Weinberg & Company

       Certified Public Accountants

SIMPLY STATED

OCTOBER  2014

Following are a few important issues our accounting professionals wanted to briefly share with you. As always, should you desire more in-depth information please feel free to contact us.

Better take your banker to lunch

LEASE ACCOUNTING AND YOUR LENDER

The Financial Accounting Standards Board (FASB) and the International Accounting Standards Board (IASB) set accounting rules – the former for the United States, the latter for most of the rest of the world. The Boards have been working together to overhaul the way leases are reported. Though not in total consensus, it appears that they are inching toward an agreement that could soon be implemented.The existing accounting models for leases require lessees and lessors to classify their leases as either capital leases or operating leases and account for those leases differently. Those models have been criticized for failing to meet the needs of users of financial statements because they do not always provide a faithful representation of leasing transactions. In particular, they do not require lessees to recognize assets and liabilities arising from operating leases.Proposed changes would require a lessee to recognize assets and liabilities for leases with a maximum possible term of more than 12 months. A lessee would recognize a liability to make lease payments (the lease liability), and a right-of-use asset representing its right to use the leased asset (the underlying asset) for the lease term.Simply Stated first reported (Sept. 2013) that the proposed rules would change the way affected companies account for lease costs in calculating earnings, add debt to their balance sheets, and require some companies to revise their debt agreements with lenders.“This goes way beyond merely changing where and how leases are reported on your corporate books,” says Weinberg’s Firm Managing Partner Corey Fischer. “Lender covenants often require maintaining debt-to-equity ratios among other earnings metrics. These new rules would play havoc with those metrics.”The effect of broken covenants could be severe, requiring full repayment of existing loans, or at least the renegotiation of terms. The American Bankers Association is asking for more time so its banker members can refigure the correct ratios.The Wall Street Journal recently reported that the proposed changes could bring about $2 trillion of off-balance leases onto corporate books and cited that 75% of North American companies have business loans that can be recalled upon broken covenants.

XBRL
HOW DOES CONGRESS SPELL RELIEF?

Since 2009, the Securities and Exchange Commission (SEC) has required companies to submit financial statements and other periodic filings in XBRL format. XBRL is an acronym for eXtensible Business Markup Language, a computer language that applies searchable data-tags to financial information. XBRL compliance makes it possible for the information in financial statements to be machine-read, making the data searchable, sortable and very much appreciated by regulatory agencies. However, the costs of compliance are onerous, particularly for small businesses which typically spend thousands of dollars each year to comply. Furthermore, there is significant debate as to how useful the XBRL information really is to anyone other than regulators.

For small companies struggling under the weight of XBRL compliance, the House of Representatives approved H.R. 5405, the Promoting Job Creation and Reducing Small Business Burdens Act. The vote was 320-102. The measure would exempt emerging growth companies (EGCs) and issuers with total annual gross revenues of less than $250 million from the requirements to use XBRL for financial statements and other mandatory periodic reporting filed with the Securities and Exchange Commission (SEC).The Senate has not yet considered the measure and both chambers have adjourned until November 12th. Unfortunately, with only 15 legislative days scheduled during the post-election “lame-duck” session, the Senate is unlikely to take up the bill before the 113th Congress comes to a close.”Small companies are frequently lauded for their contributions to the economy and the innovation and jobs that they create,” noted Weinberg’s Firm Managing Partner Corey Fischer. “If this kind of legislation could make its way into law, it would provide needed relief to smaller companies, allowing them to focus more on building their business instead of spending their time and resources on burdensome compliance.”

In Congress
CASH TALKS AND ACCRUAL WALKS?

One unfortunate offshoot of the push for tax reform has been the floating of proposals in both the House and Senate to eliminate the cash method of accounting for partnerships and other flow-through entities.

Currently, the cash method of accounting is available for individuals, partnerships, C-Corporations with no more than $5MM in gross receipts, S Corporations, professional service corporations and most farming and ranching businesses.Proposals to limit the use of the cash method to only individuals while forcing flow-through entities to switch to an accrual basis of accounting generated stiff opposition. One of the earliest and most vocal critics was the American Institute of Certified Public Accountants (AICPA). In letters to congress, the AICPA argued that the cash method is both easier to understand and apply than the accrual method, and it is more favorable to the types of small businesses that are more sensitive to cash-flow.Where a cash method business recognizes income when it is actually received, the accrual method would require recognition of income when the right to receive it has occurred.  In theory, under the accrual method a business would recognize income and pay taxes on money it had not yet received.The opposition campaign has taken root in Congress. Last month a bipartisan majority of legislators (233 members) in the House of Representatives signed a letter in opposition to the proposal. Citing the impact on their constituents, the letter urged House leadership to scrap the proposal and move ahead with meaningful tax reform.The House effort and letter echoed a similar campaign in the Senate, which in August sent its own letter to its leadership opposing the proposed switch.“It is rare these days to see such overwhelming agreement from both sides of the aisle,” remarked Weinberg’s Director of Tax, Jeffrey Engler. “As tax compliance continues to become more complex it’s nice to see legislators take a stand for a more user-friendly method.”

Banker Beware
FATCA FRAUD ALERT

The IRS’ hunt for offshore tax dodgers has generated a new opportunity for scam artists.

Foreign financial institutions have been pushed, shoved and otherwise cajoled by the U.S. to sign on to the Foreign Account Tax Compliance Act (FATCA). The act requires these institutions to disclose financial information about its accounts held by U.S. citizens.It is reported that these foreign institutions are being approached by individuals who pose as IRS agents and demand bank account information, social security numbers, account balances, and other deeply sensitive information about United States account holders.The IRS has warned foreign financial institutions to be wary of such phone calls, as well as legitimate-looking emails and websites that scam artists use to pose as IRS agents.In order to help bankers better recognize the difference between an abusive shake-down artist and one of the IRS’ own trained professionals, the IRS says that its agents would never ask for such sensitive and personal account information about American citizens…over the phone, by email, or fax.

2014 YEAR END TAX LETTER 
Weinberg’s Director of Tax, Jeffery Engler has posted his 2014 Year End Tax Letter.In his letter, Mr. Engler explains that year-end tax planning will again be challenging, mostly because Congress has not taken any action on “extender” legislation-tax breaks that expired at the end of 2013 but were expected to be reinstated retroactively in 2014. Still, there are several things taxpayers can do to minimize their tax bite. Read the entire Year-End Tax Letter on our website by clicking this link:
http://www.weinbergla.com/2014yearendtaxletter

 

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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