New Federal Revenue – Coronavirus Relief Funds and ESSER Funds Guidance and Q&A

GUIDANCE UPDATE AS OF 8/7/2020: 

The Revenue from ESSER fund cannot be recognized in fiscal year 2020 if a school did not receive its award letter/Grant Award Notification (GAN) by June 30, 2020.  Prior guidance allowed for schools until August 31 to receive its GAN.

ORIGINAL POST 7/27/2020:

The following information about Coronavirus Relief Funds and Elementary and Secondary School Emergency Relief Funds is what we understand as of July 27, 2020, and is subject to change. The 2020 Compliance Supplement related to these funds has not been released from the U.S. Office of Management and Budget (OMB). 

Coronavirus Relief Funds (CRF)

In July, within state School Aid payments, Local Education Agencies (LEAs) received a funding line item called “District COVID Costs,” equating to approximately $12 per pupil. Although these funds are coming through State Aid, they are restricted federal funds, Federal Coronavirus Relief Fund (CFDA 21.019), authorized by SB 690 and signed into law on July 1, 2020. Since SB 690 was not signed into law until after schools’ 2019-20 fiscal year ended, these revenues should not be recognized in 2019-20 financial reporting or audited financial statements.

Additionally, Senate Bill 373 has not been finalized and therefore, the timing and method of distribution of those funds are unknown. However, anticipate it will include an additional $350 per pupil in the August State Aid payment. These funds would follow the above concepts. They are also restricted federal dollars and are not to be recognized in the 2019-20 fiscal year. 

The main reason for not recognizing the above funds until the 2020-21 Fiscal Year is the date the bill was signed into law, which was after year-end. GASB Statement No. 33, Accounting and Financial Reporting for Nonexchange Transactions, is very clear in the requirements of when the recipients (LEAs) have an asset (receivable) and it cannot be before the passing of the bill. Therefore, we recommend that as of June 30, 2020, no receivable, unearned, or earned revenue be reported. Amounts should be reported as Federal Expenditures and Revenue for fiscal year 2021.

CARES Act ESSER Funds 

The Elementary and Secondary School Emergency Relief (ESSER) Fund (84.425) is part of the United States Education Department’s (USED) Educational Stabilization Fund Program. It awards grants to state educational agencies (SEAs) to provide LEAs, including charter schools, with emergency relief funds to address the impact that COVID-19 has had on elementary and secondary schools across the nation. Eligible applicants are those LEAs that received a 2019-20 Title I, Part A allocation from MDE. The grant period is March 13, 2020 through September 30, 2021. Eligible LEAs were able to apply for these funds beginning May 8, 2020. The LEAs will initiate and apply in the Michigan Electronic Grants System Plus (MEGS+).

This grant has led to questions about how to account for these funds as well. MDE has noted that many applications/award letters are not yet complete, which leads to concerns on the availability of revenue and when to recognize that revenue. This award (or a portion of the award) is allowable to be spent in fiscal year 2020. However, to do so, three items must happen before August 31 (the period the LEA uses for availability, also known as the 60-day rule):

1. The application must be submitted.
2. The award must be approved.
3. The funds must be requested and received by LEA.

Timing of recording the funds

The main concern with the CRF funds has been that they were intended by legislation to “backfill” the reduction in State Aid that is coming in August. The reduction will be approximately $175 per pupil, which will affect fiscal year 2020. The CRF funds, as noted above, will be approximately $362 per pupil, which is a net gain for cash flow purposes of $187 per pupil. However, due to the timing, the reduction and the CRF funding will be recorded at different times. Hence, fiscal year 2020 will show the entire per-pupil reduction and fiscal year 2021 will show the whole CRF amount.

The above items will affect your audit, single audit, major program testing, compliance testing, etc.  Therefore, it is vital to work with your Yeo & Yeo auditor closely. 

Michigan Department of Education (MDE) has provided guidance on some of these issues and will update it in the next few weeks. Initial guidance is available at MDE CARES Act Grant Information and MDE Financial Accounting Guidance During the COVID-19 Pandemic.

Q&A

When should I record revenue for CRF funds?
FY 2021.

Are CRF funds federal or state dollars?
Federal. 

Can I have expenditures in FY 20 for CRF funds?
Technically, yes. However, the expenses cannot be recorded as such until fiscal year 2021, as the grant award did not exist as of 6/30/20. This will likely be handled through an adjustment to the SEFA in fiscal year 2021 and explained in the notes to the SEFA.

Are CRF funds subject to supplanting?
Yes.

Can ESSER Funds be used and recorded in fiscal year 2020?
Yes, provided the application is completed, you accounted for the spending of the funds, and the reimbursement (cash) was received before August 31, 2020.

UPDATE as of 8/7/2020: ESSER fund cannot be recognized in fiscal year 2020 if a school did not receive its award letter/Grant Award Notification (GAN) by June 30, 2020, not August 31 as previous guidance stated.   If you have received the award letter/GAN as of June 30, 2020, it is allowable to have expenditures related to ESSER funds in fiscal year 2020, providing you have requested and received the funds within 60 days after year-end.   

Are ESSER Funds subject to supplanting?
No.

What can the ESSER Funds be spent on?
The costs allowable for the ESSER funds are broad.  Refer to a memo from MDE on the usages of the funds at MDE ESSER Important Information.

Are ESSER Funds the same as Title I, Part A funds?
No, although the LEA receives ESSER formula funds via the Title I, Part A formula, ESSER funds are not Title I, Part A funds and are not subject to Title I, Part A requirements.

Contact your Yeo & Yeo professional if you need assistance.

Timely, relevant financial data is critical to managing a business in today’s unprecedented conditions. Similar to the control panel in a vehicle or machine, dashboard reports provide a real-time snapshot of how your business is performing.

Why you need a dashboard report

Everything in a dashboard report can typically be found elsewhere in the company’s financial reporting systems, just in a less user-friendly format. Rather than report new information, a dashboard report captures the most critical data, based on the nature of the business. It can provide an early warning system for potential problems, allowing you to pivot as needed to minimize losses and jump on emerging opportunities in the marketplace.

To maximize the effectiveness of dashboard reports, make them accessible to managers across your organization via the company’s internal website or weekly email blasts. Widespread, easy access will allow your management team to quickly identify trends that require immediate attention. Additionally, businesses that are struggling during a reorganization or debt restructuring sometimes share these reports with their lenders as a condition of their continued support.

Metrics that matter

When deciding which information to target, look at your company’s loan covenants — lenders usually have a good sense of which metrics are worth monitoring. Then conduct your own risk assessment. What’s relevant varies depending on your industry, general economic conditions and the nature of your business operations.

In addition to tracking cash balances and receipts, most dashboard reports include the following ratios:

• Gross margin [(revenue – cost of sales) / revenue],
• Current ratio (current assets / current liabilities), and
• Interest coverage ratio (earnings before interest and taxes / interest expense).

From here, consider adding a handful of company- or industry-specific performance metrics. For example, a warehouse might report daily shipments and inventory turnover. A hotel that’s struggling to reopen might provide a schedule of net operating income, average room rates and vacancy rates compared to the previous week or month. A law firm might report each partner’s realization rate.

A diagnostic test

Comprehensive financial statements are the best source of information about your company’s long-term stability and profitability — especially for external stakeholders. But dashboard reporting is critical for internal purposes, too. These reports can help assess a sudden change in market conditions, interim performance or potential downward trend in your financial performance. Contact us to help you compile a meaningful dashboard reporting process for your organization.

© 2020

If you’re a partner in a business, you may have come across a situation that gave you pause. In a given year, you may be taxed on more partnership income than was distributed to you from the partnership in which you’re a partner.

Why is this? The answer lies in the way partnerships and partners are taxed. Unlike regular corporations, partnerships aren’t subject to income tax. Instead, each partner is taxed on the partnership’s earnings — whether or not they’re distributed. Similarly, if a partnership has a loss, the loss is passed through to the partners. (However, various rules may prevent a partner from currently using his share of a partnership’s loss to offset other income.)

Separate entity

While a partnership isn’t subject to income tax, it’s treated as a separate entity for purposes of determining its income, gains, losses, deductions and credits. This makes it possible to pass through to partners their share of these items.

A partnership must file an information return, which is IRS Form 1065. On Schedule K of Form 1065, the partnership separately identifies income, deductions, credits and other items. This is so that each partner can properly treat items that are subject to limits or other rules that could affect their correct treatment at the partner’s level. Examples of such items include capital gains and losses, interest expense on investment debts and charitable contributions. Each partner gets a Schedule K-1 showing his or her share of partnership items.

Basis and distribution rules ensure that partners aren’t taxed twice. A partner’s initial basis in his partnership interest (the determination of which varies depending on how the interest was acquired) is increased by his share of partnership taxable income. When that income is paid out to partners in cash, they aren’t taxed on the cash if they have sufficient basis. Instead, partners just reduce their basis by the amount of the distribution. If a cash distribution exceeds a partner’s basis, then the excess is taxed to the partner as a gain, which often is a capital gain.

Here’s an example

Two individuals each contribute $10,000 to form a partnership. The partnership has $80,000 of taxable income in the first year, during which it makes no cash distributions to the two partners. Each of them reports $40,000 of taxable income from the partnership as shown on their K-1s. Each has a starting basis of $10,000, which is increased by $40,000 to $50,000. In the second year, the partnership breaks even (has zero taxable income) and distributes $40,000 to each of the two partners. The cash distributed to them is received tax-free. Each of them, however, must reduce the basis in his partnership interest from $50,000 to $10,000.

Other rules and limitations

The example and details above are an overview and, therefore, don’t cover all the rules. For example, many other events require basis adjustments and there are a host of special rules covering noncash distributions, distributions of securities, liquidating distributions and other matters.

© 2020

When Congress authorized an additional $600 in monthly unemployment benefits as part of the CARES Act, out-of-work Americans weren’t the only ones it helped. Criminals have descended like locusts on state unemployment insurance agencies, using stolen identities to fraudulently claim both standard benefits and the additional funds administered by the Pandemic Unemployment Assistance (PUA) program. States have lost hundreds of millions of dollars. Individuals have also suffered, as government efforts to control fraud have clogged up benefit systems and delayed payments to the jobless.

States struggle

Washington state was the first to experience a COVID-19 outbreak and has since estimated losses of $650 million to unemployment insurance fraud. According to the Secret Service, a scam was detected when someone noticed that multiple direct deposits of benefits had been made to individuals residing out of state. These deposits were subsequently transferred overseas — likely by organized crime gangs.

But Washington is hardly alone. Many other states have discovered fraud. In May, Rhode Island’s labor agency reported that it had almost as many illegitimate unemployment insurance claims as legitimate ones. And widescale fraud in Michigan forced that state to stop payment on nearly 20% of unemployment claims pending review.

Fighting back

If you’re currently employed and receive an unemployment benefit check or debit card or a letter confirming an application for unemployment benefits, immediately contact your state. If you can’t get ahold of your state agency (a problem encountered by thousands of potential fraud victims), report your suspicions to police and the Federal Trade Commission (FTC) at identitytheft.gov. Your identity has likely been stolen and sold to criminals on the dark web. Be sure to request copies of your credit reports and review them for illegitimate activity.

Businesses can help fight unemployment insurance fraud, too. The FTC suggests that companies:

• Ask employees to speak up if they suspect their identities are being used to perpetrate unemployment insurance fraud, 
• Direct HR to flag state unemployment agency notices about currently employed workers,
• Report suspected fraud to a state agency — preferably via its website,
• Provide a copy of the documentation to affected employees and let them know if the state requires them to also make a report,
• Bolster cybersecurity to prevent the loss of personal data that could be used to commit fraud.

This last tip is particularly important if your employees currently are working from home.

An easy target

The pandemic has probably unleashed more fraud activity than any other recent event. Even though PUA program payments were due to expire on July 25, state unemployment benefits are too easy and lucrative a target for fraudsters to pass up. But you can do your part to help disrupt these schemes.

© 2020

This week, the Michigan Economic Development Corporation announced the MEDC Small Farm Safety Grant Program that will award $1.25 million in grants to Michigan farms with fewer than 10 employees to fund COVID-19 mitigation costs. This program accompanies the Agriculture Safety Grant program, which uses federal CARES Act funding of $15 million to award grants to farms and agricultural processors with 10 or more employees.

Farms may use the MEDC Small Farm Safety Grants for COVID-19 testing costs, personal protection equipment, facility needs, increased sanitation costs, employee training, upgraded safety procedures for farm-provided housing and more.

For grant criteria, eligible expenditures, Frequently Asked Questions and a grant application, refer to the MEDC’s Small Farm Safety Grant Program.

If you have questions or need assistance, contact your local Yeo & Yeo Agribusiness Services Group professional.

A widely circulated article about the COVID-19 pandemic, written by author Tomas Pueyo in March, described efforts to cope with the crisis as “the hammer and the dance.” The hammer was the abrupt shutdown of most businesses and institutions; the dance is the slow reopening of them — figuratively tiptoeing out to see whether day-to-day life can return to some semblance of normality without a dangerous uptick in infections.

Many business owners are now engaged in the dance. “Reopening” a company, even if it was never completely closed, involves grappling with a variety of concepts. This is a new kind of strategic planning that will test your patience and savvy but may also lead to a safer, leaner and better-informed business.

When to move forward

The first question, of course, is when. That is, what are the circumstances and criteria that will determine when you can safely reopen or further reopen your business. Most professionals agree that you should base this decision on scientific data and official guidance from agencies such as the U.S. Department of Health and Human Services and Centers for Disease Control and Prevention (CDC).

But don’t stop there. Although the pandemic is, by definition, a worldwide issue, the specific situation on the ground in your locality should drive your decision-making. Keep tabs on state, county and municipal news, rules and guidance. Plug into your industry’s professionals as well. Establish strategies for expanding operations or, if necessary, contracting them, based on the latest information.

Testing and working safely

Running a company in today’s environment entails refocusing on people. If employees are unsafe, your business will likely suffer at some point soon. Every company that must or chooses to have workers on-site (as opposed to working remotely) needs to consider the concept of COVID-19 testing.

Employers are generally allowed to test employees, but there are dangers in violating privacy laws or inadvertently exposing the company to discrimination claims. The CDC has said that routine testing will likely pass muster “if these goals are consistent with employer-based occupational medical surveillance programs” and “have a reasonable likelihood of benefitting workers.” Consult your attorney, however, before implementing any testing initiative.

There’s also the matter of working safely. If you haven’t already, look closely at the layout of your offices or facilities to determine the feasibility of social distancing. Re-evaluate sanitation procedures and ventilation infrastructure, too. You may need to invest, or continue investing, in additional personal protective equipment and items such as plastic screens to separate workers from customers or each other. It might also be necessary or advisable to procure or upgrade the technology that enables employees to work remotely.

Move forward cautiously

No one wanted to do this dance, but business owners must continue moving forward as cautiously and prudently as possible. While you do so, don’t overlook the opportunity to identify long-term strategies to run your company more efficiently and profitably. We can help you make well-informed decisions based on sound financial analyses and realistic projections.

© 2020

Technical jargon is fun for the .005% that care about it, but what about for the rest of us? These terms can trip up the most savvy business owner, and cloud phone features are no exception. If you’re looking to switch from your on-premises phone system to a new cloud business phone, our business glossary simplifies these tech terms.

You’ll learn:

• The difference between a “digital receptionist” and “auto-attendant”
• Why you’ll want to pay attention to your presence indicator
• How “call flip” and “call park” compare

Download “The Business Owner’s Phone System Features Cheat Sheet” today and ease your transition to cloud phones.

We want your business to continue operating effectively during these uncertain times and believe these tools and resources can help. Contact us to get started today at 989.797.4075.

The State of Michigan allocated $100 million of CARES Act funding to implement the Michigan Small Business Restart Program to support the needs of businesses directly impacted by COVID-19.

The funds will be administered by 15 local economic development organizations to support small businesses in all Michigan counties. At least 30% of the funds will be awarded to eligible women-owned, minority-owned or veteran-owned businesses.

The program will provide grants to eligible small businesses that need working capital to support payroll expenses, rent, mortgage payments, utility expenses or other similar expenses.

• Businesses and nonprofits with 50 or fewer employees (not FTEs) are eligible.
• Grants must be used for expenditures made between March 1, 2020, and December 30, 2020.
• Applications are due August 5, 2020. Applicants can apply for up to $20,000 in grant funds.

Refer to the Michigan Small Business Restart Program on the MEDC website for eligibility requirements, program guidelines, the application questions, a grant application, and Frequently Asked Questions.

If you have any questions about the grants, contact the MEDC Customer Care Center at (888) 522-0103 or send an email to medceconomic@michigan.org. Contact your Yeo & Yeo professional if you need assistance.

During the COVID-19 pandemic, many small businesses are strapped for cash. They may find it beneficial to barter for goods and services instead of paying cash for them. If your business gets involved in bartering, remember that the fair market value of goods that you receive in bartering is taxable income. And if you exchange services with another business, the transaction results in taxable income for both parties.

For example, if a computer consultant agrees to exchange services with an advertising agency, both parties are taxed on the fair market value of the services received. This is the amount they would normally charge for the same services. If the parties agree to the value of the services in advance, that will be considered the fair market value unless there is contrary evidence.

In addition, if services are exchanged for property, income is realized. For example, if a construction firm does work for a retail business in exchange for unsold inventory, it will have income equal to the fair market value of the inventory. Another example: If an architectural firm does work for a corporation in exchange for shares of the corporation’s stock, it will have income equal to the fair market value of the stock. 

Joining a club

Many businesses join barter clubs that facilitate barter exchanges. In general, these clubs use a system of “credit units” that are awarded to members who provide goods and services. The credits can be redeemed for goods and services from other members.

Bartering is generally taxable in the year it occurs. But if you participate in a barter club, you may be taxed on the value of credit units at the time they’re added to your account, even if you don’t redeem them for actual goods and services until a later year. For example, let’s say that you earn 2,000 credit units one year, and that each unit is redeemable for $1 in goods and services. In that year, you’ll have $2,000 of income. You won’t pay additional tax if you redeem the units the next year, since you’ve already been taxed once on that income.

If you join a barter club, you’ll be asked to provide your Social Security number or employer identification number. You’ll also be asked to certify that you aren’t subject to backup withholding. Unless you make this certification, the club will withhold tax from your bartering income at a 24% rate.

Forms to file

By January 31 of each year, a barter club will send participants a Form 1099-B, “Proceeds from Broker and Barter Exchange Transactions,” which shows the value of cash, property, services and credits that you received from exchanges during the previous year. This information will also be reported to the IRS.

Many benefits

By bartering, you can trade away excess inventory or provide services during slow times, all while hanging onto your cash. You may also find yourself bartering when a customer doesn’t have the money on hand to complete a transaction. As long as you’re aware of the federal and state tax consequences, these transactions can benefit all parties. Contact us if you need assistance or would like more information.

© 2020

The school year ended with many districts experiencing changes to their food service distribution programs. The following are a few impacts those changes may have on your 2020 audit and the 2021 school year.

• We encourage districts to make sure they have all the documentation in place to have successful administrative reviews. All new Summer Food Service Program sponsors will be subject to a review. The focus of the administrative reviews will be on menu, production records, daily meal count sheets, and monthly claims.
• Keep in mind that the Unanticipated School Closure Summer Food Service Program (USCSFSP) meals ended June 30, 2020. After that, claims will be related to the Summer Food Service Program.
• The USCSFSP caused many districts to have an increase in Child Nutrition revenue. Estimate and evaluate your federal revenue as early as possible to determine any impact an increase may have had on your need for a single audit and which major programs may need to be tested for your June 30, 2020, audit. Conversely, if your district saw a significant decline in Child Nutrition revenue, consider any impact on your major programs.

We have seen many other changes related to federal programs for the 2021 school year, and we are here to help you navigate those changes any way we can. Please reach out to your Yeo & Yeo professionals for assistance.

Ideally, your organization should have standard procedures to remove employee access to the organization’s virtual environment upon termination, including banking, remote access to software and files, debit or credit card information, and various websites. However, there may be other changes at the organization that would necessitate removing or reducing access, such as demotions, transfers to different offices or departments, changes in how information is stored, etc.

A good control to help manage IT access – secondary to the standard procedures – would be to periodically view the access rights for this information and make any changes as necessary. This could be accomplished with a recurring calendar reminder and documented with a simple memo.

One of the great advantages of being a nonprofit organization (NPO) is that the organization avoids paying income taxes in many situations. However, tax can apply at certain times in the form of unrelated business income tax (UBIT). If you are not familiar with the UBIT regulations, the time to evaluate your NPO’s activities is now!

An important concept to understand is that the evaluation of applying UBIT is focused on how the income is earned, not how it is ultimately used. Therefore, the idea that the income is being used solely to support your mission is not a legitimate way to avoid paying UBIT.

In general, UBIT applies when all three of the following criteria are met:

1. The income is from a trade or business. Generally, this means an activity conducted for the production of income with the intent to profit.
2. The trade or business is regularly conducted.
3. The trade or business is not substantially related to the performance of the NPO’s exempt function or purpose. It is noteworthy that ‘substantially related’ isn’t clearly defined by the IRS and an evaluation will need to be performed to arrive at a supportable conclusion.

As is the case with many laws and regulations, exceptions to rules and less common situational elements always apply. Further research or consultation with your CPA will be essential to ensure compliance. Several common exceptions to the three criteria above are:

1. The activity is carried out by substantially all volunteer labor.
2. The activity is for the convenience of an organization’s members.
3. The goods sold were donated merchandise.
4. The operation of certain bingo games are allowed under certain circumstances.

Other forms of income are specifically excluded as being passive, such as interest and dividends, royalties, rental income from real property that is not debt-financed, and gains on the sale of investment assets. Again, there are also exceptions to these exclusions.

Some income streams that are more common to nonprofit organizations that are subject to UBIT are debt-financed rental income, income received for placing advertisements in publications or at special events, income from partnerships or S-corporations, and administrative or business services provided to others. Many other activities must be considered as well.
Recently, the IRS released new regulations concerning UBIT. Under the old rules, organizations could take the gross income of all unrelated trades or businesses and offset it with allowable deductions from all unrelated trades or businesses, whereas the new rules require organizations to ‘silo’ the revenue and expenses for each trade or business separately. This new methodology will directly affect the amount of any UBIT that may be due each year.

We encourage you to evaluate your NPO’s activities and evaluate whether any may be subject to UBIT, even if the activity may seem insignificant. Yeo & Yeo’s Nonprofit Services Group would be happy to help you reach a conclusion regarding compliance with UBIT regulations.

The words “external audit” are often met with dread. However, it doesn’t have to be that way! Selecting the right auditor for your government entity can seem like a long road; however, the benefits of researching and selecting the external auditor that meets your needs while being cost-effective heavily outweigh the time it takes to review the options thoroughly.

Typically, government entities rely on their external auditors for much more than just the actual audit at year-end. Non-attest services performed by external auditors, such as maintaining capital asset depreciation schedules, often require communication and interaction throughout the year. This interaction puts a lot of pressure on a government to select the right external auditor that will not only deliver a quality audit that complies with all laws and regulations but also one that works well with the government’s finance and treasury departments.

Consider several key areas when selecting an external auditor that will help to ensure a smooth and stress-free audit: industry knowledge, use of technology, and the reputation of the audit firm while balancing fees.

Industry knowledge
Industry-specific knowledge is critical, especially in accounting and finance. Governments have many external compliance requirements that are unique and therefore require special procedures. Examples include the submission of several reports, including the annual audit, to the State by the deadlines, and various policies that must be approved by the government’s governing board. All of these are items that external auditors who are well-versed in the governmental accounting field will specifically verify. Non-compliance with laws and regulations can result in findings that must be reported to the Department of Treasury with the annual audit. Avoiding non-compliance is imperative as the Department of Treasury, depending on the degree of the non-compliance, can withhold funding, which has the potential to be detrimental to the government’s operations as cash flows are often tight.

Use of technology
The use of technology by a prospective external auditor is another critical item to think about. The ability to work efficiently and effectively remotely has become a necessity as the COVID-19 pandemic continues. Governments need to consider an external audit firm’s use and extent of technology to ensure that information is shared and communicated securely and efficiently. The use of internet-based portals and the safety measures a prospective audit firm has in place to protect the government’s information should be a priority during the selection process.

Reputation and price
Finally, a government should research external audit firms thoroughly before signing a contract to ensure they are reputable and within the government entity’s financial means. Just like governments, external audit firms vary significantly in size, which can affect the cost of services. Balancing quality and price are important considerations; however, more expensive does not necessarily mean better in the realm of auditing. Reviewing current client testimonials on an audit firm’s website is an excellent way to gauge a firm’s reputation. For example, if a firm has no client testimonials, this could potentially be a red flag that they are not reputable.

While external audits are a necessity at year-end, a good business relationship with your external auditor can offer a variety of additional guidance and support on various accounting issues as they arise throughout the year. External auditors have resources that they share with clients that may otherwise be out of reach, especially for small governments, such as guidance on new accounting standards. Consistent communication with your external auditor on pain points as they arise will help to set up your government for a worry-free, smooth annual audit.

Soon you will receive, or you may have already received, a letter from the Michigan Department of Treasury titled “ESA – Statement/Payment Reminder.” This letter is related to your organization’s personal property tax return that was filed with the State in January or February 2020. Please be aware that this letter is legitimate and the taxes assessed will be accurate given that a personal property tax return was, in fact, timely filed on your behalf. The taxes have been assessed by your local assessor based on the cost of personal property held at your organization’s address.

When you receive the letter, please follow the steps within to log in to your MTO account and pay the amount due by August 15, 2020. If you have any questions, please contact us.

Yeo & Yeo CPAs & Business Consultants was selected by the readers of Great Lakes Bay Magazine as Greatest of the Great Lakes Bay in Accounting for the second consecutive year.

Each year, Great Lakes Bay Magazine invites its readers to select the best of the best in the Great Lakes Bay Region. Readers can vote for their favorite business in categories including restaurants, home improvement, shopping, health, and services. 2019 is the first year that readers could vote for local businesses in the accounting category.

“We are always humbled by the recognition we receive for being passionate about giving exceptional client service and helping our clients to thrive, ”said Tom Hollerback, President & CEO. “All of the credit goes to our employees who share a common culture of exceeding client expectations.”

For 97 years, individuals in the Great Lakes Bay Region have trusted Yeo & Yeo with their business. It is the community’s continued support that allows the firm to provide outstanding business solutions. In addition to accounting services, Yeo & Yeo and its companies have created a strong network of professionals who are a complete resource for their clients.

Many business owners — particularly those who own smaller companies — spend so much time trying to eliminate weaknesses that they never fully capitalize on their strengths. One way to do so is to identify and explicate your unique selling proposition (USP).

Give it some thought

In a nutshell, a USP states why customers should buy your product or service rather than a similar one offered by a competitor. A USP might be rather obvious if you offer a type of state-of-the-art technology or specialize in a certain kind of service that’s not widely available. Many businesses, however, will need to dedicate some serious thought and discussion to identifying their USP — and they may need to do so every year or two to adapt to market changes.

Ask the right questions

Involve employees from every level of your company in brainstorming sessions to develop your USP. During these meetings, consider the answers to questions such as:

• What makes our products or services distinctive?
• What aspect of our business is most important to its growth?
• Which elements of what we do are the most difficult for competitors to copy?
• Why should customers buy from us instead of the competition?

As you might have noticed, knowledge of your competitors is critical to developing a strong USP. You can’t differentiate your business from theirs unless you’re familiar with what competitors are selling, how they sell their products or services, and how they support those sales in terms of customer service. To this end, you may need to undertake some “competitive intelligence” efforts to gather needed information.

Integrate it into the sales process

Your USP should be a powerful, concise statement that customers and prospects will immediately understand and recognize as fulfilling their wants or needs. Among the most commonly cited examples is package delivery giant FedEx’s “When it absolutely, positively has to be there overnight.” Although the company doesn’t use this slogan anymore, it remains a perfect example of a USP that’s clear and memorable.

Of course, your USP must be more than just words. Once established, it should serve as a sort of “mantra” for your sales team. That is, after identifying your customers’ needs during the sales process, they should use the USP (or an iteration of it) to explain to customers why your product or service is the right choice. Just be careful not to overuse your USP in sales and marketing materials, including on your website.

Now may be the time

Given the monumental changes that have occurred in the U.S. economy and in many industries because of the COVID-19 pandemic, now may be an imperative time to reconsider and relaunch your USP. We can help you evaluate your sales numbers, as well as return on investment in marketing efforts, to carefully craft the right approach.

© 2020

There’s a new IRS form for business taxpayers that pay or receive nonemployee compensation.

Beginning with tax year 2020, payers must complete Form 1099-NEC, Nonemployee Compensation, to report any payment of $600 or more to a payee.

Why the new form?

Prior to 2020, Form 1099-MISC was filed to report payments totaling at least $600 in a calendar year for services performed in a trade or business by someone who isn’t treated as an employee. These payments are referred to as nonemployee compensation (NEC) and the payment amount was reported in box 7.

Form 1099-NEC was reintroduced to alleviate the confusion caused by separate deadlines for Form 1099-MISC that report NEC in box 7 and all other Form 1099-MISC for paper filers and electronic filers. The IRS announced in July 2019 that, for 2020 and thereafter, it will reintroduce the previously retired Form 1099-NEC, which was last used in the 1980s.

What businesses will file?

Payers of nonemployee compensation will now use Form 1099-NEC to report those payments.

Generally, payers must file Form 1099-NEC by January 31. For 2020 tax returns, the due date will be February 1, 2021, because January 31, 2021, is on a Sunday. There’s no automatic 30-day extension to file Form 1099-NEC. However, an extension to file may be available under certain hardship conditions.

Can a business get an extension?

Form 8809 is used to file for an extension for all types of Forms 1099, as well as for other forms. The IRS recently released a draft of Form 8809. The instructions note that there are no automatic extension requests for Form 1099-NEC. Instead, the IRS will grant only one 30-day extension, and only for certain reasons.

Requests must be submitted on paper. Line 7 lists reasons for requesting an extension. The reasons that an extension to file a Form 1099-NEC (and also a Form W-2, Wage and Tax Statement) will be granted are:

• The filer suffered a catastrophic event in a federally declared disaster area that made the filer unable to resume operations or made necessary records unavailable.
• A filer’s operation was affected by the death, serious illness or unavoidable absence of the individual responsible for filing information returns.
• The operation of the filer was affected by fire, casualty or natural disaster.
• The filer was “in the first year of establishment.”
• The filer didn’t receive data on a payee statement such as Schedule K-1, Form 1042-S, or the statement of sick pay required under IRS regulations in time to prepare an accurate information return.

Need help?

If you have questions about filing Form 1099-NEC or any tax forms, contact us. We can assist you in staying in compliance with all rules.

© 2020

Yeo & Yeo CPAs & Business Consultants is pleased to announce the promotion of three associates.

Daniel Beard, CPA, has been promoted to Manager. Beard, a graduate of Eastern Michigan University, holds a Master of Science in Accounting and a Bachelor of Business Administration. He joined Yeo & Yeo in 2014 and specializes in audit and assurance services, with an emphasis on government, education, and nonprofit clients. He is a member of the American Institute of Certified Public Accountants and the Michigan Association of Certified Public Accountants. In the community, Beard is enrolled in the Leadership A2Y program.

Brian Essenmacher, CPA, has been promoted to Manager. Essenmacher joined Yeo & Yeo in 2017 and specializes in audit and assurance services with an emphasis on government, education, and nonprofit clients. He holds a Bachelor of Professional Accountancy from Northwood University and is a member of the Michigan Association of Certified Public Accountants and the American Institute of Certified Public Accountants. In the community, Essenmacher serves on the finance committee at St. Mark Church and volunteers with several nonprofits across Genesee County.

Mike Rolka, CPA, CGFM, has been promoted to Senior Manager and transferred to the firm’s Auburn Hills office effective July 1. Rolka brings experience in audit services for government and education clients to southeast Michigan. He is a Certified Government Financial Manager and a member of the firm’s Government Services Group. He holds a Bachelor of Professional Accountancy from Saginaw Valley State University and is a member of the Michigan Association of Certified Public Accountants and the American Institute of Certified Public Accountants. In the community, Rolka is a member of the Saginaw Valley Young Professionals Network.

The tax filing deadline for 2019 tax returns has been extended until July 15 this year, due to the COVID-19 pandemic. After your 2019 tax return has been successfully filed with the IRS, there may still be some issues to bear in mind. Here are three considerations.

1. Some tax records can now be thrown away

You should keep tax records related to your return for as long as the IRS can audit your return or assess additional taxes. In general, the statute of limitations is three years after you file your return. So you can generally get rid of most records related to tax returns for 2016 and earlier years. (If you filed an extension for your 2016 return, hold on to your records until at least three years from when you filed the extended return.)

However, the statute of limitations extends to six years for taxpayers who understate their gross income by more than 25%.

You’ll need to hang on to certain tax-related records longer. For example, keep the actual tax returns indefinitely, so you can prove to the IRS that you filed a legitimate return. (There’s no statute of limitations for an audit if you didn’t file a return or you filed a fraudulent one.)

When it comes to retirement accounts, keep records associated with them until you’ve depleted the account and reported the last withdrawal on your tax return, plus three (or six) years. And retain records related to real estate or investments for as long as you own the asset, plus at least three years after you sell it and report the sale on your tax return. (You can keep these records for six years if you want to be extra safe.)

2. You can check up on your refund

The IRS has an online tool that can tell you the status of your refund. Go to irs.gov and click on “Get Your Refund Status” to find out about yours. You’ll need your Social Security number, filing status and the exact refund amount.

3. You can file an amended return if you forgot to report something

In general, you can file an amended tax return and claim a refund within three years after the date you filed your original return or within two years of the date you paid the tax, whichever is later. So for a 2019 tax return that you file on July 15, 2020, you can generally file an amended return until July 15, 2023.

However, there are a few opportunities when you have longer to file an amended return. For example, the statute of limitations for bad debts is longer than the usual three-year time limit for most items on your tax return. In general, you can amend your tax return to claim a bad debt for seven years from the due date of the tax return for the year that the debt became worthless.

We can help

Contact us if you have questions about tax record retention, your refund or filing an amended return. We’re not just available at tax filing time — we’re here all year!

© 2020