MSCPA - Legislative Updates

Understanding Social Security Reform: AICPA Publication Helps Concerned Americans and Policymakers Understand the Alternatives and Issues

Wed, 31 Dec 1969 19:00:00 EST

The long-term viability and future of the Social Security system are once again topics of debate among many concerned Americans and policymakers. The debate reflects the growing divide between both political parties about whether Social Security is at risk, whether it will deliver promised benefits when American workers retire and whether it requires significant overhaul. The issues surrounding Social Security reform are incredibly complex. Americans and lawmakers are being asked to consider a host of changes including private investment accounts, reduced future benefits and increased payroll taxes. To help policymakers and interested Americans understand these issues, the AICPA has released "Understanding Social Security Reform: The Issues and Alternatives." The goal of the report is to foster informed discussion by providing unbiased facts and analysis of the issues. The AICPA first published "Understanding Social Security" in 1998. In January 2005, President George W. Bush announced that he would make Social Security reform a priority for his second term. The second report edition was developed to help facilitate the ensuing debate. The report provides comprehensive analysis of the Social Security reform issues. It includes an overview of the current financial condition of Social Security, its impact on poverty, especially of elderly Americans, and the fairness of benefit distribution in the current system. It also looks at both traditional methods of restoring fiscal balance to the Social Security Trust Fund as well as the various proposals that take new approaches, such as private accounts. In the process, it addresses the shifting demographics of wage-earners and economic assumptions that contribute to the system's complexity and the difficulty of the reform debate. "The debate surrounding Social Security reform brings to the forefront philosophical differences, varying opinions, and the age old trade-offs between fairness, simplicity, economic growth and social policy," Tom Ochsenschlager, AICPA Vice President of Taxation said. "We strongly urge policymakers and the public to thoroughly understand the issues surrounding Social Security reform before taking a position." The Social Security Administration "best guess" estimates predict that the Social Security Trust Fund balance will peak in 2028 and be exhausted by 2041. Benefits will then be limited to the then current cash flow into the system. Current actuarial calculations indicate that the Trust Fund will need an additional $3.5 trillion to pay anticipated future benefits over the next 75 years. The CPA profession can contribute significantly to the reform discussion. Known for their unbiased and independent analysis of complex issues, CPAs can help Americans understand Social Security reform proposals, their impact upon the economy and tax implications. CPAs are trained and qualified to evaluate facts and figures, and offer to the public an objective perspective to an important and emotional debate. CPAs also can focus on helping Americans understand their increasing responsibility for their own retirement planning. 360 Degrees of Financial Literacy is a national effort of the CPA profession to improve Americans' financial understanding and knowledge. The 360 Degrees Web site, www.360financialliteracy.org, helps consumers identify solutions to financial issues and includes resources to help them assess their Social Security benefits, understand how much they need to save for retirement and their investment options, and how to put a retirement savings plan into action. Read "Understanding Social Security"

Massachusetts Filing Requirement for LLC/LLP Annual Reports

Wed, 31 Dec 1969 19:00:00 EST

BACKGROUND In Massachusetts every LLC/LLP (foreign or domestic) is required to file an annual report with the Secretary of State. Unlike corporations, no preprinted form has been issued. An annual report is a duplicate of a Certificate of Organization with the filer adding any necessary changes. You can download this Certificate from the Secretary of State's Web site, http://www.state.ma.us/sec. The rules for filing for an LLC or LLP are similar, so references to an LLC apply to an LLP unless noted. For domestic LLC's, the Registration or Certificate of Organization is filed on formation of the LLC in Massachusetts. Foreign LLC's doing business in Massachusetts are also required to register. LLP DATA The information for an LLP is slightly different. They do not have managers or authorized signatories for the Secretary of State's office. If the LLP provides a professional service, it must list the name and business address of each partner who will render a professional service in the Commonwealth. It may also list the name and business address of each partner authorized to execute, acknowledge, deliver, and record any instrument purporting to affect an interest in real property. A summary of the filing requirements for these reports is as follows. The Annual Report requires a payment of $500 and checks are made payable to the Commonwealth of Massachusetts or you can pay by credit card. LLP's annual reports are due by the last day of February while LLC's are due on or before the anniversary date of the filing of the certificate of organization. WEBSITE INFORMATION The Secretary of State's website is a good source of information. You can search for the Secretary of the Commonwealth of Massachusetts or go directly to www.state.ma.us/sec. In the Corporations Division link, choose "Search the Corporate Database" as you prepare the Annual Report. There you can review the Application for Registration and view the state's database on information pertaining to your company's Certificate of Organization filing; i.e., the exact name of company, date of organization, entity type, etc., and other information. AN EXAMPLE "Anywhere LLC" has a December year end. It filed its Certificate of Organization on February 1, 2003. With this filing it paid $500. Subsequently, "Anywhere LLC" is required to file an Annual Report on the anniversary of its effective date. Its first Annual Report is due on or before February 1, 2004. Please note LLC's do not notify the Secretary's office of their fiscal year end. The filing is tied to their anniversary date. Download the complete guide to the requirements.

Executive Order Establishment of the Corporate Fraud Task Force

Wed, 31 Dec 1969 19:00:00 EST

On Tuesday, July 9, 2002, President Bush signed the following Executive Order calling for the establishment of a Corporate Fraud Task Force. Please read on to see the details and duties of this task force. By the authority vested in me as President by the Constitution and the laws of the United States of America, and in order to strengthen the efforts of the Department of Justice and Federal, State, and local agencies to investigate and prosecute significant financial crimes, recover the proceeds of such crimes, and ensure just and effective punishment of those who perpetrate financial crimes, it is hereby ordered as follows: Section 1. Establishment. The Attorney General shall immediately establish within the Department of Justice a Corporate Fraud Task Force (Task Force). Without regard to any other provision of this order, the Task Force shall be subject to the authority of the Attorney General under applicable law. Sec. 2. Membership and Operation. Subject to section 4 of this order, the Task Force shall have the following members:

the Deputy Attorney General, who shall serve as Chair;
the Assistant Attorney General (Criminal Division);
the Assistant Attorney General (Tax Division);
the Director of the Federal Bureau of Investigation;
the United States Attorney for the Southern District of New York;
the United States Attorney for the Eastern District of New York;
the United States Attorney for the Northern District of Illinois;
the United States Attorney for the Eastern District of Pennsylvania;
the United States Attorney for the Central District of California;
the United States Attorney for the Northern District of California;
the United States Attorney for the Southern District of Texas; and
such other officers or employees of the Department of Justice as the Attorney General may from time to time designate.

The Deputy Attorney General shall convene and direct the work of the Task Force in fulfilling all its functions under this order. The Deputy Attorney General may permit, when he deems it appropriate, the designee of a member of the Task Force, including those designated under section 4 of this order, to participate in lieu of the member. The Deputy Attorney General shall convene the first meeting of the Task Force within 10 days of the date of this order and shall thereafter convene the Task Force at such times as he deems appropriate. Sec. 3. Functions. Consistent with the constitutional authority of the President, the authorities assigned to the Attorney General by law, and other applicable law, the Task Force shall:

provide direction for the investigation and prosecution of cases of securities fraud, accounting fraud, mail and wire fraud, money laundering, tax fraud based on such predicate offenses, and other related financial crimes committed by commercial entities and directors, officers, professional advisers, and employees thereof (hereinafter "financial crimes"), when such cases are determined by the Deputy Attorney General, for purposes of this order, to be significant;
provide recommendations to the Attorney General for allocation and reallocation of resources of the Department of Justice for investigation and prosecution of significant financial crimes, recovery of proceeds from such crimes to the extent permitted by law, and other matters determined by the Task Force from time to time to be of the highest priority in the investigation and prosecution of such crimes; and
make recommendations to the President, through the Attorney General, from time to time for:
1. action to enhance cooperation among departments, agencies, and entities of the Federal Government in the investigation and prosecution of significant financial crimes;
2. action to enhance cooperation among Federal, State, and local authorities responsible for the investi-gation and prosecution of significant financial crimes;
3. changes in rules, regulations, or policy to improve the effective investigation and prosecution of significant financial crimes; and
4. recommendations to the Congress regarding such measures as the President may judge necessary and expedient relating to significant financial crimes, or the investigation or prosecution thereof.

Sec. 4. Additional Participation for Specified Functions. In the Task Force's performance of the functions set forth in subsection 3(c) of this order, and to the extent permitted by law, the following officers of the executive branch shall be members of the Task Force in addition to such other officers of the Federal Government as the Deputy Attorney General deems appropriate:

the Secretary of the Treasury;
the Chairman of the Securities and Exchange Commission;
the Chairman of the Commodities Futures Trading Commission;
the Chairman of the Federal Energy Regulatory Commission; and
the Chairman of the Federal Communications Commission.

Sec. 5. Internal Management Purpose. This order is intended to improve the internal management of the Federal Government. This order is not intended to, and does not, create any right or benefit, substantive or procedural, enforceable at law or equity or otherwise against the United States, its departments, agencies, entities, instrumentalities, officers, or employees, or any other person. Sec. 6. Termination. The Task Force shall terminate when directed by the President or, with the approval of the President, by the Attorney General. GEORGE W. BUSH THE WHITE HOUSE, July 9, 2002.

Amendment Allows CPA Firms to Admit Non-CPAs

Wed, 31 Dec 1969 19:00:00 EST

Per a recent amendment to M.G.L. c. 112, � 87B_, licensed CPA firms (partnerships, corporations, LLPs and LLCs) will be allowed to admit non-CPAs as partners, officers, shareholders or members provided that the following conditions exist:

That a simple majority of the ownership of the firm in terms of financial interests and voting rights (control) of the firm belong to holders of a CPA certificate and current license.
All non-CPAs must be natural persons and actively involved in providing professional services for the licensed entity or its affiliated entities.
The managing partner or agent of the firm must be a licensed CPA.
Non-CPA owners do not hold themselves out to the public as CPAs or sign reports on financial statements.
The firm and its entire ownership, including non-CPA owners must comply with all other requirements of 252 CMR (including new regulations to be determined by the Board).

For a currently licensed CPA firm (with two or more CPA owners) to admit a non-CPA owner after September 24, 2001, the managing partner of the existing licensed firm must report a non-CPA has been admitted as an owner of the firm by notifying the Board in writing. The notification must include the individual's name, the date of admission as a partner, shareholder or member and any information regarding a professional or vocational license or the individual's right to practice a profession or vocation. In addition, the managing partner must also certify in this letter to the Board that each non-CPA partner:

Has not been convicted of a felony or any other crime, an element of which is dishonesty or fraud, under the laws of any state of the United States or of any other jurisdiction if the acts committed would constitute a crime under the laws of the Commonwealth; and
If applicable, (a) has not had any individual professional or vocational license or the right to practice a profession or vocation revoked or suspended for reasons other than nonpayment of dues or fees, or (b) does not have a pending disciplinary investigation, or (c) has not been denied reinstatement by a licensing agency of any state or the United States, or of any other jurisdiction; and
Has not been in violation of any rule or regulation regarding character or conduct adopted in 252 CMR; and
Has not failed to timely file a report of the conditions set forth above as required by subparagraph 4 of M.G.L. c. 112, �87B_ ( Available through the Web site of the Board of Public Accountancy.

For all CPAs who wish to form a new firm with non-CPA owners or for firms with only one licensed CPA as owner, the Board will determine if the firm name is allowed under the statute and the Board's regulations (252 CMR). The current regulations regarding firm names, 252 CMR 3.05(5), are in effect until amended and new regulations are implemented.
Since the statute allows CPA firms to admit non-CPA owners, the Board does not wish to create confusion about which of the owners is licensed and those that are not licensed. Firms with only one licensed owner must formally request the designation of a firm name other than one that uses the licensee's name and "and Associates" or "and Company".
If the Board allows a partnership, corporation, LLP or LLC with only one CPA partner, shareholder or member to register, the Board will then regulate the designation of Certified Public Accountants or any other abbreviations thereof and/or a description of the services provided by the firm.
Since sole proprietors are not considered firms per M.G.L. c. 112, �87B_, they remain subject to 252 CMR 3.05(5).
All requests by single CPA owners of firm names, or of firm designations must be received in writing to be presented to the Board at its regularly scheduled meetings. Written response to these requests will be sent within two weeks of Board decisions. If you have any questions you may call Leo H. Bonarrigo, CPA, Executive Secretary at 617-727-6438.

Please note: Additional legislation is needed to amend PC Statute regarding non-CPA ownership. The Professional Corporations Statute does not permit non-CPAs to be owners of CPA Professional Corporations. The MSCPA is working on legislation to effect a change to the Professional Corporation Statute. In the meantime, the CPAs interested in affiliating with non-CPAs who are currently members of Professional Corporations may want to consider utilizing the LLP or LLC structure in the interim. Please note as of May 6, 2002: The MSCPA is currently exploring with the Board of Public Accountancy changes to allow a firm that is a PC to reorganize as a business corporation. More to follow.

SUMMARY OF OPTIONS FOR PROFESSIONAL CORPORATIONS SEEKING TO AFFILIATE WITH NON-LICENSEE OWNERS Pursuant to a recent amendment to M.G.L. c. 112, � 87B1/2 most licensed accounting firms will be allowed to convey ownership interests in their firm to individuals who are not licensed certified public or public accountants. Professional corporations engaged in the practice of public accountancy, however, are presently barred by the general statute governing professional corporations from conveying ownership interests to non-licensed individuals. The Society has prepared legislation to address this issue and permit non-licensed individuals to hold ownership interests in accounting professional corporations. Until such legislation is passed, non-licensed individuals remain barred from holding ownership interests in accounting professional corporations. There are a number of alternatives presently available to accounting professional corporations that wish to align themselves with non-licensee owners. The principal options involve either (1)the shareholders of the professional corporation reorganizing as a business corporation, a limited liability company ("LLC"), a general partnership, or a limited liability partnership ("LLP") with non-licensee owners; or (2)the professional corporation comprised of accountant owners itself joining with non-licensee owners as a member of a newly formed LLC, or a partner in a newly-formed LLP or a shareholder of a business corporation, whose other members, partners or shareholders are non-licensed individuals. Some considerations concerning these options are summarized below. Business Corporations A corporation is a separate, incorporated legal entity organized under an enabling statute. Under Massachusetts law, a corporation formed for the purpose of carrying on a business for profit may be organized under M.G.L. c. 156B. For federal tax purposes, a corporation may be a C corporation, separately taxed on its own taxable income, or an S corporation, in which the income, gains, losses, deductions and credits of the corporation are passed to the shareholders, who report them as their own on individual tax returns. General corporate registration requirements and information may be found at the Secretary of the Commonwealth, Corporations Division website at: http://corp.sec.state.ma.us/portal/PortalPage.htm . Limited Liability Companies LLCs are governed by M.G.L. c. 156C (the "LLC Act"), and the regulations found at 950 CMR 112.00 et seq. In participating in an LLC, members risk the full amounts of their investments, but are generally not personally liable for the debts and obligations of their businesses. See G.L. c. 156C, � 22. Registration information specific to limited liability companies may be found at the Secretary of the Commonwealth's website at: http://corp.sec.state.ma.us/portal/OldCorpWeb/corllc/llcinf.htm. Partnership Options A general partnership is an association of two or more persons who carry on a business for profit as co-owners. A general partnership is formed by the agreement of the parties, or by a course of conduct. In the absence of an agreement, M.G.L. c. 108A, � 18 governs the relationship of the partners to one another. General partners are liable to the full extent of his or her personal assets, as well as the partnership assets, for obligations of the partnership. M.G.L. c. 108A, � 15. In contrast to a general partnership, a limited liability partnership is a partnership created by statute, with specific requirements and formalities. LLPs are governed by M.G.L. c. 109, the Massachusetts Uniform Limited Partnership Act, and the regulations found at 950 CMR 108.00 et seq. The liability of LLP partners is limited to the sum of his or her capital contribution to the partnership. A partnership registers as an LLP by filing a form of registration in the office of the Secretary of the Commonwealth, and paying a filing fee. Registration information for limited liability partnerships may be found at the Secretary of the Commonwealth's website at: http://corp.sec.state.ma.us/portal/OldCorpWeb/corllc/llcinf.htm. Tax Considerations The choice between an LLC and LLP will likely have a minimal impact on federal or state income tax liability. Both an LLP and an LLC are ordinarily treated as a partnership at both the state and federal level. Therefore, any income, assets, liability, deductions, or other monies realized will be allocated by members according to the governing agreement of the business entity, rather than being taxed once at the entity level, and again at the individual level, as is generally the case with business corporations. Given the complexity of legal structure issues and their potential tax implications, professional corporation contemplating a restructuring to admit non-license owners should seek appropriate legal and tax advice.

SEC Unanimously Approves Auditor Independence Rules Congress & Profession Force Compromise

Wed, 31 Dec 1969 19:00:00 EST

In what Securities Exchange Commission (SEC) Chairman Arthur Levitt described as a "balance that serves the interest of America's investors while remaining flexible and adaptable for the unforeseen charges in tomorrow's workplace," the SEC unanimously approved new rules concerning auditor independence. A last-minute compromise eliminated a proposal that would have banned firms from providing information technology services to the companies they audit; it is expected to avert legal and congressional challenges to the SEC's proposal. The agreement reached by the SEC and the accounting industry, focuses on three areas: (1) Investments by auditors or their family members in audit clients; (2) Employment relationships between auditors or their family members and audit clients; and (3) The scope of services provided by audit firms to their audit clients. The new rules are expected to take effect at the beginning of 2001. By modernizing the independence standards, the adopted rules will significantly limit the number of audit firm employees and family members whose investments in, or employment with, audit clients would impair an auditor's independence. Today, CPAs and their families are restricted from investing in clients of the firm. This practice effectively precludes many large firms from offering employees modern and competitive benefit packages, as well as, the family members of the employees from receiving or participating their own employers benefits packages. The new standards will limit the investments of those who work on or can influence the audit and will limit the employment standards. In addition, the new employment relationships rules will, according to the SEC, "greatly narrow the scope of people within audit firms whose families would be affected by the employment restrictions to maintain independence." The employment relationships rules will be limited to those positions that could influence the audit clients accounting records or financials if held by a close family member. Such changes are consistent with current independence standards as independence would be impaired if the accountant or any covered person has a direct or material indirect business relationship with the audit client, other than providing professional services. They are also a reflection of the ever-changing marketplace and modern workforce. The SEC significantly retreated from some of its stances in the original proposal, its new rules restrict some consulting functions and require firms to disclose the fees charged for all services provided to the client during the year. The initial proposal sought to ban information technology and internal audit outsourcing services, however, active opposition by the profession forced the SEC to compromise. Auditing firms may provide consulting services to help client companies acquire and set up financial information systems, as long as the client companies are responsible for making all decisions relating to the systems and maintain control of the project. Firms that conduct audits of publicly- held companies may still perform some consulting functions for these companies, but there are limitations on the services that can be provided. According to Richard I. Miller, AICPA Vice President and General Counsel, "In the area of internal audit outsourcing, up to 40 percent of outsourcing would be allowed for businesses with $200 million or more in assets. Under an exemption for businesses with less than $200 million in assets, smaller CPA firms should be unaffected by the final rule." With such limitations the cascading effect associated with the original proposal has been diminished; it is possible that other federal and state regulators would adopt similar independence standards adopted by the SEC. Thank you to all MSCPA members who responded to the Society's request to contact their members of Congress and the SEC and to the Massachusetts congressional delegation, especially Congressman Richard E. Neal (D-Massachusetts), for their attentiveness to the profession's concerns. The influence of members of Congress was instrumental in forcing the SEC to compromise on its original proposal. This effect was best demonstrated when U.S. Senator Phil Gramm, Chair of the Senate Committee on Banking, Housing, & Urban Affairs, told Chairman Levitt: "Our accounting firms are the envy of the world. Some of the most respected companies in America are the very companies that might be dismembered by this proposal. If we're going to see this happen, there has to be hard evidence that there's a problem and that this dismemberment is going to solve the problem." The SEC's final rule on auditor independence is found here.