2004 News and Events

Freed Maxick & Battaglia, CPAs strives to keep you informed of the latest firm news, issues and other information that affects your business. See the links below for the latest updates.

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10/22/2004
President Bush signs into law  “American Jobs Creation Act of 2004” 

On October 22, 2004, President Bush signed into Law the “American Jobs Creation Act of 2004”, implementing sweeping changes to an already complex tax code. The legislation creates 274 amendments to the Internal Revenue Code with the addition of 34 new code sections. Every taxpayer will likely be affected by the new legislation. The worldwide resources of Freed Maxick & Battaglia allow us to sift through the complexities and help you identify the opportunities and challenges included in this legislation. Highlights of the law include:

• Repeal of the Extraterritorial Income Exclusion (ETI)
• Deduction for Domestic Manufacturing Activity (Manufacturers’ Deduction)
• Incentives to Repatriate Foreign Earnings
• Continued Asset Depreciation Incentives
• S Corporation Simplification and Reform
• Enhanced Foreign Tax Credits
• Tax Shelter Restrictions
• Nonqualified Deferred Compensation Plan Restrictions
• Deduction for State and Local Sales Taxes
• Limitation on Charitable Contributions of Vehicles

See our Resources Page for a Full Overview of this legislation

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10/04/2004
Working Families Tax Relief Act of 2004

On October 4, 2004, President Bush signed the Working Families Tax Relief Act of 2004, which extends various personal income tax reductions for middle-class taxpayers that had been scheduled to expire. The act also extends several business-related provisions that had been scheduled to expire at the end of 2004 and 2005. See our Resources page for more information the latest legislation.

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06/30/2004
FMB joins the AICPA's Employee Benefit Plan Audit Quality Center.

Freed Maxick & Battaglia, PC, CPAs has joined the American Institute of Certified Public Accountants' (AICPA) Employee Benefit Plan Audit Quality Center for CPA firms. The new Center is a national community of CPA firms that demonstrate a commitment to employee benefit plan audit quality and raise awareness about the importance of employee benefit plan audits. The Center provides members with best practices, guidelines, and tools CPAs need to perform quality benefit plan audits and better serve their clients.

Members of the Center demonstrate their commitment by voluntarily agreeing to adhere to Center membership requirements, including designating a partner responsible for the its employee benefit plan audit practice, establishing firm-wide training and quality control programs, performing annual internal inspection procedures, and making the firm's peer review report findings publicly available.

The Center has a dedicated website at: http://www.aicpa.org/ebpaqc/homepage.htm.

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06/08/2004
Interest Charge Domestic International Sales Corporation (IC-DISC)

In most election years, new tax legislation is a rare event, but 2004 promises to be an anomaly, especially for exporters. An unfavorable ruling by the World Trade Organization (WTO) against the extraterritorial income exclusion, and political pressure from the International Community to comply with the ruling, virtually assure tax legislation will be passed early in 2004.

An opportunity for taxpayers who participate in export sales is the formation of an Interest Charge Domestic International Sales Corporation, or IC-DISC. An IC-DISC arrangement works in a manner similar to the ETI. However, rather than occurring inside the taxpayer’s income tax return, the DISC is a separate corporation established to receive commissions from the exporting company. The “commissions” paid to an IC-DISC are computed in accordance with provisions of the Internal Revenue Code and are generally equal to the greater of 50 percent of export profit or 4 percent of export gross receipts.

During the summer of 2003, the IC-DISC became more valuable. As part of the Jobs and Growth Tax Reconciliation Act of 2003, qualified dividends received by individuals are subject to a reduced income tax rate of 15 percent. The JGTRA provisions can create deductible dividends to an exporting company and provide permanent tax benefits of 20 percent of export profit. Furthermore, IC-DISCs have the blessing of the World Trade Organization.

IC-DISCs are relatively easy to set up and offer a large number of applications to exporting companies and their shareholders. The time to evaluate and take advantage of export incentives is now. Since you cannot start realizing the benefits of an IC-DISC until you have a separate corporation and DISC election in place, it is imperative that you act quickly to position yourself for the potential tax saving available.

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05/17/2004
Unclaimed Property Law in New York State

Is your business in compliance with state laws regarding unclaimed property? If not, your business could be subject to an audit, interest and penalties as unclaimed property compliance has become a growing concern in many states.

Many states are becoming more aggressive in this arena and there has been an increase in the number of unclaimed property audits. This increase can be attributed to the increased need for revenue by the states and the lack of business compliance with unclaimed property laws. According to the NYS Office of the State Comptroller’s website, “The state of New York is currently holding billions of dollars in unclaimed funds.”

What is Unclaimed Property?
Unclaimed property is any property for which a business is unable to locate the rightful owner. Examples of unclaimed property include savings and checking accounts, outstanding checks, wages, insurance benefits, rental and utility deposits, securities, trust funds, estate proceeds, and safe deposit box contents. Property becomes unclaimed or abandoned if there has been no owner activity in the account for a set period of time (the “dormancy period”), usually between two and five years. The dormancy period varies by property type.

What happens to Unclaimed Property?
When property is abandoned or unclaimed, custody of the property reverts (i.e., “escheats") to the state. New York State then holds the unclaimed funds in trust until the rightful owner or heir claims the funds. The State Comptroller is the custodian and the state never takes ownership of the funds. A person can claim their property anytime and without charge, as along as they can provide acceptable proof of ownership.

What are the responsibilities of businesses with Unclaimed Property in New York?
Virtually all states provide in their statutes that some level of due diligence be performed by a holder of unclaimed property prior to escheating the property to the State. However, the due diligence requirement is usually based on the aggregate reporting amount. For example if the aggregate threshold for reporting in a particular state is $50.00, due diligence letters would have to be circulated on amounts greater than $50.00. This is a provision that does not appear to be aggressively pursued by auditors and state administrators especially when dealing with "general ledger" type property, i.e., accounts payable, expense payables, customer credits, uncashed payroll checks, customer deposits etc. Where there seems to be greater enforcement of this provision is in the banking and financial arenas. Additionally, holders of equity and debt type property (i.e. uncashed dividends, untendered shares, bond interest and unredeemed bonds) appear to come under greater scrutiny.

In New York State, businesses are required to turn over unclaimed property to New York State if there has been no activity with respect to the property for a certain period of time. New York State also requires businesses to file information reports (Abandoned Property Reports), which are usually filed when the property is delivered to the State Comptroller. All reporting organizations are required to perform due diligence prior to remitting any funds to New York. The specific requirements for due diligence and reporting, and due dates of reports vary for different industries.

In regards to due diligence, the general policy among the states is that holders at a minimum should circulate a letter to the owner of the property prior to escheatment. Sometimes, the chances of the holder reuniting the owner with the property are great