Many legislative changes were made by the Indiana General Assembly during the 2015 legislative session, one of which included a mandate for the Indiana Department of Revenue (IDOR) to implement a tax amnesty program before 2017.
Similar to the amnesty offered by Indiana in 2005, the program provides an opportunity for individuals and businesses to disclose and pay unreported taxes that were due and payable for a tax period ending before Jan. 1, 2013, in exchange for abatement of penalties, interest, and collection fees or costs that would have otherwise been imposed.
Taxpayers who are eligible to participate in the amnesty program and choose not to participate will be subject to an additional penalty, effectively doubling the penalty that would ordinarily be imposed on a delinquent liability. Taxpayers who participated in the 2005 amnesty program are not eligible to participate.
For more information, visit in.gov/dor/amnesty/.
Deadline to Complete the Report of Foreign Bank and Financial Accounts (FBAR) for Calendar Year 2014 is June 30, 2015.
Any U.S. person that has a financial interest in or signature authority over a foreign financial account, including a bank account, brokerage account, mutual fund, trust, or other type of foreign financial account may be required to report those accounts and balances to the Department of Treasury’s Financial Crimes Enforcement Network (FinCen).
Who Needs to File
Only U.S. persons that have a financial interest in or signature authority over foreign financial account(s) that have more than $10,000 maximum value at any point during the year must file. This is an aggregate determination. If the aggregate value of all foreign financial accounts is over $10,000 (even though there is no individual account over that threshold amount), an FBAR must be filed listing all foreign accounts.
Additionally, if there is a U.S. person that owns more than 50% of an entity that has a foreign account, the U.S. person and the entity must each file and report the foreign account information.
What to File
The account(s) and their associated information must be reported on Form 114, “Report of Foreign Bank and Financial Accounts” (formerly known as a TD.F 90-22.1).
Where to File
All FBAR forms must be filed electronically with FinCen through the BSA E-Filing System. That system can be accessed at http://bsaefiling.fincen.treas.gov/, or your KSM advisor can help facilitate this filing.
When to File
All FBAR filings related to calendar year 2014 are due by June 30, 2015. There are no extensions available.
The penalties for failure to file an FBAR are severe. There can be civil penalties of $10,000 for each non-willful violation. Additionally, if it is found that the violation is willful, the penalty can be the greater of $100,000 or 50% of the amount in the foreign account for each violation (each year that an FBAR wasn’t filed is viewed as a separate violation). Criminal penalties are also a possibility, including up to five years of imprisonment with increased monetary penalties.
Please contact your KSM advisor for additional assistance or for help completing this important U.S. government filing.
Katz, Sapper & Miller’s 2015 Indiana Legislative Update summarizes the tax and economic development legislative changes that occurred in this year's Indiana General Assembly. Topics Include:
Any U.S. person that had a foreign affiliate at any time during the U.S. person’s 2014 fiscal year is now required, for the first time, to file the Bureau of Economic Analysis’ (BEA) benchmark survey. The benchmark survey is due by May 29, 2015 (or June 30, 2015, if filing for more than 50 foreign affiliates).
Who Needs to File
“U.S. person” means any person that is a resident of the United States or subject to the jurisdiction of the United States. The term “person” is used in the broad legal sense and includes any individual, corporation, partnership, estate, trust, branch or other organization. A foreign affiliate includes any business enterprise located outside the United States that is directly or indirectly owned or controlled by a U.S. person to the extent of 10% or more of its voting stock, or an equivalent interest in an unincorporated business, including a foreign branch.
What to File
A Form BE-10 report is required of any U.S. person that had a foreign affiliate. The U.S. person must complete Form BE-10A. Additionally, the U.S. person must complete a Form BE-10B, BE-10C, or BE-10D as appropriate for each foreign affiliate. The basic application per foreign affiliate looks at three items (total assets, sales or gross operating revenues, or net income (loss)) and is:
Where to File
The BEA Benchmark Survey can be completed electronically on the BEA website at bea.gov/efile. New users can create an account by clicking the link on Step 1. If you eFile the survey, do not submit paper reports.
Fillable PDF files are also available on the BEA’s website. The fillable PDF files can be completed, printed, signed and mailed to:
U.S. Department of Commerce
Bureau of Economic Analysis BE-69(A)
Shipping and Receiving Section M-100
441 L Street NW
Washington, DC 20005
Fillable PDFs can be found at bea.gov/surveys/respondent_be10.htm.
U.S. persons that fail to submit the survey report may be subject to a civil penalty of not less than $2,500 and not more than $25,000, and to injunctive relief commanding such person to comply, or both. U.S. persons that willfully fail to submit the survey report shall be fined not more than $10,000 and, if an individual, may be imprisoned for not more than one year, or both.
The BEA has informally stated that they generally do not intend to pursue penalty enforcement. However, this was informal guidance that cannot be relied upon. Furthermore, consistent and repeated failures may eventually lead to application of the civil and criminal penalties.
A one-month extension can be requested by completing and submitting the BEA’s one-page extension request form before the original due date of the Form BE-10.
Please contact your KSM advisor for additional assistance.
Revenue Recognition Standard Potentially Delayed for a Year
The Financial Accounting Standards Board (FASB) has reached a decision to potentially delay the implementation of the new revenue recognition standard, Accounting Standards Update No. 2014-09, Revenue from Contracts with Customers (ASU 2014-09).
Under anticipated new guidance, ASU 2014-09 will become effective for public companies for annual reporting periods beginning after Dec. 15, 2017. Nonpublic companies will have to adopt the new standard for all annual reporting periods beginning after Dec. 15, 2018. The standard applies on a retroactive basis, so all periods presented will need to comply with the new revenue standards once adopted. The FASB has permitted early adoption for both public and nonpublic companies, but not before the original adoption date of public companies, which was for annual periods beginning after Dec. 15, 2016.
Once issued, the proposed ASU will be open to public comment for 30 days.
Presentation of Debt Issue Costs
On April 7, 2015, the FASB issued Accounting Standards Update No. 2015-03, Interest - Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs (ASU 2015-03). ASU 2015-03 requires that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, not as an asset. The ASU does not affect the recognition and measurement guidance related to debt issuance costs. The ASU should be applied on a retrospective basis, when comparative balance sheets are presented.
ASU 2015-03 is effective for financial statements issued for fiscal years beginning after Dec. 15, 2015. Early adoption is permitted for financial statements that have not been previously issued.
In its last Accounting Standards Update (ASU) for 2014, the Financial Accounting Standards Board (FASB) continued to provide alternatives for private companies with the Private Company Council (PCC) consensus, which describes an alternative that permits an entity to avoid separate recognition of certain intangible assets acquired in a business combination. ASU 2014-18 was issued in December 2014 to address concerns from users of private company financial statements indicating that the benefits of separate identification of certain intangible assets may not justify related costs.
A private company electing to apply the accounting alternative provided under ASU 2014-18 should no longer recognize customer-related intangible assets (unless they are capable of being sold or licensed independently from other assets of the business) or noncompete agreements separately from goodwill when accounting for a business combination. Thus, when elected, fewer intangible assets will be identified separately in the financial statements.
If this accounting alternative is elected, the entity must also adopt the private company alternative to amortize goodwill provided under ASU 2014-02, Intangibles—Goodwill and Other (Topic 350): Accounting for Goodwill. However, the accounting alternative described in ASU 2014-02 may be elected without applying ASU 2014-18.
The decision to elect the accounting alternative described in ASU 2014-18 must be made upon the occurrence of the first transaction within its scope in fiscal years beginning after Dec. 15, 2015. Early application is permitted for any financial statements not yet available for issuance.
In January 2015, FASB issued ASU 2015-01 as part of its effort to reduce complexity in accounting standards. This update eliminates the concept of extraordinary items from accounting principles generally accepted in the United States (GAAP), thus simplifying income statement presentation requirements. Previously, entities were required to separately classify, present and disclose events and transactions meeting the criteria (both unusual in nature and infrequent of an occurrence) for extraordinary classification. ASU 2015-01 reduces complexity as preparers of financial statements will no longer need to assess events or transactions to determine whether they are or are not extraordinary items under GAAP.
Although the amendment eliminates the requirements for entities to consider if an event is extraordinary, there are presentation and disclosure requirements. Those events that are unusual in nature or occur infrequently, or both, are required to be presented as a separate component of income from continuing operations or disclosed in the notes to the financial statements.
The update is effective for fiscal years beginning after Dec. 15, 2015. The amendments may be applied prospectively or retrospectively for all prior periods presented. Early adoption is permitted.
Stakeholders have expressed concerns to FASB that, in certain instances, GAAP would require a reporting entity to consolidate another entity, when the reporting entity does not have contractual rights providing the ability to act primarily on its own behalf, does not hold a majority of the entity’s voting rights, or is not exposed to a majority of the entity’s economic benefits or obligations, thus not providing useful information about the reporting entity’s results. To address those concerns, FASB previously issued an indefinite deferral for certain entities. ASU 2015-02, which was issued in February 2015, rescinds the deferral and makes changes to the consolidation guidance.
ASU 2015-02 affects reporting entities required to evaluate whether they consolidate certain legal entities and will require a reevaluation to determine what entities are consolidated. The ASU modifies the process used to evaluate whether limited partnerships and similar entities are variable interest entities (VIEs) or voting interest entities and affects the analysis performed by reporting entities regarding VIEs, particularly those with fee arrangements and related party relationships, and provides a scope exception for certain investment funds.
Limited Partnerships and Similar Legal Entities
Three main provisions of ASU 2015-02 affect limited partnerships and similar legal entities. The guidance adds a requirement that limited partnerships must provide partners with either substantive kick-out rights or substantive participating rights over the general partner to qualify as voting interest entities. The guidance also eliminates the presumption that a general partner should consolidate a limited partnership. Finally, for limited partnerships that do qualify as voting interest entities, a limited partner should consolidate when the partner has a controlling financial interest, which may be achieved through holding a limited partner interest that provides substantive kick-out rights.
Evaluating Fee Arrangements
Currently, six criteria are used to determine whether fees paid by an entity to a decision maker or service provider represent a variable interest in the entity. If the fees paid are determined to represent a variable interest, the reporting entity must evaluate whether the interest represents a controlling financial interest, and, if so, requires consolidation of the VIE. The update eliminates three of the six criteria used in this analysis. Additionally, the update specifies that some fees paid to a decision maker are excluded from the evaluation in determining whether the interest represents a controlling financial interest if the fees are both customary and commensurate with the level of effect required to provide the services.
Related Party Relationships
Under current GAAP, when no single party has a controlling financial interest in a VIE, interests held by a reporting entity’s related parties are treated as though they belong to the reporting entity when determining the primary beneficiary of the VIE. The ASU reduces this application by requiring that related party relationship first be considered indirectly on a proportionate basis, rather than in their entirety. After this assessment is performed the analysis is complete, except in two situations. The related party relationships would be considered in their entirety when entities under common control collectively have a controlling financial interest. If this is not applicable and substantially all the activities of the VIE are conducted on behalf of a single variable interest holder, excluding the decision maker, in the related party group, that single variable interest holder must consolidate the VIE.
Guidance related to situations in which power is shared between two or more related entities that hold variable interests in a VIE was not amended by this update.
The update is effective for public business entities for fiscal years beginning after Dec. 15, 2015, and all other entities for fiscal years beginning after Dec. 15, 2016. Early adoption is permitted. The amendments provided in the ASU may be applied using a modified retrospective approach by recording a cumulative-effect adjustment to equity as of the beginning of the fiscal year of adoption or applied retrospectively.
The Financial Accounting Foundation (FAF), which oversees the Financial Accounting Standards Board and Government Accounting Standards Board, has launched a new Web page that focuses on the importance of GAAP: www.accountingfoundation.org/gaap. The page explores the benefits of GAAP for all types of entities, public companies, state and local governments, private companies, and not-for-profits, describing GAAP as “the grammar and the punctuation” determining the language of financial reporting. The site provides a resource to all stakeholders of financial statements, particularly those not familiar with the benefits of GAAP.