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CBIZ & MHM Executive Education Series™

Second Quarter Accounting and Financial Reporting Issues Update Mike Loritz, Brad Hale, Steve Henley June 30 & July 7, 2015

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About Us

• Together, CBIZ & MHM are a Top Ten accounting provider • Offices in most major markets • Tax, audit and attest* and advisory services • Over 2,900 professionals nationwide

A member of Kreston International A global network of independent accounting firms

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Before We Get Started…

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• If you have a question during the presentation, please use the Q&A feature at the bottom of your screen.

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CPE Credit

This webinar is eligible for CPE credit. To receive credit, you will need to answer periodic participation markers throughout the webinar. External participants will receive their CPE certificate via email immediately following the webinar.

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Disclaimer

The information in this Executive Education Series course is a brief summary and may not include all

the details relevant to your situation.

Please contact your service provider to further discuss the impact on your business.

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Presenters

Mike has 18 years of experience in public accounting with diversified

financial companies and other service based companies, including

banking, broker/dealer, investment companies, and other diversified

companies ranging from audits of public entities in the Fortune 100 to

small private entities.

He is a member of MHM's Professional Standards Group, providing

accounting knowledge leadership in the areas of derivative financial

instruments, financial instruments, share-based compensation, fair

value, revenue recognition and others.

913.234.1226 • mloritz@cbiz.com

MIKE LORITZ, CPA MHM Shareholder

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Presenters

Brad has extensive experience providing audit and consulting services to

public companies. He assists clients with new standard implementation,

review of complex contracts and technical account matters, initial public

offerings and SEC reporting.

As a member of MHM's Professional Standards Group, Brad provides

technical expertise to engagement teams and clients regarding revenue

recognition and public company reporting.

727.572.1400 • bhale@cbiz.com BRAD HALE, CPA

MHM Shareholder

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Presenters

Steve Henley is the National Tax Practice Leader for CBIZ. Steve's

responsibilities include developing and implementing strategies for the

successful operation of the tax practice, including national support for

the CBIZ MHM's local tax practices through the National Tax Office.

770.858.4500 • shenley@cbiz.com

STEPHEN HENLEY National Tax Practice Leader

CBIZ

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Agenda

Accounting Standards Updates

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Revenue Recognition Update

Other Standard Setting Activity

Federal Tax Update

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ACCOUNTING STANDARDS UPDATES

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FASB - Overall Themes

• Financial Accounting Standards Board • Ten Accounting Standards Updates Issued • Generally narrow scope projects (simplification project) • Potential for leases and financial instruments in Q4

2015?

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Accounting Standard Updates Issued

• ASU 2015-03 Interest — Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs

• ASU 2015-04 Retirement Benefits (Topic 715): Practical Expedient for the Measurement Date of an Employer’s Defined Benefit Obligation and Plan Assets

• ASU 2015-05 —Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Fees Paid in a Cloud Computing Arrangement

• ASU 2015-06 Earnings per Share (Topic 260): Effects on Historical Earnings per Unit of Master Limited Partnership Dropdown Transactions

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Accounting Standard Updates Issued

• ASU 2015-07 Fair Value Measurement (Topic 820): Disclosures for Investments in Certain Entities That Calculate Net Asset Value per Share (or its equivalent)

• ASU 2015-08 Business Combinations (Topic 805): Pushdown Accounting—Amendments to SEC Paragraphs Pursuant to SAB No. 115

• ASU 2015-09 Insurance (Topic 944): Disclosures about Short-Duration Contracts

• ASU 2015-10 —Technical Corrections and Improvements

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Debt Issuance Costs

FINAL STANDARD ISSUED: • ASU 2015-03 Interest ― Imputation of Interest

(Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs • Debt issuance costs related to a recognized debt liability

are required to be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts.

• Only addresses presentation, not recognition or measurement

• Effective for years beginning after December 31, 2015 (January 1, 2016). Retrospective application required.

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Debt Issuance Costs

Why the Change? • Different balance sheet presentation requirements for

debt issuance costs and debt discount and premium creates unnecessary complexity

• Convergence with IFRS • Concepts Statement 6 states that debt issuance costs

cannot be an asset because they provide no future economic benefit.

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Internal Use Software

ASU 2015-05 — Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Fees Paid in a Cloud Computing Arrangement

• Provides guidance for the accounting for fees paid by a customer in a cloud computing arrangement. • Software as a service; platform as a service; infrastructure as a

service; and other similar hosting arrangements • The guidance already exists for cloud service providers to

determine whether an arrangement includes the sale or license of software. • ASC 985-605-55-121 through 55-123

• Effective for annual periods beginning after December 15, 2015

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Net Asset Value (NAV)

ASU 2015-07 Fair Value Measurement (Topic 820): Disclosures for Investments in Certain Entities That Calculate Net Asset Value per Share (or its equivalent) • Provides that investments measured using the NAV practical

expedient should not be included in the fair value hierarchy. • Amounts of such investments should be disclosed as a reconciling

item between the amounts reported in the fair value hierarchy table and the balance sheet

• Disclosures in ASC 820-10-50-6A would only be required for investments actually “measured using” the NAV practical expedient (as opposed to investments “eligible for” the NAV practical expedient)

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Net Asset Value (NAV)

ASU 2015-07 Fair Value Measurement (Topic 820): Disclosures for Investments in Certain Entities That Calculate Net Asset Value per Share (or its equivalent) • Effective for fiscal years beginning after December 15,

2015 (public business entities) and fiscal years beginning after December 15, 2016 for non-public business entities

• Retrospective application to all periods presented • Early adoption permitted

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Exposure Drafts Issued

• Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing

• Business Combinations (Topic 805): Simplifying the Accounting for Measurement-Period Adjustments

• Investments—Equity Method and Joint Ventures (Topic 323): Simplifying the Equity Method of Accounting

• Compensation—Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting

• Not-for-Profit Entities (Topic 958) and Health Care Entities (Topic 954): Presentation of Financial Statements of Not-for-Profit Entities

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Exposure Drafts: Revenue Recognition

Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing Private company practical expedients: Identifying performance obligations

• An entity would not be required to identify goods or services promised in a contract with a customer that are immaterial in the context of the contract.

• An entity would be permitted to account for shipping and handling activities that occur after the customer has obtained control of a good as an activity to fulfill the promise to transfer the good rather than as an additional promised service.

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Exposure Drafts: Revenue Recognition

Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing Private company practical expedients: Identifying performance obligations – Assessing whether promises are separately identifiable • An entity would determine:

• whether the nature of its promise in the contract is to transfer each of the goods or services or

• whether the promise is to transfer a combined item (or items) to which the promised goods and/or services are inputs.

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Exposure Drafts: Revenue Recognition

Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing Private company practical expedients: Licensing Implementation guidance

• An entity’s promise to grant a customer a license to intellectual property that has significant standalone functionality does not include supporting or maintaining that intellectual property during the license period.

• An entity’s promise to grant a customer a license to symbolic intellectual property includes supporting or maintaining that intellectual property during the license period.

• An entity needs to consider the nature of its promise in granting a license that is not a separate performance obligation to apply the other guidance in Topic 606 to a single performance obligation that includes a license and other goods or services.

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Exposure Drafts: Revenue Recognition

Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing Private company practical expedients: Licensing Implementation Guidance – Sales & Usage-Based Royalties

• An entity would not split a sales-based or usage-based royalty into a portion subject to the guidance on sales-based and usage-based royalties and a portion that is not subject to that guidance.

• The guidance on sales-based and usage-based royalties would apply to a sales-based or usage-based royalty whenever the predominant item to which the royalty relates is a license of intellectual property.

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Exposure Drafts: Business Combinations

Business Combinations (Topic 805): Simplifying the Accounting for Measurement-Period Adjustments • US GAAP requires the acquirer to retrospectively adjust the provisional

amounts recognized at the acquisition date • to reflect that information with a corresponding adjustment to goodwill,

and • revise comparative information for prior periods presented.

• The proposed amendments would require that the acquirer recognize adjustments to provisional amounts that are identified • during the measurement period in the reporting period in which the

adjustment amount is determined, • as well as the effect on earnings, if any, as a result of the change to the

provisional amounts, calculated as if the accounting had been completed at the acquisition date.

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Exposure Drafts: Equity Method of Accounting

Investments—Equity Method and Joint Ventures (Topic 323): Simplifying the Equity Method of Accounting:

• Eliminates the requirement that the investor entity accounts for the basis difference.

• Fair value basis differences • Goodwill • Intangible assets

• Eliminates the requirement that investors retroactively apply the equity method of accounting if a change in their ownership interest triggers a requirement to follow the equity method of accounting.

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Exposure Drafts: Stock Compensation

Compensation – Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting

• Statutory withholding • Forfeitures • Accounting for income taxes when awards vest or are settled • Classification of awards with repurchase features • Private company practical expedients:

• Estimate of expected term • Elect a one-time change in accounting principle to measure

liability-classified awards at intrinsic value, if currently measured at fair value

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Exposure Drafts: Stock Compensation

Compensation – Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting Statutory Withholding • Under current guidance, if the fair value of the shares withheld to pay

income taxes exceeds the employer’s minimum statutory withholding obligation, the entire award must be classified as a liability.

• The proposal allows for an employer to avoid triggering liability accounting if the value of the shares repurchased does not exceed the amount of the employee’s maximum individual statutory rate in the applicable jurisdiction.

• Will allow companies to repurchase shares from employees in high-income tax brackets for withholding purposes without triggering liability accounting.

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Exposure Drafts: Stock Compensation

Compensation – Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting Forfeitures • The proposal would allow companies to elect to account for forfeitures of

share-based payments meeting certain conditions as they occur (e.g., when an employee leaves the company) or to estimate forfeitures and adjust the estimates as they change, as is required by current guidance.

• Election would apply to awards with only service conditions and those with performance conditions that are deemed probable to occur at the date of grant.

• Required to be applied at an entity level.

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Exposure Drafts: Stock Compensation

Compensation – Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting Accounting for income taxes when awards vest or are settled • APIC pools would be eliminated. • Would require companies to include all excess tax benefits and tax

deficiencies as income tax expense or benefit in the income statement. • Would eliminate the requirement that excess tax benefits be realized (i.e.,

reduce income taxes payable) before being recognized. • Would require companies to present excess tax benefits as an operating

activity in the statement of cash flows rather than as a financing activity.

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Exposure Drafts: Stock Compensation

Compensation – Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting Classification of awards with repurchase features • A company would focus solely on the probability that the contingent event

would occur to determine whether to classify these awards as liabilities or equity (i.e., which party controls the contingent event would no longer be relevant).

• Intended to eliminate diversity in practice.

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Exposure Drafts: Stock Compensation

Compensation – Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting Private company practical expedients • Estimate of expected term • Elect a one-time change in accounting principle to measure liability-

classified awards at intrinsic value, if currently measured at fair value

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Exposure Drafts: Not-for-Profit

Not-for-Profit Entities (Topic 958) and Health Care Entities (Topic 954): Presentation of Financial Statements of Not-for-Profit Entities The main provisions would require a not-for-profit entity to: • Present on the face of the statement of financial position amounts for two

classes of net assets (net assets with donor restrictions and net assets without donor restrictions) at the end of the period, rather than for the currently required three classes.

• Present on the face of the statement of activities the amount of the change in each of the two classes of net assets rather than that of the currently required three classes.

• Present on the face of the statement of activities two additional amounts (subtotals) of the operating activities that are associated with changes in net assets without donor restrictions.

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Exposure Drafts: Not-for-Profit

Not-for-Profit Entities (Topic 958) and Health Care Entities (Topic 954): Presentation of Financial Statements of Not-for-Profit Entities The main provisions would require a not-for-profit entity to (cont.): • Present on the face of the statement of cash flows the net amount for

operating cash flows using the direct method of reporting. • Classify certain cash flows differently than how they are classified under

current guidance, • Provide enhanced disclosures. • Use the placed-in-service approach for reporting expirations of restrictions

on gifts of cash or other assets to be used to acquire or construct a long-lived asset.

• Report investment income net of external and direct internal investment expenses.

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Private Company Council

The Private Company Council (PCC) - May 5 Meeting: • Effective Date of PCC Alternatives – Possible unconditional

option to make an initial election of a PCC alternative. This would remove the requirement for private companies to assess preferability if they initially elect PCC accounting alternatives after the effective date.

• Share-Based Payments – The FASB staff presented research and discussed stakeholder input on possible private company alternatives for the accounting for share-based compensation.

• Other Selected FASB Projects – The PCC discussed the FASB’s projects on: (a) Disclosures by Business Entities about Government Assistance; (b) Disclosure Framework; and (c) Simplifying the Balance Sheet Classification of Debt.

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Emerging Issues Task Force

EITF Meeting – June 18, 2015 • The EITF reached a final consensuses on the simplification of

certain presentation and disclosure requirements for employee benefit plan financial statements (Exposure Draft in April). • Plans would no longer be required to measure fair value of these

investments or provide the related fair value disclosures. • Eliminated disclosures would include:

• Fair value measurement disclosures, including the hierarchy level • Average yields

• Plans would no longer be required to disclose investments greater than 5%.

• Plans would no longer be required to disclose net appreciation/depreciation in fair value of investments by type of investments.

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Emerging Issues Task Force

Benefit Plan Disclosures (continued): • Investments would be disaggregated by general type either

on the face of the financial statements or in the notes. • Self-directed brokerage accounts would be one general

type. • ASC 820 disclosures would continue to apply, except for the

requirement to disclose significant investment strategies for investments measured at NAV in certain instances.

• A plan would be allowed to measure its investment and investment related accounts as of a month-end date that is nearest the plan’s fiscal year end (alternative measurement date).

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REVENUE RECOGNITION

Current Events

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ASC Topic 606 – Revenue Recognition

Deferral of the Effective Date • The FASB issued a proposed accounting update to defer the effective date

of the revenue standard by one year. • Under the proposal, public entities would apply the new revenue

standard to annual reporting periods beginning after December 15, 2017. Nonpublic entities would apply the new revenue standard to annual reporting periods beginning after December 15, 2018.

• The FASB also decided to propose that both public and nonpublic entities be able to adopt the new revenue standard early, but not before the original public entity effective date (that is, annual periods beginning after December 15, 2016).

• Comments are due May 29, 2015.

The IASB voted to issue an exposure draft to defer IFRS 15 to January 1, 2018.

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ASC Topic 606 – Revenue Recognition

Transition Resource Group Discussion topics have included:

• When to apply the guidance on variable consideration vs. discounts. • Recognition of an exercised right, financing component and up-front

fees when a material right (option) exists. • How does an entity evaluate the impact on revenue recognition when

it purchases goods or services from its customers? • At what time can revenue be recognized if the contract does not meet

the criteria to be in the scope of Topic 606 (i.e. when can cash received be recognized as revenue)?

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ASC Topic 606 – Revenue Recognition

Transition Resource Group • Discussion topics have included the following (cont.):

• When should a general product warranty be recognized as a separate performance obligation?

• How to evaluate if a significant financing component exists when the “cash selling price” is the same as the “financed price”

• Should contributions made to not-for-profit entities be scoped out of the Topic 606?

• When is it appropriate to apply the guidance on a series of distinct goods or services?

The FASB Staff was directed to consider how to wrap up the TRG discussions

because they have addressed nearly all significant implementation questions they have received.

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ASC Topic 606 – Revenue Recognition

Revenue Recognition — Principal versus Agent (Reporting Revenue Gross versus Net) • Clarification of the “Unit of Account.” • Clarify that a principal can control a service, even when

another party actually performs the service, if it can direct that party to perform the service for the customer on its behalf.

• Agreed to reframe the existing indicators to provide evidence of when an entity is a principal, rather than when an entity is an agent. • Discussion on how each indicator supports the control

evaluation.

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OTHER STANDARDS-SETTING ACTIVITY

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PCAOB Standards - Reorganization

The PCAOB voted to reorganize its standards as follows (topical and single numbering system):

• General Auditing Standards: Standards on broad auditing principles, concepts, activities, and communications

• Audit Procedures: Standards for planning and performing audit procedures and for obtaining audit evidence

• Auditor Reporting: Standards for auditors' reports • Matters Relating to Filings Under Federal Securities Laws: Standards on

certain auditor responsibilities relating to SEC filings for securities offerings and reviews of interim financial information

• Other Matters Associated with Audits: Standards for other work performed in conjunction with an audit

These amendments will also remove references to superseded standards and inoperative language and references. They do not impose new requirements on auditors or change the substance of the requirements for performing and reporting on audits under PCAOB

standards.

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Public Company Accounting Oversight Board

Staff Consultation Paper No. 2015-01, The Auditor's Use of the Work of Specialists (Staff Paper)

• Raises questions about whether PCAOB standards adequately address the auditor's use of the work of specialists, and whether more rigorous standards and specific procedures are needed to help auditors respond to the RMM in financial statements when using the work of specialists.

• Seek input on potential changes to standards for the auditor's use of the work of specialists, specifically: • Objectivity and oversight of specialists • Use of their work in audits

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Convergence

• SEC Commissioner essentially rejected the notion of convergence • “To be frank, this debate between dueling standards needs

to move on.” • “Rather than debating the winner of the battle between

U.S. GAAP versus IFRS, we should be thinking anew about what kind of accounting regime we want going forward.”

• April 2015 FASB strategic plan • “The FASB will first consider the best interests of those who

provide capital to companies and not-for-profit organizations (investors, lenders, other creditors, and donors) both in the U.S. and other markets that use or reference Generally Accepted Accounting Principles (GAAP).”

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Securities & Exchange Commission

James Schnurr, Chief Accountant • SEC Priorities

• Future prospects of IFRS (Not dead yet!) • Implementing the revenue recognition standard • Important role of audit committees • PCAOB standard setting activities

• Rethinking proposal to allow companies to voluntarily disclose IFRS information without reconciliation to GAAP

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FEDERAL TAX UPDATE

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Supreme Court: ACA; King v. Burwell

Supreme Court Issues Landmark Opinion, June 25, 2015 • Ruling: Premium assistance tax credit available in both

marketplaces, established by the state and by the federal government

• Majority Opinion written by Chief Justice Roberts: • It is was the intent of the law to make the tax credit available

regardless of the state or federal marketplace • Acknowledges that Court’s interpretation was the “most

natural reading” of ACA • Broader interpretation necessary to avoid “calamitous result

that Congress plainly meant to avoid” • Justice Scalia wrote the dissenting opinion

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Affordable Care Act: Reporting Obligations

• IRS requires employers to report annually or face significant penalties (penalties are waived for 2015 if good faith effort to comply is demonstrated)

• Form 1094-C. Requests identifying information about “applicable large employer” • Aggregated group, number of 1095-C forms, type of coverage • Requires a month-by-month tally of whether Minimum Essential

Coverage was offered • Form 1095-C. Reports information about each employee

• Determines eligibility for premium tax credits • Provided to each employee included in the report

• Filing Deadlines: • Forms filed with IRS by 2/28 (3/31 if electronically filed) • Employees provided a copy of 1095 by 1/31 • First filings required in 2016 for 2015 calendar year employers

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Affordable Care Act: Upcoming Webinar

September 15, 2015, 11:30 a.m.-1 p.m. EDT • This webinar will include a detailed discussion on employer

shared responsibility reporting, including the 1094/1095-B series and 1094/1095-C series tax forms. Also included will be a look at who has to complete the forms – and how and when.

• Presenters: • Karen McLeese – Vice President of Regulatory Affairs

CBIZ Benefits & Insurance Services, Inc. • Bill Smith – Managing Director

CBIZ National Tax Office

Register at http://www.cbiz.com.

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Legislative Update: Tax Reform

• Off the agenda: Broad-based tax reform before 2017 • Senate Majority Leader McConnell:

• Cited major disagreements with Obama Administration over revenue neutrality and the distribution of the tax burden

• However, tax committees for both sides continue their work • Senate Finance:

• Tax overhaul working groups expect to release recommendations this summer

• House Ways and Means: • Chairman Ryan expects to put together a plan to address the

international tax system and a fix for the depletion of the highway trust fund by the end of the summer; also, pass-through changes

• Discussions include concept of patent or innovation box to apply lower rates to highly mobile intellectual property income

• Obama: Would eliminate deferrals under current law, and replace with one-time 14% tax on current profits stockpiled overseas, and tax future profits annually at 19%

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Legislative Update: Extenders

• Chairman Ryan would like to renew the extenders as part of a business overhaul package, but if not possible, will move to an extenders-only bill

• Probably late in the year • Probably one year extension similar to last year • House has passed several bills making certain extenders

permanent, such as the R&D tax credit and 179 expensing

• Senate Finance: strong desire to pass legislation to address extenders (Sen. Cardin (D-Md.))

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Legislative Update: Medical Device Tax

• June 18: House voted to repeal the Affordable Care Act’s tax on medical devices • Vote was 280-140; 46 Democrats voted to repeal • Senate said it won’t act quickly

Hatch wants to keep momentum going and offered to discuss paying

• White House has threatened veto of the bill • Note that the House vote was exactly 2/3 in favor of

repeal, just enough to override a presidential veto, so the Senate vote is extremely important.

• Repeal is estimated to cost $24.4 billion through 2025.

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Tangible Property Reg Update

AICPA calls for increase in safe harbor for repair regs • Current Rules:

• $5,000 de minimis safe harbor for taxpayers for items deductible in accordance with the Company’s Applicable Financial Statements (AFS)

• $500 safe harbor for taxpayers without an AFS • Certain simplified procedures for small business taxpayers:

Taxpayers with either total assets under $10 Million or average gross receipts of $10 Million or less for each separate and distinct trade or business

Can use cut-off method by taking into account only amounts paid or incurred or disposed of with 2014 tax year

No need for Form 3115 filing • Proposal: Increase safe harbor for taxpayers with no AFS to

$2,500; also, include reviewed financial statements as AFS

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Deferred Compensation

• Executive had retention agreement which called for bonus • Vesting terms: Employed until the 3rd anniversary of

agreement • Bonus to be paid in 2 installments: On first 2 anniversary

dates of vesting date; Corp could accelerate payments by making a lump sum payment on 1st anniversary date

• This feature violated deferred comp rules • Corp tried to fix by eliminating acceleration provision in last

year of vesting period • Chief Counsel of IRS concluded violation triggered inclusion

of bonus amount and could not be deferred • Take-away: Be careful in structuring deferred comp

agreements so that all requirements are met; attempt to “fix” the violation in year 3 of vesting period didn’t work even though fix was prior to end of vesting period.

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Corporate Inversions Update

• Inversions: US Corp becomes the sub of a foreign entity • New foreign parent is treated as a “surrogate” foreign corp, and

therefore a US parent if: • Foreign parent acquires all properties of the US Corp • At least 60% of stock of foreign parent is owned by former

shareholders of acquired US Corp, and • After the acquisition, the group does not have substantial business

activities in the foreign country where the foreign parent is organized • (if former shareholders own 80% of the foreign parent, then the

parent is treated as a US Corp) • Temp regs issued in 2012 adopted a 25% bright-line test for the

group’s employees, assets and income • There was criticism that this 25% test was too stringent • Final regs issued adopt this 25% test; effective for acquisitions

completed on or after June 3, 2015

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Stough Case re: Lessee Payments

Stough, 144 TC No. 16 • Lessee made the $1 Million lump sum payment allowed

under the terms of the lease • Lessor contended that the payment was not rental income

but meant to reimburse for leasehold improvements • Court found there were no improvements, but that the

payment was intended to reimburse taxpayer for “project costs”: • Acquisition costs, hard construction costs, soft construction

costs and financing costs • Tax Court ruled that one time, lump sum payment made by

lessee to reduce rent constituted rental income to lessor • Could not be spread ratably over the 10-year life of the

lease

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Stough Case re: Lessee Payments

Reasoning: • General rule applied that Gross Income included Lessee’s

reimbursement of Lessor’s expenses, i.e., project costs • Parties agreed that lease agreement was a “Section 467

Rental Agreement” (had increasing rents in years 6-10 and total rents exceeded $250,000)

• The lease did not specifically allocate fixed rent to any rental period as allowed under tax rules. (Reg. 1.467-1(c)(2)(ii)(A))

• Absent a specific allocation in the agreement, the court held that the amount of rent payable in 2008 must be allocated to the 2008 rental period.

• Court also ruled that the rental accrual method or proportionate rental accrual method could not be used.

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? QUESTIONS

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If You Enjoyed This Webinar…

Upcoming courses: • 7/7: How DOL Enforcement and Recent Litigation is Impacting Your Employee Benefit Plan

• 7/9 & 7/23: Unclaimed Property - What You Don't Know Can Hurt You

• 7/16: Accounting for Intangible Assets Under IAS 38 Intangible Assets

• 7/23 & 7/29: Revenue Recognition Updates for the Architecture, Engineering and Construction Industry

• 7/30, 8/4 & 8/5: Eye on Washington – Quarterly Business Tax Update

Related publications: • Proposed Changes Will Clarify New Revenue Recognition Guidance

• FASB Considers Change to PCC Alternative Adoption Dates

• Simplifying the Accounting for Hosting Arrangements

• Presentation of Debt Issuance Cost Simplified

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