In the News

Lindenbaum speaks at real estate seminar

 
  Tax partner Ken Lindenbaum onstage at the Garden City Hotel Grand Ballroom.

Tax partner Ken Lindenbaum onstage at the Garden City Hotel Grand Ballroom.

 

GARDEN CITY, NY (April 13, 2018)  Congratulations to tax partner Kenneth Lindenbaum on being an invited speaker at "Destination Florida" at the historic Garden City Hotel in Garden City, New York on Wednesday, April 11, 2018.

Mr. Lindenbaum spoke about investment options, the costs and benefits of relocation, and retirement choices for high net worth individuals.

"Destination Florida" was sponsored by Douglas Elliman. Other speakers included Elliman chair Howard M. Lorber, Jay Phillip Parker (CEO Florida Brokerage, Douglas Elliman), and Jonathan Miller (President/CEO of Miller Samuel Inc.).

Special report: Update on the Tax Cuts and Jobs Act

 
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For the benefit of Raich Ende Malter clients, we have distilled the tax changes affecting individuals in the H.R. 1 tax bill into a comprehensive, accurate list. The information contained in this list is culled from several reliable sources. We believe these points are the changes most likely to affect you:

  • Lower income tax rates and brackets.
  • The standard deduction is increased to $24,000 for married individuals filing a joint return, $18,000 for head-of-household filers, and $12,000 for all other taxpayers, adjusted for inflation in tax years beginning after 2018.
  • The deduction for personal exemptions is effectively suspended by reducing the exemption amount to zero.
  • Child tax credit increased to $2,000 per qualifying child. The credit phases out at $400,000 for married taxpayers filing jointly and $200,000 for all other taxpayers. Certain non-child dependents will have a nonrefundable $500 credit. Refundable credit amount increases to $1,400 per qualifying child up to the base amount of $2,000. Earned income threshold for the refundable portion of the credit will be reduced from $3,000 to $2,500.
  • “Kiddie tax” law: Taxable income of a child attributable to earned income is taxed under the rates for single individuals, and taxable income of a child attributable to net unearned income is taxed according to the brackets applicable to trusts and estates. This rule applies to the child’s ordinary income and his or her income taxed at preferential rates. (Note: kiddie tax applies to a child if 1) the child either has not attained age 19 by the end of the tax year or is a full-time student under the age of 24, and either parent is alive; 2) the child’s unearned income exceeds $2,100 for 2018; and 3) the child does not file a joint return.)
  • Breakpoints for capital gains taxes remain the same, but will be indexed for inflation using the Chained Consumer Price Index for All Urban Consumers (C-CPI-U).
  • Gambling losses: All deductions for expenses incurred in carrying out wagering transactions (in addition to gambling losses) are limited to the extent of gambling winnings.
  • SALT deductions: For tax years beginning after December 31, 2017 and before January 1, 2026, subject to the exception described below, state, local, and foreign property taxes, and state and local sales taxes, are deductible only when paid or accrued in carrying on a trade or business or an activity for the production of income. State and local income, war profits, and excess profits are not allowable as a deduction.
    • A taxpayer may claim an itemized deduction of up to $10,000 ($5,000 for a married taxpayer filing a separate return) for the aggregate of 1) state and local property taxes not paid or accrued in carrying on a trade or business or activity and 2) state and local income, war profits, and excess profits taxes (or sales taxes in lieu of income, etc. taxes) paid or accrued in the tax year. Foreign real property taxes may not be deducted.
    • For tax years beginning after December 31, 2016, in the case of an amount paid in a tax year beginning before January 1, 2018 with respect to a state or local income tax imposed for a tax year beginning after December 31, 2017, the payment will be treated as paid on the last day of the tax year for which such tax is so imposed. Therefore, a taxpayer who, in 2017, pays an income tax that is imposed for a tax year after 2017, can’t claim an itemized deduction in 2017 for that prepaid income tax.
  • Mortgage and home equity: For tax years beginning after December 31, 2017 and before January 1, 2026, the deduction for interest on home equity indebtedness is suspended, and the deduction for mortgage interest is limited to underlying indebtedness of up to $750,000 ($375,000 for married taxpayers filing separately).
  • “Binding contract” exception: A taxpayer who has entered into a binding written contract before December 15, 2017 to close on the purchase of a principal residence before January 1, 2018, and who purchases such residence before April 1, 2018, shall be considered to incur acquisition indebtedness prior to December 15, 2017.
  • Refinancing: The $1 million/$500,000 limitations continue to apply to taxpayers who refinance existing qualified residence indebtedness that was incurred before December 15, 2017, so long as the indebtedness resulting from the refinancing doesn’t exceed the amount of the refinanced indebtedness.
  • Medical expense deductions: For tax years beginning after December 31, 2016 and ending before January 1, 2019, the threshold on medical expense deductions is reduced to 7.5% for all taxpayers. The rule limiting the medical expense deduction for AMT purposes to 10% of AGI doesn’t apply to tax years beginning after December 31, 2016 and ending before January 1, 2019.
  • Charitable contribution deduction limit increased: For contributions made in tax years beginning after December 31, 2017 and before January 1, 2026, the limitation for cash contributions to public charities and private foundations is increased to 60% of AGI. Contributions exceeding the 60% limit are generally allowed to be carried forward and deducted for up to five years, subject to the later year’s ceiling.
  • Casualty losses: Under the Act, taxpayers can take a deduction for casualty losses only if the loss is attributable to a declared disaster.
  • Alimony treatment: For any divorce or separation agreement executed after December 31, 2018, or executed before that date but modified after it (if the modification expressly provides that the new amendments apply), alimony and separate maintenance payments are not deductible by the payor spouse and are not included in the income of the payee spouse. Instead, income used for alimony is taxed at the rates applicable to the payor spouse.
  • Miscellaneous itemized deductions: For tax years beginning after December 31, 2017 and before Jan. 1, 2026, the deduction for miscellaneous itemized deductions that are subject to the 2% floor is suspended.
  • “Pease” limitation on itemized deductions is suspended.
  • Repeal of ACA mandate: For months beginning after December 31, 2018, the amount of the individual shared responsibility payment is reduced to zero. This repeal is permanent.
  • Alternative minimum tax (AMT): For tax years beginning after December 31, 2017 and before Jan. 1, 2026, the Act increases the AMT exemption amounts for individuals as follows:
    • For joint returns and surviving spouses, $109,400.
    • For single taxpayers, $70,300.
    • For marrieds filing separately, $54,700.
    • Under the Act, the above exemption amounts are reduced (not below zero) to an amount equal to 25% of the amount by which the income of the AMT taxpayer exceeds the phase-out amounts, increased as follows:
      • For joint returns and surviving spouses, $1 million.
      • For all other taxpayers (other than estates and trusts), $500,000.
      • For trusts and estates, the base figure of $22,500 and phase-out amount of $75,000 remain unchanged. All of these amounts will be adjusted for inflation after 2018 under the new Chained Consumer Price Index for All Urban Consumers (C-CPI-U) inflation measure.
  • ABLE account changes: Effective for tax years beginning after the enactment date and before January 1, 2026, the contribution limitation to ABLE accounts with respect to contributions made by the designated beneficiary is increased, and other changes are in effect as described below. After the overall limitation on contributions is reached (i.e., the annual gift tax exemption amount; for 2018, $15,000), an ABLE account’s designated beneficiary can contribute an additional amount, up to the lesser of 1) the Federal poverty line for a one-person household; or 2) the individual’s compensation for the tax year.
  • Expanded use of 529 accounts: For distributions after December 31, 2017, “qualified higher education expenses” include tuition at an elementary or secondary public, private, or religious school, up to a $10,000 limit per tax year.
  • Discharged student loan debts for reasons of death or permanent disability will be excluded from gross income.
  • Recharacterization of IRA contributions: For tax years beginning after December 31, 2017, the rule that allows a contribution to one type of IRA to be recharacterized as a contribution to the other type of IRA does not apply to a conversion contribution to a Roth IRA. Thus, recharacterization cannot be used to unwind a Roth conversion
  • ·Rollover period extended for rollover of plan loan offset amounts. For plan loan offset amounts which are treated as distributed in tax years beginning after December 31, 2017, the period during which a qualified plan loan offset amount can be contributed to an eligible retirement plan as a rollover contribution will be extended to the due date (including extensions) for filing the Federal income tax return for the tax year in which the plan loan offset occurs (the tax year in which the amount is treated as distributed from the plan).
  • Self-created property: Certain self-created property will no longer be treated as a capital asset. Effective for dispositions after December 31, 2017, the Act excludes patents, inventions, models or designs (whether or not patented), and secret formulas or processes, which are held either by the taxpayer who created the property or by a taxpayer with a substituted or transferred basis from the taxpayer who created the property (or for whom the property was created), from the definition of a “capital asset.”
  • Estate and gift tax: Increased exemption amount. For estates of decedents dying and gifts made after December 31, 2017 and before January 1, 2026, the Act doubles the base estate and gift tax exemption amount from $5 million to $10 million. The $10 million amount is indexed for inflation occurring after 2011 and is expected to be approximately $11.2 million in 2018 ($22.4 million per married couple).

Further changes to the tax bill are possible, but unlikely. If you have questions about how these points will affect you, please contact your trusted REM tax professional.

The Senate’s tax reform bill: what you need to know

REM Tax Alert.jpg

The proposed Tax Cuts and Jobs Act passed in the Senate by the narrowest margin on Friday. If passed and signed into law, it will create sweeping changes to the tax code. Along with a lower corporate tax rate, the bill makes significant tax changes for individuals. Here are some items which may affect you:

  • It’s still a work-in-progress. There are still significant differences between the House and Senate versions of the bill. This will require reconciliation, and there is potential for many changes before the bill moves on to the White House for signature. Therefore, all of the following is subject to change.
  • The standard deduction will nearly double—but the bill also eliminates the personal exemption, which could offset the higher deduction, particularly in the case of families with many dependents.
  • Deductions for state and local income taxes (SALT) will be eliminated. Property taxes will still be deductible ($10,000) for taxpayers who itemize.
  • Threshold for estate tax will double, making it applicable to even fewer individuals and couples.
  • The individual healthcare mandate would be eliminated in order to help pay for some of the other tax cuts.
  • There will be a new deduction for certain pass-through income of 23%.
  • The alternative minimum tax will remain, both for corporations and for individuals.

Everyone’s tax situation is different. We are closely following the bill as it is refined by Congress, and will send updates on major changes. In the meantime, should you have any questions, please contact your trusted REM advisor.

Tax alert: Late filing relief for portability

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Contributed by Roberto Viceconte, CPA, JD, LLM

Under current law, portability allows the unused lifetime exemption of a deceased spouse to be transferred to a surviving spouse. In the instance when an estate tax return is required and timely filed, the portability election is fairly simple. In instances when a federal estate tax return is not required, the portability election can sometimes slip through the cracks.

The IRS recently released Revenue Procedure 2017-34, giving surviving spouses of estates additional time to file for portability after the death of their spouse. Previously, a surviving spouse had until the estate tax filing deadline plus extension to file for portability. That provided a window of only 15 months to elect portability (a 9-month due date plus a 6-month extension). This applied even to estates under the filing threshold of $5 million in 2011, increasing each year to the current $5.49 million. Those estates that had no estate tax filing requirement might easily have missed the deadline to file if the only reason for filing was to secure portability. The only option for a missed election in that narrow window of time was to request relief via a private letter ruling, which was a costly and time consuming option.

Under the new Revenue Procedure, surviving spouses may now file a late portability election up to January 2, 2018 for any death occurring after 2011. Also under the new rules, a surviving spouse has until the later of January 2, 2018 or two years after the death of the spouse to file for portability.

This new Revenue Procedure allows clients and practitioners another bite of the apple to correct any missed elections and to use the additional lifetime exemption granted under portability to create opportunities for estate planning or to enhance existing planning.

To determine what opportunities might be available, consult your trusted tax professional.

Discriminatory plans that meet statutory requirements

The IRS issued a warning to plan sponsors whose plan designs satisfy numeric antidiscrimination tests, yet still have the effect of steering a disproportionate amount of benefits to highly compensated employees (HCEs). The IRS’s message: Simply satisfying numeric tests doesn’t guarantee that you’re complying with antidiscrimination regulations.

IRS findings and examples

In a recent announcement, the IRS reported seeing an uptick in plan designs that provide significant benefits to HCEs. Specifically, it noticed plans benefiting a group of non-highly compensated employees (NHCEs) who work few hours and receive little compensation. These plans tend to exclude other NHCEs from plan participation.

The IRS provided some examples of such designs. In one, the plan bases participation eligibility on job classification, and the classification formula covers a small group of low-pay or short-tenure employees. In another, coverage is available to only NHCEs who work on an as-needed basis and earn a meager salary each year.

Another example: Plans that require 1,000 hours to earn a year of service for vesting purposes, but not for allocation purposes. “In these plans,” the IRS explains, “the low paid or short service NHCEs receive an accrual or allocation, but don’t vest because they never complete a year of vesting service.” A variation on that theme is requiring 12 consecutive months of employment to satisfy a vesting requirement, allowing the NHCEs to vest, but only “in the very small plan benefit.”

The IRS also provides an extreme example in which a participant who earns only $200 in annual compensation receives a $200 profit sharing allocation — 100% of compensation. To allow the plan to clear the antidiscrimination test, an HCE earning $200,000 would receive a $50,000 benefit, or 25% of compensation.

IRS warning              

The IRS warns that these plan designs don’t pass muster. The relevant regulations require that all antidiscrimination rules be reasonably interpreted to prevent discrimination in favor of HCEs.

If you have any questions, contact Elaine Fazzari at efazzari@rem-co.com or (973) 267-4200, extension 5124.

© 2017

REM hosts mentoring meet-and-greet

 Michelle Greco demonstrates software for Margaret Daniel and Mercedes Sanchez

Michelle Greco demonstrates software for Margaret Daniel and Mercedes Sanchez

Earlier this month, Raich Ende Malter & Co. LLP hosted a meet-and-greet with some of the young women who are being mentored through the Moxxie Mentoring Foundation.

Over the course of the evening, Mercedes Sanchez and Margaret Daniel, both accounting students at SUNY Old Westbury, listened to professional and personal experiences from the perspectives of women in the business world by REM partners Gigi Boudreaux and Christina Labita and matrimonial attorney Andrea B. Friedman. The young women also had the opportunity to tour REM's Long Island office, hosted by tax professionals Monica Lala and Michelle Greco. This was followed by a roundtable discussion over dinner.

 Left to right: Michelle Greco, Margaret Daniel, Mercedes Sanchez, Monica Lala, Andrea B. Friedman, Christina Labita, Gigi Boudreaux

Left to right: Michelle Greco, Margaret Daniel, Mercedes Sanchez, Monica Lala, Andrea B. Friedman, Christina Labita, Gigi Boudreaux

Ms. Sanchez, a mother of four, juggles parenting with work and school. Ms. Daniel works a full-time bookkeeping job while studying for her master’s degree. Their roundtable conversation ranged from technical questions about taking CPA exams to concerns about balancing work and family.

"It’s a rewarding experience to be able to share our own personal experiences with these talented young women who have bright futures ahead of them," said Ms. Labita. "Accounting will provide them with many opportunities to explore."

REM is pleased to be able to facilitate these discussions in partnership with Moxxie as part of our continuing outreach to young women in accounting.

New legislation eliminates IRS penalty on employer reimbursements

Earlier this week, the Senate passed legislation that will eliminate a significant tax penalty on employers who bypass Affordable Care Act rules by reimbursing their employees for the cost of health insurance premiums. Previously, employers found in violation of the rule were subject to fines of up to $100 per day, per employee, maxing out at $36,500 a year.

The new legislation, endorsed by President Obama, will permit business owners to reimburse employees for the cost of individual health insurance premiums or medical visits.

For more in-depth information, please contact your Raich Ende Malter & Co. LLP tax professional.

2016 Post-election tax update

Any change in Presidential Administration brings the possibility, indeed the likelihood, of tax law changes and the election of Donald Trump as the 45th President of the United States is no exception. During the campaign, President-Elect Trump outlined a number of tax proposals for individuals and businesses. This update highlights some of the President-elect’s tax proposals. Keep in mind that a candidate’s proposals can, and often do, change over the course of a campaign and also after taking office. This update is based on general tax proposals made by the President-elect during the campaign and is intended to give a broad-brush snapshot of those proposals.  

At the same time, the end of the year may bring some tax law changes before President Obama leaves office. This update also highlights some of those possible changes with an eye on how late tax legislation could impact your year-end tax planning.

Campaign proposals

During the campaign, President-Elect Trump called for reducing the number of individual income tax rates, lowering the individual income tax rates for most taxpayers, lowering the corporate tax rate, creating new tax incentives, and repealing the Affordable Care Act (“ACA”) (presumably including the ACA’s tax-related provisions). The President-Elect, in his campaign materials, highlighted several goals of tax reform:

  • Tax relief for middle class Americans
  • Simplify the Tax Code
  • Grow the American economy
  • Do not add to the debt or deficit

President-Elect Trump also identified during the campaign a number of tax-related proposals that he intends to pursue during his first 100 days in office:

  • The Middle Class Tax Relief and Simplification Act: According to Trump, the legislation would provide middle class families with two children a 35% tax cut and lower the “business tax rate” from 35% to 15%.
  • Affordable Childcare and Eldercare Act:  A proposal described by Trump during the campaign that would allow individuals to deduct childcare and eldercare from their taxes, incentivize employers to provide on-site childcare, and create tax-free savings accounts for children and elderly dependents.
  • Repeal and Replace Obamacare Act: A proposal made by Trump during the campaign to fully repeal the ACA.
  • American Energy & Infrastructure Act: A proposal described by Trump during the campaign that “leverages public-private partnerships and private investments through tax incentives, to spur $1 trillion in infrastructure investment over 10 years.”

Individual income taxes

The last change to the individual income tax rates was in the American Taxpayer Relief Act of 2012 (“ATRA”), which raised the top individual income tax rate. Under ATRA, the current individual income tax rates are 10, 15, 25, 28, 33, 35, and 39.6%. During the campaign, President-Elect Trump proposed a new rate structure of 12, 25 and 33%:

  • Current rates of 10% and 15% = 12% under new rate structure.
  • Current rates of 25% and 28% = 25% under new rate structure.
  • Current rates of 33%, 35% and 39.6% = 33% under new rate structure.

This rate structure mirrors one proposed by House Republicans earlier this year. During the campaign, President-Elect Trump did not detail the precise income levels within which each bracket percentage would fall, instead generally estimating for joint returns a 12% rate on income up to $75,000; a 25% rate for income between $75,000 and $225,000; and 33% on income more than $225,000 (brackets for single filers will be half those dollar amounts) and “low-income Americans” would have a 0% rate. As further details emerge, our office will keep you posted.

Closely related to the individual income tax rates are the capital gains and dividend tax rates. The current capital gains rate structure, imposed based upon income tax brackets, would presumably be realigned to fit within President-Elect Trump’s proposed percent income tax bracket levels.

AMT and more

President-Elect Trump proposed during the campaign to repeal the alternative minimum tax (“AMT”). The last time that Congress visited the AMT lawmakers voted to retain the tax but to provide for inflation-adjusted exemption amounts.

During the campaign, Trump proposed to repeal the federal estate and gift tax. The unified federal estate and gift tax currently starts for estates valued at $5.49 million for 2017 (essentially double, at $10.98 million, for married individuals). Trump, however, also proposed a “carryover basis” rule for inherited stock and other assets from estates of more than $10 million. This additional proposal has already been criticized by some Republican members of Congress, while some Democrats have raised repeal of the federal estate tax as a nonstarter.  

Other proposals made by President-Elect Trump during the campaign would limit itemized deductions, eliminate the head-of-household filing status and eliminate all personal exemptions. President-Elect Trump also has called for increasing the standard deduction. Under Trump's plan, the standard deduction would increase to $15,000 for single individuals and to $30,000 for married couples filing jointly. In contrast, the 2017 standard deduction amounts under current law are $6,350 and $12,700, respectively, as adjusted for inflation.

Possible new family-oriented tax breaks were discussed by President-Elect Trump during the campaign. These include the creation of dependent care savings accounts, changes to the earned income tax credit, and enhanced deductions for child care and eldercare.

Health care

The Affordable Care Act (“ACA”) created a number of new taxes that impact individuals and businesses. These taxes range from an excise tax on medical devices to taxes on high-dollar health insurance plans. The ACA also created the net investment income (“NII”) tax and the Additional Medicare Tax, both of which generally impact higher income taxpayers. The ACA also made significant changes to the medical expense deduction and other rules that affect individuals. For individuals and employers, the ACA created new mandates to carry or offer insurance, or otherwise pay a penalty.

President-Elect Trump made repeal of the ACA one of the centerpieces of his campaign. During the campaign, the President-elect said he would call a special session of Congress to repeal the ACA. At this time, how such a repeal may move through Congress remains to be seen. Lawmakers could vote to repeal the entire ACA or just parts. Our office will keep you posted of developments as they unfold.

Business tax proposals

On the business front, President-Elect Trump highlighted small businesses, the corporate tax rate, and some international proposals during his campaign. This goes along with simplification, and the reduction, of taxes for small business.

Particularly for small businesses, Trump has proposed a doubling of the Code Sec. 179 small business expensing election to $1 million.  Trump has also proposed the immediate deduction of all new investments in a business, which has also been endorsed by Congressional tax reform/simplification advocates.

The current corporate tax rate is 35%. President-Elect Trump called during the campaign for a reduction in the corporate tax rate to 15%. He also proposed sharing that rate with owners of “pass-through” entities (sole proprietorships, partnerships, and S corporations), but only for profits that are put back into the business.  

Based on campaign materials, a one-time reduced rate would also be available to encourage companies to repatriate earnings of foreign subsidiaries that are held offshore. Many more details about these corporate and international tax proposals are expected.

Year end 2016

More immediately, the calendar is quickly turning to 2017. Congress will meet for a “lame duck” session and is expected to take up tax legislation. Exactly what tax legislation Congress will consider before year end remains to be seen. Every lawmaker has his or her “key” legislation to advance before the year end. They include:

  • Legislation to renew some expiring tax extenders, especially energy extenders.
  • Legislation to fund the federal government, including the IRS, through the end of the 2017 fiscal year.
  • Legislation to enhance retirement savings for individuals.
  • Legislation to help citrus farmers, small businesses and more.

Some of these bills, if passed and signed into law, could impact year-end tax planning. The expiring extenders include the popular higher tuition and fees deduction along with some targeted business incentives.  If these extenders are renewed, or made permanent, our office can assist you in maximizing their potential value in year-end tax planning.

Another facet of year-end tax planning is looking ahead. President-Elect Trump has proposed some significant changes to the Tax Code for individuals and businesses. If these proposals become law, especially any reduction in income tax rates, and are made retroactive to January 1, 2017, your tax planning definitely needs to be reviewed. Our office will work with you to maximize any potential tax savings.

Working with Congress

When the 115th Congress convenes in January 2017, it will find the GOP in control of both the House and Senate, therefore allowing Trump to move forward on his proposals more easily. It remains to be seen, however, what compromises will be necessary between Congress and the Trump Administration to find common ground. In particular, compromise will likely be needed to bring onboard both GOP fiscal conservatives, who will want revenue offsets to pay for tax reduction, and Senate Democrats, who have the filibuster rule to prevent passage of tax bills with fewer than 60 votes.  Beyond considering tax proposals one tax bill at a time, it remains to be seen whether proposals can be packaged within a broader mandate for “tax reform” and “tax simplification.”

The information generally available now about President-Elect Trump’s tax proposals is based largely on statements by him during the campaign and campaign materials. President-Elect Trump will take office January 20, 2017. Between now and then, more details about his tax proposals may be available. Please contact our office if you have any questions.

Congratulations to REM's winning basketball team

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Last night, the REM Broadway office’s own basketball team, LIFO the Party, won their league championships. We are very proud and happy that we became league champions in our first year as a team, and we look forward to many more championships.

Thanks to Coach Neal Kilbane for allowing/approving the team’s participation in the league. As AJ DaPonte points out, “Neal was there from warmups of the first game through the championship game’s final whistle!” Thanks also to Erica Collins, Selma Yilmaz, and Elizabeth Froemke, as well as the significant others of some of the team members, who showed their support from the stands during the season.

The league was organized through Zog Sports. Regular season games began in October and were played at Xavier High School on West 16th Street every week on Thursday night, through Thanksgiving week, culminating in a one-day playoffs and championship Thursday, December 1. LIFO also won second place in the regular season standings.

Team roster, in order of approximate percentage of games attended: Daniel Perez; Charles Hunter; Andrew Statsky; Raymond Batista; Arthur J. “A.J.” DaPonte; Alicia McGlynn; Victor “Dutch” Dennis; Ross Lorber; Jackie Ammirato; Amanda Rinaldo; Victor Le; Jennifer Burroughs; Monika Andrzejkiewicz; Paul Ciaramella; Carlos Savinon; Brian Glavotsky; Keith deVisser; Daeil Yu.

Barry Wechsler quoted in Long Island Business News

Barry Wechsler, Partner-in-Charge of REM's Not-for-Profit practice, was interviewed in the 9/23-29/2016 edition of the Long Island Business News. Full text of the article below.

To contact any REM partner or principal for an interview or quote, please contact Amy Frushour Kelly at akelly@rem-co.com.

NONPROFITS BRACING FOR MORE DISCLOSURE
New rules give more info to donors; could spark problems

By Claude Solnik

The Financial Accounting Standards Board has issued new financial reporting rules for nonprofits that should provide more information to donors, benefiting some groups and leading to potential problems for others. Lee Klumpp, director of BDO USA's Institute for Nonprofit Excellence, called this the ''biggest change to nonprofit financial reporting in more than 20 years." Manhattan and Melville-based accounting firm Marcum called the changes a "significant development for the industry," which last saw major changes in 1993. The new format for reporting takes effect for nonprofits with fiscal years beginning after Dec. 15, 2017. "They want to make more user-friendly financial statements," said Barry Wechsler, partner in charge of the nonprofit group at Raich Ende Malter & Co. in Melville and Manhattan: "I think it's going to make it more difficult for smaller nonprofits to report." While the Securities and Exchange Commission increased reporting requirements on public companies, nonprofits continued to disclose very little.

“It wasn’t providing the reader with enough meaning about what’s really going on behind the organization,” Barry Sackstein, a director in charge of not-for-profit and healthcare organizations at Marcum, said of nonprofits’ financial statements. “This is supposed to help the clarity of that.”

“It wasn’t providing the reader with enough meaning about what’s really going on behind the organization,” Barry Sackstein, a director in charge of not-for-profit and healthcare organizations at Marcum, said of nonprofits’ financial statements. “This is supposed to help the clarity of that.”

Groups of all sizes will now have to explain what portion of their budget is spent on programs, management and fundraising, much the way healthcare organizations must today.

"I think it will change where donors spend their money," Sackstein said. "It will break it down to a level comprehensible to someone who is an informed reader."

For the first time, donors will have a better sense of who's spending how much where, sending up red lags for some and leading to rewards for others.

 Barry Wechsler

Barry Wechsler

"It will basically allow people to determine whether they are giving to a not-for profit spending all its. Money on programs compared to one spending more money on general administrative and fundraising," Wechsler said.

Sackstein said this could be ''helpful and it can be painful for the organization" if it must spend a lot to raise a little more.

Groups also must show how they plan to meet their cash needs for their fiscal year, potentially leading some groups, facing uncertainty, into bigger trouble.

"Some organizations have already had enough information to respond to these," Sackstein said. "For organizations that-don't really know where their next dollar is coming from, it will have an impact. They're going to have to say how they'll survive for the next year."

Groups that can't show where their money will come from could face a "going concern" issue, indicating they may not be able continue past that year.

Nonprofits also must disclose if any of their endowment funds are underwater, defined as having less than the principal that a donor asked the group to maintain.

''We weren't really able to see that in the past," Sackstein said. "This is going to be a required disclosure."

This could lead to additional questions such as whether a group must replenish underwater funds.

''You may have donors saying, 'I contributed $2 million. What's it worth today?'" Sackstein said. "Some things can be helpful for an organization. They can also be hurtful."

Nonprofits sometimes take money from donations to meet emergency or immediate needs after they face unanticipated expenses, potentially leaving some funds under water.

If the state finds money wasn't spent appropriately, it may ask the nonprofit to return funds.

"If they give back that money, where do they get it from?" Sackstein said. ''Most of the time they don't have the arsenal of cash lying around. So they take it from donor-restricted dollars."

He also talked about an organization that derived a great deal of income from invested donations. After the stock market tanked, that stopped flowing in, forcing the group to take funds from other sources.

"They didn't have investments throwing off this income to support the losses," Sackstein said. "That may be the discussion organizations have, that they have to look at these endowments."

While some see more information as better, some nonprofits said it's already possible to get a wide range of information from income tax returns and groups such as GuideStar.

"If you're making large-scale grants, you have the tools you need,"' said Darren Sandow, executive director of the Hagedorn Foundation in Roslyn. 'We have tools, like GuideStar. We can look at anybody's 990s."

And he questioned whether donors who make small gifts would even seek additional information.

"People give because they want to support something they believe in. It's typically connected through their heart," Sandow said. "If somebody wants to give money to a dog shelter because they like dogs and cats, do you think they'll go through the Humane Society's 990s to give a $25 check?"

Although the new regulations have just been approved, accountants said most nonprofits aren't yet dealing with them.

Klumpp said, "Organizations should strongly consider acting early on the new guidance," rather than waiting until the deadline nears.

''This is an education process," Wechsler said. "It's going to be my job to start educating our nonprofits about the changes in these rules."

He plans to sit down .with his clients and make presentations to their boards about what new financial statements should look like.

''The boards have to be involved in understanding what's in the financials," Wechsler said. ''They need to be educated the way the clients need to be."

Klumpp said, "Boards count on financial statements and absolutely need to be a part of the process" of implementing the new reporting.

"It may prove to be a test of how well they can educate readers of their financial statements on what has changed and why," Klumpp said of groups.

Whether the new formats will provide more insight to donors depends, in part, on whether they look for it and use it in making decisions.

''My gut feeling is it's useful information," Wechsler said. "Even the individuals making the contributions have to be educated on this. It's new for everybody."

Sackstein said this is part one of a two-part implementation of changes with the next phase still in the works.

''It's supposed to be simplifying the financials," Sack stein said. "I would like to see them take things out that not-for-profit readers don't understand."

Nonprofits, for instance, must break down investments into various levels, which can be confusing, he added.

- CLAUDE.SOLNIK@LIBN.COM

IRS revisits discount techniques for estate planning

The Treasury Department has recently issued Proposed Regulations under Internal Revenue Code Section 2704 that, if enacted as written, would impact the use of discount techniques for estate planning purposes in the context of intra-family transfers of family controlled entities. These discounting techniques have been a staple of estate planning for many years and have been on the radar of the Treasury Department just as long. The Regulations affecting the discounts would become effective 30 days after publication.

These new Regulations are proposed, and there is a commentary period for public response. A number of practitioners have raised the issue that these new regulations may exceed the scope of authority of the Treasury, as they go against established case law. As there is a degree of uncertainty as to the final outcome, anyone contemplating estate planning should be aware of this new situation and should consult their team of professionals.

If you have any questions, contact Roberto Viceconte at rviceconte@rem-co.com or (212) 944-4433, extension 2480.

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