Archive for the ‘Informative Articles’ 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

This is the latest video from ETS, helping you become the Green Energy Tax Hero.

Click on the small arrow to play.

If you are looking for further information on the Energy Tax Benefits, click here.  If you would like to register to attend one of our free webinars on 179D Energy Tax or 179D Energy Tax with a lighting focus.  Visit our Facebook Events page.    Questions are also answered by contacting one of our directors on 800.236.6519

ETS Washington National Tax Alert

By Peter J. Scalise, B.S., M.S.

Introduction

The IRS has issued new Temporary Treasury Regulations on December 23, 2011 that governs when costs are required to be capitalized or deducted as repair and maintenance costs. The new regulations replace the previously issued Proposed Treasury Regulations that were issued in March of 2008.

To be clear, Proposed Treasury Regulations are binding only on the IRS and not the taxpayers. In contrast, Temporary and Final Treasury Regulations are binding on both the IRS and the taxpayers. To that end, with this latest issuance of Temporary Treasury Regulations the onus has been shifted onto taxpayers to ensure compliance as these regulations have the force and effect of law. To that end, taxpayers must now adhere to these new Temporary Treasury Regulations for taxable years beginning on and after January 1, 2012 and ascertain its impact on sustaining strong tax return filing positions (i.e., “Will”; “Should”,“More-Likely-Than-Not”, “Substantial Authority”).

As a reminder, the subsequent standards of the applicable levels of opinions should be meticulously analyzed when assessing a client’s tax return filing position:

• “Will” Standard: Generally, a 95% or greater probability of success if challenged by the IRS. A “Will” opinion generally represents the highest level of assurance that can be provided by an opinion;
• “Should” Standard: Generally, a 70% or greater probability of success if challenged by the IRS. A “Should” opinion provides a lower level of assurance than is provided by a “Will” opinion, but a higher level of assurance than is provided by a “More-Likely-Than- Not” opinion;
• “More-Likely-Than-Not” Standard:  A greater than 50% probability of success if challenged by the IRS. The “More-Likely-Than-Not” standard is the highest level of accuracy required for purposes of avoiding the accuracy-related penalties under I.R.C. § 6662A;
• “Substantial Authority” Standard: Typically, greater than a “Realistic Possibility of Success” standard and lower than “More-Likely-Than-Not” standard (i.e., 40% probability of success);
• “Realistic Possibility of Success” Standard: Approximately a one-in-three or greater possibility of success if challenged by the Service;
• “Reasonable Basis” Standard: Significantly higher than the “Not Frivolous” standard (i.e., that is, not deliberately improper) and lower than the “Realistic Possibility of Success” standard. The position must be reasonable based on at least one tax authority that can be cited as valid legal authority;
• “Non-Frivolous” Standard: Approximately a 10% chance of being upheld upon examination by the Service and accordingly under no circumstance should a tax professional ever render services with this level of comfort; and
• “Frivolous” Standard: Approximately a percentage less than a 10% chance of being upheld upon examination by the Service and accordingly under no circumstances should a tax professional ever render services with this level of comfort.

It should be duly noted that each of the aforementioned standards above has a relevant meaning to both the taxpayers and tax professionals when evaluating a tax position and the related disclosure requirements. Noting, the percentages listed for “More-Likely-Than-Not” and “Realistic Possibility of Success” are specifically provided for and discussed in the treasury regulations. In contrast, the percentages for “Substantial Authority”, “Reasonable Basis”, “Non-Frivolous”, “Frivolous” have been developed based upon their relative importance in the hierarchy of standards of opinion as primarily provided for in congressional committee reports. Moreover, while not intrinsically quantitatively calculable, the percentages are still practical in demonstrating the relative strength of one level as opposed to another level.

Tangible Property Scope Synopsis

The line where deductible repairs under I.R.C. § 162 ends and capitalized improvements under I.R.C. § 263 begins has always been far from patently clear and has led to much controversy between taxpayers and the IRS. The new regulations do little to clarify this matter (generally avoiding bright-line tests for facts and circumstances analysis). However, they do make some substantive changes to the location of the line—some taxpayer favorable and some government favorable.

Complying with the new regulations generally requires a change in accounting method. Taxpayers wanting to change to an allowable method must get the IRS’s consent.  On March 7, 2012, the IRS issued two companion revenue procedures detailing how taxpayers may obtain IRS automatic consent to the accounting method changes required by the rules.

Rev. Proc. 2012-19 addresses repair and maintenance, materials and supplies, and related method changes resulting from the temporary regulations. Whereas, Rev. Proc. 2012-20 addresses depreciation, disposition, and related method changes resulting from the temporary regulations.

Rev. Proc. 2012-19 separates the accounting method changes into the following categories:

• Applying the regulatory accounting method for regulated taxpayers (Temp. Regs. Sec. 1.263(a)-3T(k)).
• Deducting non-incidental materials and supplies when used or consumed (Temp. Regs. Secs. 1.162-3T(a)(1) and (c)(1)).
• Deducting incidental materials and supplies when paid or incurred (Temp. Regs. Secs. 1.162-3T(a)(2) and (c)(1)).
• Deducting non-incidental rotable and temporary spare parts when disposed of (Temp. Regs. Sec. 1.162-3T(a)(3)).
• Deducting rotable and temporary spare parts under the optional method (Temp. Regs. Sec. 1.162-3T(e)).
• Deducting dealer expenses that facilitate the sale of property (Temp. Regs. Sec. 1.263(a)-1T(d)(1)).
• Deducting de minimis amounts (Temp. Regs. Sec. 1.263(a)-2T(g) and Temp. Regs. Sec. 1.263(a)-1T(b)(14)).
• Deducting certain costs for investigating and pursuing the acquisition of real property (Temp. Regs. Sec. 1.263(a)-2T(f)(2)).
• Deducting amounts paid for routine maintenance on property other than buildings (Temp. Regs. Sec. 1.263(a)-3T(g)).
• Capitalizing costs to facilitate the sale of property by non-dealers (Temp. Regs. Sec. 1.263(a)-1T(d)(1)).
• Capitalizing acquisition or production costs (Temp. Regs. Secs. 1.263(a)-2T(e) and (f)).
• Capitalizing improvements to tangible property (Temp. Regs. Sec. 1.263(a)-1T and Temp. Regs. Sec. 1.263(a)-3T).

Rev. Proc. 2012-20 establishes new automatic accounting method changes for:

• Depreciation of leasehold improvements;
• Changing from a permissible to another permissible method of accounting for depreciation of MACRS property;
• Disposition of a building or structural component;
• Dispositions of tangible depreciable assets (other than a building or its structural components);
• Dispositions of tangible depreciable assets in a general asset account; and
• General asset account elections.

Each of the above accounting method changes has separate detailed rules for implementing it. The changes share the requirement that the Form 3115, Application for Change in Accounting Method, be sent to the Ogden, Utah, office instead of the national office and the requirement to use a single form when making a concurrent automatic change.  These aforementioned revenue procedures are effective for tax years beginning on or after Jan. 1, 2012.

Deductible Expenses under the New Temporary Regulations
Materials and Supplies

The new regulations indicate that incidental materials and supplies may be deducted when purchased as long as no record of consumption is kept and expensing such items does not distort income. Non-incidental materials and supplies, however, are not expensed until they are used or consumed.

Items considered materials and supplies are:

• Components acquired to maintain or repair property
• Fuel, lubricants, water, and similar items
• Property with an economically useful life of 12 months or less
• Property with an acquisition or production cost of $100 or less
• Other property identified by the IRS

De Minimis Rule

The de minimis rule provides another deduction opportunity on amounts paid to acquire or produce tangible property. To be eligible, however, a taxpayer must: have an Applicable Financial Statement (AFS—which is generally an audited financial statement); have a written accounting policy for deducting property costing less than a certain dollar amount for non-tax purposes; and follow its written accounting policy.

The total amount of such expensed items cannot exceed the greater of:

1. 0.1 percent of the taxpayer’s gross receipts for the tax year as determined for federal income tax purposes; or
2. 2 percent of the taxpayer’s total depreciation and amortization expense for such year as determined in its AFS.

As a caveat, many small to middle market privately held companies will not be able to take advantage of the de minimis rule because they don’t have an AFS.

Repairs

The general rule is that a taxpayer may deduct amounts paid for repairs and maintenance to tangible property as long as the amounts are not otherwise required to be capitalized. Although the general rule is not very helpful, the regulations do, however, allow a safe harbor deduction for routine maintenance.

Routine Maintenance Safe Harbor

Routine maintenance is the recurring activities that keep a unit of property in its ordinary operating condition. This includes the inspection, cleaning, testing, and replacing of parts. Activities are routine only if the taxpayer reasonably expects to perform the activities more than once during the class life of the property. The routine maintenance safe harbor applies to all property other than buildings.

Expenditures Required To Be Capitalized

Amounts paid for tangible property that needs to be capitalized fall into two general buckets: amounts paid to acquire or produce tangible property, and amounts paid to improve it.

1. Taxpayers must generally capitalize amounts paid to acquire or produce a unit of real or personal property, including leasehold improvement property. This includes the invoice price, transaction costs, and costs for work performed prior to the date the property is placed in service by the taxpayer.
2. A taxpayer must capitalize amounts paid to improve property. Property is improved if the amounts paid result in betterment to the property, restore the property, or adapt the property to a new or different use.

Betterments

A betterment is an amount paid to correct a material condition or defect of the property, which results in either:

• A material addition to the property (physical enlargement, expansion, or extension), or
• A material increase in capacity, productivity, efficiency, strength, or quality of the property or the output of the property.

Restorations

An amount is paid to restore property if:

• It is for the replacement of a component of the property and the taxpayer recognized gain or loss on the sale or exchange of the component or deducted a loss for the component;
• The taxpayer returns the property to its ordinary efficient operating condition if the property has deteriorated to a state of disrepair and is no longer functional;
• It results in the rebuilding of the property to a like-new condition after the end of its class life; or
• It replaces a part or a combination of parts that comprise a major component or substantial structural part of the unit of property.

Adaptations

An amount is paid to adapt property to a new or different use if the adaptation is not consistent with the taxpayer’s intended ordinary use of the property at the time the property was originally placed in service by the taxpayer.

The IRS included 19 examples in the regulations to illustrate what is and what is not a betterment, and 26 examples to illustrate what is and what is not a restoration. The number of examples demonstrates the difficulty of determining the fine line between a deductible expense and a capitalized item.

Unit of Property

Determining the relevant unit of property also plays a large role in shaping whether an amount paid is properly deducted as a repair—or must be capitalized as an improvement to the property.

It should be duly noted that the larger the unit of property, the more likely the amount paid will be considered a deductible repair.

For real and personal property (except buildings), a unit of property is comprised of all components that are functionally interdependent (i.e., the placing in service of one component is dependent on the placing in service of the other component.)

A new twist in the new regulations is the unit of property determination for buildings. A building and its structural components are a single unit of property. For application of the improvement rules, however, “building systems” constitute separate units of property from the building structure. Consequently, for purposes of the improvement analysis the units of a building property are:

• The building structure (exterior walls, roof, windows, doors, etc.)
• The building systems (HVAC, plumbing, electrical, escalators, elevators, fire-protection and alarm systems, security systems, gas distribution systems, and other structural components identified as building systems by the IRS

This componentizing of a building into several units of property is a significant change from the prior proposed regulations. Accordingly, taxpayers that deducted repairs in prior years relating to any of these building systems will need to determine whether such treatment is still appropriate. If not, it may be necessary to request a change in accounting method.

Conclusion

On March 7, 2012, the IRS released administrative guidance in the forms of  Revenue Procedure 2012-19 and Revenue Procedure 2012-20, which in essence provide transition rules relating to the temporary regulations regarding deduction and capitalization of expenditures in connection to tangible property issued on December 23, 2011.

The temporary regulations are effective for tax years beginning on or after January 1, 2012, and affect all taxpayers that acquire, produce, or improve tangible property. The transition rules address repair and maintenance, materials and supplies, depreciation, disposition, and related tax accounting method changes. The guidance also provides the procedures by which taxpayers may obtain the automatic consent of the Commissioner of Internal Revenue to change to the methods of accounting for tax years beginning on or after January 1, 2012.

Pros & Cons

The IRS has revised procedures on the deduction and capitalization of expenditures related to tangible property. The revised procedures shift the frame of reference for determining whether a repair is expensed or capitalized from the entire building to structural components of the building. It is now likely that certain repairs that were previously treated as expenses will now be required to be capitalized. However, owners now have the opportunity to write-off the under appreciated portion of the building components replaced or the tenant improvements removed during the retrofitting.

About the Author

Peter J. Scalise, B.S., M.S., serves as the Executive Managing Director and National Tax Practice Leader for Engineered Tax Services. Peter is also a highly distinguished member of both the Board of Directors and Board of Editors for The American Society of Tax Professionals and is the Founding President and Chairman of The Northeastern Region Tax Roundtable, an Operating Division of ASTP.

ETS Disclaimer

The article is designed to provide authoritative information on the subject matter covered. However, it is distributed with the understanding that the publisher, editors, and authors are not engaged in rendering legal, accounting, or other related professional services for your client base. Consequently, it is your responsibility to exercise all of the necessary measures to ensure proper tax preparation and tax advisory services for your client base.

Circular 230 Disclaimer

Circular 230 Notice: In compliance with U.S. Treasury Regulations, the information included herein (or in any attachment) is not intended or written to be used, and it cannot be used, by any taxpayer for the purpose of i) avoiding penalties the IRS and others may impose on the taxpayer or ii) promoting, marketing, or recommending to another party any tax related matters.

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Dallas CPA firm generating $345,000 and 4 new clients

Charlotte CPA firm generating $282,000 and 3 new clients

Seattle CPA firm generating $276,000 and 3 new clients.

Whether you are a regional or growing city firm, we all look for ways to grow our business.

It costs more to locate a new client than it does to retain a current one.   Client’s, especially in this tough environment are looking for a provider/supplier, in all they do, who will value add to their business, to help give their business that competitive edge and more over, financially survive.

The US Government and the IRS, provide a wealth of options to CPA’s to be able to deliver just that to their client.  The key is to identify what option you can consider would value add to your client base, with minimal time usage on your behalf.  In another words, how to increase your ROI and your clients, if you take on additional value added services.   Many big 5 firms have in-house teams offering these value added government tax incentives.

Did you know though, that  these services are also available to you for your clients, through companies like ETS; we supply specialty tax consulting services that you could not provide on your own.

A short list of these services include:

EPAct Certifications for Energy Tax Deductions

Repair and Maintenance Studies

Research and Development Tax Credits

Cost Segregation

In each case there is a substantial investment in resources and education.  Our (ETS’s) R&D department has almost a dozen professionals from CPAs to Attorneys.  You are unlikely to hire a staff this robust  to meet you client needs, but you can utilize ours and access them as your own.

Each of the other specialties has similar staffing.  Why not take advantage of  these resources and not re-create the wheel, and avoid the increases in overhead and fixed costs?

This is the check list on how to strategize on identifying the right value added tax options your firm should use, and how to do it right;

1. Don’t do it on your own. Spending all your time researching each tax law which you would like your firm to implement is not a good use of your time or the most effective way of implementing that service.  Tax laws change all the time and it would be impossible for you to keep up with the laws and do you clients or firm justice.

2. Do what your clients are doing. Your clients are asking for providers and suppliers to value add to their company and so you too should be seeking out providers and suppliers to value add back to your firm.  There are many external providers specialized in tax areas, who offer a service which you could implement into your firm.

3. Educate yourself. Before you start knocking on doors to any and every provider in the tax arena, start researching what specialty tax your firm does not offer, and identify if it is one that you should.  There are countless webinars, articles and websites that offer information on specialty tax, to give you a hint as to how it will be a “value add” to your firm and your client’s.

4.  Research your providers. Your clients and you deserve a reputable provider, especially since they will form part of your trusted advisor team.  Do your due diligence.  Questions you may like to ask:

• Who do they or have they worked for (other CPA firms and clients)
• How long have they been in the industry
• How up to date are they with their taxation laws in their specialty area
• Have they encountered an IRS audit, how did they manage that, what is their success rate and will they stand behind you
• Do they have the resources to perform the job for you and do so in a timely manner
• What materials can the provider offer your firm to offer to clients
• How many specialty services do you offer and offer successfully

5. Signing up with your Provider. Entering in an agreement with your provider will allow both of you to understand what to expect, and form a trusted relationship.

6. Introducing the specialty tax into your firm. Armed with a new service, the next step is to train staff on the new product offering.  The provider should be able to provide training and marketing material to assist staff with the new tax offering.  You, in turn, will be supporting the new offering with a pricing schedule, which you have prepared, for staff to run by.

7. Introducing the new specialty tax to clients. Data mining (researching and reviewing through your existing client base) to locate the appropriate clients, is an essential tool to ensuring your ground work was successful.  Then, before you approach your identified client(s), contact your specialty tax provider, give him basic details on the client.

For example, your client has a building, and your specialty tax provider has a tax benefit for building owners.  By providing your provider with basic information, they should be able to provide you with an estimated tax benefit, based on their experience.

With this information, you can contact the client, provide them with a brief on how you are about to increase their cash flow.  Provide the client with information on this tax benefit, and if needed, you can provide marketing material to the client as well, but most importantly show the client the tax benefit estimated analysis he would likely be looking to receive.  You may have even saved a client from becoming a victim of the economic down turn, and subsequently not lost the client.

8. Go the extra mile. Does the new tax service offer benefits that your client could implement, but because they don’t know, just doesn’t.  Take the Energy Tax, for example.  If your client spent money upgrading their lighting system, to be energy efficient, they could take advantage of the 179D Energy Tax benefits for lighting, Abandonment tax benefits, Depreciation tax benefits and State tax benefits.  Additionally, the electric bill just went down.  Here is one example of a client property;

A distribution company with a warehouse of 250,000 square feet, upgraded all lighting.

Cost $140,000

EPAct $140,000

Abandonment $90,000

Annual Energy Saving $60,000

First Year Net After Tax +$500

Five Year Benefits $300,500+

-$450,000 + the increased cost of energy

- Zero Net Cost the first year

10. Outcome. Your client, has just realized your valuable worth, even more than previous, as you have just added to their bottom line.  Your time in investing to locate a suitable provider, has proven beneficial.  Your client is undertaking these new tax benefits, you are paid for these new services, your firm has just increased spending from this client to provide your firm with increased ROI.

To manage this client’s new tax benefit, is minimal as your provider is doing all the work.  As an example, If you charged your client $3,500 for the above service, and you implemented this service with 10 clients, $350,000 would be generated by the firm over the year.

11. New clients. How do you market your firm’s progress and obtain new clients.  It is simple – Talk about it.

• Ask existing clients to refer you – they will be happy to after you just saved them in energy money and through tax benefits
• Update your marketing materials – online, and in print.  Promoting the fact that you find ways to increase your client’s bottom line and reduce corporate taxes, and use case examples (anonymously).
• Target clients.  Identify client’s you would like to have and introduce your company and service.
• Align with Angel Investors or Venture Capitalist.  They are the ground floor for growing companies

12.  How to start a specialty tax revenue stream and ensure it is successful. Realizing there is a need for CPA’s to be able to provide a value added service to their clients, ETS has teamed up with Boomer Consulting, to offer a program especially to assist firms to implement a successful specialty tax offering to their clients and build significant revenue into their firm.

With this support, you can navigate the business growth plan in a more efficient and successfully proven path.  This program is selective in size and CPA firm location, as the program is highly educational and works on proven results.  The Specialty Tax Circle helps firms through each step of the way in firm growth and specialty service offering with further support through the year to ensure the investment in education is providing the returns to your firm, which it promotes.

The training program covers data mining and what to identify, RFP proposal request writing, provider assessment, pricing out your provider services, training staff on your new services, effective marketing of your new services, projecting and obtaining revenue growth, driving new client business through the specialty tax and implementing the service in a timely and cost effective manner.

There are two round table educational meetings in 2012.  The first is July 17 to 18, 2012 in Kansas City

For information on the Specialty Tax Service, visit http://www.boomer.com/?page=SpecialtyTax

or call Eric Hunt on 785-537-2358 extension 119.

On a closing note, good luck with your business growth strategy, may you reap the benefits of your planning and implementation programs.

This article was written by Julio Gonzalez, CEO, Engineered Tax Services.

You can contact Julio on 561.253.6640

By August Aquila

Firm success today requires that partners and staff focus their energies on achieving the firm’s goals. It’s like a military campaign. Everyone on the battlefield is accountable for their role in the overall battle plan. Ask yourself how well would your people would carry out your battle plan.  Chances are, there is room for improvement.

While it is critically important to clearly define your goals and outline the actions needed to achieve them, accountability can only be achieved one employee at a time. So here’s the secret to a creating culture of accountability: change behavior of each individual in the firm.

There Are No Excuses

When we think about accountability, we often think about someone holding a large club over our heads. Or we think about having to explain why we did not do such and such a task. Or we have to defend our actions.  If none of that works, then we can blame someone or something else.

You know when you have a culture of accountability when individuals take personal responsibility for their actions or lack thereof. In the Oz Principle: Getting Results Through Individual and Organizational Accountability (Prentise Hall, 1994), Roger Connors, Tom Smith and Craig Hickman note that rather covering one’s tail, finger pointing, claiming “it’s not my job,” etc., individuals need to see the problem/task, own it, solve it and then do it.

Different Readiness Levels ? Different Approaches

I’ve noticed that many firms make the same mistakes in trying to implement a culture of accountability. They don’t realize the amount of time and commitment it takes and they assume that their people know what to do. One managing partner recently said to me, “We sent out the memo and we held a meeting.  What else am I suppose to do?”

He just assumed that his people would know what to do and what was expected of them. When we send out memos or hold group meetings, we put everyone in the same readiness level. We mistakenly assume that we can lead all of our people in the same way. We forget that each person in the firm has a unique personal readiness level.

In Compensation as a Strategic Asset (AICPA 2007) , Coral Rice and I identified four personal readiness levels which are based on an understanding of what to do, how to do it and the motivation to do it:

Level I: Low skill, low will . The individual has not yet developed the competencies needed to complete the task and you have limited motivation. These people need a lot of clear and specific directions and rules to follow.

Level 2: Low skill, high will. The individual has not yet developed the competencies needed to complete the task, but you have high motivation.  Skill training is needed here so that the person’s motivation does not get ahead of their skills.

Level 3: High skill, low will. The individual has the competencies needed, but lack the motivation.  This person needs to be supported and listened to. They can do the job from a skills perspective, but are lacking in desire to get it done.

Level 4: High skill, high will. The individual has both the competencies needed and the motivation. It’s best to just delegate the tasks at hand to people at this level. They won’t need a lot of guidance or oversight.

Implementing an Accountability Program

There are no out of pocket expenses to implement accountability.  The real cost is your time and commitment to make it part of your firm’s culture.

Here is a simple process to follow:

1. What is expected of me? In order to answer that question, firm leadership needs to set out individual goals. Goals will usually fall in one or more of the following areas ? production goals, marketing goals, client service goals, internal systems goals and training goals. Don’t assume that your people know what to do just because you sent out the memo or held a meeting. For some people you have to outline the what, when and how. For others, it might just be to tell them the “what.” (See the four readiness levels above.)
2. Why am I doing this? You have told your people what to do, but we all know from first-hand experience that does not mean that they will do it. You need to explain to them why they should be doing it, how it fits into the firm’s overall strategic plan and what’s in it for them personally. This step provides them with the opportunity to ask questions and actually buy into the firm’s goals and their specific action steps.
3. Is the goal measurable? Every goal that you set, whether for the firm or an individual, needs to be measurable and tractable. If you have a goal that you can’t measure or track the measure, then change the goal.  Ideally, goal progress should be tracked on a monthly basis. If you find that too time consuming, then do it on a quarterly basis. If you wait longer than that, you miss the opportunity identify and remedy gaps in performance that could affect your outcome.
4. Am I given feedback? It’s not possible to have true accountability without having effective feedback. Feedback provides the employee or partner with positive information as well as information that can help them improve. Feedback is not about using a performance evaluation to tell someone how poorly they did; it’s about problem solving on how they can meet their goals. Employees and partners need to feel that you want them to succeed and you are there to help them.
5. How are my results evaluated? There are varying degrees of results. Firms need to decide what will be acceptable to them. For example, some firms I have worked with look for a minimum 90% of goal attainment as acceptable, others are happy with a minimum of 80%.  Everyone should be aware of the parameters. There should be no surprises during the evaluation.
6. What are the consequences? If there are no consequences for failing to achieve one’s goals, then there is no culture of accountability. There can be various types and degrees of consequences. Tying compensation to goal performance is one way to encourage a culture of accountability. Non-monetary consequences may include holding off a promotion or requiring an individual to take a training course. Ultimately, someone who consistently fails to achieve his or her goals may be terminated.  It is important that everyone at the firm understands the consequences of their actions.

The Bottom Line

A culture of accountability must come from the top down. In small firms, it will be the managing partner who champions it. In larger firm, it may be the executive committee. Too many firm leaders merely give accountability lip service. In reality, they don’t hold anyone truly accountable.

Remember, if you plan to hold someone accountable for a result that must be communicated to them.  They need to be aware of the defined, measurable results you expect them to achieve, they need to know the consequences they will be subject to if they don’t meet their goals, and they need to take personal responsibility for their actions.

The acid test for accountability lies within your business results. Each individual in the firm must be personally accountable for the business results, even those who believe that they have no impact on them.

About the author:

August Aquila is a well-known consultant, author and keynote speaker to the accounting profession. In 2010 he was again named one of the “Top 100 Most Influential People” in the accounting profession by Accounting Today. August helps firms implement accountability and compensation programs as well as developing strategic and succession plans. Reach him at 952.930.1295 or aaquila@aquilaadvisors.com.

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Firm Develops Global Strength through Unique Strategy

The secret is finding and filling a ‘market hole’

By Gale Crosley, CPA

For many mid-market accounting firms, the status and activities of the Big Four (B4) are of passing interest, but not much more. But EOS Accountants LLP has charted an innovative and successful growth strategy by linking with the Big Four and other firms.

According to founder and managing partner Michio Ishii, collaborating with B4 and other Japanese-based accounting firms helped his firm grow with Japanese companies doing business in the U.S. He graciously shared his experience and perspectives.

Strategic steps

Ishii spent several formative years with Tohmatsu Awoki, the predecessor firm of Deloitte Tohmatsu. An original member of the firm’s U.S. operation, he eventually left to start his own firm. The practice he built in the New York City area included a number of Japanese-headquartered clients who used Ernst & Whinney (the predecessor to E&Y) in Japan and relied on Ishii for their U.S. subsidiaries.

Ishii was growing so fast that he decided to merge his practice with Ernst & Whinney in the U.S., accessing more staff to meet the demand. His mission was to develop their Japanese practice, and he remained there for 11 years before founding EOS in 1996.

A primary motivation to launch his own venture was Ishii’s growing recognition that U.S. subsidiaries of Japanese firms needed different solutions, often not part of the B4′s evolving strategy.

Ishii observed that while a B4 was a good choice for the large established U.S. operations of a large Japanese parent company, the smaller U.S. subsidiaries increasingly were dissatisfied. As smaller entities they often needed more hands-on, intimate service including business, management, and technology consulting.

The B4 had difficulty servicing these smaller subs, whose needs didn’t easily fit in their business model. As a result, services were more expensive and often did not meet the need. These were, however, the specialty of mid-market CPA firms.

We can help

Ishii and his partners identified their market hole (a need without an existing solution) and energetically went about filling it. The rest, as they say is history. He and his partners amicably left the B4 to start EOS.

The B4 firm acknowledged Ishii’s premise – that certain U.S. subs of their corporate clients were unhappy and could use EOS to fulfill needs that the B4 couldn’t. And ensuring good service for them was a priority.

Ishii and his partners were tightly focused and attracted U.S. subsidiaries of Japanese parent companies. Their prospects were companies that lacked adequate accounting professionals and infrastructure. This was a timely development as Japanese businesses were actively in pursuit of U.S. acquisitions.

Powered by relationships

The approach worked and over time EOS was sought out by other B4 players to serve their U.S. clients as well. The strategy became even more valuable when Sarbanes-Oxley established regulations that precluded audit firms from providing many of the services these clients needed.

Ishii and his partners nurtured close ties with other large Japanese accounting firms, and became known in Japan as the go-to firm for U.S. subs of Japanese parents. EOS grew as a result of close and trusting associations with individual partners in these large Japanese firms.

Expert navigation

Today EOS Accountants LLP has become a solid mid-market international provider. The firm has expanded well beyond its Teaneck headquarters with offices in San Jose, Los Angeles, Honolulu, San Mateo, Detroit and Chicago. More than half the staff is bilingual in Japanese and English.

Successfully navigating the relationships with B4 and other accounting firms remains the key to the firm’s success. As the large global players became less interested in serving smaller U.S. subsidiaries, and as they were regulated out of a number of service lines, Michio Ishii and EOS was prepared to meet the need.

Ishii says his firm continues to grow its formal and informal links with practitioners in Japan. As younger partners are developed, the next generation continues to focus on the relationships that have been central to the firm’s success.

As we concluded the interview, I was struck by the elegance and sophistication of the EOS strategy: finding a market hole, developing a unique distribution channel, having a focused niche discipline and navigating the complexities in relationships with other firms.

It beautifully illustrates the application of key growth concepts implemented in a creative way. As a result EOS has achieved an enviable position – going where the competition is not and staking its rightful claim in the international world!

Copyright ® 2012 by Crosley+Company

Gale Crosley, CPA, was selected one of the Most Recommended Consultants in the Inside Public Accounting BEST OF THE BEST Annual Survey of Firms for eight consecutive years, and one of the Top 100 Most Influential People in Accounting by AccountingToday for six consecutive years.

She is an honors accounting graduate from the University of Akron, Ohio, winner of the Simonetti Distinguished Business Alumni Award, and an Editorial Advisor for the Journal of Accountancy. Gale is founder and principal of Crosley+Company, providing revenue growth consulting and coaching to CPA firms. She brings more than 30 years of experience, featuring a unique combination as a practicing CPA in two national accounting firms, along with significant experience in business development in the cutting edge technology environment with such firms as IBM and MCI.

For more information, visit the website at www.crosleycompany.com or contact her at gcrosley@crosleycompany.com.

Reprinted with permission from Accounting Today

Smart Time Tracking can be a CPA Firm’s Strategic Weapon

By Debra Andrews

For many CPA firms, tracking time is a way of life.  There are two major time buckets – billable and non-billable.  Billable time is client work and there are usually specific client codes and sub-codes for active client projects.  There is always a great deal of attention placed on tracking billable time and rightly so – that is what pays the bills!

From Marketing Junkyard…

From my experience as a client services professional, in-house professional services marketer and now marketing consultant to professional services firms, non-billable marketing time codes area lot like junk yards.  Marketing, business development, non-chargeable client work such as travel and even administrative tasks are dumped in the non-billable marketing pile.  Some may argue that this time is non-revenue producing, and why should coding matter?  Trash is trash, after all.

…To Marketing Treasure

Well, some firm’s trash can be another’s treasure – savvy CPA firms can transform their non-billable marketing junkyards into plush fields blooming with valuable business intelligence. As an example, instead of having one code for all marketing time, try dividing the time up into sub-codes by your firm’s target markets.  This structure would enable the COO, CMO and/or Managing Partner to see your firm’s time investment in a particular sector and compare it against the return such as new clients and increased revenue.

I’ve worked with many clients to restructure their marketing time tracking systems.  We often discover that there is a measurable opportunity cost involved with investing too much professional time marketing to one segment at the expense of another that produces a higher ROI.

For hard-core time trackers looking to gain even further knowledge from their non-billable marketing time, I recommend additional sub-coding as follows:

• Marketing Admin: This sub-code might include time spent in internal marketing meetings and discussions.
• Marketing Business Development: This sub-code would represent networking activities, face-to-face meetings with referrals sources and prospective clients.
• Marketing Activities: This sub-code might include writing articles or blogs, speaking, and posting on social media platforms such as LinkedIn.

What management will glean through analyzing non-billable marketing time sub-codes like the ones noted above is how much time is spent “behind the desk” versus “shaking hands.”  Successful CPA firm marketing programs typically strike a balance between the two.  Ultimately, people do business with people they know, like and trust and so nothing replaces “face time.”  If most of a firm’s professional marketing time is spent on “Marketing Admin”or “Marketing Activities” at the expense of “Marketing /Business Development,” it may experience high brand awareness but maintain a relatively empty sales funnel.

There is a fine balance between smart time tracking and creating an unnecessary headache for busy billable professionals.  But for CPA firms that truly invest time and hard dollars into proactive marketing, creating some level of specificity in coding non-billable marketing time just makes good business sense.  The information gained could truly transform your time into treasure.

By Debra Andrews, Managing Director of Marketri LLC

http://www.marketri.com/

Contact: Debra Andrews
Day: (215) 489-5563
Cell: (215) 534-5085
e-mail: dandrews@marketri.com

By Cindy Lucas

I like to think of it as a gift with purchase. A cost segregation study identifies and reclassifies real property to personal property. Think about your building as a dollhouse, now pick it up and turn it upside-down; everything that falls out is personal property, meaning it can be removed.

Traditionally commercial real-estate is depreciated straight line method over 39 years. Well the truth is that nothing in that building is going to last 39 years. Components like carpeting, pluming, and furniture even down to the wiring in electrical systems should be reclassified. The IRS has released the Audit technique guide, which serves as a reference for an engineering company to allocate these components to 5, 7 or 15 year lives.

What that means is cash flow to the property owner. The typical benefits of a cost segregation study are 7-10% of the purchase price or build cost realized back to the owner within the first five years. Some aggressive CPA firms may be doing some safe methods of accelerating their clients’ depreciation but in no way can achieve or justify the level of benefit that can come from an engineering firm who specializes in this. Afterall, how would a CPA know what your insulation would cost to replace?

Speaking of replace brings me to the insurance aspect. An Engineered Cost Segregation Study gives the ability to substantiate the replacement costs to the insurance carrier. This enables an insurance agent to go to their underwriters for the most aggressive pricing. The underwriter will have a very high comfort level of the risk due to the comprehensive building review in their file.

What if something happens to your building? I am sure we have all played the insurance game and it can be quite frustrating trying to collect for what you need to replace or repair.

A cost segregation study can serve as a substantive document that an owner can use as support to a claim that is being disputed to their favor. The depth of our reports helps an owner to avoid the need to hire a third party professional to justify their claim.

To an underwriter this becomes a disclosure safeguard whereby at time of claim the owner is able to substantiate a full disclosure position with the insurance adjuster which puts the onus on the carrier to pay!

For more information please feel free to contact me directly at 954-439-1671 or email clucas@engineeredtaxservices.com
Cindy Lucas
Director
Engineered Tax Services

Reclassifying Business Personal Property to Achieve Income and Property Tax Benefits

Hosted by Strafford Publications, This is A live 110-minute CPE teleconference with interactive Q&A

Thursday, April 5, 2012
1:00pm-2:50pm EDT, 10:00am-11:50am PDT

This teleconference will review best practices and commonly followed standards in conducting a cost segregation study as performed by corporate tax professionals and advisors handling both income and property taxes.

Description

A thorough cost segregation study can materially reduce federal income taxes (by segregating personal property such as equipment, furniture, electrical systems, etc.) that can be depreciated over five, seven or 15 years) and property taxes (by separating real and personal property taxed at different rates).

Other potential benefits include timed depreciation deductions to maximize cash flow, creation of strong documentation for audits, and capture of retroactive savings for new or remodeled properties added since 1987. However, taxpayers cannot be too aggressive, lest they incur depreciation recapture or penalties.

What level of internal and external expertise is needed to produce a reliable cost segregation study? How closely should you follow the IRS Cost Segregation Audit Techniques Guide? What are the elements (e.g., review of all cost records, facility inspection, photographs) of a study that follows best practices?

Listen as our panel of advisors with considerable experience in cost segregation studies offers their standards and experiences to help you refine your own approach.

Outline

1. Reasons to perform a cost segregation study

1. Separating non-structural elements, exterior land improvements and indirect construction costs
2. To identify construction-related costs that can be depreciated over a shorter tax life
3. Adjust the timing of depreciation to maximize cash flow for other purposes
4. Create a defensible audit trail
5. Immediately recapture retroactive savings on property added since 1987
6. Reduce property taxes

2. Eligible real property

3. Features of the cost segregation study process

4. Internal and external resources

1. Need for a construction engineer
2. Applicable standards and guidance
3. Experiences from prior studies

Benefits

The panel will explore these and other relevant topics:

• Standards and guidance from the IRS, American Society of Cost Segregation Professionals and elsewhere.
• Proper timing for a study, be it done post-purchase, in the year a property is placed in service, or pre-construction.
• Features and documentation in a high-quality cost segregation study.
• How to minimize the potential downsides arising from conducting a study.

Following the speaker presentations, you’ll have an opportunity to get answers to your specific questions during the interactive Q&∓A.

Upon completing this seminar, you will have new approaches and alternatives to consider in performing an effective cost segregation study that separates personal from real property assets, for tax reporting purposes.

Faculty

Daniel McGrath, Director
Grant Thornton, Chicago

His client work focuses on capital cost recovery services, and he has more than 18 years of experience in cost segregation work. He previously was central region director of cost segregation services for Ernst & Young.

Gian Pazzia, Principal
KBKG Inc., Pasadena, Calif.

He oversees all of the firm’s cost segregation services nationwide. He is co-chair of the American Society of Cost Segregation Professionals’ technical standards committee and previously worked with cost segregation groups at two Big Four firms.

Julio Gonzalez, Founder and CEO
Engineered Tax Services, West Palm Beach, Fla.

He is a regular public speaker at a national level regarding cost segregation studies. His firm works on a number of engineering, architecture and accounting engagements.

Dennis Duffy, President
Duffy + Duffy Cost Segregation Services Inc., Westlake, Ohio

He has performed engineering-based cost segregation studies nationwide since 2002 after working in the construction industry and tax law. He writes and speaks frequently on cost segregation topics.

To attend this webinar, or download the presentation materials, listen to the webinar or learn more about this session, click this link.  CPE Credits apply.

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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