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Monthly Archives: April 2016

4 Ways to Make Charitable Gifts Go Further by Lee F. Hediger

Posted on April 28, 2016 by Richard Berkowitz, JD, CPA

Charitable organizations rely on donations of time, money and assets to fulfill their missions. However, there are times when these donations may cause the entity more hassles than good. As a result, donors should keep the following four tips in mind when planning their giving.

 

Give What the Charity Needs. Before deciding what to give or where an individual might want his or her donation to be allocated, he or she should talk with the charity. Ensure all donations fit within the organization’s mission and goals and fulfills its most pressing needs.  Even when donating one’s time, a volunteer should ask the charity where their assistance is needed most. Along the same lines, restricted gifts may fail to make an impact unless they fulfill the charity’s need.

 

Give for More than the Tax Deduction. Donors should target their giving to those organizations that share their values or whose mission aligns with their personal beliefs. By concentrating their giving on organizations that they are passionate about, donors will receive far greater long-term personal benefits than the end-of-year tax deduction their gift will provide.

 

Manage your Own Expectations.  Donors should not assume that their gifts entitle them to special privileges.  For example, donors should not expect to receive a board position or leadership role in exchange for their donations nor should they be allowed to micromanage the charity’s operations.  Remember, ‘tis better to give than to receive.

 

Keep your Promises. Failing to follow through on a verbal pledge can put a non-profit counting on that donation in a difficult position. Perhaps the expected donation was allocated to cover a budget shortfall or fund a specific need the organization committed to address.

 

The professionals with Provenance Wealth Advisors have deep experience working with high-net-worth individuals to implement tax-efficient financial-planning strategies that are designed to help meet desired wealth-preservation and charitable goals.

About the Author: Lee F. Hediger is a co-founding director and chief compliance officer with Provenance Wealth Advisors, an independent financial services firm affiliated with Berkowitz Pollack Brant Advisors and Accountants, and a registered representative with Raymond James Financial Services. For more information, call (954) 712-8888 or email info@provwealth.com.

 

Provenance Wealth Advisors, 515 E. Las Olas Blvd., Ft. Lauderdale, FL 33301 (954) 712-8888.

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 PWA and not necessarily those of Raymond James. Please note, changes in tax laws may occur at any time and could have a substantial impact upon each person’s situation. You should discuss any tax and legal matters with the appropriate professional. Prior to making an investment decision, please consult with your financial advisor about your individual situation. 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.

 

 

 

 

 

 

Cell Phone Forensics Provides Legally Defensible Evidence by Martin Prinsloo, CFE, CISA, CITP, CFF

Posted on April 27, 2016 by Martin Prinsloo

The ability to collect, recover and preserve digital data stored on individuals’ personal computers and networks is not new. In fact, according to the FBI, the history of computer forensics and its use in the investigation and substantiation of evidence in legal cases can be traced as far back as the 1980s.

As technology has evolved, so too have the methods of forensic investigations and data collection. Today, individuals increasingly use their mobile devices for all of their business and personal activities, far beyond just making and receiving phone calls. In fact, the amount of information stored on one’s smartphone and its applications produce a large digital footprint that can reveal as much about that person as his or her physical fingerprint. In addition to call logs, text messages, emails, contacts, photos and videos, smartphones can reveal users’ web browser search histories; online purchases; use of social media networks, such as Facebook, Twitter and Instagram; use of instant messaging services, such as WhatsApp and Snapchat; and GPS location history. Even more interesting is that a forensic investigation can turn up information regarding what smartphone users delete and the time they delete such data from their devices.

With access to such a wealth of information, it is no wonder that courtrooms are turning increasingly to mobile device forensics to provide critical evidence in legal cases that can involve divorce, business disputes, child protection, fraud and even violent crimes. Yet, the process of mobile phone forensic investigations is not without challenges. As a relatively new field, it is used by a limited number of specialists who not only have access to the tools required to recover cellular phone data but also the unique forensic investigation skills one needs to extract, organize and present the data in a legally defensible manner in a court of law.

Key Requirements for a Successful Mobile Device Forensic Investigation

Recovery and Extraction Tools. Recovering cell phone data requires software that can perform equally well on all operating systems, including Apple’s iOS, Google’s Android and Windows, and keep up with each system’s regular updates. It should also be able to extract the information readily available on a device as well as data that may be hidden in third-party applications or that users previously deleted.  For optimal efficiency, the solution must also be able to produce reports in a variety of formats that are both customizable and searchable for use in legal proceedings.

Data Preservation. It is vital that forensic investigators preserve and protect the original data on a mobile device without making any alterations that could damage its admissibility as evidence. Moreover, because smartphone users have the ability to remotely wipe all data from their devices, forensic analysts must take necessary steps to prevent any remote wipes.

Investigative Expertise. Like any forensic investigation, cell phone forensics is a science that requires specialized training and skill to sort through mountains of data to uncover the proverbial needle in the haystack that points to misconduct or suspicious activity. Investigators must know what specific information to look for, where and how to find it, how to build a timeline of facts and how to interpret those facts to support their findings. Moreover, they must understand the legal challenges of data privacy, access to passwords and ownership of the device in question. A final requirement is the ability to present findings as an expert witness in a court of law while considering the Daubert or Frye standards governing the admissibility of expert testimony.

It is clear that the data stored on mobile phones create revealing cyber trails about their owners, including who they contacted, what they communicated about and where they were at a particular date and time. In matters of divorce, evidentiary smartphone data may reveal an App from an unknown banking institution, transactions pointing to hidden money or where a spouse was or traveled to at a particular point in time. The same holds true for business disputes, for which cell phone data may reveal users’ attempts to threaten of undermine their partners and commit fraud.

A successful smartphone forensic investigation will hinge on many factors. Key elements should include access to and reliance on mobile data and extraction solutions, such as those offered by Cellebrite, as well as a forensic examiner’s unique ability to gather, authenticate and analyze data and present his or her findings within the constraints of the legal system.

Berkowitz Pollack Brant’s Forensic Accounting and Litigation Support practice has the tools and professional skills required to conduct forensic investigations on a wide range of complex matters. Our professionals have deep experience supporting legal counsel and analyzing large quantities of data to uncover a trail of financial facts in matters involving divorce and family disputes, complex business litigation and business disputes, bankruptcy and reorganization, and claims of fraud brought by corporations and governmental regulatory agencies.

About the Author: Martin Prinsloo, CFE, CISA, CITP, CFF, is a senior manager with Berkowitz Pollack Brant’s Forensic and Business Valuation Services practice, where he applies business skills and technical expertise to support acquire, preserve, validate and analyze digital data for use in legal proceedings. He can be reached at the CPA firm’s Miami office at (305) 379-7000, or via email at info@bpbcpa.com.

3 Ways to Establish Creditworthiness Living Overseas by Lewis Kevelson, CPA

Posted on April 26, 2016 by Lewis Kevelson

U.S. executives who are transferred or choose to move overseas are often surprised to learn that their stellar stateside credit scores do not always translate similarly well in foreign countries. As a result, many expatriates find themselves in a foreign land, starting from scratch, unable to demonstrate the creditworthiness required to do such basic things as obtaining a preferred bank account or credit card or securing a mortgage or automobile financing or even Internet and cellular phone contracts.

Following are three ways that expatriates can manage their creditworthiness overseas with minimal headaches.

  1. Apply for a Basic Credit Card with a Foreign Bank. Building credit overseas can be difficult when considering that many foreign banks and financial institutions no longer service U.S. customers. As a result, executives will need to do some research before leaving the U.S. to identify those institutions that have a good reputation for working with expats. A good place to start is by looking at large, international banks, such as Bank of America, Chase, Citibank and HSBC, which may have offices in foreign countries through which expats can begin the credit application process while stateside. Once a credit card is secured, executives can build credit by using these cards for purchases and making regular payments on time.
  2. Apply for Credit with a Foreign Retailer. Although these accounts often come with high interest rates, they provide another instrument for building credit locally, as long as they are used fairly frequently and paid on time.
  3. Maintain U.S. Creditworthiness. By keeping an active U.S. credit card and staying up-to-date in payments, expats may maintain domestic creditworthiness. It’s best to rely on a U.S. card that does not charge international transaction fees, which increase costs of borrowing.

The international tax advisors with Berkowitz Pollack Brant work with domestic and foreign individuals and multi-national businesses on a range of residency issues and financial matters, including pre-immigration planning, wealth preservation and tax efficiency across borders.

About the Author: Lewis Kevelson, CPA, is a director with Berkowitz Pollack Brant’s International Tax practice, where he provides tax-compliance planning and business structuring counsel to real estate companies, foreign investors, international companies, high-net-worth families and business owners. He can be reached in the firm’s Boca Raton, Fla. office at (561) 361-2000 or via email at info@bpbcpa.com.

A Perfect Storm is Brewing for Tax-Advantaged Real Estate Structuring and Estate Planning by Eric P. Zeitlin

Posted on April 21, 2016 by Richard Berkowitz, JD, CPA

The IRS has long voiced its concern over taxpayer’s use of valuation discounts to transfer assets at significantly reduced values for estate and gift tax purposes. While changes to the regulations expected most recently in the Fall of 2015 did not come to fruition, the IRS continues to keep these real estate and estate planning strategies on its radar. As a result, now may be an ideal time for families to reevaluate their estate plans and identify opportunities to maximize the tax saving benefits of valuation discounts with an eye to a possible change in the way they may be interpreted in the future.

 

How do Valuation Discounts Work?

A family may create a common ownership structure, such as a family limited partnership (FLP), a limited liability company (LLC), or a sub-S corporation to hold assets, such as real estate, investments and business holdings. The entity may then transfer minority or non-controlling interest in the assets to family members or trusts at significantly reduced estate and gift tax costs due to a lack of marketability and lack of control. In other words, because the recipients do not have the ability to exercise their minority interest to control the entity’s operations or its potential future sale, the value of the interest they hold should be worth less. As a result, the recipients may be entitled to a discount off of the asset’s underlying fair market value, which could be as high as 40 percent. In some instances, these valuation discounts have completely eliminated gift taxes on transfers of assets during life as well as estate tax liabilities after one’s death.

 

As an example, consider a $10 million property held in an appropriately structured ownership entity. When the entity distributes up to 49 percent of the property’s non-controlling interest or more than 50 percent of non-voting interest to family members, a discount of up to 40 percent off the property’s value may be claimed for lack of marketability and control. For gift and estate purposes, the property will be worth $6 million, and the valuation discount will remove from the estate $4 million in tax exposure and all of the property’s appreciation.

 

How May I Take Advantage of Valuation Discounts?

Restructuring the entities that own family assets can be a powerful estate-planning tool. The actual entity selected will depend on a family’s unique circumstances, and each entity will yield different results.

 

One option is to combine real estate holdings and estate-discounting strategies through the creation of single member LLCs, multi-member LLCs, limited partnerships with general partners and limited partners or sub-S Corporations. These common structures can separate control and liability from the majority of ownership while providing some liability protection and availability of valuation discounts to reduce estate taxes.

 

For example, consider a limited partnership with multiple LLCs and properties. A general partner with 1 percent interest in the entity may, in essence, isolate or remove that interest from the taxable estate through an irrevocable trust, thereby allowing discounts on 99 percent of the property. Similarly, a family may recapitalize corporate stock in an S Corporation into voting and non-voting shares and apply the valuation discounts to the non-voting shares due to lack of marketability and lack of control over those shares.

 

Once the proper entity is in place, several strategies can be implemented to maximize the benefits of valuation discounts, including:

  1. Making annual or lifetime gifts outright or through a trust;
  2. Employing estate freezing strategies, such as selling assets to an intentionally defective grantor trust with promissory notes, private annuities or self-cancelling installment sales;
  3. Establishing a grantor retained annuity trust (GRAT), through which a grantor may transfer by gift appreciable assets to future generations with little to no gift tax implications while also allowing the grantor the right to receive annual income from the trust.
  4. Establishing a Spousal Lifetime Access Trust (SLAT) through which one spouse makes a gift and then allows the other spouse to take distributions, if needed. When restructuring ownership entities and applying valuation discounts, however, taxpayers should take special care to execute the strategy with precision and keen attention to details.Why Now?
  5. This, combined with the possibility of restrictions on the use and/or interpretation of valuation discounts in the future, makes the timing ideal for taxpayers to consider creating family ownership entities now. Doing so may allow families to transfer wealth from generation to generation with minimal, if not completely eliminated federal estate and gift taxes.
  6. The current low interest rate environment is ripe for families to restructure their holding entities and take advantage of valuation discounts for long-term tax and estate-planning purposes. As real estate appreciates, low interest rates essentially enhance estate sales and allow the entity to pay down loans more quickly. This strategy may not be as effective as interest rates rise, which the Federal Reserve has made clear it plans to in 2016, but at a gradual pace. In its most recent announcement, the Fed said that it expects the federal funds rate is “likely to remain, for some time, below levels that are expected to prevail in the longer run.”

The professionals with Provenance Wealth Advisors have deep experience working with entrepreneurs and high-net-worth individuals to implement tax-efficient financial-planning strategies designed to help meet desired wealth-preservation goals.

About the Author: Eric P. Zeitlin is managing director of Provenance Wealth Advisors, an independent financial services firm affiliated with Berkowitz Pollack Brant Advisors and Accountants, and a registered representative with Raymond James Financial Services. For more information, call 800-737-8804 or email info@provwealth.com.

 

Provenance Wealth Advisors, 515 E. Las Olas Blvd., Ft. Lauderdale, FL 33301 (954) 712-8888.

Securities offered through Raymond James Financial Services, Inc., Members 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 PWA and not necessarily those of Raymond James. Financial advisors of Raymond James Financial Services are not qualified to render advice on tax or legal matters. You should discuss any tax or legal matters with the appropriate professional. Prior to making an investment decision, please consult with your financial advisor about your individual situation. 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.

The information contained in this report does not purport to be a complete description of the securities, markets, or developments referred to in this material. The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. The above are hypothetical examples for illustration purposes only and do not represent an actual investment.

 

 

Mistitled Accounts Can Spell Disaster for Estate Plans by Stefan Pastor

Posted on April 20, 2016 by Richard Berkowitz, JD, CPA

The way in which individuals hold title to assets, including bank accounts, retirement plans and real property, can have a significant effect on how those assets are distributed to a spouse or future generations upon one’s passing. Because a mistitled account could essentially negate one’s intentions, whether or not their wishes are explicitly detailed in a will, it is important to understand the legal and financial implications of each.

Sole Ownership

When account owners hold sole ownership of assets, they alone control the management of those assets during their lifetimes. Upon death, the assets are subject to the probate process, which can be both lengthy and costly, unless owners name beneficiaries to the accounts or use other will substitutes to allow assets to pass outside of probate.

Joint Tenancy with Rights of Survivorship

Assets held in joint tenancy are owned and shared equally between two or more people during life. Upon the death of one owner, the assets pass outside of probate directly to the other owners, who receive a step-up in the asset’s cost basis.

One challenge with joint tenancy accounts is that assets are passed automatically to the surviving owners without regard to how the decedent specified the distribution of assets in his or her will. For example, consider a situation in which a divorced man with minor children remarries and titles the bulk of his assets in joint tenancy with the second wife.  Upon the man’s death, all of those assets will pass directly to the second wife, despite the expressed wishes in his will to leave a hefty inheritance to his minor children.  Similarly, an aging parent who relies on one of his or her children for financial support and subsequently establishes a bank account in joint tenancy with that lone child to help pay expenses, would essentially exclude the other two children from receiving any portion of the assets held in that account.

 

Another challenge is that joint tenancy may create an estate tax liability upon the death of a second owner. Moreover, the assets held in joint tenancy are not protected from creditors’ claims in bankruptcy nor any other legal proceedings.

 

Joint Tenancy by the Entirety

This form of joint ownership is available only to married spouses who own assets together as one single entity. It provides protection against one spouse disposing of the property without the other’s consent and excludes the property from claims filed by creditors.  This is especially beneficially for couples in which one or both spouses are professionals in industries that are prone to litigation.

In Trust

Creating a trust allows individuals to transfer asset ownership to the trust during their lifetimes and specify the terms of how they wish to pass those assets from the trust, outside of probate, to beneficiaries upon their death. The grantor, or person setting up the trust, appoints a trustee who oversees the ongoing management of the trust assets during the grantor’s lifetime as well as after death, when beneficiaries may require assistance to maximize the trust benefits rather than squandering the assets.  Trusts offer flexibility, protection from creditors and lawsuits and the ability to minimize estate and gift taxes.

Every estate is unique and requires a review of each individual’s equally unique needs and goals to optimize plans for building wealth in life and distributing assets to care for future generations after death. Working with experienced financial planners to appropriately title accounts can help to ensure these goals are met while protecting assets and minimizing tax liabilities.

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 800-737-8804 or via email at info@provwealth.com.

Provenance Wealth Advisors, 515 E. Las Olas Blvd., Ft. Lauderdale, FL 33301 (954) 712-8888.

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 PWA and not necessarily those of Raymond James. You should discuss any tax or legal matters with the appropriate professional. Prior to making an investment decision, please consult with your financial advisor about your individual situation. 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.

 

 

 

IRS Provides Safe Harbor Expensing Limit for Restaurant and Retail Store Improvements by Angie Adames, CPA

Posted on April 18, 2016 by Angie Adames

In November 2015, the IRS issued a safe harbor under the Tangible Property Regulations for certain taxpayers engaged in the trade or business of operating a retail establishment or a restaurant to determine whether expenditures to remodel or refresh a qualified building are deductible or capitalized.

Under Revenue Procedure 2015-56, restaurants and retailers may now deduct 75 percent of the qualified costs they incur during a tax year to remodel, repair or refresh an entire building. The remaining 25 percent of costs expended to improve a property would be capitalized and depreciated over time.  “Qualified costs” include those incurred by a restauranteur or retailer in an effort to maintain an attractive appearance; to maintain a uniform look from one location to the next; to conform to industry standards and practices; to improve operating efficiency;  to address changes in demographics; or to offer the most relevant and popular goods within the industry.

As a result of this safe harbor, retailers and restauranteurs will be able to update their facilities to remain competitive and attractive to consumers while avoiding the previously confusing and burdensome process of determining whether remodel-refresh projects should be characterized for tax purposes as repairs, maintenance or improvements to individual and separate structural components of a building structures and systems.

Moreover, the safe harbor will ease the factual determination of whether remodel-refresh costs adapt property to a new or different use, which would have required the taxpayer to exclude from the safe harbor only amounts that adapt more than 20 percent of the total square footage of the building to a new or different use.

In order to apply the safe harbor, which is effective for tax years beginning in 2014, qualifying taxpayers must have applicable financial statements (i.e., a certified audited financial statement, a statement required to be filed with the SEC, a financial statement required to be filed with the federal or a state government) and participate in a trade or business that meets one of the following criteria:

1.    Sells merchandise to customers at retail (excluding car dealers, gas stations, manufactured home dealers, and non-store retailers)

2.    Prepares and sells meals, snacks or beverages to customers for immediate on-premises and/or off-premises consumption (excluding hotels/motels, civic or social organizations, amusement parks, theaters, casinos, country clubs, and special food services, such as caterers and mobile food services), or

3.    Owns or leases a qualified building to a taxpayer qualifying under criteria described in 1 and 2 above and incurs remodel-refresh costs.

In addition, qualifying taxpayers must file IRS Form 3115, Application for Change in Accounting Method, and use the new method for all qualifying costs in the future.

The tax advisors and accountants with Berkowitz Pollack Brant work with individuals and businesses across a broad range industries to maximize tax efficiencies and comply with frequently evolving regulations.

About the Author: Angie Adames, CPA, is a senior manager  with the Tax Services practice of Berkowitz Pollack Brant, where she provides  tax and consulting services to real estate companies, manufacturers and closely  held business. She can be reached in the CPA firm’s Miami office at (305) 379-7000 or via email at info@bpbcpa.com.

 

6 Habits to Adopt Now to Help Ensure a Successful Retirement Later by Lee F. Hediger

Posted on April 14, 2016 by Richard Berkowitz, JD, CPA

Good habits are important steps on the road to achieving desired goals. Want to get in shape? Establish healthy eating habits and a regular exercise schedule. Looking to learn to play an instrument? Get in the habit of practicing regularly.

The road to success is paved with positive behaviors and lifestyle choices. Retirement is no different. Following are six habits that soon-to-be retirees should consider to help make their golden years as fruitful and rewarding as possible.

Practice Urgency.  According to the National Center for Health Statistics, the average life span for women is 81 and 76 for men. This means that retirees who stop working at age 65 will have, on average, 10 to 15 years to do everything they dreamed of during their working years.  Maximizing this time requires individuals to plan ahead, earlier in their lives, to develop a strategy that considers how they will be cared for as they age and to ensure they do not outlive their savings.

Adopt Healthy Habits. The three leading causes of death, heart disease, cancer and stroke, are often preventable when individuals make the right lifestyle choices. By eliminating harmful habits, such as smoking, and adopting healthy lifestyle habits, such as eating healthy, getting exercise and managing stress, early in life, individuals can improve their chances of staying healthy into their retirements.

Retire to do Something, Not from Something. Many individuals cannot wait to escape the workforce. However, when retirement is defined solely by something that is subtracted from one’s life, such as a job or other obligations, he or she is left with a void. Instead, individuals should consider retirement as an opportunity to do something they enjoy, whether it be traveling, learning a new language or even spending more time in the garden.  This creates a sense of purpose and the ability for retirees to focus their time on pursuing the things they love rather than running away from things they may despise.

Retire Based on Your Bank Account, Not Your Birthday. Successful retirees have spent years thinking about and making a habit of planning for the type of lifestyle they would want after their careers have ended, and they know how much it will cost. Retirement is not about age. Rather, it is about independence, which money will help to achieve.

Foster Meaningful Relationships. Social interaction is a critical element to achieving happiness. Successful retirees have cultivated a network of friends who share their interest, family members who they can rely on, and professional advisors who can help guide them through life’s changes.

Give Back and Build a Legacy. Retirement provides individuals with extra time to give back to the communities where they live and create a legacy after they are gone. Those with accumulated assets might consider giving back to organizations that support their communities, social needs or causes they are passionate about by creating their own foundations or donor advised funds.

That which individuals do every day matters more than the things they do once in a while. Making the right choices early in life and practicing positive habits along the way can help to ensure a successful retirement later in life.

The advisors with Provenance Wealth Advisors employ a holistic approach to income, estate and investment planning to help individuals and families create retirement and legacy plans that meet desired needs and goals.

Provenance Wealth Advisors, 515 E. Las Olas Blvd., Ft. Lauderdale, FL 33301 (954) 712-8888.

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 PWA and not necessarily those of Raymond James. Prior to making an investment decision, please consult with your financial advisor about your individual situation. 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.

 

 

 

 

 

Cell Phone Forensics Provides Legally Defensible Evidence by Martin Prinsloo, CFE, CISA, CITP, CFF

Posted on April 13, 2016 by Martin Prinsloo

The ability to collect, recover and preserve digital data stored on individuals’ personal computers and networks is not new. In fact, according to the FBI, the history of computer forensics and its use in the investigation and substantiation of evidence in legal cases can be traced as far back as the 1980s.

As technology has evolved, so too have the methods of forensic investigations and data collection. Today, individuals increasingly use their mobile devices for all of their business and personal activities, far beyond just making and receiving phone calls. In fact, the amount of information stored on one’s smartphone and its applications produce a large digital footprint that can reveal as much about that person as his or her physical fingerprint. In addition to call logs, text messages, emails, contacts, photos and videos, smartphones can reveal users’ web browser search histories; online purchases; use of social media networks, such as Facebook, Twitter and Instagram; use of instant messaging services, such as WhatsApp and Snapchat; and GPS location history. Even more interesting is that a forensic investigation can turn up information regarding what smartphone users delete and the time they delete such data from their devices.

With access to such a wealth of information, it is no wonder that courtrooms are turning increasingly to mobile device forensics to provide critical evidence in legal cases that can involve divorce, business disputes, child protection, fraud and even violent crimes. Yet, the process of mobile phone forensic investigations is not without challenges. As a relatively new field, it is used by a limited number of specialists who not only have access to the tools required to recover cellular phone data but also the unique forensic investigation skills one needs to extract, organize and present the data in a legally defensible manner in a court of law.

Key Requirements for a Successful Mobile Device Forensic Investigation

Recovery and Extraction Tools. Recovering cell phone data requires software that can perform equally well on all operating systems, including Apple’s iOS, Google’s Android and Windows, and keep up with each system’s regular updates. It should also be able to extract the information readily available on a device as well as data that may be hidden in third-party applications or that users previously deleted.  For optimal efficiency, the solution must also be able to produce reports in a variety of formats that are both customizable and searchable for use in legal proceedings.

Data Preservation. It is vital that forensic investigators preserve and protect the original data on a mobile device without making any alterations that could damage its admissibility as evidence. Moreover, because smartphone users have the ability to remotely wipe all data from their devices, forensic analysts must take necessary steps to prevent any remote wipes.

Investigative Expertise. Like any forensic investigation, cell phone forensics is a science that requires specialized training and skill to sort through mountains of data to uncover the proverbial needle in the haystack that points to misconduct or suspicious activity. Investigators must know what specific information to look for, where and how to find it, how to build a timeline of facts and how to interpret those facts to support their findings. Moreover, they must understand the legal challenges of data privacy, access to passwords and ownership of the device in question. A final requirement is the ability to present findings as an expert witness in a court of law while considering the Daubert or Frye standards governing the admissibility of expert testimony.

It is clear that the data stored on mobile phones create revealing cyber trails about their owners, including who they contacted, what they communicated about and where they were at a particular date and time. In matters of divorce, evidentiary smartphone data may reveal an App from an unknown banking institution, transactions pointing to hidden money or where a spouse was or traveled to at a particular point in time. The same holds true for business disputes, for which cell phone data may reveal users’ attempts to threaten of undermine their partners and commit fraud.

A successful smartphone forensic investigation will hinge on many factors. Key elements should include access to and reliance on mobile data and extraction solutions, such as those offered by Cellebrite, as well as a forensic examiner’s unique ability to gather, authenticate and analyze data and present his or her findings within the constraints of the legal system.

Berkowitz Pollack Brant’s Forensic Accounting and Litigation Support practice has the tools and professional skills required to conduct forensic investigations on a wide range of complex matters. Our professionals have deep experience supporting legal counsel and analyzing large quantities of data to uncover a trail of financial facts in matters involving divorce and family disputes, complex business litigation and business disputes, bankruptcy and reorganization, and claims of fraud brought by corporations and governmental regulatory agencies.

About the Author: Martin Prinsloo, CFE, CISA, CITP, CFF, is a senior manager with Berkowitz Pollack Brant’s Forensic and Business Valuation Services practice, where he applies business skills and technical expertise to support acquire, preserve, validate and analyze digital data for use in legal proceedings. He can be reached at the CPA firm’s Miami office at (305) 379-7000, or via email at info@bpbcpa.com.

Does the Net Investment Income Tax Apply to You? by Jeffrey M/ Mutnik, CPA/PFS

Posted on April 12, 2016 by Jeffrey Mutnik

Since 2013, taxpayers whose modified adjusted gross income exceeds certain thresholds are subject to a 3.8 percent Net Investment Income Tax (NIIT).  More specifically, this tax applies to the lesser of either 1) net investment income, which includes, but is not limited to, interest, dividends, capital gains and rental income, or 2) the amount by which one’s modified adjusted gross income exceeds the following thresholds based on one’s tax filing status:

 

  • $200,000 for single head of household
  • $250,000 for married filing jointly or qualifying widow(ers) with a child
  • $125,000 for married filing separately

 

The NIIT is applicable to U.S. citizens, dual-status individuals and certain trusts and estates with undistributed net investment income. Determining a taxpayer’s modified adjusted income, which considers gross income, amounts excluded from gross income and the amount of disallowed deductions or exclusions, is a complicated equation that typically requires the counsel of a certified public accountant.

 

Taxpayers who owe an NIIT must file Form 8960, Net Investment Income Tax – Individuals, Estate and Trusts, with their federal tax returns. If they fail to withhold enough income tax from their pay or if they did not pay enough in estimated taxes during the tax year, they may be subject to an underestimated tax penalty.

 

Minimizing Your NIIT Liability

Taxpayers have ample opportunities throughout the year to reduce their net investment income tax liabilities by reducing their net investment income, their modified adjusted gross income or both. While these activities cannot be applied to one’s 2015 tax returns, there is ample time for taxpayers to plan for 2016 and consider implementing the following strategies before the end of the year:

  • Sell securities at a loss to offset gains earned earlier in the year,
  • Exclude gains from appreciated securities by donating them to charity,
  • Defer gains by making use of Section 1031 exchanges and installment sales,
  • Max out tax-deductible contributions to 401(k) and self-employed SEP accounts, or
  • Spend more time engaged in non-passive activities or turn “passive” investment activities into non-passive activities, which are not subject to the NIIT tax.

 

About the Author: Jeffrey M. Mutnik, CPA/PFS, is a director with the Taxation and Financial Services practice of Berkowitz Pollack Brant Advisors and Accountants, where he provides tax and estate-planning counsel to high-net-worth families, closely held businesses and professional services firms. He can be reached in the CPA firm’s Ft. Lauderdale, Fla., office at (954) 712-7000 or via email at info@bpbcpa.com.

 

IRS Removes Some Restrictions on Income from Cuba by James W. Spencer, CPA

Posted on April 11, 2016 by James Spencer

In 2015, the U.S. and Cuba took steps to restore diplomatic relations following decades of isolationism.  In response, the Internal Revenue Service (IRS) issued a ruling in March 2016 that removes certain restrictions on income U.S. taxpayers earn in Cuba. Effective immediately, Cuba has been removed from the sanctioned countries list of section 901(j) of the tax code.  U.S. taxpayers who earn income in Cuba may now claim a foreign tax credit for income taxes paid to the Latin country. The credit may be applied retroactively for Cuban income taxes incurred on or after December 21, 2015.

 

In addition, qualifying taxpayers will now be permitted to defer income earned in Cuba through a controlled foreign corporation (CFC) after the effective date of December 21, 2015.  This represents a much more favorable tax result for U.S. companies doing business in Cuba.

The Cuban corporate income tax rate is generally 30 percent.  Prior to the effective date of the ruling, this meant that if a U.S. taxpayer (in the top U.S. tax bracket) owned a Cuban company, their overall tax rate (U.S. and Cuban tax rate combined) would be at least 53 percent and possibly as high as 63 percent as soon as the income was generated (unless the Cuban company was operating in a foreign trade zone under a tax holiday granted by the Cuban government) and before the taxpayer received any distributions from the Cuban company.

 

Now, with the IRS ruling, if the Cuban corporate operations are structured appropriately, the effective short-term tax rate could be limited to 30 percent at the time the income is generated, while the long-term effective rate could be no greater than 39.6 percent.   However, if the ownership of the Cuban operations is not structured properly, the effective long-term tax rate could still be as high as 63 percent.

As a result of the ruling, the only countries where foreign tax credit restrictions remain are in Iran, North Korea, Sudan and Syria.

 

About the Author: James W. Spencer, CPA, is a director with Berkowitz Pollack Brant’s International Tax Services practice, where he focuses on a wide range of pre-immigration, IC-DISC, transfer pricing and international tax consulting issues for individuals and businesses. He can be reached at the CPA firm’s Miami office at 305-379-7000 or via email at info@bpbcpa.com.

 

 

 

 

Domestic Corporations and Partnerships Face New FATCA Reporting Requirement by Christopher Galuppo, JD

Posted on April 07, 2016 by

Under the Foreign Account Tax Compliance Act (FATCA), individuals holding interest in specific foreign financial accounts are required to file with their Federal Tax Returns Form 8938, Statement of Specified Foreign Financial Assets. In 2011, the IRS issued proposed regulations that extended the reporting requirement to specified domestic entities. More recently, the IRS finalized these regulations requiring certain domestic corporations and partnerships to report their interest in foreign financial assets, beginning in tax years after December 31, 2015.

The final regulations differ from the proposed rules in several ways, including:

  • Elimination of the Principle Purpose Test, which required those partnerships and corporation considered to have been “formed or availed of for purposes of holding, directly or indirectly, specified foreign financial assets” to meet the reporting requirement. Going forward, this filing obligation will apply solely to entities for which “at least 50% of the corporation or partnership’s gross income or assets is passive.”
  • Clarification of which entities have a higher risk of being used for tax evasion, and therefore subject to the filing requirements, by expanding the scope and definition of passive income to include substitute dividends in the definition of “dividends” and expanding “interest” to cover income equivalent to interest, including substitute interest.
  • Addition of new exceptions to the passive income filing requirement, including certain active business gains or losses from the sale of commodities as well as an exception for dealers in specific financial instruments. Similarly, business conducted by entities “at least in part” by employees and whose rents and royalties are derived “at least in part” by employees of the entity will not be considered passive income and will not trigger a reporting obligation.

The accountants and advisors with Berkowitz Pollack Brant have deep experience working across orders to help domestic and multi-national entities meet compliance requirements while maximizing tax efficiencies.

About the Author: Christopher Galuppo, JD, is a director in the International Tax practice of Berkowitz Pollack Brant, where he works with individuals and businesses on a broad range of complex domestic and international issues, including inbound and outbound corporate taxation, advising and structuring domestic and international reorganizations, and acquisitions and dispositions.

 

Time to Check Your Withholding by Nancy M. Valdes, CPA

Posted on April 06, 2016 by

As Americans prepare to meet their April federal tax filing deadline, they should take the time to check that the correct amount of federal tax is being withheld from their paychecks. There are times when a taxpayers will be required to change their withholding and other times when such a modification will yield more advantageous tax benefits.

 

When to Change Withholding

The amount a worker earns in each pay period as well as the information he or she provides to an employer on Form W-4 helps to determine how much income tax the employer withholds from his or her regular paychecks. Influencing factors include the taxpayer’s marital status, the number of dependents he or she claims as well as credits and deductions for which he or she qualifies.  Therefore, when taxpayers experience a significant life event, such as a marriage, a divorce, a birth of a child or adoption, they should check their withholding and make adjustments accordingly.

 

Another signal that alerts taxpayers to check their withholding occurs when they receive a big refund from Uncle Sam or when they receive an unexpected tax liability.   The amount of federal income taxes withheld from their paychecks may be too much or not enough.  For high-earning taxpayers who are subject to the Net Investment Income Tax (NIIT) and the additional Medicare Tax, a request for their employers to deduct and withhold additional amounts of income tax from W-4 wages could reduce the likelihood of receiving a surprise tax bill.

 

Ideally, taxpayers should try to match their withholding with their actual tax liability. When too much tax is withheld, they may lose access to those funds during the year until they receive a tax refund.  When not enough tax is withheld, they may owe tax at the end of the year be required to pay interest and a penalty on the underreported amount.

 

How to Change Withholding 

Making adjustments to one’s withholding status and number of allowances is an easy process. Taxpayers simply need to complete the worksheets on a new Form W-4, Employee’s Withholding Allowance Certificate and submit it to their employers.  The IRS recommends taxpayers review their W-4s within 10 days after a change in marital status or exemptions, adjustments, deductions or credits he or she expects to claim on their returns.

 

About the Author: Nancy M. Valdes, CPA, is a senior manager with Berkowitz Pollack Brant’s Tax Services practice, where she focuses her practice on tax strategies for business owners and high-net-worth individuals and families. She can be reached at the CPA firm’s Miami office at (305) 379-7000 or via email at info@bpbcpa.com.

IRS Audit Yields Important Tax Planning Tips for International Trade Companies by Lewis Kevelson, CPA

Posted on April 01, 2016 by Lewis Kevelson

The Miami office of the IRS recently made public a Field Service Advice (FSA) memorandum that offers important guidance on how U.S.-based companies engaged in international trade should properly characterize certain intercompany profits arising from referral fees. While FSA memos are not authoritative from a legal standpoint, they do provide taxpayers with insight into how the IRS would likely rule in similar situations.

 

The focus of FSA memo 20153301F was a U.S.-based company (the “taxpayer”) that owned several foreign subsidiaries located in various countries. These subsidiaries, known for tax purposes as controlled foreign corporations or CFCs, sourced goods and provided post-sale support services to global customers.   At issue was 1) whether or not the taxpayer and its wholly owned foreign subsidiaries had to pay tax currently on certain intercompany profits arising from referral fees and 2) whether the U.S. taxation could be deferred until the CFCs repatriated the profits to the U.S. taxpayer in the form of dividends.

 

Background

 

In an effort to avoid interfering with the competiveness of U.S. multi-national companies, the IRS will generally allow these companies to defer taxes in cases where a CFC is actively engaged in business within its country of incorporation. For example, a U.S. company currently would not be subject to tax on the profits earned by a CFC engaged is a service-based operation (such as a restaurant) within its country of incorporation when the CFC’s employees provide the services and compete with other local businesses in the foreign jurisdiction.

 

The rules are more complex for property sales type transactions. More specifically, taxpayers may not defer taxes when a CFC derives profits from any of the following:

(1)  a purchase of personal property from a related person and its sale to any person;

(2)  a sale of personal property to any person on behalf of a related person;

(3)  a purchase of personal property from any person and its sale to a related person; or

(4)  a purchase of personal property from any person on behalf of a related person

Exceptions to these rules do apply if the CFC manufactures or sells the property within its country of incorporation. In the recent IRS FSA, however, the taxpayer’s CFCs did not manufacture their own property, and their sales on behalf of related parties occurred outside of their countries of incorporation. Therefore, the CFC profits should be taxable immediately to the U.S. taxpayer.

The Facts of the FSA Memorandum

In the case of the company at the subject of the FSA memo, the referral fees or commissions it generated occurred primarily between two CFCs: one CFC that employed “supply brokers” engaged in sourcing property for customers, and another CFC that employed “customer brokers” that dealt primarily with managing customer relationships. The customer broker CFC referred business to the supply broker CFC, who procured the property and arranged for delivery to the customer. In turn, the supply broker CFC paid a referral or commission fee to the customer broker CFC.

No written agreement existed to support the referral payment program between the taxpayer and the CFCs, nor was there a clear distinction regarding how much of the referral fee related to post-sale services.

 

The IRS focused its attention on the tax deferral of the intercompany referral fees, which the CFCs attributed to related-party product sales and service income for transactions involving customers located outside the CFCs’ countries of incorporation. The taxpayer took the position that the referral fees for post-sale services were not currently taxable because employees within the CFC’s country of incorporation performed the services.

The IRS, however, noted that because the post-sale functions were not distinguishable from the sales activity, all referral fees in question should be currently taxable.

 

Complicating the taxpayer’s defense was its difficulty explaining why it attributed the referral fees to service income when most of the functions conducted by the CFC’s customer and supply brokers were related to the sales cycle. In addition, the taxpayer had trouble supporting the amount of expenses it could attribute against the referral income in order to minimize the CFC’s profits. The taxpayer also could not support the idea that any of its expenses should be attributable to the service income because of the sales overlap and no clear and distinct services provided by the brokers.

 

In its finding, the IRS noted that no written agreement regarding the intercompany referral fees existed between the CFCs’ brokers, and the sales agreement did not specifically establish that any portion of the referral fee income was for post-sale services. Further, the service agreement did not designate a specific CFC to be responsible for providing the post-sale services. Another unfavorable factor for the taxpayer was that it based the service related payment on the gross margin from the product sale, which is usually not a factor used to determine a service-based fee.

 

The taxpayer could have earned a more favorable outcome if it had better documentation to support the intercompany agreements. For example, the company could have identified the responsible parties for the sales and service functions, detailed the manner by which it allocated referral fees and more clearly described what services were independent of the sales activity and the sales charge.

 

Companies with foreign operations should reach out to international tax advisors to explore additional methods of bolstering their documentation of intercompany activities.

 

About the Author: Lewis Kevelson, CPA, is a director with Berkowitz Pollack Brant’s International Tax practice, where he provides tax-compliance planning and business structuring counsel to real estate companies, foreign investors, international companies, high-net-worth families and business owners. He can be reached in the firm’s Boca Raton, Fla. office at (561) 361-2000 or via email at info@bpbcpa.com.

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