Engineered Tax Services (ETS) is proud to announce that specialty tax expert Peter J. Scalise, B.S., M.S. is now National Tax Practice Leader and Executive Managing Director, serving out of the New York office. Peter has over 15 years of progressive public accounting experience developing and leading multi-million dollar tax practices on both a regional and national level for the global Big 5 CPA Firms.

Prior to joining ETS, Peter developed and led a $ 5.5 million dollar tax consulting practice in the Northeast for a Big 5 firm. Peter is a highly acclaimed thought leader in the fields of accounting and taxation who is well published in the areas of taxation, financial accounting pronouncements and international financial reporting standards. He has successfully advised clients ranging in size from leading middle-market to Fortune 100 companies on the Research Tax Credit, with tax savings ranging from approximately $100,000 to well over $100 million per client.

Peter’s thought leadership in connection to the research tax credit encompasses all aspects, including assistance with technical issues; designing, implementing and defending multi-year look-back research tax credit studies (i.e., both pre- and post-IRS Tier 1 Audit Directive); and the identification of exposure items for purposes of ASC 740 and FIN 48. He has also overseen the automation of clients’ research tax credit information-gathering processes across a diverse group of industries including, but not limited to, Aerospace & Defense; Technology Companies including Software and Electronics; Global Manufacturers; Telecommunications; Transportation; Energy, Natural resources, and Chemicals; Food Science; Life Sciences including Bio-Technology, Pharmaceuticals, and Medical Devices; and Financial Services for 3rd party sale, lease, license, software and internal use software development.

“We are incredibly excited to have Peter as part of the ETS team,” said Julio Gonzalez, CEO. “His experience and knowledge fit perfectly with the exceptional service and ability our clients have come to expect. Peter’s expertise is an outstanding additional service that we are now able to provide our clients from which I know they will see great results.”

About Engineered Tax Services

Engineered Tax Services (ETS) is the only qualified professional engineering firm that has its own licensed engineers, including LEED Accredited Professionals, as well as tax experts, from CPAs to a former senior IRS executive, on staff. ETS marries the science of engineering with the principles of tax and accounting to arrive at financial solutions that result in increased cash flow, minimized tax payments and maximum return on investment and energy. These IRS-sanctioned services include Energy Tax Credits, Energy Policy Act Certifications (179D Studies), Cost Segregation Studies, Research and Development Studies, Repair and Maintenance Studies,  Historic Tax Credits Studies, Engineering Insurance Appraisals, Energy and Carbon Audits. For more information visit http://engineeredtaxservices.com.

Peter’s announcements were also distributed through the industry through the following links

http://www.newswiretoday.com/news/110703/

http://www.onlineprnews.com/news/224615-1335300474-specialty-tax-expert-peter-j-scalise-joins-engineered-tax-services.html

http://www.pressreleasepoint.com/specialty-tax-expert-peter-j-scalise-joins-engineered-tax-services-national-tax-practice-leader-exec

http://www.prhwy.com/news/44631-specialty-tax-expert-peter-j-scalise-joins-engineered-tax-services-as-national-tax-practice-leader-and-executive-managing-directo.html

http://www.widepr.com/press_release/38464/specialty_tax_expert_peter_j_scalise_joins_engineered_tax_services.html

http://www.theopenpress.com/index.php?a=press&id=139088

http://www.free-press-release.com/news-specialty-tax-expert-peter-j-scalise-joins-engineered-tax-services-as-national-tax-practice-leader-and-executive-managing-director-1335294560.html

http://financialservices-cj.blogspot.com/2012/04/google-alert-tax-services_2421.html

http://www.zimbio.com/member/aliceadams/articles/-6CqTh3Z1nh/Specialty+Tax+Expert+Peter+J+Scalise+Joins

http://www.prlog.org/11858113-specialty-tax-expert-peter-scalise-joins-engineered-tax-services.html

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

and invite you to attend

Thursday, June 7, 1:00pm-2:50pm EDT

Register Now and Save $50
1-800-926-7926 ext. 10

or learn more

Dear Colleague:

In a U.S. economic recovery still trying to find its legs, properly managing net operating losses and adeptly carrying forward or backward NOLs is a vital, and complex, activity for federal and state income
tax professionals at multi-state companies.

When it comes to federal NOLs, tax specialists must stay current on rules for calculating NOLs, general limits on carry forwards and special limits on carry forwards after an ownership change under Sect.
382. In the state tax arena, matches of federal NOL policy constantly change and take myriad directions.

Corporate tax professionals can benefit greatly from a current awareness briefing on treatment of NOLs in federal and individual state laws and regs. Our panel will also present a practical discussion on navigating associated complications that arise with state combined reporting, nexus and other policies.

Our panelists, including Caleb Gauen, Director at  PricewaterhouseCoopers, will provide a review of current federal policy for NOL computations and carryforwards, examine trends in state  variations from the federal approach with specific examples, and explore special situations that can make carryforwards and carrybacks
problematic at the federal or state levels.

The panel will explore these and other relevant topics:

* Federal guidelines for computing NOLs and carrying them forward and backward, limitations on their usage, and latest rulings and guidance.

* General trends in state modifications to the federal NOL computation, with specific state examples.

* Dealing with special situations arising from a state’s mandate of combined reporting, nexus standards, and application of NOLs pre- or post-apportionment.

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

I hope you’ll join us.

For more information or to register >

or call 1-800-926-7926 ext. 10 (mention code: ZVETS)

Sincerely,

Jon McKenna
Executive Editor

P.S. All of Strafford’s webinars are backed by our 100% Unconditional
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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 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

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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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