Weinberg & Company

              Certified Public Accountants

SIMPLY STATED

MARCH  2015

ASSURANCE NEWS 

Non-cash costs can sink the ship

Most CEOs and CFOs are very conscious about producing operating results that will meet investors’, analysts’ and Wall-Street expectations. In their daily oversight, such results are dependent upon revenue generation, profitable margins and cost control. These are key metrics that drive company analysis, assessment of management performance and overall stock performance. In a “Thought Leadership” article that currently appears in MicroCap Review magazine, Weinberg’s Managing Partner, Corey Fischer warns that while focusing on these performance metrics, many CEOs, CFOs and investors have learned the harsh reality that operations are not the only factors that come into play when determining earnings or liquidity of a public company. Mr. Fischer explains that complicated, and oftentimes highly misunderstood, non-cash charges resulting from accounting rules frequently distort the company’s true operating performance.  Click to Read More

Taxonomy

The Financial Accounting Standards Board (FASB) just announced that the U.S. Securities and Exchange Commission (SEC) adopted the 2015 GAAP Financial Reporting Taxonomy which contains updates for accounting standards and other improvements to the official Taxonomy previously in use by SEC issuers. It is a list of computer-readable tags in eXtensible Business Reporting Language (XBRL) format that allows companies to tag precisely the thousands of pieces of financial data that are included in typical long-form financial statements and related footnote disclosures. The tags allow computers to automatically search for, assemble, and process data so it can be readily accessed and analyzed by investors, analysts, journalists, and regulators. The 2015 GAAP Taxonomy is available here.

Getting your arms around the intangibles

The Financial Accounting Standards Board (FASB) issued guidance that allows a private company to elect an accounting alternative for the recognition of certain intangible assets acquired in a business combination. Under this alternative, a private company would no longer recognize the following separate from goodwill:

1.    Customer-related intangible assets unless they are capable of being sold or licensed independently from the other assets of the business, and
2.    Noncompetition agreements.

Many customer-related intangible assets, because they are not capable of being sold or licensed independently from the other assets of the business, would not be separately recognized under this accounting alternative. However, some customer-related intangible assets that are capable of being sold or licensed independently would continue to be separately recognized, such as mortgage servicing rights, commodity supply contracts, core deposits, and customer information.

Though available only to private companies, the FASB has added a separate project to its agenda to consider the applicability of this alternative to public companies and not-for-profits.

MONEY TALKS

Billion is the new million

There are now 69,560 Americans worth $30 million or more, according to a new report by Wealth-X and UBS, noting that these “ultra-high net worth individuals” are highly concentrated on the coasts in New York and California, with the two states adding the largest number of super-rich residents over the past year.As reported by NPR/CNBC, California’s population of ultra-high net worth residents grew 7 percent last year, to a total of 13,445 — higher than the total for the entire United Kingdom – with almost all located in San Francisco (5,460) and Los Angeles (5,135).
 
Here is the full list of the top 10 states by super-rich (over $30 Million) populations: California (13,445), New York (9,530), Texas (6,510), Florida (4,710), Illinois (2,905, Michigan (2,125), Pennsylvania (1,620), Ohio (1,505), Massachusetts (1,410) and Wisconsin (1,400). The states with the fastest percentage growth of super-rich residents were North Dakota with 14.3 percent growth, followed by South Dakota with 13.3 percent.  

Hey 99 percenters… pay your fair share?

The top 400 taxpayers paid almost as much in federal income taxes in 2010 as the entire bottom 50 percent, according to economics Professor and American Enterprise Institute scholar Mark J. Perry. Noting that we hear all the time that “the rich aren’t paying their fair share of taxes”, his analysis of IRS data suggests otherwise. In 2010 (most recent year available):
*    The top 400 taxpayers based on AGI earned $106 billion collectively and paid $19.1 billion in federal income taxes at an average tax rate of 18%.
*   The bottom 50% of taxpayers, a group totaling 67.5 million Americans, earned collectively almost $1 trillion and paid $22.4 billion in federal income taxes at average tax rate of 2.4%.  What makes this disparity possible, says Mr. Perry, is the fact that 41% of individual income tax returns filed in 2010 had a zero or negative tax liability, according to The Tax Foundation (see chart). And a recent CBO study found that the entire bottom 60% of American households are “net recipient households” and received more in government transfers than they paid in federal taxes in 2011.

For solid returns, select a good spouse picker 

Investment fund managers live and die by their stock picking ability. Turns out, a lot has to do with their spouse picking too.

You can expect worse returns on your investments if your fund manager is about to go through a divorce. That’s the finding of a new research paper published by the Social Science Research Network and reported by NBR/CNBC.

A study, titled “Limited Attention, Marital Events and Hedge Funds,” conducted by researchers at the University of Florida and the Singapore Management University, found the annualized alpha (a measure of performance on a risk-adjusted basis) of younger fund managers fell nearly 16 percent during a divorce, while that of the older fund managers dropped about 4 percent. For marriage events, the annualized alpha drops about 14 percent for older fund managers but actually increases about 2 percent for the younger managers.

Pay it backward

According to a recent survey, among those Americans expecting government tax refunds, 32% said they will use it to pay off debt. Another 29% say they will put it toward savings or investments, and 20% said they will spend it on necessities. The Allstate/National Journal Heartland Monitor Poll also found that when it comes to reduced gasoline prices, 58% said they are using the savings to pay off debt or for necessities. 

TROUBLES WITH UNCLE SAM 

Keep on truckin’

A long-haul truck driver who spent most of the time on the road and had no other home did not have a “tax home” that would allow him to deduct his unreimbursed travel expenses because he was not really away from home, the Tax Court held (Howard, T.C. Memo. 2015-38).

The long-haul truck driver, who “resided” in Missouri, spent 358 days in 2009 on the road. His employer, a Nebraska trucking company, did not require him to return to its base, but sent assignments to the trucker at the end point of his last trucking assignment.

He used his mother’s address as his home address to qualify for his truck driver’s license, but he did not stay at her house when he was in town. The rest of the time, he slept in his truck, did not pay rent or any of his mother’s housing expenses, and kept his belongings in a storage facility.

The taxpayer claimed a $27,108 deduction for unreimbursed employee business expenses on his 2009 tax return. Included in these expenses were $19,109 for travel expenses while away from home, including per diem expenses while on the road, hotel expenses, and other minor expenses, as well as $7,334 for truck stop electrification (TSE) expenses. (TSE provides electricity to truckers at truck stops to power the truck’s air conditioner, heater, lights, and appliances, so they do not have to sit with their engines idling.) The IRS disallowed all of these deductions.

The taxpayer contended that the per diem expenses and hotel expenses were deductible because they were incurred while he was traveling away from his home (his mother’s house) for business purposes. The IRS disallowed the deductions because it found that he did not have a tax home and thus the expenses were not incurred while traveling away from home.

The Tax Court agreed with the IRS, finding that for a home to qualify as a tax home, a taxpayer is required to incur expenses to maintain the home while on the road, which the taxpayer did not do.

However, the court held that the TSE expenses were deductible as ordinary and necessary trade or business expenses because they were analogous to fuel expenses and were not, as the IRS contended, equivalent to hotel expenses. Because Transportation Department regulations require truckers to rest 10 hours for every 14 hours they drive, they must power their trucks for those 10 hours for business reasons. Truckers can either idle their truck engines using diesel fuel or power them by connecting to TSE at truck stops, so the IRS saw no distinction between diesel fuel and TSE expenses. The TSE expenses were deductible as unreimbursed business expenses subject to the 2% floor on itemized deductions.  Source: Journal of Accountancy

QUOTABLE

“The tax on capital gains directly affects investment decisions, the mobility and flow of risk capital… the ease or difficulty experienced by new ventures in obtaining capital, and thereby the strength and potential for growth in the economy.”  John F. Kennedy
WEINBERG & COMPANY

Simply the right choice

Weinberg & Company is a leading, international, full service, multi-office CPA firm serving clients throughout the United States and the Pacific Rim. Founded over two decades ago, the practice groups include: Assurance and Audit, Tax and Accounting, and Advisory Services. Weinberg has a depth of knowledge and experience to meet the needs of both public and privately held companies, high net worth individuals, entrepreneurs, family offices, and can provide customized business management services. www.weinbergla.com

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DISCLAIMER:
Our firm provides the information in this e-newsletter for general guidance only, and does not constitute the provision of legal advice, tax advice, accounting services, investment advice, or professional consulting of any kind. The information provided herein should not be used as a substitute for consultation with professional tax, accounting, legal, or other competent advisers. Before making any decision or taking any action, you should consult a professional adviser who has been provided with all pertinent facts relevant to your particular situation. Tax articles in this e-newsletter are not intended to be used, and cannot be used by any taxpayer, for the purpose of avoiding accuracy-related penalties that may be imposed on the taxpayer. The information is provided “as is,” with no assurance or guarantee of completeness, accuracy, or timeliness of the information, and without warranty of any kind, express or implied, including but not limited to warranties of performance, merchantability, and fitness for a particular purpose.
Quick Links

Corey Fischer
Firm Managing Partner

310-601-2200

CoreyF@weinbergla.com

Bruce Weinberg
Florida Managing Partner

561-487-5765
BruceW@cpaweinberg.com

Jeffrey B. Engler

Director of Tax,
Los Angeles 

310-601-2200
JeffreyE@weinbergla.com

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