The CPA Desk

A Thought Leader Production by PKFTexas

International Middle Market and Foreign (Repatriated) Funds

Jen:  This is the PKF Texas Entrepreneur’s Playbook. I’m Jen Lemsamski, and I’m back with Frank Landreneau, one of our international tax directors. Frank, welcome back to the Playbook.

Frank: Well, thanks for having me. I appreciate it.

Jen: So, I’ve heard a little bit about a so-called toll or repatriation tax; can you explain to me what this is?

Frank: That’s right. Basically, under the new tax laws, it’s the change of regime of foreign earnings accumulated without being taxed until the earnings are brought back to going to more of an exemption system. So, the idea is we’re going to cleanse all foreign earnings by taxing it, and so anything that comes over as a repatriated dividend from this point forward most likely won’t be subject to tax.

Jen: What size company does that really affect? Is it middle market? Is it the big guys?

Frank: That’s a good question, because a lot of people think that tax reform was really only for the big guys. It really affects everybody who may have had a foreign corporation operating as an active trader business activity overseas.

Jen: So, for a middle market company, is it too late to do something about it or what’s the timeframe they need to be focusing on?

Frank: None at all. Actually, there are some considerations that need to be looked at. While tax liability on repatriated earnings need to have been made by April 15th in most cases for business entities, the final calculation most likely has not been determined. So now is the time to look at, “Have we been computing foreign earnings properly? Do we have our tax pools in order?” And while you may have paid a repatriation tax upon extension of your return that may not be the final tax you pay, so therefore there’s more that needs to be done before that final filing is made.

Jen: So, it sounds like they need to call you if they haven’t looked into it yet.

Frank: Absolutely. There’s definite things to look at. Like accounting methods that may have been done or taken or missed or different things like that, so there are things to look at.

Jen: Great. Well, we’ll get you back to talk some more international business with us soon.

Frank: Thank you very much. Appreciate it.

Jen: To learn more about other international topics visit This has been another Thought Leader production brought to you by PKF Texas Entrepreneur’s Playbook.

Metrics to Make the Most of Not-For-Profit Fundraising

The amount of money your not-for-profit raises in fundraising campaigns is meaningful, but so is how efficiently you’re able to raise it. Such costs can be measured using two metrics: Cost ratio and return on investment (ROI). Let’s take a look.

Find a Formula
These two metrics can be used to evaluate both fundraising activities as a whole and individual events or campaigns. Concentrating not only on the big picture, but also on specific fundraising activities, allows your organization to identify stronger strategies to use more frequently and weaker ones to consider improving or ending. Ultimately, the goal is to determine which activities generate the highest return.

Cost ratio (also known as cost-per-dollar, which is fundraising expense / fundraising revenue) focuses on the expense of fundraising, while ROI focuses on the returns. The formula for ROI uses the same inputs as cost ratio but flips them; the fundraising expense, of course, is the “investment” ROI is referring to:

ROI = Fundraising revenue / Investment in fundraising

Some not-for-profits use gross revenues in the ROI formula. However, many others use net revenues (revenues minus the related expenses). Either option is acceptable, but you must be consistent and measure revenues the same way for every year and campaign. After all, these metrics are meaningful only when you compare fundraising activities or trends from one year to prior years.

Calculate Inputs
Fundraising expense data should include the direct costs of the initial effort, as well as later activities. Initial costs might include an investment in online advertising or a phone campaign, while subsequent costs might relate to maintaining that relationship, such as a renewal mailing.

As for indirect and overhead costs, exclude those that you would incur with or without the monitored activity (such as website or donor database costs). And make sure they’re excluded from every campaign metric. For both costs and revenues, use rolling averages that cover three to five years. This will reduce the effect of “one-offs,” whether in the form of a significant donation or an economic downturn. You’ll also avoid penalizing activities, such as a major gift campaign, that require some time to show results.

Allocate Resources
Calculating metrics will help you make better decisions when it comes to allocating limited resources. But keep in mind that ROI can vary greatly by activity, and a lower ROI doesn’t necessarily mean you should cut the activity.

Contact us for more information.

How the TCJA Impacts Estate Planning

The massive changes the Tax Cuts and Jobs Act (TCJA) made to income taxes have garnered the most attention. But the new law also made major changes to gift and estate taxes. While the TCJA didn’t repeal these taxes, it did significantly reduce the number of taxpayers who’ll be subject to them, at least for the next several years. Nevertheless, factoring taxes into your estate planning is still important.

Exemption Increases
The TCJA more than doubles the combined gift and estate tax exemption and the generation-skipping transfer (GST) tax exemption, from $5.49 million for 2017 to $11.18 million for 2018.

This amount will continue to be annually adjusted for inflation through 2025. Absent further congressional action, however, the exemptions will revert to their 2017 levels (adjusted for inflation) for 2026 and beyond.

The rate for all three taxes remains at 40% — only three percentage points higher than the top income tax rate.

The Impact
Even before the TCJA, the vast majority of taxpayers didn’t have to worry about federal gift and estate taxes. While the TCJA protects even more taxpayers from these taxes, those with estates in the roughly $6 million to $11 million range (twice that for married couples) still need to keep potential post-2025 estate tax liability in mind in their estate planning. Although their estates would escape estate taxes if they were to die while the doubled exemption is in effect, they could face such taxes if they live beyond 2025.

Any taxpayer who could be subject to gift and estate taxes after 2025 may want to consider making gifts now to take advantage of the higher exemptions while they’re available.

Factoring taxes into your estate planning is also still important if you live in a state with an estate tax. Even before the TCJA, many states imposed estate tax at a lower threshold than the federal government did. Now the differences in some states will be even greater.

Finally, income tax planning, which became more important in estate planning back when exemptions rose to $5 million more than 15 years ago, is now an even more important part of estate planning.

For example, holding assets until death may be advantageous if estate taxes aren’t a concern. When you give away an appreciated asset, the recipient takes over your tax basis in the asset, triggering capital gains tax should he or she turn around and sell it. When an appreciated asset is inherited, on the other hand, the recipient’s basis is “stepped up” to the asset’s fair market value on the date of death, erasing the built-in capital gain. So retaining appreciating assets until death can save significant income tax.

Review Your Estate Plan
Whether or not you need to be concerned about federal gift and estate taxes, having an estate plan in place and reviewing it regularly is important.

Contact us to discuss the potential tax impact of the TCJA on your estate plan.

Reconsidering Tax Planning Strategies for International Middle Market

Jen: This is the PKF Texas Entrepreneur’s Playbook. I’m Jen Lemanski, and I’m here today with Frank Landreneau, one of our International Tax Directors. Frank, welcome back to the Playbook.

Frank: Well, thanks, Jen. It’s great to be back again.

Jen: Last time we talked a little bit about tax reform—how it impacts international businesses—and so, what were they doing before and then what does the tax reform mean to them now?

Frank: The landscape has truly changed, because before, middle market companies with overseas operations were really trying to shift earnings to overseas operations to minimize tax. That’s commonly known as a deferral strategy. You don’t pay tax on that income until you repatriate it back to the U.S. That was the crux of all international tax planning, particularly for middle market companies.

Jen: Now, with the new reform, what is that going to look like?

Frank: Now, the tax planning has kind of turned on its head with a lot of different provisions of excluding foreign dividend income from taxation and making those changes permanent. Companies are now looking at what can we do to actually shift some production to the U.S. with lower tax rates and minimize exposure overseas, if that’s in their game plan.

Jen: Is there a timeframe where they need to get all their ducks in a row, or is it just kind of an ongoing type thing?

Frank: Now is the time to re-look at everything that they’re doing, whether it’s supply chain, entity structuring; there’s incentives. The new tax reform heavily favors the domestic corporation type of entity. It’s one area that entities that are doing business as partnerships and S corporations are really taking a look at, should we change entity types, or should we do a different type of entity for a particular type of activity, etc.

Jen: Well, that sounds great and I know we’ve got a lot more to talk about this. We’ll get you back next time.

Frank: Great, thank you.

Jen: Thanks, Frank.

Frank: I appreciate it.

Jen: To learn more about other international topics, visit This has been another Thought Leader Production brought to you by PKF Texas the Entrepreneur’s Playbook. Tune in next week for another chapter.

How to Reinforce Ethics in Your Not-For-Profit

Whether it’s in the business, government or not-for-profit sector, ethics seem to be on everyone’s minds these days. To ensure your supporters and community understand your not-for-profit organization’s values and the policies that uphold them, a formal code of ethics is essential. Here’s how to create one.

1. Identify Rules of Conduct
You probably already have a mission statement that explains your values and goals. So why would you also need a code of ethics? Think of it as a statement about how you practice ideals. A code of ethics not only guides your organization’s day-to-day operations but also your employees’ and board members’ conduct.

The first step in creating a code of ethics is determining your values. To that end, review your strategic plan and mission statement to identify the ideals specific to your organization. Then look at peer not-for-profits to see which values you share, such as fairness, justice and commitment to the community. Also consider ethical and successful behaviors in your industry. For example, if your staff must be licensed, you may want to incorporate those requirements into your written code.

2. Formalize Policies
Now you’re ready to document your expectations and the related policies for your staff and board members. Most not-for-profits should address such general areas as mission, governance, legal compliance and conflicts of interest.

But depending on the type and size of your organization, also consider addressing:

  • The responsible stewardship of funds,
  • Openness and disclosure,
  • Inclusiveness and diversity,
  • Program evaluation, and
  • Professional integrity.

For each topic, discuss how your not-for-profit will abide by the law, be accountable to the public and responsibly handle resources. When the code of ethics is final, your board must formally approve it.

3. Communicate and Train
Finally, implement the code and communicate it to staffers. Present hypothetical examples of situations that they might encounter. For example, what should an employee do if a board member exerts pressure to use his or her company as a vendor? Also address real-life scenarios and how your organization handled them. And if your not-for-profit doesn’t already have one, put in place a mechanism, such as a confidential tipline, that stakeholders can use to raise ethical concerns.

Contact us with questions about creating a code of ethics.

State and Local Taxes Can Influence Where to Live in Retirement

Many Americans relocate to another state for their retirement. If you’re thinking about such a move, state and local taxes should factor into your decision.

Income, Property and Sales Tax
Choosing a state that has no personal income tax may appear to be the best option. But that might not be the case once you consider property taxes and sales taxes.

For example, suppose you’ve narrowed your decision down to two states: State 1 has no individual income tax, and State 2 has a flat 5% individual income tax rate. At first glance, State 1 might appear to be much less expensive from a tax perspective. What happens when you factor in other state and local taxes?

Let’s say the property tax rate in your preferred locality in State 1 is 5%, while it’s only 1% in your preferred locality in State 2. That difference could potentially cancel out any savings in state income taxes in State 1, depending on your annual income and the assessed value of the home.

Also keep in mind that home values can vary dramatically from location to location. So if home values are higher in State 1, there’s an even greater chance that State 1’s overall tax cost could be higher than State 2’s, despite State 1’s lack of income tax.

The potential impact of sales tax can be harder to estimate, but it’s a good idea at minimum to look at the applicable rates in the various retirement locations you’re considering.

More to Think About
If states you’re considering have an income tax, also look at what types of income they tax. Some states, for example, don’t tax wages but do tax interest and dividends. Others offer tax breaks for retirement plan and Social Security income.

In the past, the federal income tax deduction for state and local property and income or sales tax could help make up some of the difference between higher- and lower-tax states. But with the Tax Cuts and Jobs Act (TCJA) limiting that deduction to $10,000 ($5,000 for married couples filing separately), this will be less help — at least through 2025, after which the limit is scheduled to expire.

There’s also estate tax to consider. Not all states have estate tax, but it can be expensive in states that do. While under the TJCA the federal estate tax exemption has more than doubled from the 2017 level to $11.18 million for 2018, states aren’t necessarily keeping pace with the federal exemption. So state estate tax could be levied after a much lower exemption.

Choose Wisely
As you can see, it’s important to factor in state and local taxes as you decide where to live in retirement. You might ultimately decide on a state with higher taxes if other factors are more important to you. But at least you will have made an informed decision and avoid unpleasant tax surprises.

Contact us to learn more.

How the TCJA Affects International Middle Market Companies

Jen: This is the PKF Texas Entrepreneur’s Playbook. I’m Jen Lemanski, and I’m here today with Frank Landreneau, one of our International Tax Directors at PKF Texas. Frank, welcome back to the Playbook.

Frank: Thank you, Jen. It’s great to be back.

Jen: So, tax reform has been in the news a lot. What are you seeing for middle market companies in the international space? How is it changing the way they do business?

Frank: Because of the incentives created through the tax reform, many middle market companies are starting to rethink all types of aspects of their operations, including their supply chain, areas of production, really refocusing on different areas of where they are operating and placing strategic activities.

Jen: And is that for inbound and outbound as well?

Frank: It is. Primarily, a lot of this tax reform was centered around US companies and how they do business in the US, but it does have incentives for inbound companies as well.

Jen: And what types of industries is this going to impact most? Is it manufacturing or is it all across the board?

Frank: It’s really going to impact everything across the board, because a lot of the crux of the tax reform has to do with the reduction of tax rates, and so, therefore, it will transcend industries and the entity types as well.

Jen: I know there’s going to be a lot more to talk about this and dive into with the international tax. Can I get you back?

Frank: Absolutely. I’d love to do that.

Jen: Perfect. Well, thanks. To learn more about other international topics, visit This has been another Thought Leader Production brought to you by PKF Texas The Entrepreneur’s Playbook. Tune in next week for another chapter.

Is Your Not-For-Profit Properly Reporting Donations?

Your not-for-profit probably already ensures that donors receive a receipt with information about claiming a charitable contribution deduction on their tax return. But your obligations may go further than that. For noncash donations, you might have responsibilities related to certain tax forms.

Form 8283 for Donors
When filing their tax returns, donors must attach Section A of Form 8283, “Noncash Charitable Contributions,” if the amount of their deduction for all noncash gifts is more than $500. Only when a single noncash contribution is greater than $5,000 does the donor need to complete Section B, which must be signed by an official of the organization receiving the donation or another person designated by that official. When you return a Schedule B to a donor, the donor should provide you with a full copy of Form 8283.

Donors usually must obtain an appraisal for donated property over $5,000. However, your official’s signature on Section B doesn’t represent concurrence with the appraised value of a donation. It merely acknowledges receipt of the described property on the date specified on the form.

Form 8282 for Not-For-Profits
Your organization generally needs to file Form 8282, “Donee Information Return,” with the IRS if you sell, exchange or otherwise dispose of a donated item within three years of receiving the donation. File the form within 125 days of the disposition unless:

  • The item was valued at $500 or less at the time of the original donation, or
  • The item was consumed or distributed without compensation in furtherance of your exempt purpose. For example, a relief organization that distributes donated medical supplies while aiding disaster victims isn’t required to file Form 8282.

You also must provide a copy of Form 8282 to the donor. When a donated item is transferred from one not-for-profit to another within three years, the transferring organization must provide the successor with its name, address and tax identification number, a copy of the Form 8283 it received from the original donor, and a copy of the Form 8282 within 15 days after filing with the IRS.

Avoidable Consequences
Failing to file required forms can lead to IRS penalties. While your not-for-profit organization may be excused if you show the failure was due to reasonable cause, your donor still stands to lose the tax deduction — a result neither of you want.

Contact us if you have questions.

Section 83(b) Election May Save You Taxes on Restricted Stock Awards

Today many employees receive stock-based compensation from their employer as part of their compensation and benefits package. The tax consequences of such compensation can be complex — subject to ordinary-income, capital gains, employment and other taxes. But if you receive restricted stock awards, you might have a tax-saving opportunity in the form of the Section 83(b) election.

Convert Ordinary Income to Long-term Capital Gains
Restricted stock is stock your employer grants you subject to a substantial risk of forfeiture. Income recognition is normally deferred until the stock is no longer subject to that risk (that is, it’s vested) or you sell it.

At that time, you pay taxes on the stock’s fair market value (FMV) at your ordinary-income rate. The FMV will be considered FICA income, so it also could trigger or increase your exposure to the additional 0.9% Medicare tax.

But you can instead make a Section 83(b) election to recognize ordinary income when you receive the stock. This election, which you must make within 30 days after receiving the stock, allows you to convert future appreciation from ordinary income to long-term capital gains income and defer it until the stock is sold.

The Section 83(b) election can be beneficial if the income at the grant date is negligible or the stock is likely to appreciate significantly. With ordinary-income rates now especially low under the Tax Cuts and Jobs Act (TCJA), it might be a good time to recognize such income.

Weigh the Potential Disadvantages
There are some potential disadvantages, however:

  • You must prepay tax in the current year — which also could push you into a higher income tax bracket or trigger or increase the additional 0.9% Medicare tax. But if your company is in the earlier stages of development, the income recognized may be relatively small.
  • Any taxes you pay because of the election can’t be refunded if you eventually forfeit the stock or sell it at a decreased value. However, you’d have a capital loss in those situations.
  • When you sell the shares, any gain will be included in net investment income and could trigger or increase your liability for the 3.8% net investment income tax.

It’s Complicated
As you can see, tax planning for restricted stock is complicated. Let us know if you’ve recently been awarded restricted stock or expect to be awarded such stock this year. We can help you determine whether the Section 83(b) election makes sense in your specific situation.

Working Audits with Joint Venture Strategic Advisors

Russ:  This is the PKF Texas Entrepreneur’s Playbook.  I’m Russ Capper, this week’s guest host, and I’m here once again with Kirsten Strieck, a shareholder and Director of Operations and Client Services at Joint Venture Strategic Advisors.  Welcome back to the Playbook, Kirsten.

Kirsten:  Thanks, Russ.

Russ:  You bet.  I assume in this joint venture advisory work that you guys do that there has to be an audit involved somewhere.

Kirsten:  We do many types of audits.  We do operating and capital expense audits, which are related to the joint operating agreement.  We do production revenue royalty audits.  We provide measurement audits, vendor audits, payout statement audits, final statement of adjustment audits and many more.

Russ:  So in every one of the assessments that you do, do you do all of those audits or is it kind of customized by the arrangement?

Kirsten:  It’s very customized to whatever the client’s looking at auditing, or we can go in and we can suggest an audit plan for them.

Russ:  Okay, very interesting, thanks a lot.

Kirsten:  Thank you.

Russ:  You bet.  For more about JVSA, visit  This has been another Thought Leader production brought to you by PKF Texas Entrepreneur’s Playbook.