If I am preparing a report on lost earnings in a wrongful death litigation matter, I will need to know what the expected remaining life would have been for the deceased subject involved with the lost earnings claim. I will use authoritative tables from government and private research sources to make the life expectancy determination.
Recently, I was perusing the internet searching for other sources for life expectancy tables and came across a website entitled USA LifeExpectancy. The site caught my eye because of the many statistics it had on living long in America. For example, the site indicates the state where white American males live, on average, the longest is the District of Columbia, at 82.07 years (okay, I know D.C. is not technically a state). Who would have thought with all of the stresses of political debate and argument going on in Washington D.C. that it would be conducive to long lives for white American males.
The state with the worst life expectancy statistic for white American males is West Virginia at 72.64 years.
I was curious how my own state, Arizona, stacked up to the other states in the site’s analysis. Arizona’s white American males have an average life expectancy of 77.31 years. It ranked 20th out of 51 USA states (including the District of Columbia) analyzed.
USA LifeExpectancy also showed those states where white American females lived the longest – and where they had the shortest life expectancy among the US states. Here again, they live longest in D.C. at 86.65 years and have the shortest life span in the state of Michigan at 77.05 years. In Arizona, a white American female lives an average of 82.26 years, with the state ranking 14 out of 51 states.
USA LifeExpectancy also showed life expectancy averages for males and females classified as Asian American, Hispanic American, African American and Native American. A comparison of the states where these races have the longest average life expectancy years and those with the shortest is shown below in Table 1. I’ve also shown the average life expectancy years for Arizona in Table 2.
The USA LifeExpectancy website does not indicate why some states have higher life expectancies than others. I have not verified the accuracy of the website’s statistical data. However, I do find the information presented at the website to be interesting. As Star Trek’s Spock would say, “Live long and prosper.”
By Don Bays, CPA, ABV, CVA, CFFPosted on September 15 2015 by admin
Do you worry about the potential for fraud in your company? There is a fairly simple and affordable way to help prevent and detect fraud – through implementation of a “tip line.” Because tip lines encourage and facilitate anonymous reporting, they are a proven fraud deterrent that can be successfully implemented without burdensome effort or expense.
The fraud triangle theory states that those who commit occupational fraud tend to have (1) a perceived financial need; (2) opportunity; and (3) rationalization. The threat of likely detection is one of the most powerful factors in fraud prevention because it all but eliminates the fraudster’s perceived opportunity. According to the 2014 Report to the Nations on Occupational Fraud and Abuse, which contains the findings of a biennial survey conducted by the Association of Certified Fraud Examiners (“ACFE”), the most common detection method in cases of occupational fraud is through tips, with over 42% of cases uncovered through tips.
It is not surprising that employees were the source of almost half of all tips that led to the detection of fraud in the ACFE survey, since the occurrence of fraud can have a negative impact on an organization – including those who work for it. At the same time, there is often a risk of backlash for whistleblowers, which likely explains why a substantial amount of tips were reportedly from anonymous parties (14.6%). The ACFE survey also found that over 21% of tips regarding fraud came from customers, and almost 10% came from vendors. Therefore, it is important that vendors and customers are also aware of options for reporting suspicions of fraud.
The overwhelming evidence in support of tip lines has spawned the development of several third-party tip line options. Tip line companies typically provide anonymous, 365/24/7 access and a variety of means of accessing the tip line. Costs are generally reasonable considering the risk of loss: minimum annual fees range from $500 for up to 100 employees to $2,000 for a cloud-based software solution. Different pricing options frequently exist for not-for-profits. Functionality ranges from companies that simply provide hotlines to those that provide tip lines in addition to a full governance, risk, and compliance program.
A good tip line can help a company defend against lawsuits, provide employees and others with an outlet for reporting ethical misconduct, and emphasize fairness in an organization. Tip lines are one of the most effective tools organizations possess for detecting and preventing fraud, and are well worth the cost of implementation.
By Lynne Bouvea, CPA/ABV/CFF, ASA, CFEPosted on September 1 2015 by admin
The markets have been extremely volatile in the past few weeks. We saw sharp declines in the markets in the beginning of last week only to turn around and end the week with a slight increase in the S&P 500 and Nasdaq indices and a slight decline in the Dow Jones Industrial Average. The S&P 500 and Dow Jones are both down year to date.
Michael Carlin, Managing Member of Wealth Management and valued team member of Henry & Horne, LLP, provided a calming perspective to his Clients last week which I found to be helpful personally as an investor in the markets and when talking to Clients. Below are excerpts from Michael’s commentary that I hope you find useful (statistics shown are as of August 24, 2015).
“Even with the market turmoil, I want to point out a few salient facts that should help maintain perspective and understanding, and start with a quick note first: Since March of 2009, the stock market has been on a long, sustained secular bull market, meaning the market rolls higher. Another way to look at it – we had the 4th longest stock market run higher in history.
Let’s review the fact set that is providing the fuel for this downturn:
- There is concern the Federal Reserve will increase interest rates in September. Important to note, the Fed typically increases interest rates to normalize our economy, so inasmuch as it is viewed as a negative, a rate increase indicates our economy could/should handle a move higher. So even if the Fed increases rates in September (feels unlikely) it should come with the sense that our total economic outlook is better than reflected in the stock market. As we sit now, jobs look well, inflation remains low and under control, and U.S. Growth estimates still fall in the range of 2% to 2.5% for the year.
- China, it’s all about China to some pundits. Today China is down 8%+. Since June, China is down 33%+. However, these move lower take back gains in the Chinese market earned early in the year. As of now, including this move lower, the Chinese market is actually up for the year by more than 8%+. Right now, there are fears that China is slowing which is proven by much slower economic numbers coming out of Shanghai over the past few weeks. The weakened growth in China lead some to ponder whether it was possible for China’s robust annual growth to slim down from its +6% growth prediction to maybe a contraction or negative growth figure. The only way to know for sure the extent of China’s stagnation will be to know the numbers as they come out over the coming months. The reality is that China’s middle class is supposed to reach 340 million people in China by 2016 which is about the size of the total U.S. population. Those people are going to have money to spend and will find ways to use their funds and keep economic activity moving forward. So, when things go bad in China, it certainly has an effect on our market, but let’s keep in perspective that it will not take the U.S. down to the same degree.
- The world is experiencing a currency crisis as the U.S. Dollar strengthens. For nearly 40 years the U.S. dollar gradually endured a decade by decade weakness against the major currencies of the world. This trend halted suddenly as European countries experienced renewed fears over Greece on year ago. Since then, the U.S. Dollar moved 14% higher versus the Euro. Yet it wasn’t just the Euro, when the world experienced turbulence and turmoil they turned to the U.S. Dollar for stability. In turn, the U.S. Dollar moved higher by 20% to the Canadian dollar over the past year, and up 10% compared to most emerging countries like the Indian Rupee and Thai Baht. The last time we experienced a currency meltdown similar to this was the 1997 Asian currency crisis. At that time, the U.S. Stock market dropped about 15% feeling the effects of contagion that started in East Asia. Once the U.S. stock market found a bottom around October of 1998, the market was up another 20% in the year following.
- When markets drop 10% or more, statistics show that it usually takes about 5 months to complete the slide lower. Our hyper sensitive market dropped this amount in a few weeks. It makes some feel it could get much worse quickly which is not based on fact. What the timing does indicate is that it could be a sustained uneasy market for a period of the next few months.”
In summary, while a volatile market environment can create anxiety, it can also be an opportunity to find value in markets or stocks that have gone down too much. It’s important to be patient, not panic, and maintain a long-term perspective.
By Cindy Andresen, ASAPosted on August 26 2015 by admin
Many economists believe this year’s surge in homebuilding is beginning to look more and more like a real recovery of the Valley’s new-home market.
New Home Permits Issued in July 2015 are 55% Higher than Prior Year
The Phoenix Housing Market Letter published by RL Brown and Greg Burger reports that:
- New home sales were up 10% in July 2015 versus July of 2014.
- 1,592 permits were issued in July 2015 for new houses compared with 1,024 in July 2014, reflecting an increase of 55%.
- Year-to-date new home construction permits were up 39% compared to the same seven month period in 2014.
The newsletter attributes the recent increase in new-home construction and sales to improvements in the region’s economy, more existing homeowners able to sell and buy a new house, and boomerang buyers who lost houses to foreclosure who are now able to qualify for mortgages again.
Median Price of New Homes in July 2015 is 28% Higher than Median Price for Existing Homes
The median price of new houses sold in metro Phoenix during July reached almost $300,000, which is about $83,000 more than the median price for an existing Valley house.
- Is it Time to Celebrate a Local and National Housing Recovery?
According to an August 18, 2015 CNBS article, U.S. housing starts rose to an eight year high in July of 2015. Housing starts have now been above a one million-unit pace for four straight months.
With that said, the recent plummet of stock prices will definitely affect consumer confidence and could tighten bank’s lending criteria. Let’s hope that new construction will continue to outperform last year’s numbers and contribute to the recovery of the local and national economy.
By Gary Ringel, CGREAPosted on August 11 2015 by admin
I have been performing forensic accounting services for clients since 1984. During that time, I have heard many definitions of “forensic accounting services” from other CPAs, seminar instructors, and attorneys. The American Institute of CPAs (“AICPA”) has a practice aid (“Practice Aid”) which gives the following definition of forensic accounting services:
“Forensic accounting services generally involve the application of specialized knowledge and investigative skills possessed by CPAs to collect, analyze, and evaluate evidential matter and to interpret and communicate findings in the courtroom, boardroom, or other legal or administrative venue. More simply, in a litigation context, the term forensic means to be suitable for use by a court of law.”
The Practice Aid states the following about the different types of forensic accounting services:
“Forensic accounting services include dispute resolution, litigation support, bankruptcy support, and fraud and special investigations, among many other services. Forensic accounting services utilize the practitioner’s specialized accounting, auditing, economic, tax, and other skills to perform a number of consulting activities. The provision of forensic accounting services often requires the practitioner to serve as an expert or fact witness, depending on the assignment.”
In a white paper published by the AICPA, the following key observations regarding forensic accountants were stated in the Executive Summary of the white paper:
- The authors surveyed and received responses from 126 attorneys, 603 CPAs and 50 accounting/auditing professors in June 2009 to better understand the current perceptions of what it means to be an effective forensic accountant.
- The survey found that 60% or more of the attorneys ranked being analytical, detailed-oriented and ethical as essential traits and characteristics. All three respondent groups agreed that being analytical was the most essential characteristic for the forensic accountant to possess.
- Despite common traits and characteristics identified by all three respondent groups, only attorneys ranked effective oral communication as their top core skill for forensic accountants and that was followed by the forensic accountant’s ability to simplify the information. Auditing skills were ranked fifth, in a top-five (“Top 5”) ranking, by the attorneys, and ranked second by the academics but were not ranked in the Top 5 by the CPAs.
- More than 80% of the attorney respondents identified inability to simplify the information and ineffective oral communication skills as the top-two reasons why forensic accountants are ineffective, which is consistent with their Top 5 ranking of core skills for forensic accountants. The CPAs, on the other hand, identified inability to identify key issues and lack of investigative intuitiveness as the most common reasons for a forensic accountant’s ineffectiveness.
As a testifying expert, I have found that demonstrating effective oral communication skills includes having the ability to teach in the courtroom. For example, the forensic accountant must have a knack for taking very complex financial data and explaining it to those listening – judge or jury, in a manner that they easily understand. If the testifying forensic accountant notices a jury member or two starting to doze off while they are speaking, this may not be a good sign that they are getting their message across.
By Don R. Bays CPA/ABV/CFF, CVA
 Practice Aid 10-1, Serving as an Expert Witness or Consultant; American Institute of Certified Public Accountants, Inc., 2010
 White paper: Characteristics and Skills of the Forensic Accountant; authors: Charles Davis, Ramona Farrell and Suzanne Ogilby; published by the AICPA FVS SectionPosted on July 28 2015 by admin
Ah, the convenience of depositing a check right from my phone. How much easier could it get? Log onto my account, choose remote deposit, snap a picture of the front and back of the check and ABRACADABRA my check is deposited. No getting out to the bank or finding a deposit slip. Once I receive notification from my bank that the deposit has been accepted, I will typically write a note on the check indicating when and how I deposited it. Because frankly, I can’t remember what I had for breakfast this morning let alone whether or not a particular check has been deposited.
And apparently others can’t remember either. Individuals are finding that checks they have written for services are being cashed more than once. This is generally an honest mistake. The younger generations don’t typically balance their checkbooks as so many of us have been taught to do. And rather than combing through statements online, when they find a check that they can’t remember if they deposited or not, they just deposit it. This is known as double presentment. An area that some predict is ripe for fraud.
The banks are doing a pretty good job at catching most double presentments. But some smaller amounts have slipped through the cracks. And, if the check is presented via different channels (mobile deposit, ATM deposit, teller deposit) or at different institutions, it gets more difficult to catch a double presentment.
Be kind to those from whom you accept checks. If you deposit remotely, once you have confirmation from your bank that the deposit has been accepted, write on the check or simply destroy it. Don’t just throw it away for someone to find in the trash. And keep an eye on your own bank account if you still write checks.
Let’s stop the fraudsters before they can get started.
By Melissa E. Loughlin-Sines, CPA, CVA, CFE, CFFPosted on July 21 2015 by admin
A damages award must consider steps the plaintiff took, or reasonably could have taken, to mitigate the alleged losses. The defendant has the burden to prove that losses could have been avoided by reasonable efforts of the plaintiff without causing undo expense or risk.
Duty to Mitigate
One of the principles limiting recovery of damages is a plaintiff’s duty to mitigate, that is, avoid or minimize damages. This requires that a plaintiff take appropriate actions to overcome the damages allegedly caused by the defendant. This principle is summarized in the Restatement (Second) of Contracts: (*)
§350. AVOIDABILITY AS A LIMITATION ON DAMAGES
(1) Except as stated in Subsection (2), damages are not recoverable for loss that the injured party could have avoided without undue risk, burden or humiliation.
(2) The injured party is not precluded from recovery by the rule stated in Subsection (1) to the extent that he has made reasonable but unsuccessful efforts to avoid loss.
The duty to mitigate applies in virtually every type of litigation. For example:
- In a breach-of-contract case, a plaintiff should make reasonable efforts to replace lost business.
- A manufacturer that suffers a business interruption should minimize the impact by resuming operations at a temporary location or outsourcing production if possible.
- An antitrust plaintiff prevented from entering a particular market should explore opportunities to invest in alternative markets.
- A wrongfully terminated employee should make reasonable efforts to find other employment.
Burden of Proof
A Plaintiff’s failure to mitigate is an affirmative defense – that is, the defendant, as the party responsible for any losses, has the burden to prove that such losses have been, or could have been, reduced or avoided through mitigation. It is important that a damages expert understand what steps, if any, were taken by the plaintiff to mitigate its losses so the financial impact can be measured.
Evaluating Mitigation Opportunities
Evaluating mitigation opportunities can be every bit as challenging as measuring alleged losses. This is particularly true when the plaintiff purportedly failed to fulfill its duty to mitigate.
Estimating the impact of mitigation alternatives requires considerable professional judgment by the damages expert. Both the plaintiff’s business and industry must be understood to determine whether a mitigation opportunity is reasonable. And if so, the expert must estimate its impact on alleged losses.
The expert must also consider whether income earned subsequent to the wrongful act is the result of mitigation efforts, or is income that would have been earned in addition to the alleged losses in the ordinary course. It should be noted that a plaintiff is entitled to recover any expenses incurred in its effort to mitigate – even if unsuccessful.
The plaintiff’s duty to mitigate is an important issue that can have a significant impact on a damages award. It is, therefore, important for attorneys on both sides, along with their financial experts, to address this issue early in the litigation process.
By Lynne Bouvea, CPA/ABV/CFF, ASA, CFE
(*) Published by the American Law Institute, the Restatement of the Law is a set of treatises on legal subjects that seek to inform judges and lawyers about general principles of common law, and is one of the most respected and well-used sources of secondary authority.Posted on July 14 2015 by admin
In early June 2015, the U.S. Supreme Court ruled that homeowners who have an “underwater” second mortgage on their home – one with a mortgage balance that exceeds its current value –cannot be stripped off or dismissed in a Chapter 7 bankruptcy proceeding.
This recent court decision is going to dramatically impact homeowners who are struggling in this economy and are considering filing for Chapter 7 bankruptcy protection. In order for the homeowners to retain ownership of their home, they will have to assume the debt on not only the first mortgage but the second mortgage as well, even if the current value of the home is less than the amount owed on just the first mortgage. This ruling is going to make it more difficult for homeowners to emerge from bankruptcy protection and retain ownership of their home since this additional debt will impact their personal budgets.
The Supreme Court unanimously voted against two homeowners in Florida, where the two homeowners had both won before the local appeals court where it had ruled that homeowners in Chapter 7 bankruptcy can have a second mortgage dismissed (also known in bankruptcy terms as “stripped off”) even when the debt that is owed on just the first mortgage is more than the current value of the house. But Bank of America, which was the second mortgage holder in both cases, challenged the appellate court’s decision and won. The Supreme Court not only reaffirmed, but extended its controversial decision in prior cases which the Court had held that a Chapter 7 debtor cannot “strip down” a partially underwater mortgage.
One of the peculiar consequences of this ruling is that if the homeowner cannot afford both mortgages, the bankrupt homeowner will simply have to allow the first lienholder to foreclose on the home which will cause the second mortgage to be wiped out completely anyway.
By Ted Burr, CTP, CIRAPosted on July 7 2015 by admin
The Achieving a Better Life Experience Act (“ABLE Act”) offers a new tax-free savings vehicle for disabled individuals to pay for expenses not covered by government programs such as health care, employment training and support, housing, transportation and education. The ABLE Act was passed by Congress and signed by President Obama in December 2014 as part of The Tax Increase Prevention Act of 2014, adding Section 529A to the Internal Revenue Code (IRC). The intent is to supplement, not supplant, benefits otherwise available to those individuals, whether through private sources, employment, public programs or otherwise.
On June 22, 2015, the Internal Revenue Service issued proposed regulations under Section 529A of the IRC which provide guidance on the requirements a program must satisfy in order to be a qualified ABLE program described in Section 529A. Section 529A allows the creation of a qualified ABLE program by a State (or agency or instrumentality thereof) under which a separate ABLE account may be established for a disabled individual who is the designated beneficiary and owner of that account.
Section 529A(e)(1) provides that an individual is eligible for an ABLE account if either: 1) the individual is entitled to benefits based on blindness or disability under Title II or XVI of the Social Security Act and the blindness or disability occurred before the age of 26, or 2) a disability certification satisfying special requirements is filed with the Secretary.
Below are some of the criteria associated with ABLE Act, Section 529A, and the proposed regulations:
- Account contribution limit is currently $14,000 per year (tied to the gift tax exclusion amount)
- Contributions must be made in cash
- Contributions can be made by any person – includes an individual, trust, estate, partnership, association, company or corporation
- Contribution may be made by the designated beneficiary however this would not qualify as a gift for tax purposes
- Only one ABLE account per beneficiary
- Residency requirement – must open ABLE account in state where owner resides
- Total contribution limit over lifetime is tied to state’s 529 maximum. In Arizona the limit is currently $412,000.
- If ABLE account balance exceeds $100,000, Supplemental Security Income (SSI) benefits will be suspended
- If distributions do not exceed the designated beneficiary’s qualified disability expenses, no amount is includible in the designated beneficiary’s gross income
- Upon the death of the designated beneficiary, all amounts remaining in the ABLE account are includible in the designated beneficiary’s gross estate for purposes of the estate tax. However, the State may file a claim for the amount of the total medical assistance paid for the designated beneficiary under the State’s Medicaid Plan after establishment of the ABLE account.
The regulations are proposed to be effective as of the date of the publication of the Treasury decision adopting these rules as final regulations in the Federal Register. These rules, when adopted as final regulations, will apply to taxable years beginning after December 31, 2014. Until the issuance of final regulations, taxpayers and qualified ABLE programs may rely on these proposed regulations.
The Treasury Department and the IRS request comments to be posted at www.regulations.gov and have scheduled a public hearing for October 14, 2015. To read more about the ABLE Act and proposed regulations, click here.
By Cindy Andresen, ASA
Federal Register: Guidance Under Section 529A: Qualified ABLE Programs – A Proposed Rule by the Internal Revenue Service on June 22, 2015.
Could New Section 2704 Regulations Eliminate Discounts Applicable to Transferred Interests in Family Owned Entities?Posted on June 30 2015 by admin
Internal Revenue Code Section 2704(b) provides that certain “applicable restrictions” that would typically justify the application of lack of control and/or lack of marketability discounts to transferred interests in closely-held family entities such as limited partnerships or limited liability companies are to be ignored for the purpose of valuation, if those interests are transferred either by gift or upon death to or for the benefit of other family members.
An applicable restriction is one that restricts the ability of an entity to liquidate with terms that are more restrictive than under applicable default state law and that either disappears after the transfer to a family member or when the family collectively is vested with the authority to eliminate it.
To preclude a restriction from being applicable, statutes have been changed to ensure that the default rules under state law restrict the ability of the entity to liquidate.
Statutory Proposal and Regulations
There has been a proposal to amend Section 2704 to create an additional category of restrictions that would be disregarded when valuing an interest in a family controlled entity. It would apply to a transfer of an interest to a family member, if after the transfer the restriction will lapse or may be removed by the transferor or the transferor’s family. These disregarded restrictions would essentially include limitations on a holder’s right to liquidate its interest, which are more restrictive than a specified standard to be identified in the regulations.
Status of Proposed Amendment to Section 2704
On May 10, 2015 Cathy Hughes of the U.S. Treasury’s Office of Tax Policy spoke at the ABA’s Tax Section Meeting. She commented on proposed Section 2704 regulation which might have a dramatic impact on the valuation of interests in closely-held limited partnerships and limited liability companies transferred to family members.
Ms. Hughes suggested that the 2704 regulations might be issued later this summer or fall prior to the ABA Tax Section meeting which is September 17-19.
Treasury regulations are typically effective on the date final regulations are issued. At least several years typically lapse from the time proposed regulations are issued until the regulations are finalized. In very limited situations, proposed regulations provide they will be effective when finalized retroactive back to the date of the proposed regulations.
Possible Responses to the Proposed Amendment
Many practitioners believe that if enacted, an amendment to Section 2704 would ultimately be rejected by the Tax Court in a manner analogous to Kerr v. Commissioner in 1999. In that case, as well as Jones v. Commissioner, Knight v. Commissioner, and Harper v. Commissioner, the IRS argued that the term “applicable restriction” in Code § 2704(b) includes any restriction that limits the ability of a partner/member to liquidate his interest in the partnership/LLC that is more restrictive than state law. In support of its argument, the IRS cited Regulation § 25.2704-2(b), which provides that an “applicable restriction” includes any restriction to liquidate the entity “in whole or in part”. In all four cases, the Tax Court rejected the IRS’s argument.
Another important consideration is whether the elimination of lack of control and lack of marketability discounts will ultimately squash the Treasury’s plan to amend Section 2704 because the instructions to Form 706 (United States Estate Tax Return) and Form 709 (United States Gift Tax Return) instruct the preparer to determine the fair market value of the decedent’s assets or the gifted assets.
Since fair market value is defined as the price at which the property would change hands between a willing buyer and a willing seller, neither being under any compulsion to buy or to sell and both having reasonable knowledge of relevant facts, it is our opinion that the business valuator must take lack of control and lack of marketability discounts into consideration unless the instructions to the forms are revised.
By Gary Ringel, CGREA-- Older Entries »
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