January 19th TOPIC:
HOW WILL THE ELECTION RESULTS CHANGE YOUR FINANCIAL DECISIONS?
Rives & Associates, LLP cordially invites you to attend Bases Covered, a free seminar addressing issues of tax, financial and legal considerations for individuals and business owners.
This one-hour seminar will cover key topics in Taxation, Financial Planning and Law. The event is free and includes lunch. The intent of the seminar is to provide essential updates and considerations for individuals and business owners. A limited number of seats are available. Please register early to ensure you do not miss out on this exceptional learning opportunity.
Date: January 19, 2017
Time: 12:00 pm – 1:30 pm
Location: McCormick & Schmick’s, South Park Mall
4335 Barclay Downs Drive, Charlotte, NC 28209
Register: please send your RSVP to Haley@yourncattorney.com
Aaron Patel, CPA
Certified Public Accountant
COO Tax Services
Rives and Associates, LLP
Matthew T. Marcellino
Partner, Founding Member
Marcellino & Tyson, PLLC, attorneys at law
Hogan Fulghum, CFP®
Financial Advisor I Franchise Owner
CERTIFIED FINANCIAL PLANNER™
Business Financial Advisor
Catalyst Financial Group™
A financial advisory practice of Ameriprise Financial Services, Inc
Check In: 11:45am – 12:00pm
Agenda: 12:00pm – 12:05pm Welcome and Introductory Remarks
12:05pm – 12:25pm 2016-2017 Tax Update and Trump Proposed Tax Plan
12:25pm – 12:45pm The Elections effect on the Market and the Economy
12:45pm – 1:05pm Trump’s Supreme Court and You
1:05pm – 1:30pm Q&A
On November 1, 2016 the IRS issued Notice 2016-66 Transaction of Interest — Section 831(b) Micro-Captive Transaction.
The Department of the Treasury (Treasury Department) and the Internal Revenue Service (IRS) recently issued Notice 2016-66 regarding “Transactions of Interest” related to §831(b) Micro-Captive insurance companies. This notice will have significant effects on the reporting requirements of §831(b) captives and the taxability of transactions that the IRS considers “Transactions of Interest”. This memo serves to highlight the most important points of the notice.
At a high-level, the IRS is attempting to curtail the use of §831(b) captives for those taxpayers using them as potential tax avoidance or evasion structures. The IRS recognizes that there are §831(b) captives used for legitimate business risk purposes by other small insurance companies, but has identified particular “transactions” that could be challenged by the IRS, potentially resulting in penalties to the taxpayer or, at the very least, additional reporting requirements by the taxpayer. The IRS is seeking a way to separate the “good” captives from the “bad” captives, but they need more information and time to do so.
Unfortunately, as with any tax position, those who push the line hard, can get burned. As long as the captive and its advisors are following the code, there should not be a cause for concern, it is just a matter of disclosure.
Here is a summary of what this notice means to you and your clients. All situations are unique so we recommend you reference Notice 2016-66 for further information or contact us to discuss any questions you have.
The transaction of interest involves an owner, an insured, and a captive insurance company (and possibly an intermediary company if a fronting arrangement is used). If these parties engage in an insurance transaction with certain characteristics, the transaction will require additional reporting requirements.
The characteristics of the transaction are as follows:
• “A” owns an interest in an entity or group of entities (the “Insured”);
• The Insured enters into an insurance contract with the “Captive” (or with an intermediary company which then reinsures with the Captive);
• The Captive makes an election under §831(b) to be taxed only on net investment income;
• A, the Insured or a combination of both either directly or indirectly own 20% of the voting power or value of the outstanding stock of Captive; and
• One or both of the following apply
o The amount of liabilities incurred by the Captive for insured losses and claim administration expenses during the past 5 years (i.e. the “Computation Period”) is less than 70% of the premiums earned over the same 5-year period (less policyholder dividends); OR
o The Captive returned any portion of the premiums to A, the Insured or a related party in a transaction that did not result in income or gain to the recipient. (E.g. a loan).
For entities and individuals engaging in these “Transactions of Interest” on or after November 2, 2006, they must disclose the transaction within 90 days – by January 30, 2017 – to avoid incurring significant financial penalties.
The required disclosures (using IRS Form 8886, Reportable Transaction Disclosure Statement) include but are not limited to the following:
• A description of all the type(s) of coverage provided by the Captive;
• A description of how the premiums for coverage provided by the Captive were determined;
• Under what authority the Captive is chartered;
• A description of any claims paid by the Captive;
• A description of the assets held by the Captive
While the Captive must provide the most detailed information, all parties to the transaction of interest must report to the IRS. If multiple owners and multiple insured are involved, the reporting requirements could be significant because all parties must report the required information.
The IRS did not provide information as to whether one IRS form 8886 would be filed to include all years applicable to this notice or if multiple 8886’s would have to be filed for all years applicable, one for each year. We are hoping that the IRS will provide additional guidance in this area. Also, they did not specify whether the 2016 tax year information would need to be included with the filings due January 30, 2017 or if the 2016 information, and form 8886, would be filed with the 2016 tax returns by their due dates in 2017. Once we have received additional guidance from the IRS we will pass this information along to our clients.
Under §6707(A), the penalties for failure to disclose in a timely manner the required information described in Notice 2016-66 is as follows:
• 75 percent of the decrease in tax shown on the tax return resulting from the transaction of interest (or which would have resulted from such transaction if such transaction were respected for Federal tax purposes)
• The minimum penalty with respect to any reportable transaction is not less than $5,000 for an individual and $10,000 in any other case
• The maximum penalty with respect to any reportable transaction is $10,000 for an individual and $50,000 in any other case.
The IRS may also impose accuracy-related penalties under §6662A related to the reportable transaction. The amount added to the tax already owed for any taxable year is 20 percent of the reportable transaction understatement, where “reportable transaction understatement” means the sum of –
• the amount of increase (if any) in taxable income resulting from the difference between the proper tax treatment of the reportable transaction and the taxpayer’s actual treatment of the same transaction on his or her tax return; multiplied by the highest rate of tax imposed by the federal tax code; and
• the amount of the decrease (if any) in the aggregate amount of tax credits determined under subtitle A which result from a difference between the taxpayer’s treatment of the reportable transaction on his or her tax return and the proper tax treatment of such transaction.
In the case of a “material advisor”, which means any person who provides material aid, assistance, or advice with respect to organizing, managing, promoting, selling, implementing, insuring, or carrying out any reportable transaction, and who receives gross income (directly or indirectly) in excess of $10,000 for performing these acts for individual (or $25,000 in any other case), the penalties under §6707(a) for failure to provide the required information pertaining to the reportable transaction are as follows:
• $50,000 with respect to any failure; OR
• If the transaction is a listed transaction, the greater of:
o $200,000, OR
o 50 percent of the gross income derived by the material advisor with respect to aid, assistance, or advice that was provided with respect to the listed transaction
o If the failure to provide the required information is intentional, “75 percent” is substituted for “50 percent” above
We recognize that most of our §831(b) Micro-Captive insurance companies will be affected by this notice and will be required to file IRS Form 8886. Due to the recent release of the notice, we are continuing our analysis of its impact and determining how to most efficiently comply with its requirements. We will continue to reach out to our clients as we learn of new developments.
Many are concerned about this notice. However, the IRS has been attacking the captive industry and primarily captives making an 831(b) election for the past 3-5 years. In the meantime, legislation has been passed to increase the maximum direct written premiums election amount to 2.2 million for the year 2017 from the current limit of 1.2 million.
By acknowledging there is the potential for abuse, the IRS is acknowledging the legitimacy of the election and doing business as an entity making the election. The IRS noted micro-captives on its “Dirty Dozen” list last year (along with §401(k) plans). The IRS could have determined that a §831(b) election was a listed transaction as opposed to a transaction of interest, which would have been a worse classification.
In addition, the IRS, has lost the past three large cases involving captives, being Securitas, RVI, and Rent-a-Center. The IRS is requesting information that is already provided to state regulators.
There are players in the micro-captive industry who unfortunately have tainted the industry. So long as captives are engaging in arm’s length priced transactions supported by actuarial analysis, as well as making prudent investments on behalf of the captive, and complying with all aspects of the IRS Code. There should be little cause for concern.
If you have any questions please contact someone in our Insurance Service Group.
With the end of 2016 right around the corner, many business owners are looking at ways to adjust their spending habits in order to meet cash flow demands. In this blog, we share four common expenses that are usually cut early. Unfortunately, cutting costs in these areas can have a negative effect on growth and strategies heading in to the new year.
On Friday, May 6, 2016, Rives & Associates LLP Partner, J. A. (Jay) Lesemann, Jr. CPA CGMA and the 2017 Chair-Elect of the Lake Norman Chamber of Commerce, will help bring the 2016 Small Business Week to a close by announcing the Lake Norman Chamber of Commerce Small Business of the Year. The event will be held at the Lake Norman Chamber of Commerce located at 19900 West Catawba Avenue, Cornelius, NC 28031. The public is invited.
Additionally and in conjunction with the National Small Business Week (May 1st – May 7th), the Partners and Staff of Rives & Associates, LLP wants to personally thank each and every small business across America. Entrepreneurs started this nation and we celebrate this important week along side you. National Small Business Week has been recognized every year starting with 1963. The proclamation issued by the President of the Untied States recognizes the contributions that are made by all of America’s entrepreneurs and small business owners.
About Rives & Associates:
Rives & Associates, LLP with offices in Charlotte, Huntersville, Lexington and Raleigh is focused on the delivery of consulting, tax, and attest services to small and middle market companies, governmental entities, and non-profit organizations. Rives & Associates, LLP was named the 2014 US Captive Insurance Company CPA Firm of the Year, recognized as the fastest growing CPA ever by Triad Business Journal, among other honors. For more information, visit us at www.RivesCPA.com.
At Rives, we are different – and we like it like that!
Rives & Associates, LLP is excited to announce Jennifer Cantey received her Certified Public Accountant License in the State of North Carolina in February 2016! Jennifer Cantey, CPA joined the Raleigh office in August 2014 as an audit associate, working primarily in audit and assurance engagements in various industries, including HUD and affordable housing, single audit, captive insurance, governmental, and not-for-profit entities.
Way to go Jennifer!
Diana Hill was recently nominated to serve a one year term as a Young CPA Ambassador for the NCACPA. As an ambassador, Diana will promote young CPA activities and events within the association and will work with other ambassadors to encourage colleagues to become engaged with the NCAPCA. Diana is a Senior Audit Associate working in the Raleigh Office of Rives & Associates, LLP. Congrats Diana!!!
Rives & Associates, LLP is excited to announce Aaron Patel and Evan Rives have been promoted to Partners of the Firm!
Rives & Associates, LLP is pleased to announce Aaron Patel, CPA and Evan Rives, CPA, CGMA have been promoted to Partner Positions in the firm. Evan and Aaron have demonstrated the leadership, motivation, people skills and financial expertise necessary to excel. They have been with the firm for many years, and have been instrumental in the Firm’s growth. We believe in growing talent from within, and promoting strong leaders to partners. Aaron and Evan will add expertise at the partner level within their niches.
Aaron will be the Chief Operating Officer of Tax Services at the Firm and will continue to be the leader in the Charlotte Office. Under Aaron’s leadership the Charlotte office has grown significantly. Aaron’s expertise ranges from Affordable Housing Audits, to High Level Tax Planning for business owners, to Outsourced CFO services. Aaron will be charged with overall firm practice management monitoring and implementation.
Aaron is a proud alumni of the University of North Carolina at Charlotte where he received bachelor degrees in Accounting, Management and Finance. He is a licensed financial advisor and a board member of the Carolinas Council for Affordable Housing.
Aaron currently lives near downtown Charlotte with his wife Michelle and newborn daughter Nora.
Evan will be a partner in charge of assurance engagements ranging from middle market privately held companies to governmental audits. Evan is widely known in governmental circles and also has a depth of experience in Internal Controls Systems Consulting, Employee Benefit Plans, and Internal Audit. Evan will be leading new training initiatives at the Firm as well!
Evan is a proud alumni of the University of North Carolina at Wilmington with bachelor degrees in Accounting and Finance.
Evan resides in High Point with his wife, Megan and two children, Camden and Holden.
About Rives & Associates:
Rives & Associates, LLP delivers unsurpassed value to their clients. We provide timely, prudent and strategic advice, and that’s why we enjoy long relationships with our clients. We service numerous industries including mutual and captive insurance companies, HUD and Affordable housing corporations, governmental auditing including public school boards of education and municipalities, charter schools, non-profits among others industries. For more information, visit us at www.rivescpa.com
At Rives, we are different, and we like it like that!