How To Know What To Do In A Business

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1 PEO/ASO/HRO Quarterly Update Insights & Observations for PEO/ASO/HRO Organizations In This Issue Significant Tax Breaks Expiring Soon...1, 2 New Rules For Goodwill Impairment Testing... 3 Texas: Changes On The Way... 4 Is Buying Or Selling A PEO In Your Future?... 5 Form UIA Volume 2 :: Issue 1 Significant Tax Breaks Expiring Soon Article written by Brandon Ernat, CPA With 2012 right around the corner, several significant tax benefits are set to expire at the end of this year and the next. The Bush-era tax cuts, which were approved in 2001, enhanced in 2003, and extended in 2010, are a combination of tax rate cuts and deductions that benefit households across the income scale. The expiration of these benefits will have a direct effect on all business owners of PEO s. The benefits set to expire over the next two years are as follows:clarity to PEO s that they will not be subject to professional or occupational licensing requirements that are applicable to their clients. This legislation also contains other provisions regarding state licensing for PEO s which will become effective next year. Continued on Page 2...

2 The Next Level Of Service UHY LLP Significant Tax Breaks Expiring Soon Continued from Page 1... Tax Benefits Expired 12/31/11 State and Local Sales Tax deductions ends Alternative Tax Exemptions is reduced School Teacher expense deduction Personal Tax credits applied against income tax no longer will apply Mortgage Insurance premium deduction ends College Tuition and related fees deduction expires IRA to charity tax-free transfer expires 2% Social Security tax reduction ends Tax Benefits Expiring 12/31/12 Qualified dividends now taxed at regular tax rates Capital gain rate of 15% expire Marriage penalty equalization ends Itemized deduction phase out for higher income Americans comes back Removal of personal exemption phase out for higher income Americans Child care deduction is reduced to $2,400 from $3,000 Child tax credit reduced from $1,000 to $500 per child 10% tax bracket is eliminated Higher income tax rates now apply Refundable adoption credit is eliminated American Opportunity college education credit ends Income tax exclusion for forgiven home foreclosure debt ends Student loan interest deduction ends Education IRA contribution limit drops from $2,000 to $500 in Farmington Hills (248) or Sterling Heights (586) or visit us on the Web at uhy-us.com. 2 UHY LLP PEO/ASO/HRO Quarterly Update Volume 2 :: Issue 1

3 UHY LLP The Next Level Of Service New Rules For Goodwill Impairment Testing Article written by Jeff Solis, CPA and Anthony Colucci, CPA, ABV The FASB has finalized the draft of a proposed Accounting Standards Update (ASU) that amends the current two-step goodwill impairment test. Currently, goodwill is tested for impairment at least annually using a two-step test. In Step 1, the fair value of a reporting unit is compared to the reporting units carrying amount. If the fair value is less than the carrying amount, then Step 2 (which essentially represents a purchase price allocation of the fair value determined in Step 1) is used to measure the amount of goodwill impairment. The intent of the new standard is to simplify the testing of goodwill for impairment by considering qualitative factors in determining whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount (now commonly known as Step 0 ) before initiating the current two-step test which typically requires the valuation of reporting units holding goodwill. Under the previous guidance, qualitative factors were only relevant in determining whether a goodwill impairment test had to be performed more often than annually (i.e. decline in stock price, reduction in forecasted revenues). Under the new guidance, the qualitative factors will govern whether or not the valuation test, Steps 1 and 2, is required at all. More specifically, one would assess the qualitative factors first to determine whether it is more likely than not that the fair value (FV) of a reporting unit is less than its current value (CV) as a basis for determining whether it is necessary to perform the current two-step test. If after the assessment of qualitative factors the entity determines that it is more likely than not that FV<CV, than they must continue with the first step of the current 2-Step impartment test. If after the assessment of qualitative factors the entity determines that it is not more likely than not that FV<CV, then the two-step test is not necessary to perform. Work closely with your auditors, valuation experts and financial accounting department to properly address the requirements of the ASU before conducting any impairment analyses on your PEO. The new ASU amendment applies to both public and nonpublic entities and is effective for fiscal years beginning after December 15, Early adoption is permitted. in Farmington Hills (248) or Sterling Heights (586) or visit us on the Web at uhy-us.com. Volume 2 :: Issue 1 PEO/ASO/HRO Quarterly Update UHY LLP 3

4 The Next Level Of Service UHY LLP Texas: Changes On The Way Article written by Brandon Ernat, CPA The Texas Department of Licensing and Regulation has proposed amendments to existing rules of the Texas Administration Code regarding Staff Leasing Services. These rule amendments are anticipated to become effective on December 31, License requirements needed in order to obtain an original full license consist of several factors. A person must provide to the department completed registration forms including all applicable forms, completed personal information form, a fingerprint card for the applicant, a complete criminal history questionnaire, documentation from the Secretary of State regarding authority to business in the state, the required fees, and proof of positive working capital. Proof of positive working capital as defined under the Texas Administrative Code (TAC) 72.40, consist of the following: An audited financial statement done by an independent certified public accounting; Financial statement is prepared in accordance with Generally Accepted Accounting Principles (GAAP); Is without qualification as to the going concern of the applicant; Reflects positive working capital on a date not earlier than twelve months before the date of the application; And is based on adequate reserve for taxes, insurance, and incurred claims. In the event that the Staff Leasing Services applicant cannot provide proof of positive working capital, due to lack of operating history, the applicant must meet additional requirements and provide the Texas Department of Licensing and Regulations with financial statements that have been reviewed by an independent certified public accountant. The additional requirements consist of a guaranty with the most recent audited financial statements of the guarantor, a surety bond, an original letter of credit, and/or another form of security acceptable to the executive director. This new law for Texas applies to both the full and limited licenses for staff leasing services. in Farmington Hills (248) or Sterling Heights (586) or visit us on the Web at uhy-us.com. 4 UHY LLP PEO/ASO/HRO Quarterly Update Volume 2 :: Issue 1

5 UHY LLP The Next Level Of Service Is Buying Or Selling A PEO In Your Future? Article written by Matt Munn, CPA The NAPEO Annual Marketplace that was recently held in Orlando, FL and one of the most attended breakout sessions had a panel of experts discussing M&A activity in the PEO industry. If you are considering a transaction, here are a few items from that session that could apply to you: Do you or your target have audited financial statements prepared by an outside CPA? Are you or your target ESAC accredited or have quarterly compliance checks done? Do you have an established data room where documents crucial to a deal are kept in one place? Do you have a team able to undertake due diligence? If you are thinking of exiting the PEO market and do not have any of the items above - don t worry, you still have options. First, you need to clean up your balance sheet and eliminate noncore assets. Next you need to start building your data room. This can be done by compiling three-five years of internal monthly financials and preparing schedules to support all of the add-backs to your annual earnings. Be careful with your add-backs to include such things as one-time or nonrecurring expenditures. Then make sure you understand how the different components of your company can impact the PEO valuation (ASO vs. PEO, insurance commission revenue stream, etc.). Lastly, review your tax diligence pieces to make sure you have impeccable compliance in payroll tax filings, out-of-state reporting compliance, unclaimed property resolution and any properly resolved DOL or IRS audit histories. Taking these few steps will allow your transaction to move much smoother. Having knowledgeable professionals to assist and guide you during the process will reap multiples at the table. Contact a member of UHY s PEO team today to learn more. in Farmington Hills (248) or Sterling Heights (586) or visit us on the Web at uhy-us.com. Form UIA 1005 The State of Michigan allows PEO s to use client level reporting for state unemployment tax purposes. PEO s wishing to switch to this reporting format are required to complete Form UIA 1005 to register their clients in compliance with Section 13m of the MES Act (Public Act 383 of 2010). Instead of completing Form 518, a PEO should complete this form for each of their clients for whom a UIA employer account number is needed. If a client is involved in a business transfer, Schedule B must also be completed and filed. Any questions about this form should be directed to Tax Status at (313) or by at TaxStatus@michigan.gov. Volume 2 :: Issue 1 PEO/ASO/HRO Quarterly Update UHY LLP 5

6 Experience That Gives You a Competitive Advantage UHY LLP recognizes that PEO organizations require their advisors to add value by understanding their business and the ever-changing regulations that surround their industry. As members of UHY LLP s National PEO Practice, our professionals have significant experience serving their clients. UHY LLP helps lead the industry in identifying and addressing new trends, accounting requirements, and regulations, ensuring our clients future success. Contact Our PEO Team Leaders Steven P. McCarty smccarty@uhy-us.com Matthew G. Munn mmunn@uhy-us.com uhyllp-us.com Georgia Maryland Michigan Missouri New York Texas Our Locations Atlanta Columbia Farmington Hills Sterling Heights St. Louis Albany New York Westchester Dallas Houston Additional UHY Advisors Locations Illinois New Jersey New York Texas Washington DC Chicago Oakland New York Houston Washington Our firm provides the information in this newsletter as tax information and general business or economic information or analysis for educational purposes, and none of the information contained herein is intended to serve as a solicitation of any service or product. This information does not constitute the provision of legal advice, tax advice, accounting services, investment advice, or professional consulting of any kind. The information provided herein should not be used as a substitute for consultation with professional tax, accounting, legal, or other competent advisors. Before making any decision or taking any action, you should consult a professional advisor who has been provided with all pertinent facts relevant to your particular situation. Tax articles in this newsletter are not intended to be used, and cannot be used by any taxpayer, for the purpose of avoiding accuracy-related penalties that may be imposed on the taxpayer. The information is provided as is, with no assurance or guarantee of completeness, accuracy, or timeliness of the information, and without warranty of any kind, express or implied, including but not limited to warranties of performance, merchantability, and fitness for a particular purpose. UHY Advisors, Inc. provides tax and business consulting services through wholly owned subsidiary entities that operate under the name of UHY Advisors. UHY Advisors, Inc. and its subsidiary entities are not licensed CPA firms. UHY LLP is a licensed independent CPA firm that performs attest services in an alternative practice structure with UHY Advisors, Inc. and its subsidiary entities. UHY Advisors, Inc. and UHY LLP are U.S. members of Urbach Hacker Young International Limited, a UK company, and form part of the international UHY network of legally independent accounting and consulting firms. UHY is the brand name for the UHY international network. Any services described herein are provided by UHY Advisors and/or UHY LLP (as the case may be) and not by UHY or any other member firm of UHY. Neither UHY nor any member of UHY has any liability for services provided by other members. 2012