berkowitz pollack brant advisors and accountants

Monthly Archives: November 2013

IRS Plans to Step Up Audits of Small Business Partnerships

Posted on November 19, 2013 by Joseph Saka

A recent article in Accounting Today reported that the head of the Internal Revenue Service’s Small Business Unit has announced that the group is expected to move from focusing on audits of small corporations to partnerships.

During a speech at the American Institute of CPAs’ National Tax Conference in Washington, D.C., last week, Faris Fink, the commissioner in charge of the IRS’s Small Business/Self-Employed Division reportedly told attendees that his unit would make a top priority of auditing the tax returns of partnerships and other pass-through entities. “The Service has for a long time focused its energy on corporations,” he said, according to Bloomberg’s Lydia Beyoud. “Frankly, we’re a little bit behind the curve in getting around to developing a partnership strategy.”

Part of that strategy will involve training agents at the IRS to look more closely at S corporations, partnerships and other pass-through entities, which now make up 95 percent of all U.S. businesses, according to figures from the IRS.

The IRS announced earlier this month that it is expanding its Fast Track Settlement program for small businesses, which helps them settle their back taxes with the IRS more quickly.


Berkowitz Pollack Brant has immense experience in dealing with IRS controversies, as well as the proper structuring of partnerships, joint ventures and other multi-entity projects. We are here to assist.


The Portability of Estate Tax Exemptions Can Help Couples Conserve Wealth by Eric Zeitlin

Posted on November 13, 2013 by Richard Berkowitz, JD, CPA

The individual exemption from federal estate tax, $5 million plus an adjustment for inflation, has become mobile. Any unused portion of this exemption previously died with the decedent. Now this long-stationary tax benefit is “portable” between spouses.

Under the American Taxpayer Relief Act of 2012, surviving spouses can add to their own individual exemption from federal estate tax any amount their deceased spouse never used. But beware – portability has some limitations. Titling assets, or legally identifying the owner or owners, in a haphazard fashion can dilute the benefits of portability. And while this new feature of tax law will simplify estate planning for some married couples, it may not eliminate the need for others to form a trust to control the assets in their estates.

In 2013 the individual exemption from federal estate tax is $5.25 million, including the upward adjustment for inflation. This means a married couple can exempt as much as $10.5 million of assets from the estate tax, which ranges as high as 40 percent, even if one spouse dies without using the full amount of his or her exemption. For example, if a widow inherits $7 million from her deceased husband, and $2 million of his individual exemption unused, she can add this unused portion to her $5.25 million exemption and avoid estate tax liability.

Portability can help married couples keep more of their hard-earned retirement dollars. Retirement accounts are ineligible for a tax benefit known as the “step-up in basis,” which is available to widows and widowers who inherit other types of assets from their deceased spouses. The estate of the decedent can “step up,” or increase, the cost basis of other assets to their fair market value at the time of death, thus limiting or eliminating tax liability on asset appreciation. Portability mitigates the absence of this favorable tax treatment for retirement accounts.

Read the fine print, though. Keep in mind that the individual exemption from estate tax is a “unified” amount. This means it can include any combination of three types of exemptions, not only from estate tax but from the gift tax and the generation-skipping transfer tax, which applies when grandparents transfer assets for the benefit of their grandchildren, for example. But while exemption from estate tax and gift tax is portable from spouse to spouse, exemption from the generation-skipping transfer tax is not. In addition, while exemption from federal estate tax is portable, exemption from estate tax at the state level is not.

Second marriages impose other limits. Federal law permits the portability of any unused exemption from estate tax only from your second spouse, not from the first one. In a second-marriage scenario, the death of your first spouse conceivably could mean that his or her unused exemption, if any, would never benefit anyone.

A key to effective estate planning is proper titling. For example, a grandmother who wants to make a grandchild or another non-spouse beneficiary the owner of her retirement account upon her death could do so by designating in writing that account assets are “payable on death” to that beneficiary. Similar terms to arrange post-mortem title transfers that bypass probate include “transfer on death” and “in trust for.” One common error is the failure to update legal documents designating beneficiaries as situations change. The death of a designated beneficiary, for example, would require designation of a new one.

Individuals can choose from several types of title in estate planning, including sole ownership of property. The property may go straight into a probate-governed estate unless title is qualified by such a term as “payable on death” to a designated beneficiary. If the form of ownership is joint tenancy with right of survivorship, however, the property will pass directly to the surviving spouse.

Married couples sometimes plan for a so-called “stand-by” trust when they arrange for a direct post-mortem transfer of jointly owned assets from one spouse to the other. A stand-by trust actually comes to life if trust ownership of the assets turns out to be superior to outright ownership by the surviving spouse. The surviving husband or wife funds a stand-by trust by signing a “disclaimer” document transferring assets inherited from the decedent to the trust.

A revocable trust is a form of ownership that subjects the handling of the assets to the terms of the trust, not a probate process, which is driven by state law. Another kind of title is known as “tenancy by the entirety,” or joint ownership under a marital agreement that prevents one spouse from selling the property without the consent of the other. This form of ownership is recognized in certain states, including Florida, and can provide a surviving spouse with substantial protection from creditors pursuing claims on assets of the deceased spouse.

Our financial planners are adept at helping families navigate the complex rules and maximizing opportunities presented by estate planning laws.




About the Author: Eric Zeitlin is the managing director of Provenance Wealth Advisors, RJFS and an affiliate of Berkowitz Pollack Brant. For more information, contact us at 515 E. Las Olas Blvd 5th FL, Ft.Lauderdale, FL 33301, or 954-712-8888.


RJFS is independent of Provenance Wealth Advisors and does not provide tax or legal advice.






Valuable Art Can Expose Heirs to Estate Tax Rates Up To 40 Percent by Joseph L. Saka

Posted on November 07, 2013 by Joseph Saka

One picture may be worth a thousand words, but without proper documentation, artwork appraisals for tax purposes are subject to rejection and revision by the Internal Revenue Service. Putting reliable appraisal numbers on tax returns is critical for tax compliance. Only what the IRS considers a “qualified appraisal” is sufficient to justify taxpayer claims of art values in tax returns.

A qualified appraisal report for artwork that complies with the IRS standard includes a thorough description of the work and its condition, photographs of the work, identification of the artist, the appraisal date and appraisal method. The report also must disclose whether the appraiser determined the fair market value of the artwork for income tax or estate tax purposes. Hire appraisers who belong to professional associations that embrace the Uniform Standards of Professional Appraisal Practice, or USPAP, developed by the Appraisal Foundation in Washington, D.C.

Art valuation disputes with the IRS have various causes, among them volatile markets that drain market demand for artwork, authenticity debates that defy easy resolution, title issues that cloud ownership, and valuation discounts based on the planned sale of an entire art collection all at once, rather than one piece at a time.

Such disputes with the IRS can have an especially big impact on heirs of art collectors because they may owe up to 40 percent of the value of certain holdings in federal estate tax. The federal estate tax applies to estate holdings in excess of the individual lifetime exclusion of $5 million plus an adjustment for inflation, or $5.25 million this year, up from $5.12 million last year.

Taxpayers’ relationship to art affects their tax liability arising from art transactions. For example, taxpayers considered “collectors” or “investors” can qualify for a reduced capital gains tax rate if they hold a piece of art for a minimum period of time before selling it. According to the IRS, taxpayers who treat the purchase of art as a hobby are “collectors,” those who engage in commercial art sales are “dealers,” and those less interested in art than the profit it can produce are “investors.”

Avid art collectors can minimize the federal estate tax on their heirs by giving gifts of art and other assets to friends, family members and institutional recipients. Gifts are tax-free this year up to a maximum of $14,000 per recipient. Married couples can give away up $28,000 per recipient this year without incurring the federal gift tax, which has the same 40 percent maximum rate as the federal estate tax. Document all gifts by filing IRS Form 709 for each one. More importantly, the filing of a gift tax return starts the three-year statute that the IRS has in challenging the assessed value of the art.

Why wait for the art to appreciate before doing estate planning? We advise on various strategies for clients that may result in a freeze to their net worth. For instance, we may suggest for the patriarch to lend or gift cash to a trust for the benefit of the spouse or the children and then have the trust make the purchase of the art. Employing this idea would eliminate all future appreciation out of the hands of the patriarch and into the trust where, if done correctly, it would be free of estate tax.

The IRS will allow one of several appraisal methods, including those based on income and comparable sales. The income approach to determining fair market value relies on reasonable expectations of income from renting or leasing a piece of art. Comparable sales of similar artwork by a gallery or an auction house may substantiate a taxpayer-proposed valuation. Artwork typically commands lower prices at auction than in a retail gallery, and if a taxpayer-proposed art appraisal is based on auction results, that is probably closer to what the IRS considers to be “fair market value.”

Consider requesting a determination of value from the IRS for any work of art appraised at more than $50,000 in advance of filing a tax return. The IRS will provide a statement of value that can be included in income tax, gift tax and estate tax returns. Of course, art collectors can arrange appraisals of their own collections and put these values in tax returns.

The IRS can agree with a taxpayer’s appraisal of artwork or choose to obtain another appraisal. The federal agency retains 25 independent art dealers and other experts known as the Art Advisory Panel who review taxpayer-proposed art appraisals above $20,000 per piece and challenge valuations that appear too high or too low. The taxpayer fee for this IRS review service is $2,500 for one, two or three works of art and $250 each for additional work.

Art collectors can claim current tax deductions and reduce the future estate tax liability of their heirs by donating artwork to not-for-profit organizations. Special rules apply to claiming a charitable deduction on an income tax return for donating artwork. A taxpayer must get a qualified appraisal of the artwork at least 60 days before donating it in order to claim a deduction equal to the value of the donation.

Different motives tend to drive art collectors when they value a gift for tax purposes. A collector, for example, typically would be inclined to give as much as possible to a family member and to assign the lowest possible value to the gift to stay below the annual threshold of $14,000 per recipient, above which the gift tax applies. (The gift giver generally is responsible for paying the gift tax.) On the other hand, a typical art collector would be inclined to donate as little as possible to an art museum and to put the highest possible value on the donation to maximize a charitable deduction from income.

The IRS is fully aware of both tendencies, of course, and the agency is looking for signs of them in tax returns, so avoid misstating the dollar value of artwork to slice or sidestep a tax bill. The submission of fake appraisal information on a tax return is an invitation to costly consequences. Avoid fudging the figures. Intentional falsification of an appraisal summary for tax purposes subjects the violator to a civil penalty of $1,000 to $10,000 and the IRS may disregard the appraisal.

We assist many clients with their art collections as it relates to taxes and estate planning. The right moves can make a big difference.

About the Author: Joseph L Saka CPA/PFS is the director in charge of Tax and Estate Planning Services at Berkowitz Pollack Brant. For more information, call (305) 379-7000 or e-mail

Assurance and Attest Services Can Improve the Reliability of Financial Statements by Robert C. Aldir

Posted on November 04, 2013 by Robert Aldir

Critical to a business’s growth and success are the validity and relevance of its financial statements. Not only can financial information confirm a business’s operating efficiency, it can also provide a credible picture of the organization’s financial position. This gives lenders, creditors, investors and other stakeholders a way to make informed decisions regarding the extent of their involvement with the business.

For example, a lender may require a thorough analysis of a business’s financial position before granting a line of credit, or it may simply require a CPA to review the company’s financial statements or compile them in a prescribed format. Each stakeholder in a business should carefully consider their needs when evaluating the different types of assurance and attest services that are available. Therefore, it is important for businesses to understand what will be required of them in each circumstance.

There are three common types of assurance and attest services conducted by accountants: audits, reviews and compilations.


An audit is typically conducted when a third-party stakeholder requires the highest level of assurance that a business’s financial statements, as prepared under an accounting framework, are fairly stated in all material respects. It is a time-intensive undertaking that requires the business to employ the services of an independent CPA firm with knowledge of the company and the industry in which it operates.

During an audit, the CPA undergoes a formal risk assessment of the financial information being audited and develops an audit plan. An audit also includes evaluation of the organization’s internal controls over financial reporting. Once the audit plan is established, the CPA will then perform substantive testing procedures which may include:

  • -Detailed inspections of company records
  • -Direct confirmation of information with third parties
  • -Physical observations of inventory, processes operations
  • -Variance analyses
  • -Inquires of management and employees

In addition, the CPA will also corroborate information and assumptions used by a specialist when they derive material estimates and/or information that are used in the preparation of the financial statements in order to provide his or her expert opinion regarding the fair presentation of the business’s financial statements.

With the performance of the aforementioned procedures on a sample test basis and the inclusion of a formal risk assessment, auditors provide stakeholders of all varieties with reasonable assurance that financial information is presented fairly in all material respects.


A review is substantially less in scope than an audit. Reviews offer stakeholders limited assurance that financial statements are free of material misstatements. Like an audit, a review requires the services of an independent CPA who primarily performs inquiries of management and applies analytical procedures on financial data. These can include comparisons of current financial statements with those of prior periods and assessments of business ratios and indicators as compared with similar businesses within the same industry. This information is analyzed to determine if there are any material modifications that should be made to the financial statements to be in accordance with a specified framework.

Unlike an audit, a review does not require a CPA to conduct a formal risk assessment, understand internal controls over financial reporting or to perform substantive procedures to corroborate information. However, if during a review engagement the CPA is made aware of information that is materially incorrect, incomplete or otherwise unsatisfactory, he or she must apply additional procedures to achieve a sufficient understanding of the matter in order to provide limited assurance that no material modifications are necessary to conform the financial statements with the specified financial reporting framework.


The most basic level of attest services is a compilation engagement in which a CPA, who may or may not be independent of the business, assembles financial statements in a format that is in accordance with a specified financial reporting framework. In the event the CPA is not independent, the CPA’s lack of independence is disclosed in the compilation report.

A compilation does not require the CPA to express his or her opinion nor provide any assurance that the financial statements are fairly stated in accordance with the applicable financial reporting framework. However, there are steps to take if the CPA performing the compilation is made aware that the financial information is materially incorrect, incomplete or otherwise unsatisfactory. These include discussions with management, understanding management’s conclusions and determining if there is a material departure from the applicable financial reporting framework. The CPA may modify his or her compilation report based on the results of the discussion and whether the matter is resolved.

At Berkowitz Pollack Brant we have extensive experience providing audit, review and compilation services for companies of all sizes.

About the Author: Robert C. Aldir is a senior manager in the Audit and Attest Services Practice of Berkowitz Pollack Brant. For more information, call (305) 379-7000 or e-mail

Pin It on Pinterest

Menu Title