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UPDATE: Supreme Court Rules States Must Allow Same-Sex Marriage (June 2015)
On June 26, the U.S. Supreme Court issued a ruling in the same-sex marriage case of Obergefell v. Hodges. The Court ruled 5-4 that same-sex couples in the United States have a constitutional right to marry, no matter where they live. This means that same-sex marriage is now legal in all 50 states. Listen to a podcast from Tom Tillery on the implications of this decision and send a Forefield alert on the ruling to your relevant clients.
UPDATE: AICPA Guidance on Holding Out as “Fee-Only” (June 2015)
Fee-only advisers are compensated only by the fees charged directly to their clients and not via the sale of financial products. Fee-only compensation includes hourly, fixed, flat project-fee basis, retainer or percentage fees based on assets under management.
It was recently highlighted that several of the firms identified in CNBC’s “Top 100 Fee-Only Wealth Management Firms” share in insurance commissions, own an insurance agency, or are under common ownership alongside an insurance affiliate to which advisory clients are referred.
Importantly, an AICPA member would be in violation of the AICPA Code of Professional Conduct’s “Advertising and Other Forms of Solicitation Rule” [1.600.001] if the member’s promotional efforts are false, misleading, or deceptive. Holding out as “fee-only,” but not acting as such would be a violation of the code of conduct and could result in an ethics investigation. State boards of accountancy have similar rules in place. Additionally, the Statement on Standards in PFP Services requires full transparency on how members are compensated [para. 22 and 23].
UPDATE: NASAA Releases Model Rule on Business Continuity and Succession Planning (April 2015)
The North American Securities Administrators Association recently approved a model rule requiring advisers to plan for how to keep their practices going in the event of a natural disaster or the death of an executive. Plans must indicate how firms will limit business disruptions by preserving records, communicating with clients and taking other steps. States must adopt the model rule before it takes effect.
UPDATE: Achieving a Better Life Experience Act - ABLE Act of 2014 (December 2014)
On December 19, 2014, the Achieving a Better Life Experience Act (ABLE Act of 2014) was signed into law. The vote concluded a campaign that first began in 2006 to approve the use of tax-free savings accounts for individuals with disabilities to cover expenses not covered by government sponsored programs. The ABLE Act allows for those with disabilities to have a supplemental source of income beyond those provided by governmental programs, such as Medicaid and social security. The passage of the ABLE Act is significant given that the National Disability Institute estimates that there are 58 million individuals with disabilities in the United States.
WealthCounsel, ElderCounsel, and its authors, Jeremiah Barlow, JD and Stephen Dale, JD, LLM share a whitepaper outlining what the ABLE Act of 2014 accomplishes, its significance, eligibility, when the accounts will be available, and what this means from a planning perspective and more.
UPDATE: SEC Issues Guidance on Advisers' Use of Social Media Testimonials (March 2014)
The SEC issued Guidance Update 2014-4, which provides guidance concerning RIAs’ use of social media and their publication of advertisements that feature public commentary about them that appears on independent, third-party social media sites.
The guidance allows advisers to feature public testimonials from third party social media sites on their own websites, as long as all testimonials are included. The staff of the Division of Investment Management has defined “testimonial” as a “statement of a client’s experience with, or endorsement of, an investment adviser,” which includes positive and negative experiences.
Further, advisers who direct clients to their social media sites (e.g., advertisements that say “Check us out on Facebook!”) will not be deemed as soliciting testimonials from clients. Lists of friends/contacts/followers on social media will not be construed as testimonials or endorsements, provided that they are not grouped or listed as current or past clients and the adviser does not create the inference that these contacts have experienced favorable results.
The guidance also covers social media fan pages created by third-parties. The SEC strongly cautions advisers that such sites may be viewed as testimonials if the adviser has a material connection to the page and/or is not deemed independent. Read additional commentary on the new guidance from Michael Kitces.
ADVOCACY: Fewer Types of Retirement Plans and Simpler Rules Would Help Small Business Owners (October 2013)
Congress should consolidate and simplify the types of tax-favored retirement plans now available to small business owners in order to minimize the cost and administrative burden imposed by the plans, the AICPA said in written testimony submitted for the record of the House Small Business Committee’s Oct. 2 hearing entitled The Challenge of Retirement Savings for Small Employers.
Jeffery Porter, chair of the AICPA Tax Executive Committee, identified the following possible measures for simplifying the number and complexity of the various types of retirement plans in the testimony:
- Create a uniform employee contributory deferral type plan.
- Eliminate the nondiscrimination tests based on employee pre-tax and Roth deferrals for 401(k) plans.
- Create a uniform rule regarding the determination of basis in distributions.
- Create a uniform rule of attribution.
- Create a uniform definition for terms to define owners.
- Eliminate the required minimum distribution rules.
- Create uniform rules for early withdrawal penalties.
UPDATE: FinCEN Makes FBAR Changes, Provides New E-Filing Form and Info (August 2013)
To facilitate the e-filing of FBARs, the Financial Crimes Enforcement Network has released a new FBAR e-filing authorization form. The new form, FinCEN Form 114a, Record of Authorization to Electronically File FBARs, is to be used by filers who submit FBARs jointly with their spouses, or through third-party preparers. The form should not be filed with the FBAR but copies of it must be maintained by both the filer and the account holder and made available upon request by FinCEN or the IRS. FinCEN also announced changes to their originally issued BSA Electronic Filing Requirements For Report of Foreign Bank and Financial Accounts (FinCEN Report 114), which details the requirements for the e-filing of FBARs.
UPDATE: Financial Crimes Enforcement Network Extends FBAR Filing Date for Select Filers (December 2012)
On Dec. 26, 2012, the Financial Crimes Enforcement Network (FINCEN) issued Notice 2012-2, which further extends the due date for filing the Report of Foreign Bank and Financial Accounts (FBAR), form TD F 90-22.1, from June 30, 2013 to June 30, 2014 for select filers. The additional time extends both to certain individuals and employees or officers of investment advisers registered with the SEC who have signature authority over but no financial interest in one or more foreign financial accounts.
UPDATE: IRS Clarifies Offshore Volunteer Disclosure Program and Announces Catch-up for “Low Risk” Individuals on Late FBARs (June 2012)
On June 26, the IRS announced that it has collected more than $5 billion in its offshore voluntary disclosure programs (IR-2012-64), the third of which was announced in January this year. At the same time, it also released 55 questions and answers updated for the 2012 program, and noted that it had closed what it called a “loophole” in the current program.
Under existing law, a taxpayer who challenges a disclosure of tax information in a foreign court is required to notify the U.S. Justice Department of the appeal. If a taxpayer fails to disclose this, he or she is ineligible for the disclosure program. Under the 2012 program, the IRS may also announce that certain taxpayer groups that have (or have had) accounts at specific financial institutions will be ineligible for the disclosure program because the U.S. government is taking actions in connection with those financial institutions. With today’s release, the IRS put taxpayers on notice that their eligibility for the disclosure program could be terminated in these circumstances. Read more from the Journal of Accountancy.
In related news, the IRS announced a new option to help some U.S. citizens and others residing abroad who haven’t been filing tax returns to provide them a chance to catch up with their tax filing obligations if they owe little or no back taxes. The IRS is promising to release more details, but under the new procedure, taxpayers would be required to file delinquent returns for the past three years and delinquent FBARs (Forms TD F 90-22.1, Reports of Foreign Bank and Financial Accounts) for the past six years and to pay any related federal tax and interest due. After reviewing the returns, the IRS may not assert penalties or pursue follow-up actions, if it deems the taxpayer to present a “low compliance risk.” The new rules will go into effect on September 1, 2012.
There are also new procedures for taxpayers who have foreign retirement plans (such as Canadian Registered Retirement Savings Plans) to resolve certain issues. In some circumstances, under tax treaties these plans qualify for income deferral if a timely election is made. The “streamlined procedures” help taxpayers who failed to make the election (IR-2012-65, see also OVDP FAQs 54–55).
UPDATE: IRS Announces Third Offshore Voluntary Disclosure Program (January 2012)
On January 9, the IRS reopened the offshore voluntary disclosure program to help people with unreported offshore accounts get current with their taxes. The IRS also announced the collection of more than $4.4 billion so far from the two previous international disclosure programs.
The program is similar to the 2011 program in many ways, but with a few key differences. Unlike last year, there is no set deadline for people to apply. However, the terms of the program could change at any time going forward. For example, the IRS may increase penalties in the program for all or some taxpayers or defined classes of taxpayers – or decide to end the program entirely at any point. The overall penalty structure for the new program is the same for 2011, except for taxpayers in the highest penalty category. Visit IRS for more information.
UPDATE: SEC Issues Risk Alert on Investment Adviser Use of Social Media (January 2012)
On January 4, 2012, the staff of the SEC’s Office of Compliance Inspections and Examinations issued a National Examination Risk Alert, which provides staff observations based on a review of investment advisers of varying sizes and strategies that use social media. In growing numbers, registered investment adviser firms are using social media to communicate with existing and potential clients, promote services, educate investors, and recruit new employees.
“As investment advisers increasingly utilize social media to communicate with clients and potential clients, firms need to be mindful of the applicable standards governing those communications,” said Carlo di Florio, Director of the Office of Compliance Inspections and Examinations (OCIE).
The alert reviews concerns that may arise from use of social media by firms and their associated persons, and offers suggestions for complying with the antifraud, compliance, and record keeping provisions of the federal securities laws. The alert notes that firms should consider how to implement new compliance programs or revisit their existing programs in the face of rapidly changing technology.
UPDATE: FINRA Issues Further Guidance on Social Media Websites and the Use of Personal Devices for Business Communications (September 2011)
The Financial Industry Regulatory Authority (FINRA) has published additional guidance on how advisers can use Facebook, Twitter and other social media sites to communicate with their clients. Regulatory Notice 11-39 (Social Media Websites and the Use of Personal Devices for Business Communications) released in August 2011, provides further clarification of the guidance provided in Regulatory Notice 10-06 (Social Media Web Sites) in January 2010.
Since the release of Notice 10-06, FINRA has received numerous inquiries regarding the application of the rules. Notice 11-39 responds to these questions by providing further clarification concerning application of the rules to new technologies. It is not intended to alter the principles or the guidance provided in Notice 10-06. The August Notice contains 14 questions and responses to these inquiries relating to Record keeping; Supervision; Links to Third-Party Sites; and Data Feeds. Read more about these notices.
Note that the SEC has not issued formal guidance for investment advisers as it relates to social media, instead focusing on applying existing rules. The SEC recently began a sweep of advisers to gather information about their use of social media. Hear from industry experts on the best practices for CPAs when using social media.
UPDATE: Additional Extension Until September 9th for Various OVDI and Certain Other Filings Previously Due August 31, 2011 (August 2011)
Due to Hurricane Irene, the IRS announced that it has extended the deadline for the 2011 Offshore Voluntary Disclosure Initiative (OVDI) filing to Friday, September 9, 2011 (from August 31, 2011). The IRS further announced that the September 9, 2011 extended due date will also apply to certain late filed information returns that are officially excluded from the OVDI, but that are permitted to be filed without late filing penalties per the IRS’s OVDI’s Frequently Asked Questions (FAQs) numbers 17 and 18. For more information, see AICPA’s OVDI resource page.
UPDATE: Treasury and IRS Issue Guidance Outlining Phased Implementation of FATCA Beginning in 2013 (July 2011)
On July 14th, the Treasury Department and the IRS issued a notice announcing plans to phase in the requirements of the Foreign Account Tax Compliance Act (FATCA). The new law targets noncompliance by U.S. taxpayers through foreign accounts. Under the notice’s phased implementation approach, foreign financial institutions and U.S. withholding agents are given adequate time to build the systems needed to fully comply with FATCA. Read Notice 2011-53.
ADVOCACY: Clarification Requested on FBAR (July 2011)
The AICPA has written to the Financial Crimes Enforcement Network (FinCEN) regarding reports of foreign financial accounts (FBAR) to request clarification whether the following signatories are required to file an FBAR for pre-2010 calendar years:
- Officers or employees of a domestic corporation listed on a U.S. national securities exchange (or the officers or employees of its more than 50-percent owned domestic and foreign subsidiaries), or
- The officers or employees of a corporation with over $10 million in assets and 500 or more shareholders (or the officers or employees of its more than 50-percent owned domestic and foreign subsidiaries).
UPDATE: IRS Issues Foreign Financial Account Reporting Guidance (April 2011)
The IRS issued a second notice giving guidance on various reporting requirements under the Foreign Account Tax Compliance Act (FATCA) (Notice 2011-34). The notice responds to concerns raised by commenters following the issuance last August of Notice 2010-60, which contained preliminary guidance on implementation of the FATCA rules, including procedures for participating foreign financial institutions to follow in identifying U.S. accounts among their pre-existing individual accounts. For more information on the scope of the notice, click here to read more from Journal of Accountancy.
UPDATE: SEC Model Privacy Form (April 2011)
In December 2009, the SEC and seven other federal agencies published final amendments to their rules that implement the privacy provisions of Subtitle A of Title V of the Gramm-Leach-Bliley Act. These rules require financial institutions to provide initial and annual privacy notices to their clients. The Agencies adopted a model privacy form along with Sample Clauses that financial institutions (including registered advisers) may rely on as a safe harbor to provide disclosures under the privacy rules. For more information on the 2009 amendments, including the transition period, as well as an April 7th settlement for violations of the Privacy Rule and Safeguards Rule of Regulation S-P, click here.
ADVOCACY: AICPA Weighs in on Foreign Trust & HIRE Act (March 2011)
Congress made several changes last year to the laws governing foreign trusts in the Hiring Incentives to Restore Employment (HIRE) Act enacted in 2010. The AICPA Foreign Trust Task Force submitted a letter to IRS requesting guidance regarding some of the changes to avoid undue burden on taxpayers.
UPDATE: SEC’s Pay to Play Rules (March 2011)
The SEC’s new "pay to play" rules for investment advisers took effect on March 14, 2011 and FAQs were released by the SEC last week. Pay to play is the practice of making campaign contributions and related payments to elected officials in order to influence the awarding of lucrative contracts for the management of public pension plan assets and similar government investment accounts. The rule adopted by the SEC last summer includes prohibitions intended to capture not only direct political contributions by investment advisers, but also other ways that advisers may engage in pay to play arrangements.
The new SEC rule has three key elements:
- It prohibits an investment adviser from providing advisory services for compensation — either directly or through a pooled investment vehicle — for two years, if the adviser or certain of its executives or employees make a political contribution to an elected official who is in a position to influence the selection of the adviser.
- It prohibits an advisory firm and certain executives and employees from soliciting or coordinating campaign contributions from others — a practice referred to as "bundling" — for an elected official who is in a position to influence the selection of the adviser. It also prohibits solicitation and coordination of payments to political parties in the state or locality where the adviser is seeking business.
- It prohibits an adviser from paying a third party, such as a solicitor or placement agent, to solicit a government client on behalf of the investment adviser, unless that third party is an SEC-registered investment adviser or broker-dealer subject to similar pay to play restrictions. Compliance with this requirement goes into effect on September 13, 2011.
Investment advisers subject to the new rule (those with clients who are government entities) must begin to maintain records of all persons who are covered associates under the rule and keep records of political contributions they make on and after that date. Advisers must also make and keep a record of all government entities that they provide advisory services to on and after March 14, 2011. Advisers are not, however, required to look back for the five years prior to the effective date to identify former government clients. Advisers that pay regulated persons to solicit government entities for advisory services on their behalf must make and keep a list of those persons beginning on and after September 13, 2011. Click here for the full rule.
UPDATE: New Offshore Voluntary-Disclosure Initiative Announced (February 2011)
In an effort to get more taxpayers with undisclosed offshore accounts or assets to comply with U.S. tax law, on February 8th, the IRS announced a second offshore voluntary-disclosure initiative, which will run through August 31st. Under the program, taxpayers can avoid criminal prosecution and various civil penalties if they file returns and pay tax and penalties on their foreign accounts or assets. The program is similar to a 2009 voluntary disclosure initiative, which the IRS says brought disclosures from about 15,000 taxpayers.