Kevin Sullivan, Staff
According to the proposed rule, the allowable costs for interchange would be limited to no more than the issuer’s allowable cost divided by the number of electronic debit transactions on which the issuer received or charged an interchange transaction fee in the calendar year. Or the issuer could receive debit interchange capped at 12 cents per transaction.
Credit unions’ efforts to delay the Federal Reserve’s rule regulating debit interchange fees by up to a year came up short June 8, 2011 as the Senate defeated an amendment by Senator Jon Tester (D-Montana) and Bob Corker (R-Tennessee). The measure received 54 votes, 6 short of the 60 needed. There were 45 senators who opposed it.
The vote capped a year-long battle between financial institutions and retailers over the fees that retailers pay every time someone swipes their debit card. The financial overhaul bill passed last year contained an amendment sponsored by Senate Majority Whip Dick Durbin (D-Illinois), which mandated that the Federal Reserve write a rule on interchange fees. Durbin’s amendment passed last year.
The Federal Reserve’s rule is supposed to take effect on July 21, 2011. It issued a draft rule in December and a final rule was to be issued in May, but was delayed. For more information please contact a Financial Institutions Group specialist at 248.244.3110.
Tuesday, June 14, 2011
Thursday, June 2, 2011
Expanded 1099 Reporting Requirements Repealed
Despite numerous uncertainties, many states and the federal government are moving forward with implementing aspects of the Patient Protection and Affordable Care Act of 2010 (the “health care reform law”).
However, certain provisions of the health care reform law are undergoing closer scrutiny and some have either been repealed or their effective dates have been delayed. One such affected provision is that relating to the scheduled expanded income reporting requirements to the IRS through Form 1099.
Recently, the Comprehensive 1099 Taxpayer Protection and Repayment of Exchange Subsidy Overpayment Acts of 2011 (the “Act”) was signed into law. This Act repeals the requirement contained in the health care reform law that payments of $600 or more made to corporations that relate to amounts paid for any type of goods or services be reported to the IRS.
Background
Businesses have long had to issue a Form 1099-MISC to each individual service provider who is paid $600 or more during the year in the course of business. Reportable payments include compensation paid to individuals for both goods and services. Some exceptions applied.
Expanded Reporting
The health care reform law, however, greatly expanded this mandated reporting requirement by removing the exception for most payments to corporations. This change was to become effective starting in 2012. Thus, the existing requirement that business taxpayers report payments of nonemployee compensation, interest, rents, royalties, etc., totaling $600 or more was expanded to include payments made to corporations, other than tax-exempt corporations. These new reporting requirements promised to burden businesses with substantial additional
recordkeeping – as well as potential increased costs.
Now, there’s relief: These new Form 1099 rules have been repealed by the Act. Basically, the reporting requirements revert to the rules in effect prior to the 2010 changes. (The requirement that rental property owners report certain payments to service providers on Form 1099 starting in 2011 also has been repealed. This provision was originally included in the Small Business
Jobs Act of 2010).
Doeren Mayhew Can Help
Please contact Doeren Mayhew if you have any further questions relating to the repeal of the health care reform law’s 1099 reporting requirements at 248.244.3110
Thursday, May 19, 2011
Michigan Tax Amnesty Program
The dog ate the return, I forgot how to sign my name, etc. – excuses are welcome. Tax amnesty allows taxpayers to pay delinquent taxes without paying any penalties. It does not matter why tax was not paid.
Tax amnesty is available from May 15, 2011, through June 30, 2011. All taxes administered under the Revenue Act are eligible for amnesty, including the Michigan business tax, sales and use tax, withholding tax, and a variety of fuel taxes, among others. However, property taxes and local (e.g. city, county) taxes are excluded from the program. Tax periods covered under amnesty are limited to tax periods ending before December 31, 2009.
Qualifying taxpayers also avoid civil and criminal penalties and prosecution by the Michigan Department of Treasury. The penalty cost savings can be up to 50%.
Tax amnesty is available for individual and business taxpayers who have tax liabilities for eligible taxes including:
§ Underreported tax liabilities
§ Non-reported tax liabilities
§ Overstated deductions, credits, or exemptions
§ Failure to file Michigan tax returns
§ Delinquent payment of past due taxes
§ Taxpayers who have received a final tax due notice
§ Unpaid penalties
§ Taxpayers who have received a final tax due notice
Full payment, including interest must be postmarked to the Department of Treasury by June 30, 2011. Please contact your Doeren Mayhew representative for further information.
Tuesday, April 12, 2011
What is Troubled Debt Restructuring (TDR)?
The FASB has issued an Accounting Standards Update to provide additional guidance about when a receivable restructure is considered a Troubled Debt Restructuring.
Who Does This Impact?
Any entity that acts as a creditor and has receivables that are restructured.
What Does It Do?
This Accounting Standards Update clarifies previous guidance issued by the FASB surrounding when a restructured receivable should be considered a TDR.
Many FASB constituents found that the TDR guidance was being applied inconsistently and this Update helps to minimize the confusion.
A TDR is a restructured receivable that involves the creditor granting a concession for legal or economic reasons due to the debtor’s financial difficulties. If a receivable is considered to be a TDR, it is considered impaired and the FASB requires the receivable to be subject to a specific impairment measurement model.
This required impairment model compares the current recovered investment in the receivable to the present value of the cash flows to be collected. This model is the only measurement model allowed when a receivable is considered to be a TDR. When defining what is meant by a concession, the ASU clarifies the FASB position and gives examples such as term extensions, principal or interest forgiveness and reductions in rate. However, the rate reduction definition is expanded to indicate that a rate reduced to or near a market rate is NOT considered a concession, it is merely an adjustment. A delay in payment by the debtor is not considered a concession either.
When is this Effective?
The guidance in this ASU is effective for annual periods ending after December 31, 2012. Early adoption is permitted – when adopted, the guidance should be applied to all restructurings occurring on or before the beginning of the fiscal year of adoption.
Wednesday, March 16, 2011
Retirement and Benefit Plan Changes for 2011
Federal legislation over the past few years has brought about additional tax law revisions relating to retirement and other benefit plans that go into effect for 2011. The following are highlights of some of the lesser known provisions.
“Simple Cafeteria Plans.” Beginning in 2011, small employers (generally, those with an average of 100 or fewer employees on business days during either of the two preceding years) may provide employees with a “simple cafeteria plan.” Under such a plan, the employer may take advantage of safe harbor rules that allow the employer to avoid the tax law’s nondiscrimination requirements that pertain to cafeteria plans generally, as well as to specified qualified benefits, such as group-term life insurance, self-insured medical reimbursement, or dependent care assistance plans.
Health plan reimbursement restrictions. Expenses for non-prescription medicines may no longer be reimbursed with tax-advantaged dollars through certain employer sponsored plans. Specifically, the cost of over-the-counter medicines cannot be reimbursed with excludable income for expenses incurred with respect to tax years beginning after 2010 through a health reimbursement account or a flexible spending account, unless prescribed by a doctor. For health savings accounts (HSAs) or Archer medical savings accounts (MSAs), the restriction relates to amounts paid with respect to tax years commencing in 2011 and after.
Increased tax penalty on non-qualifying HSA and MSA distributions. Beginning with tax years starting in 2011, the addition tax assessed on non-qualifying distributions from an HSA is increased from 10% to 20%. For MSA distributions not used for qualifying medical expenses, the penalty is also increased from 15% to 20%.
Qualifying charitable IRA distributions up to $100,000 excluded from gross income. A taxpayer age 70½ or older may make tax-free distributions up to $100,000 from an IRA to charity. The tax benefits to such charitable giving: (1) qualifying IRA distributions are not included in the donor’s gross income (nor may they be claimed as a charitable donation) for income-tax purposes and (2) charitable IRA distributions count toward the donor’s required minimum IRA distributions for the year of the distribution (a special rule applies for distributions made in early 2011). The rule is set to expire after 2011.
Designated Roth accounts permitted in 457 plans. For tax years beginning after 2010, governmental 457(b) deferred compensation plans may offer a qualified Roth contribution program. So, a 457(b) plan maintained by a state (or a state’s political subdivision, state agency, or instrumentality) can offer a designated Roth account.
Partial annuitization of annuities. Beginning in 2011, taxpayers may partially annuitize a nonqualified annuity, endowment, or life insurance contract. Generally, owners of nonqualified annuities may elect to receive a portion of an annuity contract in a stream of current annuity distributions. This benefits the account holder by enabling him or her to leave the remainder of the contract to accumulate on a tax-deferred basis. This rule does not change the treatment for annuities payable under qualified retirement plans, 403(a) or 403(b) annuity plans, or IRAs.
Questions?
These retirement and benefit plan-related rules are among many tax law changes that may impact your 2011 and later tax planning. Please contact Doeren Mayhew if you have any questions relating to the provisions discussed above or any issues dealing with recent changes in the tax laws. Our professionals are ready to help.
Thursday, March 10, 2011
Myths and Mysteries: How To Implement An Effective Enterprise Risk Management Process For Your Financial Institution
Presenter: Joseph A. Zito, CPA, MBA - Director, Financial Institutions Group, Audit & Assurance Services
CPE: 1.0 auditing and accounting
Most financial institutions are very good at analyzing and evaluating individual risks and exposures, but are usually not as focused on monitoring and measuring how various business units interact and impact each other as well as the institution as a whole. The recent economic crisis, along with financial reform has regulators recommending financial institutions implement an enterprise risk management (ERM) program.
This session will shed light on the myths and mysteries associated with ERM and provide you with the tools your institution needs to implement ERM including:
- Understanding of enterprise risk management and its components
- The benefits of utilizing enterprise risk management for your credit union
- Establishment of the risk identification process
- Methods for identifying and quantifying risks in major functional areas
- What is your role and responsibilities in the enterprise risk management process
- Examples of a credit union’s risk profile and how to manage it
Enterprise risk management is an integrated risk management program that is designed to identify, analyze, monitor, and address environmental risks your institution faces in its day to day operations. Some of the benefits of ERM are:
- Better communication to assess and manage risks.
- Timely identification and correction of issues.
- Assistance in impacting the financial institutions bottom line performance.
Who Should Attend: Executive Management, Board of Directors, Audit Committee, Risk Managers, and Internal Auditors.
Sunday, March 6, 2011
Accounting Alert: No More SAS 70s?
Director, Audit and Information Technology Assurance
Financial Institutions Group
Who Does This Impact?
Anyone who uses a third-party (service organization) and needs or wants to understand the controls at the service organization.
What Does It Do?
CPAs have always had the need to understand the risks related to an entity’s use of service organizations for an audit. Historically, CPAs have assessed the risk of an entity using a third-party to perform processing or provide services to the entity by relying on an auditor’s report that was based upon Statement of Auditing Standard No. 70 (SAS 70). The SAS 70 included an auditor’s opinion of the controls, the third-parties description of the systems and the relevant controls, the implementation of those controls (referred to as Type I report), and in the case of a Type II report, testing of those controls for effectiveness in relationship to the entity’s financial reporting process.
This reporting process created at least three hurdles. First, many times the entity expected the SAS 70 report to include controls that were related to the service organization’s ability to protect the accuracy, confidentiality, integrity, and reliability of the information the service organization processed. These controls were frequently out of scope of a SAS 70 engagement. Second, the service organization wanted the SAS 70 to include representations of their ability to process information as they have indicated to the entity and to use the SAS 70 report as a sales or marketing tool to attract new customers. And third, under SAS 70, the service auditor’s report was restricted to the service organization, current users of the service organization, and the auditor’s of the user entity. Both the service organization and prospective users of the service organization wanted to use the report as part of the sales and marketing process. As a result, SAS 70 reports sometimes included controls outside of the financial reporting process and were provided to entities not permitted to use the report.
Since the auditing standards relate specifically to financial statement audits, moving SAS 70 for service organization auditors to the Attestation Engagement Standards (SSAE), permits changes to both the content and the audience of the reports. The new requirements for reporting on controls at a service organization are now in SSAE No. 16, Reporting on Controls at a Service Organization. The standards for financial statement auditor of the user entity are still located in the Auditing Standards (AU324).
Within SSAE No. 16, the AICPA has now established three Service Organization Control (SOC) reporting options. They are SOC 1, SOC 2 and SOC 3 reports. SOC 1 reports focus solely on controls at a service organization that are likely to be relevant to an audit of a user entity’s financial statements only. SOC 1 is a restricted use report for use by the service organization’s client, existing user entities, and user auditors and its purpose is to report on controls relevant to the financial statement audits.
SOC 2 and SOC 3 engagements address controls at the service organization based upon principles and criteria at a service organization other than those relevant to user entities’ internal control over financial reporting. Both SOC 2 and SOC 3 are based upon the Trust Service Principles, Criteria, and Illustrations such as those controls related to security, availability, processing integrity, confidentiality, or privacy.
SOC 2 includes a description of the controls as well as the tests of controls (if a Type II) similar to a SOC 1 report. SOC 2 is also generally a restricted use report – this time for use by the service organization’s stakeholders (for example, customers, regulators, business partners, suppliers, and management) of the service organization that have a thorough understanding of the service organization and its controls.
SOC 3 is a general use report to provide assurance on controls at a service organization related to security, availability, processing integrity, confidentiality, or privacy but the detailed description of the controls nor the tests performed on controls is included in the report. The SOC 3 report may be used by current and prospective customers of the service organization.
When is this Effective?
SSAE No. 16 will take effect for periods ending on or after June 15, 2011. Doeren Mayhew will provide additional information on SSAE No. 16 over the next several months. For more information, please contact Catherine Bruder, CPA.CITP,CISA,CISM, CTGA at 248.244.3295 or via email at bruder@doeren.com.
What Does It Do?
CPAs have always had the need to understand the risks related to an entity’s use of service organizations for an audit. Historically, CPAs have assessed the risk of an entity using a third-party to perform processing or provide services to the entity by relying on an auditor’s report that was based upon Statement of Auditing Standard No. 70 (SAS 70). The SAS 70 included an auditor’s opinion of the controls, the third-parties description of the systems and the relevant controls, the implementation of those controls (referred to as Type I report), and in the case of a Type II report, testing of those controls for effectiveness in relationship to the entity’s financial reporting process.
This reporting process created at least three hurdles. First, many times the entity expected the SAS 70 report to include controls that were related to the service organization’s ability to protect the accuracy, confidentiality, integrity, and reliability of the information the service organization processed. These controls were frequently out of scope of a SAS 70 engagement. Second, the service organization wanted the SAS 70 to include representations of their ability to process information as they have indicated to the entity and to use the SAS 70 report as a sales or marketing tool to attract new customers. And third, under SAS 70, the service auditor’s report was restricted to the service organization, current users of the service organization, and the auditor’s of the user entity. Both the service organization and prospective users of the service organization wanted to use the report as part of the sales and marketing process. As a result, SAS 70 reports sometimes included controls outside of the financial reporting process and were provided to entities not permitted to use the report.
Since the auditing standards relate specifically to financial statement audits, moving SAS 70 for service organization auditors to the Attestation Engagement Standards (SSAE), permits changes to both the content and the audience of the reports. The new requirements for reporting on controls at a service organization are now in SSAE No. 16, Reporting on Controls at a Service Organization. The standards for financial statement auditor of the user entity are still located in the Auditing Standards (AU324).
Within SSAE No. 16, the AICPA has now established three Service Organization Control (SOC) reporting options. They are SOC 1, SOC 2 and SOC 3 reports. SOC 1 reports focus solely on controls at a service organization that are likely to be relevant to an audit of a user entity’s financial statements only. SOC 1 is a restricted use report for use by the service organization’s client, existing user entities, and user auditors and its purpose is to report on controls relevant to the financial statement audits.
SOC 2 and SOC 3 engagements address controls at the service organization based upon principles and criteria at a service organization other than those relevant to user entities’ internal control over financial reporting. Both SOC 2 and SOC 3 are based upon the Trust Service Principles, Criteria, and Illustrations such as those controls related to security, availability, processing integrity, confidentiality, or privacy.
SOC 2 includes a description of the controls as well as the tests of controls (if a Type II) similar to a SOC 1 report. SOC 2 is also generally a restricted use report – this time for use by the service organization’s stakeholders (for example, customers, regulators, business partners, suppliers, and management) of the service organization that have a thorough understanding of the service organization and its controls.
SOC 3 is a general use report to provide assurance on controls at a service organization related to security, availability, processing integrity, confidentiality, or privacy but the detailed description of the controls nor the tests performed on controls is included in the report. The SOC 3 report may be used by current and prospective customers of the service organization.
When is this Effective?
SSAE No. 16 will take effect for periods ending on or after June 15, 2011. Doeren Mayhew will provide additional information on SSAE No. 16 over the next several months. For more information, please contact Catherine Bruder, CPA.CITP,CISA,CISM, CTGA at 248.244.3295 or via email at bruder@doeren.com.
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