Thursday, November 11, 2010

Blue Light Special

Blue Light Special

When you think of: Faster than a speeding bullet, do you think of Clark Kent, aka Superman? Well, if so, you are not keeping up with tax law. The Internal Revenue Code is now faster than a speeding bullet. I am not referring to the fact that tax law changes more quickly than fashion styles. I am referring to the fact that some new tax laws are only effective for less than 100 days.


Code Section 1202, which has been around since 1993, provides for an exclusion of a portion of the gain from the sale of C corporation stock, meeting specific requirements, held for more than 5 years. The exclusion rate, prior to the most recent legislative change, was either 50% or 75%. Under the Small Business Jobs Act of 2010, the exclusion is 100%. Now, that is a full exclusion. In other words, the gain on the sale of the stock is completely and totally tax free. This is a wonderful benefit and all practitioners should be sure to fully review the statute in full.


But, the statute is effective only for stock acquired after September 27, 2010 and before January 1, 2011. That means September 28-30, all of October, all of November, and all of December 2010 but not a day later. That is less than 100 days! The time is short.

I find it remarkable that Congress can pass a law which virtually expires before the general public knows about it. I attribute this law to the new world of social media. It used to be we obtained our news by reading a printed newspaper, a fine magazine, or a book. Now the news comes to us via Facebook, MySpace, and Twitter. And Congress knows it.

Is the day too far off when tax law will change this way? You'll look at your iphone and read the following tweet: For the next 15 hours, if you buy a new ipad, you can take 120% depreciation. But, remember, this offer is only good for the next 15 hours. 16 hours, and you are toast. Act now!

Internal Revenue Code meet the Kmart Blue Light Special!


The Accounting and Review Services Committee approved SSARS 19, Compilation and Review Engagements, on December 30, 2009. This standard becomes effective in 35 days; are you ready?

SSARS No. 19 is effective for compilations and reviews of financial statements for periods ending on or after December 15, 2010—that is, for 2010 calendar year-ends and later. Following is how the statement will affect your compilation and review engagements.

What SSARS No. 19 Does

Some of the more significant provisions of SSARS No. 19 include the following:

• Allows, but does not require, accountants to explain why they’re not independent in a compilation report.
• Separates the compilation requirements from the review requirements.
• Introduces the term review evidence into the review literature. Review evidence is defined as information the accountant uses to provide a reasonable basis for obtaining limited assurance.
• Provides guidance on how the accountant obtains limited assurance when performing review procedures.
• Requires tailoring review procedures for a particular engagement based on the accountant’s knowledge of the client, understanding of the client’s industry, and awareness of the risk that the accountant may knowingly fail to modify his or her report on materially misstated financial statements.
• Discuses the concept of materiality in the context of review engagements.
• Requires a written communication, (i.e. an engagement letter) documenting the understanding with the client regarding the services to be performed.

Documentation Requirements

In addition to the engagement letter, SSARS No. 19 requires the accountant to document the following items:

• Significant, unusual matters considered by the accountant during the performance of the compilation procedures, including their resolution.
• Analytical procedures performed, for review engagements, including management’s response to the accountant’s inquiries regarding fluctuations or relationships that are inconsistent with other information or that differ from expectations by a significant amount; additional review procedures performed and the results of those procedures; significant matters covered in the accountant’s inquiry procedures; significant findings or issues or unusual matters and their disposition; and the client representation letter.
• Communications regarding fraud or illegal acts that came to the accountant’s attention while performing the compilation or review engagement.

Reporting Changes

SSARS No.19 changes the language in standard compilation and review reports and provides illustrations of both types of reports. As previously noted, an accountant may now choose to include language in the accountant’s compilation report describing the reason the accountant is not independent. This disclosure would be added to the final paragraph of the report. There is no prescribed language the accountant must use in the report. Although accountants aren’t required to include the reason(s) for independence impairment, if disclosure is made, it must include all reasons independence is impaired.

Be sure that you and your staff are familiar with the new requirements of SSARS No.19 so you will be ready when the standard is effective.

Friday, November 5, 2010


Did you watch the World Series? Well, neither did a lot of other people since the games garnered the smallest TV audience in World Series history. My team didn’t win but it was great fun to watch. The Giants hadn’t won the World Series since the 1950’s and the Rangers had never even been to a World Series where they didn’t have to buy a ticket to get in.

As I watched the games, I thought a professional sports franchise must be an incredible business. One unlike any business most of us have ever been associated with. I know of no other business in the world where the average annual salary of its employees was over $3 million each in 2008. And that is up from an average of $1.1 million in 1995. The New York Yankees total player payroll for 2009 was a little over $210 million for a 40 man roster. And how about the fact that even if a player only bats .190, he will still be very well paid on pay-day.

Major league team owners complain that they lose money every year. I know you’re probably saying to yourself; “But what about all those TV and merchandise revenues?” In 2009 some $660 million (according to ESPN) was sent to the 30 clubs for TV rights. In addition the clubs participate in a revenue sharing program ($433million in 2009) that redistributes revenue from high earning clubs, like the New York Yankees, and gives it to clubs in need of assistance. Revenue from merchandise and licensing only accounts for a small part of a team’s revenues. The majority of a team’s income comes from league-wide revenue sharing, TV fees, ticket sales, and stadium revenues. To me it looks like you can’t lose, so why are they complaining?

For major league sports franchises, cash is definitely King, especially around payday. So, if your team is in need of cash where do you turn? To the guys with all the money; your employees. You may be able to talk some of the more highly paid players into deferring part of their salary to the end of their contract. If that doesn’t work, you can always trade your high-paid players to another team. These players are also usually your best players, so this option assures you a losing season next year.

So let’s summarize some of the unique aspects of the business of a major league baseball franchise:

1. Each of your employees, on average, makes more than $3 million a year.
2. Your employees don’t have to perform, but they will continue to receive their pay.
3. You share revenue from TV fees and merchandise sales with your competition.
4. If you don’t earn the highest revenues, don’t worry, your competitors will give you part of theirs.
5. If you make more money than your competitors, you have to give them part of yours.
6. The best place to borrow money is from your employees.

I think it’s a very unusual business, but still it’s a great game. What do you think?