In the dynamic world of the CPA profession, regulations are evolving and client expectations are on the rise. A CPA firm’s succession plan is paramount to its continuing existence in this environment. By definition, this succession planning refers to the strategic process of preparing for the transition of leadership and ownership within a CPA firm. This process becomes particularly critical as founding partners and seasoned professionals approach retirement age, leaving firms to the challenge of preserving the legacy and adapting to a leadership change.

Let’s delve into the story of the CPA firm, Smolin Lupin & Co., as it illustrates the intricate steps of succession planning and continuation of a CPA firm. Aaron Smolin and Herman Holzer founded the practice in 1947. They were both CPAs and former IRS revenue agents. Years later, Saul Lupin merged in his practice, and the firm was renamed Smolin Lupin & Co. 

Aaron was considered a visionary in the field, and the firm had grown to become a symbol of tax and accounting excellence. As Aaron got older and neared retirement, the firm, made of five partners, faced a crucial question: how could the firm ensure its enduring continuation?

Aaron had been a leader, a mentor, and a source of inspiration to the firm’s partners and staff. He tirelessly served clients and nurtured the careers of many young CPAs. As the years passed, it was clear that the firm needed a strategic plan to continue its legacy and secure its future.

Identifying a Successor

Smolin Lupin partners recognized the importance of addressing the imminent leadership transition. They knew that the first step was to plan for Aaron’s retirement. Aaron was not ready to walk after dedicating his life to the firm, so the partners devised a contractual process that would allow him to continue in a reduced capacity as a senior advisor, sharing his wealth of knowledge and experience with the firm’s staff and clients.

As Aaron’s retirement approached, the firm partners developed additional partners from within. A talented young partner, Ted Dudek, was eventually named a managing partner and became Aaron’s de facto successor. Over several years, Aaron worked closely with Ted and other younger partners, gradually transferring his knowledge and experience.

To ensure the firm’s continued success, the leadership team looked at the various age classes of staff and partners. Recognizing the importance of grooming the next generation, the firm invested heavily in professional development programs and mentorship initiatives. They nurtured emerging leaders and professionals, ensuring the firm’s expertise and management team remained unmatched.

Positive Results

The approach of strategic planning, leadership training and contractual requirements secured the firm’s future and maintained client trust, continuity and retention. Clients appreciated the firm’s dedication to preserving their relationships. Ted Dudek’s commitment and competence ensured a seamless leadership transition. This was evidenced by the most recent leadership change in the firm as two younger partners, Paul Fried and Sal Bursese, took over as CEO and COO.

In the end, Smolin Lupin & Co. successfully developed and navigated the challenges of partner retirement, contractual processes, planning strategies and staff development. The partners embraced management changes while preserving the firm’s legacy and reputation. By allowing Aaron and other retired partners to continue as senior advisors and developing future partners from within, the firm ensured a bright and enduring future for its accounting and tax practice.

This story is an example for other CPA firms, illustrating that a legacy could endure with thoughtful planning and a commitment to best practices. The journey of Smolin partners serves as a compelling reminder to all CPA firms to embrace similar practices, fostering continuity and excellence in our profession. By investing in mentorship, leadership training, planning strategies and a commitment to retaining expertise, we collectively shape a bright and enduring future for the CPA profession.  

Traditionally, succession planning has been about passing the business torch to the next generation of internal managers. However, alternative approaches, such as private equity (PE) investments, have become more prevalent. Private equity investors bring not only capital but also valuable management expertise and industry connections that can be vital for businesses poised for growth or undergoing significant changes. While the benefits of private equity investment abound, such investment also comes with unique challenges.

The Private Equity Advantage

Investment from private equity offers substantial benefits including the following:

• Capital boost and value enhancement: Private equity firms infuse substantial capital into businesses, facilitating technological advancements, market expansion or debt restructuring. For example, a PE firm investing in a growing local restaurant chain could allow the chain to open new locations in high-demand areas. This investment often leads to an increase in business valuation, crucial for owners aiming to maximize returns.  
• Strategic expertise: PE investors often possess deep industry knowledge and experience. This expertise is crucial in navigating a business through transitional phases, ensuring the company’s success and growth post-succession. For example, an automotive parts manufacturer has fallen behind its peers in the industry largely due to not keeping up with technological advancements and processes. A PE investor with deep experience in manufacturing invests in and collaborates with the company to streamline operations and adopt lean manufacturing techniques so it is better positioned in the face of its competitors.
• Expanded networks: Involvement with a PE firm opens doors to broader networks, including potential clients, suppliers and future leaders. This can be pivotal in repositioning the company in its marketplace. For example, a logistics company with PE investors is able to gain access to international suppliers by leveraging the PE firm’s extensive international network of contacts.

Challenges to Consider

PE investment comes with certain challenges that need careful consideration before moving forward with a PE investor.

• Potential loss of control: With PE investment, business owners often face a loss of control over their company. PE firms’ investment comes with the tradeoff of PE gaining significant influence and control in business operations. PE’s control can clash with the original owner’s vision. For example, a family business with a relatively informal hierarchy may bristle at adjusting to corporate management styles with strict chains of command implemented by a PE firm.
• Short-term focus: A common criticism of some PE firms is that they prioritize short-term gains over long-term stability. This often leads to decisions that aren’t in the best interest of the company’s long-term health. For example, a PE firm may push for rapid cost cuts that impact employee morale.: The introduction of a PE firm can lead to significant cultural changes within a company, potentially impacting employee morale and the company’s original ethos. For example, a company that prides itself on a family-type and friendly atmosphere is likely to have difficulties with a PE investor placing new executives within the company that shift the management to a more aggressive competitive culture.
• Cultural shifts: The introduction of a PE firm can lead to significant cultural changes within a company, potentially impacting employee morale and the company’s original ethos. For example, a company that prides itself on a family-type and friendly atmosphere is likely to have difficulties with a PE investor placing new executives within the company that shift the management to a more aggressive competitive culture. 

Weighing the Impact of PE in Succession Planning

Private equity can be a powerful tool in succession planning, offering financial strength and strategic direction. However, it is crucial to navigate this path carefully, considering both the advantages and pitfalls. Understanding the nuances of private equity will help position businesses for a successful transition, ensuring their legacy continues to thrive in the new business era.

You can’t say that we didn’t warn you!

It’s the season for IRS Employee Retention Credit (ERC) audits — yes, right during tax season, when you have nothing better to do. The ERC Voluntary Disclosure Program (VDP) ends on March 22. Additionally, bills are looking to restrict the ERC. But have you or your clients heeded all the warnings and lifelines that the IRS has already provided?

Let’s start by reiterating again CPAs’ responsibility when it comes to the ERC. In March 2023, the IRS Office of Professional Responsibility released Bulletin 2023-02, which highlighted the fact that practitioners were obligated to meet the provisions of Circular 230 in regard to ERC, whether a third party was used for calculation or not. Specifically, Section 10.22(a) requires “Diligence as to Accuracy.” What this means in practice according to 2023-02 is the following:

• Reasonable inquiry to confirm ERC eligibility
• Further inquiry if information from client appears to be incorrect, incomplete or inconsistent
• If practitioner cannot reasonably conclude that the client is eligible, they should not prepare the return
• Inform client of penalties for noncompliance

IRS Office of Professional Responsibility (OPR) Director Sharyn Fisk says her office will evaluate the facts and circumstances of each situation, and there’s not a one-size-fits-all answer to what due diligence looks like. But she was very clear in an interview with TaxNotes: “Not asking questions of a client or the third party who handled the ERC claim isn’t exercising due diligence,” Fisk said, emphasizing the importance of documentation as a way for tax practitioners to protect themselves.

The IRS has already begun to respond to the increasing incidence of fraudulent claims throughout ERC’s lifetime. In October 2023, the IRS issued IR-2023-193, which detailed a special withdrawal process to help those who filed an ERC claim and were concerned about its accuracy. On Dec. 6, 2023, IR-2023-230 announced that the IRS was sending out “an initial round” of more than 20,000 letters to taxpayers notifying them of disallowed ERC claims. From what we have seen, these letters are only for 2020 claims, while 2021 disallowances will assuredly be coming shortly. We suspect round three will then come through an automated system that will flag things like whether a business claimed all available quarters, automatically claimed $26,000 per employee, claimed PPP but did not account for it, or if state and federal wage numbers did not match. On Dec. 21, 2023, IRS Announcement 2024-3 outlined the details of the new ERC VDP program for businesses that claimed and received an ERC refund but were not eligible. This program is only available through March 22, 2024. If you decide to “come clean,” and you meet the other qualifications for this program, the advantages include the following:

• Repaying only 80% of the ERC you received
• The IRS not charging penalties or interest
• Not having to report the 20% of the ERC you get to keep as income
• Not having to amend income tax returns to reduce wage expenses

It is not a guarantee that you will be approved for VDP. You will need to make your case. If you end up dealing with an ERC audit, just be prepared to answer the following six key questions that the IRS will most likely be asking.

Question 1: Did your provider start operating during COVID or have “ERC” in their name?

If yes to either, watch out! The IRS has been explicit that there will be heavier scrutiny on these businesses so expect them to dig in their heels!

Question 2: Has the income tax return been amended to add back payroll expenses pursuant to IRC 280C?

If not, YIKES! ERC mills are not properly advising clients that this is MANDATORY! In fact, we are hearing many stories where such providers do not even realize this is a requirement.

Question 3: Is the taxpayer part of a controlled group?

This is a huge one many providers are missing. You may be asking yourself, “Why does the IRS need this?” Well, for the ERC calculation, you must aggregate all entities that are part of a controlled group. If you didn’t do this, you’d better keep your fingers crossed!

For example, to qualify for ERC in 2020, an eligible small employer must have had fewer than 100 full-time employees (FTEs) on average in 2019. Similarly, when determining whether a business qualifies under the revenue decline test, you measure their 2020/2021 gross receipts against their 2019 gross receipts in the relevant quarter. If an entity is part of a controlled group, you must aggregate all of the gross receipts when performing this analysis.

Question 4: Where is your proof of the government order and full or partial shutdown for each relevant quarter?

The IRS asks for not just the number of the government order, but a copy of the actual order. These typically come from the websites for each state/city/county. It needs to be clear that the order is a mandate and not merely guidance, i.e. does the order say you “shall” do something or that you “should” do something? In addition to retrieving a copy of the order, a detailed explanation of how the orders applied to the taxpayer should be provided, specifying exact dates and other proof of the full shutdown.

For a partial shutdown, there must be a “more than nominal” impact, defined as a more than 10% impact to business operations. The IRS will request detailed information showing how a governmental order resulted in more than a nominal effect to business operations.

Question 5: Is part of your ERC claim due to a supply chain disruption?

The IRS is intensifying its approach towards taxpayers who claimed ERC due to a supply chain disruption. According to Notice 2021-20, taxpayers can claim the ERC if their SUPPLIER’S operations were fully or partially halted due to a governmental order and, as a result, the taxpayer’s business operations were also suspended due to the lack of critical goods.

The IRS has requested various details from these taxpayers including: 1) copies of governmental orders that led to the suspension of the SUPPLIER’s operations during the relevant quarters, 2) evidence that the supplier experienced a full or partial suspension of operations with specific operational data from the supplier, 3) clarification on which goods were delayed and why they were critical and 4) evidence that the inability to source these critical goods had a significant impact on the taxpayer’s business.

Question 6: Did the taxpayer apply for a PPP (Paycheck Protection Program) loan and later have it forgiven?

If the taxpayer applied for a PPP loan and later had it forgiven, they cannot use those same wages to calculate their ERC. That is double dipping that will get you in double trouble.

The IRS will therefore ask to see the following: 1) loan application, 2) loan forgiveness application, 3) documentation submitted with the forgiveness application itemizing payroll and non-payroll expenses and 4) calculations proving that there was no double dipping between PPP and ERC.

In summary, it’s been a wild ride with the ERC. The IRS has gone to great lengths to issue warnings to taxpayers about the marketing scammers pushing businesses to claim the ERC without having the knowledge and expertise to perform the analysis and calculations accurately.

Amid tax season, CPAs should take heed of Financial Accounting Standards Board (FASB) Accounting Standards Update (ASU) No. 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures. The standard, which was updated in December 2023, made a significant stride toward enhancing income tax disclosures in financial statements and will provide investors with crucial information for better decision-making.

According to FASB Chair Richard R. Jones, “It requires enhanced disclosures primarily related to existing rate reconciliation and income taxes paid information to help investors better assess how a company’s operations and related tax risks and tax planning and operational opportunities affect the company’s tax rate and prospects for future cash flows.”

Newly Required Disclosures

Rate Reconciliation for Public Entities

For public business entities, CPAs should be aware that the ASU significantly expands rate reconciliation reporting. The update mandates the disclosure of various categories in a tabular format within the effective tax rate disclosure. This includes:

• State and local income tax
• Foreign tax effects
• Enactment of new tax laws
• Effect of cross-border tax laws
• Tax credits
• Changes in valuation allowances
• Nontaxable or nondeductible items
• Changes in unrecognized tax benefits

Reconciling items need to be separately broken out if their impact is greater or equal to 5% of the applicable statutory federal income tax rate (1.05% = 5% X 21% U.S. corporate tax rate).

Public entities are also required to provide qualitative disclosures, such as a description of state and local jurisdictions contributing to the majority of the state and local income tax category, and an explanation of the nature and effect of significant year-over-year changes on reconciling items.

Rate Reconciliation for Private Entities

Private entities are required to disaggregate rate effects similar to public entities but are allowed to do so in a qualitative manner as a disclosure, rather than the quantitative impact within the rate reconciliation.

Income Taxes Paid

The ASU aligns guidance for both public and private entities, requiring the disaggregation of income taxes paid on the statement of cash flows between federal, state and foreign taxes paid. Further disaggregation is required based on individual jurisdiction if the tax paid is 5% or more of the total balance of each category.

Other Updates

Finally, the ASU addresses certain disclosures to conform with Securities and Exchange Commission (SEC) standards, as well as to simplify reporting around disclosures where there was diversity in practice:

• Income (or loss) from continuing operations before income tax expense (or benefit) disaggregated between domestic and foreign.
• Income tax expense (or benefit) from continuing operations disaggregated by federal (national), state and foreign income.
• Elimination of requirement to disclose, such as:
  • The nature and estimate of the range of the possible change in unrecognized tax benefits in the next 12 months
  • A statement that an estimate of the range cannot be made

Next Steps for CPAs and Their Clients

The FASB’s ASU introduces additional requirements for income tax disclosures, necessitating companies to gather and report more information. While this may initially be burdensome, most companies are expected to have access to the required information, making the adjustment primarily a one-time effort at adoption. Establishing frameworks to compile and report this additional data within financial statements will be crucial for ongoing compliance.

The guidance is prospective, with retrospective application being optional. Public companies need to comply with the new standards for annual reporting periods beginning after Dec. 15, 2024. For all other entities, the amendments are effective for annual periods beginning after Dec. 15, 2025. Early adoption is permitted, providing companies with time to plan and implement the necessary frameworks.

With this change, stakeholders, including investors, will now have access to more comprehensive information about a company’s tax position, sources of cash flows and the jurisdictions in which it operates. While the benefits are evident, company management should be prepared for potential stakeholder inquiries based on the dissemination of more robust tax data, particularly around jurisdictional and cash tax information. Overall, this move by FASB aligns with the broader industry trend of increasing transparency in financial reporting to better serve the needs of investors and stakeholders alike.

Recent guidance from the New Jersey Division of Taxation (TB-108) may have far-reaching implications for those companies that rely on the protections of P.L. 86-272 (a federal law which prohibits states from imposing net income tax on sellers whose only business activity in the state is solicitation of sales). CPAs should be aware of how those changes will impact nexus.

The guidance is modeled after the Multistate Tax Commission’s (MTC) 2021 Revised Statement on P.L. 86-272 which came on the heels of the Supreme Court’s decision in South Dakota v. Wayfair, Inc. The MTC’s revised statement concludes that “the Court’s analysis as to virtual contacts” in Wayfair is “relevant to the question of whether a seller is engaged in business activities in states where its customers are located for purposes of” P.L. 86-272.  The revised statement goes on to outline a number of virtual contacts with a state that would be treated as exceeding the protections of P.L. 86-272.

Already, a few states (New York, New Jersey and California) have published guidance consistent with the MTC’s position. By joining this list, New Jersey severely weakens the protection afforded by P.L. 86-272.

New Jersey

By definition, P.L. 86-272 prohibits a state from imposing a net income tax on foreign corporations that derive income within its borders, if the corporation’s only in-state activity is

[t]he solicitation of orders by such person, or his representative, in such State for sales of tangible personal property, which orders are sent outside the State for approval or rejection, and, if approved, are filled by shipment or delivery from a point outside the State.

Like the revised statement issued by the MTC, New Jersey’s revised TB-108 applies a surprisingly expansive interpretation of what constitutes unprotected “in-state activity.” Under TB-108, certain electronic contacts, which are seemingly extraterritorial, are considered in-state activities that exceed the protections of P.L. 86-272. The following are some of the most surprising examples:

• Transmitting code or electronic instructions through the internet to repair or upgrade products as part of [a warranty]
• Placing apps or internet cookies on computers and devices in New Jersey to gather market or product research that is packaged and sold to data brokers or other third parties
• Contracting with in-state customers to stream (but not download) videos and music to electronic devices
• Providing certain types of post-sales assistance through an electronic chat, email or application that customers access through the company’s website
• Inviting and/or accepting applications for employment through an internet-based platform that are not specifically targeted to in-state residents or for in-state job positions other than for sales positions

This may come as a shock to some multistate businesses, so practitioners need to familiarize themselves with the full list of unprotected activities and should pay close attention to how taxpayers handle these issues in other states.

New York

On Dec. 27, 2023, New York formally adopted regulations that contain provisions resembling the MTC’s revised statement. Thus, New York has adopted the MTC’s position that placing internet cookies onto computers or other electronic devices to gather customer search information is an in-state activity that exceeds the protections of P.L. 86-272.  

California

In 2022, California published a Technical Advice Memorandum and FTB Publication 1050 adopting the MTC’s revised statement. Taxpayers challenged the guidance and a superior court found in their favor, finding that the publications were invalid underground regulations. The court, however, did not address the merits of the taxpayer’s claims, so the public may need to wait for a decision on appeal or for litigants in New Jersey or New York to fully analyze the issues.

More clarification may be needed regarding what business activities exceed the federal protections.

CPAs are always looking for ways to provide value to their clients or organizations. Workers’ compensation insurance, for example, is a specific place where savings can be had — if CPAs are aware of it. In fact, more than 75% of organizations are unaware they’ve overpaid for their workers' comp insurance due to constant changes in the workers' comp industry, such as from the National Council on Compensation Insurance (NCCI), state-specific rules, and regulation and policy changes, not to mention the application of incorrect rates, discounts, classifications, experience modification calculations, payroll and audits. In addition, most insurance carriers use third-party companies to perform their annual audits. These third-party companies rarely go on-site and instead perform the audits by phone which further increases the chance for errors.  

CPAs need to inform their organizations and clients to be aware of the following errors that can occur regardless of the agent, broker, agency or insurance carriers involved in calculating the premium: 

• Misclassification of employees. There are nearly 800 different employee class codes which causes confusion and leads to misclassifications and higher premiums. 
• Incorrect calculation of experience ratings/modification (mod) factor. Companies receive a rating based on their past claims history. Companies that have an experience rating/mod above 1.0 pay a penalty. Companies that are below a 1.0 rating receive discounts. Helping a company lower their rating will decrease their premiums.
• Incorrect calculation of overtime pay. Overtime wages are to be calculated at regular time when reporting payroll to their workers’ comp carrier. Often, companies calculate their overtime wages at time and a half or double time when reporting payroll to their carrier.
• Open claims can affect the experience ratings/mod. Claims that are left open can affect a company's experience rating/mod which will increase their premiums.
• State-issued credits are available. Depending on the industry, companies can qualify for annual state-issued reimbursements. Many companies are unaware they qualify for this credit.

The system for computing workers’ compensation insurance premiums is complicated, involving insurance companies, rating bureaus, insurance agents and the injured. And there’s no one agency or governing body that oversees the entire process from start to finish. Despite the best intentions of insurance agents and insurance companies in classifying and applying the rules and regulations, it’s not uncommon for errors to occur, resulting in large sums of money being overpaid.

My journey to public accounting was unconventional. And when I tell people my professional career started in kitchen design, I often get odd looks and follow-up questions.

Like so many others who graduated in 2008, it was difficult to find a job. I thought having both a bachelor’s and master's degree in business and finance would help, but it didn’t. Throughout college, I worked for my family contracting business. Amid a major economic downturn, I helped my father expand his business, which previously was strictly floor coverings, to include kitchen and bathroom remodeling. As in any industry, you have to adapt when the environment changes, which we did as we expanded our offerings.

Unaware of it at the time, the skills I learned in my family’s contracting business became invaluable as I entered, and continued to grow, in my public accounting career.

Sales and Relationships

Before working for the family business, my professional experience was minimal, and I was shy. My father said, “If you work here, you work on the sales floor.” Before I knew it, I was selling kitchens, bathrooms and other remodeling projects to a variety of clients from all different backgrounds. I was forced to learn how to strike up a conversation with strangers without being overbearing. I had to gain the client’s trust.

Renovations are large investments that require people to open one of the most personal parts of their lives — their homes. Finding common ground and being transparent and honest made these conversations easy, and I was quickly able to establish and grow relationships.

Regardless of the position you hold and the industry you’re in, you’ll have some type of sales component in your career — learning how to strike up a conversation and build rapport is crucial and will be beneficial in the long run.

Negotiation and Budgeting

After sitting down with a client and designing a kitchen, I had to prepare a proposal and budget. Any project, whether it be material and labor for a kitchen renovation or the hours in preparing a financial statement, needs a thoughtful and detailed budget.

All clients, irrespective of what they’re buying, expect an honest and realistic budget. My experience negotiating and having these discussions when I worked in my family business has become instrumental to similar conversations I have with clients today. I also learned that sometimes expectations don’t align, and sometimes it’s mutually beneficial to part ways.

Setting Expectations and Communication

As any home improvement project progresses, you must ensure it stays on track by communicating at every stage. You must communicate who’s responsible for what and establish expectations for everyone involved.

The same skills are required in the accounting profession. Is the project on pace and budget? Is the client aware of what they’re responsible for? Have there been any unexpected events that weren’t addressed in the original budget and scope of work?

Communicating clearly throughout a project, regardless of the profession, enables and fosters stronger relationships and builds credibility. Delivering difficult news isn’t easy but shouldn’t be avoided — your business and personal reputation depend on it, and learning to craft your message thoughtfully will allow you and your business to grow and thrive.

Finding a New Career Path

My professional path changed when I designed and sold a kitchen to a partner in an accounting firm. Our conversations sparked my interest in accounting, and I decided to go back to school and complete the courses needed to take the CPA Exam.

I left the family business and took a position in private accounting at a medical device company. There, I learned the fundamentals of accounting — debits, credits, accruals, prepaid expenses and numerous concepts of closing an accounting period. Throughout my time in private accounting, I considered transitioning to a career in public accounting to vary my experience. I liked the idea of working with different clients and industries, but I worried I lacked the experience and knowledge to excel. However, my unconventional path and background prepared me in ways I didn’t realize.

From Private to Public

I made the jump to public in 2019 and, ever since, I’ve become acutely aware of how instrumental the experiences and skills I gained outside public accounting have been in helping me thrive.

Interacting with a client, I understand their perspective and don’t use overly technical jargon — this makes me more approachable and relatable. I understand the client’s primary purpose is to run and grow their business, not just provide us with the documents we request. Empathizing with that priority is important, valuable and something I can appreciate because of my private-sector experience.

Effective communication is something I learned from working in the family business and a skill I continued to grow in private accounting. I’ve also learned that making connections is easier if the effort comes from an honest and genuine place.

Career paths don’t have to be traditional. Skills acquired in nearly every professional setting are often easily transferable to and applicable in a new one. Don’t discount prior experience if you’re considering a career in public accounting. Putting yourself in situations that are unfamiliar and make you uncomfortable will only help you grow. As I continue in public accounting working on different projects in a variety of industries, I know my prior experience will only help me continue to deliver services to clients as a true trusted advisor.

The regulatory environment for environmental, social and governance (ESG) reporting has undergone significant changes in recent years, which has put increased pressure on organizations to meet the ESG information needs of their stakeholders by disclosing information on their sustainability performance. As companies increasingly report ESG or sustainability-linked information, there is growing demand for CPAs to provide assurance on ESG reports and disclosures. This renders it crucial for CPAs to familiarize themselves with frameworks, standards and regulatory requirements governing ESG reporting.  

Commonly used Frameworks and Standards

The standard-setters that have established frameworks governing ESG reporting include the following:

• The Global Sustainability Standards Board (GSSB) is the global standards-setting body that pioneered sustainability reporting and set the world’s first globally accepted sustainability reporting standards called the global reporting initiative (GRI) standards.
• The Sustainability Accounting Standards Board (SASB) was founded to standardize the reporting language of sustainability efforts. SASB developed industry-specific standards for 77 industries to identify and disclose sustainability risks, opportunities and financially material sustainability information.
• The International Financial Reporting Standards (IFRS) Foundation consolidated the Value Reporting Foundation and Carbon Disclosure Standards Board (CDSB) at the COP 26 UN Climate Change Conference in November 2021 to establish the International Sustainability Standards Board (ISSB), which was charged with developing a globally consistent baseline of sustainability-related disclosures. The creation of the ISSB signaled the first step towards a standardized and consistent framework for sustainability-linked financial disclosures.
• The Financial Stability Board (FSB) established the Task Force on Climate-Related Financial Disclosures (TCFD) to develop recommendations on climate-related financial disclosures to help stakeholders understand material financial risks relating to climate change. TCFD’s 11 disclosure recommendations focus on governance, strategy, risk management, metrics and targets.

There are a number of standards currently in place, including the following:

• GRI Standards: The GRI Standards are bifurcated into a universal series (101-Foundation, 102- Disclosures, and 103-Management Approach) applicable to every organization preparing sustainability reports and a topic-specific series (200-Economic, 300-Environmental, 400-Social). Companies select from topic-specific standards based on relevance and materiality.
• SASB Standards: SASB provides sector- and industry-specific sustainability accounting standards for more than 70 industries, identifying the sustainability-related risks and opportunities most likely to affect a company’s financial and operating performance.
• ISSB Standards: In June 2023, ISSB issued its first global sustainability disclosure standards. IFRS S1 covers general requirements for the disclosure of sustainability-related financial disclosures and IFRS S2, based on TCFD recommendations, requires companies to disclose information on climate-related risks and opportunities.

Existing and proposed disclosure requirements include the following:

• SEC proposed climate disclosure rules: On March 21, 2022, the SEC put forth rule changes that mandated companies to incorporate certain climate-related disclosures in their published reports. The proposed rule would require SEC registrants to provide the climate-related financial statement metrics in their climate-related disclosure in a separate section of their registration statement or annual report (10K).
• California climate change reporting laws: On October 7, 2023, California’s governor signed two climate disclosure bills:
  • The Climate Corporate Data Accountability Act (SB 253) requires companies to disclose and obtain assurance on Scope 1, 2 and 3 greenhouse gas (GHG) emissions in conformance with the Greenhouse Gas Protocol.
  • The Climate-Related Financial Risk Act (SB 261) mandates companies to disclose climate-related financial risks in accordance with TCFD recommendations.

Additional Resources

Accounting bodies all over the world are ramping up their efforts to provide resources to their members, students and affiliates on ESG and sustainability reporting. CPAs can use the following links to acquaint themselves with ESG reporting: 

• GRI Academy
• AICPA’s Transformative Skills Pack on Sustainability Mindset
• NJCPA ESG knowledge hub
• AICPA Sustainability Reporting and Assurance resources
• ACCA Sustainability resources

When one thinks of environmental, social and governance (ESG) investing, one should think of transparency. In other words, they should think of additional sources of information that help identify unseen risks and justify shareholder value. This investing style is known as ESG integration. Private equity investors use ESG integration as a value-creation tool by analyzing material and non-financial factors during due diligence and ongoing monitoring. These material factors are centered around the Sustainability Accounting Standards Board (SASB) materiality map, which identifies material ESG information using more than 1,000 qualitative and quantitative factors across 77 industries. To understand how it works, let’s analyze energy management and worker injury rates.

Energy is a source of both emissions and expense. Using due diligence questionnaires, private equity investors gain valuable insight into how efficiently a target company manages its energy costs and emissions and compare this information to internal benchmarks. Companies with material energy costs, such as data centers, real estate and manufacturers that have a successful energy strategy, will be assigned higher valuations. Furthermore, as emissions are increasingly regulated, the capital costs of implementing an emissions reduction program will also impact a target’s valuation.

Worker injury rates can also provide insight into how well a manufacturer manages its workforce. High injury rates indicate ineffective safety standards but can also allude to much deeper problems. Poor safety is often accompanied by sloppy management and poor product quality. The consequences of poor safety often result in production downtime, higher insurance premiums, lost customers and, in the worst cases, fines and lawsuits.

Increasing ESG Transparency

Unfortunately, public company investors don’t have access to the same meaningful ESG information as private equity investors. This lack of access puts public company investors at a disadvantage and means they are generally blind to most ESG risks and opportunities. The scary part is that unforeseen ESG risks can significantly impact shareholder value. Examples include the expensive SolarWinds hack, the BP disaster and the PG&E bankruptcy – along with countless others.

The IFRS Foundation is seeking to level the playing field by requiring companies to provide meaningful ESG transparency. In 2021, the IFRS created the International Sustainability Standards Board (ISSB) with the following key objectives: 1) develop standards for a global baseline of sustainability, 2) meet the information needs of investors and 3) provide comprehensive sustainability information to global capital markets.

In 2023, the ISSB released IFRS S1 and S2 that will require companies to disclose industry-specific sustainability information alongside financial statements. IFRS S1, General Requirements for Disclosure of Sustainability, outlines sustainability-related disclosures that are financially material to specific industries. IFRS S2, Climate-related Disclosures, outlines required disclosures that are in line with the Task Force on Climate-related Financial Disclosures (TCFD). Both S1 and S2 only consider ESG information that is financially meaningful and that allows investors to make informed, rational investment decisions.

The ISSB sustainability disclosure requirements are based on the SASB materiality map and the TCFD. These are the same standards used by private equity investors to identify ESG risks and opportunities. Required ISSB disclosures are reported in the annual Sustainability Disclosure Statements and may be subject to audit. Like other IFRS standards, each jurisdiction determines the specific reporting requirements. The ISSB’s work is currently supported by the G7, the G20, the International Organization of Securities Commission (IOSCO), the Financial Stability Board plus Finance Ministers and Central Bank Governors from more than 40 jurisdictions. The American Institute of CPAs (AICPA) is also evaluating ways to adapt ISSB’s work in the USA.

By using due diligence questionnaires and internal benchmarks, private equity investors are able to evaluate material, non-financial ESG information that can identify potential ESG risks and opportunities. After ISSB sustainability standards are broadly adopted, investors in public companies will have access to the same material financial ESG information as private equity investors. By evaluating companies' sustainability disclosure statements, public investors will be in a position to reward better companies with higher share values while punishing the laggers. More importantly, investors may be able to avoid ESG surprises that can degrade share prices in an instant.

New Year, New Beginnings

When I reflect on this new beginning, thoughts of humbleness and gratitude come to mind. Thank you to all who have offered words of encouragement and constructive feedback. I appreciate the efforts to get involved or continue engagement. We are a community, and, through our collective efforts, we convey the great relevance the NJCPA and the profession continue to offer. I want to extend my wishes for a happy new year and a successful busy season! 

As we begin 2024, the profession’s pipeline challenges remain front and center. Declining high school graduation sizes, increasing retirements and a drop in the number of candidates sitting for the CPA Exam are converging to severely restrict the number of CPAs who provide critical financial services and advice to communities, businesses and individuals. 

The NJCPA, along with the AICPA, NASBA and other state CPA societies, have studied ways to increase the number of students becoming CPAs, including the 150-hour education requirement. The additional 30 hours are not specific to accounting or related disciplines, and some believe that the additional year of education and costs associated with it are a significant barrier to potential accounting students and those who may sit for the CPA Exam. 

We recently asked members to weigh in on the 150-hour requirement:

• More than 40% of the 1,060 surveyed say, historically, new hires working in accounting-related roles and without 150 hours of education “rarely” or “never” pursue the CPA certification.
• Sixty-two percent see no noticeable difference in preparedness of staff who have accounting degrees with 120 credit hours versus those who have 150 credit hours.
• Nearly 80% believe it would be beneficial to the profession to provide alternative pathways to certification where 150 hours is one option but not the only option. 

It’s clear that CPAs want to explore other options to certification. What’s also clear is that CPAs don’t want to jeopardize their ability to serve clients and provide services across state lines without getting licensed in each jurisdiction (i.e., mobility). In considering changes to the 150-hour requirement, 88% of respondents say that it is “very important” or “somewhat important” to protect CPA mobility. 

In late December, NASBA said it was discussing a “structured experiential learning program that would provide for education, documented experience, and other elements that would provide an equivalent path to licensure without the need of having a fifth year to complete a 150-hours education program that would appear on an accredited transcript.” This additional path would include an education and experience component to measure a participant’s competency to be licensed as a CPA and would be considered equivalent to the current 150-hour pathway defined in the Uniform Accountancy Act. NASBA acknowledges that this would require legislative and other changes in some states and may impact interstate mobility until all have adopted the new equivalent path.

The NJCPA Board of Trustees and Pipeline Task Force are exploring all options to attract more students to the profession while maintaining the highest standards expected of a CPA. 

The profession is facing a challenge and, potentially, a crisis if we don’t make changes. We invite you to share your thoughts on broadening the pathways.

Like many other industries, financial services faces a significant talent gap, with more than 300,000 accountants and auditors leaving their jobs in the past two years. This exodus can be attributed not just to retirement but work environments that hinder employee engagement and satisfaction. For instance, CPAs can often work 70 to 80 grueling hours per week, especially before tax and audit deadlines. Entry-level associates also shared that repetitive tasks such as balancing cash sheets can often leave them dissatisfied with accounting work. This technical, desk-based office work in accounting can signify a rise in sedentary behaviors among CPAs.

Sedentary behavior can significantly decrease energy expenditure and lead to weight gain. Being overweight or obese increases the risk of developing chronic conditions like cancer, stroke and heart disease. Prolonged periods of sitting can also contribute to musculoskeletal disorders like muscle tightness, lower back pain, stiffness and swelling. This can affect health and wellness among CPAs, necessitating the need to encourage the following practices for staff: 

• Have regular eye exams. There’s no going back to manual, labor-intensive accounting, as the digital transformation is here to stay. This means that most accountants will spend the majority of their time looking at a computer screen, which, over time, can lead to the development of issues like eye strain. To counter this, CPAs can prioritize eye care by getting an eye exam and consulting with an optometrist for regular monitoring and the early detection of possible eye conditions.
• Use ergonomic furniture. Musculoskeletal disorders like joint pain can be remedied by introducing ergonomics into the work environment. A prime example of this is using an ergonomic chair designed with adjustable back support, armrests and seat height to reduce fatigue and discomfort while sitting. This means CPAs remain comfortable and focused throughout their shifts, whether they’re reviewing financial statements or preparing tax returns. Ergonomic chairs come in various materials, styles and price points, with leading brands like Topstar and Herman Miller offered by major retail stores like Walmart.
• Offer flexible work arrangements. Employers in the financial services industry can also make an effort and contribute to employee health and wellness by introducing flexible work arrangements. Demands for flexibility are no longer seen as a workplace benefit but are now a crucial part of recruitment and retention strategies. As flexible work models allow CPAs to manage their time better, not only do they become more efficient and productive, but they can also prioritize sleep, exercise and healthy eating for improved well-being.

Ultimately, the changing nature of accounting work should compel employers and employees alike to reflect on their lifestyles and find ways to adopt healthier habits. 

It’s been more than 60 years since Public Law 86-272 was enacted. The text of the federal law has remained constant, protecting companies from income tax liability in states where the taxpayers’ in-state activities are limited to soliciting sales of tangible personal property, with the orders being approved and shipped from out of state. Despite the fact that the text of Public Law 86-272 has remained unchanged since 1959, attacks on the federal law by states have increased in recent years.

Multistate Tax Commission

The Multistate Tax Commission (MTC) is an organization formed by state tax administrators in 1967, partially in response to P.L. 86-272. It has been issuing guidance regarding the law’s meaning since 1986. Most recently, in August 2021, the MTC revised its Statement of Information regarding P.L. 86-272, which, to many practitioners, seemed an attempt to eviscerate the federal law’s protections by vastly narrowing its scope in light of the internet age. However, the MTC’s guidance is not authoritative and is arguably self-serving.  Because Public Law 86-272 shields a company from income tax liability in a state, states (and state organizations) have a desire to interpret the federal law as narrowly as possible.   

The August 2021 Revised Statement proclaims that certain website features constitute unprotected “in-state activities” by a taxpayer. Many of these activities involve a company “interacting” with its customers through its website, a task which was often accomplished by telephone before the internet age. When these activities occurred over the telephone, no one argued that such activities created “in-state” activities. Why should similar activities conducted over the internet be treated differently?

State Actions

Although the MTC’s guidance is fraught with issues, states have begun to adopt it. The first state to do so was California by way of administrative guidance. The guidance was immediately challenged on two grounds: 1) California’s administrative guidance violates P.L. 86-272; and 2) the Franchise Tax Board (FTB) failed to properly follow the California Administrative Procedure Act (APA) in enacting it. On Dec. 13, 2023, the trial court granted summary judgment on the grounds that the FTB did not follow the state’s APA. However, it is doubtful we have seen the end of this case; it is likely the decision will be appealed to the Court of Appeals. 

Meanwhile, in May 2023, Minnesota circulated a draft revenue notice indicating that it was also considering following the MTC’s revised guidance, but a final notice has not yet been issued. Additionally, on Sept. 5, 2023, New Jersey issued guidance related to its interpretation of P.L. 86-272. Although it has some nuances, the New Jersey guidance largely follows the MTC’s guidance. Finally, effective Dec. 27, 2023, New York formally adopted regulations that would largely adopt the MTC’s guidance.

In addition to states that have officially adopted revised interpretations of Public Law 86-272, some states are adopting similar positions for the first time on audit. Taxpayers should be aware of the increasing aggressiveness of states towards the federal law, as well as the overreach of states in this area. This coming year should bring additional challenges from states and corresponding Public Law 86-272 litigation from taxpayers challenging the overly broad interpretations of the federal law. 

Today’s accountants are in a completely different landscape than just a handful of years ago. You used to be able to open a brick-and-mortar store, buy an ad in the phonebook and wait for clients to flood your firm.

Now, to achieve success, you need to:

• Niche down and become a specialist.
• Set yourself apart from the competition.
• Join podcasts and webinars.
• Be on social media.
• Create content.

And that’s just the start of marketing your firm. Modern accountants have a lot of steps to take if they want to build a long-lasting business that attracts the right clients.

So, where to begin? Let’s dive in.

1. Know Your Audience

Who is your niche audience? Who do you want to serve? You'll struggle to market yourself if you can’t answer these questions. 83% of accountants believe today’s clients are more demanding than in the past. Why? Accountants can help clients with every facet of their personal lives and businesses. You can’t serve clients best if you don’t know who they are.

Once you know who you’re serving, you can begin transforming your firm. For example, tax returns are tax returns. Clients must file their returns and pay the IRS, but when you know your clients are businesspeople, you can view taxes as a way to help them:

• Save on taxes
• Get access to specialty tax credits
• Reach their short- and long-term goals through strategic planning

Knowing your audience empowers you to set your firm apart from the competition. Many professionals reading this right now don’t know what sets them apart from the competition. If this sounds like you, it’s time to begin thinking about:

• What are your clients’ main pain points?
• What can you assist your clients with better than the competition?
• What can you offer beyond the basics for your clients?

For example, perhaps you do taxes for high-net-worth clients. Your clients manage businesses, and they want to save for the future. How can you fit into the equation? You can offer financial planning to help your clients reach their goals faster, invest for the future and save for retirement.

2. Establish Yourself as an Authority

If you’re still following the “build it and they will come” mindset, you’re on a fast pace to a struggling business. You need to think outside the box and become the go-to expert in your niche. How? You can do the following:

• Hold webinars.
• Appear on podcasts.
• Write for industry publications.
• Network at local and industry events.
• Create content (more on that below).
• Collaborate with other experts that share similar audiences but not services.

You can also volunteer for local charities and apply for local rewards. If you plan on offering services primarily to clients in your area, these awards and participating in the local community can be extremely helpful.

3. Create Content

Creating content is your blueprint to online authority and marketing, but it’s a lot of work. An estimated 90% of accountants believe there’s been a cultural shift in the industry. Accountants are now:

• Being active on social media and posting daily
• Writing blog posts
• Creating newsletters
• Guest posting on industry blogs
• Creating free eBooks and resources

4. Show Up Where Your Audience is Hanging Out

You can and should create your own content, but you can also show up where your audience is located and “make an appearance.” For example, you can:

• Join an industry podcast as a guest speaker.
• Host your own live event on platforms your niche audience is hanging out.
• Create your own podcast and stream it across popular distribution channels.
• Speak at or attend conferences.

If you don’t have your own following online, try reaching out to others who do and try to be a part of their events. Perhaps there’s a business coach who would love you to come on their podcast to talk about how small businesses can save money on their taxes. If you have a social following, you can run live events to discuss pertinent topics with your followers.

If you make a conscious effort to follow the four steps above, you’ll position yourself as an industry leader and begin attracting your dream clients in the process.

Securities Offered Through: TFS Securities Inc., Member FINRA/SIPC a full-service broker dealer located at 437 Newman Springs Road Lincroft, NJ 07738 732-758-9300

Investment Advisory Services Offered through: TFS Advisory Services, a service of TFS Securities, Inc.

Unfortunately, seemingly benign actions do not always turn out to be so. Even small decisions or quick conversations may have significant — and expensive — consequences. Consider these real-life claims asserted against CPAs in the AICPA Professional Liability Insurance Program, and take note of lessons that were learned the hard way regarding a lack of engagement letters.

Failure to Search

• The case: A CPA prepared tax returns and provided bill-paying services for a client. When the client inherited a substantial amount of money, it asked the CPA to assist in managing this newfound wealth. The CPA agreed and invested approximately $2.5 million with an investment adviser who was recommended by another client of the CPA. Eventually, the invested funds were lost due to the adviser's alleged fraudulent activity. The client filed suit against the CPA for failure to exercise due diligence in selecting the adviser. While the CPA's actions were taken in good faith and in the belief that they were in the client's best interests, the CPA did not perform any due diligence procedures related to the adviser, relying solely on the recommendation of the other client. A simple internet search, however, would have revealed that the investor was previously convicted of financial crimes.
• The outcome: The case settled with defense costs and an indemnity payment of more than $500,000.
• The lesson: While the depth and type of due diligence procedures vary based upon the situation and service to be provided, performing a basic internet search before accepting a new client, or making a recommendation to an existing one, is a quick and easy — but crucial — step for a CPA to take, even if the referral source is a trusted one.
• The other lesson: Clients often seek a CPA's advice related to investments. However, providing incidental advice is fraught with risk, and the CPA may be blamed for poor investment performance. Avoid providing investment advice unless you have the requisite experience in the area or have been engaged via a separate engagement letter for the service. 

Off-the-Cuff Advice

• The case: A CPA prepared tax returns for a married couple for a number of years until the couple informed the CPA of their impending divorce. During the couple's divorce proceedings, the CPA provided advice to the husband for a short time without first obtaining a waiver from or officially terminating the relationship with the wife. The wife claimed that, within that period, the CPA wrongfully advised the husband that he could withdraw money held in joint bank accounts even though such withdrawals violated the couple's prenuptial agreement. The CPA recalled telling the husband that he believed he would be entitled to half of the joint account but did not have the prenuptial agreement in hand. As such, he verbally advised the husband to consult with his divorce attorney on the issue. There was no documentation related to this discussion with the husband.
  
• The outcome: The case settled with defense costs and an indemnity payment of approximately $1.5 million.
• The lesson: Answering seemingly benign questions based on incomplete or partial information can have significant consequences. Avoiding answering these questions, while preferable, is not always possible or practical. Whenever advice is provided, follow up the discussion with a written communication, such as an email.
• The other lesson: A conflict of interest, or even the appearance of an ethical violation, can greatly complicate the defense of a claim. Here, the defense expert opined that, despite the short period during which the conflict existed, the case would be very difficult to defend, and the CPA should not have discussed the issues with the husband.

In both of these cases, the engagement letter was nonexistent. Had engagement letters been in place, the outcomes may have been different.

With a rapidly changing tax landscape, an area of focus for internal tax departments, preparers and auditors continues to be financial reporting of income taxes under Accounting Standards Codification Topic 740, Income Taxes (ASC 740). Here are the crucial trends impacting income tax reporting in today’s dynamic environment.

Changing Tax Legislation

Tax legislation that will affect companies’ income tax disclosures in the near future, adding additional complexities to the financial reporting process, include the following:

• OECD Pillar II: The Organization for Economic Cooperation and Development (OECD) has developed a framework to address tax challenges arising from the digitalization of the economy. The European Union Member States formally adopted Pillar II of this framework in late 2022, which enacts a global minimum tax (GMT) of 15% on large multinational enterprises, setting the stage for expansive changes in the global tax landscape. While the United States has not adopted Pillar II, this development still impacts financial statement disclosures for companies that operate in the jurisdictions that adopt it. With Pillar II expected to be effective in 2024, companies will need to begin setting up processes to calculate the GMT and prepare for financials statement audits and potential governmental review.
• Corporate minimum tax (CMT): Beginning in 2023, large U.S. multinationals will also be subject to a minimum tax of 15% of adjusted financial statement income. While this seemingly aligns U.S. tax policy with the Pillar II, upon closer examination the new CMT contains more differences than similarities. The broad applicability of tax credits, along with accelerated depreciation and other carve-outs, causes the CMT to diverge from the Pillar II provisions, which significantly limits these benefits. Large multinationals may nonetheless ultimately find themselves subject to both Pillar II and CMT provisions.
• TCJA provisions: The implementation of the Tax Cuts and Jobs Act (TJCA) of 2017 substantially altered the U.S tax system, and its provisions continue to impact companies years later. For example, the TCJA allowed companies to fully deduct the cost of certain capital expenditures through bonus depreciation. However, starting in 2023, the 100% allowance generally decreases by 20% per year before fully sunsetting in 2027. Outside of financial reporting implications, this presents planning opportunities to accelerate capital purchases. Congress is currently considering legislation that would modify certain unfavorable TCJA provisions. Potential changes include extending bonus depreciation, repealing rules requiring capitalization and amortization of R&D costs rather than immediate deduction, and restoring more favorable provisions, such as interest expense limitations. Additionally, state and local jurisdictions are continuously enacting and effecting legislation related to conformity of these TCJA conformity provisions and others such as inclusion of foreign subsidiary earnings into U.S. taxable income under Global Intangible Low-Taxed Income (GILTI) rules.

FASB Finalizes Income Tax Disclosure Update

The Financial Accounting Standards Board (FASB) has finalized an update that expands tax disclosure requirements for both public and non-public business entities. These changes include broadening of the effective tax rate disclosure and requiring specific categories of line items, with disaggregation based on the taxing jurisdiction being mandated. In addition, the income taxes paid disclosure in the statement of cash flows will now need to be disaggregated between federal, state and foreign taxes on an annual basis. The update is effective for annual reporting periods after Dec. 15, 2024, and interim periods within fiscal years beginning after Dec. 15, 2025, for public companies. The updates will take effect for all other entities after Dec. 15, 2025, with interim periods after Dec. 15, 2026.

Looking Forward

The dynamic nature of the ever-changing tax landscape demands constant vigilance and adaptability. As ASC 740 evolves to address the latest business trends and challenges, staying informed and proactive on income tax reporting remains paramount for companies striving to effectively navigate the rapidly shifting terrain.

The importance of effective tax research cannot be understated. In today’s ever-changing regulatory environment, staying abreast of tax news and analysis is vital for making informed decisions, planning strategic solutions to tax challenges and ensuring compliance in a complex tax landscape.

Specifically, CPAs use tax research to identify the tax implications of particular positions, aid their companies and clients in making informed decisions about tax strategies, planning and compliance, and to prepare for potential IRS audits.

Research Choices

Whether one uses a variety of sources for research or relies on staff to collect their own data, busy CPAs should understand that tax research sources are categorized as primary (statutes, regulations and case laws) and secondary (law review articles and others providing additional analysis). Other considerations include the following:

• Finding relevant binding and persuasive authorities. This includes legislative, administrative and judicial sources. Binding authorities are mandatory for courts to follow, while persuasive authorities are optional.
• Relying on comprehensive resources. These platforms consolidate essential information in one place to make it easy to search for documents.
• Embracing AI-driven tax research software. This can enhance efficiency and accuracy. In a competitive environment with rising client demands, firms that do not leverage technology risk losing talent to competitors.

The Tax Research Process

An organized approach to tax research is crucial to ensure the necessary due diligence is performed in the quest for accurate tax positions. The process can be broken down into both simple and comprehensive steps:

1. Define the situation: To initiate tax research, the first step is to clearly identify and define the pertinent facts and issues relevant to the tax situation, including a thorough understanding of the client’s unique circumstances within their financial, legal and operational context.
2. Gather applicable authorities: Tax experts need to identify and collect the applicable tax laws for the client’s situation, starting with the Internal Revenue Code (IRC) as the primary statutory source. This process extends to encompass administrative regulations and rulings, as well as judicial decisions from various courts.
3. Evaluate the research: Following the collection of relevant authorities, a comprehensive analysis is essential. This entails a detailed examination of legal provisions and an understanding of their implications in the specific context of the client.
4. Formulate conclusions and recommendations: Based on the analysis, tax professionals must draw well-founded conclusions and make recommendations regarding the client’s tax position.
5. Share research findings: Effectively communicating the results of the tax research is crucial. This may involve creating detailed reports or delivering presentations to stakeholders, clients or other pertinent parties.

Effective tax research is not only advantageous but crucial in the intricate world of taxation. With the ever-expanding Internal Revenue Code and associated complexities, reliance on memorization is impractical. The primary purpose of tax research is to define the tax effect of specific tax positions, enabling informed decisions, strategic tax planning and compliance. A structured approach ensures that necessary due diligence is conducted in the research process.

Both seasoned professionals and novices benefit from expert guidance and reliable sources to bridge the knowledge gap for taxation issues. In the complex landscape of taxation, the ability to conduct effective tax research is not just advantageous; it is crucial for success.

Helping out at the NJCPA’s annual volunteer day at the Community FoodBank of New Jersey ahead of Thanksgiving was a success on many levels. The NJCPA has been associated with the FoodBank for 14 years.

At the FoodBank, we were told that we would work as a group, packing pasta. The group was led to a room in the warehouse that had many large boxes of different pastas. We put on hairnets and gloves to avoid contaminating the food. After receiving instructions, we were split into three larger groups, each group assigned to a different type of pasta and their own workstation. Those three groups were then split into smaller groups, organized by the job they performed. A group of people put labels on bags. Another group of people scooped pasta in those bags. Then one person put the bags into a box (16 bags per box) and taped it with a label, indicating that it was finished. I had the pleasure of boxing up the bags of pasta. About an hour and 45 minutes later, we cleaned the tables and swept the floor, leaving the warehouse ready for the next group of volunteers.

Packing this food before Thanksgiving was amazing. Through our combined efforts, we packed 2,304 one-pound bags of pasta, which will contribute to 1,920 meals for individuals in New Jersey.

Giving Back

As a CPA and a member of the NJCPA, it is my privilege and duty to help others. CPAs are leaders and the NJCPA strives to equip and empower New Jersey’s accounting and finance professionals to thrive in their careers. Assisting others and extending help to those who need it is a big part of thriving in one’s career, as well as one’s personal growth. As CPAs, we are always there to assist our clients during business hours. Similarly, we should assist those in need when we are not billing for our services. Opportunities like this demonstrate the NJCPA’s commitment to that mission.

The experience, my first group volunteering event with the NJCPA, was gratifying and fulfilling.  I look forward to the next opportunity and urge my fellow accountants to take part in giving back.

The period of time after busy season is a perfect time to be introspective and plan ahead for accounting firms. It’s a good time to reflect on what went well and what needs to be improved.

Education

The goal for each CPA should be around 40 hours of CPE per year. Smaller firms have the benefit of being able to arrange CPE for the entire firm where everyone can get their needed accounting, audit, tax or other CPE credits. Yearly updates should be one of the most important sessions of the year, so everyone learns the latest guidance and regulations. Without such training, technical knowledge can become outdated which can increase risks.

Marketing

Firms should evaluate what generates sales for them and concentrate on these specific marketing initiatives. Management can eliminate expensive marketing tactics that do not generate positive return on investment. Marketing budgets should be reviewed and business plans should be updated accordingly.

Human Resources

Companies might face turnover, especially at year end. Searches for qualified individuals should be initiated at this time as well as for interns who can help with busy season. Sign-on bonuses should also be considered in some cases. Adopting new office policies around work-from-home arrangements are also popular and should be implemented to attract new skillsets.

Technology

Accountants must stay informed about new technologies like artificial intelligence, cryptocurrency and various software used in accounting, tax, marketing and other needs. Every office will need at least a couple of technology consultants, who will help with various problems the office is facing. Once the organization grows, a ticketing system can be implemented for IT personnel to fix specific problems. Cybersecurity specialists can also be hired internally. Various software can be compared at year end to be implemented with training related to this, so staff is ready by the beginning of the following year, but it’s best not to overburden staff with numerous changes every year. Data analytics tools can be used to analyze financial data and identify anomalies. Cloud computing and blockchain technology can reduce costs and provide security. Technological tools can create client efficiencies and will help staff to concentrate on actual accounting, auditing or tax issues instead of key punching or other repetitive tasks.

The management of the firm should update strategic plans in relation to market expansions, mergers and acquisitions, and medical, retirement and other benefits. Also, this is a good chance to recognize people who contributed to the success of the firm.

By starting early on year-end plans, firms will have more-efficient busy seasons and will increase chances of hitting their goals.

As taxpayers and their families approach the end of 2023, many may be asking, “What should I be doing?” or “What can I do?” Year-end planning, specifically as it relates to charitable giving, estate planning and financial planning, are tremendous areas to take advantage of planning opportunities.

1. Charitable Giving

There is a reason why seasonality impacts not just the financial markets, but also the charitable markets as well. Spending time with family and friends allows people to talk about everything from where they will be spending their holiday season to which charities they may be donating to by the end of the calendar year.

The IRS requires charitable organizations to send out disclosure statements/charitable donation letters when contributions exceed $75. If donations are below $75, taxpayers may not receive a copy of a letter from the organization, so it’s important for accountants to inform their clients to keep copies of their bank statements or receipts to substantiate the donations made.

Additionally, donating clothes, books, household items and even your personal time means the world to those in need, but also provides clients a way to benefit personally.   

2. Estate Planning

As time passes, we continue to realize the importance of family and spending as much time with them as possible. Conversations pertaining to wills and inheritances may be uncomfortable, but they are important. It may or may not be surprising that 67-70% of individuals in this country do not have a will. This is a staggering number. Setting up a will to make sure one’s assets, possessions and children are cared for in the way they desire is pivotal. Signed, handwritten wills may work, but there is always the possibility that legitimacy may come into question, so it is best that an attorney be used.  

Married couples who have tied the knot recently may be surprised to know that preparing joint wills after marriage may be best as avoiding ambiguity and confusion help couples steer clear of tension or friction amongst themselves.

In addition to wills, making gifts to individuals is a great planning tool to preserve wealth in a family. The various ways families can distribute assets (transferring cash, equities and an ownership percentage in a business) to younger generations should be considered during estate planning meetings with clients. 

3. Financial Planning

As clients discuss financial planning and wealth preservation with friends and family, everything from U.S. Treasuries, stock market equities and muni-bonds may be recommended. Over 40 years, we have seen interest rates trend to zero, but now the Federal Reserve has increased interest rates to 5.5% to stem inflation.

As a result, for the first time in a very long time, individuals and businesses have an alternative. Equities have been sold and money is now earning at least 5% in U.S. Treasuries, CDs and money market accounts. There is a big concern regarding inflation having an impact on a portfolio’s annual return for the next 10 to 15 years as the U.S. continues to transition manufacturing out of China and back to the U.S. (onshoring). As history has shown us, during inflationary periods, there is margin compression in stock market equities. Individual Retirement Accounts (IRAs), 401(k)s and 529 plans may not perform as well, as passive investing historically struggles during inflationary periods. CPAs should speak to their clients about being more active regarding their portfolio, and recommend the use of a wealth management expert, if applicable. 

Bankruptcy represents one of the most daunting financial challenges an individual or business can confront. Characterized by significant debt burdens that become impossible to manage, the process of filing for bankruptcy is both complex and emotionally draining. At this critical juncture, the guidance of a CPA can be invaluable, from offering expertise in dissecting financial situations and ensuring adherence to bankruptcy codes to developing forward-looking strategies. 

Here are the multifaceted ways in which CPAs provide essential support to clients during bankruptcy:

Strategic Bankruptcy Planning

In the realm of strategic bankruptcy planning, CPAs must exercise a holistic approach. It’s critical for CPAs to recognize that clients often come with preconceived notions or misinformation about bankruptcy, which can result in unrealistic expectations or risky strategies. 

CPAs should actively dispel myths and set clear, achievable goals when collaborating on a bankruptcy plan. They should explore and critique various debt management and relief options, highlighting both the merits and limitations of each. 

In protecting assets, it’s the CPA’s duty to pinpoint potential legal challenges clients might overlook and to navigate the complexities of bankruptcy laws with a dual focus on compliance and client advantage. This strategic foresight is pivotal in crafting a bankruptcy approach that is both robust and flexible.

Budgeting and Financial Management Post-Filing

Post-filing budgeting and financial management are critical junctures where CPAs must combine empathy with fiscal discipline. A common pitfall for clients is to either overcommit to aggressive repayment plans or to fail to adjust to a more restrained lifestyle. 

CPAs should intervene with a balanced perspective, advising on realistic yet forward-thinking budgets. The goal is not merely to survive the bankruptcy period but to emerge from it with a sustainable financial plan. For Chapter 13 filings, CPAs must ensure that repayment plans align with the client’s current income and are flexible enough to accommodate potential future financial shifts. The advice should empower clients to make informed decisions supporting long-term financial health rather than temporary solvency.

Navigating Tax Implications in Bankruptcy

Tax implications in bankruptcy are a labyrinthine aspect where clients often feel lost. CPAs should navigate these complexities and proactively illuminate the tax ramifications of each financial move within the bankruptcy process. 

Clients may not grasp how discharged debts or the treatment of bankruptcy estate assets affect their tax responsibilities, which is why CPAs must dissect these elements, advising clients on the subtleties of tax laws and the strategic use of tax benefits. Vigilance here can prevent further financial distress due to tax liabilities, offering clarity and a sense of control to clients already facing fiscal adversity.

Strategic Debt Management

Strategic debt management is a domain where CPAs can significantly alter a client’s financial trajectory. Clients often struggle to prioritize debts or identify which assets could be liquidated for maximum benefit. 

CPAs should be prepared to craft tailored strategies that address high-interest debts first and foremost, potentially saving clients from exacerbating their financial strain. Moreover, they should guide clients through the complex decisions regarding asset liquidation, offering nuanced advice on which assets to sell and which to retain to maintain a semblance of financial stability. 

This strategic guidance is crucial in navigating the precarious balance between debt repayment and asset preservation.

Ensuring Financial Integrity During Bankruptcy

Maintaining financial integrity during bankruptcy proceedings is a fundamental yet challenging aspect of a CPA’s guidance. Clients may inadvertently engage in transactions that could jeopardize their bankruptcy plan due to a lack of understanding. 

CPAs must be the guardians of financial conduct, meticulously reviewing each transaction for adherence to the structured terms. This oversight is not merely about compliance; it’s about fostering a financial environment where integrity is upheld and the path to recovery is clear.

Strategies for Post-Bankruptcy Recovery

The post-bankruptcy landscape is fraught with challenges and opportunities for clients to either rebuild or falter. CPAs should be the architects of recovery, providing strategies to restore financial standing, rebuild credit and foster financial literacy. Educating clients on the intricacies of credit, debt and personal finance management is critical to avoiding repeat scenarios. 

The CPA’s role is transformative, instilling practices and principles that ensure clients’ long-term financial resilience. The journey through bankruptcy, while tortuous, can lead to a renewed financial foundation, with CPAs serving as the pivotal navigators. Their role transcends mere number crunching; it embodies the role of a strategic partner, a fiscal educator and a steadfast advocate.