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Plan compensation and contributions: Common errors and solutions to fix them

By:

A Senior in the firm's Assurance Practice and a member of our
Employee Benefit Plan Audit Group, Rich provides assurance
services to a spectrum of plans throughout New England. He also
serves as a member of the firm's Financial Services Group, working
with community banks, credit unions, and other financial institutions.

Richard Marchi
04.19.21

Read this if you are an employer with a defined contribution plan.

This article is the fourth in a series to help employee benefit plan fiduciaries better understand their responsibilities and manage the risks of non-compliance with Employee Retirement Income Security Act (ERISA) requirements. You can read the previous articles here.

One of the most common errors we identify during an audit of defined contribution plans is the definition of compensation outlined in the adoption agreement or plan document is not consistently or accurately applied by the plan sponsor. This can be a serious problem, as operational failures will require correction and those errors can become costly for plan sponsors. 

Calculation challenges and other common errors

It is important plan sponsors understand the options selected for the calculation of employee elective deferrals and employer non-elective and matching contributions into the plan. While calculating compensation sounds straightforward, it is often complicated by the fact that your adoption agreement or plan document may use different definitions of compensation for different purposes.

For example, the definition of compensation used to calculate deferrals could differ from the definition used for nondiscrimination testing and allocation purposes. Therefore, determining the correct amount of compensation requires a strong understanding of both your entity’s payroll structure and adoption agreement or plan document. Plan sponsors should work with both in-house personnel and plan administrators to ensure definitions of compensation are appropriately applied, and that any changes are quickly communicated to all involved.  

During an audit, we commonly identify pay types excluded from the definition of compensation in the adoption agreement or plan document that are incorrectly included in the compensation used in the calculation of employee deferrals and employer contributions. Taxable group term life insurance is a common example of compensation that is improperly included in the definition of compensation. Alternatively, we also identify codes for certain types of pay excluded from the calculation of employee deferrals and employer contributions that should be included based on the applicable definition of compensation. For example, retro pay, bonus payments, and manual checks are often incorrectly excluded in the definition of compensation.

Corrective actions

If errors are identified, we recommend that corrective actions including contributions, reallocation, or distributions are made in accordance with the Department of Labor regulations in a timely fashion.

If appropriate, the plan sponsor should consider amending the plan to align with the definition of plan compensation currently used in practice. We also recommend plan sponsors perform annual reviews of plan operations to ensure compliance and avoid the costs that can accompany non-compliance.

If you have questions about your specific situation, please contact our Employee Benefits consulting team. We’re here to help.

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Read this if you are a plan sponsor of employee benefit plans.

This article is the fifth in a series to help employee benefit plan fiduciaries better understand their responsibilities and manage the risks of non-compliance with Employee Retirement Income Security Act (ERISA) requirements. You can read the previous articles here.

With increasing regulations surrounding employee benefit plans, plan sponsors are under more scrutiny than ever to ensure that they meet their fiduciary responsibilities. One of the most common mistakes made by plan sponsors is failing to timely deposit employee elective deferrals into the plan’s trust (the plan). 

Employee elective deferrals: What are the regulations?

Under the Department of Labor (DOL) guidelines, employee elective deferrals should be deposited into the plan as soon as they can be reasonably segregated from the employer’s general assets. However, in no event can the deposit be later than the 15th business day of the month following the month in which the employee deferrals are received by the employer. Failure to deposit employee deferrals into the plan by the 15th business day timeframe may constitute both an operational mistake (if the plan specifies a date by which the employer must deposit elective deferrals) and a prohibited transaction.

Important to note, the 15-business day rule does not provide a safe harbor against penalties for untimely deposits of employee deferrals to the Plan. In general, employee salary deferrals and participant loan payments should be deposited into the plan within one to three business days following the payroll pay date from which withheld. 

Correcting late deposits

The best strategy is to avoid late remittances. If, however, it does happen, there are steps that plan sponsors should take to correct the error. You should first deposit any delinquent contributions to the plan as soon as possible, including lost earnings on all late contributions. Plan sponsors who opt to correct under the DOL’s Voluntary Fiduciary Correction Program (VFCP) can calculate lost earnings using the DOL’s online calculator. Alternatively, plan sponsors who opt to self-correct generally use the greater of the plan’s actual rate of return or the rate set by the IRS for underpayment. You should also consider reviewing your procedures to determine the cause of the delay, and adjust as necessary to avoid untimely deposits going forward. 

Potential tax ramifications

Internal Revenue Service (IRS) Form 5330, Return of Excise Taxes Related to Employee Benefit Plans may also be required to be completed by plan sponsors after correcting for late deposits and lost earnings. The amount of excise tax the IRS applies equals 15% of the lost earnings, and must be paid each year until the corrections are made. 

Plan sponsors who opt to self-correct should note that you forfeit the opportunity to have the IRS waive the excise tax requirement as potentially afforded under the VFCP.

Continued monitoring

Monitoring the timeliness of deferral remittances is an important step to ensure that plan sponsors are meeting their fiduciary responsibilities. If you have established procedures in place for this process, make sure to review the procedures periodically to ensure compliance.  If issues arise, take prompt corrective action under either the VFCP or self-correct options so that the errors are remediated as soon as possible.

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Timeliness is next to godliness: Depositing participant elective deferrals

Read this if you are a solar developer, installer or investor.

Much of the focus in the renewable energy space has been on the commercial Investment Tax Credit (ITC), due to the size of the projects and the money involved. Certainly the nuances of passive vs. active income and basis limitations drive a lot of the conversation about investing in a large scale project. But what about the residential credit? In some ways the residential credit is simpler, but many questions remain. Here we explain some of the differences and things unique to the residential credit to hopefully clear up some of your questions.

Where can the project be located?

Per the regulations for the residential ITC, the solar-energy producing equipment needs to be located on a “home” owned by the taxpayer. This is important because it does not say “primary residence”, but “home”. So the project could be on your primary residence, or it could be on your vacation home on Cape Cod. The important thing here is that the property is used as a “home”, or residence. If you are putting the solar project on a rental property then that would fall into the commercial ITC category, not the residential.

When can I claim the credit?

The credit is claimed on the tax return for the year the project is placed in service. Being placed in service is defined as being operational for its intended purpose—so in other words, not only does it need to be installed, it has to be turned on and operating. Some projects get stuck in the inspection queue at year end and don’t get approved until after the first of the next year. If that happens to you, unfortunately your credit will need to be claimed on the next tax return. Unlike the commercial ITC, there is no provision for a safe harbor for the credit. If you don’t reach full installation and operation by December 31, 2022 then you are only eligible for the 22% credit instead of the 26% credit you would have gotten if the project was completed in 2022. 

What costs qualify?

Only the costs for equipment that is integral to the production of energy qualify for the credit. This includes panels, racking, and inverters, but can also include some other costs, depending on the circumstances. It does not include improvements and enhancements to your roof that are not directly related to the production of energy. This tends to be a bigger issue on commercial projects where the added weight of the equipment and the slope of the roof require additional work to be done. However, a skylight added to your roof is not part of the solar energy equipment, and the cost of that addition should be excluded from your total cost, even though it may be helping to make your home more energy efficient. The cost of replacing a roof does not qualify, but in certain cases upgrades to the roof can be included.

What about depreciation?

Depreciation is the annual expensing of a commercial asset. Since the project is on your home, there is no depreciation expense to claim. Instead, the cost of the energy equipment installed on your house becomes part of your cost basis, or original purchase value, of your house. In the future if the house is sold, this cost will help reduce the amount of taxable gain on the sale.

What about storage?

Battery storage has been a part of renewable energy projects for years, but as the technology gets better and more cost effective it is becoming a bigger part of project offerings. Currently, a battery storage system is only eligible for the residential ITC if it is installed at the same time as the energy-producing equipment. This is the same for both the residential and commercial credit. In addition to being installed as part of the original project cost, the battery must also be charged by the renewable energy-producing equipment. If it draws a charge from the grid or from another non-renewable energy source, it will not qualify for the ITC.

We have been watching the activity in Washington, D.C. carefully since President Biden took office. One of the items in the proposed tax bill is an expansion of the Investment Tax Credit to allow for stand-alone energy storage equipment to qualify. While this is still in discussion and no legislation has passed yet, this change to the rules could potentially allow for battery storage to be added to existing projects, and the taxpayer taking the ITC on the cost of adding the battery storage equipment. 

Every project, home, and taxpayer’s situation is different, so it is important to discuss your individual project and tax situation with your tax advisor. As we have described here, the residential and commercial ITCs are similar, but not the same. However, both have the potential of being beneficial to the taxpayer, and perhaps at a greater level to environment.

Article
Residential Investment Tax Credits: Answers to some common questions 

Read this if you paid wages for qualified sick and family leave in 2021.

The IRS has issued guidance to employers on year-end reporting for sick and family leave wages that were paid in 2021 to eligible employees under recent federal legislation.

IRS Notice 2021-53, issued on September 7, 2021, provides that employers must report “qualified leave wages” either on a 2021 Form W-2 or on a separate statement, including:

  • Qualified leave wages paid from January 1, 2021 through March 31, 2021 (Q1) under the Families First Coronavirus Response Act (FFCRA), as amended by the Consolidated Appropriations Act, 2021 (CAA).
  • Qualified leave wages paid from April 1, 2021 through September 30, 2021 (Q2 and Q3) under the American Rescue Plan Act of 2021 (ARPA).

The notice also explains how employees who are also self-employed should report such paid leave. This guidance builds on IRS Notice 2020-54, issued in July 2020, which explained the reporting requirements for 2020 qualified leave wages.

Employers should work with their IT department and/or payroll service provider as soon as possible to review the payroll system, earnings codes configuration and W-2 mapping to ensure that these paid leave wages are captured timely and accurately for year-end W-2 reporting.

FFCRA and ARPA tax credits background

In March 2020, the FFCRA imposed a federal mandate requiring eligible employers to provide paid sick and family leave from April 1, 2020 to December 31, 2020, up to specified limits, to employees unable to work due to certain COVID-related circumstances. The FFCRA provided fully refundable tax credits to cover the cost of the mandatory leave.

In December 2020, the CAA extended the FFCRA tax credits through March 31, 2021, for paid leave that would have met the FFCRA requirements (except that the leave was optional, not mandatory). The ARPA further extended the credits for paid leave through September 30, 2021, if the leave would have met the FFCRA requirements.

In addition to employer tax credits, under the CAA, a self-employed individual may claim refundable qualified sick and family leave equivalent credits if the individual was unable to work during Q1 due to certain COVID-related circumstances. The ARPA extended the availability of the credits for self-employed individuals through September 30, 2021. However, an eligible self-employed individual may have to reduce the qualified leave equivalent credits by some (or all) of the qualified leave wages the individual received as an employee from an employer.

Reporting requirements to claim the refundable tax credits

Eligible employers who claim the refundable tax credits under the FFCRA or ARPA must separately report qualified sick and family leave wages to their employees. Employers who forgo claiming such credits are not subject to the reporting requirements.

Qualified leave wages paid in 2021 under the FFCRA and ARPA must be reported in Box 1 of the employee’s 2021 Form W-2. Qualified leave wages that are Social Security wages or Medicare wages must be included in boxes 3 and 5, respectively. To the extent the qualified leave wages are compensation subject to the Railroad Retirement Tax Act (RRTA), they must also be included in box 14 under the appropriate RRTA reporting labels.

In addition, employers must report to the employee the following types and amounts of wages that were paid, with each amount separately reported either in box 14 of the 2021 Form W-2 or on a separate statement:

  • The total amount of qualified sick leave wages paid for reasons described in paragraphs (1), (2), or (3) of Section 5102(a) of the Emergency Paid Sick Leave Act (EPSLA)1  with respect to leave provided to employees during the period beginning on January 1, 2021, through March 31, 2021. The following, or similar language, must be used to label this amount: “Sick leave wages subject to the $511 per day limit paid for leave taken after December 31, 2020, and before April 1, 2021.”
  • The total amount of qualified sick leave wages paid for reasons described in paragraphs (4), (5), or (6) of Section 5102(a) of the EPSLA with respect to leave provided to employees during the period beginning on January 1, 2021, through March 31, 2021. The following, or similar language, must be used to label this amount: “Sick leave wages subject to the $200 per day limit paid for leave taken after December 31, 2020, and before April 1, 2021.”
  • The total amount of qualified family leave wages paid to the employee under the Emergency Family and Medical Leave Expansion Act (EFMLEA) with respect to leave provided to employees during the period beginning on January 1, 2021, through March 31, 2021. The following, or similar language, must be used to label this amount: “Emergency family leave wages paid for leave taken after December 31, 2020, and before April 1, 2021.”
  • The total amount of qualified sick leave wages paid for reasons described in paragraphs (1), (2), or (3) of Section 5102(a) of the EPSLA with respect to leave provided to employees during the period beginning on April 1, 2021, through September 30, 2021. The following, or similar language, must be used to label this amount: “Sick leave wages subject to the $511 per day limit paid for leave taken after March 31, 2021, and before October 1, 2021.”
  • The total amount of qualified sick leave wages paid for reasons described in paragraphs (4), (5), and (6) of Section 5102(a) of the EPSLA with respect to leave provided to employees during the period beginning on April 1, 2021, through September 30, 2021. The following, or similar language, must be used to label this amount: “Sick leave wages subject to the $200 per day limit paid for leave taken after March 31, 2021, and before October 1, 2021.”
  • The total amount of qualified family leave wages paid to the employee under the EFMLEA with respect to leave provided to employees during the period beginning on April 1, 2021, through September 30, 2021. The following, or similar language, must be used to label this amount: Emergency family leave wages paid for leave taken after March 31, 2021, and before October 1, 2021.”

If an employer chooses to provide a separate statement and the employee receives a paper 2021 Form W-2, then the statement must be included with the Form W-2 sent to the employee. If the employee receives an electronic 2021 Form W-2, then the statement must be provided in the same manner and at the same time as the Form W-2.

In addition to the above required information, the notice also suggests that employers provide additional information about qualified sick and family leave wages that explains that these wages may limit the amount of the qualified sick leave equivalent or qualified family leave equivalent credits to which the employee may be entitled with respect to any self-employment income.

For more information

If you have more questions, or have a specific question about your particular situation, please call us. We’re here to help.

 1Employees are eligible for qualified sick leave under EPSLA if the employee:

  • Was subject to a federal, state or local quarantine or isolation order related to COVID-19;
  • Had been advised by a health-care provider to self-quarantine due to concerns related to COVID-19;
  • Experienced symptoms of COVID-19 and was seeking a medical diagnosis;
  • Was caring for an individual who was subject to a quarantine order related to COVID-19, or had been advised by a health-care provider to self-quarantine due to concerns related to COVID-19;
  • Was caring for a son or daughter of such employee, if the school or place of care of the son or daughter had been closed, or the child-care provider of such son or daughter was unavailable, due to COVID-19; or
  • Was experiencing any other substantially similar condition specified by the Secretary of Health and Human Services.

Article
IRS guidance to employers: Year-end reporting requirements for qualified sick and family leave wages

Read this if you use QuickBooks online.

There are always more things to learn about the applications we use every day. Here are some tips for expanding your use of QuickBooks Online. 

We tend to fall into the same old patterns once we’ve learned how to make a computer application work for us. We learn the features we need and rarely venture beyond those unless we find we need the software or website to do more. 

QuickBooks Online is no exception. It makes its capabilities known through an understandable system of menus and icons, labeled columns and fields, and links. But do we really see what else it can do? Expanding your knowledge about what QuickBooks Online can do may help you shave some time off your accounting tasks and better manage the forms, transactions, and reports that you work with every day. Here are some tips.

Edit lines in transactions. Have you ever been almost done with a transaction and realize you need to make some changes farther up in the list of line items? Don’t delete the transaction and start over. QuickBooks Online comes with simple editing tools, including:

  • Delete a line. Click the trash can icon to the right of the line. 
  • Reorder lines. Click the icon to the left of the line, hold it, and guide it to the new position. This is tricky. You may have to work with it a bit.
  • Clear all lines and Add lines. Click the buttons below your line items, to the left.


Click the More link at the bottom of a saved transaction to see what your options are.

Explore the More menu. Saved transactions in QuickBooks Online have a link at the bottom of the screen labeled More, as pictured above. Click it, and you can Copy the transaction or Void or Delete it. You can also view the Transaction journal, which displays the behind-the-scenes accounting work, and see an Audit history, which lists any actions taken on the transaction. 

Create new tabs. Do you ever wish you could display more than one screen simultaneously so you can flip back and forth between them? You can. Right click on any link in QuickBooks Online, like Sales | Customers, and select Open link in new tab

Use keyboard shortcuts. Not everyone is a fan of these, mostly because they can’t remember them. Hold down these three keys together to see a list: Ctrl+Alt+?. Some common ones include those for invoices (Ctrl+Alt+i) and for expenses (Ctrl+Alt+x).

Modify your sales forms. Do you need more flexibility than what’s offered in your sales forms? It may be there. Click the gear icon in the upper right and select Account and settings under Your Company. Click the Sales tab. In the section labeled Sales form content, notice that you can add fields for Shipping, Discounts, and Deposits by clicking on their on/off switches. You can also add Custom fields and Custom transaction numbers.

Add attachments. Sometimes it’s helpful to have a copy of a source document when you enter a transaction. To attach a receipt to an expense, for example, look in the lower left corner of the transaction. Click Attachments and browse your system folders to find the file, then double click on it.


Record expenses made with credit cards. Who doesn’t use credit cards for expenses sometimes? You can track these purchases in QuickBooks Online, as pictured above. Click the gear icon in the upper right and select Chart of Accounts under Your Company, then click New in the upper right. Select Credit Card from the drop-down list under Account Type. Enter Owner Purchase in the Name field and then Save and Close. When you create an expense, select Owner Purchase as the Payment account

Previous Transaction Button. Are you trying to find a transaction that you entered recently but don’t want to do a full-on search? With a transaction of the same type open, click the clock icon in the top left corner. A list of Recent Expenses will drop down. Click on the one you want.

Whether you’re new to QuickBooks Online or you’ve been using it for years, there’s always more to explore. We’d be happy to help you expand your use of QuickBooks Online by introducing you to new features, building on what you’re already doing on the site to improve your overall financial management. Contact our Outsourced Accounting team to schedule some time.

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Eight QuickBooks online tips

Read this if you are a community bank.

The Federal Deposit Insurance Corporation (FDIC) recently issued its second quarter 2021 Quarterly Banking Profile. The report provides financial information based on Call Reports filed by 4,951 FDIC-insured commercial banks and savings institutions. The report also contains a section specific to community bank performance. In second quarter 2021, this section included the financial information of 4,490 FDIC-insured community banks. BerryDunn’s key takeaways from the community bank section of the report are as follows:

  • There was a $1.9 billion increase in quarterly net income from a year prior despite continued net interest margin (NIM) compression. This increase was mainly due to higher net interest income and lower provision expenses. Net interest income had increased $1.4 billion due to 1) lower interest expense, 2) higher commercial and industrial (C&I) loan interest income, and 3) loan fees earned through the payoff and forgiveness of Paycheck Protection Program (PPP) loans. Provision expense decreased $2.3 billion from second quarter 2020. However, it remained positive at $46.1 million. For non-community banks, provision expense was negative $10.8 billion for second quarter 2021.
  • Quarterly NIM declined 26 basis points from second quarter 2020 to 3.25%. The average yield on earning assets fell 57 basis points to 3.57% while the average funding cost fell 31 basis points to 0.32%. Both of which are record lows.
  • Net operating revenue (net interest income plus non-interest income) increased by $1.6 billion from second quarter 2020, a 6.5% increase. This increase is attributable to higher revenue from service charges on deposit accounts (increased $134.8 million, or 23.5%, during the year ending second quarter 2021) and an increase in “all other noninterest income,” including, but not limited to, bankcard and credit card interchange fees, income and fees from wire transfers, and income and fees from automated teller machines (up $203.6 million, or 9.3%, during the year ending second quarter 2021).
  • Non-interest expense increased 7.8% from second quarter 2020. This increase was mainly attributable to salary and benefit expenses, which saw an increase of $688.2 million (7.8%). That being said, average assets per employee increased 8.4% from second quarter 2020. Non-interest expense as a percentage of average assets declined 18 basis points from second quarter 2020.
  • Noncurrent loan balances (loans 90 days or more past due or in nonaccrual status) declined by $894.6 million, or 7.1%, from first quarter 2021. The noncurrent rate improved 5 basis points to 0.68% from first quarter 2021.
  • The coverage ratio (allowance for loan and lease losses as a percentage of loans that are 90 days or more past due or in nonaccrual status) increased 39.8 percentage points year-over-year to 191.7%, a record high, due to declines in noncurrent loans. This ratio is well above the financial crisis average of 64.5%. The coverage ratio for community banks is 15.4 percentage points above the coverage ratio for non-community banks.
  • Eighty-eight community banks had adopted current expected credit loss (CECL) accounting as of second quarter. Community bank CECL adopters reported negative provision expense of $208.3 million in the second quarter compared to positive $254.5 million for community banks that have not yet adopted CECL.
  • Net charge-offs declined 8 basis points from second quarter 2020 to 0.05%. The net charge-off rate for consumer loans declined most among major loan categories, having decreased 51 basis points.
  • Trends in loans and leases showed a slight decrease from first quarter 2021, decreasing by 0.5%. This decrease was mainly seen in the C&I loan category, which was driven by a $38.3 billion decrease in PPP loan balances. The decrease in PPP loans was driven by the payoff and forgiveness of such loans. Despite the decrease in loans quarter-over-quarter, total loans and leases increased by $5.7 billion (0.3%) from second quarter 2020. The majority of growth was seen in commercial real estate portfolios (up $61.7 billion, or 8.9%), which helped to offset the decline in C&I, agricultural production, and 1-4 family mortgage loans during the year.
  • Two-thirds of community banks reported an increase in deposit volume during the second quarter. Growth in deposits above the insurance limit, $250,000, increased by $47.8 billion, or 4.7%, while alternative funding sources, such as brokered deposits, declined by $3.8 billion, or 6.7%, from first quarter 2021. 
  • The average community bank leverage ratio (CBLR) for the 1,789 banks that elected to use the CBLR framework was 11%.
  • The number of community banks declined by 38 to 4,490 from first quarter 2021. This change includes two new community banks, 12 banks transitioning from community to non-community banks, one bank transitioning from non-community to community bank, 27 community bank mergers or consolidations, and two community bank self-liquidations.

Second quarter 2021 was another strong quarter for community banks, as evidenced by the increase in year-over-year quarterly net income of 28.7% ($1.9 billion). However, tightening NIMs will force community banks to find creative ways to increase their NIM, grow their earning asset bases, or find ways to continue to increase non-interest income to maintain current net income levels. Some community banks have already started dedicating more time to non-traditional income streams, as evidenced by a 4.3% year-over-year increase in quarterly non-interest income. The importance of the efficiency ratio (non-interest expense as a percentage of total revenue) is also magnified as community banks attempt to manage their non-interest expenses in light of declining NIMs. Banks appear to be strongly focusing on non-interest expense management, as seen by the 18 basis point decline from second quarter 2020 in non-interest expense as a percentage of average assets, although inflated balance sheets may have something to do with the decrease in the percentage.

Furthermore, much uncertainty still exists. For instance, although significant charge-offs have not yet materialized, the financial picture for many borrowers remains uncertain. And, payment deferrals have made some credit quality indicators, such as past due status, less reliable. Payment deferrals for many borrowers are coming to a halt. So, the true financial picture of these borrowers may start to come into focus. The ability of community banks to maintain relationships with their borrowers and remain apprised of the results of their borrowers’ operations has never been more important. This monitoring will become increasingly important as we transition into a post-pandemic economy. For seasonal borrowers, current indications, such as the most recent results from the Federal Reserve’s Beige Book, show that economic activity was relatively strong over the summer of 2021. However, supply chain pressures and labor shortages could put a damper on the uptick in economic activity for these borrowers, making a successful transition into the “off-season” months that much more important. 

Also, as offices start to open, employers will start to reassess their office needs. Many employers have either created or revised remote working policies due to changing employee behavior. If remote working schedules persist, whether it be full-time or hybrid, the demand for office space may decline, causing instability for commercial real estate borrowers. Recent inflation concerns have also created uncertainty surrounding future Federal Reserve monetary policy. If an increase in the federal funds target rate is used to combat inflation, community banks could see their NIMs in another transitory stage.

As always, please don’t hesitate to reach out to BerryDunn’s Financial Services team if you have any questions.

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FDIC Issues its Second Quarter 2021 Quarterly Banking Profile

Read this if you use QuickBooks. 

Want to break up an estimate into multiple invoices? QuickBooks Online supports progress invoicing.

If you do large, multi-part projects for customers, you may not want to wait until absolutely everything is done before you send an invoice. This can be especially problematic when you have to purchase a lot of materials for a job that will eventually be billed to the customers.

QuickBooks Online has a solution for this: progress invoicing. Once you’ve had an estimate approved, you can split it into as many pieces as you need, sending partial invoices to your customer for products and services as you provide them, rather than waiting until the project is complete. If cash flow is a problem for you, this can be a very effective solution. You might be able to take on work that you otherwise couldn’t because you’ll be getting paid periodically.

Setup Required

Progress invoicing requires some special setup steps. First, you’ll need to see whether QuickBooks Online is prepared for the task. Click the gear icon in the upper right and select Account and settings under Your Company. Click the Sales tab and scroll down to Progress Invoicing. It may just say On to the right of Create multiple partial invoices from a single estimate. If it doesn’t, click the pencil icon to the right and turn it on. Then click Save and Done.

You’ll also have to choose a different template than the one you use for standard invoices. Click the gear icon and select Custom form styles. Click New style in the upper right and then click Invoice. Enter a new name for the template to replace My INVOICE Template, like Progress Invoice. Then click Dive in with a template or Change up the template under the Design tab. Select Airy new by clicking on it. This is the only template you can use for progress invoicing.

When you’re creating a template for your progress invoices, you’ll have to select Airy new.

Now, click on Edit print settings (or When in doubt, print it out). Make sure there’s no checkmark in the box in front of Fit printed form with pay stub in window envelope or Fit to window envelope. Then click on the Content tab. You’ll see a preview of the template (grayed out) to the right. Click the pencil icon in the middle section. Select the Show more activity options link at the bottom of the screen.

If you want to Group activity by (Day, Week, Month, or Type), check that box and select your preference. Go through the other options here and check or uncheck the boxes to meet your needs. Then click Done. You’ll see your new template in the list of Custom form styles.

QuickBooks Online allows you to designate one form style as the default. This is the form that will open when you create a new invoice or estimate template. If you plan to send a lot of progress invoices, you might want to make that the default. To do this, find your new template in the list on this page and click the down arrow next to Edit in the Action column. Click Make default. If you leave your standard invoice as the default, you can always switch when you’re creating an invoice by clicking the Customize button at the bottom of the screen.

Creating a Progress Invoice


You can see what your options are for your progress invoice.

Invoice and estimate forms in QuickBooks Online are very similar. The only major difference is that estimates contain a field for Expiration date. To start the process of progress invoicing, select an estimate that you want to bill that way. Click the Sales tab and select All Sales. Find your estimate and click on Create invoice in the Action column. A window like the one in the above image will appear.

You can bill a percentage of each line item or enter a custom amount for each line.  If you choose the latter, the invoice that opens will have zeroes in the Due column. You can alter the amount due for any of these by either a percentage or an amount and/or leave them at zero if you don’t want to bill a particular product or service. Either way, the Balance due will reflect your changes. When you’ve come to the last invoice for the project, you’ll check Remaining total of all lines.

Once you’ve chosen one of these options, click Create invoice. Double-check the form and then save it. You can now treat it as any other invoice. To see a list of your progress invoices, run the Estimates & Progress Invoicing Summary by Customer report.

As you can see, there are numerous steps involved in creating progress invoices. Each has to be done with precision, so the customer is billed the exact total amount due at the end. We can help you accomplish this. We’re also available to help with any other QuickBooks Online issues you have. Contact our Outsourced Accounting team to set up a consultation.

Article
How does progress invoicing work in QuickBooks Online?

Read this if you are responsible for meeting your broker-dealer’s annual report filing requirement under Securities Exchange Act (SEA) Section 15.

In February, the US Securities and Exchange Commission (SEC) approved a 30-day extension for eligible broker-dealers to file their annual reports, effective immediately. Firms that meet the criteria should consider taking advantage of the filing extension. Here are a few details and tips to help broker-dealers understand more about the 30‑day extension.

SEA Section 15 filing extension background

Normally, each broker-dealer registered under Securities Exchange Act (SEA) Section 15 must file annual reports—including financial and compliance or exemption reports, along with those prepared by an independent accountant—no more than 60 days after the broker-dealer’s fiscal year ends. But in light of disruption caused by the COVID-19 pandemic, the Financial Industry Regulatory Authority (FINRA) requested that the SEC allow broker-dealers an extra 30 days to file their annual reports. The extension, FINRA argued, would allow broker-dealers more time to obtain audit services.

Criteria for broker-dealers eligible for the extension

To qualify for a filing extension of 30 calendar days, a broker-dealer must meet the following criteria:

  1. Was in compliance with 15c3-1 (Net Capital) as of its most recent fiscal year end and had total capital and allowable subordinated liabilities of less than $50 million,
  2. Is permitted to file an exemption report as part of its most recent fiscal year-end annual reports,
  3. Submits written notification to FINRA and the Securities Investor Protection Corporation (SIPC) of its intent to rely on this order on an ongoing basis for as long as it meets the conditions of the order, and
  4. Files the annual report electronically with the SEC using an appropriate process.

The extension does not apply to just this year alone. It is understood to be in effect on an ongoing basis.

How to notify FINRA of your intent to take advantage of the extension

Broker-dealers that meet the aforementioned conditions are required to notify FINRA of their intent to take advantage of the extension. FINRA advises eligible broker-dealers to send an email to their Risk Monitoring Analyst with a message structured according to the following template:

“My firm wishes to have an additional 30 calendar days for filing its annual report on an ongoing basis for as long as my firm meets the conditions set forth in the SEC Order of February 12, 2021, regarding additional time for filing annual reports under SEA Rule 17a-5.”

How to file electronically

In addition to notifying FINRA, those looking to benefit from the extension are required to file electronically. There are multiple ways to do so, but the most user-friendly and efficient avenue to electronic filing is through the SEC’s Electronic Data Gathering, Analysis, and Retrieval (EDGAR) system.

Using the EDGAR system, broker-dealers must upload only two attachments maximum. The EDGAR system offers two options for electronic filing:

  1. The broker-dealer could attach one document containing all the annual reports as a public document; or
  2. The broker-dealer could attach two documents to its submission: (1) a public document containing the statement of financial condition, the notes to the statement of financial condition and the accountant’s report which covers the statement of financial condition, and (2) a non-public document containing all the components of the annual reports.

Implications for annual filings

An upcoming filing deadline is a stressful event, especially for broker-dealers contending with the upheaval of the past 18 months. Fortunately, FINRA has advocated on their behalf, and the SEC has complied by offering a 30-day filing extension.

The extension provides broker-dealers excess time to review documents and schedule a session with their auditor. Auditors will likely appreciate the extension as well, as it allows them to serve their various clients over a longer period of time, alleviating some of the pressure traditionally associated with filing season.

For these reasons and more, broker-dealers who qualify are encouraged to take the steps required to benefit from this grace period. If you have questions or would like more information, please contact our broker-dealer consulting team. We're here to help.

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Eligible broker-dealers: Take advantage of SEC's 30-day filing extension

Read this if you are interested in tax policy and infrastructure.

The Biden Administration has made tax policy a legislative priority, and the Treasury Department’s Green Book released in May provides additional details on these tax policy proposals. Congressional Democrats have also indicated their interest in tax legislation. The question is: Will we see federal tax legislation in the near future? To answer this question, we need to look at the Administration’s and Congress’ infrastructure legislative plans.

Infrastructure one

President Biden has been negotiating an infrastructure package with members of both parties. Although a bipartisan agreement fizzled in July, new life seems to have been breathed into a new agreement. During the week of July 26, 2021, the Senate reached bipartisan agreement on a $1 trillion package that includes roads, bridges, rail, airports, electric vehicles, clean water, and broadband internet, with revenue offsets such as new cryptocurrency information reporting requirements and an excise tax on chemicals. On August 10, 2021, the Senate voted 69 to 30 to pass the bill.

House consideration of the package is expected in coming weeks. Some progressive Democratic members of the House, however, have indicated that they may not vote in favor of this package unless a far larger second infrastructure package is ultimately approved.

This first infrastructure package is reportedly “paid for” outside income tax increases, which means that this infrastructure bill generally would not include the Administration’s tax proposals. There would likely be little to no Republican support for the package if the Administration’s tax priorities were included.

There does, however, continue to be strong interest by the Administration in moving forward with its tax policy priorities. That’s where a second infrastructure package comes in.

Infrastructure two

A second infrastructure package, referred to in the press as “human infrastructure,” is intended to address more intangible priorities, such as extension of the child care tax credit, healthcare, immigration and climate change. It is expected that the Administration’s and Congress’ tax policy priorities would be included in this bill. At this time, this estimated $3.5 trillion package does not enjoy bipartisan support. The package would be expected to pass the House, as House rules require only a simple majority for passage. Its path through the Senate, however, remains unclear.

In general, legislation needs only a simple majority to pass the Senate. Under current Senate rules, any senator may filibuster a piece of legislation, which amounts to unlimited speech and debate and, if unstopped, can effectively derail legislation. However, if 60 senators agree, they may vote to invoke “cloture,” which will end the filibuster and move the legislation to a substantive vote. (Cloture was invoked for Infrastructure One by a 67-33 vote.) It is expected that a second infrastructure bill would not pick up any Republican Senate votes, and there likely would be a Republican filibuster. Without any Republican support, cloture would be virtually impossible. 

There is, though, a procedural option available in the Senate to bypass the filibuster/cloture rules. Under the “budget reconciliation” process, legislation can pass the Senate with a simple majority without the threat of filibuster. While the budget reconciliation process also applies in the House, because there is no filibuster threat, the House does not need the procedure to advance legislation to a simple majority vote. 

Reconciliation bills must involve spending, revenue, or debt. There is a limit to the number of bills that may pass the Senate under budget reconciliation each year. The American Rescue Plan enacted in March 2021 utilized the budget reconciliation process to pass the Senate. The Senate parliamentarian has indicated that additional reconciliation bills may pass the Senate this year. Despite further availability of the budget reconciliation process in the Senate this year, passage of Infrastructure two is not a foregone conclusion. 

For a bill to pass the Senate under the budget reconciliation process, it needs only to garner a simple majority of votes, which, with the current Senate makeup, means 50 Democrats voting in favor, plus a 51st vote cast by Vice President Harris. There are, however, moderate Democratic senators who have indicated in recent weeks that they may not be willing to use the budget reconciliation process to advance any further legislation, at least in the short term.  

Nonetheless, on August 11, 2021, the Senate approved a budget resolution on party lines; this budget resolution will serve as the framework with which Infrastructure two will be considered on its merits. House Speaker Pelosi previously indicated that the House will not vote on a first infrastructure bill until the Senate takes procedural steps regarding Infrastructure two, so this crucial step makes the future of both packages brighter in both chambers of Congress.

Likelihood of a 2021 tax bill?

Infrastructure two is expected to be the vehicle in which tax policy priorities are included. With passage of the budget resolution in the Senate, this step certainly makes the prospects of ultimate passage much better. What remains unclear is what the underlying provisions will look like, as there remains some discomfort on the part of some moderate senators with its $3.5 trillion price tag.

All eyes are focused on two moderate Democratic senators: Kyrsten Sinema of Arizona and Joe Manchin of West Virginia. While Sinema has been instrumental in helping to reach a bipartisan deal on Infrastructure one, she indicated the week of July 26, 2021 that she does not currently support the price tag of the second bill. Manchin has also indicated displeasure with the bill’s cost. Without the support of both senators, a second bill would likely stall.

There is still plenty of time on the legislative calendar for negotiation and minds to change. Some issues members of Congress will consider are the price tag of any second infrastructure bill, whether they want to be the sole detractor within their party and whether there may be opportunity to address the policy issues in future legislation. 

Timing of a possible tax bill?

Although Congress is expected to take up consideration of Infrastructure two in the fall, whether it ultimately passes and what provisions it will contain is unclear. Senators Sinema and Manchin are two to watch over the coming weeks. 

What would be included?

The Green Book is a good starting point to understand the Administration’s tax policy priorities. Congress will have its priorities as well. If we do see tax legislation, some major provisions that can be expected to be included in a bill include increases in the corporate tax rate, individual tax rates, and capital gains rates, as well as estate tax changes and changes to international tax policy.

Article
2021 federal tax legislation? A review of the state of play