Crowdfunding Update

Last week we posted that the House of Representative and Senate passed their own crowdfunding bills and were heading to reconciliation. Rather than debate the differences, on March 27, 2012, the House of Representatives passed the Senate's version of the bill which was initially passed on March 22, 2011. The bill has now been sent to President Obama for signature. The following are key provisions of the Senate's bill related to crowdfunding:

• Allow entrepreneurs to raise up to $1 million per year through and SEC approved portal.
• Free people to invest a percentage of their income. For investors with an income of less than $100,000, investments will be capped at the greater of $2,000 or 5% of income. For investors within an income of more than $100,000, investments will be capped at 10% up to $100,000.
• Require crowdfunding portals to provide investor protection, including investor education materials on the risks associated with small issuers and illiquidity.
• All investment offerings on the platform must be registered in advance with the SEC through a filing of basic information about the corporation and its principals. Fundraising up to $100k requires very minimal financial statement filings and allows for pre-revenue businesses to still raise up to $100k. Fundraising from $100k to $500k requires review of financials by a public accountant. Fundraising from $500k to $1M requires audited financials.
• Crowdfunding investors are excluded from shareholder caps (currently at 500, though likely to be increased soon) for purposes allowing a private company to stay privately held. *Companies will be able to raise crowdfunding from as many people as they want.
• The investor cannot resell the stock for a year, except back to the issuing company, an accredited investor, through a subsequent registered IPO, or to their family. *This is consistent with non-public offering re-sale restrictions.

If you have questions in connection with crowdfunding or would like to gain additional information regarding this topic. Please contact dbbmckennon at one of its two offices located in Southern California or via email.

Small Business Fraud Series – Importance of Bank Reconciliations

As your small business grows, your internal control structure must grow with you and a sound control environment becomes more critical. One of the most important controls in a small business is preparing timely bank reconciliations at the end of every month, at a minimum.  Bank reconciliations are a comparison of the Company’s records to the bank’s records.  At any given point in time, there are likely to be reconciling items such as outstanding checks or electronic transfers.  Without bank reconciliation, you may not have a clear idea of how much cash is available in your account. You might bounce checks and incur overdraft charges. With electronic check clearing, you don’t have much time to get funds into your account when you write checks. Bouncing checks could be damaging to your business reputation or may cause you to lose a key supplier if not fixed in a timely manner.

Designate a specific individual to perform monthly, weekly, or daily bank reconciliations depending on the volume of account activity.  You must go through every transaction in your account and make sure you and the bank agree on the transaction and investigate any unusual items. The key is to keep a real-time tracking of accounting records and bank balances to protect against overdrafts as well as identify fraudulent activity in a timely manner.

For additional complimentary information regarding thisitem or other questions you may have please call one of dbbmckennon‘s offices located in Southern California or contact us here.

Crowdfunding and Financial Statement Audits

In the past weeks, the House of Representatives and Senate have passed back and forth legislation labeled the Jumpstart Our Business Startups (JOBS) Act.  This bill, among other things, allows companies to go through crowdfunding websites, such as kickstarter, to raise capital. The specific limits and restrictions are still being worked out.  For an explanation of crowdfunding follow this link.

At dbbmckennon, we have been keeping a close eye on this revolutionary piece of legislation that we believe, will potentially provide additional startup capital to smaller companies in order to bring their product or service to market.  As Certified Public Accountants (CPA), we too often see small companies fail or never reach their potential due to the inavailability of capital or lack of capital on acceptable terms. We believe this piece of legislation will relieve some of those difficulties.

At dbbmckennon we are uniquely positioned to provide the audits and/or reviews that may be required by this legislation, depending upon the level of funding  are seeking out.  Our business has and always will focus on the needs of small businesses, much like the ones that will benefit under the JOBS act.  In addition, our customers will get the assurance that they are working with a world class CPA firm that is registered with the Public Company Accounting Oversight Board (PCAOB) which allows us to audit public companies in which report to the Securities and Exchange Commission (SEC).  There is no higher level of qualification a CPA firm in which performs audits can obtain.  Our latest PCAOB report, reflected no comments, indicating that the quality of our work is in the upper echelon of all CPA firms nationwide.

As independent auditors, we enjoy seeing small businesses with an idea, a little money, and a big dream.  We look forward to being partners with all the small companies that will benefit from the JOBS act. If you have questions in connection with crowdfunding or would like to gain additional information regarding this topic. Please contact dbbmckennon at one of its two offices located in Southern California or via email.

dbbmckennon to sponsor The Elite OC seminar

On Wednesday, March 28, 2012, dbbmckennon will be sponsoring The Elite OC's Seminar - Building and Growing a Business - The Tie Between Entrepreneur & Leader. The event will kick-off with a light breakfast and schmoozing (7:00-7:30am), followed by an interactive session with three of Orange County's most respected Entrepreneurs + Leaders (7:30-9:00am). These 'Entre-Leaders' will share their wisdom with us and answer questions on how to successfully build and grow a business:

ANDY FATHOLLAHI - Chief Executive Officer, Incipio

ERIK HALE - Founder, Locale Magazine

BRYAN ELLIOT - Founder, Linked Orange County

This is an amazing opportunity to engage with three key OC-leaders, while also giving back to the local Make-A-Wish Foundation through the optional donation of a backpack or toy for children 3-18 years old.

**Attendance is free and seating is limited so please RSVP and arrive early enough to check-in and grab a seat!

Fletcher Jones Motor Cars at 3300 Jamboree Rd, Newport Beach will be hosting the event. For additional information please contact dbbmckennon or visit The Elite OC.

IRS Releases the Dirty Dozen Tax Scams for 2012

The IRS released their annual "Dirty Dozen" ranking of tax scams to remind taxpayers to use caution during tax season to protect themselves against a wide range of schemes.

The three most common schemes to watch out for are:

Identity Theft – The IRS is increasingly seeing identity thieves looking for ways to use a legitimate taxpayer's identity and personal information to file a tax return and claim a fraudulent refund.  If you believe your personal information has been stolen and used for tax purposes should immediately contact the IRS Identity Protection Specialized Unit.

Phishing – This scam is typically involves unsolicited emails or fake websites that poses as a legitimate site and attempt to get the victim to enter valuable personal and financial information.  These emails can appear to be legitimate, but it is important to keep in mind the IRS does not initiate contact with taxpayers by email or request personal or financial information.

Return Preparer Fraud – It is important you hire a trusted tax professional to prepare and file your tax returns. Questionable return preparers have been known to skim off their clients' refunds, charge inflated fees for return preparation services and attract new clients by promising guaranteed or inflated refunds.

You can find the complete IRS Release of the Dirty Dozen Tax Scams for 2012 here along with additional information on how to contact the IRS if you feel you have been a victim of a tax scam.

For additional complimentary information regarding this item or other questions you may have please call one of dbbmckennon‘s offices located in Southern California or contact us here.

SOX 404(b) Exemption Could Extend to Larger Companies

What is SOX 404(b)?  Section 404(b) of the Sarbanes-Oxley Act ("SOX") requires public companies to have an independent external auditor attest to internal controls over financial reporting, also known as an integrated audit.

What companies are exempt?

Currently, issuers (entities reporting before the SEC) with a public float of less than $75 million or annual revenues of less than $50 million if the public float of the issuer is zero  are exempt from SOX 404(b). However, economic conditions and businesses have contributed to applying pressure to extend the exemption to companies with public floats of less than $1 billion.  It has been also proposed to raise the threshold to $350 million from $75 million.

When might a change in exemption occur?

On February 16, 2012, the House Financial Services Committee opened discussions related to the "Reopening American Capital Markets to Emerging Growth Companies Act." During the markup period for this bill, an amendment to a separate bill was offered to exempt all companies with public floats of less than $1 billion from SOX 404(b).  Although the amendment was withdrawn, the committee chair stated the issue would be considered later this year.

The partners and staff of dbbmckennon, support an amendment to SOX 404(b) to lessen the burden on public companies by increasing the public-float levels from $75 million to in the range $350 million and $1 billion.

We encourage our clients and readers to write to their respective congressional leaders in support of raising the 404(b) public float requirements to $1 billion.  Our firm wrote our congressional leaders during the fight to exempt public companies from 404(b) in support of the $75 million public float, while our competitors and the AICPA did not support the exemption.

Auditor Explained!

Most people are shocked to find out that Certified Public Accountants do more than just tax compliance. dbbmckennon is a full service CPA firm in which provides other services including audits of private and public companies. Individuals within our firm in which perform these services are referred to as "auditors". Most people when they hear that you are an "auditor" automatically associate you with bad things, such as an IRS auditor. What most people don't realize, is that we are the type of auditor in which is there to protect them and their investments. Most auditors have a difficult time explaining to the friends and family what they actually do. If you find yourself not quite grasping what an auditor does, the Center for Audit Quality has created a short video explaining such. You can find the video here. For additional complimentary information regarding our services or other questions you may have please call one of dbbmckennon‘s offices located in Southern California or contact here.

What’s that new number on your W-2?

You may see a something new on your W-2 this year; employer health plan costs. The Patient Protection and Affordable Act  requires many employers to report the cost of qualifying employer-sponsored health coverage. The new requirement is optional for the 2011 W-2’s (physically issued in January 2012) as employers make modifications to their payroll systems to accomodate the addition information. Starting with 2012 W-2's (physically issued in January 2013) most employeers in which issue in excess of 250 W-2's annually will be required to provide such information.

The costs on the W-2 encompass the costs to the employer for coverage under any group health plan that the employer makes available to the employee. The reporting by the employer provides the US Government to ensure the minimum health care costs are being expended by the employer in accordance with the Act. The amounts are not included in employees' gross income. These costs disclosed exclude long-term care, coverage under separate dental and vision plans, disability insurance, HSA plans, etc. The costs disclosed will include both the employee and employer portion paid.

For additional complimentary information regarding this item or other questions you may have please call one of dbbmckennon‘s offices located in Southern California or contact here.

Five Accounting Resolutions for 2013

Improving your company should be a constant effort.  Here are fie resolutions to make for 2013 to improve your company's accounting and business.

1. Outsource the work that doesn't benefit your top or bottom line – Business owners should not spend one, two, three or four or more hours a day doing administrative work that doesn't directly impact the company’s growth and future.  Business owners are the face of the company and shouldn't spend all their time behind a computer and a stack of paper.  Outsource the accounting work to a qualified accountant that can take over receivables, payables, and general oversight of the company’s accounting needs.  Use a payroll company that can also help you with HR related issues.  Don’t try to wear all the hats in the organization.
2. Review – Create a monthly or quarterly review process.  Review margins, receivables, payables, and cash forecasts.  Sometimes business owners aren't as profitable as they think they are.  You may get a great margin on a sale, but are you thinking about your overhead costs, how long the product sat on the shelf, etc?  Are your prices to low/high?  Your product/service may need price adjustments.  Reviewing these items regularly will ensure your company doesn't fall behind needlessly.
3. Automate – As your business expands, make sure that efficiencies are found where available.  Credit card processing, storing bank information for clients, or automating payments can assist in becoming more efficient.  Upgrading your accounting software or billing practices can also help.
4. Plan – Speak with your CPA a few times throughout the year not just at year end.   Planning with your CPA can help minimize taxes.  Planning expenditures, creating retirement plans, and taking advantage of certain deductions can all help minimize taxes.
5. Take action – Most resolutions never get off the ground.  Make a concerted effort to do at least one thing that will help your accounting in 2013.  The first step is usually the hardest!

dbbmckennon is a full service CPA firm with offices in Orange County and San Diego focused on providing quality accounting and consulting services at reasonable rates. For additional complimentary information regarding this topic or other questions you may have please call one of dbbmckennon‘s offices located in Southern California or contact us here.

2011 Tax Filing Deadline Extended to April 17, 2012

Tax Day is typically April 15, but this year the IRS has moved the filing deadline to Tuesday due to April 15 falling on a Sunday and Monday being Emancipation Day, a District of Columbia celebrated holiday. Tax payers may start submitting their 2011 tax returns beginning January 17, 2012. Filing electronically is the fastest and most reliable way for taxpayers to file returns. Although April 17, 2012 is the deadline this year, taxpayers should contact their preparers early to plan ahead. Those taxpayers needing a little extra time will still be required to file an extension will have until October 15, 2012 to file. PS - We tax preparers just love when April 15th land on a weekend as it gives us a couple of extra days to complete client returns.

For additional complimentary information regarding this item or other questions you may have please call one of dbbmckennon‘s offices located in Southern California or contact us here.

Small Business’ Outgrowing their Accounting System

Small business owners are constantly presented with decisions of whether or not to make investments in property and equipment in order to maintain growth within their businesses. Often decisions are easy as the investment is minimal and will quickly contribute to additional revenue. However, there is one asset that every Company has but virtually no Company wants to invest in: an accounting system.

Start-up and small developing businesses often use an off the shelf accounting system (i.e. QuickBooks, Peachtree, etc). As their business grows, sometimes so do the demands of the accounting department. At some point in the Company’s growth, the chief decision maker often has to consider whether to stick with the status quo, or invest in a new Enterprise Resource Planning system, commonly referred to as an "ERP" system. However, implementing an ERP system isn’t just about cost, it’s also about time and timing. So the real question is, should a Company implement an ERP system in the preparation of additional growth, or after growth has been achieved and the old accounting system has reached its limits?

While there is no one size fits all answer, here are a few questions that can assist in the decision of whether or not to upgrade your accounting system:

• Are cash flows from operations substantial enough to support the cost of implementation?
• Will forecasted growth in the coming years substantiate the need for a more advanced system?
• Will an integrated system provide for better customer service?
• Is the business in an industry that generally requires a more advanced system?
• Are there frequent errors in financial reporting, and if so, are those errors arising from the current accounting system not being able to meet the needs of the Company?
• Are there any contracts or large projects that will create a need for a better run accounting department or more advanced reporting features (i.e. government contracting)?
• Would integration of different departments (accounting, customer services, warehouse, etc.) benefit from a more integrated system? Would that drive additional growth?
• Is the Company centralized or decentralized and would a new ERP system best support that characteristic.

In deciding what’s best for your Company, consider contacting your CPA for advice. CPA’s generally work with many companies across various industries and can inform you about both positive and negative results from Companies that are similar to your own. Sometimes, they can even put you in contact with a client who has recently gone through an ERP transition. There is no better decision than an informed decision.

For additional complimentary information regarding this item or other questions you may have please call one of dbbmckennon's offices located in Southern California or email us here.

Tax Prepares Required to be Registered with the IRS

Anyone who prepares tax returns and charges a fee will be required to register with the Internal Revenue Service (IRS). Tax attorneys, certified public accountants, and enrolled agents are exempt because they are already registered with the IRS.

What will be required for a tax preparer to sign a federal tax return:

• Register and obtain a preparer tax identification number (PTIN)
• Required competency tests except for certified public accountants, enrolled agents, and attorneys.
• Continuing education except for certified public accountants, enrolled agents, and attorneys
• Extending the ethical rules in the Treasury Department Circular 230 to apply to tax preparers.

These rules are meant to help tax preparers become more competent in preparing tax returns and reduce the amounts of errors on tax returns. The IRS will start implementing this plan sometime in 2011. Make sure your tax preparer is registered with the IRS.

For additional complimentary information regarding this item or other questions you may have please call one of dbbmckennon's offices located in Southern California or email us here.

December means tax planning!

This time of year, the masses are making last minute arrangements, running around the malls to get the best possible priced gifts for the holiday season. For CPA’s, December is not just the holiday season, it’s the time when we do final tax planning with our clients. Just like you shop for the best priced gifts for the holidays, so too, should you put effort into saving money on taxes. Year end tax planning can reduce tax liability while benefiting your personal finances or business.

How you ask?

Many profitable businesses that buy equipment at year end when they can better predict their year end profit. For instance, certain equipment purchase can be expensed in full to reduce the profitability of the Company and the tax burden. This deduction is predicated on the circumstance that the business NEEDS the requisite equipment. In addition, items such  401K’s, SEP IRA’s and other investment vehicles to shield income from taxes while benefiting your retirement are available. These and other tools are great ways to minimize your tax burden.

Individuals should consider such items as donating clothes and other household items for charitable donation deductions,  paying your entire real estate taxes prior to year end, etc. Timing of payments effect the deductions you take. Thus, on the flip-side making certain payments (such a s real estate taxes) after year end may be more beneficial in the long term if your income is going up in the following year. This is a great discussion point to have with a CPA.

If you are worried what your tax bill might look like come April 15, 2012, consider being proactive and call or email dbbmckennon today to inquire about year end tax planning. Being proactive is your single most advantage when it comes to taxes.

Ten Questions to ask a Tax Preparer

There are approximately 100,000 paid tax preparers in the US, but not all are equal. With so many individuals and firms providing these services, it’s not necessarily hard to find a preparer, but it is to find a good preparer who is appropriate for your business and/or personal return. Because everyone’s situation is different, here are the top 10 questions to assess the quality of a prospective tax preparer.

1. Do you specialize in the type of tax returns I require?  Why – Don’t hire a preparer with no experience in the tax returns you require. For example not many preparers specialize in non-profit returns. Find someone who specializes in what you need.
2. How many years of experience do you have preparing returns?  Why – Make sure the person signing off on your return has at least five years experience.
3. Are you a CPA or Enrolled Agent (EA) and are you registered to practice with the IRS under their new regulations? Why – CPA’s and EA’s are completely different. EA’s are licensed to practice in front of the IRS which can be valuable. CPA’s generally have a greater understanding of accounting and business as a whole. Make sure anyone you chose is registered with the IRS to be a paid tax preparer which is required starting in 2012. If a preparer brushes this issue off, keep looking.
4. Do you have experience in IRS audit representation should one of my tax returns get audited? Why – If your return gets chosen for audit, you want to make sure the same person that prepares your taxes can handle your audit. This allows for efficiencies.
5. What are the benefits of using your services rather than a self-preparer service such as TurboTax or a low-end service such as H&R Block. Why – TurboTax and H&R Block are great when you are lower income levels and have an otherwise easy return. But if you own your own business, have income from multiple sources, or have life changing financial events, the expertise of a CPA is advantageous. Most CPA’s can be a value added individual rather than just a simple service provider. CPA’s can also offer planning which will help to minimize your tax burden over the long-term. Lastly, remember that most big-name tax preparation services use seasonal employees. Thus year-to-year, you never see the same preparer which creates a lack of continuity.
6. How will you make sure I get every tax benefit available for me?  Why – Make sure they have a system to catch as many benefits as possible.
7. Does your company offer tax planning and will that be a benefit to me?  Why – Tax planning is a great way to minimize your tax burden through structured and planned actions. However, tax planning is not always necessary. Most companies and individuals don’t need quarterly tax planning but would benefit from tax planning once or twice a year. Unless you are a relatively large company or high-net worth individual, avoid firms that recommend tax planning quarterly as often times they just want to collect more fees than are necessary.
8. Does your firm offer e-filing and how do you ensure the security and retention of my information?  Why – You want to ensure that you use a firm that is up to date with technological advances, which includes the latest in security protection. Firms that take this seriously are serious about keeping your business for the long-term. Investing in technology generally means they are investing in both your future and theirs.
9. How responsive can I expect you to be if I have questions or require tax documents during the year?  Why – Look for preparers that will respond within 24 hours. However, be realistic; good preparers are usually flush with work during tax filing deadlines and often require a little extra time to respond. Be careful about a preparer that overpromises their responsiveness.
10. Will my taxes be filed on time if I am able to provide you with my information in a timely manner before the applicable deadline?  Why – Make sure the preparer is committed to getting your taxes filed on time. However, remember that in order for the preparer to do their job, you need to get you information to them in a timely manner.

For additional complimentary information regarding this item or other questions you may have please call one of dbbmckennon's offices located in Southern California or email us here.

Ten Questions on Auditor/Accountant Selection

There are various reasons to retain and auditor: required under SEC regulations, for a potential merger or acquisition, sale of the Company, bank loan, etc. Often times executives find themselves having to engage an auditor for the first time, but don’t know how exactly to qualify the quality of auditor being interviewed. Here are 10 questions to ask an audit firm before you engage them.

1. Does your firm have significant experience in my industry?  Why – you always want to engage an auditor that is familiar with your industry.
2. Have you ever been sanctioned by the SEC/PCAOB/AICPA and are you in good standing with all regulatory entities?  Why – Being sanctioned by a governing body is a red flag for poor work quality or unethical behavior.
3. What type of staff should I expect to be assigned to my engagement and what are their experience levels?  Why – Big firms who have significant turnover often send inexperienced staff to the client unsupervised. This creates a situation in which a Controller or CFO end up teaching the staff how to audit. Most Controllers and CFO’s appreciate more seasoned staff that know what they are doing.
4. What differentiates you from other firms?  Why – Most audit firms are similar in nature at their core, but they do have defining characteristics. Look for a firm that line up with your needs and wants. Be cautious of firms that have prices well below market norms.
5. Do you believe the size of your audit firm can accommodate the scope of the work? Alternatively, is your audit firm too large or small for the scope of work needed?  Why – You want to engage an audit firm appropriate to the size of your Company in order to gain the most value. You wouldn’t want to engage a Big 4 firm for a small private company needing an audit for a bank loan, just like you wouldn’t engage a local audit firm if you are an international conglomerate.
6. How does your firm add value to your audit services?  Why – Auditors cannot take the role of management or act in a consulting manner. Thus, it becomes difficult to provide additional value beyond the audit services. However audit firms can and should make recommendations on internal controls, review fraud risk areas and report on finding if issues arise, and be responsive. These are just a few ways auditors can add value to their audit.
7. Do you conduct risk based audits and how can that help to achieve a competitive engagement fee?  Why – If they don’t they are not within professional standards nor providing services that are in your best interest. You will likely end up overpaying for the services.
8. Do you have a PCAOB report that can be viewed online?  Why – CPA firms who work on publically traded companies have their own watchdog, the Public Company Accounting Oversight Board ("PCAOB"). Depending on the size of the CPA firm, the PCAOB reviews the quality of the firm's workpapers every 1-3 years. The PCAOB makes comments on the quality of the audit firm’s work. The fewer comments the better. For example dbbmckennon received no comments on our most recent PCAOB report.
9. What kind of reputation does your firm have around the community and can you provide references?  Why – References are a good way to determine if the audit firm can back up what they say.
10. How responsive can I expect your firm to be?  Why – If you are a small company engaging a large audit firm, you may not be as important to them as their bigger clients. Look for a firm that will respond to you within 24 hours of any issue arising, can adhere to reasonable timetables, and will give you the attention you deserve no matter the size of your company.

For additional complimentary information regarding this item or other questions you may have please call one of dbbmckennon's offices located in Southern California or email us here.

dbbmckennon Takes to the Air

On Tuesday October 18^th, David Gosselin, a director with dbbmckennon, was interviewed on Critical Mass: The Radio Show hosted by Ric Franzi. Topics included future financial concerns of CEO’s, fraud, mitigation of risk through internal controls, and dbbmckennon’s market advantages compared to other CPA firms. dbbmckennon was thrilled to provide our time to contribute to the Orange County business community and get our message to the airwaves. If you didn’t get to listen live, the podcast can be accessed through iTunes podcast. Tune into Ric’s radio show each Tuesday from 4-5pm on www.octalkradio.net.

For additional complimentary information regarding this item or other questions you may have please call one of dbbmckennon's offices located in Southern California or email us here.

dbbmckennon Invests in the Future

Albert Einstein once said “I never think of the future - it comes soon enough.”  But here at dbbmckennon, we are always focused on the future.  Whether it’s our clients, our practice, or technology, it is our business to help make the future as bright as possible. On the technology front, we are pleased to announce that we have invested in an upgraded and cutting edge, back-of-the-house cloud based system.   Not only will this system allow us to work more efficiently on our clients, but it will grant clients the access to information they desire. 

With the new cloud based system, each tax and audit client may elect to have access to our cloud portal with their own unique username and password.  This will grant tax clients access to all their files that dbbmckennon has received or generated on their behalf; including completed and filed tax returns; and allow for audit clients to transfer files seamlessly without using email.   Here is a little more information about the system to answer questions and concerns:

Q:  On the cloud platform, will other clients have access to my information?

A:  No.  Each user will have access to their files only through a unique username and password.  Think of the cloud as a commercial storage center.   All clients have access to the security gate but each client has their own lock and key to their individual storage unit.  No one, other than yourself and your CPA can access your information.

Q:   Does dbbmckennon know my username and password?

A:  No.  The username and password you choose are yours and yours alone and administered by the cloud provider.

Q:  Is the cloud secure?

A:  Yes. Our cloud is run by a highly regarded national organization. Please contact us for the link to our providers security measures.

Q:  How can this benefit me as a client?

A:  Unprecedented access and reliability!  Having access to your tax returns anytime and anywhere will give you the freedom of mobility.  Often times clients need two years of tax returns for home loans.  In the past, if you lost or misplaced those returns, you would have to call your CPA and have the returns faxed over.  With the cloud platform, you can access up to three years of tax returns at any given time without waiting.  In addition, in preparation for tax season, you can upload pertinent information such as W-2’s, 1099’s, and other forms which we will need for tax preparation.  Thus you can build the file as you go instead of trying to find all documents at the last minute.  Audit clients can also build their audit file electronically on the cloud instead of sending documents via multiple emails (which are restricted by size) or snail mail.

Q:  What else will change once dbbmckennon switches over to the cloud platform?

A:  Not much else will change.  dbbmckennon is still committed to the highest quality of service.  As we implement the cloud platform, you will notice that paper will become less prevalent.  Tax clients will be allowed to upload information onto the cloud for tax preparation and download returns when complete.  This is good for everyone and good for the environment.

Q:  Can I still opt for paper returns and/or provide tax or audit information in paper form?

A:  Absolutely.  We can print and provide you with returns, financial statements, etc, or you can access them through the cloud portal and print/download them anywhere you have an internet connection and a printer.  You can also provide all your tax and audit documents to us in paper form.  We will create an electronic copy for our electronic system and return the paper documents to you.  All electronic documents are stored on the cloud for a period of time that meets or exceeds state and federal mandated retention requirements for CPA’s.

If you have more questions about our system and how it will benefit you as a client, don’t hesitate to contact us today.

IRS to Eliminate High-Low Per Diem Reimbursement Method

In July 2011, the IRS announced that the substantiation policy for reimbursements of out of town business travel will change.   Currently, individuals who travel overnight for their employer or business can use the high-low method to substantiate their expenses rather than providing proof of actual costs. Under current IRS regulations, a business can provide per diems to their employees and deduct said per diems for tax purposes without substantiation of cost, so long as the per diem provided is less than the federal reimbursement rate for the specific locality.  However, because many businesses have employees traveling across the country and the tracking of reimbursement rates for each locality can become cumbersome, the IRS provided for a simplified high-low method whereby certain cities (i.e. New York, L.A, etc.) had a predefined higher per diem rate and all other localities had a lower rate.  Having only two federal rates under this high-low method was meant to simplify the process.

The change to discontinue the high-low method is not yet in effect.  Thus, businesses using the high-low method can continue to do so until a formal announcement is made by the IRS.  To get information on per diem rates provided by the government, follow this link to the U.S. General Services administration (GSA). 

dbbmckennon is a full-service, Certified Public Accounting firm, established to provide tax, attestation and consulting services to individuals and businesses through our offices located in Southern California.

Shell Companies

Shell companies in the past have been abused by promoters as a method to pump and dump penny stocks and reap illicit profits. As a result, the Securities and Exchange Commission (the “SEC”) has issued various regulations under the Securities Act of 1934. These provisions prohibit the use of short form registration of securities on Form S-8 generally used for registering securities for officers, directors, employees and consultants until after 60 days from the date the company ceases to be a shell company. In addition, expanded reporting on Form 8-K, commonly referred to a “Super 8-K”, for reverse mergers (or “back-door registrations”) involving a private operating company and a shell company in the US. The term shell company means a registrant, other than an asset-backed issuer as defined in Item 1101(b) of Regulation AB, that has:

  1. No or nominal operations; and

  2. Either:

    i. No or nominal assets;

    ii. Assets consisting solely of cash and cash equivalents; or

    iii. Assets consisting of any amount of cash and cash equivalents and nominal other assets.

How is nominal measured? The SEC purposely did not define nominal since they wish to retain some level of judgment to managements and the SEC staff. Often times, it is not easy to determine whether a company with assets is a shell company or deemed an operating company.

A company with a business plan and qualified management team, which has not commenced operations, may be deemed to be a shell company until operations and assets become significant. Additionally, a company which has exited a business, and temporarily has no significant operations or revenue generating assets, would likely fall into classification as a shell company until operating assets are acquired. A company with a royalty stream from licensing may be considered a shell company if revenues and operating activities are nominal, even though investing activities in new products may be significant.

The facts and circumstances need to be addressed with each company that gives the appearance of a shell company, and the related impact on use of Form S-8 and reporting requirements of Form 8-K for US domiciled companies.

dbbmckennon is a registered firm of the Public Company Accounting Oversight Board, performing financial statement audits for public companies, and providing consultations to management teams involving complex accounting and reporting matters before the SEC.

How Many Years of Financial Information are Required for SEC Filers

As small businesses grow, so do opportunities.  Those opportunities often times allow for a private company to go public or for a public company to significantly increase operations.  So when do companies need to disclose two years of financial information as opposed to three on their annual financial statements on Form 10-K? Public companies whose equity is traded on a public exchange base their reporting requirements off of public float.  If the public float (total market value of common stock held by non-affiliates – affiliates generally defined as directors, officers and management, as well as 10% shareholders) is less than $75M as of the last day of the most recent second fiscal quarter, then only two years need be presented.  Public float over that amount requires three years of financial presentation for all statements except for the balance sheet, which only requires two.

For private or non-reporting companies who have no equity in the public market and are registering shares with the SEC, the benchmark is revenue.  If a Company has less than $50M in annual revenue as reported in its most recent fiscal year (12-month period) based on audited financial information, then only two years of financial statements are required.  If revenue is over that amount, three years of financial statement presentation is required for all statements except the balance sheet, which only requires two.

During reverse acquisitions, the SEC rules state that the operating company merging into the shell needs to assess requirements as if it had been a reporting company.  This assessment must be done on the date of reverse acquisition.  Accordingly, if revenues in the most recent audited fiscal year were over $50M, three years of financial statement presentation would be required as specified above.

dbbmckennon is a registered firm of the Public Company Accounting Oversight Board, performing financial statement audits for public companies, and providing consultations to management teams involving complex accounting and reporting matters before the SEC.