2025 ISSUE 2 OFFICIAL PUBLICATION OF THE NEBRASKA SOCIETY OF CPAS RETHINKING CPA LICENSURE PAGE 7 EQUITY-BASED INCENTIVE COMPENSATION PAGE 12 BALANCING LEDGERS AND LAPS PAGE 26
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BOARD OF DIRECTORS JONI SUNDQUIST NESCPA PRESIDENT & EXECUTIVE DIRECTOR joni@nescpa.org KELLY EBERT VICE PRESIDENT kelly@nescpa.org MICHELLE LYONS STAFF ACCOUNTANT & OFFICE MANAGER michelle@nescpa.org LORI VODICKA MEMBERSHIP & CPE ASSISTANT lori@nescpa.org OFFICERS BOARD MEMBERS NESCPA STAFF BRIAN M. KLINTWORTH CHAIRMAN HBE LLP Lincoln JODI M. ECKHOUT CHAIRMAN-ELECT Woods & Durham Chartered CPAs Holdrege HEATHER E. BARR SECRETARY Endicott Clay Products Co. Fairbury GRANT H. BUCKLEY TREASURER Buckley & Sitzman LLP Lincoln KELLY J. MARTINSON IMMEDIATE PAST CHAIRMAN Lutz Omaha SHARI A. MUNRO AICPA ELECTED REPRESENTATIVE Frankel LLC Omaha LORRAINE A. EGGER AICPA ELECTED REPRESENTATIVE NOMINEE CyncHealth La Vista KELLY A. MANN AICPA AT-LARGE REPRESENTATIVE AuditMiner Gretna DERRICK J. BLUM DIRECTOR Iron Horse CPAs & Advisors PC Norfolk LAUREN E. BOND DIRECTOR Deloitte & Touche LLP Omaha LAURIE ANN J. BUHLKE DIRECTOR Contryman Associates PC Grand Island NICOLE L. COOPER DIRECTOR Project Harmony Omaha JUSTIN M. HOPE DIRECTOR Eide Bailly LLP Elkhorn JILL R. TRUCKE DIRECTOR University of Nebraska-Lincoln Lincoln RICHARD D. GIFFORD WEST NEBRASKA CHAPTER PRESIDENT Richard D. Gifford, CPA Scottsbluff CLASSIFIED AD Hiring Senior Accountant, CPA, or CPA Candidate Accounting firm in southwest Nebraska is now hiring a senior level accountant, CPA, or CPA candidate. Ellinger and Cappel LLC is a public accounting firm located in McCook, Neb. The firm provides tax, bookkeeping, and payroll services to both agricultural and business communities. Salary will be dependent upon experience. Benefits include 401(k) match, life insurance, vacation, production bonuses, and four-day work weeks from May 1 through October 31 each year. Please send your resume to nikki@swnebraska.cpa or mail it to: Nikki Cappel Ellinger and Cappel LLC PO Box 847 McCook, NE 69001 4 Nebraska CPA
Once again, The Best Lawyers in America® has recognized 46 McGrath North attorneys in the full range of specialty practice areas key to supporting businesses of all sizes across a broad range of industries, and 27 attorneys have been recognized for 10 years or more! McGrath North invests time, energy and resources to build a culture of professional excellence and integrity that produces results for our clients to make lives better. INSPIRED BY EXCELLENCE. COMMITTED TO SUCCESS. SEE THINGS DIFFERENTLY. Collaborating with companies and CPA firms on: State Tax Audits • State Tax Appeals • State Tax Planning • State Tax Incentives State Business Incentives • Site Development Incentives • Property Tax Appeals Nick Niemann, JD State & Local Tax & Incentives Attorney Partner, McGrath North (402) 633-1489 nniemann@mcgrathnorth.com www.mcgrathnorth.com | www.nebraskastatetax.com | www.nebraskaincentives.com Matt Ottemann, JD, LLM State & Local Tax & Incentives Attorney Partner, McGrath North (402) 633-9571 mottemann@mcgrathnorth.com
26 14 C O N T E N T S 7 ©2025 Nebraska Society of Certified Public Accountants | The newsLINK Group LLC. All rights reserved. The Nebraska CPA is published six times each year by The newsLINK Group LLC for the Nebraska Society of Certified Public Accountants and is the official publication for this society. The information contained in this publication is intended to provide general information for review, consideration and education. The contents do not constitute legal advice and should not be relied on as such. If you need legal advice or assistance, it is strongly recommended that you contact an attorney as to your circumstances. The statements and opinions expressed in this publication are those of the individual authors and do not necessarily represent the views of the Nebraska Society of Certified Public Accountants, its board of directors, or the publisher. Likewise, the appearance of advertisements within this publication does not constitute an endorsement or recommendation of any product or service advertised. Nebraska CPA is a collective work and as such some articles are submitted by authors who are independent of the Nebraska Society of Certified Public Accountants. While the Nebraska CPA encourages a first-print policy, in cases where this is not possible, every effort has been made to comply with any known reprint guidelines or restrictions. Content may not be reproduced or reprinted without prior written permission. For further information, please contact the publisher at (855) 747-4003. ISSUE 2, 2025 EDITORIAL: The Nebraska Society of CPAs seeks to reflect news and relevant information to Nebraska and other news and information of direct interest to members of the Nebraska Society of CPAs. Statement of fact and opinion are made on the responsibility of the authors alone and do not represent the opinion or endorsement of the Nebraska Society of CPAs. Articles may be reproduced with written permission only. ADVERTISEMENTS: The publication of advertisements does not necessarily represent endorsement of those products or services by the Nebraska Society of CPAs. The editor reserves the right to refuse any advertisement. SUBSCRIPTION: Subscription to the magazine, a bi-monthly publication, is included in membership fees to the Nebraska Society of CPAs. PRESIDENT’S MESSAGE 7 Rethinking CPA Licensure Nebraska’s Collaborative Approach By Joni Sundquist, Nebraska Society of CPAs STATE BOARD REPORT 10 State Board Transitions to New Licensing Platform By Dan Sweetwood, Nebraska Board of Public Accountancy COUNSELOR’S CORNER 12 Thinking Like an Owner The Power Behind Equity‑Based Incentive Compensation By Peter Langdon, Koley Jessen 14 Final Regulation Under the Secure Act Released By Kent Endacott, Endacott Timmer 16 Maggard v. Commissioner Governing Provisions Rule the Day When It Comes to the One Class of Stock Requirement for S Corporations By Hannah Fischer Frey & Carrie Schwab, Baird Holm LLP STATE TAX BRIEFING 18 Constitutional “Guardrails” Help Us Resolve State & Local Tax Matters By Nick Niemann & Matt Ottemann, McGrath North Law Firm 21 Philanthropy That Stays Local By The Omaha Community Foundation 22 Don’t Go There The Agreement That Tells You What You Can’t Do By Accounting Practice Sales 24 Q&A With AICPA’s New President & CEO Mark Koziel, CPA, CGMA 26 Balancing Ledgers and Laps The Extraordinary Journey of Kris Rutford 30 Members in the News 32 Welcome New Society Members 33 In Memoriam 34 CPE Catalog & Events 34 2025 NESCPA Advertiser Index Cover photo: Attendees of the 2025 Business, Industry & Innovation Conference pose for a group photo inside one of Duncan Aviation’s five hangars on April 29 in Lincoln, Neb. The annual event brought together accounting professionals for a day of forward-thinking sessions, networking, and a behind-the-scenes look at the world’s largest privately owned private jet service provider!
PRESIDENT’S MESSAGE RETHINKING CPA LICENSURE NEBRASKA’S COLLABORATIVE APPROACH BY JONI SUNDQUIST, NEBRASKA SOCIETY OF CPAs With the profession facing workforce shortages and increasing regulatory scrutiny, Nebraska is rethinking CPA licensure. Here’s how the Society Board and State Board are collaborating to modernize the pathway for tomorrow’s CPAs. THE ACCOUNTING PROFESSION IS UNDERGOING SIGNIFICANT transformation in 2025, driven by an urgent need to strengthen the CPA talent pipeline and reevaluate licensing pathways in Nebraska and across the country. In response to evolving workforce trends both nationally and globally, state legislatures and professional associations are advancing bold initiatives to modernize the profession—making it more accessible, flexible, and responsive to today’s workforce demands. AGING WORKFORCE MEETS TALENT DEFICIT The CPA profession has long faced a shrinking talent pipeline—a trend that mirrors broader global workforce patterns. From 2022 to 2050, 61 of the world’s 195 countries are expected to see a 1% decline in their working-age populations. In the United States, the working-age population has grown by just 3% over the past decade, while the non-working population has risen by 13%. With 10,000 baby boomers retiring each day, industries and professions across the board—including accounting—are struggling to fill essential positions. In response, AICPA launched the National Pipeline Advisory Group (NPAG) in 2023. (Learn more at accountingpipeline.org.) This group explored data-driven solutions, recommending six strategies to address the talent shortage: Tell a more compelling story. Address the cost and time of education. Make the academic experience more engaging. Provide better support to CPA Exam candidates. Enhance the employee experience. Expand paths for underrepresented groups. Your Nebraska Society is actively advancing strategies to strengthen the CPA pipeline. Our ongoing Foundation scholarship programs and this year’s launch of the Accounting Workforce Recruitment Campaign are key components of that effort. If you haven’t already, visit JoinTheFun.cpa to explore our latest high school outreach initiatives, including a new video that highlights the diverse and rewarding opportunities a career in accounting CONTINUED ON PAGE 8 7 nescpa.org
can offer—and targeted social media advertising is underway to broaden our reach. We’re also proud to collaborate with organizations like the AICPA’s Center for Audit Quality (CAQ) and its Accounting+ initiative to promote the profession among underrepresented groups. (Learn more at joinaccountingplus.com.) In addition, the Nebraska Society of CPAs and the Nebraska Board of Public Accountancy have formed a joint CPA Licensure Task Force focused on addressing the time and cost of CPA education— more details on that in the following. CHARTING A NEW COURSE FOR CPA LICENSURE Traditionally, the path to becoming a CPA has included earning 150 semester hours with an accounting focus, passing the Uniform CPA Exam, and gaining relevant experience under a licensed CPA. While this framework remains the cornerstone of licensure, recent changes and proposals are introducing greater flexibility to help adapt the pathway to today’s evolving landscape. Changes to the national Uniform CPA Exam occurred in 2024, which now includes completing four sections within a 30-month window. The three core sections are Auditing and Attestation (AUD), Financial Accounting and Reporting (FAR), and Taxation and Regulation (REG), which all candidates must complete. The discipline sections provide an opportunity for candidates to demonstrate a deeper level of knowledge in one pillar of the profession but will not prevent candidates from practicing outside that discipline once licensed. Candidates choose one of the following: Business Analysis and Reporting (BAR), Information Systems and Controls (ISC), or Tax Compliance and Planning (TCP). At the state level, a significant step forward occurred in March 2024 when Governor Jim Pillen signed LB 854 into law, amending the Nebraska Public Accountancy Act. The bill passed with strong support in the Nebraska Legislature on a 44-0-5 vote. Beginning Jan. 1, 2025, Nebraska CPA candidates may now sit for the Uniform CPA Exam after completing 120 semester hours (or 180 quarter hours) of qualifying college credit and earning a bachelor’s degree. In the months leading up to this legislative change, the Society surveyed its members. Not only did members overwhelmingly support allowing candidates to sit for the exam with 120 semester hours and a bachelor’s degree, but many also encouraged the Society to revisit the state’s 150-hour licensing requirement. You asked—and your Society listened! Historically, Nebraska has placed a strong emphasis on educational standards, as outlined in Chapter 9 of the Nebraska Board of Public Accountancy’s regulations. These rules specify the accounting and business coursework required before a candidate may receive a permit to practice. Recent proposed updates—currently under review by the Governor’s Policy Research Office—recommend removing several general education electives, reducing the required accounting and business semester hours for CPA exam eligibility from 30 to 24, and allowing greater flexibility in subject area selection. However, candidates currently need to complete 30 semester hours in accounting, including the required subject areas, to obtain a permit to practice. The State Board’s Education Advisory Committee (EAC)—established under the Nebraska Public Accountancy Act to ensure input from educators and CPAs—has reviewed and recommended approval of these proposed changes. In addition to educational standards, Nebraska has maintained a strong focus on experience requirements. When the Uniform Accountancy Act (UAA) raised the education threshold from 120 to 150 credit hours in the 1990s and adopted a one-year experience model, most states followed suit. Nebraska, however, retained a two-year experience requirement, emphasizing the value of practical experience. Although the State Board has periodically revisited the possibility of aligning with the UAA’s one-year standard, no changes have been adopted to date. In 2010, a task force recommended preserving the two-year requirement for public accounting while extending the private-sector experience requirement to three years. As it stands today, CPA candidates in Nebraska must complete 150 semester hours of education and either two years (4,000 hours) of public accounting experience or three years (6,000 hours) of private-sector or academia experience to be licensed. These requirements are currently under review as part of the work of the Nebraska CPA Licensure Task Force. FUTURE-READY CPA PATHWAYS In response to growing concerns over the time and cost associated with the traditional 150-hour education requirement, the AICPA and NASBA released an exposure draft to the Uniform Accountancy Act (UAA) earlier this year proposing three alternative pathways to CPA licensure: A master’s degree with an accounting concentration, one year of experience, and passage of the CPA Exam; A bachelor’s degree with an accounting concentration plus an additional 30 semester credit hours, one year of experience, and passage of the CPA Exam; or A bachelor’s degree with an accounting concentration, two years of experience, and passage of the CPA Exam. Importantly, the traditional 150-hour pathway would remain available. All proposed alternative pathways still require the core accounting and business concentrations needed in the 150-hour pathway. The AICPA and NASBA believe these proposed revisions will help strengthen the profession by preserving high standards while expanding access to a broader, more diverse pool of future CPAs. The changes also include a shift from a state-based mobility model to an individual-based practice mobility model, enabling CPAs to operate across state lines with a single license. Additionally, “safe harbor” provisions would protect practice rights for CPAs licensed under different requirements prior to Dec. 31, 2024. CONTINUED FROM PAGE 7 8 Nebraska CPA
The Nebraska CPA Licensure Task Force is reviewing the national exposure draft and evaluating licensure models that address shifting workforce demographics and talent shortages, while maintaining the profession’s integrity and rigor. The task force held its initial meeting in May and will reconvene in July. Once task force recommendations are finalized, they will be presented to both the Society Board and the State Board for final approval. The approved recommendations will likely require the drafting and introduction of legislative changes to the Nebraska Public Accountancy Act during the 2026 Legislative Session, as well as updates to State Board rules. Currently, at least 30 jurisdictions are actively considering alternative pathways to CPA licensure, highlighting the nationwide urgency to modernize and make the profession more accessible. These efforts are critical to ensuring that the CPA credential remains relevant, attainable, and aligned with today’s workforce realities. MOBILITY FOR THE MODERN CPA As CPA licensing requirements continue to evolve across states, the issue of mobility—ensuring CPAs can practice seamlessly across state lines—has become increasingly important. Nebraska presently offers automatic mobility, allowing CPAs licensed and in good standing in another state to practice in Nebraska. Prior to 2025, only four states had automatic mobility—Alabama, Nebraska, Nevada, and North Carolina. Currently, automatic mobility is in effect, pending, or under consideration in at least 30 states. This model shifts the concept of substantial equivalency from the state level to the individual level, making it easier for CPAs to serve clients across jurisdictions. By reducing barriers to multistate practice, automatic mobility supports the modern, interconnected nature of business and reinforces the CPA profession’s ability to meet national and global demands. FORGING THE FUTURE As Nebraska and other states take proactive steps to tackle the CPA pipeline challenge, the profession stands on the brink of meaningful transformation. By prioritizing flexibility, affordability, and modernization, these efforts are designed to keep the CPA profession strong, inclusive, and well-equipped to thrive in an evolving economic landscape. Joni Sundquist is president and executive director of the Nebraska Society of CPAs. You may contact her at (402) 476-8482 or joni@nescpa.org. Work-Life, Done Right. 50-hour busy season work week to support a healthy work-life balance Friday afternoons off during the summer Employee perks and events Hands-on partners who care about your development Tax, Audit, Accounting, Technology, & Business Consulting 402.496.9100 | jobs@frankel.cpa Learn more about open positions at frankel.cpa/careers 9 nescpa.org
AS MANY OF YOU ARE AWARE, THE NEBRASKA BOARD OF Public Accountancy has transitioned to the new Certemy licensing platform. We appreciate those who have already created their accounts, updated their passwords, and completed the renewal process for their active individual or firm permits. Your prompt attention helps ensure you remain in good standing with the State Board—and that’s our shared goal. We are committed to keeping you informed through timely reminders via email and mail. Staying current with your renewal responsibilities is an essential part of maintaining your professional designation and your ability to continue using the CPA title. As a reminder: Individual permits follow a two-year renewal cycle. If you were born in an even-numbered year, your renewal is due this year. CPA firms are required to renew annually. If you’re due for renewal, your Certemy account will display a banner on the left side of your dashboard with specific instructions. We’ve already received positive feedback about the platform’s user experience, as well as helpful suggestions for improvement—thank you to those who completed the Survey tab during the process! If you haven’t received renewal information or are unsure of your requirements, please contact our office—we’re here to help. We’re excited about the new platform and confident that, over time, you’ll find it to be a more convenient and efficient tool. Internally, it’s also allowing us to streamline our work and focus more on serving you. CONTACT US Feel free to reach out with any questions or concerns: Call (402) 471-3595 Email Dan Sweetwood dan.sweetwood@nebraska.gov Kristen VanWinkle kristen.vanwinkle@nebraska.gov Heather Myers heather.myers@nebraska.gov Take care, and thank you for your continued professionalism. STATE BOARD TRANSITIONS TO NEW LICENSING PLATFORM BY DAN SWEETWOOD, NEBRASKA BOARD OF PUBLIC ACCOUNTANCY STATE BOARD REPORT 10 Nebraska CPA
1700 Farnam Street, Suite 1500 Omaha, NE 68102 www.bairdholm.com BH BairdHolm attorneys at law llp HANNAH FISCHER FREY, J.D., LL.M. 402.636.8345 hfrey@bairdholm.com JESSE D. SITZ, J.D. 402.636.8250 jsitz@bairdholm.com PARTNERS YOU CAN COUNT ON Business succession and exit planning Tax planning in mergers, acquisitions, and reorganizations Partnership taxation structuring and compliance Tax credits, tax incentives, and alternative financing Section 1031 exchanges Wealth transfer planning, including estate and gift taxation Nonprofit exemption applications and compliance Audit response and representation before the IRS, state, and local authorities
THINKING LIKE AN OWNER THE POWER BEHIND EQUITY‑BASED INCENTIVE COMPENSATION BY PETER LANGDON, KOLEY JESSEN INCREASINGLY, EMPLOYERS HAVE BEGUN TO CONSIDER AND implement alternative compensation structures as tools to attract, motivate, retain, and reward key employees. Two of the primary alternative compensation arrangements take the form of equity-based incentive compensation, specifically phantom equity and equity appreciation rights. These alternative compensation arrangements are attractive because they incentivize workers to think like an owner (without issuing actual equity), the employer has significant design flexibility, and there is typically no cost to the employee. This article provides a general overview of phantom equity and equity appreciation rights as well as certain design considerations to take into account in structuring these arrangements. Phantom equity (also referred to as phantom stock for corporations or phantom units for limited liability companies) is a contractual right to a payment at some point in the future based on the full underlying equity value of a company, i.e., phantom equity mirrors the underlying equity value of the sponsoring employer. For example, assume Bob is granted one share of phantom equity in ABC Corporation on Jan. 1, 2025. On Jan. 1, 2025, the fair market value of one share of ABC Corporation’s stock is worth $100. As a result, Bob has been granted a contractual right to payment in the amount of $100. Assume further that on Jan. 1, 2026, one share of ABC Corporation’s stock is worth $200. Bob’s benefit in the phantom stock has now increased to $200. As can be seen, Bob’s benefit in the phantom stock will appreciate in value as ABC Corporation’s underlying stock appreciates in value. Such a benefit incentivizes Bob to maximize the value of ABC Corporation’s underlying stock, which incentivizes Bob to think like an owner of ABC Corporation. Similarly, equity appreciation rights (also referred to as stock appreciation rights for corporations or unit appreciation rights for limited liability companies) are a contractual right to payment at some point in the future based on the appreciation in value of a company’s underlying equity. This is distinct from phantom equity, where phantom equity mirrors the entire value of the equity of a company. With respect to equity appreciation rights, a recipient has a contractual right to payment based on the appreciation in value of a company’s underlying equity from the date of grant. To continue our prior example, assume Bob is granted one equity appreciation right in ABC Corporation on Jan. 1, 2025. On Jan. 1, 2025, the fair market value of one share of ABC Corporation’s stock is worth $100. Upon the grant of the equity appreciation right, Bob is not entitled to any benefit because ABC Corporation’s underlying stock has not yet appreciated in value following the grant date. However, on Jan. 1, 2026, one share of ABC Corporation’s stock is worth $200. As a result, Bob’s benefit under the equity appreciation right equals $100. On Jan. 1, 2026, one share of ABC Corporation’s underlying stock equals $200, which is an increase of $100 from the date of grant of the equity appreciation right. Similar to phantom equity, equity appreciation rights incentivize Bob to maximize the value of ABC Corporation’s underlying stock, although at a lesser benefit than phantom equity. Phantom equity and equity appreciation rights have distinct nuances with respect to each type of arrangement. However, both structures share general similarities with respect to design considerations. The three primary design considerations include: (i) vesting; (ii) payment triggers; and (iii) payment timing. Similar to qualified plans (as well as other compensatory employee benefits), a vesting schedule can be attached to phantom equity and equity appreciation rights. Typical vesting schedules include cliff vesting or pro rata vesting over a three- or five-year period. However, performance-based vesting could also apply, either as standalone vesting or coupled with time-based vesting to create double-trigger vesting. It should be noted that the vesting schedule should be drafted to be consistent with any forfeiture provisions in the plan documents. The second primary design consideration is to select the payment triggers as to when the benefit of the phantom equity or the equity appreciation rights will be paid. Generally, there is significant flexibility in setting the payment triggers. However, to the extent the phantom equity or the equity appreciation rights are subject to Internal Revenue Code Section 409A as non-qualified deferred compensation, then limitations will apply as to what events may constitute a payment trigger. Generally, the following items can be used as payment triggers: (i) death; (ii) disability; (iii) separation from service; (iv) a change in control (sale of the company); (v) a specified date; or (vi) an unforeseeable emergency. Not all of the foregoing payment triggers must be used and, in fact, employers typically do not select all of the foregoing items as payment triggers. Notably, in designing the payment triggers under a phantom equity or equity appreciation rights arrangement, termination for cause (as defined in the underlying documents) should be treated as a forfeiture event. Additionally, employers should consider whether COUNSELOR’S CORNER 12 Nebraska CPA
a voluntary resignation (which would otherwise constitute a separation from service) should be used as a payment trigger. Payment upon voluntary resignation may incentivize an employee to quit in order to get paid, which could be seen as contrary to the intent of the plan and counterproductive for the operation of the plan. The final design consideration is to formulate the timing of the payment of the benefit following the occurrence of a payment trigger, which can be structured as a lump sum payment upon the occurrence of the payment trigger or payment over time—for example, in equal annual installments over a period of five years. To the extent the timing of the payment will occur over a period of time, the application of Code Section 409A should be considered as such a structure may create non-qualified deferred compensation. Reasons will vary as to how to structure the timing of the payment, such as whether a release claims will be conditioned on the payment, whether the company has cash flow considerations to take into account (particularly if the benefits will be of significant amounts), and whether the company wants to mitigate potential tax liability for the recipient. Those are only a few factors to consider in structuring the timing of payment of any benefit under a phantom equity or equity appreciation rights arrangement and each employer will have nuances to consider in designing any payment terms. In addition to the above structuring and design considerations, significant compliance and regulatory issues must also be addressed in creating and implementing a phantom equity or equity appreciation rights plan, such as application of Code Section 409A, proper document drafting, and general tax consequences and reporting obligations. Even with the potential costs and time needed to appropriately implement an equity-based incentive compensation arrangement, the benefit of incentivizing an employee to think like an owner without giving up actual equity in a company significantly outweighs the perceived costs associated with implementing an equity-based incentive compensation arrangement. Peter Langdon is an attorney in Koley Jessen’s Employment and Benefits Department. With extensive experience advising clients on employee benefits, executive compensation, nonqualified deferred compensation, and general employment law matters, Langdon is well equipped to navigate the complex landscape of employee benefits. For further inquiries, contact him at peter.langdon@koleyjessen.com. 13 nescpa.org
Regulations bring more clarity to planning for taxable retirement benefit distributions after a taxpayer’s death. THE IRS HAS RELEASED FINAL REGULATIONS THAT bring significant changes to the rules governing required minimum distributions (RMDs). These updates are crucial for certified public accountants advising clients on retirement planning. Here are key points: CHANGES TO RMD AGE REQUIREMENTS The final regulations adjust the age for the required beginning date for RMDs based on the participant’s birth date: Born before July 1, 1949: Age 70½ Born on or after July 1, 1949, and before Jan. 1, 1951: Age 72 Born on or after Jan. 1, 1951, and before Jan. 1, 1959: Age 73 Born on or after Jan. 1, 1960: Age 75 For multi-employer plans, an employee who is not a 5% owner and retires from one participating employer but continues working for another is not considered “retired” for RMD purposes. COMPLIANCE WITH SECURE ACT PROPOSED REGULATIONS For periods before Jan. 1, 2025, compliance with the Secure Act proposed regulations is deemed a reasonable, good faith interpretation of the statutory changes. CPAs should retain materials from previous years for reference. ELIGIBLE DESIGNATED BENEFICIARIES The final regulations maintain the concept of eligible designated beneficiaries (EDBs), which include: Surviving spouse Account owner’s child under age 21 Disabled beneficiary Chronically ill beneficiary Beneficiary not more than 10 years younger than the account owner Different rules apply to certain EDBs, such as the surviving spouse’s ability to choose between the 10-year rule and life expectancy payments. If the plan lacks specific language, the default rule of life expectancy payments applies. DISAPPOINTMENTS & WELCOME CHANGES Disappointments 1. Annual RMDs are required if the participant dies after the required beginning date. 2. Beneficiaries do not need to make up distributions for 2021-2024 due to IRS reprieves. 3. The 10-year outer limit remains for EDBs after their death. FINAL REGULATION UNDER THE SECURE ACT RELEASED BY KENT ENDACOTT, ENDACOTT TIMMER 14 Nebraska CPA
Welcome Changes 1. The penalty for missed RMDs is reduced from 25% to 10% if corrective actions are taken within the “correction window” and a return (Form 5329) is filed reflecting the 10% penalty. 2. The correction window is defined as the earliest of the end of the second year following the missed RMD year, the mailing of a deficiency notice, or the assessment of the 25% penalty. PLANNING OPPORTUNITIES The final regulations allow the RMD in the year of the employee’s death to be distributed to any beneficiary, providing flexibility in estate planning. ELIMINATION OF SEPARATE ACCOUNT RULE The IRS has eliminated the requirement for separate accounts at the beneficiary designation level. Retirement plan assets can now be divided within a trust provided a retirement account is divided on a pro rata basis. Many existing trusts have a “pick and choose” formula that would violate this rule. Have clients update their trusts if they have significant retirement plans that will be payable to a trustee of a trust upon death. STATE LAW MODIFICATIONS State law modifications of a trust that add or delete beneficiaries will be respected if made by Sept. 30 of the year following the employee’s death. SEE-THROUGH TRUST RULE The see-through trust rule remains unchanged, but the final regulations clarify which beneficiaries need to be considered and which can be disregarded. SPOUSAL ELECTION Section 327 of Secure Act 2.0 introduces a special spousal election, allowing the use of the Uniform Lifetime Table and delaying RMDs until the employee spouse would have been required to take them. However, this election does not allow a spouse to avoid RMDs on a Roth account entirely. ROTH ACCOUNTS The Secure Act states that RMDs do not apply to amounts in Roth accounts. The final regulations clarify that lifetime distributions from Roth accounts do not count as RMDs and can be rolled over to a new Roth account. In conclusion, the Secure Act sets forth specific rules governing required minimum distributions after death whereas practitioners previously had to advise clients based largely upon a hodge podge of private letter rulings. This is an improvement. However, if the goal of the final regulations was simplicity, the IRS failed in that regard. Kent Endacott is a co-founder of Endacott Timmer, a boutique law firm focused on trusts and estates. Endacott has extensive experience in IRS matters and has successfully represented clients before the Internal Revenue Service in U.S. Tax Court. He is a member of the American College of Trust and Estate Counsel and currently serves on its Fiduciary Income Tax Committee and Employee Benefits Committee. He can be reached at kendacott@endacotttimmer.com. If the goal of the final regulations was simplicity, the IRS failed in that regard. 15 nescpa.org
SECTION 1361 OF THE INTERNAL REVENUE CODE1 SETS FORTH THE REQUIREMENTS for an entity electing to be taxed under Subchapter S as an S corporation. S corporations continue to be a popular choice due to the potential savings on self-employment taxes resulting from the bifurcation of payments made to the owners into wages versus distributions, subject to certain requirements. There are many restrictions on the structure of an S corporation. The most commonly cited restriction relates to the prohibition of the following types of owners: a person whose ownership thereof would cause the company to have more than 100 shareholders; an individual who is not a United States citizen or resident; a trust (or the trustee thereof) which fails to satisfy the requirements of Sections 1361(c) (2)(A) or 1361(d) of the Code; or a corporation. MAGGARD V. COMMISSIONER GOVERNING PROVISIONS RULE THE DAY WHEN IT COMES TO THE ONE CLASS OF STOCK REQUIREMENT FOR S CORPORATIONS BY HANNAH FISCHER FREY & CARRIE SCHWAB, BAIRD HOLM LLP Another defining restriction of an S corporation is the limitations on classes of stock. Taxpayers and practitioners forming an S corporation, or adjusting the governing documents to the same, must take care to avoid violation of this limitation. With that said, taxpayers and practitioners may have more flexibility than they think. ONE CLASS OF STOCK REQUIREMENT Section 1361(b)(1)(D) defines an S corporation as a small business corporation that, among other characteristics, does not 16 Nebraska CPA
distributing shareholders or by formal amendments to the company’s governing documents, and thus, there was “no formal change.” The court stayed clear of focusing on the actions of the shareholders, i.e., the numerous disproportionate distributions in conflict with the governing documents. Despite the emphasis on a corporation’s governing documents in the Maggard case, it is important to note that the court has previously suggested that a disproportionate distribution could still trigger a second class of stock if there is evidence of “formal corporate action sufficient to bind the company in a manner that affect[s] distribution and liquidation rights of the S-Corp.”6 Thus, if there had been evidence that the company was bound to such distributions, the court may have reached the opposite conclusion. In summary, taxpayers with S corporations, and tax practitioners advising on the same, should review governing documents carefully to confirm that the provisions do not confer non-identical rights. Practitioners can hopefully rest a little easier knowing that a single distribution (or even an egregious number like in the case of Maggard) will not necessarily terminate a company’s S election, provided the governing provisions are properly constructed. In all cases, care should be taken in setting up, revising ownership of, or otherwise dealing with S corporations to avoid an inadvertent termination. Hannah Fischer Frey is a partner at Baird Holm LLP, focusing on corporate transactions, federal and state tax planning issues, and tax-exempt matters. Fischer Frey has addressed complex partnership and corporate tax issues, including business reorganizations, private equity fund structuring, business succession planning, and tax planning in mergers and acquisitions. She has been closely involved in numerous federal and state tax examinations and audits. Carrie Schwab is an associate at the law firm, focusing on general corporate matters as well as tax law and employee compensation and benefits. She assists businesses of all sizes on a variety of matters, including entity formation, corporate governance, general tax strategy and planning, ERISA compliance and employee benefit programs, and equity compensation incentives. For more information, call (402) 344-0500 or email hfrey@bairdholm.com or cschwab@bairdholm.com. have more than one class of stock (commonly referred to as the “one class of stock requirement”). For purposes of the one class of stock requirement, all outstanding shares of stock must confer identical rights to distribution and liquidation proceeds.2 Treasury regulations provide that the determination of such rights can be ascertained by reviewing a corporation’s “governing provisions,” such as a corporate charter, articles of incorporation, bylaws, applicable state law, and binding agreements relating to distribution and liquidation proceeds.3 If an S corporation fails the one class of stock requirement, its S status inadvertently terminates and the corporation will be treated as a C corporation.4 While an inadvertent termination is a worrisome prospect, tax practitioners are sometimes overcautious in thinking that a single disproportionate distribution (or even a repeated pattern of such distributions) will result in a tax election nightmare. Luckily for taxpayers, the rules are more forgiving, as illustrated in the recent Maggard v. Commissioner case. MAGGARD V. COMMISSIONER In August 2024, the United States Tax Court held in the case of Maggard v. Commissioner that as long as the governing provisions of a corporation provide for identical rights, disproportionate distributions will not violate the one class of stock requirement.5 James Maggard founded Schricker Engineering Group with Todd Schricker. The corporation elected to be treated as an S corporation in 2002 and its governing documents provided for proportionate distributions. Todd Schricker eventually sold his shares in the corporation and two new shareholders joined Maggard in the business. Unfortunately, these new shareholders began misappropriating funds and siphoning off Maggard’s earnings for themselves, resulting in disproportionate distributions. Further, the pair failed to provide K-1s in time for Maggard to accurately file his taxes. While Maggard never received distributions from the corporation, the IRS determined on audit that, due to the corporation’s governing documents, Maggard still owed tax on his pro rata share of income. Maggard contended that the disproportionate distributions resulted in a termination of the company’s S status, and thus, he owed no tax on the undistributed income because the entity had reverted to a C corporation upon such termination. The Commissioner argued that the court should not make its determination based on what the shareholders do, but instead on the rights conferred by the governing provisions. The court agreed with the Commissioner, reasoning that the disproportionate distributions in this instance were not “memorialized” by the 1 26 U.S.C. § 1361(b)(1)(D). All sections reference the Internal Revenue Code of 1986, as amended, unless otherwise noted. 2 Treas. Reg. § 1.1361-1(l)(1). 3 Treas. Reg. § 1.1361-1(l)(2). 4 § 1361(b)(3)(c). 5 Maggard v. Commissioner, T.C. Memo 2024-77, *9 (U.S. Tax Ct. Aug. 7 2024). 6 Minton v. C.I.R, 562 F.3d 730, 733 (5th Cir. 2009). 17 nescpa.org
CONSTITUTIONAL “GUARDRAILS” HELP US RESOLVE STATE & LOCAL TAX MATTERS BY NICK NIEMANN & MATT OTTEMANN, MCGRATH NORTH LAW FIRM TODAY WE HEAR A LOT OF DEBATES IN POLITICAL circles where someone on the political spectrum is contending that an action by the Executive Branch (typically the President) is not constitutional. These debates are most often not whether a statute is constitutional, but whether the action by the Executive Branch is unconstitutional in how it exercises the authority under statute. We are not weighing in on these debates. Instead, the purpose of this article is to highlight how we are often able to identify where a state department of revenue or county board taxing authority has applied a statute in an unconstitutional way. As tax attorneys, we collaborate with a company’s internal tax and legal teams, and their external CPAs, to resolve state and local tax audits and appeals. To help resolve many of these engagements, we have deployed what we refer to as constitutional “guardrail” defenses. Our objective is not to create new points of contention, but rather to utilize these defenses strategically to help achieve more favorable settlements in a shorter timeframe. We use these defenses most commonly to show how the taxing authority is applying a statute or regulation in a manner that violates constitutional principles (i.e., it is acting outside of the constitutional “guardrail” and is out of bounds). This approach serves to curtail overly broad or aggressive interpretations by the taxing authority. It helps ensure the statute is applied within constitutional bounds. In doing so, we are not attempting the difficult task of invalidating a statute (though at times we have also taken that on). Rather, we are simply insisting that the statute be applied in a lawful and constitutionally compliant manner. The following is a summary of some of the most frequently used and impactful constitutional “guardrail” defenses relevant to state and local tax matters. EQUAL PROTECTION CLAUSE: U.S. & NEBRASKA CONSTITUTIONS The 14th Amendment to the U.S. Constitution establishes that “No state shall ... deny to any person within its jurisdiction the equal protection of the laws.” A similar provision exists in Nebraska’s Constitution (Article I, Section 3). These provisions prohibit states from making unreasonable classifications. To be constitutional, the law (and how it is applied) must have a rational relationship to a legitimate legislative purpose. While that may seem to be simple enough, some distinctions can run afoul of this “guardrail.” STATE TAX BRIEFING 18 Nebraska CPA
For example, in the case Natural Gas Pipeline Co. v. State Bd. of Equalization, 237 Neb. 357 (1991), the Nebraska Legislature had exempted railroad cars, but not pipelines, from personal property taxation. The Nebraska Supreme Court held this violated the Equal Protection Clause, stating: “The Legislature’s stated justification is illusory. We fail to see any real and substantial difference between personal property used ... by one type of business and the same ... personal property used by another type of business.” DORMANT COMMERCE CLAUSE: U.S. CONSTITUTION The Dormant Commerce Clause (also called the Negative Commerce Clause) is a legal doctrine that is taken from the Commerce Clause in Article I, Section 8 of the U.S. Constitution. That clause, as written, specifically grants the federal government the power to regulate interstate commerce. The Dormant Commerce Clause is a judicially created doctrine that prohibits states from enacting legislation or from adopting rules or practices that discriminate against or unduly burden interstate commerce. This prohibition applies even when Congress has not passed a law on a given subject. As applied to state and local taxes, the U.S. Supreme Court has developed a four-part test that a tax statute (and how it is applied) must meet to be allowed under the Dormant Commerce Clause: 1. The tax must be applied to an activity that has a substantial connection to the state. 2. The tax must be fairly apportioned to activities in the state. 3. The tax must not discriminate against interstate commerce. 4. The tax must be fairly related to services provided by the state. An example of state action in this context is how it applies the income apportionment rules. SPECIAL LEGISLATION CLAUSE: NEBRASKA CONSTITUTION Article III, Section 18 of the Nebraska Constitution specifies that: “The Legislature shall not pass local or special laws in any of the following cases: ... Granting to any corporation, association, or individual any special or exclusive privileges, immunity, or franchise whatever.” The Nebraska Supreme Court has interpreted this to mean that: “A legislative act constitutes special legislation if (1) it creates an arbitrary and unreasonable method of classification or (2) it creates a permanently closed class.” NEXUS: U.S. CONSTITUTION The U.S. Supreme Court has stated that there must “be some definite link, some minimum connection between a state and the person, property, or transaction it seeks to tax.” This link is commonly referred to as “nexus.” If a person or company does not have nexus in a state, the state cannot subject that person or company to tax (or require them to collect tax). As established in the U.S. Supreme Court case Wayfair v. South Dakota, nexus can be both from physical presence or economic presence in a state. So, while nexus may now be easier for states to establish, nexus is still a significant “guardrail.” The nexus “guardrail” is the basis of Public Law 86-272. This federal statute prevents a state from imposing a net income tax on a company’s income derived within the state from interstate commerce if: a) the only business activity performed in the state is the solicitation of orders of tangible personal property; b) such orders are sent outside the state for approval or rejection; and c) the orders, if approved, are filled by shipment or delivery from a point outside the state. CONTINUED ON PAGE 20 19 nescpa.org
Given the Public Law 86-272 protections, we will review the applicability of the Public Law 86-272 “guardrail” whenever we confront the claim by a state taxing authority that a nonresident company selling tangible personal property owes state income tax. PRIVILEGES & IMMUNITIES CLAUSE: U.S. CONSTITUTION This constitutional “guardrail” prohibits a state from imposing higher tax rates, or additional taxes, on nonresidents than the state imposes on residents. Courts have, in the past, used this “guardrail,” for example, to prohibit a “commuter income tax” which applied only to nonresidents working in the state or to prohibit the application of a property tax credit to only farms owned by residents. UNIFORMITY & CLASS DEFINITIONS IN PROPERTY TAX: NEBRASKA CONSTITUTION Property taxes in Nebraska have additional constitutional “guardrails” that should be considered. Article VIII, Section 1 of the Nebraska Constitution establishes that taxes must be levied uniformly on real property in Nebraska: “Taxes shall be levied by valuation uniformly and proportionately upon all real property and franchises as defined by the Legislature except as otherwise provided in or permitted by this Constitution.” There are certain exceptions to this general rule, of course. Article VIII, Section 2 of the Nebraska Constitution establishes certain exemptions for real property. In addition, Article VIII, Section 1 establishes that “agricultural and horticultural land” shall constitute a “separate and distinct class of property for purposes of taxation.” This provision allows for agricultural and horticultural land to be assessed at 75% of its fair market value. For personal property, Article VIII, Section 1 of the Nebraska Constitution establishes: “Tangible personal property ... shall all be taxed at depreciated cost using the same depreciation method with reasonable class lives, as determined by the Legislature, or shall all be taxed by valuation uniformly and proportionately.” Article VIII, Section 2 of the Nebraska Constitution again establishes exemptions for certain types of personal property, including “household goods and personal effects,” livestock, and business inventories. When evaluating a property tax case, we review whether Nebraska’s constitutional “guardrails” for property tax are being interpreted and applied properly. If the application of Nebraska’s law by the taxing authority goes outside of these property tax “guardrails,” we will adopt a defense accordingly. At the invitation of the Nebraska Chamber of Commerce, we presented a program on Nebraska tax policy to our state’s business leaders, tax advisors, and legislative leaders. As part of that presentation, we highlighted key “guardrail” defenses to preserve the state’s tax integrity. To learn more, view the presentation video on McGrath North’s website (mcgrathnorth.com) under the State and Local Taxation and Incentives practice area, or watch it directly at https://youtu.be/aUHmA9vjixI. Nick Niemann and Matt Ottemann are partners with McGrath North Law Firm. As state and local tax and incentives attorneys, they collaborate with CPAs to help clients and companies evaluate, defend, and resolve tax matters and obtain various business expansion incentives. Go to www.NebraskaStateTax.com and www.NebraskaIncentives.com for more information and for a copy of their publications, The Anatomy of Resolving State Tax Matters and the Nebraska Business Expansion Decision Guide. You may also reach them at (402) 341-3070 or email nniemann@mcgrathnorth.com or mottemann@mcgrathnorth.com. CONTINUED FROM PAGE 19 Tax and accounting manager wanted immediately for Omaha CPA firm. Knowledge of tax, accounting, and auditing concepts required. Send resume to Berger, Elliott & Pritchard, CPAs, L.L.C., 1301 S. 75th Street, Suite 200 or email to info@bepcpa.com. BETTER TAX SEASON BETTER FIRM BETTER PLACE TO WORK TAX AND ACCOUNTING MANAGER 20 Nebraska CPA
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