Virtually all businesses and organizations are parties to any number of leases—real estate, machinery and equipment, copy machines and automobiles, to name some of the most common arrangements. Accounting for leases under accounting principles generally accepted in the US (US GAAP) has been stable and predictable for years, with a basic 4-part test used to determine whether the underlying leased asset should be capitalized on the balance sheet of the organization, or otherwise expensed and disclosed as a commitment in the notes to the organization’s financial statements.

Under current US GAAP, leases are classified as either capital leases or operating leases. Assets acquired through a capital lease are recorded on the organization’s balance sheet at cost and the lease is recorded as a current and/or non-current liability depending on the term of the lease. Property acquired through an operating lease is not recorded on the organization’s balance sheet under the premise that the benefits of ownership have not been effectively transferred to the lessee. The amounts due under operating leases are likewise not recorded as liabilities on the organization’s/lessee’s balance sheet. However, organizations with operating leases, to the extent they are significant (material is the accounting term of art) either individually or in the aggregate, must disclose in the notes to their financial statements the amounts they are committed to pay annually pursuant to the operating leases over the next 5 years and an aggregate amount for any operating lease commitments thereafter.

A primary concern expressed by various users of financial statements and by the Financial Accounting Standards Board (FASB) is that the balance sheets of organizations with operating leases are potentially misleading because such organizations may have material commitments under operating leases that don’t appear on the balance sheets of such organizations. Moreover, for those organizations issuing financial statements pursuant to International Financial Reporting Standards (IFRS), virtually all operating leases are recorded on the balance sheets, such that there has been a significant divergence in the accounting for leases under US GAAP when compared to IFRS. Within this context, FASB instituted the pending changes to US GAAP to converge the related accounting with that of IFRS, which is the predominant global reporting standard.

The pending FASB standard is effective for publicly traded organizations in fiscal years beginning after December 15, 2018, including interim periods within those fiscal years; for all other organizations, the changes will take effect in fiscal years beginning after December 15, 2019, and interim periods within fiscal years beginning after December 15, 2020.

Under the pending FASB standard, virtually all leases will be accounted for in a manner similar to the current accounting for capital leases, with attendant assets and related lease liabilities on the balance sheets of the lessee organizations. The classification of a lease as a financing lease or an operating lease will be determined not according to the basic 4-part test referenced above, but rather based largely upon professional judgment with certain of the 4-part test requirements carrying over to the new classification methodology. Leases that don’t qualify as finance leases under the pending FASB standard will be classified as operating leases, which as noted above, will still require the lessee to capitalize the value of the lease asset and recognize a lease liability. There is one exception to the general rule of capitalizing the leased asset and related lease liability: where a lease term is 12 months or less, a lessee can elect not to recognize lease assets and lease liabilities, and “should recognize lease expense for such leases generally on a straight-line basis over the lease term,” which is essentially the same treatment accorded operating leases under current US GAAP.

The new lease guidance is lengthy and far more complex than provided for in this brief synopsis, as evidenced by the 185 pages of related FASB guidance.

A note to lenders: be sure to start discussions with your customers sooner rather than later as it relates to their lease portfolio. To the extent that leases currently classified by their customers as operating leases will require capitalization of the value of the leased asset and recognition of a lease liability under the pending guidance, the related balance sheet changes may significantly change the calculations of financial covenants associated with loans granted by the lenders. Covenants that were met under calculations incorporating the current lease guidance may not be met when the calculations incorporate the pending guidance.

A final note to organizations with leases: the transition guidance promulgated by FASB allows for a number of “practical expedients” regarding leases currently in effect at the time the new guidance goes into effect. Pursuant to the new guidance, “an entity that elects to apply the practical expedients will, in effect, continue to account for leases that commence before the effective date in accordance with previous GAAP unless the lease is modified, except that lessees are required to recognize a right-of-use asset and a lease liability for all operating leases at each reporting date based on the present value of the remaining minimum rental payments that were tracked and disclosed under previous GAAP.” In other words, leases classified as capital leases under the existing guidance will be treated as finance leases under the pending guidance, and leases classified as operating leases under the existing guidance will continue to be considered operating leases under the pending guidance, and the reporting entity will need to recognize lease assets and lease liabilities for such operating leases (unless they meet the 12 month exception described above) as of the earliest period presented in the financial statements.

By Eric Martinez, JD, CPA

To view a PDF of this article, click here.

I have two primary things that I have tried to instill in my children: (1) Pay attention to your surroundings and, (2) If it sounds too good to be true, then it probably is. They have heard me tell them to pay attention to their surroundings since they were very young. As they have grown into teenagers and young adults, I find myself explaining more and more about things that go on in the “real world”. Unfortunately part of our “real world” includes a bunch of scam artists and con men.

IRS Tax Scams

According to the State of Florida Division of Consumer Services, the most popular scam in Florida in 2015 are phone calls and emails to consumers demanding payment for back taxes. Here at The LBA Group, we have had dozens of our clients approached by individuals or groups attempting to utilize these scams.

The phone scam typically involves someone calling and identifying themselves as an IRS Agent or State Revenue Officer. The caller ID identifies that the call is from the IRS, Revenue Department, or some other official sounding agency. The caller often will give a fake name and badge number to make the call sound even more official. They then verify some personal information such as name, address and date of birth, which can be found on the internet or social media, to sound more official.

The potential victim is told they have an outstanding debt that must be paid immediately or they risk being arrested or having their wages garnished. Some scammers claim that the person is due a tax refund. When a debt is due, the victim may be instructed to purchase a Green Dot prepaid debit card or wire the money using Western Union. In other cases the scammer asks for a credit card to charge for the debt. In cases of both debt and tax refund scams, they may ask for bank account information in order to expedite the process.

An even more common tax scam trend involves emails alleged to be from the IRS or Revenue Agency. Individuals typically receive official looking phishing emails that appear to be from the IRS or other government agency. The subject line often contains phrases such as “Immediate Attention Required – IRS Notification” or “Notice of Unpaid Taxes”. Phishing is a relatively new scam that typically involves trying to get personal and/or financial information by using a fake website that looks official. Victims are enticed to click on a link in an email which takes them to a fake site where they are asked to enter personal information such as social security numbers and bank account information.

According to the IRS website, “The IRS doesn’t initiate contact with taxpayers by email, text messages or social media channels to request personal or financial information. This includes requests for PIN numbers, passwords or similar access information for credit cards, banks or other financial accounts.” Further, the IRS will not:

  • Call to demand immediate payment over the phone, nor will the agency call about taxes owed without first having mailed you a bill.
  • Threaten to immediately bring in local police or other law-enforcement groups to have you arrested for not paying.
  • Demand that you pay taxes without giving you the opportunity to question or appeal the amount they say you owe.
  • Ask for credit or debit card numbers over the phone.

Credit Repair Scams

Every day I hear advertisements on the radio or see billboards or internet ads for help with bad credit. Unfortunately bad credit is a fact of life for many consumers. Even more unfortunate is that many of those consumers are targeted by scam artists making promises they can’t keep and profiting from them. Scammers will say they can “wipe away” bad credit or have ways of disguising your credit history.

While there are legitimate organizations out there that truly are trying to help consumers, there is really no way to totally erase bad credit information from your credit report. According to the Attorney General’s Office of the State of Florida, “accurate information which is within seven years of the reporting period, or ten years if the information related to bankruptcy, cannot be erased from a credit report.” The AG further states “If you have a poor credit history, time is the only thing that will heal your credit report.”

Scams often include companies who charge a fee promising a “new credit identity” and providing a nine-digit number that looks like a social security number, sometimes called a CPN or credit profile number. Often, these numbers are stolen social security numbers from other consumers. Some scams direct victims to apply for an EIN, or Employer Identification Number from the IRS. EIN’s are legitimate numbers used for businesses, but may not be substituted for a social security number. This practice, known as file segregation, may be a federal crime.

The Federal Trade Commission indicates that the following are signs a company or individual may be operating a credit repair fraud scheme:

  • Insists you pay them before they do any work on your behalf.
  • Tells you not to contact the credit reporting companies directly.
  • Tells you to dispute information in your credit report – even if you know it is accurate.
  • Tells you to give false information on your applications for credit or a loan.
  • Doesn’t explain your legal rights when they tell you what they can do for you.

The Credit Repair Organization Act (CROA) makes it illegal for credit repair companies to lie about what they can do for you and to charge you before they have performed their services. The FTC enforces the Act and offers a wealth of information for consumers. With the advent of social media and increased technology, opportunities to scam consumers has skyrocketed. Our increased use of email and social networking has increased the amount of personal information floating around in the cyber-world. Consumers need to be prudent with their personal information and be wary of promises of quick fixes to bad situations.

By Scott A. Steadman, ASA, CFC, CFE

To download a PDF of this article, click here.

Many years in the making, the Department of Labor issued a final fiduciary regulation on April 6, 2016.

In a nutshell, the regulation will require financial advisors to make recommendations that are in the best interest of the client when offering investment advice to retirement plan sponsors, plan participants or individual retirement account (IRA) holders.

From a practical standpoint, financial advisors will be encouraged to charge clients a flat fee for their services and move away from receiving commissions on investments sold to clients in their retirement accounts.

The alternative provided by the DOL to financial advisors who still want to receive commissions is a Best Interest Contract exemption whereby the advisor pledges to act in the client’s best interest for reasonable compensation. If the advisor fails to live up to the pledge, the client has the legal right to sue in court.

At first glance, the rule certainly seems like a move in the right direction. It is hard to argue against requiring investment advisors to act in the client’s best interest and holding them accountable if they fail to do so. While I don’t believe there are as many bad apples as the DOL might suggest, there are financial advisors out there who might be more concerned with the commission they will receive than the best interest of the client. So, steps to curb unscrupulous financial advisors from selling high-commissioned products to unknowing clientele seems a worthy endeavor.

Unfortunately, there are many examples of government regulation starting with good intent and ending in unforeseen consequences. As the saying goes, the devil is in the details.

Here are some points to consider:

  1. Unknowns – The final regulation is 1023 pages long. It will need to be digested and analyzed over the next year or two to fully understand the ramifications and the practical impact on retirement plans and the brokerage industry.
  1. Legislative Attacks – As I write this article in late April, the regulation is already under attack in Congress with the House of Representatives voting today along party lines to rescind it. The Senate is soon to follow with a veto of the bill anticipated from the President. 
  1. Lobbying in Full Swing – Now that the regulations have been issued, expect lobbying efforts to continue and perhaps increase. With 1023 pages of regulations, the DOL will need to provide additional guidance on application and interpretation of the rules. Expect commission based industries and IRA providers (insurance providers, brokerage houses, banks, mutual fund companies and alternative investments) to lobby heavily to get favorable interpretation of the new rules. 
  1. Class Action Lawsuits – Under the new regulation, owners of Individual Retirement Accounts (IRAs) have the right to engage in class action lawsuits regardless of any mandatory arbitration clauses in their investment contracts. In addition to potentially scaring some financial institutions out of the IRA business, we can certainly anticipate a surge in IRA based class-action lawsuits. 
  1. Fiduciary Status – The new fiduciary rules are aimed at making financial advisors fiduciaries. This is important because under ERISA, the federal law that governs retirement plans, fiduciary status subjects an individual to legal enforcement and lawsuits. In other words, being deemed a fiduciary makes it easier for a client to sue their financial advisor. 
  1. Flat Fees & RIAs – The new DOL rule seems to endorse a fee-only advisor compensation model over a commission based approach. We expect to see more advisors in the retirement plan arena switch to a Registered Investment Advisor flat-fee compensation model based on a percentage of assets under management. Commission-based investment products for retirement plans may be on the way out due to the increased fiduciary and legal risk that will be associated with them under the new rules. 
  1. Benchmarking – Determining reasonable compensation will be imperative under the new rule. Expect this requirement to result in increased benchmarking of fees charged to retirement plan investors. With any luck, data will become readily available to determine whether a plan sponsor and participants are paying reasonable fees for investment services. 
  1. Lawyers Win – The lawyers win in two ways. First, any regulation of this size creates a lot of legal work. Second, the primary enforcement mechanism under the regulation is a lawsuit. It can be expected a cottage industry of lawyers will be created as a result of this regulation. 
  1. Brokers Lose – Commission-based brokers can no longer avoid fiduciary status by claiming they are only selling an investment product. Brokers will be subject to increased legal action and liability for their investment recommendations that are not deemed to be in the client’s best interest. 
  1. Small Investors Lose? – It appears the fiduciary rule is intended to benefit small investors by opening the door for lawsuits and stopping the sale of high-commission investment products. But, the increased liability related to rollover and investment advice combined with the threat of class-action lawsuits, could result in fewer financial institutions and advisors willing to service small investors. 
  1. Fewer Rollovers – In most cases, the new rules make advice on whether to rollover from an employer’s retirement plan to an IRA a fiduciary act. As a result, financial advisors may shy away from the added compliance and legal risk associated with IRA rollovers. This could result in more money remaining in employer sponsored retirement plans and less rollovers to IRAs. 
  1. Specialization – The number of financial advisors working in the retirement plan arena may dwindle as a result of the complexity and liability associated with the new rule. Expect to see more specialists (and fewer dabblers) working with retirement plan clients. 
  1. Investment Education – The new rule provides an array of investment education activities that are not considered fiduciary conduct. A benefit of this new rule could be an increase in investment education for retirement plan investors. Financial institutions may refocus their sales efforts on investment education to avoid fiduciary status. 
  1. Increased Expenses – The financial services industry will incur significant cost and expenses to comply with the new regulations. It is reasonable to believe these increased expenses will eventually be passed along to the consumer in the form of higher fees for services rendered. 
  1. Much ado about nothing? –When the fee disclosure and participant disclosure rules were issued five years ago, there was a similar tidal wave of concern. But, the actual impact proved to be a mere ripple. Sure plan sponsors and investment providers incurred additional administrative expenses to comply with the rules, but employers and plan participants were largely unaffected. The new disclosures are now treated in the same vein as stock prospectus… reviewed by industry professionals, but ignored by employers and participants. 

By Bob McKendry, CPC, QPA, QKA, CFP®

The new Achieving a Better Life Experience Act of 2014 (ABLE) was passed by Congress at the end of last year and signed into law by the president. It allows states to establish tax-favored accounts to help individuals with disabilities accumulate money to pay for qualified expenses. The accounts are similar to state-run Section 529 college tuition savings accounts.

Each year, up to $14,000 (adjusted annually for inflation) can be contributed to an ABLE account set up for a specific disabled beneficiary. Anybody can contribute, including relatives and friends.

Contributions are not deductible. The tax advantage comes from the fact that ABLE account earnings are allowed to build up free of any federal income tax liability. Then tax-free withdrawals can be taken to cover the account beneficiary’s qualified expenses, which include expenditures for education, housing, transportation, employment training and support, assistive technology, personal support services, health and wellness, financial management and administrative services, legal fees, expenses for oversight and monitoring, and funeral and burial expenses.

Upon the disabled individual’s death, any amount remaining in the ABLE account goes to his or her estate or designated beneficiary, and any accumulated earnings are taxable.

ABLE Accounts vs. Special Needs Trusts

The National Disability Institute, a not-for-profit organization, estimates that 5.8 million individuals and their families might be able to benefit from an ABLE account. The institute described how an ABLE account differs from a special needs trust or pooled trust.

By Becky Mincer, CPA

To view the PDF version of this article, click here.

The waiver of copays and deductibles continues to be an area of concern for many practices. Professional courtesies and waiver of patient balances has been a tradition of providers for centuries. In today’s heavily regulated health care environment, the common practice of waiving copays and deductibles may now be considered illegal under the False Claims Act, the Anti-Kickback Statute, HIPAA regulations, and many state laws.

The 2015 Florida Statutes 817.234(7)(a) states: “It shall constitute a material omission and insurance fraud, punishable as provided in subsection (11), for any service provider, other than a hospital, to engage in a general business practice of billing amounts as its usual and customary charge, if such provider has agreed with the insured or intends to waive deductibles or copayments, or does not for any other reason intend to collect the total amount of such charge. With respect to a determination as to whether a service provider has engaged in such general business practice, consideration shall be given to evidence of whether the physician or other provider made a good faith attempt to collect such deductible or copayment.”

Providers who routinely reduce the cost of care for patients by waiving the out-of-pocket expenses are not representing their true charge. Medicare reimbursement for physicians’ services is based on “the lesser of the actual charge or the applicable fee schedule amount.” The Medicare Claims Processing Manual (CMS Pub. 100-04, Chapter 23, 80.8.1) states that an amount billed that is not reasonably related to an expectation of payment is not considered the actual charge. If a provider chooses to discount the insured patient expenses to comply with government and insurance policies, the discount must be applied to the total billed charge before the claim is submitted to the insurer.

The Office of Inspector General (OIG) states: “Routine waiver of deductibles and copayments by charge-based providers, practitioners or suppliers is unlawful because it results in (1) false claims, (2) violations of the anti-kickback statute, and (3) excessive utilization of items and services paid for by Medicare.” (Federal Register, Publication of OIG Special Fraud Alerts). According to the OIG, providers can forgive the copayment in consideration of a patient’s financial hardship however this hardship exception cannot be used routinely, but should only be used occasionally to address the special financial needs of a particular patient. The provider should document the circumstances surrounding the financial situation and this documentation should be maintained on file.

Offering “insurance only” can be deemed insurance fraud as the practice presents a fee to the insurance carrier that is not the actual fee it intends to collect. The routine waiver of patient copayments/deductibles can also be viewed as breach of contract by private insurers. Most carrier contracts include a clause that indicates it is the duty of the providers to make a reasonable effort to collect applicable copayments. If the provider violates the terms of the insurance contracts, the insurer could refuse to pay the claim and/or terminate the provider from the plan.

Federal regulations does not apply to uninsured patients. Providers, at their discretion, can reduce or adjust uninsured patient balances.

Penalties for providers found in violation of the False Claim Act, Anti-Kickback Statute, HIPAA, and other state laws can range from monetary fines, prison time, exclusion from Federal healthcare programs, and termination from private insurer plans.

Waiver of copays and deductibles should no longer be a matter of routine practice. Instead, waivers or adjustments should be based on a case-by-case basis when the provider determines that the patient cannot afford to pay, or when reasonable efforts to collect (i.e. time of service collections, statements) have been unsuccessful.

By Carol Crews, CMPE, CPMA, OHCC

To view a PDF of this article, click here.

Whether they’re snatching your purse, diving into your dumpster, stealing your mail or hacking into your computer, they’re out to get you. Who are they? Identity thieves.

Identity thieves can empty your bank account, max out your credit cards, open new accounts in your name and purchase furniture, cars and even homes on the basis of your credit history.

And what will you get for their efforts? You’ll get the headache and expense of cleaning up the mess they leave behind.

You may never be able to completely prevent your identity from being stolen, but here are some steps you can take to help protect yourself from becoming a victim.

Check yourself out

It’s important to review your credit report periodically. Check to make sure that all the information contained in it is correct, and be on the lookout for any fraudulent activity.

You may get your credit report for free once a year on each of the three national reporting agencies: Equifax, Experian and TransUnion. To do so, visit and choose one of the three agencies. Add a calendar reminder to check a different agency every four months to keep current on this information.

If you need to correct any information or dispute any entries, contact the three agencies directly. Freezing your credit is the best way to protect yourself against fraudulent activity. You can do so by visiting the website for each agency listed previously, and implement a credit freeze for two years for only $10 per site.

Secure your number

Your most important personal identifier is your Social Security number (SSN). Guard it carefully. Never carry your Social Security card with you unless you’ll need it. The same goes for other forms of identification (for example, health insurance cards) that display your SSN. Don’t give it out over the phone unless you initiate the call to an organization you trust.

When you toss it, shred it

Before you throw out any financial records such as bank statements, cancelled checks, or credit card receipts, shred the documents, preferably with a cross-cut shredder. If possible, receive encrypted statements via email rather collecting paper through the mail.

Update your Passwords

Online security experts recommend changing your internet password and login information every three to six months. Make sure you use a strong password, as this provides the first line of defense against unauthorized access. A password is considered strong if it has the following: six to eight characters containing letters (upper and lower case), numbers and symbols.

It can be quite difficult to remember new passwords every few months. Using a password manager can save you the trouble of having to remember the login information on all of your online accounts. Consider using Dashlane or 1Password for cross-platform password managers.

Take a byte out of crime

Whatever else you may want your computer to do, you don’t want it to inadvertently reveal your personal information to others. Take steps to help assure that this won’t happen.

Try to avoid storing personal and financial information on a laptop; if it’s stolen, the thief may obtain more than your computer. If you must store such information on your laptop, make things as difficult as possible for a thief by protecting these files with a strong password.

“If a stranger calls, don’t answer.” Opening e-mails from people you  don’t know, especially if you download attached files or click on hyperlinks within the message, can expose you to viruses, infect your computer with “spyware” that captures information by recording your keystrokes or lead you to “spoofs” (websites that replicate legitimate business sites) designed to trick you into revealing personal information that can be used to steal your identity.

If you provide personal or financial information about yourself over the Internet, do so only at secure websites; to determine if a site is secure, look for a URL that begins with “https” (instead of “http”) or a lock icon on the browser’s status bar.

Be diligent

As the grizzled duty sergeant used to say on a televised police drama, “Be careful out there.” The identity you save may be your own.

By Kaitlyn Pandzik Weatherly, CFP®

This information is provided by The LBA Group for the personal use of our clients. It should not be construed as investment, tax or legal advice. Please be sure to consult your CPA or attorney before taking any actions that may have tax consequences and contact The LBA Group | LBA Wealth Management regarding any investment decisions. Source: Broadridge Investor Communication Solutions, Inc. Copyright 2016.



Reminder: report foreign bank and financial accounts by June 30 to avoid penalties.

IRS has issued a reminder that the due date for filing 2015 Form 114, Report of Foreign Bank and Financial Accounts (FBAR), is Thursday, June 30.

Background. U.S. citizens and resident aliens are legally required to report any worldwide income, including income from foreign trusts and foreign bank and securities accounts. In most cases, affected taxpayers (i.e., U.S. citizens and resident aliens with worldwide income subject to the reporting rules) will need to fill out and attach Form 1040, Schedule B, Interest and Ordinary Dividends, to their tax return. Part III of Schedule B asks about the existence of foreign accounts, such as bank and securities accounts, and usually requires U.S. citizens to report the country in which each account is located.

Separately, certain taxpayers with foreign accounts during 2015 must file a Financial Crimes Enforcement Network (FinCEN) Form 114 (FBAR) with FinCEN, a bureau of the Treasury Department. It is not a tax form and cannot be filed with IRS. The form must be filed electronically and is only available online through the BSA (Bank Security Act) E-Filing System website. In general, the filing requirement applies to anyone who had an interest in, or signature or other authority over, foreign financial accounts the aggregate value of which exceeded $10,000 at any time during 2015.

Anyone who meets the requirements described above must file an FBAR by Thursday, June 30. Failing to electronically file the form by the deadline could result in significant penalties, including fines of up to $10,000 per Form, per year.

The following is a quick review of other IRS Forms related to Foreign reporting that may be required to be filed on an annual basis by either an individual or a business:

  • Form 8938 – Statement of Foreign Financial Assets
    • Annual filing for US citizens and resident aliens with more than $50,000 in certain Foreign assets including bank accounts, annuities, or interests in a Foreign entity
    • Often duplicates information in FinCEN Form 114 above
    • Does not yet include Foreign real estate
    • Due with filing of individual return
  • Form 926 – Return by a US Transferor of Property to a Foreign Corporation
    • Annual filing for certain transfers of tangible or intangible property to overseas entities
    • Typically required when transferor controls at least 10% of the Foreign entity
    • Applies to all cash transfers in excess of $100,000 to a Foreign entity
    • Due with filing of individual or business tax return
  • Form 8865 – Return of US Persons with Respect to Certain Foreign Partnerships
    • Annual filing to report information with respect to controlled Foreign partnerships, transfers to Foreign partnerships, or changes to ownership through acquisition or disposition
    • Due with filing of individual or business tax return
  • Form 8621 – Information Return by a Shareholder of a Passive Foreign Investment Company or Qualified Electing Fund
    • Annual filing for a U. S. person that is a direct or indirect shareholder of PFIC to report certain distributions, gain on dispositions of stock or make one of the elections allowed.
    • Due with filing of individual or business tax return
  • Form 5471 – Information Return of US Persons with Respect to Certain Foreign Corporations
    • Annual filing for shareholders, officers or directors of certain Foreign corporations
    • Due with filing of individual or business tax return
  • Form 5472 – Information Return of a 25% Foreign-Owned US Corporation or a Foreign Corporation Engaged in a US Trade or Business
    • Annual filing to report Foreign ownership of US businesses (i.e., the Foreign ownership of a corporation owning rental real estate located in the US)
    • Due with filing of individual or business tax return
  • Form 3520-A – Annual Information Return of Foreign Trust With a U.S. Owner
    • Annual filing to report information about foreign trust, its U.S. beneficiaries, and any U.S. person who is treated as an owner of any portion of the foreign trust.
    • Due by the 15th day of the 3rd month after the end of the trust’s tax year. An extension of time to file may be granted by filing Form 7004.

If you think you may be required to file any of these IRS Forms, please see a tax advisor with strong international experience. The requirements for filing and the Forms themselves are complex. In addition to the $10,000 penalty mentioned above, there may be additional penalties tied to the market value of Foreign assets. In addition, tax returns failing to include such IRS Forms may have extended statute of limitation periods as well as exposing certain persons to criminal and civil penalties.

The IRS currently has an amnesty program in place. Please contact your LBA professional at 904.396.4015 for additional assistance if you have foreign financial accounts (or other foreign assets) and have not filed FBAR and/or other IRS Forms related to foreign reporting in the previous years.

SOURCE: Thompson Reuters

The IRS requires retirement plan sponsors (i.e., employers who maintain tax-qualified retirement plans for their employees) to rewrite their plan documents on a regular six-year cycle to take into account all law changes since the last plan document restatement.

The current cycle of plan document restatements is referred to as the PPA restatement (for the Pension Protection Act of 2006, a major piece of legislation included in this restatement cycle). As you work with your plan’s attorney or consultant to draft the PPA plan document restatement, it makes sense to review your retirement plan’s provisions and consider making changes to improve and simplify the plan’s operation.

With that in mind, here are 10 suggestions for improving and simplifying your plan’s operation:

  1. Remove Terminated Participants from the Plan – Former employees who leave small account balances in your plan increase the time and expense needed to operate the plan. The burden of terminated participants can be eliminated by adding two provisions to your plan:
  • Cash-Out Provision – Add a Cash-Out Provision to force terminated participants with vested benefits of $5,000 or less to take their benefit with them when they leave. Under this provision, the former employee is given an opportunity to make a benefit election regarding payment of their plan benefit. But, if the employee fails to provide a benefit election, his plan benefit is transferred to an automatic rollover IRA and the employee is no longer in the plan.
  • Mandatory Distribution at Normal Retirement Age – Former employees with vested balances of greater than $5,000 cannot be forced to take their benefit with them when they leave. But, you can add a provision to your plan to require terminated participants who attain the plan’s normal retirement age to withdrawal their benefit from the plan. This provision only applies to terminated participants and will require them to remove their funds from your plan at normal retirement age (usually age 65). The participant will be able to take a cash payment or rollover to an IRA or his current employer’s retirement plan.
  1. Employee Exclusions – Many employers do not have union employees or employees classified as non-resident aliens. If you fall into this category, take advantage of a “free pass” under federal regulations and exclude these employee classifications from your plan. The exclusion prohibits employees in either class from participating in your plan and will protect you should you inadvertently hire such an employee.
  1. Financial Hardship Withdrawal – If your plan allows financial hardship withdrawals, participants who take a financial hardship withdrawal are required to suspend contributions of 401(k) and Roth deferrals for at least six months. Consider adding a provision to your plan requiring participants to submit a new deferral election at the end of their suspension period in order to restart deferral contributions. Otherwise, the burden is on the employer to restart deferral contributions and you could be liable for “missed deferrals” should you fail to restart deferrals on a timely basis.
  1. Benefit Payments – When eligible to receive plan benefits, participants in a 401(k) plan almost always select a lump sum payment which includes cash payments to the employee and rollover payments to IRAs or other retirement plans. If your plan offers other forms of benefit payment that are seldom used (such as installment payments or annuity payments), consider removing these alternate forms of benefit payment from your plan.
  1. Rollover Contributions – Add a provision to your plan to allow participants to rollover retirement monies from IRAs and other retirement plans into your plan. Also, make sure to allow participants to withdrawal their rollover funds from the plan at any time. Telling a participant he has to wait until retirement, death or termination of employment to withdrawal from his rollover account can be a very difficult situation.
  1. Roth Deferrals – Roth deferrals have been available in retirement plans for 10 years. Roth deferrals are after-tax employee contributions to the plan that enable the participant to withdraw all funds (including earnings) from his Roth account on a tax-free basis after age 59 ½. If your plan doesn’t currently allow Roth, add it to your plan. It can be the perfect option for some of your participants.
  1. In-Plan Roth Conversion – Consider adding an in-plan Roth conversion feature to your plan. This provision will allow participants to convert their existing retirement accounts to Roth accounts. The participant will owe taxes on the amount converted, but will create a “tax free” retirement account as a result of the conversion.
  1. Deferral Limit for Highly Compensated Employees – If your plan is frequently failing the annual 401(k) deferral testing with refunds required to highly compensated employees (HCEs), consider limiting the amount HCEs can defer into the plan. The limit (e.g., 6% of pay or $10,000) should be the maximum amount that will allow the plan to pass testing. The benefit of this approach is the ability to make a catch-up deferral (currently an additional $6,000 per year) will kick in once the HCE hits the deferral limit. The payoff will be twofold, no more test failure refunds and age 50-plus HCEs will actually be able to defer more into the plan because of the ability to make the $6,000 catchup deferral.
  1. Automatic Enrollment – Another method for dealing with annual testing failures is to add an automatic enrollment feature to your plan. This feature will automatically enroll employees into your 401(k) plan once they satisfy the plan’s eligibility requirements at a deferral rate specified in the plan. The goal with this approach is to increase plan participation with the result of increasing deferral rates enough to pass the annual testing.
  1. Automatic Escalation – If your plan fails testing, you’re always looking for a solution. Consider adding an automatic escalation provision to the plan. Under this feature, an employee’s 401(k) deferral rate is increased by 1% each year until a desired target deferral rate (e.g., 8%) is hit. This approach is often paired with automatic enrollment, but can be added to any 401(k) plan. As noted above, the goal of this approach is to increase plan participation to a level that will result in a passing 401(k) test.

The PPA restatement period for pre-approved retirement plan documents ends on April 30, 2016. Don’t miss out on the opportunity to improve and simplify your plan’s operation as by-product of the required plan restatement.

Bob McKendry, CPC, QPA, QKA, CFP®

To view a PDF of this article, click here.

Do you picture yourself owning a new home, starting a business or retiring comfortably? These are a few of the financial goals that may be important to you, and each comes with a price tag attached. That’s where financial planning comes in.

Financial planning is a process that can help you target your goals by evaluating your whole financial picture, then outlining strategies that are tailored to your individual needs and available resources.

Why is financial planning important?

A comprehensive financial plan serves as a framework for organizing the pieces of your financial picture. With a financial plan in place, you’ll be better able to focus on your goals and understand what it will take to reach them.

One of the main benefits of having a financial plan is that it can help you balance competing financial priorities. A financial plan will clearly show you how your financial goals are related —for example, how saving for your children’s college education might impact your ability to save for retirement. Then you can use the information you’ve gleaned to decide how to prioritize your goals, implement specific strategies and choose suitable products or services. Best of all, you’ll know that your financial life is headed in the right direction.

The financial planning process

Creating and implementing a comprehensive financial plan generally involves working with financial professionals to:

  • Develop a clear picture of your current financial situation by reviewing your income, assets, and liabilities and evaluating your insurance coverage, your investment portfolio, your tax exposure and your estate plan
  • Establish and prioritize financial goals and time frames for achieving these goals
  • Implement strategies that address your current financial weaknesses and build on your financial strengths
  • Monitor your plan, and make adjustments as your goals, time frames, or circumstances change

Some members of the team

Our financial planning process involves a number of professionals. Financial planners typically play a central role in the process, focusing on your overall financial plan and often coordinating the activities of other professionals who have expertise in specific areas.

Investment advisors provide advice about investment options and asset allocation and can help you plan a strategy to manage your investment portfolio. The most important member of the team, however, is you. Your needs and objectives drive the team, and once you’ve carefully considered any recommendations, all decisions lie in your hands.

Accountants or tax attorneys provide advice on federal and state tax issues.

Estate planning attorneys help you plan your estate and give advice on transferring and managing your assets before and after your death.

Insurance professionals evaluate insurance needs and recommend appropriate products and strategies.

Staying on track

The financial planning process doesn’t end once your initial plan has been created. Your plan should generally be reviewed once a year to make sure that it’s up-to-date. It’s also possible that you’ll need to modify your plan due to changes in your personal circumstances. Here are some of the events that might trigger a review of your financial plan:

  • Your goals or time horizons change
  • You experience a life-changing event such as marriage, the birth of a child, health problems or a job loss
  • You have a specific or immediate financial planning need (e.g., drafting a will, managing a distribution from a retirement account, paying long-term care expenses)
  • Your income or expenses substantially increase or decrease
  • You’re affected by changes in tax laws

This information is provided by The LBA Group for the personal use of our clients. It should not be construed as investment, tax or legal advice. Please be sure to consult your CPA or attorney before taking any actions that may have tax consequences and contact LBA Wealth Management regarding any investment decisions.


Source: Broadridge Investor Communication Solutions, Inc. Copyright 2014.



A recent U.S. Tax Court decision drives home the important point that current deductions aren’t allowed for most expenses incurred while a new business is still in the start-up phase. Other decisions have dealt with the same issue in recent years. So, the proper federal income tax treatment of start-up expenses remains an ongoing source of confusion for taxpayers.

Here’s what you need to know about deducting start-up costs, along with an example of how the Tax Court applied the rules.

Deduct Section 162 Expenses Now

Internal Revenue Code Section 162 allows current deductions for “ordinary and necessary” business expenses. Section 162 expenses are basically routine expenses incurred in operating an up-and-running business. Examples include employee wages, rent, utilities and advertising. Section 162 expenses can generally be deducted in the year when they’re paid or incurred. Many taxpayers are unaware that Section 162-type expenses incurred by a start-up can’t necessarily be deducted right away. That’s because these expenses are classified as Section 195 start-up expenses until the “active conduct” of business begins.

Once a taxpayer meets the active-conduct standard, Section 162-type expenses become Section 162 expenses, and the taxpayer can deduct them currently. (This assumes that other provisions—such as the passive activity loss or at-risk basis rules—don’t come into play and prevent current deductibility.)

Deduct or Amortize Section 195 Expenses When Business Commences

Section 195 start-up expenses are Section 162-type expenses that are incurred before the business actively commences operations. Start-up expenses can include costs incurred:

– To investigate the creation or acquisition of a business;

– To create a new business; or

– To engage in any for-profit activity before the active conduct of business begins, in anticipation of such an activity becoming an active business.

Common examples of Section 195 start-up expenses include employee training, rent, utilities, and marketing expenses incurred prior to opening a business.

In the tax year when active conduct of business commences, the Section 195 rules allow taxpayers to elect to amortize start-up expenses. The election potentially allows an immediate deduction for up to $5,000 of start-up expenses. However, the $5,000 deduction allowance is reduced dollar-for-dollar by the amount of cumulative startup expenses in excess of $50,000. Any start-up expenses that can’t be deducted in the tax year the election is made are amortized over 180 months on a straight-line basis. Amortization starts in the month in which the active conduct of business begins.

A taxpayer is deemed to have made this election in the tax year when active conduct of business commences unless, on a timely filed tax return for the year, the taxpayer elects instead to capitalize start-up expenses.

Important Note: Section 195 start-up expenses don’t include interest expense, taxes, or research and development costs. Those expenses are subject to specific rules that determine the timing of the deductions. Section 195 start-up expenses also don’t include corporate organizational costs or partnership or LLC organizational costs, although the tax treatment of those expenses is similar to the treatment of start-up expenses. 

How the Tax Court Ruled Recently

A recent Tax Court case demonstrates potential pitfalls that taxpayers should avoid when claiming deductions for start-up expenses. In this case, the taxpayer was a civil engineer with 25 years of experience as a highway designer and construction engineer.

In 2008, while still employed in a full-time job, he decided to start his own business. He selected the name Civil Engineering Services (CES), printed business cards, designed stationery, and set up a website. He also purchased a computer, a desk and other office supplies, and set up an office in the basement of his home.

By mid-2008, the taxpayer’s employer dramatically reduced his salary, and he decided to devote more time to developing CES. From his years of work experience, the taxpayer knew many contractors and project engineers who worked in the state. He regularly visited construction sites after work to distribute business cards and speak with managers and others performing construction on local highways.

In addition to promoting his business, the taxpayer used these visits to stay abreast of developments in the highway construction engineering industry. He continued these trips throughout 2009, 2010 and 2011. In late 2010, he became unemployed and began focusing all of his attention on CES.

On his 2009 and 2010 federal income tax returns, the taxpayer claimed Schedule C business deductions totaling $46,629 and $45,618, respectively, for expenses purportedly incurred in the new business. After an audit, the IRS disallowed the deductions on the grounds that:

  • They weren’t properly substantiated, and
  • CES hadn’t yet commenced business because it didn’t have any clients, wasn’t hired to perform any services, didn’t bid on any highway engineering jobs and earned no income.

The IRS also disallowed some itemized deductions claimed on the taxpayer’s 2009 and 2010 returns. The disallowed deductions resulted in a delinquent tax bill of about $30,000. The IRS also imposed a 20% substantial understatement penalty on the additional tax due. The Tax Court upheld both the IRS deficiency and the understatement penalty (Tarighi v. Commissioner, T.C. Summary Opinion 2015-28).

Factors to Consider

The Tax Court has historically focused on these three factors to determine if a taxpayer has commenced the active conduct of a business:

  1. Did the taxpayer undertake the activity intending to earn a profit?
  2. Was the taxpayer regularly and actively involved in the activity?
  3. Has the activity actually commenced?

In the case described above, the Tax Court concluded the taxpayer wasn’t engaged in a business during 2009 and 2010, because his business didn’t have income or clients and didn’t bid on any jobs during those years. Although the taxpayer did engage in promotional activities, he didn’t intend to earn a profit in those years, because he didn’t pursue contracts or bid on jobs.

Therefore, the court ruled that the IRS correctly denied the deductions reported on the taxpayer’s 2009 and 2010 returns, because they were amortizable Section 195 startup expenses rather than currently deductible Section 162 expenses. However, if the taxpayer could properly substantiate the expenses, the opinion noted that the taxpayer could begin amortizing them in the year when his business activity started.

Finally, the court ruled that the IRS was correct in imposing the 20% substantial understatement penalty, because the taxpayer failed to establish that there was any reasonable cause for the tax underpayment or that he had acted in good faith.

Important Reminders about Start-Up Costs

When you incur business start-up expenses, it’s important to remember two key points. First, start-up expenses can’t always be deducted in the year when they’re paid or incurred. Second, no deductions or amortization write-offs are allowed until the year when active conduct of your new business commences. That usually means the year when the business has all the pieces in place to begin earning revenue.

Time may be of the essence if you have start-up expenses that could be deducted this year. Contacting your tax adviser to explain your plans can result in more favorable tax.

by Joey Cummings, CPA

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