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FASB Releases Simplification for the Accounting for Goodwill for Private Companies
Posted by Patrick Quinn on Thu, Mar 27, 2014 @ 09:02 AM

In January 2014, the FASB released Accounting Standard Update 2014-02 Intangibles – Goodwill and Other (Topic 350): Accounting for Goodwill (ASU 2014-02). ASU 2014-02 is the first standard issued by the Financial Standards Accounting Board (FASB) upon endorsement of a consensus of the Private Company Council (PCC) that is specifically designed to meet the needs of private companies by providing an alternative within US GAAP.

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Topics: private companies, FASB, Patrick Quinn

IRS Issues Implementation Guidance on Tangible Property Regulations
Posted by Carl Giardino on Wed, Mar 26, 2014 @ 09:14 AM

On January 24, the IRS issued Rev. Proc. 2014-16 clarifying the automatic consent procedures for accounting method changes required or permitted by the temporary and final tangible property regulations issued last September (see our Federal Tax Alert, Updated Tangible Property Rules Expand Safe Harbors, Disposition Rules). Please note that Rev. Proc. 2014-16 modifies Rev. Proc. 2012-19 and rev. Proc. 2011-14.

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Topics: Tangible Property Regulations, IRS, IRS Updates, Carl Giardino

Companies Should Consider Early Adoption of New FASB Standards on Liquidation Basis Accounting
Posted by Brendan Donovan on Fri, Mar 21, 2014 @ 09:31 AM

In an effort to improve financial reporting and reduce the diversity in practice, the Financial Accounting Standards Board (FASB) on April 22, 2013 issued an Accounting Standards Update ASU No. 2013-07, Presentation of Financial Statements (Topic 205): Liquidation Basis of Accounting, clarifying when and how public and private companies and not-for-profit organizations should prepare financial statements using this method.

About Liquidation

Liquidation enables a business to convert assets to cash (or other assets) to satisfy creditors before permanently suspending operations. The process requires an entity to “measure its assets at the estimated amount of cash or other consideration it expects to collect and its liabilities at the amount otherwise prescribed under U.S. GAAP,” according to FASB. Further, the board says, “an organization in liquidation must prepare its financial statements using a basis of accounting that communicates information to users of those financial statements to enable those users to develop expectations about how much the organization will have available for distribution to investors after disposing of its assets and settling its obligations.”

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Topics: Brendan Donovan, FASB, Liquidation Basis Accounting, liquidation

Recent Developments Concerning the Domestic Production Activities Deduction
Posted by Kristen Shepley on Thu, Mar 20, 2014 @ 09:04 AM

In the past year, there have been several developments concerning the application of the IRC §199 Domestic Production Activities Deduction ("DPAD"). The DPAD provides eligible taxpayers a deduction of up to 9% of their taxable income from qualifying production activities. Many of these recent developments provide guidance on the types of activities that qualify as "manufacturing or production" for purposes of the DPAD. Taxpayers currently not claiming the DPAD should review their position in light of these rulings.

Background

The DPAD enables domestic manufacturers and producers to deduct for the tax year 9% of the lesser of:

  1. The taxpayer's qualified production activities income ("QPAI"), or
  2. The taxpayer's taxable income (modified adjusted gross income, for individual taxpayers), without regard to the DPAD.

The DPAD cannot exceed 50% of the W-2 wages from domestic production activities of the taxpayer. Under (2) above, taxpayers with an overall net loss receive no DPAD benefit.

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Topics: tax issues, tax update, Domestic Production Activities Deduction

Accounting for Certain Interest Rate Swaps for Private Companies Simplified
Posted by Joyce Masse Troy on Wed, Mar 19, 2014 @ 08:35 PM

In January 2014, the FASB released Accounting Standard Update 2014-03 Derivatives and Hedging (Topic 815): Accounting for Certain Receive – Variable, Pay – Fixed Interest Rate Swaps (ASU 2014-03). ASU 2014-03 is the second standard issued by the FASB upon endorsement of a consensus of the Private Company Council that is specifically designed to meet the needs of private companies by providing an alternative within US GAAP.

The Issue

Companies that are unable to borrow at fixed rates often rely on variable-rate debt combined with an interest rate swap. In effect, they receive variable rates and pay fixed rates. The net effect is similar to borrowing at fixed rates. But the accounting and disclosure requirements are considerably more complex when an interest rate swap is involved.

Current accounting standards require companies to recognize all their derivative instruments (including interest swaps) on their balance sheets as assets or liabilities and to measure them at fair value. The standards allow companies to mitigate the income statement effect of any swings in fair value attributable to interest rate risks by applying an accounting method known as "cash flow hedge" accounting. This technique has the effect of presenting interest expense in the income statement as if the company had a fixed rate debt. But some entities, especially private companies, have expressed concerns about the practical difficulties involved in applying the current standards.

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Topics: private companies, private company, Joyce Masse Troy, FASB

IRS Grants Extension of Time to Make Late Portability Election for Certain Estates
Posted by Kristen Shepley on Wed, Mar 19, 2014 @ 04:28 PM

In estate planning, the concept of "portability" of a deceased spouse's unused exclusion (DSUE) amount is relatively new. For decedents dying after December 31, 2010, if a first-to-die spouse has not fully used the estate tax exclusion, the DSUE amount can be transferred to the surviving spouse. This was originally passed as a two-year temporary provision (effective for 2011 and 2012) until it was made permanent in the American Taxpayer Relief Act of 2012.

Portability provides an alternative approach to fulfill a common estate planning goal of a married couple to take full advantage of both spouses' estate tax exclusions. Prior to portability, this was typically accomplished by funding a "bypass trust" (also known as a credit shelter trust) at the death of the first-to-die spouse with the exclusion amount and leaving the balance of the estate to qualify for the unlimited marital deduction. Now that portability is also an option, estate planners should determine which approach is better for a specific situation. Portability may be beneficial for certain estates and not others, but that is beyond the scope of this article.

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Topics: IRS Updates, estate planning, portability

Market-Based Sourcing Rules Increase Tax Burden on Out-of-State Service Providers; Allow Massachusetts to Generate Increased Revenue
Posted by Tarra Curran on Mon, Mar 17, 2014 @ 09:11 AM

On July 26, 2013 Massachusetts lawmakers voted to override Gov. Deval Patrick’s veto of a proposed transportation finance bill (H. 3535) – legislation intended to remedy some of the Commonwealth’s most pressing MBTA, road and bridge problems, and limit MBTA fare increases.

Several new taxes were proposed to pay for the transportation improvements, including a controversial portion of the Act that imposed sales tax on computer software and services. While that proposal was repealed by subsequent legislation, approved was a mandate for Massachusetts businesses to move to market-based sourcing.

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Topics: Tarra Curran, Market-Based Sourcing, Throw-Out Rule

Who Deducts Transaction Costs - Acquiring Corporation or Target Corporation?
Posted by Kristen Shepley on Thu, Mar 13, 2014 @ 09:18 AM

When one corporation acquires another, the legal, advisory and facilitation costs can be significant. Not only must the taxpayers determine to what extent those transaction costs are currently deductible, but they must also determine whether those costs are allocable to the target corporation immediately before the transaction or to the affiliated group after the transaction. Those determinations may impact tax attributes that pass to the affiliated group as well as who benefits from those tax deductions.

When a target corporation ("Target") is acquired and becomes part of the consolidated group of an acquiring corporation ("Acquiring"), Target's tax year ends on the date of acquisition and it must file a short-year tax return. Its short tax year closes at the end of the day of its status change (known as the "end of the day rule"). Subsequent to the date of acquisition, its activity becomes includible in the tax year of the common parent. The taxpayers may make an election under the consolidated return regulations to ratably allocate general items of income, gain, deduction, loss and credit between the two periods.

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Topics: tax issues, acquiring corporation, target corporation, tax deductions

New York Aims to Lose its Reputation for High Taxes with Cuomo’s Budget Proposal
Posted by Tarra Curran on Mon, Mar 10, 2014 @ 09:12 AM

On January 21, 2014 New York Gov. Andrew M. Cuomo announced an expansive $2 billion FY2014-2015 tax relief budget proposal intended to counteract New York’s reputation as a high-tax state and “create jobs, grow the economy and provide much-needed relief for struggling families.”

The $137.2 billion proposed budget represents a spending increase of less than 2 percent and is accompanied by business, property and estate tax relief. Specific cuts include those for property and business owners, renters and upstate manufacturers, among other constituents.

Among the most compelling proposals: shrinking the corporate income tax rate from 7.1 percent to 6.5 percent (by 2016) -- the lowest rate since 1968 -- and raising the estate tax exemption from $1 million to $5.25 million while cutting the top rate from 16 percent to 10 percent.

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Topics: Tarra Curran, tax, tax changes, Cuomo’s Budget Proposal

Is Your Corporation Entitled to Property Tax Benefits in Massachusetts?
Posted by Tarra Curran on Thu, Mar 6, 2014 @ 09:29 AM

Here’s how to ensure inclusion on the annual list of corporations for property tax relief and other purposes.

The Annual Certification of Entity Tax Status application is now available through WebFile for Business. A successful application places corporations on the Division of Local Services List of Corporations, a critical resource used by Massachusetts’ cities and towns to determine which entities treated as corporations are entitled to local property tax benefits.

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Topics: Tarra Curran, property tax relief, Property Tax Benefits

State and Local Tax (SALT) Issues and Strategies: 12 Common Questions in State Nexus Questionnaires
Posted by Tarra Curran on Mon, Mar 3, 2014 @ 09:13 AM

State and local taxes are multi-faceted, increasingly complex and demand attention. Not only are companies’ tax liabilities increasing as lawmakers look for new revenue sources, but state taxing authorities are becoming increasingly aggressive when it comes to collecting taxes. If you are conducting business in more than one state, you may be subject to income or franchise tax in those jurisdictions. The bad news: you may not have to have a physical presence in another state in order to be subject to taxation.

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Topics: Tarra Curran, tax strategies, state and local tax issues

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