Tag: Assurance

The Differences Between An Enrolled Agent And A Certified Public Accountant

Posted on by info

By Traci Rutter, EA

Enrolled Agents (EAs) are federally-licensed tax practitioners who may represent taxpayers before the IRS when it comes to collection, audits and appeals.  They are granted unlimited practice rights to represent taxpayers before the IRS and are authorized to advise, represent, and prepare tax returns for individuals, partnerships, corporations, estates, trust and any entities with tax-reporting requirements.  Enrolled agents are the only federally-licensed tax practitioners who specialize in taxation and have unlimited rights to represent taxpayers before the IRS.

Enrolled agents are required to complete 72 hours of continuing education every three years in order to maintain their active enrolled agent license and practice rights.  Enrolled agents are required to abide by the provisions of the Department of Treasury’s Circular 230, which provides regulations governing the practice of enrolled agents before the IRS.

So, what is the difference between an enrolled agent and a certified public accountant (CPA)?  A CPA can provide broad accounting, tax and financial services for businesses whereas an EA focuses specifically on taxes for businesses and individuals.  A CPAs qualifications to practice require state education, usually 150 hours of undergraduate education and pass the four-part CPA exam.  To become an enrolled agent and earn the privilege of representing taxpayers before the Internal Revenue Service, they have to pass a three-part comprehensive IRS test covering individual and business tax returns or through experience as a former IRS employee.

CPAs are equally qualified to do the work of an EA.  The main difference comes in the services each can provide.  CPAs do not focus on only one sector of accounting.  They can assist as advisors or consultants for all accounting, tax and financial services for individuals and businesses they represent.  CPAs help their clients achieve financial goals through financial planning and money management.

Both types of professionals are well-qualified, have minimum continuing education hours that need to be met yearly and have ethical code of conduct to uphold.  Which one you should consult depends largely on the issue you are trying to resolve.  While a CPA has a much wider scope of services they can provide, if you have an accounting need that needs a micro focus, working with an EA could be the perfect fit for you.

Relief For 2020 RMD Waivers and Rollovers Extended By IRS

Posted on by info

The Coronavirus Aid, Relief, and Economic Security (CARES) Act, enacted on March 27, 2020, waived required minimum distributions (RMDs) from tax-qualified defined contribution retirement plans (such as 401(k) and 403(b) plans) and individual retirement accounts (IRAs) that were otherwise due in 2020 to help Americans cope with the uncertainty caused by the COVID-19 pandemic. This was welcome relief for those who wanted to skip RMDs for the year, but the law created many unanswered questions—especially for those who had taken distributions before the law’s enactment. This relief does not apply to RMDs from defined benefit plans.
 
The Internal Revenue Service (IRS) issued guidance in late-June to clarify these issues and ensure that anyone who received an RMD in 2020 from a defined contribution plan or IRA can now roll the funds back into a similar plan. Most notably, IRS Notice 2020-51 extends the deadline for participants to return an unwanted RMD to their retirement accounts to August 31, 2020 (or 60 days after the distribution, whichever is later). The notice also expands the RMD waiver and rollover opportunity to owners of non-spousal inherited IRAs.

Key Elements of Notice 2020-51

The recent IRS notice contains five key provisions affecting plan sponsors and individuals who wish to skip RMDs in 2020 or roll previously taken 2020 RMDs back into their retirement accounts:

  • Individuals now have until August 31, 2020 to roll 2020 RMDs back into their retirement accounts; before Notice 2020-51, the deadline had been July 15, 2020.
  • The RMD waiver now applies to non-spousal inherited IRAs; previously, these accounts had been excluded from the waiver.
  • The usual limit of one rollover per year from IRAs does not apply to 2020 RMDs.
  • 2020 RMDs can go back to the plan they were taken from, as long as the plan allows it.
  • Plan sponsors (but not IRA vendors) will need to amend plans to reflect changes related to 2020 RMDs and rollovers; to help plan sponsors with this, the notice provides a two-part sample amendment that covers 1) giving participants the option of whether to take 2020 RMDs and 2) three options related to making direct rollovers available.

In addition, the notice includes a Q&A section that addresses several common issues related to the relief for RMDs and rollovers. In particular, the guidance specifies that plan sponsors do not have to accept rollovers and that the RMD waiver does not change an individual’s required beginning date to take RMDs—it only provides flexibility if RMDs started in 2020 (including 2019 initial RMDs that were allowed to be taken before April 1, 2020).

IRS Expands RMD Relief, but Deadline is Approaching
 
While the expansion of the RMD waiver coverage and the extension of the rollover deadline to August 31, 2020 is good news for many, the deadline is fast approaching. Plan sponsors need to act swiftly to see whether their plan allows rollovers of RMDs back into the plan. Those who wish to amend their plan to allow such rollovers should consider using the sample amendment provided in the notice or modify it to fit their plan’s circumstances.

Strategic Considerations Why Private Companies Should Adopt Public Company Controls

Posted on by info

Often viewed as a “public company problem,” private organizations may want to consider implementation of internal controls similar to Sarbanes-Oxley (SOX) Section 404 requirements. The inherent benefits of a strong control environment may be of significant value to a private company by providing: enhanced accountability throughout the organization, reduced risk of fraud, improved processes and financial reporting, and more effective inclusion of the Board of Directors.

Private organizations, while not always smaller, often have limited resources in specialty areas, including accounting for income tax. This resource constraint—the work being done outside the core accounting team—combined with the complexity of the issues, means private companies are ideal candidates for, and can achieve significant benefit from, internal controls enhancements. Thinking beyond the present, the following are five reasons private companies may want to adopt public-company-level controls:

  1. Future Initial Public Offering (IPO) – Walk before you run! If the company believes an IPO may be in its future, it’s better to “practice” before the company is required to be SOX compliant. A phased approach to implementation can drive important changes in company culture as it prepares to become a public organization. Recently published reports analyzing IPO activity reveal that material weaknesses reported by public companies were disproportionately attributable to recent IPO companies. Making a rapid change to SOX compliance can place a heavy burden on a newly public company.
  2. Private Equity (PE) Buyer – If the possibility of the company being sold to a PE buyer exists, enhanced financial reporting controls can provide the potential buyer with an added layer of security or comfort regarding the financial position of the company. Further, if the PE firm has an exit strategy that involves an IPO, the requirement for strong internal controls may be on the horizon.
  3. Rapid Growth – Private companies that are growing rapidly, either organically or through acquisition, are susceptible to errors and fraud. The sophistication of these organizations often outpaces the skills and capacity of their support functions, including accounting, finance, and tax. Standard processes with preventive and detective controls can mitigate the risk that comes with rapid growth.
  4. Assurance for Private Investors and Banks – Many users other than public shareholders may rely on financial information. The added security and accountability of having controls in place is a benefit to these users, as the enhanced credibility may impact the cost of borrowing for the organization.
  5. Peer-focused Industries – While not all industries are peer-focused, some place significant weight on the leading practices of their peers. Further, some industries require enhanced levels of security and control. For example, utility companies, industries with sensitive customer data (financial or medical), and tech companies that handle customer data often look to their peer group for leading practices, including their control environment. When the peer group is a mix of public and private companies, the private company can benefit from keeping pace with the leading practices of their public peers.

Private companies are not immune from the intense scrutiny of numerous stakeholders over accountability and risk. Companies with a clear understanding of the inherent risks that come from negligible accounting practices demonstrate their ability to think beyond the present, and to be better prepared for future growth or change in ownership