berkowitz pollack brant advisors and accountants

Monthly Archives: March 2015

Employers Get Retroactive Extension to Apply for 2014 Work Opportunity Tax Credit by Karen A. Lake, CPA

Posted on March 30, 2015 by Karen Lake

Employers who hired qualified veterans or members of certain disadvantaged groups in 2014 and missed the 28-day period to apply for a Work Opportunity Tax Credit (WOTC) now have until April 30, 2015, to claim the credit equal to $1,200 and $9,600 per qualifying employee.

 

The WOTC, established to remove barriers to employment for specific groups of eligible workers, requires employers to obtain certification that employees are, in fact, members of a targeted group.  In addition to completing a pre-screening notice for each new employee on or before the day the individual is offered employment, employers were required to submit Form 8850, Pre-Screening Notice and Certification Request for the Work Opportunity Credit to their State’s Workforce Agency (SWA) within 28 days following the qualifying employee’s first day on the job.

 

With the newly announced application extension, the IRS is waiving the original 28-day deadline to apply for the federal tax credit equal to up to 40 percent of a qualifying employee’s first year wages. Businesses that missed the deadline or were sitting on the fence in 2014 now have until April 30 to retroactively submit Form 8850 for all eligible employees hired in 2014.

 

About the Author: Karen A. Lake, CPA, is associate director of Tax Services with Berkowitz Pollack Brant.  She can be reached at the Miami CPA firm’s office at (305) 379-7000 or via email info@bpbcpa.com.

 

Remember Foreign Income when Filing 2014 Tax Returns by James W. Spencer, CPA

Posted on March 26, 2015 by James Spencer

The Internal Revenue Service requires all U.S. citizens and residents to report their worldwide income on their annual tax returns. This includes U.S. citizens as well as resident aliens who worked overseas or received income above certain thresholds from foreign sources, including foreign trusts and foreign bank and securities accounts. Generally, a taxpayer’s age, income and filing status determine whether he or she must file a return. For 2014, the filing requirements include the following:

 

Single:                                    $10,150

Single over 65:                        $11,700

Head of Household:                $13,050

Head of Household over 65:   $14,600

Qualifying Widow:                   $16,350

Qualifying Widow over 65:      $17,550

Married Filing Jointly:              $20,300 (different thresholds apply for married couples living separately, or when one or both spouses are over 65)

Married Filing Separately:       $3,950

 

While the requirement to file an annual U.S. tax return applies equally to taxpayers living stateside or in another country, those taxpayers who live and work abroad may be able to claim the Foreign Earned Income Exclusion and exclude up to $99,200 of wages and other foreign earned income in 2014. Additionally, U.S. citizens and resident aliens who paid income taxes to a foreign country may be able take a tax credit or deduction and ultimately reduce their U.S. tax liability.

 

U.S. citizens, residents and member of the military who reside outside the country and cannot file their tax returns by the April 15 deadline may qualify for an automatic two-month extension, provided they attach to their returns a statement explaining how they qualify for the extension. Additionally, U.S. taxpayers earning foreign income may file a paper Form 4868 or efile, showing their estimated tax liabilities, to receive a six-month filing extension.

About the Author: James W. Spencer, CPA, is a director in Berkowitz Pollack Brant’s Tax Services practice.  He can be reached in the Miami CPA firm’s offices at 305-379-7000 or via email at info@bpbcpa.com.

 

 

IRS Asking Taxpayers to Verify their Identities by Joseph L. Saka, CPA/PFS

Posted on March 24, 2015 by Joseph Saka

In an effort to stem the rise in tax-season identity theft, the Internal Revenue Service is mailing letters asking some taxpayers to verify their identities through the IRS’s Identify Verification Service website. Taxpayers should be aware that this is not a scam. The correspondence is being sent via U.S. Postal Service only to those taxpayers that the IRS suspects are victims of identity theft.

 

Letter 5071C directs affected taxpayers to gather copies of their returns for the current and prior years and visit www.idverify.irs.gov to answer personally identifiable questions, for which only the taxpayer will know the answers. Alternatively, taxpayers may call a toll-free number listed in the upper corner of the letter. When using the latter method, callers should expect to wait for some time before speaking to an IRS representative.

 

Once a taxpayer’s identity is verified, he/she can confirm if he/she filed the return in question, and, if not, the IRS can assist in rectifying the problem at that time.

 

The IRS reminds taxpayers to be mindful of tax-season scams and remember that the IRS will never contact them via email or phone. Therefore, taxpayers should never share personally identifiable information via email or phone with anyone calling and claiming to represent the IRS.

 

About the author: Joseph L. Saka, CPA/PFS, is director in charge of the Tax Services practice at Berkowitz Pollack Brant. He may be reached in the Miami CPA firm’s office at (305) 379-7000 or via e-mail at info@bpbcpa.com.

 

 

Taxpayers Must Take Required Retirement Plan Distributions By April 1 Deadline by Rick D. Bazzani, CPA

Posted on March 23, 2015 by Rick Bazzani

Taxpayers who turned 70 ½ in 2014 must take the required minimum distributions (RMD) from their IRAs and employer-sponsored plans, such as 401(k)s, 403(b)s and 457s, by April 1, 2015.

 

The April deadline applies only to first-year RMDs. For all subsequent years, taxpayers must make a RMD by December 31. A taxpayer who takes his or her first RMD by April 1, must make a second distribution by the end of 2015. In addition, taxpayers who are still working can wait until April 1 of the year after they retire to take the RMD, if permitted by their retirement plans.

 

Calculating the RMD is based on the balance in one’s retirement plan on Dec. 31, 2013, and his or her life expectancy as of his or her 2014 birthday. Taxpayers must make this calculation for each IRA he or she owns, but the RMD may be taken from one or more of the accounts. Different calculations apply when a taxpayer is married to a spouse who is more than 10 years younger and is the taxpayer’s only beneficiary.

 

In most cases, failure to take a RMD by the deadline will result in a 50 percent penalty on the amount not withdrawn.

 

About the Author: Rick D. Bazzani, CPA, is a senior manager in Berkowitz Pollack Brant’s Tax Services practice. He can be reached in the firm’s Ft. Lauderdale CPA office (954) 712-7000 or at info@bpbcpa.com.

 

 

Combining Investment Strategies to Improve College Savings by Stefan Pastor

Posted on March 20, 2015 by Richard Berkowitz, JD, CPA

In the Fall of 2014, Florida families welcomed a new law that reverses the rapidly rising tuition costs at state universities. House Bill 851 freezes tuition at current rates, their lowest since 2007, and repealed a law that allowed the state’s public universities to ask the Board of Governors for annual tuition increases of up to 15 percent. As a result, the cost of a four-year, in-state prepaid plan has decreased to $27,379 for families that enroll this year, down from $53,729 in 2013.

 

While locking in lower tuition costs now represents significant savings for Florida families, these plans may not be enough to cover the higher education costs for those children who opt to earn a degree outside of the state or at a private university. In the future, tuition costs at these schools and other costs associated with a college education will almost certainly exceed the amount saved in a state-sponsored prepaid plan. With this in mind, Florida families should consider supplementing prepaid college plans with more flexible, self-directed 529 savings plans.

 

529 Plan Flexibility

529 savings plans allow parents, grandparents or other individuals to set aside money for a child’s future education. The plan invests the money in a portfolio of funds, where it grows tax-deferred and can be spent tax-free to cover a beneficiary’s eligible education expenses, including tuition, books, computers or a variety of other costs incurred in the child’s pursuit of higher education.

 

One of the greatest benefits of a 529 plan is the freedom it provides donors to select investment options that align with their unique needs and the flexibility to customize plans based on a beneficiary child’s age.

 

For example, donors may opt to allocate assets in an aggressive mix of investments that have the potential to yield high returns when a beneficiary is young and adjust this investment strategy to a more conservative asset allocation as the beneficiary nears college age. In this scenario, the donor will look to limit his or her risk and exposure to market dips during a beneficiary’s later years, when accumulated savings will have less time to recover from significant market declines than if they had occurred during the beneficiary’s early years. This ability to direct one’s own investment strategy provides a unique benefit that Florida Prepaid Plan alone cannot. Specifically, with a prepaid plan in Florida, donors will lock in costs and pay $27,379 in 2015 for a four-year future education at a state university or other school, rain sleet or snow. With a 529 plan, participants gain the ability to grow their investment to cover additional costs of higher education as well as tuition and other fees at universities, private colleges and graduate and or trade schools located anywhere in the country.

 

When establishing a 529 savings plan, it is important to note that the government recently changed its guidelines in how it considers 529 plans in calculating a student’s “need” for grants, scholarships or loans to help pay for college. Under new rules, the government assesses assets in 529 plans owned by students or titled in the student’s name under the Uniform Gifts to Minors Act (UGMA) and the Uniform Transfers to Minors Act (UTMA), at the same maximum rate of 5.64 percent it assesses parental assets. This is a significantly lower rate than the 20 percent at which the government assesses students’ assets when consider a family’s expected contributions to college costs.

 

529 Plans as Part of an Estate Plan

The estate-planning benefits of 529 plans are many. The assets held in these plans are protected from creditors and/or litigation and are allowed to grow and be withdrawn for college-related expenses tax free. Additionally, investing in these college savings plans allow donors to transfer money out of their taxable estate while providing beneficiaries with the gift of higher education. For Florida-sponsored 529 plans, the maximum amount a donor may contribute is $418,000. Should there be unused money in these accounts, donors may transfer these funds tax-free to subsequent generations, to other future college students or to themselves, should they consider going back to school.

 

The one caveat that 529 plan donors must consider are the ordinary income taxes and penalties they will incur if they withdraw assets for non-education related expenses.   For this reason, donors must plan strategically from the onset and consider that 30 years into the future they may have a lower tax rate. Should they pull out funds at this time, the taxes they will pay could be negligible.

 

With the benefits of 529 plans come the responsibilities donors must assume to evaluate the risks and rewards of each investment option. Furthermore, donors must balance that information against the investment time horizon and their unique financial situation and goals.

 

By combining Florida Prepaid plans with 529 savings plans, strategic investors will be prepared to cover the costs of all of the possibilities their children or their family members will aspire to in the future.

 

Florida residents have until February 28, 2015, to sign up for a Florida Prepaid plan for the 2014-2015 plan year. A 529 plan can be opened at any time.

 

The advisors and financial planners with Provenance Wealth Advisors help families evaluate a broad range of investment strategies to meet their estate-planning and retirement- and education-saving goals.

 

About the Author: Stefan Pastor is a registered representative with Raymond James Financial Services and a financial planner with Provenance Wealth Advisors, an independent financial services firm affiliated with Berkowitz Pollack Brant Advisors and Accountants. He can be reached at (954) 712-8888 or via email at info@provwealth.com.

 

Securities offered through Raymond James Financial Services, Inc., Member FINRA/SIPC. Raymond James is not affiliated with and does not endorse the opinions or services of Berkowitz Pollack Brant Advisors and Accountants.

 

This material is being provided for information purposes only and is not a complete description,

nor is it a recommendation. Any opinions are those of Stefan Pastor and not necessarily those of Raymond James. You should discuss any tax or legal matters with the appropriate professional.

 

The information has been obtained from sources considered to be reliable, but Raymond James does not guarantee that the foregoing material is accurate or complete. Rules and laws governing 529 plans are varied and subject to change. There is a risk that these plans may lose money or not perform well enough to cover college costs as anticipated. Before investing, it is important to consider whether the investor’s or designated beneficiary’s home state offers any state tax or other benefits that are only available for investments in such state’s qualified tuition program. Investors should consult a tax advisor about any state tax considerations of an investment in a 529 plan before investing. The Florida Prepaid College Plan is guaranteed by the State of Florida.

Time for a Credit Check Up by Rick D. Bazzani, CPA

Posted on March 18, 2015 by Rick Bazzani

The start of a New Year is a perfect time for taxpayers to check their credit reports with the three major reporting agencies. Note only does this allow individuals the opportunity to recognize and address reporting errors that could impede efforts to secure a loan or new employment, it can also help individuals detect potential instances of identity theft and fraud.

 

Get a Free Credit Report

Individuals may receive one free credit report every 12 months from each of the three major reporting agencies (Equifax, Experian and TransUnion), by visiting www.annualcreditreport.com. This is the only website endorsed by the Federal government. Consumers may request reports from all three agencies at one time or spread out their requests between the three agencies throughout the year to better monitor their credit histories and spot mistakes or possible cases of identity theft.

 

Review for Accuracy

A credit report includes an individual’s personally identifying information as well as data culled from public records, past and current creditors, and lenders from which individuals applied for credit or loans. Mistakes can occur, but it is the consumer’s responsibility to spot them and take steps to correct them. For example, it is not uncommon for individuals to see their ex-spouses’ information or inquiries from companies they do not recognize on their credit reports. Moreover, debts – whether or not they have been settled – will remain on one’s credit reports for seven years from the date the account became delinquent.

 

Dispute Errors

Once consumers confirm that errors on their credit reports are, in fact, errors, they may dispute them by contacting creditors directly and/or the reporting agencies via the annualcreditreport.com website. When additional documentation is required to support a disputed item, consumers should take extra care to send those papers via certified mail to ensure receipt by the intended recipients.

 

Credit plays an increasingly significant role in consumers’ lives. Lenders, business partners and even potential employers rely on credit reports and related three-digit credit scores to measure the risk of working with an individual. Taking the time regularly to review their credit reports and correct errors could mean the difference between an individual securing or loosing a loan, line of credit, business contract or new job.

 

About the Author: Rick D. Bazzani, CPA, is a senior manager in Berkowitz Pollack Brant’s Tax Services practice. He can be reached in the firm’s Ft. Lauderdale CPA office (954) 712-7000 or at info@bpbcpa.com.

 

Are You at Risk of the AMT? by Jeff Mutnik, CPA/PFS

Posted on March 16, 2015 by Jeffrey Mutnik

The dreaded Alternative Minimum Tax (AMT) aims to limit the benefits, such as deductions and credits for certain expenses,that taxpayers may otherwise use to reduce their taxable income.  It is considered an extra tax, with its own set of rules and rates, which some taxpayers must pay above their standard income taxes. As its name implies, Congress requires an alternative computation with many different rules.  The taxpayer pays the greater of the standard or alternative computed tax, hence creating a minimum amount of tax due.

 

Exemption Amounts

One of the major distinctions from the determination of regular taxable income is the large amount of exemptions allowed for AMT purposes. This is supposed to exclude most taxpayers from paying any AMT. For the 2014 tax year, the AMT exemption amounts, indexed annually for inflation, are:

  • $52,800 for Single or Head of Household tax filers
  • $82,100 for Married Filing Joint or Qualifying Widow(er) filers
  • $41,050 for Married Filing Separate filers

However, in order to limit its usefulness for high-income taxpayers, the exemption is phased out until it becomes zero. The 2014 ranges are reflected below:

 

Phase Out Begins Completely Phased Out
Single/Head of Household $     117,300 $       328,500
Married Filing Jointly/Qualifed Widow(er) $     156,500 $       484,900
Married Filing Separately $       78,250 $       242,450

 

AMT Triggers

While the AMT initially was established to limit “loopholes” for high-income earners, it has, over the years, applied to a larger pool of taxpayers. Certain deductions are recomputed, limited or eliminated entirely. Some triggers that can raise the risk that a taxpayer will be subject to the AMT include:

  • Residing in high income tax states, such as New York and California
  • Reporting high medical expenses
  • Refinancing a mortgage
  • Incurring significant miscellaneous itemized deductions
  • Having tax-dependent children
  • Having capital gains, exercising stock options and reporting large investment options
  • Claiming business depreciation

 

Failure to apply the AMT may result in back taxes plus interest and penalties.  As a result, it is imperative that taxpayers understand the AMT exemption amounts and be certain whether or not the AMT applies to their filing.  Moreover, while there is no way to avoid falling into the AMT trap, taxpayers may take steps to limit their risks for the 2015 tax year, including postponing income to future years, maximizing tax-deductible contributions to retirement plans in the current year and selling depreciated investments to offset capital gains.

 

The advisors and accountant with Berkowitz Pollack Brant Tax Services practice work with individuals, family estates and business owners to navigate complex tax laws and implement strategies to maximize efficiencies and preserve wealth.

 

About the Author: Jeffrey M. Mutnik, CPA/PFS, is a director in Berkowitz Pollack Brant’s Taxation and Financial Services practice. He can be reached in the CPA firm’s Ft. Lauderdale, Fla., office at (954) 712-7000 or via email at info@bpbcpa.com.

 

 

Berkowitz Pollack Brant Ranked on Accounting Today’s Top 100 List

Posted on March 13, 2015 by Richard Berkowitz, JD, CPA

MIAMI, March 14, 2015 – Berkowitz Pollack Brant Advisors and Accountants, one of the largest firms in South Florida, was ranked by Accounting Today to the annual listing of top 100 firm in the United States based on revenue size. The firm was also recognized as one of the 30 fastest growing in the US and the sixth largest in the Florida, Georgia, Alabama and Louisiana region.

 

The firm has been included on the list since 1995, when it became a goal to grow organically and continually add services that was help clients expand their businesses.

 

“This year we celebrate our 35th anniversary,” said Richard A. Berkowitz, CEO of Berkowitz Pollack Brant. “Inclusion on the Top 100 list was a goal that led us to smart growth and a diverse group of practice focuses. We are proud to be on the list again this year.”

 

More than 400 firms participate in Accounting Today’s annual survey process.

 

About Berkowitz Pollack Brant Advisors and Accountants

For 35 years the advisors and accountants of Berkowitz Pollack Brant have solved problems, provided knowledge and helped their clients reach their goals. The firm and its affiliates Provenance Wealth Advisors and BayBridge/Orion Real Estate Group have offices in Miami, Ft. Lauderdale and Boca Raton, Florida.

 

Berkowitz Pollack Brant has been named one of the 50 Best of the Best firms in the country by Inside Public Accounting for 16 years and was honored with the Pyramid Award for longevity as a Best of the Best firm in 2014. It is a top 100 firms in the U.S. as designated by both Accounting Today and INSIDE Public Accounting and was named one of the Best Places to Work by Florida Trend and Accounting Today.

 

One of the largest firms in South Florida, the firm is comprised of talented and resourceful professionals who provide consulting services with an entrepreneurial focus. Specialty areas include domestic and international tax planning and compliance, corporate and commercial audits, forensics and litigation support, business valuation, and wealth management and preservation.

-30-

 

Be on the Lookout for the IRS’s Top Tax Scams by Joseph L. Saka, CPA/PFS

Posted on March 10, 2015 by Joseph Saka

The IRS issued its annual list of the top scams and fraudulent activities for which taxpayers should take precautions to protect themselves during this tax season.

 

Phone Scams. Criminals, pretending to be IRS agents, telephone taxpayers and demand personal financial information or immediate payment of bogus tax liabilities with the threat of arrest and deportation. To protect themselves, taxpayers should remember that the IRS will never contact them via telephone.

 

Phishing. Similar to phone scams, phishing occurs when criminals demand personal information or payment from taxpayers via unsolicited emails. Again, taxpayers should remember that the IRS will never contact them for such requests via email.

 

Identity Theft. Tax-related identity theft occurs when criminals gain access to taxpayers’ personally identifiable information, including social security numbers, to file fraudulent tax returns. To combat identify theft, taxpayers must be vigilant in protecting their information by relying on strong passwords, monitoring financial accounts and credit reports, and taking precautions before sharing personal information. In addition, taxpayers should take extra care when sharing tax-related information with their preparers via password-protected and encrypted portals and filing returns electronically via the IRS’s e-file.

 

Fake Charities. Scammers create bogus organizations with names similar to well-known charities or that attempt to capitalize on large-scale natural disasters in order to trick taxpayers into making donations. Before making any charitable contribution, taxpayers should check the Exempt Organizations Select Check Tool on the IRS website.

 

Income Hidden Offshore. Holding assets oversees triggers reporting requirements and potential tax liabilities. To come into compliance with these regulations, taxpayers should meet with advisors and accountants experienced in international tax matters and take advantage of the IRS’s Offshore Voluntary Disclosure Program.

False Documentation to Hide Income. Taxpayers and preparers who attempt to hide income by filing false documents, such as corrected IRS forms or claiming zero income, face significant penalties and possible imprisonment.

 

Abusive Tax Shelters. Taxpayers who attempt to conceal income or assets via abusive tax shelters will be subject to significant penalties and interest, as well as potential criminal prosecution. These tax shelters may include limited liability companies, limited liability partnerships, international business companies, foreign financial accounts, offshore credit or debit cards, and multilayer transactions as well as misused trusts and captive insurance companies.

 

Return Preparer Fraud. Taxpayers should be careful to select tax preparers who have valid, IRS-issued Preparer Tax Identification Numbers (PTINs) and whose skills, education and expertise match the needs of the taxpayer. Ask for professional credentials and membership in professional organizations and remember to review tax returns before signing them. The IRS also advises taxpayers to avoid preparers who base their fees on a percentage of a refund or who promise larger refunds than other preparers.

 

Inflated Return Claims and Falsified Income to Claim Tax Credits. Taxpayers should be careful to avoid preparers who promise large refunds or other credits and deductions to which the taxpayer may not be entitled. Taxpayers who sign off on fraudulent returns, even when prepared by someone else, may be assessed additional taxes as well as penalties and interest.

 

Frivolous Tax Arguments. Taxpayers who attempt to avoid filing returns and paying taxes by relying on “frivolous” claims is nothing new. The top bogus arguments featured in the IRS’s 63-page list include failing to file due to religious reasons, claiming that filing and paying taxes is voluntary as well as taxpayers’ efforts to exclude certain compensation from their income.

 

Excessive Claims for Fuel Tax Credits. New for 2015 are false claims of fuel tax credits, which taxpayers may claim only for off-highway business or farming. Fraudulent claims will subject taxpayers to a $5,000 penalty and possible prosecution.

 

About the author: Joseph L. Saka, CPA/PFS, is director in charge of the Tax Services practice at Berkowitz Pollack Brant. He may be reached in the Miami CPA firm’s office at (305) 379-7000 or via e-mail at info@bpbcpa.com.

 

The Uncertain Future of 1031 Exchange Rules by John G. Ebenger, CPA

Posted on March 06, 2015 by John Ebenger

Under current Internal Revenue Code section 1031, taxpayers who sell business or investment property and reinvest the proceeds in a new, “like-kind” property may defer taxes at the time of the exchange, provided the assets are “held for either productive use in a trade or business or for investment.”  Taxpayers may change the form of an investment, when properly structured, roll over the realized gain to another investment and avoid current year taxes on the gain until many years later.   However, this popular investment vehicle faces an uncertain future under the

new Congress and President Obama’s 2016 budget proposal. Last year, in an effort to raise revenue, several tax reform proposals called for limiting or eliminating like-kind exchanges.  Most recently, the president announced capping the amount of capital gains one can defer from 1031 exchanges to $1 million per taxpayer per taxable year, lengthening depreciation schedules and excluding art and other collectibles from like-kind assets.   The advisors and accountants with Berkowitz Pollack Brant have deep experience working with businesses and investors to implement strategies, such as 1031 exchanges, to preserve wealth and maximize tax efficiencies.  They will continue to keep a watchful eye on Washington’s next steps.

About the Author: John G. Ebenger, CPA, is a director in the Real Estate and Tax Services practice at Berkowitz Pollack Brant. He can be reached in the Boca Raton CPA firm’s office at (561) 361-1010 or via e-mail at info@bpbcpa.com.

 

Risks Hidden in Construction Contracts by Richard A. Pollack, CPA

Posted on March 03, 2015 by Richard Pollack

Corruption, improper billing and expense reimbursement top the list of reported frauds in the construction industry, according to the Association of Certified Fraud Examiners’ (ACFE) 2014 Report to the Nations. While these payment schemes can occur at any stage of the construction process, owners may wield greater control over mitigating resulting losses during the contracting phase. It is at this time that owners may negotiate terms for costs and time, assess threats and identify opportunities to implement controls or take actions to mitigate future risk.

 

One goal of the construction contract is to communicate the scope and specifications of a project with as much detail as possible from the onset, leaving little room for misinterpretation down the road. This includes selecting the appropriate pricing arrangement to meet project budget, timelines and intended purposes as well as understanding the risks hidden in each agreement.

 

Fixed-Price and Lump-Sum Arrangements

The most common pricing arrangement for construction projects is the fixed-price contract. In these arrangements, an owner defines the scope of the project and solicits bids from contractors, who agree to receive a lump-sum payment for the costs that they estimate will be required to complete the project. Due to these approximate calculations, the contractor takes on most of the risks associated with meeting the agreed-upon construction costs, thereby freeing the owner from the responsibility of paying for excessive cost overruns.

 

To be sure, contractors build contingencies into their bids to protect themselves from unforeseeable circumstances that would result in increased costs through change orders. In and of themselves, change orders may be a prime breeding ground for corruption. Other risks related to fixed-price arrangements can include kickbacks between contractors and subcontractors, the use of substandard materials or improper installation methods, as well as the practice of billing separately for labor and materials already budgeted for in the original contract terms.

 

Cost-Plus and Guaranteed Maximum Price Arrangements

With cost-plus contracts, contractors receive predetermined fees on top of reimbursements for the costs they incur to carry out the contract terms. One drawback to this type of arrangement is the lack of a cap on allowable costs. This puts owners in the precarious position of having to pay for indeterminate costs incurred at the contractors’ discretion. To address this concern, owners may instead use guaranteed maximum price agreements to limit their liabilities to an amount they negotiate with the contractor at the time of contract.   In these scenarios, costs incurred above the contracted amount become the responsibility of the contractor.

 

Despite the even playing field these arrangements create for owners and developers, there are potential risks. For example, contractors may be tempted to overestimate the maximum project price in order to protect themselves from overly conservative estimates or rising costs of labor and supplies. Moreover, because they are contracted to receive payments above their actual costs, contractors may not be incentivized to be as cost-efficient as possible. One way to eliminate these concern is through a shared-savings clause, in which both parties agree to split any savings below the guaranteed maximum price.

 

Unit-Price Arrangements

Most commonly used in public projects, unit-price contracts define costs for specific tasks or units of work involved in construction projects. Owners agree to pay contractors only for work completed at different phases of the project.   The greatest risk in these arrangements is the inability to identify total costs until after work is complete, which makes it easier for cost manipulation to occur.

 

A Last Word about Change Orders

Even the best-laid plans are subject to unpredictable changes, often for legitimate reasons. However, change order abuse is an all-too common practice in the construction industry. The deception compromises all phases of the construction process – from bidding to project delivery – by taking advantage of the underlying contract terms. Red flags of these schemes can include:

  1. The use of change orders to “clarify” unspecific contract terms
  2. Change orders that increase the costs or scope of work outlined in initial construction contracts
  3. Frequent or undocumented change orders awarded to a particular contractor
  4. An employee’s repeated approval of unexplainable change orders, often for the same contractor
  5. An employee making decisions or taking actions outside the scope of his or her normal responsibilities

 

Although not a part of the standard American Institute of Architects (AIA) contract, one method for preventing unscrupulous change orders and assuring compliance with original contract terms is the inclusion of a right-to-audit clause. These audit provisions can protect owners from the onset by detailing how contractors should conduct business on a given project, including progress reporting, and aim to reduce contractor mistakes and improprieties.

 

Keeping construction contracts and pricing arrangements free of risks requires a commitment of time and resources up front to mitigate challenges and losses in the future. The professionals with Berkowitz Pollack Brant’s Forensic and Business Valuation Services practice have extensive experience working with developers, contractors and project owners to incorporate appropriate terms in construction contracts and to establish accounting and reporting systems that help to keep project costs transparent and on budget.

 

About the Author: Richard A. Pollack, CPA, ABV, CFF, PFS, ASA, CBA, CFE, CAMS, CIRA, CVA, is director-in-charge of the Forensic and Business Valuation Services practice with Berkowitz Pollack Brant.  He can be reached in the CPA firm’s Miami office at 305-379-7000 or via email at info@bpbcpa.com.

 

 

 

Uninsured Get Extension to Enroll in Health Care Coverage for 2015 by Adam Cohen, CPA

Posted on March 02, 2015 by Adam Cohen

Individuals who failed to sign-up for health insurance by the February 15 open-enrollment deadline, have a second chance at securing coverage and complying with the Affordable Care Act in 2015. The U.S. Department of Health and Human Services has announced a special enrollment period, March 15 through April 30, during which taxpayers may purchase health insurance and avoid paying the individual responsibility payment, equal to the greater of $325 per adult / $162.50 per child or 2 percent of income for every month without qualifying coverage in 2015.

 

Taxpayers without affordable health insurance coverage during any month in 2014 will still be subject to the individual responsibility payment on their 2014 tax returns.

 

About the Author: Adam Cohen, CPA, is an associate director in the Tax Services practice of Berkowitz Pollack Brant. He can be reached at the CPA firm’s Ft. Lauderdale office at (954) 712-7000 or via e-mail info@bpbcpa.com.

 

 

Pin It on Pinterest

Menu Title