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FINANCIAL AND SEC REPORTING SUPPORT
Are SEC deadlines giving you a headache? Trust your professional advisor to provide you with SEC financial reporting support including 10-Qs and 10-Ks and assist your company with the preparation of financial statements.
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ARCHIVE
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 Ways and Means Committee Approves Six Business Tax Extenders
By Saro Sevugan, CPA
On April 29th, the House Ways and Means Committee agreed to make permanent six tax provisions that expired in December 2013. The bill still would need to be passed by the full House, Senate and signed by the President to become law.
The six permanent tax benefits in this bill include:
- �179 expensing: The enhanced Section 179 measure would maintain the expensing level at $500,000 that existed before extenders expired in December 2013.
- Research credit: This credit, which is commonly referred to as the research and development or R&D credit, would include an increased alternative simplified credit of 20 percent (up from 14 percent) and would be available to taxpayers who file amended tax returns.
- Basis reduction rule for S corporations making charitable contributions of property: This provision provides that the amount of a shareholder's basis reduction in the stock of an S corporation by reason of a charitable contribution made by the corporation will be equal to the shareholder's pro rata share of the adjusted basis of the contributed property.
- The five-year recognition period for built-in gains of S corporations: If an S corporation that was previously taxed as a C corporation has built-in gains attributable to the period during which it was a C corporation, it is subject to a corporate level tax (the built-in gains or BIG tax) when it recognizes the built-in gains within five years after its conversion to S corporation status.
- Active financing exemption for lenders under subpart F of the code: The active financing exception makes exceptions for foreign personal holding company income. For Section 954(h) to apply, a controlled foreign corporation must be "eligible," which means it must be predominantly engaged in the active conduct of banking, financing or a similar business and must conduct substantial activity with respect to this business, as per IRC Section 954(h)(2)(A).
- Look-through treatment of payments between related controlled foreign corporations under the foreign personal holding company rules (sec. 954(c)(6)): Certain payments of dividends, interest, rents and royalties that would otherwise be included in foreign personal holding company income may be excepted if the payments are received from a related controlled foreign corporation and are properly attributable and allocable to income of the payor that is neither subpart F income nor treated as effectively connected to a US trade or business.
For more information or questions on this topic, please contact your professional at UHY LLP in Farmington Hills 248 355 1040 or Sterling Heights 586 254 1040, or visit us on the web at www.uhy-us.com.
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| DEDUCTING BONUSES PAID AFTER YEAR-END
By Jonathon Schumaker, CPA
Businesses will often pay bonuses to employees within the first 2 1/2 months of year-end allowing for a deduction in the year the bonus is earned. This practice used to reward and maintain key individuals has also become an important component of year-end tax planning. In most instances, it is advantageous for the company to take the deduction for the bonuses in the year earned as opposed to the year paid. Additional guidance has been released covering three scenarios where taxpayers are not able to deduct bonuses until the year in which they are paid.
In order to deduct an accrued liability paid within 2 1/2 months of year-end, the Internal Revenue Service (IRS) has followed an "all events test" in which the event fixing the liability has occurred or the payment is due, whichever is earliest. In recently released IRS field attorney advice, the proper tax treatment is discussed.
The first scenario involves a taxpayer whose bonus plan allows the company to modify or eliminate the bonuses at any time prior to payment. Since the company retains the right to eliminate or modify the bonuses at any time prior to payment, there is no legal obligation to pay the bonuses. In this scenario, the bonus is deductible in the tax year in which it is actually paid.
In the second scenario, the amounts paid by the taxpayer must be approved by the board of directors before being paid. Similar to scenario one, no legal obligation exists since the board of directors has the ability to reject or modify the bonus payments.
The final scenario in the release covers plans where employee bonuses are computed based on an employee performance appraisal conducted after year-end. These bonuses are also not deductible until the year paid since the amount is unknown until the appraisal is conducted.
Employers should design their bonus or incentive plans to ensure the all events test is met allowing for the accelerated deduction. Here are some tips to make sure your plan qualifies:
- Make the plan based on financial data since the obligation will be determinable at year-end
- Make the individual participant rights to a bonus vest at year-end. Requirements that the employee retain employment when the bonus is eventually paid with not meet the all events test
- Set up fixed dollar bonus pools in which a specific amount will be allocated amongst employees who satisfy the plan's terms
Taxpayers are encouraged to review their current incentive compensation plans to ensure they meet the all events test. For assistance, please contact your professional at UHY LLP in Farmington Hills 248 355 1040 or Sterling Heights 586 254 1040, or visit us on the web at www.uhy-us.com.
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Planning Ahead for Next Year's Tax FILINGS
By Jon DeRyckere, CPA
Now that April 15th is behind us, it's time to start planning for next year's tax return. There are several things you can do throughout the year that will help make preparing your tax return or submitting your tax information to your tax professional a piece of cake. Below are a few suggestions to help you avoid a frantic scramble at the end of the year.
Stay organized and keep tax records secure. Try to keep tax and financial records in a familiar area to keep you organized. If possible, store these items in a fireproof safe or scan and store them electronically.
Be ready for life changing events. Did you a have a child, get married, or have some other life changing event? It is important to plan ahead for these changes. Changes of this nature may have an effect on your tax withholdings during the year. For example, in order to claim a new born child as a dependent for tax purposes, you must apply for a social security number ("SSN") through the Social Security Administration. It is important to apply for a SSN as soon as possible as it may take up to 12 weeks for it to be issued.
Maintain a list of charitable deductions. A simple list on a pad of paper or in an electronic document will assist in assuring you receive the maximum tax deduction for your charitable deductions. Also, make sure you are collecting and keeping receipts, letters, etc. for these charitable deductions. The IRS has been stepping up enforcement through compliance audits, which require individuals to provide original source documents for all charitable contributions reported on the tax return.
Pay estimates when they are due. If there is an issue with your ability to pay a tax estimate, contact your tax professional prior to missing the payment. Late payment penalties can be significant and should be avoided if at all possible.
Consider new contributions. Consider contributing to an IRA or setting up a Health Savings Accounts ("HSA") or Flexible Spending Account ("FSA"), which can be a good tax strategy to defer or lower taxes on income.
Watch for scams. The IRS does not contact individuals for payments due or personal information via email, social media, text message, etc. If you are contacted through any of these mediums, report it to the IRS immediately at phishing@irs.gov.
To discuss more tax planning tips, please contact your professional at UHY LLP in Farmington Hills 248 355 1040 or Sterling Heights 586 254 1040, or visit us on the web at www.uhy-us.com.
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A "Heartbleed" Away
By Michael Witt, CISA, PCI QSA
A disturbing threat to internet security, called "Heartbleed", was discovered by Google in early April. This vulnerability, nicknamed Heartbleed, exposes passwords, customer information, credit card numbers and other sensitive information. OpenSSL is a widely used encryption tool used by about two-thirds of the internet's web servers and also used to secure virtual private networks ("VPNs") - those connections intended to keep company information private when viewed by offsite employees. The version with the security flaw was first introduced in December of 2011 and remains vulnerable on all OpenSSL implementations until the latest fix is applied.
Each company must fix their own at-risk servers as Heartbleed creates an opening in websites' encryption technology that allows data to leak out in small increments. Ironically, smaller companies are more likely to use OpenSSL because it is more affordable than the alternatives. Popular hosting services used by small companies have acknowledged its effect on their environment, but may not be correcting the fix depending on the particular user agreement.
The pervasiveness of the vulnerability and its economic impact will not be known for quite some time. The average length of time from data breach to public announcement is over nine months, but at this point all companies should have reviewed their internal IT environment and implemented corrective actions. The average cost to respond to a data breach is $78 per record while proactive measures to prevent data leaks are only a fraction of that cost, according to research from the Ponemon Institute's 2013 Cost of Data Breach: Global Analysis, their eighth annual benchmark study.
Intrusion detection and prevention systems ("IDS/IPS") should be configured immediately to detect the Heartbeat request and companies should develop an incident response plan and proactively alert their employers and customers where appropriate or required by law.
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SPECIAL ANNOUNCEMENTS
Experienced Recruiting Update
UHY is hiring! Are you ready to take charge of your career path? Be sure to visit our careers page for the most up-to-date career listings or contact Amanda Sheets, recruiter, at asheets@uhy-us.com. Current Michigan openings include:
- Tax accountant, 4-9 years of experience, CPA required
- Audit accountant, 5-9 years of experience, CPA required, SEC experience a plus
- Audit accountant, 4+ years of experience working with municipalities
- Forensic accountant and auditor, CPA or CFE desired
- Director of litigation, testifying experience required
- Investment banking analyst
- Investment banking vice president
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Published by UHY LLP News.
Copyright � 2013 UHY LLP. All rights reserved.
Our firm provides the information in this newsletter as tax information and general business or economic information or analysis for educational purposes, and none of the information contained herein is intended to serve as a solicitation of any service or product. This information does not constitute the provision of legal advice, tax advice, accounting services, investment advice, or professional consulting of any kind. The information provided herein should not be used as a substitute for consultation with professional tax, accounting, legal, or other competent advisors. Before making any decision or taking any action, you should consult a professional advisor who has been provided with all pertinent facts relevant to your particular situation. Tax articles in this newsletter are not intended to be used, and cannot be used by any taxpayer, for the purpose of avoiding accuracy-related penalties that may be imposed on the taxpayer. The information is provided "as is," with no assurance or guarantee of completeness, accuracy, or timeliness of the information, and without warranty of any kind, express or implied, including but not limited to warranties of performance, merchantability, and fitness for a particular purpose.
UHY Advisors, Inc. provides tax and business consulting services through wholly owned subsidiary entities that operate under the name of "UHY Advisors." UHY Advisors, Inc. and its subsidiary entities are not licensed CPA firms. UHY LLP is a licensed independent CPA firm that performs attest services in an alternative practice structure with UHY Advisors, Inc. and its subsidiary entities. UHY Advisors, Inc. and UHY LLP are U.S. members of Urbach Hacker Young International Limited, a UK company, and form part of the international UHY network of legally independent accounting and consulting firms. "UHY" is the brand name for the UHY international network. Any services described herein are provided by UHY Advisors and/or UHY LLP (as the case may be) and not by UHY or any other member firm of UHY. Neither UHY nor any member of UHY has any liability for services provided by other members.
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