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Archives for October 2019

What is “Currently Not Collectible” status from the IRS?

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Big corporations are known for getting all sorts of breaks, but when average people fall behind, they rarely receive help. When you owe back taxes but can’t afford to pay them, you may qualify for a special tax status known as currently not collectible (CNC). In a nutshell, if the IRS agrees you can’t pay both your taxes and your reasonable living expenses, it may place your account in CNC status.

You can request CNC status by submitting the proper form and proof of your income and expenses, as well as documentation of your assets and loans. Be sure to gather copies of all your bills, your most recent pay stubs, and statements detailing other sources of income such as alimony, pensions or investments. If the IRS determines that your necessary expenses exceed your income, you will be notified of your status. And if you’re approved for CNC status, the IRS must not only cease its collection efforts, but can no longer garnish your wages or seize your property.

Not a permanent solution
Keep in mind, CNC status only applies to back taxes. You will still have to file tax returns, and are not exempt from paying current and future taxes. You will also continue to accumulate penalties and interest on your unpaid taxes. After a year or two, the IRS may review your status, and if you’re able to begin paying your back taxes, then you must do so.

Statute of limitations
The IRS can attempt to collect outstanding taxes for only 10 years from the date the taxes were assessed against you, which is usually the date you filed. If at the end of this 10-year period the IRS hasn’t collected, the taxes are no longer owed.

Advice you can trust
In difficult times, many individuals and businesses have trouble meeting their commitments. Reaching out to our firm for a confidential consultation may give you some peace of mind. Call the tax professionals at Magone & Company at (973) 301-2300 for a specific evaluation of your situation.

Digital transformation: How AI will supplement (not supplant) the role of the CFO

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Artificial Intelligence (AI) continues to revolutionize the financial realm. And as a result, the role of the CFO is evolving, too.

AI is changing the organizational structure of how financial departments function. It’s allowing businesses to work smarter and faster, enabling their transformation into full digital organizations. But as technology fulfills core accounting jobs, what does that mean for the future of the CFO?

There are some shoes AI will never fill
The rise of AI is not likely to replace the CFO, but rather create a strategic partnership. Even as robots get smarter and more economical, they’re not equipped to take on every function.

According to a recent McKinsey report, the determining factor in whether a job is likely to be replaced is the type of work involved. The more predictable and repetitive the job, the more likely it is to be taken over by automation. So, it’s safe to say the core functions of a CFO will not be automated any time soon, and here’s why:

Decision-making skills are difficult to program. Not every question or business challenge can be broken down into quantifiable factors for AI to solve. AI isn’t capable of making judgment calls and tackling decisions that can impact an entire organization. There will always be unexpected problems to solve and machines will never replace human judgement.

Machines can’t easily adapt to the unexpected. Consider the self-checkout lines at big retailers. While they may help move lines faster and lessen crowds, they’re also susceptible to theft. It’s too easy for someone to input the wrong code and make off with a sizeable discount. What does that mean for more complicated machines? System flaws within AI are often unavoidable.

Humans prefer to deal with other humans. When it comes down it, people put more trust into the ideas and intuition of other people rather than machines. While robots are entrusted with smaller duties, it’s unlikely that any company would trust AI with taking over critical tasks.

The true value of AI is enabling CFOs to analyze data in more valuable ways. But this insight is worthless if you’re bogged down with daily accounting operations, like managing financial transactions and producing reports. With technology taking over the grunt work, you’ll be poised to lead change within your organization.

Working in tandem
Today’s CFO is responsible for contributing to company growth and increasing profits. AI provides the actionable information to support decision-making to reach organizational goals — but not take it over. Machine-learning algorithms lend the power to analyze, interpret and make predictions to improve operations and productivity. With AI, the CFO gains:

  • Increased efficiency. As low-priority responsibilities are automated, time is freed up to concentrate on more strategic and revenue-generating tasks.
  • Improve planning. Accurate and reliable data offers higher visibility to detect anomalies, pinpoint inefficiencies and make better planning and forecasting decisions.
  • Smarter fraud detection. The ability to verify information in real-time and ensure compliance can help mitigate risk and prevent fraudulent activity.
  • New ideas. AI can make sense of volumes of data, initiating new ideas and possibilities.
  • Internal reliability. Use data as proof points to build trust with stakeholders and justify key business decisions.

The bottom line
Al gives CFOs a huge advantage. By harnessing the power of data and automation to rise above tedious tasks, they can move into the future with more certainty and maximize their contributions to the success or their organization.

Making sense of the new regulations for retirement plan hardship distributions

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Last month, the IRS issued its final regulations relating to hardship distributions from employee-sponsored retirement plans, including 401(k) and 403(b) plans. These regulations come in response to statutory changes affecting hardship distributions contained in the Bipartisan Budget Act of 2018. The objective: to provide one general standard for determining whether a distribution is necessary — thus simplifying the rules.

If your firm offers retirement benefits, here’s what you need to know:

According to the IRS, a hardship distribution is a withdrawal from an elective deferral account due to an immediate and substantial financial need, limited to the amount necessary to satisfy that need. The money is not paid back to the borrower’s account, but is taxed to the participant.

What constitutes financial need?
Under the new regulations, distribution is treated as necessary when the following requirements are satisfied:

  • The employee has obtained all other distributions available under the plan, as well as all deferred employer compensation plans
  • The employee has provided a written representation to prove insufficient funds to satisfy the need, and the plan administrator does not harbor any knowledge that conflicts with the representation
  • The distribution amount doesn’t exceed the amount required to satisfy the financial need, including any monies needed to cover taxes or penalties resulting from the distribution

What’s changed?
A distribution is not treated as necessary to meet an employee’s urgent financial need if the need may be relieved from another reasonably available resource, including a spouse’s assets. Hardship withdrawals can also be extended to the employee’s primary beneficiary for qualifying educational, medical and funeral expenses. Going forward, hardship withdrawals may also be made from an employee’s elective contributions, as well as the matching contributions from employers — including the earnings on the savings.

Hardship-related amendments in the legislation include:

  • Elimination of the six-month suspension requirement for employee elective deferrals following receipt of a hardship distribution
  • Elimination of the requirement that available retirement plan loans be taken before a hardship distribution is granted
  • Inclusion of employer-provided qualified non-elective contributions (QNECs) and qualified matching contributions (QMACs) and their earnings — as well as any income on employee elective deferrals — in hardship distributions

What does this mean for your business?
Plan sponsors are now tasked with ensuring that retirement plan documents are in compliance with the newly-issued hardship distributions. Plans that currently allow hardship distributions will need to be amended to reflect the final regulations by December 31, 2021. Operational changes, however, must comply with the amendments by January 1, 2020.

 Questions? Reach out — we’re happy to discuss these changes and their impact in more detail.