Hartford Business Journal

8 Hartford Business Journal • February 29, 2016 www.HartfordBusiness.com Accounting firms deepen benches for truncated tax season By John Stearns jstearns@HartfordBusiness.com T ax season is always hectic for accounting firms — which for years have called in temporary reinforce- ments, from college interns to experi- enced freelance tax professionals to help manage the load — but the window for the work is getting more compressed, accord- ing to one tax veteran. Last-minute legislative changes and additional reporting requirements from the Affordable Care Act, among other fac- tors, are shortening the tax season, forc- ing accounting firms to scramble for extra help. Simul- taneously, competition for interns and other temps is fierce, forcing firms to compete on their reputation, work and training environment, and compensation. "The [tax season] has gone from like a three-month period to almost less than a two-month period," said Brett McGrath, a partner in the Hartford office of Marcum LLP and partner-in-charge of the firm's Connecticut tax depart- ment. "We still have to get the same amount of work out, but we've got five to six weeks potentially of less time to do it." To deal with the truncated season, Marcum deploys a compression plan that starts before the new year, including filing early extensions for clients for which the firm has already done planning and tax projections but whose returns would be extended anyway; out- sourcing some returns, with clients' approval (the firm outsourced about 1,000 1040s last year); hiring experi- enced flex staff, usually CPAs, through ads in profes- sional publications; and hiring college interns, typically juniors who take the winter semester off from school to work full-time, learn the trade and, assuming they impress, punch their ticket for a job after graduation. McGrath said he usually hires one to three interns each for Marcum's Hartford, New Haven and Greenwich offices in tax season. He doesn't have any flex staff in Hartford this season, but has two or three in New Haven and one in Greenwich. McGrath said he typically taps UConn accounting students and personally interviews candidates, which he thinks, as a partner, provides an edge in the competitive recruiting process, made even tougher by fewer students seeking winter internships. More seem to prefer summer internships and not give up a winter semester, he said. But now is when firms need the help and students can fully experience the occupation, he said. Summer interns typically get hired for audit work. "Six years ago there'd be 120 candidates in the [winter] pool for interns," and even though the Big Four accounting firms (Deliotte, PwC, Ernst & Young and KPMG) would grab most, there was enough to go around for quality firms, McGrath said, estimating the pool this year in the neighborhood of 30, before the Big Four made their play. His Hartford tax staff of about 14 comprises all ex- interns, he said. CohnReznick LLP's Hartford office hired 25 seasonal staff this tax season, comprising 13 experienced profession- als helping with tax preparation and reviews for individual and business clients, seven interns, and five people who supplement administrative support staff, said Ed Kindelan, the firm's regional managing partner-New England. That's up from 22 last year. Firms have to jockey for quality interns, Kindelan said, so CohnReznick has a recruiter in Hartford who hunts for talent between roughly Boston and Stamford. "So we put a lot of effort into investing time at the universities to be able to compete, to get the message out there," Kindelan said. "A lot of our folks come in as referrals," including two graduates this year from Clem- son University in South Carolina, an area outside the office's typical recruiting zone. EXPERTS CORNER Partnerships must brace for new IRS audit rules By Daniel L. Gottfried W ith 2015 in the rear- view mirror, members of partnerships should consider a recently passed law that may have significant implica- tions for the future of their part- nership in the event of a tax audit. Signed into law in November, the Bi-Partisan Budget Act of 2015 (2015 Act) has cre- ated a need for nearly all entities treated as a partnership, includ- ing limited liability companies (LLCs), to take another look at their partnership agreements' tax pro- visions and make necessary revisions. The 2015 Act com- pletely overhauled the Internal Revenue Service's audit procedures for partnerships, effectively repealing the existing Tax Equity and Fiscal Respon- sibility Act of 1982 (TEFRA) and Electing Large Partnership audit procedures. These changes are intended to make the audit process easier for the IRS and generate as much as $10 billion in additional tax revenue over the next decade, but they'll also have a poten- tially significant impact on many partnerships. In the past, it has been difficult for the IRS to audit partner- ships, resulting in audit rates as low as 0.8 percent, accord- ing to one Govern- ment Accountability Office report. This is due, in part, to the fact that the IRS generally performs audits at the partnership level, but then makes tax adjust- ments, and collects any additional taxes, interest, and penalties from individual partners. The new audit procedure seeks to streamline that process. Under the new procedures, the IRS would review partnership income, gain, loss, deduction, credit, and partners' distributive shares for the relevant year. If that audit necessitates an adjustment, any underpayment would need to be paid by the partnership, rather than individual partners. This payment would need to be satisfied by the partnership's assets, or with contributions from those who are partners at the time of the adjustment, not in the year under audit. In other words, the individuals or entities who are partners at the time of an audit will bear the costs of any adjust- ments, regardless of whether or not they were partners in the year that is actually being audited. In light of these changes, part- nerships may want to consider one of two different approaches for han- dling their taxes. First, certain part- nerships with 100 or fewer qualify- ing partners are eligible to opt out of the new procedures, in favor of the old system. Second, it is possible to shift the burden of any tax adjustment to those who were partners in the year under audit. Given the complexity of these approaches, however, partnerships should allow time for careful analysis, plan- ning, and revisions to their partnership agreements. While legal experts are still developing best practices as a result of these changes, partner- ships should take a closer look at the implications of the new pro- cedures sooner rather than later in order to make sure they are protecting themselves. For example, partnerships that are undergoing an ownership change or taking on new partners will need to consider the new pro- cedures and make necessary revi- sions to their agreements. After all, these types of changes create a potential mismatch between who generates a partnership's income and who would bear the cost of a tax adjustment. In addition, partnerships that have audited financial statements will need to understand whether the changes may result in a finan- cial statement impact for uncer- tain tax positions, which histori- cally may not have been relevant to those partnerships. Although there is ample time to prepare for the new audit pro- cedures, these changes create real risk for partnerships, and make previously boilerplate tax provi- sions obsolete. n Daniel L. Gottfried is a partner at Hinckley Allen in Hartford. Daniel L. Gottfried Continued on page 10 Hannah Phelan, a Central Connecticut State University junior majoring in accounting, is one of seven interns working at CohnReznick in Hartford this tax season. FOCUS TAX SEASON/LAW Michael F. D'Addio, principal-tax and business services, in the New Haven office of Marcum LLP. Brett McGrath, partner in the Hartford office of Marcum LLP and the partner-in- charge of Marcum's Connecticut tax department. Ed Kindelan, regional managing partner-New England region, CohnReznick LLP. ▶ ▶ In the past, it has been difficult for the IRS to audit partnerships, resulting in audit rates as low as 0.8 percent. H B J P H O T O | J O H N S T E A R N S

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