Accounting and Assurance:
A New Series of Reporting Options for Service Organizations
Many service organizations and other entities are familiar with SAS 70 reports — reports prepared following the CPA profession’s Statement on Auditing Standards No. 70, Service Organizations…Click here to read complete article.

Tax:
IRS Eases Up on Local Lodging Deduction for Employees
The IRS has issued proposed “reliance” regulations that allow an employee’s deduction for local lodging that is business-related…Click here to read complete article.

Countdown to Supreme Court’s Health Care Decision
After three days of oral arguments in March, the Supreme Court is deciding the fate of the Pension Protection and Affordable Care Act (PPACA) and its companion law, the Health Care and Education Reconciliation Act (HCERA). Not only do the new laws impact health care, they contain numerous tax provisions…Click here to read complete article.

GAO Reports Confusion Over Foreign Account Reporting Under FATCA and FBAR
The U.S. government has been tightening its scrutiny of taxpayers who use foreign financial accounts to circumvent U.S. tax law…Click here to read complete article.

Bruner-Cox LLP Tax Partner Writes Article Featured in Canton Repository
Tax Partner David L. Groves writes in favor of centralizing collection of local income taxes across the state…Click here to read complete article.

Ohio General Tax Amnesty Program – Filing Period Open Until June 15, 2012
As part of the 2012-2013 Ohio budget bill, the state authorized a General Tax Amnesty Program for certain delinquent state and local taxes…Click here to read complete article.

Business Valuations:
Is It Time for A Business Valuation?
When is it time for a business valuation? A business valuation can provide detailed insights into the strengths and weaknesses of your company… Click here to read complete article.

Manufacturing:
The Best and the Worst States for Business Taxes
Corporate finance folks who are debating where to locate a new plant or call center will be interested in the latest report from the Tax Foundation… Click here to read complete article.

Properly Applying Sales Tax Exemptions
If a company is engaged in manufacturing, special attention is needed to apply the sales tax exemption properly.  Experience shows that manufacturers assume there is a valid exemption without obtaining an exemption certificate (Ohio and non-Ohio)... Click here to read complete article.

Firm News:
Bruner-Cox LLP Manager Receives Leadership Award

Bruner-Cox LLP Partner to Speak at Northeast Ohio Health Care Update June 15

The program runs from May 1, 2012, through June 15, 2012, and applies to taxes that were due and payable as of May 1, 2011. Taxpayers that previously received an assessment notice, audit notice or tax bill do not qualify for the program. Taxpayers participating in this program must pay the outstanding taxes owed and one-half of any accrued interest. However, the state will abate all applicable penalties and the other one-half of the accrued interest.

For more information about the application process, please contact your Bruner-Cox LLP engagement executive or, , State and Local Tax Leader at 330.497.200 ext. 4129.

When is it time for a business valuation?  Many believe a business valuation isn’t necessary unless a business owner is selling their business.  A few business owners would even suggest that a business valuation would not be needed even in that instance, as they already have a good understanding of what their company is worth.  Of course, there are certain triggering events in addition to buying or selling a business that would require a business valuation.

Below is a list of the most common triggering events in which a business valuation would be appropriate:
•    Buying or selling a business
•    Business financing
•    Buy-sell agreement
•    Strategic planning
•    Dissenting shareholder action
•    Marital dissolution
•    Gifting – as a tax strategy in your estate plan
•    Estate planning – or as the executor of an estate
•    Charitable contribution
•    Fairness opinion
•    Litigation or damages
•    Complying with FASB standards
•    Converting a C corporation to an S corporation

Less common triggering events might include the establishment of an ESOP (Employee Stock Ownership Program), eminent domain related issues, stock option plans, or compensation criteria.

However, even without one of these triggering events, it can be very beneficial to have a business valuation. A business valuation can provide detailed insights into the strengths and weaknesses of your company.  Understanding the value of a business can help in future business decisions such as timing the sale of a business, and for maximizing or minimizing the value.

Valuation Framework and Approaches
An analysis is performed on the business and a valuation method is selected based on the analysis, the interest being valued and the purpose of the valuation. The financial statements are but one starting point when setting a value for your company as important information could be missed if the analysis relies solely on the financial statements. Valuators select their valuation methods based on their analysis and all other relevant facts and circumstances.

There are three basic valuation approaches; however, within each separate approach are several methodologies which may be considered in performing the valuation. These include:

The income-based approach encompasses any number of methods that capitalize a company’s expected income or cash flow stream by determining the rate of return on investment required by a potential investor. It also sets the value at the amount appropriate to generate that rate of return. This method is often used in conjunction with a discounted cash flow analysis to estimate the present value of the future stream of net cash flows generated by the business.

The market-based approach compares a company to acquisitions of similar businesses or from the stock prices of comparable publicly traded companies. The valuator adjusts the data to account for differences between the subject company and comparable firms.

An asset-based approach is a general way of determining a value indication of a business using one or more methods based on the value of the assets net of the liabilities. This method is often used when a business’s earnings and cash flow don’t materially contribute to its value.

Beyond the method used to value a company, there are other factors that contribute to the value of a company.  Not surprisingly, most of these factors impact profitability.

What Makes Some Businesses More ‘Valuable’ than Others?
Many factors affect your company’s value. In addition to financial factors (e.g., profitability, revenue sources, cash flow, current debt and equity), some of the key factors affecting value include:

National and local economic conditions, especially costs of materials and availability of capital, can profoundly affect a company’s continued profitability. In addition, a particular industry’s economic outlook can have an impact on the value of a business. Markets, distribution channels and changes in production technology can greatly affect a company’s future potential and have a major impact on value.

The number and nature of current and potential competitors and their ease of entry into a company’s market can profoundly affect a company’s success. Reputation, market position, pricing policies and diversification of customer base significantly affect a company’s ability to generate earnings.

An established name and reputation, a customer base, a skilled work force and many other intangibles are what increase the value of a business above its tangible assets’ fair market value. They can greatly increase a company’s profitability.

Understanding the factors that determine the value of any business will pay tangible dividends by focusing on ways to increase your short and long-run profitability. Moreover, if you choose to sell your business at some point in the future, this knowledge will assist you in positioning your company to receive the highest price. Therefore, there is no time like the present to begin to understand what a business valuation is, under what circumstances a valuation is customarily completed, and the critical issues to watch out for when events dictate that you undertake a business valuation.

For more information about Bruner-Cox LLP valuation services, please contact Valuation Services Partner, at 330.497.2000.

Corporate finance folks who are debating where to locate a new plant or call center will be interested in the latest report from the Tax Foundation. Entitled “Location Matters: A Comparative Analysis of State Tax Costs on Business,” the report is an exhaustive look at all the various taxes that would come into play in different states (even different cities within the states) and for different types of operations — say, a new corporate headquarters versus a mature manufacturing operation. While it’s not news that tax codes contain provisions that favor one industry over another, the extent of the differences can be surprising, and show how looking just at an overall tax rate can be misleading.

The top states overall -that is, those with the lowest tax burden – for mature firms are: Wyoming, South Dakota, Georgia, Nevada and Ohio. For new firms, the winners are Nebraska, Louisiana, Ohio, Wisconsin and Oklahoma.

At the bottom of the list when it comes to the tax burden on mature firms: Rhode Island, Kansas, West Virginia, Hawaii and Pennsylvania. For new firms, it’s Maryland, Colorado, Kansas, Pennsylvania and Hawaii.

The study breaks this out even further, showing the total effective tax rates for mature corporate headquarters, mature R&D operations and a mature retail store. Wyoming, for instance, has the lowest rate for both corporate headquarters (8.3 percent) and retail stores (7.3 percent), while its effective tax rate for an R&D facility comes in third, at 6.7 percent.

Pennsylvania, on the other hand, comes in dead last on all three counts, with a 28 percent rate on corporate headquarters, 29.1 percent on R&D operations, and 31.2 percent on retail stores.

Nebraska, which has the overall lowest rate for new firms, is a much more mixed bag. Its rate for a new headquarters is the lowest of the 50 states, at 1.4 percent, while its rate for research operations, at -5 percent, is second lowest (Louisiana’s rate is -10.5 percent). However, its tax burden on new retail stores, at 35.3 percent, puts it at 32nd among the other states.

In fact, Nebraska is one of several states that seem to roll out the welcome mat for new corporate offices and R&D, but not retail. The total effective tax rate in Wisconsin for new corporate offices is 7.8 percent, or third among the states, while the rate on new R&D is 3.9 percent, putting it fourth. New retail stores, however, can expect a rate of 38.2 percent, or 40th among all states.

The report provides a great deal of information that CFOs, CEOs and heads of real estate will want to consider as they decide where to locate operations.

Innovation by Geography
At the same time, taxes aren’t the only factor that determine the health of a state’s business climate. A 2010 study by the Ewing Marion Kauffman Foundation and the Information Technology and Innovation Foundation identified what it called states “at the forefront of the nation’s movement toward a global, innovation-based new economy,” and those that are lagging, according to a release. The distinction is based on “the extent to which state economies are knowledge-based, globalized, entrepreneurial, IT-driven and innovation-based.”

Consider the top states according to this ranking: Massachusetts, Washington, Maryland, New Jersey and Connecticut. The highest that any of these states achieved when it came to tax policies is Maryland, which ranked eighth for its overall tax burden on mature firms.

The bottom states in the Kauffman report were Mississippi, West Virginia, Arkansas, Alabama and Wyoming. When looking at taxes, the effective rates in these states varies widely, according to the Tax Foundation report. Wyoming is generally low-tax, while Mississippi comes in 37th for mature firms and 21st for newer firms.

The result may be changes in who collects these taxes and how much your city ultimately is paid.

Reps. Cheryl Grossman, R-Grove City; Michael Henne, R-Clayton; and John Barnes Jr., D-Cleveland; are exploring the possibility of writing a bill that would require all cities and villages to adopt one uniform set of rules covering deductions, definition of income, filing procedures, appeals, penalties and other aspects of tax collection.

The idea has the support of the Municipal Income Tax Uniformity Coalition, which includes the Ohio Chamber of Commerce, National Federation of Business/Ohio and other business groups. The Municipal League advocates a “balanced” approach to standardization that helps business “without causing the already strained budgets of Ohio’s municipalities even greater harm.”

Tax Partner David L. Groves writes in favor of centralizing collection of local income taxes across the state. Click here to read his article.

Testimony
The Chief of Actuarial Issues and Director of Retirement Policy for the American Society of Pension Professionals and Actuaries testified that current federal tax incentives can transform taxable bonuses for business owners into retirement savings contributions that benefit both owners and employees. “This incentive for the business owner to contribute for other employees results in a distribution of tax benefit that is more progressive than the current income tax structure,” she observed.

An American Benefits Council representation warned at the hearing that the wisest course for lawmakers is to not enact new laws that would disrupt the success of the current system. Short-term retirement legislation designed to boost tax revenues generally do so by eliminating the existing savings incentives and eroding the amount that workers actually save.

Committee Chairman Dave Camp, R-Mich. questioned whether the large number of retirement plans now existing with their different rules and eligibility criteria leads to confusion, reducing the effectiveness of the incentives in increasing retirement savings. Ranking member Sander Levin, D-Mich., questioned the value of making tax reform-inspired changes to retirement plans. “Tax reform should approach retirement savings incentives with an eye toward strengthening our current system and expanding participation, not as an opportunity to find revenue,” Levin said.

JCT report
In advance of the hearing, the Joint Committee on Taxation (JCT) summarized the tax treatment of current-law retirement savings plans and described some recent reform proposals in a report, “Present Law and Background Relating to the Tax Treatment of Retirement Savings” (JCX-32-12). The report highlighted several of the recent proposals on retirement savings:

Automatic enrollment payroll deduction IRA. President Obama has proposed mandatory automatic enrollment payroll deduction IRA programs. An employer that does not sponsor a qualified retirement plan, SEP, or SIMPLE IRA plan for its employees (or sponsors a plan and excludes some employees) would be required to offer an automatic enrollment payroll deduction IRA program with a default contribution to a Roth IRA of three percent of compensation. An employer would not be required to offer the program if the employer has been in existence less than two years or has 10 or fewer employees.

Expand the saver’s credit. The Administration has also proposed to make the retirement savings contribution credit, known as the saver’s credit, fully refundable and for the saver’s credit to be deposited automatically in an employer-sponsored retirement plan account or IRA to which the eligible individual contributes. In addition, in place of the current credit ranging from 10 percent to 50 percent for qualified retirement savings contributions up to $2,000 per individual, the proposal would provide a credit of 50 percent of such contributions up to $500 (indexed for inflation) per individual.

Consolidate plans. The JCT also reviewed two retirement proposals from the Bush administration: Consolidating traditional and Roth IRAs into a single type of account called Retirement Savings Accounts (RSAs) and creating Lifetime Savings Accounts (LSAs) that could be used to save for any purpose with an annual limit for contributions of $2,000. The JCT explained that the tax treatment of RSAs and LSAs would be similar to the current tax treatment of Roth IRAs (contributions would not be deductible, and earnings on contributions generally would not be taxable when distributed). Additionally, the Bush Administration had proposed to consolidate various current-law employer-sponsored retirement arrangements under which individual accounts are maintained for employees and under which employees may make contributions into a single type of arrangement called an employer retirement savings account (ERSA).

The American Society of Pension Professionals and Actuaries (ASPPA) told the Ways and Means Committee that the large number of plans with different rules and criteria does not reduce the effectiveness of the incentives in increasing retirement savings. “Consolidating all types of defined-contribution type plans into one type of plan would not be simplification,” the ASPPA cautioned. “It would disrupt savings, and force state and local governments and nonprofits to modify their retirement savings plans and procedures.”

If you would like more information or have questions about retirement savings plans, please contact your Bruner-Cox LLP engagement executive, or , Tax Partner, at 330.497.2000.

Background
While job-related expenses for travel away from home may be deductible as trade or business expenses, the income tax regulations historically have disallowed the employee’s deduction for local lodging (described as lodging that is not incurred in traveling away from home). However, in 2007, the IRS announced it would amend the regulations to change this rule. In the meantime, it would not challenge an employee’s deduction for temporary local lodging that was necessary for the employee to participate in a business function. The new reliance regulations go even further, with more specifics that liberalize the rules.

Requirements
The new regulations provide that whether local lodging expenses are incurred in carrying on a taxpayer’s trade or business is determined under all the facts and circumstances. The regulations provide numerous examples of costs that would be deductible under these rules covering such situations as team training, late night projects, and rotating on-duty shifts.

The new regulations also provide the following safe harbor for an employee to deduct local lodging expenses:

• The lodging is necessary for the individual to participate fully or to be available for a bona fide business meeting, conference, training activity, or other function;
• The period of lodging does not exceed five calendar days and does not recur more than once per calendar quarter;
• The employer requires the employee to remain at the activity or function overnight; and
• The lodging is not lavish or extravagant and does not provide a significant element of personal pleasure, recreation or benefit.

If the employer reimburses the employee for expenses that would be deductible, the reimbursement will be nontaxable either as a fringe benefit, or as paid under an accountable T&E plan (assuming the appropriate requirements are met).

If you want more information or have questions on whether you have any expenses that qualify for this new deduction, please contact your Bruner-Cox LLP engagement executive, or, Tax Partner at 330.497.2000.

Challenges
Congress passed, and President Obama signed, the PPACA and HCERA in 2010. Almost immediately, several states and taxpayers challenged the laws in court. The lawsuits generally argued that Congress had exceeded its authority by requiring individuals to obtain health insurance.

The cases made their way from federal district courts to the various federal courts of appeal, which reached different conclusions. One circuit court invalidated the individual mandate; two circuit courts upheld the individual mandate and another circuit court dismissed the challenge on procedural grounds.

Supreme Court grants review
On November 14, 2011, the United States Supreme Court agreed to review the Eleventh Circuit Court’s decision in Florida v. U.S. Department of Health and Human Services. The Supreme Court stated it would examine four issues: (1) the Constitutionality of the individual mandate; (2) whether the individual mandate is severable from the PPACA; (3) whether the challenge to the individual mandate is barred by the Anti-Injunction Act^; and (4) whether PPACA’s expansion of Medicaid exceeded Congress’s authority. The Supreme Court heard oral arguments in the case on March 26-28 in Washington, D.C.

Individual mandate and penalty

The individual mandate generally requires individuals to maintain minimum essential coverage for themselves and their dependents after 2013. Individuals will be required to pay a penalty for each month of noncompliance, unless they are exempt (such as individuals covered by Medicaid and Medicare). The PPACA also provides tax incentives to help individuals obtain minimum essential coverage. Beginning in 2014, individuals with incomes within certain federal poverty thresholds may qualify for a refundable health insurance premium assistance tax credit. The PPACA also provides for advance payment of the credit.

In Florida v. HHS, the Eleventh Circuit struck down the individual health insurance mandate but did not declare the entire PPACA unconstitutional. In contrast, the Sixth Circuit held that the individual mandate was a valid exercise of Congress’ power to regulate commerce (Thomas More Law Center v. Obama). The Court of Appeals for the District of Columbia Circuit also upheld the individual mandate (Mead v. Holder). The Supreme Court could find the entire PPACA unconstitutional or could find that the individual mandate is severable, thereby preserving other parts of the statute, including various tax provisions.

Tax provisions
While much attention has focused on the individual mandate, the Supreme Court may also decide the fate of many tax provisions in the PPACA and the HCERA. Among the tax provisions potentially affected by the Supreme Court’s decision are:

• Code Sec. 45R small employer health insurance tax credit;
• 3.8 percent Medicare contribution tax on unearned income for higher income taxpayers after 2012;
• Additional 0.9 percent Medicare tax on wages and self-employment income of higher income taxpayers after 2012;
• Increased itemized deduction for unreimbursed medical expenses after 2012;
• Prohibition on over-the-counter medicines being eligible for health flexible spending arrangement (FSA), health reimbursement arrangement (HRA), health savings account (HSA), and Archer Medical Savings Account (MSA) dollars.
• Additional tax on distributions from HSAs and Archer MSAs not used for qualified medical expenses;
• Excise tax on high-dollar health plans after 2017;
• Tax credit for therapeutic discovery projects;
• Annual fees on manufacturers and importers of branded prescription drugs;
• Reporting of employer-provided health coverage on Form W-2;
• Codification of the economic substance doctrine.

Anti-Injunction Act
The Supreme Court could decide that the challenge to the PPACA is premature. Under the Anti-Injunction Act, a taxpayer must wait to oppose a tax until after it is collected. The PPACA’s individual mandate and its related penalty do not take effect until 2014. The Fourth Circuit Court of Appeals found that the penalty amounted to a tax and taxpayers could not challenge the tax until it took effect (Liberty University v. Geithner).

We will continue to follow developments as they ensue after the Supreme Court issues its decision in June. If you have any questions about the tax provisions in the health care reform laws, please contact you Bruner-Cox LLP engagement executive, or , Tax Partner, at 330.497-2000.

Form 8939 v. FBAR: duplicated information
The Government Accountability Office (GAO) recently reported that duplication of some of the information requested on Form 8938, Statement of Specified Foreign Financial Assets, and Form TD F 90-22.1, Report of Foreign Bank and Financial Accounts (FBAR), was creating confusion among taxpayers. Even though Form 8938 and the FBAR were developed to meet two different governmental needs (tax administration and law enforcement), FATCA reporting on Form 8938 may be duplicative in some instances of reporting on the FBAR

The IRS noted that individuals must file each form for which they meet the relevant reporting threshold. But for the sake of taxpayer convenience, the IRS recently posted a comparison chart of Form 8938 and FBAR requirements on its website.

The chart addresses many of the important differences between the two forms including:

• Who is required to file each form?
• What U.S. territories are subject to the reporting requirements?
• What is the reporting threshold?
• When do you have an interest in an account or asset?
• What is reported?
• When is the form due?

The FBAR is required because foreign financial institutions may not be subject to the same reporting requirements as domestic financial institutions. The U.S. government can use the information it gleans from FBARs to identify or trace funds used for illicit purposes or to identify unreported income maintained or generated abroad.

If you want more information or have questions regarding Form 8938 and FBAR, please contact your Bruner-Cox LLP engagement executive, or , Tax Partner, at 330.497.2000.

Many states offer a variety of sales tax exemptions to companies engaged in manufacturing. The exemptions can be classified under four general headings:

• Resale/wholesale exemptions
• Packaging/container exemptions
• Energy exemptions
• Machinery exemptions

Because  the exemptions are tied to manufacturing, they often overlap, causing confusion for your internal tax and accounting staff. The major obstacle to compliance is the mind-numbing definitional variations from state to state. Proper tax planning with manufacturing exemptions must begin and end with definitions.

Bruner-Cox LLP can assist in sorting through the multi-state exemptions and definitions.  We have tools available that can be applied to your state activity and can aid in the communication to your customers.  Ohio and multi-state sales tax audit activity has increased tremendously in the past several years and manufacturers are not excluded from sales tax and exemption certificate audits.

If you have any questions, please contact your Bruner-Cox LLP engagement executive or , State and Local Tax Leader at 330.497.2000, ext. 4129.