OFFICIAL PUBLICATION OF THE NEBRASKA SOCIETY OF CPAs ISSUE 5, 2023 Nebraska Society of CPAs Ushers in New Era of Leadership
BOARD OF DIRECTORS KELLY J. MARTINSON CHAIRMAN (402) 827-2054 Lutz Omaha BRIAN M. KLINTWORTH CHAIRMAN-ELECT (402) 423-4343 HBE LLP Lincoln HEATHER E. BARR DIRECTOR (402) 729-4129 Endicott Clay Products Co. Fairbury LAURIE ANN J. BUHLKE DIRECTOR (308) 382-5720 Contryman Associates PC Grand Island LORRAINE A. EGGER IMMEDIATE PAST CHAIRMAN (402) 965-0328 CyncHealth La Vista MEGAN C. HOLT DIRECTOR (402) 342-7600 Mutual of Omaha Insurance Co. Omaha JUSTIN M. HOPE DIRECTOR (402) 691-5538 Eide Bailly LLP Elkhorn SHARI A. MUNRO AICPA ELECTED REPRESENTATIVE (402) 963-4316 Frankel LLC Omaha DR. THOMAS J. PURCELL, III DIRECTOR (402) 280-2062 Creighton University 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 JODI M. ECKHOUT SECRETARY (308) 995-6151 Woods & Durham Chartered CPAs Holdrege GRANT H. BUCKLEY TREASURER (402) 444-1872 Buckley & Sitzman LLP Lincoln CLASSIFIED AD Nebraska Practices for Sale: Gross Shown: $635K Southwest, Nebraska $311K Lincoln, Nebraska For more information Call 1-800-397-0249 or visit www.APS.net THINKING OF SELLING? Accounting Practice Sales is the leading marketer of accounting and tax practices in North America. To learn more about our risk-free & confidential services, call Trent Holmes 1-800-397-0249 or email Trent@apsholmesgroup.com 3 www.nescpa.org
30 18 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 5, 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 Nebraska Society of CPAs Ushers in New Era of Leadership By Joni Sundquist, Nebraska Society of CPAs STATE BOARD REPORT 8 Mastering CPE Compliance With the Nebraska Board of Public Accountancy By Heather Myers, Nebraska Board of Public Accountancy 10 One Times Gross: Is That the Law? By Accounting Practice Sales 12 Everything You Need to Know About the Corporate Transparency Act By Adam M. Ripp & Tristin S. Taylor, Baird Holm LLP 16 IRS Intensifies Efforts to Combat ERC Scams Consider Getting a “Second Opinion” By Rick Meyer, CPA, MBA, MST, alliantgroup STATE TAX BRIEFING 18 The Coming EPIC Disaster What’s in Store If the EPIC Option Becomes the Law By Nick Niemann & Matt Ottemann, McGrath North Law Firm COUNSELOR’S CORNER 24 401(k) Plan Audits Common Issues & Resolutions By Peter M. Langdon, Koley Jessen 27 The Language of GAAP By Paul H. Koehler, CPA, Government & Nonprofit Services Specialist 30 Legacy Giving A Conversation Full of Opportunity By Catherine French McGill, JD, CAP®, AEP®, Gift Acceptance Manager, Omaha Community Foundation 32 The Six-Word Success Formula Find a Need and Fill It By the Davenchar Group 34 In Memoriam 34 Welcome New Society Members! 35 2023 NESCPA Advertiser Index Cover Photo: Chairman Kelly Martinson, Chairman-Elect Brian Klintworth, and Secretary Jodi Eckhout visit during the NESCPA Fall Conference in Ashland.
PRESIDENT’S MESSAGE NEBRASKA SOCIETY OF CPAS USHERS IN NEW ERA OF LEADERSHIP BY JONI SUNDQUIST, NEBRASKA SOCIETY OF CPAS IN A STUNNING HILLTOP LOCATION overlooking the Platte River Valley, the Nebraska Society of CPAs recently celebrated the election of a new cadre of talented CPAs to spearhead the organization for the 2023-2024 fiscal year. The election took place on Oct. 30 at Mahoney State Park’s Crete Carrier Riverview Lodge during the Society’s Annual Meeting, which coincides with the NESCPA’s two-day Fall Conference. Since its inception in 1928, the Nebraska Society of CPAs has thrived on the dedication and expertise of its member volunteers. Their commitment has not only shaped the Society but also significantly impacted the Nebraska CPA profession at large. Reflecting on the importance of volunteerism, newly elected Society Chairman Kelly Martinson of Bennington emphasized, “The strength of our Society lies in the diverse experiences and insights of our members. This coming year, I look forward to working alongside a team of exceptional leaders, all committed to forging a dynamic future for the Society.” With more than 28 years of experience in taxation, Martinson is a tax shareholder at Lutz in Omaha. She has served five years on the Society Board, as secretary for two years, and currently serves on the Women in Accounting Committee. “The dedication of our members is what truly drives innovation and progress in our profession,” she added. Echoing this sentiment, Immediate Past Chairman Lori Egger of Ashland shared, “My time with the Society has been a testament to the power of collaborative effort. It’s the collective action of our members that steers our profession towards excellence.” Egger serves as the CFO of CyncHealth in both Nebraska and Iowa and has more than 26 years of public accounting and tax experience. Her service to the Society includes seven years on the Society Board, and six years on The Foundation of the Nebraska Society of CPAs Board of Trustees. Egger has also volunteered on the Not-For-Profit Committee for more than 20 years, five of those years in a leadership position. In addition, she presently serves on the Women in Accounting Committee. “Being involved and volunteering for the Nebraska Society of CPAs has deepened my connection to the profession,” said Chairman-Elect Brian Klintworth of Lincoln. “I strongly encourage every member to dedicate some of their time and expertise to help advance the CPA profession. It’s a great way to make a difference and brings a sense of personal fulfillment as well,” he said. Klintworth is a partner at HBE LLP in Lincoln. In addition to his board service and new role as Society chairman-elect, he is presently chairman of the Society’s Continuing Professional Education (CPE) Committee. These voices echo a long-standing tradition within the Society, one where the fusion of fresh ideas and seasoned expertise continues to propel the accounting profession forward. As the Nebraska Society of CPAs steps into a new calendar year, it stands on the cusp of transformative change, driven by an energetic, engaged leadership team. Congratulations to all of our newly elected officers and board members for the coming year. Also thank you to those continuing their service on the Society Board of Directors. Thank You! We extend our sincere gratitude to Erica R. Parks of FORVIS LLP in Omaha, Linda M. Scholting of Doane University in Crete, David E. Swan of SP Group PC in Lincoln, and Jessica L. Watts of CRCC in Omaha whose terms on the Society Board of Directors have come to an end. Parks is a past Society chairman and has served on the Nebraska Society of CPAs Board of Directors for five years; Scholting has served on the Society Board for three years; Swan has been the Society’s treasurer for the past five years; and Watts has served on the Society Board for three years. 6 Nebraska CPA
Without a doubt, leadership and involvement are the greatest contributions you can make to your Society and your profession. Thank you to each and every one of these individuals for their ongoing commitment to the Society and the CPA profession. CHAIRMAN Kelly J. Martinson Lutz, Omaha CHAIRMAN-ELECT Brian M. Klintworth HBE LLP, Lincoln SECRETARY Jodi M. Eckhout Woods & Durham Chartered CPAs, Holdrege TREASURER Grant H. Buckley Buckley & Sitzman LLP, Lincoln NEWLY ELECTED DIRECTOR Heather E. Barr Endicott Clay Products Co., Fairbury NEWLY ELECTED DIRECTOR Laurie Ann J. Buhlke Contryman Associates PC, Grand Island IMMEDIATE PAST CHAIRMAN Lorraine A. Egger CyncHealth, La Vista DIRECTOR Megan C. Holt Mutual of Omaha Insurance Co., Omaha NEWLY ELECTED DIRECTOR Justin M. Hope Eide Bailly LLP, Elkhorn AICPA ELECTED REPRESENTATIVE Shari A. Munro Frankel LLC, Omaha DIRECTOR Dr. Thomas J. Purcell, III Creighton University, Omaha WEST NEBRASKA CHAPTER PRESIDENT Dana J. Weber Dana J. Weber, CPA, Scottsbluff With more than 50 years of experience in the intricacies of Estate Planning, the team at Endacott Timmer knows the importance of getting the details right. endacotttimmer.com 402-817-1000 If you fail to plan, you plan to fail. Call the Estate Planning professionals. 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. 7 www.nescpa.org
AS THE FISCAL LANDSCAPE CONTINUES TO EVOLVE, CPAS FIND themselves in a constant pursuit of knowledge and skill enhancement. The Nebraska Board of Public Accountancy recognizes the importance of staying ahead in the realm of accounting, which is why compliance with Continuing Professional Education (CPE) requirements is imperative for all active permit holders. Reporting & Documentation: Your Responsibilities CPE credits must be earned within the calendar year 2023, completed by Dec. 31, 2023, and promptly reported to the State Board no later than Jan. 31, 2024. Adhering to these specific timelines is fundamental as it ensures strict compliance with Nebraska’s CPE requirements, safeguarding the professional standing of permit holders. Every Jan. 31, permit holders are required to submit their participation in continuing education activities during the preceding calendar year. In the event that meeting this deadline proves challenging due to valid reasons, it is crucial to communicate your situation in writing to the Board before Jan. 31. Communication is key to maintaining the integrity of the certification process and upholding the standards of the profession. The responsibility of documenting these requirements rests solely with the permit holder. Evidence supporting your fulfillment of these requirements must be retained for six years after completing the educational courses. Accepted forms of evidence include certificates of completion from course sponsors, signed attendance sheets, grade reports or transcripts from educational institutions, and signed statements of hours from instructors. Understanding CPE Requirements: A Recap To ensure the renewal of your Active Permit to Practice, you are required to complete 80 hours of CPE, including four hours dedicated to ethics, within the two calendar years preceding your renewal. These CPE hours must be earned by Dec. 31 of the year prior to renewal and reported to the State Board no later than Jan. 31 of your renewal year. For permits issued after July 1 of the year preceding expiration, CPE hours are pro-rated to a minimum of 40 hours, which is required for renewal. It’s important to note that the AICPA Professional Ethics Exam, while vital for certificate issuance, cannot be utilized for permit renewal ethics CPE credits. Staying abreast of CPE requirements is not just a compliance matter but a commitment to excellence in the field of accountancy. By understanding and fulfilling these obligations, CPAs ensure their knowledge remains current and relevant, enabling them to provide high-quality financial services to their clients and uphold the standards of the profession. For additional guidance and resources, please visit the Nebraska Board of Public Accountancy at https://nbpa.nebraska.gov. The Nebraska Board of Public Accountancy administers public accountancy law in Nebraska. If you have any questions or concerns regarding CPE requirements, do not hesitate to contact State Board Executive Director Dan Sweetwood at dan.sweetwood@nebraska.gov or Business Manager Heather Myers at heather.myers@nebraska.gov. STATE BOARD REPORT MASTERING CPE COMPLIANCE WITH THE NEBRASKA BOARD OF PUBLIC ACCOUNTANCY BY HEATHER MYERS, NEBRASKA BOARD OF PUBLIC ACCOUNTANCY 8 Nebraska CPA
LET OUR EXPERIENCE WORK FOR YOU Legal Counsel for a Lifetime 1700 Farnam Street, Suite 1500, Omaha, NE 68102 | www.bairdholm.com 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
ONE TIMES GROSS: IS THAT THE LAW? BY ACCOUNTING PRACTICE SALES “ACCOUNTING PRACTICES ARE WORTH one times annual gross revenue.” This belief has been around our profession for decades and, in fact, still drives the marketplace. No one can really explain why one times gross is such an accepted formula. (The best theory is that it assumes a backdoor cash flow. Buyers believe they can achieve a certain income level despite what the previous owner has done.) Whatever the reason for the widespread thought, it is so persistent that many accountants do consider it “immutable law.” They routinely talk of anything above a one-times-gross price as a premium and anything less as a discount! We accept this mindset, using it to our advantage when possible and working to overcome it on other occasions. This ubiquitous mantra implies that accountants value practices with reference to annual gross revenues. That actually is a bit strange. Almost all other small businesses are valued based on a multiple of net cash flow to the owner (including salary, payroll taxes, benefits, profits, etc.). This is commonly called discretionary cash flow. For all small businesses in North America, that multiple is about 2.4 times cash flow to owner. The multiple for service businesses is less, more like 1.5 to 2 times. Therefore, if accountants were like everyone else, they would value their businesses at 1.5 to 2 times this discretionary cash flow. But they are different. Sometimes, where the cash flow is high for example, this mindset hurts the value of a business. At other times, like when cash flow is low, it helps the value. Be aware that, despite our beliefs, not all practices sell at one times gross. One can no more say that than to say houses sell for $X per square foot. Some do and some don’t. A whole host of factors will make a practice sell for more or less than another one. They include location, cash flow, type, size, etc. (See “Key Factors in Practice Value” at https://bit.ly/PracticeValue.) One times gross is the starting point because that is what everyone thinks. But it is probably better to think in terms of a range like 80% to 120% of gross as more realistic. Sellers and buyers need to move away from the mindset that every practice is the same and is valued the same. No one believes that each accounting or tax firm is a cookie cutter image of the one down the street. Of course, knowledge of those factors is a major reason for sellers and buyers to consider using an experienced broker who specializes in tax and accounting practices. It is also important to note the distinction of what some mean by “practice multiple.” There is 100% and there is 100%. No buyer or seller thinks 100% cash at closing is the same as 20% down and 20% a year for four years. Rarely will the latter result in the same amount in the pocket of the seller as would have happened with the first scenario. And yet, parties often talk about 100% of gross or one times gross without knowing what the other has in mind. Deals have failed at the signing table when it was discovered that the buyer meant one thing and the seller the other. Terms must be understood early in the process. (See “Show Me the Money: How Accounting & Tax Practices Are Sold” at https://bit.ly/APS-ShowMe for a discussion of terms.) Another problem is deciding what is included in the gross revenue calculation. First, what is being considered: billings or collections? It is a given that accountants should understand the difference in accrual and cash basis accounting better than anyone, but when it comes to buying or selling a practice that is often ignored. Cash basis is often used but accrual can sometimes be a better indicator. At any rate, buyer and seller need to understand what is being presented. Second, what time period is considered in the calculation? There certainly does not seem to be a consensus. Is the last calendar year the determinant? Or do the parties use the most recent 12-month period? Does one look at an average of the last three or so years? Or does the year after the sale become the period under consideration? All those measurements are used by one party or the other and often without prior discussion. That can lead to problems. One cannot begin to discuss 100% of gross as a value without knowing what gross is. To peg value at a multiple of gross, it is necessary to know what exactly is considered as a part of the sale. Are furniture and equipment included or are these added to the one times gross? What about accounts receivable, accounts payable, or work in process? The assets sold in the sale of an accounting practice are those necessary for the new owner to continue operating the business. Generally, this is the goodwill of the practice including client files, client lists, and non-compete agreements as well as property assets like furniture, equipment, and software. The truth of the matter is that used furniture and equipment are not considered to have much value; in fact, some buyers do not even want them. They rarely affect the overall value. Usually, the seller retains cash and accounts receivable while work in process is often prorated. The seller usually is responsible for all existing debt at the time of the sale. Leases are another item that needs to be discussed upfront. While one times gross is not a law, it is certainly still very prevalent in the thinking of both sellers and buyers and cannot be dismissed. It is a general guideline and nothing more. It is best 10 Nebraska CPA
to realize, however, that prices do vary up and down from this simplistic standard. It is also best to remember simple economics, as follows: 1. Value is set by the buyer; sellers and brokers can determine an asking price but not the final value. If there are no buyers, the practice is worth nothing. 2. In an efficient market, quality will command a higher price. Dogs are hard to sell no matter what the gross. 3. The larger the pool of buyers, the greater the demand and, consequently, the greater the value. Buyers and sellers will most likely get the best and fairest deals if they consider these principles. Sellers should realize the importance of a good broker who understands these principles, can use them to maximum value, and can create the best results. If you’re searching for assistance in valuation, negotiations, and finding the right buyer, Accounting Practice Sales is a global leader in marketing tax and accounting firms. Contact Trent Holmes at Accounting Practice Sales at (800) 397-0249 or trent@aps.net. 11 www.nescpa.org
EVERYTHING YOU NEED TO KNOW ABOUT THE CORPORATE TRANSPARENCY ACT BY ADAM M. RIPP & TRISTIN S. TAYLOR, BAIRD HOLM LLP THE CORPORATE TRANSPARENCY ACT (CTA)1 IS landmark legislation that will significantly impact how privately held corporations, LLCs, and other entities report ownership information to the federal government. For decades, anonymous shell companies with hidden ownership have enabled financial crimes like money laundering, tax evasion, and terror financing. In response, Congress enacted the CTA in 2021 as part of the Anti-Money Laundering Act of 2020 in the National Defense Authorization Act for Fiscal Year 2021. This sweeping legislation creates new federal reporting requirements for certain business entities to (i) report certain beneficial ownership information (BOI) to the U.S. Department of the Treasury’s Financial Crimes Enforcement Network (FinCEN) and (ii) disclose information about who created the entity or registered it to do business in the U.S. It is essential for all business advisors to understand these new reporting requirements so they can help their clients comply. This article provides an overview of key provisions, implementation timelines, and implications that business advisors and their clients need to understand. Who (Must Report)? The CTA mandates reporting for entities labeled as “reporting companies,” unless they are exempt. “Reporting companies” include corporations, LLCs, LLPs, and other entities created by filing official documents with a secretary of state or similar office.2 The CTA places the reporting obligation on reporting companies, as opposed to on the beneficial owners directly.3 The CTA exempts 23 types of entities from its reporting requirements, which broadly encompass entities that are already highly regulated (e.g., publicly traded companies, banks and other financial institutions, registered investment companies and investment advisers, insurance companies, and specified tax-exempt entities).4 Large, U.S.-based operating companies (i.e., greater than 20 full-time employees and greater than $5 million in gross receipts or sales and physical presence in the U.S.) and inactive entities are also exempt; somewhat counterintuitively, there is no exemption for small companies. What (Must Be Disclosed)? Each reporting company that was formed prior to Jan. 1, 2024 (the Effective Date), must provide information regarding itself and its “beneficial owners.”5 Reporting companies formed on or after the Effective Date must also provide information regarding their “company applicants.” A “beneficial owner” is any individual who either (i) owns or controls at least 25% of the equity interests (including convertible instruments and options) in the reporting company or (ii) exercises substantial control over the reporting company (including senior officers).6 A “company applicant” includes both (i) the individual who directly files the document that forms or registers the reporting company and (ii) if more than one individual was involved in such filing, the individual primarily responsible for directing or controlling the filing.7 A reporting company must disclose the following information regarding itself and its business operations:8 Full legal name; Any trade names or “doing business as” (DBA) name it operates under; Current address;9 Jurisdiction of formation or registration; and Tax Identification Number (TIN) or Employer Identification Number (EIN). 12 Nebraska CPA
A reporting company must disclose the following information regarding its beneficial owners and (if formed or registered after the Effective Date) its company applicants:10 Full name; Date of birth; Current residential address (except a company applicant that is engaged in the business of forming entities can list its business address); A unique identification number from a nonexpired identification document (i.e., a stateissued driver’s license, U.S. passport, a state or local government ID, Indian tribal document, or a foreign passport if no other identification document is available); and An image of the identification document supplying the unique identification number. Although FinCEN is still developing the secure, electronic filing system for BOI reporting (referred to as “BOSS” and further described below) and the final form of the BOI report is not yet available, FinCEN has made a draft version of the form available as part of the notice-and-comment process.11 When (Must It Be Reported)? The CTA’s filing deadlines depend on whether the reporting company was already formed or registered prior to the Effective Date.12 Reporting companies formed or registered before the Effective Date have until Jan. 1, 2025, to submit their initial BOI report. Reporting companies created on or after the Effective Date, must do so within 30 days of its formation or registration (under FinCEN’s current final rule, which may be amended; see below). Exempt entities that subsequently lose their exempt status must submit their initial BOI report within 30 days after loss of exemption. On Sept. 28, 2023, FinCEN published a Notice of Proposed Rulemaking that, if finalized, would amend its current final rule to extend the reporting deadline for reporting companies formed or registered in 2024.13 Specifically, reporting companies formed or registered in 2024 would have 90 days (instead of 30 days) to submit their initial BOI reports. Reporting companies formed or registered on and after Jan. 1, 2025, would still be subject to the 30-day reporting deadline. FinCEN cited “the novelty of the BOI reporting requirement” and the benefit of giving reporting companies more time to understand their obligations and collect information as its rationale for proposing the extension.14 While the current Effective Date is Jan. 1, 2024, it would not be surprising if FinCEN seeks additional time and funding to implement the CTA, beyond the proposed extended reporting deadline just described. Further, during the summer, both houses of the U.S. Congress introduced (but have not passed) bills to delay the Effective Date. In addition to the initial reporting requirements just described, reporting companies must continuously update or correct their BOI reports within 30 days of any change in the reported information—such changes to the company’s name, address or home jurisdiction, and changes to beneficial ownership upon a transfer, issuance, or the death of a beneficial owner.15 There is no materiality threshold for reporting changes; therefore, all changes require an updated BOI report.16 If a reporting company knows of or suspects inaccuracies in its BOI report, it is obliged to file a correct report within 30 days.17 A “safe harbor” provision exempts reporting companies from liability for misinformation if a corrected report is filed within 90 days of the erroneous report. As mentioned above, FinCEN is still developing the electronic filing system that reporting companies will use to submit their BOI reports. FinCEN does not currently plan to accept BOI reports prior to the Effective Date.18 Where (Does the Reported Information Go)? FinCEN will securely warehouse BOI reported under the CTA in a nonpublic database known as the Beneficial Ownership Secure System (BOSS).19 Access to this data will be strictly controlled and granted on a case-by-case basis (other than authorized officers and employees of the Department of the Treasury, who will have unique access to BOSS to carry out their duties and for tax administration purposes).20 Federal agencies may access this data for matters involving national security, intelligence, or law enforcement. Similarly, state and local law enforcement agencies may access this information via court CONTINUED ON PAGE 14 13 www.nescpa.org
authorization as part of a criminal or civil investigation. Additionally, financial institutions, with reporting company consent, may be able to access the database for customer due diligence requirements under the law. Federal and state regulators may also access BOSS for compliance and administration purposes. FinCEN has engaged in a separate rulemaking process and issued a proposed rule that would regulate who has access rights to BOSS and under what circumstances, and outline data security protocols to safeguard BOI reported under the CTA.21 Although comments on the proposed rule were due by Feb. 14, 2023, FinCEN has not yet issued a final rule. Penalties Failure to report carries civil and criminal penalties.22 Willful non-reporting can result in a fine of up to $500 per day (capped at $10,000) and up to two years imprisonment. Knowingly disclosing BOI is subject to even more draconian penalties (i.e., $500 per day, capped at $250,000, and up to 5 years imprisonment). Failure by reporting companies to disclose correct information can also be penalized, and this can extend to individuals who influence the reporting company not to report, as well as senior officers of the reporting company in charge at the time of non-compliance. As mentioned above, the CTA has a safe harbor provision for reporting companies that voluntarily rectify inaccuracies in submitted BOI reports within 30 days of detection and no more than 90 days after submission of the report. 23 However, this safe harbor does not cover any inaccuracies corrected after 90 days, deliberate evasion attempts, or known inaccuracies at the time of submission. Implications for Reporting Companies & Their Advisors To comply, reporting companies will need to implement policy, process, and system changes to collect and report BOI. They must properly identify beneficial owners and company applicants and maintain up-to-date identification documentation. Reporting companies with frequent ownership changes will need to be especially prudent with monitoring and reporting. Additional compliance costs and burdens, including employee training on CTA duties and retention of third-party providers, likely will be incurred. Advisors, like attorneys and accountants, hold an integral role in assisting reporting companies with adhering to CTA reporting rules and timelines. Key responsibilities may include: Identifying which clients are subject to CTA reporting requirements based on formation or registration date, ownership structure, and eligibility for exemptions; Informing clients of new reporting requirements under the CTA and timelines for compliance (i.e., explaining the breadth of the definition of “beneficial owners”); Assisting clients with gathering necessary information on all beneficial owners ahead of reporting deadlines and maintaining documentation to demonstrate compliance; Staying updated on reporting requirements as FinCEN releases additional guidance; Recommending that clients establish processes to collect ownership details for future reporting needs; and Encouraging clients to reach out to you or legal advisors with any questions or need for advice on reporting procedures. Conclusion While certain regulations and an electronic filing system are still forthcoming, advisors and businesses need to understand the key provisions, timelines, and implications of this far-reaching legislation. The CTA ushers in a new era of federal beneficial ownership reporting that will impact nearly all privately held entities. Accountants and other advisors will be at the forefront of the compliance effort, helping businesses grasp and align their practices with these new transparency rules. With the right preparation and guidance, advisors can help clients CONTINUED FROM PAGE 13 14 Nebraska CPA
1 31 U.S.C. § 5336 (West 2023). 2 FinCEN has not specified all types of entities that might be considered reporting companies, but it expects that the term will be interpreted broadly and include limited liability partnerships, statutory business trusts and most limited partnerships, as formation of those entities generally requires a filing with a secretary of state. However, entities such as sole proprietorships and certain partnership and trusts may not fall within this category. 3 31 U.S.C. § 5336(b)(1)(A). 4 31 C.F.R. § 1010.380(c)(2) (West 2023). Note that, as currently written, the CTA provides limited relief for tax-exempt entities, with exemptions specifically applying only to (i) nonprofit organizations described in Section 501(c) of the Internal Revenue Code (IRC) and exempt under IRC Section 501(a), (ii) taxexempt political organizations described in IRC Section 527(e)(1) and exempt under IRC Section 527(a), and (iii) charitable and split-interest trusts described in IRC Section 4947(a). Id. 5 31 C.F.R. § 1010.380(b). 6 31 C.F.R. § 1010.380(d). Frequently Asked Questions, Fin. Crimes Enforcement Network (Sept. 29, 2023), Questions D.2 & D.4, https://www.fincen. gov/boi-faqs. 7 31 C.F.R. § 1010.380(e). No reporting company will have more than two company applicants. Frequently Asked Questions, supra note 6, Question E.1. 8 31 C.F.R. § 1010.380(b). 9 The reporting company’s address must reflect either its main business location in the U.S, if applicable, or its primary U.S business site. Using a P.O. box or addresses of corporate agents or third parties is prohibited. 10 31 C.F.R. § 1010.380(b). 11 Agency Information Collection Activities; Proposed Collection; Comment Request; Beneficial Ownership Information Reports, 88 Fed. Reg. 2,760 (Mar. 20, 2023); Frequently Asked Questions, supra note 6, Question B.5. The comment period for the proposed action has closed. 12 31 C.F.R. § 1010.380(a)(1). 13 Beneficial Ownership Information Reporting Deadline Extension for Reporting Companies Created or Registered in 2024, 88 Fed. Reg. 66,730 (Sept. 28, 2023). The comment period for the proposed action closes on October 30, 2023. One day later, on September 29, 2023, FinCEN published two 30-day notices seeking comment (1) on the mechanism that FinCEN intends to use to collect beneficial ownership information from reporting companies and (2) on the application that FinCEN intends to require individuals to use to obtain a FinCEN identifier (which identifier is voluntary). Agency Information Collection Activities; Submission for OMB Review; Comment Request; Beneficial Ownership Information Reports, 88 Fed. Reg. 67,443 (Sept. 29, 2023); Agency Information Collection Activities; Submission for OMB Review; Comment Request; Individual FinCEN Identifier Application, 88 Fed. Reg. 67,449 (Sept. 29, 2023). The comment period for these notices closes on October 30, 2023. 14 Id. at 66,731. 15 31 C.F.R. § 1010.380(a)(2). 16 Beneficial Ownership Information Reporting Requirements, 87 Fed. Reg. 59,498, 59,524 (Sept. 30, 2022). No updated report is required for termination or dissolution of a reporting company. Id. at 59,514. 17 31 C.F.R. § 1010.380(a)(3). 18 Frequently Asked Questions, supra note 6, Question B.1. 19 Beneficial Ownership Information Reporting Requirements, 87 Fed. Reg. at 59,508–09. 20 31 U.S.C. § 5336(c)(2)(B), (c)(5). 21 Beneficial Ownership Information Access and Safeguards, and Use of FinCEN Identifiers for Entities, 87 Fed. Reg. 77,404 (Dec. 16, 2022). 22 31 U.S.C. § 5336(h); 31 C.F.R. § 1010.380(g). 23 31 U.S.C. § 5336(h)(C)(i); 31 C.F.R. § 1010.380(a)(3). Endnotes successfully navigate these rapidly developing rules and avoid any penalties for non-reporting. Through diligent observance of the CTA requirements, they can bolster legal protections and the financial integrity of their business clients. Furthermore, by partnering with their clients in compliance, advisors contribute to reinforcing financial transparency and security across the U.S. business ecosystem. Tristin S. Taylor is an associate at Baird Holm LLP. Taylor’s practice focuses on corporate transactions and general corporate matters. He counsels businesses of all sizes on a variety of matters, including entity formation, corporate governance, strategic transactions, and regulatory compliance. Adam M. Ripp is also an associate at Baird Holm LLP, representing businesses of all sizes on a variety of corporate transactions and general corporate matters. His practice focuses on strategic merger, acquisition, and divestiture transactions, as well as regulatory compliance, particularly in the banking sector and regarding antitrust matters. Ripp also regularly advises clients in a variety of industries through the entity formation process, corporate reorganization and succession matters, contract negotiations and disputes, and corporate governance issues. For more information, contact Taylor at ttaylor@bairdholm.com or Ripp at aripp@bairdholm.com. IPE 1031 | 888.226.0400 | WWW.IPE1031.COM | INFO@IPE1031.COM EXPERTISE From a Respected Industry Leader THE PREMIER SPECIALIST FOR SECTION 1031 EXCHANGES SECTION 1031 EXCHANGE 15 www.nescpa.org
THE IRS LAST FALL ISSUED IR-2022-183 WARNING AGAINST third parties improperly computing the Employee Retention Credit (ERC).1 Then, the IRS issued a “renewed warning” in IR-2023-40 warning about promoters who aggressively mislead people and businesses into thinking they can claim these credits.2 The IRS took a bigger step this fall. On Sept. 14, 2023, the IRS issued IR-2023-169 with a moratorium on processing new ERC claims through at least the end of the year.3 All of this said, ERC qualifications have not changed, and you can still file. In fact, the IRS is still encouraging businesses to file legitimate claims, but the agency is asking businesses to review their claims with a trusted tax professional who actually understands the complex ERC rules, not a promoter or marketer trying to make a quick buck. This is being done so that the IRS can combat the “fly by night” providers and it will allow the IRS to: 1. Add more safeguards to prevent future abuse; 2. Protect businesses from predatory tactics; and 3. Allow time for the IRS to work with the Justice Department to combat aggressive marketing and incorrect ERC claims. If you hadn’t heeded the warnings before, take the IRS’ latest release as a sign that it’s time to get serious. CPAs have a professional responsibility when they sign a return and that includes performing due diligence on third parties that are providing credit numbers. ERC Horror Stories Many promoters that sprung up during the pandemic are doing an ERC evaluation in minutes and claiming quarters without substantiation. Let’s look at a few actual case studies we have had from wary CPAs asking us for guidance before they signed their name on an amended return reflecting a large refund. COMMERCIAL RETAILER This case involves a commercial retailer specializing in home goods. After responding to a brief questionnaire followed by a short phone call with an ERC provider, the retailer was told it qualified for all quarters in 2021 and that the business was entitled to more than $1MM in credits. Excited by the potential windfall, the retailer entered into an agreement with the ERC provider and excitedly called his CPA to give him the news. The CPA was immediately skeptical about how little time and effort it took to make this determination. He knew it should take some time to properly conduct an ERC study. On top of that, the CPA also knew that few ERC claimants receive the max of $26,000 per employee. So, the CPA sought a “second opinion” on the original provider’s claim, with an examination of the following: Gross receipts? The retailer had no significant decline in gross receipts. Qualifying quarters? The retailer was located in two states where government orders did not extend into the third quarter of 2021, yet the ERC provider used Q3 in their calculation. Furthermore, the client had stated that any restrictions had ended in May 2021. Supply chain? There was no reference to the location of the retailer’s suppliers to substantiate any supply chain disruption, but the ERC provider claimed it under the partial suspension test. Qualifying mandates? There was no identification of any specific government order applicable to the retailer. More than nominal impact? The retailer estimated the impact in delayed work was 10% but the estimate was not substantiated. Substantiation and documentation? None of the information in the questionnaire completed by the retailer was substantiated by the ERC provider. Thus, a $1MM credit did not exist. In this particular case, we engaged an outside law firm that was able to break the contract BY RICK MEYER, CPA, MBA, MST, ALLIANTGROUP CONSIDER GETTING A “SECOND OPINION” IRS INTENSIFIES EFFORTS TO COMBAT ERC SCAMS 16 Nebraska CPA
with the ERC provider so that the retailer would not be on the hook for more than $250,000 in fees. They have now engaged us to conduct a new ERC study. TOOL MANUFACTURER This case involves a tool manufacturer based in a rural area. After a few short phone calls with an ERC provider, the manufacturer was informed it qualified for an ERC claim amounting to more than $750,000 based on canceled trade shows. The manufacturer signed an agreement with that ERC provider based on the estimate, then contacted their CPA about the windfall. The CPA expressed skepticism immediately, concerned about the lack of evidence to substantiate a claim that large. He also knew that the manufacturer had not experienced a decline in revenue through the pandemic, raising further alarm. The CPA contacted alliantgroup for a second opinion to determine if this claim would stand up to scrutiny. Our analysis: Gross receipts? There was no significant decline in gross receipts. Qualifying business disruption? There was no evidence showing the trade shows were cancelled due to government orders, nor that the trade shows were cancelled generally. More than nominal impact? The analysis did not show a nexus between the closure of trade shows, nor the manufacturer’s supply chain issues and the manufacturer’s more than nominal impact. Qualifying mandates? The government order referenced was simply the emergency declaration, not a specific government order applicable to the manufacturer’s suppliers. Substantiation and documentation? The analysis stated that the manufacturer had to wait longer for materials but made no mention as to how long or how much longer they had to wait in comparison to 2019. After a review of the ERC study and related documentation, we informed the manufacturer that the ERC study would not withstand IRS scrutiny in the event of an audit. As a result, we advised the manufacturer not to file the claim. They were able to disengage the ERC provider and legal action was taken to obtain a refund of the manufacturer’s down payment. Again, the manufacturer subsequently came to us to perform a new ERC study. Moral of the Story When it comes to the ERC, it’s the Wild, Wild West. The smell of gold (fast, easy fees) has lured these “pop-up” ERC providers to promise the world without doing the necessary and meticulous research and documentation to properly qualify and quantify a company for ERC. The CPA may be stuck in the middle between a drooling client hungry for cash and the responsibility to perform due diligence before preparing and signing that tax return proposing a huge refund. These cases exemplify the importance of consistently exercising one of our great CPA traits: “professional skepticism.” In doing so, along with thorough due diligence, we are able to ensure that our clients receive both the best answer and the most appropriate solutions for their specific situations. Unless you have absolute comfort with your client’s ERC provider, a legal “second opinion” may be in order. Rick Meyer, CPA, MBA, MST has served on various tax committees over the past 40-plus years. He is a director for alliantgroup, a national firm that works with businesses and their CPAs to identify powerful government-sponsored tax credits and incentives. For more information, email rick.meyer@alliantgroup.com. 1 Internal Revenue Service. “Employers warned to beware of third parties promoting improper Employee Retention Credit claims.” IR-2022-183. Oct. 19, 2022. https://www.irs.gov/newsroom/employers-warned-to-beware-of-third-partiespromoting-improper-employee-retention-credit-claims. 2 Internal Revenue Service. “IRS issues renewed warning on Employee Retention Credit claims; false claims generate compliance risk for people and businesses claiming credit improperly.” IR-2023-40. March 7, 2023. https://www.irs.gov/newsroom/irsissues-renewed-warning-on-employee-retention-credit-claims-false-claims-generatecompliance-risk-for-people-and-businesses-claiming-credit-improperly. 3 Internal Revenue Service. “To protect taxpayers from scams, IRS orders immediate stop to new Employee Retention Credit processing amid surge of questionable claims; concerns from tax pros.” IR-2023-169. Sept. 14, 2023. https://www.irs.gov/ newsroom/to-protect-taxpayers-from-scams-irs-orders-immediate-stop-to-newemployee-retention-credit-processing-amid-surge-of-questionable-claims-concernsfrom-tax-pros. 17 www.nescpa.org
STATE TAX BRIEFING THE COMING EPIC DISASTER IN THE 1980 POPEYE MOVIE STARRING ROBIN WILLIAMS AND Shelley Duvall, shortly after Popeye climbs out of his little boat onto the dock in the town of Sweethaven, he is immediately met by the Tax Man. After a brief introduction, the Tax Man promptly proceeds to impose a “docking tax” of 25 cents, a “new-in-town tax” of 17 cents, a “rowboat-under-the-wharf tax” of 45 cents, a “leaving-your-junk-lying-around-the-wharf tax” of $1, and a “question tax” of 5 cents. If the new EPIC Option Consumption Tax initiative petitions get on the ballot, as expected, and are approved by Nebraskans in November, welcome to Nebraska’s version of Sweethaven. This article is offered as part of the ongoing debate about whether the EPIC Option is the right solution to Nebraska’s tax burden. What Is the EPIC Option? The EPIC Option website describes what the EPIC Option is intended to do: “EPIC Option will Eliminate all Nebraska Property, Income (/Inheritance), and Corporate taxes.” The EPIC Option website states that the EPIC Option will be achieved in two steps: “Step 1: Vote of the people to amend the Nebraska State Constitution on the November 2024 Ballot.” “Step 2: Vote of the Legislature.” The EPIC Option consists of two separate petitions filed by their sponsors on Oct. 14, 2022. These are detailed below. While the EPIC Option website describes in detail how the EPIC Option would be implemented, as well as the scope and proposed tax rate, this is all pursuant to legislation that, while already proposed, would apparently not be fully debated, designed, drafted, and approved by the Nebraska Legislature until after Nebraska’s voters approve the EPIC Option Nebraska Constitutional Amendments. (See pending LB 79 at https://nebraskalegislature.gov/bills/ view_bill.php?DocumentID=50183.) In addition, since the EPIC Option is divided into two separate petitions, the possibilities are that neither is adopted, both are adopted, or one is adopted and one is rejected. Scope of This Article If either of the EPIC Option Constitutional Amendments is adopted, this would pose a variety of major impacts on every Nebraska citizen. Such an analysis is beyond the scope of this one article. Other organizations have already provided, or are in the process of providing, a fiscal impact analysis. For example, the March 2, 2023, OpenSky Policy Institute “Policy Brief: Consumption Tax” concludes that if the EPIC Option is enacted as proposed in LB 79, it would result in a $7.4 billion annual tax revenue loss and a tax rate of 22.1% would be required for EPIC to be revenue neutral—that’s nearly three times greater than what is proposed in the EPIC Option bill. (Read the full “Policy Brief” at www.openskypolicy.org/wp-content/ uploads/2023/03/20230302ConsumptionTaxBrief.pdf.) Instead, this article will focus on the legal issues and potential roadblocks posed by the brief, problematic language of the two EPIC Option initiative petitions. What Does the EPIC Option Language Actually Mean? As is often said, “The devil is in the details.” In drafting any type of document, whether it be a constitution, a statute, or a contract, balance is needed between succinctness and BY NICK NIEMANN & MATT OTTEMANN, MCGRATH NORTH LAW FIRM WHAT’S IN STORE IF THE EPIC OPTION BECOMES THE LAW 18 Nebraska CPA
verbosity. The sponsors of the EPIC Option have chosen to be very succinct, replacing the several thousand words in the current Nebraska Constitution regarding taxation (see the Nebraska Constitution, Article VIII) with 82 words in the EPIC Option initiative petitions. Below is the short version of our analysis of the succinct language in the EPIC Option initiative petitions. As fellow Nebraska residents, we submit this as to what might be considered by the proponents and opponents of the EPIC Option. Review of Proposed Section 14 This is the first of the two petitions. It states: “To add a new section 14 to Article VIII of the Nebraska State Constitution: VIII – 14 Notwithstanding any other provision of this Constitution, beginning January 1, 2026, no governmental entity in the State of Nebraska may impose taxes other than retail consumption taxes or excise taxes.” Our comments on this new Section 14 include the following: “Notwithstanding any other provision of this Constitution.” By stating that this new Section 14 applies “notwithstanding any other provision of this Constitution,” this section now becomes, in effect, a super-section under the Nebraska Constitution. This is a common drafting provision when an overall superior provision is intended. By the nature of this statement, it would supersede all other sections of the Nebraska Constitution that exist not just with respect to taxation, but also with respect to any other constitutional provisions that may be built into other portions of the Nebraska Constitution that may get in its way. “Beginning January 1, 2026.” Prudently, the proponents have given the Nebraska Legislature the year 2025 to design, draft, and enact the legislation that would be needed to implement this section. While this effective date provides enough time for the Legislature to act, it does not necessarily provide enough time for the highly likely court challenges to play out with regard to the EPIC Option itself or the implementing legislation. This could leave Nebraska in the position of having repealed all of its existing property, sales, income, inheritance, and other taxes while being left with an unenforceable or unconstitutional replacement under the EPIC Option. This would be an extreme, yet potential, result which would, of course, have disastrous effects on Nebraska (which can be discussed further elsewhere). The Nebraska Supreme Court and Eighth Circuit Court of Appeals have demonstrated that they are fully willing to strike major Nebraska tax systems when the court finds them in violation of Nebraska or U.S. Constitution or federal statutory mandates. (See cases mentioned on the following pages.) WE TAKE THE STRESS OUT OF YOUR JOB SEARCH ^ Pre-Screening Interview ^ Reference Checks ^ Facilitate Interview(s) with Potential Employers ^ Ensure Long-Term + Culture Fit ^ Guaranteed Confidentiality LEARN MORE TODAY AT WWW.LUTZ.US/TALENT CONTINUED ON PAGE 20 19 www.nescpa.org
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