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Business Tax 2016

Business Tax 2016 Issue

New Tax Rules for Business Tax Returns

Sidney Kess, CPA, J.D., LL.M.

The Protecting Americans from Tax Hikes (PATH) Act (P.L. 114-113), which was signed into law on December 18, 2015, contains over 100 tax provisions. The law makes permanent more than...

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White Paper Showcase

How to Get More Local Clients

CPASiteSolutions 8 2016When people search Google for a service provider, over 85% don’t look past the first page of results. Written for busy accountants, this whitepaper walks you through the basics of local search engine optimization and provides tips that you can put to use today to increase your rankings and get your firm in front of more prospective clients.

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Tax Strategies

Top 5 Tax Issues for Retirement

Sidney Kess, CPA, J.D., LL.M.

Retirement is life changing in so many ways, and it is different for different people. For some it means downsizing and relocating. For others it means reduced work schedules, ceasing...

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Client Tax Tip

Contribute An Extra $1,000 to Your IRA and An Extra $6,000 t…

Julie Welch, CPA, CFP

If your client is age 50 or older, he or she may be able to contribute extra amounts to their retirement plan. While these are called “catch-up” contributions, a taxpayer...

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Financial Planner

Department of Labor Releases New Regulations on Overtime Rul…

Jerry Love, CPA/PFS, CFP, CVA, ABV, CITP, CFF, CFFA

It has taken the Department of Labor (DOL) almost two years to release the final regulations requested by President Obama. The DOL press release announcing the final regulations indicates: “This long-awaited...

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Feature Stories

Updating Your 1040 Tax Software

Joshua Fluegel

A CPA’s practice thrives on creating a process and then optimizing it for speed and efficiency. The striving for this goal could lead many to neglect a possibly aging technological...

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Editor Blog

Tax Resolution Services Prove Valuable

T. Steel Rose, CPA, ACS Editor

Tax Resolution is a fascinating way to expand your firm as long as you don’t overpromise expected results. CPAs, attorneys and EAs are in a unique position. Only these credentialed...

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Technology Advisor

What is Fog Computing?

Rick Richardson, CPA, CITP, CGMA

By now, you've probably heard of cloud computing. That’s where companies rent shared software, computers, and storage instead of buying and installing it all themselves in private data centers. They...

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Tax Checklist

Practice Management Tips on Serving as Monitor for Aging Cli…

Martin M. Shenkman, CPA, MBA, PFS, AEP, JD

CPA practices, large and small, should retool to capitalize on new services the aging population will demand. The nature of services must change because CPAs, as the trusted adviser, will...

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Crowdfunding for CPAs

To get to the essence of crowdfunding for CPAs I talked with Sherwood Neiss, the entrepreneur, who pioneered the legislation, Sara Hanks, a due diligence attorney, and Richard Salute, the CPA who may have the most relevant experience about this new practice area for CPAs.

Equity crowdfunding was made possible by the JOBS Act signed into law in April to allow individuals to buy equity stakes in emerging growth companies, who will be able to raise up to $1,000,000. The SEC has concerns about fraud now that raising capital from the general public will become legal in 2013, the first time in 80 years. Therefore, audits by CPAs are required for capital raised over $500,000. Reviews are required for capital raised over $100,000, up to $500,000.

From Sherwood Neiss, I learned that the JOBS Act rules are expected to remain largely intact despite the burden to the SEC. Neiss is one of three entrepreneurs that literally provoked an Act of Congress to obtain SEC exemptions for these public capital formations of under $1,000,000 on websites.

“The review area will be a boon to CPAs who prepare and review financials for integrity and comprehensiveness,” said Neiss.

Neiss expressed the same consternation as other people I talked with who are entrepreneurs. “How are CPAs going to do an audit for a startup since it is hypothetical?” he asked.  “The CPA industry will provide guidelines,” he said.

In my discussion with CPAs, an audit remains an audit, as does a review. “There is no way to modify how you perform attestation,” Neiss believes. “The onus will be on the funder that the financials have been stated accurately. They will need the income statement, a balance sheet and cash flow statement.”  It is Neiss’ opinion that, “The CPAs who want to get involved in these will have to find a way to keep the fees lower, to make more, later. This is a brilliant add-on component. It is essentially a private offering of public shares.”

Companies can be getting ready right now. “Building a business plan and a social network with an executive summary of financials can occur, but we all must wait on the SEC to finalize rules,” Neiss advised. As the crowdfunding framework now exists, Neiss stated, “The investment opportunity is presented by the entrepreneur. They must hit 100% of their [capital raising] target or they don’t get the money.” As to how much equity they can give up, “There is no set standard,” Neiss said. Determining valuations is another area for CPAs with valuation credentials to play a role.

Neiss was motivated to do this with two other entrepreneurs because, “we all tried to raise capital after the 2008 meltdown and found out that it wasn’t there,” Neiss lamented.  “Five years ago you could not do this because Internet was not providing the sunlight to this,” Neiss said referring to Kickstarter.com, which is a platform used to raise money for products and intangibles but not equity. He recommended reviewing crowdcube.com, a site where equity is offered successfully, operating in the UK.

The players in the crowdfunding arena are similar to the roles played at investment banks: The issuers offer equity in their companies. The investors provide the capital. The CPAs provide some assurance. The new wrinkle is the website portals and other intermediaries who provide due diligence and other services. Each player will have to comply with important rules to protect investors and satisfy the SEC.

Companies that help issuers and portals with the required due diligence are already forming. An early pioneer is Sara Hanks, CEO of CrowdCheck. A securities lawyer for 30 years, Hanks was drawn to crowdfunding based on her interest in the need for “micro-due diligence for micro IPOs.”

“CPAs are going to play such an important role, and we are happy to help them,” said Hanks. “In the statute, there is a requirement for a background check and a securities regulatory check for the portals which is not a defined term of the SEC. The statute has to define ‘background check’ as well. The one thing people have to bear in mind is that the SEC has to issue rules and register the portals.”

Hanks described the CrowdCheck service as one that will help entrepreneurs put together, “the disclosure package of some kind to be posted on the portal and sent to the SEC.” Hanks helped me to get my head around all of the fees involved. “There is the disclosure process, the CPA, the escrow and some legal fees, possibly; as well as the merchant processing fees to be passed along to the issuers. There will also be portal fees, and PayPal fees,” said Hanks. “As it grows, these amounts will go down.” CrowdCheck will be looking for CPAs to provide audit services. “Some of these will be super startups, only a few weeks old,” said Hanks. “The SEC needs to provide some guidance to provide what they will audit.”

Realizing that the crowdfunding enthusiasts are not well versed concerning what it takes to provide the level of assurance that the SEC requires, I talked to CPA Richard Salute of JH Cohn. Salute has experience auditing SPACs, which are similar because SPACs are special purpose offerings raising blind pools of capital for issuers to then find businesses to acquire.

“The SPAC may only have founder stock, or founder stock and warrants,” explained Salute. “The financial statements, even though they are zeros, the offering is audited in accordance with GAAS.”

“Standards already exist,” said Salute. “The challenge that you have is an audit is an audit is an audit. These are risk based activities that require work even when there are narrow financial statements and internal controls. We should celebrate the standards, not reduce them.”