By Brandy Stykes

The Tennessee state legislature has repealed the Tennessee gift tax, effective as of January 1, 2012.  The repeal of the gift tax will help those individuals that make large gifts take advantage of the $5.12 million federal exemption.

The Tennessee state legislature has also repealed the Tennessee inheritance tax, effective as of January 1, 2016.  The yearly taxable estate exemptions until that date are as follows:

• 2012 – $1,000,000
• 2013 – $1,250,000
• 2014 – $2,000,000
• 2015 – $5,000,000

Blackburn, Childers & Steagall Presents an Opportunity to Discuss Government & Nonprofit Accounting with Peers & Auditors

On June 14, Blackburn, Childers & Steagall will host a Government & Nonprofit CPE in Kingsport, TN at MeadowView Convention Center. In addition to providing 8 hours of CPE credit at an exceptionally low price, there will be an opportunity for the participants to discuss issues with their peers and audit professionals who specialize in Governments & Nonprofits. The expert Government panel consists of the Finance Director from Johnson City, TN and the City Clerk/Comptroller from Bristol, VA. The nonprofit panel of regional experts includes a nonprofit Executive Director, a President/ CEO, and a Chief Financial Officer from three successful nonprofit organizations.

Congressman Phil Roe, MD and BCS Partner Karen McMurray will be presenting at a special breakfast for elected officials and board members.  Breakfast and lunch will be provided.

Participants will also have the opportunity to choose three 1 hour sessions from nine unique sessions offered. From what we have heard so far, several participants are eager to discuss budgeting, fraud prevention and common audit findings.

For more detailed information about the CPE, click this link and/or call us at (423) 282-4511.

Please visit our Registration page, or call Kendra or Kathy at (423) 282-4511 to sign up.

By Alice Williams

With the disappearance of green ledger pads comes the age of inexpensive accounting software.  There has been a huge boom in over-the-counter programs in the last few years.  QuickBooks (Intuit) is the most widely known, but there are other less known options like Peachtree (Sage).  There are also industry-specific packages such as PCLaw for attorney practices.  Whether you want to use it for home or office, it’s readily available at almost any store or online site.  And the banks are even catching onto the craze and offering use of the software packages through their websites.  So with all the choices out there, which one is right for you?  Well that depends on who you ask and on your needs (and hopefully the latter is taken into the equation when you ask).

QuickBooks is the most widely recognized software on the market. It’s owned by Intuit which also sells Quicken software. Peachtree is not as well known. Both have the capability to provide most of your accounting needs. If you’re familiar with computer software, you know that most software packages come in a variety of versions ranging in price from the affordable to the outrageously expensive. Don’t be sucked in by the salesperson or the advertising.

Bottom line – do your homework before you buy.  Whatever choice you make needs to be a benefit to your business and not a burden.  It would behoove you to discuss your options with your accountant to find out the best product to help you deal with your day-to-day accounting activity.  Taking your specific needs into account, they can suggest the most useful tool for you, not the most popular or most expensive.  And used properly, any of the choices out there will save you time and money in the office so that you can apply your time to making more money in your business.

By DJ Berry

Effective July 1, 2007, Tennessee joined ten other states by passing into law what is commonly referred to as a domestic asset protection trust (DAPT) via the Tennessee Investment Services Act. For Tennessee purposes, the trust is titled an “Investment Services Trust”, but this particular trust is also known as a self-settled trust, because the person who is creating the trust with their own assets is doing it for their own benefit; i.e., they will receive the income and other benefits of the trust.

Typically, a DAPT is created with asset protection as the primary purpose-hence, the name “asset protection trust.” For the most part, the trust is constructed to afford a layer of protection between the assets and the creditors of the trust’s creator. The trust is known as a domestic trust because the asset protection provided by trusts such as these were previously supplied by foreign offshore trusts. However, with the creation of the first DAPT statute in Alaska in 1997, offshore trusts began to lose some of their allure. Regardless, offshore trusts are still popular, especially in states that don’t provide DAPT statutes.

In general, the Tennessee version of the DAPT does protect assets from a creditor. Like most laws, there are exceptions to the general rule and fairly rigid standards that must be followed. In order to protect assets from creditors in Tennessee, the following requirements must be met:

1. Tennessee law must be used to create the trust (i.e., it must be a Tennessee trust);
2. The trust has to be irrevocable; and
3. The interest of the beneficiary cannot be transferred (often referred to as a spendthrift clause).

The trust must also have a qualified trustee. A qualified trustee is one who meets certain conditions. For instance, the trustee cannot be the actual creator of the trust. They must also be a resident of Tennessee (or an entity allowed by Tennessee law to act as a trustee). Moreover, the trustee must maintain in Tennessee some or all of the property that is the subject of the trust itself.

The layer of protection for assets in a DAPT may seem invincible, but in reality, there are some limitations on the shelter offered by the DAPT. Creditors can reach the assets if the transfer was a fraudulent transfer under the Tennessee Fraudulent Transfers Act. Even if the transfer was not fraudulent, creditors can reach the trust assets if the creditor files suit within four years of the creation and funding of the trust. Basically, this means that four years have to pass for the assets to be fully protected from even legal transfers.

The DAPT created by Tennessee has potential, but it is probably best suited for residents of Tennessee, especially those with most of their assets in Tennessee. The trust should be funded early, to avoid any possible problems with regard to the four-year minimum limitation for any transfer. Also, someone who is considering bankruptcy would find the DAPT to be an ineffective means of protecting assets.

The term of the trust can currently be extended for 360 years, as long as certain other guidelines are met. No other trust can come close to the DAPT in terms of longevity. If the preceding parameters fit your estate plan, a DAPT should be considered in any future planning.

By Ryan Owens

When many people think of someone “hacking” their passwords, they think of a person sitting in front of a computer randomly attempting passwords that they believe will work. This is not always the case. There are computer programs that are capable of discovering your password by searching through thousands of passwords using words from dictionaries, Encyclopedias, and information from the Internet in a matter of minutes. Many security firms, such as Trustwave will make a list of the “most used passwords,” and the results are often shocking. The most popular passwords are “password,” “iloveyou,” and “12345.” Using your own name is also very common. Anyone trying to hack into your account will check for these right off the bat. Here are five tips to think about when creating your passwords:

1.    Change your passwords regularly

Very few people change their passwords regularly (every four to five months). Changing your passwords ensure that you are less likely to be hacked. Try setting an appointment in your calendar to remind you to change your passwords.

2.    Use a password manager

A password manager will help you organize your passwords. The manager will hold all of your passwords in one database that will make it easy to remember and manage your passwords. There are plenty of password managers out there. Among them are two favorites: KeePass and 1Password.

3.    Do not make your passwords too short

The longer your password is — the more secure it is. Period!  There are websites that force a minimum password length and other requirements. However, you should never settle for just the minimum. Every additional letter makes the password harder to crack. It is ideal to have 12-14 characters in your password. Even a simple password such as “AAAAA!!!!!!!!!!” is just as effective due to the length of characters.

4.    Do not use the same password everywhere

With so many websites requiring a logon and password, it is often easier to use one password for any website or program you use. Using the same password for multiple websites and applications helps to cut back on remembering several different passwords. However, if someone gets a hold of your password for one site, they will also have a good chance of gaining access to other websites you use. This can be avoided by using multiple passwords, combined with a password manager to remember them all.

5.    Do not be obvious

Using obvious choices such as your name, your hometown, your phone number, or you birth date will likely result in your passwords being in jeopardy. Do not use information that can be associated with you and do not use simple terms. Simple terms can easily be hacked by using a computer that will search terms from a dictionary. Also, do not store your passwords in obvious places such as post-it notes under your keyboard or on papers near your computer. It is best to not write them down at all, but instead use a password manager.

Options for creating a strong password:

• Use the first letters in a phrase or song that is familiar to you. For example, you could use Nirvana’s song “Smells Like Teen Spirit.” Your password would then be something like “SLTS.” To remember the password, all you have to do is sing the song to yourself. You can use this with any song or phrase.
• Use a mixture of upper/lower letters, numbers, and punctuation marks. You can even substitute numbers for letters. Examples of this include:

8 = B

3 = E

5 = S

0 = O

This would mean the word “scuba” would become “5cu8a.”

Use a master password and a site rule. This technique is very popular – create one secure password, then use a rule for each different website. For example, your master password could be “55itigt8” and your rule would be to place the first and last letter of the website at the beginning and end of your master password, respectively. In this case, your Facebook password would become “f55itigt8k” and your Yahoo password would become “y55itigt8o.”

By Wade Farmer

1.  One of the best ways to avoid a tax scam is to consult with your CPA.  If you’re not sure, then ask.  We will be more than happy to answer any questions you might have.

2.  Don’t trust a return preparer that guarantees you a big refund or charges based on your refund rather than the complexity of your return.  Look for a reputable preparer.

3.  Got a suspicious-looking email from the IRS?  These scams are called phishing, and they are used to steal your identity.  A criminal will send you an email claiming to be from the IRS, and it might even have an IRS logo.  The email will tell you that you are eligible for a larger refund, or that they need more information, and they will request that you send back your bank account numbers or social security number.  The IRS will never initiate contact with you by email.  See more about phishing scams on the IRS website, or, if you have any immediate questions or concerns, please contact us.

4.  A new scam this year is the abuse of the American Opportunity Tax Credit.  Scheme promoters tell their victims they can receive a refund or a stimulus payment based on paying for college even if the victim is not enrolled in college.  Promoters claim that you can receive money for paying for college decades ago.  These scam artists are targeting seniors, but everyone should beware of this since they will charge you high fees to file these false claims you will be responsible for paying back.

5.  Don’t try to hide foreign income or money in a foreign financial account.  The IRS has reopened the Offshore Voluntary Disclosure Program to disclose foreign accounts and assets to ensure you avoid criminal prosecution of international tax evasion.  Have an offshore account?  Read Jake Hutchison’s blog post for more information. 

Have more questions about possible scams?  Call or email us, and we will be glad to answer your questions. 

Every year, business owners receive a Tangible Personal Property Schedule (TPPS) that must be completed and filed with their county Assessor’s Office. Personal property taxes are imposed on the business’s tangible personal property; which includes such items as: computers, office equipment, tools, furnishings, machinery, billboards, raw materials, supplies, and vehicles.

The Assessor’s Office calculates the tax based on the information previously disclosed to the assessor and reported on the TPPS form. These forms allow business owners to list any changes to their personal property. For example, new property that is acquired needs to be added to the form and old property that sold or retired should be removed. 

The Tangible Personal Property Schedule (TPPS) forms are mailed out at the beginning of each year and received by businesses around February 1^st. Business owners must complete the TPPS form on or before March 1^st and send them to the Assessor’s Office. If the deadline is missed, the Assessor will do a forced assessment on property owned by the business.

Important Things to Remember:

• Business owners should always keep records about property owned that is up-to-date and readily available to help with preparing these forms.
• After a business owner files the TPPS and later discovers a mistake on the form, they have until September 1^st of the following year to amend the schedule; however any business that has a force assessment is not allowed to amend the TPPS.

Any changes to personal property or business ownership should be reported immediately to the county’s Assessor’s Office.

“Fraud, by its very nature, does not lead itself to being scientifically observed or measured in an accurate manner.  One of the primary characteristics of fraud is that it is clandestine or hidden; almost all fraud involves the attempted concealment of the crime.”  (2010 Report to the Nations; Association of Certified Fraud Examiners; www.acfe.com/rttn).  That quote from the 2010 Report to the Nations, issued by the Association of Certified Fraud Examiners underscores the critical importance of all organizations to address fraud risk factors. 

Periodically, the Association of Certified Fraud Examiners (ACFE) publishes their findings and recommendations in their “Report to the Nations”.  The 2010 Report is the first report to include cases from countries outside of the U.S.  The report is based upon 1,843 cases of fraud occurring between January 2008 and December 2009. 

Some of the Report’s findings include:

• Survey participants estimated the typical organization loses 5% of its annual revenue to fraud
• Small organizations are disproportionately victimized by occupational fraud due to overall lacking of anti-fraud controls.
• Anti-fraud controls appear to help reduce the cost and duration
• Frauds committed by owners/executives were more than 3X as costly as fraud committed by managers
• More than 80% of the frauds were committed by individuals in one of 6 departments:  accounting, operations, sales, executive/upper management, customer service or purchasing
• More than 85% of fraudsters had never been previously charged or convicted for a fraud related offense
• Fraudsters often display warning signs that they are engaging in a fraud.  The most common behavior was living beyond their means (43%) followed by experiencing financial difficulties (36%)
• Employee education is a key foundation of preventing and detecting fraud. 

What can you do?  There are many things to consider for any organization, regardless of size.  Employee training and education is a key consideration.  It is vital to maintain an open door policy and overall atmosphere of communication to allow all employees the opportunity and freedom to report any suspicions.  Consider implementing an internal audit function including surprise “audits” of different higher risk areas/transactions.  Management should develop and periodically review fraud risk assessments.  Other areas to consider include:  level of oversight and review by top management, segregation of duties, mandatory vacations and job rotations.  “Tone at the Top” is also of great importance.  The Report also recommends having proper support programs in place to assist employees that are struggling with addictions, mental/emotional health family or financial problems. 

Fraud can happen in any organization by any employee.  Each organization should consider what steps they can take now.  The old adage, “an ounce of prevention is worth a pound of cure” certainly would apply with respect to proper fraud prevention controls. 

Source:

2010 Report to the Nations; Association of Certified Fraud Examiners; www.acfe.com/rttn)

During Blackburn, Childers and Steagall, PLC’s continuing professional education (CPE) seminar scheduled for June 14 at Meadowview, we will include a session on fraud indicators and related controls.  Please visit this link for information regarding this CPE seminar.

By Jake Hutchison

The Internal Revenue Service has reopened the Offshore Voluntary Disclosure Program (OVDP) which allows a US person to disclose all foreign accounts and other assets with the IRS to avoid criminal prosecution of international tax evasion.  Please refer to the 2012 Spring Edition of the BCS Client-Tell for more information on the new OVDP. 

Any US person that has a financial interest in or signature authority over a foreign financial account where the aggregate value of the account exceeds $10,000 at anytime during the calendar year is subject to additional annual filing requirements.

The Report of Foreign Bank and Financial Accounts, Form TD F 90-22.1 (FBAR), is due on or before June 30, following the calendar year and this deadline may not be extended.   Corporations, partnerships, trusts, or estates along with individuals are subject to FBAR.  Failure to file this form could result in a failure-to-file penalty of $10,000.  In addition, the taxpayer may be assessed back taxes, late filing interest, late filing penalty and possibly an accuracy related penalty for the underpaid tax on any foreign income omitted on Form 1040. 

A new separate requirement was released from the IRS which is in addition to FBAR.  Form 8938 requires taxpayers to report specified foreign financial assets on their annual Form 1040 by the April 15 due dates which may include an extension.  Currently, Form 8939 is only required by individuals, although the IRS speculates that entities such as corporations or partnerships may be subject to filing requirements in future years. 

Some examples of specified foreign financial assets are securities, bonds, or other foreign financial accounts.  A single taxpayer living in the US is subject to filing Form 8938 if the value of the taxpayer’s specified assets exceeds $50,000 on the last day of the taxable year or $75,000 at any time during the taxable year.  Married taxpayers living in the US are subject to the filing requirement if they have a value of the specified assets which exceeds $100,000 on the last day of the tax year or more than $200,000 at any time during the year. 

Failure to file Form 8938 could result in a failure-to-file penalty of $10,000 plus another $50,000 of failure-to-file penalties if the IRS notifies a taxpayer to file and the taxpayer fails to do so.  In addition, the individual could be assessed back taxes, late filing interest, late filing penalty and an accuracy related penalty for the underpaid tax on any income omitted on Form 1040.

This article covers the basic guidelines on annual requirements for foreign accounts, if you have any questions related to foreign accounts please contact our office.  As always we will try to keep you up to date on changes related to foreign disclosure along with all other tax matters.

By Sheila Emory

On February 22^nd, President Obama signed the payroll tax cut extension into law.  This extension affects nearly 160 million workers by continuing to keep the social security withholding rate at 4.2%, instead of the 6.2% in effect prior to 2011.  This extension is set to expire on December 31, 2012.

 Those who are self-employed will also see a reduction in their social security withholding from 12.4% to 10.4%, up to a threshold of $110,100 of wages and net self-employment income. 

 The new lower rate will have no effect on workers’ future social security benefits.