OFFICIAL PUBLICATION OF THE NEBRASKA SOCIETY OF CPAs ISSUE 2, 2023 COUNSELOR'S CORNER Tips for Protecting Client Data & Minimizing Liability for Cyberattacks
BOARD OF DIRECTORS LORRAINE A. EGGER CHAIRMAN (402) 965-0328 CyncHealth La Vista KELLY J. MARTINSON CHAIRMAN-ELECT (402) 827-2054 Lutz Omaha JODI M. ECKHOUT SECRETARY (308) 995-6151 Woods & Durham Chartered Holdrege DAVID E. SWAN TREASURER (402) 420-7758 SP Group, PC Lincoln GRANT H. BUCKLEY DIRECTOR (402) 444-1872 Buckley & Sitzman LLP Lincoln MEGAN C. HOLT DIRECTOR (402) 342-7600 Mutual of Omaha Insurance Co. Omaha BRIAN M. KLINTWORTH DIRECTOR (402) 423-4343 HBE LLP Lincoln SHARI A. MUNRO AICPA ELECTED REPRESENTATIVE (402) 963-4316 Frankel Zacharia LLC Omaha ERICA R. PARKS IMMEDIATE PAST CHAIRMAN (402) 431-9805 FORVIS LLP Omaha DR. THOMAS J. PURCELL, III DIRECTOR (402) 280-2062 Creighton University Omaha LINDA M. SCHOLTING DIRECTOR (402) 826-6777 Doane University Crete JESSICA L. WATTS DIRECTOR (402) 216-6116 Rehmann Omaha DANA J. WEBER WEST NEBRASKA CHAPTER PRESIDENT (308) 635-3008 Dana J. Weber, CPA Scottsbluff 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 Our experienced estate planning pros are here to help you and your clients navigate the legal ins and outs of wealth transfer taxes. Wills,Trusts and Estates endacotttimmer.com 402-817-1000 Your wealth transfer tax professionals. 3 www.nescpa.org
22 20 C O N T E N T S 8 ©2023 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, 2023 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 6 Finding Common Ground & Impacting the Pipeline By Joni Sundquist, Nebraska Society of CPAs STATE BOARD REPORT 8 The More Things Change, The More They Stay the Same: Addressing the CPA Pipeline Crisis By Rick Reisig, Chairman, National Association of State Boards of Accountancy 12 2023 NESCPA Course Calendar 14 Preparing Your Clients for Legacy Giving By Catherine French McGill, JD, CAP®, AEP®, Omaha Community Foundation 16 Equity Compensation As a Tool for Retaining Key Talent: Tax Considerations By Hannah Fischer Frey Morgan L. Kreiser & Carrie Schwab, Baird Holm LLP COUNSELOR’S CORNER 20 Tips for Protecting Client Data & Minimizing Liability for Cyberattacks By Maureen Fulton & Mikaela Witherspoon, Koley Jessen STATE TAX BRIEFING 22 Resolving State Tax & Incentive Disputes Part 1: Resolving E-Verify R&D Credit Audits & Appeals By Nick Niemann & Matt Ottemann, McGrath North Law Firm 24 State Tax & Incentive Defense Protocol By Nick Niemann & Matt Ottemann, McGrath North Law Firm 26 Key Factors in Practice Value 28 Members in the News 29 Firms in the News 32 2023 Talent Management Offer NESCPA Partners With HRD Initiatives: Developing People and Organizations 34 Welcome New Society Members! 35 In Memoriam
■ Corporate Taxation ■ Partnership/LLC/Sub-S Entities ■ Estate & Gift Taxation ■ State & Local Taxation ■ Mergers & Acquisitions ■ Bankruptcy, Reorganizations & Restructuring ■ Tax Protests, Disputes & Litigation ■ Real Estate ■ Individual Taxation ■ Charitable Planning ■ Nonprofit Organizations ■ Employee Benefits & Executive Compensation A partnership that gets everyone where they want to go. You help your clients plot out prudent tax decisions. We can help them navigate the potential pitfalls and opportunities of today’s complex tax environments. Together, we can map out their routes to success. Contact Us Today. 402.390.9500 | koleyjessen.com/services-tax Helping CPAs statewide, Koley Jessen can be your tax law navigator.
PRESIDENT’S MESSAGE AH, SPRING! LIKE THE FLOWERS AND TREES, IT’S TIME FOR A fresh start. Spring brings the beginning of our new fiscal year and the annual renewal of your Nebraska Society of CPAs’ membership. We hope you continue to look to the Society as your No. 1 resource for education, information, and legislative representation—and that you encourage your co-workers and peers to do the same. Paying your membership dues may be completed in just a few clicks at nescpa.org/my-cpa/dues. Your One-Stop CPE Shop Spring is also a time for planning at the Society, and we’ve been busy scheduling this year’s Continuing Professional Education (CPE) programs. The Society’s 2023 CPE Catalog & Member Guide will be arriving in your mailbox soon. The catalog includes a listing of approximately 180 CPE courses and conferences offered through the Society from May through December 2023, along with details about CPE pricing, locations, and registration. In addition, you’ll find all Society courses on the website at nescpa.org/cpe—along with more than 7,100 partner webcasts to satisfy your CPE requirements and educational needs. We’re offering more courses on more topics than ever before, creating a one-stop shop for your CPE needs! In the guide, you will also find a listing of the Society Board of Directors, past chairmen, committee members, and award recipients as well as updates on the Society’s scholarship program, member benefits, and more. Moving the Profession Forward The talent shortage is one of the biggest problems facing the accounting profession today. Overall, birthrates are decreasing, retirements are increasing, and not enough young people want to be CPAs these days—for a variety of reasons and contributing factors. The AICPA, State CPA Societies, NASBA, and State Boards of Public Accountancy are all focused on the future of the profession, from breaking down existing barriers to entry to examining alternative pathways to CPA. Here in our state, the joint task force of Nebraska Society of CPAs and the Nebraska Board of Public Accountancy starts its important work in May. As you might imagine, there are many moving parts, opinions, and areas for discussion as it relates to increasing the accounting pipeline while protecting the public. In Nebraska, we are fortunate to have an excellent relationship with the State Board. It’s a relationship built on mutual respect with an understanding that, by working together, we can accomplish so much more for the profession and for Nebraska—even though our perspectives and our missions may differ. I feel so fortunate to represent a profession built on the principles of objectivity, independence, and most importantly, integrity. And I believe it is these qualities that will help us find solutions to today’s challenges. FINDING COMMON GROUND & IMPACTING THE PIPELINE BY JONI SUNDQUIST, NEBRASKA SOCIETY OF CPAS 6 Nebraska CPA
It’s Time to Tell Your Story While efforts at the national and state levels continue, you, as an individual, can make a significant impact! Norman Vincent Peale may have said it best: “One person can make a difference. You don’t have to be a big shot. You don’t have to have a lot of influence. You just have to have faith in your power to change things.” You know that being a CPA is more than just numbers and regulations; it’s a career path that requires dedication, hard work, and passion. Telling your story, and sharing your passion for the profession, can be a powerful tool for inspiring future generations of accountants. Whether you’ve worked in public accounting, private industry, government, or non-profit organizations, every CPA has a unique story that can inspire students to pursue a career in accounting and the path to CPA. You can provide the guidance, advice, and encouragement to help young people navigate the challenges of the profession and find their own path to success. In addition, sharing your story can help promote the value of the profession and dispel common misconceptions about accounting as a boring or unexciting field. From working with cutting-edge technology to helping clients achieve their financial goals to establishing your own start-up company, the accounting profession offers a diverse range of rewarding experiences and limitless opportunities, if you choose to take them. Students need to know that, whether they love sports, art, music, gaming, or something else, a degree in accounting can help them work in an industry where their passion lies. Finally, telling your story can help you reflect on your own journey and celebrate your accomplishments. It’s easy to get caught up in day-to-day responsibilities but, by taking the time to reflect on your journey, you can gain a new perspective on your career and find renewed inspiration for the work you do as a trusted advisor. You have a great story to tell. So, get out there and tell it! The profession needs a face—and you are it. Connect with students in your local schools. Attend events in your community. And engage with the Nebraska Society of CPAs and its Foundation. That is how we will change the image of the profession. That is how we will attract talent. And that is how we will grow the pipeline. 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. Scan the QR Code to go to the online Member Guide. 2023 CPE CATALOG & MEMBER GUIDE 7 www.nescpa.org
STATE BOARD REPORT OVER THE PAST SEVERAL WEEKS, MUCH HAS BEEN WRITTEN and spoken about the CPA pipeline crisis, including creative suggestions for possible solutions. There are certainly some sound ideas being offered for discussion, and as a partner in a public accounting firm and as a regulator, I welcome them all. At this point in time, the accounting profession needs all of its great minds to focus on this issue. The demand for the services the skilled accountant can provide is at an all-time high, while the population of skilled accountants has remained flat. Baby boomer CPAs are retiring, or nearing it, with the number of young potential licensees entering the profession not keeping pace. This dilemma is not in fact new, but rather a confluence of circumstances years in the making and stemming from declines in: U.S. birthrates Overall college and university enrollment The number of accounting graduates The number of CPA Examination candidates The most recent “culprit,” cited by some, for the pipeline crisis is the 150-credit hour requirement required for licensure, which has been the law in most states and jurisdictions since the year 2000. This educational requirement is one of the cornerstones of substantial equivalency recognition and CPA mobility to practice across jurisdictional boundaries without necessitating additional licensure. As someone who was involved in the debate and development of this requirement in my jurisdiction all the way back in 1990, I thought it might be useful to share some thoughts on the 150-credit hour education requirement. Despite these discussions occurring more than 30 years ago, I still have much of the information our Montana Society of CPAs’ Task Force used then in our research on the issue. Maybe I had a sense that this was a significant turning point in the profession, when all involved knew the profession needed to “up its game” to attract once again the best and brightest. Whatever the reason, as I dusted off my archived materials, I came across a 1989 study commissioned by the Big Eight accounting firms entitled, “Perspectives on Education: Capabilities for Success in the Accounting Profession.” As the report’s title implies, the study’s focus was to assess the current environment in the accounting profession and re-examine the educational process. The circumstances that existed in 1989 which prompted THE MORE THINGS CHANGE, THE MORE THEY STAY THE SAME: ADDRESSING THE CPA PIPELINE CRISIS BY RICK REISIG, CHAIRMAN, NATIONAL ASSOCIATION OF STATE BOARDS OF ACCOUNTANCY 8 Nebraska CPA
the study, and which were responsible for the subsequent drive to increase the educational requirements from 120 to 150 hours, were cited as being: “The profession is changing, expanding and, as a result, becoming increasingly complex.” “Declining enrollments in accounting programs indicate that the profession is becoming less attractive to students.” “Today’s business world is more dynamic and complex than ever before.” “Advancing technology, proliferating regulations, globalization of commerce, and complex transactions make the environment in which public accountants practice extremely challenging.” “Many accounting programs have experienced declines in enrollments, and questions are being raised regarding the quality of accounting graduates.” “The supply and demand imbalance is a very real problem for the profession.” Does any of this sound familiar as we discuss today’s pipeline challenges? As the saying goes, the more things change, the more they stay the same. The study’s conclusion at that time, of course, was that there was a need to increase the educational requirements, stating education for the accounting profession must produce graduates who have acquired a broad array of skills and knowledge, are focused on communication skills (formal and informal, written and verbal), possess strong intellectual skills (creative problem-solving in a consultative process), and bring interpersonal acumen to their professional work (e.g., management skills and leadership competencies). The study emphasized that passing the CPA examination should not be the goal of accounting education, rather the focus of education should be on developing analytical and conceptual thinking. Back in 1990, many of us believed this to be true, resulting in the increase in the education credit hour requirement from 120 to 150. Bachelor’s Masters Enrollment Source: IPEDS 1.1 Trends in accounting degree completions – bachelor’s and master’s | 1994–2020 Master’s 1994–95 1995–96 1996–97 1997–98 1998–99 1999–2000 2000–01 2001–02 2002–03 2003–04 2004–05 2005–06 2006–07 2007–08 2008–09 2009–10 2010–11 2011–12 2012–13 2013–14 2014–15 2015–16 2016–17 2017–18 2018–19 2019–20 45,469 43,502 41,852 39,433 38,949 36,666 34,751 34,719 36,324 38,804 41,208 43,689 46,337 47,860 50,803 55,002 56,129 57,483 56,650 55,734 56,397 56,715 55,963 55,377 53,991 52,481 Academic Count Count year 6,153 5,904 6,190 5,923 6,204 6,428 6,622 7,340 8,458 10,008 11,357 12,247 12,931 13,842 15,303 17,426 19,956 20,865 21,952 22,403 22,777 23,139 22,949 23,141 22,323 20,442 51,622 49,406 48,042 45,356 45,153 43,094 41,373 42,059 44,782 48,812 52,565 55,936 59,268 61,702 66,106 72,428 76,085 78,348 78,602 78,137 79,174 79,854 78,912 78,518 76,314 72,923 BS + MS Total Since the 150-credit hour requirement became effective in most jurisdictions in the year 2000, these have been the trends in accounting degree completions. 9 www.nescpa.org
Please note: These charts are included with permission from the “2021 Trends Report” published by the AICPA (pages 15, 34, and 52). There is no question numbers in all categories have trended downward over the past seven years, after the record highs enjoyed in 2016. But targeting the 150-credit hour requirement as the key contributor for the decline is not supported by the numbers above, nor by the responses of most accounting students when asked about their perception of the challenges they face in entering the profession. The CPA Evolution Initiative, launched prior to the COVID pandemic, is based on the transformation of the profession to meet the growing and changing needs of the marketplace, as well as the changing desires of those we need to attract to the profession. Those best and brightest whom we hope to attract back to our profession will not come back because we’ve made entry easier by reducing educational requirements, reducing the rigor of the CPA exam, or lowering the experience requirement. Rather, CPA Evolution is predicated on attracting the best and brightest to the accounting profession by re-establishing and enhancing the career opportunities available to them. Until 2016, students joined this profession because of those opportunities. Admittedly, the profession has been slow to adapt and keep up with the rapidly changing marketplace, making accounting less desirable. CPA Evolution is the joint NASBA/ AICPA effort to combat and correct that dilemma. The concept of substantial equivalency recognition and CPA licensure mobility was hard-fought, yet worth the effort, See note B on page 58 3.1 Trends in new accounting graduates hired into accounting/finance functions of U.S. CPA firms | 1971–2020 Bachelor’s Hires Master’s Hires Total Demand 1971 1972 1973 1974 1975 1976 1977 1978 1979 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1999 2000 2001 2002 2003 2004 2007 2008 2010 2012 2014 2016 2018 2020 6,800 8,900 10,000 9,500 9,200 10,010 11,660 12,770 13,500 14,100 14,200 11,970 14,490 15,640 16,510 16,110 16,720 16,740 25,240 21,340 18,840 19,870 19,320 18,500 18,560 17,820 16,960 17,265 13,335 12,630 13,270 14,985 28,025 19,110 19,870 23,793 24,931 21,167 19,498 16,128 2,000 2,400 2,600 2,600 2,800 3,350 3,310 2,890 2,900 2,460 2,210 2,210 2,180 2,180 2,250 2,030 2,050 2,220 2,600 2,500 1,760 2,650 2,670 2,970 3,375 2,650 3,250 3,686 3,035 3,295 3,555 4,720 8,087 6,378 13,451 16,557 18,321 13,722 11,405 11,623 8,800 11,300 12,600 12,100 12,000 13,360 14,970 15,660 16,400 16,560 16,410 14,180 16,670 17,820 18,760 18,140 18,770 18,960 27,840 23,840 20,600 22,520 21,990 21,470 21,935 20,470 20,210 20,951 16, 370 15,925 16,825 19,705 36,112 25,488 33,321 40,350 43,252 34,889 30,903 27,751 The graph above shows the trends in accounting graduates hired into accounting/finance functions of U.S. CPA firms. as it sets the accounting profession apart from many other professions across the globe. We need to protect mobility at all costs. The uniform educational requirement “works” to protect CPA licensure mobility because the quality of education provided can be relied upon across jurisdictional boundaries due to consistent accreditation standards. Professional experience used as a replacement for education would not work the same way, as there is no “accrediting body” attesting to the sufficiency and/or quality of experience provided. Yes, like me, many of us obtained a CPA license prior to the 150-credit hour education requirement, and we’re doing “just fine.” We need to acknowledge that we expect much more from our staff when they come to us—particularly during their first year with the firm—than we ever did before. If there were ever a time we need our young staff to come to us with more education not less, it’s now. That’s what CPA Evolution is all about—providing the education and the skillsets not needed yesterday, or 10 Nebraska CPA
recent Uniform Accountancy Act exposure draft is just one of the solutions proposed. Only working together will we be able to appropriately address the issue without causing any longterm negative effects. Working independently would at best delay and at worst endanger CPA licensure mobility. Rick Reisig of Great Falls, Montana, is chairman of the National Association of State Boards of Accountancy (NASBA). He has more than 40 years of experience providing audit and tax services to for-profit, not-for-profit, governmental entities, and individuals, and currently is a principal at Pinion. Reisig is highly active within the accounting profession, from both a regulatory and standardsetting standpoint, helping to shape the ever-changing regulations on a state and national level. In addition to serving as NASBA chairman, he serves on the board of trustees for the Financial Accounting Foundation (FAF), overseeing the activities of FASB/GASB, has served on FAF’s Private Company Council (PCC), the AICPA’s Auditing Standards Board, and was a two-time chairman of the Montana Board of Public Accountants. He also serves as an auditing/accounting instructor for the AICPA. Since 1908, NASBA has served as a forum for the nation’s Boards of Accountancy, which administer the Uniform CPA Examination, license more than 665,600 certified public accountants, and regulate the practice of public accountancy in the United States. 52 2021 TRENDS REPORT SECTION 05 UNIFORM CPA EXAMINATION® 5.1 Trends in the number of new CPA candidates by year | 2006-2021 Source: AICPA Exams Team 39,083 42,157 42,890 42,453 48,004 36,078 38,513 40,839 44,204 49,597 39,436 36,827 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 36,670 30,385 32,186 41,086 If history is any indication, overall candidate volumes will increase in advance of the launch of the CPA Evolution aligned exam (get more information here) in January 2024. even today, but those that will be needed for tomorrow! How can relying on the experience earned “yesterday” be an effective replacement for the education necessary to prepare our staff for what will be needed tomorrow? Many suggestions currently being offered by accounting groups and/or firms aim to address our immediate need. Certainly, credit goes to all who are attempting to do something. However, pipeline enhancement efforts that neglect to consider substantial equivalency and CPA licensure mobility will ultimately do more harm to the profession than good, when measured over the long-term. The AICPA and State CPA Societies, along with NASBA and State Boards of Accountancy, have been working together to come up with both short-term and long-term solutions to address the pipeline crisis, and have been in discussion with various stakeholder groups seeking feedback. The most The graph above shows the trends in the number of new CPA candidates. 11 www.nescpa.org
2023 NESCPA COURSE CALENDAR DATE TYPE EVENT TITLE VENDOR LOCATION CPE/ ETHICS HOURS JUNE 6/1- 6/2 IT Multi-State Technology Conference K2 Enterprises Live Webcast 16 6/1 MA Management and Leadership Essentials AHI Associates Inc. Live Webcast 8 6/5- 6/8 MA Advanced Management and Leadership Essentials AHI Associates Inc. Live Webcast 16 6/8 AA Auditing Financial Statements of ERISA Plans AICPA Live Webcast 4 6/8 AA Conducting a Remote Audit AICPA Live Webcast 4 6/12 IT K2’s Excel Best Practices K2 Enterprises Live Webcast 8 6/13 IT K2’s Excel Essentials for Staff Accountants K2 Enterprises Live Webcast 8 6/146/15 Not-For-Profit & Governmental Accounting Conference Nebraska Society of CPAs Nebraska Innovation Campus, Lincoln 16 6/14 IT K2’s Case Studies in Fraud and Technology Controls K2 Enterprises Live Webcast 8 6/19 TX 2023 Mid-Year Individual Tax Update Werner-Rocca Seminars, Ltd Live Webcast 4 6/19 TX 2023 Mid-Year Business Tax Update Werner-Rocca Seminars, Ltd Live Webcast 4 6/20 ET Ethics the Role of You HRD Initiatives LLC Live Webcast 4/4 6/21 MA Controller/CFO Update: Hot Topics Facing Today's Financial Professional Surgent Live Webcast 4 6/21 Insurance Industry Conference Iowa Society of CPAs Live Webcast 7/1 6/21 IT K2’s Excel Tips, Tricks, and Techniques for Accountants K2 Enterprises Live Webcast 4 6/22 MA Project Management: Tips, Tricks, and Traps Surgent Live Webcast 4 6/22 IT K2’s Microsoft Office 365 – All the Things You Need to Know K2 Enterprises Live Webcast 8 6/23 IT K2’s Microsoft Access – Tables, Queries, and Beyond K2 Enterprises Live Webcast 8 6/27 TX Form 990: Best Practices for Accurate Preparation AICPA Live Webcast 8 6/27 MA Integrated Planning, Forecasting, and Budgeting for Organizational Success Surgent Live Webcast 4 6/27 MA Advanced Management and Leadership Essentials AHI Associates Inc. Live Webcast 2 6/28 AA Financial Statement Disclosures: A Guide for Small and MediumSized Businesses Surgent Live Webcast 4 6/28 IT K2’s An Accountant's Guide to Blockchain and Cryptocurrency K2 Enterprises Live Webcast 4 6/28 AA Guide and Update to Compilations, Reviews, and Preparations Surgent Live Webcast 4 6/28 IT K2’s Artificial Intelligence for Accounting and Financial Professionals K2 Enterprises Live Webcast 4 6/29 MA Gaining a Competitive Advantage: Critical Skills for CFOs and Controllers Surgent Live Webcast 4 6/29 IT K2’s Working Remotely – The New Normal K2 Enterprises Live Webcast 4 6/29 IT K2’s Emerging Technologies, Including Blockchain & Cryptocurrencies K2 Enterprises Live Webcast 4 6/30 ET K2’s Ethics and Technology K2 Enterprises Live Webcast 4/4 6/30 IT K2’s Everything Google! Their Most Effective Tools, Apps & Services K2 Enterprises Live Webcast 4 JULY 7/107/13 AA AHI Staff Training: Basic AHI Associates Inc. Live Webcast 24 7/11 AA Audits of School Districts Nebraska Society of CPAs Grand Island 8 7/17 IT K2’s Next Generation Excel Reporting K2 Enterprises Live Webcast 8 12 Nebraska CPA
DATE TYPE EVENT TITLE VENDOR LOCATION CPE/ ETHICS HOURS 7/18 TX Farm Tax Update CliftonLarsonAllen LLP Live Webcast 8 7/18 IT K2’s Paperless Office K2 Enterprises Live Webcast 8 7/25 AA Common Lessee Issues Real World Seminars of Georgia LLC Live Webcast 4 7/25 AA A First Look at the New Quality Management Standards Real World Seminars of Georgia LLC Live Webcast 2 7/25 MA Advanced Management and Leadership Essentials AHI Associates Inc. Live Webcast 2 7/25 AA Current Expected Credit Loss Model Real World Seminars of Georgia LLC Live Webcast 2 7/26 IT K2’s Excel Charting and Visualizations K2 Enterprises Live Webcast 4 7/26 IT K2’s Hands-On with QuickBooks Online Accountant for Public Accounting K2 Enterprises Live Webcast 4 7/27 IT K2’s Mastering Advanced Excel Functions K2 Enterprises Live Webcast 4 7/27 IT K2’s Improving Productivity with Microsoft 365/Office 365 Cloud Applications K2 Enterprises Live Webcast 4 7/28 IT K2’s Testing and Auditing Excel Workbooks K2 Enterprises Live Webcast 4 7/28 IT K2’s Introduction to Excel Macros K2 Enterprises Live Webcast 4 AUGUST 8/2 TX Maximizing Your Social Security Benefits Surgent Professional Education Scottsbluff 4 8/2 ET Ethical Considerations for CPAs Surgent Professional Education Scottsbluff 4/4 8/3 TX Individual Income Tax Update Surgent Professional Education Scottsbluff 4 8/3 TX S Corporation, Partnership, and LLC Tax Update Surgent Professional Education Scottsbluff 4 8/9 TX Farm Tax Update Paul Neiffer Live Webcast 8 8/10 AA Construction Accounting and Financial Reporting Update Robert A. Davison CPA Live Webcast 3 8/14 TX What Tax Practitioners Need to Know About Medicare Surgent Live Webcast 2 8/14 TX Strategies for Maximizing Social Security Benefits Surgent Live Webcast 2 8/16 MA Acquisitions to Grow the Business The Knowledge Institute Live Webcast 8 8/16 TX Partnership & S Corporation Essentials: Reporting Basis Van Der Aa Tax Ed UNO Thompson Center, Omaha 8 8/16 IT K2’s QuickBooks for Accountants K2 Enterprises Live Webcast 4 8/17 TX Fiduciary Accounting and Tax Preparation for Estates and Trusts Van Der Aa Tax Ed UNO Thompson Center, Omaha 8 8/17 IT K2’s Small Business Internal Controls, Security, and Fraud Prevention and Detection K2 Enterprises Live Webcast 8 8/17 MA Management and Leadership Essentials AHI Associates Inc Live Webcast 8 8/18 TX Year-End Tax Planning: Thinking Outside the Box Van Der Aa Tax Ed UNO Thompson Center, Omaha 8 8/18 IT K2’s Technology for CPAs – Don’t Get Left Behind K2 Enterprises Live Webcast 8 8/22 AA Small-Business Accounting, Audit, and Attest Update Surgent Live Webcast 4 8/25 Women's Leadership Series: Every Womxn! Virginia Society of CPAs Live Webcast 8/28 TX Multi-State Income Tax Issues Surgent Live Webcast 4 8/28 TX The Essential Multistate Tax Update Surgent Live Webcast 4 8/29 MA Advanced Management and Leadership Essentials AHI Associates Inc. Live Webcast 2 8/30 MA Women in Accounting Summit Nebraska Society of CPAs Crete Carrier Riverview Lodge at Mahoney State Park, Ashland 6/1 13 www.nescpa.org
PREPARING YOUR CLIENTS FOR LEGACY GIVING BY CATHERINE FRENCH MCGILL, JD, CAP®, AEP®, OMAHA COMMUNITY FOUNDATION NEBRASKA IS IN THE EARLY STAGES OF the biggest transfer of wealth in the state’s history. According to recent estimates, more than $100 billion in wealth in Nebraska will be transferred from one generation to the next by 2030. That number jumps to almost $1 trillion within 50 years. Many of these transfers will include charitable donations. Are your clients and their families prepared for this transition? The Omaha Community Foundation makes it simple to plan for future charitable impact and to establish generational giving. Encouraging clients to have these conversations across generations not only informs families about future financial plans, but also allows them to feel included and excited about the plan, giving them a sense of ownership in family philanthropy. Have a Family Conversation In a 2022 study of high-net-worth families, 81% said family meetings and regular communication are the most-effective wealth transfer planning strategy. Advisors can prompt their clients to include their children or future generations in their charitable giving conversations “by helping clients understand that philanthropy and charitable giving is not only about giving away money,” said Ralph Dovali, CPA and partner at McMillen Dovali Co. “When people live a philanthropic life, it is easy to pass those values down, starting at an early age.” If you have a client interested in charitable giving, you can help the discussion get more specific by asking: Is there a determined percentage of wealth that will go to supporting family values? How much do children want to be involved in giving? How will this look after the parents have passed? How can these plans be carried out in the most tax-efficient manner? Leading this conversation can bring clarity for your clients, so no surprises occur when the time comes to pass along family wealth. It can also serve as a way for advisors to maintain a relationship with the next generation. Two-thirds of children leave their parents’ financial advisor after they inherit their parents’ wealth, according to a 2021 national study. Starting the conversation early with parents and children about intergenerational wealth is key for a family’s legacy and for your ongoing relationships with the next generation. Your clients’ children may be unaware of all the complex incentives available and how the structure of benefits changes. Clearly defining the advantages of strategic gifting, legacy giving, and family involvement in philanthropy should be ongoing. Choose a Community Foundation When your clients are ready to establish their legacy giving, partnering with the Omaha Community Foundation (OCF) can make your job easier because of our philanthropic expertise and deep knowledge of local needs and the nonprofit organizations working on solutions in our community. Children can be added to their parents’ funds at the Foundation, allowing them to begin making charitable giving choices with their parents. Parents can also name their children as the funds’ successors, allowing them to manage grantmaking for years or generations to come. “My clients have set up and utilized a donor advised fund (DAF) at OCF as a key tool in their charitable giving,” Dovali said. “They love the flexibility of giving on a timeline best suited for them and the end-charity while still controlling when they experience the tax benefits afforded by donating to the DAF.” People can fund their legacy giving in a number of ways that have tax advantages: Wills or Trusts – Name a fund at the Omaha Community Foundation in a will or trust and work with us to craft the legacy. Your client’s estate qualifies for a charitable deduction for the full donation. OCF can provide a template for bequest language. 14 Nebraska CPA
Legacy Donor Advised Fund – Create a fund where the next generation can advise on grant making to nonprofit organizations without the added expenses and administrative burdens. Legacy Designated Fund – Create a fund where you define the longevity of the fund, structure of grant amounts, and preferences for grant designations, then our team will carry out these directives. Life Insurance Beneficiary Designation – Name a fund at the Foundation as the beneficiary of a life insurance policy or donate an existing policy. If your client purchases a new policy, they can name the Foundation as the owner. The premiums will be paid annually by their contributions to the Foundation, which are eligible for a tax deduction. IRA Beneficiary Designation – Name a fund at the Foundation as a primary or contingent beneficiary of all or a portion of an individual retirement account. Funds flowing directly to a fund at OCF from a retirement plan after the person’s death will not be subject to income tax or estate tax. Leaving a Lasting Legacy Lawrence “Red” Thomas helped build ConAgra into one of the world’s biggest food companies and one of Omaha’s most significant employers. He retired after 36 years. He and his wife Jan spent time determining their community impact. The Thomases set out to construct their legacy plan with the help of the Omaha Community Foundation. It’s a plan that will extend their giving intent and ensure their philanthropic priorities will be honored after they are gone. The plan also depends on the insight and knowledge the Omaha Community Foundation provides when it comes to identifying the current and future needs of the community. Thomas said that even after a lifetime of community involvement, they still can’t know where the future needs will be and who will be most in need of help. But building a plan with OCF alleviates some of those concerns. “OCF has provided such great flexibility for constructing a legacy plan, and they try hard to make your ideas turn into reality and extend your charitable life,” Thomas said. “That is a legacy.” Catherine French McGill, JD, CAP®, AEP®, is the gift acceptance manager at the Omaha Community Foundation. If you have questions about charitable legacy planning or how the Omaha Community Foundation can partner with you to help your clients with their charitable giving, contact her at (402) 884-1757 or catherine@omahafoundation.org. Disclaimer: This article provides an overview of the possible tax advantages of donating various types of assets and is not intended to provide tax or legal guidance. The Omaha Community Foundation recommends discussing these strategies with an accountant, financial advisor, or attorney. FIND WHAT MATTERS Do you ever find yourself asking, “Is there something better out there?” You spend half your life at work, and we firmly believe you should love what you do. Our experienced team will help you find the right position at a great company where you can thrive. We are currently hiring for the following positions... ^ CFO ^ Controller ^ Financial Roles ^ Entry/Senior/Manager Level Accountants ^ Bookkeeper ^ Payroll Administrator ^ Remote CPA Positions LEARN MORE TODAY AT WWW.LUTZ.US/TALENT 15 www.nescpa.org
DUE TO RECENT TRENDS IN THE LABOR MARKET, INTEREST IN offering equity compensation as a way to compete for and retain talent has grown quickly. Equity compensation is a payment in company equity typically granted to key employees and can act as a beneficial tool for companies looking to attract, retain, and incentivize top talent. While the advantage of providing equity compensation packages is clear from a business perspective, there are important legal implications to consider. This article discusses the advantages, drawbacks, and tax and business considerations of the most common forms of equity compensation, including (1) restricted equity; (2) equity options; (3) phantom equity; and (4) profits interests. For purposes of this article, “equity” is used broadly to refer to stock, units, partnership interests, or membership interests, depending on the state-law entity type involved. General Considerations for Equity Compensation When exploring the type of equity compensation to offer and the characteristics of the same, companies should be mindful of the following general principles: Entity Type Limitations. While any entity can grant equity compensation, not all forms of equity compensation are available to every type of entity. There are major differences in the awards that can be offered between entities taxed as partnerships, S corporations, and C corporations. EQUITY COMPENSATION AS A TOOL FOR RETAINING KEY TALENT: TAX CONSIDERATIONS BY HANNAH FISCHER FREY MORGAN L. KREISER & CARRIE SCHWAB, BAIRD HOLM LLP Governing Documents. It is important for the issuing entity to review its governing documents to ensure the equity will be held as the current owners intend. This is often a good time to review and possibly revise voting thresholds, transfer restrictions, redemption rights, and the like. Vesting. Depending on the type of equity, the issuing entity may be able to subject the award to vesting based on (1) the passage of time; (2) the option holder’s continued service with the company; (3) the achievement of specific performance criteria; or (4) a combination of the above. Generally, the equity can vest all at once or pursuant to a schedule set forth in the award agreement or similar documentation. Section 409A Compliance. Equity compensation, regardless of its form, is taxed to the employee or service provider as wages, unless an exception specifically applies. Because equity compensation is often subject to vesting, the taxation of the compensation can sometimes be deferred to a later tax year. Section 409A of the Internal Revenue Code (IRC) governs nonqualified deferred compensation, including many types of equity compensation. IRC Section 409A imposes immediate taxation, plus a 20% excise tax, to the service provider on any nonqualified deferred compensation that does not comply with or meet an exception under IRC Section 409A. Ensuring compliance with IRC Section 409A (or one of its exceptions) is accordingly imperative when granting equity compensation. ERISA Compliance. Equity compensation awards may be subject to the Employee Retirement Income Security Act of 1974 16 Nebraska CPA
(ERISA). One of ERISA’s requirements is that the equity award be granted pursuant to a written plan document that contains, among other requirements, details about eligibility for the award and information on vesting. Employers should consult with their ERISA counsel to ensure any equity compensation they intend to grant compiles with (or is exempt from) not only IRC Section 409A, but also ERISA. Advantages, Drawbacks & Taxation of Equity Compensation Award Alternatives A. Restricted Equity Restricted equity awards grant employees actual ownership in the company on the grant date so, at that time, employees hold distribution and equity owner rights. Typically, the employee does not pay anything for the restricted equity award. The equity is restricted in that, until the restrictions lapse (i.e., when the equity vests), the shares or units are subject to forfeiture (typically on the termination of employment) and are non-transferable by the employee. 1. Advantages to restricted equity awards include the following: • The service provider is granted actual ownership in the company on the grant date, which can have retentive effect. • The service provider has flexibility in electing when to be taxed (as discussed below). • The awards do not include an exercise feature requiring a service provider to come up with cash to pay an exercise price. • No valuation or appraisal of the value of the company’s stock is necessary. 2. Disadvantages to restricted equity awards include the following: • Time-vesting awards reward only aggregate company growth and not necessarily individual or business unit performance (when compared to, for example, an incentive bonus program). • The current owners’ holdings are diluted by the service provider’s award upon grant. 3. Taxation of Restricted Equity Restricted equity awards are categorically exempt from IRC Section 409A and are generally not subject to income tax to the employee at the time of grant. Instead, the service provider recognizes ordinary income on the excess of the fair market value of the equity on the vesting date over the amount paid, if any. Alternatively, within 30 days of the grant date, an employee may make an election under IRC Section 83(b) to be taxed at the time of grant. If such an election is made, the employee recognizes ordinary income on the excess of the fair market value of the equity on the grant date over the amount paid, if any. B. Equity Options Equity options (including non-qualified stock options (NSOs) and incentive stock options (ISOs)) provide employees with the right to purchase company equity at a specified price (the exercise price) in the future when the option vests. Only C corporations may grant ISOs, and ISOs may only be granted to employees. ISOs receive favorable tax treatment if certain requirements are met (as discussed below). For entities taxed as Continued on page 18 ► NESCPA - Half Page Ad.indd 1 10/26/21 4:33 PM 17 www.nescpa.org
S corporations, and for grants of equity options to non-employees (such as directors or independent contractors), NSOs may still be awarded. 1. Advantages to equity option awards include the following: • The employee is generally incentivized to increase the value of the company, and equity options permit the employee to participate in the company’s growth. • The employee eventually becomes an owner of the company. • The employee has flexibility in electing when to exercise the option once it has vested. 2. Disadvantages to equity option awards include the following: • The employee must have sufficient cash to pay the exercise price. • The fair market value (FMV) of the company on the grant date is often difficult to determine and may be subject to an approved valuation method under IRC Section 409A. • The employee receives no ownership rights at the time of grant; rather, the benefit is deferred to the date on which the employee exercises the option. • The current owners’ holdings are diluted by the service provider’s award upon vesting and exercise. 3. Taxation of Equity Options a. Non-Qualified Equity Options Under IRC Section 83, an employee recognizes ordinary income in connection with an NSO either 1) at the time of grant if the option has a readily ascertainable FMV at the time of its grant, or 2) (more typically) at the time of exercise if the option did not have a readily ascertainable FMV at the time of its grant. NSOs are not subject to tax at vesting. NSOs are not categorically exempt from IRC Section 409A and must be structured carefully to avoid its implications. b. Incentive Stock Options ISOs are subject to more restrictions than NSOs, but ISOs are categorically exempt from IRC Section 409A, and employees receive more favorable tax treatment under ISOs. To qualify as an ISO under IRC Section 422, the option must have certain characteristics and restrictions set forth in a formal plan approved by the owners of the issuing entity. ISOs are not subject to ordinary income taxes for employees at grant, vesting, or exercise if (1) the shares are held for both (i) one year from the date of exercise, and (ii) two years from the grant date; and (2) the holder exercises the ISO while still an employee or within three months after terminating employment. The employee defers any income tax on exercise until the shares purchased on exercise are ultimately sold. If the shares acquired by the employee on exercise are held for the requisite time periods, then when the shares are sold, the employee only recognizes long-term capital gain treatment on the difference between the sale price and the exercise price. If the shares are not held for the requisite time periods, then the option loses its status as an ISO and is instead treated as an NSO for tax purposes. C. Phantom Equity Phantom equity represents an employer’s unsecured and unfunded promise to make a cash payment to a service provider at a specified time in the future, equal to the value of a specified number of company shares or units. Unlike equity options and restricted equity, phantom equity does not convey any actual ownership in the business. Therefore, a phantom equity award permits the employee to share in the company’s success without having any actual equity in the business. 1. Advantages to phantom equity awards include the following: • The employee’s compensation is tied to the financial success of the company without diluting ownership. • The employee need not pay any amount to receive the cash benefit. • The award is a cash payment, avoiding problems with lack of marketability generally associated with units in a closely held LLC and any issues associated with transferability restrictions. • Little to no governance changes would need to be made to governing documents. 2. Possible disadvantages to phantom equity awards include the following: • The company must have sufficient cash flow to make a cash payment to the employee upon vesting and settlement of the award. • Because phantom equity grants no actual ownership interest in the company, employees may not be as incentivized to contribute to the company’s growth as had they been granted restricted equity or equity options. 3. Taxation of Phantom Equity Awards There is no transfer of value when a phantom equity award is granted to an employee and thus no taxation until the phantom stock vests and is settled. There is, however, a bifurcation of tax treatment at vesting and settlement. So long as the award is exempt from or complies with IRC Section 409A, there are no federal income tax consequences at vesting, but the FMV of the phantom equity award is subject to FICA taxes at vesting. At settlement, the employee recognizes taxable compensation in an amount equivalent to the value paid. D. Profits Interest A profits interest is an equity grant used exclusively by partnerships (or entities taxed as partnerships) that entitles the holder to a share of future profits, but not to the capital of the company. 1. Advantages of a profits interests plan include the following: • The employee is generally incentivized to increase the value of the business because the employee shares in the business’ growth. • The employee becomes a partner at the time of grant. • The employee need not pay any amount to receive the profits interest. 2. Disadvantages of a profits interests plan include the following: • The current owners will be diluted as to future profits of the company. Continued from page 17 ► 18 Nebraska CPA
• Significant changes would need to be made to the operating or partnership agreement. • The service provider becomes a partner and can no longer be treated as an employee for tax purposes and many employee benefit plan purposes. 3. Taxation of Profits Interest If structured appropriately, the grant of a profits interest in exchange for providing services to the company is not a taxable event. However, once the interest is granted, the employee, as a new partner, is subject to pass-through taxation on partnership income. The structure and attributes of a profits interest must be carefully set forth in the operating or partnership agreement to comply with law and qualify for tax-free treatment of the grant. Conclusion Once the equity compensation alternative is selected, the next steps for an employer are to (1) create a plan document, (2) update the company’s governing documents, and (3) ensure the documents are in agreement. Then, the company can issue the awards and draft award agreements for each grantee. To maintain compliance, practitioners should review the legal and tax implications above when advising clients on equity compensation. As long as the proper steps are taken, employers and employees can reap the benefits of equity compensation. Hannah Fischer Frey is a partner and Morgan L. Kreiser is an associate at Baird Holm LLP. Fischer Frey focuses her law practice in the areas of federal and state income tax law and business succession planning. Kreiser works primarily in the area of employee benefits. Fischer Frey and Kreiser work together in advising, drafting, and structuring employee equity plans for their clients. Carrie Schwab is a summer associate at the firm and is a JD candidate at the University of Nebraska College of Law. For more information, contact Fischer Frey or Kreiser at hfrey@bairdholm.com or mkreiser@bairdholm.com, respectively. Contact us today to place your announcement ad Call 801-676-9722 Or scan the qr code to fill out the form. Who to congratulate, who to acknowledge, and who to thank for a job well done. Employees are motivated when they are recognized and feel valued. Nebraska CPA magazine is a great venue to celebrate your team's accomplishments! 19 www.nescpa.org
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