Archive for the ‘EPAct’ Category

A recent decision by the GSA to not enforce the 19% fee it imposed on Designers looking to upgrade some of the Government’s 9,600 buildings and obtain the 179D Energy Policy Act Tax Benefit for Designers will now allow Designers to actively assist the government to upgrade the public buildings to become more energy efficient.

For further information on the GSA’s decision or recent media concerning the Fee, please view the following links.

http://www.accountingtoday.com/news/GSA-Asked-Energy-Tax-Break-Kickback-62559-1.html

http://blogs.wsj.com/washwire/2012/05/03/gsa-tax-troubles-too/?mod=google_news_blo

http://www.google.com/hostednews/ap/article/ALeqM5j7fwo29AQnvGatAkAs7oA_Ez6Cgw?docId=30a698afcf1a41298a9ba117746682d5

The GlobeST.com recently published this great article regarding New York upgrading buildings to be more energy efficient and taking advantage of the Government’s 179D EPAct Energy Tax Incentives.  Michael D’Onofrio, ETS Managing Director presented at the BuildingsNY Trade Show.

Click to view article.

By L. Gary Boomer

Accounting firms generally are not who you think of when you mention “innovation,” yet many firms excel at innovation and there is a pattern to their success. Innovation is directly linked to growth and not an epiphany like many think; but rather a process that combines hindsight, vision and insight. The accounting profession is going through significant changes and I am often told by firm leaders they just don’t have the next generation of leaders in their firms.

In many cases there is validity to their statement and a better understanding of innovation and how firms get into this situation can help firms take the necessary steps to balance between “discovery” and “delivery” skills. Discovery skills focus on new opportunities, trends and creativity while delivery focuses on execution. You need both, but the tendency is to focus on delivery.

Mature and typically declining firms are dominated by people with excellent delivery skills, but often lack the proper balance of discovery skills. Typically, one or more firm founders were entrepreneurial and tended to hire people for their delivery skills and not their discovery skills. As a result, many partners and managers don’t know how to think about discovery or give enough value to the importance of innovation.

Accounting programs teach people delivery skills while most experiences and on-the job training also focuses on delivery and execution. In fact, many of the discovery skills are viewed as nonproductive – more about that later. I believe innovation or lack thereof can explain some of the frustration and what firms must do in order to develop the next generation of innovative leaders.

DIRECTIONAL VS. INTERSECTIONAL

Let’s look at two different types of innovation and then how the most successful firms are modernizing their practices to meet the needs and wants of their clients. Accounting majors are taught the rules and regulations of the profession in school and throughout their careers. This is not a negative, but rather a fact as their perception is often different than those with different training and aptitudes. Upon graduation, most accountants going into public practice start in audit and/or tax. This has been the traditional approach and is the primary reason most innovation in firms is directional innovation. Directional innovation tends to improve a service in fairly predictable steps with a well-defined dimension or goal. The majority of innovation is directional and is accomplished through increasing levels of expertise and specialization (delivery skills). This is a low risk approach and one with which many CPAs are comfortable. There is nothing wrong with directional innovation, yet it is limiting due to the fact most of the participants are looking at the problem from the same perspective.

Darwin John, former CIO at the FBI once said “if two of you have the same opinion, then we don’t need one of you”. This may be a bit extreme, but the point is that for real innovation (discovery) to occur it requires multiple perspectives. This is often called intersectional innovation where multiple disciplines meet in the attempt to solve a problem or improve a solution. From my experience in the CPA profession, two areas within firms that have been responsible for innovation over the past 20 years are firm administration and technology. Leaders in these areas have been attempting to bring the silos together and improve performance through improved communications, efficiency and effectiveness.

One step in entrepreneurial innovation and the one leading firms are focusing on is intersectional or client-centric innovation. It not only involves the client, but his multidiscipline advisors. This can be difficult due to egos and personalities, but the CPA is the most trusted business advisor and should take his or her role seriously by acting as the quarterback when it comes to innovation and improved client services.

While many CPAs were trained to be rugged individualists (with an intense focus on delivery) and solve the clients’ problems on their own or with a small team, that approach no longer meets the needs of a majority of clients today.

SERVICES COMMODITIZED

Today, clients are looking for faster, better, cheaper and easier solutions forcing firms to be innovative and sensitive to clients’ wants and needs. The capturing of transactions is becoming a commodity with new technology and the ability to aggregate and integrate information via cloud based solutions. In the past tax return preparation has involved a significant amount of time (fee) in aggregating data while technology has automated the calculation and processing of the return. In other words, the CPA is now caught in a situation where the services they are offering are diminishing in value (commoditization). Part of this is due to technological innovation and part is due to the pricing strategies used by the majority of firms (hours times dollars labor theory of value).

We are living in a connected world and someone is making those connections. As the trusted business advisor it should be you, the CPA, and your firm. The people making these connections tend to be professionals who excelled in one field, but learned from others. This describes many CPAs and why they are the most trusted business advisor. Formal education increases the probability of attaining creative success to a point and then actually reduces the odds. A key to prolonged success throughout ones career is lifelong learning and multiple experiences. It makes sense to spend time on a variety of projects if you wish to develop fresh and groundbreaking ideas. The value comes from being able to spot trends and then integrate what you already know. This requires curiosity and an interest in a variety of things. Innovators don’t produce because they are successful, but they are successful because they produce.

GROUPING INNOVATION

Diversity promotes innovation while too much expertise can create barriers to innovation. Innovation requires a balance. More good ideas come when working in a group than when working independently. The big question becomes: What can and should firms do to promote innovation at the inter-section? As I said earlier in the article, innovation occurs with vision, hindsight and insight. By looking at the current generation of great firm leaders we see several characteristics that allowed them to be innovative. Let’s looks at a list of the most important discovery characteristics.

1. The ability to connect and associate different perspectives (clients, multiple advisors, trends, technology and etc.)

2. The ability to question the status quo.

3. The ability to hold self and others accountable.

4. The willingness to participate in “safe haven” meetings with peer leaders.

5. The ability to manage, not avoid risk. The quantity of new ideas improves the quality. Create the environment to promote, not stifle innovation.

This list may not seem important to those who focus only on the delivery side. Firms must be cautious not to swing the pendulum too far toward the delivery or discovery skills. Both skills are required, important and cannot be ignored. Success today requires a team. The team should involve younger members who are capable and expected to challenge the status quo or strategy, which has often been developed and implemented by senior leadership.

The fact is most large organizations generally fail at disruptive innovation because top management has been selected for their delivery skills. While it is the managing partner or CEOs role to lead the innovation it is an extremely difficult assignment. Delivery executives do not like having the strategy constantly challenged nor do they appreciate change. Does your firm reward and promote discovery skills? If the answer is no, you have your answer as to why you don’t have the innovative leaders for the future. Now is the time to identify and develop leaders with the skills and willingness to focus on intersectional innovation. The future success of your firm depends upon innovation.

AN INNOVATION CHECKLIST

Here are five areas where innovation will produce significant results. Granted they may not fit every firm, but most firms will find three or more of these innovative ideas profitable.

1. Billing and collection policies – use technology to improve cash flow (ACH payments & credit cards). This requires different thinking and change management. Too many firms are allowing clients to treat them as interest free or “cheap” banks. You can turn this around with improved engagement letters that specify payment terms leveraging monthly bank drafts.

2. Tax return preparations processes – avoid loops and focus on one-way workflow. There are better ways to train than sending work back to the preparer. You can use technology to grade performance and report errors. Current workflow software has its roots with outsourcing companies. If Federal Express can track packages electronically, firms should be able to track work in an efficient manner reducing cycle time.

3. Client accounting in the cloud – firms can provide transactional as well as value added services such as bill payment, payroll, controller, human resources, IT and CFO-related services on a monthly basis. Private labeled software that can be centrally updated and supported will allow firms to take back control of accounting. It will also allow your firm to become hardware agnostic. It works the same on Mac as on a Windowsbased PC via a browser.

4. Use portals to aggregate client data for auditing and accounting as well as tax return preparation. Avoid false starts and wasted time. Portals provide security, are inexpensive and clients like them. Most of the resistance I see is within the firm.

5. Conduct client focus groups with marketing, tax and technology expertise present. This will provide innovation at the intersection from multiple perspectives. Listen to the client and provide the services they want. Utilize firm leaders with discovery skills.

Innovation is part of a firm’s culture and DNA. It requires leadership and the willingness to manage risk. Not every idea is a great idea, but the quantity of ideas determines quality. Successful firms balance discovery and delivery skills. Does your firm have the discovery skills necessary to meet your clients’ demands in a rapidly changing world? Provide your people with the time and resources to innovate. Based upon recent studies, most firms are less than 50 percent chargeable. What better use of the nonchargeable time than innovation, training and new business development?

Gary Boomer, CPA, is the president of Boomer Consulting, in Manhattan, Kan. Gary can be contacted at lgboomer@boomer.com or

call: 785-537-2358 ext. 112.

http://www.boomer.com/?page=GaryBoomer.

To learn more about Boomer Consulting – www.boomer.com

Green By Designs Seminar

June 6, 2012

Town Center City Club – Norfolk, VA

Join Norbert Crabtree as he presents the popular and informative Green By Designs – Energy Tax Benefits Presentation at this lunch and learn, hosted by Strickland and Jones. Norbert can also assist you to learn how ETS can assist you with specialty tax benefits to increase the ROI in your business.  Specialty tax benefits include Green Energy Tax Deduction, Research and Development Tax Credit, Repairs and Maintenance Studies, Cost Segregation Studies, Energy Star Benchmarking and Certification and more.  For details call James V. Strickland, CPA.  on 757.627.7672

Annual Spring Symposium and Professional Development Seminar

Tuesday April 17, 2012 8:30 a.m. – 4:30 p.m.
Owego Treadway Inn, 1100 State Route 17C, Owego, New York

Join Michele Pino and Peter Scalise at the ASHRAE Seminar, where, as speaker, Michele and Peter will present “Energy Tax Benefits for HVAC Contractors”. This is also an opportunity to learn how ETS can assist you with specialty tax benefits to increase the ROI in you and your client’s business.  Specialty tax benefits include Green Energy Tax Deduction, Research and Development Tax Credit, Repairs and Maintenance Studies, Cost Segregation Studies, Energy Star Benchmarking and Certification and more.  For details click here to visit the registration website.

One page flyer Click Here

AICPA National Auto Dealership Conference

October 25 – 26, 2012

Venetian Las Vegas, NV.

Join Michael D’Onofrio at the the AICPA National Auto Dealership Conference. Learn how ETS can assist you with specialty tax benefits to increase the ROI in your or your client’s business.  Specialty tax benefits include Green Energy Tax Deduction, Research and Development Tax Credit, Repairs and Maintenance Studies, Cost Segregation Studies, Energy Star Benchmarking and Certification and more.  For details click here to visit the registration website.

IRS ISSUES ADDITIONAL GUIDANCE FOR ENERGY EFFICIENT COMMERCIAL BUILDINGS ON SECTION 179D

Section1331, Title XIII of the Energy Policy Act of 2005, enacted Section179D, which provides a deduction with respect to energy efficient commercial buildings. The Internal Revenue Service has set forth additional guidance under 179D.

Notice 2012-22 modifies Notice 2006-52, 2006-1 C.B. 1175, and Notice 2008-40, 2008-1 C.B. 725, by providing an additional set of energy savings percentages that taxpayers may use to qualify for a partial Section 179D deduction under the permanent rule for property placed in service on or after the effective date of the notice. Specifically, the applicable energy savings percentages provided under this notice are 25 percent for the interior lighting system, 15 percent for the HVAC and hot water systems, and 10 percent for the building envelope.

Notice 2012-22 is intended to be used with Notice 2006-52 and Notice 2008-40 and allows taxpayers that are responsible for the energy efficient design of commercial buildings to use either the energy savings provided in Notice 2008-40 or to substitute the energy savings percentages provided.

Notice 2012-22 appeared in IRB 2012-11 dated March 12, 2012.

Please contact us at 1.800.236.6519 or email info@engineeredtaxservices.com

Updates provided by IRS located at original link below:

http://www.irs.gov/pub/irs-drop/n-12-22.pdf

The AIA has produced a brochure to assist Architects and Designers understand a little more about the 179D Energy Policy Act and the 179D Energy Tax Deduction and how designers and government entities benefit from this government initiative.

“In 2008, the AIA helped pass legislation to extend the life of the deduction so that it covers property placed in service by December 31, 2013. That same year, at the AIA’s urging, the IRS issued guidance on how the deduction could be allocated to the designer”.

“The guidance established that a designer, for purposes of this section, included an “architect, engineer, contractor, environmental consultant, or energy services provider who creates the technical specifications for a new building or an addition to an existing building that incorporates energy efficient commercial building property.” This definition did not include someone that merely installs, repairs, or maintains the property”.

The Brochure is available to view as follows

179D-Summary – AIA

Or visit the AIA website

http://www.aia.org/aiaucmp/groups/aia/documents/pdf/aiab092566.pdf

Are you interested learning a little about the 179D energy tax deduction, view this short video, click  this link.   http://youtu.be/76hlY4Ws6vc

It is a myth that bonus depreciation allows you to take your new lighting as a one year depreciation. To get bonus depreciation the assets must have a life of less than 20 years. By IRS definition the general lighting for a building has a life of 39 years.

More important is that if you give this advice to a client, and the IRS catches this tax error, in addition to them paying penalties and interests fifty percent of your fees from this client may be forfeit to the IRS by you. The next thing the IRS will do is to ask you for your client list to see who else might have taken these deductions.

Protect yourself and your client and work with ETS to comply with the tax code and keep everyone safe. ETS provides the 3rd party certifications that are required to meet the EPAct guidelines.

The background on Bonus Depreciation and Lighting Lives are below.

Bonus Depreciation:
The federal Economic Stimulus Act of 2008, enacted in February 2008, included a 50% first-year bonus depreciation (26 USC § 168(k)) provision for eligible renewable-energy systems acquired and placed in service in 2008. This provision was extended (retroactively for the entire 2009 tax year) under the same terms by The American Recovery and Reinvestment Act of 2009, enacted in February 2009. Bonus depreciation was renewed again in September 2010 (retroactively for the entire 2010 tax year) by the Small Business Jobs Act of 2010 (H.R. 5297).

In December 2010 the provision for bonus depreciation was amended and extended yet again by The Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 (H.R. 4853). Under these amendments, eligible property placed in service after September 8, 2010 and before January 1, 2012 qualifies for 100% first-year bonus depreciation. For 2012, bonus depreciation is still available, but the allowable deduction reverts from 100% to 50% of the eligible basis.

To qualify for bonus depreciation, a project must satisfy these criteria: the property must have a recovery period of 20 years or less under normal federal tax depreciation rules;

• The original use of the property must commence with the taxpayer claiming the deduction;
• The property generally must have been acquired during the period from 2008 – 2012; and
• The property must have been placed in service during the period from 2008 – 2012.

If property meets these requirements, the owner is entitled to deduct a significant portion of the adjusted basis of the property during the tax year the property is first placed in service. As noted above, for property acquired and placed in service after September 8, 2010 and before January 1, 2012, the allowable first year deduction is 100% of the adjusted basis. For property placed in service from 2008 – 2012, for which the “placed in service date” does not fall within this window, the allowable first-year deduction is 50% of the adjusted basis. In the case of a 50% first year deduction, the remaining 50% of the adjusted basis of the property is depreciated over the ordinary MACRS depreciation schedule. The bonus depreciation rules do not override the depreciation limit applicable to projects qualifying for the federal business energy tax credit. Before calculating depreciation for such a project, including any bonus depreciation, the adjusted basis of the project must be reduced by one-half of the amount of the energy credit for which the project qualifies.

The IRS bifurcates assets in to two categories, 1245 and 1250, in essence separating assets into buckets based on their lives. Lighting by IRS definition is a 1250 category asset and has an accounting life of 39 years. To qualify for accelerated depreciation (and the one year bonus depreciation) the asset must have a life of 20 years or less.

The links are below:
http://www.irs.gov/businesses/article/0,,id=134687,00.html
http://www.dsireusa.org/incentives/incentive.cfm?Incentive_Code=US06F&re=1&ee=1

Lighting Categorization:
• Electrical – Light Fixtures – Interior 1250 Includes lighting such as recessed and lay-in lighting, night lighting, and exit lighting, as well as decorative lighting fixtures that provide substantially all the artificial illumination in the building or along building walkways. For emergency and exit lighting, see Fire Protection & Alarm Systems. Building or Building Component – 39 Years Electrical

• Light Fixtures – Interior – 1245 Light fixtures, such as neon, track lighting, or grow lights which are decorative in nature and not necessary for the operation or maintenance of the building. If the decorative lighting were turned off, the other sources of lighting would provide sufficient light for operation or maintenance of the building. If the decorative lighting is the primary source of lighting, then it is section 1250 property. Personal Property With No Class Life – 7 Years

Bonus Depreciation:
The federal Economic Stimulus Act of 2008, enacted in February 2008, included a 50% first-year bonus depreciation (26 USC § 168(k)) provision for eligible renewable-energy systems acquired and placed in service in 2008. This provision was extended (retroactively for the entire 2009 tax year) under the same terms by The American Recovery and Reinvestment Act of 2009, enacted in February 2009. Bonus depreciation was renewed again in September 2010 (retroactively for the entire 2010 tax year) by the Small Business Jobs Act of 2010 (H.R. 5297).

In December 2010 the provision for bonus depreciation was amended and extended yet again by The Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 (H.R. 4853). Under these amendments, eligible property placed in service after September 8, 2010 and before January 1, 2012 qualifies for 100% first-year bonus depreciation. For 2012, bonus depreciation is still available, but the allowable deduction reverts from 100% to 50% of the eligible basis.

To qualify for bonus depreciation, a project must satisfy these criteria: the property must have a recovery period of 20 years or less under normal federal tax depreciation rules;

• The original use of the property must commence with the taxpayer claiming the deduction;
• The property generally must have been acquired during the period from 2008 – 2012; and
• The property must have been placed in service during the period from 2008 – 2012.

If property meets these requirements, the owner is entitled to deduct a significant portion of the adjusted basis of the property during the tax year the property is first placed in service. As noted above, for property acquired and placed in service after September 8, 2010 and before January 1, 2012, the allowable first year deduction is 100% of the adjusted basis. For property placed in service from 2008 – 2012, for which the “placed in service date” does not fall within this window, the allowable first-year deduction is 50% of the adjusted basis. In the case of a 50% first year deduction, the remaining 50% of the adjusted basis of the property is depreciated over the ordinary MACRS depreciation schedule. The bonus depreciation rules do not override the depreciation limit applicable to projects qualifying for the federal business energy tax credit. Before calculating depreciation for such a project, including any bonus depreciation, the adjusted basis of the project must be reduced by one-half of the amount of the energy credit for which the project qualifies.

For 1911 ONLY and for selected leased properties ONLY, there is a limited time benefit that is listed below. Engineered Tax Services recommends you have some confirmation of your renovations completed to verify that only qualifying properties were taken as a write-off.

Qualified Leasehold Improvement Property. An improvement to an interior portion of nonresidential real property (whether or not depreciated under MACRS) by a lessor or lessee under or pursuant to a lease may qualify for bonus depreciation. The improvement must be placed in service more than three years after the building was first placed in service (i.e., the building must be more than three years old). The lessor and lessee may not be related persons. Expenditures for (a) the enlargement of a building, (2) any elevator or escalator, (3) any structural component that benefits a common area, or (4) the internal structural framework of the building do not qualify ( Code Sec. 168(k)(3)).

From EPAct to Abandonment and Utility rebates, the economics of a lighting retrofit have never looked better. To achieve these benefits there are some tax and compliance issues that you need to address. The EPAct tax deductions and the 1245/1250 analysis require a level of tax and engineering expertise.

Note: 179D Energy Efficient property does not qualify for Bonus Depreciation.

If you have a question about this article or would like to discuss your tax lighting deduction options, please contact the Author, Don McDougall.

Don McDougall is a Director with Engineered Tax Services, a firm specializing in capturing tax incentives available through EPAct 2005.

For further information, contact
Don McDougall Director Engineered Tax Services, Inc.

PH: 1.213.280.2266

E: dmcdougall@engineeredtaxservices.com

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