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CORPORATE TAX & ACCOUNTING
News for Corporate Professionals from Checkpoint Learning
 
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March 2014
 
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Knowledge is power! Stay informed and be prepared with critical and timely corporate tax and accounting news. This newsletter kicks off the series of topics aimed to provide solutions to support business strategy and goals.
 

In This Issue

Crowdfunding for Security Offerings: SEC Releases Proposed Rules
Crowd Funding imageThe Jumpstart Our Business Startups Act (the JOBS Act) was signed into law in April 2012, and it created a new Section 4(6) of the Securities Act of 1933. This new section exempts crowdfunding security offerings from Securities Exchange Act of 1934 (the Exchange Act) registration and its periodic reporting requirements. The JOBS Act directed the SEC to adopt rules to implement various provisions of the crowdfunding security exemption.

On October 23, 2013, the SEC voted unanimously to release its proposed rules for the crowdfunding security exemption of the JOBS Act (Proposed Rulemaking Release No. 33-9470).

Crowdfunding is a method to raise money using the Internet and serves as an alternative source of capital to support a wide range of ideas and ventures, including charities, civic projects, creative projects, disaster relief, inventions development, and scientific research. When individuals or entities raise funds through crowdfunding, they typically seek small individual contributions from a large number of people. The crowdfunding campaign generally has a targeted amount to be raised and an identified use for those funds. Individuals interested in the campaign may share information about the endeavor with each other and use the information to decide whether or not to fund the campaign.

Crowdfunding has been used to fund, for example, artistic endeavors, such as films and music recordings, where contributions or donations are rewarded with a token of value related to the project. For example, a person contributing to a film's production budget is rewarded with tickets to view the film and is identified in the film's credits. A number of entities operate websites that facilitate crowdfunding, with some websites specializing in certain industries, such as music and the arts.

The idea behind the crowdfunding security exemption in the JOBS Act is to allow private companies to raise relatively small amounts of capital from a large number of investors without having to register the securities issued with the SEC or under state blue sky laws. The proposal would let businesses use the Internet, mobile technology, and social media to raise up to $1 million a year from investors via crowdfunding.

Under the JOBS Act and the proposed rules, individual investors who wish to invest in crowdfunded investments would be permitted to invest up to $2,000 or 5% of their annual income or net worth, whichever is greater, if both their annual income and net worth are less than $100,000.

Investors with annual income or net worth that is more than $100,000 would be allowed to invest up to 10% of their annual income or net worth, whichever is greater but with an annual cap of $100,000.

Investors would not be able to resell the securities for one year.

Investors have an unconditional right to cancel an investment commitment within 48 hours after making it. However, a cancellation during the final 48 hours of the crowdfunded offering is only permitted if there is a material change to the offering terms or to other information provided by the issuer with respect to the offering.

The annual income and net worth limitations have made the maximum allowable investments under the JOBS Act much higher than the cap of $100 per offering that was in the original petition to the SEC back in 2010. Perhaps Congress equates success with converting a simple idea to something much more complex? The increase in the investment amount has substantially increased the possible risk to investors. Given that the mission of the SEC is to protect investors; maintain fair, orderly, and efficient markets; and facilitate capital formation, this might explain the length of the proposed rules.
The Affordable Care Act (Obamacare): Benefits, Mandates, and Extensions

ObamaCare imageThe Affordable Care Act was passed by Congress and then signed into law by the President in March 2010. In June 2012, the Supreme Court rendered a final decision to uphold the healthcare law. Now, heading into 2014, the Obama administration continues to announce changes affecting the employer mandate as the administration tries to implement the complicated web of rules.

Opinions are loud and persistent on the healthcare reform laws. The overload of information can make it difficult to distinguish between fact and opinion. The threshold requirements and timeline deadlines have been considered burdensome and challenging by employers. Before the Affordable Care Act, employers had complete discretion whether to offer health plan coverage to their employees and their dependents. With the passage of the Affordable Care Act, the rules have drastically changed.

The Affordable Care Act originally provided that beginning in 2014, applicable large employers (those with 50 employees or more) may be subject to a penalty if they do not offer their full-time employees (and their dependents) the opportunity to enroll in a health plan that provides affordable insurance at a certain minimum value. These employers can satisfy the mandate to provide full-time employees (and their dependents) with health insurance by offering this now-required benefit through an eligible employer-sponsored plan.

The most recent announcement provides that businesses with less than 100 employees (and greater than the 50-employee threshold) do not have to comply with providing insurance to their employees until 2016. Businesses with more than 100 employees (“large companies”) will only have to provide the insurance to 70% of their full-time workforce in 2015 (down from 95%). Those large companies still must meet the original target in 2016, however. And, to the purpose of headcount, the Treasury Department issued clarification just recently that volunteer employees are not included for the purposes of the law.

Individuals were not required by the government to have health insurance before Obamacare became law in 2013, although many enjoyed some type of health insurance coverage for themselves and family members as a benefit through employer-sponsored health insurance plans. Benefits provided under health insurance plans vary widely; from offering minimal benefits (i.e., a catastrophic plan) to offering extensive benefits. With the Affordable Care Act, individuals who do not qualify for an exemption have the opportunity for minimum essential health insurance coverage beginning in 2014. However, the shine on the benefit is a marred a bit by the fact that the individual may very well be subject to a shared responsibility penalty if they do not take the government-mandated responsibility and partake in the benefit.

Nonexempt individuals who do not maintain the required health insurance coverage for themselves and any nonexempt dependents are subject to a shared responsibility penalty for each month that the required insurance is not maintained. For taxpayers who file a joint return, the spouse is jointly liable for the penalty. The penalty will be calculated on an individual's personal income tax return and paid as part of his or her federal income tax liability.

Generally, individuals may obtain the required minimum essential coverage through an eligible employer-sponsored plan or through an individual plan purchased through a state insurance marketplace. Individuals qualifying for Medicare, Medicaid, CHIP, or certain other government-sponsored programs are considered to have minimum essential coverage that satisfies the mandate.

Whether fact or opinion, healthcare reform can be daunting to comprehend and a challenge to adequately and comfortably advise clients on, but the task is not impossible if the correct resources are studied, analyzed, and referenced.

Accumulated Other Comprehensive Income: ASU 2013-02

Comprehensive imageIn February 2013, the FASB issued ASU 2013-02, Reporting Amounts Reclassified Out of Accumulated Other Comprehensive Income, to improve the transparency of reporting reclassifications out of accumulated other comprehensive income. The amendments in this ASU require reporting entities to report information on reclassifications out of accumulated other comprehensive income in a new format. The amendments in the ASU do not change the current requirements for reporting net income or other comprehensive income in financial statements. All of the information this ASU requires is already required to be disclosed elsewhere in the financial statements under U.S. GAAP.

The new amendments will require an organization to do the following:

  • Present, either on the face of the statement where net income is presented or in the notes, the effect on the line items of net income of significant amounts reclassified out of accumulated other comprehensive income—but only if the item reclassified is required under U.S. GAAP to be reclassified to net income in its entirety in the same reporting period.
  • Cross-reference to other disclosures currently required under U.S. GAAP for other reclassification items that are not required under U.S. GAAP to be reclassified directly to net income in their entirety in the same reporting period. This would be the case when a portion of the amount reclassified out of accumulated other comprehensive income is initially transferred to a balance sheet account (e.g., inventory for pension-related amounts) instead of directly to income or expense.

Scope and Applicability
The amendments in this ASU apply to all organizations that issue financial statements that are presented in accordance with U.S. GAAP and that report items of other comprehensive income. Public companies are required to comply with these amendments for all reporting periods, interim and annual. A private company is required to meet the reporting requirements of the amended paragraphs about the roll-forward of accumulated other comprehensive income for both interim and annual reporting periods. However, private companies are only required to provide the information about the impact of reclassifications on line items of net income for annual reporting periods, not for interim reporting periods. Not-for-profit organizations are excluded from the scope of these amendments because they do not use other comprehensive income.

Effective Date
The amendments are effective for reporting periods beginning after December 15, 2012, for public companies and reporting periods beginning after December 15, 2013, for private companies.

Standard Mileage Rates for 2014

Mileage Rates imageNotice 2013-80, 2013-52 IRB 821 (December 6, 2013)
Notice 2013-80 provides the optional 2014 standard mileage rates for taxpayers to use in computing the deductible costs of operating an automobile for business, charitable, medical, or moving expense purposes. It also provides the amount taxpayers must use in calculating reductions to basis for depreciation taken under the business standard mileage rate, and the maximum standard automobile cost that may be used in computing the allowance under a fixed and variable rate (FAVR) plan.

Background

Revenue Procedure 2010-51, 2010-51 I.R.B. 883, provides rules for computing the deductible costs of operating an automobile for business, charitable, medical, or moving expense purposes, and for substantiating, under IRC §274(d) and Regulation §1.274-5, the amount of ordinary and necessary business expenses of local transportation or travel away from home. Taxpayers using the standard mileage rates must comply with Revenue Procedure 2010-51. However, a taxpayer is not required to use the substantiation methods described in that revenue procedure, but instead may substantiate using actual allowable expense amounts if the taxpayer maintains adequate records or other sufficient evidence.

An independent contractor conducts an annual study for the IRS of the fixed and variable costs of operating an automobile to determine the standard mileage rates for business, medical, and moving use reflected in this notice. The standard mileage rate for charitable use is set by IRC §170(i).

Standard Mileage Rates
  • The standard mileage rate for transportation or travel expenses is 56 cents per mile for all miles of business use (business standard mileage rate).
  • The standard mileage rate is 14 cents per mile for use of an automobile in rendering gratuitous services to a charitable organization under IRC §170.
  • The standard mileage rate is 23.5 cents per mile for use of an automobile (1) for medical care described in IRC §213, or (2) as part of a move for which the expenses are deductible under IRC §217.
Basis Reduction Amount

For automobiles a taxpayer uses for business purposes, the portion of the business standard mileage rate treated as depreciation is 23 cents per mile for 2010, 22 cents per mile for 2011, 23 cents per mile for 2012 and 2013, and 22 cents per mile for 2014.

Maximum Standard Automobile Cost

For purposes of computing the allowance under a FAVR plan, the standard automobile cost may not exceed $28,200 for automobiles (excluding trucks and vans) or $30,400 for trucks and vans.

Effective Date and Effect on Other Documents

This notice is effective for deductible transportation expenses paid or incurred on or after January 1, 2014, and mileage allowances or reimbursements paid to an employee or to a charitable volunteer on or after January 1, 2014, and for transportation expenses the employee or charitable volunteer pays or incurs on or after January 1, 2014. Notice 2012-72 was superseded.

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Heard about the latest tax developments? Managing Director Joe Harpaz is a regular contributor on Forbes. Explore his timely discussion around policy proposals and changes, breaking down complex issues. Find the blog hosted on Forbes at forbes.com/sites/joeharpaz.

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