QTIPs Remove Golddiggers from Your Heirs

With the common practice of marrying "trophy" wives (or husbands) by wealthy widow[er]s; determining the allocation of assets between the new spouse and the children of the previous spouse can be complicated and legally costly. A commonly-used technique to spell out the rights of potential beneficiaries of estates--and a technique which can save significantly on estate taxes if drawn up properly--is the qualified terminable investment trust (called QTIP for short). Like the bathroom product namesake, the document can clean up a lot of potential hassles. The QTIP generally provides investment income to the spouse for life (sometimes called a life interest) and may also include provisions to allow the spouse some level of access to principal for medical care or other necessities. All assets included in the trust qualify for the marital deduction (these assets are subject to taxation at the surviving spouse's death). Assets remaining at the death of the surviving spouse are allocated based on the initial decedant's will. The article provides some useful examples of how the trust could be used.

The QTIP is a useful tool for accountants with elderly or infirm clients with multiple marriages and children. Note that from a tax planning standpoint, some assets should be kept outside the QTIP to take full advantage of the unified credit for both the initial decedant AND the surviving spouse's death. Make SURE to talk to a qualified attorney (preferably one with both tax and trust expertise) before setting up a QTIP.

Does the U.S. Government Know Where Its Money Is Going?

DOD Audit Deficiencies

In two separate WebCPA reports, the contract records section of the Securities and Exchange Commission and the Audit Division of the Department of Defense have been tested and found wanting. An outside auditor found that the SEC found "significant risk areas" with vendor contracts and procurements with one notorious example where the record system totally failed regarding contracts signed in regional offices. In the Defense Department, the GAO found that the Audit Agency fell short on planning, supervision and audit independence. GAO characterized problems as disturbing and widespread and issued numerous recommendations for improvement. Examples included over 500 hours of charged time for a cash management system which did not exist; skipping of audit steps on combat systems audit and elimination or mitigation of audit findings on a Iraq reconstruction contract solely based on the contractor's objections.

Do we really want the U. S. Government to add to their activities when they are having this many problems getting right work already performed by the Federal Government? (are you SURE?). I have no doubt that PCAOB would react harshly (and appropriately so) if a CPA firm were to act similarly on an audit of a publicly-traded private enterprise.

Tax Preparer Registration: An Irresistable Force?

CPA Allen Bostrom of Salt Lake City comtemplates registeration of tax preparers from the perspectives of California's and Oregon's experience. California permits non-CPAs, EAs and attorneys to register as "non-exempt" tax preparers for a mere $2 annually BUT requires "non-exempt" preparers to take 60 hours of continuing education per year and enforces this requirement with fines of up to $2,500 per year. Oregon started the licensure program 35 years ago. At the time, some accountants were "grandfathered" in--but most Oregon accountants appear to believe that this was a mistake. Oregon also exempts CPAs, EAs and attorneys with "non-exempt" preparers required to take 80 hours of education to prepare for the exam and 30 annual hours of CPE after licensure. Oregon preparers have two options: a licensed tax preparer takes an easier exam but must have 2 years of experience while a licensed tax consultant skips the experience requirement but takes a tougher exam.

After considering these experiences, Bostrom recommends a two-step process: [1] require preparers, whether CPAs, EAs, attorneys or otherwise, to register. Little or no restrictions on who registers; nominal registration fees and at least 20 hours of continuing education (five hours per year on tax updates, five hours first year on ethics/professional responsibilities) and annual registration renewal. [2] have the IRS evaluate the competence and ethical performance of preparers, both exempt and nonexempt, during the next three years. Bostrom does NOT support generalized testing of preparers nor mandated specific continuing education until the three year period is complete.

Bostrom's idea is one worth serious consideration; though no preparer group will be completely happy with it. "Nonexempt" preparers may feel like they are being singled out in the early years, while CPAs and attorney's are likely to balk at the idea that they may need to be retested after passing the CPA exam or bar respectively. One adjustment that I would recommend off the top--allow the State Board of Accountancy or State Bar to handle the registration process so that a new bureaucracy is not needed. The state board can handle CPAs and "nonexempts" while the State Bar handles attorneys and EAs (or switch for the EAs and "nonexempts").

The "Baucus" Bill: Is It Balanced if Everybody Hates It?

Senator and Finance Committee Chairman Max Baucus (D-MT) announced a bill from the Finance Committee that appears to have everybody ticked off. Liberals have shown distaste for the lack of a "public option," conservatives decry the lack of a tort reform provision and extra fees on insurance companies and nobody has enthusiasm for the direct and indirect taxes, such as the tax on high-end health insurance and the $2,000 ceiling on health savings accounts. Some commentators have stated that cuts in Medicare could also result from the bill--that particular issue is not addressed in the Forbes summary.

Conservative commentator Charles Krauthammer has stated that the Baucus bill is the most honest approach to health care yet to be presented; so the bill does have that in its favor. Those who understandably feel that the present health care situation is too flawed to continue must be able to show that specific reform packages will improve on the present flawed situation; the Baucus bill shows that this task will be harder than many thought six months ago.

The Mysterious Case of Vanishing Page Views

At the start of this week, my Easy Hit Counter total was about 59600. By the end of the week--it was closer to 11900. I just don't understand...

Smartpros: Start Your Accounting Career with a BANG!

The smartly titled title (effectively: don't just swim; swim like a star) gives entry-level accountants just emerging from college a number of useful ideas to move forward in their new career. These suggestions include: understand how an audit procedure fits with the overall audit; ask thoughtful questions to your supervisor (or senior if in a CPA firm); keep abreast of new developments in accounting and tax as well as in the specific industry of a given client (hint: blogs and news sites can help with this--as can the Journal of Accountancy, Strategic Management and similar journals); keep up with salient tech developments; manage time with care; know your client's needs and interact appropriately with client personnel; find a helpful mentor and pursue completion of the CPA or similar professional licensure.

Catherine Sadaat's advice is rock solid (though I acknowledge that I did not do this as well as I should have as a new accountant) and worth consideration by upperclass accounting and finance majors as well as new professional accountants.

A More Colorful Palette for the Profession?

Dr. Frank Ross of Howard University recently called on CPA firms, especially large CPA firms, to find ways to increase, retain and prepare for promotion accountants of color. Ross acknowledges that the AICPA and other organizations have made significant efforts to aid potential African-American accountants, but asserts that only 5% of CPA partners are nonwhite and only 1% are black. Specific steps called for by Dr. Ross include training to help understand multicultural distinctives and mentoring programs for promising accountants of color that would continue even in challenging economic times.

I do agree with Dr. Ross in part; the profession would clearly be well-served if significant numbers of additional African-Americans, Hispanics and Native Americans succeeded in public accounting--though I see this more as inclusion than what educators tend to call diversity. A couple of questions however: [1] I am seeing a consistent number of African-American students and some Hispanics in junior and senior-level courses, many of whom do well. I wonder if at least some of this problem will be solved simply by time; [2] I also wonder if as partners become younger whether these newer partners, who have had greater experience working and playing together with peers of many races and colors, will be more willing to pursue greater racial inclusion without prompting; [3] finally, there is no comment on the results of the last forty years. I wonder what the percentage increase in partners in color over the past say ten years is compared to the percentage increase in white partners--in other words, is the problem still occurring or is this the backlog of prior practices?

Tax Bloggers of the World, Unite

Kay Bell presents her 57th Tax Carnival with a Labor Day theme today. My "tax penalties" article from last is about half-way down; among other bloggers with posts are: Christian Personal Finance, Roth CPA Tax Updates, More Tax Tips, Tax Lawyer's Blog, Five Cent Nickel, Don't Quit Your Day Job, UK Tax Blog, Wandering Tax Pro and Wenchypoo's Mental Wastebacket.

Milestones Ahead--and a Little Sports Commentary

I have two milestones to look forward in the next month or so; my 1000th post and the 60,000th view of Tick Marks. Thanks again to all those who read this blog.

A few sports comments: Most of the baseball races appear to be decided: the Yankees, Tigers and Angels appear ready to win their American League divisions while the Phillies, Cardinals and Dodgers appear to have their divisions under control. I guess that the White Sox COULD overtake the Tigers, but unlikely. The wild card races are more interesting: Boston has a small lead over the Rangers (Toronto is still a long shot) in the AL while the NL features a divisional slugfest between Colorado and San Fran with Atlanta and Florida still somewhat in the picture. Regarding college football teams which I have an affliation with: Austin Peay and Purdue hope for 0.500 seasons, Missouri is probably good for a minor to midcaliber bowl and Ole Miss fans hope to make a BCS bowl. I have few predictions on the NFL: the local team (Tennessee Titans) have good chances on making the playoffs but probably had a better chance of going to the Super Bowl last year when Albert Haynesworth was a dominant defensive lineman (he moved to Washington over the winter).

The Impact of XBRL on Internal Auditors: A White Paper

The Research Foundation of the Institute of Internal Auditors (IIARF) just published a white paper on the role of internal auditors (IAs) in implementing the use of eXtensable Business Reporting Language (XBRL) in financial reporting. A previous survey had indicated that IAs had little previous involvement in XBRL filings, even where XBRL was mandated. The paper guides IAs through an overview of XBRL, approaches to implementation, hints on how to comply with SEC mandates and uses beyond the regulatory process, such as data integration and impact on internal control. IIA Technology Director Lily Bi emphasized the importance of XBRL throughout the entire compliance and reporting process.

Congratulations to the IIA on this paper. Looks to me like this is good reading not only for IIA members, but for companies needing to implement XBRL and audit committees attempting to understand how XBRL works.