E. Cohen and Company, CPAs Blog

One-Time Relief for Small Charities to Preserve Tax-Exempt Status

Mon, 09 Aug 2010 17:16:00 -0400

Small not-for-profit organizations at risk of losing their tax-exempt status because they failed to file required returns for 2007, 2008 and 2009 can preserve their status by filing returns by October 15, 2010, under a one-time relief program, the IRS announced.

On its Web site, the IRS posted state-by-state lists of the names and last-known addresses of these at-risk organizations, along with guidance about how to come back into compliance. Click here to see the list. The organizations on the list have return due dates between May 17 and October 15, 2010, but the IRS has no record that they filed the required returns for any of the past three years.

"We are doing everything we can to help organizations comply with the law and keep their valuable tax exemption," IRS Commissioner Doug Shulman said. "So if you do not have your filings up to date, now's the time to take action and get back on track."

Two types of relief are available for small exempt organizations - a filing extension for the smallest organizations required to file Form 990-N, Electronic Notice (e-Postcard), and a voluntary compliance program for small organizations eligible to file Form 990-EZ, Short Form Return of Organization Exempt From Income Tax.

Small organizations required to file Form 990-N need to go to the IRS Web site, supply the eight information items called for on the form, and electronically file it by October 15. That will bring them back into compliance. Contact your tax adviser if you have any concerns about your organization's tax situation.

Under the voluntary compliance program, tax-exempt organizations eligible to file Form 990-EZ must file their delinquent annual information returns by October 15 and pay a compliance fee. Details about the program are on the IRS Web site, along with frequently asked questions.

The relief announced today is not available to larger organizations required to file the Form 990 or to private foundations that file the Form 990-PF.

The IRS will keep the list of at-risk organizations on its Web site until October 15. Organizations that have not filed the required information returns by that date will have their tax-exempt status revoked, the tax agency stated, and the IRS will publish a list of the revoked groups in early 2011. Donors who contribute to at-risk organizations are protected until the final revocation list is published.

The Pension Protection Act of 2006 made two important changes affecting tax-exempt organizations, effective the beginning of 2007. First, it mandated that all tax-exempt organizations, other than churches and church-related organizations, must file an annual return with the IRS. The Form 990-N was created for small tax-exempt organizations that had not previously had a filing requirement. Second, the law also required that any tax-exempt organization that fails to file for three consecutive years automatically loses its federal tax-exempt status. The IRS conducted an extensive outreach effort about this new legal requirement but, even so, many organizations have not filed returns on time.

If an organization loses its exemption, it will have to reapply with the IRS to regain its tax-exempt status. Any income received between the revocation date and renewed exemption may be taxable.

Women-Owned Small Business Alert: SBA Proposed New Rule to Change Government Contract Eligibility

Mon, 09 Aug 2010 16:54:00 -0400

The Small Business Administration issued a proposed rule to make numerous changes to its 8(m) program for women-owned small businesses and economically disadvantaged women-owned small businesses. The Commentary summarizes the more significant changes in the SBA's proposed rule:

Elimination of the need for repeated certification submission to contracting officers.
Regulation of the income standards for economically disadvantaged women.
Expansion of the WOSB Program industries from three to 83.
Broadening of the joint-venture requirements to allow a wider variety of partnerships.

Click Here to read the entire commentary written by Andrew J. Sherman of Jones Day and SECAF General Counsel.

District of Columbia Launches 2010 Amnesty Program

Mon, 09 Aug 2010 16:45:00 -0400

The District of Columbia is providing a tax amnesty program between August 2, 2010 and September 30, 2010 for all taxes administered by the Office of Tax and Revenue (OTR) with the exception of real property related taxes and the ballpark fee. All tax periods prior to December 31, 2009 are covered by the amnesty program, which includes an abatement of taxpayer penalties and fees due and no imposition of criminal penalties.

Administration. During the 2-month amnesty period, penalties and fees will be waived upon the payment of the following overdue taxes: individual income, corporate and unincorporated franchise, withholding, sales and use, personal property, fiduciary income, motor fuel, special event taxes, gross receipts, estate, tobacco, and toll communication taxes. Real property taxes and the ball park fee are ineligible for the amnesty program. An amnesty application or payment of an amnesty bill must be filed or postmarked by September 30, 2010 to be eligible for the program.

Taxpayers who did not file returns that should have been filed prior to December 31, 2009 should complete those returns along with an amnesty application, together with full payment of the tax and interest due. If a taxpayer files less than all unfiled returns, the taxpayer will receive amnesty only on those returns actually filed with the tax and interest due paid in full.

The OTR has established a special website (http://www.dctaxamnesty.com/) to help tax delinquents expedite payment and resolve their tax liabilities, including the amount owed. The website provides an interest calculator to determine the tax and interest due. Application forms can be downloaded from the website. Taxpayers can also contact the Department for additional information.

If there is an error in the amnesty bill, the taxpayer should contact the OTR promptly. The OTR will provide the taxpayer with a revised amnesty. If the issue is not resolved before the end of the amnesty period, the affected taxpayer should pay the bill provided and seek a refund after the amnesty.

Payments. Payment may be made by attaching a check or money order to the amnesty application and return or with the amnesty bill stub or by e-Check or credit card through the official payments website (http://www.officialpayments.com). A convenience fee is imposed on credit card transactions through the official payments website. Amnesty returns and payments may be mailed to the OTR at Office of Tax and Revenue, P.O. Box 470, Washington, DC 20044. Payments may also be made in person at the Office of Tax and Revenue, 1101 4th Street, S.W., Suite W270, Washington, DC 20024. However, no payment arrangements are available; taxpayers must pay the full amount of taxes and interest due on amnesty bills filed with the amnesty application.

Deferred payment plan taxpayers. Taxpayers who are currently on a deferred payment plan may still apply for tax amnesty and such taxpayers should have received a notice of amnesty eligibility. Taxpayers under such plans (whether with the OTR or a private collection agency) may simply subtract any deferred payments made since the bill was produced and return the amnesty bill stub, together with the remaining payment due.

Government Contracting: The Complexities of Indirect Expense Pools

Wed, 21 Jul 2010 14:56:00 -0400

Is the cost of travelling to and attending that convention an allowable claim? Can your business include the expense of sponsoring a conference in its claimed indirect expense pool? It all depends on the nature and purpose of the event.

The cost principle at FAR 31.205-43, Trade, Business, Technical and Professional Activity Costs, addresses the general allowability of costs your organization incurs to disseminate trade, business, technical or professional information or to stimulate production or improve productivity. The cost principle at FAR 31.205-1, Public Relations and Advertising Costs, specifically disallows the costs of trade shows or other events that do not contain a significant effort to promote the export sales of products normally sold to the U.S. government. It also disallows the costs of sponsoring meetings, conventions, symposia, seminars, and other events where the principal purpose is not to disseminate technical information or stimulate production.

With that in mind, let's look at some types of gatherings that occur around the country and elsewhere, every year:

Antique car conventions.
Arts and crafts fairs.
Boat shows.
Home and garden shows.
Large-scale live events conventions.
Literacy conventions.
Pet owners' conventions.
Science fiction conventions.

On the face of it, the costs of attending any of these would seem to immediately fall into the category of disallowable expenses because they have nothing to do with trade or business related to work for the federal government. But let's take a closer look.

What if an employee from your information technology web architecture group asks to attend the Inclusive Learning Technologies Conference -- a literacy convention? Sure the employee is kidding. But the staff member explains that a large portion of the conference is dedicated to technologies that remove obstacles that prevent various disabled persons to access electronic information. The employee plans to identify technologies your company can deploy within its existing technological architecture that will enhance -- or even provide -- disabled employees access to company resources available through the intranet.

Armed with that additional information, it appears your business will be able to claim the expense of attending the conference because the principal purpose is to gather technical information that will improve the productivity of other employees.

Be certain you clearly document the purpose of attending or sponsoring such conventions -- often the name of an event can lead auditors to misconstrue its true nature or purpose. Take, for example, Event Live Expo. The purpose of this annual event is to "connect owners, operators and promoters of the largest live events across North America and the rest of the world including those of major music festivals, public events, corporate product launches and one-off celebrations." That doesn't sound very much like an allowable expense.

Now consider how your organization will document the reason staff went to the trade show. The employees who attend are those responsible for the ship-launching ceremonies required in your company's shipbuilding contracts with the U.S. Navy. Once again, your company may be able to claim costs related to an apparently disallowable event once it clearly documents principal purpose it sent specific employees.

Tip: The cost of attending a convention or sponsoring an exhibit at a convention is generally allowable when you can answer yes to at least one of these questions:

Is the primary purpose of the event to disseminate trade, business, technical or professional information?
Is the intent to stimulate production?
Is the primary reason to improve productivity?

Be particularly certain that the answer to at least one of those questions is yes when any of the following statements are true:

The primary purpose of the convention appears social.
The main attraction is fun rather than business.
The convention is about a business unrelated to your organization's government contracting work.

Always document the primary purpose of the event and your attendance or sponsorship. And always evaluate a cost for reasonableness and allocability. When in doubt, check with your government contracts adviser.

Greater Washington DC Region Philanthropy Drops 9.6%

Tue, 20 Jul 2010 16:41:00 -0400

The Center for Nonprofit Advancement recently reported that foundation-based giving in the Washington area dropped by 9.6% in 2009. The recent recession plays a major role in the reported drop, and the full impact may not be realized until 2010.

Click here to access the full report from the Washington Regional Association of Grantmakers.

Summertime Child Care Expenses May Qualify for a Tax Credit

Tue, 20 Jul 2010 16:00:00 -0400

Did you know that your summer day care expenses may qualify for an income tax credit? Many parents who work or are looking for work must arrange for care of their children under 13 years of age during the school vacation. Those expenses may help you get a credit on next year's tax return.

Here are five facts the IRS wants you to know about a tax credit available for child care expenses. The Child and Dependent Care Credit is available for expenses incurred during the lazy hazy days of summer and throughout the rest of the year.

The cost of day camp may count as an expense towards the child and dependent care credit.
Expenses for overnight camps do not qualify.
If your childcare provider is a sitter at your home or a daycare facility outside the home, you'll get some tax benefit if you qualify for the credit.
The actual credit can be up to 35 percent of your qualifying expenses, depending upon your income.
You may use up to $3,000 of the unreimbursed expenses paid in a year for one qualifying individual or $6,000 for two or more qualifying individuals to figure the credit.

For more information check out IRS Publication 503, Child and Dependent Care Expenses. This publication is available here on the IRS Web site or by calling 800-TAX-FORM (800-829-3676).

Gail Fisher Published In WBO Networker

Tue, 20 Jul 2010 11:33:00 -0400

E.Cohen and Company, CPAs is proud to announce that Gail Fisher has penned an informative and well-received article in the summer 2010 issue of Women Business Owners of Montgomery County's Networker. WBO provides support and networking for women who own and operate their own businesses, giving them tools to help manage and grow their business.

Gail's article is entitled "Small Business Incentives Under New Tax Laws". Click the "Download" icon below to access a PDF of Gail's article. Congratulations Gail on a job well done!

Does Your Organization Qualify for the New Health Tax Credit?

Wed, 14 Jul 2010 12:00:00 -0400

You've likely heard about the new tax credit for small organizations that provide healthcare coverage. Does your business or not-for-profit qualify? Is the credit worthwhile enough that companies that do not offer coverage will now start?

The recently enacted healthcare legislation includes a new tax credit for qualifying small employers. The credit can cover up to 35 percent of employee health insurance costs. It is available for tax years beginning in 2010, and can be claimed for eligible costs incurred before the healthcare legislation became law.

Does your company qualify for the credit? As with most tax topics, there's no simple answer. Here are the qualification rules.

Basics About the Credit

A qualifying small employer is one that:

Has no more than 25 full-time-equivalent (FTE) workers;
Pays an average FTE wage of no more than $50,000; and
Has a qualifying healthcare arrangement in place.

A qualifying healthcare arrangement is one that requires the employer to:

Pay at least 50 percent of the cost of each enrolled employee's coverage; and
Pay the same cost percentage for all enrolled employees. However, for tax years beginning in 2010, this uniform cost percentage requirement does not apply. Instead, a favorable transition rule allows you to pay an amount equal to at least 50 percent of the cost of single coverage for all enrolled employees (including those with more-expensive family or self-plus-one coverage). To be eligible for the credit in later years, however, you must pay the same cost percentage for all enrolled employees, including those with more expensive coverage.

In the typical situation in which the employer pays less than 100 percent of the cost of coverage (with employees picking up the balance), the credit can only be claimed for the percentage of the cost that is paid by the employer.

Healthcare premiums paid under a Section 125 cafeteria benefit plan salary-reduction arrangement do not count as an employer-paid cost.

The credit is allowed for all types of qualifying small employers, including C and S corporations, partnerships, LLCs, and sole proprietorships. However, certain workers who are also owners are classified as excluded workers, and costs to cover them are ineligible for the credit. Specifically, sole proprietors, partners, more-than-2 percent S corporation shareholder-employees, and more-than-5 percent C corporation shareholder-employees are excluded workers. Most employees who are members of these type of owners' families, including in-laws, are also classified as excluded workers, and costs to cover them are also ineligible for the credit.

Key Point. An employee who is married to a more-than-2 percent S corporation shareholder or a more-than-5 percent C corporation shareholder is an excluded worker. However, it is unclear if an employee who is married to a sole proprietor or a partner is an excluded worker. We are awaiting IRS guidance on that issue.

Calculating FTE Employees and Wages

As you will see, a complicated phase-out rule quickly reduces the credit if your business has over 10 FTE employees or an average full-time wage above $25,000. The credit is completely phased out once the number of FTE employees reaches 25 or the average wage reaches 50,000. Therefore, the FTE employee and wage calculations are really important in many cases. Here is the drill.

The number of FTE employees is calculated by dividing total paid employee hours for the year by 2,080. However, if a worker is paid for more than 2,080 hours, the excess hours are excluded from the calculation. Seasonal employees who work 120 days or less during the year (counting all days that any hours are worked) are also excluded from the calculation. The calculated number of FTE employees is then rounded down to the next whole number.

The average FTE wage for the year is calculated by dividing total employee wages by the number of FTE employees. Wages paid to seasonal employees who work 120 days or less (counting all days that any hours are worked) are excluded from the calculation. The calculated FTE wage amount is then rounded down to the next multiple of $1,000.

Because the credit cannot be claimed for costs to cover excluded workers (certain owners and their relatives, as explained earlier), their hours and wages aren't counted in determining the number of FTE employees or the average wage.

Key Point. As you can see, a business can have more than 25 workers and still be eligible for the credit if some of the workers are part-time employees, seasonal employees, or excluded workers.

Calculating the Tentative Credit

The maximum possible credit, which we will call the tentative credit, equals 35 percent of the lesser of:

The employer's real-world cost of providing employee health coverage under its qualifying arrangement; or
The imaginary cost to obtain "benchmark" coverage in the small-group market as determined on a state-by-state basis by the U.S. Department of Health and Human Services.

In the typical situation in which the employer pays less than 100 percent of the coverage cost, the tentative credit is calculated by multiplying the real-world cost or the imaginary benchmark cost (whichever is less) by the cost percentage paid by the employer.

The benchmark costs for tax years beginning in 2010 were published in IRS Revenue Ruling 2010-13. For higher-cost areas in some states, there may be additional 2010 benchmark costs later on.

Calculating the Allowable Credit after the Phase-Out Rule

An employer's allowable credit (the amount that can actually be claimed on the employer's federal income tax return) equals the tentative credit (based on 35 percent of the applicable healthcare cost figure) only when the employer has:

10 or fewer FTE employees; and
An average FTE wage of $25,000 or less.

If the employer has more employees and/or a higher average wage, the allowable credit is quickly reduced under a complicated two-tiered phase-out rule that your tax adviser will calculate.

When all is said and done, the credit will only provide meaningful benefits to truly small employers that pay modest wages. Unfortunately, such employers often don't provide company-paid health coverage.

Special Rules for Tax-Exempt Employers

For qualified small employers that are tax-exempt not-for-profit entities, the maximum credit percentage is 25 percent, and the phase-out rule explained above applies to them, too. In addition, the allowable credit amount for the year cannot exceed the sum of:

1. Federal income tax and 1.45 percent Medicare tax withheld from employee wages for that year; plus

2. The employer's 1.45 percent Medicare tax on wages for that year. Since there is no federal income tax liability to offset, the allowable credit amount for a tax-exempt employer is refunded to the employer in cash.

Other Considerations and Conclusion

The credit can be claimed for eligible healthcare costs incurred in tax years beginning in 2010 -- before the healthcare legislation was enacted.
An employer's federal tax deduction for employee health costs is reduced by the amount of the credit.
The credit is classified as a specified general business credit. As such, it can be used to offset both regular federal income tax and any alternative minimum tax. It cannot be used to offset federal employment tax liabilities. Unused credit amounts can be carried back for one year (but not to any pre-2010 year) and ahead for 20 years. Therefore, unused credits for tax years beginning in 2010 can only be carried forward.

Presumably, a fair number of small businesses that already provide health coverage will qualify for the credit. In this economy, it may not prompt many small businesses to suddenly start providing insurance. The fact that the credit rules are so complicated does not help matters. Consult with your ECC tax adviser about questions in your situation.

Business Wisdom for Today's Economy:

Rules Issued for "Grandfathered" Health Plans

Three agencies of the federal government have issued interim rules for health plans that were in existence when the Patient Protection and Affordable Care Act was enacted on March 23, 2010.

Under the healthcare legislation, "grandfathered" health plans are only subject to certain provisions. The interim rules were issued by the Departments of the Treasury, Labor and Health and Human Services. Your company's employee benefits professional can provide more information.

Legislation Extends Closing Date for Homebuyer Credit

Tue, 13 Jul 2010 14:43:00 -0400

On June 30, Congress passed H.R. 5623, the Homebuyer Assistance Improvement Act of 2010. The Act, which is now cleared for the President's signature, provides first-time homebuyer credit relief to taxpayers who couldn't meet a key June 30, 2010, closing date.

Under prior law, both the regular Code 36 first-time homebuyer credit of $8,000 and the reduced credit of $6,500 for long-term residents generally expired for homes purchased after Apr. 30, 2010. However, if a written binding contract to purchase a principal residence was entered into before May 1, 2010, the credit could be claimed if the purchase closed before July 1, 2010.

The Act amends Code Sec. 36(h)(2) to provide that if a written binding contract to purchase a principal residence was entered into before May 1, 2010, the credit may be claimed if the purchase is closed before Oct. 1, 2010. Thus, this extension allows homebuyers who signed a contract no later than the April 30th deadline to complete their closing by the end of September.

The three-month extension of the closing date provides tax relief for those who couldn't close on time because of backlogs at lenders and federal programs involved in homebuyer loans. In the words of the Act's supporters, the three-month extension "will give time for all the new mortgages to be processed and not punish those homeowners who have been delayed through no fault of their own."

The cost of the three-month closing reprieve is fully offset with revenue raisers, including these tax changes: expanding the bad check penalty under Code Sec. 6657 to cover electronic payments, effective for instruments tendered after the enactment date; and providing for disclosure of prisoner return information under Code Sec. 6103(k)(10) to state prisons, effective for disclosures after the enactment date.

Changes in Guidelines for Government Contractors' Airfare Purchases

Wed, 19 May 2010 13:35:00 -0400

DCAA has issued guidance for its auditors in implementing the recent change to FAR Part 31.205-46. The Travel Cost Principle was changed earlier this year to limit allowable airfare costs to the lowest airfare available to the contractor. Prior to the change, allowable airfare costs were limited to "the lowest customary standard, coach, or equivalent airfare."

DCAA has issued guidance[1] for its auditors in implementing the recent change to FAR Part 31.205-46. The Travel Cost Principle was changed earlier this year to limit allowable airfare costs to the lowest airfare available to the contractor. [2] Prior to the change, allowable airfare costs were limited to "the lowest customary standard, coach, or equivalent airfare."

This FAR change is premised on the assumption that contractors can get lower airfares than those available to the general public. In its discussion of the change, the FAR Councils stated:

"The (airfare) limitation was being interpreted inconsistently, either as lowest coach fare available to the contractor or lowest coach fare available to the general public, and these inconsistent interpretations can lead to confusion regarding what costs are allowable. The Councils believe that the reasonable standard to apply in determining the allowability of airfares is the lowest priced airfare available to the contractor. It is not prudent to allow the costs of the lowest priced airfares available to the general public when contractors have obtained lower priced airfares as a result of direct negotiation."

The DCAA guidance states:

"Auditors should question airfare costs claimed in excess of the lowest airfare available to the contractor. Generally, this is based on airfares available to the contractor through direct negotiation with airlines or travel agents."

This new rule and the DCAA guidance work fine for large contractors who have significant purchasing power and can negotiate directly with the airlines, but what about the great majority of contractors who do not have this capability?

The DCAA guidance places an additional burden of documentation on contractors and brings in the issue of nonrefundable airfares (which previously were not considered in the "lowest airfare" test):

"To comply with the revised rule, the contractor's policies and procedures should provide for advance planning of travel to assure that the lowest priced airfare available to the contractor for flights during normal business hours is documented and utilized as the baseline allowable airfare cost. To determine the lowest airfare available to the contractor for flights during normal business hours, the contractor must now consider nonrefundable airfares and lower airfares negotiated with airlines, travel service providers, credit card companies, etc. However, auditors should not question airfare costs claimed in excess of nonrefundable airfare available during normal business hours if the contractor's data show that its experience with canceling nonrefundable tickets results in increased cost in comparison to the cost of refundable tickets. The contractor must utilize the lowest airfare so determined as the baseline allowable airfare cost unless substantiating documentation is maintained for one of the exceptions to the lowest priced airfare requirement in FAR 31.205-46(b)."

From personal experience, I know that the cost of canceling nonrefundable tickets can be significant. I also know that the burden on contractors to develop "experience" to show that use of nonrefundable tickets results in increased cost in comparison to the cost of refundable tickets will be significant.

The DCAA guidance also brings into play a requirement for documentation of "price competition" in support of airfare costs:

"Ordinarily, with adequate advance planning, documentation substantiating the lowest airfare available takes the form of quotations from competing airlines or travel service providers from which the lowest priced airfare can be selected, giving proper consideration to any potential discounts or credits to the contractor's cost. There may be instances where only one flight is available for a given mission need and, therefore, only one quote is obtained, in which case the one quotation would substantiate the lowest priced airfare available. However, auditors observing frequent instances in which a single quotation is obtained to support the airfare should assess whether the design or execution of the contractor's policies and procedures results in unreasonable airfare costs."

The change to the Travel Cost Principle was no doubt required. I believe it was a good first step. However, the bias towards large contractors who have advance agreements with the airlines clouds the picture for the vast majority of government contractors who now must revise policies and procedures to protect against DCAA claims of unallowable airfare costs.

**This article was contributed by Joe Higgins, of JTH Consulting, LLC. E. Cohen and Company, CPAs has teamed with JTH Consulting, LLC to offer government contractors a thought provoking Series of Articles and Upcoming Training Sessions on "Helping Federal Contractors Meet Today's Challenges".

[1] Audit Guidance on Revision to FAR 31.205-46(b) and (c) - Limiting Airfare to the Lowest Airfare Available to the Contractor, 10-PAC-010, March 22,2010

[2] 74 FR 65616, December 10, 2009, effective January 10, 2010

FIN 48 for Business Clients: Accounting for Uncertainty in Income Taxes

Tue, 02 Mar 2010 16:24:00 -0400

Businesses should be aware of changes the Financial Accounting Standards Board ("FASB") has made to certain accounting pronouncements that may have an effect on your financial statements. For years ended after December 15, 2009, all non public entities preparing financial statements in accordance with U.S. Generally Accepted Accounting Principles (GAAP) must adopt the accounting pronouncement FASB ASC 740-10 Accounting for Uncertainty in Income Taxes (the Pronouncement).

The Pronouncement, originally referred to as FIN-48, was issued in 2006 and has been in effect for public entities since that time. Its enactment for all non public entities, including nonprofits, was delayed to provide guidance for pass-through entities (S-Corps, Partnerships, LLC's, etc.) and not for profit organizations. The Pronouncement applies to all GAAP based financial statements, other than personal financial statements, whether audited, reviewed or compiled.

The Pronouncement requires the entity to review and analyze all "tax positions" taken by an entity and assess the potential for recording a liability for positions where it is "uncertain that the tax position will be allowed." We do not anticipate there will be a need to record any additional tax liability however you will see additional footnote disclosures.

On the surface, this may not seem like it has much consequence to non public companies. However, the requirement to analyze tax positions affects many items that go into the preparation of tax returns. We will be required to perform additional analysis and we may request information that we have not requested in the past, including:

· For all entities, we may have to more closely examine and perform additional analysis for a number of income tax related accounts.

· Additional inquires may be made related to State income taxes and the locations in which the Company is conducting business.

· If we were not the preparer, we will request copies of income tax returns for all open years (typically three years).

· For S-corporations, we will request a copy of the original S-Corp election (IRS Form 2553).

As your accountants, our goal is to assist you in complying with the Pronouncement while minimizing the impact from the standpoint of additional demands on you and your staff, as well as additional accounting fees.

FIN 48 for Not-For-Profit Organizations: Accounting for Uncertainty in Income Taxes

Tue, 02 Mar 2010 16:19:00 -0400

Not-For-Profit Organizations should be aware of changes the Financial Accounting Standards Board ("FASB") has made to certain accounting pronouncements that may have an effect on your financial statements. For years ended after December 15, 2009, all non public entities preparing financial statements in accordance with U.S. Generally Accepted Accounting Principles (GAAP) must adopt the accounting pronouncement FASB ASC 740-10 Accounting for Uncertainty in Income Taxes (the Pronouncement).

The Pronouncement applies to all GAAP based financial statements, other than personal financial statements, whether audited, reviewed or compiled.

The Pronouncement, originally referred to as FIN-48, was issued in 2006 and has been in effect for public entities since that time. Its enactment for all non public entities, including nonprofits, was delayed to provide guidance for pass-through entities (S-Corps, Partnerships, LLC's, etc.) and not for profit organizations. The Pronouncement applies to all GAAP based financial statements, other than personal financial statements, whether audited, reviewed or compiled.

The Pronouncement requires the review and analysis of all "tax positions" taken by an entity and the potential for recording a liability for positions where it is "uncertain that the tax benefit will be allowed."

For most clients where we prepare both the financial statements and information returns, we do not anticipate the need to record any additional tax liability and the only change you will see is additional footnote disclosures. However, we will be required to perform additional analysis and we may request information that we have not requested in the past, including:

· For all entities, we may have to more closely examine and perform additional analysis for a number of income tax related accounts.

· Additional inquires may be made related to State income taxes and the locations in which the Organization is conducting business.

· If we were not the preparer, we will request copies of income tax returns for all open years (typically three years).

· The potential impact of unrelated business income tax will be considered.

· We will request a copy of the original non-profit application (Form 1023 or 1024).

· We will make inquiries and perform analysis to assure the current operations fall under the organization's approved tax exempt purpose.

Congratulations to ECC Clients Named 2010 Smart100 CEOs in Washington

Tue, 02 Mar 2010 16:18:00 -0400

ECC is proud to recognize two of our clients named to Washington Smart CEOs Top 100 List of CEOs for 2010. Stephanie Cohen from Golden & Cohen and Mark McIntosh from Sim-G Technologies, Inc. have been awarded this prestigious honor.

This exclusive group of the region's top executives, selected by an independent selection committee, was chosen on the basis of their leadership qualities, strategic vision and character, in addition to their clear ability to grow their organizations.

Each Smart100 CEO will be profiled in the 100-plus-page annual Smart100 Book, which SmartCEO will publish as its 13th issue in May. The Smart100 companies represent a variety of industries including government contracting, information technology, consulting, travel services, financial services and video production. The Smart100 are also listed online at www.smartceo.com on pages 50 and 51 of the digital magazine.

Congratulations Stephanie and Mark! To learn more about these CEOs and their dynamic companies, please take a peek at their websites at www.golden-cohen.com and www.sim-gtech.com

Proposed DOD Regulation Puts Contractor Payments in Jeopardy

Tue, 02 Mar 2010 16:02:00 -0400

On January 15, 2010, the Department of Defense ("DoD") unveiled a proposal to amend the Defense Federal Acquisition Regulation Supplement ("DFARS") to require withholding of contractor payments for contractor failure to maintain "acceptable business systems." Business systems covered by the new rule would include accounting systems, estimating systems, purchasing systems, earned value management systems (EVMS), material management and accounting systems (MMAS), and property management systems.

As a government contractor, you know when the Department of Defense ("DoD") enacts a new DFARS regulation, the entire Federal Government doesn't take long to follow suit with a comparable Federal Acquisitions Regulation ("FAR"). Recently, the DoD unveiled a proposal that would greatly impact the government contractor community, and in particular, small to medium-sized government contractors.

The proposal, unveiled on January 15, 2010, is keynoted as follows:

"Contractor business systems and internal controls are the first line of defense against waste, fraud, and abuse. Weak control systems increase the risk of unallowable and unreasonable costs on Government contracts. To improve the effectiveness of . . . oversight of contractor business systems, DoD is considering a rule to clarify the definition and administration of contractor business systems . . ."

Business systems covered by the new rule would include:

Accounting systems,
Estimating systems,
Purchasing systems,
Earned value management systems (EVMS),
Material management and accounting systems (MMAS), and
Property management systems.

A new contract clause would require the Administrative Contracting Officer (ACO) to:

". . . immediately withhold ten percent of each of the Contractor's payments . . ." once the ACO makes a final determination that a business system contains deficiencies.

The clause further specifies:

". . if the ACO is withholding payments for deficiencies in more than one business system, the cumulative percentage of payments withheld shall not exceed fifty percent . . . if the ACO determines that there are one or more system deficiencies that are highly likely to lead to improper contract payments being made, or represent an unacceptable risk of loss to the Government, then the ACO will withhold up to one-hundred percent of payments until the ACO determines that the Contractor has corrected the deficiencies".

This clause would be required in solicitations and contracts when contemplating:

A cost-reimbursement, incentive type, time-and-materials, or labor-hour contract;
A fixed-price contract with progress payments made on the basis of costs incurred by the contractor or on a percentage or stage of completion;
A construction contract that includes the clause 52.232-27, Prompt Payment for Construction Contracts.

While the proposed regulation relies in large part on existing guidance on determining adequacy of estimating systems, EVMS, MMAS and property management systems, new clauses are proposed that cover accounting systems and purchasing systems. These new clauses greatly codify requirements that heretofore were matters of judgment and organizational style for many contractors.

Purchasing Systems

Another proposed clause, "Contractor purchasing system administration", describes a purchasing system as follows:

" . . the Contractor's system or systems for purchasing and subcontracting including make or buy decisions, the selection of vendors, analysis of quoted prices, negotiation of prices with vendors, placing and administering of orders, and expediting delivery of materials.."

Similar to the accounting system clause discussed to the right, the clause defines a deficiency as "a failure to maintain an element of an acceptable purchasing system" and provides another list of seventeen (17) "elements" of an acceptable system:

1. Have an adequate system description including policies, procedures, and operating instructions that comply with the FAR and DFARS.

2. Ensure that all applicable purchase orders and subcontracts contain all flow down clauses, including terms and conditions and any other clauses needed to carry out the requirements of the prime contract.

3. Maintain an organization plan that establishes clear lines of authority and responsibility.

4. Purchase orders are based on authorized requisitions and include complete history files.

5. Establish and maintain adequate documentation to provide a complete and accurate history of purchase transactions to support vendors selected and prices paid.

6. Apply a consistent make or buy policy that is in the best interest of the Government.

7. Use competitive sourcing to the maximum extent practicable and ensure debarred or suspended contractors are properly excluded from contract award.

8. Evaluate price, quality, delivery, technical capabilities, and financial capabilities of competing vendors.

9. Require management level justification and cost/price analysis as applicable for any sole or single source award.

10. Perform appropriate cost or price analysis and technical evaluation for each subcontractor and supplier proposal or quote.

11. Document negotiations in accordance with FAR 15.406-3.

12. Seek, take, and document appropriate purchase discounts, including cash discounts, trade discounts, quantity discounts, rebates, freight allowances, and company-wide volume discounts.

13. Ensure proper type of contract selection and prohibit issuance of cost-plus-a-percentage-of-cost subcontracts.

14. Maintain subcontract surveillance to ensure timely delivery of an acceptable product and procedures to notify the Government of potential subcontract problems that may impact delivery, quantity, or price.

15. Document and justify reasons for subcontract changes that affect cost or price.

16. Notify the Government of the award of an auditable subcontract and perform adequate audits of those subcontracts.

17. Enforce adequate policies on conflict of interest, gifts, and gratuities, including the requirements of the Anti-Kickback Act.

Important: This pending change to requirements will surely place increased scrutiny on contractor business systems. And, once this change is implemented, the consequences of non-compliance could be very serious.

ECC has teamed with JTH Consulting, LLC to offer a Special Series: Helping Government Contractors Meet Today's Challenges. This article is our first installment in the series of articles and upcoming training sessions. Contact info@ecohencpas.com if you would like more information on the upcoming training session.

Important 2010 Tax Figures

Mon, 01 Feb 2010 23:11:00 -0400

Every year, the dollar amounts allowed for various federal tax benefits are subject to change based on inflation adjustments and legislation. For 2010, many amounts will remain unchanged or change only slightly because inflation has been so low.

Here are some important tax figures for the current year, including the Social Security wage base, qualified retirement plan and IRA contribution limits, driving deductions, allowable business write-off amounts and more:

Social Security/ Medicare	2010	2009
Social Security Tax Wage Base	$106,800	$106,800
Medicare Tax Wage Base	No limit	No limit
Individual Retirement Accounts	2010	2009
Roth IRA Individual, up to 100% of earned income	$ 5,000	$ 5,000
Traditional IRA Individual, up to 100% of earned Income	$ 5,000	$ 5,000
Roth and traditional IRA additional annual "catch-up" contributions for account owners age 50 and older	$ 1,000	$ 1,000
Qualified Plan Limits	2010	2009
Defined Contribution Plan Dollar limit on additions on Sections 415(c)(1)(A)	$ 49,000	$ 49,000
Defined Benefit Plan limit on benefits (Section 415(b)(1)(A))	$195,000	$195,000
Maximum compensation used to determine contributions	$245,000	$245,000
401(k), SARSEP, 403(b) Deferrals (Section 402(g)), & 457 deferrals (Section 457(b)(2))	$ 16,500	$ 16,500
401(k), 403(b), 457 & SARSEP additional "catch-up" contributions for employees age 50 and older	$ 5,500	$ 5,500
SIMPLE deferrals (Section 408(p)(2)(A))	$ 11,500	$ 11,500
SIMPLE additional "catch-up" contributions for employees age 50 and older	$ 2,500	$ 2,500
Compensation defining highly compensated employee (Section 414(q)(1)(B))	$110,000	$110,000
Compensation defining key employee (officer)	$160,000	$160,000
Compensation triggering Simplified Employee Pension contribution requirement (Section 408(k)(2)(c))	$ 550	$ 550
Driving Deductions	2010	2009
Business mileage, per mile	50 cents	55 cents
Charitable mileage, per mile	14 cents	14 cents
Medical and moving, per mile	16.5 cents	24 cents
Business Equipment	2010	2009
Maximum Section 179 deduction	$134,000 *	$250,000 *
Phaseout for Section 179	$530,000	$800,000
Transportation Fringe Benefit Exclusion	2010	2009
Monthly commuter highway vehicle and transit pass	$ 230	$ 230
Monthly qualified parking	$ 230	$ 230
Domestic Production Activities Deduction	2010	2009
Percent of qualifying business net income	9 percent (6% for oil and gas companies)	6 percent
Standard Deduction	2010	2009
Married filing jointly	$ 11,400	$ 11,400
Single (and married filing separately)	$ 5,700	$ 5,700
Heads of Household	$ 8,400	$ 8,350
Personal Exemption	2010	2009
Amount	$ 3,650	$ 3,650
Domestic Employees	2010	2009
Threshold when a domestic employer must withhold and pay FICA for babysitters, house cleaners, etc.	$ 1,700	$ 1,700
Kiddie Tax	2010	2009
Net unearned income not subject to the "Kiddie Tax"	$ 1,900	$ 1,900
Estate Tax	2010	2009
Federal Estate Tax Exemption	repealed **	$3.5 million
Annual Gift Exclusion	2010	2009
Amount you can give each recipient	$13,000	$ 13,000
IRS Interest Rates	2010 (1st quarter)	2009 (4th quarter)
Tax overpayments	4 percent (3 percent for corporations; 1.5 percent for the part of corporate overpayments exceeding $10,000)	4 percent (3 percent for corporations; 1.5 percent for the part of corporate overpayments exceeding $10,000)
Tax underpayments	4 percent (6 percent for large corporate underpayments)	4 percent (6 percent for large corporate underpayments)