2008 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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12/12/08
Failure to File Form 5471 may Result in Automatic Assessment of Penalties

The Internal Revenue Service (IRS) has recently announced a change in its policy regarding the assessment of penalties for late-filed Forms 5471.  Effective for late-filed Forms 5471 filed on or after January 1, 2009, the IRS will begin to automatically assert penalties because of such late filing.  Most likely, the new, post-2008, automatic penalty rules will also apply to delinquent Forms 5471 that the IRS discovers, on its own, have not been timely filed, though the IRS announcement does not specifically state that.

For late-filed Forms 5471 filed prior to January 1, 2009, the IRS will apparently continue its past policy of only asserting a penalty when the IRS deems it appropriate, though it is not clear whether its past discretionary policy to assert penalties in this situation will be tougher now than before.  However, as the IRS announcement specifically encourages taxpayers to file late Forms 5471 prior to January 1, 2009, by doing so there appears to be a clear implication that whatever the level of penalty assessments is for such filings, the assessments will likely be significantly less than for late-filed returns filed on or after January 1, 2009, the beginning of the automatic assessment period.

Filing Requirements: Form 5471, if required to be filed, is due when a U.S. taxpayer’s income tax return is due, and must be attached to that return. The rules for determining who must file Form 5471 are complex.  Pages 1 through 3 of the instructions to Form 5471 describe five categories of potential “U.S. person” filers. Each category is defined by specific requirements. Policyholders are strongly urged to refer to these instructions in determining whether they have clients that meet one or more of the definitions. 

Many U.S. persons will meet a Form 5471 filing requirement on the basis of falling within the “Category 5” filing rules.  This filing requirement applies if: 1) a U.S. person owns, for an uninterrupted period of 30 days or more during a foreign corporation’s tax year, 10% or more of the total combined voting power of all classes of stock of that corporation; and 2) more than 50% of such total combined stock voting power is owned, in the aggregate, by one or more U.S. shareholders who each own 10% of more or more of such combined stock voting power.   A “U.S. person” is defined to mean a citizen or resident of the United States, a domestic partnership, a domestic corporation, or an estate or trust that is not a foreign estate or trust.

Penalties: Both civil and criminal penalties may be imposed for failure to timely file Form 5471. The minimum civil penalty is $10,000 for each delinquent or late-filed Form 5471 and for each accounting period the form is delinquent or late-filed.  Thus, this $10,000 penalty will be automatically assessed for late-filed Forms 5471 filed on or after January 1, 2009, or discovered by the IRS to be delinquent on or after such date.  Additional penalties are imposed by means of a reduction of the direct and indirect foreign tax credits that may be claimed by the taxpayer for the year that a Form 5471 is delinquent or filed late, and not just with respect to the foreign tax credit attributable to the foreign corporation for which there is a late-filed or delinquent Form 5471.   It appears from the IRS announcement that the penalty relating to a reduction of the foreign tax credit will be a part of the automatic IRS assessment procedure, starting on January 1, 2009.

Please note that the rules relating to a penalty assessment for a delinquent or late-filed Form 5471 are not subject to the normal three-year statute of limitations rules, as the three-year period statute of limitations period begins from the date Form 5471 is filed, not three years from the date that the income tax return, to which that form should be attached, is filed.  Of course, that means that if Form 5471 has never been filed with respect to a foreign corporation for a year, there is no effective statute of limitations period limiting the assessment of a late-filing penalty with respect to that form.

In addition to civil penalties, criminal penalties may be imposed for willful failure to file a Form 5471.

Waiver of Penalties: Policyholders should be aware that the announcement by the IRS should not be regarded as the commencement of an IRS amnesty program to not assert penalties with respect to late-filed Forms 5471 filed prior to January 1, 2009.  Similarly, the announcement does not mean that a taxpayer cannot obtain abatement of penalties which have been automatically assessed on or after January 1, 2009, by establishing reasonable cause for the late filing. The IRS announcement seems designed simply to inform taxpayers of their change in policy and to encourage them to take advantage of the non-automatic assessment rules for late-filed Forms 5471 submitted prior to January 1, 2009, with the implicit assumption that because there will not be an automatic penalty assessment under those circumstances, the chances of a taxpayer actually being assessed any late-filing penalties will be substantially reduced. 

 

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11/06/08
Economic Development Symposium scheduled for Canadian Organizations
Growing Your Business in New York State

New York State presents tremendous opportunity for Canadian organizations seeking to grow and expand business in the United States. Join us as Keynote speaker, Empire State Development President, Dennis Mullen along with Harris Beach, the Buffalo Niagara Enterprise, National Grid and Freed Maxick and Battaglia discuss how to access one of the world's most desireable marketplaces and how to turn a New York state presence into a powerful competive advantage.

When: Thursday, November 6, 2008 from 8:00 am to 2:00 pm
(Breakfast and Lunch will be served)

Where: Mississauga Living Arts Centre
Living Arts and Prince of Wales Drive
Mississauga, Ontario

What You’ll Learn: Through formal presentations, interactive panel discussions, Q&A’s, and networking, symposium attendees will gain a better understanding of:

• The economic development landscape in New York state
• Available economic development, empowerment zone, and energy program incentivesand how to maximize them to your advantage
• Corporate considerations including business structuring and cross-border tax implications
• Workforce issues such as human resources, and labor and immigration law
  

Click Here to Download Agenda

How to Register:
RSVP by October 30th by calling 1-800-685-4955 x1111 or emailing dsavino@harrisbeach.com

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10/03/08
Emergency Economic Stabilization Act of 2008 Signed into Law

Though originally designed with a singular focus on the stabilization of the financial markets, the Emergency Economic Stabilization Act of 2008 (the Act) broadened during the legislative process to include extensive tax, energy, and disaster relief provisions. Signed into law on Oct. 3, 2008, the Act addresses financial market turmoil by establishing a $700 billion federal program authorizing the Treasury to purchase or insure distressed assets from financial institutions. Financial institutions participating in the program are subject to limitations as established by the Treasury.

Representing one of the largest tax bills in recent history, the Act provides for an estimated $150 billion in business and individual tax incentives and approximately $44 billion in revenue-raising offsets over the next ten years. To encourage a broad spectrum of energy conservation and production-related activities, the Act extends and establishes tax incentives for wind energy, biodiesel, and other clean energy sources, while promoting additional oil production through a refinery expensing provision. The Act also includes disaster tax relief for the Midwest and other federally-declared disaster areas.

The following table highlights provisions from the Act. With the bulk of the Act’s provisions having immediate impact in 2008 and 2009, we recommend you take steps to consult with your Freed Maxick/RSM McGladrey or other tax advisor to assess the specific tax implications to you and your business.

Download a PDF version of the Emergency Economic Stabilization Act of 2008 Summary

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7/21/08
Freed Maxick sponsors 2nd annual CFO of the Year Awards

Freed Maxick is proud to announce that we are sponsoring the 2nd annual CFO of the Year Awards in conjunction with Buffalo Business First and Citizens bank. The CFO of the Year Awards will be given to financial professionals in the Buffalo Niagara region for outstanding performance in their roles as corporate financial stewards. This program provides many benefits to the regions business community by highlighting the growing importance of financial executives in the Buffalo Niagara area.

Nominate your CFO

Use the online nomination form on the Business First website here: http://buffalo.bizjournals.com/buffalo/nomination/1112 Or,  download a nomination form here and mail the completed nomination package to: Business First of Buffalo CFO of the Year c/o Carol Gambino 465 Main St., Suite 100 Buffalo, NY 14203

 

 

 

 

 

 

Eligibility

Nominees must be Chief Financial Officers or hold equivalent positions in the counties of Erie, Niagara, Cattaraugus, Chautauqua, Wyoming, Orleans, Allegany or Genesee. The nominees home office must be in this region. Deadline for nominations is August 8th, 2008

Grand Awards
Grand Awards will be provided in several categories. Between three and five finalists will be selected for each category. Grand Awards will be announced at the awards program.

• Public Company CFO
• Large Private Company CFO (2007 revenues above $50 million)
• Small to Medium Private Company CFO (2007 revenues below $50 million)
• Non-Profit-General
• Non-Profit-Health Care
• Community Service (presented to a CFO for community service)

Award Honors
Award winners will be announced at an awards program October 16, 2008 at Salvatore's Italian Gardens.

Selection Process
An independent panel will select winners based on information provided by nominees to questions provided on nomination form, including a 500-word narrative and any supporting documents.

Event Contact: Contact Eric Majchrzak, Marketing Manager with any questions. eric.majchrzak@freedmaxick.com

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7/15/08
Barrett, Gracie and Hessney promoted Directors

Kathryn Barrett
Alan Gracie, Jr.
Larry Hessney

Buffalo, New York – Kathryn M. Barrett, CPA, Alan W. Gracie, Jr., CPA were recently promoted to Directors at Freed Maxick & Battaglia, CPAs and RSM McGladrey.  Larry Hessney, CIA, CISA was appointed to Director at RSM McGladrey.

Kathryn Barrett, CPA, previously a Senior Manager, is now a Director in the firm’s Governmental Practice, where she is responsible for providing audit services to municipalities, public school districts, BOCES and Workers’ Compensation Insurance Plans. Prior to Joining Freed Maxick, Kathryn worked at a public accounting firm in New Jersey. Kathryn joined the firm in 1994 and is a graduate of State University of New York at Buffalo with a BS degree in Accounting and Finance. 

Alan W. Gracie, CPA, previously a Principal, is now a Director in the firm’s Healthcare Assurance and Advisory Practice, where he has leads numerous audit and consulting engagements for many not-for-profit healthcare providers, including Hospitals and Health Systems. Prior to Joining Freed Maxick, Alan was with PricewaterhouseCoopers. Alan joined the firm in 2006 and is a graduate of the State University of New York College at Fredonia with a BS degree in Accounting.

Larry Hessney, CIA, CISA, previously a Principal, is now Director of the firm’s Risk and Technology Management Practice.  His experience includes consulting with commercial and not-for-profit clients on implementation of Sarbanes Oxley compliance, building and co-sourcing internal audit functions and completing SAS 70 audits. Prior to joining the Firm in 2006, Larry was with Eastman Kodak. He received his BA degree from Dartmouth College and his MBA from the University of Rochester.

Freed Maxick & Battaglia operates an alternative practice structure with RSM McGladrey, the nation’s 5th largest accounting & consulting firm. The alternative practice structure enables Freed Maxick & Battaglia, a licensed CPA firm that provides attest services (audit), and RSM McGladrey, Inc., a business services company that provides non-attest (tax and consulting), to work together to serve the business needs of mid-sized companies.

 

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6/05/08
Freed Maxick fields team for Corporate Challenge

On June 5th, Freed Maxick & Battaglia participated in the JPMorgan Chase Corporate Challenge.  Forty five of our employees from all three offices registered for the run/walk with another 30 participating in the after party.  In total, 12,399 runners and walkers (with an estimated 15,000 additional party-goers) from 421 companies filled Buffalo’s Delaware Park.  In its 32nd year, the Corporate Challenge is the largest road racing series in the world held in 12 cities across five continents.  This 3.5 mile, team road race fosters camaraderie among co-workers while charitably giving back to local communities.  Locally, proceeds benefitted the Buffalo Olmsted Parks Conservancy and Buffalo Preparatory School. 

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6/03/08
Majchrzak reappointed Committee Chair of the Association for Accounting Marketing (AAM)

Eric Majchrzak, marketing manager of Freed Maxick CPAs was reappointed Chairman of the Association for Accounting Marketing's Website Committee, which is charged with the integration of the association's strategic marketing, communications and P.R. efforts into the association's website.  Majchrzak was appointed committee chairman at the Association's 19th Annual Marketing Summit in San Diego, CA, where more than 500 accounting marketers from around the country (and internationally) were on hand for the three day conference to learn more about the evolving role of marketing professionals within the industry. This year's program addressed marketers of every level from first year to experienced veterans. 

About the Association for Accounting Marketing (AAM): AAM is a national association formed specifically to address the growing marketing needs of public accounting firms. Its membership includes over 800 marketing professionals, CPAs and consultants, vendors, educators and students who seek to expand the business of public accounting. Since 1989, AAM has provided members with the information, resources and market intelligence needed to excel and grow in their careers. Visit accountingmarketing.org

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5/20/08
Freed Maxick appointed City of Rochester and City Schools auditors

Rochester, NY- Freed Maxick & Battaglia, CPAs has been appointed independent auditor of the City of Rochester, the Rochester City School District and four related component entities including the Rochester Economic Development Corporation (REDCO), Economic Development Zone (ED Zone), Cultural Center Commission, and the Rochester Ferry Company, LLC. The Rochester City Council and Board of Education approved the appointment at their April 15th and 24th meetings, respectively. The service agreement will be effective May 30th 2008 and the term of the contract to perform independent financial statement audits will include the fiscal years ending June 30, 2008, 2009 and 2010. Freed Maxick has a dedicated Governmental Practice area that provides audit and consulting services to governmental entities across New York State including cities, counties, towns, villages, school districts, public utilities and municipal consortiums. Freed Maxick has over 240 employees and operates an alternative practice structure with RSM McGladrey, the nation’s 5th largest accounting & consulting firm.

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4/18/08
Freed Maxick Announces CFO Breakfast Roundtable

Please join us for a "CFO Best Practices Breakfast Roundtable Forum" on how to create and be part of a winning organization on Tuesday, May 20, 2008 from 7:30-9:00am at Harry's Harbour Place Grille. This event is a must-attend for all CFOs, financial executives and aspiring CFOs who want to learn more about how Western New York's top CFOs operate. We’ve invited last years’ CFO of the Year award winners to this special forum to share their best practices with the CFO community. This is an exclusive opportunity for peer to peer networking, coaching and exchanging ideas. Learn and share with those who are instrumental in the success of their respective organizations.

Discussion Topics: Growth strategy priorities Implementing change Managing of non-core functions Staying on top of trends Integrity barometer The technology-savvy CFO Self-development initiatives Operational effectiveness and more                 Registration: Visit the Business First Website to register. Fee: $25 per person (includes continental breakfast)

Panelists: Panelists include these 2007 CFO of the Year Award Winners: Stephen Cavanaugh: Try-It Distributing David Wawrzynek: Spectrum Human Services Kenneth Wilson: Merchants Mutual Insurance Greg McDonald: Roswell Park Cancer Institute  Moderators: John Kropski, CPA - Director: Freed Maxick & Battaglia, CPAs Anthony Rizzo, Senior Vice President: Citizen’s Bank Who Should Attend? CFOs, CEOs, Controllers, Accounting and other business professionals

 

For more information, contact:

Eric Majchrzak
Marketing Manager
Freed Maxick & Battaglia
716.332.2773 or eric.majchrzak@freedmaxick.com

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4/15/08
Mike Boeheim Instructor at CFA's Fraud Awareness Workshop

Mike Boeheim, CIA, CFE, a Director of Freed Maxick ABL Services,  will be instructor for the Commercial Finance Association's Fraud Awareness Workshop, being held Wednesday, May 21 - Friday, May 23, 2008 at the Hilton Los Angeles/Universal City in California. The Fraud Awareness Workshop is a three-day program presenting the best practices in the prevention and detection of borrower fraud, while also recommending fraud prevention procedures for a variety of Asset-Based Lending (ABL) disciplines. The goal of the program is for participants to understand their roles in mitigating the risk of fraud within their organizations.  During the three-day program participants will learn fraud prevention procedures for the ABL and factoring discplines of:

• Account Management
• Field Examination
• Underwriting
• Operations
• Credit
• Senior Management
• Business Development
• Mitigating the risk of fraud 
• Specific approaches and techniques in fraud prevention/detection

This workshop is recommended for: Professionals seeking to minimize their institution's fraud risk. See Mike Boeheim's Bio. For more information about this event, or to register, visit the CFA website
 

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4/1/08
Freed Maxick Sponsors World Trade Celebration 2008

Freed Maxick announced today that the firm is sponsoring "World Trade Celebration 2008-Unleashing the Power of Trade", presented by the World Trade Center Buffalo Niagara. The event will take place Thursday, May 8, 2008, from 4:30-10:00pm at the Buffalo Convention Center.

World Trade Celebration is the annual networking event for hundreds of American and Canadian executives involved in international trade in the binational region of Upstate New York and Southern Ontario. Since 1996, World Trade Center Buffalo Niagara has presented World Trade Celebration to bring the trade community together to recognize the benefits of trade and commerce for our binational region. This year's event features Keynote Speaker Joe Loughrey, President & COO of Cummins, Inc. For more information about the event, visit WTCBN.com

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3/25/08
Freed Maxick Voted a 2008 "Best Places to Work"

 

Freed Maxick & Battaglia, CPAs was recently named a “Best Places to Work” in Western New York for 2008, according to Buffalo Business First an

d Quantum Market Research.  Business First, in conjunction with Quantum, invited hundreds of Western New York businesses to participate in a survey that lets employees measure their work environment.  To complete the process, each company invited their employees to complete a voluntary 40-page survey online. 

The responses to the questions asked were analyzed by Quantum, and each company’s results indicated how “engaged” their employees are at the company. Freed Maxick participated in the “Extra-large Company” category (with 200 employees) and had a high percentage of “enthusiastic” employees complete the survey.  Because of the impressive results, the firm will be honored a “Best Places to Work” at a reception to be held at the Buffalo Convention Center April 8th.

Freed Maxick & Battaglia, CPAs has become the largest public accounting firm in Western New York not only because of our clients, but because the best places to work have the best people.  Also, thanks to all of our clients, who help create the fulfilling work environment for our employees.

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2/26/08
Employer-Owned Life Insurance Reporting Requirements

Proceeds received from a life insurance policy are generally excluded from income.  At the same time, no deduction is allowed for premiums paid on any life insurance, annuity, or endowment contract, if you are directly or indirectly a beneficiary under the contract.  However, the Pension Protection Act of 2006 provides that the amount excluded from gross income with respect to an employer-owned life insurance contract cannot exceed the premiums and other amounts paid by the policyholder for the policy.  Thus, the excess death benefit is included in the employer’s income. 

Fortunately, there is an exclusion for death benefit proceeds from contracts issued for any individual who was an employee at any time during the twelve months before their death, or who, at the time the contract was issued, was a director, highly compensated employee or highly compensated individual. 

An employer-owned insurance contract is one in which you, as the employer, own a policy and are a beneficiary under a contract that covers the life of an employee in your trade or business.  If you intend to claim a full exclusion of the death benefit from gross income with regard to such contracts issued after August 17, 2006, notice and consent requirements must be met.  The notice and consent requirements are met if, before the issuance of the contract, the employee: 

1. is notified in writing that you intend to insure the life of the employee and the maximum face amount of the policy for which the employee can be insured;
   
   
2. provides written consent to being insured under the contract and that such coverage may continue after the insured terminates employment; and
   
   
3. is informed in writing that you will be a beneficiary of any proceeds payable upon the death of the employee.

In addition, you are required to report to the IRS annually on Form 8925 Report of Employer-Owned Life Insurance Contracts: 

1. the number off employees at he end of the year;
   
   
2. the number of employees insured under an employer-owned life insurance contract at the end of the year;
   
   
3. the total amount of insurance in force at the end of the year under such contracts;
   
   
4. your name, address, and taxpayer identification number and the type of business your are engaged in; and
   
   
5. a statement that you have a valid consent from each insured employee.

If you wish to take advantage of the death benefit exclusion, it is important that you meet the applicable requirements.  Our office can assist you with preparing the documentation and filing the correct IRS form.  Please call us at your convenience at 716-847-2651.  We will be happy to answer any questions that you have regarding employer-owned life insurance policies.

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2/13/2008
Economic Stimulus Package Act of 2008 Enacted

The Economic Stimulus Package Act of 2008 is designed to boost the U.S. economy by providing tax rebates to individuals and tax incentives for businesses. 

Recovery rebates

To encourage spending that stimulates economic recovery, eligible individuals will begin receiving rebate checks sometime soon after the April 15 tax filing deadline. You can’t use the rebate to offset a balance due with your tax return, and extending your 2007 tax return will delay the refund.

The amount of the rebate will generally be either $600 ($1,200 if filing jointly) or the taxpayer’s 2007 income tax liability after credits, whichever is less. But even if that liability is less than $300 ($600 if filing jointly), the rebate will be $300 ($600 if filing jointly) — as long as the taxpayer has either:  

• A tax liability of at least $1 and gross income greater than the standard deduction plus one personal exemption (two if filing jointly), or
  
• At least $3,000 of qualifying gross income (earned income, Social Security and certain veterans’ benefits).

In addition, the rebate for taxpayers with dependent children will be increased by $300 per qualifying child. A qualifying child must not have reached the age of 17 before the end of 2007 and must have a Social Security number.

However, the rebate begins to phase out for taxpayers with a 2007 adjusted gross income (AGI) of at least $75,000 ($150,000 for a joint return). Under the phaseout, the rebate is reduced by 5% of the amount by which a taxpayer’s AGI exceeds the applicable limit. So filers without qualifying children will receive no rebate if their AGI is $87,000 or more ($174,000 for joint filers). Remember, AGI is your income after certain adjustments, such as retirement plan contributions, but before personal exemptions and itemized deductions, such as mortgage interest, state and local taxes, and charitable contributions. 

Other factors may also impact taxpayer eligibility. Here are some examples of how the rebates will work:

Example 1

Joe and Tanya file jointly and have a 2007 AGI of $125,000 and a 2007 net income tax liability of $10,000. They have two dependent children under age 17. They can expect a recovery rebate of $1,800.

Example 2

Suppose, instead, that Joe and Tanya’s 2007 AGI is $200,000. The $1,800 calculated amount is reduced (but not below zero) by 5% of the amount by which their AGI exceeds $150,000. Thus, once their AGI exceeds $186,000, they are completely phased out (5% of $36,000 is $1,800) and won’t get any recovery rebate. 

Example 3

Tanya’s widowed mother is retired and has no income other than her Social Security of $12,000. She pays no income tax, but because her Social Security income is $3,000 or more and is therefore considered qualifying income, she is eligible for a recovery rebate of $300 even though her income tax liability is not at least $1.

Note that the recovery rebates, while based on your 2007 tax return, are technically an advance on your income tax liability for 2008. Thus, when filing their 2008 tax return in 2009, those who didn’t receive the maximum possible rebate because their income was too low or too high get a second chance based on the figures on their 2008 return. For example, if a single person had no tax liability in 2007 and therefore received only a $300 rebate, but he or she has a $1,000 tax liability on the 2008 tax return, that person would receive an additional $300 credit on the 2008 return. No one will be required to give back any rebate received.

Incentives for business investment

To spur additional investment, the act increases the Section 179 limit for initial year expensing to $250,000 (from $128,000). The Sec. 179 expensing election allows a current deduction for newly acquired assets that otherwise would have to be depreciated over a number of years. Because this tax break is designed to benefit primarily smaller businesses, the expensing election begins to phase out dollar for dollar when total asset acquisitions for the tax year exceed $800,000 (up from $510,000 before the act). The new higher limit applies for calendar year 2008 or a business’s fiscal year that begins in 2008. As in the past, a business can claim the expensing election currently only to offset its net income, not to reduce net income below zero.

Another depreciation-related provision offers a special allowance for certain property, generally if acquired this year. This is in addition to any such property that qualifies for Sec. 179 expensing. For eligible property, the special depreciation amount is equal to 50% of its adjusted basis. The following types of property are qualified for this special depreciation: 

• Tangible property with a recovery period of 20 years or less,
  
• Computer software purchased by the business,
  
• Water utility property, and
  
• Qualified leasehold improvement property.

Because both the Sec. 179 limit increases and the 50% depreciation allowance can provide large 2008 deductions, you may want to consider making major asset purchases this year. 

Temporary loan limit increases for Fannie Mae, Freddie Mac and FHA

In response to the mortgage crisis, the act increases from $417,000 to $729,750 the dollar limit on loans that may be issued by the FHA and that Fannie Mae and Freddie Mac can purchase. This is designed to reduce predatory lending practices on borrowers seeking loans in excess of the current limits, often referred to as “jumbo mortgages.” The increases are in effect for loans made or approved for origination through the end of 2008, after which the previous loan limits will apply once again. 

Please contact us to find out exactly how the Economic Stimulus Package Act of 2008 will affect your personal and business taxes in 2008. 

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