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Weekly National News

February 24, 2017

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Household Debt is Rising, but Consumers in Better Shape

(Think Advisor) February 16, 2017 – Household debt has risen to levels not seen since the financial crisis, but household balance sheets today are in much better shape, according to the New York Fed’s latest Quarterly Report on Household Debt and Credit (.PDF). While household debt rose $460 billion to $12.58 trillion as of year-end 2016, delinquency rates were under 5% compared to over 8.5% in the third quarter of 2008, after which they continued to rise. In addition, mortgage debt and home equity lines of credit, which drove the debt boom during the financial crisis, peaking at 79% of household liabilities, fell to 71%.
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IRS Announces Proposed Partnership Audit Regulations Which Impact Limited Liability Companies and Partnerships

(JDSupra Business Advisor) February 17, 2017 – The Internal Revenue Service has released Proposed Regulations under Section 1101 of the Bipartisan Budget Act of 2015, which provide that for tax years beginning after December 31, 2017, all entities taxable as partnerships (including limited liability companies) will be subject to a centralized audit regime which will make the partnership liable for taxes relating to adjustments to its income, gain, deduction, loss or credits, unless the partnership is eligible to (and elects out) of that regime in the manner described in the Proposed Regulations or elects in the manner described in the Proposed Regulations to pass the adjustments to the persons who were partners (or members) during the tax year which resulted in the tax adjustment.
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Conservative Judge Okays Huge Roth IRA Tax Shelter, Slams IRS Substance Over Form Attack

(Forbes) By Peter J. Reilly, February 20, 2017 – Judge Jeffrey Sutton is confirming his status as "the intellectual engine behind a conservative movement of the jurisprudence of the Sixth Circuit" in Summa Holdings vs CIR. The opinion limits the use by the IRS of the "substance over form doctrine" as writing for a three judge panel he overturns the decision of Tax Court Judge Kathleen Kerrigan, who was appointed by President Obama. Judge Sutton, appointed by George W Bush, clerked for the late Justice Scalia and it appears the apple did not fall far from the tree.
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Student Debt in America Has Hit a New Record

(Financial Advisor) By Shahien Nasiripour, February 17, 2017 – Total U.S. student debt hit a record $1.31 trillion last year, the 18th consecutive year Americans' education debt rose, according to the Federal Reserve Bank of New York. Outstanding loans taken out for higher education have doubled since 2009, data show. No other form of household debt has increased by as much since then. In fact, of the six major categories of consumer debt tracked by the New York Fed, only student loans and auto debt have increased since year-end 2008 (total auto loans are up 46 percent). Total household debt has fallen by 1 percent.
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Cloud Accounting and Continuous Closing Poised to Disrupt

(CGMA Magazine) By Andrew Kenney, February 22, 2017 – Companies are increasingly replacing rigid closing cycles with "continuous close" approaches that use automation to speed business processes. That’s one finding of an accounting-focused survey of executives by interRel Consulting, which specializes in analytics and business intelligence. Aiming to identify “disruptive” trends, the company asked about data management technology, forecasting strategies, and more.
readmore

 

Processing Through Your Firm’s Biggest Dangers

(Boomer Consulting Blog) By Deanna Perkins, February 14, 2017 – During visioning sessions with clients, we walk them through a DOS Exercise. DOS stands for Dangers, Opportunities and Strengths. This exercise helps them to think through what strengths their firm currently has, what opportunities they can develop for future growth and what dangers they are facing. Dangers are what keeps them up at night - their biggest challenges. Today I want to walk you through a process to think about your firm’s dangers. It starts by working through the scope of the danger, thinking about the business reasons surrounding it and the personal impacts this danger has directly on you and your team.
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Database Naming Engagement Partners Mushrooms with New Filings

(Compliance Week) By Tammy Whitehouse, February 22, 2017 – The database created by regulators to identify engagement partners overseeing public company audits is growing, with engagement partners on about 175 public company audits now identified. “AuditorSearch” is the serial-marked public database created by the Public Company Accounting Oversight Board to assemble audit firm filings of Form AP. After years of effort to pull back the curtain and reveal who oversees public company audits, the PCAOB adopted a requirement for audit firms to file Form AP at the completion of each public company engagement to provide the name of engagement partners as well as information on others from outside the principal audit firm who contributed to the audit effort. Audit firms are required to file Form AP to name engagement partners for audit reports issued on or after Jan. 31, 2017. Firms have another six months after that date before they are required to provide information on other accounting firms that participated in the audit.
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Australian Tax Lawyer Built an AI Tax Research Assistant That Will Never Get Sick of Your Questions

(Going Concern) By Caleb Newquist, February 15, 2017 – Say hi to Ailira, everyone, aka “Artificially Intelligent Legal Information Resource Assistant.” She’s here to help with all your tax research needs. Well, in Australia, anyway. Ailira, or “Artificially Intelligent Legal Information Resource Assistant” is so clever at tax that her creator believes she could help prompt the end of human tax agents. And within two months, she will answer questions in other areas of Australian law.
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Household Debt is Rising, but Consumers in Better Shape

(ThinkAdvisor) February 16, 2017 – Household debt has risen to levels not seen since the financial crisis, but household balance sheets today are in much better shape, according to the New York Fed’s latest Quarterly Report on Household Debt and Credit (.PDF).

While household debt rose $460 billion to $12.58 trillion as of year-end 2016, delinquency rates were under 5% compared to over 8.5% in the third quarter of 2008, after which they continued to rise.

In addition, mortgage debt and home equity lines of credit (HELOC), which drove the debt boom during the financial crisis, peaking at 79% of household liabilities, fell to 71%.

Also, according to another New York Fed report, focusing on the "home ownership gap," the number of households who owe more on their mortgage than their house is worth dropped to 1.5 million, down from an estimated 10.5 million in 2009, and the percentage of homeowners with positive equity in their homes rose. It was 63% as of the end of 2015 compared with about 53% in 2009.

"Debt looks very different in 2016 than it did the last time we saw this level of indebtedness," according to the New York Fed’s debt update.

Then, housing-related debt was the biggest burden for consumers, but as of year-end 2016, only 1.6% of mortgage balances were 90 days or more delinquent compared with 3.8% of auto loan balances, 7.1% of credit card balances and at least 11.2% of student loan debt (Fed economists note the rate could be much higher because loans in deferment, grace periods or forbearance are excluded from the repayment cycle).

"There have been shifts in the way American households borrow," the Fed economists wrote.

Mortgage balances, however, remain the largest component of household debt, increasing $130 billion from the third quarter to $8.48 trillion as of year-end 2016, while HELOC balances were little changed at $473 billion.

Balances on credit cards debt grew by $32 billion followed by student loan debt, up $31 billion, and auto loans, up $22 billion.

Fed economists attributed the growing balances to the extension of credit for new loans. Auto loan originations in the fourth quarter, for example, reached $142 billion, their highest level since the Fed began collecting the data 18 years ago, while mortgage originations, which include refinanced loans, rose $617 billion, their highest level since the beginning of the Great Recession.

But while credit was extended to consumers, not all qualified for new loans because credit requirements were tightened. The median credit scores for new home loans rose to 763 and for new auto loans to 700.

In addition to shifts in the way consumers borrow, there are also shifts in the way banks lend.

 

 

 

 

IRS Announces Proposed Partnership Audit Regulations Which Impact Limited Liability Companies and Partnerships

(JDSupra Business Advisor) By John Waters, February 17, 2017 – The Internal Revenue Service (IRS) has released Proposed Regulations under Section 1101 of the Bipartisan Budget Act of 2015 (BBA), which provide that for tax years beginning after December 31, 2017, all entities taxable as partnerships (including limited liability companies) will be subject to a centralized audit regime which will make the partnership liable for taxes relating to adjustments to its income, gain, deduction, loss or credits, unless the partnership is eligible to (and elects out) of that regime in the manner described in the Proposed Regulations or elects in the manner described in the Proposed Regulations to pass the adjustments to the persons who were partners (or members) during the tax year which resulted in the tax adjustment.

Key Changes

The centralized audit regime outlined in the Proposed Regulations modifies prior law in several key respects:

  • All partnerships are subject to the new audit regime, except for "eligible partnerships" (as described below) that elect out of the new audit regime in the manner described in the Proposed Regulations. Under prior law, small partnerships having 10 or fewer partners each of whom is an individual (other than a nonresident alien), a C corporation, or an estate of a deceased partner were automatically excluded from the partnership level audit regime. That automatic exclusion has been eliminated.
  • Adjustments to all items of income, gain, deduction, loss, and credit are subject to the centralized audit regime. This eliminates the distinction under prior law between so-called "partnership items," which were subject to partnership level audits, and "nonpartnership items" which were not.
  • The partnership will be liable for an imputed tax (based on the highest individual rate or corporate rate, as applicable) resulting from an adjustment to the partnership’s income, gain, deduction, loss, and credit, unless the partnership elects to pass the adjustment to the persons who were partners in the tax year which was the subject of the audit and provide notice to them of such election in the manner described in the Proposed Regulations. If such election to pass the adjustment to the partners is made, those partners are charged applicable penalties and an additional two (2) percentage points of interest over the normal underpayment rate on their shares of the adjustment.
  • A partnership may request a reduction of an imputed tax underpayment to the extent the partnership can show to the IRS under procedures described in the Proposed Regulations that a portion of the adjustment is allocable to a tax exempt partner or C corporation or that a portion of any capital gain or qualified dividend included in the adjustment is allocable to an individual partner.
  • A partnership that discovers an error on a prior return may file an administrative adjustment request (AAR) with the IRS to correct the error and either pay the resulting tax deficiency directly or pass the tax adjustment through to the partners who would pay tax on their shares of the adjustment, except that the additional two (2) percentage points of underpayment interest would not be charged to those partners if that occurs. A partnership may not file an AAR with respect to a tax year if the IRS has mailed a notice of an administrative proceeding concerning that year.
  • A partner who treats any tax item from the partnership inconsistently with the partnership’s tax treatment of that item will generally be treated as if the partner made a math or clerical error on the partner’s return and the IRS will be permitted to immediately assess and collect the tax deficiency relating to that item.
  • A partnership must designate a "partnership representative" annually on its tax return who will have the sole authority to represent the partnership in any audit or proceeding and to bind the partnership and partners to all settlements, adjustments, elections, and extensions of the period of assessment. Under prior law, while a partnership would have a "tax matters partner" to represent it before the IRS in a partnership level proceeding, partners were required to be given notice of a partnership proceeding and allowed to participate.
  • The partnership representative does not have to be a partner and can be any person or entity so long as such representative has a substantial presence in the United States. A person generally has a "substantial presence" in the United States if the person (i) is reasonably available to meet in person with the IRS in the United States; (ii) has a U.S. street address and telephone number with a U.S. area code where the person can be reached during normal business hours; and (iii) has a U.S. taxpayer identification number. This changes prior law which required a partnership’s "tax matters partner" to be a general partner of the partnership and which specified which general partner would be the tax matters partner when there was more than one general partner.
  • If a partnership fails to designate a partnership representative or a partnership representative resigns or is no longer eligible to serve, the IRS may designate a person to serve as partnership representative. In selecting a partnership representative, the IRS may consider whether there is a suitable partner of the partnership either from the tax year under audit or current year. The IRS can also consider: (i) the views of the partners holding a majority interest; (ii) the general knowledge of the proposed representative as to tax matters and administrative operation of the partnership; (iii) the person’s access to the books and records of the partnership; and (iv) whether the person is a United States person.

Eligibility to Elect Out of Centralized Audit Regime

Only an "eligible partnership" may elect out of the new centralized audit regime.  An "eligible partnership" is a partnership that during a relevant tax year has solely "eligible partners" and is required to furnish no more than 100 "statements" (Schedule K-1 forms) to those partners for that year. If a partnership has an S corporation as a partner, Schedule K-1 forms required to be furnished by that S corporation to its shareholders are counted as statements provided by the partnership.

Eligible partners are individuals, C corporations, foreign entities that would be treated as C corporations if they were domestic entities, S corporations and estates of deceased partners. The Proposed Regulations clarify that REITs and tax-exempt organizations classified as corporations are considered corporation eligible partners. The Proposed Regulations also clarify that the following entities are not "eligible partners" (i.e., the partnership could not elect out if it has any of the following partners): a partnership, a trust, a foreign entity that would not be considered a C corporation, a disregarded entity or estate of an individual other than a deceased partner.

The Proposed Regulations clarify in an example that a disregarded entity is not an eligible partner, even if wholly owned by an individual. The Proposed Regulations also clarify that an S corporation is an eligible partner even if it has shareholders that would not be eligible partners if they held their interests in the partnership directly (such as a qualified small business trust or disregarded entity).

Effect of Electing Out

The Proposed Regulations mention that an eligible partnership that elects out of the centralized audit regime is subject to the pre-TEFRA audit procedures whereby the IRS must separately assess tax with respect to each partner under the deficiency procedures under subchapter B of chapter 63 of the Internal Revenue Code of 1986, as amended.

Issues to be Addressed

In view of the potential liability of a partnership (and indirectly its current partners) for imputed taxes from adjustments that may relate to a prior tax year and the power conferred upon partnership representatives under federal law to solely represent the partnership in any audit or proceeding and to bind the partnership and partners to all settlements, adjustments, elections, and extensions of the period of assessment, partnerships, and entities taxed as partnerships should consider addressing in their partnership agreement or operating agreement before December 31, 2017: (i) the manner of selection of their partnership representative; (ii) responsibility (as among current and former partners or members) for costs and taxes relating to partnership audits and deficiencies; (iii) internal approval requirements for actions by the partnership representative, including, but not limited to, tax settlements, administrative adjustment requests and election to pass adjustments to partners; and (iv) whether the partnership (if an eligible partnership) will elect out of the centralized audit regime.

 

 

 

 

 

Conservative Judge Okays Huge Roth IRA Tax Shelter, Slams IRS Substance Over Form Attack

(Forbes) By Peter J. Reilly, February 20, 2017 –Judge Jeffrey Sutton is confirming his status as "the intellectual engine behind a conservative movement of the jurisprudence of the Sixth Circuit" in Summa Holdings vs CIR.  The opinion limits the use by the IRS of the "substance over form doctrine" as writing for a three judge panel he overturns the decision of Tax Court Judge Kathleen Kerrigan, who was appointed by President Obama.  Judge Sutton, appointed by George W. Bush, clerked for the late Justice Antonin Scalia and it appears the apple did not fall far from the tree. In 2014 Judge Sutton wrote the Sixth Circuit opinion that upheld bans on same-sex marriage.

Clever Maybe Too Clever

The Benenson family had used a clever technique to shelter a large amount of capital from future taxation by combining two disparate tax saving provisions.  DISCs allow corporations to avoid corporate income tax on income attributable to export earnings by distributing the earnings to shareholders (That is an extreme oversimplification).  The earnings of Roth IRAs are never subject to tax even when they are distributed to the account holders.  Unlike regular IRAs there is no deduction on contribution. There are pretty tight limits on how much can go into a Roth IRA.

Congress noted that the DISC deal was a little too rich when the shareholder is exempt, so DISC dividends are subject to the tax on unrelated business taxable income, which really takes most of the fun out of them for regular IRAs. There is the same drawback for Roth's, but DISC dividends allow a lot of money to flow into a Roth and the earnings on that money will never be subject to tax.  And the clever combination of the two techniques allowed two Berenson Roth accounts to accumulate millions of dollars.  The dollars going in were post tax dollars, but future earnings will never be taxed.  Very clever.

Too clever by a half as far as the IRS was concerned.  The IRS held that the substance of the transaction was dividends to the Roth beneficiaries who then contributed the money to the Roths.  Of course, those contributions were far beyond the Roth limits making them subject to excise tax.  There were other adjustments.  When a plan like this is held invalid, it is like unscrambling an egg.

The taxpayers went to Tax Court where Judge Kerrigan, as noted, ruled in favor of the IRS.

Section 995(g) was enacted in 1988, almost 10 years before the enactment of the Roth IRA provisions, which were enacted as part of the Taxpayer Relief Act of 1997, sec. 302. They became effective for tax years beginning after December 31, 1997. Id. sec. 302(f), 111 Stat. at 829. Congress could not have been aware of the type of abusive transaction involving Roth IRAs at issue here at the time of enactment of section 995(g).

It Is What It Is

Judge Sutton, however, thinks that the IRS has exceeded its authority.

In today's case, however, the Commissioner of the Internal Revenue Service denied relief to a set of taxpayers who complied in full with the printed and accessible words of the tax laws. The Benenson family, to its good fortune, had the time and patience (and money) to understand how a complex set of tax provisions could lower its taxes. Tax attorneys advised the family to use a congressionally innovated corporation—a "domestic international sales corporation" (DISC) to be exact—to transfer money from their family-owned company to their sons' Roth Individual Retirement Accounts. When the family did just that, the Commissioner balked. He acknowledged that the family had complied with the relevant provisions. And he acknowledged that the purpose of the relevant provisions was to lower taxes. But he reasoned that the effect of these transactions was to evade the contribution limits on Roth IRAs and applied the "substance-over-form doctrine,"  .....

Each word of the "substance-over-form doctrine," at least as the Commissioner has used it here, should give pause. If the government can undo transactions that the terms of the Code expressly authorize, it's fair to ask what the point of making these terms accessible to the taxpayer and binding on the tax collector is. "Form" is "substance" when it comes to law. The words of law (its form) determine content (its substance). How odd, then, to permit the tax collector to reverse the sequence—to allow him to determine the substance of a law and to make it govern "over" the written form of the law—and to call it a "doctrine" no less.

As it turns out, the Commissioner does not have such sweeping authority. And neither do we ......

It's one thing to permit the Commissioner to recharacterize the economic substance of a transaction—to honor the fiscal realities of what taxpayers have done over the form in which they have done it. But it's quite another to permit the Commissioner to recharacterize the meaning of statutes—to ignore their form, their words, in favor of his perception of their substance.

Judge Sutton does not really seem to care whether Congress intended taxpayers to be able to use DISCs to skirt limits on Roth funding.

If Congress sees DISC–Roth IRA transactions of this sort as unwise or as creating an improper loophole, it should fix the problem. Until then, the DISC will continue to provide tax savings to the owners of U.S. export companies, just as Congress intended—even if subsequent changes to the Code have increased the scale of the savings beyond Congress's original estimation. The last thing the federal courts should be doing is rewarding Congress's creation of an intricate and complicated Internal Revenue Code by closing gaps in taxation whenever that complexity creates them.

The Problem

Wholesale rejection of the substance over form doctrine can end up disproportionately favoring those that have the "time and patience (and money)" to construct hyper technical arguments that arguably follow the Code - maybe.  This could be a set up for another raid on the Treasury like the one that was engineered by law firms and the Big 4 in the nineties and around the turn of the millennium.  See Confidence Games by Tanina Rostain and Milton Regan.

Classical Reference

The first paragraph of the decision made it irresistible to me.  As part of making the point that the law is what it is (See Reilly's First Law of Tax Planning) relates an anecdote about a Roman emperor.

Caligula posted the tax laws in such fine print and so high that his subjects could not read them. Suetonius, The Twelve Caesars, bk. 4, para. 41 (Robert Graves, trans., 1957). That's not a good idea, we can all agree. How can citizens comply with what they can't see? And how can anyone assess the tax collector's exercise of power in that setting? The Internal Revenue Code improves matters in one sense, as it is accessible to everyone with the time and patience to pore over its provisions.

Caligula, who reigned for four years gets a pretty bad rap for "cruelty, sadism, extravagance, and sexual perversity", but maybe he was just trying to make Rome great again and didn't want people wasting time reading tax laws.  He could just tell them what they owed and that was it.  Simple.

As it happens, this is the only time that Caligula is mentioned in all the body of tax authority available to me (which is pretty extensive).  You will find references to Caligula XXI, but that was a topless club, that seems to have had more than its share of tax troubles.

Other Coverage

Ed Zollars has a good summary in Current Federal Tax Developments.  Lorraine Bailey has a piece titled Sixth Circuit Upholds Tax Loophole for the Rich in the Courthouse New Service.

Law 360 interviewed with Neal Block of Baker McKenzie LLP, which represented the taxpayers.

"Important to this case is the fact that the [Internal Revenue] Code, regulations, prior case law and now this case emphasize that commissions to DISCs owned by IRAs, paid under the code’s safe harbor rules, and the subsequent dividends from the DISCs are immune from disqualified transactions and substance over form recharacterization," Block said while adding that the IRS has historically used "baseless" threats of litigating DISCs that include an IRA, to discourage taxpayers from using them.

I'm expecting that there might be more commentary on this case and I may revisit it.

 

 

 

 

 

Student Debt in America Has Hit a New Record

(Financial Advisor) By Shahien Nasiripour, February 17, 2017 – Total U.S. student debt hit a record $1.31 trillion last year, the 18th consecutive year Americans' education debt rose, according to the Federal Reserve Bank of New York (Quarterly Report on Household Debt and Credit .PDF ).

Outstanding loans taken out for higher education have doubled since 2009, data show. No other form of household debt has increased by as much since then. In fact, of the six major categories of consumer debt tracked by the New York Fed, only student loans and auto debt have increased since year-end 2008 (total auto loans are up 46 percent). Total household debt has fallen by 1 percent.

Close to one-quarter of student debtors whose bills have come due are either in default or at least 90 days late on their required monthly payments, New York Fed data suggest. Delinquencies have remained stubbornly high, despite attempts by the former Obama administration to make loan payments more affordable. The federal government owns or guarantees more than 90 percent of all student debt.

The rise in student debt worries federal regulators responsible for policing financial markets. During the Obama administration, authorities cited student debt as a risk that could slow U.S. economic growth. President Donald Trump decried student indebtedness on the campaign trail, likening it to an "anchor" that prevents Americans from advancing.

The problem could be even worse than the New York Fed's data suggest. The report is based on a sample of household credit reports, which regulators have found are often filled with errors. The Federal Reserve Board in Washington has total student debt pegged higher, at $1.41 trillion. 

The dearth of good data prompted the federal Consumer Financial Protection Bureau on Thursday to announce a proposal to collect more detailed information from the nation's biggest student loan companies.

There was some good news in the New York Fed report. Total student debt only increased by 6.3 percent compared with last year, the smallest annual increase in data going back to 2003.

 

 

 

 

 

Cloud Accounting and Continuous Closing Poised to Disrupt

(CGMA Magazine) By Andrew Kenney, February 22, 2017 – Companies are increasingly replacing rigid closing cycles with "continuous close" approaches that use automation to speed business processes.

That’s one finding of an accounting-focused survey of executives by interRel Consulting, which specializes in analytics and business intelligence. Aiming to identify "disruptive" trends, the company asked about data management technology, forecasting strategies, and more.

"In the last 10 years, we’ve seen companies that were market leaders get left behind as a result of external disruptions in business models and markets," Edward Roske, CEO of interRel, said in a news release. Now disruptive change is happening inside companies as new technology allows dramatic changes to planning, reporting, and analysis processes, according to Roske.

The study included responses from more than 250 companies across 18 industries and 13 countries. The companies with the shortest closing times were in telecommunications, technology, and manufacturing, while some of the slowest were in health care and media, the research found. Companies have sped closing periods by replacing manual processes with automatic ones and improving processes and technology.

Continuous Forecasting

Forecasting also is moving to a more continuous model. About 44% of the companies surveyed use rolling forecasts, with most looking at planning horizons ranging from 12 to 24 months.

The "bottom-up" approach to forecasting was by far the most popular, with nearly 80% of companies reporting its use, followed by driver-based, trend-based, and top-down forecasting.

Those more flexible planning capabilities may also be allowing some organizations to account better for changing business scenarios. More than 30% of survey respondents reported the use of scenario planning, a method of preparing for multiple possible events and outcomes, which interRel expects will become "dominant" in the next five years.

Cloud technology adoption was most frequently reported by survey respondents whose companies have more than $250 million in annual revenue. Companies that use cloud platforms also are more likely to have real-time reporting, according to the study.

A Shift in Responsibility

Reporting has become the domain of financial planning and analysis, with 59% of businesses responding in the survey that it’s owned by FP&A. This is a major shift from a decade ago, when information technology professionals owned more of the reporting function, according to interRel.

Data management, meanwhile, is expected to move more towards pre-built products. InterRel’s study suggests that "black box" products that require heavy IT involvement will decline in favor of "technology agnostic" solutions.

Ultimately, though, technology isn’t the only factor. InterRel’s overriding advice is that context and relevance ultimately govern how useful new streams of data can be. Data should be combined holistically, rather than separated by source. Reports should include analysis that guides users through data. And every report, the company argues, should lead either to a deeper question or to a meaningful action.

 

 

 

 

 

Processing Through Your Firm’s Biggest Dangers

(Boomer Consulting Blog) By Deanna Perkins, February 14, 2017 – During visioning sessions with clients, we walk them through a DOS Exercise. DOS stands for Dangers, Opportunities and Strengths. This exercise helps them to think through what strengths their firm currently has, what opportunities they can develop for future growth and what dangers they are facing. Dangers are what keeps them up at night - their biggest challenges. Today I want to walk you through a process to think about your firm’s dangers. It starts by working through the scope of the danger, thinking about the business reasons surrounding it and the personal impacts this danger has directly on you and your team.

When looking at the scope of a danger, you need to develop the starting and ending point on which you’re focused. Don’t say a danger is, "We need to be more strategic." Be more specific than that. Why do you think your firm is not being strategic? What specific examples are you thinking about? This is where you may say,

"Well, we have three partners, and they all have their own thoughts on where this company should be in three years."

Now this is a good start towards figuring out that scope of your danger. Continue asking yourself questions to give you framework before moving to the next step of the process. Think about the various discussions your firm has had about this particular issue. Think about the various ways you may, or may not, have tried to solve this in the past.

"A couple of years ago, we tried to sit down and have everyone write out their thoughts on the future of the firm. We each shared our plans to see where there might be similarities and differences, but once the exercise was done everyone thought their plan was the best one and we couldn’t come to an agreement. Everyone left the meeting continuing to do the same things they’d always done."

Once you have a good idea of what your danger is, and can picture several examples of why this needs some attention, you’re ready to look at the business reasons for why this needs to be solved. Think about the ways you’ve tried to solve it in the past and why you don’t believe that they worked. How much has this danger cost the firm by not being resolved? What negative impact(s) has this had on the firm?

"It didn’t work because there was no one helping to run the meeting and facilitate constructive discussion to get everyone talking about what was best for the firm and the team. This has cost us a lot of time, energy and even talent. Since the team doesn’t have a clear vision of where the firm is heading, and how they are going to fit in the picture in the future, we’ve had huge turnover at all levels. During exit interviews, the number one reason individuals left was a lack of vision and direction from the top down."

Once you’ve gone through the second step of the process, you’re ready to look into how this personally impacts you and your team. In the above example, we already know that it’s affecting the team with turnover, but think through how this is affecting you directly. What frustrations does this danger cause you? How does this prevent you from getting your job done? If you have these frustrations, others on your team have them as well.

"It’s frustrating not having a good picture of the future since I don’t know how to prioritize the work I’m given. It’s hard for us to stay motivated since we don’t know the end game and what we’re working towards. It can also be confusing since one partner asks you to do one thing saying it’s the priority, but then another will come and ask for a different project to be placed as your top priority. We never seem to get anything done."

Now that you’ve worked through these three steps you should be able to summarize the scope of the danger, how it’s affecting the business and how it’s personally affecting you and the rest of the team. From here you can brainstorm the best ways to resolve this danger and make that a key strategic objective over the next year.

 

 

 

 

 

Database Naming Engagement Partners Mushrooms with New Filings

(Compliance Week) By Tammy Whitehouse, February 22, 2017 –The database created by regulators to identify engagement partners overseeing public company audits is growing, with engagement partners on about 175 public company audits now identified.

"AuditorSearch" is the serial-marked public database created by the Public Company Accounting Oversight Board (PCAOB) to assemble audit firm filings of Form AP. After years of effort to pull back the curtain and reveal who oversees public company audits, the PCAOB adopted a requirement for audit firms to file Form AP at the completion of each public company engagement to provide the name of engagement partners as well as information on others from outside the principal audit firm who contributed to the audit effort.

Audit firms are required to file Form AP to name engagement partners for audit reports issued on or after Jan. 31, 2017. Firms have another six months after that date before they are required to provide information on other accounting firms that participated in the audit. As such, the database so far contains only engagement partner information. Firms are required to file Form AP with the PCAOB within 35 days of an audit report being filed with the Securities and Exchange Commission.

When the PCAOB began its pursuit of greater transparency around engagement partners, it initially proposed requiring engagement partners to sign audit reports, much the way CEOs and CFOs must certify financial statements with their personal signatures. The audit profession and its legal counsel countered that the signature requirement, or even naming engagement partners in audit reports, would unfairly increase their personal liability.

The PCAOB responded by shifting to a separate filing through the new Form AP. The added benefit for investors or others interested in researching the information is that the PCAOB decided to make the Form AP filings accessible through a searchable database, something that might not have happened under a signature or naming requirement on the face of the audit report.

With the requirement in effect only a few weeks, the database contained the names of about 175 issuers with their engagement partners identified. Big 4 firms account for the vast majority of filings so far, with Deloitte and PWC identifying more than 40 engagement partners each, EY nearly 40, and KPMG about 20. In addition to identifying engagement partners on issuers of securities, audit firms also must identify engagement partners on audits of investment companies and employee benefit plans, so the database also contains those details as well.

The database identifies engagement partners on some major corporate audits such as General Motors, GM Financial, Comcast, Boeing, NBC, Dow Chemical, Facebook, Lockheed Martin, Amazon, Southwest Airlines, PayPal, BioGen, Ford, Goodyear, DuPont, Mastercard, 3M, eBay, Corning, Raytheon, T-Mobile, and many others. The majority of Big 4 engagement partners named in the database so far are attached to only one public company audit, except for a handful of cases where the same name is given for different entities that are related.

PwC, for example, names John Koppin as the engagement partner for both DTE Energy Co. and DTE Electric Co. Likewise, Kristina Etherington at Deloitte oversees audits for both Caesars Acquisition Co. and Caesars Growth Properties Holdings. One smaller firm, Freed Maxick, names one engagement partner for four different audits, three of them related entities.

The PCAOB’s website says the database is updated daily.

 

 

 

 

 

Australian Tax Lawyer Built an AI Tax Research Assistant That Will Never Get Sick of Your Questions

(Going Concern) By Caleb Newquist, February 15, 2017 – Say hi to Ailira, everyone, aka "Artificially Intelligent Legal Information Resource Assistant." She’s here to help with all your tax research needs. Well, in Australia, anyway:

Ailira, or "Artificially Intelligent Legal Information Resource Assistant" is so clever at tax that her creator believes she could help prompt the end of human tax agents. And within two months, she will answer questions in other areas of Australian law.

Ailira is the brainchild of Adelaide-based tax lawyer Adrian Cartland. The story goes that with no professional tax background, his girlfriend Sarah, a speech pathology student, scored 73 per cent on a first-year university tax exam with just 30 minutes’ training and Ailira at her side.

"Your tax agents will probably be gone within five years," said a confident Mr Cartland.

Gauntlet. Thrown. Also, please gaze upon this photo of Adrian Cartland looking smug about his creation. I don’t blame him! It sounds pretty useful.

Ailira is especially interesting because, although she functions like a search engine, you can ask her questions like you ask your know-it-all colleague.

"The one thing we had difficulty with is that people are so used to doing keyword searches that they struggle to ask a question as you would to another human.

"So we did some upgrades of Ailira’s interface to encourage people to treat Ailira like a human, more in plain English."

Right, except that "plain English" when asking questions about taxes isn’t really English.

But no matter, the key thing about artificial intelligence for tax research is that it’ll never get tired of answering your boring questions. Even your smartypants colleague will eventually want to go home.