To qualify for the refund, a business must have manufacturing, spaceport, or solid minerals mining and processing operations in the state of Florida. The refund is based on the qualified purchases in the current period that exceed the entity’s base year (2008) purchases.

Types of equipment that qualify for the refund include tangible property with a depreciable life of three years or more that is used in manufacturing, processing, compounding, or production of property that is sold exclusively for spaceport activities. The equipment purchases must be made between July 1, 2011 and June 30, 2012.

To calculate the refund, the July 1, 2011 – June 30, 2012 qualified purchases would be compared to the entity’s qualified purchases during its 2008 fiscal year. Sales tax paid on the excess of current period purchases over base year purchases would be eligible for refund.

The total amount of refunds allocated for the July 1, 2011 – June 30, 2012 period is $24 million. The maximum refund allowed per entity for this period is $50,000.

The refund process consists of three steps:

1. Apply for Allocation of Refund (maximum $50,000). Applications for 2011 – 2012 purchases are currently being accepted and are processed in the order that they are received until the $24 million has been allocated.

2. After being awarded an allocation, an eligible entity must apply for Certification of the refund. For eligible purchases made between July 1, 2011 and June 30, 2012, the Certification application must be made prior to September 1, 2012.

3. Submit payment claim on Form DR-26S. Supporting documentation must be included.

If you have questions in regard to this refund or need assistance with the application process, please contact your Bruner-Cox LLP engagement executive or , State and Local Tax Leader, at 330.497.2000, ext. 4129.

For more information, please contact one of our tax partners at 330.497.2000:

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Changes to Ohio Charitable Registration
Not-for-profit organizations recently received a letter from the Ohio Attorney General’s (AG) office regarding changes to Ohio Charitable Registration. Use of the online system will be mandatory for all groups with fiscal year ends after November 30, 2011…Click here to read complete article.

IRS Releases Final Form 990 with Changes for Reporting Compensation
The IRS has released the final Form 990 for 2011, which includes significant changes in key areas for exempt organizations, including reportable compensation…Click here to read complete article.

2011 Tax Filing Extension for Not-for-Profit Organizations
The IRS has granted an automatic extension to tax-exempt organizations with January or February tax filing deadlines…Click here to read complete article.

The Financial Accounting Standards Board to Evaluate Fair Value Disclosures for Private Companies and Not-for-Profit Organizations
The Financial Accounting Standards Board (FASB) has added a new project to its agenda aimed to reduce or eliminate the need for private companies and not-for-profit organizations…Click here to read complete article.

For more information on Bruner-Cox LLP’s not-for-profit services, please contact one of our partners at 330.497.2000:

Assurance Services Partner

Assurance Services Partner

Assurance Services Partner

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.

The employee tax rate for social security is 4.2% on wages paid and tips received before March 1, 2012. The employee tax rate for social security increases to 6.2% on wages paid and tips received after February 29, 2012. The employer tax rate for social security remains unchanged at 6.2%. The social security wage base limit is $110,100. The 2012 employee tax rate for Medicare is 1.45% (amount withheld) each for the employee and employer (2.9% total). There is no wage base limit for Medicare tax; all covered wages are subject to Medicare tax.

For more information on our tax services, please contact one of our tax partners at 330.497.2000:

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David L. Groves, CPA
Corporate & International Tax Planning

Corporate & Individual Tax Planning

Higher income Individuals
The audit coverage rate for individuals with incomes under $200,000 was 1.04 percent in FY 2010 and fell to 1.02 percent in FY 2011. However, the audit coverage rate for individuals with incomes $200,000 and higher increased from 3.10 percent in FY 2010 to 3.93 percent in FY 2011.

Significant gains in audit coverage came in audits of individuals with incomes $1 million or more. The audit coverage rate for those millionaires increased from 8.36 percent in FY 2010 to 12.48 percent in FY 2011.

Field audits of individuals with incomes $200,000 and higher increased from 58,521 in FY 2010 to 78,392 in FY 2011. Field audits of individuals with incomes $1 million and higher increased from 16,509 in FY 2010 to 20,475 in FY 2011.

Businesses
Examinations of business returns in FY 2011 decreased compared to FY 2010. Overall, the IRS examined 9,869,358 business returns (all types of businesses) in FY 2011. That number was 9,941,289 in FY 2010.

Corporations
Corporations with assets $10 million and higher had the highest audit coverage rate at 17.64 percent in FY 2011 (16.58 percent in FY 2010). Within the large corporation category, the audit coverage rate was highest for corporations with assets $250 million or higher, at 27.6 percent for FY 2011. The audit coverage rate for small corporations (corporations with assets under $10 million) was 1.02 percent in FY 2011 compared to 0.94 percent in FY 2010.

Partnerships/S Corps
The audit coverage rate for partnerships in FY 2011 was 0.40 percent, compared to 0.36 percent in FY 2010. The audit coverage rate also increased for S corps (0.42 percent in FY 2011 compared to 0.37 percent in FY 2010).

For more information on our tax services, please contact one of our tax partners at 330.497.2000:

Corporate Tax & Succession Planning

Corporate, Individual & Estate Tax Planning

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David L. Groves, CPA
Corporate & International Tax Planning

Corporate & Individual Tax Planning

Cents-per-mile Valuation
In order to use the cents-per-mile valuation rule, the vehicle’s fair market value may not exceed a specified dollar amount. The IRS periodically updates this amount to reflect the market, and do so again in mid-January by issuing Rev. Proc. 2012-13. For company cars, trucks, or vans first placed into service in 2012 the amounts have increased. The maximum 2012 FMV amounts for use of the cents-per-mile valuation rule are:

• $15,900 for a passenger automobile (up from $15,300 in 2011); and
• $16,700 for a truck or van, including passenger automobiles such as minivans and sport utility vehicles, which are built on a truck chassis (up from $16,200 in 2011).

It should be noted that the Rev. Proc. 2012-13 dollar caps apply only to qualifying employer-provided automobiles first made available for personal use in calendar year 2012. Vehicles first used for personal purposes in previous years must use the limits designated by the IRS for those years.

Fleet-average Valuation
Employers with a fleet of at least 20 automobiles can average the value of its fleet to calculate the fair market value of the automobiles within it. The IRS has also updated the maximum fair market value amounts under which vehicles qualify for the use of the fleet-average valuation rule in 2012. They are $21,100 for a passenger automobile and $21,900 for a truck or van. The fleet-average valuation rule cannot be used if the value of any vehicle in the fleet exceeds these FMVs.

For more information on our tax services, please contact one of our tax partners at 330.497.2000:

Corporate Tax & Succession Planning

Corporate, Individual & Estate Tax Planning

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David L. Groves, CPA
Corporate & International Tax Planning

Corporate & Individual Tax Planning

Dependency Exemption
In addition to the personal exemption an individual taxpayer may take for him or herself to reduce taxable income (Line 42 on Form 1040), that taxpayer may also take an exemption for each qualifying dependent who has lived with the taxpayer for more than half of the tax year. A dependent may be a natural child, step-child, step-sibling, half-sibling, adopted child, eligible foster child, or grandchild, and generally must be under age 19, a full-time student under age 24, or have special needs. The amount of the exemption is the same as the taxpayer’s personal exemption, $3,700 for the 2011 tax year and $3,800 for the 2012 tax year.

Child Tax Credit
Parents of children who are under age 17 at the end of the tax year may qualify for a refundable $1,000 tax credit. The credit is a dollar-for-dollar reduction of tax liability, and may be listed on Line 51 of Form 1040. For every $1,000 of adjusted gross income above the threshold limit ($110,000 for married joint filers; $75,000 for single filers), the amount of the credit decreases by $50.

Child and Dependent Care Credit
If a taxpayer must pay for childcare for a child under age 13 in order to pursue or maintain gainful employment, he or she may claim up to $3,000 of his or her eligible expenses for dependent care. If one parent stays home full-time, however, no child care costs are eligible for the credit.

Adoption Credit
Taxpayers who have incurred qualified adoption expenses in 2011 may claim either a $13,360 credit against tax owed or a $13,360 income exclusion if the taxpayer has received payments or reimbursements from his or her employer for adoption expenses. For 2012, the amount of the credit will decrease to $12,650, and in 2013 to $5,000.

Higher Education Credits
There are two education-related credits available for 2012: the American Opportunity credit and the lifetime learning credit. The American Opportunity credit amount is the sum of 100 percent of the first $2,000 of qualified tuition and related expenses plus 25 percent of the next $2,000 of qualified tuition and related expenses, for a total maximum credit of $2,500 per eligible student per year. The credit is available for the first four years of a student’s post-secondary education. The credit amount phases out ratably for taxpayers with modified AGI between $80,000 and $90,000 ($160,000 and $180,000 for joint filers). The lifetime learning credit is equal to 20 percent of the amount of qualified tuition expenses paid on the first $10,000 of tuition per family. The phaseout for 2012 ranges from $52,000 to $62,000 ($104,000 to $124,000 for joint filers). Parents also find tax relief in saving for college though Coverdell accounts, section 529 plans and specified U.S.. savings bonds.

Extended Health Care Coverage
Effective since September 23, 2010, the new health care law requires plans to provide coverage for children until they attain age 26. Further, effective on or after March 30, 2010, children under the age of 27 are considered dependents of a taxpayer for purposes of the general exclusion from income for reimbursements for medical care expenses of an employee, spouse, and dependents under an employer-provided accident or health plan. Therefore, a plan must provide coverage to a child who is still a dependent up to age 26; but can do so up to age 27 without income tax consequences. A child includes a son, daughter, stepson, or stepdaughter of the taxpayer; a foster child placed with the taxpayer by an authorized placement agency or by judgment, decree, or other order of any court of competent jurisdiction; and a legally adopted child of the taxpayer or a child who has been lawfully placed with the taxpayer for legal adoption.

Child Care Assistance Credit (for businesses)
Employers may take up to $150,000 of the eligible costs of providing employees with child care assistance as tax credit. These costs may include a portion of the costs of acquiring, constructing, improving, and operating a child care facility.

For more information on our tax services, please contact one of our tax partners at 330.497.2000:

Corporate Tax & Succession Planning

Corporate, Individual & Estate Tax Planning

Individual Tax & Estate Planning
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David L. Groves, CPA
Corporate & International Tax Planning

Corporate & Individual Tax Planning

Previous disclosure programs
The IRS launched two previous offshore disclosure initiatives: one in 2009 and another in 2011. Both programs offered reduced penalties in exchange for full disclosure. In early 2012, the IRS reported it received 33,000 voluntary disclosures from the 2009 and 2011 offshore initiatives. The government has collected over $4.4 billion from the 2009 and 2011 programs. The IRS predicted it will collect more revenue as it continues to work cases.

Reopened program
The reopened program operates very similarly to the 2009 and 2011 programs but with some key differences. The previous programs were temporary. The 2011 program ended in mid-September 2011. The reopened program has no set end date. The IRS cautioned, however, that it could close the program at some future date. The decision to end the program is solely at the discretion of the IRS.

The reopened program requires taxpayers to file all original and amended tax returns and include payment for back-taxes and interest for up to eight years as well as pay accuracy-related and/or delinquency penalties. Additionally, taxpayers must pay a penalty of 27.5 percent of the highest aggregate balance in foreign bank accounts/entities or value of foreign assets during the eight full tax years prior to the disclosure. In comparison, the highest penalty in the 2011 program was 25 percent. IRS officials have said that the penalty was increased because the agency does not want to reward taxpayers who did not participate in the 2009 or 2011 disclosure programs because they anticipated that a future penalty would be lower.

In limited circumstances, taxpayers may qualify for a 12.5 percent penalty or a five percent penalty. Generally, taxpayers whose offshore accounts or assets did not surpass $75,000 in any calendar year may qualify for the 12.5 percent penalty.

The requirements for the five percent penalty are very narrow. The IRS has explained that taxpayers must meet four conditions: (1) The taxpayer did not open or cause the account to be opened; (2) the taxpayer exercised minimal, infrequent contact with the account, for example, to request the account balance, or update account holder information such as a change in address, contact person, or email address; (3) except for a withdrawal closing the account and transferring the funds to an account in the United States, the taxpayer did not withdraw more than $1,000 from the account in any year for which the taxpayer was non-compliant; and (4) the taxpayer can show that all applicable U.S. taxes have been paid on funds deposited to the account (only account earnings have escaped U.S. taxation).

The penalty amounts in the reopened program are not set in stone, the IRS cautioned. It may eventually increase penalties in the program for all or some taxpayers or defined classes of taxpayers.

Quiet disclosures
One goal of the three programs is to caution taxpayers against so-called “quiet disclosures.” A quiet disclosure occurs when a taxpayer files an amended return and pays any tax delinquency without making a formal voluntary disclosure. The IRS warned taxpayers making quiet disclosures that they risked being sanctioned to the fullest extent allowed by law.

Critics
The offshore disclosure programs were not without their critics. The National Taxpayer Advocate recently told Congress that the IRS should streamline what is a very complicated process. The National Taxpayer Advocate also reported that IRS examiners were assuming that all violations were willful unless a taxpayer presented evidence to the contrary. It is possible that the IRS may revisit some of the terms and conditions of the reopened program in light of the National Taxpayer Advocate’s report.

For more information on our tax services, please contact one of our tax partners at 330.497.2000:

Corporate Tax & Succession Planning

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David L. Groves, CPA
Corporate & International Tax Planning

Corporate & Individual Tax Planning

These so-called “repair regulations” are broad and comprehensive. They apply not only to repairs, but to the capitalization of amounts paid to acquire, produce or improve tangible property. They are intended to clarify and expand existing regulations, set out some bright-line tests, and provide some safe harbors for deducting payments.

The regulations are an ambitious effort to address capitalization of specific expenses associated with tangible property. The regulations affect manufacturers, wholesalers, distributors, and retailers–everyone who uses tangible property, whether the property is owned or leased. The rules provide a more defined framework for determining capital expenditures.

Most taxpayers will have to make changes to their method of accounting to comply with the temporary regulations and will need to file Form 3115. Taxpayers who filed for a change of accounting method following the issuance of the 2008 proposed regulations will probably have to change their accounting method again.

The IRS has promised to issue two revenue procedures that will provide transition rules for taxpayers changing their method of accounting, including the granting of automatic consent to make the change. The regulations require taxpayers to make a Code Sec. 481(a) adjustment; this means that taxpayers will have to apply the regulations to costs incurred both prior to and after the effective date of the regulations.

The new regulations provide rules for materials and supplies that can be deducted, rather than capitalized. The rules provide several methods of accounting for rotable and temporary spare parts, and allow taxpayers to apply a de minimis rule so that they can deduct materials and supplies when they are purchased, not when they are consumed.

Costs to acquire, produce or improve tangible property must be capitalized. The regulations address moving and re-installation costs, work performed prior to placing property into service, and transaction costs. Generally, costs of simply removing property can be deducted, but costs of moving and then reinstalling property may have to be capitalized.

To determine whether a cost incurred for property is an improvement, it is necessary to determine the unit of property. Generally, the larger the unit of property, the easier it is to deduct expenses, rather than have to capitalize them. The regulations provide detailed rules for determining the unit of property for buildings and for non-building tangible property. For buildings, the IRS identified eight component systems as separate units of property, requiring more costs to be capitalized. However, the new rules also provide for deducting the costs of property taken out of service, by treating the retirement as a disposition.

The new regulations require virtually every business to review how repairs, maintenance, improvements and replacements are handled for tax purposes, with both mandatory and optional adjustments made to past treatment as appropriate.

For more information on our tax services, please contact one of our tax partners at 330.497.2000:

Corporate Tax & Succession Planning

Corporate, Individual & Estate Tax Planning

Individual Tax & Estate Planning
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David L. Groves, CPA
Corporate & International Tax Planning

Corporate & Individual Tax Planning