COCPA NewsAccount - 2014 - September/October Issue by Colorado Society of Certified Public Accountants

NewsAccount Colorado Society of CPAs

September/October 2014

Ta Da the Clown and CPA

Circular 230 Regs Revised

What a Million Dollars Can Do

A Long Story: CPA Turns 100

Michigan and the MTC

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Contents Features

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New Circular 230 Regs The final regulations took effect in June 2014. Make sure you know the new disclaimer requirements.

Who

Is This Clown?

At least one Colorado CPA knows the three golden rules of being a clown — because he is one.

Michigan and the MTC Aside from a possible refund opportunity in Michigan, why you should care about this tax case.

12 Making the Most of a Million

Ten years later, the Educational Foundation's Centennial Scholars Campaign continues to pay dividends for Colorado accounting students.

16 A Century of Service

Turning 100 hasn't stopped CPA Michael Kamin from wanting to continue to create things.

Departments

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2 Chair Column 24 Movers & Shakers 25 Classifieds Four Corners Chapter President Michelle Sainio and Past COCPA Chair Sidny Zink welcome Sheila Balzer to Durango during the 2014 Chair Tour.

Sept/Oct 2014 • www.cocpa.org •

Chair Column

NewsAccount

Easing on Down the Road

A bi-monthly publication of the Colorado Society of Certified Public Accountants Vol. 60, No. 3 September | October 2014

AICPA v. the IRS

Board of Directors Sheila M. Balzer Chair Steven R. Corder, Vice Chair Tawnya R. Ramirez, Treasurer Marc C. Hendrikson, Immediate Past Chair Mary E. Medley, Secretary Directors Victor A. Amaya, Craig A. Arfsten, Christine Benero, Kelly G. Boggs, Sharon S. Lassar, Mark J. Smith Editorial Board Jack Allgood, Kay R. Dragon, Patrick A. Lytle, Georgia Z. Phillips, Laura J. Theiss, Barbara J. Tedesko, R. Stephen Van Meter, Michael D. West Mary E. Medley, President/CEO Elizabeth M. Julin, Deputy Director Krista Flynt, Editor/Publisher Natalie G. Rooney, Contributing Writer NewsAccount (ISSN #10899952) is published bimonthly by the Colorado Society of Certified Public Accountants, 7887 E. Belleview Ave., Suite 200, Englewood, CO 80111. NewsAccount is published in January, March, May, July, September, and November and reports information, news, and trends in the accounting profession. The Colorado Society of CPAs assumes no liability for readers’ business decisions in reference to advertisements or other information included in this publication. Membership dues include a $9.90 one-year subscription to NewsAccount. Periodical postage paid in Denver, CO, and additional mailing offices. POSTMASTER: Send address changes to NewsAccount, Colorado Society of Certified Public Accountants 7887 E. Belleview Ave., Suite 200 Englewood, CO 80111 Net press run = 8,550 copies; sales through dealers and carriers, street vendors, and counter sales = 0; paid or requested mail subscription = 8,450; free distribution by mail = 50; free distribution outside the mail = 0; total free distribution = 50; total distribution = 8,500; office use, leftovers, spoiled = 350; returns from news agents = 0; total sum = 8,850; percent paid and/or requested circulation = 99%.

303-773-2877 • 800-523-9082 Fax: 303-773-6344 • cpa-staff@cocpa.org

NewsAccount is available online at www.cocpa.org.

• NewsAccount • Sept/Oct 2014

Alamosa

t’s easy to forget about what’s going on in the world outside our office windows when we’re caught up in day-to-day activities. This is one of the key reasons why the annual Chair Tour is such a special event. After spending time touring Colorado with COCPA CEO Mary Medley and Leslie O’Donnell, Member Development Coordinator, I have a renewed appreciation for the perspective that getting out of the office brings. The Chair Tour is a great way for the new chair to speak directly with COCPA members and to deliver the latest information about the profession on both the state and national levels. I’m grateful for the opportunity to share my thoughts, vision, and perspective with members in Boulder, Fort Collins, Pueblo, Colorado Springs, Aspen, Steamboat Springs, Grand Junction, Montrose, Durango, Alamosa, and Sterling. Here’s a brief rundown of the topics I discussed at each Chair Tour event. It’s a good cross section of what’s on COCPA members’ minds these days.

One topic of great interest is the AICPA’s recent action regarding the IRS’s new voluntary registration program for tax return preparers. While the AICPA has supported the Service’s overall goals to enhance compliance by tax return preparers and elevate ethical conduct, the AICPA believes the new rule is an unlawful exercise of government power. The Institute also is concerned that creating four new categories of tax return preparers (for a total of eight) will confuse consumers. As a result, on July 15, the AICPA filed suit in federal court to prevent the IRS from moving forward with its new program. Is the AICPA against having ethical, knowledgeable preparers? Of course not. But public confusion is a legitimate issue. In addition, the IRS didn’t follow appropriate regulatory protocol. Before filing the suit, the AICPA formally asked the agency to withdraw the new rule, consult with stakeholders, and use the tools and data already at its disposal to monitor unethical return preparers. This is a big issue for tax practitioners. While there is no resolution yet, we will be monitoring the situation and bringing you updates.

Colorado Department of Revenue COCPA members continue to be frustrated with the Colorado Department of Revenue (CDOR). While progress has been made over the past four years, members who deal with Enterprise Zone credit issues, and other credits requiring the attachment of additional information, are still having problems. Remember, the COCPA can assist you with specific client issues. If you need help, contact Mary Medley, mmedley@cocpa.org, who works directly with our CDOR liaison. This resolution process is a direct benefit of your COCPA membership, so be sure to use it if you need it!

The Future of Learning Task Force Through the AICPA’s Future of Learning Task Force, the Institute is leading an initiative on competency-based versus compliance-based learning. The task force’s four key recommendations are: • Innovate and experiment. • Ignite a passion for learning. • Make learning personal.

Pueblo

• Measure what matters. While there will be implementation challenges, in general the reaction and response from members is positive. I love it when our profession embraces change.

Recruiting and Retention Attracting and retaining top talent when your organization is outside of a major metropolitan area continues to present challenges. Members in Steamboat, Aspen, Alamosa, and Durango told me finding team members who are committed to a small town lifestyle is tough. I don’t have the answer, but know this is a consistent theme around the state among your peers.

Colorado Springs

Staying Connected I encourage you to stay connected to what’s going on at the COCPA so you can take advantage of all the opportunities and resources your membership offers. As an example, many of you who are tax practitioners missed notices about the spring CPE sale. I know tax season is a busy time — believe me, even as an auditor I get caught up in it, too! But don’t get so busy that you fall out of touch with what’s going on at your COCPA. We make a concerted effort to deliver relevant, timely information to you. Make your association a priority, regardless of the time of year. Read your e-mail, scan your NewsAccount — that hard copy on your desk or online, and visit www.cocpa.org.

Chair | Continued on 4

Grand Junction

Montrose Sept/Oct 2014 • www.cocpa.org •

Sterling Chair

| Continued from 3

You’ll find important information that can help you every day and bring value to you, your organization, and your clients. Thanks to all of you who took time out of your busy schedules to meet me as I traveled across our beautiful state. It meant a lot to me to meet so many of you and hear what you had to say. And for those of you who wondered what the final tally was on the animals Mary, Leslie, and I tracked on our Wildlife Lookout Tally, we spotted deer, antelope, marmot, ostrich, and alpaca, along with the expected horses, goats, and varieties of cow — no moose or bear, sadly. My guess is, if you have kids, you’ve played that game, too. Our state is a great one for CPAs and wildlife! s

Aspen

Steamboat Springs 4

• NewsAccount • Sept/Oct 2014

Email your suggestions to Chair Sheila Balzer at sbalzer@hhlbcpa.com.

Sterling Take a leader, an organizer, a driver, and a cooler. Mix in picturesque views and important information, plus materials, signs, a Bronco beanbag chair, and luggage. Pour into the COCPA vehicle, and you’ve got the initial ingredients for the 2014 Chair Tour with Sheila M. Balzer, CPA. Add dedicated COCPA members across Colorado, and the result is a summer filled with opportunities to share news of the profession, the COCPA, and future goals.

Aspen

Revised Circular 230

CAMICO Alert: Final Revised Regs Now in Effect

evised final regulations governing practice before the Internal Revenue Service (IRS) took effect, June 12, 2014. The regulations impact individuals who practice before the IRS and modify the standards governing written advice and other related provisions of the regulations. Most of the changes to Circular 230 are indeed welcome news for CPAs. The final regulations recognize that the Covered Opinion Rules are no longer necessary, and instead the Covered Opinion Rules have been replaced with new standards for issuing written tax advice. For example, it is no longer necessary to include a Circular 230 legend at the bottom of virtually every email tax practitioners send. The Office of Professional Responsibility (OPR) has issued a statement making it clear that if tax practitioners continue using disclaimers referencing “Circular 230” they will receive a “cease and desist” letter from the OPR. The “Circular 230 Disclaimer,” sometimes referenced as the “IRS Disclaimer,” is not to be confused with the following “Privileged and Confidential” disclaimer, which should still remain on all of your communications as this language helps to protect you in the event of an inadvertent breach of confidential communications to a wrong recipient: PRIVILEGED AND CONFIDENTIAL This communication and any accompanying documents are confidential and privileged. They are intended for the sole use of the addressee. If you receive this transmission in error, you are advised that any disclosure, copying, distribution, or the taking of any action in reliance upon this communication is strictly prohibited. Moreover, any such disclosure shall not compromise or waive the attorney-client, accountant-client, or other privileges as to this communication or otherwise. If you have received this communication in error, please contact me at the above email address. Thank you. Under the revised Circular 230 rules, tax practitioners must base their written advice on factual and legal assumptions, exercise reasonable reliance, and consider all relevant facts known or reasonably known to the practitioner. Additionally, tax practitioners must

use reasonable efforts to identify and ascertain facts relevant to written advice pertaining to federal tax issues. Some CPAs are evaluating the merits of just replacing the “Circular 230” disclaimer with a broader disclaimer. However, from a risk management perspective, a frequent concern relates to the unrestrained use of disclaimers on nearly every CPA communication regardless of whether such communication contains tax advice. The widespread overuse of such disclaimers can cause clients to ignore the disclaimer altogether. Furthermore, disclaimers have never been required in the context of other services since professional standards apply to the services that CPAs provide. Finally, if you take a position on a tax return or provide the services to which the disclaimer pertains, the value of the disclaimer is vastly diminished or becomes nonexistent. Given the concerns regarding the merits of this type of disclaimer, in CAMICO’s opinion the best practice would be to include in the body of the communication any specific limitations and caveats regarding the information presented. This practice requires professional judgment with each and every communication containing advice but would significantly increase the likelihood that these statements would provide some value to the CPA in the event of a claim or lawsuit. If a CPA still feels that the protective language of a more general disclaimer is desired in certain situations, the following points should be considered in developing and using such a disclaimer: • State that recipients should not rely on advice based on limited information. • Never reference “Circular 230” specifically and expand the disclaimer language to include accounting, business, and other advice offered by the firm. • Offer additional services if applicable to address the client’s particular factual situation. • Only use the disclaimer on emails or faxes when advice is contained in the message.

Below is sample disclaimer language that may be desirable to those perceiving a benefit from a protective footer: Disclaimer Any accounting, business, or tax advice contained in this communication, including attachments and enclosures, is not intended as a thorough, in-depth analysis of specific issues or a substitute for a formal opinion, nor is it sufficient to avoid tax-related penalties. If desired, (Firm) would be pleased to perform the requisite research and provide you with a detailed written analysis. Such an engagement may be the subject of a separate engagement letter that would define the scope and limits of the desired consultation services. CPAs wanting to further protect themselves from clients placing reliance on oral advice or on general communications may also want to consider updating their engagement letters with limiting language. It is important to note, however, that engagement letter language for this purpose will have little to no benefit in the event of a claim or lawsuit if, for instance, the CPA takes the position on the return without some documentation regarding the situation that gave rise to the position. CAMICO recommends the following clause be considered for future engagement letters: Sample Engagement Letter Clause While we are, of course, available to provide you with (accounting, tax, and business planning) services, it is our policy to put all advice upon which a client might rely into a written memorandum prior to you relying on such advice. We believe this is necessary to avoid confusion and to make clear the specific nature of our advice. You should not rely on any advice that has not been put into writing for you. More information can be found in the Treasury Department publication at www.irs. gov/pub/irs-utl/TD_9668_6-9-14_Cir%20 230_6-9-14_Final_Reg.pdf. CAMICO policyholders with questions regarding these new regulations or other risk management questions should contact the Loss Prevention Department at lp@camico. com, or call 800-652-1772 and ask to speak with a Loss Prevention Specialist. s Sept/Oct 2014 • www.cocpa.org •

Members Spotlight

Who Is This Clown? By day, he’s an easy-going managing partner of a local CPA firm. But when the holidays roll around, he says goodbye to his CPA persona and hello to his alter ego, a clown named TaDa, to entertain tens of thousands of people at Denver’s Parade of Lights. BY NATALIE ROONEY

Hiding under the greasepaint is COCPA member and past Board of Directors Chair Ronald L. Seigneur, CPA, ABV, CFF, ASA, CGMA, and total clown. But we mean that in the best possible way, because Seigneur isn’t just any clown. He’s part of the Distinguished Clown Brigade, which was launched in 2010 as a new addition to the Denver Parade of Lights and to fundraise for charities. The parade draws more than 375,000 people each year. And when someone suggested that the parade should add clowns to its already dazzling display of sparkling lights, marching bands, giant balloons, floats, and characters, the Downtown Denver Partnership asked, “Why not?” Seventeen board members served as the first clowns in 2010. The brigade grew as board members told and invited friends, morphing into the program it is today and raising tens of thousands of dollars. More than 55 clowns took part in the 2013 parade. When Seigneur heard about the Distinguished Clown Brigade, he knew it was his calling. “I had to be a part of it,” he says. After some phone calls and wrangling, Seigneur found someone, who must remain anonymous because that’s the way the Distinguished Clown Brigade rolls, who said she could get him an invitation to the group. Would-be clowns complete an application, and, if chosen, make a three-year commitment plus give a $500 charitable contribution annually. Seigneur handed over his donation and was ready to start clowning around. As the holidays and his clown debut drew near, Seigneur received an invitation to clown orientation. “It was hilarious,” he says. “At first, we all stood around enjoying

• NewsAccount • Sept/Oct 2014

the opportunity to meet each other without our clown makeup on. Then, the real fun began…” Many in the group have been in the clown brigade since its inception. “I was one of the rookie clowns last year,” Seigneur says. The orientation process includes choosing a clown costume. The Denver Center of Performing Arts provides all the costumes and makeup. “They have everything. Clown style hair, gloves, shoes, pants, shirts. All of the accoutrements,” says Seigneur. “They donate all the materials, makeup, and their time. It’s amazing.” The brigade next met for official training. “We needed to learn the three golden rules of being a clown,” Seigneur notes, in all seriousness: • If someone wants to take a picture, you put your hands up and wave them. Keep your hands high! • No tossing candy into the crowd. Too many lawyers if someone get hits in the eye. • If you approach someone, and there’s fear in their eyes, back away. There’s no time for clown therapy.

Seigneur did have some anxious moments when he realized he’d committed to the two-and-a-half mile walk with a bad knee, but nothing was going to keep him from the parade. “Everyone brings their family. For some people, this is the biggest part of their holiday celebration,” he says. “I hobbled, but it was so much fun.” Being a clown in the parade was “fabulous,” Seigneur says. “We were running back and forth, high-fiving and fist-bumping people. Everyone wants to take pictures. You’re just being happy. You’re making people smile.” And yes, there were a few who were afraid. “You just don’t get too close to them, per the clown rules,” he adds. The bitter cold weather last December didn’t deter him either. “I invested in some neoprene garb to keep me warm under my clown suit,” he laughs. “I had two layers under there and hand warmers.” Seigneur has every intention of staying with the brigade. “There’s no reason why I wouldn’t,” he says. “It’s fun. I’m a member of the Distinguished Clown Brigade. Not many people can say that!” s

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Sept/Oct 2014 • www.cocpa.org •

State and Local Taxes

What Happened In Michigan Will Not Stay In Michigan BY BRUCE M. NELSON, CPA

n July 14, 2014, the Michigan Supreme Court held that IBM could elect to use the Multistate Tax Commission’s (MTC) three-factor apportionment method to calculate the company’s 2008 Michigan Business Tax (MBT). This decision not only provides a refund opportunity in Michigan but also further complicates the already messy issues surrounding the MTC Compact. [International Business Machines Corp. v. Michigan, Dkt. No. 146440 (Mich. Sup. Ct., July 14, 2014)]. The MTC was created in 1967 to promote uniformity in apportioning multi-state corporate income tax. The U.S. Congress was threatening to enact federal legislation that would mandate a uniform apportionment formula — something the states did not want and believed an infringement on the principles of federalism. Creation of the MTC was, in part, a reaction to that threat. A key provision of the MTC Compact is an annual election that allows corporations to apply an equally weighted three-factor apportionment (payroll, property, and sales) rather than the state’s statutory apportionment rules. One of the most controversial questions today in state and local tax (SALT) is whether a state must allow the MTC apportionment method as an alternative to its own method. For Michigan, the answer is “Yes.” The MBT, which replaced the state’s Single Business Tax in 2008, had two components: a business income tax tied to federal taxable income and a modified gross receipts tax based on a taxpayer’s gross receipts less

• NewsAccount • Sept/Oct 2014

certain expenses. The Michigan Supreme Court addressed two issues. First, the Court rejected the Department’s argument that the MTC Compact had been repealed by implication when the state adopted the MBT. Second, the Court held that despite the MBT’s label as a gross receipts tax, it was an income tax as defined by the MTC Compact. The Court pointed out that when Michigan revised its tax structure in 1976 and again in 2008, the legislature specifically repealed prior and inconsistent tax provisions, but it did not expressly repeal the MTC Compact. The Court added that “repeals by implication” are disfavored by the courts and allowed “only when the inconsistency and repugnancy are plain and unavoidable.” In this case, the Court believed the Compact was not inconsistent with state law because by use of the words “may elect,” the Compact contemplated “a divergence between a state’s mandated apportionment formula and the Compact’s own formula. Otherwise, there would be no point in giving taxpayers an election between the two.” Whether Michigan will appeal to the U.S. Supreme Court remains to be seen, but it is unlikely the Court will take the case since it does not involve any constitutional issues. Rather, it's simply a matter of interpreting Michigan law. In any event, the relief to taxpayers may be slight. Michigan has a four-year statute of limitations, so 2008 will be closed for most taxpayers. However, there still may be opportunities for 2009 and 2010. In 2011, the Michigan legislature specifically amended the Compact’s election language. Thus, any refund opportunities for 2011 and forward will have to be based on some other argument than the one IBM used. Aside from a possible refund opportunity in Michigan, why should you care about this case? First, the Michigan decision is the first

time a state’s highest court has addressed the MTC Compact and its election provision. Second, Michigan is not the only state facing this issue. California, Texas, Minnesota, and Oregon are all in litigation over whether taxpayers may elect the MTC apportionment factor rather than the apportionment method prescribed by each state’s law. We will probably hear from California next. The California Court of Appeals, like the Michigan Supreme Court, ruled in the taxpayer’s favor but on different grounds. In short, the argument in the California Supreme Court is whether the state is bound by the Compact, which is a constitutional issue. Finally, the fundamental issue, whether a taxpayer may elect to use the MTC’s threefactor apportionment formula instead of the state’s prescribed formula, is particularly relevant for Colorado with its single salesfactor formula. Until Jan. 1, 2009, Colorado allowed corporations to use either the state’s statutory two-factor apportionment or the MTC’s three-factor apportionment. Colorado adopted single sales-factor apportionment that year. Does Colorado have to allow a corporation to use the MTC’s three-factor apportionment instead of its single sales-factor apportionment? And, who is most affected in Colorado? Taxpayers with a greater proportion of their property and payroll outside of Colorado than their sales into Colorado would benefit most from making the MTC election. Taxpayers who have more of their payroll and property than sales in Colorado will be happy to stay with the state’s formula. Thus, there is no question that the issue will be litigated in Colorado. The only real question is whether your company or clients should be filing a protective refund claim. s Bruce M. Nelson, CPA, is a Director in the EKS&H LLLP SALT group. Contact him at bnelson@eksh.com.

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Staffing

Tough Time Recruiting? Find a Way to Set Yourself Apart from the Crowd If you’re trying to recruit new talent, you may find it tough going right now. A 2014 Conference Board survey of CEOs, presidents, and chairmen from more than 1,000 companies around the world ranked human capital — how to best develop, engage, manage, and retain talent — as their leading challenge. How do you set your organization apart when you’re trying to recruit the best of the best? BY NATALIE ROONEY

An Employee’s Market Andy Hildebrand, CPA, executive recruiter at 361 Services, has seen his share of economic downturns. Three, to be exact. “The first two were steep in and steep out,” he says. “This last one was slow to go into in 2007 and slow to come back out in 2011. I hope we’ll get a nice five to seven year cycle now.” Hildebrand says we’re in an employeedriven market. “Firms cannot find enough talent to fill their needs,” he notes. “It’s tough.” His company specializes in placing accounting, finance, tax, treasury, and internal audit candidates for direct hire roles as well as consulting/temporary projects. It also recruits for several CPA firms along Colorado’s Front Range. Hildebrand says the firm currently is having success in bringing people to Denver from out of town and helping them transition to a new lifestyle, especially in the oil and gas space, and for CPA firms. “Denver is a very attractive place to live and to work, but in a strong economy, people are fairly

• NewsAccount • Sept/Oct 2014

happy and content in their current role and may not be ready to make a career move,” he says. “That’s where we’re having success with hard to fill roles.”

Setting and Managing Expectations If you’re operating under the “backin-the-day” assumption that you’ll hire people who will come in and “pay their dues,” that’s probably not the best approach in this market. “Paying your dues doesn’t resonate with younger folks as it used to,” Hildebrand says. “When I came out of school in 1990, we had to scratch and claw our way, but the world changes quickly. Firms that can adapt to the changing workforce will be able to continually attract talent. People want to live here and enjoy all the awesome things that make Colorado such a great state. It’s a work-tolive, not a live-to-work, lifestyle that is appealing to employees — especially younger people.”

Firms have had to modify their expectations for total hours and charge hours required. “People in my generation worked seventy to ninety hour weeks and thought nothing of it,” Hildebrand says. Not so anymore. Creating an attractive offer for new recruits, in professional opportunities and culture, is important. Firms are including all sorts of perks now: work/life balance, a sabbatical after a certain number of years, being active in the community, social activities with the team, etc. It comes down to what the individual job seeker is looking for. Half might be attracted to work/life balance opportunities, Hildebrand says. But the work/ life strategy might not be the right perk for hard-charging individuals who want to make partner or become a CFO. That’s why finding a fit with both style and culture is crucial when a new recruit is considering joining your team. “There are all sorts of things firms can do to be attractive to potential employees, but you can’t generalize,” Hildebrand says. “At

the end of the day and in a very robust employee market, the way a firm can attract and differentiate is through money, unfortunately.” People know they are going to work very hard in public accounting, and the vast majority don’t want to or will not make partner, so the mentality is that of “I’m going to work hard and I want to make as much money as I can.” There is no fault in that line of thinking, and firms that have a great culture and pay well are able to attract high quality talent, he adds.

The Industry Side Recruiting for the corporate environment is a completely different ball game, Hildebrand says, especially in industries that are booming, like oil and gas. “There is so much need in the oil and gas industry right now that it’s unbelievable,” he says.

What differentiators are swaying potential candidates? Money and opportunity. Still, it’s hard to attract people in the oil and gas industry right now. Oil and gas employees are being so well paid and companies are doing so well that it’s difficult to transition people at the senior management level. Hildebrand says high quality candidates who want to advance are continually evaluating new opportunities. And, positions are staying open longer due to current human capital supply and demand issues.

Avoiding Recruiting Mistakes Have a candidate in mind? Don’t wait. Speed to hire is key. Hildebrand says this is where smaller organizations can gain some leverage over larger ones. “Typically, the bigger the company, the longer the process to hire,” he says. “Good people go quickly. In a good market, there isn’t time to sit around

and wait. Someone else is going to nab your potential employee.” Another plus for smaller companies is the ability to offer a wider range of responsibilities. Recruits at smaller companies will likely wear more hats, have unique opportunities, be able to impact the organization on a daily basis, and gain better operational experience. “Those types of opportunities are appealing,” Hildebrand says. Leverage that as a recruiting point if you can. While Hildebrand emphasizes that culture and fit are important, “When it comes down to it, we all need to pay our bills, put food on the table, and pay for college. Salary may not be the number one thing, but money and benefits are what you talk about.” The important takeaway for candidates who are good at what they do: “You’ll always have a job,” Hildebrand says. “There are CPAs out there building mass amounts of wealth.” s

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Sept/Oct 2014 • www.cocpa.org •

Educational Foundation of the COCPA

Ten Years Later: Foundation Makes the Most of a Million

• NewsAccount • Sept/Oct 2014

t was not an earth-shaking moment at all, that afternoon in 2003 as a small group of members sat around the Scheer Board Room table at the COCPA office. But, what began as a simple conversation about how to celebrate the Colorado CPA profession’s impending 100th anniversary soon mushroomed into the 2004 Centennial Scholars Campaign to raise $1,000,000 for the Educational Foundation of the Colorado Society of CPAs and provide scholarship dollars for accounting students for years to come. Ten years after the campaign, thanks to prudent investment management by the COCPA Investment Committee, the Foundation can pay out scholarships every year — currently around $85,000 annually — and continue to grow the net assets. How, you might ask? Read on; it’s a story worth knowing, telling, and being a part of, too.

Getting Started Historically, the demand for qualified accounting personnel routinely exceeded the supply of top candidates. In the 1950’s, concerned Society members formed an Education Committee to encourage high school and college students to enter the accounting profession. It became apparent almost immediately that to attract the best and brightest students, financial assistance would be required due to the increasing cost of a college education — a reality 60 years ago, too. In 1958, the Educational Foundation of the Colorado Society of Certified Public Accountants was formed “to promote accounting education and research by providing financial assistance to individuals engaged in the study and teaching of accountancy in Colorado.” Fundraising efforts began, and the first scholarships were awarded in 1961, based primarily on merit and the student’s commitment to the accounting profession as a career goal. Years later, the criteria were expanded to assist financially challenged and ethnically diverse students, as well.

BY NATALIE ROONEY WITH MARY E. MEDLEY AND CAROL J. CAMERON

Growing the Funds The COCPA Investment Committee began managing the Foundation’s investment portfolio in late July 2000 — more on that follows. At April 30, 2003, the Foundation’s assets were $283,000, primarily thanks to two $100,000 contributions the COCPA Board of Directors had made in two particularly profitable years and the Gordon Scheer Endowed Scholarship which donors created in honor of the Society’s first executive director. Most of the funds raised each year were paid out in scholarships to high school and college students the next year, and the COCPA absorbed the staff and overhead expenses. The profession’s 100th anniversary offered the perfect opportunity to increase available funds and provide a stable source of income to fund scholarships year after year, generation after generation. Led by co-chairs Michael D. West, CPA, Gregory J. Anton, CPA, and Timothy J. McCutcheon, CPA, the campaign raised $1,160,000. Ten years after the campaign, the Foundation’s net assets are $1,951,000. Seventeen named scholarships also are in place, thanks to individuals and CPA firm gifts of $50,000 or more. Since inception of the Investment Committee’s management in July 2000 through June 2014, the Foundation’s investment gain is just over $1,000,000 — almost as much as was raised in the Centennial Scholars Campaign. Earlier this year, the trustees awarded 35 scholarships of $2,500 each to Colorado college accounting students — almost three times more dollars than the Foundation awarded in 2004.

Taking the Leap In the 1990s, the Foundation typically gave 20 $1,000 awards to college students each year. But with more and more students needing assistance and limited funds, the Educational Foundation trustees knew a change in investment strategy was necessary to ensure the sustainability of the Foundation and its efforts, even before the Centennial Scholars Campaign became a reality. As the trustees began looking for solutions, they

saw what was happening to the COCPA’s overall investment strategy under the guidance of the COCPA Investment Committee. In 1998, David M. Dirks, CPA, then chair of the Investment Policy Task Force, began steering the COCPA toward a more aggressive strategy after committee members asked the basic question, “Why don’t we invest in the market?” Why, indeed? So, under the tutelage of a knowledgeable investment team of COCPA members who were competitors in the outside world but were united in achieving the best results possible for the COCPA, the Investment Committee created a policy that led to fantastic results. It produced a strategy the Educational Foundation adopted as well. Derald L. Lyons, MT, CPA/PFS, CVA, Investment Committee Chair, laughs when he recalls the process of changing the COCPA’s investment strategy. Prior to his term as COCPA president in 1997-1998, the Society invested excess funds in laddered CDs. “I was thinking at the time that the COCPA could do a lot better with a mix of equities and bonds. When I mentioned it to CEO Mary Medley, she about fell off her chair because [former Executive Director] Gordon Scheer taught her we don’t (and wouldn’t) take risks with members’ funds.” But with Dirks and Lyons on the same page and encouraging a new investment approach, Medley and the COCPA Board of Directors came around. The Investment Committee first surveyed the COCPA Board of Directors members to determine their risk tolerance. In July 1998, the COCPA made its first investments in no-load mutual funds. The results were well worth it. As an example, for the 10 years ending June 30, 2014, the investment return was 8.5% annualized — the investments more than doubled in 10 years. Two years after the COCPA implemented the new investment strategy, the Educational Foundation followed suit. "The timing was actually terrible," says Lyons. Remember, in 2000, the market was at a high point. Then, the dotcom bubble burst, and

Foundation | Continued on 14 Sept/Oct 2014 • www.cocpa.org •

Educational Foundation of the COCPA “I am over the moon to learn that I am a recipient of the 2014 scholarship. Thank you for this very generous financial support. By awarding me this scholarship, you have more than covered the cost of my textbooks for the entire year and have also enabled me to cut hours at my jobs, allowing me to devote those hours to my studies, as well as to volunteering in my community. It is my hope that one day I’ll be able to pay this wonderful gift forward to another student in need.”

— Rachael McKinney

Foundation

— Jennifer Reed

| Continued from 13

the market dropped right after the Foundation’s initial investment. But overall, “the returns have been very good,” Lyons says. “We’ve been very happy to help the Educational Foundation increase the dollars available for scholarships and to help the COCPA achieve excellent returns, too.” Former Educational Foundation trustee and current Investment Committee member Timothy A. Jones, CPA/PFS, supported the move to a more sophisticated investment strategy for the Foundation. “Dave Dirks tasked me with educating the Foundation Board on the Uniform Prudent Management of Institutional Funds Act,” Jones says. “We needed to help the trustees feel comfortable with the idea that we could have a more broadly diversified investment program. A more sophisticated approach meant we could grow our funds, reach more students, and preserve the purpose of the Foundation.” Jones says everyone on the Foundation Board was receptive. Today, the Educational Foundation’s investment program “looks every bit as sophisticated as many larger, well-established foundations in terms of different asset classes we invest in,” Jones says. Mark J. Smith, CPA/PFS, CFP, CGMA, who has served on the Investment Committee since its inception and formerly chaired the Educational Foundation, says the group has tracked the Foundation’s investment success compared to the market, as well as to what the Foundation would have earned if

“Overall, my scholarships represent ability—the ability for me to focus more on my academics and involvements within the College of Business and the community and less on financial difficulties. The ability for me to finance my own way through school, earning a 4.0 GPA and graduating debt free. And the ability for me to become the first person in my family to earn not just one but two college degrees.”

• NewsAccount • Sept/Oct 2014

“At times, I’ve felt overwhelmed with the uncertainty of whether I will financially make it to graduation. But, having learned to live humbly, this single yet substantial scholarship will virtually ensure I have the funds to graduate, and that is terrific news. I thank you for the generous scholarship and look forward to this upcoming academic year with a revitalized spirit and drive to hone my accounting knowledge and earn the degree that is rapidly morphing from dream into reality.”

— Dale Gross

ing, and we’ve encouraged excellent students to continue their accounting education. Thanks to the profession’s foresight in the 1950’s, during the Centennial year in 2004, and with the Investment Committee’s guidance, aspiring students get the scholarship help they need. It’s truly rewarding to see this legacy playing out,” Sanden says.

Supporting the Foundation

the Foundation Board had not changed its investment policy. “We surpassed them all,” he says. “And, it’s worth noting that we’ve gone through two of this country’s worst bear markets since the Depression. We saw some investments lose money, but we didn’t panic. We embraced rebalancing. We weathered the storm of 2001-2002 and the calamity of 2008, and still provided handsome returns.”

Planning for the Future Educational Foundation Board Chair William C. Sanden, CPA, says the Foundation’s long term vision is to continue to grow the Foundation’s investment income. “We want to continue to fund scholarships to qualified applicants,” he says. “Our requirements are appropriately strict in terms of the grades needed to qualify for a scholarship. The bar is set at a minimum 3.0 on a 4.0 scale with a minimum of 3.25 in account-

The Foundation has set a remarkable track record over the last five years by awarding scholarships to 79% of the qualified applicants. This success is two-fold in that the Foundation has both developed the financial resources to be able to fund these scholarships and reached so many highly qualified accounting students, making a real difference for them with scholarship support. The challenge ahead is to provide all qualified Colorado accounting students with the scholarship help they need. The best students have so many options that attracting them to the accounting profession must include financial support. Growing the scholarship program is the key to ensuring the best and brightest become CPAs. In 2015 the Foundation's goals are to increase the number of scholarships awarded and broaden its reach to draw applicants from every college and university with an accredited accounting program in Colorado. You can help. Contributions to the Educational Foundation of the COCPA can be made

In a Nutshell: COCPA Investment Committee Philosophy and Approach • A diversified asset allocation that includes funds focused on equities (large cap, small cap and international), bonds, and alternative investments

• Periodic rebalancing to take advantage of lightening up on the winners and buying cheap, resulting in greater long-term returns with less risk

• Investment exclusively in no-load mutual funds, with emphasis on high historical category returns (returns compared to similar mutual funds) for the risk being taken, low risk, low costs, and quality of the mutual fund family

• Quarterly performance review of all mutual fund investments including consideration of selling underperforming funds

in cash, stock, securities, or real estate — online at www.cocpa.org, by check payable to Educational Foundation of COCPA, and by credit card. You also can support the Foundation through the year-round Colorado Gives program at www.coloradogives.org, where you can make a one-time donation anytime or set up a recurring donation of $10 or more. Note that this year, Colorado Gives Day, when processing fees are underwritten, is Dec. 9, 2014. A permanent scholarship may be established through a contribution of $50,000 or more and named for an individual, business, or as a memorial. It may be accomplished through a single gift or the pooling of many gifts, and it may be structured as a multi-year pledge. The first named scholarship is awarded when the pledge is completed. You may make a bequest as part of your estate plan, as well. For details and suggested language, contact Carol Cameron at ccameron@cocpa.org, 303-741-8624, or 800-523-9082, ext. 124. For scholarship information and applications, go to www.cocpa.org or contact Susan Vachereau, svachereau@cocpa. org, 303-741-8612, or 800-523-9082, ext. 112.s

2014 - 2015 Educational Foundation of the COCPA BOARD OF TRUSTEES

The Educational Foundation of the Colorado Society of Certified Public Accountants is a 501(c)(3) not-for-profit corporation, and contributions are tax deductible

• A commitment to strategic asset allocation rather than tactical allocation. In laymen’s terms, this means staying with set allocations to each asset class rather than varying these as market conditions change. For example, the Foundation’s investments in large capitalization domestic funds is about 24% • Leeway given to good managers with excellent historical returns during dry spells before selling those funds

William C. Sanden, CPA, President SSA PC, Colorado Springs Mark T. Solomon, CPA, Vice President SM Energy Company, Denver Stephanie E. Hernandez, CPA, Treasurer KPMG LLP, Denver David M. Dirks, CPA, Past President Metropolitan State University of Denver, Denver Kristine Brands, CMA Regis University, Denver Brenda M. Clarke, CPA Seigneur Gustafson LLP, Lakewood Amy E. King, CPA The Business Manager LLC, Greenwood Village Allen W. McConnell, CPA University of Northern Colorado, Greeley Alicia J. Sweeney, CPA Coltivar Group, Denver Geri B. Wink, CPA Colorado State University-Pueblo, Pueblo Mary E. Medley Colorado Society of CPAs, Englewood Susan M. Vachereau, Executive Director Colorado Society of CPAs, Englewood

Core Scholarship Criteria • Any declared accounting major who has completed at least 6 semester/8 quarter hours of accounting courses and is enrolled in courses equal to 6 semester/8 quarter hours or more for the semester/ quarter for which he/she is applying. The applicant must attend a Colorado college or university with an accredited accounting program. Graduate students are eligible if they attest that they plan to pursue an accounting-related career. • College or university cumulative grade point average must be 3.0 or higher on a 4.0 scale with a minimum GPA of 3.25 in accounting. • Candidates may apply for more than one category (General, Minority, or Mark J. Smith Scholarship). • Applicants must be U.S. citizens or permanent residents, legally living and studying in Colorado, with a valid visa that enables them to become employed. Applicants should intend to practice the profession of accounting in Colorado. • The Mark J. Smith Scholarship is based on academics and financial need. Applicants must display financial need, and special consideration will be given to applicants who either come from a single parent background or are attending college as a single parent. • Applicants applying for the minority scholarship must be students of Black/ African American; Hispanic/Latino; Native American; or Asian American ethnicity. Sept/Oct 2014 • www.cocpa.org •

A Career of Service

BY NATALIE ROONEY

At 100, Michael Kamin Is Still on the Go “Hello, may I please speak with Mr. Kamin?” I ask. “Hold on,” says the voice on the other end of the line. Then, yelling dramatically, “Does anyone know a Mr. Kamin? No? I thought so. You should just call me Mike,” the voice laughs. That sums up Michael Kamin, retired CPA, who celebrated his one hundredth birthday on July 25, 2014. With 64 years as a CPA on his résumé and having worked for some of the most influential companies in the world, he still has big plans for the future. From Over There to Over Here and Back Again COCPA member and recent centenarian Michael Kamin of Pueblo, Colo., has 100 years of stories to tell, and he loves to share them. To begin, he was born in Paris during WWI. You’d never know it to listen to his strong New York accent which he earned after his family emigrated to the U.S. when Kamin was three years old. The journey that ultimately brought him to Colorado was a circuitous one. After a medical discharge from the U.S. Coast Guard during WWII, Kamin ended up at UCLA where he underwent a battery of tests to determine what career best suited him. The answer: Become a CPA. “I had to ask what a CPA was,” Kamin recalls. “I had no idea.”

• NewsAccount • Sept/Oct 2014

Once he knew he was going to start school to become an accountant, Kamin figured he’d better visit some accounting firms to see about a job. “The war was still on, and the first firm grabbed me,” he says. He’d been there just a few weeks when one of the partners handed him a piece of paper and asked him to work out the problem written on it. “Keep in mind, I had no experience at all,” Kamin emphasizes. He worked at the problem all day and handed it in. A few days later, the partner handed Kamin a check for twenty-five dollars. “I was making fifteen dollars a week at the time. When I asked what the check was for, the man explained a friend’s son was taking a review course for the CPA exam, and no one, not even the instructor, could figure out the problem. Only I came up

with the right answer. I figured I’d better stay.” Kamin went on to major in accounting at UCLA and obtained his CPA license in 1950. He started a practice in Los Angeles, eventually relocating to Arizona. “I arrived in Phoenix in July, and my car didn’t have air conditioning,” Kamin recalls. “You can imagine how hot it was.” But he survived the heat and quickly established his new tax practice. Then his career took a turn — on April 15, no less. “Something out of the ordinary always has to happen on April 15,” Kamin laughs. On that day, it involved the arrival of a tall, distinguished-looking gentleman. “He looked like a chairman of the board. He wanted me to do his taxes. I said we’d better talk,” he recalls. It turned out the

IRS Update man was from Harvard University, and Motorola had hired him in those early days of making computer chips. He was being paid to open a factory in Phoenix, and he needed someone with whom he could collaborate. “I became his think tank,” Kamin says. “Then he asked me to go to Europe and start operations there. I had no foreign language, no idea about the country. I was a blind mouse.” Nonetheless, off Kamin went, basing himself in Geneva, Switzerland, and spending five years establishing the Motorola factory in Toulouse, France. It was a business success, but the best part for Kamin was meeting his wife, Irma, with whom he will celebrate 50 years of marriage in February 2015. Once back in the U.S., Kamin moved around — from Silicon Valley in its infancy to the General Accounting Office in Washington, D.C. to the Federal Railroad Administration. His work with the railroad ultimately led him to the Transportation Technology Center, Inc., a railroad testing and training facility located northeast of Pueblo. “I was asked to help with the accounting and business operations,” he says. “I signed a three-year contract and stayed for thirty years.”

His Biggest Challenge Yet While Kamin loved being a CPA, he discovered his calling wasn’t in tax or audit but rather in making and building things. “I discovered I wasn’t happy unless I was creating something, such as when I went to Europe and built the factory. That made me happy.” Turning 100 hasn’t stopped Kamin from wanting to continue to create things. He says Pueblo has 1,700 school kids who are homeless. “Can you imagine that? In our little city? Every night, these kids need to find a bed and a place to eat and keep clean,” he explains. Kamin’s goal is to create a program that helps homeless children, in Pueblo and across Colorado. “What I need to do is find someone who thinks like me,” he says. “I need to find another retired person who is willing to partner up, travel, and find the money to help these kids. If I do that, I can rest in peace.” “I want to thank you for your time. I really enjoyed speaking with you,” I say as we wrap up our telephone interview. “The article will be in the September/October issue of NewsAccount, so look for it during the first week of September.” “I hope I live long enough to read it,” Kamin counters — and then he laughs, again, for the umpteenth time since we began our conversation. He will. He knows it, and so do I. Kamin may have just celebrated his 100th birthday, but he’s not done working yet. s To send belated birthday greetings to Kamin, email Mary E. Medley at mmedley@cocpa.org and she will forward them.

Revisions Made to Form 2848 – Power of Attorney In July, the IRS released a revised Form 2848, Power of Attorney and Declaration of Representative, and instructions. Among other changes, the new form reflects the 2013 IRS policy change that the form no longer can be filed electronically and requiring that certain taxpayer representatives provide a valid preparer tax identification number (PTIN). According to ThompsonReuters, changes to Form 2848 also include: • Change in format: The new form changes the formats of Lines 3 and 5, the lines on which the taxpayer specifies which acts he is authorizing the representative to perform and which acts he is not authorizing. • Number of representatives: The number of representatives a taxpayer can authorize on a single Form 2848 has been expanded from three to four. A taxpayer who wishes to authorize more than four representatives must write “See attached for additional representatives” in the space to the right of Line 2 and attach additional Form(s) 2848. No more than two representatives may receive copies of notices and communications sent to the taxpayer by IRS. • Representatives disallowed from endorsing refund checks: Both the form and its instructions clarify that representatives are not authorized to endorse or otherwise negotiate any check (including directing or accepting payment by any means, electronic or otherwise, into an account owned or controlled by the representative or any firm or other entity with whom the representative is associated) issued by the U.S. government with respect to a federal tax liability. • Representation with respect to ACA payments: Historically, taxpayers who wished to authorize a representative to represent them with respect to penalties that are not related to a return had to specifically list “Civil Penalties” as a matter for which they were granting authority. On the new form, “Code Sec. 5000A Shared Responsibility Payment” (i.e., the Affordable Care Act's individual mandate payment) and “Code Sec. 4980H Shared Responsibility Payment” have been added to the list of required areas of the law about which taxpayers must specifically give their authority. • Ability of representatives to obtain a list of their powers of attorney: The Form 2848 instructions provide that representatives may receive a list of their powers of attorney recorded on the IRS's Central Authorization File (CAF) by submitting a Freedom of Information Act (FOIA) request and describe how the request is made. • New fax numbers: Form 2848 can be faxed to IRS. The form instructions reflect new fax numbers. For Colorado residents, the fax number for the Ogden, Utah, service center is 855-214-7522. It may change without notice. To view the revised form, go to www.irs.gov/pub/irs-pdf/ f2848.pdf. For information about the form and instructions, go to www.irs.gov/form2848. s Sept/Oct 2014 • www.cocpa.org •

CGMA

Implementing an Effective Corporate Ethics Policy BY TANYA BARMAN AND SAMANTHA WHITE

When asked about their values, the vast majority of companies can provide a document they would describe as a code of ethics or conduct. However, research suggests a possible disconnect between companies’ stated intentions and the degree to which they truly value ethical behavior. Here are five steps that companies can take to ensure that their corporate ethics policy is effective and becomes embedded in the company culture. Also included are practical examples of the various ways organizations have accomplished this task. Research shows that most companies’ efforts tend to fail after step two.

the show on the company’s intranet, viewers were asked to vote on which of the judges had given the appropriate response to the situation. At the end of each section, the organization’s ethics officer revealed the correct answer based on official compliance standards.

3. Training and Reinforcement Most organizations now offer online anti-bribery training. On its own, this is not

1. Code of Ethics The essential elements of a code include assurances of support for the policies from organizational leadership, practical guidance on what is expected regarding ethical issues, commitments concerning stakeholder relationships, example Q&As, scenarios or decision trees, details of how the code will be implemented and monitored, and the consequences of misconduct. Signposts to further support, advice and other relevant policies should also be included.

2. Communication and Awareness Campaigns This is a continuous process. Communication of a company’s ethics policy never ends. To engage employees and raise awareness of ethical decision-making, Cisco Systems created “Ethics Idol,” a cartoon parody of the reality television singing contest, American Idol. In each episode, animated contestants sang about a particular ethical dilemma or situation, which was then commented on by a panel of Idol-esque judges. After watching

• NewsAccount • Sept/Oct 2014

enough; companies shouldn’t be comforted by a check-the-box mentality. There is no substitute for face-to-face, qualitative training with wider discussion and debate of understanding and practical application. Discussion of scenarios can help employees explore ethical issues. For example, Stryker, a medical device producer, reviewed events that had taken place within its industry and built a set of fictionalized scenarios based on them. To provide context, Stryker created a hypothetical organization with a back story, mission, and organization chart. Employees were presented with a scenario based on this background and were asked to go through the company’s code of ethics to identify which of the standards were being broken. After the discussion, it was revealed to participants that all of the scenarios had actually taken place in the sector in the past, helping to bring the training home.

4. Supporting Context and Culture This involves having the “ethical architecture” in place to support a living, breathing code. That architecture includes outlining policies and regulations in employee contracts and supplier agreements, identifying individuals and boards who are accountable for outcomes, creating ongoing awareness-raising programs, opening discussions with feedback, and having oversight and monitoring procedures in place. Taking action against wrongdoing and communicating the action taken to staff is an important element of this. More companies are including ethics-related criteria in performance reviews. For example, management accountants might be asked whether they challenged or raised and resolved an issue or an area of concern that could lead to fraud. For managers, does your team escalate issues and ask for clarification? Siemens’s strategy is to focus on bridging the communication gap between senior management and employees at the lower levels of the company. In the 2013 financial year, the company introduced “integrity dialogues” in which compliance refresher training is cascaded through the company. Compliance officers provide training to the senior management of each business unit, who then train their own direct reports and so on. Individual operating units within the company enhance their training activities with additional topics that address challenges specific to them. In this ongoing part of the practice, leaders talk about integrity and explain how they themselves “walk the talk” in terms of how they do business. The dialogue is carried through to every sales meeting to bring about an open discussion on ethical issues and how they should be handled.

5. Monitoring & Accountability Effective speak-up arrangements, such as anonymous helplines, through which employees, contractors, and other third parties can raise concerns in confidence about unsafe, unethical, or unlawful practices are an important element of good corporate governance. A key component of these arrangements is that staff feel comfortable that they can raise issues without fear of retribution. Some companies report the number and nature of queries raised internally to the board and executive committee and include the information in company newsletters. Some provide a breakdown of the reports by country and as a percentage of the workforce. Enlightened companies now communicate internally about disciplinary actions taken when wrongdoing occurs. Some companies make this information public. Beverage company Diageo’s annual sustainability report details the number of suspected breaches of the company’s code of ethics (743 in 2013), how many of these were later substantiated (376), and whether they

were reported through the speak-up hotline (242) or raised directly with a line manager or the compliance department, for example. The report also states that 116 people exited the business in 2013 as a result of breaches of the company’s code or policies. Reporting in this way provides evidence that the company has procedures in place that are actually used and are effective in managing ethical misconduct. According to the report, Diageo routinely shares examples of breaches that have recently occurred or testimonials from colleagues who were tempted to do the wrong thing yet made the right decision. The company also keeps track of employees’ perceptions of integrity within the company through asking questions in a values survey.

The Litmus Test The real test of whether your ethics policy is working and embedded is if an employee feels comfortable enough to speak up if he or she has a concern and whether he or she believes the company will respond and, if need

ETHICAL MANAGEMENT CHECKLIST • Does your organization have an ethical statement/code of conduct/code of ethics? If yes, does it reflect your professional obligations? • Does your organization currently communicate its ethical business practices and commitment to responsible business? If yes, how? • Are your statements for responsible business monitored and verified? If yes, how and by whom? • Does your organization include a session on ethics and responsible business in its orientation program for all staff? • Is this featured in ongoing training? • Are you aware of what categories of ethical information are gathered in your organization? If yes, are there any omissions? • Do you know who in your management team uses ethical data? Who else might benefit from using ethical data, and how do you work together? • Does your board/chief executive/CFO take responsibility for ethical performance? If no, what role should they take? • Are staff rewarded/disciplined in relation to ethical performance? • Is someone in the organization responsible for gathering or analyzing ethical performance information?

be, take appropriate action. Once an ethics policy is securely embedded in your company, you also have to take into account the wider value chain. Today’s complex and extended supply chain has significant implications for organizations’ ethical, governance, and risk-management policies and practices. Therefore, it is advisable to conduct due diligence on new and existing suppliers alike, engaging them in ongoing discussions regarding your standards and contractual expectations. For example, to engage a supplier base spanning 70 countries, UK-based retailer Marks & Spencer holds regular face-to-face meetings with partners as well as an annual conference. The company has a website where suppliers can access tools, guidance, and incentives. Helping to raise standards and awareness through the chain is beneficial for all. s Copyright © 2011-2014 AICPA. Copyright © 2011-2014 Chartered Institute of Management Accountants. All rights reserved.

Reflective questions for finance professionals from the Essential Tools for Management Accountants

• Does ethical data gathered within your organization help inform business decisions and business success? • Does your organization have an anti-bribery policy? If yes, is your anti-bribery policy promoted/enforced? How? • Does your organization have a whistle-blower/speak-up line? If yes, how is it communicated, and how are reports acted upon? • Does your organization have an open-door policy between management and other employees to promote openness and transparency? • Do you feel confident that you and your team can maintain objectivity and integrity as well as avoid conflicts of interest? What steps can you take to ensure you do? • Would you know what steps to take if you were asked to do something that challenges your ethical standards? • Have you undertaken professional development to improve your skills in gathering, understanding, and using non-financial information to benefit your organization? If yes, what other professional development in regard to ethical performance would you benefit from? For information on becoming a Chartered Global Management Accountant, go to www.cgma.org. Sept/Oct 2014 • www.cocpa.org •

Advisory Services

Clients Marrying Later in Life? Make Sure They Say “I Do” to the Right Documents First BY NATALIE ROONEY

hile no one wants to tread on another’s excitement with talk of a prenuptial agreement (a marital agreement in Colorado’s Revised Statutes), it’s important for anyone considering marriage later in life to understand the ins and outs and the dos and don’ts of protecting hardearned finances and assets. Statistics back up the concept of thinking ahead: In 1990, not even one in ten persons who got divorced was over age 50. Today, one in four people getting divorced is 50 or older. “Money is one of those things that has the power to disrupt a seemingly beautiful situation,” says Craig A. Arfsten, CPA, of Prosperion Financial Advisors, Greenwood Village. “And money means different things to different people.” To some, it means security, and to others it can mean a pathway to joy and pleasure. “Typically for marriages that occur later in life, there is a lifetime of financial muscle memory built in,” Arfsten says. “So the first piece of financial advice for later-life marriages is to understand your partner’s money habits and beliefs. Engage in discussions prior to the marriage to discover more about your partner’s financial background.”

A Plethora of Paperwork Finances are complicated and for many can be very intimidating. This is the perfect time to help clients understand their overall financial situations and serve as the trusted advisor. Arfsten recommends a complete review of a client’s financial paperwork to make sure beneficiaries and those individuals/organizations assigned the power to act on the client’s behalf are in line with the client’s wishes. This usually means looking at amending wills and reviewing financial and medical powers of attorney, life insurance policies, and retirement accounts. Be sure to include:

• NewsAccount • Sept/Oct 2014

Questions to Consider • How do you expenses?

plan

• What is the best solution for handling medical insurance? • Is there any debt coming into the marriage? • What are your credit scores? Why are they what they are? • Are there any outstanding financial obligations such as child support or alimony?

Estate plans: If something happens to your client, who will be the beneficiary of the estate? Will the estate plan address the needs of the surviving spouse? Consider keeping most assets and property separate to minimize complications, especially when there are heirs. Health documents: What about a health event, such as long term disability or an extended stay in an assisted-living facility? How will these expenses be covered? If there is an age disparity, consider long-term care insurance to provide financial support in the event such a need arises. Medicaid benefits are dependent on household income. If Medicaid applies, check the eligibility rules to learn how a marriage could impact benefits. Social Security: Contact the Social Security Administration to update records and learn how a remarriage will impact future benefits. Arfsten says CPAs may want to suggest that clients have an attorney draft a marital agreement outlining terms and conditions for dividing a couple’s assets and financial re-

• How will the marriage affect existing sources of income, such as alimony payments and survivor benefits? Typically alimony payments end when a remarriage occurs. • Are you a saver or spender? What are your thoughts about charitable giving? • Discuss investment styles, such as whether you are aggressive or conservative. • How long do you plan to work? What do you want your retirement to look like? • If children from a previous marriage are in the picture, discuss how you will handle everyday child expenses and school tuition. How will the two of you work together to parent the children?

sponsibilities – basically who gets what – in the event of a divorce or death.

The Legalities Robert J. Beattie, J.D., shareholder, Montgomery Little & Soran PC, Greenwood Village, has practiced family law for

nearly 30 years. He agrees that talking about legal and financial matters can be a sensitive issue, but he says the first and most important step is finding out your client’s intent. “Ask your client what he or she wants to accomplish,” he says. “I explain the law in the event of death, divorce, or other circumstance, and then I ask, ‘Is that what you want to have happen, or do you want to do something different?’ If the client wants to do something different, we draw up a marital agreement.” Many considerations go into a marital agreement, and Beattie says he’s never written any two that are alike. “A marital agreement is unique to the person,” he says, adding that the most important aspect to a valid marital agreement is to have one that has been fully negotiated by the parties and their attorneys and that there has been full and complete disclosure by both parties. “If a client doesn’t disclose all of the assets, income, and debts, the marital agreement is going to be tossed out,” he says. “This is based on everyone in good faith disclosing every aspect of their financial circumstances. I caution people to err on the side of being absolutely accurate and complete in disclosing so there are no ifs, ands, or buts.” Bottom line: while it may be an awkward conversation to start with a client, it’s important to settle legal and financial matters before walking down the aisle. “There shouldn’t be any surprises after the fact,” Arfsten says. s

Sept/Oct 2014 • www.cocpa.org •

Taxation

Software Companies and the R&D Credit

oth start-up and mature companies investing in software development should assess their research and development activities, and evaluate whether they are eligible to claim the federal tax credit (“R&D credit”) for increasing research activities provided under Internal Revenue Code (“IRC”) Section 41. The company may be eligible for the R&D credit if it is developing and/or improving software and technology. Enacted in 1981, the R&D credit has historically been popular with companies in the manufacturing and distribution industries. However, this is an often-overlooked tax savings opportunity for software companies. This dollar-for-dollar tax credit which offsets the company’s regular federal income tax liability improves cash flow, allowing the company to further invest in new employees, technologies, and other business opportunities. The R&D credit may be claimed by companies structured as Subchapter C corporations and also by pass-through entities such as Subchapter S corporations and partnerships. The amount of research credit computed for pass-through entities is allocated proportionately to owners, similar to other attributes of the business.

Assessing the Company’s Activities The first step in determining eligibility for the R&D credit is to obtain an understanding of the company’s research activities and development processes. Key to this process is understanding the services participating employees perform and determining whether related expenditures qualify as research expenses eligible for the R&D credit. IRC Sec. 41 (d)(1)(A) states that “qualified research” means research with respect to which expenditures may be treated as expenses under IRC Section 174. Section 174 does not offer a direct definition of “qualified research,” but rather it relies on the Treasury Department’s regulations.

• NewsAccount • Sept/Oct 2014

BY BRANDON T. POWERS, CPA

Under Regulation 1.174-2(a)(1), research and experimental expenditures (“R&D costs”) are expenditures incurred in connection with the company’s trade or business which represent research and development costs in the experimental or laboratory sense. The three most common class types of eligible R&D costs are: employee wages, supplies used in the conduct of qualified research, and eligible contract costs (IRC Sec. 41(b)(2)). If related to a qualified research activity, the costs associated with leasing cloudcomputing server space for software development may meet the classification of eligible R&D costs under IRC Sec. 41(b)(2)(A)(iii). Under IRC Sec. 41(d)(3)(B), research is not qualified research if its purpose relates to style, taste, cosmetic, or seasonal design factors. Costs related to advertising, quality control testing, efficiency surveys, and the acquisition of another’s patent, model, production, or process, among others, are specifically excluded as “qualified research” under Regulation 1.174-2(a)(6). In addition, Reg. Sec. 1.41-4(c) specifically excludes research activities, including research that is conducted after commercial production and research that is not performed within the United States. IRC Sec. 41(d) contains three additional requirements for expenditures to qualify. To be eligible as “qualified research,” the re-

search must be (1) undertaken for the purpose of discovering information which is technological in nature; (2) substantially all of the research activities must constitute a process of experimentation; and (3) the experimentation must be related to a permitted purpose. Costs incurred for the development of “internal use” software must meet additional requirements to qualify for the credit. Under IRC Sec. 41(d)(4)(E), research related to the development of “internal use” software will be considered as “qualified research” if it is: (1) related to software used in qualified research activities; (2) related to software used in a production process of the taxpayer; or (3) treated as “qualified research” under the regulations. Developed software is presumed to be “internal use” if not developed to be commercially sold, leased, licensed, or otherwise marketed to outside parties. Internal use software may help the company with general and administrative functions and non-computer services such as accounting and finance functions. Software-as-a-Service (“SaaS”) business operating models use software to provide computer services and are not typically subject to the higher threshold of “internal use.” On the other hand, the software utilized by the United Parcel Service on its hand-held devices to track shipments and deliveries may be perceived as an example of “internal use.” A number of state jurisdictions also offer similar credits for companies investing in R&D and software development activities. A company that does not qualify for the federal R&D credit, including loss corporations, may benefit from available credits at the state level depending on the circumstances.

Quantification & Documentation After costs have been quantified and determined to be “qualified research” expenses, there are two methods for calculating

the R&D credit: 1) the Regular, or “Fixed Base” method; and 2) the Alternative Simplified Credit (“ASC”). Both methods were designed to promote ongoing investment in research activities. The Regular Method calculates the R&D credit based upon 20 percent of the excess of R&D costs for the current tax year over a base period amount. The base period amount is determined from an analysis of historical R&D costs and a review of average annual gross receipts for the preceding four years. The Alternative Method calculates the ASC based upon 14 percent of the excess of R&D costs over 50 percent of the average R&D costs for the three preceding tax years. Alternative methods exist for start-up companies without a history of R&D costs and average annual gross receipts to calculate and claim the R&D credit. In accordance with IRC Sec. 280C(c)(3), the company may elect to claim a reduced credit and avoid any reduction of the “qualified research” deduction under IRC Sec. 174. The reduced credit election provides the company with the “best of both worlds,” as a full deduction is allowed for R&D expenditures which are used in calculating the R&D credit. Substantial credits can be generated based upon a modest level of costs when the ASC and reduced credit election are used in conjunction with one another. A simple calculation is shown here to demonstrate the magnitude of the credit based upon the level of R&D costs. The R&D credit is subject to the same limitations and carry-over rules as general business credits provided under IRC Sec. 38. The limitation imposed on current year utilization may be a trap for the unwary during

Qualified Expenditures - Current Year

(A) $9,000,000

Total Qualified Expenditures for prior three years

$15,000,000 $5,000,000

Average of total for prior three years 50 percent of average

(B) $2,500,000

Current year expenditures allowed for credit

(A-B) $6,500,000 14%

Alternative Simplified Credit ("ASC") Percentage Gross ASC (before reduction)

$910,000 65%

Reduced Research Credit Percentage (as determined under IRC Sec. 280C(c)) Total Reduced Current Year ASC (net tax benefit) a company’s first few periods of profitability and needs to be assessed during tax planning. It is imperative that companies claiming the R&D credit maintain contemporaneous documentation to substantiate the qualification of costs incurred and their relation to ongoing research and development activities. Software development companies have a deep understanding of their development process and will typically have development processes outlined. But they also may have invested in an accounting system that will help match project costs with qualifying activities.

Alternatives to Claiming the R&D Credit As an alternative, a company may treat R&D expenditures paid or incurred during the tax year as business expense. Or, the company may elect to treat such expenditures as deferred expenses under IRC Sec 174(b) by capitalizing such expenses and amortizing them over a period of 60 months, beginning with the month the company first

$591,000

realizes benefits from such expenditures. For expenditures related to the development of computer software, amortization of costs typically begins when development is complete.

Availability of the Credit The R&D credit is currently expired for activities commencing after Dec. 31, 2013. Generally, the credit has been historically extended on a year-by-year basis, and it seems reasonable to conclude that 2014 will be no different. Recent proposals for a permanent (or a period greater than one year) extension of the credit have received bipartisan interest on Capitol Hill but may lose traction for budgetary reasons. Given Congress’s history of providing an extension of the R&D credit, it’s wise for companies to evaluate current eligibility and maintain documentation of ongoing projects. s Brandon T. Powers, CPA, is a senior tax manager with Anton Collins Mitchell, LLP, Denver. Contact him at bpowers@acmllp.com.

"The mission of the COCPA is to help us — CPAs and COCPA members — be all we can be." Mark J. Smith, M.J. Smith and Associates Greenwood Village, CO . Sept/Oct 2014 • www.cocpa.org •

Movers & Shakers DU’s Beta Alpha Psi Chapter Takes 1st in National Competition On Aug. 6-9, eight members of the University of Denver's Alpha Zeta Chapter of Beta Alpha Psi travelled to Atlanta for the annual Beta Alpha Psi national meeting. While there, a team of three students competed in the Best Practices competition and won first place in the Collaboration category. These students, Robert Galvan, Rodney Castillo, and Michaela Diamond, won first place in the regional competition in Salt Lake City this past April, which qualified them for the national competition. In Atlanta, they were one of ten teams competing in the Collaboration category, all of which had won first place in their regional competitions. The team was overseen by Ryan Stine, 201314 Competition Coordinator and current President of Beta Alpha Psi’s Alpha Zeta chapter. In the photo are: Top Row: (from left) — Robert Galvan; Ryan Stine, President; Rodney Castillo; Shayan Wu, VP of Reporting. Bottom Row: (from left) — Michaela Diamond, VP of Programming; Alicia Poore, Competitions Coordinator; Mackenzi Steinert, VP of Treasury; Mariah Bloom, 2013-14 President.

DU Team Wins National Business Valuations Competition In April, five School of Accountancy students researched, prepared, and recorded a thirty-minute video presentation for the 2014 BVR/SPU Valuation Challenge with the guidance of Dr. Keith Sellers. The video was submitted to a team of judges which sorted through submissions from across the country and chose six teams to compete in a live competition in Seattle. The DU team, consisting of Masters of Accountancy students Paul Diegnau, Suyun Gu, Daniel O’Laughlin, Jordyn Michaud, and Ryan Stine, took first place in the nation.

Eleven students in the University of Northern Colorado’s Monfort College of Business earned Ethical Leadership Certification from the NASBA Center for the Public Trust. Garett Lieber, Megan Loberg, Eric Roat, Kelley Robinson, Clay Reierson, Scott Schmaltz, Allison Snatchko, Patrick Sullivan, Jenna Vandenbark, Erika Wesselink, and Haley Zink were among the first college students in the nation to complete the program, introduced in January by the CPT, an arm of the National Association of State Boards of Accountancy. Professor Sharon Clinebell says that the ethics certification is part of the college's ongoing commitment to business ethics, which also includes involvement in the Daniels Fund Ethics Initiative Consortium, composed of eight universities in a four-state region. Dalby, Wendland & Co., P.C. promoted the following staff: Steve D. Hovland, CPA, CFA, to principal; Melissa K. Hoaglund, CPA, to tax manager; Kelsa D. Frary, CPA, to senior audit accountant; Brooke A. Mulchin, CPA, to senior tax accountant; Jennifer S. Wright to senior tax accountant.

Leadfit 2014 Class Gets Underway From top left: Tiffany Knight, Jarred Brown, Heidi Mourning, Sarah Trapp, Jenna Tice, Megan Mahala, Rebecca Fraley, Mika Schneider, and Matt Mueller

• NewsAccount • Sept/Oct 2014

The American Institute of CPAs (AICPA) announced the selection of the 2014 Leadership Academy class. The group of 38 rising stars in the accounting profession will participate in the 6th annual program in Durham, N.C., this fall. COCPA member Patrick Lytle, CPA, SM Energy Company, Denver, was selected to attend and discuss pressing issues facing CPAs and the accounting profession with some of the profession’s most influential leaders. Richey May & Co. promoted Dustin Pfluger, CPA, to senior audit manager and Katie Lewis, CPA, to audit manager.

Lutz Zuber & Associates, LLC moved to 633 17th Street, Suite 1640. Denver, CO 80202-3625. Baurle and Company, P.C., promoted Patrick Richter, CPA, to senior manager; Curt Olson, CPA, and Reed Sellers, CPA, to manager; and Delmar Jarman, CPA, Sarah Biehn, CPA, and Brandon Townsley, CPA, to Senior II. Brock and Company, CPAs, P.C. promoted Sheila R. Cage, CPA; Eric J. Christopher, CPA; Sid Fahsholtz, CPA; and David Rossmann, CPA, to shareholder. Other promotions included Michelle Goen to manager, Andrea Paugh, CPA, to supervisor, and Ann Brookhart to senior accountant. The Denver Business Journal named Fran J. Coet, CPA, Coet 2 CPAs PC, Westminster, and Debbi C. Warden, CPA, CGMA, The Business Manager, LLC, Greenwood Village, as a finalists for this year’s Outstanding Women in Business award. Warden also was featured on the cover and in an article on the benefits and challenges of moving away from the billable hour in the August 2014 Journal of Accountancy. Bauerle and Company, P.C., Englewood is putting a new spin on the old adage “save a tree, print less” by partnering with PrintReleaf Exchange to donate up to $1050 to reforestation projects in various parts of the world based on the amount of paper it consumes in its business. The initiative uses PrintReleaf ’s technology platform that enables cloud-based paper usage tracking to determine how much it can supplement back into reforestation.

Executive Happy Hour Come be a part of Executive Happy Hour, Colorado's networking event for CPAs and professionals in related fields. This fun, engaging, and professional event is designed to provide meaningful networking for ALL professionals regardless of age, job title, or industry. Thanks to these generous sponsors, you'll receive one complimentary beverage ticket as well as appetizers. No need to RSVP for this event. Simply mark your calendar and arrive at your convenience.

Date: Thursday, 11th of September Time: 5:30 pm Location: Hacienda Colorado 4100 East Mexico Ave. Denver, CO

Sponsored by: Citywide Banks Kuhn Advisors, Inc. Regus

Classifieds Practices for Sale, Purchase, or Merger Turn-key practice opportunity. Established North West Metro Area CPA firm wishes to transition clients via a sale over a 1-3 year period. The optimal individuals would be interested in continuing to grow this full service firm in the bookkeeping, tax, and audit areas. This is the perfect fit for an audit and tax manager weary of a big firm, ready to move into a medium-sized firm, with the additional opportunity to purchase a business condo. Send replies to kflynt@cocpa.org with Box# 100116 in the subject line. Fred Mehring, Select Business Group, Inc., specializes in the sale, merger, and acquisition of accounting and tax practices. Over 25 years of experience. Confidentiality stressed! Call Fred Mehring at 303-771-3100, fax 303-477-6010, or fmehring@selectbg.com. Ownership Opportunity. Own your own CPA firm. Retirementminded partners seek CPA with extensive tax and consulting experience to work beginning next tax season with the goal of acquiring the entire practice over a three to five year period. GoSystem and QuickBooks a plus. Send responses to kflynt@cocpa.org with Box# 2285 in the subject line.

In Memoriam We regret the loss of the following COCPA members. We extend our sympathy to their families, colleagues, and friends.

Peter Daniel Doran II Member since 2014 Morrison, Colo. Mark A. Mackley Member since 1989 Grand Junction, Colo. John E. Murphy Member since 1965 Lakewood, Colo.

Sept/Oct 2014 • www.cocpa.org •

Colorado Society of Certified Public Accountants 7887 E. Belleview Ave., Suite 200 Englewood, CO 80111-6076

Periodicals Postage

Time to Learn: Fall into September CPE Revenue Recognition Sept. 17 (COCPA or Webcast) • $355 / $507 FASB Review: Common GAAP Issues Impacting All CPAs Sept. 18 (COCPA) • $355 / $507 [NEW 4-hour] Microsoft Office 365 – Your Office, Your Way Sept. 22 (COCPA) • $170 / $243 [4-hour] iPad – An Effective Business Tool Sept. 22 (COCPA) • $170 / $243 Excel Financial Reporting and Analysis Sept. 23 (COCPA or Webcast) • $345 / $493 [NEW 4-hour] Capitalized Costs and Depreciation: Key Issues and Answers Sept. 24 (COCPA) • $170 / $243

TO REGISTER: www.cocpa.org • 303-773-2877 • 800-523-9082 [NEW 4-hour] Cancellation of Debt for Individuals and Businesses Sept. 24 (COCPA) • $170 / $243

Making Ethics Count – Power, Influence, & Ethics Sept. 26 (Webcast) • $85 / $121

[NEW] Slashing Taxes for Your Small Business Clients: Corporations, Partnerships, & LLCs Sept. 25 (COCPA) • $355 / $507

Public Company Update: SEC, PCAOB, and Other Developments Sept. 29 (COCPA) • $355 / $507

Making Ethics Count – Ethics, Leadership, & Resilience Sept. 25 (Webcast) • $85 / $121

• Denotes Member/Nonmember Course Fees