CBIZ MHM Executive Education Series How Private Companies

CBIZ & MHM Executive Education Series™ How Private Companies can be Prepared for Tax Reform Accounting Mark Winiarski & Nate Smith December 11, 2018 Questions? Email cbizmhmwebinars@cbiz. com 1

About Us • Together, CBIZ & MHM are a Top Ten accounting provider • Offices in most major markets • Tax, audit and attest and advisory services • Over 2, 900 professionals nationwide A member of Kreston International A global network of independent accounting firms MHM (Mayer Hoffman Mc. Cann P. C. ) is an independent CPA firm that provides audit, review and attest services, and works closely with CBIZ, a business consulting, tax and financial services provider. CBIZ and MHM are members of Kreston International Limited, a global network of independent accounting firms. Questions? Email cbizmhmwebinars@cbiz. com 2

Before We Get Started… • Use the control panel on the right side of your screen to: • Change your audio mode • Submit questions • Download handouts • If you need technical assistance: • Call support at 877 -582 -7011 • Email us at cbizmhmwebinars@cbiz. com Questions? Email cbizmhmwebinars@cbiz. com 3

CPE Credit This webinar is eligible for CPE credit. To receive credit, you will need to answer polling questions throughout the webinar and be joined for the entire webinar time. External participants will receive their CPE certificates via email within 15 business days of the webinar. Questions? Email cbizmhmwebinars@cbiz. com 4

Disclaimer The information in this Executive Education Series course is a brief summary and may not include all the details relevant to your situation. Please contact your service provider to further discuss the impact on your business. Questions? Email cbizmhmwebinars@cbiz. com 5

Presenter Located in our Kansas City office, Mark is a member of our Professional Standards Group (PSG). Mark's role includes instructing in our national training program, presenting as a subject matter expert at webinars and conferences, and preparing MHM publications on accounting and auditing issues. As a PSG member, Mark consults with clients and engagement teams across the country in many areas of accounting and auditing. MARK WINIARSKI, CPA MHM Shareholder Mark has served clients as an auditor, consultant and advisor in numerous industries including manufacturing, distribution, mining, retail sales, services and software. 816. 945. 5614 • mwiniarski@cbiz. com • @KCWini Questions? Email cbizmhmwebinars@cbiz. com 6

Presenters Nathan Smith is a Director in the CBIZ National Tax Office, bringing over 20 years of experience in public accounting to provide technical support and strategic solutions for the firm’s tax practice. Nathan leads the development of practice aids and tactical approaches used in responding to industry and Federal tax developments in a variety of subject matter areas. Nathan also consults nationally to facilitate delivery of client service opportunities and solutions, contributes as an author and editor to the firm's tax thought leadership publications and assists with the development and implementation of national tax policies and Nathan Smith, CPA Director, CBIZ National Tax Office Questions? Email cbizmhmwebinars@cbiz. com procedures. 727. 572. 1400 • nate. smith@cbiz. com 7

Agenda 01 Overview 02 Applying Accounting Standards 03 Tax Changes Relevant to Ongoing Accounting 04 Other Accounting Issues Questions? Email cbizmhmwebinars@cbiz. com 8

OVERVIEW Questions? Email cbizmhmwebinars@cbiz. com 9

Tax Reform Timeline Dec. 22, 2017 Dec. 31, 2017 Dec. 22, 2018 • President Trump signs conference committee tax reform bill into law • Impact of the tax bill is accounted for in period end financial statements • Measurement period for the effects of the tax bill ends Questions? Email cbizmhmwebinars@cbiz. com 10

TCJA aka H. R. 1 • Over 150 changes to provisions in the tax code, impact everyone: • • Corporations Pass-through entities Not-for-profits Individuals Questions? Email cbizmhmwebinars@cbiz. com 11

Big Picture Reform • The bill’s primary provisions are: • A 40 percent cut to the corporate tax rates • A new 20% deduction for many owners of pass-through entities • Temporary tax cuts for individuals, expiring after 2025 • Transition to a Territorial System with a deemed repatriation tax and anti base erosion provisions Questions? Email cbizmhmwebinars@cbiz. com 12

APPLYING ACCOUNTING STANDARDS Questions? Email cbizmhmwebinars@cbiz. com 13

When do you Recognize TCJA Changes? US GAAP requires tax law changes to be recognized as of the date of enactment. Questions? Email cbizmhmwebinars@cbiz. com Discrete Item Dec. 22, 2017 14

What Does Recognition Mean? • Applicable for interim and annual financial statements dated December 31, 2017 • All Deferred tax positions need to be adjusted • Certain payables/receivables may need to be recorded • Valuation allowances need to be revisited • Expanded disclosures may be necessary • Internal controls will need to be assessed to ensure compliance with the reporting requirements Questions? Email cbizmhmwebinars@cbiz. com 15

Accounting by Pass-through Entities • Generally no effect, however a distribution can occur when a pass-through agrees to pay, or pays, directly a shareholder tax • S-Corporation that becomes jointly obligated for mandatory repatriation tax • Unrelated to the TCJA, a partnership by default pays a tax under the rules for audits of partnerships Questions? Email cbizmhmwebinars@cbiz. com 16

Measurement Period - Three Scenarios – SAB 118 • Measurement is complete Up to One Year Measurement Period • ASC 740 disclosures apply • Measurement is not complete, but a “reasonable estimate” can be made • ASC 740 and SAB 118 disclosures apply • Recognize revisions to estimates as a discrete item in the period they are made • A “reasonable estimate” can not be made • ASC 740 and SAB 118 disclosures apply Questions? Email cbizmhmwebinars@cbiz. com Apply H. R. 1 Apply Prior Tax Law 17

Staff Accounting Bulletin 118 – Disclosure Requirements Required Disclosures – Applied by individual tax effect • Qualitative information of the income tax effects for which the • • accounting is incomplete Items reported as provisional amounts Existing current or deferred tax amounts which measurement has not been completed Reason accounting is incomplete Information that needs to be obtained, prepared or analyzed to complete the accounting Nature and amount of measurement period adjustments recognized in the period Effect of measurement period adjustments on the effective tax rate When accounting has been completed Questions? Email cbizmhmwebinars@cbiz. com 18

What About Private Companies? • FASB Staff Q&A • Based upon longstanding practice of private companies electing to apply SABs the FASB would not object to a private company or not-for-profit applying the provisions of SAB 118 • Not Piecemeal • Must apply all of SAB 118, including disclosures • Disclose accounting policy • i. e. ASC 235 -10 -50 -1 through 50 -3 Questions? Email cbizmhmwebinars@cbiz. com 19

ASU 2018 -02 Accumulate Other Comprehensive Income Reclassification • Elections to reclassify “stranded” tax effects in AOCI to retained earnings: • Direct effect of the change in corporate income taxes • i. e. Remeasurement from 35% to 21% • Other effects of the tax cuts and jobs act • Repatriation tax • State tax effect, etc. • Disclosure of whether the election was made or not, and the other effects that were elected to be reclassified (if any) • Effective for fiscal years beginning after December 15, 2018, early adoption permitted • Apply on a modified retrospective or retrospective method Questions? Email cbizmhmwebinars@cbiz. com 20

Stranded Tax Effect Example • Assume a corporation holds an available-for-sale security. Assume the security was purchased on January 1, 2017 and the following facts: • Purchase price: $1, 000 • Unrealized gain as of December 21, 2017: $400, 000 • Unrealized gain as of December 31, 2017: $350, 000 Questions? Email cbizmhmwebinars@cbiz. com 21

Stranded Tax Effect Example End of Year DTL of $84, 000 Tax Rate of 37% Questions? Email cbizmhmwebinars@cbiz. com 22

Stranded Tax Effect Example • Reclassify the direct effect of the tax cuts and jobs act: • $56, 000 related to the decrease in the federal tax rate • Had the company recognized state income tax of 6% the company would have recognized the following: Indirect Effect: $3, 360 Questions? Email cbizmhmwebinars@cbiz. com 23

ASU 2018 -02 Presentation Adoption of ASU 2018 -02, reclassification of ($316) for net losses and past service liability for defined benefit plan and $57 for unrealized gains on AFS securities from AOCL to RE for stranded tax effects resulting from the newly enacted Federal corporate income tax rate from 34% to 21% 1 Questions? Email cbizmhmwebinars@cbiz. com 24

TAX CHANGES RELEVANT TO ONGOING ACCOUNTING Questions? Email cbizmhmwebinars@cbiz. com 25

Alternative Minimum Tax AMT credit carryforwards offset regular tax and become refundable • 50% of the excess minimum tax credit for 2017 -2020 • 100% of the excess after 2021 AMT credits expected to be realized may now be recorded as a receivable. Questions? Email cbizmhmwebinars@cbiz. com 26

Conversion to Territorial Tax System • 15. 5% Tax on cash and cash equivalents; 8% tax on illiquid assets for accumulated foreign earnings of: • Controlled Foreign Corporation (CFC) > 50% US ownership • Foreign entities with a 10% or greater US Corporate ownership • Tax is payable over eight years • Do not impute interest Disclose a five-year maturity table? Questions? Email cbizmhmwebinars@cbiz. com 27

Is the Reinvestment Assertion Still Valid? The assertion of indefinite reinvestment of accumulated undistributed earnings may still be necessary to avoid recognized deferred taxes for items such as: • Section 986(c) currency gains/losses • Foreign withholding taxes • State tax Questions? Email cbizmhmwebinars@cbiz. com 28

Base Erosion Anti-Abuse Tax (BEAT) In essence an alternative tax computed after removing certain deductions for payments made to foreign related parties • No tax credit carryforwards • Applies to corporations with annual gross receipts of more then $500 million Account for it like AMT • It is a discrete item when BEAT applies • Does not impact the tax rate for deferred taxes Questions? Email cbizmhmwebinars@cbiz. com 29

Global Intangible Low-Taxed Income (GILTI) Tax designed to reduce shifting of income to foreign tax jurisdictions • Applicable to net income of a CFC that exceeds a defined rate of return Account for it like Subpart F Income • May result in deferred tax items • Policy choice whether accounting for it in deferred taxes is appropriate Questions? Email cbizmhmwebinars@cbiz. com 30

Expanded Deductions • Depreciation Rules • Bonus Depreciation • Expansion of Section 179 • Recovery period • Family and medical leave credits • Incentives for qualified opportunity funds Questions? Email cbizmhmwebinars@cbiz. com 31

Deduction Limitations § Exec comp/Equity based comp § $1 million limitation public companies and not-for-profits § Interest expense § 30% of adjusted taxable income § Excludes businesses with gross receipts < $25 million and certain contractors/developers Deduction Eliminations § Fringe benefits § Entertainment § Sexual harassment settlements § Luxury auto § Elimination of Domestic Production Activities Deduction (DPAD) Questions? Email cbizmhmwebinars@cbiz. com 32

Other Significant Changes § Foreign tax credits § Cash method of accounting expansion § Available for all taxpayers with average annual gross receipts over the prior 3 years of $25 million or less § Research cost amortization § Post 2021 Questions? Email cbizmhmwebinars@cbiz. com § Contributions of capital § Customer contributions are taxable § Like-kind exchange limitations § Only applies to real property § NOL Carryforwards § Indefinite lived § Limited to 80% for amounts incurred post-2017 33

Revenue and Applicable Financial Statements Revenue Recognition Conformity • Revenue is taxable the sooner of: • Tax rules (all events test), or • Applicable financial statement • Revenue is allocated as done in the applicable financial statements • Ignore the contractual allocation • Revenue for income tax purposes could be accelerated or deferred Questions? Email cbizmhmwebinars@cbiz. com 34

Change in Entity Type Account for the change at a point in time • Voluntary with approval When approved • Voluntary without approval When filed • Change in tax law enacted Questions? Email cbizmhmwebinars@cbiz. com When 35

OTHER ACCOUNTING ISSUES Questions? Email cbizmhmwebinars@cbiz. com 36

Unrecognized Tax Benefits Recognize based on the enacted rate when the uncertainty arises. Questions? Email cbizmhmwebinars@cbiz. com 37

Valuation Allowance • Sources of taxable income: • Reversal of temporary differences • Expected future income (excluding temporary differences) • Tax strategies • Carrybacks Questions? Email cbizmhmwebinars@cbiz. com No More NOL Carrybacks 38

Valuation Allowance • Anticipate • Interest limitations • Permanent differences • Entertainment expenses Questions? Email cbizmhmwebinars@cbiz. com § Net Operating Losses § If there is taxable income to utilize § Indefinite lived DTLs § Don’t forget the 80% limitation utilization of NOLs 39

? QUESTIONS Questions? Email cbizmhmwebinars@cbiz. com 40

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If You Enjoyed This Webinar… Upcoming Courses: • 12/14: Revenue Recognition Check-In for the Construction Industry • 12/17: Revenue Recognition Check-In for the Technology Industry • 12/19: Key Issues Facing Public Companies in 2019 – SEC and PCAOB • 1/10: Fourth Quarter Accounting and Financial Reporting Issues Update Recent Publications: • IRS Unveils Sequel to Offshore Voluntary Disclosure Program • FASB Releases Consolidation Relief • Brace for Accounting Challenges if there’s an Infrastructure Boom • 2019 Tax Rates and Inflation-Adjusted Figures Released Questions? Email cbizmhmwebinars@cbiz. com 42

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