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The AICPA released for comment an exposure draft of proposed revisions to Statements on Standards for Tax Services (SSTS).

The revisions are intended to address changes in federal and state tax laws and new requirements for providing certain types of tax opinions. SSTS no. 1, Tax Return Positions, has been updated to clarify tax return reporting requirements for preparers. Because of some duplication between SSTS no. 6 and SSTS no. 7, which formerly divided discussions of a member’s learning of an error in a previously filed return into the contexts of return preparation and administrative proceedings respectively, those statements have been combined. Other passages throughout the SSTS have been reworded for clarity.

The SSTS are enforceable tax practice standards for AICPA members. They are intended to complement other standards, such as Treasury Department Circular no. 230, penalty provisions of the Internal Revenue Code and rules of state boards of accountancy.

The proposed revisions can be found in the Tax Division pages of the AICPA Web site at Comments may be sent by May 15, 2009, to or to the Tax Division at 1455 Pennsylvania Ave. NW, Washington, D.C. 20004-1081, to the attention of Edward S. Karl.

The IRS will scrutinize a type of transaction that taps 401(k) accounts and other tax-deferred retirement plans to fund business startups, the Service said in an audit guideline memo. The Service said it won’t necessarily challenge the transaction, called a “rollover business startup” or ROBS, but it will examine whether the arrangement constitutes a prohibited transaction between a profit sharing plan and its sponsor, among other possible law violations. The transaction has been promoted on the Web and at seminars as a method of funding new franchise businesses.

Typically in a ROBS, an individual creates a business or shell corporation as a C corporation that sponsors a profit sharing plan. The plan is authorized to invest in the corporation’s stock all assets attributable to rollover accounts. The individual becomes the corporation’s sole employee and plan participant. The individual rolls over a previously qualified retirement account into the new plan, investing its assets in the corporation’s stock and thus funding the business. Although the Service has issued some favorable employee plan determination letters for ROBS, the procedure raises issues of possible violations of nondiscrimination requirements and prohibited transactions stemming from deficient stock valuation and promoter fees being paid out of proceeds, the memo states. ROBS might also run afoul of rules requiring qualified plans to be permanent and operated for the exclusive benefit of employees and beneficiaries, the Service said.

The Housing Assistance Act of 2008, PL 110-289, expanded the safe harbor for certain sales by real estate investment trusts (REITs) of nonforeclosure property otherwise penalized as prohibited transactions. REITs are allowed a deduction from taxable income for dividends paid, but net income from the sale of property purchased through a foreclosure proceeding (foreclosure property) is excluded from the deduction (IRC § 857(b)(2)(D)). Also, sales of other property (nonforeclosure property) are subject to a 100% excise tax as a prohibited transaction if the property is held primarily for sale in the ordinary course of trade or business as described in section 1221(a)(1). The Code, however, provides a safe harbor that under prior law applied if the REIT (1) made no more than seven such sales during the taxable year, or (2) the aggregate adjusted basis of nonforeclosure property sold constituted no more than 10% of the basis of all assets as of the beginning of the taxable year, among other conditions of section 857(b)(6)(C). The Housing Act amended that section and subparagraph (D)(iv) to also allow as an alternative test measuring the 10% of sales by aggregate fair market value rather than adjusted basis.

Since the amendment took effect on the date of enactment, July 30, 2008, questions arose about how to apply the safe harbor in a taxable year that began before that date and ends after it. In Revenue Procedure 2008-69, the IRS said the 10%-of-basis test will be satisfied if met with respect to property sold during the portion of the taxable year preceding July 30, 2008, and the REIT meets the 10%-of-fair-market-value test for the entire taxable year.

What constitutes a “qualified appraiser” and “generally accepted appraisal standards” pertaining to noncash charitable contributions under requirements introduced by the Pension Protection Act of 2006 needs further clarification, leaders of three AICPA committees wrote the IRS in comments on proposed regulations. The letter, dated Nov. 8, was signed by Alan Einhorn, Robin E. Taylor and Thomas E. Hilton, who chair, respectively, the Tax Executive Committee, Business Valuation Committee and FVS Executive Committee. It was written in response to proposed regulations issued in August (REG-140029-07).

Prop. Treas. Reg. § 1.170A-17(a)(2) defines “generally accepted appraisal standards” as conforming to “the substance and principles” of Uniform Standards of Professional Appraisal Practice (USPAP) of the Appraisal Standards Board of the Appraisal Foundation. The committee chairs pointed out that transition guidance in Notice 2008-96 had simply cited USPAP as an example of a generally accepted appraisal standard. Because other standards, such as the AICPA’s Statement on Standards for Valuation Services no. 1, possess similar rigor and quality, the final regulations should not specify USPAP to the exclusion of other standards, they said. Prop. Treas. Reg. § 1.170A-17(b)(3)(ii) provides illustrations of professional coursework deemed to meet education requirements for qualified appraisers of various types of property. The committee chairs also recommended adding an illustration of a qualification for appraising businesses and intangible assets. Likewise, they registered concern that a list in Prop. Treas. Reg. § 1.170A-17(b)(2)(iii) of examples of designations meeting the qualification requirement does not include one for business valuation.


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