TSCPA launced the new Rising Stars Program last fall to recognize CPA members 40 years old and younger who have demonstrated exemplary leadership skills and active involvement in TSCPA, the accounting profession and/or their communities. People from around the state nominated colleagues or friends they felt should be recognized as a rising star.

To be considered, the nominee was required to be a TSCPA CPA member, 40 years old and under by the October 25, 2011 application deadline, and nominated by the application deadline. Each nominee also had to complete and submit a profile. A task force of TSCPA Executive Board members served as the selection committee. With all of the excellent nominations received, the selection process was difficult, but the committee narrowed it down and 12 were chosen.

TSCPA’s 2011-12 Chairman, Donna Wesling, CPA-Austin, said the following about the program: “I am so pleased that we launched the program this fiscal year. All of us who served on the selection task force were so impressed with all the nominees. We came away knowing that our profession will continue to be strong, and leaders are emerging who can take us into the future.”

Sheila A. Enriquez holds a BS in Public Accounting degree from Mercy College, as well as an MBA from Long Island University and a Juris Doctor from the University of Houston Law Center. At her firm, she is responsible for developing two growing areas, Litigation Support and an SEC practice. She also handles non-billable initiatives, including acting as a mentor for staff members.

Enriquez is a first generation immigrant who came to the U.S. as a self-supporting student. She grew up in the Philippines and, after high school, received a scholarship to study business in Japan and then in New York. After earning her public accounting and MBA degrees, she attended law school while working full time as a CPA and raising a family. In 2009, she was sworn in as an attorney and received her U.S. citizenship. Enriquez is active in TSCPA and the Houston Chapter. She is chair of the Chapter’s PR Committee, and is a member of TSCPA’s External Relations/Image Issues Committee. She was also recently elected to the Chapter’s board of directors for a two-year term beginning June 2012. The hard-working CPA provides pro bono legal services to Kids In Need of Defense, an organization that protects the rights of unaccompanied immigrant children in the U.S.

You can read Sheila’s full bio here.

To view the full article, click here.

The FBAR – Who Has Reporting Obligations?

A United States person who has a financial interest in or signature authority over foreign financial accounts must file a FBAR if the aggregate value of the foreign financial accounts exceeds $10,000 at any time during the calendar year.

A foreign financial account is an account defined as located outside of the United States. This would include an account maintained with a branch of a United States bank that is physically located outside of the United States or an account maintained with a foreign bank located outside of the United States.

Foreign financial accounts can include and are not limited to securities, brokerage, savings, demand, checking, deposit, time deposit, or another account maintained with a financial institution (or other person performing the services of a financial institution), a commodity futures or options account, an insurance policy with a cash value (such as a whole life insurance policy), an annuity policy with a cash value, shares in a mutual fund or similar pooled fund (i.e., a fund that is available to the general public with a regular net asset value determination and regular redemptions).

You don’t have to have a direct financial interest in the account to fall under these requirements, and there are several exceptions to the requirements. 

Also, if you have a power of attorney for signature authority or other authority comparable to signature authority, over the financial account, you are required to file a FBAR (even if the power of attorney has not been exercised).

The FBAR – Consequences For Non-compliance?

Failure to file the FBAR, either non-willfully or willfully, can carry potential civil penalties of anywhere from $10,000 to $100,000 or 50% of the amount of the transaction or balance of foreign account at time of the offense. Criminal penalties and imprisonment can also apply for more serious willful offenses.  

The FBAR – Recent Developments?

On January 9, 2012, the Internal Revenue Service re-opened the Offshore Voluntary Disclosure Program (OVDP) which primarily focuses on non-compliance of FBARs.  This is a result of the strong interest in the 2009 and 2011 Offshore Voluntary Disclosure Initiative (OVDI) programs to assist taxpayers in getting current with their offshore compliance reporting.  Terms are generally the same as 2011 OVDI with an increase in penalty from 25% to 27.5% of highest aggregate balance in foreign bank accounts/entities or value of foreign assets during the eight full tax years prior to the disclosure.  There is no deadline for filing under the new OVDP however the IRS can end it at any time. 

Discuss with your tax advisor about what constitutes a foreign financial account or assets to determine if these reporting requirements apply to you or someone you know as well.  These requirements carry strict reporting and filing deadlines. The requirements and exceptions are fairly complex, so we look forward to assisting you with your reporting obligations and questions you may have.

Our B&V International Tax Services team is ready to assist with questions and reporting of your FBAR.  For more information about B&V International Tax Services,  please feel free to contact Lien Le, International Tax Shareholder at LLe@bvccpa.com.

Current Regulatory Hot Buttons

By: Dan St. Clair, CPA
Audit Principal

 Each year CPAs, accountants, CFOs and auditors try to identify what the current issues are that the regulatory agencies will be looking for.  Over the past few years the focus has been on asset quality and revenue recognition, and that trend should continue into 2012.  Items scrutinized over the past few years include gains related to the sale of Small Business Administration (SBA) loans, recognition of origination fee income and reporting of deferred tax assets.         

We were recently at a state industry convention and the Regulatory Panel discussed several issues related to the reporting and classification of loans.  The foremost topic discussed was related to asset quality and internal grading of loans. Over the past few years there have been an increased number of credits that do not have adequate documentation to support the repayment of the loan balance.  Stale financial statements and tax returns are more and more common in loan files.  Having outdated financial statements does not support the current state of the borrower and can lead to the downgrade of a specific credit based on the lack of documentation alone.  The grading of the loan should be based on the borrower’s ability to repay and should not be solely supported by the underlying collateral.         

Another topic of discussion related to the adequacy of appraisals.  How current is the information? Was it properly done with reasonable assumptions and comparatives? Did the bank perform a desktop review?  If there are questions related to the repayment of a loan where the credit is collateral dependent, or if the credit is being moved into Other Real Estate Owned, an updated appraisal performed by an independent consultant is most likely to be expected.

The proper reporting of Troubled Debt Restructuring (TDR) was discussed at length.  It was noted by the regulators that many community banks still show zero amounts on their Call Reports related to TDRs.  Due to the current economic environment, it seems unusual to have so few of items where concessions have been made for borrowers experiencing financial difficulties. This appears to be an area  for increased questioning and is easily based on the reporting within the Call Reports.         

 There appears to be common themes in all of these and other regulatory discussions, mostly to increase the internal and supporting documentation related to decisions. Expectations related to regulatory capital percentages and allowance for loan and lease loss percentages continue to rise. There is a move towards more regulatory enforcement actions, which are becoming more common and are often accompanied by requirements to increase regulatory capital and loan loss coverage.  There also appears to be more scrutiny on how the bank compares with its peer group.  Outlying institutions that skew the peer group averages are being looked at very closely.        

So what can you do? Start preparing for your next exam now. Make sure your documentation is current and complete. Be honest with yourself about your borrower’s current situation. Lenders often give the borrower the “benefit of the doubt” that examiners are unwilling and unable to provide. Be conservative. If there are several situations that are border-line, don’t always round up. Make Enterprise Risk Management a primary focus. Take a portfolio view of the enterprise. Don’t just focus on the individual pieces. Take a step back and look at the big picture as well.

Troubled Debt Restructuring Rules

By: Dan St. Clair, CPA
Audit Principal

The Financial Accounting Standards Board (FASB) has issued Accounting Standards Update (ASU) No. 2011-02 to improve financial reporting related to Troubled Debt Restructuring (TDR). The FASB explained that additional guidance and clarification was needed to help creditors in determining whether a creditor has granted a concession and whether a debtor is experiencing financial difficulties for purposes of identifying whether a specific restructuring constitutes a troubled debt restructuring.  In evaluating whether a restructuring constitutes a troubled debt restructuring, a creditor must separately conclude that both a) the restructuring constitutes a concession and b) the debtor is experiencing financial difficulties.        

The creditor should carefully consider, and adequately document, their evaluation of whether it has granted a concession.  If a debtor does not otherwise have access to funds at a market rate with similar characteristics, the debt would likely be considered to be at a below-market rate, which may indicate that the creditor has granted a concession.  Other circumstances that could indicate a concession are unusually favorable terms or delays in repayments that are not deemed insignificant.        

For the evaluation of whether the debtor is experiencing financial difficulties, the creditor should evaluate whether it is probable that the debtor would be in payment default on any of its debt in the foreseeable future without the modification.         

FASB Codification 310-40-15-5 states: A restructuring of a debt constitutes a troubled debt restructuring for purposes of this Subtopic if the creditor for economic or legal reasons related to the debtor’s financial difficulties grants a concession to the debtor that it would not otherwise consider.        

The key appears to be clear documentation of the thought process behind the modifications being made, including the comparability of the terms and rates being used and the economic status of the debtor.        

Has a concession been made?  A modification to reduce the interest rates or increase the repayment period would not be a TDR if the goal is to retain a borrower and keep them from moving to another lender or to match other, more favorable terms available to the borrower on the open market.         

Is the borrower experiencing financial difficulties?  In cases where payment default is probable, it would generally be appropriate to conclude that a debtor is experiencing financial difficulties.  In cases where the modification is to reduce expenses or increase cash flows but the repayment of credit is not at risk, this conclusion should be clearly documented.        

The documentation and related support should be clearly laid out to guide the examiner and lead the reviewer to the same conclusions.

IRS Examinations

By: Marilyn Fowler, CPA
Senior Tax Manager

  Over the past year the Internal Revenue Service has increased the number of examinations performed on banking entities. One of the best lines of defense is to have a Conformity Election, or at the minimum, an Express Determination Letter from the federal regulators.

The Conformity Election allows for certain items to be calculated the same for both book and tax purposes, thus saving valuable resources of the bank for tax return preparation and possible tax return examinations. Some of these items include: nonaccrual interest on loans, appraisal of Other Real Estate Owned (OREO) and charge-offs to bad debt expense.

In order to make this election with the IRS, an Express Determination Letter is needed from the federal regulators for the last federal examination before the first day of the year for which the election is made. For example, to have the election effective for the tax year beginning January 1, 2012 you would need the EDL by December 31, 2011. An EDL would need to be requested at each subsequent exam.

These are some of the key issues that the IRS are targeting when examining banks: large book/tax differences that reduce taxable income, fair market value of OREO foreclosures when determining the bad debt write-off and holding costs associated with OREO property.

Please feel free to contact Marilyn Fowler at 713-667-9147 if you would like to discuss these topics more in depth.

Credit Disclosures

By: Travis Williams, CPA
Audit Manager

As a reminder we wanted to mention Accounting Standards Update (ASU) No. 2010-20 – “Receivables (Topic 310): Disclosures about the Credit Quality of Financing Receivables and the Allowance for Credit Losses” again. This was issued in July 2010 and is effective for non-public companies with reporting periods ending on or after December 15, 2011.

This ASU provides new terminology for financing receivables (which includes loans) and requires more information to be disclosed relating to receivables and the allowance for financing receivables; however, it will not have a significant change in practice. Certain disclosures will now be required to be broken out into one of two areas: portfolio segment and classes of financing receivables.

• A portfolio segment is defined as the level at which a financial institution develops and document a systematic method for determining its allowance for credit losses.
• Classes of financing receivables generally are a disaggregation of a portfolio segment.

This ASU affects current disclosures and creates new disclosures as shown below. The changes to the current disclosure are as follows:

• The allowance roll forward will be presented by portfolio segment.
• The recorded investment in the receivable and the ending balance of the allowance for each portfolio segment will be disclosed in the allowance roll forward. This will be disaggregated on the basis of the impairment method (for example, individually evaluated for impairment, collectively evaluated for
impairment and loans acquired with deteriorated credit quality).
• The non-accrual status of receivables will be presented by class.
• The impaired receivables will be presented by class.
• All receivables past due 90 days or more and still accruing interest will be present by class.

The following are new disclosures for the current year:

• The credit quality of the loan portfolio will be presented by class by credit quality indicators. Examples of credit quality indicators include:
consumer credit risk scores, credit rating agency ratings, internal credit risk grades, LTV ratios, collateral, collection experience, etc.
• The aging of financing receivables will be presented by class.
• The nature and extent of troubled debt restructurings (TDR’s) that occurred during the period will be presented by class of receivable. This also includes any current modifications of receivables that would classify as a TDR to be disclosed by class.
• Significant purchases and sales during the period will be presented by portfolio segment.

This ASU can be found on the FASB’s website (www.fasb.org) and it provides illustrative disclosures in paragraphs 310-10-55-7 through 310-10-55-11 for the items mentioned above. If you have any questions regarding the new disclosures please contact Dan St. Clair or Travis Williams at 713.667.9147.

We at Briggs & Veselka want to be one of your most trusted advisors. You have spent a lifetime building your business, and now that you have reached a certain point in your career or your company’s development, you would like to explore options on how to transfer or sell your business to a third party. We want you to be able to rely on us and the trust built over the years to help you with these options.

Have you considered what you would need to do to sell your business for the best price? Are you getting unsolicited offers for your business and do not know what is the best way to respond?

B&V Capital Advisors, LLC (“BVCA”) is an affiliated company owned by Briggs & Veselka Co. that is here to help you thoughtfully work through those transition ideas at the pace you dictate and helps you take control of a confidential, controlled process that gives you answers to the questions you have about selling your business.

BVCA has teamed with the Boston office of Lexbridge International to help clients like you reach your goals. Our combined strength along with the involvement of your Briggs & Veselka shareholder that you have worked with over the years creates an environment that you can be comfortable with knowing your best interests are the number one goal.

Please contact your B&V shareholder  or Rick Hunter at B&V Capital Advisors for a complimentary meeting to discuss these important issues and how we can help your company.

If you own a business, chances are this asset is your most valuable but least liquid asset that you own. The advantages of getting a valuation of your business are described in the following article:

Read more….

The tax bill enacted at the end of 2010 provides a two year opportunity to use a $5 million exemption from federal gift tax for aggregate lifetime gifts ($10 million for a married couple). This exemption applies for 2011 and 2012 and is in addition to the $13,000 annual exclusion gifts that may be made free of federal gift tax ever year.

After 2012, the exemption falls back to the prior amounts of $1 million for aggregate lifetime gifts ($2 million for a married couple). The transfer tax exemptions and highest rates for the years 2009 to 2013 are displayed in this chart.

If you have a closely held business or a family partnership, then this might be an ideal time for you to pass the ownership along to family members. Combined with the slowdown in economic conditions, there may not be a better time for you to take advantage of this two year window and save estate taxes and gift or transfer your interests at low values.

If you would like more information on this opportunity and how it could affect your specific estate tax situation, then please call your tax shareholder  or a member of our valuation team, such as Mark Schaaf, Rick Hunter or Christy Bastian. We would be glad to set up a meeting to discuss those issues with you in context with your entire estate plan.

Brian Jordan, Senior Tax Manager at Briggs & Veselka and manager on the Taylor & Hill account, reached out to attorneys at Martens, Seay & Todd, located in Austin, Texas. Working with attorneys Jimmy Martens and Lacy Leonard, Brian assisted them during the process. His testimony in front of the judge during the trial proved to be pivotal in the ultimate decision handed down.

Taylor & Hill provides engineers to refineries and chemical plants. It also provides in-house engineering services. Taylor & Hill’s franchise tax report had originally reported based upon Cost of Goods Sold method.

The Texas Comptroller audited Taylor & Hill and denied its eligibility for the Cost of Goods sold deduction. The Comptroller disputed that Taylor & Hill could not amend its Texas franchise tax report to claim the compensation deduction. Instead, the Comptroller attempted to force Taylor & Hill to report its Texas margin tax based upon the statutory minimum deduction equal to thirty percent (30%) of revenue, but was unsuccessful in their efforts.

The Texas Attorney General recently stated that they will not be appealing the judge’s order in the case. The state has been ordered to refund the money from the tax that was assessed in the audit.

For more information refer to Taylor & Hill, Inc. v. Susan Combs, Travis County District Court Cause No. D-1-GN-10-004429, or contact Brian Jordan at bjordan@bvccpa.com or 713.353.1980.