, 2005 and January 1, 2013, and more tax guidelines were passed to support these deductions.

According to the code section 179D, a taxpayer that builds or renovates a building could be entitled to speed up the depreciation for certain items that are part of that construction. This accelerated depreciation would be allowed for the costs of certain parts of the new building (HVAC, lighting, building envelope) that meet energy efficiency standards. The deduction is limited to the lesser of the costs of the items installed or $0.60 per improvement are multiplied by the square footage constructed (see the rest of the article for this calculation). 

Real Estate Workouts: Cash Flow Mortgages

Thankfully, not all commercial properties are underwater or over-levered; however, even properties with relatively low loan-to-value ratios may experience extended bouts of cash shortfalls. A borrower failing to meet its debt-service obligations under existing commercial mortgage terms may negotiate with the lender to modify the loan to a cash flow mortgage. With a cash flow mortgage, the borrower's debt service obligation at any point during the loan term is measured by the availability of cash flow at that time. The scenario that most often calls for a cash flow mortgage is a property temporarily in distress such as a property with a large tenant vacating space and there are reasonable expectations to re-lease the space for comparable or higher rents. In this situation, a lender with an outstanding mortgage loan likely to be defaulted may be willing to convert to a cash flow mortgage rather than foreclose or take a deed in lieu of foreclosure. Alternatively, the owner of a distressed property may be able to sell it for a price somewhat above the amount of the existing mortgage, with the seller taking back a purchase money cash flow mortgage in lieu of cash.

Click here for more of this article.

Leases: The Takeover Lease

When office building vacancies are high, as now, landlords are likely to use every means within the law to attract tenants from other properties. I n one technique, the takeover lease, an existing tenant is induced to sign a lease in another building because of the new landlord's promise to take over the existing lease, i.e., assume liability under the old lease for the balance of the term. The tenant's only concern is that its obligations not be increased because of any actions by the second landlord.

Click here for more of this article.

Mortgage Loans: Buying and Selling

One fallout from the real estate crash is the development of market for the sale of existing mortgage loans. Banks and other lenders are motivated to sell troubled paper in order to avoid the time and expense of renegotiating or foreclosing loans. In particular, the sale of non-performing loans enables lenders to remove them from their books. This eliminates the need to tie up capital to satisfy risk-based capital requirements and maintains the lender's reputation in the marketplace.

Click here for more of this article.

Mortgages: Buyer Contingency Clauses

Because the majority of estate buyers are not prepared to pay all cash for a property, a contract of sale frequently includes a mortgage contingency clause that permits the buyer to cancel the contract if a mortgage commitment is not obtained within a designated time period. Upon obtaining the mortgage, the buyer no longer has the right to terminate the contract because of lack of funds. However, risks still exist for the buyer.

Click here for more of this article.

Loans: Prepayment Penalty Upheld

The Colorado Court of Appeals ruled that a large loan prepayment penalty was enforceable and not unconscionable in the case of Planned Pethood Plus v. Keycorp, Inc., 2010 WL 185414 (Colo. App.). Pethood is a veterinary clinic owned by two veterinarians. It obtained a commercial loan of $389,000 from Keybank at a fixed interest rate of 8.3 percent for a term of 10 years. The promissory note contained a clause, prominently displayed on the first page, allowing Pethood to prepay the loan in whole or part by paying the lender a penalty equal to (1) prepayment amount, (2) times the number of years remaining on the loan, (3) times 1-1/4 percent. After 16 months, Pethood prepaid the loan together with a prepayment penalty of $40,500. This represented a penalty of 10.7 percent of the principal balance. Pethood then began this suit. The trial court entered judgment in favor of Keybank and Pethood appealed.

Click here for more of this article.

Metropolis: Five New Realties

Real estate ultimately is about people; with how many they are and what their ages are; where they live; how they earn a living; how they spend their money; and how they are divided by race and ethnicity. The Brookings Institution, in a new report, titled "The State of Metropolitan America," discusses the five "new realities" that are on the front lines of demographic transformation. These are briefly described in this article.

Click here for more of this article.

Information courtesy: BDO

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.

Identify theft crimes are not going away any time soon.  Actually, the identity theft criminals are becoming more creative as society slowly responds to the traditional identity theft schemes.

The latest identity fraud targets minors – our children.  Specifically, our childrens' social security numbers.  

Selling social security numbers is a business, albeit an illegal one. It exists throughout the US.  Buyers historically are individuals in the US illegally that need to be “legitimate” or those that have horrible credit and thus desire “new” credit.  When you have demand for anything in our society, it won’t be long before there is a supplier.  The same is true with the crime of identity theft.

Traditional identity theft occurs when someone obtains our name and social security number and uses these identifiers to fraudulently obtain credit.  Until recently, the trend has been to target individuals that have established favorable credit. 

Now, thieves are targeting children who have never been issued credit.  In their eyes, what a better way to secure credit then to be a first-time applicant with a clean credit record.  The record is clean because the individual is a minor.  The problem is rooted in the fact that credit reporting agencies do not have any way to verify a credit applicant’s lawful age.  What is reflected on a credit application for some granting credit is usually “good enough.” 

What are we to do?  Parents need to be as vigilant about their child’s social security number as they are their own.  All US citizens are entitled to one free credit report on an annual basis from each for the three major credit reporting bureaus.  

Until recently, most have never thought about attempting to secure credit reports for their minor children.   We recommend that you obtain a credit report on your children annually.  You do not want a credit report to exist as one shouldn’t until the child is an adult and lawfully has applied for credit.   If your child has a credit report, chances are you have some work to do. 

If you have questions about protecting your child's identity or if your child has a credit report, contact our Litigation Advisory Services Group at 440-449-6800.

Reform to the health insurance systems will offer an immediate benefit to small businesses via tax credits starting this year, rather than burden them with continually rising health insurance premiums. 

• In 2010, small business owners will be receiving up to 35 percent of the employee premiums they pay. 
• In 2014, the maximum tax credit will increase to 50 percent.  This will allow small business owners to seek plans through health insurance exchanges.  These exchanges are a marketplace where small businesses pool their risk together, which will reduce administrative costs.  By pooling their risk it will prevent insurance companies from increasing premiums for a small business because one worker gets sick or has a pre-existing condition.  Dental and vision coverage also qualify for this credit.

For more information on these tax credits, contact our Small Business Services Group at 440-449-6800 or click here.

The Pension Protection Act of 2006 mandated that organizations required to file Form 990 series informational returns would automatically lose their exempt status if the forms were not filed for three years in a row (section 6033(j)(1)). The Act also created a new form, the Form 990-N, Electronic Notice (e-Postcard), for most small organizations with less than $25,000 in gross receipts. Previously, these small organizations were not required to file any return at all. Thus, small organizations that never had to file previously not only now have a filing requirement, but will lose their exempt status if this requirement has been ignored for three consecutive years.

Because 2009 was the third year of this requirement, calendar-year organizations that had not filed for three years faced automatic loss of exemption on May 17, 2010, if their returns had not been extended (there is no extension available for Form 990-N filers). We had previously issued a Tax Bulletin on this issue on May 10, 2010. Organizations that lose their exempt status will be required to reapply for tax exemption and may have taxable income for the period during which they were not exempt. It is important to note that this new requirement does not affect most churches and affiliates — such organizations are generally not required to file Form 990 series returns (except for Form 990-T if they have unrelated business income).

On July 26, 2010, the Service announced a one-time special relief program for small charities (IR-2010-87) whose information returns would be due between May 17, and October 15, 2010, and that have not filed such returns for three consecutive years. This program only applies to 990-N and 990-EZ filers—there is no relief program for regular Form 990 or 990-PF filers.

Organizations eligible to file Form 990-N only need to file this form electronically by October 15, 2010, in order to avoid automatic revocation of exempt status. Alternatively, such organizations may file a hard copy Form 990-EZ with the phrase “Filed in Lieu of Form 990-N” written at the top of the form and on the envelope.

For organizations with more than $25,000 of gross receipts that are eligible to file Form 990-EZ for each of the three years ending with the 2009 year, there is a one-time voluntary compliance program (“VCP”). Organizations must file complete and accurate Forms 990-EZ or Forms 990 for each of the three years, pay a small compliance fee, complete a checklist and submit by October 15, 2010. The Service has clarified that an organization may file Form 990 (rather than Form 990-EZ) in order to comply with the VCP requirements, but only if it is not required to file Form 990 with the Service. Specific instructions and frequently asked questions are posted on the IRS Web site.

The Service has posted a list (by state) of approximately 325,000 organizations that it believes are at risk of automatic revocation. If an organization believes it has been incorrectly included on this list, instructions are also posted on the Web site for corrective measures.

For complete information on this relief program, including the VPC and listing of organizations, visit the IRS Web site.

If you have questions about filing your Form 990, post a comment below or contact our Not-for-Profit Industry Group at 440-449-6800.

Information courtesy: BDO

Seven Steps for Delegating Work
 
Do you own a small business? You may feel that the success-or the failure-of the business rests entirely on your shoulders. So you try to be in all places at all times. However, in most cases, this will result in problems for the operation and decreased productivity by other workers.

Solution: Practice the fine art of delegation. (It is an art, not a science.) If you parcel out certain jobs among other staff members, you can devote more of your time to areas with greater profit potential. Furthermore, this will enable you to develop a workforce of thinkers, not just doers.

Of course, you will still have to fight your natural tendencies.

Click here for seven practical suggestions for getting or here if you'd like to learn more about how your staff can learn to better use QuickBooks.

Locking in a Partial Home-sale Exclusion

Despite the recent nationwide real estate slump, you may realize a significant gain if you sell your home, particularly if you bought the place before prices soared in prior years. What about the tax consequences? Generally, the amount of the proceeds is subject to tax at capital gain rates. Currently, the maximum tax rate on net long-term capital gain is 15%, but rates are scheduled to increase in future years.

Click here to read more.

Prescription for the New Health Care Credit
Federal Reserve Board Compensation Guidance
By: Theodore R. Ginsburg, JD, CPA

As we are all aware, one of the side effects of the nation's recovery from the financial crisis has been a dramatic increase in financial institution regulation from Congress, the executive branch   and from the Federal Reserve Board ("FRB").  One of the primary areas of the FRB's focus has been the compensation practices of member banks.  On June 21, 2010, the FRB (in conjunction with the Comptroller of the Currency, the Office of Thrift Supervision and the Federal Deposit Insurance Corporation) issued its "Final Guidance on Sound Incentive Compensation Policies" (the "Guidance"). 

In general, the FRB believes that incentive compensation programs caused bank employees to take actions that put their employers at risk.  While this is important information for banks, the overall guidance that the FRB provides is worth noting by all employers.

This brief article will summarize some of the key points of the 47 pages of guidance that the FRB issued.

Aurum Capital Markets Summary

Please click here for a summary from Aurum Wealth Management Group on the performance of the major market indices through the end of June as well as a recap of the significant events influencing the markets.

Click here for 2010 Second Quarter Commentary from Aurum.

Florida Tax Amnesty

The state of Florida is currently administering a tax amnesty program that runs through September 30, 2010. Eligible taxes are sales tax, fuel tax, corporate income tax, communications services tax, gross receipts tax, and Florida's intangible tax. The amnesty applies to tax liabilities due prior to July 1, 2010.

If a taxpayer owes any tax liabilities to Florida, this could be an excellent opportunity. Florida will waive ½ of the interest and all penalties on the tax due.

Click here to learn more.

Go Directly From a 401(k) to a Roth  

Do you want to transfer your 401(k) plan assets to a Roth IRA? Under a recent tax law change, you can make the move in one fell swoop. Previously, it took two separate steps. In addition, another tax law provision taking effect this year may encourage this direct approach.

Click here to read more or here to register for our free Roth IRA Conversion Seminar.

To read this issue of Special Delivery in its entirety, click here.

The initial due date of the Form 5500 for calendar year end benefit plans is July 31, 2010, which is quickly approaching. Any benefit plan whose Form 5500 or annual audit is not completed by July 31, 2010 can file for an extension of time to file, which extends the calendar year end plan due date to October 15, 2010. The extension process remains the same as it has been in the past, however, there are some major changes to the actual filing of the Form 5500. 

As of January 2010, all Form 5500 filings now need to be submitted electronically, paper filings of the Forms will no longer be accepted. This electronic filing mandate covers all pension and welfare benefit plans that fall under Title I of ERISA. All electronically filed 5500’s will be done through the Department of Labor’s EFAST2 process.    Initially, one must register for credentials in order to sign or submit the electronic filing. This applies to preparers, signers and transmitters of any Form 5500 filing. The electronic filing credentials can be obtained via the EFAST website at www.efast.dol.gov. 

The electronically prepared and filed 5500 can be submitted via the IFILE application available on the Department of Labor website or via a third party approved vendor. The Department of Labor has posted FAQ’s on their website via the following link http://www.dol.gov/ebsa/faqs/faq-EFAST2.html. If you have any questions regarding Form 5500 preparation or benefit plan audit questions, contact Dani Gisondo at 440-449-6800.