June 2008 | Sacramento Chapter Bulletin

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CHAPTER EVENTS

MAP Committee Meetings

Date: First Wednesday of every month beginning June 4
Time: 7:30 a.m. (breakfast included)
Location: L Wine Lounge & Urban Kitchen; 1801 L Street (between 18th and 19th streets in Midtown Sacramento)
CPE: 1 hour

Mardi Gras Installation

Please join the Sacramento Chapter in an evening of fun for our chapter officers installation, Mardi Gras style.
Date: Friday, June 13
Time: 6 p.m. cocktails and hors d’oeuvres; 7 p.m. dinner, followed by a short program and dancing
Location: Northridge Country Club in Fair Oaks
Cost: $60/person or $100/couple
RSVP: Online
Note: This event is free to past presidents and those who attained their “40-year” status as a CalCPA member this past year.

Sixth Annual Real Estate Discussion Conference

This year’s conference will discuss Red-Hot Real Estate Tax Issues & Answers; Update on Exit Strategies for Real Estate, Including Distressed Properties; Asset Protection Planning with Real Estate; and The Assessor's Office and Property Tax Reductions—What You Should Know.
   Guest speakers include David Fogel, CPA; Douglas L. Youmans, CPA, Esq.; Cameron L. Hess, CPA, Esq.; Keith Pershall, Esq., Law Offices of Keith Pershall; Kennith D. Stieger, Sacramento County Assessor’s Office
Date: Wednesday, June 18
Time: 8:20–8:45 a.m./registration; 8:45–11:45 a.m./program; 11:45–1:15 p.m./lunch
Location: The Sutter Club; 1220 Ninth St.; Sacramento
CPE: 4 hours
Cost: Program and lunch: $65/members; $90/nonmembers
Lunch only: $40/members; $55/nonmember or at the door
RSVP: By June 10: Online

Litigation Consulting Group

Upcoming meetings:
Date: Thursday, June 19
Time: 11:45 a.m. to 1:30 p.m.
Location: The Sutter Club; 1220 Ninth Street, Sacramento
CPE: 1 hour
Topic: Business Valuation Conference Update: Compensation Issues
Speakers: Lou Robken & Stu Robken of Robken & Company
Cost: $35 Members/$45 Non-Members
RSVP: Serena Trovato at serena.trovato@calcpa.org

Topic: 409A and 123R Valuation Issues
Speakers: Mike Massey, Moss Adams LLP
Date: Thursday, July 17

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SAVE THE DATE

45th Annual Golf Tournament

Join us for lunch, dinner, fantastic raffle prizes and networking opportunities.
   Support the Sacramento Chapter’s largest fundraiser for the Scholarship Fund by participating as a sponsor, player or raffle, tee prize or cash donor.
   See attached fliers for details on sponsoring or registering to play, or check us out at our chapter website
   We awarded $12,500 in scholarships to area students in 2007!
Date: Thursday, Aug. 28
Time: 11 a.m./shotgun start
Location: Morgan Creek Golf and Country Club; 8791 Morgan Creek Lane, Roseville
Questions: Sandy Hongo (916) 563-7790 or Serena Trovato (916) 551-2961
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PRESIDENT’S MESSAGE

A Focus on Communication

By David Motes, CPA

At last, summer is arriving, and this means that the Sacramento Chapter’s leadership and committee chairs will change as well. I would like to thank Conrad Davis for his excellent leadership and stewardship during his term as president and thank you to the other officers and board members. Your contributions have been invaluable.
   I also would like to thank all of the committee chairs for their outstanding leadership, strong programs and persistence in holding meetings. Chapter committees are the primary vehicle that allows our chapter representatives and members to interact. Many important issues are discussed at the various committee meetings, and they are your opportunity to grow and provide your input on the issues that CPAs face. It is up to each and every one of us to take an active role in the committee for which we have a strong passion. Yes, your input is very important, and you can make a difference. Let’s all work together to strengthen our committees and the programs that our chapter presents. I am confident that you will find the experience rewarding, and you will meet new colleagues with whom to interact.
   My focus this term will be on enhancing communication at both the chapter and state level. Until you have the opportunity to participate in a CalCPA Council meeting, it is difficult to understand all that CalCPA does for you as a member. Your CalCPA staff team consists of very dedicated professionals who are committed to serving both the profession and you as an individual member. Your Sacramento CalCPA chapter representatives are Vince Chin (916) 551-2963 and Serena Trovato (916) 551-2961. They are looking for your feedback on what is and is not working and would like to hear your ideas regarding new programs. I would be remiss if I did not acknowledge the many CPA volunteers at the state level who commit significant hours and resources to the various campaigns that CalCPA addresses. You might be surprised as to the depth of research and discussion that takes place on pending issues before recommendations are made to the CalCPA Council. The council members are truly independent and ask tough questions so that the best decisions affecting you as a member are made and implemented.
   The coming term will be exciting and challenging, and in future columns I will discuss several new events that currently are in the planning stage. I strongly encourage you to become involved in CalCPA, and here is an immediate opportunity for participation: John Angelo, liaison to the Member Insurance and Benefits Committee, is looking for additional members to participate on this committee, which considers and determines affinity program for our members. If you have any interest, please contact John at (818) 546-3508 or john.angelo@calcpa.org for more specifics.
   As I mentioned earlier, my focus will be on communications. Please send me your feedback (both positive and negative) so that the value of your membership can be enhanced. You can contact me at (916) 563-7138 or David@MotesCPA.com whenever you have any issues or concerns or would like to see new programs. I am here to represent and serve you.
   Become an active member and support your committee chairs.
—David Motes, CPA
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CHAPTER NEWS

New Members

On behalf of the Sacramento Chapter’s officers, directors and members, we extend our warmest of welcomes to our new members: Suzanne Briel, Jenny Davini, Kurt Fleischer... [see all new members]

Estate and Financial Planning Committee

Topic: Noncourt-Ordered and Court-Ordered Fiduciary Accounting
   Attorney Timothy Weir will summarize the basic format of fiduciary accountings, highlighting the differences between fiduciary accountings supervised by courts and fiduciary accountings served during a noncourt-supervised trust administration. Fiduciary accountings are a product of statutes, which are written by a legislature that is dominated by lawyers. The end result drives many CPAs crazy, and for good reason: the accountings often don’t serve as a concise report of an estate’s financial status. However, anyone who deals or might deal with fiduciary accountings needs to know the required format.
Speaker: Timothy M. Weir, Esq. Spector, Middleton, Young & Minney, LLP
Timothy Weir is an attorney partner with the Sacramento law firm of Spector, Middleton, Young & Minney, LLP, with 12 years’ experience. His practice focuses on estate planning, as well as trust and probate litigation. Weir is an active member of the state Bar of California Section of Probate, Trust, and Estate Planning; the Sacramento County Bar Association Bar of Delegates to the State Bar of California; and the Probate Local Rules Committee for the Superior Court of California, County of Sacramento. He serves as a temporary judge for settlement conferences for the Sacramento County Superior Court Probate Division.
Date: Tuesday, June 17
Time: 7:30–8:45 a.m.
Location: Mimi's Restaurant, 2029 Alta Arden Expressway (east of Ethan Way)
Cost: $8 (selected, limited menu)
CPE: 1 hour
RSVP: Patti Waltman, asst. to Bruce Kajiwara, Financial Network, (916) 643-1400 or waltmanpa@financialnetwork.com.

Auditing and Accounting Committee and Technology Committee Joint Meeting

As a result of the recent SSARS 10 and SAS 56 and 103, we have seen an increased emphasis on analytical procedures, , resulting in increased attention paid to this process during peer review.
   Technological advances have allowed for the automation of analytical procedures for both audit and reviews, which have been under increased scrutiny since Sarbanes-Oxley. Tools are available that improve the analytical procedure process by automating the development and documentation of expected values, which are a fundamental requirement for both audits and reviews
   Learn:

• Impact of technology on analytical procedures
• Using expert system technology for regulatory compliance (SAS No. 96, 56, 103, and 109, plus SSARS 10)
• Automating your analytical procedures

   We are going to have a presentation by Sageworks, Inc. and its analytical review program profitcents.
Topic: Improve Audits and Reviews: Using Technology for Automating Your Analytical Procedures and Risk Assessment Process
Date: Tuesday, June 24
Time: 7:30–9 a.m.
Location: Mimi's Restaurant, 2029 Alta Arden Expressway (east of Ethan Way)
RSVP: Please contact David Chavez at david@rmb-cpa.com.

State Technology Committee Meeting Report

The state Technology Committee met May 1–2 at the Tenaya Lodge, just outside of Yosemite Park. We enjoyed two days of animated discussion about the purpose of the committee and what it can provide to CalCPA members.
   Greg Burke, CalCPA’s incoming chair and the Sacramento Chapter’s past president, asked us to define what we offer to CalCPA members.
   We believe that our mission statement is a good start in describing what the Committee does: To identify and study the significant developments and problems of technology affecting the accounting profession. Support the members’ use of technology and chapter-level committees.
   One of the most important things we offer members is the Technology Committee page at CalCPA.org. Here members will find a great deal of information about technology resources, security issues, hardware, software, education, training and where to shop. This page also contains a link to join CalCPA’s RamSession Listserve. This is a great place to post questions and get answers from people all over the state and country. And it’s free!
   At every committee meeting we discuss what each chapter is doing. We also discuss new technologies that members are using personally and professionally. We have discussed everything from low-tech items like lighted reading glasses (don’t laugh) to the latest in security devices and off-site back-up options.
   We also discussed how much technology has affected our everyday lives. If you haven’t seen “Shift Happens” on YouTube.com, I suggest you check it out. It is eye opening.
   I am planning to hold three to four meetings of the Sacramento Technology Committee this year. The first is a joint meeting with the Auditing and Accounting Committee to be held Wednesday, June 25, at Mimi’s Café on Alta Arden Expressway. We will discuss “Technology for Automating Analytical Procedures and Risk Assessment Process.” Look for the full announcement in this Bulletin.
   If you have other topics you would like to discuss this year, please let me know.

Lynne Forsyth Walline, CPA, CITP
Chapman & Company, CPAs
Phone: (916) 924-3521
email: lwalline@cnccpas.com

California Enterprise Zones—Improved, Expanded and Additional Compliance

Over the past two years, the California Enterprise Zone Tax Credit Program has witnessed significant changes, including major expansions, new regulations and additional tax compliance measures that will certainly affect CPAs across California. Some of the major changes include:

• Jan. 1, 2006: A significant court case was decided by Board of Equalization: Appeal of Deluxe Corporation, giving the FTB the authority to audit the vouchers previously issued by local administrative agencies.
• Nov. 3, 2006: Twenty-three EZs were either renewed or expanded significantly.
• Jan. 1, 2007: Housing and Community Development Department (HCD) issued new vouchering regulations that standardized documentation requirements.
• Nov. 15, 2007: Franchise Tax Board (FTB) issued Notice 2007-4 requiring new compliance requirements for tax credits secured under contingency fee arrangements.
• Jan. 1, 2008: HCD implemented new state vouchering forms.
• Jan. 31, 2008: Gov. Schwarzenegger announced eight new enterprise zones to boost California’s economy.

   With the substantial geographic expansions of existing EZs, new 15-year designations for both expiring and entirely new EZs, plus improvements to the Hiring Credit vouchering process, we believe that the California EZ program has been markedly improved. However, what do these changes mean to you?

Enterprise Zones—Significant Expansions the Past Two Years

Check your client list on an annual basis to determine if they reside in a new or expanded California Enterprise Zone.
   Between October 2006 and September 2008, 31 of California’s 42 enterprise zones were scheduled to expire. At the conclusion of a competitive bid process, HCD has awarded five brand new enterprise zone designations and re-designated 26 previous zones for an additional 15 years. Most of the communities that received a re-designation were able to significantly expand the enterprise zone boundaries of their original designation. For example, Sacramento’s enterprise zone doubled in size to 3,500 acres. The cities of Los Angeles and San Francisco substantially expanded their zones to include major portions of their downtown financial districts. And Stanislaus County, one of the newest enterprise zones, has expanded three times to approximately 67,000 acres.
   CPAs will need to diligently review their client rosters to verify whether any businesses have offices in a new or expanded zone. HCD maintains the state’s official website of EZ street addresses, at www.hcd.ca.gov/fa/cdbg/ez/enterprise/#maps. Unfortunately this site has not posted the addresses of many of the new, conditionally designated zones, but, in most cases, the local communities have posted the addresses on their websites.

New Vouchering Regulations and Forms

Make sure you adhere to new documentation standards for requesting an enterprise zone hiring credit voucher. “Cross-jurisdictional vouchers” should be re-requested for the EZ in which the business is located.
   On Jan. 1, 2007, the new vouchering regulations, Sections 8460-8467 of the California Code of Regulations (CCR), Title 25, became effective. Among other things, these regulations impose new documentation standards for requesting and obtaining the EZ Hiring Credit voucher for qualified employees. Previous to the enactment of these regulations, each of the local zone administrators essentially were empowered to establish their own documentation criteria, which led to problematic inconsistencies: Individuals might qualify based on one zone’s standards, but wouldn’t qualify in another. Inevitably, this led some businesses to submit their voucher requests to zones with more lenient standards, even though the business was not located within that particular zone. This practice, dubbed “cross-jurisdictional vouchering,” is now prohibited under the new regulations.
   In addition to the new regulations, all new voucher requests submitted after Jan. 1, 2008, must use the state’s new voucher application and certificate. Again, this was a move to create consistency and standardization among the various Zest that previously had required their own forms and eligibility checklists. The new voucher forms are also available on HUD’s website referenced above.

New Franchise Tax Board Compliance For Contingency Fee Arrangements

Make sure you file the Form 8886 for any clients securing tax credits under a contingent fee arrangement. There is a $15,000 penalty per year if you do not.
   The FTB recently published Notice 2007-4 defining reporting requirements that may impact some of your EZ clients. As you may know, many EZ businesses engage consulting firms to secure these tax credits under a contingency fee arrangement. When a taxpayer pays consulting fees that are contingent upon the taxpayer’s realization of tax benefits from certain types of transactions, these transactions are reportable to the FTB on IRS Form 8886, Reportable Transaction Disclosure Statement. Not only does the taxpayer need to file this form with the original tax return, but also a duplicate copy must be mailed to FRB’s Abusive Tax Shelter Unit for the initial year of participation.
   Technically, this rule became effective for tax years beginning Jan. 1, 2003. However, the FTB provided an amnesty period through Nov. 15, 2007, to perfect all prior-year disclosures according to their notice. The penalty for failing to disclose this transaction is steep. The FTB will impose a penalty in the amount of $15,000 for each transaction and for each year .
   The good news is that the FTB is considering whether to exempt the California Enterprise Zone tax credits from this reporting requirement in the future. Doing so would seem to conform to the federal government’s exemptions for taxpayers who participate in federal hiring credit programs, such as Empowerment Zones, Renewal Communities, and the Work Opportunity Tax Credit. However, at this time, the FTB has not made a determination to exempt the California Enterprise Zone, and so we are advising taxpayers to adhere to these reporting requirements.

FTB Enterprise Zone Litigation

Keep all supporting documentation used to secure an EZ hiring credit voucher. The FTB is re-evaluating the request, even though it has been approved by the local enterprise zone official.
   On Jan. 31, 2006, in a case of first impression, the California State Board of Equalization held that the Franchise Tax Board has the authority to request substantiation supporting enterprise zone hiring credit vouchers submitted by a taxpayer claiming the EZ hiring credit.
   The taxpayer argued that the FTB did not have the authority to determine the validity of the hiring credit voucher, because the statutes governing the enterprise zone program granted sole authority to review the voucher to the HCD and the local enterprise zone administrative agencies. However, the FTB successfully argued that, given its overall responsibility to determine a taxpayer’s correct tax liability, it may request substantiation to verify the validity of the vouchers in order to determine whether the taxpayer qualified for the credit.
   Upon audit of the EZ Hiring Credit, the FTB will ask the taxpayer for the supporting documents used to secure the voucher, in addition to requesting copies of the vouchers themselves. If the supporting documentation is unavailable, the FTB may ultimately disallow the voucher and the credits claimed for that employee. We are aware of several anecdotal cases where the FTB auditor has been provided with the supporting documentation used to obtain the voucher, but nonetheless determines that the documentation is insufficient. In such cases, the FTB may require additional supporting documentation or ultimately disallow the voucher if none can be provided. In many cases where the vouchers were obtained seven, eight, or more years ago, it could prove difficult to obtain supplemental supporting documentation, particularly if the employee no longer works for the taxpayer.

Conclusion

The California Enterprise Zone program has undergone tremendous changes in the past couple of years. Geographic expansions and new zone designations will mean that more businesses than ever before can now reap the program’s benefits. Standardization of the program’s vouchering process will be a welcome improvement over the uncertainties and inequities of the past. Yet the FRB’s level of scrutiny of EZ credits is on the rise, so taxpayers and their advisers must be ever-more vigilant in determining the appropriateness of each employee’s eligibility, consistent in their record keeping and accurate in applying the credits to their tax returns.

Author

Joseph Abdallah, CPA, of Professional Solutions Group LLC, specializes in both multistate taxation and California’s audit, protest, and settlement procedures. Abdallah can be reached at (916) 791-3120 or joseph@prosolutionsllc.com.
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CalCPA NEWS

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Register and pay for CalCPA events 24 hours a day, seven days a week. Visit CalCPA.org’s Master Calendar to search for CPE and other events by chapter or key word. Explore the possibilities online.
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Sacramento Chapter Leadership