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Weekly National News

February 16, 2018

Budget Deal Revives Expired Individual Tax Breaks for Homeowners, Students and Environmentalists

(Forbes) By Tim Nissen, February 9, 2018 – In the massive budget deal passed early Feb. 9, Congress has bestowed surprise tax breaks on homeowners, students and greenies. There are tax breaks for mortgage insurance premiums, higher-education expenses, energy-efficient home-improvement projects and more. These were tax breaks that expired at the end of 2016, but are now back on for 2017.
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Are CFOs and Auditors Too Cozy?

(CPA Practice Advisor) February 8, 2018 – In accounting, the term "familiarity threat" refers to the threat to auditor independence that arises when a CFO or other top executive of a company being audited was formerly employed by the accounting firm conducting the audit. The Sarbanes-Oxley act of 2002, took aim at this alumni effect with section 206 decreeing it unlawful for accounting firms to perform audits if a top financial or accounting executive of the client was employed by the auditor during the preceding year. Unsurprisingly too, Canada, the E.U., and the U.K. have imposed similar prohibitions, Canada for one year and the E.U. and U.K. for two. Are such restrictions an effective answer to familiarity threat?
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Key IRS Identity Theft Indicators Continue Dramatic Decline in 2017; Security Summit Marks 2017 Progress Against Identity Theft

(IRS) February 8, 2018 – The Internal Revenue Service has announced steep declines in tax-related identity theft in 2017, attributing the success to the Security Summit initiatives that help safeguard the nation’s taxpayers. Key indicators of identity theft dropped for the second year in a row in 2017. This includes a 40 percent decline in taxpayers reporting they are victims of identity theft in 2016. Since 2015, the number of tax-related identity theft victims has fallen by almost two-thirds and billions of dollars of taxpayer refunds have been protected.
readmore

 

What Does the Right Leadership and Corporate Governance Look Like at Smaller Firms?

(Accounting Today) February 9, 2018 – Why do so many smaller CPA firms eventually merge up? While there are many reasons, one reason for sure is that many smaller firms can’t capitalize on the opportunities that may be in front of them because their leadership and corporate governance aren’t properly aligned. A thriving, growing firm requires that leadership and corporate governance take on roles and responsibilities that are very different than those at smaller, slumbering firms.
readmore

 

How AI Is Changing Contracts

(Harvard Business Review) By Beverly Rich, February 12, 2018 – Contracting is a common activity, but it is one that few companies do efficiently or effectively. In fact, it has been estimated that inefficient contracting causes firms to lose between 5% to 40% of value on a given deal, depending on circumstances. But recent technological developments like artificial intelligence are now helping companies overcome many of the challenges to contracting.
readmore

 

How to Retain Millennials with Better Work-Life Harmony

(Inc.) By Ryan Jenkins, February 12, 2018 – How companies help Millennials achieve work-life harmony (the upgraded version of work-life balance) will differ depending on the company culture and business realities--customer-facing teams won't have the same flexibility that a team of developers might have. But nonetheless, work-life harmony should be a workplace element that is pursued and consistently reevaluated by any organization...especially since Millennials value work-life balance higher than all other job characteristics such as job progression, use of technology, and a sense of meaning at work.
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When HNW Clients Have Vastly Different Approaches to Money

(Financial Planning) February 12, 2018 – For married clients, combining two separate financial identities and then agreeing on a single objective for the future can prove difficult, especially when assets are north of $1 million. The way a couple makes these decisions impacts how they invest, how they work with their advisor, how confident they are about the future and how much they argue about money. And when $1 million or more is at stake, the ramifications are magnified as well.
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IRS Now Says New Tax Law Won’t Affect 2018 Benefits, Contributions

(AccountingWEB) February 12, 2018 – Despite earlier announced retirement plan limitations under the new tax law, the IRS now says the law won’t affect 2018 benefits and contributions. The agency had announced the earlier limits in IR 2017-177. But the latest advisory states that the new law didn’t change the section that limits benefits and contributions to retirement plans.
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A Scarcity of Truck Drivers is Biting into Corporate Profits

(Industry Week) February 9, 2018 – Surging transportation demand is spurring trucking companies to charge as much as 30% more for long-distance routes compared with prices a year ago, and they’re hard pressed to add capacity because of a long-standing shortage of drivers. The labor scarcity is getting worse because of new federal rules to prevent big-rig operators from exceeding limits on their hours behind the wheel. The higher freight costs add to concerns that inflation is heating up, which could spur the Federal Reserve to raise interest rates. Wages are also climbing, with average hourly earnings increasing 2.9% in January from a year earlier, the most since June 2009. U.S. unemployment held near a 17-year low of 4.1%. The tightness in the trucking market probably won’t ease anytime soon. Employers can’t find enough drivers -- at least at the wages companies want to pay -- as low unemployment spurs competition from other industries.
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Federal Transfer Tax Exemptions Increased … Temporarily

(JDSupra) By Veronica Cerruti, Jill Dodd, Vivian Redsar, February 13, 2018 – With the passage of the Tax Cuts and Jobs Act (Reconciliation Act of 2017) on December 19, 2017 (the Act), Congress provided increased, albeit temporary, relief to taxpayers who otherwise might be subject to federal transfer taxes (i.e., Estate, Gift and Generation-Skipping Transfer Taxes). The Act provides significant planning opportunities for those in a position to transfer wealth to lower generations without incurring gift or GST tax. However, it affects every person’s estate plan in some way, and we strongly recommend that individuals review their current estate plans in consultation with their professional advisors to confirm that their wishes will be carried out under the new law. This memo highlights some of the more noteworthy changes in the new law that will affect your lifetime and testamentary estate planning.
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Budget Deal Revives Expired Individual Tax Breaks for Homeowners, Students and Environmentalists

(Forbes) By Tim Nissen, February 9, 2018 –In the massive budget deal passed early Feb. 9, Congress has bestowed surprise tax breaks on homeowners, students and greenies. There are tax breaks for mortgage insurance premiums, higher-education expenses, energy-efficient home-improvement projects and more. These were tax breaks that expired at the end of 2016, but are now back on for 2017.

By reinstating individual tax breaks that didn’t make it into the December tax overhaul, Congress has returned to its practice of passing tax extenders - on-again, off-again tax laws - without regard to how its actions balloon deficits. The immediate good news for taxpayers: You could see additional tax savings on the tax return you’re filing now - for the 2017 tax year.

Here are some of the individual provisions in the deal.

  • The ability to exclude a discharge of residential mortgage indebtedness from gross income. The provision also modifies the exclusion to apply to qualified principal residence indebtedness that’s discharged pursuant to a binding written agreement entered into in 2017. Normally, taxpayers have to pay income taxes on forgiveness of debt.
  • The deduction for mortgage insurance premiums. This basically allows mortgage insurance premiums to be treated as deductible interest. So, this only helps you if you’re itemizing deductions, and, under the December tax overhaul, far fewer taxpayers will be itemizing because of the increased standard deduction. Also, the deduction phases out for taxpayers with adjusted gross income of $100,000 to $110,000.
  • The above-the-line deduction of up to $4,000 for higher-education expenses. That includes tuition and related expenses. You don’t have to itemize to take this one. But the deduction is capped at $4,000 for an individual whose AGI doesn’t exceed $65,000 ($130,000 for joint filers) or $2,000 for individuals whose AGI doesn’t exceed $80,000 ($160,000 for joint filers).
  • The $500 energy-efficient home improvements tax credit. This one is listed under “energy” extenders, but it affects a homeowner’s personal tax return. You can get a tax credit (that’s a dollar-for-dollar reduction in your tax liability) of up to $500 (10% of the amount paid) for making energy-efficient home improvements like new windows or upgraded heating/a-c equipment.
  • The 2-wheel plug-in electric vehicle credit. Did you buy an electric motor bike in 2017? The 10% tax credit is back, capped at $2,500.
  • The geothermal and small wind residential energy tax credit. Generous tax breaks for home solar got extended in the last go-round, but geothermal home energy systems and small wind (yes, windmills) were left out. Now that’s fixed. For geothermal systems and windmills placed in service from Jan. 1, 2017 through 2019, the credit is 30% of the cost of the system, and then it drops to 26% for 2020 and 22% for 2021. It sunsets on Dec. 31, 2021. (That's the same phase-out schedule home solar is on.)

 

 

 

 

Are CFOs and Auditors Too Cozy?

(CPA Practice Advisor) February 8, 2018 – Familiarity may breed contempt, as the old adage claims, but not in corporate accounting, according to some new research.

In accounting, the term "familiarity threat" refers to the threat to auditor independence that arises when a CFO or other top executive of a company being audited was formerly employed by the accounting firm conducting the audit. In the years leading up to the notorious corporate accounting scandals at the turn of the century, about one third of the largest U.S. corporations, including such disgraced firms as Enron, Global Crossings, and Waste Management, had top executives who were alumni of their companies' external auditors.

It is hardly surprising, then, that the principal legislation in response to those scandals, the Sarbanes-Oxley act (SOX) of 2002, took aim at this alumni effect, section 206 decreeing it unlawful for accounting firms to perform audits if a top financial or accounting executive of the client was employed by the auditor during the preceding year. Unsurprisingly too, Canada, the E.U., and the U.K. have imposed similar prohibitions, Canada for one year and the E.U. and U.K. for two.

Are such restrictions an effective answer to familiarity threat? A paper in the March issue of the journal Accounting Horizons, published by the American Accounting Association, suggests not.

The new research, the first experimental study post-SOX of the alumni effect among North American auditors, tests the willingness of Big-4 managers to adopt a client’s position on a conjectural accounting matter. It finds that 76% do so if the client’s CFO is a former colleague at their Big-4 audit firm, while only 44% do so if the CFO is not. And the alumni effect occurs even if it has been two years since the CFO left the audit firm, double the minimum span required in the U.S. and Canada and the same as the minimum mandated in the U.K. and E.U.

"Obviously, a one-year or two-year cooling-off period is not enough to avoid the alumni effect, particularly if it requires overcoming social bonds that colleagues often develop," comments Michael Favere-Marchesi of Simon Fraser University's Beedie School of Business, who carried out the study with Beedie colleague Craig E. N. Emby. "It may be that five or ten years would be enough. Alternatively, it may be that audits of companies where a CFO or other higher-up is a former engagement partner should be banned entirely, as some research on auditor independence has suggested."

He adds: "How the accounting profession or corporate world would react to proposals for such restrictions or prohibitions is, of course, another matter.”

The study’s findings are based on an experiment conducted via the Internet with 140 managers of Big-4 accounting firms in offices throughout Canada and the U.S. The managers, who averaged about seven years of auditing experience, all received the same background information about a corporate client and its industry as well as a draft of the current year’s financial statement.

In addition, participants were randomly assigned to one of three experimental conditions, as follows:

  • One group was told that until two years ago the client company’s CFO was a partner in their accounting firm, a colleague with whom they worked on engagements involving this very client and others;
  • A second group was told that the CFO formerly attained partnership at another Big-4 accounting firm;
  • A third group received no information about the CFO’s prior employment history.

Participants were asked to assume the role of a continuing audit manager on the account. The key issue in the experiment was the valuation of goodwill, an asset on corporate balance sheets that arises when a firm purchases a company for more than the fair value of its net assets, goodwill representing the difference between that identifiable fair value and the purchase price. The client being audited was a medium-sized company in the biotechnology field, where purchased goodwill is often an accounting issue. The valuation of goodwill can change from year to year, depending on a variety of circumstances, and is widely regarded by accountants as a fairly subjective, even speculative, matter.

In the case at hand, the CFO maintained that the value of goodwill should be unchanged from the level of the previous year. Evidence to that effect, however, was mixed. Participants received information that, in the words of the study, was “sufficiently negative to suggest that goodwill impairment might be a definite possibility but not so overwhelmingly negative that subjects would automatically conclude impairment.”

In the first group of participants, who were told the CFO was a former colleague and engagement partner, 35 of 46, or 76%, agreed with the CFO that goodwill was not impaired and should be set at its prior level. In the second group, who were told the CFO was formerly with another Big-4 accounting firm, 23 of 48, or 48%, agreed to no impairment, and in the third group, who received neither of those indications, only 39% agreed.

In sum, being told the CFO had formerly been a Big-4 partner-inclined participants to agreement on goodwill impairment but not nearly as much as the alumni effect did. And least likely of all to be swayed were participants whose CFO had neither alumnus status nor Big-4 imprimatur.

The professors also tested the degree of confidence in their decisions among auditors who agreed with the CFO that goodwill should not be impaired. Those in the first and second groups reported, on average, about equal levels of confidence, with both being significantly higher than the average confidence in the third group.

The results lead the authors to observe that “the fact that the current auditors are more likely to concur with the client’s position when the client is a former audit partner of their firm can be interpreted as indicating reduced professional skepticism, but the results of the [confidence] test…suggest that source credibility also influences the auditors’ confidence in a CFO’s position.”

In conclusion, they urge regulators “to push for a more robust cooling-off period covering a wider range of management positions,” noting that the possibility of a longer period has been raised by the SEC’s Public Company Accounting Oversight Board and adding that even an outright ban on auditors’ taking jobs with clients has been proposed in some academic research.

 

 

 

 

 

Key IRS Identity Theft Indicators Continue Dramatic Decline in 2017; Security Summit Marks 2017 Progress Against Identity Theft

(IRS) February 8, 2018 – The Internal Revenue Service has announced steep declines in tax-related identity theft in 2017, attributing the success to the Security Summit initiatives that help safeguard the nation’s taxpayers.

Key indicators of identity theft dropped for the second year in a row in 2017. This includes a 40 percent decline in taxpayers reporting they are victims of identity theft in 2016. Since 2015, the number of tax-related identity theft victims has fallen by almost two-thirds and billions of dollars of taxpayer refunds have been protected.

“These dramatic declines reflect the continuing success of the Security Summit effort,” said Acting IRS Commissioner David Kautter. “This partnership between the IRS, states and the tax community is helping protect taxpayers against identity theft. More work remains in this effort, and we look forward to continuing this collaborative effort to fight identity theft and refund fraud.”

The Internal Revenue Service, state tax agencies and the tax industry have started their third filing season working as the Security Summit, a private-public sector partnership formed in 2015 to combat identity theft. Summit partners have put in place multiple behind-the-scenes safeguards that are helping protect the nation’s taxpayers.

Because the IRS and Summit partners have stepped up efforts to stop suspected fraudulent returns from entering tax processing systems, there continues to be a substantial decline in the number of taxpayers reporting that they are victims of identity theft.

Here are key calendar-year 2017 indicators:

  • The number of taxpayers reporting to the IRS that they are victims of identity theft continued its major decline. In 2017, the IRS received 242,000 reports from taxpayers compared to 401,000 in 2016 – a 40 percent decline. This was the second year in a row this number fell, dropping from the 677,000 victim reports in 2015. Overall, the number of identity theft victims has fallen nearly 65 percent between 2015 and 2017.
  • The number of tax returns with confirmed identity theft declined to 597,000 in 2017, compared to 883,000 in 2016 – a 32 percent decline. The amount of refunds protected from those fraudulent returns was $6 billion in 2017, compared to $6.4 billion in 2016. In 2015, there were 1.4 million confirmed identity theft returns totaling $8.7 billion in refunds protected. Overall during the 2015-2017 period, the number of confirmed identity theft tax returns fell by 57 percent with more than $20 billion in taxpayer refunds being protected.
  • The financial industry is a key partner in fighting identity theft, helping the IRS recover fraudulent refunds that may have been issued. In 2017, banks recovered 144,000 refunds compared to 124,000 in 2016 – a 16 percent increase. The amount of refunds recovered was $204 million in 2017, compared to $281 million in 2016. In 2015, the financial industry recovered 249,000 refunds totaling $852 million.
  • In addition to these steep declines, the IRS also is continues reducing the year-over-year inventory backlog of taxpayers who file identity theft reports. For fiscal year 2017, the beginning inventory of identity theft reports submitted by taxpayers was approximately 34,000, under 10 percent of the fiscal year 2013 beginning inventory of 372,000 taxpayer identity theft cases.

These declines follow extensive Summit education efforts in 2017. The Summit partnership conducted awareness campaigns for tax professionals – Don’t Take the Bait – and for taxpayers – National Tax Security Awareness Week – because everyone has a role in fighting against identity theft.

Cybercriminals Looking for New Lines of Attack

Last year, multiple data breaches from outside the tax system means cybercriminals have basic information on millions of Americans, such as names, Social Security numbers and addresses. The steps taken by the Summit partners since 2015 help protect against fraudulent tax filings that use this basic data. As the IRS and Summit partners have strengthened their defenses, identity thieves are looking to steal more detailed financial information to help provide a more detailed, realistic tax return to better impersonate legitimate taxpayers. Because they need more personal data, cyberthieves increasingly are targeting tax professionals, human resource departments, businesses and other places that have large amounts of sensitive financial information. The IRS continues to see a number of these schemes in attempts to get taxpayer W-2 information from tax professionals and employers.

Everyone must be vigilant and alert. Both taxpayers and tax professionals are encouraged to:

  • Use Security Software. Always use security software with firewall and anti-virus protections. Make sure the security software is always turned on and can automatically update. Encrypt sensitive files, such as tax records, stored on computers. Use strong, unique passwords for each account.
  • Watch out for scams. Learn to recognize and avoid phishing emails, threatening calls and texts from thieves posing as legitimate organizations such as banks, credit card companies and even the IRS or a tax software firm. Do not click on links or download attachments from unknown or suspicious emails.
  • Protect personal data. Don’t routinely carry Social Security cards and make sure tax records are secure. Shop at reputable online retailers. Treat personal information like cash; don’t leave it lying around.

For more information, see www.irs.gov/identitytheft.

 

 

 

 

 

What Does the Right Leadership and Corporate Governance Look Like at Smaller Firms?

(Accounting Today) February 9, 2018 – Why do so many smaller CPA firms eventually merge up?

While there are many reasons, one reason for sure is that many smaller firms can’t capitalize on the opportunities that may be in front of them because their leadership and corporate governance aren’t properly aligned.

To illustrate the problem, many CEOs and managing partners at smaller firms become their firms’ leaders because they were either the biggest biller, the partner with the most billable hours, or the firm’s best business development partner. Further, the executive committee or partner board at these firms usually wears many hats in addition to their client service responsibilities (operating subcommittee, finance subcommittee and compensation subcommittee, etc.). The executive committee generally doesn’t function properly as the participating partners have plenty of firm responsibility but little, if any, authority and, as a result, feel powerless and unfulfilled. And finally, at many of these firms, the CEO and the chairperson of the executive committee are usually one and the same. That can be overbearing for both the partner and the firm.

A thriving, growing firm requires that leadership and corporate governance take on roles and responsibilities that are very different than those at smaller, slumbering firms.

For sure, the CEO at a growing, thriving firm more than likely isn’t the biggest biller or the best business developer, the executive committee is not involved in day-to-day operations, and for sound corporate governance the executive committee chairperson might very well not be the firm’s CEO.

For a firm that wants to “run with the big dogs,” the key objectives and responsibilities of each of these constituents usually looks like the following:

Key Objectives and Responsibilities of the CEO

  • Create a one-firm, firm-first culture (that requires partners thinking “our clients” not “my clients”), implement firm procedures and policies, and instill best practices in areas such as communication, business growth, cost controls, etc.
  • Drive revenue and profitability; oversee short and long-term financial condition.
  • Protect the firm from significant risk. This requires the CEO to make sure that staff and partners are appropriately trained, evaluated, adhering to firm policies, and appropriately analyzing risk from a perspective of client acceptance, as well as client continuation.
  • Be actively involved in the community by attending events, joining boards of directors and becoming active leaders of nonprofit entities.
  • Mentor future leaders. This requires continual communication with partners and staff and assisting partners in setting their goals and how they can improve themselves as well as the firm. It also requires that partners be held accountable, partners be evaluated against goals that were agreed to in the year-end evaluation and goal setting meetings.
  • Commit to growth through industry specialization by building expertise, effectively going after target clients and providing value to existing clients.
  • Assure that partners and staff are providing world class client service while not sacrificing quality by taking the pulse of key clients and the services being provided. This includes taking an active role in client service and communication plans.
  • Communicate within the community, partners, staff and clients by maintaining a positive and enthusiastic outlook while dealing with both good and bad news effectively and in a timely manner.
  • Design and develop a strategic plan, incorporating the firm’s strategic goals, and direct its development and implementation.
  • Assure that the firm has an effective HR personnel plan for meeting current and future client needs.
  • Resolve major client disputes with legal counsel assistance as required.
  • Ensure that all partners and managers understand the firm’s financial goals and that day-to-day decisions are made consistent with these goals.
  • Lead all partner meetings (I strongly encourage a meeting a month).
  • Assure compliance with firm policies regarding capital expenditures and operating expenses, and oversee, monitor and control operating expenses consistent with firm policy.
  • Assure proper utilization of firm administrative management and information systems.
  • Function as the major spokesperson with major business organizations and publications.
  • Maintain relationships with leadership at other CPA firms (potential combination targets) and focus on providing services they cannot provide.
  • Implement and maintain effective client billing and collection policies and procedures consistent with firm policy.
  • Seek laterals who can beef up bench strength and diversification.
  • Monitor individual partner and manager fee realization versus plan and recommend actions to address negative variances.
  • Oversee client transition and succession planning for retiring partners.
  • Foster partner involvement in firm social functions and support personnel recognized for outstanding service in the community.
  • Make sure that client services are handled in the most effective and efficient manner with the appropriate client service team.
  • Annually assessing and making recommendations regarding the effectiveness of the executive committee as a whole, any subcommittees, and the individual members.

Today, more than in recent times, as margins continue to get squeezed and organic growth continues to be evasive, CPA firms are laser focused on strategy, growth (both organic and through mergers and acquisitions), and partner earnings. To that end, firms should properly align their leadership and corporate governance so as to enable them to remain independent, achieve quality growth and enhance partner earnings.

 

 

 

 

 

How AI Is Changing Contracts

(Harvard Business Review) By Beverly Rich, February 12, 2018 – Contracting is a common activity, but it is one that few companies do efficiently or effectively. In fact, it has been estimated that inefficient contracting causes firms to lose between 5% to 40% of value on a given deal, depending on circumstances. But recent technological developments like artificial intelligence (AI) are now helping companies overcome many of the challenges to contracting.

The main challenge firms face in contracting arises from the sheer number of contracts they must keep track of; these often lack uniformity and are difficult to organize, manage, and update. Most firms don’t have a database of all the information in their contracts – let alone an efficient way to extract all that data – so there’s no orderly and fast way to, for example, view complex outsourcing agreements or see how a certain clause is worded across different divisions. It requires a lot of manpower to draft, execute, and improve not only the contracts themselves, but also the contracting processes and the transactions these contracts govern.

If, for example, a large tech company finds itself with a huge volume of procurement contracts that all have varying renewal dates and renegotiation terms, it would require hundreds of hours and a team of contract managers to review and track of all this information to ensure that no renewal or opportunity is missed.

AI software, however, can easily extract data and clarify the content of contracts. (It could quickly pull and organize the renewal dates and renegotiation terms from any number of contracts.) It can let companies review contracts more rapidly, organize and locate large amounts of contract data more easily, decrease the potential for contract disputes (and antagonistic contract negotiations), and increase the volume of contracts it is able to negotiate and execute.

In my research, I have seen that many companies use contract management software, and a smaller number of firms – mostly those with a high volume of routinized contracts – use more advanced software with AI capabilities. These firms have generally seen an increase in productivity and efficiency in their contracting.

The use of AI contracting software has the potential to improve how all firms contract – and it will do so in three ways: by changing the tools firms use to contract, influencing the content of contracts, and affecting the processes by which firms contract.

Improved Tools for Managing Contracts

While software for legal document review has existed for years, it typically only helps companies store and organize their contracts. Contracting software that uses AI raises the bar for what these tools can accomplish. AI contracting software can, for example, identify contract types (even in multiple languages) based on pattern recognition in how the document is drafted. Because AI contracting software trains its algorithm on a set of data (contracts) to recognize patterns and extract key variables (clauses, dates, parties, etc.), it allows a firm to manage its contracts more effectively because it knows – and can easily access — what is in each of them. AI software also offers simple prediction, which has implications for due diligence: AI contracting software can quickly sort through a large volume of contracts and flag individual contracts based on firm-specified criteria.

Current AI software can also read contracts accurately in any format, provide analytics about the data extracted from the contracts, and extract contract data much faster than would be possible with a team of lawyers. This may sound like bad news for lawyers, but this is not necessarily the case: having additional contract data could allow firms to update their contracts more regularly, and lawyers could focus more on their role as counsel instead of contract reviewer.

Keeping Contracts Consistent

AI contracting software helps firms keep terms and usage consistent in all of their contracts. For example, if a company wants to define the term “confidential information” in a specific way in its non-disclosure agreements (NDAs), it must make sure that all of its divisions are on board with this definition, and that changes to the definition get incorporated quickly and accurately, because variation could prove damaging to the company. AI contracting software can easily keep this term consistent across the firm’s templates, and it can spot other terms that signal “confidential information” in NDAs from business partners.

Being able to identify and extract key data points helps firms organize and execute contracts as well. For example, a company with a large number of vendor contracts must ensure that they are keeping track of variations in termination provisions and penalty and damage provisions – both in their own contracts and in vendor contracts. Managing variations is a huge undertaking that requires proactive organization. But AI contracting software can record and standardize these provisions in the company’s contracts and in those that vendors send, making it far easier to identify instances of noncompliance and ensure that unfavorable provisions are dealt with promptly.

Additionally, AI contracting software can quickly assess risk in contracts (performing the risk analysis much faster than a team of lawyers) by identifying terms and clauses that are suboptimal. And it can reduce the risk of human error in contract drafting and review.

New Processes Require New Skills

As new AI contracting tools change the actual content of contracts, this in turn affects the contracting processes that firms use. Previously, successful contracting required skills in drafting and negotiating contracts, as well as in managing and reviewing them. Specialized high-value transactions were dependent on groups of attorneys devoting hours to comprehensive due diligence. Contracting professionals were expected to find clever ways to draft contracts to include clauses that favored their client. And even more routine transactions required employees to pay close attention to details.

But when most due diligence and contract organization – and even contract drafting — is done using AI contracting software, the resources required to produce a large volume of contracts, both simple and complex, will change. This doesn’t necessarily mean companies will need fewer lawyers, but rather their roles may transform. For example, lawyers will spend more time in assessing risk and providing counsel, rather than in document review. And instead of having a large team of associates conduct due diligence before a deal, companies will have a smaller, more agile team review the documents that the software flags and then offer advice. Indeed, Professor Gillian K. Hadfield, a law professor at the University of Southern California who specializes in contract law, believes that AI in contracting will lead to a better use of legal talent: “lawyers will shift their focus from routine activities to much more high value work involved in shaping strategies and navigating complex legal problems.”

Similarly, the role of contract management professionals will shift. Whereas contract compliance was previously done by an entire team, AI tools enable a well-designed software platform – coupled with a few employees – to do the job. Rather than organizational skills being key to the role, contract managers will need more technical and process flow expertise to work with the software.

These improvements to tools, content, and processes will mean that contracting becomes faster, better, and easier once this technology is more widespread. But it is important to recognize that, while AI promises to do a lot, it won’t do everything.

Contracting technology is currently at a midpoint: One stream of development will be in industries with highly routinized, template-based contracts. Here, AI contracting technology will be used in a blockchain model, allowing contracts to evolve and essentially re-write themselves according to the parties’ needs. The other main use will be to help develop contracting standards, such as how to debate and structure certain clauses. When companies negotiating a contract can easily access every similar contract from the past twenty years, prioritized by industry, and see what wording is most commonly used, we should see less onerous negotiating over clauses, leading to an easier contracting process.

Understanding what AI contracting tools can and cannot do is key to their successful implementation and use. Right now, they may offer the highest value add to companies with large volumes of contracts – cutting time spent in contract review and drafting – and companies that conduct more routinized transactions. But as this technology develops, it is all but certain that it will one day be useful to all firms.

 

 

 

 

 

How to Retain Millennials with Better Work-Life Harmony

(Inc.) By Ryan Jenkins, February 12, 2018 – How companies help Millennials achieve work-life harmony (the upgraded version of work-life balance) will differ depending on the company culture and business realities--customer-facing teams won't have the same flexibility that a team of developers might have.

But nonetheless, work-life harmony should be a workplace element that is pursued and consistently reevaluated by any organization...especially since Millennials value work-life balance higher than all other job characteristics such as job progression, use of technology, and a sense of meaning at work.

18 Ways to Retain Millennials with Better Work-Life Harmony

Observe employees
Where in your organization or throughout the day might Millennial employees experience frustration, heavy workloads, or stress? Increased mistakes, excessive absenteeism, physical exhaustion, or general unhappiness might be warning signs that employees are lacking work-life harmony.

Survey employees
Because work-life harmony will look and mean something different to everyone, it's important to ask your Millennial employees what type of work-life harmony would be most useful, productive, and desirable for them.

Offer training
Work-life harmony can be a fluffy and ambiguous topic, so offering training that offers specific strategies and tools to achieve harmony would be helpful to many employees, especially for Millennials who are young in their experience of juggling work and life priorities. (Training topics might include: how to set up a home workspace that limits distractions; health and wellness; prioritizing to-dos and task management; how to reduce stress; etc.)

Structure flextime
Allowing Millennials to choose when they work is fundamental for their achievement of work-life harmony. Consider structuring flextime with weekly hour requirements that they can choose how to allocate (for example, PwC boasts compressed workweeks--longer hours per day for fewer days per week) or with a weekly hour range or have requirements only for what work needs to be completed.

Enable telecommuting
Allowing Millennials to choose where they work is also fundamental in their achievement of work-life harmony. Offering telecommuting to workers provides additional freedom for them to care for personal items while still getting work done.

Relabel flexibility
Because mobile technology and ubiquitous connectivity have enabled today's work to be completed anywhere and anytime, flextime and telecommuting shouldn't be considered "perks" or things that must be earned over time. Millennials view flexibility as a standard work function, and employers that label it as a perk will seem outdated.

End working weekends
JPMorgan Chase recently joined other Wall Street banks in telling its employees to take weekends off in order to improve their work-life harmony.

Remove exclusivity
Millennials may not have as many family responsibilities (kids, grandkids, aging parents, a house, etc.), but they have similar desires to find harmony between work and life (travel, education, etc.). Don't make work-life harmony options exclusively for senior employees.

Encourage efficiency
According to a UK study from the Mental Health Foundation, after working long hours, 27 percent of employees feel depressed, 34 percent feel anxious, and 58 percent feel irritable. Avoid pushing employees to work longer hours. Instead, enable and encourage Millennials to leverage their digital resourcefulness to work smarter and with greater efficiency. Focus on output (results), not just input (time spent).

Involve family
Finding creative ways (family-friendly events or a "bring your pets to work" day) to involve Millennial employees' families (spouses, parents, kids, or pets) is a powerful way to integrate life with work.

Prioritize health
A healthier workforce leads to reduced stress, boosted productivity, and fewer absences. Extended periods of working can force Millennials to sacrifice health and fitness. Offer health and wellness training, provide well-being classes (such as yoga), use standing desks, create nap rooms, start a company sports team (kickball, softball, etc.), conduct walking meetings, or offer discounts to a local gym.

Promote breaks
For Millennials at work, Snapchat is the new smoke break. Build in time when workers are encouraged to take rejuvenation breaks from work. Taking breaks has been shown to increase productivity levels.

Nurture creativity
Allowing Millennials the time and space to exercise creativity will provide a better sense of balance, keep them mentally fit, and will nurture the innovative thinking that is crucial for any organization operating in today's age of disruption. Creative outlets can include puzzles, video games, or off-the-wall side projects.

Permit volunteering
Allowing Millennials time off to pursue volunteer or charitable work can keep them happy and in harmony.

Give parental leave
One of the life stages that requires Millennials to focus on life over work is having a baby. Recently, a number of high-profile companies have announced their robust policies surrounding parental leave. Facebook and IKEA now offer new parents (mothers and fathers) four months of paid baby leave. Netflix recently began offering unlimited parental leave.

Support vacationing
Encourage Millennials to take advantage of their vacation days or consider expanding the number of vacation days offered--or eliminate the accrued-vacation policy and offer unlimited vacation...you might be surprised how few vacation days Millennials will actually take.

Provide childcare
Working Millennial parents will experience less stress and find more harmony if childcare is available on-site or if there is a discount at a nearby childcare center.

Lend help
Providing Millennial employees with access to services to help them with personal errands or household responsibilities reduces stress and allows more leisure time away from work. On-site or nearby services might include: dry-cleaning, meals, auto repairs, gift wrapping, or a concierge service that coordinates other miscellaneous needs. Be sure to ask Millennials what services might be most helpful, since they might already be using apps like TaskRabbit or Goodservice for these needs.

Whatever work-life harmony strategies you decide to use, be sure to back them up with your example. Leaders must promote and exemplify the work-life harmony that they wish to see in their Millennial workforce.

The change starts with you.

 

 

 

 

 

When HNW Clients Have Vastly Different Approaches to Money

(Financial Planning) February 12, 2018 – For married clients, combining two separate financial identities and then agreeing on a single objective for the future can prove difficult, especially when assets are north of $1 million.

The way a couple makes these decisions impacts how they invest, how they work with their advisor, how confident they are about the future and how much they argue about money. And when $1 million or more is at stake, the ramifications are magnified as well.

Mistakes will be made along the way and tempers will flare — your clients are married after all. And the advisor is left with the task of helping to managing a fortune, while guiding two people through their collective financial future.

Challenges surface because couples tend to have different risk tolerances. A household where financial decisions are led by the man — 40% in the U.S., according to a study from UBS — can be tricky to navigate because men generally are willing to take on greater risk. That can lead to the wife using the husband’s more aggressive strategies, against her instincts or wishes.

Advisors need to be sure that both spouses are comfortable with the choices being made.

In the same vein, statistically women outlive men so it’s possible that female clients with a lower risk tolerance will one day end up with portfolios that they aren’t comfortable managing.

The UBS study also found other surprising decision-making dynamics in HNW couples. For one, going against a prevailing stereotype, women make the financial decisions in 16% of the households surveyed. Other stats show that 28% of couples share in the decision making, while 16% of those surveyed make separate decisions and hold individual accounts.

No matter the kind of household your HNW client falls into, one thing that stands out as a universal issue is lack of communication. Although it manifests itself differently in various age groups, says UBS advisor Elizabeth Sheehan.

For instance, newly married HNW couples “very often haven’t had conversations about how they each value money and what their approaches are toward money,” she says.

“On the flipside, as couples get older sometimes I found that very often they haven’t shared what their view of retirement is,” Sheehan explains. “They haven’t been completely transparent with their financial goals.”

Indeed, two of her clients, a couple in their 60s, had vastly different plans for how they’d spend retirement. One spouse had believed they’d be moving to Florida, while the other was under the impression they’d be moving to downtown Chicago to be closer to their children.

After decades of marriage, the couple just assumed they were on the same page regarding their retirement.

To facilitate better communication between these clients, an advisor has to ask detailed questions.

For example, advisors need to discover why each person has a certain attitude regarding money.

Sheehan gave an example of another client couple in which the husband is the saver. Growing up, his parents each worked several jobs and the family had to be very careful with money.

Although he is now doing well financially, he still has the mindset that, at any moment, he and his wife may not be able to pay the bills. So he has a hard time taking on risk with his investments. He is more inclined to keep money in cash or other liquid securities.

“The husband’s approach toward money and expenses was not only hard on his wife, but on his entire family,” Sheehan explains. “The wife had a great-paying career of her own and from her viewpoint, part of the reason she worked so hard was so that her family could enjoy life leading up to retirement.”

Using this information, Sheehan developed a plan showing this couple that a middle ground could be found. She came up with a detailed savings strategy and pointing out that they could afford to spend money on discretionary expenses.

With the clients’ differences in mind, Sheehan was able to use the plan to create targeted goals.

“I wouldn’t have had that knowledge if I hadn’t asked, 'tell me more about why you’re a saver?'” Sheehan says. “If a financial planner is doing their job well, they’re going to learn about all their client’s financial goals and be able to see a comprehensive view of what those goals are and then come up with a plan to best help them.”

 

 

 

 

 

IRS Now Says New Tax Law Won’t Affect 2018 Benefits, Contributions

(AccountingWEB) February 12, 2018 – Despite earlier announced retirement plan limitations under the new tax law, the IRS now says the law won’t affect 2018 benefits and contributions.

The agency had announced the earlier limits in IR 2017-177. But the latest advisory states that the new law didn’t change the section that limits benefits and contributions to retirement plans.

The new law also specifies that contribution limits for individual retirement accounts (IRAs), and the income thresholds related to IRAs and the saver’s credit, are to be adjusted for cost-of-living changes using procedures that apply to many basic income tax parameters, the agency states.

“Although the new law made changes to how these cost-of-living adjustments are made, after taking the applicable rounding rules into account, the amounts for 2018 [delineated in the prior announcements] remain unchanged,” the IRS stated.

 

 

 

 

 

A Scarcity of Truck Drivers is Biting into Corporate Profits

(Industry Week) February 9, 2018 – Tyson Foods Inc. expects to pay $200 million extra for freight this year. Kellogg Co.’s logistics costs will rise nearly 10%. McCormick & Co. blamed increased shipping expenses for its failure to achieve a profit target.

Surging transportation demand is spurring trucking companies to charge as much as 30% more for long-distance routes compared with prices a year ago, and they’re hard pressed to add capacity because of a long-standing shortage of drivers. The labor scarcity is getting worse because of new federal rules to prevent big-rig operators from exceeding limits on their hours behind the wheel.

“With the combination of driver shortages and regulation changes, it’s something I think that everybody’s facing,” Kellogg CEO Fareed Khan said on a conference call with analysts on Feb. 8. “So it’s something that we need to manage.”

The higher freight costs add to concerns that inflation is heating up, which could spur the Federal Reserve to raise interest rates. Wages are also climbing, with average hourly earnings increasing 2.9% in January from a year earlier, the most since June 2009. U.S. unemployment held near a 17-year low of 4.1%.

Tom Hayes, CEO of Tyson, said the largest U.S. meat producer is getting pinched by higher expenses for both cargo and labor. “These additional costs are included in our outlook,” he told investors and analysts on Feb. 8. “However, we’re assuming we’ll recover the majority through” higher prices for consumers.

The tightness in the trucking market probably won’t ease anytime soon. Employers can’t find enough drivers -- at least at the wages companies want to pay -- as low unemployment spurs competition from other industries.

Construction jobs, for example, pay on par or better and allow workers to be home more with their families. Long-distance truckers can be on the road for weeks at a time.

“We suspect capacity should be tight all year given the acceleration in economic activity and more competition for labor,” said Lee Klaskow, an analyst at Bloomberg Intelligence.

Logging Devices

The industry was short about 248,000 drivers at the end of last year, according to data from transportation consultant FTR. With older drivers nearing retirement, trucking companies have offered signing bonuses and stock awards, while still trying to keep a lid on labor costs. Further complicating recruitment efforts is the risk that younger truckers will be replaced by driverless semis in the not-too-distant future.

Exacerbating the scarcity now is a new U.S. regulation that took effect in December requiring trucks to be equipped with electronic logging devices to track drivers’ hours. The safety measure is designed to keep drivers within hourly limits and prevent fatigue-related accidents. Manually recorded logs could be fudged.

Large trucking companies had installed the gadgets well before the December deadline, but many small outfits and independent drivers hadn’t. Authorities have said they will begin to enforce the use of the ELDs in April. The devices may take as much as 10% of long-distance trucking capacity out of the market, Klaskow said.

Knight-Swift Transportation Holdings Inc. expects freight-contract prices to increase “in the high-single digits to low-double digits throughout 2018,” CEO David Jackson said on a call with analysts last month. The lack of drivers caused the average number of Swift trucks in the fourth quarter to drop 6.7% from a year earlier.

“The driver shortage continues to be a headwind for the industry and will likely impact the ability to increase capacity in this space,” Jackson said.

$40,000 Bonuses

Covenant Transportation Group Inc. is offering a $40,000 bonus to persuade more drivers to work in teams, which boosts the usage of the company’s trucks by having one person rest while the other takes the wheel. That will help Covenant meet “extremely strong” freight demand, CFO Richard Cribbs said in a Jan. 30 conference call.

Some long-haul cargo may move to railroads, which tend to be slower but charge less than trucks, Klaskow said. Railroads such as Norfolk Southern Corp. and Canadian National Railway Co. are already struggling to keep up with demand, he said.

The consolation for companies faced with pricier trucking rates is that the increases are hitting everyone, so no competitor is getting an upper hand, Russ Rinn, chief of metals recycling at Steel Dynamics Inc. said on a conference call last month.

“It’s going to be an industrywide issue that we’re all going to have to face, which is higher freight cost going forward,” Rinn said.

 

 

 

 

 

Federal Transfer Tax Exemptions Increased … Temporarily

(JDSupra) By Veronica Cerruti, Jill Dodd, Vivian Redsar, February 13, 2018 – With the passage of the Tax Cuts and Jobs Act (Reconciliation Act of 2017) on December 19, 2017 (the Act), Congress provided increased, albeit temporary, relief to taxpayers who otherwise might be subject to federal transfer taxes (i.e., Estate, Gift and Generation-Skipping Transfer Taxes). The Act provides significant planning opportunities for those in a position to transfer wealth to lower generations without incurring gift or GST tax. However, it affects every person’s estate plan in some way, and we strongly recommend that individuals review their current estate plans in consultation with their professional advisors to confirm that their wishes will be carried out under the new law. This memo highlights some of the more noteworthy changes in the new law that will affect your lifetime and testamentary estate planning.

Estate, Gift and Generation-Skipping Transfer (GST) Taxes

While stopping short of total repeal, the Act doubled the current exemption from estate, gift and GST taxes. The new provisions are effective for taxable years 2018–2025 (i.e., eight years), provided that no additional changes are made to the law before that time. The Act increases each individual’s basic exemption amount for federal estate, gift and GST tax from $5 million to $10 million, indexed for inflation. The estate tax rate remains unchanged at 40% for estate assets that exceed an individual’s basic exclusion amount.

For the year 2018, the indexed exemption amount is $11.18 million per person ($22.36 million per couple). Under the Act, in 2026, all of the foregoing exemptions will revert back to $5 million per person, adjusted for inflation.

The annual gift tax exemption amount, which permits individuals to make annual gift transfers to any individual each year without incurring a gift tax, will increase slightly to approximately $15,000 for 2018 (from $14,000 in prior years).

The concept of “portability” of the estate tax exemption amount is retained, so if the exemption is not fully utilized for a married couple at the first spouse’s death, the survivor can retain any unused exemption of the first spouse and apply it at the survivor’s subsequent death. When and if the Act sunsets, however, it is not clear whether the entire ported amount would be retained or if it would be reduced to match the revised exemption amounts that take effect in 2025. To elect portability, the surviving spouse must file a federal estate tax return, which the spouse might otherwise be disinclined to do.

While the federal estate tax now only affects taxpayers with assets valued above $11.18 million, many more taxpayers pay state inheritance or estate taxes. While California currently imposes no estate or inheritance tax, if you own property in other jurisdictions, your estate or your heirs may be subject to the state death tax levied in those states beginning at much lower exemption levels. Top state estate tax rates are typically around 16%, and for inheritance tax states, the tax can apply to the first dollar of assets.

Impact on Planning and Opportunities

Testamentary Planning. Depending on the terms of your current estate planning documents, the increased exemption amounts could drastically alter the disposition of your estate. If your documents contain formula bequests that were based on pre-2018 exemption amounts, the resulting property transfers may not match your original expectations.

Gifting. Since the $11.18 million exemption will revert to prior levels in 2026 (or possibly sooner), we recommend that you begin the planning process for substantial lifetime gifts as soon as possible. This will maximize use of the exemptions before they expire. In addition, the transfers could be structured to shift income and appreciation on gifted assets out of your estate. The Act authorizes the Treasury to issue regulations as necessary to address any difference in the exemption amount at the time the gift is made and at the time of death. This is to deal with the possibility of a “clawback” (i.e., a prior gift that was covered by the gift tax exemption at the time of the gift might result in estate tax if the estate tax exemption amount has decreased by the time of the donor’s death, thus resulting in a “clawback” of the gift for estate tax purposes).

Basis Adjustment Planning. For estates valued at well under the new exemption amounts, incorporating flexibility into plans by causing trust assets to be included in the gross estate of a trust beneficiary who has excess estate tax exemption will be important to permit an income tax basis adjustment at the beneficiary’s death. While in the past we have recommended moving assets down to lower generations, in some cases it may now make sense to actually “gift up” or “gift across,” so that an elderly relative or other beneficiary will have enough property includable in his or her estate to fully utilize his or her own increased estate tax exemptions while providing an income tax basis step-up on such assets upon the individual’s death.

GST Tax Planning. We often recommend the use of dynastic trusts to take advantage of the GST exemption. Since the increased exemption on the GST tax is temporary however, it makes sense to take advantage of dynasty GST trusts to use the new $11.18 million exemption while you can. Such trusts might allow clients to pass assets over successive generations without the imposition of any future transfer tax, and, if sited in other states, could have limited income tax exposure and increased creditor protection, and could exist perpetually for succeeding generations free of transfer tax.

Conclusion

While the Act is slated to be in place for the next eight years, given the current political situation, it is entirely possible that the tax laws may again be revised prior to 2026. For that reason, and because your plan may no longer contain the optimal planning provisions, we recommend that you review your estate planning goals and objectives sooner rather than later.

While a minority of estates in the United States fall above the increased exemption amounts, if the value of your estate is well below the revised exemption, this doesn’t mean you don’t need to do estate planning. In addition to correcting your plan so that it is consistent with the new law, there are still many non-tax reasons to plan, including the creation of solid business succession plans, the naming of guardians for minor children, creditor protection through the use of trusts, and appointing agents to act on your behalf under a financial power of attorney and/or advance healthcare directive in the event of your incapacity.