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Planning for the Future Today – Succession Planning and Business Continuity

Posted 12:00 PM by

One of the most difficult business decisions and processes for trucking company owners is developing a succession plan, or determining the best timing for a sale to maximize value. Often owner concerns involve the welfare of employees, or the impact on the community home to the business. If transition to the next generation is the desire, issues related to equitability among children participating in the business with those pursuing other dreams can be challenging.

A study by the Business Enterprise Institute, Inc. found in 2012 41 percent of businesses were transitioned to key employees, co-owners, or Employee Stock Ownership Plans (ESOPs). While 29 percent were sold to third parties and 24 percent were transferred to children. Regardless of the potential acquirer of the family business, understanding and knowing the trucking company’s value is paramount.

Valuation professionals commonly use three approaches in determining an estimated value of closely held businesses.

1. The income approach, or discounted cash flow method, analyzes the projected free cash to be generated by the business. This cash stream is discounted to determine a value.

2. The market approach, or guideline public companies method, compares the target company with publicly-traded companies. The market approach will compare price to earnings, revenue and book of public companies in calculating the value of the closely held business.

3. Lastly, the asset approach is simply relying on the appraisal of the underlying assets as if the equipment is to be sold. The asset values can differ depending on if an orderly liquidation, or forced liquidation scenario is assumed.

Family succession of transferring leadership and ownership to the children usually works best when done over time. It is difficult to predict the future success of the business under the next generation without mentoring and time spent learning the business before the hand-off. Complete or partial transfers of ownership can be done through various tax strategies such as Grantor Retained Annuity Trust, Defective Grantor Trust and Family Limited Partnerships. If planned properly in advance, these strategies can minimize, or eliminate, estate and gift taxes.

Selling to an outside buyer can occur through an IPO in the public markets; however, for family-owned trucking companies this can be an expensive endeavor and usually only practical for the largest of the large privately-held carriers. Private buyers often fall into one of two categories; strategic buyers and financial buyers. A strategic buyer is often a competitor, or in the industry, and can justify a premium valuation for the business knowing savings and profit will be achieved through synergies and gains in market share. A financial buyer will be driven primarily on the investment return the business can generate. The financial buyer is capitalizing on ways to improve and increase the business valuation for a not so distant flip of the company.

An ESOP transaction is the sale of the company stock to a qualified pension plan. An ESOP allows trucking owners to reward employees and maintain jobs in the community in a tax efficient manner. Attributes of an ESOP candidate include capable management team, debt capacity and cash flow to support ESOP debt service, company size and motivation of tax advantages. Cash flow of a post-ESOP S-corporation is greatly improved since there is no federal tax on the ESOP-owned portion. A sale to an ESOP can be for 100 percent of the stock or a lesser percentage. An ESOP’s purchase price is often less than what a strategic or financial buyer can offer for the company since an ESOP can only pay what the business cash flow can service. However, because of advantageous tax treatment to the seller, after tax proceeds could be greater.

About the Author
Mark Flinchum is the partner-in-charge of Katz, Sapper & Miller’s ESOP Services Group. Mark counsels clients on the unique opportunities and potential tax benefits of creating an ESOP, and provides guidance throughout the many stages of an ESOP transaction. Connect with him on LinkedIn.


Form 990 Online Security Breach

Posted 9:40 PM by

The Urban Institute's National Center for Charitable Statistics (NCCS) recently discovered that an unauthorized party (or parties) has accessed the Form 990 Online and e-Postcard filing systems for nonprofit organizations. This unauthorized access affected nonprofit users of Internal Revenue Service (IRS) Forms 990, 990-EZ and 990-N (e-Postcard). In addition, it affected users of Form 8868 extensions and filings for charitable organizations in Hawaii, Michigan and New York.

The unauthorized access only impacts organizations who use the Urban Institute's site to file their returns. Organizations who use an accounting firm or mail paper returns to the IRS are not affected.

The username, first and last name, e-mail address, IP address, phone number and password associated with nonprofit organizations were compromised in this incident.

The NCCS believes no information from the filings themselves was compromised. These forms do not contain Social Security numbers, credit card data, or individual tax filer information, so such sensitive information was not available to the hackers. Copies of the 990 returns, including the e-Postcard, are public documents that are released by the IRS.

If you use the same password for your organization's Form 990 Online and e-Postcard that you do for other websites or applications, the NCCS strongly encourages you to change it immediately in each of those instances, as well as on these systems.

To change your password on the Form 990, click here.

To change your password on the e-Postcard, click here.

For questions, please visit this FAQ page, send an e-mail to or call 1.800.564.9110.

For more information regarding the Form 990, please contact us.

Source: National Center for Charitable Statistics, Urban Institute


Annual Survey Finds Hoosier Manufacturers Confident, Poised for Growth

Posted 7:07 PM by

Katz, Sapper & Miller’s Indiana Manufacturing Survey is authored by IU Kelley School of Business experts in partnership with Conexus Indiana, Indiana Manufacturers Association

INDIANAPOLIS, Ind. – Katz, Sapper & Miller released its annual survey of Indiana manufacturers today, authored by faculty from the IU Kelley School of Business at Indianapolis.  Indiana is the most manufacturing-dependent state in the nation, and the industry continues a strong rebound from the Great Recession; however, the survey warns that growth could be derailed by regulatory costs and workforce weaknesses.

“Manufacturing is Indiana’s economic engine,” said Steve Jones, an associate professor of finance and chair of the IU Kelley School of Business Indianapolis Evening MBA Program, who co-authored the survey.  “So we’re pleased to report that the mood of our manufacturing employers is upbeat and bullish on investment – but they also have real worries about rising energy and regulatory costs, and about Indiana’s workforce.”

“Indiana manufacturing is strong today, but concerned for tomorrow,” agreed Scott Brown, partner-in-charge of Katz, Sapper & Miller’s Manufacturing and Distribution Services Group.  “This survey shows a higher percentage of manufacturers than ever before exploring new plants in Indiana, but it also registers the highest number yet among manufacturers planning to outsource work overseas.

“The future of manufacturing can be made in Indiana – or we can be spectators, depending on the actions we take now,” Brown continued.  “The survey lays out our priorities: educating more skilled workers, rationalizing our tax and regulatory structure, and addressing high energy costs.” 

2014 Indiana Manufacturing Survey Results

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Key findings from the 2014 survey include:

Manufacturers are increasingly confident and ready to grow:

  • 47 percent of respondents rated their company’s financial performance as “healthy,” the same percentage that answered “challenged” in 2009 (only 17 percent answered “challenged” this year).
  • Overall, 77 percent answered either “stable” or “healthy” to describe their financial performance.
  • An almost identical number – 78 percent – were similarly upbeat about the overall economy, predicting either moderate or strong growth over the next two years.
  • This positive outlook translates into expansion plans: 20 percent of those surveyed hope to open a new manufacturing facility in Indiana over the next two years (more than double the response from last year).

This optimism is dampened by tax, regulatory and energy costs:

  • A cluster of public sector issues (federal and state) drive concerns about the cost and viability of manufacturing – healthcare regulations (67 percent), infrastructure (66 percent), corporate and property tax policy (66 percent each) were all rated “extremely important” by at least two-thirds of respondents.
  • Energy costs (particularly electricity) were also seen as a negative by most manufacturers (associated with stricter federal environmental regulations and greenhouse gas mandates).

Hoosier manufacturers are taking advantage of global supply chains:

  • Reflecting the recent influx of foreign direct investment in Indiana manufacturing, 12 percent of survey responses came from foreign-owned companies, representing the more than 140,000 Hoosier workers employed by 700-plus such firms across the state.
  • While the number of responding companies exporting products directly overseas is modest, the majority (52 percent) say they supply components or unfinished goods that are eventually sold internationally.

Workforce shortages pose an immediate threat and future crisis:

  • 89 percent of manufacturers are experiencing an immediate shortage of skilled production workers, and 65 percent rate the shortage as “moderate” or “serious.”
  • Strong majorities of employers are also having difficulty finding production support and scientific/engineering talent.
  • Companies are responding by working existing employees harder (overtime) and expanding internal training programs – a challenge to Indiana’s educational system to supply more job-ready workers.

“Every year we ask about manufacturers’ top priorities for modernizing their operations,” said Mark Frohlich, an associate professor of operations management at IU Kelley School of Business and the survey’s co-author.  “This is the first survey with ‘human resource development’ as the number one area, ahead of any investments in equipment or technology – the skill shortage is a reality.”

Frohlich added that overtime and temporary labor services aren’t sustainable solutions to the workforce challenge, and said that the survey reveals a pressing need for long-term action on a number of issues.

“Manufacturing companies must continue to invest in new technologies and methods to stay globally competitive,” he said.  “But public officials at all levels of government need to continue creating a pro-investment environment with wise tax and regulatory policies, including energy.  And Indiana’s educators and employers have to work together, to make sure Hoosiers are learning the right skills to thrive in today’s high-tech factories.”

Hundreds of Indiana manufacturers responded to the 2014 survey, representing a broad cross-section of the industry: A plurality (38 percent) focus on automotive and industrial equipment manufacturing, with aerospace accounting for another 10 percent, and smaller numbers representing high-tech and healthcare products.  Privately held and U.S.-owned firms made up the large majority of responding firms, with average number of employees around 280. In all, one of every five Hoosier workers is employed in manufacturing.

To view the complete results of the 2014 Indiana Manufacturing Survey: Strong for Today, Concerned for Tomorrow, visit


About Katz, Sapper & Miller
As one of the top 65 CPA firms in the nation, Katz, Sapper & Miller has earned a reputation as a leader in the areas of accounting, tax and consulting services. Founded in 1942, the firm has approximately 300 employees and is headquartered in Indianapolis, Ind. , with offices in Fort Wayne, Ind., and New York. Katz, Sapper & Miller was named one of the “Best of the Best” accounting firms in the nation by INSIDE Public Accounting magazine and has been recognized by the Indiana Chamber of Commerce as one of the “Best Places to Work in Indiana” for nine consecutive years. The firm is an independent member of PrimeGlobal, a global association of independent accounting firms. For more information, visit

About the IU Kelley School of Business
The Indiana University Kelley School of Business has been a leader in American business education for more than 90 years. With more than 100,000 living alumni and an enrollment of nearly 8,000 students across two campuses, the Kelley School is among the premier business schools in the country. Kelley Indianapolis, based at IUPUI, is home to a full-time undergraduate program and four graduate programs, including master’s programs in accounting and taxation, the Business of Medicine MBA for physicians and the Evening MBA, which is ranked eighth in the country by U.S. News and World Report and No. 1 in academic quality by Bloomberg Businessweek. For more information, visit


PCORI Fee Due July 31

Posted 3:13 PM by

The Affordable Care Act created a fee called the Patient-Centered Outcomes Research Institute (PCORI) fee. This fee is to be used to fund research on medical treatment effectiveness. This fee is to be paid by both fully-insured and self-funded group health plans.

The fee is $2 per person enrolled in the plan. A person enrolled in the plan includes the participating employee, spouses, domestic partners and dependents. COBRA and retiree participants also must be counted. The fee is due based on the year-end of the plan. The filing will be due on or before July 31, 2014. The fee must be reported on IRS Form 720, “Quarterly Federal Excise Tax Return.”

If you are an employer with a fully-insured group health plan, no action is required as your health insurance carrier is required to report and pay this fee. This additional fee is most likely built into the premiums that you currently pay.

If you are an employer with a self-funded plan, you are responsible for calculating the fee, completing the Form 720 and paying the related fee.

The following plans are considered self-funded plans that are subject to the PCORI fee and the Form 720 filing requirement:

  • All self-funded group health plans, including Health Reimbursement Accounts (HRAs)
  • An HRA that is offered as part of a fully-insured group health plan – the fee is paid only on the HRA part of the plan
  • A stand-alone HRA plan
  • On-site medical clinics
  • Retiree-only group health plans
  • Employee Assistance Programs – only if the EAP provides significant medical benefits

The following plans are exempt from the PCORI fee:

  • Employee Assistance Programs – does not provide significant medical benefits
  • Individual Health Savings Accounts
  • Health and Dependent Flexible Spending Accounts
  • Stand-alone dental plans
  • Stand-alone vision plans

Upon determination that you have a self-funded plan, you must complete the IRS Form 720 (revised version dated April 2014). The form may be completed manually and mailed directly to the IRS (not required to be filed electronically). 

The fee is based on the average number of enrollees for the plan year. Most employers should be able to obtain this information directly from their benefit plan service provider(s). If you have to calculate the number of enrollees yourself, there are three methods that you may choose from in determining the average number of enrollees. The methods are as follows:

  1. The Form 5500 Method: If the plan is required to file Form 5500 and your 2013 Form 5500 is filed timely and before July 31, 2014, this method can be used. To use this method, add the number of participants at the beginning of the year (Part II, line 5 of Form 5500) to the total participants at the end of the year (Part II, line 6d) and divide the total by 2.Then multiply this total by $2.
  2. The Actual Count Method: This method uses the number of lives covered for each day of the plan year divided by the number of days in the plan year.
  3. The Snapshot Method: This method uses the total number of lives covered on a given date in each quarter of the plan year. The sum is then divided by 4.

The following sections of the Form 720 will need to be completed (assuming that the Form 720 is being filed only to report the PCORI fee):

  • Complete the top section of the form. The quarter ending is the second quarter, which is June 2014.
  • Go to Part II, line 133. The Applicable Self-Insured Health Plans line is going to be completed. In column (a), report the average number of lives covered. Multiply the number in column (a) by $2 and enter that amount. This calculated amount will also be entered in the tax column.
  • Go to Part III and enter the total tax on line 3. Show 0 on line 5 as no payments have been made towards this tax. Line 10 will show the amount due with the return.
  • Sign and date the return on the bottom of page 2.

The fee needs to be paid using the Electronic Federal Tax Payment System.

  • Mail the signed and completed Form 720 to:
    • Department of the Treasury
      Internal Revenue Service
      Cincinnati, OH 45999-0009
  • If you want to use FedEx, UPS or DHL, the address to send your return to is:
    • IRS Processing Center
      201 W. Rivercenter Blvd.
      Covington, KY 41011

The contents of this message are for informational purposes only. If you have any questions regarding the PCORI fee and filing requirement, please contact your benefit plan service provider or any of the following KSM advisors.

Patrick Brauer, Partner

Bernadette Fletcher, Director


State & Local Tax Update - 7/11/14

Posted 4:34 PM by

2014 Trending for Indiana Real Property Taxes

Indiana counties are currently wrapping up their 2014 trending assessments. During trending years, assessors are required to review recent sales and verify that the assessments are accurate using mass appraisal techniques. This process can become difficult for commercial properties due to the lack of arms-length sale transactions. 

Property owners are encouraged to review their assessment notices (Form-11) as soon as they receive them to make sure the assessed value looks appropriate. The property owner has 45 days to file an appeal after the mailing of the first notice of assessment. When a property owner receives their tax bill, it is often too late to appeal the assessed value for that year. Many counties have already mailed their assessments, and the 45-day appeal period is well underway. In fact, Allen County mailed Form-11s June 26, which means the deadline to appeal the assessment is Aug. 10, 2014.

Contact your KSM advisor, or KSM property tax leader Chad Milleras soon as you receive your Form-11. We would be happy to review the assessed value of your commercial property to help you consider whether an appeal should be filed.


Indiana Updates Guidance on Eligible 529 Contributions

The Indiana Department of Revenue has revised Information Bulletin 98 concerning the Indiana College Choice 529 Education Savings Plan in order to clarify that contributions must be received by the program manager by Dec. 31 of the tax year to qualify for the state income tax credit.

Indiana Tax Court Rules on Manufacturing Exemption

The Indiana Tax Court ruled that a taxpayer, in the business of converting slabs of raw steel, aluminum and paper pulp into “sheets” of finished product for its customers, produces other tangible personal property when it processes its customers' work rolls and is, therefore, entitled to an exemption on its purchases of equipment it used and materials it consumed in its grinding and calibration operation.

The Department argued that the taxpayer does not produce a new good, rather, it provides a repair service that is designed merely to perpetuate the useable life of the work roll. However, the court disagreed, finding that the taxpayer’s operations met the four pronged test set forth in Rotation Products. See Hoosier Roll Shop Services, LLC, v. Indiana Department of State Revenue for details of the decision.

Colorado Enacts Income Tax Credit for Personal Property Tax Paid

Colorado recently enacted a refundable credit to reimburse a business for personal property taxes paid in the state. For any income tax year commencing on or after Jan. 1, 2015, but before Jan. 1, 2020, a qualified taxpayer is allowed a credit equal to a percentage of the property taxes paid for personal property in Colorado during the income tax year.

To qualify for a tax credit, a taxpayer must have $15,000 or less worth of personal property on which property taxes are paid in Colorado during an income tax year commencing in 2015, or have less than an inflation-adjusted amount for each income tax year thereafter. Such annual limits are based on the total actual value of the taxpayer's personal property. See HB 14-1279 for details on the credit.

Connecticut Enacts Changes to Nonresident Income Calculations

Recently enacted HB 5466 makes two important changes to the calculation of taxable income for nonresidents: 1) requires nonresidents to pay Connecticut income tax on gains or losses from the sale or disposition of an interest in an entity, such as a partnership, limited liability company, or S corporation, that owns real property in Connecticut, which has a fair market value that equals or exceeds 50% of all the assets of the entity on the date of sale or disposition of the nonresident's interest in the entity; and 2) alters how nonresidents' sales of property are sourced to Connecticut.

Gross receipts from sales of property are considered to be earned within Connecticut when the property is delivered or shipped to a purchaser within the state, regardless of the freight-on-board point or other conditions of the sale. Gross receipts from sales of services are considered to be earned within the state when the services are performed by an employee, agent, agency or independent contractor chiefly situated at, connected by contract or otherwise, with or sent out from, offices or branches of the business, trade, profession or occupation or other agencies or locations situated within Connecticut.

Georgia Removes Postage from Definition of Delivery Charges

Recently enacted HB 816 redefines “delivery charges” to clarify that postage charges are not included in delivery charges subject to sales and use taxes if the postage charges are passed on dollar-for-dollar to the direct mail purchaser and are separately stated on the invoice.

Illinois Issues Decision on Sales Factor Sourcing

The Illinois Department of Revenue has ruled that a taxpayer's dedicated hosting, clouding computing and remote customer supports are services for Illinois sales factor apportionment purposes and should be sourced to its customers' billing addresses. The taxpayer is an information technology hosting service, and the agreements entered into with cloud computing customers are properly characterized as service contracts.

Specifically, the Department noted that the contractual provisions of the taxpayer's contracts demonstrated the following characteristics: taxpayer's customers are not in physical possession of taxpayer-provided hardware and software; taxpayer's customers do not control taxpayer-provided hardware and software; taxpayer customers do not have a significant economic or possessory interest in taxpayer-provided hardware or software; taxpayer bears the risk of substantially diminished receipts or substantially increased expenditures if there is nonperformance under the contract; the taxpayer uses the hardware and software concurrently to provide services to unrelated customers; and the total contract price substantially exceeds the rental value of the hardware and software for the contract period.

Because the taxpayer is not able to determine where a customer is physically located, the services are deemed received at the location of the office of the customer from which the services were ordered. Alternatively, if an ordering office cannot be determined, then services are deemed received where the services are billed. See PLR IT 14-0003 for details.

Kansas Repeals Nonresident Withholding Requirements

The Kansas Department of Revenue has issued Notice 14-09, which describes in further detail the repeal of nonresident withholding requirements. The Department noted that although the repeal is effective July 1, 2014, as a practical matter, the repeal is effective immediately because withholding is not reported until the end of the year. If income tax is withheld from a shareholder, partner or member and remitted to Kansas during tax year 2014, a 2014 income tax return may be filed and a refund claimed, if appropriate.

Michigan Court of Appeals Rules on Online Subscriptions

The sale of the taxpayer's Checkpoint online tax and accounting research program was not subject to use tax because any transfer of tangible personal property was incidental to the service provided. Subscribers to the program primarily sought access to up-to-date information relevant to their needs and sought the expert knowledge of the product's content creators in synthesizing, compiling and organizing the materials, thereby rendering research more efficient. There is no evidence that any de minimus amount of software transferred was the object of the transaction, or that customers sought to own or otherwise have responsibility for the prewritten computer software.

Considering the transaction as a whole, the fact that the license agreement entitles users to access the Checkpoint program does not establish that users primarily sought the physical software. Also, the manner in which Checkpoint was marketed indicates that the taxpayer was in the business of selling an information service, distinct from its print and software products, and its intent was to profit from providing a service, and not from selling any prewritten computer software. (Thomson Reuters Inc. v. Department of Treasury, Mich. Ct. App., Dkt. No. 313825, 05/13/2014 (unpublished).)

Minnesota Court Rules on Taxability of Pick-Up Charges

Charges imposed by a retailer to retrieve rented equipment at the end of a rental term are subject to tax as part of the gross receipts from a retail sale because those charges are part of the total amount of consideration received as the “sales price” and are necessary to complete the sale.

The taxpayer rents traffic control equipment to contractors working on road construction projects, and its invoices include a mandatory charge for pick-up of that equipment covering the costs associated with retrieving and returning the equipment to the taxpayer, the labor costs for those activities, and any costs incurred to repair the equipment. The taxpayer's pick-up charges are part of the sales price because the pick-up charges are part of the consideration for the rental transaction because they represent something of value given in return for the services it provides to its rental customers. See Interstate Traffic Signs, Inc. v. Commissioner of Revenue, Minn. S. Ct., Dkt. No. A13-1610, 04/23/2014 for details of the decision.

About the Author
Donna Niesen is a partner in Katz, Sapper & Miller’s State and Local Tax Group. Donna helps keep clients up-to-date on the multitude of tax rules and requirements in all 50 states. She guides them in the right direction as they address the complex issues that emerge on both the state and local levels. Connect with her on LinkedIn.


M&A Heats Up for Manufacturers

Posted 2:01 PM by

If you’re a potential buyer or a seller in the manufacturing sector, it’s time to prepare for action.

After several years of sluggishness and economic uncertainty, we’re beginning to see the distinctive signs of growing intensity in mergers and acquisitions. Lower-middle market M&A activity in the U.S. has increased at a steady pace throughout 2013, and 2014 also started off strong.

While indicators of growth are plentiful across multiple industries, manufacturing is seeing particularly strong transaction activity. In the second half of 2013, manufacturing led the list of M&A deals ranked by dollar volume of transactions, according to the Alliance of Merger & Acquisition Advisors (AM&AA) bi-annual Deal Stats Transaction Survey. The industry also topped the charts over the same period in terms of number of deals, boasting more than double the number of transactions involving any other industry, including second-ranked information industry.

Major Indiana Deals

The last 18 months have seen the announcement of several major transactions involving manufacturing companies in Indiana, including:

Indiana has also seen some significant M&A deals in the technology sector, including Salesforce’s purchase of ExactTarget, Teradata’s acquisition of Aprimo, and Oracle’s purchase of Compendium.

What’s Driving M&A Activity?

A number of factors are driving this intensification of M&A activity, including an abundance of private equity funding and a backlog of business owners who have been delaying a sale until the time was right. Judging from the many signs we’re seeing, that time may have come.

PE funds (counting those sized up to $1 billion) raised over $30 billion in 2013, a significant increase over 2012 levels, according to presenters at a recent Indianapolis M&A conference sponsored by law firm Faegre Baker Daniels. In Q1 2014, the PE funds in the sample reported raising nearly $10 billion of capital. With this level of funding available to implement transactions, 2014 promises to be a very active year for M&A.

On the seller side, baby boomers who had aborted their plans to exit the market during the downturn now are back in the market. They have been biding their time, waiting for valuation multiples to improve before seriously investigating their options for selling. Now, valuation multiples are rebounding—up above 5x in manufacturing, according to the AM&AA survey. As a result, sellers are starting to line up, willing to make a deal.

On the buyer side, many business owners are ready to see real growth in their companies, and they are taking advantage of ready investment capital.

The Time Is Now

The upshot of these trends is that the moment has come. For owners who have been waiting for the right moment to transition out of the business, it’s time to get your house in order to attract the right buyer and maximize the value you see from your business. And if you’ve been considering expanding through merger or acquisition, it’s time to get off the sidelines and start looking at prime targets.

About the Author
Brian Schmidt is a partner in Katz, Sapper & Miller’s Business Advisory Group and is co-chair of the Manufacturing and Distribution Services Group. Brian assists clients with tax planning strategies that not only help keep them in compliance, but maximize their savings as well. Connect with him on LinkedIn.


IRS Notice 2014-21 on Virtual Currencies

Posted 8:33 PM by

The use of virtual currencies, especially Bitcoin, has increased significantly in recent years. This increased use has raised questions regarding the proper tax treatment of these currencies. In an attempt to clarify many of the uncertainties, the IRS has recently released Notice 2014-21, which provides answers for 16 frequently asked questions surrounding virtual currencies.

The IRS defines virtual currencies as digital representations of value that function as a medium for exchange, a unit of account, and/or a store of value. In other words, the virtual currency acts like “real money” even though it is not legal tender in any country or jurisdiction. A virtual currency is considered to be “convertible” if it has an equivalent value with an established currency, or if it can be easily substituted or exchanged for a legal tender. Bitcoin is probably the most well-known and widely used example of a convertible virtual currency today. Bitcoin can be easily traded and exchanged amongst users and can also be bought or sold for various real currencies, such as U.S. dollars and Euros. The IRS notice deals only with convertible virtual currencies and does not address any virtual currency which is not convertible.

In Notice 2014-21, the IRS starts off by stating that virtual currencies like Bitcoin are considered property, not currency, for tax purposes. Since virtual currencies are considered property, accepting virtual currencies in exchange for goods and services requires the recipient to measure their gross income by using the fair market value of the virtual currency in U.S. dollars as of the date payment was received. Additionally, when virtual currency is used to purchase an item, the taxpayer is required to report gain or loss on the disposition of the virtual currency. In order to do this, the taxpayer must first determine the basis of the virtual currency in U.S. dollars at the time of the exchange. The character of the gain or loss will be determined based on whether the virtual currency is held by the taxpayer as a capital asset. Therefore, if the taxpayer holds the virtual currency as an investment asset then it will be taxed as a capital gain or loss on its disposition. However, if the taxpayer holds the virtual currency as inventory then it will be taxed as ordinary income upon its disposition.

Some virtual currencies, such as Bitcoin, allow people to “mine” the currency. This involves users discovering new Bitcoins by solving complex math problems. When a taxpayer successfully mines virtual currency, the fair market value of the mined currency is includable in the taxpayer’s gross income for the taxable year. Furthermore, if the taxpayer is mining the virtual currency as part of a trade or business, the net earnings from the activity is considered self-employment income and is subject to the self-employment tax. Similarly, if a taxpayer is paid in virtual currency for services rendered as an independent contractor, the fair market value of the virtual currency received is subject to self-employment tax. In the case of an employer-employee relationship, the fair market value of the currency paid as wages to the employee is subject to federal income tax withholding, FICA tax and FUTA tax, and is required to be reported on Form W-2.

The IRS went on to state that when certain property payments which require information reporting to the IRS – such as rent, salaries, wages, premiums, annuities and compensation – are subject to the same information reporting standards when virtual currency is used to complete the payment. Furthermore, when a Form 1099-MISC is used to report payments of virtual currency, it should be reported using the fair market value of the virtual currency as of the date of the payment.

Finally, the IRS dictated that taxpayers who have not treated past virtual currency transactions in a manner that is consistent with Notice 2014-21 may be subject to penalties for failure to comply with tax laws. For example, underpayments attributable to virtual currency transactions and failure to report virtual currency transactions in a correct and timely manner may be subject to accuracy-related and information reporting penalties. However, the IRS does note that penalty relief may be available to taxpayers who can show that the underpayment or failure to properly file information on returns is due to reasonable cause. 


Foreign Financial Account Reporting: Form 114 Deadline June 30

Posted 4:45 PM by

The Internal Revenue Service (IRS) has consistently increased its emphasis on compliance related to reporting of foreign financial assets. A U.S. taxpayer who has an interest in or signature authority over certain foreign financial accounts and/or certain foreign financial assets must disclose such holdings annually. Failure to comply with this reporting obligation can result in significant monetary penalties and exposure to criminal prosecution. Additionally, it may result in the statute of limitations related to the affected income tax returns staying open indefinitely.  

The reporting rules can often feel circular and/or duplicative. Individuals must comply with the following process: 

  1. Check the box on Part III, line 7a, on Schedule B of the Form 1040 to report that you had a financial interest or signature authority over a financial account (bank account, securities account, brokerage account, etc.) located in a foreign country.
  2. If the aggregate value(s) of the foreign accounts exceed $10,000 at any time during the calendar year, the taxpayer must also file a FinCEN Form 114 (formerly known as TD F 90-22.1) and commonly referred to as an FBAR filing (Report of Foreign Bank and Financial Accounts). This filing MUST be done electronically with the Treasury Department and not the IRS. It is not filed with any tax return and it is due no later than June 30 of the next year with no extensions available.
  3. Additionally, if the account balances and the foreign financial asset values are greater than the threshold amounts listed below, Form 8938 (Statement of Specific Foreign Financial Assets) must also be filed as an attachment to the individual’s income tax return.
    • For taxpayers with a filing status of “Single,” Form 8938 must be filed if the balances/value of the accounts as of the last day of the year are more than $50,000 or were more than $75,000 at any time during the year.
    • For taxpayers with a filing status of “Married Filing Joint,” Form 8938 must be filed if the balances/value of the accounts as of the last day of the year are more than $100,000 or were more than $150,000 at any time during the year. 

If it is determined that there are undisclosed foreign accounts, there are a couple of ways for the U.S. taxpayer to proceed: 

  1. Begin proper compliance on a go forward basis – this is generally not recommended. It can be high risk given the potential for significant penalties.
  2. Quiet disclosures – before discovered under audit by the IRS, the taxpayer files amended income tax returns and FBARs for the missed filings. If there was no income generated or all income was reported but an information return was missed, this may be the best course of action. If there was unreported income associated with the failure to file, this is generally not recommended.
  3. Enter the IRS Offshore Voluntary Disclosure Program – this program allows taxpayers to come forward and voluntarily report previously unreported income. By entering this program, the account owner must agree to be subject to examination based on a wider statute of limitations as well as agree to a 27.5% penalty based on the foreign asset values, a 20% accuracy penalty on the amount of income tax due, and interest on the late payment of the income taxes. However, it removes the potential for criminal prosecution as well as the potential for penalties as high as $100,000 or 50% of the highest account value PER violation. 

The penalties associated with not disclosing foreign accounts can be severe and have a dramatic financial impact. We encourage all taxpayers to review their accounts and make sure that they are correctly meeting all filing requirements.  


KSM & McLeod Software Announce New Operations Performance Benchmarking Project

Posted 7:04 PM by

Indianapolis, Ind. – McLeod Software and Katz, Sapper & Miller (KSM) have come together to create a joint project to provide an operations level benchmark for the trucking industry. This initiative seeks to break new ground in giving truckload carriers the opportunity to measure the real performance of their operations against their peers.

The KSM & McLeod Benchmarking Initiative is designed to be complimentary to other benchmarking initiatives in the industry, and to break new ground for those companies who want to understand where their operating efficiencies stand as compared to similar carriers.

Carriers who participate in this first benchmark study will receive a copy of the final benchmark report, which includes the high, low, median, and average values for each benchmark category, as well as the group qualification parameters to allow for comparison of their results on each benchmark to those of their actual peer group.

A look at operating metrics

The benchmarking survey of operating metrics examines several aspects that are common performance indicators for every truckload carrier.

  • People and headcount by category or role
  • Fuel consumption, expense, purchasing, and efficiency
  • Revenue miles, rates, and surcharges
  • Equipment counts and actual utilization
  • Safety profiles
  • Operating expenses

And to create the truly valuable peer comparisons, we will segregate the benchmark data by several criteria that give carriers the chance to compare their metrics with their true peer group.

  • Carriers of a similar size
  • Carriers with the same equipment types
  • Carriers with a similar length of haul

The goal of the KSM & McLeod Benchmarking Initiative is to begin to give truckload carriers a better picture of their relative performance in these areas than has previously been available.

Companies who would like to participate in the 2013 benchmarking program must collect and submit their data to KSM via a pre-formatted spreadsheet, and ensure that their data meets the strict definitions set out in our benchmarking data collection documents. KSM and McLeod will provide this data collection document, the definitions, and a copy of our confidentiality agreement to carriers upon request. The deadline for submissions to be included in the 2013 benchmark report is July 1, 2014.

For more information about joining this benchmarking project, contact Tim Almack at 317.580.2000 or


About Katz, Sapper & Miller
As one of the top 65 CPA firms in the nation, Katz, Sapper & Miller (KSM) has earned a reputation as a leader in the areas of accounting, tax and consulting services. KSM has provided tax and business consulting services to the trucking industry since its founding in 1942. Through the firm’s experience with 100-plus trucking and logistics clients throughout North America, KSM has become a national service provider to the trucking industry. Learn more at

The firm provides additional services through KSM Transport Advisors, LLC (KSMTA), a part of the Katz, Sapper & Miller Network. KSMTA exclusively services the trucking industry, providing freight network engineering and profit improvement services. Learn more at

About McLeod Software
Since 1985, McLeod Software has provided powerful transportation management and trucking software solutions to the trucking industry. These solutions are comprehensive and support integration with a broad array of complimentary logistics products. McLeod Software is a leader when it comes to software for trucking dispatch operations management, freight brokerage management, fleet management, document imaging, workflow, EDI, and business process automation solutions for trucking, freight brokerage, third party logistics, and shipper companies in the United States. Learn more at


Profitable Solutions for Nonprofits - Winter 2014

Posted 1:42 PM by

In This Issue:

Tips for Communicating Financial Information to the Board
While board members typically bring a variety of talents and expertise to an organization, they do not always have extensive experience with financial and accounting matters. So what is the best way to communicate the essential financial information they need to effectively serve the organization? By Peter A. Buck, CPA

Is It Time for Software as a Service?
Nonprofits increasingly are following the path of for-profits and shunning traditional software arrangements for “software as a service” (SaaS) provided over the Internet for a monthly fee. The potential benefits make SaaS worth considering for nonprofits of all sizes, but some caveats are in order. By Matt Snively, CPA, CIA

Managing Staff: How to Treat the Real Gems of an Organization
The lagging economy of the past few years has caused many companies to make certain cuts and sacrifices, and nonprofit organizations are feeling these same pressures as well. Organizations have had to freeze wages or award minimum pay increases all while asking employees to take on new responsibilities. By D. Mark Barnhart, CPC, CERS

A New Jersey court of appeals held that a charity that solicited and accepted a gift from a donor – knowing the donor’s expressed purpose for the gift was to fund a particular aspect of the charity’s mission – must return the gift, after it had unilaterally decided not to honor the purpose.


Katz, Sapper & Miller’s Profitable Solutions for Nonprofits is a quarterly newsletter that focuses on tax and accounting issues for the not-for-profit industry.


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