Saltmarsh News & Articles News from Saltmarsh's Pensacola, Fort Walton Beach, Tampa and Orlando offices

Molly Murphy Recognized as Distinguished Alumni

Release Date: Monday, April 08, 2013

Saltmarsh shareholder, Molly Murphy, was recently recognized at the University of West Florida’s annual Alumni brunch, where she received the Distinguished Alumni award. The annual awards ceremony recognizes those who have made significant contributions to the University of West Florida and the community.

Molly is a Shareholder in the Audit & Assurance Department in the Pensacola office of Saltmarsh, Cleaveland & Gund. She has been practicing public accounting since 1991, and joined Saltmarsh after several years in Raleigh, NC with a regional accounting firm. Molly’s primary focus is providing audit, accounting and consulting services throughout the Southeast. This experience covers many types of entities including construction contractors, manufacturing companies, nonprofit, research and healthcare organizations.

Molly holds a B.A. Accounting/Accounting Information Systems - University of West Florida and is a Certified Public Accountant in Florida and North Carolina. She also holds the designation of Construction Industry Technician.

Her contributions to the community include involvement with Leadership Pensacola, Ronald McDonald House Charities of Northwest Florida , Manna Food Pantries, Pensacola Bay Area Impact 100 and the Juvenile Diabetes Research Foundation.

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Green Construction: It's More Than Just a Fad

Media Contact: Chuck Landers, CPA, CIT

Release Date: Friday, March 01, 2013

In 21st century America, it seems that everybody is “going green.” It’s hard to open a newspaper or magazine or watch TV without hearing about one organization or another that’s going green or implementing new environmental “sustainability practices.”

But these are not new concepts in the worlds of contracting and construction. Here in the U.S., green building and sustainability go back to the 1970s, when the energy crisis and concerns about the environment and pollution first hit critical mass. The green building and sustainability movements largely sprung from this, resulting in demand for more energy efficient and environmentally friendly construction practices.

What Exactly Is “Green Construction”?
Also referred to as green building and sustainable building, green construction refers to construction processes and building uses that help protect the environment, increase energy efficiency and reduce building carbon footprint, maintenance and operational costs. Sustainable construction incorporates a wide range of practices and techniques designed to reduce the negative impact that construction and buildings may have on the environment and the health of building occupants.

According to the International Energy Agency, existing buildings are responsible for at least 40 percent of the world’s total primary energy consumption and 24 percent of global carbon dioxide emissions. Green construction and renovation is designed to reduce the environmental impact of construction and building use by:

1. Using energy, water and other resources more efficiently.
2. Reducing waste, pollution and environmental degradation.
3. Improving building occupant heath and boosting employee productivity.

Green construction practices and technologies spring from a number of different principles, including the following:

• Improving the efficiency of structure design and orientation
• Boosting energy and water efficiency and reducing consumption
• Increasing materials’ efficiency
• Enhancing indoor environmental quality
• Optimizing operations and maintenance
• Reducing waste and toxins
• Increasing local sourcing of building materials and landscaping elements

Green Construction Techniques
Contractors and building owners usually focus their green building efforts primarily in the areas of lighting, HVAC and hot water systems and building envelope. These areas tend to consume the most energy, so improvements and upgrades to these systems can drastically boost energy efficiency, create savings and hasten return on investment.

There is a wide range of different green construction practices that can be utilized by contractors. Among the most popular are the following:

Lighting upgrades and retrofits — These are among the easiest and most cost-effective green building initiatives. Many local utilities will help pay for the replacement of old, inefficient metal halide lights with new, more energy-efficient fluorescent lighting fixtures.

Green roofs — Cool roofs and turf roofs reflect the sun’s heat and reduce roof temperatures by up to 75 percent, thus reducing energy costs. Replacing soggy or crushed roof insulation often offers an immediate operating cost savings as well.
Renewable energy sources — These include solar panels and photovoltaic techniques, as well as wind, hydro, geothermal and biomass for facility power generation and water heating.

Windows and insulation — Using high-performance windows and placing extra insulation throughout the building envelope (i.e., in walls, ceilings and floors) can result in significant energy cost savings. Passive solar building design and “daylighting” — the strategic placement of windows in order to provide more natural light during the day and of awnings and trees to provide building shade — are other cost-efficient green construction techniques.

Water conservation and protection — Dual plumbing systems that recycle toilet water, rain water harvesting, low-flush toilets and urinals, low-flow shower heads, and point-of-use water treatment and heating systems are a few examples of these.
Any analysis of green construction must naturally include the additional costs of using green building techniques and materials. These can then be compared to anticipated savings — in energy costs, employee health and productivity, reduced waste, less environmental impact, etc. — in order to make educated decisions about which green construction practices make the most financial sense.

Every building and project is unique, of course. But a paper titled The Cost and Financial Benefits of Green Buildings concluded that green buildings typically cost about two percent more to build, but they yield 10 times this much in savings over the building’s life. Other studies have demonstrated that green buildings may yield a return on investment of between $53 and $71 per square foot over a 20-year building life.

Valuable Incentives for Going Green
In performing your green construction cost-benefit analysis, be sure to take into consideration the various financial incentives that may be available to help reduce green construction costs. As noted above, for example, your local utility may help cover some (or perhaps even all) of the cost of lighting retrofits and new chillers and HVAC units.

There are also valuable federal tax incentives that can lower green construction costs. Section 179D of the Internal Revenue Code provides an additional tax deduction for the construction of new high-efficiency buildings as well as energy-efficient retrofits to existing buildings. This deduction can significantly reduce the cost of incorporating energy efficiency into buildings.

The deduction equals between $0.30 and $1.80 per square foot for installation of efficient the lights and HVAC systems as well as improvements to the building envelope of commercial properties. The deduction typically goes to building owners as an incentive to make energy efficiency improvements. But engineers, architects and contractors who design energy-efficient buildings on public projects and systems can take the benefit directly for themselves. For example, the designer of energy-efficient systems for a 100,000 square foot public school building that meets the requirements to claim the maximum $1.80 per square foot can receive a $180,000 deduction. This is worth $72,000 to the designer, assuming a 40 percent tax rate.

Note that the Section 179D deduction expires on December 31, 2013, so you must act quickly to take advantage of it before the end of this year. This expiration date can be used to motivate prospective clients to move forward on their projects.

The Section 45L Energy Efficient Home Credit is another federal tax incentive for green construction. It provides developers who build efficient residential properties with a tax credit of up to $2,000 per dwelling unit for new construction. The 45L Credit is also available for owners of certain low-rise, multi-family properties who make significant renovations that meet certain energy efficiency standards.

Due to the “per dwelling unit” language in the law, the total amount of this credit can be substantial. A 100-unit apartment complex, for example, could receive up to $200,000 in tax credits. The credit originally expired at the end of 2011, but the recently enacted American Taxpayer Relief Act extended it through the end of this year and made it retroactive to December 31, 2011.

Understanding all the provisions and rules involved with these and other tax incentives can be daunting. A CPA can help make sure that you take full advantage of all the tax breaks available to you for your green construction initiatives.

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Summary of the Taxpayer Relief Act of 2012 - H.R. 8

Media Contact: Chaya Siegfried, CPA
Richard Sackin, CPA

Release Date: Wednesday, February 27, 2013

A. Foreign Investment in Real Property Tax Act (FIRPTA)
The partnership, estate, and trust withholding requirement on gains from the disposition of U.S. real property interests that are passed through to foreign partners is made permanent. The withholding rate is increased from 15% to 20%.


B. Extension of Look-Through Rule of Payments Between Related Controlled Foreign Corporations
The rule which allows for look-through treatment of foreign personal holding company-type payments amongst related controlled foreign corporations has been extended to tax years beginning before January 1, 2014. This rule, which took effect for tax years beginning after December 31, 2005, was set to expire for tax years beginning before January 1, 2012 but is now extended for two years.


C. Extension of Subpart F Exception for Active Financing Income
The active financing income exception from inclusion in Subpart F income is extended to taxable years of foreign corporations beginning before January 1, 2014. This exception allows U.S. shareholders to defer income earned by a controlled foreign corporation from an active insurance business.


D. Capital Gains and Dividends - Observation #1
A new 20% rate applies to capital gains and dividends for individuals above the top income tax bracket threshold ($400,000 for single filers, $425,000 for head-of-household filers, and $450,000 for married taxpayers filing jointly ($225,000 for each married spouse filing separately)). The 15% rate is retained for taxpayers in the middle brackets. The zero rate is retained for taxpayers in the 10% and 15% brackets.

The long-term benefit of the IC-DISC (Interest Charge – Domestic International Sales Corporation) export tax incentive had been in question for years 2012 and forward. With the signing of this bill and the finalizing of individual regular and capital gains, rates the continued benefit of the IC-DISC has been established. Under the new law, implementation and utilization of an IC-DISC can result in a 19 percentage point tax saving on a U.S. taxpayer’s export income (export income flowing through to an individual would generally be subject to the highest individual rate of 39.6%, while export income earned through an IC-DISC would be eligible for the 20% capital gains rate) . Use of an IC-DISC can also eliminate the corporate level tax on certain export income.


E. Financial Reporting – Observation #2
As described above and in the related releases, there are many corporate tax provisions in H.R. 8 that are applicable to the 2012 tax year.

Although such provisions will be reflected in 2012 income tax returns when filed, many have questioned the proper tax accounting and reporting for financial statement purposes.

Under ASC 740, the tax accrual should reflect only law enacted by close of the financial reporting period. As such, the implications of the law should NOT be included in your 2012 tax accrual; instead, it will be considered a Q1 2013 event. Note that there will likely be a disclosure requirement in the tax footnote (e.g., early warning disclosure) and/or subsequent events footnote, especially if the effect of the new law is material.



© 2013 EisnerAmper LLP

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Extended Provision: Qualified Charitable Contributions

Release Date: Wednesday, February 06, 2013

Included within the list of expiring provisions that Congress recently extended is a provision that permits IRA owners above age 70 ½ to make Qualified Charitable Contributions (QCC) directly from their Individual Retirement Account (IRA) and exclude from gross income up to $100,000 each year.

IRS Notice IR-2013-6, issued on January 16, provides guidance that clients have until January 31 to make these contributions and still deduct up to the $100,000 on their 2012 tax returns. A direct transfer to the QCC must be made by January 31; alternatively, if the client received an IRA distribution in December 2012, they can contribute in cash all or part of the distribution received to an eligible charity.

This extended rollover period was made to accommodate taxpayers who were contemplating making these contributions for 2012 but had to wait until Congress finally decided to extend this provision. Due to the late decision, Congress took the unusual action of extending the contribution period’s due date by one month.

Observation: It may behoove taxpayers to write “2012 Charitable Contribution per IRS Notice IR-2013" on charitable contribution checks.


© 2013 EisnerAmper LLP

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Saltmarsh Elects Stephen Reyes as Shareholder

Release Date: Monday, January 14, 2013

Saltmarsh is pleased to announce that Stephen Reyes has been elected to shareholder as of January 1, 2013.

Stephen joined the firm in 1997 and has served as Senior Manager of the Information Technology Services Department of Saltmarsh, Cleaveland & Gund for the past 8 years. His experience includes computer networking and technology consulting. Stephen is a Certified Information Systems Auditor, Microsoft Certified Systems Engineer and a Cisco Certified Network Associate. He also holds certifications with ISACA, Novell, Citrix, and CompTIA. Stephen has assisted numerous banks with MIS compliance audits, security audits, as well as system selection, implementation and conversion.

About Saltmarsh, Cleaveland & Gund
In 1944, Thomas Saltmarsh, Harold Cleaveland and Charles Gund pooled their talents and modest resources to form a partnership for the practice of accounting. The success they achieved was attributed to their guiding principles of honesty and integrity, accuracy and thoroughness, quality client service and, most importantly, the belief that service to the community is both an individual and a corporate responsibility.

Today, Saltmarsh offers a full range of professional services from accounting and taxation to consulting – all based on the Firm’s mission statement and core values. It is this philosophy, based on the principles of yesterday, which has helped the Firm grow to one of the largest and most respected certified public accounting firms in the Southeast.

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2013 Standard Mileage Rates Up 1 Cent per Mile for Business, Medical and Moving

Media Contact: IRS Newswire
Issue Number: IR-2012-95

Release Date: Monday, November 26, 2012

WASHINGTON — The Internal Revenue Service today issued the 2013 optional standard mileage rates used to calculate the deductible costs of operating an automobile for business, charitable, medical or moving purposes.

Beginning on Jan. 1, 2013, the standard mileage rates for the use of a car (also vans, pickups or panel trucks) will be:
• 56.5 cents per mile for business miles driven
• 24 cents per mile driven for medical or moving purposes
• 14 cents per mile driven in service of charitable organizations

The rate for business miles driven during 2013 increases 1 cent from the 2012 rate. The medical and moving rate is also up 1 cent per mile from the 2012 rate.

The standard mileage rate for business is based on an annual study of the fixed and variable costs of operating an automobile. The rate for medical and moving purposes is based on the variable costs.

Taxpayers always have the option of calculating the actual costs of using their vehicle rather than using the standard mileage rates.

A taxpayer may not use the business standard mileage rate for a vehicle after using any depreciation method under the Modified Accelerated Cost Recovery System (MACRS) or after claiming a Section 179 deduction for that vehicle. In addition, the business standard mileage rate cannot be used for more than four vehicles used simultaneously.

These and other requirements for a taxpayer to use a standard mileage rate to calculate the amount of a deductible business, moving, medical, or charitable expense are in Rev. Proc. 2010-51. Notice 2012-72 contains the standard mileage rates, the amount a taxpayer must use in calculating reductions to basis for depreciation taken under the business standard mileage rate, and the maximum standard automobile cost that a taxpayer may use in computing the allowance under a fixed and variable rate plan.

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Beware of Section 409A Traps in Employment Agreements

Release Date: Tuesday, November 20, 2012

By now, virtually all employers have addressed compliance with Internal Revenue Code section 409A (‘section 409A’) as it relates to their non-qualified deferred compensation plans, phantom equity plans, stock option plans (for closely held businesses), and stock appreciation rights. However, it appears that some employers still may not have reviewed their executive employment agreements with respect to compliance with section 409A.

As a reminder, failure to comply with section 409A results in expensive tax issues not for the employer, but for the executive, including income tax on any amounts deferred under the agreement retroactive to the first year the agreement violated section 409A, interest on the unpaid taxes, and an excise tax payable by the executive (not payable by the employer) of 20% of the income recognized.

We discuss below some of the more common section 409A compliance issues as they relate to employment agreements.

Bonuses

Many executive employment agreements contain provisions for bonuses both short-term (annual) and long-term. In general, if an agreement states that the bonus payment will be made immediately upon vesting of an award, then the bonus is exempt from section 409A under the short-term deferral rule. Alternatively, the short-term deferral rule would also allow the agreement to state that the bonus earned will be paid as soon as administratively possible, but not later than March 15 of the year following the year in which the bonus was earned. This gives the company (not the executive) some flexibility for making payment. For example, the award may require the executive to be employed with the company on the last day of a three-year performance period in order to receive payment, and payment is made within 30 days of the end of the performance period. That arrangement meets the short-term deferral rule. However, some long-term bonus arrangements contain early vesting provisions for retirement. Generally, these agreements state that if the executive meets certain age and service requirements, then he can terminate at any time and receive either a pro-rated or full bonus or award. Since the bonus is vested once the executive satisfies the age and service criteria, but payment can or will be made in a subsequent tax year (i.e., termination of employment or end of the performance period), the bonus does not meet the short-term deferral rule and is not exempt from section 409A. Because the company mistakenly believes that the agreement is exempt from section 409A, it likely fails to include the required section 409A language regarding the time of payment creating a document failure under section 409A.




Bonus Deferral Elections

Section 409A generally provides that compensation for services performed during a taxable year may be deferred at the executive’s election if the election to defer such compensation is made not later than the close of the taxable year preceding the year in which the services are rendered. However, employers often mistakenly allow executives to defer a discretionary or incentive bonus into a future tax year in the year before it is paid rather than the year before it was earned. For example, an executive earns an incentive bonus in 2012 that would otherwise be payable in 2013 and the employer allows him to defer payment until 2014 by written election in 2012. In this example, the election to defer the bonus should have been executed no later than December 31, 2011 (the taxable year immediately preceding the year it is earned) and not December 31, 2012 (the taxable year immediately preceding the year it is paid). Further, the employment agreement would need to be drafted to contain provisions providing for the deferral of the bonus and those provisions need to comply with section 409A.

Separation from Service

A termination of employment occurs under section 409A when the employer and executive reasonably anticipate that after a certain date no further service will be performed for the employer (or its parent or subsidiaries) or that the level of services to be performed after that date (either as an employee or independent contractor) will decrease to 20% or less of the services performed by the employee on average over the prior 36-month period. When an executive retires, the employer may desire to retain the executive to provide consulting services as an independent contractor. However, under section 409A, services as a consultant count when determining whether there has been a termination of employment. If the company retains the executive to provide consulting services at a rate of 50% or greater of the services he provided as an employee, then he is deemed to have not separated from service with the employer for purposes of section 409A. That means any payments under an employment agreement or under a nonqualified deferred compensation plan that were to commence at termination of employment cannot begin until the executive has a true separation of service for purposes of section 409A.

Substitution Payments

When an executive is terminated, an employer may seek to negotiate severance payments that are significantly different than the severance payments in the executive’s employment agreement. If the severance payments are subject to section 409A, then the time and form of payment cannot be changed merely by forfeiting or relinquishing rights under an old agreement for payments under a new agreement. This will be considered a substitution payment under section 409A and a substitution payment must retain the same time and form of payment as contained in the original agreement.

Similarly, an executive may have an employment agreement with severance payments subject to section 409A and, at a later date, the employer will decide to enter into a change-in-control agreement with the executive. If the provisions of the new change-in-control agreement alter the time or form of payment that was promised in the employment agreement, then the new agreement may be a substitution payment that violates section 409A.

General Release

If a deferred payment under an employment agreement (typically severance or a bonus) is contingent on the execution and irrevocability of a general release, the agreement must state that the amount due will be payable either (a) on a specific date such as on the 60th day after separation from service or (b) during a designated period not longer than 90 days after separation from service, but if the designated period begins in one taxable year and ends in a second taxable year, then the payment must be made in the second taxable year. For example, if deferred payments under an employment agreement are subject to section 409A and the agreement states simply that the payment will be made within 60 days of separation of service, contingent on the execution of a general release, then the agreement likely fails to comply with section 409A.

“Good Reason” Definition

Severance provisions under an employment agreement are that are drafted to be exempt from Section 409A generally rely on either the short-term deferral exemption or the separation pay plan exemption, or both. To meet these exemptions, these severance provisions are drafted so that payment is dependent on the employee’s involuntary termination of employment. A severance provision may also permit payment upon the executive’s voluntary termination for “good reason.” However, occasionally this definition of “good reason” fails to meet the requirements of section 409A and inadvertently fails to meet the applicable section 409A exemptions. For example, if an agreement’s definition of “good reason” does not contain a notice and cure period, then termination for good reason under that agreement will not meet the requirements of the short-term deferral or separation pay plan exemptions. Unfortunately, if the employer believes that the exemptions apply, but the agreement has a noncompliant definition of good reason, then it is probably not drafted to alternatively comply with the section 409A. The section 409A regulations have a safe harbor definition for good reason. Therefore, best practice would be to use the safe harbor definition and avoid a violation under section 409A.

Payments Upon Death

Some employment agreements provide for the payment of a death benefit or accelerate bonus or other payments upon death. Under section 409A, death is a permissible payment event. However, some employment agreements state that payment will be made within a specified period after the employer receives notice or evidence of the death. Notice or evidence of death is not a fixed date or specified period and therefore not a fixed payment date under section 409A. Accordingly, a provision that states, “the Company shall pay to the executive’s beneficiary a death benefit equal to X following receipt of notice of the participant’s death” would not comply with section 409A. A provision stating that “the Company shall pay the executive’s beneficiary a death benefit equal to X within 90 days of the executive’s death” would comply with section 409A.

Conclusion

We strongly recommend that employers carefully review their executive employment agreements for compliance with section 409A as well as the operational aspects of any benefits subject to Section 409A.

For more information, please contact a Saltmarsh tax professional at (800) 477-7458.

© 2012 EisnerAmper LLP

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How Much Does it Cost Be A Toronto Blue Jay? Income Tax Considerations

Release Date: Monday, November 19, 2012

If Jose Reyes became a Florida resident in 2013 and remained with the Marlins, he would have saved nearly $8 million dollars in total income tax.

In December 2011, Jose Reyes was awarded a guaranteed $106 million six-year contract by the Florida Marlins, which on November 14, 2012 requires annual payments of $10 million in 2013; $16 million in 2014; $22 million in 2015, 2016 and 2017; and $4 million in 2018. These contract terms were assumed by the Toronto Blue Jays.

Based on the 2013 Blue Jays spring training and regular season schedule, the Blue Jays home games represent only 42% (rounded, 81 home games divided by 193 total spring training and regular season games played) of total 2013 games played. Therefore, as games played in Canada represent less than 183 days and assuming Reyes spends no additional days in Canada in 2013, Reyes will be treated as a Canadian non-resident for 2013 Canadian individual income tax purposes. However, as Canada imposes an individual income tax on non-residents based on Canadian work days, a Canadian income tax would be applied against Reyes’ 2013 Canadian source income of $4.2 million (rounded; multiplying 42% times Reyes’ 2013 salary amount of $10 million).

The 2013 $4.2 million Canadian source income will result in a 2013 Canadian income tax of $2.1 million (rounded, a Canadian combined federal and Ontario Province tax rate of 49.53%).

Assume Reyes is a U.S. and New York State resident taxpayer, as he purchased a home in New York in February 2007 that presently remains unsold according to Nassau County, New York property tax records. In 2013 Reyes is required to pay U.S. and New York resident individual income tax of $4.68 million ($3.8 million federal tax rounded, and $880,000 New York income tax rounded); a 2013 federal income tax rate of 39.6% is assumed based on the scheduled expiration in 2012 of the current 35% top income tax rate. However, Reyes is paying $2.1 million in income tax to Canada and Ontario and is allowed a credit against 2013 U.S. federal and New York income tax. Accordingly, after applying the Canadian and Ontario tax paid as a credit, the 2013 U.S. federal income tax is $2.2 million and the New York State income tax is $515,000 ($2.715 million federal and New York tax).

Based on the above, Reyes ends up paying an additional $134,000 in 2013 Canadian Provincial income tax due to playing for the Blue Jays. Alternatively, if in 2013 Reyes remained with the Marlins and became a Florida resident, he would save $800,000 in combined net federal and New York State income tax and the additional $134,000 Canadian provincial income tax savings.

If all the above facts remain the same over the remaining term of the 2011 Marlins contract (with no tax equalization provisions), and Reyes became a Florida resident and remained with the Marlins, he would have saved nearly $8 million dollars in total income tax.

Athletes Residing in States with No Income Tax and Earning Income in Other States

It is not uncommon for athletes to properly establish and maintain residency in states with low individual income tax rates or with no income tax at all, in order to minimize their overall tax liabilities. Florida and Texas are good examples of states that do not levy individual income taxes, and that have professional sports teams, including the Houston Rockets, Miami Marlins, and others. Beyond Florida and Texas, the states that do not levy an income tax include Alaska, Nevada, South Dakota, Washington, Wyoming, New Hampshire (limited tax on dividends and interest), and Tennessee (limited tax on dividends and interest).

In contrast, New York and California are among the highest taxing jurisdictions in the United States. The 2012 New York state individual income tax rate is 8.82% (for taxable incomes in excess of $2 million). For New York City residents an additional tax rate of up to 3.82% applies, for a combined state and city rate in excess of 12%. New York State and City residents may not even benefit from the payment of federal, state, and city taxes due to the federal AMT, which disallows these payments as deductions against federal taxable income.

While it is often the decision by athletes to maintain a domicile in jurisdictions imposing no or low income tax rates, it should not be overlooked that these athletes will be exposed to state and local income taxes in jurisdictions that impose an income tax, and in which games are played or where team practices are held; these factors are most usually out of the athletes’ control and change on a yearly basis.

Typically, an athlete’s earnings are taxed based on duty-days (game days), or an apportionment (or allocation) formula, calculated based upon where games are played, where team meetings are held, and where practice sessions occur. Not all states compute the state income allocation on the same basis; certain states exclude practice sessions and allocate state sourcing strictly based on games played. Illinois, for example, computes duty-days by including the days starting upon arrival (for Sunday NFL games, typically the preceding Thursday) and through the day of departure (which could be the day after the game).

To illustrate, assume that a professional basketball player (athlete) with the Houston Rockets establishes domicile in Texas, which does not impose an individual income tax; as a result, the athlete will pay no Texas income tax attributable to games played, team meetings and practice sessions held in Texas. However, based on the Houston Rocket’s 2012/2103 regular season schedule, the athlete will be required to pay state income tax attributable to games played in states that impose an individual income tax. Accordingly, as approximately 37% of the Rockets’ regular season games will be played in states that impose an income tax, and assuming the athlete’s first year salary is $5 million, $1.850 million of his salary will be allocated to and taxable in states that impose an individual income tax. In addition, Cleveland will impose a local city tax on the athlete when he plays the Cavaliers in Cleveland, for a combined state and city Ohio tax rate of 8%.

Tax Credits: Athletes Residing and Playing in States with an Income Tax

Athletes residing in states that impose an income tax generally will obtain an income tax credit (subject to certain limitations) for taxes paid to other states. For example, if the basketball player had remained a New York State resident and had decided to play for the Golden State Warriors, the athlete would be subject to a 2012 top individual New York State tax rate of 8.82%. However, the athlete would also be subject to California individual income tax (California has a 2012 top individual state rate of 10.553%) attributable to games played, team meetings and practice sessions in California. In this example, the athlete would be paying a significant amount of income tax to the State of California (in addition to taxes paid to New York state as a resident) because 57% of his salary would be allocated to California based on games played in California for the 2012/2013 regular season. Considering practice sessions and team meetings held in the state, an even higher California allocation percentage could result. However, the athlete generally should be entitled to claim a tax credit (subject to certain adjustments and possible limitations) against his New York tax liability for the California income tax paid, but limited to the New York tax paid on the California sourced compensation (i.e., the New York tax rate of 8.82%). Since California imposes one of the highest income tax rates in the United States, it would make sense that if the athlete’s compensation structure and amounts and other facts were the same, to attain total income tax minimization it could be more beneficial for the athlete to be a Knicks player than a Warrior’s player, since New York has a lower tax rate compared to California.

Athletes Must Also Consider the Tax Bite from Other Sources of Income

There are additional factors that athletes consider when selecting to play for a certain team, in order to circumvent a potentially enormous tax bite associated with “Jock Taxes” – so named for the tax on income levied by certain states against non-resident athletes that play a professional sport in a city or state and earn compensation in that jurisdiction.

There are numerous types of compensation income streams that athletes receive, and that are subject to state taxation, therefore proper tax planning should be considered to minimize the related state income tax. These streams include players’ current salary and signing bonuses; compensation contract deferrals from current or prior years and payable at a later date or upon an event; licensing, branding and endorsement fees; personal appearance fees; awards or prizes paid in cash or property constructively received, non-cash benefits received and not excludable from income; taxable reimbursements received such as certain moving and housing allowances; royalties; rental income (may not apply to all athletes); and other income streams.

Income and Estate Tax Minimization Strategies Athletes Should Consider

Following are additional planning ideas to consider and analyze, to properly minimize state and local income tax on behalf of an athlete.

• Defining and maintaining or changing “tax home” and “tax domicile” – these definitions strive to resolve the identification of where an athlete resides for state income tax purposes.

• State income sourcing (or/and) apportionment based on duty-days or games played (pre-season, regular season, post-season, and practice sessions). Every state has its own unique rules regarding the sourcing computation of a player’s income.

- Players will receive a benefit for playing home games in a tax-free state (assuming the athlete has taken the proper steps to establish domicile in such state), but will pay taxes to other jurisdictions (that impose and income tax) for all away games with no offsetting tax credit from their home state.
- The state of domicile could be different than the state where the home games are played.

• De minimis filing exceptions (i.e., Minnesota has a minimum income filing threshold).

• Tax treaties between states that address the taxation of athletes (the athlete is resident in one state and playing games or rendering other services in the other state).

• States that assess “Jock Fees” instead of income taxes; whereby an athlete is prevented from obtaining a resident credit on their resident state return (i.e., Tennessee).

• State credits and limitations on the amount of credit to be applied resulting in double taxation (i.e., Illinois does not honor the credit for taxes paid by athletes to other jurisdictions).

Further, proper preparation of a typical athlete’s income tax return will include some, or all, of the following considerations:

• Analyzing an athlete’s contract terms and all applicable provisions to determine the proper federal, state, local and international income tax treatment.

• Assisting the athlete in establishing state residency in the desired jurisdiction (state and city).

• Preparing a “duty-day” schedule, properly allocating “duty-days” to each state and local jurisdiction in which the athlete performs services.

• Determining all jurisdictions in which an athlete’s tax return is required to be filed, taking into account reciprocal agreements, de minimis filing requirements, and non-taxing jurisdictions (states and cities).

• Properly treating bonus income and income deferrals, to determine if specific allocation is applicable. In New Jersey, an athlete’s signing bonus is not included in compensation of a non-resident if the bonus is not conditional on the athlete playing any games for the team, performing subsequent services for the team, or even making the team.

• Properly reporting other income such as from endorsements and appearances, royalties, and other activities.

• Determining applicable business deductions (i.e., agent fees, equipment, etc.), including the consideration of employing a “skip-year” strategy, where income and deductions are accelerated or deferred. Scheduling state and local income and real estate tax payments to avoid AMT should be considered.

• Properly avoiding potential double taxation through calculation of state tax credits and reverse tax credits (double taxation is not unconstitutional).

• Calculating all federal and state estimated tax payments, properly deferring federal and state estimated payments while avoiding tax underpayment penalties and making certain employee withholding is correctly computed for each jurisdiction, if applicable.

• Proper taxation and minimizing state and local taxation attributable to retirement income and deferred compensation income.

• 2012 federal income tax estimated tax payments due and safe harbors (amounts due are generally the lesser of 110% of 2011 tax liability, or 90% of 2012 tax liability).

• The top 35% 2012 ordinary income tax rate expires at December 31, 2012, as does the current 15% tax rate on qualified dividends and long-term capital gain income; without U.S. tax legislative action, these rate are increasing, effective January 1, 2013, to a top rate of 39.6% for ordinary income and qualified and non-qualified dividend and short term gains, and 20% for long term capital gain income.

• Starting in 2013, athletes will pay an additional .9 % percent in Medicare tax on earned income over $200,000 ($250,000 if married).

• Additionally, in 2013 there will be a 3.8% Medicare Contribution Tax liability on unearned income (above certain income thresholds).

• For international athletes (non-U.S. citizens or green card holders), consider home- and host-country taxation and special treaty provisions specific to athletes and entertainers.

• Federal and state estate tax planning considerations based on domicile of choice should be considered, especially if the athlete is considering relocating to Florida, a jurisdiction with no estate or inheritance tax. Note the $5.120 million (per individual) unified estate and gift and generation-skipping transfer tax exemption is scheduled to expire on December 31, 2012.

• Reviewing additional estate planning opportunities and 2012 tax-free gifts utilizing the $13,000 gift tax exclusion (per donee/recipient) or $26,000 for married donors; planning considering non-U.S. citizen spouses; wills in place and beneficiary designations, and separate beneficiary designations for retirement plans and life insurance; trustee(s) for trusts created by wills or for trusts established during lifetime.

Financial Planning Matters Athletes Should Consider

Other areas that require an athlete’s attention include the following:

• Reviewing investment portfolio performance (pre- and post-tax), the appropriateness of asset allocation models attendant to investment policy statements considering investment goals and objectives, a desired rate of return (appreciation and yield), risk tolerance, and investment horizon.

• Reviewing risk management exposures and insurance coverages that can mitigate risk, such as life insurance, property and casualty coverages, and other coverages. Additional considerations pertaining to life insurance contemplates the amount needed to fund family needs in the event of a premature death, types of life insurance (term, whole, universal, variable, other), premium payment modes and options, modeling premium payment modes (permanent and term models), and ownership and titling of life insurance for example utilization of a family trust.

• Charitable giving and the appropriate use of tax-exempt foundations and charitable trusts and other vehicles, and related record keeping and documentation and tax filings.

For more information, please contact a Saltmarsh tax professional at (800) 477-7458.

© EisnerAmper LLP 2012

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Avoid Uncertain Tax Position Disclosures of Timing Differences by Filing a Request for Change in Accounting Method

Release Date: Friday, November 16, 2012

Financial statement filers whose financial statements are prepared in accordance with Generally Accepted Accounting Principles (GAAP) are likely familiar with the terms “FIN 48” or “Uncertain Tax Positions.” Adoption of FASB Interpretation No. 48 Accounting for Uncertainty in Income Taxes (now known as ASC 740-10 or FIN 48) was required for most public companies in years beginning after December 15, 2006. Privately owned entities were required to adopt the standard in years beginning after December 15, 2008. FIN 48 essentially prevents entities from recording income tax benefits in their financial statements for tax return positions taken that do not meet a more likely than not standard of being upheld by the relevant tax authority. In addition, FIN 48 requires entities to disclose Uncertain Tax Positions and their effects on the financial statements. This article informs corporate taxpayers with FIN 48 reserves related to timing differences of an opportunity that may affect both their financial statements and corporate income tax returns.

Starting with 2010 tax returns, the Internal Revenue Service began requiring certain corporations to file a new form called Schedule UTP Uncertain Tax Position Statement. The form is required for an applicable corporation: (1) taking a tax position on its U.S. federal income tax return for the current year or for a prior tax year, and (2) either the corporation or a related party has recorded a reserve with respect to that tax position for U.S. federal income tax in audited financial statements, or the corporation or related party did not record a reserve for that tax position because the corporation expects to litigate the position. A tax position for which a reserve was recorded (or for which no reserve was recorded because of an expectation to litigate) must be reported regardless of whether the audited financial statements are prepared based on U. S. GAAP, International Financial Reporting Standards (IFRS), or other country-specific accounting standards.

For years 2010 and 2011, only corporations meeting the above requirements and having assets equal to or greater than $100 million were required to file Schedule UTP. For years 2012 and 2013, the asset threshold is lowered for applicable corporations with assets equal to, or greater than, $50 million, and for years 2014 and forward the threshold is further reduced to $10 million.

For corporations using an impermissible method of accounting for income tax purposes, one of the long-standing benefits of filing for a change in accounting method is “audit protection.” This means that as long as the change in accounting method is filed with the IRS before the improper method is discovered during an IRS examination, the IRS will not require the taxpayer to change its method of accounting for the item in any year prior to the year of change, thus avoiding interest and penalties. An additional benefit of changing from an improper method to a proper method of accounting is that it eliminates the need for any FIN 48 reserves on the financial statements.

With the lower threshold for Schedule UTP filing of $50 million for 2012, corporations potentially subject to the Schedule UTP filing requirement have an opportunity not only to receive audit protection and avoid financial statement disclosure of FIN 48 reserves; they also have an opportunity to avoid filing Schedule UTP with their 2012 corporate income tax return.

Changes in accounting method generally fall into two categories: automatic and non-automatic. Automatic changes receive automatic IRS consent and can be filed as late as the extended due date of the return for the year of change. So for example, a calendar-year corporation wishing to make an automatic accounting method change for the year 2012, has until the extended due of September 15, 2013 to file Form 3115 with its 2012 corporate income tax return. This assumes of course that the 2012 return is actually extended.

Non-automatic changes must be filed by the end of the year for which the change is requested. Thus, a corporation that wishes to make a non-automatic accounting method change for the year 2012 has until December 31, 2012 to file Form 3115.
Applicable corporate taxpayers potentially subject to filing Schedule UTP with their 2012 corporate income tax returns have an opportunity to avoid that obligation, but they need to act with a sense of urgency. Not only can they avoid filing the form, they can obtain audit protection and perhaps avoid financial statement disclosure of uncertain tax positions.

For more information, please contact Lisa Fairbanks at (800) 477-7458.
© 2012 EisnerAmper LLP

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Decisions to Write Off Investments Become Critical in 2012

Release Date: Wednesday, November 07, 2012

In this year 2012, it becomes increasingly important to plan for write offs of investments in Private Equity Funds. Traditionally, the sooner the tax write off follows the financial book write down, the quicker the loss can be used to offset gains, either from the Private Equity Fund itself or from other investments. However, with a rise in capital gains tax looming for 2013, coupled with the Affordable Care Act’s tax of 3.8% for most Fund Limited Partners (LPs), consideration should be given to possibly deferring any losses to 2013 to get a rate advantage.

Background
For GAAP purposes, financial statements have to reflect underlying investments at fair market value. This requires the private equity fund to have a consistent, methodical and rigorous set of valuation rules in order to value its investment portfolio. This frequently leads to write downs from cost to a lower value. However, these write downs are almost never available for tax purposes until actual disposition of the underlying investment by the private equity fund. This is because the Internal Revenue Code (IRC) requires a closed transaction to trigger recognition of the loss, generally by a sale or exchange. In extreme cases of total worthlessness, the IRC provides for a write off for worthless stock. However, due to difficulties sometimes encountered in proving worthlessness, most practitioners suggest a “belt and suspenders” approach and advise the private equity fund to sell the worthless security for a nominal amount to an unrelated third party in order to prove worthlessness.

Conservatism is mandated by GAAP and partial write downs must be booked, but this is generally not the rule for tax purposes. The reason for this cautious approach is the extremely onerous and unpleasant consequences if the Internal Revenue Service (IRS) successfully disallows the loss: LPs must then amend their personal/corporate returns, disallow the losses they took, and pay taxes, penalties and interest for the private equity fund’s timing mistake.

Write Offs
The IRC and Regulations are quite clear that a mere decline in the market price of a security does not create a tax loss for a traditional Private Equity Fund Treasury Regulation 1.165-4(a)). A so-called 475(f) election can be made by a trader in securities to mark to market at the end of each tax year and take losses if the values have gone down without the need to dispose of the underlying security. However, this is not available to traditional Private Equity Funds.

Generally there must be a sale or exchange for a gain or loss to be recognized. In the case of a partial write down due to market conditions or a decline in the inherent value of the investment, no sale or exchange has taken place. Conceivably, the GAAP financials can take a few years’ worth of partial write downs and the private equity fund partners can merely watch the value of their investment go down without taking a tax deduction or write down. This can be rather frustrating and the LPs often put pressure on the General Partner (GP) to write the investment off completely in order to get a deduction passed through to them.

This leads to difficult conversations between the GP and their tax advisors as to whether all the criteria have been met to take a write off under one of the following scenarios:

Worthless Stock
IRC Section 165(g) does permit a write off for completely worthless stock. However, the private equity fund will have to point to a specific identifiable event that signals the worthlessness. If the value of the investee’s assets exceeds its liabilities but it is still conducting business, even if methodically selling off assets to pay down debts, this may not be sufficient to indicate current worthlessness.

A review of relevant Court cases points to four types of identifiable events that may be evidence of worthlessness:
1. Bankruptcy filing
2. Termination of business activities
3. Liquidation of business assets, both tangible and intangible
4. Receivership appointment by a Court.

Financial insolvency, by itself, is not sufficient. This is where a Fund may jump the gun and try to get an earlier tax write off than may be permitted. They receive a set of current financials from the investee company that clearly shows liabilities exceeding assets. They even estimate the value of non-booked assets such as software, lease value, R&D, going concern value, and they still come up negative. They, therefore, assume that they can write off their convertible preferred and other equity instruments at that point. However, this would not qualify as a worthless stock deduction because there is no single identifiable event with a fixed occurrence date that supports the write off. If the insolvency is coupled with another event such as liquidation, cessation of business, wholesale firing of the work force, etc., then the write off becomes much more supportable.

Other examples of events that may support a finding of worthlessness without a closed transaction are a catastrophic loss of inventory due to an uninsured event, a key customer with a large payable due being suddenly bankrupted, a Grand Jury empaneled to investigate corrupt practices, key assets seized by a foreign government, and other catastrophic events that will clearly lead to dissolution.
If a write off is still desired due to worthlessness, without one of the enumerated or other catastrophic events, then the private equity fund should consider closing the transaction.

Closed Transaction
Selling the ostensibly worthless stock to an unrelated party for no or nominal consideration can create a clear case for a tax write off. However, some Funds still want to hedge their loss and sell to a related party, a friendly party, the GPs individually, and other less than arm’s length buyers so as to preserve any future value that may come back. This doesn’t work. The loss of the write off if this subterfuge is discovered or challenged by the IRS will likely far outweigh any potential benefit from a less than arm’s-length transaction.

Timing Considerations in 2012
With tax rates on capital gains currently scheduled to increase for sales or exchanges beginning January 1, 2013, a Private Equity Fund should consider deferring any sale or argument of worthlessness into 2013 so as to get a higher tax benefit from the loss for its LPs. Capital gain rates are scheduled to increase to 20% in 2013 and the Affordable Care Act’s investment income tax of 3.8% is also scheduled to begin in 2013. Thus, a loss in 2013 could be used to offset capital gains with a federal tax rate as high as 23.8% in 2013. In 2012, that same offset will only be worth 15%. That is a large enough difference to make up for any time value of money lost due to deferral of the loss.

Other Considerations
If a Private Equity Fund has sold an investment at a gain in 2011 and there are payments that are to be made in the future--an “installment sale”--part of the gain is deferred until the payments are received. This is the default tax treatment. With rates slated to rise so significantly in the future, GP’s should determine whether it is more beneficial to elect out of this treatment. To do so, they have to affirmatively make an election on their 2011 partnership tax return not to have installment sale treatment apply (IRC Sec. 453).
Small Business Investment Companies (SBICs) that have invested in debt instruments that are then sold at a loss or are deemed worthless can treat the loss as an ordinary loss (IRC Sec. 582(a)(2)(A)(iii)).

C corporation SBIC’s that are sold at a loss may provide their selling stockholders with an ordinary loss on the sale of the shares. However, there are not many such organizations (IRC Sec. 1242).

Finally, special loss rules apply to SBICs that invest in convertible debt: if they sell the stock into which the debt was converted at a loss, they can get ordinary loss treatment (IRC Sec. 1243).

A Fund that abandons a partnership interest in an underlying investment or a partner that abandons its interest in a partnership may qualify for ordinary loss treatment if there are no liabilities attributed to the partner that are deemed relieved upon abandonment. This is a very tricky area and one not readily understood or accepted by IRS agents, so consulting a tax advisor is key to this strategy (Echols v. Comm., 935 F.2d 703).

Certain losses in stock may be treated as ordinary losses if they qualify under IRC Section 1244. Generally, because this requires a market capitalization of no more than $1 million at the time of investment, only seed Funds will likely qualify for this tax break since they may have invested early enough to meet the $1 million maximum threshold (IRC Sec. 1244).


For more information, please contact Lisa Fairbanks at (800) 477-7458.

© EisnerAmper LLP

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IRS Relaxes Timeline for Due Diligence and Withholding and Expands Grandfathered Obligations under FATCA

Release Date: Wednesday, November 07, 2012

On October 24, the Internal Revenue Service (IRS) released Announcement 2012-42, outlining new, extended timelines for due diligence requirements and withholding under the Foreign Account Tax Compliance Act (FATCA) and including additional types of payments with respect to pre-existing investors as grandfathered obligations exempt from FATCA withholding. The IRS will incorporate these new rules into the final FATCA regulations.

Observation: The IRS still intends to release final FATCA regulations – as well as an FFI Agreement and Forms W8 as noted below – by the end of this year.


Background
FATCA generally provides that a Foreign Financial Institution (FFI) – including not only a foreign bank but a foreign hedge fund, private equity fund, etc. – will need to be registered as a Participating FFI (PFFI) (or a Deemed-Compliant FFI) in order to avoid a 30% withholding tax on withholdable payments – generally U.S. source passive income (FDAP) and gross proceeds from the sale of U.S. securities. FATCA also imposes certain documentation, due diligence, and reporting requirements on U.S. withholding agents and PFFIs, in respect of which the Treasury Department issued proposed regulations last February 8, 2012, that set forth a staggered timeline beginning in 2013 for the implementation of these rules.

Since then, the IRS has proceeded to draft revised Forms W8, etc. (with which the FATCA status of foreign persons will be documented), work on drafting an FFI Agreement for PFFIs, and work on developing an online registration system, all of which were intended to be finalized, along with the proposed regulations, by the end of 2012.

At the same time, the U.S. Treasury Department has been conducting negotiations with the tax authorities of other countries who are interested in pursuing an alternative framework to achieve FATCA’s policy objectives, under which FFIs would report instead to their own local tax authority which would then exchange the information with the IRS on an automatic basis, under a so-called Intergovernmental Agreement or IGA. A foreign entity covered by an IGA is largely subject to similar due diligence, withholding, and reporting as a PFFI is, except it performs these procedures under the laws of its local tax authority. The Treasury released, on July 26, 2012, a model agreement as the basis for concluding agreements with each country; has signed such an agreement with the United Kingdom on September 12, 2012; and continues its discussions with various countries to conclude IGAs.

The timeline set forth in the proposed regulations presented several challenges. For example, U.S. withholding agents (including U.S. investment funds) were required to implement new account opening procedures documenting FATCA status by January 1, 2013. However, the ability to enter into an FFI Agreement was to commence at the same time, resulting in the possibility that the documentation would have to be updated as the entity opening the account registered with the IRS during 2013. Furthermore, the timeline set forth in the model IGA for a foreign entity to comply with FATCA is different from that for a U.S. withholding agent and a PFFI. The Treasury recognized the desirability of aligning the timelines for U.S. withholding agents (including U.S. funds), PFFIs, and FFIs in countries that have (or will have during 2013) IGAs.

New Timelines
We note below some important timelines which have been extended by comparison to the proposed regulations (p/r) (for a complete list, please see the IRS Announcement and Table to which links are provided above):

Implementation of New Account Opening Procedures
•U.S. withholding agents (including U.S. funds) – by January 1, 2014 (one year later than under the p/r)
•PFFIs (including foreign funds) – by the later of January 1, 2014 (6 months later than under the p/r) or the effective date of FFI Agreement
•FFIs pursuant to an IGA – by January 1, 2014

The final regulations will define a pre-existing obligation (i.e., account) by reference to the above dates, which, in turn, will determine the date on which FATCA withholding on FDAP begins, as noted below.

FATCA Withholding on FDAP (U.S. source interest, dividends, etc., but not gross proceeds from sale of U.S. securities)
•New accounts opened on or after the dates noted above – January 1, 2014
•Pre-existing accounts of undocumented Prima Facie FFIs (as defined) – July 1, 2014 (6 months later than under the p/r)
•Pre-existing accounts of all other undocumented foreign entities – January 1, 2016 (one year later than under the p/r)

Observation: This timeline is intended to dovetail with the new timeline for the date by which due diligence on existing accounts must be completed. However, once a particular account has been documented, for example as a Non-Participating FFI, withholding or reporting as appropriate must begin with respect to that account even though the time period for documenting the FATCA status of such account may not have expired. This may provide a disincentive for a foreign entity that is not FATCA compliant to provide – or for a fund to request from such an investor – formal documentation of such status on the new Forms W8 (expected by the end of 2012) before these extended dates.

Effective Date of FFI Agreement
An FFI Agreement entered into prior to 2014 will have an effective date of January 1, 2014 (6 months later than under the p/r).

Gross Proceeds Withholding
Gross proceeds from the sale or other disposition of any property that could produce U.S. source interest or dividends (e.g., a debt or equity instrument issued by a U.S. person) will first be subject to FATCA withholding on January 1, 2017 (two years later than under the p/r).

Observation: Withholding on gross proceeds – not just on capital gains – is probably the “sharpest teeth” that FATCA uses to enforce its objectives of transparency and reporting. The model IGA, as well as the U.K. IGA, does not provide for withholding on gross proceeds, although this could change in the future. Deferral of gross proceeds withholding under FATCA is consistent with the apparent attempt to align with IGAs which for the time being do not provide for withholding on gross proceeds.

Expansion of Grandfathered Obligations
FATCA imposes a 30% withholding tax on various types of passive income from U.S. sources. It also imposes the 30% withholding tax on so-called “foreign passthru payments” – payments which are not themselves from U.S. sources but are deemed “attributable to” U.S. source income subject to FATCA withholding. Absent this provision, foreign entities that were not FATCA compliant would be able to effectively hide behind FATCA compliant entities, thus circumventing FATCA’s objective of transparency. Just how to determine the portion of a payment “attributable to” U.S. source income subject to FATCA withholding received from a foreign entity that earns income from both U.S. and foreign sources is the subject of much controversy.

Accordingly, the IRS has not yet decided on the definition of a foreign passthru payment and has stated that such payments will be subject to withholding no earlier than January 1, 2017. The IRS announced that, under the final regulations to be issued, a foreign passthru payment in respect of an obligation that is outstanding (i.e., an account that has already been opened) as of 6 months after the IRS publishes the definition of a foreign passthru payment will be treated as a “grandfathered obligation” which is not subject to FATCA.

Observation: U.S. withholding agents are not required to withhold on foreign passthru payments. In addition, there is no withholding on foreign passthru payments under the model IGA or the U.K. IGA. Limiting FATCA withholding on such foreign passthru payments is consistent with the apparent attempt to align with IGAs.

The IRS Announcement also stated that final regulations will also treat as a grandfathered obligation exempt from FATCA any instrument that (a) would otherwise be subject to FATCA withholding solely because it gives rise to a so-called dividend equivalent (pursuant to Internal Revenue Code Section 871(m) and the regulations thereunder) and (b) is outstanding 6 months after the date on which such instruments become subject to such treatment. Moreover, obligations to make a payment with respect to, or to repay, collateral posted to secure obligations under a notional principal contract that is a grandfathered obligation will also be treated as a grandfathered obligation exempt from FATCA. These provisions are particularly beneficial to the hedge fund industry.

Conclusion
As financial institutions – including investment funds – have worked on implementing a global strategy for FATCA compliance, they have expressed concerns about being subject to different rules and timelines in the varying jurisdictions in which they operate. This Alert demonstrates that the IRS continues to work to alleviate these concerns, and in doing so coordinates and aligns (to the extent possible) the rules that are applicable to U.S. investment funds, foreign investment funds and investors that will become PFFIs, and foreign investment funds and investors that will be governed by IGAs.


© EisnerAmper 2012

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Tax Deductions Can Make It Easier to Practice Green Energy Management

Media Contact: Michael Miller, CIT

Release Date: Friday, October 26, 2012

“Going green” has become the mantra for many contractors and building owners in the 21st century. The challenge is to practice environmental stewardship in a way that’s also conducive to a healthy bottom line.

Fortunately, these two goals are not mutually exclusive. Contractors and building owners can implement green energy management techniques that help protect the environment, increase energy efficiency and reduce maintenance and operational costs — all at the same time. Even with the initial cash outlay required, the payback period is usually reasonable.

Click the link below to read this article by Michael Miller, CIT

• File Download

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Update on New Temporary Repair and Maintenance Regulations

Media Contact: Suzanne Cox, CPA, CIT

Release Date: Tuesday, October 16, 2012

For many years, the IRS and contractors have waged an undeclared battle over expensing vs. capitalizing various expenditures. New temporary regulations issued by the IRS and the Treasury Department have changed the application of a “unit of property,” making it more difficult for contractors to expense some costs related to personal and real property. The regulations apply to tax years and/or costs incurred beginning on or after January 1, 2012, so contractors should familiarize themselves with the regs now.

Click below to read the article by Suzanne Cox, CPA, CIT.

• Update on New Temporary Repair and Maintenance Regulations

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UWF College of Business Grand Opening

Release Date: Wednesday, October 10, 2012

We had the chance to attend the University of West Florida's College of Business Education Center Ribbon Cutting Dedication and Reception on Thursday, October 4, 2012. Saltmarsh was recognized, along with several other donors in the area, as a "special donor" for continued support and contribution to the College.

Faculty and students have been patiently awaiting the completion of this state-of-the-art building, which has been under construction since July of 2011. Saltmarsh is a proud of partner of the University of West Florida's College of Business, and home to many of the University's Alumni.

To see more information about the new building, follow the link provided below:

• College of Business Education Center

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Denice G. Miller, CPA and Glenn S. Cox, CPA have joined the firm's Orlando office

Release Date: Tuesday, September 25, 2012

Denice and Glenn join us through our acquisition of the Financial Institution Practice of Averett, Warmus, Durkee, Osburn, Henning and will now work with Paul Allen who opened our Orlando Office earlier this year.

Denice and Glenn have been serving Florida’s financial institutions industry for over 25 years and we welcome them and their clients to the Firm. This addition to Saltmarsh adds significant experience to the existing team of Bill Massey, Paul Allen, Alex Hager, Lee Bell, Kristen Stogniew and Nathan Botts.

“We’re very excited to join a firm that has shown such a strong commitment and understanding of the financial institution industry,” Miller said. “We believe this move will now only allow us to enhance our services to existing clients, but also will allow us to pursue additional business opportunities due to the specialized services that Saltmarsh provides to financial institutions.”

Following the acquisition, Saltmarsh will serve over 120 financial institutions.

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Will You Benefit from a Medical Loss Rebate?

Release Date: Friday, September 14, 2012

The Patient Protection and Affordable Care Act established medical loss ratio standards for health insurance providers, requiring them to provide rebates to group health plans and insured individuals if the insurer fails to spend a minimum percentage of premiums received on medical care claims and activities to improve health care quality. Insurers were required to pay rebates for 2011 in early August 2012.

Of course receipt of the rebate is a positive event, yet with it comes fiduciary responsibilities for employers sponsoring health plans and tax considerations for individual recipients. Sponsors of health insurance plans are now faced with decisions regarding:
• implications of the rebate constituting a plan asset when otherwise there is no trust,
• properly using and allocating the rebate, and
• properly responding to inquiries from plan participants regarding the individual tax implications of the rebate

Guidance regarding these rebates is included in the Department of Labor’s Technical Release No. 2011-04. We recommend close consideration of what constitutes a plan asset in light of the rebates. Many health plans sponsored by employers do not utilize a trust for plan assets, thus, avoiding any action causing the rebate to become a plan asset is important. The Technical Release highlights that under the Employee Retirement Income Security Act of 1974 (ERISA), rebates attributable to employee contributions are considered plan assets and must be used for a plan purpose and for the exclusive benefit of the plan participants. Determining the amounts treated as plan assets depends on a number of factors, including the terms of the plan documents (if any) and the underlying insurance policy. In the absence of such provisions in the plan or policy, the Department of Labor considers if premiums are paid by the employer or the participants.

If the employer paid the entire cost of the medical coverage for which the rebate applies, none of the rebate is considered a plan asset and the entire rebate can be retained by the employer. However, if the participant and employer shared the cost of coverage, the portion of the cost paid by participants would be considered a plan asset, not available for use by the employer sponsoring the medical plan. The portion of rebates considered plan assets may be distributed to plan participants in cash, applied to reduce future participant premiums or used in accordance with the terms of the plan.

When an employer receives the medical loss rebate and a portion of the original premiums paid for the coverage were paid by the participant, proper disposition of the participants’ portion of the rebate could be achieved if the rebate is used within three months of receipt to pay premiums or refunded. Technical Release No. 2011-04 refers to ERISA Technical Release 92-01, which addresses avoiding inadvertent creation of a trust solely for a failure to hold participant contributions in trust.

As indicated herein, prompt attention to use of the rebate is necessary especially since New York and New Jersey are among the states where a large portion of the rebates will be delivered.
For more information, please contact Judy Fryer at (800) 435-8300.

© 2012 EisnerAmper LLP

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Saltmarsh Professionals Earn Designation of Construction Industry Technician (CIT)

Release Date: Thursday, September 13, 2012

Ten members of the Saltmarsh Construction Industry team have recently earned the designation of Construction Industry Technician (CIT), a certification awarded by NAWIC Education Foundation in association with Clemson University’s Department of Construction and Management. Individuals who earn the CIT certification have demonstrated mastery of the materials related to the construction industry and its processes. Earning this certification acknowledges the accomplishment of attaining a higher professional level in the construction industry, and demonstrates Saltmarsh’s commitment to providing the highest standard of service to our construction industry clients.

The following individuals from three of the firm’s office locations have earned the CIT certification:

Pensacola, Florida
-Molly Murphy, CPA, CIT
-Frank Riehle, CPA, CIT
-Carol Rosenblatt, CPA, CIT
-David Ricksecker, CPA, CIT
-Mike Miller, CIT
-Justin Smith, CPA, CIT

Fort Walton Beach, Florida
-Chuck Landers, CPA, CIT
-Allyson Oury, CPA, CIT
-Lisa Goodwin, CPA, CIT

Tampa, Florida
-Suzanne Cox, CPA, CIT

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John Watton, AAAPM Obtains Professional Designation

Release Date: Tuesday, August 21, 2012

John Watton, AAAPM, Firm Administrator with Saltmarsh, Cleaveland & Gund,PA based in Pensacola, FL has been awarded the Association-certified Accredited Administrator in Accounting Practice Management (AAAPM) by the Association for Accounting Administration (AAA). This prominent designation recognizes John Watton, AAAPM’s knowledge and professional experience in accounting practice management.

The AAA’s voluntary Accredited Administrator in Accounting Practice Management (AAAPM) certification program joins a growing trend within accounting and other professions to recognize and create value for those individuals who have achieved a high level of competency within the Firm Administrator community. Accreditation is the recognition and designation that the professional managing the firm has achieved a level of expertise within the profession of Firm Administration that exemplifies both their professional capabilities and experience. The credential demonstrates mastery of skill sets necessary to qualify an AAAPM as an individual who has attained an unparalleled level of
competence in Firm Administration.

John is the Firm Administrator at Saltmarsh, Cleaveland & Gund. He has been practicing in this field since 1982, his experience is in professional services firm administration, including both accounting and law firms. John’s overall expertise is in the areas of financial analysis and annual budgeting, management reporting, personnel and human resources, and firm administrative services. John serves as an active member of several professional and community organizations including the Association for Accounting Administration, Association of Legal Administrators and Rotary International (Gulf Breeze Club).

Professionals can locate Association-certified professionals in North America by visiting the AAAPM Directory at www.cpaadmin.org or contacting the AAA Headquarters at (937) 222-0030.


The Association for Accounting Administration is a non-profit professional association dedicated to shaping the profession, determining the direction for administrator career pathing, and being on the cutting edge of developments in the profession.

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IRS (Finally) Issues Sample Format for Making Section 83(b) Elections

Release Date: Thursday, July 19, 2012

Late in June the Internal Revenue Service (IRS) issued Revenue Procedure 2012-29, which provides a model form that employees and independent contractors may use to make an election to be taxed under Internal Revenue Code section 83(b) with respect to the receipt of restricted property (typically restricted stock in a company or a restricted equity interest in a non-corporate entity).

Background

Section 83(b) permits taxpayers to change the tax treatment of transfers of restricted property they receive. Employees or independent contractors choosing to make a section 83(b) election are electing to include the fair market value of the property at the time of the transfer minus the amount paid for the property (if any) as part of their income in the year of receipt (without regard to the restrictions). They will be subject to required tax withholding by the employer at the time the property is received. In addition to the immediate income inclusion, a section 83(b) election will cause the property’s holding period for purposes of capital gains treatment to begin immediately after the property is transferred. Consequently, an employee or independent contractor who made a section 83(b) election will not be subject to income tax when the property vests (at the time the related restrictions lapse) regardless of the fair market value of the property at the time of vesting and will not be subject to further tax until the shares or other property are sold. Subsequent gains or losses in the fair market value of the property will be capital gains or losses (assuming the property is held as a capital asset).

However, if the fair market value of the restricted property declines in the time period from its receipt by the employee to its vesting date, there is a risk that the employee will have paid more income tax based on the fair market value on the transfer date than he would have been obligated to pay at vesting. Further, if an employee who made a section 83(b) election forfeits the property under the terms of the agreement with the employer, recovery of the tax paid at the time the election was made is not allowed.

Mechanics

An election to be taxed under section 83(b) must be filed in writing with IRS service center with which the employee files her/his annual Form 1040 no later than 30 days after the date of the transfer of the property and s/he must provide a copy of the election with the employer from whom the property was transferred. This may now be done using the IRS’s new model form, which if completed and filed properly constitutes a valid section 83(b) election.

Conclusion

While the IRS had previously provided guidelines for the information required to make a valid section 83(b) election, the new model election finally provides certainty for taxpayers making the election that their election will be valid if properly completed and filed in a timely manner with the IRS.

For more information, please contact Lisa Fairbanks at (800) 477-7458.

© 2012 EisnerAmper LLP

• Suggestion: For a copy of the model election form, please click here

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Estimates of Chargebacks and Rebates May be Sufficient to Meet the 'All Events Test' for Deductibility

Release Date: Thursday, July 19, 2012

Companies which utilize third party wholesalers may negotiate chargebacks and rebates as part of their sales contracts. This is particularly common in the pharmaceutical industry. To the extent that the wholesaler is unable to sell the product at a specified price, the manufacturer is often contractually obligated to provide rebates or chargebacks to compensate for the price differential. To ensure that the company reflects this potential liability on its books, it may accrue an estimated expense based upon historical rebates and chargebacks. Internal Revenue Section 461 requires that various tests must be met with respect to accruals and reserves in order to allow a taxpayer to take a deduction in the year an expense is booked. The first test is the “all events test” and the second is economic performance. Prior to the issuance of recent guidance it was unclear whether these accruals met the all events test.

All Events Test
The all events test is met with respect to any item if:
•All events have occurred which determine the fact of liability, and
•The amount of such liability can be determined with reasonable accuracy.

Economic Performance
The timing of economic performance depends upon the type of accrual or reserve. IRC Section 461(h)(3) provides an exception for recurring items. If the all events test has been satisfied, the recurring item exception allows the taxpayer a deduction for items that are recurring in nature if:
• Such item is either immaterial, or
• The accrual of such item provides better matching against income than deducting such item in the taxable year in which economic performance occurs.

Economic performance for items meeting the recurring item exception occurs within the shorter of
•A reasonable period after the close of such taxable year, or
•Eight and one-half months after the close of such taxable year.

Applicability to Chargeback and Rebate Reserves
The use of estimates when booking reserves or accruals will often cause the deduction to fail the all events test. In the past, there has been no clear guidance that the use of estimates for rebates or chargebacks was sufficient to meet the all events test. In fact, Field Service Advice (FSA 992, Vaughn # 992) issued in 1992 specifically addressed the issue and stated that the ultimate sale to the third party contract customer was the fact that fixed the liability. Therefore, there was uncertainty as to whether rebate and chargeback reserves meet the all events test and should, therefore, be deductible in the tax year recorded.

Recent advice set forth by the Chief Counsel (Field Service Advice 20121602F) provides that estimates may in some cases be acceptable. Field Service Advice (“FSA”) is provided when IRS agents in the field seek clarity regarding a particular issue they may feel is not specifically addressed in the tax code or regulations. The advice states, similar to the previous FSA, that the fixing event occurs when the wholesalers/distributors sell to end-user customers at prices below the acquisition cost. It is at this point that the wholesaler/distributor's right to demand a chargeback reimbursement is unconditional. Additional guidance was recently provided which further specifies that if the data allows the company to estimate the amount of its liability with reasonable accuracy, an estimate based on these reliable inputs and reasonable methodology will generally allow for a deduction in the year the liability is recorded. Therefore, if the data is found to be reliable, estimated chargeback and rebate reserves may be deductible in the year recorded based on the recurring item exception if the payout is made within eight and one-half months of the end of the taxable year.

For more information, please contact Judy Gund at (800)477-7458.

© 2012 EisnerAmper LLP

• Judith L. Gund, CPA

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Loeffler earns the designation of Certified Public Accountant (CPA)

Release Date: Tuesday, July 17, 2012

Jason Loeffler, with Saltmarsh, Cleaveland & Gund, has recently earned the designation of Certified Public Accountant (CPA). Loeffler passed a four part exam that tested his knowledge in Auditing and Attestation, Business Environment and Concepts, Financial Accounting and Reporting, and Regulation.

He joined the firm in 2007 and his areas of concentration include individual, corporate and partnership taxation. Loeffler has earned a B.S.B.A. in Accounting/Professional Accountancy and a Master of Accountancy from the University of West Florida.

• Jason Loeffler, CPA

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For Contractors, Revenue Recognition Standards Come Back to Reality

Release Date: Friday, July 06, 2012

No, the sky isn’t falling. Like a heavily anticipated major hurricane that thankfully veered out to sea, the upcoming revenue recognition standards are not expected to be the dramatic game-changer for the construction industry that was originally expected. In November 2011, the Financial Accounting Standards Board (FASB) re-issued their exposure draft on Revenue Recognition for Contracts with Customers (Topic 605). The reissued draft was in response to more than 1,000 comment letters from the industry and the accounting profession, as well as other stakeholders. The proposed standards, as revised, are conceptually in line with the goals of standardizing revenue recognition reporting across industries (in a principle-based approach), while retaining many current construction industry practices.

Yes, certain terminology will change and certain project costs need to be pulled out of the costs accumulated for calculation of percentage of completion. And there are still certain problematic issues that should be revised before the final standards are issued. However, much of the structure of companies’ current accounting methods and practices is expected to be substantially unchanged after the proposed standards are enacted.

For the last several years, the governing boards responsible for Generally Accepted Accounting Standards in the United States (GAAS) and International Financial Reporting Standards (IFRS) have been creating a single set of international accounting standards. The goal of the proposed revenue recognition standard is to eliminate separate standards for particular industries and create one generic standard applicable to all industries. The new standard would replace ASC 605-35 Revenue Recognition for Construction Type Contracts, which has been in effect since 1981.

The first exposure draft, issued in June 2010, introduced the following core principles:
• Identify the contract with the customer
• Identify the separate performance obligations in the contract
• Determine the transaction price
• Allocate the transaction price to the separate performance obligations
• Recognize revenue when performance obligations are satisfied

Major problems from the first exposure draft were as follows:

1. All contracts in the construction industry contain multiple performance obligations. Each building, phase, section, or subcontract could conceivably be viewed as a separate performance obligation. The proposed standards implied that companies would be required to disaggregate each contract element/obligation for accounting purposes.

2. It was unclear whether companies would be able to use percentage of completion using a cost-to-cost approach as a means of recognizing revenue over the course of a project.

3. Accounting for variable contract prices (unapproved or unpriced change orders, incentive payments, and claims) would have been less conservative than current practice. The proposed standard required an estimate to be recognized using a probability-weighted approach.

4. Adding significant disclosure requirements to include a tabular reconciliation of beginning and ending contract assets and liabilities each year, the expectation of when ending performance obligations will be satisfied, the opening and closing liabilities for onerous performance obligations, and a summary of significant judgments and changes in judgments used in determining the satisfaction of performance obligations.

5. Warranties were deemed to be separate performance obligations and hence a deferral of some portion of the total of contract revenue would have been necessary.

These changes are considered to be major improvements for the construction industry.

1. The ability to bundle performance obligations when multiple goods or services are highly interrelated and a business provides a significant service of integrating multiple goods and services into the combined item. This change allows for the presumption for most entities in the construction industry that the contract would remain the only profit center for revenue recognition.

2. The revised exposure draft eliminated the presumption that the output method (units completed, progress toward completion) is preferable to the input method (cost-to-cost, labor hours) for measuring progress of satisfying performance obligations. Percentage of completion using cost-to-cost (input method) would be allowed albeit with certain exceptions noted below.

3. The standard for estimating the value of unapproved change-orders, potential incentive payments, and claims in the total contract value was revised to encourage conservative reporting of uncertain elements of the contract amount. The proposed standards allow these estimates to be determined using either a probability-weighted approach or the “most likely” estimate. The “most likely” estimate method is appropriate in the construction industry, where the outcome choices are likely to be binary rather than a range of outcomes. In addition, the proposed standard states that entities use judgment in determining when variable consideration is “reasonably assured.” This revision brings the proposed standard more in line with the current standard.

4. The revised exposure draft eliminated many of the disclosure requirements for private reporting entities.

5. The standard for accounting for warranties as a separate performance obligation was relaxed. If the customer has the option to purchase the warranty separately, then it would be a separate performance obligation to be accounted for separately. If warranty is merely assurance that the entity’s past performance would be as specified in the contract, it does not constitute a separate performance obligation.
The following issues are fundamental changes from the current standards. These have been identified by industry stakeholders in their comment letters on the revised exposure draft who have encouraged FASB to make modifications before the final standard is released.

Contract Costs
The most significant change will affect all companies calculating revenue using the percentage of completion on the cost-to-cost approach. Under the proposed standard, certain categories of costs are not included in the numerator and denominator for the determination of the percent complete. The principle in the new standard is that removing these costs from the percentage of completion calculation will defer recognition of revenue on projects and make revenue reporting more conservative. The result will be lower profits recognized on early stages of projects.

Under the current standard, there is a self-correcting mechanism for accounting for diminished profit due to unrecovered costs under the percentage of completion method. Once identified, the amount would have already been in the cost incurred to date (numerator), and the total estimated project costs would have included these costs also (denominator). The percentage presumably would be higher due to the higher numerator. Thus when applied to the contract price, more revenue would be recognized.

The proposed standard notes three categories of costs that need to be excluded from the calculation:
i. Costs which do not accurately depict the transfer of control of goods or services (such as costs of wasted materials, labor or other resources). Under this standard, idle time charged to projects must be expensed to an allocated labor account.
ii. Costs to obtain a contract shall be expensed as incurred. Under this standard, costs to bid a project would need to be expensed.
iii. Direct costs of fulfilling a contract (such as commissions or mobilization costs) are capitalized and amortized if they relate directly to a contract, relate to future performance, and are expected to be recovered. This standard would require companies to accumulate these early costs, remove from job costs and record as a prepaid expense that will be written off over the life of the project.

The proposed standard is vague on its practical application, but the principle is that costs are required to be excluded from both the numerator and denominator in determining the cost-to-cost percentage. The practical application of this will be difficult since most companies contract reporting and job cost reporting systems do not allow for reductions for these items without manual journal entries. For management purposes, companies would not want to lose track of these costs and their association with particular projects simply because of new revenue recognition standards.

Onerous Performance Obligations
The proposed standard includes the requirement to record a liability and an expense for each performance obligation that is satisfied over a period of time greater than one year. A performance obligation is onerous if it is expected to cost more to finish or exit the performance obligation than the transaction price of the performance obligation (i.e., contracts with losses).

The current standard requires evaluation of losses at the contract level without regard to the length of the contract. If the presumption is that most construction contracts will be one performance obligation, then the proposed standard, as written, would be less conservative than the current standard.

Time Value of Money
The proposed standard includes a provision wherein contract revenue should reflect the time value of money whenever the contract includes a significant financing component. As a practical expedient, this standard would only apply to contracts whose duration exceeds one year. For a commercial contractor building for third parties, it is unclear that retention receivables or overbillings would be subject to imputed interest adjustments. It remains to be seen whether this provision would remain as written in the final standard.

Collectability and Transaction Price
It is sometimes difficult to distinguish true bad debts from compromises made on individual projects. Under the current standards, contract concessions are an adjustment to the contract amount (revenue to be recognized); while provisions for bad debts are presented as an operating expense.

The first exposure draft included the requirement that each customer’s credit risk be initially evaluated and reflected in the contract price using a probability-weighted approach. The revised exposure draft reiterates the current standard that revenue from contracts is calculated without regard for the credit worthiness of the customer. The proposed standard states that the transaction price is what companies “expect to be entitled” and is reported as revenue. Provisions for bad debts based on the impairment of receivables would be presented as a separate line item adjacent to revenue. Bad debts expense would no longer be classified in the general & administrative expense section of the statement of income.

Example of presentation of Bad Debts Expense under proposed standard
Contract Revenues $ 5,000
Less Provision for Doubtful Accounts $ (200)
Total Revenues $ 4,800

The industry appears to be accepting of this change, however more guidance has been requested on distinguishing between contract concessions and true bad debts.

Like the storm chasers in the movie “Twister,” many in the industry have been following the developments closely over the years and gotten involved by commenting on the proposed standards. It is gratifying that this effort has affected positive change. The industry comment letters on the latest exposure draft are substantially down in numbers and are primarily appreciative of the changes to the reissued exposure draft while suggesting additional changes to important but less fundamental issues. The final standards are ultimately expected to be similar to the latest exposure draft. For those contractors hunkered down in their basements waiting out the storm, it’s time to step outside and start preparing for the new standards that will be coming, You have some time still to get ready – the standards are not expected to be effective before January 1, 2015 at the earliest.


For more information, please contact Chuck Landers at (800) 477-7458.

© 2012 EisnerAmper LLP

• Chuck Landers

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Health Care Reform and Small Businesses

Media Contact: Lisa Fairbanks

Release Date: Tuesday, July 03, 2012

The Supreme Court has upheld the constitutionality of the 2010 health care reform legislation, but what does that mean for small businesses? What is the employers “shared responsibility” or the “employer mandate”? First, the employer mandate only applies to “large employers” with 50 or more full time employees. Full time meaning employed on average 30 hours per week. Second, it only applies to these employers with who either do not offer full time employees the opportunity to enroll in minimum essential coverage under an employer-sponsored plan, or offers a health plan that is unaffordable or does not provide minimum value. For small businesses with less than 50 full time employees there is little “required” change from this health care law.

Small employers, as part of the health care reform, with 25 or fewer full time equivalent employees are eligible for the Health Insurance Tax Credit. This credit is up to 35% (25% for tax exempt organizations) of the health insurance premiums paid by the employer. The credit is scheduled to increase to 50% (35% for tax exempts) in 2014. However, along with the increase in credit, the employer must participate in a health care exchange to be created as part of the health reform. The Supreme Court ruling has given the states the option to “opt out” of building health care insurance exchanges. In a recent statement, Governor Rick Scott said Florida would opt out of building an insurance exchange. We will have to “stay tuned” to see what happens next.

• Lisa Fairbanks, CPA

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U.S. Supreme Court Upholds Individual Mandate Contained in the 2010 Patient Protection and Affordable Care Act

Release Date: Monday, July 02, 2012

Thursday, June 28th, The Supreme Court ruled 5 to 4 that Congress does have the power to require that individuals acquire and maintain health care insurance. The decision also prohibits the federal government from withholding funds from state Medicaid programs (under certain circumstances).

With the decision, the 3.8% Medicare Contribution Tax (MCT) remains, effective January 1, 2013. The MCT is applicable to unearned income, to be calculated and paid in addition to an individual’s ordinary income tax or AMT liability (as applicable). The MCT is calculated based upon the lesser of (i) the individual’s net investment income for the year, or (ii) any excess of modified adjusted gross income (MAGI) over the threshold amount ($250,000 for joint filers). MAGI is defined as AGI for the tax year, increased by otherwise excludable foreign earned income or foreign housing costs under IRC Sec. 911. The MCT applies to estates and trusts, and is subject to estimated tax payment rules.

For investors striving to understand the impact of the U.S. Supreme Court decision, the broader question will be the details of implementing the 2010 health care legislation. Further, the impact on HMOs and hospitals and similar health care models could be most impacted by the Court's decision. Accordingly, persons contemplating investing in the broad health care industry should be very cautious while remaining attendant to long term objectives, risk tolerance, investment horizon, and other factors.
Separately, based on research assessing the cost of the 2010 health care legislation, it is estimated there will be between $340 billion and $530 billion in federal deficits during the next decade; overall, federal spending could increase by more than $1.1 trillion from 2012-21. The law, however, does rely on achieving savings to pay for its other provisions, such as providing subsidies to low-income individuals to pay for health coverage on insurance exchanges. Exchange subsidies will cost $777 billion during the next 10 years, according to the Congressional Budget Office.

For more information, please contact Lisa Fairbanks at (800) 477-7458.

© 2012 EisnerAmper LLP

• Lisa Fairbanks, CPA

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IRS Proposed Regulations Address ‘Substantial Risk of Forfeiture’ under IRC Section 83

Release Date: Friday, June 29, 2012

The Internal Revenue Service (IRS) recently proposed regulations to address points of confusion related to the ‘substantial risk of forfeiture’ provision under Internal Revenue Code (IRC) section 83 as it applies to property transferred to an employee in connection with the performance of services. The ‘property’ involved is typically restricted stock or stock options. The proposed regulations clarify three areas regarding conditions that may result in a substantial risk of forfeiture, which impacts when an employee must include the value of the transferred property in her/his income. The proposed effective date of the new rule is January 1, 2013.

Background

Generally, if an employee receives property, such as stock, from an employer in exchange for services, the transfer is treated as compensation for services. The amount of income recognized is the fair market value of the property on the date it is vested (transferable or no longer subject to substantial risk of forfeiture), less any amount paid by the employee for the property. Whether a substantial risk of forfeiture exists is based on the facts and circumstances of the arrangement.

Proposed Clarifications

In determining whether a substantial risk of forfeiture exists, the proposed regulations make clarifications in three areas. First, under current regulations, a substantial risk of forfeiture exists if the employee must perform substantial future services or the property is subject to conditions related to the purpose of the transfer of the property (typically future performance benchmarks applicable to the employee or to the employer’s business). The proposed regulations respond to the question of whether any other conditions imposed on the transfer of property would constitute a substantial risk of forfeiture by clarifying that a substantial risk of forfeiture arises only through a future service condition or a condition related to the purpose of the transfer.

The second clarification in determining if a substantial risk of forfeiture exists is that the likelihood that a condition of forfeiture related will actually occur must be considered. For example, assume that stock transferred by an employer to an employee was made nontransferable and also subject to a condition that the stock be forfeited if the gross receipts of the employer fell by 90% over the next three years. Assume further that the employer is a longstanding seller of a product and that there is no indication that there will be either a fall in demand for the product or an inability of the employer to sell the product. Thus, it is extremely unlikely that the forfeiture condition will occur. Although arguably the condition is related to the purpose of the transfer because it would, to some degree, incentivize the employee to prevent such a fall in gross receipts, the IRS does not believe that such a condition was intended to defer the taxation of the stock transfer. Accordingly, the proposed regulations clarify that, in determining whether a substantial risk of forfeiture exists based on a condition related to the purpose of the transfer, both the likelihood that the forfeiture event will occur and the likelihood that the forfeiture will be enforced must be considered.

Lastly, the proposed regulations amend the regulations under section 83 to include certain holdings in IRS Revenue Ruling 2005-48. While Congress intended section 83 to be interpreted in a way that precludes the use of transfer restrictions as a means of deferring taxable income, a specific exception in section 83(c)(3) provides that a substantial risk of forfeiture exists if the sale of property at a profit could subject a person to a suit under section 16(b) of the Securities Exchange Act of 1934 (Exchange Act). The revenue ruling clarified that this is the only provision of the securities laws that would delay taxation under section 83. Other transfer restrictions – such as restrictions imposed by lock-up agreements or insider trading restrictions under rule 10b-5 of the Exchange Act – do not cause an employee’s rights to property to be subject to a substantial risk of forfeiture.

Conclusion

The proposed regulations apply to employees who participate in an employer’s equity compensation plan or who receive equity based awards for service to the employer. Accordingly, employers should review the forfeiture conditions in their plans prior to the proposed January 1, 2013 effective date.

For more information, please contact Lisa Fairbanks at (800) 477-7458.

© 2012 EisnerAmper LLP

• Lisa Fairbanks, CPA

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The IRS Forges Ahead with FATCA: Draft Forms and Registration Process

Release Date: Tuesday, June 12, 2012

On June 6, the Internal Revenue Service (IRS) released draft versions (as of 5/31/12) of revised Form W-8BEN and new Form W-8BEN-E, which are designed to conform to new Chapter 4 of the Internal Revenue Code, effective 1/1/13. The IRS is also working on its system for the online registration process that will enable foreign financial institutions (FFIs) to become FATCA compliant as described below, since the IRS expects FFIs to register during the period 1/1/13-6/30/13 in order to ensure that U.S. withholding agents making payments to them will treat them as properly registered by 1/1/14 when FATCA withholding generally begins. We share below important aspects and key insights regarding both of these developments.

Background
The Foreign Account Tax Compliance Act (FATCA) added Chapter 4 to the Internal Revenue Code, which generally provides that an FFI (e.g., a foreign hedge fund, private equity fund, etc.) will need to be registered as a Participating FFI (PFFI) (or a Deemed-Compliant FFI) in order to avoid a 30% withholding tax on withholdable payments (generally U.S. source passive income (FDAP) and gross proceeds from the sale of U.S. securities). On 2/8/12, the Treasury Department issued proposed regulations for FATCA implementation which require foreign persons to document their Chapter 4 status (e.g., foreign individual, PFFI, non-participating FFI, nonfinancial foreign entity, etc.) to their U.S. withholding agents. The proposed regulations are modeled after the familiar Chapter 3 regulations, under which U.S. withholding agents are required to document the status of foreign beneficial owners of payments on U.S. source income, which they make generally by obtaining Forms W-8BEN, W-8IMY, etc. (referred to below as the "old forms").

New Draft W8-BEN Forms
Form W-8BEN is used by the foreign beneficial owner of U.S. source income to certify its status as foreign and, if applicable, claim a reduced rate of withholding pursuant to a treaty. The old Form W-8BEN was used by an individual, corporation, or other beneficial owner that was not a pass-through entity (which instead uses Form W8-IMY). Chapter 4 establishes many new withholding categories for foreign entities, prompting the IRS to create a new six-page Form W-8BEN-E for entities, while making some revisions to the one-page Form W-8BEN (which henceforth is to be used only by foreign individuals). The new forms are designed to address both Chapter 3 and Chapter 4 status so that withholding agents will not have to maintain two separate forms. The draft forms are expected to be finalized in December 2012, six months after which withholding agents will not be able to accept a prior version of the form. Draft instructions to the forms have not yet been released.
One of the most significant changes in the new draft forms is that a foreign tax identifying number is now required. This is especially significant, not only because foreign persons may be reluctant to provide it, but also because the withholding agent may have certain responsibilities to validate this information. The instructions are expected to address these requirements in detail.

Observation: If you anticipate difficulty in obtaining a foreign tax identifying number, you may consider not soliciting the new version of the form until you have to (assuming you have a valid version of the old form which did not require it).

Draft Form W-8BEN-E requires a foreign entity to (i) certify its Chapter 3 status (e.g., corporation, tax-exempt entity, etc.), (ii) certify its Chapter 4 status (e.g., Participating FFI, Nonparticipating FFI, etc.), and (iii) complete a short special section tailored to the status checked in (ii) above. Participating FFIs will have to provide their FFI EIN (line 7), as discussed below, so that the withholding agent will be able to validate it by reference to the list that the IRS will publish, as well as their FATCA ID (line 13) which will be a different, more confidential, number that a PFFI will use for FATCA reporting.

FATCA Registration Process for Foreign Financial Institutions
As of today, the IRS is in the process of reviewing and considering over 200 comment letters it received on the proposed regulations. While the proposed regulations are expected to be finalized in the coming months, the IRS has started designing the registration process based on the proposed regulations so that it can be in a position to have the final online process in place by 1/1/13. Below we set forth highlights of the registration process as the IRS currently envisions it. Please note that the information set forth below is subject to change, as a result of changes that might be made to the proposed regulations before they are finalized.

How will an FFI register online to become a Participating FFI?
The process starts by logging on to FATCA (a page that already exists) and under the "Information for Foreign Financial Institutions" section, clicking on a link (to be added) entitled "Login or Create FATCA Account".

Who participates in the registration process?
There are three types of individuals who can potentially participate:
1. Responsible Officer (RO) - Individual officer of the FFI in a position to register and sign the FFI agreement.
2. Point of Contact (POC) - Listed individuals (up to 5 per FFI) selected by the RO (or by an ATP, see 3 below) to help complete all aspects of the registration process except signing. The FFI must have one in-house POC and also may designate certain qualified local or U.S. third parties.
3. Authorized Third Party (ATP) - Certain in-house individuals and certain types of U.S.-licensed tax professionals designated (through power of attorney procedures) by the RO to perform all registration duties, including signing the FFI agreement/certification. (The standards for eligible individuals are still under development.) While an ATP may sign the agreement, the RO still remains responsible.

Observation: FFIs should start considering who in their organizations will fulfill these roles and, if necessary, educate them on FATCA.

How will the IRS verify the identity of the individual who will sign the FFI agreement [or the annual certification of compliance?
Positive ID verification is required for the individual who will sign the FFI agreement/certification, which is accomplished as follows:
Electronic: The RO may provide his/her SSN or ITIN in the registration system
Paper: The RO may provide new Form 8956 and appropriate documentation
(The process for ATPs is still being developed.)

A FATCA Individual Identification Number (FIIN) will be issued to the RO or ATP once his/her identity is verified. The FIIN is then used by the individual who signs the FFI agreement/certification.

The registration process includes an affirmative statement that the person signing has the authority to act for the FFI.

Observations:
• For many FFIs, the RO or ATP may not have a SSN or ITIN. The process to apply for an ITIN or to file Form 8956 (which will probably be similar) can take several weeks. ROs might consider applying for an ITIN now or filing Form 8956 when available, so that they will be able to register without delay when the registration system is available.
• Some ROs may not want to apply for a U.S. ITIN or go through a similar process by filing Form 8956. Accordingly, they may consider designating by power of attorney an ATP to sign the agreement/certification, since it appears that this will avoid having to apply personally with the IRS. These ROs should start thinking now about who they may designate to act as an ATP and discuss it with them, so as to avoid a delay in their ability to register online when the registration system is available.

What type of information will be required to be submitted as part of the registration process?
• The specific type of FFI (e.g., PFFI, Deemed-Compliant, etc.)
• Types of accounts maintained by the FFI (e.g., for investors in an FFI which is a fund)
• Mailing and physical address of the FFI
• Date and country of incorporation or organization
• FFI country of residence for tax purposes
• List of all registering members of the lead FFI's Expanded Affiliated Group
• Designation of RO and POC, including name, title, address, telephone, and e-mail address

What happens after the agreement/certification is signed and submitted?
• For a single FFI, after signing the agreement/certification the FFI will be notified when it is approved by the IRS and will receive an FFI EIN.
• For an Expanded Affiliated Group, each registering FFI in the group must sign the agreement/certification and, after each FFI in the group has done so, the group will be approved and each FFI will receive an FFI EIN.
• PFFIs and registered Deemed-Compliant FFIs will be placed on a publicly available list.
• Once the online application is signed and submitted, the approval is expected to happen "quickly" according to IRS representatives.

Can a PFFI access its own FATCA-related information online?
Yes, FATCA registration will create a user-maintained account which can be edited or modified by the user. Similar to a private online account, it is intended that every time a change is made an e-mail will be sent to the POC(s).
• The FFI's account will have a home page showing:
key information, such as status as PFFI, RO, ATP, FIIN, POC, FATCA ID, and FFI EIN
• next steps (for FATCA compliance)
• a message board, through which the IRS will communicate with the FFI regarding its FATCA account.


Conclusion
FFIs and those dealing with them should begin now to prepare for use of revised Form W-8BEN and new Form W-8BEN-E and for the registration process outlined above.



For more information, please contact Lisa Fairbanks at (800) 477-7458.
Redistributed by Saltmarsh, Cleaveland & Gund with permission.

© 2012 EisnerAmper LLP
This publication is intended to provide general information to our friends. It does not constitute accounting, tax, or legal advice; nor is it intended to convey a thorough treatment of the subject matter.

• FATCA

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Saltmarsh welcomes Paul S. Allen as shareholder

Release Date: Tuesday, May 29, 2012

Saltmarsh is pleased to announce that Paul S. Allen has joined Saltmarsh as a Shareholder and will be opening an Orlando area office.

Paul has more than 25 years of experience of public accounting and senior financial management experience working with financial institutions. The addition of Paul will benefit the firm as well as our financial institution clients and will further strengthen our commitment, expertise, and reputation for excellence in providing audit, tax and consulting services to financial institutions.

Paul has extensive experience providing external audit and consulting services to financial institutions as well as working with board members, audit committees, regulatory examination staff and investment bankers. His in-depth industry experience includes executive-level risk identification and assessment, serving as Chief Financial Officer, supervision and oversight of financial reporting, internal audit and compliance functions, and oversight of the strategic planning and budget processes, as well as planning, implementation and management reporting for SOX 404 requirements. Professional designations obtained include Certified Public Accountant (Florida) and Certified Global Management Accountant (AICPA).


About Saltmarsh, Cleaveland & Gund

In 1944, Thomas Saltmarsh, Harold Cleaveland and Charles Gund pooled their talents and modest resources to form a partnership for the practice of accounting. The success they achieved was attributed to their guiding principles of honesty and integrity, accuracy and thoroughness, quality client service and, most importantly, the belief that service to the community is both an individual and a corporate responsibility.

Today, Saltmarsh offers a full range of professional services from accounting and taxation to consulting – all based on the Firm’s mission statement and core values. It is this philosophy, based on the principles of yesterday, which has helped the Firm grow to one of the largest and most respected certified public accounting firms in the Southeast.

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New ERISA Service Provider Disclosure Requirements

Release Date: Monday, May 21, 2012

On February 3, 2012, the U.S. Department of Labor issued the long-awaited final service provider fee disclosure regulation under Section 408(b)(2) of the Employee Retirement Income Security Act of 1974 (ERISA). The regulation requires certain service providers to make written disclosure of their services and fee arrangements to a responsible plan fiduciary. A responsible plan fiduciary is defined as a fiduciary with authority to cause the plan to enter into, or extend or renew, the contract or arrangement, and typically includes the plan sponsor, officer, trustee or custodian. The disclosure must be made reasonably in advance of entering into, extending, or renewing a contract or service arrangement with that provider. The rule does not require a particular format for the required disclosures, which may be contained in a single document or in multiple documents.

Background
ERISA requires plan fiduciaries, when selecting and monitoring service providers and plan investments, to act prudently and solely in the interest of the plan's participants and beneficiaries. Responsible plan fiduciaries also must ensure that arrangements with their service providers are "reasonable" and that only "reasonable" compensation is paid for services. According to the Department of Labor, reasonable compensation does not mean that a plan fiduciary needs to select the cheapest provider. An unreasonable arrangement could lead to a prohibited transaction. By requiring covered service providers to disclose their fee arrangements, plan fiduciaries will have a means to compare service providers on an even playing field with all of the services and fees they provide being disclosed and all parties involved identified. The disclosures will also provide plan fiduciaries with knowledge of any potential conflicts of interest.

When is the new Service Provider Disclosure rule effective?
The rule goes into effect on July 1, 2012. This means that covered service providers must provide the required disclosures to the plan fiduciary for any arrangements with a covered plan that will be renewed, extended or entered into as of July 1, 2012.

What does this mean for Plan Fiduciaries?
Plan fiduciaries must be diligent to secure the proper disclosures from covered service providers to the plan and should implement a process to ensure:
•The sufficiency and accuracy of the information received from the service provider pursuant to the final regulation;
•Timely receipt of all information, including any changes to previously provided information;
•Timely requests to service providers for required information, especially with respect to any indirect compensation;
•A format and disclosure language that is understandable to the plan participant population involved;
•Appropriate notice and action if the information is not timely provided or is deficient;
•Appropriate indemnifications with respect to timely compliance; and
•Appropriate documentation of the receipt of the information, the fiduciaries’ consideration of it, and any actions taken.

Who is a “Covered Service Provider”?
The final regulation defines a covered service provider as “a service provider that enters into a contract or arrangement with the covered plan and reasonably expects $1,000 or more in compensation, direct or indirect, to be received in connection with providing” certain specified services, including fiduciary or registered investment advisor services, and recordkeeping or brokerage services. It also applies to other services for which the covered service provider expects to receive indirect compensation; these other services include accounting, auditing, actuarial, banking, consulting, custodial, insurance, investment advisory, legal, recordkeeping, securities brokerage, third party administration, or valuation services. Indirect compensation is compensation received from a source other than the plan sponsor or the plan itself.

What is a “Covered Plan” for purposes of the service provider disclosure rule?
This regulation applies to ERISA-covered defined benefit and defined contributions pension plans, including 403(b) annuity contracts and custodial accounts subject to ERISA. It does not apply to simplified employee pension plans (SEPs), SIMPLE retirement accounts, employee welfare benefit plans, and IRAs. Also exempt are annuity contracts and custodial accounts in 403(b) plans that were issued to employees before January 1, 2009, where no additional contributions have been made, and the contract is fully vested and enforceable by the employee.

What information needs to be disclosed?
Covered service providers are required to disclose (before the parties enter into an agreement for services):
•All services to be provided under the agreement
•The compensation or fees to be received for each service
•The manner of receipt of compensation or fees
•Information about conflicts of interest

What happens if the Plan Fiduciary (Plan Administrator) does not receive the required disclosures by July 1, 2012?
The disclosure burden is on the service provider. However, if the information is not disclosed by July 1, 2012, then the contract or arrangement between the plan and the service provider will not be deemed reasonable under ERISA, and the plan will have engaged in a prohibited transaction, not only subject to excise taxes but required to be disclosed in both a supplemental schedule to the 2012 Form 5500 filing and the Plan’s 2012 audited financial statements, if the Plan is subject to audit. If this occurs, the plan fiduciary should first make a written request to the covered service provider for the missing information. If that proves unsuccessful, the plan fiduciary should contact the Department of Labor’s Employee Benefits Security Administration (EBSA).

Conclusion
Due to the complexity of the service provider disclosure rules, and the additional reporting requirements for prohibited transactions, we suggest that you contact ERISA counsel to ensure you receive the proper disclosures in a timely manner.
For more information, please contact Judy Fryer at (800) 477-7458.

© 2012 EisnerAmper LLP

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Great Turnout at the A&A CPE Event!

Release Date: Monday, May 21, 2012

Saltmarsh hosted a CPE event on Friday, May 18, at New World Landing in Pensacola, Florida. Over 80 participants were in attendence representing Saltmarsh, and other offices in the surrounding area. Guest speaker Russ Madray discussed a range of updates regarding:

Private Company Financial Reporting
IFRS in the United States
FASB
Audit Standards
Compliation and Review Standards


Visit our seminars page, for more information about upcoming seminars and events at Saltmarsh.

• SEMINARS

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U.S. Banks Must Report Interest on Deposits by Nonresident Aliens

Release Date: Friday, May 11, 2012

The Internal Revenue Service (IRS) has released final regulations requiring reporting of interest paid on deposits maintained at U.S. offices of certain financial institutions by nonresident alien individuals beginning on January 1, 2013. The regulations require reporting only for interest paid to a resident of a country with which the U.S. has an exchange of information agreement in effect. In addition, the rules seek to reassure stakeholders that strict confidentiality will be maintained not only by the U.S. but also by the foreign jurisdiction receiving the information.

Background of the rules

The focus by the IRS on reporting of interest on deposits of nonresident aliens is not new, as the proposed regulations date back to 2001 and subsequently 2002. The 2002 proposed regulations would have required reporting of interest paid to such individuals who were residents of certain designated countries including Canada and fifteen others. In January 2011, new proposed regulations were released and the final regulations adopt the 2011 proposals with certain revisions. One such revision is the requirement to report only where the interest is paid to residents of a country with which the U.S. has an information exchange agreement in effect.

Basic approach of the rules

The new regulations clarify that, for purposes of determining country of residence, the reporting institution can rely on the permanent address provided on a valid IRS Form W-8BEN (Certificate of Foreign Status of Beneficial Owner for U.S. Tax Withholding) unless the institution knows or has reason to know that the W-8BEN is incorrect or unreliable for purposes of establishing the country of residence.

Objective of the rules

The U.S. does not impose its income, gift or estate taxes on most non-business bank deposit interest or accounts of foreign persons, so this measure is likely not aimed primarily at enforcing U.S. federal taxes.
However, the IRS is in process of finalizing regulations under the U.S. Foreign Account Tax Compliance Act (FATCA) which, inter alia, will require foreign financial institutions and others to provide U.S. taxpayer information.
The success of this approach may hinge in part on the ability of the U.S. to exchange financial account information with other countries’ governments, so providing a U.S. mechanism for obtaining such information for other countries may assist enforcement efforts under FATCA and similar legislation.

Observation: We generally anticipate enhanced bilateral and/or multilateral information exchanges among nations to improve local tax enforcement, in light of continuing increases in international investment.

For more information, please contact a Saltmarsh Bank Advisor at (800)477-7458.

© 2012 EisnerAmper LLP
This publication is intended to provide general information to our friends. It does not constitute accounting, tax, or legal advice; nor is it intended to convey a thorough treatment of the subject matter.

• IRS Revenue Procedure 2012-24

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IRS Announces Third Opportunity for Voluntary Disclosure of Offshore Accounts

Release Date: Friday, May 11, 2012

Background
Following two initiatives in 2009 and 2011, the Internal Revenue Service (IRS) has announced a third offshore voluntary disclosure program (OVDP) for foreign financial accounts – this one with an indefinite deadline to apply. In this connection, the IRS noted that, collectively, the two previous programs have generated more than $4.4 billion in tax revenue. This new program is similarly designed to help motivate U.S. taxpayers with undisclosed accounts to comply with required U.S. tax reporting.

Observations:
• The new OVDP comes at a time when the U.S. has stepped up its focus on international tax compliance and its negotiations with several foreign banks to obtain the release of account information of U.S. customers.
• In addition, new reporting applicable to such foreign financial accounts and other foreign financial assets commences with 2011 income tax returns. The statute of limitations for omission of gross income which is derived from a reportable offshore asset is extended to six years if such income is in excess of $5,000.
• Moreover, under the Foreign Account Tax Compliance Act provisions, foreign financial and nonfinancial institutions will be required to disclose U.S. persons’ accounts beginning in 2014.

The terms of this OVDP could change in the future with the possibility of increased penalties for all or defined classes of taxpayers, or could be ended completely at any moment. Thus, this OVDP seems an opportunity for taxpayers with undisclosed foreign financial accounts to come into U.S. tax compliance without fear of criminal prosecution and with a clear understanding of what penalties will be imposed.

Penalty Structure
The overall penalty structure for this new program generally remains unchanged from the predecessor 2011 program, with one principal exception: The basic penalty has increased from 25% to 27.5% of the highest aggregate balance in unreported accounts during the eight full tax years prior to disclosure.

Framework of the 2012 OVDP
As noted above, and similarly to the first two programs, the new OVDP applies to the last eight full tax years before the year of participation – e.g., 2004-2011 during the current year 2012.

Certain key provisions of the 2011 program – which is described in our previous alerts in effect under the 2012 program, including the following:
• Taxpayers whose offshore accounts or assets did not surpass $75,000 in any calendar year will continue to qualify for a lower penalty of 12.5% during the disclosure period.
• Taxpayers meeting all of the following four conditions qualify for a reduced penalty of 5% if the taxpayer:
-- Did not open or cause the account to be opened (and permitting such an account opening if the financial institution required that a new account be opened, rather than allowing a change in ownership of an existing account, upon the death of the previous owner);
-- Has exercised minimal, infrequent contact with the account;
-- Has not withdrawn more than $1,000 from the account in any year of the eight years of the program, except for a withdrawal closing the account and transferring the funds to an account in the U.S.; and
-- Can establish that all applicable U.S. taxes have been paid on funds deposited in the account.

Observation: For purposes of the last requirement above, if funds were deposited before 1991 but no information is available to establish that the funds were appropriately taxed, it is presumed that they have been so taxed – this date also applied to the previous program and apparently has not been moved forward to a later date.

Taxpayers who reside abroad and who were unaware of their U.S. citizenship also may qualify for the 5% penalty without having to meet the four qualifications above.

Observation: The IRS recently issued Fact Sheet FS 2011-13 – described in our previous alert provide guidance to, inter alia, dual citizens who reside outside the U.S. It is not clear how the Fact Sheet and its guidance reconcile with the new OVDP’s penalty structure – e.g., under the Fact Sheet the IRS will consider reasonable cause to minimize or eliminate penalties for certain taxpayers.

Coordination with Other Required Disclosures
• The IRS continues to provide in the new OVDP an alternative mark-to-market computation for Passive Foreign Investment Companies held by participating taxpayers, as described in our previous alert.
• For those who have reported and paid tax on income from foreign financial accounts, but did not file Foreign Bank Account Reports (FBARs), this is another opportunity to file delinquent FBARs without penalty assessment, provided that a statement explaining the cause for the filing delay is contained within the filing. Similarly, those with signature authority – but no ownership interest – in foreign financial accounts should file delinquent FBARs under the same procedures.
• No penalties will apply for the failure to file certain other information returns with respect to foreign income – including but not limited to Form 5471 and Form 3520 – if there are no underreported tax liabilities and the information returns are filed with an amended tax return accompanied by a statement explaining the reason for the delinquency.

Observation: In general, the statute of limitations does not run on information returns such as Form 5471 or Form 3520 if they are not filed.

Limitations on Relief
• A taxpayer whose noncompliance has already been learned by the IRS will not be able to participate in the new OVDP, nor will participation be permitted where the foreign financial account includes property derived from illegal activities.
Observation: Taxpayers who have previously come forward since the closing of the last 2011 program will be treated under the provisions of the new program.
• It should be noted that the National Taxpayer Advocacy Office recently invoked an administrative tool to force changes in IRS audit procedures with respect to the first 2009 program. At issue is whether the IRS must revoke a March 1, 2011, memo directing examiners to stop accepting less than the 20% offshore penalty under that program (as apparently permitted in the IRS’s own FAQ 35 under the program) and instead instruct examiners to assume a violation was not willful unless they can prove otherwise.

Observation: This challenge may ultimately impact terms of the new OVDP.
• Taxpayers participating in the new OVDP must file with the IRS all original and amended tax returns for the 8-year period covered and pay – in addition to the penalty amounts referred to further above based on highest foreign account balances – the balances of any income taxes owed for the covered period, interest on the balances, a 20% accuracy related penalty, and late payment or filing penalties, if applicable.

For more information, please contact a Saltmarsh Tax Professional at (800) 477-7458.
© 2012 EisnerAmper LLP

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Construction Services Newsletter March 2012

Release Date: Tuesday, March 20, 2012

This edition of "Dimensions" covers topics such as contract cost language, transition planning for your company, and performing successful background checks.

• Download the March 2012 Dimensions Newsletter
• Learn More about Saltmarsh's Construction Services

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Suzanne Cox Appears on Tampa FOX 13

Release Date: Monday, February 13, 2012

Suzanne Cox, CPA, was recently featured in a story about stolen tax returns on Tampa's Fox 13. During her interview, she talks about how she has been a victim due to identity theft, and gives pointers on how to recognize fradulent activity.

• Watch Suzanne's Interview on Fox 13

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Larrieu, Smith Named Rising Stars

Release Date: Thursday, January 26, 2012

Congratulations to Robin Larrieu and Justin Smith for being named to the Pensacola Independent News Rising Stars 2012 list! The Rising Stars program has been honoring leaders under the age of 35 in Pensacola since 2008. To be chosen as a Rising star, one must be seen as an upcoming leader in his or her profession within our community.

Robin Larrieu is the Network Engineer in the Information Technology Services Department of Saltmarsh, Cleaveland & Gund. Coming from a large ISP she joined the firm in June 2006 and began her career in 2003. Her experience includes computer networking and technology consulting. Robin is a Microsoft Certified Desktop Support Technician.

Justin Smith is a Senior in the Tax & Accounting Services Department of Saltmarsh, Cleaveland & Gund. He has been practicing public accounting since 2006. Justin’s area of expertise includes corporate and individual tax specializing in construction contractors, homeowner’s associations and non-profit organizations.

Saltmarsh is proud of Robin and Justin! Congratulations from the entire Saltmarsh team!

• Read more on our blog ...

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Bill Massey Quoted in American Banker

Release Date: Thursday, January 26, 2012

Bill Massey, CPA, Shareholder, has been quoted in the latest edition of American Banker and on AmericanBanker.com in an article focusing on rebuilding Florida's community banks.

To read Bill's quote and the article in its entirety, please click on the link below. The article is on the second page of the document.

• File Download

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Payroll Tax Cut Temporarily Extended into 2012

Release Date: Friday, December 23, 2011

Nearly 160 million workers will benefit from the extension of the reduced payroll tax rate that has been in effect for 2011. The Temporary Payroll Tax Cut Continuation Act of 2011 temporarily extends the two percentage point payroll tax cut for employees, continuing the reduction of their Social Security tax withholding rate from 6.2 percent to 4.2 percent of wages paid through Feb. 29, 2012. This reduced Social Security withholding will have no effect on employees’ future Social Security benefits.

Employers should implement the new payroll tax rate as soon as possible in 2012 but not later than Jan. 31, 2012. For any Social Security tax over-withheld during January, employers should make an offsetting adjustment in workers’ pay as soon as possible but not later than March 31, 2012.

Employers and payroll companies will handle the withholding changes, so workers should not need to take any additional action.

Under the terms negotiated by Congress, the law also includes a new “recapture” provision, which applies only to those employees who receive more than $18,350 in wages during the two-month period (the Social Security wage base for 2012 is $110,100, and $18,350 represents two months of the full-year amount). This provision imposes an additional income tax on these higher-income employees in an amount equal to 2 percent of the amount of wages they receive during the two-month period in excess of $18,350 (and not greater than $110,100).

This additional recapture tax is an add-on to income tax liability that the employee would otherwise pay for 2012 and is not subject to reduction by credits or deductions. The recapture tax would be payable in 2013 when the employee files his or her income tax return for the 2012 tax year. With the possibility of a full-year extension of the payroll tax cut being discussed for 2012, the IRS will closely monitor the situation in case future legislation changes the recapture provision.

The IRS will issue additional guidance as needed to implement the provisions of this new two-month extension, including revised employment tax forms and instructions and information for employees who may be subject to the new “recapture” provision. For most employers, the quarterly employment tax return for the quarter ending March 31, 2012 is due April 30, 2012.

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IRS Announces 2012 Standard Mileage Rates

Release Date: Tuesday, December 13, 2011

The Internal Revenue Service today issued the 2012 optional standard mileage rates used to calculate the deductible costs of operating an automobile for business, charitable, medical or moving purposes.

Beginning on Jan. 1, 2012, the standard mileage rates for the use of a car (also vans, pickups or panel trucks) will be:

• 55.5 cents per mile for business miles driven
• 23 cents per mile driven for medical or moving purposes
• 14 cents per mile driven in service of charitable organizations

The rate for business miles driven is unchanged from the mid-year adjustment that became effective on July 1, 2011. The medical and moving rate has been reduced by 0.5 cents per mile.

The standard mileage rate for business is based on an annual study of the fixed and variable costs of operating an automobile. The rate for medical and moving purposes is based on the variable costs as determined by the same study. Independent contractor Runzheimer International conducted the study.

Taxpayers always have the option of calculating the actual costs of using their vehicle rather than using the standard mileage rates.

A taxpayer may not use the business standard mileage rate for a vehicle after using any depreciation method under the Modified Accelerated Cost Recovery System (MACRS) or after claiming a Section 179 deduction for that vehicle. In addition, the business standard mileage rate cannot be used for more than four vehicles used simultaneously.

These and other requirements for a taxpayer to use a standard mileage rate to calculate the amount of a deductible business, moving, medical, or charitable expense are in Rev. Proc. 2010-51.

Notice 2012-01 contains the standard mileage rates, the amount a taxpayer must use in calculating reductions to basis for depreciation taken under the business standard mileage rate, and the maximum standard automobile cost that a taxpayer may use in computing the allowance under a fixed and variable rate plan.

At Saltmarsh, our tax consultants work full time to keep up with the constant changes in our tax laws. We develop strategies that will allow you to take full advantage of the law, and we use our best judgment and experience to advise you as to what actions you can take to reduce your tax burden.

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United Way Day of Caring 2011

Release Date: Monday, December 12, 2011

Saltmarsh employees participated in the United Way's Day of Caring by helping Oakcrest Elementary School with the up-keep of their vegetable and butterfly gardens. In addition, new fruit trees were installed along with an irrigation system.

In addition to helping at the school, Saltmarsh employees also collected school supplies for the children of Oakcrest.

Thanks to all of our employees who helped to make a difference in the lives of these children, whether it was through giving school supplies or through giving your time!

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Lee Bell Quoted in Article on Community Banking

Release Date: Wednesday, November 30, 2011

Lee Bell, Tampa based Shareholder, was recently quoted in an article written by Margie Manning of the Tampa Bay Business Journal regarding Tampa area community banks. Below is an excerpt of that article.

Article titled "Performance improving, with a caveat" by Margie Manning.

"Tampa Bay area community banks gained strength on their balance sheets and income statements in the third quarter. As a group they bolstered capital and made a profit compared with a net loss in prior quarter."

"However, the turnaround is attributed more to failure of a dozen of the biggest statewide money-losers than to performance improvements."

"I don’t know that we’re seeing that banks are starting to make money that weren’t making money, but some of the banks that were losing money have continued to lose but at a slower pace or they are gone," said Lee Bell, shareholder in charge of the central Florida practice for accounting firm Saltmarsh, Cleaveland & Gund.

The health of the banking industry is critical for small to mid-size businesses that rely on community banks for credit and other services. Stronger banks are in a better position to make loans to be used by businesses to expand and hire, increase purchases from other businesses and in turn boost the economy.

The Tampa office of Saltmarsh, Cleaveland & Gund is located in the One Tampa City Center at 201 N. Franklin St., Suite 2720, Downtown Tampa. Call (813) 287.1111 for more information community banking.

• Read More About Tamp's CPA Firm

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New Legislative Alert - Deducting Bonuses

Release Date: Monday, November 21, 2011

Background:

Internal Revenue Code (IRC) S. 461 governs the timing of deduction for certain expenses incurred by accrual method taxpayers. A common expense for which many companies provide an accrual is incentive compensation. The IRS released Revenue Ruling 2011-29 on November 9, 2011, providing guidance on how a plan should be structured in order to permit a deduction in the year the services are provided.

S. 461 and its associated regulations require the following tests be considered in order to determine the timing of a deduction:

• All events must have occurred to establish the fact of the liability,
• The amount of the liability must be able to be determined with reasonable accuracy
• Economic performance must occur for the liability.

The economic performance rule as it relates to deductions for bonus payments, as defined in IRC S. 404, is straightforward. Regulations S.1.404(b)-1T prescribes that economic performance is deemed to occur in the current taxable year as long as payment is made by the 15th day of the 3rd month following such taxable year.

The New Ruling:

The first test, in which all events must have occurred to establish the fact of the liability, is the focus of Rev. Rul. 2011-29. This has been a topic scrutinized in various court cases and previous Internal Revenue Service (IRS) rulings. The Washington Post Co. v. United States case allowed deduction of a bonus accrual even when the employer provided a general bonus accrual at the end of the year but did not specifically identify the bonus recipient and the amount payable to that particular recipient prior to the end of the taxable year.

IRS Rev. Rul. 76-345 stated that the IRS would not follow the holding in that case. This suggested that individual recipients and the amounts payable to such recipient do need to be specifically identified prior to the end of the year in order for the all events test to be met. Rev. Rul. 2011-29 revokes Rev. Rul. 76-345.

The new ruling states that the following facts are now acceptable evidence to prove the all events test has been met in determining the timing of the deduction:

• The taxpayer’s liability to pay a minimum amount of bonuses to a group of eligible employees is fixed as the end of the year in which the services are rendered,
• The taxpayer is obligated under the program to pay the group the minimum amount of bonuses determined by the end of the taxable year, and
• Any bonus allocable to an employee who is not employed on the date on which bonuses are paid is reallocated to other eligible employees.

In order to satisfy the above conditions, the incentive compensation plan should specifically identify which employees are eligible to participate. The plan requirements should be communicated to eligible employees prior to the end of the taxable year. Lastly, the exact amount of the bonuses payable should be determinable through a formula in effect prior to the end of the taxable year. It is advisable that the plan be formally documented. If all the conditions noted further above are met, all events which fix the liability should be deemed to have occurred and the accrual should be determined with reasonable certainty. Provided the economic performance rule is also met, the tax deduction should be permitted in the year the services are provided.

Observation:

Changes in a taxpayer’s treatment of bonuses to conform to this ruling constitute a change in accounting method under Revenue Procedure 2011-14. This procedure allows for an automatic accounting method change. An automatic change is permitted to be submitted with the taxpayer’s timely filed tax return, including extensions, and no user fee is required.

Limitation:

A distinction should be noted with respect to bonuses paid to related parties. The related party rules under IRC S. 267 require the matching of income and deductions arising from transactions between related parties. Related parties include individuals owning more than 50% in value of the outstanding stock of the company. The law requires that even if all events have occurred to fix the liability and the economic performance rules are met, the deduction may not be claimed until the year in which the related party recognizes the income. Thus, in the instance of a bonus payment to a greater than 50% shareholder, the amounts will not be deductible by the company until the period in which the income is recognized by the shareholder.

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SEC Provides Disclosure Guidance Relating to Cybersecurity Risk Disclosure

Release Date: Monday, November 07, 2011

In today’s day and age, it’s hard to imagine any company that is not using the internet or internal technology to drive their business. However, companies, their boards and shareholders may not always understand the full extent of the risk that lies in that technology. Prompted by the irrefutable amount of attention to high-profile cybersecurity incidents, the Division of Corporate Finance of the Securities and Exchange Commission has focused on this issue and recently provided their views on registrants’ cyber risk disclosure obligations.

The Division states, “Registrants should disclose the risk of cyber incidents if these issues are among the most significant factors that make an investment in the company speculative or risky.”

Why is cybersecurity such a critical issue?
Virtually all activities today rely on computers and the internet – communication (internet, smartphones), shopping (online stores, credit cards), personal records (medical, employee and customer information), accounting records, etc. Cybersecurity entails protecting this information by protecting from, detecting, and responding to attacks.

What risks and consequences do you need to consider?
The risks companies should consider are: 1) misappropriation of sensitive data including proprietary information, 2) corrupted data and 3) operational disruption. These may be carried out by someone gaining unauthorized access or causing processing disruptions. Attacks may lead to consequences such as additional costs, lost revenues, litigation as well as reputational damage.

Which companies are most at risk?
Everyone who maintains data in an electronic environment. Zeena Patel, a leader in EisnerAmper’s Technology Audit and Advisory Services group, notes: “The Division was prompted to provide their views when several large companies were involved in significant attacks. However, data shows that criminals are just as likely to invade smaller and medium-sized organizations who may not have the resources to detect and prevent attacks quickly.”

What disclosures may be required?
The guidance, which does not change the existing rules and regulations, requires companies to disclose any aspects of a company’s business that could have material costs and consequences.

A significant attack, or high risk of attacks (even if currently undetected), may require quantitative and qualitative information within the “Risk Factor” disclosure.

Further consideration must also be given as to the inclusion of costs and consequences in Management’s Discussion and Analysis and Financial Statements.

Lastly, further, lacking operating cybersecurity controls may lead to ineffective Disclosure Controls and Procedures.

How should companies respond to the guidance?
Zeena further states: “Companies should be preparing a risk assessment which also includes third-party providers. Understanding the magnitude and likelihood of potential attack within your current controls will allow you to determine your disclosure requirements.”

The guidance can be found at http://www.sec.gov/divisions/corpfin/guidance/cfguidance-topic2.htm

For more information, please contact Saltmarsh, Cleaveland & Gund, (850) 435-8300.

© 2011 EisnerAmper LLP

• The guidance can be found at www.sec.gov.

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Saltmarsh Wins 1st Place for Small Business at YMCA Corporate Cup Games

Release Date: Monday, October 24, 2011

Saltmarsh won 1st place in the small business division at the 2011 YMCA Corporate Cup games which were held at the University of West Florida on October 22, 2011.


Members of the winning team included:
Aimee Brady, Angelika Cope, Cedric Durre, Christina Maslen, Christopher Stark, Danny Brady, Diane Martinez, Jared Tyler, Kate Tyler, Leslie Jackson, Lisa Fairbanks, Rob Harms, Robby Hinson, Robin Larrieu, Ron Jackson, Stephanie Hirst, Stephen Hirst, Stephen Reyes

1st place events:
Obstacle course
Crazy Raft Relay
4x50 Quick Change Relay

2nd place events:
Eggesecutive Toss
3rd place events:
One-Mile Run
Closet to the Pin
Pumpkin Swim Relay

Go Team Saltmarsh! We can't wait to participate again next year!

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Treasury Issues Proposed Regulations Addressing Tax Treatment of Credit Default Swaps

Release Date: Friday, October 14, 2011

On September 15, 2011, the Treasury issued proposed regulations which would include Credit Default Swaps (“CDS”) in the definition of a Notional Principal Contract (“NPC”) under Treas. Regulation 1-446.3. The proposed regulations also confirm that swaps, including a CDS, would not fall under the Section 1256 regime and proposes significant changes to the existing NPC regulations. The proposals also provide conforming revisions to other relevant regulations.

What is a Credit Default Swap?

Seven years ago, the Treasury issued Notice 2004-52 seeking comments from users and their advisors on how a CDS should be treated for tax purposes. The popular view was that a CDS should be considered an NPC while others suggested treatment as option, or an insurance product, or a guarantee. These new proposed regulations have ended this debate. The proposed regulations, when finalized, will treat most CDS contracts as NPCs.

What changes have been made to the existing NPC regulations?

Under existing law, an NPC is defined as a financial instrument that provides for the payment of amounts by one party to another at specified intervals, calculated by reference to a specified index upon a notional amount, in exchange for specified consideration or a promise to pay a similar amount. The proposed regulations revise this definition by stating that an NPC requires two or more payments to a counterparty. However, the “fixing” of an amount is treated as a payment even if the actual payment is to be made at a later date. The practical effect of this new definition is to prohibit creating an instrument, such as a “bullet” swap, where all of the anticipated payments are netted and made as one back end payment. Rather than looking at the sole ultimate payment, the proposed regulations require an understanding of the calculation of the expected payment. To the extent the ultimate payment consists of two or more calculations (i.e., dividend payments plus change in value) then the instrument will be considered an NPC.

What are some of the negative tax implications of a NPC?

As more instruments will fall under the expanded definition of an NPC, it is important to understand the potential negative tax treatment that these instruments carry. Under existing regulations most NPC payments, excluding a termination payment (i.e., an unscheduled payment made to extinguish the remaining obligations of any party under the contract), will be considered a Section 212 deduction if the taxpayer is not considered to be engaged in a trade or business. Section 212 deductions are considered miscellaneous itemized deductions at the individual tax level, subject to limitation in part or in full, depending on the taxpayer’s facts and circumstances. In addition, these Section 212 deductions are not deductible in many state jurisdictions.

In addition to taking into account the payments described above, proposed regulations issued in 2004 require taxpayers to adopt a method of accounting to take into account contingent nonperiodic payments (i.e., a final swap payment at end of the contract). Prior to issuance of these 2004 regulations, most taxpayers adopted a “wait and see” method on these payments. Under these proposed regulations, taxpayers are required to utilize the complex noncontingent swap method or, as an alternative, adopt a mark-to-market method. In practice, most taxpayers utilize a mark to market approach. This approach requires a taxpayer to annually include as “other” ordinary income any unrealized appreciation each year. Unrealized depreciation would also need to be taken into account as an expense. However, to the extent the taxpayer was not engaged in a trade or business, this amount would be included as a Section 212 deduction. Significant “whipsaw” can result for any taxpayer not engaged in a trade or business, as a taxpayer may be required to pick up ordinary income in a year of appreciation but not get the benefit of the deduction for a future’s year depreciation.

The newly issued proposed regulations do not address whether or not a CDS would be required to adopt the timing and inclusion rules of contingent nonperiodic payments. Presumably, if a CDS contract is now considered to be a NPC, the argument not to consider these as contingent nonperiodic payments are much weaker than were prior to issuance of the new proposed regulations.

To the extent that a taxpayer has not treated a CDS as a NPC, they may need to consider the application of the change in accounting method rules and filing requirements.

Exclusion of Swaps from Section 1256

The proposed regulations have clarified that “swaps” and “similar arrangements” are excluded from Section 1256. There has been previous uncertainty as to the treatment of swaps under provisions of the Dodd-Frank Act.

When is the effective date of the Proposed Regulation?

A hearing is scheduled on the proposed regulation for January 19, 2012. The regulations are intended to be effective for contracts entered into on or after the date the final regulations are published.

For further questions, please contact Saltmarsh, Cleaveland & Gund (850) 435-8300.

© 2011 EisnerAmper LLP

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Saltmarsh Technology Funnel and Community Bank Executive Forum

Release Date: Wednesday, October 12, 2011

On Thursday, October 6th and Friday October 7th, Saltmarsh hosted the annual Technology Funnel and Community Bank Executive Forum at the Tampa Club in Tampa, Florida.

More than 50 participants heard timely information regarding technology in community banking during the Thursday session, while more than 90 bank executives gathered for Friday's event.

Thanks to all of our participants! We look forward to seeing you again next year!

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Saltmarsh Hosts Anti-Money Laundering Seminar

Release Date: Friday, August 12, 2011

Orlando, FL - Saltmarsh hosted (together with the Anti-Money Laundering Association and the Association of Certified Fraud Examiners) a seminar, Understanding and Detecting Money Laundering - for financial institution clients and friends. The speaker was Jonathan Turner. Mr. Turner has appeared on ABC News and CNN and is an expert in the investigation and documentation of financial fraud. He brought his entertaining and informative presentation about how money is laundered - great and timely information.

Stephen Macbeth, Dede Nolan, Suzi Fernandez, William Borde, Julie Sbrocco, Kristen Stogniew, Nathan Botts and Lee Bell of Saltmarsh, Cleaveland & Gund were in attendance as well.

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Starratt Earns QPA Designation

Release Date: Thursday, June 30, 2011

Heather M. Starratt, ERPA, QKA, a Manager in the Retirement and Medical Plans Department at Saltmarsh, Cleaveland & Gund has received the designation of Qualified Pension Administrator (QPA) from the American Society of Pension Professionals & Actuaries (ASPPA). Starratt is also a Qualified 401(k) Administrator (QKA) and an Enrolled Retirement Plan Agent (ERPA).

The Qualified Pension Administrator (QPA) credential was created by ASPPA to recognize professionals who are qualified to perform the technical and administrative functions of qualified plan administration. QPA’s assist employers, actuaries, and consultants in performing functions such as determination of eligibility benefits, computation of benefits, plan recordkeeping, trust accounting and disclosure, and compliance requirements.

• Follow link for more information.

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Elkins earns the designation of Certified Public Accountant and promotion

Release Date: Wednesday, June 15, 2011

Jen Elkins, with Saltmarsh, Cleaveland & Gund, has recently earned the designation of Certified Public Accountant (CPA) and has been promoted to Senior. Elkins passed a four part exam that tested her knowledge in Auditing and Attestation, Business Environment and Concepts, Financial Accounting and Reporting, and Regulation.

• Follow link for more information.

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IRS Provides Guidance on 100% Bonus Depreciation

Release Date: Monday, May 09, 2011

On March 29, 2011, the IRS released Rev. Proc. 2011-26 providing much-needed guidance on 100% bonus depreciation and associated issues. This effectively clarifies a number of issues including two which may be of interest to our clients: the ability to elect alternative 50% bonus depreciation; and the ability to depreciate components of self-constructed property.

Background

The Obama Administration’s Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 (“the Act”) granted an additional 100% first-year depreciation for certain “qualified property” acquired or placed in service after September 8, 2010 and prior to January 1, 2012. The prior definition of “qualified property” remained intact – generally as acquired and placed in service after December 31, 2007 and prior to January 1, 2013 with original construction commencing with the taxpayer.

The Rev. Proc. provides much-welcomed guidance, inter alia, on self-constructed property in the context of 100% bonus depreciation; and on the ability to elect 50% bonus depreciation in lieu of 100% bonus depreciation or standard statutory depreciation deductions.

Self-Constructed Property

In general, for 100% depreciation purposes, self-constructed property is acquired when significant construction begins. Even if the construction of a property begins before the September 9, 2010 eligibility date, specific components of the project, with a proper election, may be eligible for 100% bonus depreciation if the component’s self-construction began or acquisition occurred after September 8, 2010.

Election of 50% Bonus Depreciation

Prior to the issuance of Rev. Proc. 2011-26, there was no ability to elect 50% bonus depreciation rather than 100% depreciation due to no affirmative guidance. For eligible property, taxpayers either opted for 100% bonus depreciation or elected out of the bonus depreciation regime entirely.

Fortunately, the new guidance permits taxpayers to elect – if preferable due to their particular tax positions – 50% bonus depreciation instead of 100% bonus depreciation. Because this has been released very close to the April 15, 2011 tax return filing deadline, taxpayers who have already filed their 2010 returns may opt for 50% bonus depreciation on an amended return filed prior to next year’s return or file an automatic accounting method change for either the first or succeeding years.

If the taxpayer elected out of bonus depreciation for a class of property, the taxpayer may revoke the election by June 17, 2011 or, if later, by the time it files next year’s tax return.

If you have any questions about this Alert, please contact Saltmarsh, Cleaveland & Gund (850) 435-8300.

© 2011 EisnerAmper LLP

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Fryer Promoted to Manager at Saltmarsh

Release Date: Thursday, April 14, 2011

Judy Fryer, Certified Section 125 Administrator, at Saltmarsh, Cleaveland & Gund, has been promoted to Manager in the Retirement and Medical Plans Department. Fryer, who has been practicing in this field since 1982, has management and medical billing experience with extensive CPT and ICD9 coding experience. She is a Certified Section 125 Administrator through the HR certification Section 125 Program. Fryer remains compliant with HIPAA training and active with the Employee Benefits Institution of America (EBIA).

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Starratt Promoted to Manager, Earns ERPA Designation

Release Date: Tuesday, April 12, 2011

Heather M. Starratt, ERPA, QKA at Saltmarsh, Cleaveland & Gund, has been promoted to Manager in the Retirement and Medical Plans Department. Heather is a Qualified 401(k) Administrator (QKA), a credential awarded by the American Society of Pension Professionals & Actuaries (ASPPA) and has now added the Enrolled Retirement Plan Agent (ERPA) designation to her title.

ERPA is a federally sanctioned designation that allows enrolled practitioners to practice before the IRS on pension and 401(k) plan matters. This includes determination letters, plan audits and negotiating on behalf of clients regarding compliance matters. The IRS created the ERPA designation to provide a credentialing process for third party administrators and benefit consultants of tax-exempt retirement plans.

To qualify for the ERPA designation, Starratt had to demonstrate special competence in retirement plan matters by passing written examinations. The IRS has contracted with the American Institute of Retirement Education, LLC (AIRE) to administer the ERPA-Special Enrollment Examination (ERPA-SEE).

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Elbert A. Botts Estate donates $1.4 million to Troy University

Release Date: Monday, March 28, 2011

TROY—The estate of Elbert A. Botts today presented a $1.4 million donation to Troy University which will support the School of Accountancy and geomatics program.

Dr. Jack Hawkins, Jr., Chancellor, expressed appreciation for the gift and said it would help advance two of the University’s strongest academic programs.

“The investment of this bequest reflects the value placed on this university by the Botts family and for that we are grateful,” Dr. Hawkins said.

A native of Pike County, Ala., Elbert Botts attended Troy University (then called Troy State Teachers College) in the 1940s. He went on to open a successful garden center in Augusta, Ga., The Green Thumb West, which he worked at until his death in 1995. He was known both as a civic leader and a statewide pioneer in the horticulture industry.

Botts’ nephews, Richard and Nathan Botts (Director of Financial Institution Services at Saltmarsh), made the presentation to TROY officials during a luncheon ceremony at the University’s Foundation Office.

“Uncle Elbert believed in education and felt that [his college education] allowed him to become as successful as he was,” Nathan Botts said.

“He really thought a lot about the community that he grew up in and thought a lot about education,” Richard Botts said. “This gift is going to a great place and you will do great works with it.”

The donation will support scholarships for future geomatics students, said Dr. Steve Ramroop, director of the Surveying and Geomatics Program, and will allow the program to add new technology and faculty.

“As director, I want to thank the Botts family for this generous gift,” Dr. Ramroop said. “It will support scholarships for students who are committed to success in the program.”

The School of Accountancy will use the gift to fund a professorship in accounting, said program director Dr. Kaye Sheridan.

“We can’t thank [the Botts family] enough for this timely gift,” Dr. Sheridan said. “To have a great program you need great faculty, and this gift will give us an advantage when it comes to attracting great faculty members.”

• Follow link for more information.

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Retirement Plan Sponsors

Release Date: Friday, March 25, 2011

Retirement Plan Sponsors - Fiduciaries Need to Plan Now to Comply with DOL’s Final Regulation on Transparency of Fees and Expenses

Beginning January 1, 2012 (for calendar year plans), the Department of Labor’s Employee Benefits Security Administration ("EBSA") will require retirement plans that allow participants to direct the investment of their accounts (typically 401(k) and 403(b) plans) to provide extensive information regarding fees and expenses related to a plan’s investment options so that plan participants can more easily compare the costs of various investment options. This annual disclosure must also include performance information for each investment option offered under a plan. Additionally, participants must receive quarterly disclosure of the amounts and nature of expenses deducted directly from their accounts.

The burden of this new and complex set of disclosures will rest with a plan’s fiduciaries, who are typically officers of the plan sponsor. The investment of a plan’s assets is a fiduciary act governed by the fiduciary standards in ERISA. Plan fiduciaries may allow participants to self-direct investments under ERISA section 404(c), which has always required the disclosure of information about a plan’s investments under a participant-directed plan. This requirement has typically been met by making available fund prospectuses (or equivalent information) or information generated by software providers that consolidate such information. Knowledgeable plan participants have been able to make informed investment decisions under the existing regulations; however, EBSA believed that enabling the average plan participant to make informed decisions required the use of standard methodologies when calculating and disclosing fee, expense, and investment return information in order to provide ease of comparison between investments. Consequently, the final regulation requires plan fiduciaries to provide the information discussed below.

Initial and Annual Disclosure

The information below must be given to participants on or before the date they can first direct their investments, and then annually thereafter.

Plan-related information
• General plan information, which consists of information about the structure and mechanics of the plan, such as an explanation of how to give investment instructions, a current list of the plan’s investment options, and a description of any brokerage or similar arrangement that enables the selection of investments beyond those designated by the plan.
• Administrative expense information, which is an explanation of any fees and expenses for general plan administrative services that may be charged to or deducted from individual participant accounts (for example, fees and expenses for legal, accounting, and recordkeeping services).
• Individual expense information, which is an explanation of any fees and expenses that may be charged to or deducted from the individual participant’s account based on the actions taken by the participant (for example, fees and expenses for participant loans and for processing qualified domestic relations orders).
Investment-related information
• Performance Data: Participants must be provided specific information about historical investment performance. The one-, five-, and ten-year investment returns must be provided for investment options, such as mutual funds, that do not have fixed rates of return. For investment options that have a fixed or stated rate of return, the annual rate of return and the term of the investment must be disclosed.
• Benchmark Information: For investment options that do not have a fixed rate of return, the name and returns of an appropriate broad-based securities market index over one-, five-, and ten-year periods (matching the performance data periods above) must be provided. Investment options with fixed rates of return are not subject to this requirement.
• Fee and Expense Information: For investment options that do not have a fixed rate of return, the total annual operating expenses of the investment expressed as both a percentage of assets and as a dollar amount for each $1,000 invested, and any shareholder-type fees or restrictions on the participant’s ability to purchase or withdraw from the investment, must be provided. For investment options that have a fixed rate of return, any shareholder-type fees or restrictions on the participant’s ability to purchase or withdraw from the investment must be provided.
• Internet Web Site Address: Investment-related information includes the requirement to provide an internet web site address that is sufficiently specific to provide access to additional information about the investment options available under a plan for those participants who want more detail or more current information.
• Glossary of terms: Investment-related information includes a general glossary of terms to assist participants in understanding the plan’s investment options, or an internet web site address that is sufficiently specific to provide access to such a glossary.
Quarterly Disclosure

In addition to the above information, participants must receive statements, at least quarterly, showing the dollar amount of the plan-related fees and expenses actually charged to or deducted from their individual accounts along with a description of the services for which the charge or deduction was made. These disclosures may be (but are not required to be) included in the quarterly benefit statements that are required to be provided to plan participants who participate in participant-directed plans.

Other Requirements

The investment information required under the final regulation must be furnished in a chart or similar format designed to facilitate a comparison of each investment option available under the plan. The good news is that the final regulation includes a model comparative chart that may be used by a plan administrator to satisfy the regulation’s requirement that a plan’s investment option information be provided in a comparative format. The bad news is that the information required is extensive and plan fiduciaries are going to need to spend a considerable amount time and money if their plan’s investment advisor can not produce the information in a compliant format. If requested by a participant, the plan sponsor or plan fiduciaries must also furnish prospectuses, financial reports and statements of valuation of assets held by an investment option under a plan.

Impact on Plan Sponsors and Fiduciaries

This new requirement will create additional work and/or costs for plan sponsors. Plan sponsors and fiduciaries need to begin now in order to identify and quantify all expenses paid from their plan’s assets and then decide on a compliant format and medium for communicating this information to plan participants. Additionally, discussions should begin now with the plan’s investment advisor or investment provider to determine whether compliant performance data, performance benchmarks, and a glossary of terms will be provided timely for inclusion with the general information required under the final regulation, as well as how such information will be maintained and updated.

The final regulation will become applicable for plan years beginning on or after November 1, 2011. For calendar year plans, compliance will be required on January 1, 2012.
For more information, please contact Saltmarsh, Cleaveland & Gund.

This publication is intended to provide general information to our friends. It does not constitute accounting, tax, or legal advice; nor is it intended to convey a thorough treatment of the subject matter.

This publication has been prepared by EisnerAmper LLP for informational purposes only. These materials do not constitute accounting, tax or legal advice and cannot be relied upon by any taxpayer for the purpose of avoiding penalties imposed under the Internal Revenue Code.

Redistributed by Saltmarsh with permission.

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SEC Cracks Down on Sales Taxes – Significant Penalties Result

Release Date: Friday, March 25, 2011

Although the SEC has not historically been involved in above-the-line taxes, such as sales taxes, “the times they are a-changin’.” The SEC has sanctioned and fined several companies for failure to properly collect, remit, and/or account for sales taxes.

In one instance a company was fined $200,000 for failure to maintain proper internal controls and books and records relating to sales taxes. The company was found to not have proper controls in place to properly tax and track the transactions in question over a period of several years. As a result the company was found to be in violation of § 13(b)(2)(B) of the Exchange Act.

In another instance, the SEC found that a company had improperly released a reserve related to sales taxes which resulted in a 12% overstatement of income. Further, the company was found to be lacking in the tracking of its exemption certificates, and to not be registered as required in many jurisdictions.

As illustrated by these examples, the penalties for improperly accounting for sales taxes can be more than paying back taxes and related interest. Penalties from taxing authorities and other oversight organizations can be significant. While sales tax audit defense services are often viewed as the first line of defense, there are several ways the public and private companies can become compliant in the areas of sales and use taxes and remediate historical exposures, including:

1. Policies and Procedures Review – Review the company’s current sales tax policies and procedures with an eye toward seeking opportunities for improvement.

2. Voluntary Disclosure Agreements/Amnesties – Historical exposures can be remediated by entering into voluntary disclosure agreements and/or amnesty agreements which may limit the prior periods for which uncollected taxes must be paid, and which waive penalties and/or interest.

3. Nexus Studies and Taxability Matrices – Determine where companies have filing responsibilities and the taxability of various revenue streams to help ensure compliance with applicable sales/use tax laws.

4. Reverse Audits – Not all problems result in underpayments/exposure. Many times when companies do not understand the intricacies of sales/use taxes the results include over payments. Companies can identify overpayments and apply for refunds to ensure they are not paying more than their fair share of taxes.

If you have any questions regarding the above content, please contact Saltmarsh, Cleaveland & Gund (850) 435-8300.

This publication is intended to provide general information to our friends. It does not constitute accounting, tax, or legal advice; nor is it intended to convey a thorough treatment of the subject matter.
This publication has been prepared by EisnerAmper LLP for informational purposes only. These materials do not constitute accounting, tax or legal advice and cannot be relied upon by any taxpayer for the purpose of avoiding penalties imposed under the Internal Revenue Code.
Redistributed by Saltmarsh with permission.

• Follow link for more information.

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Noble Among Elite Group at Advanced Financial Planning Conference

Release Date: Wednesday, January 19, 2011

W. Gregg Noble, CPA, PFS at Saltmarsh, Cleaveland & Gund, attended the 2011 Advanced Personal Financial Planning Conference in Las Vegas where he gained enhanced education on investments, insurance, tax, estate, retirement and elder planning from some of the world’s foremost experts on those issues.

The conference is held annually by the American Institute of Certified Public Accountants exclusively for CPA personal financial planners to learn new tools and techniques that can help clients achieve their financial goals; gain up-to-the minute information on changes by lawmakers and rule makers that could affect clients’ finances; and network with an elite group of financial planners from around the country to share best practices.

Noble is a Shareholder in the Pensacola office of Saltmarsh, Cleaveland & Gund. He is also a registered investment advisor and member of Saltmarsh Financial Advisors, LLC. Noble has been practicing accounting since 1981. His experience includes auditing, taxation, consulting and accounting services. Gregg has also concentrated on estate and fiduciary taxation, estate planning, individual taxation and investment advisory services since 1987.

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Scharf Appointed to Executive Committee at Saltmarsh, Cleaveland & Gund

Release Date: Tuesday, January 11, 2011

Glenn Scharf, CPA, at Saltmarsh, Cleaveland & Gund, has been selected to serve on the Executive Committee effective January 1, 2011.

Scharf is a Shareholder in Saltmarsh’s Fort Walton Beach office. He began his career in 1991 after graduating from the University of Florida with a Masters in Tax. Scharf brings to Saltmarsh expertise in a variety of fields including: taxation, accounting, process engineering, business consulting and tax management solutions. He was previously employed by Deloitte & Touche, LLP and Arthur Andersen, LLP in Atlanta.

The Executive Committee consists of Ron Jackson, President, Charles Gund, Jr., Shareholder and newly elected Glenn Scharf.

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Schulte, Jackson, Kent and Woods promoted at Saltmarsh

Release Date: Tuesday, December 28, 2010

The Shareholders of Saltmarsh are pleased to announce the following promotions effective January 1, 2011:

James Schulte has been promoted to Senior in the Audit Services Department of Saltmarsh, Cleaveland and Gund. His areas of concentration include manufacturing and transportation companies, nonprofit organizations, governmental entities and employee benefit plans.

Josh Jackson, CPA has been promoted to Senior Manager in the Financial Institution/Audit Services Department of Saltmarsh, Cleaveland & Gund. He works extensively with our financial institution clients in delivering accounting and auditing services, directors’ examinations, and loan and credit quality reviews. Jackson also has experience in asset-liability management and business valuations.

Andrew Kent has been promoted to Senior Manager in the Litigation and Valuations Consulting segment of Saltmarsh, Cleaveland & Gund. He is a Certified Business Appraiser (CBA), a Certified Machinery and Equipment Appraiser (CMEA) and holds both a J.D. and M.B.A. from the University of Florida.

Kendra Woods has been promoted to Senior in the Retirement and Medical Plans Department of Saltmarsh, Cleaveland & Gund. She works exclusively with our flexible spending account clients. Woods is currently working on her M.B.A in the field of Healthcare Administration.

• Follow link for more information.

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Gaines joins Saltmarsh, Cleaveland & Gund

Release Date: Tuesday, December 07, 2010

Benny Gaines has joined our firm as Senior Manager in our Retirement and Medical Plan (RAMP) Consulting Department. He has been practicing public accounting since 1989. Prior to joining Saltmarsh, Gaines worked with the international accounting firm of Deloitte & Touche for over 16 years, having served clients in Nashville, TN, Dallas, TX, and McLean, VA. His career has included an extensive employee benefits consulting background in both public accounting and private industry.

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Florida Trend Ranks Saltmarsh, Cleaveland & Gund Among Top Firms

Release Date: Thursday, November 11, 2010

The November 2010 issue of Florida Trend Magazine lists its picks of the “Top Rank Florida Accounting Firms.” Saltmarsh is recognized on the list with 88 professionals, three Florida Offices and Ronald E. Jackson, CPA, President, as the Senior Executive. Other firms of note include PricewaterhouseCoopers, Ernst & Young and KPMG.

Saltmarsh is in its fourth generation of ownership with staff of over 100, and 14 shareholders. The firm serves clients all through the Southeast from its three offices throughout the State. They provide a full range of services, including auditing, accounting, management consulting, corporate and individual tax planning and preparation, business valuation, litigation support, financial and estate planning, computer systems evaluation, retirement and medical billing, implementation and administration.

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Government Contractor Planning Workshop

Release Date: Monday, October 18, 2010

Join us for our free Government Contractor Planning Workshop! To sign-up, click on the below link:

• Follow link for more information.

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Stogniew & Associates Merges with Saltmarsh, Cleaveland & Gund

Release Date: Monday, September 27, 2010

Stogniew & Associates and Saltmarsh, Cleaveland & Gund are merging effective October 1, 2010. Joining the Tampa office of Saltmarsh as a shareholder is Stogniew & Associates executive director, Kristen J. Stogniew, who has more than 20 years of experience in regulatory and consumer compliance issues. The addition of the Stogniew team will benefit both firms as well as their financial institution clients. The merger further increases the two firms’ expertise and reputation for excellence in providing internal audit, loan review and compliance consulting services to financial institutions.

Saltmarsh has been a leader in providing professional services for more than 65 years. Its reputation has been built on the principles of honesty and integrity, creativity, respect and quality service to clients and community. Both firms believe that client satisfaction and personal attention are key in building successful relationships.

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Andrew Kent joins Saltmarsh, Cleaveland & Gund

Release Date: Wednesday, August 18, 2010

Andrew Kent has joined our firm as Litigation and Valuation Consultant in the Business Advisory Group. He provides business valuation, general consulting and litigation support services to firm clients. Kent is a Certified Business Appraiser (CBA), a Certified Machinery and Equipment Appraiser (CMEA) and holds both a J.D. and M.B.A. from the University of Florida. Prior to joining Saltmarsh he spent several years practicing real estate and business law with a regional law firm before serving as the managing-member of a closely-held company in the construction services industry.

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Cathy Gianotto, QPA, QKA elected to Board of Directors of FWCEBC

Release Date: Monday, August 16, 2010

Cathy Gianotto, at Saltmarsh, Cleaveland & Gund, has been elected a member of the Board of Directors for the Florida West Coast Employee Benefits Council (FWCEBC) in Tampa.

The purpose of the council is to advance the knowledge of its colleagues by exchanging practical application of new legislation, case studies and compliance for procedures and practices relating to all levels of benefits management.

Gianotto is a Manager in the Retirement & Medical Plans Department of Saltmarsh, Cleaveland & Gund. She has more than 20 years of experience in employee benefits administration and management. Gianotto has obtained the “Qualified Pension Administrator” (QPA) designation and the “Qualified 401(k) Administrator” (QKA) designation from the American Society of Pension Professionals & Actuaries (ASPPA).

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Crist appoints Nathan Botts to Bay Bridge Authority

Release Date: Thursday, July 01, 2010

Gov. Charlie Crist announced two appointments to the Santa Rosa Bay Bridge Authority — which governs the Garcon Point Bridge — on Wednesday:

Ira Mae Bruce, 69, of Navarre, owner of Century 21 Island View Realty, succeeding Pamela Langham.

Nathan O. Botts, 67, of Milton, certified public accountant with Saltmarsh, Cleveland and Gund, succeeding Elaine Willis.

Both of their terms began on Wednesday and run through Jan. 3, 2014.

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Gulf Oil Spill: Questions and Answers

Release Date: Friday, June 25, 2010

Q-1: Is a taxpayer required to include in gross income payments the taxpayer receives for lost business income, lost wages, or lost profits?

A-1: Yes. The law requires that a taxpayer include in gross income payments the taxpayer receives for lost business income, lost wages, or lost profits. For information on whether estimated tax payments may be required, see Publication 505, Tax Withholding and Estimated Tax.

A self-employed individual who receives a payment that represents compensation for lost income of the individual’s trade or business should include the amount of the payment in net earnings from self-employment for purposes of the self-employment tax. For more information about reporting self-employment income and paying self-employment tax, see Publication 334, Tax Guide for Small Business (For Individuals Who Use Schedule C or C-EZ).

Generally, a payment to an individual to compensate for lost wages will not be wages for purposes of the social security tax and Medicare tax because it is not an actual payment for employment within the meaning of the law. These payments will also generally not be subject to income tax withholding, unless backup withholding applies. See A-2, below, for a discussion of backup withholding. However, if the payment is made by an employer to its own employees, or by a third party to employees of another employer in satisfaction of an obligation of that employer to its employees, the payment may be subject to social security tax, Medicare tax, and income tax withholding.

Q-2: Are payments that are made to an individual for lost business income, lost wages, or lost profits required to be reported to the IRS by the person making the payment?

A-2: Generally yes. A person making payments to an individual for lost business income, lost wages, or lost profits must report the payments to the IRS on a Form 1099-MISC, Miscellaneous Income, if the payments aggregate $600 or more. Generally, these payments are subject to backup withholding at a rate of 28 percent if the individual fails to furnish the individual’s taxpayer identification number to the payor at or before the time of payment.

A payment that is treated as a payment of wages is subject to reporting on Form W-2, Wage and Tax Statement, and to the same social security tax, Medicare tax, and income tax withholding rules that apply to regular wage payments made by an employer to an employee. For more information about withholding from employees’ wages, see Publication 15, (Circular E) Employer’s Tax Guide.

Under current law, a person making payments to a corporation for lost business income or lost profits is not required to report those payments to the IRS. However, a person who makes payments to a partnership, limited liability company or other non-corporate entity for lost business income or lost profits generally is required to report those payments to the IRS in the same manner as for payments to individuals, and the payments are subject to backup withholding at a rate of 28 percent if the entity fails to furnish its employer identification number to the payor at or before the time of payment.

Q-3: Is a taxpayer required to include in gross income payments the taxpayer receives for property damage or destruction?

A-3: A taxpayer is not required to include in gross income payments the taxpayer receives for property damage or destruction if the payments do not exceed the taxpayer’s adjusted basis in the damaged or destroyed property. If the payments for property damage or destruction exceed the taxpayer’s adjusted basis in the damaged or destroyed property, the taxpayer will realize gain for federal income tax purposes. If the damage or destruction is an “involuntary conversion,” the taxpayer may defer the tax on any gain if the taxpayer purchases qualifying replacement property that costs at least as much as the payments received for the damaged or destroyed property. (Tax is deferred until the qualifying replacement property is later sold.) An involuntary conversion occurs when a taxpayer’s property is destroyed, stolen, condemned, or disposed of under the threat of condemnation and the taxpayer receives other property or money in payment, such as a condemnation award or insurance. See Publication 544, Sales and Other Dispositions of Assets. A person making payments for property damage or destruction is not required to file information returns with the IRS reporting the payments.

Q-4: Can a taxpayer claim a casualty loss deduction if payments the taxpayer receives for property that has been damaged or destroyed are less than the taxpayer’s adjusted basis in the property?

A-4: A taxpayer may be able to claim a casualty loss deduction if the payments (including insurance proceeds or payments for damages) the taxpayer receives, or reasonably expects to receive, are less than the taxpayer’s adjusted basis in the property. See A-5, below, for a discussion of how to compute the possible deduction.

Q-5: How does a taxpayer determine the amount the taxpayer may claim as a casualty loss deduction?

A-5: With respect to personal-use property, the taxpayer generally may claim as a casualty loss deduction the lesser of (1) the difference between the fair market value of the property immediately before and after the casualty; or (2) the adjusted basis of the property. The amount of the deduction is reduced by any insurance proceeds or other payments the taxpayer receives or reasonably expects to receive. An individual taxpayer must reduce the amount claimed for each casualty loss deduction for personal-use property by $100, and reduce the total amount of casualty loss deductions claimed for personal-use property for one taxable year by 10 percent of the taxpayer’s adjusted gross income.

With respect to business or income-producing property that is partially destroyed, the taxpayer generally may claim as a casualty loss deduction the lesser of (1) the difference between the fair market value of the property immediately before and after the casualty; or (2) the adjusted basis of the property. The amount of the deduction is reduced by any insurance proceeds or other payments the taxpayer receives or reasonably expects to receive. However, if business or income-producing property is completely destroyed and its adjusted basis exceeds its fair market value, the taxpayer may claim a casualty loss deduction equal to the adjusted basis of the property, reduced by payments the taxpayer receives or reasonably expects to receive for the property (including insurance proceeds or payments for damages).

Q-6: How does a taxpayer establish the decrease in the fair market value of the property after a casualty?

A-6: A taxpayer may use either an appraisal or the cost to repair or clean up the property to determine the decrease in fair market value of the property after a casualty.

Q-7: How does a taxpayer report a casualty loss deduction on the tax return?

A-7: A taxpayer claims a casualty loss deduction on the tax return for the year in which the casualty occurred. An individual taxpayer claims a casualty loss deduction for personal-use property by reporting the amount of the loss on Form 4684, Casualties and Thefts, and claiming an itemized deduction on Schedule A, Itemized Deductions, of the taxpayer’s return. A taxpayer claims a casualty loss deduction for business or income-producing property on Section B of Form 4684, and on Form 4797, Sales of Business Property, if required. For more information on casualty losses, see Publication 547, Casualties, Disasters, and Thefts, and Publication 584, Casualty, Disaster, and Theft Loss Workbook.

Q-8: Is an individual required to include in gross income payments the individual receives for personal physical injuries or physical sickness, or for emotional distress that is attributable to personal physical injuries or physical sickness?

A-8: No. An individual generally is not required to include in gross income payments the individual receives on account of personal physical injuries or physical sickness. Personal physical injuries include observable bodily harm such as bruises, cuts, swelling, and bleeding. Likewise, an individual is not required to include in gross income payments the individual receives for emotional distress that is attributable to personal physical injuries or physical sickness. Payments for personal physical injuries or physical sickness, or emotional distress attributable to personal physical injury or physical sickness, are not required to be reported on an information return filed with the IRS by the person making the payment.

Q-9: Is an individual required to include in gross income payments the individual receives for emotional distress (or symptoms of emotional distress such as insomnia, headaches, or stomach disorders) that is not attributable to personal physical injuries or physical sickness?

A-9: Yes. The law requires an individual to include in gross income payments the individual receives for emotional distress (or symptoms of emotional distress such as insomnia, headaches, or stomach disorders) that is not attributable to personal physical injuries or physical sickness. However, an individual excludes from gross income payments for emotional distress up to the amount of medical care expenses the individual paid related to the emotional distress if the individual did not deduct the expenses in a prior taxable year.

Q-10: Are payments made to an individual for emotional distress that is not attributable to personal physical injuries or physical sickness required to be reported to the IRS by the person making the payment?

A-10: Yes. A person making a payment to an individual for emotional distress that is not attributable to personal physical injuries or physical sickness must report the payment to the IRS on a Form 1099-MISC, Miscellaneous Income, if it is $600 or more. If the individual does not furnish the individual’s taxpayer identification number to the payor, the payor must backup withhold on the payment at a rate of 28 percent.

Samuel F. Froio
Internal Revenue Service
Small Business/Self Employed Div.
Jacksonville, Fl

IRS Provides Tax Help, Guidance to Gulf Oil Spill Victims;
Special Assistance Day Planned for July 17...

• Follow link for more information.

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Oury earned the designation of Certified Public Accountant (CPA)

Release Date: Tuesday, May 25, 2010

Allyson Oury, with Saltmarsh, Cleaveland & Gund, has recently earned the designation of CPA – Certified Public Accountant. Oury passed a four part exam that tested her knowledge in Accounting and Attestation, Business Environment and Concepts, Financial Accounting and Reporting, and Regulation.

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de Boer earned the designation of Certified Public Accountant (CPA)

Release Date: Monday, May 24, 2010

Philip de Boer, with Saltmarsh, Cleaveland & Gund, has recently earned the designation of CPA – Certified Public Accountant. He passed a four part exam that tested his knowledge in Accounting and Attestation, Business Environment and Concepts, Financial Accounting and Reporting, and Regulation.

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What Health Care Reform Means to Your Business

Release Date: Monday, May 17, 2010

Health care reform is now the law of the land. And nearly every individual and business in the U.S. will be affected by the new law’s provisions.

The extent to which health care reform impacts you depends on many factors including: the size of your business, your current health benefit plan, the demographics of your work force and more. We hope this explanation of the “Patient Protection and Affordable Care Act” helps you understand the changes that every business will face in 2010 and over the next several years.

Please click on the link below to view the electronic version of the HC Reform booklet:
<a href=http://www.newkirk.com/onlinepub/oprs.cfm?key=165551>http://www.newkirk.com/onlinepub/oprs.cfm?key=165551</a>

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Help for small businesses affected by the Deep Water BP Oil Spill

Release Date: Saturday, May 15, 2010

SBA is making low-interest loans available to Florida small businesses suffering financial losses following the Deepwater BP oil spill that shut down commercial and recreational fishing in the Gulf.

Loans up to $2,000,000 provide working capital to a small businesses to meet the ordinary and necessary operating expenses that it could have met, but was unable to meet because of the oil spill.

These loans help small businesses meet financial obligations such as fixed debt payments, payroll, accounts payable and other bills until normal operations resume.

The interest rate is 4 percent with terms up to 30 years. SBA determines loan amounts and terms based on each applicant’s financial condition.

The declaration covers eligible small businesses in Alachua, Bay, Calhoun, Charlotte, Citrus, DeSoto, Escambia, Franklin, Gilchrist, Gulf, Hardee, Hernando, Hillsborough, Holmes, Jackson, Jefferson, Lafayette, Leon, Levy, Liberty, Madison, Manatee, Marion, Okaloosa, Pasco, Pinellas, Polk, Santa Rosa, Sarasota, Sumter, Taylor, Wakulla, Walton and Washington counties.

Eligible small businesses include those engaged in shrimping, crabbing and oyster fishing in the waters affected by the closure (employees or crew members are not small businesses and are not eligible); small businesses dependent on the catching or sale of shrimp, crabs and oysters, suppliers of fishing gear and fuel; docks, boatyards, processors, wholesalers, shippers, retailers and other small businesses dependent on revenue from fishing, recreational and sports fishing small businesses, and coastal small businesses.

SBA representatives are at the following locations to meet one-on-one with small business owners to answer questions about SBA’s disaster loans, issue loan applications, explain the application process, and help each business owner complete their application. No appointment is necessary.

Bay County
Panama City Beach Chamber of Commerce
309 Beckrich Avenue
Panama City, FL 32407

Escambia County
Small Business Development Center
401 E. Chase Street - Ste. 100
Pensacola, FL 32502

Franklin County
Apalachicola Bay Chamber of Commerce
122 Commerce Street
Apalachicola, FL 32320

Gulf County
Chamber of Commerce
150 Captain Fred’s Place
Port St. Joe, FL 32456

Okaloosa County
Community Center Annex (Senior Center)
108 Stahlman Avenue
Destin, FL 32541

Santa Rosa County
Navarre Beach Chamber of Commerce
8543 Navarre Parkway
Navarre, FL 32566

Wakulla County
Wakulla Agriculture Center
84 Cedar Avenue
Crawfordville, FL 32327

Walton County
Walton Area Chamber of Commerce
63 S. Centre Trail
Santa Rosa Beach, FL 32459


Business owners unable to visit one of the centers may obtain applications and information by:

• calling SBA at 800-659-2955 Monday through Friday from 8 am to 6 pm Saturday and Sunday 9 am to 5:30 pm EDT (800-877-8339 for people with speech or hearing disabilities)


• emailing SBA at disastercustomerservice@sba.gov


• visiting SBA’s website at www.sba.gov/services/disasterassistance


• apply online at SBA’s secure website at https://disasterloan.sba.gov/ela/

Links to SBA’s website for:

SBA disaster information
Down load SBA Business disaster loan application

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BP and the MC252 Oil Well Incident in The Gulf of Mexico

Release Date: Monday, May 10, 2010

CFO Sink provided the following tips for businesses:

First: Take detailed records of cancelled reservations. News reports suggest that many condominium owners, hotels and restaurants are already having increased cancellations, and it’s important that when these cancellations occur, the cancelling party is questioned whether the cause is because of the oil spill. If the answer is yes, keep a record of the person’s name and contact information, and also the revenues lost as a result of the cancellation.

Second: Calculate estimated losses for a six-week period and be able to provide records, sales receipts and documentation to support such a claim. A good idea would be to compare business now to a five-year average of revenues between May and June, which can offer insight as to the damages incurred.

Third: Make a detailed list of assets – including non-structural – and include appropriate records to support the list. For example: if your member’s hotel or restaurant is within walking distance to the beach and that beach has oil reach its shores, the business’ assets are damaged even though there is no physical damage to the structure, and it is important to record this depreciation.

Fourth: Be wary of insurance settlement scams. For businesses who may have already begun the claims filing process with BP, first, make sure you are dealing with authorized representatives from BP and not scam artists; and be careful not to sign waivers of liability too quickly without getting adequate legal and financial counsel.

For lost profits, supporting documentation may include, but not necessarily be limited to:

Photographs
Tax returns for loss year and previous three years,
Income Statements for loss year and previous three years,
Balance Sheets for loss year and previous three years,
Cash Flow Statements for loss year and previous three years,
Receipts or other proof of revenue combined with proof of expenses
Reports from the Federal On-Scene Coordinator (FOSC), fire department, police, or other responder

Information on Coast Guard or EPA notification

Newspaper reports describing the spill

Any other documentation you feel supports your claim

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SBA has approved disaster loan funds

Release Date: Monday, May 10, 2010

The following information has been provided by the office of Senator Bill Nelson:

On Friday, May 14, 2010, the U.S. Small Business Administration (SBA) has approved disaster loan funds for businesses along Florida’s Gulf coast that have been impacted by the Deepwater Horizon incident. Click on this link for a copy of the SBA press release.

The disaster declaration includes the primary Florida counties of Bay, Citrus, Dixie, Escambia, Franklin, Gulf, Hernando, Hillsborough, Jefferson, Levy, Manatee, Okaloosa, Pasco, Pinellas, Santa Rosa, Sarasota, Taylor and Walton. The neighboring counties of Alachua, Calhoun, Charlotte, Desoto, Gilchrist, Hardee, Holmes, Jackson, Lafayette, Leon, Liberty, Madison, Marion, Polk, Sumter, Wakulla and Washington; the Alabama counties of Baldwin, Covington, Escambia and Geneva, and the adjacent Georgia counties of Brooks and Thomas are also included in this declaration.

Economic Injury Disaster Loans can help eligible small businesses meet the necessary financial obligations they could have met, had the disaster not occurred. Eligible small businesses include those engaged in shrimping, crabbing and oyster fishing in the waters affected by the closure (employees or crew members are not small businesses and are not eligible); small businesses dependent on the catching or sale of shrimp, crabs and oysters, suppliers of fishing gear and fuel; docks, boatyards, processors, wholesalers, shippers, retailers and other small businesses dependent on revenue from fishing, recreational and sports fishing small businesses, and coastal small businesses.

These loans are designed to provide small businesses with working capital until the business recovers. The loans can’t be used to expand the business. Appropriate expenses include rent, accounts payable, and debt service.

• Interest rates for businesses and small agricultural cooperatives are as low as 4 percent;


• Interest rates for non-profit organizations rates are as low as 3 percent;


• Loan repayment terms up to 30 years;


• Loan amounts and terms are set by the SBA and are based on each applicant’s financial condition with a maximum of $2 million; and


• Deadline for loan applications for economic injury is the close of business February 14, 2011.

SBA customer service representatives will be on hand throughout the declared counties to assist affected business owners and non-profit organizations with the application process. The SBA will be setting up Business Recovery Centers in locations throughout the impacted counties. SBA will announce these locations in the next few days.

Affected business owners can visit the SBA Web site at www.sba.gov/services/disasterassistance for more information or call 1-800-659-2955.

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Saltmarsh, Cleaveland & Gund Acquires Lundy, Minnich & Linnville’s Clients

Release Date: Tuesday, February 02, 2010

Saltmarsh, Cleaveland & Gund is proud to announce the acquisition of Lundy, Minnich & Linnville’s clients. Due to H.L. Minnich’s impending retirement, he has transferred clients of Lundy, Minnich & Linnville to Saltmarsh effective January 1, 2010.

Mr. Minnich began his distinguished career with Saltmarsh and we are honored that he has chosen to conclude his career here.

Saltmarsh has been a leader in providing professional services for more than 65 years. Our reputation has been built on the principles of honesty and integrity, creativity, respect and quality service to our clients and community. Both firms believe that client satisfaction and personal attention is key in making a successful relationship.

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Justin Smith promoted to Senior at Saltmarsh, Cleaveland & Gund

Release Date: Friday, January 08, 2010

Justin Smith at Saltmarsh, Cleaveland & Gund, has been promoted to Senior effective January 1, 2010.

Smith is a Senior in the Tax & Accounting Services Department of Saltmarsh, Cleaveland & Gund. His area of expertise includes corporate and individual tax specializing in construction contractors, homeowner’s associations and non-profit organizations. Smith graduated with a B.S.B.A. in Accounting from the University of West Florida.

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Beth Skarda, CPA, promoted to Manager at Saltmarsh, Cleaveland & Gund

Release Date: Friday, January 08, 2010

Beth Skarda, CPA, at Saltmarsh, Cleaveland & Gund, has been promoted to Manager effective January 1, 2010.

Skarda is a Manager in the Tax & Accounting Services Department of Saltmarsh, Cleaveland & Gund. She has fifteen years of experience in all areas of taxation. Skarda graduated from Auburn University with a B.A. in Finance. She is a Certified Public Accountant in the State of Georgia.

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Diane Martinez promoted to Senior at Saltmarsh, Cleaveland & Gund

Release Date: Friday, January 08, 2010

Diane Martinez, at Saltmarsh, Cleaveland & Gund, has been promoted to Senior effective January 1, 2010.

Martinez is a Senior in the Audit Services Department of Saltmarsh, Cleaveland & Gund. Her areas of concentration include for-profit, non-profit, governmental and the hotel industry. Martinez graduated with a B.S.B.A. in Accounting from the University of West Florida.

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Araba Knoblock promoted to Senior at Saltmarsh, Cleaveland & Gund

Release Date: Friday, January 08, 2010

Araba Knoblock, CPA, at Saltmarsh, Cleaveland & Gund, has been promoted to Senior effective January 1, 2010.

Knoblock is a Senior in the Financial Institutions Consulting Department of Saltmarsh, Cleaveland & Gund. She graduated with a Master of Accountancy from the University of West Florida and also has her B.S in Administration from the University of Ghana.

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Gianotto, QPA, QKA promoted to Manager at Saltmarsh, Cleaveland & Gund

Release Date: Friday, January 08, 2010

Cathy Gianotto, at Saltmarsh, Cleaveland & Gund, has been promoted to Manager effective January 1, 2010.

Gianotto is a Manager in the Retirement & Medical Plans Department of Saltmarsh, Cleaveland & Gund. She has more than 20 years of experience in employee benefits administration and management. Gianotto has obtained the “Qualified Pension Administrator” (QPA) designation and the “Qualified 401(k) Administrator” (QKA) designation from the American Society of Pension Professionals & Actuaries (ASPPA).

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Philip de Boer promoted to Senior at Saltmarsh, Cleaveland & Gund

Release Date: Friday, January 08, 2010

Philip de Boer, at Saltmarsh, Cleaveland & Gund, has been promoted to Senior effective January 1, 2010.

de Boer is a Senior in the Audit Services Department of Saltmarsh, Cleaveland & Gund. His areas of concentration include non-profit, governmental, manufacturing industry and the hotel industry. DeBoer graduated with a Diploma in Business and Law from the University of Luneburg, Germany and a Master’s of Accountancy from UWF.

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Angelika Cope, CPA promoted to Senior at Saltmarsh, Cleaveland & Gund

Release Date: Friday, January 08, 2010

Angelika Cope, CPA, at Saltmarsh, Cleaveland & Gund, has been promoted to Senior effective January 1, 2010.

Cope is a Senior in the Audit Services Department of Saltmarsh, Cleaveland & Gund. Her areas of concentration include non-profit, governmental, construction, condominiums, and the hotel industry. Cope has her Master’s of Accountancy and her B.S.B.A. in Accounting Information Systems from the University of West Florida.

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Justin Smith earned the designation of Certified Public Accountant (CPA)

Release Date: Monday, December 28, 2009

Justin Smith, with Saltmarsh, Cleaveland & Gund, has recently earned the designation of CPA – Certified Public Accountant. Smith passed a four part exam that tested his knowledge in Accounting and Attestation, Business Environment and Concepts, Financial Accounting and Reporting, and Regulation.

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Lee Bell quoted in Tampa Bay Business Journal

Release Date: Monday, December 28, 2009

Defining moments of 2009: Bank failures, workouts grow
One hundred forty banks and thrifts failed through the first 50 weeks of 2009, including 14 in Florida and four in the Tampa Bay area, and industry experts anticipate that pace will continue through 2010.

Banks with high loan losses relative to their capital already are in trouble, and an expected increase in commercial foreclosures could cause the failure of more community banks, said David Hendrix, shareholder at the law firm GrayRobinson. “It doesn’t take many losses at a community bank for the losses to exceed the capitalization rate and for the [ Federal Deposit Insurance Corp.] to find a larger bank to take over the assets.”

Hendrix expects to see more transactions structured similar to BB&T Corp.’s acquisition of Colonial Bank. BB&T (NYSE: BBT) and the FDIC agreed to share losses on Colonial’s loan portfolio.

“We picked up some losses, and the employees stayed employed,” said Bill Klich, BB&T’s Florida president.

Unknown is how much capital investors are willing to sink into banks to prop them up, said Lee Bell, leader of the business adviser group at Saltmarsh Cleaveland & Gund and shareholder in charge of the CPA firm’s Tampa office. Banks based out of state, such as IberiaBank, which bought the failed Century Bank FSB in Sarasota, and Stearns Bank, the buyer of failed First State Bank and Community National Bank of Sarasota County, will continue to enter Florida through acquiring failed or struggling community banks, but in-state buyers will gain ground as well.

Bell, whose firm serves about 100 community banks primarily in Florida, said institutions that survived have been very conservative in their lending approach. He expects to see conservative lending for the foreseeable future.

“You have bankers that have been lenders and today they are workout specialists. They’re focused on figuring out how to help their clients,” Bell said.

Alternative lenders have turned off the spigot but traditional banks continue to make cautious loans, Klich said.

“We’re all trying to build capital and generate revenue,” he said. Also, bankers’ criteria changed from real estate based lending to asset-based lending, Hendrix said. Real estate loans won’t rebound until existing inventory shrinks and prices rise. In their stead, banks will lend to small businesses that pay their bills and have collateral.

“Asset-based lending means banks won’t fail 10 years from now,” Hendrix said.

Why should we care about this in 2010: A few banks will fail, and new companies will enter or existing ones will expand through acquisitions.

• Follow link for more information.

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Our very own Nathan Botts quoted in the Jacksonville Business Journal

Release Date: Thursday, December 10, 2009

Our very own Nathan Botts quoted in the Jacksonville Business Journal

• Follow this link to download article.

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Kendra Branch has achieved certification as a 125 Cafeteria Plan Administrator

Release Date: Wednesday, September 30, 2009

Saltmarsh is pleased to announce that Kendra Branch has achieved her certification as a 125 Cafeteria Plan Administrator. This valuable certification demonstrates her command of the complex IRS and DOL rules and regulations governing tax advantaged spending plans such as medical, dependent care, insurance, transportation and adoption expenses as well as HRA, HSA and the Debit Card convenience offered by Saltmarsh.

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Trevia Buckner earned the designation of Certified Public Accountant (CPA)

Release Date: Monday, September 28, 2009

Trevia Buckner, with Saltmarsh, Cleaveland & Gund, has recently earned the designation of CPA – Certified Public Accountant. Buckner passed a four part exam that tested her knowledge in Accounting and Attestation, Business Environment and Concepts, Financial Accounting and Reporting, and Regulation.

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Greg Storey has achieved the Certified Internal Auditor Designation

Release Date: Thursday, September 17, 2009

Greg Storey, CPA, CHAE, a Senior Manager in the Audit Services Department of Saltmarsh, Cleaveland & Gund, has received his Certified Internal Auditor (CIA) designation. This is a very rigorous program sponsored by the Institute of Internal Auditors that tests proficiency and competency in the field of internal auditing. The CIA designation is the only globally accepted certification for internal auditors and remains the standard by which individuals demonstrate their professionalism in the internal auditing field.

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Stephen MacBeth Graduates from the Alabama Banking School

Release Date: Tuesday, August 11, 2009

Karen Sullivan, Chairman of the Board and School Director of the Alabama Banking School, has announced that Stephen MacBeth graduated on July 31 from the Alabama Banking School in Mobile, Alabama.
The School is sponsored by the Alabama Bankers Association along with the Mitchell College of Business at the University of South Alabama in Mobile. Students receive instruction from Alabama bankers, University of South Alabama faculty, academicians, attorneys and consultants. The three-year program requires students to spend one week a year at the Alabama Banking School and successfully complete an intensive curriculum on bank related courses to include six home study problems and exams at the conclusion of the first and second years of study. The highlight of the School is in the third year when students participate in the BankExec program and operate a bank through simulation exercises.
MacBeth is a Senior Bank Consultant with Saltmarsh, Cleaveland & Gund, Certified Public Accountants and Consultants. He has over fifteen years of experience in financial institutions, with concentration on compliance, operations and policy and procedures.
Sullivan, who is a Senior Vice President for BankTrust in Mobile, stated that the School was pleased to have 41 bankers graduate this year, bringing the total number of ABS graduates to 1824. Enrollment in 2009 for the 34th annual session was 105 students.

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Florida Financial Services Acting Commissioner, Alex Hager, Takes Shareholder Position with Saltmarsh, Cleaveland & Gund

Release Date: Tuesday, June 30, 2009

After serving the State of Florida for more than 30 years, Acting Commissioner of the Florida Office of Financial Regulation, Alex Hager, recently joined Saltmarsh, Cleaveland & Gund, a Florida accounting firm, as a Shareholder in the firm’s Financial Institution Advisory Group. In his new position, Hager will assist banks with informal and formal enforcement actions, serve as an expert witness and consult on mergers and acquisitions to facilitate directives from federal and state bank regulators.

“My decision to join Saltmarsh underscores a desire to help bankers resolve problems and complexities created by the most severe economic downturn since the market crash of 1929,” said Hager. “I am extremely proud of our industry and the services provided by Florida’s community banks to consumers and small businesses.”

Saltmarsh, Cleaveland & Gund’s Financial Institution Advisory Group works with bank clients, primarily in the Southeast, which range in size from $20 million to more than $1 billion in assets. Shareholders in the Group provide financial institutions with audit, accounting, taxation, and advisory services.

“We strive to help banks work through intricate regulatory actions so they can focus on taking care of banking needs in the community,” said Bill Massey, CPA, CFSA and Shareholder in Saltmarsh’s Financial Institution Advisory Group. “Mr. Hager embraces the dedication to service and integrity required to successfully assist banks during these challenging times. We are thrilled to tap into his experience to ease regulatory issues for financial institutions.”

Hager has already demonstrated his level of commitment to the financial industry by participating in the Florida Banking Association (FBA) Conference in Orlando and the CenterState Bank Investment Conference in Destin. He is slated to speak on Dealing with a Formal Regulatory Agreement at PKF, an International Association of CPA Firms, Financial Institution Forum in Chicago at the end of July. He looks forward to assisting current Saltmarsh clients and other financial institutions in need of regulatory consultation.

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The United States Tax Court Issues Taxpayer-friendly Decision Regarding R&D Tax Credits

Release Date: Monday, April 06, 2009

On March 10, 2009, the United States Tax Court issued an opinion regarding Research and Development tax credits (R&D credits) claimed by Union Carbide. Union Carbide Corporation and Subsidiaries, TC Memo 2009 – 50, Code Sec(s) 41; 174. (hereinafter the UCC Opinion).

The claimed R&D activities centered on a manufacturer that conducted R&D activities in its manufacturing facilities and plants. The opinion covers a broad range of topics pertaining to the R&D tax credit, from substantiation of the underlying R&D credit to establishing a fixed base period and expansion of substantial rights. The vast majority of legal holdings in this case rejected IRS arguments for heightened standards on the R&D tax credit. Although the taxpayer in this case had its credits substantially reduced due to certain improperly included supply costs, this opinion is a victory for taxpayers who are electing to claim the R&D tax credit.

Key Holdings
Ding-Dong, the Discovery Rule is DEAD!
Prior to trial, the IRS conceded that the claims would be decided under the current Treasury regulations (TD 9104) and not the prior Treasury regulations that included the Discovery Test (TD 8930). This is of significance as the IRS has been inconsistent in its treatment of the Discovery Test, especially when auditing R&D Claims from tax years prior to 2004. The instant case involved tax years 1994 and 1995, and furthermore, the amended claims for R&D credits were filed in 1999 before the proposed regulations (eliminating the Discovery Test) were even issued. Again, this is a critical concession, as the IRS has been trying to raise the Discovery Test from the dead, and now appear to have finally accepted the position that it should not be used under any circumstance.

Tax Court Gives Taxpayers Relief on Substantiating the R&D Credit
Since the IRS issued its Tier I Directive in April 2007, the IRS has demanded that taxpayers provide contemporaneous documentation to substantiate their R&D tax credit claims. These demands have been made by the IRS despite the absence of legal authority establishing this as a requirement. Throughout the UCC opinion, the Court dismissed IRS assertions that the testimony relied upon was insufficient to substantiate UCC’s R&D credits. In fact, the Court accepted oral testimony by UCC employees, 15 years after the R&D activities occurred, and found it to be sufficient to substantiate both the various R&D tax credit claims and the fixed base percentage.

Specific Holdings by the Tax Court Concluded That:
• Taxpayers were not required to have the same documentation for the base period as it had for the
claim years
• Reliance on “informal documentation” such as emails and notes was permissible
• Estimates were permissible in the absence of underlying documentation
• Estimates for a base period company were allowed in the absence of any accounting records for
that particular entity

Conclusion
The significance to taxpayers is that IRS examiners have sought to undermine the use of estimates during examination and assert that oral testimony is insufficient. This case should stop the IRS dead in its tracks from using this tactic during examination, as estimates have, once again, been validated for use in quantifying R&D credits and in determining the Fixed Base Percentage for a taxpayer.

This is clearly good news for taxpayers and their advisers as they seek to take advantage of one of the most important incentives for business in the tax code, the R&D Tax Credit.

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Saltmarsh, Cleaveland & Gund Expands Technology Service Offerings to Assist Customers in Current Economy

Release Date: Thursday, February 19, 2009

Saltmarsh, Cleaveland & Gund announced a new technology arm dedicated to meeting the comprehensive business needs of customers throughout Northwest Florida. The expanded portfolio of offerings includes custom web design, online web applications, flash presentations, e-commerce and Internet Marketing from Grendelfly Studio, a new division of SC&G Technology Solutions.

"The current economic environment is challenging for everyone,” says President of Saltmarsh Ron Jackson. “Our expanded technology division helps businesses streamline their operations and improve competitive positioning through web services that impact sales and marketing efforts.”

Saltmarsh will use its new division to provide customers with front-to-back technology solutions. “We are continually thinking about new business opportunities for our clients and staff,” says Technology Manager Stephen Reyes. “We are excited about leveraging our relationship with Grendelfly Studio to support our clients’ aspirations for growth, sustainability and success. Grendelfly Studio is at a dynamic stage of its development and will become a key driver of our web services division.”

Grendelfly Studio began in 2004 as an independent website and graphic design firm led by founder George Johnson. As an award-winning firm, it serves hundreds of website and hosting customers throughout Northwest Florida and the nation. Upon reaching its five-year anniversary, the company decided to expand its technical capabilities by integrating with Saltmarsh, Cleaveland & Gund’s extensive technology and research resources.

Johnson says the synergy of Grendefly Studio and Saltmarsh are excellent. By joining forces, the new division offers better technical support, more in-house engineers and fresh creative services.

“A great website does more than just look good,” says Johnson. “When combined with a solid strategy, a website increases awareness of products and services, reinforces branding, provides valuable information to customers and ultimately makes the business more money.”


About Saltmarsh, Cleaveland & Gund
Founded in 1944, Saltmarsh, Cleaveland & Gund specializes in a vast array of services including management consulting, retirement and medical plans, tax planning, audit and assurance, accounting and regulatory compliance for financial institutions, healthcare, manufacturers, government, small business and law firms. The firm has served clients for the past 64 years and maintains offices in Pensacola, Fort Walton Beach, and Tampa.

About Grendelfly Studio, a division of SC&G Technologies
Grendelfly Studio provides creative direction and high-end website development services to small and medium-size business across a wide span of industries. Specialties include online application development, e-commerce solutions, web marketing and graphic design to customers throughout the nation.

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Ron Jackson Awarded PACE Professional Leader of the Year

Release Date: Wednesday, February 18, 2009

Ronald E. Jackson, President of Saltmarsh, Cleaveland & Gund was awarded the 2009 PACE Professional Leader of the Year. He was selected based on his long-term professional experience, service to professional organizations, leadership and a desire to advance his profession.

The Pensacola Area Commitment to Excellence (PACE) Awards are given each year to honor and recognize the outstanding individuals in the community who have made significant contributions to Pensacola’s overall economic progress.

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Shannon Lands Earns Certification as a Senior Professional in Human Resources (SPHR)

Release Date: Tuesday, February 17, 2009

Shannon Lands, Human Resources Manager with Saltmarsh, Cleaveland & Gund has recently earned the certification as a Senior Professional in Human Resources (SPHR). The certification, awarded by the HR Certification Institute, signifies that Shannon possesses the theoretical knowledge and practical experience in human resource management necessary to pass a rigorous examination demonstrating a mastery of the body of knowledge in the field.
"Certification as a human resource professional clearly demonstrates a commitment to personal excellence and to the human resource profession," said Mary Power, CAE, Executive Director of the HR Certification Institute.
The HR Certification Institute is the credentialing body for human resource professionals and is affiliated with the Society for Human Resource Management (SHRM), the world’s largest organization dedicated exclusively to the human resource profession. The Institute’s purpose is to promote the establishment of professional standards and to recognize professionals who meet those standards

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Allison Jones, CPA, promoted to Senior Manager at Saltmarsh, Cleaveland & Gund

Release Date: Thursday, January 01, 2009

Allison Jones, CPA, at Saltmarsh, Cleaveland & Gund, has been promoted to Senior Manager effective January 1, 2009.

Jones is a Senior Manager in the Audit Services Department of Saltmarsh, Cleaveland & Gund. Her experience includes audits of small businesses, nonprofit organizations, governments, and employee benefit plans. Jones graduated from Florida State University with a B. S. in Accounting. She is a Certified Public Accountant in the State of Florida.

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Greg Storey, CPA, CHAE, promoted to Senior Manager at Saltmarsh, Cleaveland & Gund

Release Date: Thursday, January 01, 2009

Greg Storey, CPA, CHAE, at Saltmarsh, Cleaveland & Gund, has been promoted to Senior Manager effective January 1, 2009.

Storey is a Senior Manager in the Audit Services Department of Saltmarsh, Cleaveland & Gund. He has over 11 years of public accounting experience in audit, agreed-upon procedures, review services, and preparation of organizations exempt from income tax returns. His areas of experience include local governments, nonprofit organizations, nonprofit healthcare providers, hotels and condominiums associations.

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Beth Varhalla, CPA, promoted to Manager at Saltmarsh, Cleaveland & Gund

Release Date: Thursday, January 01, 2009

Beth Varhalla, CPA, at Saltmarsh, Cleaveland & Gund, has been promoted to Manager effective January 1, 2009.

Varhalla is a Manager in the Tax Services Department of Saltmarsh, Cleaveland & Gund. She has 18 years of experience in all areas of taxation. Varhalla graduated from the University of West Florida with a B.A. in Accounting. She is a Certified Public Accountant in the State of Florida.

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Amy Infinger Stachowicz, CPA, promoted to Senior at Saltmarsh, Cleaveland & Gund

Release Date: Thursday, January 01, 2009

Amy Infinger Stachowicz, at Saltmarsh, Cleaveland & Gund, has been promoted to Senior effective January 1, 2009.

Stachowicz is a Senior in the Audit Services Department of Saltmarsh, Cleaveland & Gund. Her areas of concentration include Healthcare, non-profit, governmental and the hotel industry. Stachowicz graduated with a B.S.B.A. in Accounting/Controllership from the University of West Florida.

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Lisa Fairbanks, CPA, promoted to Senior Manager at Saltmarsh, Cleaveland & Gund

Release Date: Thursday, January 01, 2009

Lisa Fairbanks, CPA, at Saltmarsh, Cleaveland & Gund, has been promoted to Senior Manager effective January 1, 2009.

Fairbanks is a Senior Manager in the Tax Services Department of Saltmarsh, Cleaveland & Gund. She has 20 years experience in public accounting, including substantial experience in tax compliance, research, and planning.

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Frank Riehle Appointed to Shareholder at Saltmarsh, Cleaveland & Gund

Release Date: Thursday, January 01, 2009

Frank has served as a Senior Manager in the Pensacola office of Saltmarsh, Cleaveland & Gund, for the past 10 years. Frank has over 17 years of public accounting experience and is a Certified Public Accountant in Florida and New York. He brings Saltmarsh expertise in the manufacturing, construction, retail, restaurant, and service industries. He also works with clients in the areas of tax planning and business planning.

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Molly Murphy Elected to Shareholder at Saltmarsh, Cleaveland & Gund

Release Date: Thursday, January 01, 2009

Molly has served as a Senior Manager in the Audit Services Department in the Pensacola office of Saltmarsh, Cleaveland & Gund for the past 7 years. She has over 17 years of experience in public accounting and is a Certified Public Accountant in Florida and North Carolina. Molly’s expertise at Saltmarsh is in a variety of fields including: audit, accounting, and consulting services. Her experience covers many types of entities, including manufacturing companies, construction contractors, nonprofit organizations, and healthcare organizations.

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