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Week of October 14, 2016

Congress Teems With Proposals to Delay or Phase in Overtime Rule

( Society for Human Resource Management ) October 6, 2016 – A flurry of bills to delay or phase in the final overtime rule gained steam before Congress adjourned in late September. But will the bills clear enough hurdles to become law when they return after the Presidential election? Some Hill observers have their doubts, while others think the bills' fate may depend on lawsuits brought against the Department of Labor. Rep. Tim Walberg, R-Mich., sponsored H.R. 6094, which proposed delaying the effective date of the overtime rule by six months from Dec. 1 to June 1, 2017, and which passed the House of Representatives Sept. 28. However, President Barack Obama's Office of Management and Budget announced that, if the bill is presented to the president, he will veto it.

5 Low- or No-Cost Ways for CPAs to Help Slam the Door on Cybercriminals

( Journal of Accountancy ) October 4, 2016 – October is National Cybersecurity Awareness Month, but fighting cybercrime is a year-round battle. As experienced keepers of confidential information, CPAs are uniquely positioned to support cybersecurity initiatives for their firms, clients, or employers. But cybersecurity is costly, and budgets are always limited, especially in the public and not-for-profit sectors. Consider these five simple steps CPAs can take to help protect data without breaking the bank.

Court Rules CFPB is Unconstitutional, but not out of Business

( ThinkAdvisor ) October 11, 2016 – A federal appeals court on Oct. 11 ruled that the structure of the Consumer Financial Protection Bureau is unconstitutional since it is operated by a single person, but the court said that the agency may continue to operate. The bureau, which was spearheaded by Sen. Elizabeth Warren, D-Mass., after the financial crisis, will operate as a federal agency whose director is supervised and may be removed by the President, according to the court ruling.

Metric of the Month: Number of General Accounting Employees

( CFO ) Mary Driscoll, October 5, 2016 – According to the New York Times, 2015 was a record year for acquisitions, which were valued at $2.2 trillion in the United States alone. We’re on a similar track so far this year, with more than $800 billion in deals as of July 31, including the planned $66 billion takeover of Monsanto by Bayer. Along with any new acquisition comes the challenge of how to integrate two distinct corporate cultures, processes, technologies, and groups of people. And that includes the question of what to do with the acquired company’s finance team, who come with their own quirky ways of doing things. The simple solution might be to tack the new people onto the existing department to handle the suddenly expanded workload. But that’s a good way to end up with a lot of bodies in chairs doing work but probably not as efficiently as they could be.

The ‘No-Brainer’ Fix to America’s Student Loan Mess

( Bloomberg ) October 12, 2016 – Two years ago, America’s biggest labor unions urged the Obama administration to cancel its lucrative contract with Navient Corp., once known as student debt collector Sallie Mae. Last year, union leader Randi Weingarten upped the ante, referring to the company - the nation’s largest college loan servicer - as a “known predatory actor” whose “profit-taking has contributed to the wage stagnation of an entire generation.” This year things are different. Recently, both sides have announced they’ve become friends. The newfound partnership between the AFL-CIO, the nation’s largest labor federation; Weingarten’s American Federation of Teachers; and Navient concerns an effort to fix a little known aspect of the federal student loan program that could be helping distressed Americans manage, or even climb out of, debt. Right now, it more commonly lets them fall behind.

Bonus Depreciation is Still a Valuable Tool for Year-End Tax Savings

( AccountingWEB ) October 12, 2016 – Bonus depreciation – the ability to claim boosted first-year depreciation deductions for qualifying assets – has been a staple of year-end tax planning since it was introduced by the Job Creation and Worker Assistance Act of 2002. It has been overshadowed somewhat by the generous expensing allowance under Code Section 179 and the de minimis safe harbor in the capitalization regulations, but bonus depreciation under Section 168(k) is still an important year-end tax-saving tool for the many businesses that can’t write off all their machinery and equipment purchases by way of these other cost recovery breaks.

The SEC Proposes to Shorten the Settlement Cycle for Most Securities Transactions From Three Business Days to Two Business Days

( JDSupra Business Advisor ) October 12, 2016 – The Securities and Exchange Commission has proposed to amend Rule 15c6-1 under the Securities Exchange Act of 1934 in order to shorten the standard settlement cycle for most broker-dealer securities transactions from three business days after the trade date to two business days after the trade date. The SEC indicates that, by shortening the standard securities settlement cycle, it expects to enhance efficiency and reduce the risks that arise from the value and number of unsettled securities transactions prior to the completion of the settlement, including credit, market and liquidity risk faced by U.S. market participants, which in turn could reduce systemic risk in the U.S. securities markets.

IRS Gives Tax Relief to Victims of Hurricane Matthew; Many Extension Filers in North Carolina Now Affected; Relief for Other States Expected Soon

( IRS ) October 11, 2016 – North Carolina storm victims will have until March 15, 2017, to file certain individual and business tax returns and make certain tax payments, with similar relief expected soon for Hurricane Matthew victims in other states, the Internal Revenue Service announced Oct. 11. All workers assisting the relief activities who are affiliated with a recognized government or philanthropic organization also qualify for relief.

Congress Teems With Proposals to Delay or Phase in Overtime Rule

( Society for Human Resource Management ) October 6, 2016 –A flurry of bills to delay or phase in the final overtime rule gained steam before Congress adjourned in late September. But will the bills clear enough hurdles to become law when they return after the Presidential election? Some Hill observers have their doubts, while others think the bills' fate may depend on lawsuits brought against the Department of Labor (DOL).

Rep. Tim Walberg, R-Mich., sponsored H.R. 6094, which proposed delaying the effective date of the overtime rule by six months from Dec. 1 to June 1, 2017, and which passed the House of Representatives Sept. 28. However, President Barack Obama's Office of Management and Budget announced that, if the bill is presented to the president, he will veto it.

Also on Sept. 28, Sen. James Lankford, R-Okla., introduced S. 3462 in the Senate to delay the overtime rule by six months. The bill is companion legislation to H.R. 6094. Lankford said he has been told by "small business owners, colleges and nonprofits that this federal overtime rule will quickly lead to job loss, increased tuition and the reduction of charitable services. I think this rule should be pulled entirely, but at least its implementation should be delayed or slowed."

The bill was referred to the Senate Committee on Health, Education, Labor and Pensions.

Phase-In Proposals

Still in the House and gaining bipartisan support is the July 14 proposal (H.R. 5813) by Rep. Kurt Schrader, D-Ore., to phase in the overtime rule over four years and eliminate the automatic triennial increase of the exempt salary threshold. The bill currently has 10 Democratic co-sponsors and seven Republicans.

Rather than raise the exempt salary threshold from $23,660 to $47,476 as of Dec. 1, as the final overtime rule does, Schrader's bill would raise the new threshold this December to $35,984.

The bill then would raise the threshold to:

$39,814 on Dec. 1, 2017.
$43,645 on Dec. 1, 2018.
$47,476 on Dec. 1, 2019.

The Society for Human Resource Management (SHRM) strongly supports this bill, which has been referred to the House Committee on Education and the Workforce but is gaining bipartisan support in the House.

Senators Lamar Alexander, R-Tenn.; Susan Collins, R-Maine; Jeff Flake, R-Ariz.; James Lankford, R-Okla.; and Tim Scott, R-S.C., have introduced companion legislation (S. 3464) in the Senate. Alexander's bill, introduced Sept. 29, would provide the same step increases as Schrader's bill, but at a slower pace and no increase in 2017:

$35,984 on Dec. 1, 2016.
$39,814 on Dec. 1, 2018.
$43,645 on Dec. 1, 2019.
$47,476 on Dec. 1, 2020.

Alexander's bill would prohibit an increase to the exempt salary threshold in 2017, giving employers an opportunity to adjust to the new level while the Government Accountability Office studies the impact of the rule in its first year of implementation. Alexander's bill, like Schrader's, would not provide an automatic triennial increase.

The automatic increase "seems to violate the Administrative Procedure Act because the automatic increases will involve a substantive change to the exemption standards without going through full notice-and-comment rulemaking," said Paul DeCamp, an attorney with Jackson Lewis in Reston, Va., and former administrator of the DOL's Wage and Hour Division.

"My hope is that when we come back in November, senators on both sides of the aisle will have heard from their Boy Scout troops, from their colleges and universities, from their restaurants, and from their employees, who say: 'Wait a minute, this overtime rule makes no sense the way it is being implemented. Do something in November to change its negative effect on our country,'" Alexander said.

He stated that the new rule will result in about $100,000 in annual costs for the Great Smoky Mountain Council of Boy Scouts, whose employees staff weekend camping trips during certain seasons, which means longer hours.

"We are hopeful that the Senate phased-in bill modeled after Rep. Schrader's legislation will garner some Democratic support," said Kelly Hastings, SHRM senior advisor, government relations. "In order for anything to get across the finish line, it will need to be bipartisan in each chamber."

Disaster Relief

Sen. David Vitter, R-La., introduced a bill (S. 3429) on Sept. 28 that would delay implementation of the overtime rule by two years in states where the president had declared a major disaster on or after Aug. 14, 2016. Louisiana's floods would qualify the state for a delay should this bill be enacted. The bill was referred to the Senate Committee on Health, Education, Labor and Pensions.

Long Shots

Despite efforts to delay or phase in the overtime rule, some Hill observers are skeptical about these bills' chances of enactment.

"Even though a bill to delay implementation has passed the House, Congress is designed for action not to happen," said Mark Landes, an attorney with Isaac Wiles in Columbus, Ohio. "Bet against any employer relief from Congress." But, he added, "a President Trump could rescind the rules without congressional action."

Should a bill to delay or phase in implementation reach President Obama's or a President Clinton's desk, "Congress will not have the votes to override" a presidential veto, predicted Susan Warner, an attorney with Nelson Mullins in Jacksonville, Fla. "I do not believe there is any realistic chance that any of these bills are enacted in the current political climate."

Bryance Metheny, an attorney with Burr & Forman in Birmingham, Ala., said, "The only real hope for the legislation is likely related to and depends on pending litigation in the Texas federal court." Led by Texas, 21 states have filed a lawsuit challenging the overtime rule revisions. Business groups have filed a separate lawsuit.

Metheny said that if the rule is blocked in the courts, "a more willing DOL might emerge and reach a compromise on both timing and incremental increases. On their own though, these bills are not likely to provide employers the relief they need, and we urge our clients to continue to plan for a Dec. 1 effective date."

5 Low- or No-Cost Ways for CPAs to Help Slam the Door on Cybercriminals

( Journal of Accountancy ) Susan Pierce, October 4, 2016 – October is National Cybersecurity Awareness Month, but fighting cybercrime is a year-round battle. As experienced keepers of confidential information, CPAs are uniquely positioned to support cybersecurity initiatives for their firms, clients, or employers. But cybersecurity is costly, and budgets are always limited, especially in the public and not-for-profit sectors. Consider these five simple steps CPAs can take to help protect data without breaking the bank.

1. Know email scams and warn others. People are increasingly the weak link in organizations’ cyber armor. You know not to give your checking account info to an unknown foreign government dignitary. But what if you get an email from your CEO instructing you to wire funds for a deal that you know is about to close? This scenario was all too real last year for a finance employee who was tricked into wiring $730,000 to a bank in China, according to an FBI report. Since the FBI started tracking business e-mail scams in late 2013, it has compiled statistics on more than 7,000 U.S. companies that were targeted. Total losses exceeded $740 million.

2. Maintain a strong connection with IT. CPAs and IT professionals have a common interest in protecting sensitive and confidential data. What we can learn from each other will likely surprise you. Of course CPAs can help IT design cybersecurity controls and develop reports—or—provide assurance on them. But beyond that, there are many low- and no-cost ways you can help prioritize which information and systems are most sensitive and balance cybersecurity against operational needs. Stay connected with your IT staff and encourage informal dialogue with them by holding regular discussions. Bring in lunch (or dinner) and make sure everyone is on the same page. Clear priorities help IT work more efficiently and save money in the long run.

3.Stay on top of free updates/upgrades. According to Amy Zegert, co-director and senior fellow for the Stanford Center for International Security and Cooperation, research shows there is on average one defect for every 2,500 lines of programming code—just regular human mistakes. Cyber criminals exploit these mistakes to break into systems. Software updates to correct these vulnerabilities are often overlooked by busy users. Most of the time, updates are free, so use them—on computers, smart phones and any other devices used for business purposes.

4. Adopt a stronger password policy. If your password can be found in a dictionary, it is not secure. If it’s the name of a child, pet, spouse, or car, it’s probably not secure either—unless you take some special precautions such as substituting numbers or special characters for letters. Despite the inconvenience, implementing and enforcing a good password policy is a free and simple way to protect data. Good policies should include guidelines for how often to change passwords, where to store passwords, and instructions for creating them.

5. Develop a plan—and practice it. Yes, this advice appears in every business article about cybersecurity, but its importance cannot be overstated. CPAs can help by developing and activating the business continuity plan—in this case “cyber incident response plan.” Small businesses can accomplish this using a local CPA firm. Small CPA firms can develop a reciprocal agreement with another CPA firm. You should already have answers to questions like: Who is the cybersecurity point person? and Who outside this office needs to be notified of the breach? Conducting practice exercises will help key people understand their role and help you work out any kinks. Update the plan as new threats arise. When it comes to cybercrime, you can never be over prepared.

Learn more about the role CPAs can play in the cybersecurity landscape and access news and information at the AICPA’s Cybersecurity Resource Center. In addition, you can find targeted resources for CPAs providing cybersecurity advisory services through the AICPA’s Information Management and Technology Assurance Section, including this free podcast on social engineering, a type of cybercrime.

The AICPA welcomes your feedback on proposed criteria that companies can use to communicate, and CPAs can use to report on, an entity’s cybersecurity risk management program. These criteria provide a way for businesses to demonstrate due care and build stakeholder confidence in their cybersecurity risk management programs. Comments are due Dec. 5, 2016.

Court Rules CFPB is Unconstitutional, but not out of Business

( ThinkAdvisor ) October 11, 2016 –A federal appeals court on Oct. 11 ruled that the structure of the Consumer Financial Protection Bureau is unconstitutional since it is operated by a single person, but the court said that the agency may continue to operate.

The bureau, which was spearheaded by Sen. Elizabeth Warren, D-Mass., after the financial crisis, will operate as a federal agency whose director is supervised and may be removed by the President, according to the court ruling.

“This split decision — which bizarrely relies on a mischaracterization of my original proposal for a new consumer agency — will likely be appealed and overturned,” Warren said in a statement. “But even if it stands, the ruling makes a small, technical tweak to Dodd-Frank and does not question the legality of any other past, present, or future actions of the CFPB.”

Agency officials vowed to continue their work, although President and CEO B. Dan Berger of the National Association of Federal Credit Unions called for an immediate halt to the CFPB’s rulemaking process.

The court was blunt in its ruling.

“The CFPB’s concentration of enormous executive power in a single, unaccountable, unchecked director not only departs from settled historical practice, but also poses a far greater risk of arbitrary decision-making and abuse of power, and a far greater threat to individual liberty, than does a multi-member independent agency,” the U.S. Court of Appeals for the District of Columbia said, in its ruling.

The ruling came in a case in which, PHH, a mortgage lender, was the subject of $109 million penalty from the CFPB. The appeals court voided that penalty and sent the case back to a lower court for review.

Opponents of the CFPB, including credit unions and Republican members of Congress have argued that the agency was unconstitutional ever since it was established by the Dodd-Frank Act. Congressional Republicans have attempted to reorganize the CFPB, with the agency being supervised by a commission. However, those efforts have failed.

The appeals court agreed, saying the director has too much power. “The Director enjoys more unilateral authority than any other officer in any of the three branches of the U.S. Government, other than the President,” the court said.

A CFPB spokesperson said agency officials disagreed with the ruling.

“The Bureau believes that Congress’ decision to make the Director removable only for cause is consistent with Supreme Court precedent and the Bureau is considering options for seeking further review of the Court’s decision,” the spokesperson said.

Meanwhile, agency officials vowed to continue their work.

However, Berger said much of the agency’s work should stop.

“NAFCU urges an immediate moratorium at the CFPB on any rulemaking not already implemented,” said Berger. “The bureau should also consider ceasing and desisting all rulemakings until the legality is resolved.”

The Credit Union National Association praised the ruling.

“I applaud the ruling from the U.S. Court of Appeals for the D.C. Circuit regarding the PHH case against the Consumer Financial Protection Bureau, in that it will establish a meaningful check and balance and bring needed accountability to the Director’s role,” CUNA President Jim Nussle said. “This ruling confirms CUNA’s concern that the structure of the CFPB is flawed and that an unchecked, independent director who answers to no one can’t lead to good public policy. CUNA continues to support a five-person commission for the CFPB instead of its current structure.”

Metric of the Month: Number of General Accounting Employees

( CFO ) Mary Driscoll, October 5, 2016 – According to the New York Times, 2015 was a record year for acquisitions, which were valued at $2.2 trillion in the United States alone. We’re on a similar track so far this year, with more than $800 billion in deals as of July 31, including the planned $66 billion takeover of Monsanto by Bayer.

Along with any new acquisition comes the challenge of how to integrate two distinct corporate cultures, processes, technologies, and groups of people. And that includes the question of what to do with the acquired company’s finance team, who come with their own quirky ways of doing things. The simple solution might be to tack the new people onto the existing department to handle the suddenly expanded workload. But that’s a good way to end up with a lot of bodies in chairs doing work but probably not as efficiently as they could be.

While there’s no “right number” of FTEs for every organizations, research done by APQC, the firm I work for, gives us a glimpse into how many people other organizations use to get specific types of work done. Consider general accounting in the graph directly.

This metric comes from recent APQC benchmarking data from 1,209 companies in a variety of industries. It shows that the best performers need just 4.8 full-time equivalents per $1 billion in revenue to perform the general accounting function. The worst performers need four times as much labor: 20.6 FTEs per billion in revenue. That’s more than 100 FTEs for a $5 billion company, doing nothing but general accounting.

Which begs a question: How do the best performers do the same amount of work with one-fourth the labor? Clearly, the top performers have taken steps to increase labor productivity. When it takes a comparatively large number of people to work on a problem, chances are very good that they are doing the work inefficiently. Staff size often shines a spotlight on hidden process weakness.

In this space, we’ve talked about the toll that manual journal entry takes on time, accuracy, and the budget. We’ve talked a lot about the value of automating labor-intensive, repetitive processes to free employees to focus on higher-value tasks.

But another important consideration comes down to this age-old question: Do you have the right people in the right jobs? Especially if your company is an acquisitive one, this is a question the CFO will want to mull carefully.

Acquire Wisdom

It’s the CEO’s job to lead the company up one mountain, stand at the top looking for the next mountain to climb, and then lead the expedition on to the next peak. But it’s the CFO’s job to lug the entire accounting infrastructure and supply lines up those steep routes. When the next mountain is an acquisition, that long uphill hike can also entail integrating two disparate accounting teams, technologies, and methods.

While you might assume that any company worth acquiring probably has an accounting team worth acquiring, it pays to think selectively about how you absorb new finance staff. Rather than quickly pulling from the new talent pool to fill your open accounting positions, take your time to fully assess the competencies of all incoming employees.

It’s tempting to simply fill your empty seats with people who already know how to push buttons and run reports. But a deeper look into skills and capabilities may uncover valuable hidden talents or training that you can put to work. You may learn that your company has acquired star team members with specialized expertise who can help you analyze the drivers of cash-flow performance, segment customers effectively, understand the impact of global economic trends, or determine how collectable your outstanding balances really are.

In other words, know who you’re acquiring, and be discerning about the brainpower you choose to absorb. By discovering their talents and making the most of them, you may find that you really can do a lot more in terms of business analysis and decision support.

An acquisition is also an excellent time to be honest with yourself about whether your way of doing things is really the best way. Rather than automatically seeking square pegs from the newly acquired team to fill your finance department’s square holes, ask yourself whether the round holes at the other company might actually be a better solution.

What technologies and automation has the acquired company been using, and why did they choose them? If you’ve been thinking about a new ERP system, you may just find that you now have an entire team of plug-and-play experts who already know one inside and out. How do their accounts payable processes compare to yours? What do they do better, faster, or smarter than your team, and how can you incorporate that know-how into your existing operation?

Rather than duplicating processes and expertise, take a hard look at the knowledge and technologies you are acquiring. You may just expose some cracks in your own foundation and find the resources to fix them at the same time.

The ‘No-Brainer’ Fix to America’s Student Loan Mess

( Bloomberg ) October 12, 2016 – Two years ago, America’s biggest labor unions urged the Obama administration to cancel its lucrative contract with Navient Corp., once known as student debt collector Sallie Mae. Last year, union leader Randi Weingarten upped the ante, referring to the company—the nation’s largest college loan servicer—as a “known predatory actor” whose “profit-taking has contributed to the wage stagnation of an entire generation.”

This year things are different. Both sides have announced they’ve become friends.

The newfound partnership between the AFL-CIO, the nation’s largest labor federation; Weingarten’s American Federation of Teachers; and Navient concerns an effort to fix a little known aspect of the federal student loan program that could be helping distressed Americans manage, or even climb out of, debt. Right now, it more commonly lets them fall behind.

As student debt swelled to $1.4 trillion in recent years while wages remained flat, millions of borrowers signed up for government plans allowing them to repay based on their earnings rather than what they owe. Income-driven repayment plans are unique in the world of household debt, where Americans mostly make payments on their mortgages, car loans, personal loans, and credit card bills based on how much they borrowed.

To enroll in income-driven plans, borrowers have to share their most recent earnings information with loan companies—such as Navient—working under contract for the U.S. Department of Education. Little more than a few recent pay stubs or a copy of their most recent tax return are required before borrowers can enjoy a year’s worth of payments indexed to their income. The existence of income plans means the federal government should be “aiming at a zero default rate among student loan borrowers,” Education Undersecretary Ted Mitchell said last year.

But getting enrolled is tough, thanks to slow application processing by loan companies, random rejections, and frequently lost paperwork, according to an August report by Seth Frotman, the U.S. Consumer Financial Protection Bureau’s student loan ombudsman.

Compounding those issues is that borrowers have to navigate the process every year, since the government requires annual re-certifications. An Education Department study last year revealed that some 57 percent of borrowers, or 696,000 people, whose income information came due at re-certification missed their deadline. As a result, their required monthly payments shot up and their loan balances soared, thanks to accrued interest. Close to a third of borrowers who missed their deadlines ended up postponing subsequent payments. About 15 percent became delinquent.

The problem has become so widespread that, of the 4.1 million borrowers with loans direct from the Education Department who are enrolled in the government’s most popular income plans, more than one quarter have fallen out of them, federal data show. That helps to explain why, over the last year, more than 1.1 million Americans defaulted on a student loan obtained directly from the feds, translating to a default every 28 seconds.

Fortunately for borrowers, there’s an easy fix - one that President Barack Obama embraced in March of last year and that the Treasury and Education departments said “can and should be developed.” It calls for the government to create an electronic system that would allow borrowers to give the Internal Revenue Service permission to automatically share for several years a portion of their tax returns with the Education Department’s loan contractors. If such a system existed, there would be no need for annual paperwork nightmares that afflict hundreds of thousands of Americans.

The IRS says it doesn’t have enough money to create such a system, according to the Obama administration. The Center on Budget and Policy Priorities reckons the agency’s budget has been slashed by an inflation-adjusted 17 percent since 2010. Privacy issues are also probably hampering automatic disclosure of tax information. Eric Smith, a spokesman for the IRS, didn’t comment.

The frustration with such an easy fix being just out of reach has managed to bring together once-sworn enemies. The coalition of labor organizations, consumer advocacy groups, and loan servicers seek to pressure the White House to implement what Ben Miller, senior director for post-secondary education at the Center for American Progress, described as a “no-brainer.”

Jack Remondi, Navient’s chief executive, told the consumer bureau in June that a multi-year student loan system is among his recommendations that have the “greatest potential” to reduce loan defaults.

There’s little doubt that such a system would save Remondi’s company money. But it also would allow servicers such as Navient to focus their attention on aiding the most distressed borrowers, Miller said. “There are a lot of areas where servicers and consumer groups don’t always agree, but this is such an obvious thing that’s better for everybody,” he added.

Bonus Depreciation is Still a Valuable Tool for Year-End Tax Savings

( AccountingWEB ) October 12, 2016 – Bonus depreciation – the ability to claim boosted first-year depreciation deductions for qualifying assets – has been a staple of year-end tax planning since it was introduced by the Job Creation and Worker Assistance Act of 2002.

It has been overshadowed somewhat by the generous expensing allowance under Code Section 179 and the de minimis safe harbor in the capitalization regulations, but bonus depreciation under Section 168(k) is still an important year-end tax-saving tool for the many businesses that can’t write off all their machinery and equipment purchases by way of these other cost recovery breaks.

The 50 percent first-year bonus depreciation deduction is permitted without any proration based on the length of time that an asset is in service during the tax year. As a result, the 50 percent first-year bonus write-off for qualifying assets bought and placed in service in 2016 is available even if the assets are in service for only a few days in 2016.

Illustration: As year-end approaches, XYZ Inc., a calendar-year business, needs to buy $1,000,000 of five-year Modified Accelerated Cost Recovery System (MACRS) property. If it can move quickly to accelerate the purchase, and place the property in service before 2017, XYZ may claim a first-year depreciation allowance of $600,000 [($1,000,000 × .50 = $500,000 bonus depreciation) + ($1,000,000 - $500,000 × .20 first-year MACRS depreciation allowance = $100,000 regular first-year depreciation)]. This assumes that the half-year convention applies for 2016 (conventions are discussed below).

If bonus depreciation wasn’t available, XYZ’s regular first-year depreciation allowance using the half-year convention would be only $200,000 (20 percent of $1,000,000).

Accelerating a purchase into 2016 may not always be a good idea. For example, it may not produce good results for a taxpayer who has an about-to-expire net operating loss. On the other hand, a taxpayer for whom accelerating the purchase will produce a net operating loss for 2016 that can be carried back to 2014, and who had income taxed at the highest rate in that year, has a good reason to make the purchase in 2016.

How to qualify for bonus depreciation. In general, an asset acquired and placed in service in 2016 qualifies for the bonus depreciation allowance under Section 168(k) if:

1. It falls into one of the following categories:

• Property to which the MACRS rules apply with a recovery period of 20 years or less;
• Computer software other than computer software covered by the amortization of goodwill and other intangibles rules of Section 197;
• Qualified improvement property (i.e., certain interior improvements to nonresidential buildings); or
• Certain water utility property.

2. Its original use commences with the taxpayer. Original use is the first use to which the property is put, whether or not that use corresponds to the taxpayer’s use of the property. (Section 168(k)(2))

For eligible qualified property (generally, qualified property eligible for bonus depreciation), corporations can elect to forego bonus depreciation and accelerated depreciation in exchange for an increased alternative minimum tax credit limitation. (Section 168(k)(4))

Extra-generous luxury auto depreciation limits. Under Section 168(k)(2)(F)(i), the first-year depreciation deduction for new vehicles that qualify for bonus depreciation is $8,000 more than the first-year depreciation limit that would otherwise apply.

For new vehicles bought and placed in service in 2016, and that qualify for bonus first-year depreciation, the boosted first-year dollar limit is $11,160 for autos (not trucks or vans) and $11,560 for light trucks or vans (passenger autos built on a truck chassis, including minivans and sport-utility vehicles [SUVs] built on a truck chassis). The regular first-year luxury auto limits (e.g., for vehicles not eligible for bonus depreciation, or for which the taxpayer elects out of bonus depreciation) are $3,160 for autos and $3,560 for light trucks or vans.

Heavy SUVs – those that are built on a truck chassis and are rated at more than 6,000 pounds gross (loaded) vehicle weight – are exempt from the luxury-auto dollar caps because they fall outside of the definition of a passenger auto. Under Section 179(b)(5), not more than $25,000 of the cost of a heavy SUV may be expensed under Section 179.

The balance of the heavy SUV’s cost may be depreciated under the regular rules that apply to five-year MACRS property (e.g., a 20 percent first-year depreciation allowance if the half-year convention applies for the placed-in-service year). However, with the 50 percent first-year bonus depreciation available for qualified assets bought and placed in service in 2016 (in addition to the $25,000 expensing allowance and regular depreciation), taxpayers buying and placing in service new heavy SUVs in 2016 may be entitled to write off most of the cost of the vehicle in the first year.

Effect of half-year and midquarter conventions on year-end planning. The half-year convention generally applies in the computation of depreciation deductions for property (other than real property) first placed in service during the current tax year. Under this convention, a business asset placed in service at any time during the tax year is generally treated as having been placed in service in the middle of that year. (Section 168(d)(1))

However, the half-year convention only applies if property depreciable under Section 168 and placed in service during the last three months of the tax year (other than property expensed under Section 179, residential rental property, nonresidential realty, and certain other excluded categories) doesn’t exceed 40 percent of all of such property placed in service during the entire year. If it does, then a midquarter convention applies. (Section 168(d)(3)) Under that rule, personal property placed in service during any quarter of the tax year is treated as if it had been placed in service at the middle of the quarter in which it was placed in service.

Illustration: Ace Inc. buys one depreciable asset during 2016 – a $10,000 used machine that’s five-year property under MACRS. Assume Ace isn’t eligible for Section 179 expensing. If it places the asset in service during the first three quarters of its tax year, the first-year depreciation allowance is $2,000 (20 percent). If it places the asset in service during its fourth quarter, the write-off is slashed to $500 (5 percent midquarter table percentage for five-year property placed in service in the fourth quarter).

The availability of bonus first-year depreciation on most new machinery and equipment purchases (see discussion above) substantially diminishes the hazards of buying new assets in the last quarter. The 50 percent first-year bonus depreciation allowance is available even if the midquarter convention applies. In that case, the midquarter allowance is taken on the adjusted basis of the property after reduction for the bonus depreciation allowance.

Use of the bonus first-year depreciation allowance has no effect on the determination of whether or not the midquarter convention applies. The 40 percent test is computed with reference to the adjusted basis of nonrealty assets placed in service during the year, without reduction for the bonus depreciation allowance.

It may be possible in some cases to avoid application of the midquarter convention by electing to expense under Section 179 property placed in service during the last quarter. On the other hand, deliberately exceeding the 40 percent limit to trigger the midquarter convention may be a sound strategy where the taxpayer has placed a large amount of property in service during the first quarter of the year.

For instance, if a calendar-year taxpayer placed a large amount of five-year recovery property in service in March 2017, triggering the midquarter convention for 2017 will produce a 10 1/2-month regular first-year depreciation deduction for that property.

The SEC Proposes to Shorten the Settlement Cycle for Most Securities Transactions From Three Business Days to Two Business Days

( JDSupra Business Advisor ) Walter Van Dorn, October 12, 2016 –The Securities and Exchange Commission has proposed to amend Rule 15c6-1 under the Securities Exchange Act of 1934 in order to shorten the standard settlement cycle for most broker-dealer securities transactions from three business days after the trade date to two business days after the trade date. The SEC indicates that, by shortening the standard securities settlement cycle, it expects to enhance efficiency and reduce the risks that arise from the value and number of unsettled securities transactions prior to the completion of the settlement, including credit, market and liquidity risk faced by U.S. market participants, which in turn could reduce systemic risk in the U.S. securities markets. Currently, the standard settlement cycle for most broker-dealer securities transactions is three business days, known as T+3. The proposal, if ultimately adopted, would shorten the settlement cycle to two business days, or T+2.

As proposed, the amendment would prohibit a broker-dealer from entering into a contract for the purchase or sale of a security that provides for payment of funds and delivery of securities later than two business days after the trade date, unless otherwise expressly agreed to by the parties at the time of the transaction.

Background

The SEC originally adopted Exchange Act Rule 15c6-1 in 1993 to establish a standard settlement cycle for most broker-dealer securities transactions (subject to the exceptions provided in the rule such as for contracts related to exempted securities, government securities, municipal securities, commercial paper, bankers’ acceptances or commercial bills), effectively shortening the settlement cycle for such securities transactions from the then-prevailing five business day period to three business days after the trade date (T+3). At the time, the SEC cited a number of reasons for standardizing and shortening the settlement cycle, which included, among others, reducing credit and market risk exposure related to unsettled trades, reducing liquidity risk among derivatives and cash markets, encouraging greater efficiency in the clearance and settlement process, and reducing systemic risk for the U.S. markets. The SEC believes that shortening the standard settlement cycle further to T+2 will result in a further reduction of credit, market and liquidity risk and, as a result, a reduction in systemic risk for U.S. market participants.

Since the SEC adopted Rule 15c6-1 in 1993, not only have the financial markets expanded and evolved significantly, but the 2008 financial crisis has taken place. Shortening the standard settlement cycle is consistent with the current broader focus by the SEC – in part resulting from the financial crisis – on enhancing the resilience and efficiency of the national clearance and settlement system and the role that certain systemically important financial market utilities, particularly central counterparties (so-called FMUs and CCPs), play in concentrating and managing risk. The SEC also notes the significant technological developments in the industry since it first mandated T+3 settlement in 1993, which it believes will help to facilitate further shortening of the settlement cycle.

The proposed amendment to Rule 15c6-1, if adopted, would prohibit a broker or dealer from entering into a securities contract that settles later than the second business day after the date of the contract unless expressly agreed upon by both parties at the time of the transaction, subject, as in the current version of the rule, to certain exceptions. If adopted, the proposal would not affect the current ability in most firm commitment underwritten transactions to use a T+3 or, if priced after 4:30 p.m. U.S. Eastern time, a T+4 settlement cycle; nor would it affect the ability of the parties to any particular transaction to agree expressly to a settlement cycle that is longer than T+2.

Request for Comment

The SEC is requesting comment regarding all aspects of the proposed amendment to Rule 15c6-1. The SEC is also requesting comment on a number of specific questions set forth in the proposing release. Not only is the SEC seeking comments, it is also asking commenters to submit any relevant data or analysis along with their comments. You can find the proposal, along with information on how to submit comments, on the SEC website. Comments must be submitted prior to December 5, 2016.

IRS Gives Tax Relief to Victims of Hurricane Matthew; Many Extension Filers in North Carolina Now Affected; Relief for Other States Expected Soon

( IRS ) October 11, 2016 – North Carolina storm victims will have until March 15, 2017, to file certain individual and business tax returns and make certain tax payments, with similar relief expected soon for Hurricane Matthew victims in other states, the Internal Revenue Service announced today. All workers assisting the relief activities who are affiliated with a recognized government or philanthropic organization also qualify for relief.

Following this week’s disaster declaration for individual assistance issued by the Federal Emergency Management Agency (FEMA), the IRS said that affected taxpayers in Beaufort, Bladen, Columbus, Cumberland, Edgecombe, Hoke, Lenoir, Nash, Pitt and Robeson counties will receive this and other special tax relief. Locations in other states are expected to be added in coming days, based on damage assessments by FEMA.

The tax relief postpones various tax filing and payment deadlines that occurred starting on Oct. 4, 2016. As a result, affected individuals and businesses will have until March 15, 2017, to file returns and pay any taxes that were originally due during this period. This includes the Jan. 17 deadline for making quarterly estimated tax payments. For individual tax filers, it also includes 2015 income tax returns that received a tax-filing extension until Oct. 17, 2016. The IRS noted, however, that because tax payments related to these 2015 returns were originally due on April 18, 2016, those are not eligible for this relief.

A variety of business tax deadlines are also affected including the Oct. 31 and Jan. 31 deadlines for quarterly payroll and excise tax returns. It also includes the special March 1 deadline that applies to farmers and fishermen who choose to forgo making quarterly estimated tax payments.

In addition, the IRS is waiving late-deposit penalties for federal payroll and excise tax deposits normally due on or after Oct. 4 and before Oct. 19 if the deposits are made by Oct. 19, 2016. Details on available relief can be found on the disaster relief page on IRS.gov.

The IRS automatically provides filing and penalty relief to any taxpayer with an IRS address of record located in the disaster area. Thus, taxpayers need not contact the IRS to get this relief. However, if an affected taxpayer receives a late filing or late payment penalty notice from the IRS that has an original or extended filing, payment or deposit due date falling within the postponement period, the taxpayer should call the number on the notice to have the penalty abated.

In addition, the IRS will work with any taxpayer who lives outside the disaster area but whose records necessary to meet a deadline occurring during the postponement period are located in the affected area. Taxpayers qualifying for relief who live outside the disaster area need to contact the IRS at 866-562-5227.

Individuals and businesses who suffered uninsured or unreimbursed disaster-related losses can choose to claim them on either the return for the year the loss occurred (in this instance, the 2016 return normally filed next year), or the return for the prior year (2015). See Publication 547 for details.

The tax relief is part of a coordinated federal response to the damage caused by severe storms and flooding and is based on local damage assessments by FEMA. For information on disaster recovery, visit disasterassistance.gov.