IRS Penalty Relief for Small Employer Insurance Reimbursement

2015 will have to go down as the year of major IRS announcements made during busy season. Last week, the IRS granted relief from having to file 3115 for many of our clients (Revenue Procedure 2015-20). This week in Notice 2015-17 the IRS made an equally impressive announcement regarding health insurance reimbursement for small employers.
 

Background:

Employer payment plans have been a very popular way for small business employers to provide insurance for their employees. This is because the premiums for group health plans are either too expensive and/or the employees like to have their own plans. The employer either pays the premiums directly or reimburses the employee for the premiums paid. The employer gets a deduction and the premiums are a tax-free benefit for the employee.

In IRS Notice 2013-54, the service virtually obsoleted the use of employer payment plans where there was more than one employee involved in such a plan. The Section 4980D penalty for noncompliance is $100 per employee per day – $36,500 effective January 1, 2014.

Both the IRS and DOL have posted information on their respective websites about IRS Notice 2013-54 . Yet there is still a lot of confusion, concern about potential penalties that could drive a company out of business and many unanswered questions regarding 2% S shareholders, reimbursement for Medicare, etc.

IRS Notice 2015-17:

Here are the major points of this new announcement:

1. Penalty relief for small employers in 2014 and through June 30, 2015:

·         The IRS will not penalize small employers (less than 50 full–time equivalent employees) who have an employer payment plan or reimburse for Medicare.

·         After June 30, 2015, employers may be subject to the penalty. But at least for now we can take the deductions, exclude the premiums from employees’ income and not worry about the potential fine.

2. 2% S shareholders relief:

·         No penalties will be assessed for 2014 and 2015 on S corporations who reimburse insurance for 2% shareholders.

3. 2% S shareholders above-the-line deduction:

·         2% S shareholders can continue taking an above-the–line deduction for insurance premiums paid including reimbursed premiums. Remember, to the extent a 2% shareholder receives the Premium Assistance Credit for buying insurance on a government exchange, the deduction must be adjusted pursuant to Revenue Procedure 2014-41.

4. The one-employee exception:

·         The restrictions on having an employer payment plan as addressed in IRS Notice 2013-54 do not apply where the plan has only one participant who is an employee on the first day of the year.

In this notice, the IRS clarified that where an employee is covered under a reimbursement with other than self-only coverage (such as a family plan) and another employee is covered under that plan as a spouse or dependent of the first employee, then that plan is deemed to cover only one employee. Therefore this plan would not be in violation and there would be no penalty.

If an S corporation maintains more than one reimbursement arrangement for different employees, all the arrangements are treated as a single arrangement covering more than one employee, so the one-employee exception would not apply. This situation would result in penalties once the relief periods expire.

Conclusion:

The good news is that we have general penalty relief through June 30, 2015, and for 2% shareholders through all of 2015. We need to be planning for what happens after June 30, 2015. Does your client offer a group plan? Does the client just pay more salary? The employees won’t like the extra income tax and FICA tax they have to pay. What about other options as marketed by certain benefit companies?

We will be discussing all of this in upcoming seminars and webinars.

For now, enjoy this good news.

For further details on the notice and what the potential tax implications are, click here to view or download the IRS article (PDF)

Tips for Using Social Media as an Accounting Professional

Everyone in your firm has left for the evening. You log in to Facebook, go to your best client’s page and read the day’s posts. Are you spying on your client?

The answer is no. This isn’t spying because the information you’re reading was made available to the public by your client. However, following your clients and reading the information they make available on their social media accounts (also known as social media monitoring) can be very valuable. The same goes for monitoring your competitors.

Following your clients’ Facebook and LinkedIn posts along with their tweets and blogs can tell you what they’re thinking, doing or concerned about. Monitoring your clients’ posts may offer opportunities to provide additional services or maybe just help them out by answering their technical questions.

What Is Social Media Monitoring?

Wikipedia defines Social Media Monitoring as “an active monitoring of social media channels for information about a company or organization, usually tracking of various social media content such as blogs, wikis, news sites, micro-blogs such as Twitter, social networking sites, video/photo sharing websites, forums, message boards, and user-generated content in general as a way to determine the volume and sentiment of online conversation about a brand or topic.”

Which Social Media Sites Should You Use?

There are a multitude of social medial sites and that number grows daily, so don’t try to include them all. Select a limited number to follow at first,-perhaps three or four. Once you have had some experience monitoring your clients you can consider increasing the number of sites.

Some Recommended Sites

Here are some sites you should consider including as part of your social media monitoring:

• Facebook is reported to have over 1.28 billion active monthly users. It should definitely be included in any social media monitoring program.

• LinkedIn says that they have 300 million active users. This is an excellent site for business and professional monitoring.

• Twitter says they have approximately 645 million active users who send over 500 million tweets of no more than 140 character text-based messages each day.

• YouTube is a video sharing website that purports to have more than 1 billion visitors each month worldwide.

However, it is not enough just to join Facebook and Linked-In and create Twitter and YouTube accounts. Because of the massive amounts of data created by internet conversations you need to determine what your goals are as they relate to your social media monitoring. Then you should review the results of your monitoring to see if your goals are being met.

Collecting and Using the Data

Trying to manually accumulate and digest the volume of information generated from only four social media accounts would be like trying to drink from a fire hose. However, collecting the data is the easy part; the real challenge is analyzing the data and knowing how to use the results.

Obviously attempting to collect data one tweet or Facebook post at a time is a daunting task. Instead, you can enlist the services of a professional monitoring or listening tool to find content ideas, communities, and advocates for your brands. Technology companies may also get social data from data resellers, like DataSift. Some of the more popular platforms include:

• NUVI
• Sprout Social
• TweetDeck
• Spredfast
• Netbase
• Brand Watch

Because of privacy issues, even the professional listening tools may not be able to find and access all social media conversations and include them in their analysis.

Once you select a professional monitoring tool, identify the words and phrases that apply to your clients. Next you should identify your client’s key influencers. These are individuals who may be authorities in fields in which your firm provides services.

Getting the Right Tone

When posting on social media, be careful to address your clients’ needs as you would if they were your next door neighbor rather than trying to sell them something. Be sure that you:

• Don’t post the same content from one site to another. Remember your clients may be on both sites.
• Control the urge to “market” to your clients.
• Monitor your clients’ posts and try to meet their needs.
• Create content that benefits your customers and that they will want to share with others.
• Focus on the needs of your customer and not on those of your firm.

The benefits of social media monitoring can’t be overlooked. Engaging in social media monitoring is a required activity if you’re going to keep up with your competition.

What do you think? 

Valuing and Accounting for In-kind Gifts

With the end of the year rapidly approaching and the holiday season close at hand, you may be thinking about how to get rid of clothes you haven’t worn in several years or that extra piece of furniture you no longer need. Your first thought is probably to give it to a charitable organization.

Have you ever wondered how a nonprofit organization accounts for noncash assets or in-kind gifts? Or maybe you are the accountant for a charity; trying to be sure you have properly accounted for and reported the in-kind gifts your organization received.

Nonprofit organizations receive varied donations from the public, including donations of cash and noncash assets. The accounting recognition and measurement requirements related to noncash contributions are generally the same as those for cash contributions. That is, they are measured at fair value and recognized as contributions when received by the nonprofit organization. There are however, accounting issues specific to certain types of noncash contributions including in-kind gifts. I will try to answer some questions about defining, recognizing, tracking, and finding help for valuing in-kind gifts.

What are in-kind gifts?

Donations such as thrift-store inventory, contributed advertising; and marketing media; donated items sold for fund-raising purposes; gifts of long-lived assets; and vehicles received in connection with vehicle donation programs are examples of in-kind gifts. In-kind gifts include contributions of tangible and intangible personal property. Tangible in-kind gifts include contributions of items such as clothing, furniture, equipment, inventory, pharmaceuticals, and supplies. Intangible in-kind gifts include contributions of items such as advertising, other services that aren’t considered personal services, patents, royalties, and copyrights.

When is an in-kind gift NOT an in-kind gift?

Even if the organization has decided to accept gifts-in kind, it may not be the recipient of a contribution. Sometimes, donated materials or supplies are passed from one organization to another at the request of the donor. If a donor doesn’t give the nonprofit organization the discretion to choose who will get the donated items, the nonprofit organization serves only as an agent, and the donated materials aren’t reported as contributions revenue when received. Likewise, when the nonprofit organization distributes the donated materials or supplies to the ultimate beneficiary, the transfer isn’t reported as a contribution made.

Do in-kind gifts have to be tracked?

Although it can be challenging to track and value in-kind gifts, the difficulty in doing so isn’t an acceptable reason for not recognizing them. FASB ASC 958-605-30-11 states that in-kind gifts that can be used or sold should be measured at fair value. Thus, it isn’t appropriate to state in the notes to the financial statements that the value of noncash contributions isn’t reflected in the financial statements because it is impracticable (or difficult) to estimate the value. It also isn’t appropriate to state that in-kind gifts aren’t recognized because there is no objective means of valuing them. A good faith attempt to determine value results in better information in financial statements about an organization’s level of contributions and programs than no value at all.

Where can I find help valuing in-kind gifts?

Locating resources to assist organizations in valuing in-kind gifts, other than property, isn’t always easy. Authoritative literature provides only broad, general guidance, and many organizations struggle to find useful guidelines to help value donated assets. Four resources providing guidance on valuing various types of in-kind-gifts are as follows:

·       Online prices.

·       Salvation Army’s Donation Valuation Guide.

·       TurboTax® Its Deductible® Software or Book Edition

·       IRS Publication 561, Determining the Value of Donated Property.

View related Checkpoint Learning online CPE courses and webinars

CRIMINAL ACCOUNTANTS

Embezzlement – The theft or misappropriation of funds placed in one’s trust or belonging to one’s employer.

It seems like all you have to do these days is pick up a newspaper and you will find an article about an embezzlement similar to the following one reported by WFAA.com: “Former Collin Street Bakery accountant accused of embezzling more than $16 million from the renowned fruitcake maker.” What concerns me most about this crime is that the embezzler was the accountant.

The accountant for Collin Street Bakery worked for the company for fifteen years and was a trusted employee. He allegedly spent the last eight of those years embezzling $16.65 million dollars from his employer. The money was used to support an extravagant lifestyle that included 43 luxury automobiles and a house in New Mexico. The person who committed the embezzlement was the employee who understood how the accounting system worked and used that knowledge to cause 888 fraudulent checks to be sent to his personal creditors, according to the FBI.

When I began my accounting career, I pledged to adhere to a Professional Code of Conduct. I also pledged to adhere to my employer’s Code of Business Conduct and Ethics. I take both pledges seriously. Evidentially there are a growing number of accountants who do not feel that codes of conduct apply to them.

In the past few months, I have seen the term embezzlement used too often along with the title “Accountant.” The connection is usually in a newspaper article about an alleged embezzlement committed by an accountant.

Why Are Embezzlements Happening So Often?

According to a survey conducted by the Association of Certified Fraud Examiners (ACFE), instances of fraud are increasing nationwide, both in number of incidents and the dollar amount of the losses.   

Unfortunately this is nothing new. My first audit as a junior auditor forty-five years ago, uncovered an embezzlement of over $75,000 by the accountant. It was not the last audit assignment in which I encountered embezzlement. It may just be better media coverage that has brought this topic to our attention, but it seems to me that embezzlement is more common today than in the past. Maybe it is not just embezzlement. Maybe it is dishonesty in general.

Embezzlements by Accountants

The following examples of embezzlements by accountants in the last five years shows that everyone— Fortune 100 companies, public companies, governmental entities, and small private companies—is susceptible to this crime.

·       Citigroup                                            $19.20  million in losses                   2011

·       Collin Street Bakery                           $16.65  million in losses                   2013

·       South Carolina Education Lottery        $ 226.4 thousand in losses               2012

·       Kemp Construction                            $ 208.0 thousand in losses               2009

In each of these cases, the alleged fraud was perpetrated by a trusted accountant.

How Can these Crimes be Prevented?

Someone once said that “Trust is not an internal control it’s only a feeling.” In all of the examples listed above management or owners of the business trusted their accountant.

Our inherent desire to believe that all of our employees are trustworthy gives us a false sense of security. Add a lack of resources or desire to implement necessary controls and you have a recipe for embezzlement.

The solution to this problem is simple to identify, but often difficult to implement. Separation of duties and implementation or execution of a few internal controls could have prevented or at least reduced the losses in each of the embezzlements listed above. If a company does not have the resources to develop and maintain appropriate internal controls, it is virtually impossible to prevent embezzlement. However, with just a small amount of effort, a company can hold its losses to a minimum.

What do you think?


See related online CPE

Gear Up Fall CPE Conferences: What’s New

Robin Thompson and Kirk Langman, Operations Manager for Instructor-Led Training for Thomson Reuters Tax & Accounting, talk about Gear Up CPE Conferences, particularly Royal Flush and Magic Week fall CPE conferences. Hear about what’s new for fall 2012 and what makes these week-long CPE conference events so popular with tax and accounting professionals. 

Find out more at http://cl.thomsonreuters.com/GearUp/Conferences