Credit Unions Articles
Red Flags Rule
By: Dennis Gardiner, Partner | email
The Federal Trade Commission (FTC) has issued regulations known as the “Red Flags Rule” requiring certain entities to develop and implement a written Identity Theft Prevention Program. The purpose of the program is to assist the entity in identifying the red flags that indicate identity theft.
The Fair and Accurate Credit Transactions Act of 2003 requires creditors and financial institutions with covered accounts to implement programs to identify, detect, and respond to patterns, practices or specific activities that could indicate identity theft. The definition of a creditor applies to any entity that regularly extends or renews credit, or arranges for others to do so, and includes all entities that regularly permit deferred payments for goods and services. Municipal utilities and governmental entities that defer payment for goods or services are considered creditors for these purposes.
The Rule defines a covered account as a consumer account that allows multiple payments or any other account with a reasonably foreseeable risk of identity theft. An entity that regularly bills customers after services are provided is considered a creditor under the Red Flags Rule, and is required to develop a written Identity Theft Prevention Program.
The Identity Theft Prevention Program should include policies and procedures to identify the warning signs or “red flags” of identity theft in day-to-day operations, which are suspicious patterns or practices or specific activities that indicate the possibility of identity theft. The program should be designed to detect the red flags identified, state the appropriate actions to mitigate the risks of identity theft and address how the entity will periodically evaluate the program to address new identified risks. The Program must be approved by the governing body, and should include information about training staff and monitoring the work of the government’s service providers. Most important is that all members of the entity’s staff are familiar with the Red Flags Rule and the compliance procedures.
Enforcement of the rule has been extended to November 1, 2009 to give additional time for developing and implementing written identity theft prevention programs. There are no criminal penalties for failure to comply, however violators may be subject to financial penalties. In addition, compliance assures the entity’s customers that they are doing their part to fight identity theft.
A handbook on developing an Identity Theft Prevention Program and information about compliance is available at http://ftc.gov/redflagsrule as well as a fill-in-the-blank form for businesses and organizations at low risk for identity theft. The form can be filled out online and printed. Please contact us if you have any questions; we will be more than happy to help you.
FDIC Changes In Coverage
By: Gardiner Thomsen CPAs | email
Last fall the FDIC, due to the volatility in the markets, approved changes to insured limits and instituted temporary programs to ease depositors’ concerns about their accounts.
Effective October 3, 2008, the basic limit on the FDIC amount was increased from $100,000 to $250,000 per depositor through December 31st, 2009. On May 20, 2009, the FDIC extended the coverage date through December 31, 2013. (However, the extension does not apply to the Transaction Account Guarantee Program. The unlimited coverage under the Transaction Account Guarantee Program is only in effect for depositors at participating institutions through December 31, 2009.) On January 1st, 2014, coverage will revert to $100,000, except for certain retirement accounts.
On October 14th, 2008, FDIC officials announced the Temporary Transaction Account Guarantee Program. This program covers all personal and business checking deposit accounts that are non-interest-bearing and deposited with an institution participating in this program.
A “non-interest-bearing transaction account” is one on which interest is neither accrued nor paid and on which the insured bank does not require advance notice of a withdrawal. However, for purposes of the Program, the FDIC is including in the definition of a non-interest-bearing transaction account: traditional demand deposit checking accounts that allow for an unlimited number of deposits and withdrawals at any time; low-interest negotiable order of withdrawal accounts (NOW accounts) that can earn no more than 0.5% interest; other interest-bearing checking accounts; Money Market Deposit Accounts (MMDAs); savings accounts; Certificates of Deposit (CDs); accounts commonly known as Interest on Lawyers Trust Accounts (IOLTAs), and functionally equivalent accounts.
Coverage for eligible accounts under this temporary program is unlimited. This program is scheduled to end December 31st, 2009.
It is important for you to consider these new coverage limits and dates and include them as part of your company’s cash management policies.
FDIC Deposit Insurance Coverage Limits (Through December 31, 2013)
| Single Accounts (owned by one person) | $250,000 per owner |
| Joint Accounts (two or more persons) | $250,000 per co-owner |
Certain Retirement Accounts (includes IRAs) |
$250,000 per owner |
| Revocable Trust Accounts | $250,000 per owner per beneficiary up to 5 beneficiaries (more coverage is available with 6 or more beneficiaries subject to specific limitations and requirements) |
| Corporation, Partnership and Unincorporated Association Accounts | $250,000 per corporation, partnership or unincorporated association |
| Irrevocable Trust Accounts | $250,000 for the non-contingent, ascertainable interest of each beneficiary |
| Employee Benefit Plan Accounts | $250,000 for the non-contingent, ascertainable interest of each plan participant |
| Government Accounts | $250,000 per official custodian |
“Red Flags Rule” Enforcement Delayed
By: Gardiner Thomsen CPAs | email
Businesses now have until August 1st, 2009 to comply with the Federal Trade Commission’s (FTC) “Red Flags Rule.” The Fair and Accurate Credit Transactions Act of 2003 directed financial regulatory agencies, including the FTC, to create rules requiring “creditors” and “financial institutions” with covered accounts to implement identity theft prevention programs. These rules became known as the “Red Flags Rule.” Due to the uncertainty of some entities as to whether or not they were covered by the compliance requirement, the FTC extended the compliance date. This extension should allow those entities who are required to comply ample time to develop and implement identity theft prevention programs.
In addition, the FTC has developed a compliance guide to help businesses understand if they are covered by this requirement and help these businesses develop appropriate identity theft prevention programs. The guide can be accessed at www.ftc.gov/redflagsrule.
While the FTC has delayed enforcement of this rule, identity theft remains a major concern throughout the United States. According to the FTC resource web site, in 2008, Iowa ranked only at 48th in the nation for Identity Theft complaints as a percentage of population. Compared to Arizona in 2008, at 149 complaints per 100,000 people (1st), Iowa only had 44.9. Minnesota came in at 67.6 (35th), South Dakota at 33.8 (50th), Nebraska at 59.2 (37th), Kansas at 71.6 (34th), Missouri at 75.0 (27th), Illinois at 106.4 (8th), and Wisconsin at 56.0 (41st).
If you have any concerns or questions about identity theft, you can visit www.ftc.gov or call us and we’ll help you sort it all out.
Turn To GT For Your Form 990 Tax Filing
By: Gardiner Thomsen CPAs | email
PolicyWorks recently notified credit unions that the 2008 tax year would be their last year of filing a group Form 990. PolicyWorks sighted a number of reasons, one being that “due to increasing complexity, we feel credit unions are better served seeking advice from professionals with tax/accounting expertise”.
With that in mind, PolicyWorks contacted us and we agreed to offer a discounted price of $450-$650 to credit unions to prepare their individual Form 990.
Not only do we offer you the value-added benefits of our credit union focused experience, but we also offer you the peace of mind of being a firm recommended by PolicyWorks for this service. We have been preparing Form 990 for credit unions for the past several years and welcome the opportunity to extend this service to our existing credit union clients and other credit unions wanting to turn to us.
If you would like further information on this or any other service, please call us.
Repeal of the UBIT Tax
By: Gardiner Thomsen CPAs | email
For the past few years, state charted credit unions have been taxed on unrelated business taxable income. Taxed items included credit life, credit disability and other insurance products which Credit Unions have been selling to their members. Recently, two cases have challenged the IRS ruling that income from the sale of these products should be subject to UBIT.
Community First Credit Union of Appleton, Wisconsin was first to file a claim for the refund of UBIT paid on the sales of certain insurance products. After the IRS failed to act timely on the claim for refund, the Credit Union sued the IRS for a refund in their federal district court. On May 15, 2009, a jury found in favor of the Credit Union. The IRS may appeal to the U.S. Court of Appeals.
Bellco Credit Union of Greenwood Village, Colorado has a similar case still pending. In Bellco’s case, the IRS moved to dismiss the proceedings stating they needed more time to review the claim for refund. The court rejected the IRS’s motion. A court date will be set for sometime in the summer of 2009.
If Community First and Bellco ultimately prevail against the IRS, other credit unions will have the same opportunity to apply for a refund from the IRS for similar related product sales and may not be taxed on these products in the future.
Congress Passes Corporate Bailout Bill
By: Gardiner Thomsen CPAs | email
Recently, Congress passed and the president signed into effect, a corporate bailout bill that impacts credit unions. This bill creates a Corporate Credit Union Stabilization Fund, essentially allowing the NCUA to borrow up to $6 billion from the Treasury in order to cover the losses suffered by U.S. Central Federal Credit Union and WesCorp Federal Credit Union.
On June 18, 2009, the Board of the NCUA approved a $1 billion payment to the National Credit Union Share Insurance Fund (NCUSIF) from the Stabilization Fund releasing the NCUSIF from its present obligations related to corporate stabilization actions. We would like to clarify what this means for the impairment that you have already recognized for 2008 or 2009, and why we are not reversing the entry and reissuing our financial statements.
Per Generally Accepted Accounting Standards, once an impairment is recognized it cannot be reversed. Rather, the Board of the NCUA has passed back income from the NCUSIF due to the payment from the Stabilization Fund. Then, they took the income passed back and used it as payment to recapitalize the NCUSIF Deposit.
Essentially, the NCUSIF paid the credit unions for their shares of the Stabilization payment, then collected that payment back in order to bring the NCUSIF Deposit back to the required 1% of insured shares. Per the NCUA Letter to Credit Unions for June 2009, an entry should be made in the second quarter to record the income received from the NCUSIF and the redeposit of those funds back to the NCUSIF.
The NCUA has also, based on new information, lowered the estimated premium expense from an expected .3% of insured shares to only .15% due in the later half of 2009. Therefore, the liability recognized should be written down to the updated estimate of .15% and the related expense recovered.
The bailout bill also extends the deposit insurance coverage of $250,000 for four years, until December 31, 2013. Along with extending the coverage, the NCUSIF will begin assessing the required NCUSIF deposit off of the $250,000 limit rather than $100,000 as in the past. If there are any questions or issues in regard to this recent legislation, feel free to contact us and we will discuss it in further detail.
New COBRA Provisions in the Stimulus Law
For employers, the time is now to comply with a little-known provision in the new stimulus law, signed by President Obama on February 17th. Part of the American Recovery and Reinvestment Act of 2009 is a revamping of COBRA law for certain employees.
The new key provision: Individuals who were terminated on or after September 1, 2008, who qualified for COBRA but declined coverage, now have the right to choose to be covered — with a government-paid subsidy of the insurance premium. The COBRA premium subsidy runs for up to nine months for persons who become eligible because of an involuntary termination between Sept. 1, 2008 and Dec. 31, 2009.
The key date is March 1: Employers who terminated employees between September 1, 2008 and March 1, 2009 must notify qualifying employees who declined COBRA coverage that they (and their spouses, ex-spouses, and qualifying dependents) now have the right to choose to continue coverage.
An employer’s notice must tell eligible individuals they have a new 60-day period in which to elect COBRA coverage. If they do so, under the new law, the premium subsidy ends after 9 months or when they become eligible for health insurance coverage from another employer or enroll in and are covered by Medicare, whichever is sooner.
Organizations that terminate employees on or after March 1, 2009 must notify them (and their qualifying spouses, ex-spouses, and dependents) of the right to continue coverage if they’ve been in an employer’s benefit plan. Employers must use a federal government issued model notice, which must be sent to eligible individuals within 60 days of the enactment date of the new law, which was February 17th, 2009.
Here’s a rundown of other COBRA changes:
- Starting March 1, COBRA premiums may not exceed 35 percent of the cost. The remaining premium cost must be paid by employers, who then can claim a tax credit against wage withholding and payroll taxes to cover their paid portion of the premiums.
- Individuals are not eligible for COBRA subsidies in a year when their adjusted gross incomes (AGIs) exceed certain limits.
- The employer can permit eligible individuals to switch their coverage option to a less expensive choice when they elect to exercise their COBRA rights. This is a change from the previous COBRA provision that allowed qualifying individuals only to continue the coverage option they had as active employees.
- COBRA Assistance eligible individuals pay a reduced premium equal to 35% of the full COBRA premium. The employer pays the other 65% and then is reimbursed for the subsidy by the federal government by taking a credit on its quarterly payroll tax return (Form 941).
For additional information, there are several resources available. The Department of Labor’s website offers a COBRA premium reduction fact sheet, employer and employee FAQs, and other helpful information on COBRA payments and credits. The IRS has modified Form 941 to handle the COBRA credits, and the new form, instructions, and Q&As can be linked to through an IRS news release that explains the changes.
10 Significant Changes in Tax Incentives Made By New Stimulus Law
By: Gardiner Thomsen CPAs | email
The latest economic stimulus law, enacted on February 17, 2009, contains tax incentives designed to get the stagnant U.S. economy moving again. Here are 10 significant changes that might have an impact on your business.
Change #1: Some Businesses Can Carry Back 2008 Losses Up to Five Years
Under the new law, eligible businesses can elect to carry back 2008 net operating losses (NOLs) for either three, four, or five years to claim refunds of federal income taxes paid for earlier years. Certain deadlines apply, and the election privilege is only allowed for businesses with average annual gross receipts of $15 million or less for the three-year period that precedes the loss year for which the election is made.
Change #2: Extension of $250,000 Section 179 Depreciation Allowance
The new law extends the Section 179 first-year depreciation write-off by one year, increasing the maximum deduction from $133,000 to $250,000 for 2009. The new law also extends the phase-out threshold for new qualifying property by one year, increasing the threshold from $530,000 to $800,000 for 2009. For tax years beginning in 2010, the maximum deduction amount and the threshold will fall back to much lower amounts unless Congress takes further action.
Change #3: Extension of 50 Percent First-Year Bonus Depreciation
The Recovery Act extends the beneficial 50 percent first-year bonus depreciation provision to cover qualifying new assets that are placed in service by December 31, 2009. (A later deadline applies to limited assets described below.) To be eligible for 50 percent first-year bonus depreciation, an asset must be new qualified property and must be placed in service by December 31, 2009 or by December 31, 2010 for certain long-lived assets, transportation equipment, and aircraft.
Change #4: Bigger First-Year Write-offs for Autos and Light Trucks
For a new passenger auto or light truck that falls under the luxury auto depreciation limitation rules, the 50 percent first-year bonus depreciation benefit translates into an $8,000 increase in the maximum write-off obtained in the first year. Assuming 100% business use of the vehicle, for new cars placed in service in 2009, the estimated maximum first-year depreciation deduction is $10,960. For new light trucks the estimated maximum first-year depreciation deduction is $11,060.
Change #5: Favorable AMT Depreciation Side Effect
Fortunately, 50 percent first-year bonus depreciation applies equally for both regular tax and Alternative Minimum Tax (AMT) purposes. Just as good, there are no AMT adjustments necessary for depreciation deductions claimed for the remaining 50 percent of depreciable basis left after subtracting the bonus depreciation write-off. In other words, when 50 percent first-year bonus depreciation is claimed for an asset, the rules are the exactly the same for both regular tax and AMT purposes.
Change #6: Corporate Option to Claim Certain Credits Instead of Bonus Depreciation
Under prior rules, corporations could elect to forego claiming 50% first-year bonus depreciation deductions, for qualified assets that were purchased after March 31, 2008 and placed in service by December 31, 2008 (or December 31, 2009 for certain assets), in lieu of using other credits, allowing the company to offset both regular tax and AMT liabilities.
The new law extends these deadlines to December 31, 2009 and December 31, 2010, respectively, and it also provides electing corporations with three options for choosing the best mix of available credits and bonus depreciation.
Change #7: Income Triggered by Reacquiring Taxpayer’s Own Debt at a Discount Can Be Deferred
Under the new law, a business that reacquires its own debt at a discount in calendar years 2009 and 2010 can defer the resulting taxable debt discharge income (DDI) and spread the DDI over five years after the deferral period is over. This may allow financially stressed businesses to restructure their debts in a tax-favored manner.
Change #8: Tax Break for Some S Corporation Built-In Gains
When a C corporation switches to S corporation status, the built-in gains tax (BIG tax) applies to assets that have built-in gains as of the C-to-S corporation conversion date. The new law grants a temporary BIG tax exemption for gains recognized from an S corporation’s tax years beginning in 2009 and 2010, but only if seven years have passed since the conversion date.
Change #9: Subsidized COBRA Coverage for Terminated Workers.
COBRA (Consolidated Omnibus Budget Reconciliation Act) Assistance eligible individuals who were involuntarily terminated as of September 1st, 2008 are now provided a new 60-day period to elect coverage if they had previously declined it. All COBRA eligible individuals as of March 1st will only be required to pay 35 percent of the health plan premiums while the federal government will subsidize the remaining 65 percent. The government subsidy will generally come in the form of a federal payroll tax credit for the employer on its quarterly employment tax return. This change is explained in more detail in a separate article in this newsletter.
Change #10: Liberalized Gain Exclusion for New Issues of Small Business Stock
Under Section 1202 of the tax code, non-C corporation sellers of qualified small business corporation stock can potentially exclude up 50 percent of their gains from federal income taxation (subject to several limitations).
To encourage more investment in qualified small business corporations, the Recovery Act increases the gain exclusion percentage from 50 to 75 percent. This beneficial change only applies to qualifying sales of eligible shares that are issued between February 18, 2009 and December 31, 2010.
This is just an overview of only 10 important changes made by the new Stimulus Law. For further detail on these and additional changes potentially affecting the tax liability of your company, please call us. We’re here to help.
Sections 199 Deductions
By: Dennis Gardiner, Partner | email
Gardiner Thomsen, CPAs has been researching and discussing the “new” approach to the Section 199 Deduction (Qualified Domestic Production Deduction) now for over a year. And what an interesting year it has been. We continue to address how to best utilize the Section 199 Deduction. We are taking a step back and looking at what options or opportunities you have for best utilizing the deduction. By that we mean, continue to utilize at the Cooperative level, pass the benefit through to the patron or a combination of both. We envision recommending some alternatives that will utilize non-qualified patronage allocations also. Our goal is to help you further strengthen your balance sheets and manage your members’ equity to best fit your situation or long-term plans.
You will be hearing from your GT professional in the coming months as we begin to approach your fiscal year ends.
Mergers – No More Pooling
By: Dave Thomsen, Partner | email
For many years, two methods of reporting mergers, the purchase method and the pooling of interests method, had been available to account for mergers and acquisitions “in accordance with generally accepted accounting principles.” In 2001, the Financial Accounting Standards Board (FASB) discontinued the acceptance of the pooling of interest method except for certain business entity types such as mutual enterprises like Farmer cooperatives. However, the FASB has recently issued Statement No. 141(R) that now eliminates the pooling of interests method altogether and also introduced other new requirements to be considered in most, if not all, business combinations.
As most of you know, the pooling of interests method simply combined the accounts of each merging company at book value, with no adjustments to reflect market value differences. In addition, retained savings of both companies were also combined.
On the effective date of FASB 141(R), any new business combination will be required to use the purchase method to measure and recognize the fair value of all assets and liabilities of the companies being combined. A few of the significant issues we see from this new approach are:
- Under the purchase method, one company will be identified as the Acquirer and the other(s) as the Acquired.
- Greater attention will now be placed on the fair value of assets as compared to book value. This applies to both the Acquirer and the Acquired. Appraisals of property and equipment will be much more common in mergers than in the past, and though investments in other cooperatives will be recorded at cost, an adjustment may be included to reflect fair value based on present value calculations.
- Rather than adding the retained savings of the Acquired company to those of the Acquirer, that retained will disappear and any additional value of unallocated equity, net of fair market valuation adjustments may transfer to allocated equities (write-ups as opposed to write-downs) or be recognized as a bargain purchase gain or goodwill.
Previous mergers have always tried to take into consideration “balance sheet equalization.” That equalization will continue with future mergers, only it will become more transparent.
The new rules are effective for business combinations with acquisition dates that occur on or after the first annual reporting period beginning on or after December 15, 2008.
For help in understanding the new guidelines under FASB 141(R), please give us a call.