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August 2016
In This Issue
Your BRC Team
Congratulations to Freddy Robinson, Partner for being appointed to the University of North Carolina Board of Visitors. 
After a thirty-five year career in accounting, Bobbie Furr, Principal retired in July 2016. We want to thank Bobbie for her service and wish her the best as she embarks on her retirement adventures. She is looking forward to spending her time traveling, including a European river cruise, and serving on the boards of three nonprofit organizations. Thank you Bobbie, you will be missed!
Save the Date!

BRC Financial Symposiums


Presented by Bernard Robinson & Company, L.L.P.


Topics include tax updates, employment law and compliance, economic outlook for business planning, and more!

8 hours of CPE eligible

Three dates and locations for your convenience!

Winston-Salem Symposium-
October 25, 2016


Greensboro Symposium-
October 27, 2016


Raleigh Symposium-
November 3, 2016 

Noteworthy Links
IRS Tax Calendar for Businesses & Self-Employed
NC Corporate Tax Rate Reduction
New Procedure Helps People Making IRA and Retirement Plan Rollovers
IRS Issues New Warning On Scams Targeting Students And Parents For Back To School Season
How to Avoid IRS ID Scams
North Carolina 2016 Appropriations Act
By Lory Kelley, CPA, Partner
 
During the North Carolina General Assembly's short session in early July, the General Assembly passed the 2016 Appropriations Act which impacts a number of areas including individual, corporate, and sales taxation and decouples from conformity, with several provisions, the Federal PATH Act of 2015.

From an individual income tax perspective, the standard deduction is increasing over a two year period by $2,000 for married filing joint and surviving spouse, $1,600 for heads of household, and $1,000 for single and married filing separate taxpayers beginning January 1, 2016. The Act also restores several deductions previously repealed including the situation where a taxpayer's federal ordinary business deductions are reduced for claiming a federal credit related to those expenses. The taxpayer may now deduct that expense for North Carolina purposes as long as the taxpayer doesn't claim a similar North Carolina credit.

The largest change in the Act for corporate taxation is mandating the NC Department of Revenue to begin drafting rules related to sourcing revenue for the move to a market-based sourcing, sales-only apportionment factor. This should be completely phased in by 2018.

The Act also goes to great length in clarifying the sales tax definition of taxable RMI services that was originally effective in March, 2016. They also adjusted the rules for real property contracts leveling the playing field for those service providers regardless of the service provider's main business line. The old law had the result of making the same services taxable or not taxable depending upon who was performing the contract.

The Act also continues to decouple from certain provisions that were extended with the PATH Act of 2015 including:
  • 85% addback on federal bonus depreciation
  • Continued use of the lower NC Section 179 expense and investment limitations and required 85% addback for the difference
  • Continued disallowance of mortgage insurance premium and qualified tuition/related expenses deductions
  • Continued disallowance of charitable distributions from an IRA by a person at least 70 to be excluded from income. 
How Effective Governance Can Significantly Impact Nonprofit Performance
By Tina Smith, CPA, Manager

Effective governance is imperative to a nonprofit organization's success. Board members are responsible for carrying out their defined fiduciary duties (good faith, due care and loyalty) and accept the potential liability for failing to fulfill those duties. Beyond these responsibilities, attributes for increasing governing effectiveness and, as a result, a nonprofit's potential for greater success, include:
  • Being highly strategic in nature and in constant pursuit of opportunities to achieve the organization's mission.
Effective board members are passionate about the organization's mission and committed to expanding its mission to optimize the nonprofit's potential. While financial oversight and compliance are important responsibilities for the board, so also is engaging in strategic focus by setting the direction for the organization and assessing the results of strategic planning.
  • Adding meaningful and productive value to the organization. 
Effective board members take their responsibilities seriously and will not hesitate to offer their time, money, decision-making, enthusiasm, and overall investment in the organization. Successful board members are promoters - they are out in the community creating awareness and are vocal advocates for the organization. Committed board members not only contribute personally to the organization, but embrace their role as fundraisers. 
  • Being comprised of a diverse mix of members with a variety of experiences and backgrounds that provide valuable perspectives.

For example, an attorney on the board could provide pro bono legal services to the organization, and a Certified Public Account could provide accounting and financial insight. Important considerations also include members with fundraising skills and mission-related experience.

 

Focused and committed board members understand and value their role in governing and actively assume their responsibility for the success of the organization. As you develop your board of directors, consider seeking advice from those with experience working with nonprofit organizations. 

My Trust Owes Taxes Where?
By James Connolly, CPA, Principal

In the world of real estate, we all know the old maxim - location, location, location. This applies in the world of taxation as well. Income is usually taxed where it is generated, whether W-2 wages, rental income or self-employment income. Even investment income is taxed where the recipient, the investor, lives.

However, the state taxation of trusts is more complicated. Trust income is either retained by the trust or distributed to its beneficiaries. If distributed to the beneficiaries, the answer is more straightforward, applying the state taxation laws for individuals.

If the income is taxed to the trust, questions arise about proper state reporting. Which state has legal authority to tax such income? Since a trust is not a business or an individual with a clear residence, how do you decide? The answer depends on state law, and can include the state where the trust was organized, the state where the settlor or trustee resides and the state where a beneficiary resides.

Under North Carolina statutory law, a trust is taxed by North Carolina to the extent income is 1) attributable to beneficiaries who are residents of North Carolina or 2) earned from North Carolina real or tangible personal property. However, in Kimberly Rice Kaestner 1992 Family Trust v. North Carolina Department of Revenue, issued on July 5, 2016, the North Carolina Court of Appeals ruled unconstitutional the taxation of trust income where the only connection between the state and the trust was the residence of a beneficiary in North Carolina who received no current year distribution. The NC DOR is expected to appeal the decision to the North Carolina Supreme Court.

While the implications of this case remain unclear, trustees of and North Carolina beneficiaries of non-North Carolina trusts should consider whether protective claims for refund are appropriate. Please consult legal and tax advisors with experience in trust taxation if this applies to you.
Joint Venture Accounting: Update
By Courtney Coker, CPA, Senior Manager

For many construction contractors, joint ventures have become a key strategy for growth and opportunity. Entering into a joint venture can provide a contractor with access to new markets, new technology, or additional financing or bonding capacity. In March of 2016, the FASB issued Accounting Standards Update No. 2016-07 Investments - Equity Method and Joint Ventures ("Update") as part of its simplification initiative.

The accounting for investments in joint ventures is influenced by the extent of control the contractor has over the operations of the joint venture. Typically, the relationships are as follows:
  • Cost Method - Less than 20% ownership (presumption that the contractor will be unable to significantly influence the affairs of the joint venture).
  • Equity Method - Between 20% and 50% ownership (presumption that the contractor has the ability to exercise significant influence over the joint venture).
  • Consolidation - More than 50% ownership.
The Update eliminates the retroactive application of the equity method when an increase in the level of ownership interest or degree of influence requires accounting treatment of the investment to switch from cost method to equity method. The Update requires the cost of acquiring the additional interest be added to the current basis of the investment and, as of the date the investment becomes qualified for equity method accounting, adoption of such.

The Update is effective for all entities for fiscal years beginning after December 15, 2016. Earlier application is permitted, and no additional disclosures are required at transition.

The ability to exercise significant influence or control is sometimes difficult to measure. Therefore, all facts and circumstances should be considered in each individual situation. Please consult a CPA with experience in Joint Venture Accounting to determine possible implications for your business.

Bernard Robinson & Company, L.L.P. | (336) 294-4494 |  sturner@brccpa.com |
1501 Highwoods Blvd, Ste 300
Greensboro, NC 27410
BRC Strategy is designed to provide information of a general nature and is not intended as a substitute for professional consultation and advice.  The opinions and interpretations expressed should not be construed or used as legal or tax advice, written or otherwise, and cannot be used for the purpose of avoiding any penalties that may be imposed under federal, state or local law.