Fall 2012 - RubinBrown

Transcription

horizons
Fall 2012
A publication by RubinBrown LLP
Strategies
Managing
for
Organizational Risk
PLUS
Compilation, Review, or Audit?
Learn Which One You Need and
What To Expect
How specific industries can reduce
risk and loss for their businesses
TABLE OF CONTENTS
horizons
A publication by RubinBrown LLP
FALL 2012
Chairman
James G. Castellano, CPA
Managing Partner
John F. Herber, Jr., CPA
Denver Office
Managing Partner
Gregory P. Osborn, CPA
Kansas City Office
Managing Partner
Todd R. Pleimann, CPA
Editor
Dawn M. Martin
Art Director
Jen Chapman
Horizons, a publication of RubinBrown LLP,
is designed to provide general information
regarding the subject matters covered. Although
prepared by professionals, its contents should
not be construed as the rendering of advice
regarding specific situations. If accounting, legal
or other expert assistance is needed, consult
with your professional business advisor. Please
call RubinBrown with any questions (contact
information is located on the back cover).
Under U.S. Treasury Department guidelines, we hereby inform you
that any tax advice contained in this communication is not intended
or written to be used, and cannot be used by you for the purpose
of avoiding penalties that may be imposed on you by the Internal
Features
1
2
6
8
10
45
Welcome from the Managing Partner
RubinBrown News
Chairman’s Corner
RubinBrown Celebrates 60 Years!
From Three-Man Firm to Three Cities
Compilation, Review, or Audit?
Learn Which One You Need and What to Expect
Timely Reminders
Industry-Specific Articles
14
construction
Managing Construction
individual professional consultation.
A Look at the Evolution
Identifying the most
Healthcare Reform
Because the industry
common risks to
and M & A Activity
has weathered many
proactively plan for
Midwest leaders
challenges over the
them.
in attendance
past 60 years, there
with international
is optimism for future
representatives;
evolution.
17
not-for-profit
Not-For-Profit
Consolidation Rules
Require Careful Analysis
Understanding how the
complexities of GAAP
impact nonprofit entities.
20
hospitality
& gaming
Internal Controls for
Private Clubs
auditor says you lack
Readers should not act upon information presented without
media &
entertainment
of Publishing
What it means when the
tax treatment or tax strategies or tax structuring described herein.
Reflections on the
36
BIO Conference,
Revenue Service, or for the purpose of promoting, marketing
limitation on any recipient of this tax advice on the disclosure of the
life sciences
Risks During Lean Times
or recommending to another party any transaction or matter
addressed within this tax advice. Further, RubinBrown LLP imposes no
24
segregation of duties
in your accounting
department.
tax implications of
medical devices; and
big ideas receive largest
financial support.
28
39
public sector
Self-Insuring Can
Help Manage
manufacturing
& distribution
Healthcare Costs
Governments are trying
Expensed Versus
innovative ways to keep
Capitalized: Tangible
costs down without
Property
sacrificing service to
Helping manufacturers
citizens and benefits for
determine how property
employees.
expenditures should be
categorized.
32
42
transportation
& dealerships
Organizational Risk for
real estate
Automotive Dealers
Multi-Family Market
Steps to minimize
Continues to Surge
predictable risks and
Current uncertain
best practices for
economy makes
unpredictable weather-
renting an attractive
related disasters.
option for much of the
marketplace.
WELCOME FROM THE MANAGING PARTNER
Key Components of RubinBrown Vision
Remain Constant for 60 Years
This year, RubinBrown is proud to celebrate our 60th anniversary.
Our storied history is marked by challenges and opportunities, growth,
and many transformations to effectively respond to the changing
marketplace.
Along the way, we’ve discovered a fascinating constant. While our
firm’s vision has changed and evolved over the years, there are two
components that have been dominant in every iteration—“totally
satisfied clients” and “inspired team members.”
While both have served as faithful elements of all of RubinBrown’s
visions, we’ve come to appreciate how well they have served us over
the past 60 years.
John F. Herber Jr., CPA
Managing Partner
The steadfast dedication of our clients, some of which have worked
with us for our entire existence, is a key to our success. This devotion can
be directly attributed to our commitment to “totally satisfied clients.”
We differentiate our firm by redefining the full-service experience. We
do this by combining top-notch technical and industry expertise with
a commitment to personal and high-level relationships.
RubinBrown’s commitment to “totally satisfied clients” is entrusted
with each team member and is protected and enhanced without
compromise. That said, the best way to ensure we can deliver “totally
satisfied clients,” is by inspiring our team members.
RubinBrown invests tremendous time and resources to find the best
and the brightest individuals in the profession. In addition, we provide
opportunities for development within our organization through a
dynamic professional environment.
We also encourage our team members to give of themselves and use
their leadership skills to help build and grow our communities.
I’d like to take a moment to thank you—our dedicated clients and trusted
partners—for sixty fantastic years. As we move forward, I welcome
your feedback on ways we can continue to deliver “totally satisfied
clients.” Please email me directly at john.herber@rubinbrown.com.
Pleasant reading,
www.RubinBrown.com | page 1
RUBINBROWN NEWS
RubinBrown Supports Denver Metro Chamber Events
To support the business community in
Denver, RubinBrown is proud to serve as a
new sponsor for a number of Denver Metro
Chamber of Commerce events. After
sponsoring the State of the City event in
August, the firm looks forward to supporting
and participating in the Colorado Business
Hall of Fame, the State of the State, and the
Business Awards Luncheon.
RubinBrown Presents Kansas City Manufacturing Summit
One of the premier annual events for
manufacturers in the Midwest is the Kansas
City Chamber’s Manufacturing Summit. This
year’s event, held on October 24, will bring
together hundreds of manufacturers to learn
and network. RubinBrown is proud to serve as
presenting sponsor of this event, along with
the chamber. For more information, go to our
website at www.RubinBrown.com.
October 24, 2012
RubinBrown Sponsors St. Louis RCGA Top 50 Awards
RubinBrown will serve as presenting sponsor for the fourth year of the St.
Louis Regional Chamber and Growth Association’s Top 50 Businesses
Awards. The awards program recognizes companies based on their
significant contributions to the St. Louis region and how they have
positively affected the future of the business community.
RubinBrown Chairman Named One of 125 People of Impact
RubinBrown Chairman
Jim Castellano is named
one of 125 people of
impact in the accounting
profession in the Journal of
Accountancy. In celebration
of its 125th anniversary,
the AICPA set out to acknowledge those
individuals who have made a significant
impact on the accounting profession since
its founding in 1887.
page 2 | horizons Fall 2012
Jim was recognized due largely to his work
in representing over 360,000 accountants
while he served as chairman of the board
of directors of the AICPA in 2002. Jim
committed his time as chairman to restoring
public confidence during the accounting
profession’s fallout from the Enron and
related business scandals.
RubinBrown Promotions
New Partners
RubinBrown has promoted
Brian Amelung to partner
in RubinBrown’s Assurance
Services Group. He
specializes in employee
benefit plan audits and
business performance
analysis for clients in a variety of industries.
Congratulations to Wayne
Danneman, who was
promoted to partner in the
firm’s State and Local Tax
Services Group. He serves as
the practice leader for the
sales/use tax consulting and
personal property tax compliance initiatives,
multi-state nexus studies, tax incentives
and credits, and asset classification for tax
depreciation.
Ben Barnes was promoted
to partner in RubinBrown’s
Assurance Services Group.
In addition to leading
the firm’s Private Equity
Services Group, he provides
audit and transaction due
diligence services to clients in a variety of
industries, including manufacturing and
distribution, professional services, retail and
private equity.
Bill Gawrych was recently
promoted to partner in
RubinBrown’s Assurance
Services Group. Bill
provides clients in the real
estate industry with audit,
consulting and tax services.
Sharon Latimer was
promoted to partner in
RubinBrown’s Assurance
Services Group. Sharon,
who works in the Kansas
City Office, primarily serves
clients in the manufacturing
and distribution, not-for-profit, and
professional services industries.
New Managers
RubinBrown recently
promoted Michael Fox to
manager in the firm’s Kansas
City assurance practice.
Michael specializes in a variety
of areas including assurance
services for clients in the automotive,
contractor, manufacturing and distribution
and public sector industries.
Tim Hall was promoted to
manager in RubinBrown’s
Assurance Services Group. Tim
works in the Kansas City Office
and primarily serves assurance
and auditing clients in the
manufacturing and distribution, hospitality
and public sector industries.
RUBINBROWN NEWS
New Managers (continued)
Daniel Holmes was promoted
to manager in the firm’s
Business Advisory Services
Group. In addition, Daniel
serves as chair of the Gaming
Segment in the Hospitality &
Gaming Services Group. He specializes in
gaming regulatory compliance consulting,
gaming control audits, internal control
assessments and process improvement.
RubinBrown promoted Tim
Kendrick to manager in
RubinBrown’s Tax Services
Group. Tim provides an array
of services including tax return
preparation, tax planning, IRS
examination matters and tax consulting. He
works in the architecture and engineering,
construction, manufacturing and distribution
and real estate industries.
Becky Knezevich was recently
promoted to assurance manager.
She also serves as the co-chair
of the Religious Segment of
RubinBrown’s Not-for-Profit
Group. Becky specializes in
internal controls and operations, audit, tax
return preparation, and attest services.
RubinBrown promoted Kathy
Maher to assurance manager
in the Denver Office. Kathy
provides assurance and
auditing services, business
performance analysis, and
due diligence engagements to clients in
the homebuilding, non-profit, professional
services and public sector industries.
Dan McCabe, who recently
relocated to RubinBrown’s
Denver Office, was promoted
to assurance manager.
Dan provides assurance
services, plan audits, business
performance analysis, tax return preparation
and SEC registrations and filings to clients in
the hospitality and gaming, manufacturing
and distribution and public sector industries.
RubinBrown promoted Rachel
Meyers to manager in the
assurance practice in St.
Louis. Rachel specializes in
assurance services and tax
return preparation for clients
in a variety of industries, including not-forprofit, hospitality, real estate and professional
services. She also serves as the chair of the
Social Services Segment of RubinBrown’s Notfor-Profit Group.
RubinBrown has added Brad
Scheiter as a manager in its
Real Estate Services Group.
Brad specializes in working
with developers, owners, and
investors to create value from
real estate properties.
Andrew Schmitt was recently
promoted to manager in the
Assurance Services Group.
He provides audit services for
clients in the real estate industry
specializing in low-income
housing and historic tax credits, real estate
investment funds, HUD, and employee
benefit plans.
Congratulations to Eric
Stranghoener, who was
promoted to manager in
RubinBrown’s Strategic Client
Development Group. Eric
works with RubinBrown’s
industry and practice leaders to develop
new relationships for the firm and to develop
strategic growth plans.
Ginny Ottenad was promoted
to manager in the St. Louis
Office’s Assurance Services
Group. Ginny primarily serves
clients in the real estate and
not-for-profit industries with
financial audit and reporting services.
MARK YOUR
CALENDARS
Ethics Seminar
Denver
Kansas City
St. Louis
RubinBrown Center
October 19, 2012
8-10 a.m.
Doubletree Hotel
November 6, 2012
8-10 a.m.
RubinBrown Center
October 9 & 10, 2012
8-10 a.m.
TWO CONVENIENT
DATES!
Year-End Accounting & Tax Update
Denver
Kansas City
St. Louis
RubinBrown Center
December 18, 2012
8-10 a.m.
Doubletree Hotel
December 19, 2012
8-10 a.m.
Knight Center,
Washington University
December 20, 2012
8-10 a.m.
SEC Update
For Upcoming
RubinBrown
Seminars
Glean insight into the latest tax
legislation. Learn more about how
new accounting rules will affect
your business. Find out how your
organization can benefit from
business strategies and innovative
ideas. Throughout the year,
RubinBrown is an excellent source
for learning and insight.
St. Louis
RubinBrown Center
January 3, 2013
8-10 a.m.
Not-For-Profit Update
Denver
Kansas City
St. Louis
RubinBrown Center
January 24, 2013
8-10 a.m.
Doubletree Hotel
January 22, 2013
8-10 a.m.
Knight Center,
Washington University
January 30, 2013
8-10 a.m.
Public Sector Seminar
Registration will be available
5 weeks prior to each event at
www.RubinBrown.com.
Denver
Kansas City
St. Louis
RubinBrown Center
February 1, 2013
8 a.m.-5 p.m.
Doubletree Hotel
February 7, 2013
8 a.m.-12 p.m.
RubinBrown Center
January 23, 2013
8 a.m.-12 p.m.
CHAIRMAN'S CORNER
Managing Organizational Risk Over 60 Years
by Jim Castellano, CPA
R
ubinBrown is proud to celebrate our 60th anniversary in 2012.
Anniversaries are common times to reflect on the past and look
forward to the future. So I am taking this opportunity to do just that.
Looking back, I feel very privileged to have spent the past 39
years, my entire professional career, as a member of our firm. Of
course there have been remarkable changes in our profession, our
marketplace, our local, national and global economies and in our
firm over that time.
Reflecting on these changes and where
RubinBrown is today raises the question,
“How has RubinBrown managed to grow and
prosper through periods of such dramatic
change?” The answer is simply, managing
risk by being true to a set of core values.
One of the most dramatic and traumatic
periods affecting our profession and the
capital markets over the past 60 years was
the crisis commonly referred to as the “Enron
Crisis” of 2001-2002.
RubinBrown Chairman Jim Castellano testified
before Congress in 2002 during his time as
chairman of the American Institute of CPAs.
During that period, I had the distinction of
serving as Chairman of the Board of the
American Institute of CPAs. As chairman,
I experienced the crisis first hand and
participated in creating solutions to restore confidence in our
profession and capital markets.
What I learned during that crisis is that Enron and other well-known
companies failed to appropriately manage risk. In fact, the tone at
RubinBrown Core Values
1
Superior
Quality
& Service
2
Devotion to
the People of
RubinBrown
3
Teamwork
4
Objectivity
& Integrity
the top of some companies was such that
taking extraordinary risk was encouraged
because of the immense short-term rewards
they received.
The tone at the top, described as simply
greed and arrogance, was supported
by failures of some boards and audit
committees to press management about the
risks being taken and processes to manage
them.
Of course, some auditors also failed to
understand the risks associated with the
companies they audited. Call it a significant
breakdown in the systems supporting our
capital markets which evolved over time
and culminated in a series of extraordinary
business failures.
While the solutions implemented at the time
to restore confidence in the accounting
profession and capital markets were severe,
the most important result was improvement
in the tone at the top of certain organizations
and the management of risk. This crisis was a
very expensive and painful lesson learned for
some.
My experience with this crisis certainly
caused me to be grateful that RubinBrown
has been true to its core values for our entire
5
Competence
6
Devotion
to our
Community
& Profession
60-year history. While they were not written
nor painted on the walls when I joined the
firm in 1973, they were nonetheless quite
evident in the behavior that our firm leaders
exhibited.
Since then, we have institutionalized these
values, and they serve as the guiding light in
our decision making.
There is no doubt
that managing
risks while taking
risks is a key
success factor for
any organization.
Once again
looking back, I
believe managing
risks by being
true to our core
values significantly
increased our
probability of
success.
Be assured as we look to the future, we will
continue to be guided by the core values
that have defined the RubinBrown culture for
60 years.
Thanks for your confidence in us.
7
Innovation &
Continuous
Improvement
8
Vision
9
Having Fun
FEATURE
RubinBrown Celebrates
From Three-Man Firm to
RubinBrown Mission Statement
RubinBrown helps its clients build
and protect value, while at all times
honoring the responsibility to
serve the public interest.
RubinBrown Vision Statement
RubinBrown...
One firm, Highly respected
Nationally prominent
With a solid foundation of core values,
inspired team members and totally
satisfied clients.
When three young accountants formed Rubin,
Brown, Gornstein & Co. in St. Louis in the early
1950s, they only dreamed that their enterprise
would evolve into a national leader in the
accounting and business consulting profession.
Today, RubinBrown LLP, with more than 400 team members working
out of offices in Denver, Kansas City and St. Louis, is ranked 46th in the
nation by Inside Public Accounting.
Jim Castellano, chairman, cites RubinBrown’s founders’ high
professional standards, a dedication to client satisfaction and an
exceptional team for the firm’s growth and success.
“We wouldn’t be where we are today without the support of our
clients and the exceptional work of our partners, managers and
other team members,” observed Castellano. “Mahlon Rubin, Harvey
Brown, and Sidney Gornstein set very high values for all of us. We feel
privileged to follow in their footsteps.”
RubinBrown Core Values
Superior Quality & Service
Devotion to the People of RubinBrown
Teamwork
John Herber, managing partner, who helped oversee the firm’s
expansion to Kansas City in 2005 and growth to Denver in 2010,
also credits the strategic vision of the firm’s board and partners,
an aggressive recruitment program and rigorous training program
designed to attract and retain the best and the brightest in the
profession.
Objectivity & Integrity
Competence
Number of Team Members
Devotion to our Community & Profession
Innovation & Continuous Improvement
2
3
9
38
149
Vision
Having Fun
1950
1960
1970
1980
60 Years!
Three Cities
“Our accounting professionals hold key
national positions within the accounting
profession and have not only helped
our firm broaden its services, but also
have contributed to the development of
accounting practices and standards within
various industry segments on a national
level,” said Herber. “It’s a proud legacy that
we are privileged to continue today.”
RubinBrown is also a member of Baker Tilly
International, the world’s eighth largest
network of independent accounting firms in
125 countries. Castellano serves as chairman
of Baker Tilly International in addition to his
role as chairman of RubinBrown.
“RubinBrown was blessed with strong roots
planted by our founders,” said Herber.
“And it’s the hard work and dedication of
our team that has allowed us to branch
out geographically and in the services we
provide.
As our profession has evolved, so, too,
has RubinBrown. We are impressed by the
caliber of new accountants and business
professionals who have chosen to join
our team and we look forward to many
decades of success ahead.”
290 350 366 441
189
The RubinBrown Timeline
Mahlon Rubin & Sidney 1950
Gornstein begin original
association, sharing offices
in downtown St. Louis
(706 Chestnut)
Rubin & Brown form
partnership; move office to
Clayton (7730 Carondelet)
RBG moves to larger
building in Clayton to
accommodate growth
(230 S. Bemiston)
2000
Gornstein merges
with Rubin & Brown,
forming Rubin, Brown,
Gornstein & Co.
1970
1980
Industry specialization
launches
Firm becomes independent
member of Baker Tilly
International
1990
RBG Staffing established
2000
RBG becomes RubinBrown
and merges with
Henderson, Warren,
Eckinger in Kansas City
RubinBrown merges with
Saltzman Hamma Nelson
2010
Massaro in Denver
RubinBrown turns 60!
1990
1960
Harvey Brown joins
Rubin & Gornstein
RBG moves to One North
Brentwood in Clayton
ABACUS Recruiting and
RBG Staffing combine
RubinBrown merges with
BONDI & Co. in Denver
2010
FEATURE
LEARN
YOU
WHICH ONE
NEED
WHAT
AND
TO EXPECT
In the world of assurance
services, many believe that
any assurance work that is
performed by an accountant
is an “audit.” We often hear
“the auditors are here.” The
reality is that in addition to
an audit, there are other
assurance reporting options
that may be available to you
and your organization.
By understanding the different levels of
assurance services offered and what they
entail, it will allow you to select the service
that is best for your organization as well as
understand what is required by your financial
statement users. The type of report needed
is determined based on many factors,
including the size, complexity and needs of
the organization, as well as the requirements
or needs of the organization’s creditors or
investors.
Securities laws require all publicly held
enterprises to provide annual audited
financial statements, while privately held
companies may be able to opt for reviewed
or compiled statements. Credit agreements
with lenders may also dictate the level of
assurance required.
Compilation
A compilation represents the most basic level
of service provided with respect to financial
statements.
A report on the financial statements is issued
that states a compilation was performed
in accordance with the American Institute
of Certified Public Accountants (AICPA)
professional standards, but no assurance
is expressed that the statements are in
conformity with generally accepted
accounting principles.
This is known as the expression of “no
assurance.” Compiled financial statements
are often prepared for privately held entities
that do not need a higher level of assurance
expressed by the accountant.
Review
A review is more in-depth and requires
the accountant to perform inquiries and
analytical procedures.
Reviewed financial statements are often
prepared for entities that have bank loans,
outside investors, or trade creditors, but
those third parties do not require audited
statements.
Audit
Audited financial statements are the product
of a CPA’s highest level of assurance service.
In an audit, the CPA performs verification
and substantiation procedures.
These verification and substantiation
procedures may include direct
correspondence with creditors or debtors
to verify details of amounts owed, physical
inspection of inventories or investment
securities, inspection of minutes and
contracts and other similar steps. Also, the
CPA gains knowledge and understanding of
the entity’s system of internal control.
When the audit is completed, the CPA’s
standard audit report states that an audit
was performed in accordance with generally
accepted auditing standards and expresses
an opinion that the financial statements
present fairly the entity’s financial position
and results of operations. This is known as the
expression of “positive assurance.”
RubinBrown Business Performance Analysis
(BPA) Report Rebranded
One of the most valuable resources provided to RubinBrown
clients is our renowned Business Performance Analysis (BPA)
report. This report, which has been renamed ViewPoints, provides
a unique, value-added approach to our audit services.
The new ViewPoints report focuses on understanding all
aspects of your organization and enables us to evaluate
the overall effectiveness of your organization.
ViewPoints also provides a summary of your strengths and
opportunities for improvement, as well as analyses to provide
financial knowledge to assist you in managing your business.
Let us know what you think about our ViewPoints report!
A report is issued stating that a review has
been performed in accordance with AICPA
professional standards, but provides “limited
assurance.”
FEATURE
Adapted from
materials prepared by
American Institute of
CPAs. Copyright 2012.
All rights reserved.
Used and adapted
with permission.
An important item to note is that audits
provide a high level of assurance, but not
absolute assurance about whether the
financial statements are free from material
misstatement.
The AICPA developed a helpful table to further
illustrate the differences in the three reports
(see above).
RubinBrown’s Assurance Services Group is
happy to help you determine which choice
is best for your business.
RubinBrown’s Assurance Services Group
Your company will benefit from our highly trained professionals with experience in many industries. We utilize our renowned
ViewPoints Report to bring value-added ideas and feedback while performing attest services.
Fred Kostecki, CPA – St. Louis
Bert Bondi, CPA – Denver
Partner-In-Charge
Assurance Services Group
314.290.3398
fred.kostecki@rubinbrown.com
Partner
Assurance Services Group
303.952.1213
bert.bondi@rubinbrown.com
Todd Pleimann, CPA – Kansas City
Managing Partner, Kansas City Office
913.499.4411
todd.pleimann@rubinbrown.com
RubinBrown Investment Advisors
Celebrates its 10th Anniversary
RubinBrown Advisors may only transact business in any state if we are first registered, excluded or exempt from applicable registration requirements. Follow-up, individual responses or rendering of
personalized investment advice for compensation will not be made absent compliance with applicable state registration requirements or applicable exemption or exclusion.
*Rankings are provided by Meridian-IQ and are based on total assets under management of investment advisers that meet the following criteria: (a) they offer financial and retirement planning and
portfolio management for individuals; (b) they have at least some clients for which they do planning; (c) individuals account for at least 10% of their clientele; and (d) they do not operate a brokerdealer, although some may receive revenue from commissions.
CONSTRUCTION
Managing Construction Risks During Lean Times
by Frank Hogg, CPA
T
he construction industry is inherently
subject to higher levels of risk.
The economic slowdown of the past
several years has changed the construction
landscape and increased the importance
of managing risk. Proactively identifying
and planning for these risks is the key to
effectively managing and controlling the
effect they have on your company.
Liquidity Risk
Cash is the lifeblood of every contractor.
Maintaining a strong cash flow is critical.
More contractors will go out of business
because of poor cash flow than from a lack
of work or fading profits.
Effective cash flow management begins with
maintaining 12-month cash flow projections.
These projections help identify potential
problems that can be addressed before they
become critical issues.
In addition, maximizing cash flow through
managing receipts and payments (while
staying within payment terms) remains very
important. For example, ensure that remote
checks are scanned and deposited on a
daily basis.
Collections Risk
With margins reduced due to the economic
slowdown, delays in receiving payments or
failure to collect for all work performed could
be disastrous to a company’s cash flow.
Collections must be a daily mindset and not
an end of the month activity. This mindset
begins with the fact that collecting your
accounts receivable is a right and not a
privilege.
The rights of the company must always be
protected, although it may involve offending
a customer. It may help delivering large
invoices in person or personally collecting
checks to help reduce excuses and delays.
It is also important that contractors focus on
being great “closers” in order to speed up
recovery of the retention as soon as possible.
Challenges include not having the technical
expertise to properly execute the project
in a quality manner, not being familiar
with certain contract provisions and
specifications, or leaving important elements
out of their bid.
In addition, operating in a new geographic
region to gain work can be risky for
contractors that are not familiar with local
labor and state/local regulatory approvals.
Safety Risk
Safety programs are the heart of many
construction risk management plans.
With already low margins during the
slowdown, proactive safety programs can
generate significant cost savings for the
contractor. These include lower insurance
premiums and legal fees and reductions in
lost time from accidents and injuries.
Owner And Contractor Risk
During challenging economic times, it is
critical to carefully evaluate doing work with
others that may be on shaky ground.
Regarding owners, it is important for
contractors to diligently research potential
customers. This includes examining work
previously performed, character, credit,
payment history and ethics.
While insurance can mitigate some of the
economic risks, it is critical to focus on risk
avoidance and on loss control. The most
successful safety programs are ingrained into
the very culture of the company to ensure that
every worker returns home safely each night.
For general contractors, it is important to
pre-qualify subcontractors and vice versa. All
parties need to closely analyze the financial
stability of those with which you will be working.
There is no doubt that your success and
profitability on the project is entwined with
theirs.
Operational Risk
It is a natural tendency for contractors during
lean times to take on work—any work—in
order to utilize existing company resources.
This often results in bidding on work outside
of their “sweet” spot or areas of expertise.
Contractors should be especially careful
bidding this type of work.
CONSTRUCTION
CONSTRUCTION
valuation provisions in buy/sell agreements
still reasonable in light of recent financial
performance?
In addition, reductions in profitability and
capital from the slowdown can result in
risks to existing relationships with bankers
and sureties. Communication is the key
to maintaining and strengthening these
relationships. Open, honest and timely
dialogue is critical – avoid surprises at all
times.
By its very nature, the construction industry
is prone to increased levels of risk. The
recession within the industry has dramatically
altered the construction landscape.
Other Risks
One of the side effects of the economic
slowdown in the construction industry is that
planning for other important risks may be put
aside.
Have you updated business continuity
and disaster recovery plans? Are the
Unfortunately, the recovery for the
construction industry continues to move
along much slower than any of us would like.
The slowdown has intensified certain financial
risks while controlling other risks such as safety
remains critical. Contractors that understand
and manage their risk exposure can most
effectively capitalize on opportunities within
the marketplace.
RubinBrown’s Construction Services Group
We provide services to general contractors, specialty subcontractors and related companies in the construction industry.
Frank Hogg, CPA – St. Louis
Glenn Henderson, CPA, CFP – Kansas City
Partner-In-Charge
Construction Services Group
314.290.3413
frank.hogg@rubinbrown.com
Partner
913.499.4429
glenn.henderson@rubinbrown.com
Mark A. Jansen, CPA – St. Louis
Jim Massaro, CPA – Denver
Vice Chair
314.290.3208
mark.jansen@rubinbrown.com
Partner
303.952.1211
jim.massaro@rubinbrown.com
NOT-FOR-PROFIT
Not-For-Profit Consolidation Rules Require
Careful Analysis
by David Duckwitz, CPA
A
s the operation of nonprofit entities
becomes increasingly complex, such
entities will sometimes acquire an ownership
interest in a for-profit entity or become
related to other nonprofit organizations.
framework is complex and the rules differ
depending on whether the related entity is a
for-profit entity or a nonprofit entity.
For-Profits
In situations such as these, a determination should
be made as to whether the nonprofit entity should
consolidate the activities of the acquired or
related entity in its financial statements.
Fortunately, U. S. generally accepted
accounting principles (GAAP) contains
a framework which stipulates how this
determination is made. However, this
For-profit entities should be consolidated when
the nonprofit organization has a controlling
financial interest in the for-profit entity. That
controlling financial interest generally consists
of the direct or indirect ownership of a
majority voting interest although a general
partner in a limited partnership can also have
a controlling financial interest regardless of its
percentage ownership.
NOT-FOR-PROFIT
A majority voting interest in the board of
the separate nonprofit is possessed if the
nonprofit organization has the ability to
appoint members of the board that comprise
a majority of the votes of the full board.
In scenarios where a nonprofit organization
with an economic interest in a separate
nonprofit has control of that separate
nonprofit through means other than majority
ownership or a majority voting interest in
the board, such as through a contractual
arrangement, consolidation of the separate
nonprofit is permitted but not required.
If the decision is made not to present
consolidated financial statements, additional
disclosures including summarized financial
data of the separate nonprofit are required.
Consolidation is prohibited in situations in
which the nonprofit organization does not
possess both an economic interest and
control of the separate nonprofit.
Other Nonprofits
Special Purpose Entity Lessors
A nonprofit organization’s relationship with
another nonprofit can take various legal
forms. The form of the relationship ultimately
determines whether consolidation is
appropriate.
For various reasons, nonprofit organizations
sometimes engage in leasing transactions
with a special-purpose entity (SPE) lessor.
A nonprofit organization that directly or
indirectly owns a majority voting interest in
another nonprofit entity should consolidate
that entity unless control does not rest
with the majority owner in which case
consolidation is prohibited. In situations where
there is not direct or indirect ownership, but
there is control or an economic interest in the
other nonprofit, further analysis is required.
If the nonprofit organization controls a
related but separate nonprofit entity, in
which it does not have an ownership interest,
through a majority voting interest in the
board of the separate nonprofit and has an
economic interest in the separate nonprofit,
consolidation is required.
In circumstances such as this, an entirely
different analysis must be performed to
determine if the nonprofit organization should
consolidate the SPE lessor. Consolidation of
the SPE lessor is required if all of the following
conditions are met:
∙ Substantially all of the SPE lessor’s activities
involve assets that are leased to a single
lessee.
∙ The risks and rewards of the leased asset
and the obligation related to the underlying
debt of the SPE lessor reside with the lessee.
∙ The owner of the SPE lessor has not made
a substantive capital investment. This
condition is considered met if the owner
of the SPE lessor is not an independent
third party regardless of the amount of the
capital investment.
In situations where consolidated financial
statements are not permitted, it may still
be desirable to present the activities of the
related organization. In such a scenario,
it may be possible to present combined
financial statements.
The consolidation and combination rules
related to not-for-profit financial statements
are complex. Further details, including
numerous examples, are available in FASB’s
Accounting Standards Codification which
should be consulted whenever questions
arise.
Combined Statements
Additionally, communicating with your
accounting advisors can help avoid
surprises when it comes time to prepare your
organization’s financial statements.
GAAP contains rules that stipulate when
combined financial statements may be
utilized. Those rules stipulate that combined
financial statements can be utilized when
the entities to be combined are under
common control or common management
and combined financial statements are
more meaningful than separate financial
statements.
The preparation of combined financial
statements is similar to the preparation
of consolidated financial statements so
combined financial statements may be
useful in situations where consolidation is not
appropriate.
While FASB’s Not-for-Profit Advisory
Committee (NAC) is studying improvements
to financial reporting, including such topics
as net asset classification and the statement
of cash flows, as part of its agenda, reexamination of the consolidation rules for
nonprofits is not currently part of NAC’s plan.
As a result, no FASB action resulting in a
change to these consolidation rules is
expected in the near future.
RubinBrown’s Not-For-Profit Services Group
As a recognized leader in the not-for-profit sector, we have the resources essential to serve arts and cultural organizations,
foundations, private schools, religious organizations, social service agencies and trade and membership associations.
Judy Murphy, CPA – St. Louis
Evelyn Law, CPA – Denver
Partner-In-Charge
Not-For-Profit Services Group
314.290.3496
judy.murphy@rubinbrown.com
Partner
303.952.1245
evelyn.law@rubinbrown.com
Sharon Latimer, CPA – Kansas City
David Duckwitz, CPA – Kansas City
Partner
913.499.4407
sharon.latimer@rubinbrown.com
Director
913.499.4433
david.duckwitz@rubinbrown.com
HOSPITALITY & GAMING
Internal Controls for Private Clubs
by Jeff Sackman, CPA
“
There is a lack of segregation of duties
within your accounting department.”
It can be a frequent occurrence for a private
club to receive the above statement in its
audit firm’s management letter. While the
implied hiring of more employees could
alleviate the problem, there are also other
solutions that can address this concern
effectively.
First, it’s important to understand why your
accounting firm issues such a statement and
what it means.
Auditors’ Responsibilities
Contrary to popular belief, it is not an
auditor’s responsibility to find fraud. In fact,
an external audit detected fraud less than
5% of the time.
Auditors must consider and obtain an
understanding of the club’s internal control
over financial reporting (internal control) as
a basis for designing their audit procedures,
but not for the purpose of expressing an
opinion on the effectiveness of the club’s
internal control.
In addition, the auditors’ consideration of
the club’s internal control is not designed to
identify all deficiencies in internal control.
If the auditor identifies deficiencies, they
are required to determine the level of the
deficiencies and communicate them to
management.
Thus, if your club lacks an adequate
segregation of duties, it is considered
a deficiency and is communicated in
a management letter as a deficiency,
significant deficiency, or a material
weakness.
What Does It Mean?
There are two types of control activities which
ensure management’s directives regarding
operation and financial reporting of the club
are followed—preventative controls and
compensating or detective controls.
Just as the term implies, preventative controls
are designed to “prevent” an event from
occurring. If adequate staffing levels exist,
preventative controls are more desirable
because of their potential ability to catch a
problem before it starts.
Cash Disbursements and
Accounts Payable
In many club accounting environments, the
same employee is maintaining the vendor
master file, processing invoices, printing checks
and mailing the checks after they are signed.
In some cases, the same employee even
has check-signing authority. There are a
multitude of things that can go wrong in
this scenario, including creation of fictitious
vendors which is one of the top five common
frauds committed in business.
Some compensating controls that
help mitigate risks in the areas of cash
disbursements and accounts payable include:
∙ Independent approval of new vendor
entries
∙ Dual signature policy
∙ Independent receipt and review of the
bank statement (or online activity)
∙ Independent review of bank
reconciliations
∙ Independent review of vendor edit reports
Segregation of duties is considered a
preventive control because it prevents an
event from occurring rather than discovering
the error after-the-fact.
Ideally, there should be at least two
individuals involved with every financial
transaction before it occurs to ensure
adequate review for accuracy and reduce
the risk of impropriety.
∙ Password and/or call-back verification for
wire transfers and line-of-credit draws
∙ Independent spot checks of petty cash
and the related supporting documentation
and reconciliation
Absent an adequate segregation of duties,
the control environment is compromised and
compensating controls must be incorporated
to ensure transactions are being monitored
for accuracy and propriety.
Compensating controls are less desirable then
segregation of duties because they generally
occur after the transaction is complete;
however, in the club industry, compensating
controls are many times the reality.
HOSPITALITY & GAMING
Payroll (In-house)
Many clubs process payroll in-house as
opposed to outsourcing the process. In these
cases, one employee may maintain the
employee master file, process payroll and
print the checks or submit the direct deposit.
In some cases, the same employee even has
check-signing authority or utilizes a signature
stamp. Among the many risks here is another
of the top five common frauds committed
in business which is the creation of fictitious
employees.
Other risks include adjustment of payroll
rates, altering seasonal employee
information and issuing bonuses that weren’t
authorized.
Some compensating controls that help
mitigate the risks in the area of payroll
include:
Cash Receipts
Cash receipts are just as susceptible to fraud
as disbursements if the same employee
processes member billings, receives and
processes member payments and issues
member credits. If one employee performs
these duties, that individual is in a position to
divert cash for his/her personal benefit.
Some compensating controls that help
mitigate the risks in the area of cash receipts
include:
∙ Independent authorization and approval
of hours and pay rates
∙ Independent approval of vacation and
sick leave
∙ Independent review and approval of
payroll
∙ Periodic, independent distribution of
employee checks/direct deposit stubs
∙ Independent review of employee edit
reports
∙ Utilization of a lockbox
∙ Restrictive endorsements on checks
received
∙ Independent reconciliation of checks
received to checks deposited
∙ Independent review of all member credits
issued
∙ Reconciliation of cash bar revenues with
consumption
Inventory
If one individual is in charge of purchasing,
receiving and performing the physical
count of inventory, that individual could be
having five-star meals at home every night
or playing with the newest golf equipment
every week.
Here are some compensating controls
to help mitigate the risks in the area of
inventory:
∙ Periodic, independent spot checks of
inventory items being received during the
delivery process
∙ Independent review and spot checks of
the physical inventory count
∙ Independent approval of all modifications
to perpetual inventory records
∙ Quantify and investigate all discrepancies
(ie, demo clubs, write-offs, missing
inventory, etc.)
Pro Shop Considerations
The pro shop can play a major role in
ensuring your club is accounting for (and
collecting on) all of its golf activities.
Requiring members to check in at the pro
shop gives the club the opportunity to
verify the greens fee and cart rental. It also
improves traffic and merchandise sales. The
electronic tee sheet could then be sent to
accounting daily to be reconciled with the
actual greens fees and cart rentals billed to
the members.
The club should also consider utilizing a
starter to aid in verifying greens fees and
cart usage. Not only would a starter help the
accounting department track proper billings,
but he/she would also help to regulate the
pace of play and greet members and their
guests at the first tee.
Loaning equipment to members is also a
common practice in the pro shop. Loaned
equipment promotes potential sales of
merchandise and creates goodwill with
members and their guests; however, the
items are often “lost” and not returned.
One practice to consider is billing the
member’s account (or credit card) upon
loaning the equipment and crediting the
account upon return of the equipment. The
pro shop should also verify the equipment
returned is the same as was issued.
Summary
There is no question that lack of adequate
segregation of duties is an issue for most
clubs. Hopefully, your club decides to
address the issue by implementing some of
the compensating controls outlined above
to mitigate club risk.
RubinBrown’s Hospitality & Gaming Services Group
Many hotels, country clubs, retailers and gaming operations seek out RubinBrown’s accounting, consulting,
and tax services.
Jeff Sackman, CPA – St. Louis
Manager & Private Clubs Segment Chair
Hospitality & Gaming Services Group
314.290.3406
jeff.sackman@rubinbrown.com
Greg Osborn, CPA – Denver
Managing Partner, Denver Office
303.952.1250
greg.osborn@rubinbrown.com
913.499.4411
LIFE
LIFE
SCIENCES
SCIENCES
Reflections on the BIO Conference,
Healthcare Reform and M & A Activity
by Steve Hays, CPA
M
ore than 16,000 attendees from 65
countries gathered recently in Boston
for the BIO International Conference, hosted
by the Biotechnology Industry Organization
(BIO).
RubinBrown leaders were among the
attendees, many of whom traveled from
Canada, United Kingdom, and France.
The states of Missouri and Kansas both had
large delegations attend with leaders from
each promoting their life sciences interest
and capabilities. Six governors were present
along with more than 100 high-level public
officials from around the world.
According to officials from BIO, a “positive
outlook for the future of the life sciences was
shared by many.”
More than 25,000 partnering meetings
were held to promote and drive the global
biotechnology community and economic
growth in continued “efforts to develop
cures, breakthrough medicines, and other
technologies that will make our world a
cleaner, safer, and healthier place.”
Health Care Reform
Medical Devise Excise Tax
As a reminder, the Patient Protection and
Affordable Care Act and the Health Care
and Educational Reconciliation Act of 2010
will impose a new tax on medical devices.
The new tax goes into effect January 1, 2013.
countries that export to the United States to
register and annually update the devices
they manufacture, prepare, propagate,
compound, assemble, process, repackage
or relabel for human use, the IRS expects
most businesses to know whether or not their
products are subject to the excise tax.
For sales made after December 31, 2012,
manufacturers, producers and importers of
medical devices must pay a 2.3% tax on the
sales price of a taxable medical device. The
tax is imposed at the legal entity level and
is not reported on a consolidated basis. The
applicable sales and tax must be reported
quarterly on Form 720 Quarterly Excise Tax.
The first Form 720 that will include the new tax
is due April 30, 2013.
Retail Exemption
The legislation exempted sales of medical
devices (determined by the IRS) that are of
a type generally purchased by the general
public at retail for individual use. Specifically
exempted are:
Taxable Medical Devices
Medical devices are defined under Section
201(h) of the Federal Food, Drug and
Cosmetic Act (FFDCA) and include a broad
range of devices for human use includes
those:
∙ Hearing Aids
∙ Intended for use in the diagnosis of
disease or other conditions or in the cure,
mitigation, treatment or prevention of
disease
Taxable Event
Sales and leases of taxable medical devices
are taxable events. If a manufacturer uses
the article for any use other than in the
manufacture of another taxable article, for
example as a demonstration product, the
tax attaches to that use. If the product is
given away free of charge as a promotional
item, the excise tax is still due.
∙ Recognized by the official National
Formulary or the United States
Pharmacopoeia
∙Eyeglasses
∙ Contact Lenses
Other exempt items include bandages,
applicators, pregnancy test kits, diabetes
testing supplies, denture adhesives and
snake bite kits.
∙ Intended to affect the structure or any
function of the body and that don’t
achieve their primary purposes through
chemical action within or on the body
and aren’t dependent upon being
metabolized for the achievement of their
primary intended purpose
More specifically, a device includes an
instrument, apparatus, implement, machine,
contrivance, implant, in vitro reagent or
similar or related article and any component
part or accessory.
Since the FDA generally requires owners
and operators of places of business that are
located in the United States or in foreign
LIFE SCIENCES
For a sale, the event is measured when the title
passes from the manufacturer to the purchaser
and the tax attaches even if the sale is on
credit and whether or not the purchase price
is actually paid. For installment sales, the tax
attaches to each partial payment.
If the manufacturer both sells and leases
the same item, the tax attaches to each
lease payment until the total amount of
the tax payments equals the amount of tax
that would have attached on a sale. If the
manufacturer is only in the business of leasing
the product, the tax attaches to each lease
payment.
The Sales Price
The tax is imposed on the price for which
the device is sold and includes packaging
and containers but excludes the cost of
transportation, delivery, insurance and
installation. It also excludes the excise tax
itself, whether or not it is separately stated.
Rebates, discounts and allowances, as
well as charges for warranties paid at the
purchaser’s option, are excluded from tax.
States Looking to Increase Revenue
Many states are pursuing more aggressive
measures related to taxation and increasing
revenue due to large budget shortfalls being
experienced. As a result, many states have
taken action in one of the following areas:
∙ Changes in apportionment rules
∙ Increases in tax rates
∙ Changes in filing requirements to a
combined/unity filing approach from stand
alone
M&A Activity Expected to Increase
Life sciences deal activity is expected to
continue and increase as a percentage
of total deal activity due to large returns
being more difficult to come by for mature
businesses and mature industries.
With respect to transactions, life sciences is
a fairly complex industry to analyze. For life
sciences, less than half of the deal activity is
for companies that are actually generating
revenue, of which, only 21% are profitable.
Companies that are in either testing or trial
phases represent 46% of the life sciences
transaction activity and roughly 10% are
companies categorized as in development.
The majority of the money being invested is
in a small number of large transactions ($2.5
billion and above). In analyzing the deal
activity, as illustrated in the accompanying
chart, the largest percentage of life sciences
deals, 62%, are in venture capital as they
focus on identifying the next “big idea” to
generate large returns.
The majority of investors in life sciences are
willing to invest in lower dollar, early stage
companies. As these companies mature,
there is a much smaller market of willing
investors, but they appear to be willing to
pay big dollars.
From an overall market perspective, the
middle market was responsible for roughly
74% of all capital invested; however,
middle market life sciences companies only
represent 39% of the invested capital and
only 12% of the transaction activity.
Life Sciences Deals by Type
Early Stage VC 38.84%
Later Stage VC 23.29%
Corporate Acquisition 7.79%
PIPE 4.47%
Seed 4.09%
Buyout/LBO 3.62%
Add-On 3.07%
Grants 2.74%
IPO 2.49%
Growth/Expansion 2.32%
Secondary Offering 1.68%
Corporate Divestiture 1.18%
Merger 1.01%
Acquisition Financing 0.55%
Corporate 0.55%
Angel 0.42%
Management Buyout 0.42%
Recapitalization 0.42%
Asset Acquisition 0.29%
0%
1%
2%
3%
4%
5%
6%
7%
8%
23%
24% 25%
38%
39%
40%
RubinBrown’s Life Sciences Services Group
RubinBrown provides specialized accounting services to human health, animal health science, plant science and
renewable energy entities across the country.
Steve Hays, CPA – St. Louis
Partner-In-Charge
Life Sciences Services Group
314.290.3336
steve.hays@rubinbrown.com
Felicia Malter, CPA – St. Louis
Rodney Rice, CPA – Denver
Partner
314.290.3249
felicia.malter@rubinbrown.com
Partner
303.952.1233
rodney.rice@rubinbrown.com
913.499.4411
MANUFACTURING & DISTRIBUTION
Expensed Versus Capitalized: Tangible Property
by Henry Rzonca, CPA
M
any manufacturers struggle with
determining whether expenditures
made that are related to tangible property
are to be expensed or capitalized.
“unit of property” and then determine if an
“improvement” has been made.
What is a Unit of Property?
In December 2011, the IRS issued temporary
regulations effective for tax years beginning
on or after January 1, 2012 to provide
guidance on the application of Code
Section 162(a) and Code Section 263(a)
for amounts paid to acquire, produce, or
improve tangible property.
The definition of unit of property depends
on the property type. Regulation § 1.263(a)3T(e) provides the definition of unit of
property for:
∙ A building
∙ Plant property
Under Regulation § 1.263(a)-3T, amounts paid
to improve tangible property, a taxpayer
generally must capitalize the aggregate of
related amounts paid to improve a unit of
property owned by the taxpayer.
∙ Network assets
∙ Leased property other than buildings
∙ Other property
In order to determine if the expenditure
must be capitalized one must first define the
Building
In general, each building, and its structural
components, is a single unit of property.
A building is defined as any structure or
edifice enclosing a space within its walls,
and usually covered by a roof, the purpose
of which is, for example, to provide shelter
or housing, or to provide working, office,
parking, display, or sales space.
The term includes, for example, structures
such as apartment houses, factory and
office buildings, warehouses, barns, garages,
railway or bus stations, and stores.
Structural components are defined to
include such parts of a building as walls,
partitions, floors, and ceilings, as well as any
permanent coverings such as paneling or
tiling, windows and doors, chimneys, stairs,
and other components relating to the
operation or maintenance of a building.
Structural components designated as
building systems are exempt. Building
systems include heating, ventilation, and air
conditioning (“HVAC”) systems, plumbing
systems, electrical systems, escalators,
elevators, fire-protection and alarm systems,
security systems for the protection of the
building and its occupants, gas distribution
systems and other structural components.
Plant Property
Plant property means functionally
interdependent machinery or equipment,
other than network assets, used to perform
an industrial process, such as manufacturing,
generation, warehousing, distribution,
automated materials handling in service
industries, or other similar activities.
The unit of property is further divided into
smaller units comprised of each component
(or group of components) that performs a
discrete and major function or operation
within the functionally interdependent
machinery or equipment.
Network Assets
Network assets means railroad track, oil and
gas pipelines, water and sewage pipelines,
power transmission and distribution lines, and
telephone and cable lines that are owned
or leased by taxpayers in each of those
respective industries. The unit of property
is determined by the taxpayer’s particular
facts and circumstances.
Leased Property Other than Buildings
Where the taxpayer is the lessee of real
or personal property other than buildings,
the unit of property is determined from the
applicable rules described above. The unit of
property may not be larger than the unit of
leased property.
Other Property
The unit of property definition for property
other than buildings, plant property,
network assets and leased property other
than buildings is based upon the functional
interdependence standard.
Under the functional interdependence
standard, all the components that are
functionally interdependent comprise a
single unit of property. Components of
property are functionally interdependent if
the placing in service of one component by
the taxpayer is dependent on the placing in
service of the other component.
Has the Unit of Property Been Improved?
Once the unit of property determination has
been made, one must determine if the unit
of property is improved. The aggregate of
related amounts paid should be capitalized if
these activities performed after the property
is placed in service by the taxpayer:
∙ Result in a betterment to the unit of property
∙ Restore the unit of property
∙ Adapt the unit of property to a new or
different use
MANUFACTURING & DISTRIBUTION
Betterment
An amount paid results in the betterment of
a unit of property only if it:
∙ Ameliorates (improves) a material condition
or defect that either existed prior to the
taxpayer’s acquisition of the unit of property
or arose during the production of the unit
of property, whether or not the taxpayer
was aware of the condition or defect at the
time of acquisition or production.
∙ Results in a material addition (including
a physical enlargement, expansion, or
extension) to the unit of property.
∙ Results in a material increase in capacity
(including additional cubic or square
space), productivity, efficiency, strength, or
quality of the unit of property or the output
of the unit of property.
All facts and circumstances should be
considered when determining whether an
amount paid results in a betterment. The
purpose of the expenditure, the physical
nature of the work performed, the effect of
the expenditure on the unit of property, and
the taxpayer’s treatment of the expenditure
on its applicable financial statements should
be considered.
Where a particular event necessitates an
expenditure, the determination of whether
an expenditure results in a betterment of
the unit of property is made by comparing
the condition of the property immediately
after the expenditure with the condition
of the property immediately prior to the
circumstances necessitating the expenditure.
Restorations
A taxpayer must capitalize amounts paid to
restore a unit of property, including amounts
paid in making good the exhaustion for which
an allowance is or has been made. An amount
is paid to restore a unit of property only if it:
∙ Is for the replacement of a component
of a unit of property and the taxpayer
has properly deducted a loss for that
component (other than a casualty loss).
∙ Is for the replacement of a component of
a unit of property and the taxpayer has
properly taken into account the adjusted
basis of the component in realizing gain or
loss resulting from the sale or exchange of
the component.
∙ Is for the repair of damage to a unit of
property for which the taxpayer has
properly taken a basis adjustment as a
result of a casualty loss or relating to a
casualty event.
∙ Returns the unit of property to its ordinarily
efficient operating condition if the property
has deteriorated to a state of disrepair and
is no longer functional for its intended use.
∙ Results in the rebuilding of the unit of
property to a like-new condition after the
end of its class.
∙ Is for the replacement of a part or a
combination of parts that comprise
a major component or a substantial
structural part of a unit of property.
New or different use
Taxpayers must capitalize amounts paid to
adapt a unit of property to a new or different
use. In general, an amount is paid to adapt
a unit of property to a new or different use
if the adaptation is not consistent with the
taxpayer’s intended ordinary use of the unit
of property at the time originally placed in
service by the taxpayer.
Other Considerations
Routine Maintenance
Routine maintenance is the recurring
activities that a taxpayer expects to perform
as a result of the taxpayer’s use of the unit
of property to keep the unit of property in its
ordinarily efficient operating condition.
Routine maintenance activities include,
for example, the inspection, cleaning, and
testing of the unit of property, and the
replacement of parts of the unit of property
with comparable and commercially available
and reasonable replacement parts.
The activities are routine only if, at the time
the unit of property is placed in service by the
taxpayer, the taxpayer reasonably expects to
perform the activities more than once during
the class life of the unit of property.
Among the factors to be considered in
determining whether a taxpayer is performing
routine maintenance are the recurring nature
of the activity, industry practice, manufacturers’
recommendations, the taxpayer’s experience,
and the taxpayer’s treatment of the activity on
its applicable financial statement.
With respect to a taxpayer that is a lessor of
a unit of property, the taxpayer’s use of the
unit of property includes the lessee’s use of
the unit of property.
Optional Regulatory Accounting Method
An optional simplified method (the regulatory
accounting method) exists for taxpayers in
a regulated industry to determine whether
amounts paid to repair, maintain, or improve
tangible property are to be treated as
deductible expenses or capital expenditures.
A taxpayer that uses the regulatory
accounting method must use that method
for property subject to regulatory accounting
instead of determining whether amounts
paid to repair, maintain, or improve property
are capital expenditures or deductible
expenses under the general principles of
sections 162(a), 212, and 263(a).
A taxpayer in a regulated industry is a
taxpayer that is subject to the regulatory
accounting rules of the Federal Energy
Regulatory Commission (FERC), the Federal
Communications Commission (FCC), or the
Surface Transportation Board (STB).
Under the regulatory accounting method,
a taxpayer must follow its method of
accounting for regulatory accounting
purposes in determining whether an amount
paid improves property.
Therefore, a taxpayer must capitalize for
Federal income tax purposes an amount paid
that is capitalized as an improvement for
regulatory accounting purposes. A taxpayer
must not capitalize for Federal income tax
purposes under this section an amount paid
that is not capitalized as an improvement for
regulatory accounting purposes.
A taxpayer that uses the regulatory
accounting method must use that method
for all of its tangible property that is subject
to regulatory accounting rules. The method
does not apply to tangible property that is
not subject to regulatory accounting rules.
RubinBrown’s Manufacturing & Distribution Services Group
RubinBrown’s Manufacturing & Distribution Services Group is nationally recognized for superior assurance, tax and
consulting expertise coupled with solid international business knowledge, exceptional inventory management and
process improvement services.
Jim Mather, CPA – St. Louis
Henry Rzonca, CPA – St. Louis
Partner-In-Charge
Manufacturing & Distribution Services Group
314.290.3470
jim.mather@rubinbrown.com
Partner
314.290.3350
henry.rzonca@rubinbrown.com
Russ White, CPA – Denver
913.499.4411
Partner
303.952.1247
russ.white@rubinbrown.com
REAL ESTATE
Multi-Family Market Continues to Surge
by Bryan Keller, CPA
E
ach year, data is collected from our
clients, as well as other contacts and
referrals within the industry, to comprise
averages in a variety of markets within the
United States.
This year’s Apartment Stats include
operational data for 2011 and represent 407
apartment projects in 30 states. While these
averages are representative of a smaller
pool of projects, the trends are usually
consistent with those experienced at the
national level.
Industry Update
Capitalizing on 2010’s multifamily housing
industry economic turnaround, 2011’s
portfolio performance showed continued
improvement in a variety of operational and
financial areas.
Although faced with unemployment levels
that remain fairly high and household
creation that is stagnant, apartment owners
have benefited from an increased pool
of renters, which have aided in improving
occupancy levels to highs that haven’t
been seen in years. Likewise, according
to the National Association of Realtors, it is
expected that 2012 will bring some of the
all-time lowest vacancy rates, while rental
growth is anticipated to be anywhere from 3
and 7 percent.
One major source of this forecasted
improvement relates to overall renter
demographics. Generation Y (those
individuals born between 1982 and 1995)
have shown a strong propensity to rent given
the current wage and mortgage lending
situations.
Moreover, the multifamily rental marketrelated student and campus housing, as well
as market rate rentals, is expected to be
very healthy in the coming years. However,
a word of caution as with all real estate
trends—these Generation Y individuals will
eventually cycle out as the lending industry
and compensation levels improve.
Similarly, the continued decline in the
homeownership rate has added to the
growing renter population. The 2011
homeownership rate again dropped roughly
1 percent from 2010 levels, which were down
over 2 percent from 2009 levels.
Those hit hardest by this rate decrease
were minorities, who alone experienced a
1 percent decrease in homeownership on
average, according to the Department of
Housing and Urban Development. Yet, as
the market shifts to improve home values
and, in turn, homeownership becomes more
desirable, multifamily housing’s growth will
once again start to slow.
Much of this may be attributed to the fact
that while more individuals are looking
to rent, they are also looking to share the
costs by living with roommates and family
members. Likewise, analysts insist that
oversupply is not a concern in the near term,
but could become more apparent in some
geographic markets by 2013.
With the sluggish job growth, tightened credit
conditions and increased occupancy rates,
apartment owners are finding themselves
with the pricing edge and overall ability to
strike while the iron is hot on rent increases.
In fact, some owners have even welcomed
move-outs to allow them to be released
from old lease terms and to begin anew with
higher monthly rents going into 2012.
But, in the meantime, apartment owners
can expect to keep occupancy high
and cash flow strong in 2012 given the
market conditions. Further, owners have
been enhancing property values and curb
appeal via substantial apartment upgrades
and repairs, which had been delayed in
prior years due to weakened economic
performance.
Market Trends
2011 saw a lending arena that had
improved compared to a few years ago.
Indeed, banks have been focusing on the
apartment market once again. The decline
in vacancy rates, coupled with increased
In response to this increased rental demand,
multifamily housing permits, starts and
completions have risen significantly in 2011 as
well as into the first quarter of 2012. Indeed,
permits alone in late 2011/early 2012 have
shown a 61 percent surge over late 2010/
early 2011.
Yet, it is important to note that the absorption
for the new apartment units has slowed
approximately 64% from late 2010 to late
2011, which seems contradictory to demand
and the increased renter pool.
REAL ESTATE
vacancies and surging demand are driving
investors to grab deals as they come to
market. Yet, most investors are focusing on
properties with lower and middle rent price
points rather than throwing monies at luxury
units.
Equity pricing for affordable multifamily
housing investments has also rebounded,
boasting mid-to-upper ninety cents per
dollar of credit on the coasts. And, in some
cases, deals have closed with pricing over a
dollar per dollar of credit earned. Most often,
this has been driven by financial institution
investors looking to satisfy their community
reinvestment appetite with quality properties.
rental demand, has lured financial institutions
to place monies in investments that can
provide a “safety net” during times of
economic uncertainty.
Likewise, the multifamily market has also
performed better than expected in regards
to the timing of selling off distressed assets –
another attractive feature to many lending
institutions.
In keeping with some of the trends noted in
the latter half of 2010, Fannie Mae, Freddie
Mac and the Federal Housing Administration
concentrated lending efforts on preservation
projects during 2011, offering low all-in rates.
Similarly, Freddie Mac has enticed apartment
owners and developers with bond credit
enhancements, which has helped to spark
interest and opportunity in the otherwise
previously diminished area of tax-exempt
bond financing.
Likewise, the same characteristics that are
attracting lenders back into the multifamily
market are making a comparable impact
on investors. As mentioned above, factors
such as improved occupancies, decreased
Fueled by investor need and demand
for investment, sales activity for 2011 was
equally strong, with transactions growing
approximately 30% from 2010 to 2011.
Garden style properties have contributed
to most of the volume. And, as expected,
pricing per unit continues to rise as cap rates
have steadily fallen since 2010.
Of course, now analysts are questioning just
how low cap rates can drop. Most believe
the trend will not last. However, given the
current industry trends involving rental
growth, falling vacancies, rising demand and
overall investor need, the environment points
to low cap rates into the near future.
Conclusion
2011’s robust industry performance has
left market analysts, apartment owners
and other stakeholders optimistic for 2012
performance. With sustained rent increases,
lower vacancies and rising permits, this year
is expected to experience continued success
and end on an even higher note than the
previous year.
The continued recession felt in the single
family housing market as well as the current
shift in the rent versus buy perspective remain
impactful on the industry’s recovery.
With rising demand and a sustained
need for multifamily housing on the table,
apartment owners have found themselves
in a prosperous position during 2011 and
for the next few years. Dubbed “the Year
of the Landlord”, many will find 2012 to be
successful, as the multifamily housing market
is the apparent place to be.
However, the industry does have some
hazards looming on the horizon. Besides
the potential threat of oversupply in the
coming years, pending legislation could
have a substantial effect on the industry’s
turnaround – namely, in the affordable
housing and tax credit arenas.
Learn & Connect with the
RubinBrown Real Estate Group
RubinBrown Real Estate Blog
www.RubinBrownRealEstate.com
Follow RubinBrown Real Estate On Twitter
@RubinBrownRE
RubinBrown Real Estate E-News
www.RubinBrown.com/industries/real-estate
To view the complete 2012 Apartment
Stats, go to www.RubinBrown.com
With tax reform imminent, probabilities are
high that all multifamily stakeholders will feel
the impact to some degree, whether through
reduced credits, subsidies or deductions.
Many proponents of the affordable housing
market have continued to promote the
strengths of the industry’s mission and overall
community impact.
Nonetheless, time will tell as future legislation
and its effects lie in the hands of our
Congressional leaders.
Please visit our website at
www.RubinBrown.com to view the newly
released 2012 Apartment Stats.
RubinBrown’s Real Estate Services Group
RubinBrown has developed a strong reputation nationally as a leader in accounting and advisory services for real
estate companies. Today, we provide specialized services to more than 2,000 real estate entities.
Bryan Keller, CPA – St. Louis
Frank Seffinger, CPA – Denver
Partner-In-Charge
Real Estate Services Group
314.290.3341
bryan.keller@rubinbrown.com
Partner
303.952.1240
frank.seffinger@rubinbrown.com
Glenn Henderson, CPA, CFP – Kansas City
Partner
913.491.4429
glenn.henderson@rubinbrown.com
MEDIA & ENTERTAINMENT
A Look at the Evolution of Publishing
by Jessica Sackman, CPA
S
ixty years ago marked a time of change,
not only because RubinBrown was
formed, but also because it represented a
time when the publishing industry fought its
first major battle.
In the early `50s, a war between the
newspaper and radio industries erupted.
American newspapers tried to force the
Associated Press to terminate news service to
radio stations.
Flash-forward sixty years to today, and
the war that publishers fight is with much
beloved, as well as maligned, technology.
Yet throughout history, the publishing industry
has weathered these sorts of challenges and
its past offers some optimism for the future. A
look over the past 60 years demonstrates the
evolution of technology as well as political
and cultural changes within the industry.
The Challenges For Newspapers
Evidenced by President Eisenhower’s
20-second campaign spot run in 1952,
newspapers began to face serious
challenges as radio became increasingly
popular. Just two short years later, radios
outnumbered newspapers by far. Then not
far behind, television surpassed newspapers
as a source of information by 1960. Since the
1950s, circulation as a percentage of the
population has decreased year after year.
In 1970, Congress recognized the financial
duress the evolution of information was
putting on newspapers and passed the
Newspaper Preservation Act. This legislation
gave struggling newspapers limited
exemption from antitrust laws by making
it possible for competing newspapers to
combine advertising, production, circulation
and management functions into a single
newspaper corporation.
Cross Ownership Issues
While technology changed the traditional
models of publishing, other factors impacted
it as well. In 1975, Congress passed federal
regulations making it illegal for a single
company to own multiple media properties,
such as a newspaper and a television or radio
station, in the same metropolitan market.
Publicly, the legislation was passed to prevent
monopolies and ensure a diversity of opinion,
but there were rumors of political motivations
as well. The Washington Post uncovered the
Watergate scandal, prompting President
Richard Nixon’s 1974 resignation.
Blaming the Post for his political disgrace,
Nixon was recorded telling two of his top
aides in 1972 that the paper would “have
damnable problems out of this one …they
have a television station … and they’re going
to have to get it renewed.”
Three years after that conversation, the
Federal Communications Commission barred
cross-ownership, forcing the Post to swap its
local television station with one in Detroit. A
direct connection has never been established
between Nixon’s threats and the ban, but that
event marked the beginning of allegations
that politics play a part in media policy.
Loosening of this cross-ownership ban was
attempted again this year in 2012; however,
the Supreme Court ruled not to hear the
appeal of the FCC media ownership rules,
much like it did in 2007.
Decreasing Revenues
Paid circulation for newspapers began
decreasing in 1986, and it has continued
to decrease every year since. But the real
plunge started in 2005. From 2005 to 2009,
advertising revenues decreased 44%. Larger
newspapers have moved to online versions,
which have stabilized the large metropolitan
market papers.
The Wall Street Journal began including
paid online subscribers in its circulation in
2003, and has seen relatively flat weekday
circulation over the last nine years, while
other large metropolitan papers such as
the Washington Post have continued to see
significant decreases.
According to the Bureau of Economic
Analysis, print ad revenue was down
almost 30% in 2009 and another 10% in
2010. An interesting turn in 2012 has been
the divestiture and investing activity in the
newspaper industry.
Investing In Newspapers
Berkshire Hathaway has added to its already
media intensive portfolio (the company’s
13th largest stock holding as of March 31,
2011 was Washington Post, holding value
of $578.5 million for a 22.38 percent stake,
and 11th largest holding is DirecTV at $1.08
billion), purchasing newspapers such as
Media General and Omaha World-Herald at
5.0 and 5.9 EBITDA multiples, respectively.
Because of his world-renowned successes,
when Berkshire Hathaway CEO Warren
Buffet buys shares of a company’s stock, it
changes market and consumer confidence
in the company’s continued success. The
confidence in small-town newspapers, where
other methods of obtaining local news aren’t
as readily available, may indicate some
promise for the newspaper industry.
Book Publishing
While newspapers fought to maintain
readership with the evolution of radio
and television, book publishers faced the
MEDIA & ENTERTAINMENT
paperback revolution. Major publishers
were first concerned that paperback,
much cheaper, reprints would kill their sales
of existing inventory; full-priced hardcover
books.
However, as more competition entered
the market, offering a quality product
at a bargain-basement price became
increasingly challenging, leading to a 1969
New York Times Review article titled “Is the
Paperback Revolution Dead,” after the
quality of books declined and readers shied
away.
In the early `80s, as baby boomers reached
child-bearing age, sales of children’s
books exploded. Similar to the paperback
revolution, expansion was fast and furious
and led to books of mediocre quality. This,
combined with the recession, cut book sales
in half and challenged many publishers,
because retailers returned unsold inventory
for credit.
In the 1990s, large book sale chains
proliferated, offering browsing areas, coffee
bars, special events such as book signings,
and children story hours.
In the late 1990s, online book selling such
as Amazon.com emerged, and the large
retailers followed. This had a significant
impact on not only the distribution channels
but the method by which authors were
published. Publishers began to face
unprecedented competition from software
and communications companies entering
the electronic publishing market.
In 2012, people are as likely to download a
book on a mobile electronic device as they
are to grab a book off the shelf. But brick
and mortar shops have yet to disappear
from American culture.
Creative ways of generating demand such
as increasing the number of live events that
bring readers into their stores, expertise, and
transformation with the digital age such as
offering e-books through their websites have
helped brick and mortar shops stay with
times.
Summary
A reflection of the publishing industry over
the last sixty years shows the battles that
have been fought by newspaper and book
publishers.
The digital revolution of the industry is here
to stay but may be just another phase in the
natural evolution of a resilient industry.
RubinBrown’s Media & Entertainment Services Group
We serve individuals and organizations of all sizes throughout the broadcast, cable, publishing and
entertainment industries.
Larry Rubin, CPA – St. Louis
Partner-In-Charge
Media & Entertainment Services Group
314.290.3338
larry.rubin@rubinbrown.com
913.499.4411
Jessica Sackman, CPA – St. Louis
Greg Osborn, CPA – Denver
Managing Partner, Denver Office
303.952.1250
greg.osborn@rubinbrown.com
Manager and Director
Media & Entertainment Services Group
314.290.3308
jessica.sackman@rubinbrown.com
PUBLIC SECTOR
Self-Insuring Can Help Manage Healthcare Costs
by Chester Moyer, CPA
“
Health-care costs are strangling our
country. Medical care now absorbs 18%
of every dollar we earn,” comments Dr. Atul
Gwande, surgeon, author, and expert on
public health.
Many state and local governments are
struggling to contain costs while maintaining
a high level of service to their citizens and
fair wages and benefits for their employees.
As a result, governments are working hard
to identify expenditure areas that can be
managed differently.
One practice that state and local
governments frequently use to manage
costs is self-insurance of the healthcare
benefits offered to employees. Several
governments have recently implemented
innovative approaches to try to reduce the
costs associated with self-insuring healthcare
benefits.
Self-insuring means the employer is providing
health insurance directly to employees,
rather than providing insurance through
an insurance company. Savings for state
and local governments can be realized in
self-insured programs through utilization of
employees to administer the plan at a cost
less than an insurance company would
charge.
PUBLIC SECTOR
In addition, costs can be managed, because
the organization has access to specific
claims data, which assists the employer in
designing a plan that best meets the needs
of employees.
Risks
As with any group covered by an insurance
plan, the greatest risk to the insurer is the
risk of a catastrophic claim that exceeds
the capacity of the insurer’s ability to pay.
To reduce this risk, the organization should
purchase stop-loss insurance through an
insurance company, which would cover
these types of claims.
Another risk to employers who self-insure
is the cost of treating chronic ailments.
As documented in a 2005 study by the
Congressional Budget Office, 25% of
Medicare beneficiaries accounted for 85% of
the Medicare spending.
Of this 25%, more than 75% were diagnosed
with at least one major chronic condition,
such as heart disease, lung disease or
diabetes. Although this data relates to
Medicare participants, the CBO indicated
that the general population shows a similar
concentration of costs because of chronic
ailments.
In a 2012 article in the New England Journal
of Medicine, Harvey V. Fineburg, M.D. and
Ph.D. argues that the costs resulting from
treating chronic conditions “…could be
mitigated through a more widespread effort
to limit risk factors, including measures to
help patients reduce excess body weight,
increase physical activity, quit smoking,
control hypertension, and lower cholesterol
levels.”
Many employers who self-insure have begun
to implement innovative programs to limit
the risk factors of chronic disease and
improve employee health, and thus reduce
healthcare costs.
City of Lenexa, Kansas
The City of Lenexa, Kansas is an example
of a local government that self insures and
is on the cutting edge of providing internal
programs that reduce healthcare costs.
In a presentation to the Lenexa City Council
in March 2012, it was reported that the city’s
wellness program has resulted in savings of
over $1 million last year alone. How have
they done it?
According to Kristin Crow, Assistant Human
Resources Director of the City of Lenexa and
Jill Grube, Assistant Finance Director and
a member of the city’s Health Task Force,
it has been a combination of efficiently
administering a self-insurance program
and the fact that health and wellness have
become a part of the culture of the city
employees.
“Wellness has become ingrained in the
culture at the city over the years and the
implementation of the city’s “LiveWell”
program was the next step in the process,”
said Grube.
The city’s “LiveWell” program is a
comprehensive health and wellness program
for members of the city’s health plan.
LiveWell includes free health risk assessments,
lifestyle coaching, access to a health
center which includes on-site medications
prescribed for minor conditions,injury
treatment, lab work, and vaccines – all
administered by a team that includes a nurse
practitioner, dietitian, fitness professional, and
wellness coach.
The health center is located in city hall,
where a large number of employees
work. This makes the trips to visit a health
professional fast and efficient. “I can
walk downstairs two minutes before my
appointment and be seen right away,”
commented Grube.
Of the offerings listed above, one that results
in immediate savings to the city is use of a
nurse practitioner at city hall to administer
many basic health needs. This practice
prevents some expensive visits to a hospital,
and effectively utilizes the capabilities of a
medical professional qualified in many of the
same areas as a doctor, but at a reduced
rate.
The longer-term savings are expected to be
realized through reduced instances of chronic
conditions such as heart disease, lung disease
or diabetes through the use of the dietitian,
fitness professional and wellness coach.
Implementation did not come without
an upfront financial commitment by the
city. Significant premium incentives to the
employees to participate in the LiveWell
program and the build out of the health
center and fitness area were among the
investments that the city was willing to make.
The return on investment has already
been realized financially in the short term;
and with participation exceeding 95% of
eligible employees, the healthcare savings
to the city related to a healthy employee
population is expected to save them even
more money in the long run.
RubinBrown’s Public Sector Services Group
Through our extensive list of clients, including many cities and governmental entities, we understand the issues unique
to the public sector.
Jeff Winter, CPA – St. Louis
Kaleb Lilly, CPA – Kansas City
Partner-In-Charge
Public Sector Services Group
314.290.3408
jeff.winter@rubinbrown.com
Partner
913.499.4417
kaleb.lilly@rubinbrown.com
Bert Bondi, CPA – Denver
Chester Moyer, CPA – Kansas City
Partner
303.952.1213
bert.bondi@rubinbrown.com
Manager
913.499.4445
chester.moyer@rubinbrown.com
TRANSPORTATION & DEALERSHIPS
Organizational Risk for Automotive Dealers
by John Butler, CPA
F
or most businesses “organizational risk” is
just a fancy way of saying “What keeps
you up at night?”
Sometimes, manufacturers require a costly
facility upgrade even though one occurred
just a few years before.
Every business, large or small, manages
common risks which can include the loss
of key employees or customers, fraud,
embezzlement, theft, natural disasters and
much more.
Some risks are insurable and some are not.
Even if a dealership is insured, the risk could
still be catastrophic if the business lacks a
recovery plan. Too many businesses insure
the risks they can and hope for the best as
they manage day-to-day challenges.
Automotive dealers also have unique risks of
their own.
The manufacturers they represent can go
bankrupt, withdraw from the market or fail
to deliver vehicles consumers want to buy.
The process of managing risk is essentially
the same as looking for internal control
weaknesses that could allow fraud or theft to
occur in a dealership.
Helpful Ideas
You begin by looking at where you are
vulnerable to losing the most and then try to
find ways to prevent and/or detect loss. Here
are some ideas to get started.
∙ Start and maintain a list of things that
could cause great disruption or loss to the
business.
∙ Make time, at least once a month, to
get out of the office and away from
distractions to review the list and prioritize
those that are more urgent and need
immediate attention.
∙ Discuss your concerns with trusted advisors.
Other business owners, bankers, insurance
brokers and CPAs can all give you advice
and other perspectives on what should be
on your list or how they may have dealt
with the same problem. Try to meet with
each of them at least once a year to ask
them for feedback about what concerns
you and if your mitigation plan is on target.
∙ Understand that while one person cannot
do it all, one person does need to drive
the process. Assign individuals in the
organization responsibility for having
a plan to mitigate risks and hold them
accountable to finding solutions.
This individual should have a detailed
understanding of the insurance coverage,
including the process for notifying the
insurance carrier if a hailstorm hits the
dealership.
The first question that will be asked by the
insurance company is what the dealership’s
plans are for preventing further losses that
could occur if windows are broken and the
interiors are damaged by water.
While some vehicles could be moved indoors
until windows are replaced, there could
be too many to move. It may be possible
to have a prearranged agreement with a
glass vendor capable of handling significant
volume and to give priority to replacing the
dealership’s damaged vehicle windows
before helping other dealerships. The same
type of arrangement could be made with a
dent repair vendor.
Another component that is important to
a hail disaster plan is how to market the
damaged vehicles. Salespeople will need to
be trained to consistently offer appropriate
options and disclosures to customers.
∙ Trust, but verify. Delegate responsibility for
developing disaster plans and give the
authority to implement. Meet periodically
to review the plan and make sure it is on
target.
The Risk of Hail
A risk that could have a broader and more
long-lasting impact on an automobile
dealership would be a weather-related
disaster like hail.
The individual in your dealership who should
be responsible for a hail disaster plan should
be the person most familiar with vehicle
inventories.
TRANSPORTATION & DEALERSHIPS
Advertising of “hail sales” can be crucial and
drive motivated buyers to the dealership
even if they don’t end up purchasing a haildamaged vehicle.
If the dealership operates with its own body
shop, it will also need to be prepared to
adjust its operations to handle the increased
volume. The flow of hail-damaged vehicles
through the shop could disrupt operations for
months.
The parts department will have a role to play
and will need to provide sheet metal and
other parts on time to repair vehicles and not
get left with special order parts that cannot
be returned.
While the actual hailstorm may only last 10 or
15 minutes, your entire operations could be
turned upside down for months.
Using the same approach to plan for other
risks dealerships face can have immediate
benefits. Overall, it’s critically important to
assign champions within your business to
develop solid and appropriate disaster plans
and meet with them regularly to ensure
relevancy.
RubinBrown’s Transportation & Dealerships Services Group
RubinBrown assists the transportation industry through accounting, income tax, retirement, estate and fringe
benefit planning.
John Butler, CPA – St. Louis
Russ White, CPA – Denver
Partner-In-Charge
Transportation & Dealerships Services Group
314.290.3333
john.butler@rubinbrown.com
Partner
303.952.1247
russ.white@rubinbrown.com
Mary Ramm, CPA – Kansas City
Mark Conrad, CPA – St. Louis
Partner
913.499.4406
mary.ramm@rubinbrown.com
Manager
314.290.3425
mark.conrad@rubinbrown.com
TIMELY REMINDERS
October 15, 2012
Individuals. If you have an
automatic 6-month extension to file
your income tax return for 2011, file
Form 1040, 1040A, or 1040EZ and pay
any tax, interest and penalties due.
Individuals. If you did not pay the
required last installment of estimated
tax by January 15, you may choose
(but are not required) to file your
income tax return (Form 1040) for 2012
by January 31. Filing your return and
paying any tax due by January 31
prevents any penalty for late payment
December 15, 2012
of the last installment. If you cannot file
Corporations. If filing on a calendar
and pay your tax by January 31, file
year, deposit the fourth installment of
and pay your tax by April 15.
estimated income tax for 2012.
Federal Payroll Tax. File Form 941 for
December 31, 2012
the fourth quarter of 2012. Deposit or
pay any undeposited Social Security,
Individuals and cash basis
Medicare and withheld federal
corporations. Pay amounts intended
income tax.
to be deducted on 2012 tax
returns. An example includes the
Federal Unemployment Tax. File
fourth quarter state estimated tax
Form 940 for 2012. If you deposited
payment, which is due January 15,
the tax for the year in full and on
2013 but may be deductible in 2012
time, you have until February 11 to
if paid on or before December 31.
file the return.
January 15, 2013
February 15, 2013
Individuals. If you are not paying all
Individuals. If you claimed exemption
of your 2012 estimated income tax
from income tax withholding in
through withholding, pay the fourth
2012 on the Form W-4, Employee’s
installment of your 2012 estimated
Withholding Allowance Certificate,
tax using Form 1040-ES and
you gave to your employer, you must
applicable state form(s).
file a new Form W-4 by this date to
continue your exemption for 2013.
January 31, 2013
All Businesses. Provide annual
All Businesses. Provide annual
information statements to recipients
information statements to recipients
of certain payments you made
of certain payments you made
during 2012 on the appropriate
during 2012 on the appropriate
2012 Form 1099 or other information
2012 Form 1099 or other information
return. Form 1099 can be issued
return. Form 1099 can be issued
electronically with the consent of
electronically with the consent of
the recipient. This due date only
the recipient. This due date does not
applies to all payments reported
apply to all payments reported on
on Form 1099-B, Proceeds From
Form 1099-B, Proceeds From Broker
Broker and Barter Exchange
and Barter Exchange Transactions,
Transactions, all payments reported
all payments reported on Form
on Form 1099-S, Proceeds From Real
1099-S, Proceeds From Real Estate
Estate Transactions and substitute
Transactions and substitute payments
payments reported in box 8 or
reported in box 8 or gross proceeds
gross proceeds paid to an attorney
paid to an attorney reported in box
reported in box 14 of Form 1099-
14 of Form 1099-MISC, Miscellaneous
MISC, Miscellaneous Income.
Income as the due date for these
filings is February 15.
February 28, 2013
All Businesses. If not filing
electronically, file 2012 information
returns (Form 1099) for certain
payments you made during 2012.
There are different forms for different
All Employers. If filing electronically,
file copies of all Forms W-2 you issued
for 2012. If you do not file Forms W-2
electronically, your due date for
filing them with the Social Security
Administration is February 28.
types of payments. Use a separate
Form 1096 to summarize and transmit
for forms for each type of payment.
If you file Forms 1099 electronically,
your due date for filing them with the
IRS will be extended to April 1.
All Employers. If not filing
electronically, file 2012 Form W-3,
Transmittal of Wage and Tax
Statements, along with Copy A of all
the Forms W-2 you issued for 2012.
If you file Forms W-2 electronically,
your due date for filing them with the
Social Security Administration will be
extended to April 1.
March 15, 2013
Corporations. File a 2012 calendar
year income tax return (Form 1120)
and pay any tax due. If you want
an automatic six-month extension of
time to file the return, file Form 7004,
Application for Automatic Extension
of Time to File Certain Business
Income Tax, Information, and Other
Returns, and deposit what you
estimate you owe.
S Corporations. File a 2012 calendar
year income tax return (Form 1120S)
and pay any tax due. Provide each
shareholder with a copy of Schedule
April 15, 2013
Individuals. File a 2012 income tax
return (Form 1040, 1040A or 1040EZ)
and pay any tax due. If you want
an automatic six-month extension of
of Time to File U.S. Individual Income
Tax Return.
Individuals. If you are not paying all
of your 2013 estimated income tax
through withholding, pay the first
installment of your 2013 estimated
tax using Form 1040-ES.
Partnerships. File a 2012 calendar
year income tax return (Form 1065).
Provide each partner with a copy of
Schedule K-1 (Form 1065), Partner’s
Share of Income, Deductions,
Credits, etc. If you want an
automatic five-month extension of
of Time to File Certain Business
Income Tax, Information, and Other
Returns.
Corporations. If filing on a calendar
year, deposit the first installment of
estimated income tax for 2013.
K-1(Form 1120S), Shareholder’s Share
of Income, Deductions, Credits,
etc. If you want an automatic sixmonth extension of time to file the
return, file Form 7004, Application
for Automatic Extension of Time to
File Certain Business Income Tax,
Information, and Other Returns, and
deposit what you estimate you owe.
April 30, 2013
Federal Payroll Tax. File Form 941 for
the first quarter of 2013. Deposit or
pay any undeposited Social Security,
Medicare and withheld federal
income tax.
Federal Unemployment Tax. Deposit
the tax owed through March if more
April 1, 2013
than $500.
All Businesses. If filing electronically,
February 16, 2013
All Employers. Provide your
All Employers. Begin withholding
employees their copies of Form W-2
income tax from the pay of any
for 2012. If an employee agreed
employee who claimed exemption
to receive Form W-2 electronically,
from income tax withholding in
have it posted on a website and
2012, but did not provide Form W-4,
notify the employee of the posting.
Employee’s Withholding Allowance
Certificate, to continue the
exemption in 2013.
file 2012 information returns (Form
1099) for certain payments you
made during 2012. There are
different forms for different types of
payments. Use a separate Form 1096
to summarize and transmit forms for
each type of payment. If you do not
file Forms 1099 electronically, your
due date for filing them with the IRS is
February 28.
RubinBrown is one of the nation’s largest accounting and business consulting firms, with
more than 400 team members working from offices in Denver, Kansas City and Saint Louis.
Founded in 1952, the firm’s award-winning team members hold leadership roles in both
national and local accounting organizations and have worked to establish best practices
in accounting within specific industry segments.
RubinBrown is an independent member of Baker Tilly International, a network of
149 independent firms in 125 countries.
Denver Office
Kansas City Office
Saint Louis Office
1900 16th Street
Suite 300
Denver, Colorado 80202
10975 Grandview Drive
Building 27, Suite 600
Overland Park, Kansas 66210
One North Brentwood
Suite 1100
Saint Louis, Missouri 63105
ph: 303.698.1883
fax: 303.777.4458
ph: 913.491.4144
fax: 913.491.6821
ph: 314.290.3300
fax: 314.290.3400
For more information, visit www.rubinbrown.com

Fall 2012 - RubinBrown

Transcription

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