Weinberg & Company 
MAY 2013
Following is a quick update of items, issues and breaking news. We have tried to keep it as brief as possible–or as we like to say simply stated.  If however you would like further information or have other accounting questions, please feel free to contact us.  

Breaking News:


In the last issue of Simply Stated we broke the news about a new proposal initiated by NASDAQ that would require their listed companies to establish and maintain an internal audit function. We opined that “…smaller companies will be most impacted by a significant increase in cost to their already tight operating budgets.”  Additionally we stated that many of these companies may decide the new requirement too onerous and move to an alternative exchange and that such a requirement might become a factor for late-stage private companies as they weigh the cost of going public and where best to be listed.


Last week NASDAQ issued a “rule update” withdrawing their internal audit function proposal, stating, “In light of the breadth and nature of the comments from our issuer community, and others, NASDAQ has determined to withdraw the proposal so that we may adequately consider these comments.”


Although NASDAQ indicated that they may revise and re-introduce the proposal, it is off the table for now. 


Our Weinberg and Company audit professionals will continue to follow this issue and will keep our Simply Stated readers up to date with developments.

CALIFORNIA’S RETROACTIVE TAX COLLECTION ON ENTREPRENEURS UNDER FIRE– Legislation introduced to reverse tax board action:

Weinberg & Co.’s Director of Tax, Jeffrey B. Engler, was recently quoted in a Los Angeles Business Journal article, “Levy Change An Angel Downer,” commenting on a California Franchise Tax Board decision adversely affecting angel investors, entrepreneurs and startup companies.




To encourage investment in new ventures, small businesses, and specialized small business investment companies, Federal income tax law provides tax incentives to non-corporate holders of qualified small business stock (QSBS). Enacted in 1991, Internal Revenue Code Section 1202 potentially provides for a substantial exclusion (100% since September 27, 2010) or deferral of the gain realized from the sale or exchange of QSB stock held for more than 5 years. Startup companies often use this as an incentive to attract investors.


California modified the federal rules to limit the exclusion to only those companies conducting a substantial portion of business within California. Investors in eligible California businesses could exclude up to 50 percent of gain they realize on the disposition of qualified small business stock issued after August 10, 1993 and held more than five years as long as at least 80% of the company’s assets were within the state and 80% of its payroll costs were incurred in California.


A California appeals court in August 2012 ruled the 80 percent asset and payroll requirements interfered with interstate commerce and therefore found the California QSBS tax law unconstitutional in Cutler v. Franchise Tax Board (FTB).




Based on its own interpretation of the court decision, the FTB decided the California Qualified Small Business stock statutes are invalid and unenforceable both going forward and retroactively. The FTB announced it will pursue collection of an estimated $128 million in taxes (plus interest) from about 2,500 taxpayers who claimed the benefits back to 2008.


Although retroactive taxes are not without precedence in California, this FTB decision has California businesses and top end taxpayers fuming over this retroactive tax grab. It has spurred strong opposition including from a newly formed group of affected entrepreneurs called California Business Defense. The issue has now moved to the state legislature for possible remedy.




State Senator Ted Lieu (D-Torrance) has offered legislation that would provide a reprieve to the affected taxpayers; S.B. 209 would eliminate the retroactive taxes. In light of the pending legislation, the FTB delayed sending out tax notices for 2008 for those taxpayers who signed waivers extending the statute of limitations.  




Although this is a California tax story, it has national implications. In challenging economic times, all levels of government become more aggressive in searching, finding and collecting revenues. However, overreaching by tax and regulatory agencies can have an opposite and unintended consequence – stifling investment, productivity and jobs.  


It is important and interesting to note that this tax issue has no bearing on the IRS and the federal QSBS tax incentives. In stark contrast, the federal QSBS program was substantially and retroactively expanded as part of the “fiscal cliff” legislation signed into law at the beginning of the year. The stated reason: to better incentivize entrepreneurs and investors. 


Last month The Securities and Exchange Commission issued a report that makes clear that companies can use social media outlets like Facebook and Twitter to announce key information in compliance with Regulation Fair Disclosure (Regulation FD) so long as investors have been alerted about which social media will be used to disseminate such information.

See SEC Announcement:




While politicians argue whether sequester means the sky is falling, there is one aspect that might make a taxpayer smile. 

The across-the-board spending cuts that came into being because Congress could not agree on specifics, will wipe out $600 million from this year’s IRS budget. That will mean up to seven furlough days spread amongst some 100,000 IRS employees.


Fewer IRS agents working mean less likelihood that you will be audited.  


Are you smiling?  Not so fast.


Although there may be fewer audits, those audits initiated will take longer. It will also be harder for taxpayers to get needed assistance from the IRS, according to its Acting Commissioner Steve Miller.  

Finally, in what can only be described as “political logic”, the sequester idea that was supposed to save money by forcing spending cuts will actually have the opposite effect–fewer audits mean less revenue flowing into government coffers.


Will you be audited?


Generally speaking, for individual tax returns, the higher your income the more likely you’ll hear from the IRS. Overall it’s 1%. With income over $5 million your chances go up to 18%.  Earn over $10 million and your chances of getting a call from the IRS go up to 27% — and depending on the nature of that income, you might already be on their auto-dial.




Weinberg & Company announced that it will be a sponsor of the B.Riley 14th Annual Investor Conference to be held May 20-22, 2013 at the Loews Santa Monica Beach Resort.

Weinberg Managing Partner, Corey Fischer has been selected as a panelist, and will participate in an informational session discussing capital raising for small-cap companies.


The invitation-only conference will feature nearly 200 public companies and is expected to draw over 1,000 attendees. 


Sponsoring the B. Riley Investor Conference is a good fit for our firm, according to Fischer. “Our industry experience is well aligned with the presenting companies at the conference. This is a respected and well attended conference and we are happy to participate as a supporting sponsor.”  For more information on the conference:  



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

1925 Century Park East, Suite 1120  

Los Angeles, CA 90067

(310) 601-2200 

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Corey Fischer
Firm Managing Partner



Bruce Weinberg
Florida Managing Partner


Jeffrey B. Engler

Director of Tax,
Los Angeles 




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