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Cyndi LeBerthon Appointed Chair of CalCPA Peer Review Committee

Wright Ford Young & Co.’s Audit Partner, Cyndi LeBerthon, has been appointed Chair of the CalCPA Peer Review Committee for the term 2019 through 2021.

This committee of 20 members is responsible for overseeing all peer reviews of CPA firms in California, Arizona and Alaska administered by CalCPA. The peer review committee evaluates the results of the peer reviews, determines the need for follow up remedial or corrective actions, and oversees the performance of AICPA qualified peer reviewers in California, Arizona and Alaska. These measures taken ensure compliance with the AICPA Peer Review Program. Cyndi has served on the peer review committee since 2015 and is honored to be able to give back to the accounting profession through this volunteer, invitation-only role.

Congratulations, Cyndi!

If you’d like to learn more about WFY’s Audit Partner, Cyndi LeBerthon, click here.

WFY Tax Department is Hiring

Wright Ford Young & Co. is seeking qualified candidates to join our tax department team! We are looking for hard-working, dedicated people who are willing to learn and flourish in their careers.  Full-time positions are available for the following departments:

Tax Department

  • Tax Professional (at least 3 years of experience)

If you are interested and qualified for the position above, please email your resumes careers@cpa-wfy.com or call directly at (949) 910-2727.

The Problems Faced Between You and Your Current CPA This Past Tax Season

Once the corporate, individual and foundation tax reporting season is complete, there’s always an opportunity to evaluate and reassess the taxpayer’s level of satisfaction with their CPA relationship. Lack of communication, unwanted tax return extensions, incorrectly prepared Schedule K-1’s, and inability to accurately apply the qualified TCJA reform benefits  are just a few of the many frustrations that may have been experienced this past tax season.

Situations can arise in a taxpayer-CPA relationship which makes a taxpayer to question whether or not their current accounting firm is the right fit for them.  Small to mid sized closely held companies and family business owners may feel as though they have outgrown their small practice CPA or might feel under served by their larger accounting firm.  Some of the common situations where Wright Ford Young is referred into a new client relationship have been:

  • Delayed responses from their current CPA or lack of follow up communication that caused their tax returns to be unnecessarily extended.
  • Excessive turnover of accounting firm staff that caused the need for re-training and more work to be completed by company employees.
  • Need for new growth capital, loan or line of credit that requires a company’s financial statements to be audited, reviewed or compiled for the first time.
  • When a company’s employee benefit plan exceeds 100 participants for the first time, thus requiring a qualified ERISA auditor to audit the plan (i.e. 401(k)).
  • When a business owner considers a liquidity event, yet doesn’t want to fully exit the business, the consideration of structuring a tax-friendly ESOP is warranted.
  • The need for a family business owner to take advantage of the new tax strategies relating to personal estate and trust planning.
  • Anytime a company financial leader or family business owner no longer sees a true correlation between the accounting fee they pay and the value of service they receive.

If you are a small to mid-sized company or family business owner who is dissatisfied with your current accounting firm, please contact Wright Ford Young to schedule a no-obligation conversation with one of our audit, tax, or estates and trusts planning specialists.

Spend some time getting to know us and you’ll see how you can achieve compliance without feeling like a number in a “check the box” environment.

Learn how a proactive year-round tax strategy can serve as a valuable improvement vehicle to your profitability, not just a tax time expense.

Understand why estate planning is critical to maximizing your wealth preservation while you are still able to fully enjoy life with your family, not after.

See how our partners and staff are hands-on and better equipped to respond to individual requests from all our clients and not shielded with layers of staff, and realize a true correlation between the fee you pay and the value of service you actually receive.

WFY Hosts MGI North America West Coast Area Meeting

On January 4th, Wright Ford Young & Co. hosted the MGI North America West Coast Area Meeting at our offices in Irvine, CA.

Joe Tarasco, Regional Director, and Nancy Damato, Director of Marketing, starting the meeting off by talking about key points such as MGI North America new member recruiting initiatives and activities, marketing assessment calls/web meetings with MGI North America members, a guide about foreign companies doing business in United States, and upcoming conferences.

The meeting continued with discussions concentrating on MGI firm collaboration and practice management updates along with topics including business development, technical and niche areas, succession planning, and more.

Our WFY Tax Partner, Andy Bautista, hosted the meeting and said, “It was a great day spent with colleagues and friends, sharing ideas and ‘best practices,’ as well as networking and socializing. The meeting served as a reminder of how proud the respective firms are to be part of the MGI Worldwide network.”

Wright Ford Young & Co. is a member of MGI Worldwide, a Top 20 international accounting network of independent audit, tax and accounting firms, which brings together the expertise of some 6,000 professionals in over 300 locations around the world.  Through MGI Worldwide, our firm benefits from connections with people we get to know and trust in all corners of the globe.

When Does a Resident Become a Nonresident?

According to a recent SFGate poll, 53% of Bay Area residents interviewed want to leave California.(1) We have been hearing similar comments from seminar attendees across the state, and we know many of you have clients who are attempting to “move out of California.”

Keep in mind, one of the FTB’s longest running, and most active, audit programs is the residency audit program. The FTB looks closely at a taxpayer who moves from California, and often they are high income taxpayers who have large amounts of income after they change their residency to another state. However, lower income taxpayers can also be caught in this trap.

Recently, we heard of two examples of clients who want to leave California — but not completely.

Case study #1: High-income taxpayer who is expecting a large capital gain from the sale of very appreciated stock will move out of state. However, he will keep the California home that has been in his family for generations.

Case study #2: Woman moves to a non-tax state, buys a home there, and keeps her California home to which she returns periodically to oversee care of her mother. She has income from both California and the other state.

Each of these taxpayers is in the danger zone. Let’s look at the rules for residence and domicile and apply them to these case studies, as this is the key to being a nonresident.

Residence and domicile

A “resident” is an individual who is:

  • In California for other than a temporary or transitory purpose; or
  • Domiciled in California, but who is outside California for a temporary or transitory
    purpose.

A domicile is the place where an individual has his or her true, fixed, permanent home and principal establishment, and to which place he or she has, whenever absent,the intention of returning. It is the place in which an individual has voluntarily fixed the habitation of self and family, not for a mere special or limited purpose, but with the present intention of making a permanent home, until some unexpected event shall occur to induce an adoption of some other permanent home.(2)

If a person has not changed their domicile, they continue to be California residents for income tax purposes, even if they are outside of California for most or all of the year.

Don’t keep the house

The key to these case studies is domicile. In order to be a nonresident of California for tax purposes, the taxpayer must show that their domicile is in another state. The FTB will assume any taxpayer that left the state but kept a home in California has retained their California domicile (because they “intend to return”). So, that is one big step against the taxpayer.

In case study #1, the taxpayer must dispose of the property or they will have trouble proving they ended the residency. This is going to be a particularly difficult situation because the taxpayer has significant income from the sale of his appreciated stock, and the FTB will argue that he is only trying to change his residence to avoid the California tax on that income. We would typically recommend that the taxpayer sell their California residence and purchase a residence in their new home state. However, the taxpayer does not want to sell his home because it has been in the family for generations.

Simply having the children rent the family home will make it hard to prevail, as the FTB may argue that the taxpayer can return to the home at any time. One suggestion might be to gift the home to the children or put the home in an irrevocable trust for the children.

In case study #2, the taxpayer has relatively low income, but the FTB is still likely to find that she continues to be a California resident. Keeping the home here indicates that she intends to return to California, especially if she is periodically using it and working occasionally in California. If the FTB audits her, she will surely lose. The best way for her to end her residency is to sell the home and not work in California when she comes to care for her mother. She can stay with friends or in a hotel, but not in her home.

Cases where taxpayers won and lost

A good way to understand factors that will help or hurt taxpayers in these situations is to review cases where taxpayers have lost on residency issues.

Losers

In the Appeal of Murray, the taxpayers were domiciled in California prior to the husband signing with the Cleveland Cavaliers.(3) The Board ruled in favor of the FTB, and found that the taxpayer maintained a domicile in California because the taxpayer and his family resided in Ohio only during the seven-month basketball season. They maintained two homes in California — one occupied by his mother-in-law and the other presumably vacant — and continued to use financial advisors, doctors, and had business registrations in California.

In Appeal of Cummings, the taxpayers had moved to Nevada — or so they thought.(4) However, they retained two homes in California and one in Reno, Nevada. Credit card transactions and amounts and locations of expenses for each spouse demonstrated an overwhelming presence in California. Following all trips, the Cummings always returned to their California location. The Board found that the taxpayers were still California residents.

In Appeal of Norton, the taxpayers, contemplating retirement, began construction of a residence in California and listed their Connecticut homes for sale.(5) In February 1990, they rented a small apartment in California and lived in it until their new home was finished. The Board determined that residency began on April 10, 1990, when the taxpayers moved much of their furniture, including a piano that had been kept in storage, and brought one of their vehicles to California.

Winners

In Appeal of Lau,(6) which was dismissed by the FTB before the BOE made a decision, the Board was posed to rule in favor of taxpayers who had retired from running their California business and had moved to Nevada. Due to the poor housing market, they had retained their California home along with its custom made furnishings, kept their Kaiser health plan, their golf membership (which they were unable to sell), and cars in California to use while they were visiting family and checking in on their business interests. The Board indicated that they felt that the taxpayers had demonstrated their intent to establish a Nevada domicile.

In Appeal of Bills,(7) taxpayers allowed their adult daughter to stay in their California home and purchased another home in Washington to move into when the husband retired from his investment company. The BOE ruled that the taxpayers had established a Washington domicile in only one week, even though they made frequent and extended stays in California immediately thereafter. The Board emphasized the subjective intent test rather than a quantitative objective test in establishing domicile.

1. www.sfgate.com/expensive-san-francisco/article/move-out-of-bay-area-california-where-to-go-cost-13614119.php
2 18 Cal. Code Regs. §17014(c)
3 May 22, 2013, Cal. St. Bd. of Equal., Case No. 469418
4 Appeal of Nicholas and Dorothy Cummings (October 7, 1999) Cal. St. Bd. of Equal., Case No. 98A-1239
5 Thomas H. Paine and Teresa A. Norton (October 7, 1999) Cal. St. Bd. of Equal., Case No. 98A-0741
6 Appeal of Lau, Cal. St. Bd. of Equal., No. 739838, heard March 25, 2015, dismissed May 7, 2015
7 Appeal of Bills (April 28, 2016) Cal. St. Bd. of Equal., Case Nos. 610028, 782397

This article is reprinted with permission of Spidell Publishing, Inc.® ©2019

New Partnership Audit Rules for 2018 Tax Filing Year

For the 2018 tax filing year, there are new Internal Revenue Service (IRS) partnership audit rules [also adopted by the California Franchise Tax Board (FTB)] in which the partnership, not its members, will now be responsible for tax adjustments under audit.

There is a very narrowly defined opt-out provision that many partnerships do not qualify for.  Please consider amending the partnership operating agreement to designate a “partnership representative” to represent the company in disputes with the IRS or the FTB.  Also, you should consider including language regarding the responsibility of tax audit adjustments pursuant to the three allowable methods: “amend”, “pull in”, and “push out.”

Below is a chart which discusses the advantages and disadvantages of each method.

MethodProsCons
Election OutPartnership out of CPARLimited to small partnerships with limited kinds of partners
Must elect on annual basis
AmendSimple to implementPartnership can’t compel partners to amend

Partnership can’t monitor who amends and who doesn’t

Pull InSimple to implement

Partnership can act as clearing house for convenience of partners (allows partnership to monitor which partners have pulled in)

Partnership can’t compel partners to pull in
Push OutPartnership can compel reviewed-year partners to pay tax on their share of imputed underpaymentShort time frame to elect and comply

Large administrative burdern on partnership

Partners pay additional 2% penalty

To discuss your situation under the new partnership audit rules, please contact a WFY tax expert at (949) 910-2727 or info@cpa-wfy.com

© Copyright 2019. All rights reserved.

Estates & Trusts Departments Welcomes Three New Hires

As tax season starts, WFY welcomes three new hires to our Estates & Trusts department: Lisa Marking, Heena Shah, and Ann Doan.  We are pleased to welcome these new hires to the WFY team.

Lisa Marking

Lisa Marking joined Wright Ford Young & Co.’s Estates and Trusts department as an Estates & Trusts manager.  She went to Pepperdine University to receive her undergraduate degree as well as her law degree.  Lisa also attended University of Southern California to receive her Master’s degree in Taxation.  During her free time, Lisa likes to travel and attending music concerts.

Heena Shah

This month, Wright Ford Young & Co. team had the pleasure of Heena Shah joining the Estates & Trusts Department as an Estates & Trusts supervisor.  She comes from a background of 14 years of tax experience specifically in tax compliance and tax planning for high net worth individuals, trusts, and small businesses.  Heena earned her bachelor’s degree in Business Administration from California State University, Dominguez Hills, and is an enrolled agent and a certified financial planner.  On her time off, she enjoys working out, cooking, and traveling.

Ann Doan

At the end of January, Wright Ford Young & Co. welcomed Ann Doan to the Estates and Trusts Department as Estates & Trusts staff.  Ann has a Juris Doctorate degree from Whittier Law School and a Masters of Law in Taxation from Chapman University.  Her experience with taxation includes representing taxpayers in matters before the IRS and California Board of Equalization as well as working in bankruptcy and creditors’ rights litigation. Out of the office, Ann loves to travel internationally and go to vegan food festivals.

If you think you’d be a great addition to WFY, please go to our Careers page and submit your résumé.

Rental Real Estate Owners-Guidance Related to the 20% Pass-through Deduction

On January 18, 2019, the IRS issued a notice providing “safe harbor” conditions under which rental real estate activities will be treated as a trade or business for purposes of the IRC Section 199A deduction.

To qualify for the safe harbor:

  1. Separate Books and records must be maintained for each rental real estate enterprise.
  2. At least 250 hours of rental services must be performed by the taxpayer and/or workers for the taxpayer during the tax year for each rental real estate enterprise. To clarify, a real estate enterprise may be one rental or multiple rentals.  Commercial and residential rentals cannot be combined in the same real estate enterprise.  Qualifying rental services counting toward the 250 hour requirement include advertising, negotiating and executing leases, verifying tenant applications, collecting rent, daily operation, maintenance and repair of the property, management, purchase of materials for repairs and supervision of employees and independent contractors.  The services can be performed by owners, employees, agents and/or independent contractors working for the owners.  We recommend filing 1099s by January of the following year for any services performed by non-owners.
  3. The taxpayer must maintain contemporaneous records including time reports, logs or similar support to document the hours of services performed, a description of the services performed, dates on which the services were performed and who performed the services. This will require tracking everything, your personal time and the time of those you employ.  A log book and a file for all invoices from others should be maintained.

Further clarification in the notice:

Triple Net Leases are not eligible for the safe harbor.

Vacation rentals (residences used by the owners) are not eligible for the safe harbor.

A statement is required to be attached to the taxpayer’s tax return and be signed by the taxpayer declaring that all the safe harbor requirements have been met and must include the following language:  “Under penalties of perjury, I declare that I have examined the statement and to the best of my knowledge and belief, the statement contains all the relevant facts relating to the revenue procedure and such facts are true, correct and complete.”

Lastly, an enterprise that fails the safe harbor requirements may still qualify as a trade or business under the regulations for purposes of the 199A deduction.  If you are unsure about your rental real estate enterprise, consult with a WFY tax advisor.

© Copyright 2019. All rights reserved.

New International Tax Laws Now in Effect Under TCJA

Under the new tax changes for The Tax Cuts and Job Act (TJCA) there were several new provisions that impact US companies performing business internationally.  Below are few selected key provisions.

Under the Foreign Derived Intangible Income, or FDII, a deduction is created for certain foreign income earned by U.S. companies. This only applies to U.S. C-corporations with either a U.S. or foreign parent with an incentive to use U.S. workers.  In result, this creates a preferential rate of 13.125% on qualifying foreign income, or QFI.  QFI includes income derived from sale of property to foreign sources and, also, includes income from services performed for foreign sources by a U.S. company, not through a foreign branch. For example, if the FDII is $1,000, the tax on the FDII is $131.25 rather than $210.

Global intangible low-taxed income, or GILTI, creates a minimum annual tax on controlled foreign corporations operating in low taxing countries. This applies to all U.S. owners of foreign GILTI companies including C-corporations, S-corporation, LLC, and even individuals. If a foreign country’s tax is above 13.125% then in general there’s no GILTI.  However, if a foreign country’s tax rate is below 13.125% then this tax will apply.  Assume a country with 0% tax rate then the U.S. parent will pay 10.5% GILTI tax which will be reported and paid with the US tax return. This discourages U.S. companies from operating in low or no tax countries.

Finally under the new territorial tax system a US C-corporation only can exclude income earned by its foreign subsidiaries which is not subject to Subpart F income or GILTI tax.  For example, assume a U.S. C-Corporation has 100% ownership in a foreign entity and generates $1,000 profit with taxes of $150. The net cash of $850 can be repatriated back to the U.S. tax free as 100% dividend exclusion.  The U.S. C-corporation then distributes the $850 to its individual shareholders who only pay dividend rate tax of 23.8% federal plus state taxes.    This 100% foreign owned company dividend exclusion does not apply to U.S. parent companies who are S-corporation or LLC’s as well as individuals.

To discuss more about your international tax situation, please contact Hani Sharestan at (949) 910-2727.

 

WFY Grows Tax Department Before 2018 Tax Season

Wright Ford Young increases their firm with eight new hires: Michael Montgomery, Jennifer Nguyen, Karla Young, Alice Wang, Jeff Hwang, Linh Trinh, and Farheen Kolsy.  All these new hires are joining WFY’s tax department as tax staff or tax interns.  WFY is pleased to welcome these new hires to the WFY team.

Michael Montgomery

Joining the WFY tax staff is Michael Montgomery. Michael graduated from CSU Fullerton in 2015 and has a Bachelor’s degree in Business Administration, with a concentration on Accounting.  With his experience in accounting, he has mainly worked in offices that specialize in small businesses and individuals.  During the off season, Michael and his wife, Katie, enjoy traveling and attending Anaheim Ducks and Anaheim Angels games.

Jennifer Nguyen

Jennifer Nguyen graduated from CSU Fullerton last fall after interning with WFY last year. We welcomed Jennifer back to WFY as an addition to our tax staff. Jennifer plans to start studying for her CPA exams this year, and continues to foster kittens from WAGS Animal Shelter and Animal Services in Westminster.

Karla Young

Our third tax staff addition to WFY is Karla Young. She graduated from University of the Philippines with a degree in Development Studies. Karla is well versed in IT and Marketing, but switched to developing her career in accounting once she moved to Orange County. Other than developing her skills in accounting, she also likes to send out typewritten letters to friends and family.

Alice Wang

Alice Wang joins the WFY team as one of our newest tax staff.  She received her Master’s degree in Accounting from CSU Fullerton, and has worked in accounting for four years.  Outside of the office, Alice loves to read and travel.

Jeff Hwang

For the 2018 tax season, Jeff Hwang joins the WFY team as a tax intern. Jeff is currently attending CSU Fullerton and working on his Master’s degree in Taxation.  Other than practicing taxation, Jeff enjoys watching sports games and attending comedy shows.

Linh Trinh

Linh Trinh is starting with WFY as a tax intern in our tax department.  She’s currently attending CSU Fullerton and plans to graduate in the Spring of 2020 with her Bachelor’s degree in Accounting.  Other than working towards her degree, Linh is also an active member of Accounting Society at CSU Fullerton.

Farheen Kolsy

Our fourth tax intern to join our WFY tax department is Farheen Kolsy. She’s a senior on the road to graduating from CSU Fullerton in May of 2019 with a degree in Business Administration concentrating in Accounting. On her down time, Farheen likes to hang out with friends and hike.