AICPA Unveils Cybersecurity Risk Management

BY Nathan Kalepp

One only needs to skim the daily news to realize that hackers are getting better and cybersecurity is more important than ever. The most recent cyberattack was a strain of ransomware that spread itself across all workstations in a network, causing a global epidemic. It is estimated that this attack impacted more than 200,000 victims in at least 150 countries. Luckily, a programmer developed an internal “kill switch,” which disabled the malware from spreading any further. Regardless of whether your system was impacted by this outbreak or not, there are many lessons to be learned; principally, the need to reinforce fundamental security practices to prepare for the future.

Taking these recent outbreaks into consideration, it is evident that organizations need to make cybersecurity risk management a top priority. To help leaders in the accounting profession reach this goal, the American Institute of Certified Public Accountants (AICPA) has unveiled a cybersecurity risk management reporting framework that will help companies and auditors communicate cyber risk readiness to stakeholders. The framework is long overdue. Until now, a common language for companies to communicate about their cybersecurity risk management was non-existent. The AICPA’s new framework includes three main resources:

  1. Description criteria used by management to explain the organization’s cybersecurity risk management program in a consistent manner and for use by CPAs to report on management’s description.
  2. Control criteria used by CPAs providing advisory or attestation services to evaluate and report on the effectiveness of the controls within a client’s program.
  3. Attest Guide, Reporting on an Entity’s Cybersecurity Risk Management Program and Controls, will be used to assist CPAs engaged to examine and report on an entity’s cybersecurity risk management program.

Cyber threats are constantly evolving; and unfortunately, your cash and customer information are desirable targets. Providing assurance to your team and stakeholders requires intentionality and a plan. Having strong cybersecurity measures in place will help safeguard sensitive information, and the AICPA’s new reporting framework will help you better communicate your preparedness to key stakeholders. If you need any guidance in this area, please reach out to one of our professional staff.

How the New Audit Rules Will Impact Estate Planning

BY John Satre

Future changes to partnership audit rules will impact estate planning. Typically, one would not assume these changes would impact estate planning but they do, considering many estates have LLCs taxed as partnerships to obtain valuation discounts. Entities taxed as partnerships will need to update their operating agreements so they:

  • reflect the new rules,
  • appoint a partnership representative and define their authority, and
  • determine whether to elect out of the unified audit rules.

Effective January 1, 2018 both existing and new partnerships will be subject to new partnership audit rules. The new rules allow for partnership level determination of deficiencies if the partnership is audited as the default regime. There are several potential problems to consider:

  • Current partners could be liable for past deficiencies if there were different partners during the year under audit.
  • Allocation issues may arise since the IRS will not undo errors; rather, they will assess the net increase against the partnership.
  • The deficiency will be assessed at the highest tax rate.

 

In addition, under the new rule, the tax matters partner (the partner that represents the partnership before the IRS in all tax matters) no longer exists. Under the new rule, the partnership representative does not even need to be a partner. A potential problem to consider:

  • Electing a representative should be a high priority as the IRS can select one if one is not appointed.

These potential problems may motivate partnerships to opt out, keeping determinations at the partner level. If so, the question will be whether trustees that own partnership interests on behalf of trusts will have the capability to opt out. Under the new audit rules, opting out is allowed only if:

  1. there are less than 100 K-1s and
  2. the partner of the pass-through entity reveals the identity of its members. This is so that the master partnership can confirm that the pass-through entity has 100 or fewer direct and indirect partners who are US individuals, C corporations or foreign entities that would be treated as C corporations if they were US entities.

At this time, it is uncertain whether partnerships that have trusts as owners will be able to opt out as the new code section does not address trusts or trustees.

 

What’s next?

Entities taxed as partnerships should ensure compliance by including portions of the new code in partnership and operating agreements. This will be especially important should a scenario arise where the partners do not return to amend the agreements.

Regarding existing partnerships, waiting to make modifications is best as the IRS will likely issue more regulations. For now, remain cautious regarding trusts as owners since it is uncertain whether they can opt out.

The professionals in our office can answer any questions you may have about the new audit rules. Call us today.

 

Let Us Help You Leverage What You Can Learn from Your Tax Return

BY Jay Grokowsky

What does your tax return say about your financial situation? The fact is, the paperwork you file each year offers excellent information about how you are managing your money—and about areas where it might be wise to make changes in your financial habits. If you have questions about your financial situation, remember that we can help. Our firm is made up of highly qualified and educated professionals who work with clients like you all year long, serving as trusted business advisors.

So whether you are concerned about budgeting; saving for college, retirement or another goal; understanding your investments; cutting your tax bite; starting a business; or managing your debt, you can turn to us for objective answers to all your tax and financial questions.

We Can Help You Address the Issues that Keep You Up at Night

Where will your business be in five years? Would strategic budget cuts in some areas improve your company’s health? Are there ways you can boost revenue? If you are nearing retirement, is there a buyer or successor in the wings? These are the kinds of questions that keep many business owners up at night. Fortunately, we can help you address these questions and maybe sleep a little easier.

We can review your financial situation and develop creative strategies to minimize your tax liability and help you meet your financial goals. Contact one of our professionals today.

New Form I-9 for Employment Eligibility Verification, Effective 1/22/2017

BY Bernie Hull

Congress passed the IRCA (Immigration Reform and Control Act) in 1986, which required the use of the Form I-9 to verify identity and employment authorization for all new employees, including U.S. citizens hired after November 6, 1986. New hires are required to complete this form within three (3) business days of the date of hire. Employers are required to retain the completed Forms I-9 for all employees, as long as the individuals work for the employer and until one year after the date the employment is terminated or three years after date of hire, whichever is later.

On November 14, 2016, USCIS (U.S. Citizenship and Immigration Services), published a revised version of the Form I-9. Employers must begin using the new version by January 22, 2017.  The form has been modified to make it easier to complete on a computer, including prompts to ensure information is entered correctly and drop down lists and other enhancements.

You may obtain a copy of the new form (paper version and fillable PDF version) and a copy of the Handbook for Employers—Guidance for Completing Form I-9 (publication M-274) at the official website www.uscis.gov/i-9.  There is no fee to obtain these forms via this website.

Overtime Extension Blocked by Texas Judge

BY Bauman Associates

Just before Thanksgiving, Texas U.S. District Judge Amos Mazzant granted a nationwide injunction against the overtime extension rules that were set to go into effect on December 1. The blocked rules would have increased the maximum salary from $23,660 to $47,500 for a worker to be eligible for overtime pay, impacting an estimated 4.2 million working Americans. Mazzant issued the injunction following arguments against the rule from 21 states and the U.S. Chamber of Commerce, who argued that the extended overtime ruling was unlawful. While the injunction has put a halt to things for now, we expect the discussion is far from over. Let us know if you have any questions on how this could affect you. If you’d like to learn a bit more, check out these articles:

Preparing Your Business for New Filing Deadlines

BY Robert Sorensen

In July of 2015, President Obama signed into law a new Highway Funding Bill. Section 2006 of that bill modifies the tax filing due dates for tax years beginning after December 31, 2015. The filing deadlines for a variety of entities, including partnerships and C corporations, will change.

As a business owner, it is important to be aware of the new filing deadlines to make sure you are submitting tax returns timely. The following two questions will determine your due date:

  1.  What entity is your business considered?
  2.  When is your tax year end date?

The new due dates are effective for tax years beginning after December 31, 2015 with the exception of C Corporations with fiscal years ending on June 30 (new due dates for June 30 year ends will go into effect for returns with taxable years beginning after December 31, 2025).

We have highlighted below some of the major changes. For a complete list of new due dates, please refer to our giveaway this month, a copy of the AICPA’s resource which includes a list of all original and extended tax return due dates.

Return Type Prior Due Dates New Due Dates
Partnership (calendar year) April 15 March 15
S Corporation (calendar year) March 15 No change
C Corporation (calendar year) March 15 April 15
FinCEN Report 114

(Replaces FBAR return)

June 30 April 15
Individual Form 1040 April 15 No change
 

Extension Modifications for Calendar Year Filers

Form Extension
1065 6 Months
1041 5 ½ months
5500 3 ½ months
990 6 months
3520-A and 3520 6 months
FinCEN report 114 6 months
 

Extension Modifications for C Corporations

June 30 FYE 7 months
December 31 FYE 5 months
All other FYE’s 6 months
After 12/31/25 All revert back to 6 months

Will individual tax filers be affected by the new due dates?

Yes, those who file foreign bank account reports will notice a change. The due date for FBARs will move from June 30 to April 15. FBAR filers are also applicable to receive a six-month extension, similar to tax returns.

 Trust Returns

The extension dates for trust returns are receiving an extension. Trust returns are still due in April, but the extension will change from September 15 to September 30.

You will want to review your return-filing procedures and determine what changes need to be made to comply with the new dates. The professionals in our office can help you understand how this will affect your business; call on us today.

Succeed at Succession by Building Your Internal Bench

BY Jay Grokowsky

Succession planning has fallen off the radar for many companies in the current competitive landscape where there is a steady demand driven by a demographic shift and healthy economy. Firms are concentrating their efforts on growing their businesses. Many business owners do not start their succession planning until the owners are ready to retire. By this time, it is too late to design and implement a plan to accomplish all of their goals in their retirement timeframe. Furthermore, depending on how you plan on transferring your company, there are a number of preliminary steps that you should take to ensure that your succession plan is executed as you would like it to be. This is especially true if you plan to transfer your company internally to existing or future employees. Below are four key considerations owners should be addressing when considering an internal succession plan.

  • Determine whether you need to look externally to strengthen your management team

Begin the succession process early. It will provide you with enough time to identify and groom the right candidate. Begin by identifying whether you have employees who have the skills or the potential to acquire the skills necessary to take over the company. Assess not only their technical skills, but also their leadership potential. This will help you decide whether you need to search for someone from the outside to strengthen your management team.

  • Training

Training is one of the most important ways that you can ensure a successful transition. Many owners do not know where to start, so they avoid it. Other owners have serious reservations about letting an employee in on the inner workings of the business too soon, sometimes out of fear of losing control and other times out of fear of losing their key employees and company secrets to a competitor. Both of these are legitimate fears; but by giving in to them and not training your employees to take over, you risk the future of your legacy and your retirement.

  • Training and Development

Once the individual or group of individuals is chosen, you need to begin to develop them into your future leaders. Begin by cross-training them in all aspects of the business. This helps them learn the inner workings of the company and become more well-rounded leaders and problem solvers. Beyond just the workings of the business, you need to train them in the soft skills and leadership skills that will make them successful. Invest in a program that will provide those skills to your future leaders. Once a transfer begins to get closer, some companies may even find benefit in bringing in an executive coach to continue to develop leadership skills for transferees.

  • Mentoring

One of the most important steps that you as an owner can take is to share as much knowledge as possible about the company to your successors. As the old adage goes, knowledge is power; and leaving a company without a good knowledge basis can spell its demise. Transferring knowledge can be one of the most difficult parts of the succession process, but it is also one of the most vital.

A mentorship program can produce great dividends. The program should offer young, future leaders access to the business owner – or other senior members of your leadership team – in order to ask questions and receive advice from a trusted source in the upper echelons of management.

Succession can certainly be a difficult bridge to cross, but the professionals at our firm can help you begin the journey. Call us today.

Preparing for the New Overtime Pay Rule

BY Bernie Hull

After much anticipation, the Department of Labor (DOL) recently released a new rule which will change how employers compensate employees. Effective December 1, 2016, workers who earn above the previous threshold but below the new one will qualify to receive time-and-a-half for each hour they work surpassing 40 hours a week. An estimated 4.2 million salaried workers will become eligible for overtime pay under the new rule.

According to the DOL, the new rule will:

  1. raise the salary threshold at which white-collar workers are exempt from overtime pay from $23,660 to $47,476 per year;
  2. automatically update the salary threshold every three years, based on wage growth over time;
  3. strengthen overtime protection for salaried workers already entitled to overtime; and
  4. provide greater clarity for workers and employers.

It should also be noted that, under the new rule, an employee’s nondiscretionary bonus/incentive payments can count toward up to 10% of the salary threshold, provided that the incentives are paid on a quarterly or more frequent basis.

Job titles do not determine exempt status. In order for an exemption for overtime to apply, an employee’s specific job duties and salary must meet all the requirements set by Department of Labor regulations. If you are unfamiliar with the criteria, more details are available on the Department of Labor website (www.dol.gov).

Many businesses will be affected and must comply with the new rule. According to the DOL, “employers may:

  1. increase the salary of an employee who meets the duties test to at least the new salary level to retain his or her exempt status;
  2. pay an overtime premium of one and a half times the employee’s regular rate of pay for any overtime hours worked;
  3. reduce or eliminate overtime hours;
  4. reduce the amount of pay allocated to base salary (provided that the employee still earns at least the applicable hourly minimum wage) and add pay to account for overtime hours worked over 40 in the workweek, to hold total weekly pay constant; or
  5. use some combination of these responses.”

Below are four steps you can implement which will help integrate the changes successfully into your workflow.

  1.  Review payroll and identify employees who are exempt. The first step is to review your payroll and identify who are currently classified as exempt employees whose salaries are below the new proposed thresholds for executive, professional and administrative white collar exemptions. You should also review the job duties of all employees who are currently classified as exempt to ensure that they meet the duties test under the Fair Labor Standards Act for their overtime exemption to be recognized.
  2. Consider which positions to transition to non-exempt status. Once you have reviewed your payroll and identified the employees who are exempt it will be essential to carefully consider which positions to transition to nonexempt status. Employers have two options: they can either increase the salary level to maintain an employee’s exempt status or transition the position to nonexempt status. When transitioning positions to a nonexempt status, ask yourself the following questions:
  • What will be the basis for pay: hourly or salaried?
  • Does this meet the minimum wage requirements?
  • Will overtime be permitted? Is it necessary?

3.  Evaluate timekeeping practices.

Anticipate more time to track for employees transitioning from exempt to nonexempt status. Establish a formal policy to help track and record time. The policy should define:

  • What is considered time worked?
  • How is overtime approved?
  • Who approves overtime?
  • What are the consequences for failing to follow the policy?

4.  Communicate changes internally.

The final step is to communicate and educate staff of any policy changes. Don’t forget to include employees who are already nonexempt; they will also need a refresher. Communications and training programs must be timely. Consider having supervisors regularly review employee time-keeping practices to ensure employees are properly reporting their time worked.

Employers have a few months to prepare for the new rule. Our firm’s professionals can help you develop a strategy to ensure your business is in compliance. Call us today.

Bauman Associates Announces Expansion of Hudson Office

BY Bauman Associates

Hudson, WI – November 23, 2015: Bauman Associates plans to expand its Hudson office by combining employees from its neighboring River Falls office. According to Managing Principal John Satre, this move will help the firm better serve clients in both the River Falls and Hudson markets.

By combining the River Falls and Hudson teams in one location, clients of both offices will benefit from larger client service teams and broader industry expertise. Additionally, consolidating the two offices into one will also help the firm to reduce overhead costs and allow the firm to maintain its competitive billing rates.

By December 1st, the firm plans to close its River Falls office and relocate all of these employees to its Hudson office. The address for the Bauman Associates expanded Hudson office will remain the same: 816 Dominion Drive, Suite 201, Hudson, WI 54016. The office main phone line is 715.386.8181.

About Bauman Associates, Ltd
Bauman Associates was founded in 1947 as a certified public accounting firm and has offices in Eau Claire and Hudson, Wisconsin. The firm provides multi-discipline professional services to businesses and individuals including business consulting; technology training; human resource consulting; tax strategy, planning and preparation; accounting and auditing services; and estate, trust and retirement planning. For more information, visit www.baumancpa.com or call 888-952-2866.

###