John R Armour, CPA CCIFP - Associated General Contractors of America

AGC Financial Issues Forum
January 10, 2014
Presented by
John R Armour, CPA CCIFP
Managing Director, CBIZ MHM, LLC
Denver, CO
Today’s Presenter
John Armour, CPA, CCIFP
Managing Director CBIZ West Region AEC Industry Group
720-200-7081 | [email protected]
John Armour, CPA, CCIFP is nationally recognized as a leading authority and expert in
construction accounting and taxation. John is licensed to practice as a CPA in Colorado and
New Mexico. He is a Managing Director in CBIZ MHM, LLC, the 7th largest U.S. accounting
firm, where he serves as Western Region Director of Architectural, Engineering and
Construction Services.
John is a frequent speaker to construction trade associations and conferences, including
CFMA’s Annual Conference & Exhibition and the AGC-CFMA Construction Financial
Management Conference. He served from 2001-2005 as chair of the AICPA National
Construction Industry Conference planning committee. He also served as President of the
Colorado Society of CPAs. He has also written for CFMA Building Profits.
John is active in construction trade associations, and is a founding member of CFMA’s
Colorado Chapter. He has served on various committees and advisory capacities and
presently serves on the legislative committees of both the Colorado Contractors Association
and AGC’s Colorado Building Chapter. He is also a member of AGC of America’s Tax &
Fiscal Affairs Committee and Supplier/Service Provider Council. His additional construction
industry involvement includes the Associated Building Contractors, Professionals for
Colorado Contractors Council, CICPAC, and Rocky Mountain Surety Association.
Circular 230 Notice
Any tax advice contained in this communication (including any
attachments) was not intended or written to be used, and cannot be
used, by any taxpayer for the purpose of (1) avoiding tax related
penalties under the Internal Revenue Code or (2) promoting, marketing
or recommending to another party any transaction or tax-related
matters addressed herein
Since 2012
• No new tax legislation directly impacting industry
• Tax impact and cost impact of HCA becoming more
• Ways & Means and Senate Finance deliberating on
reform/overhaul with focus on simplification and small
business economic stimulus
– Watch
• No answer for who is going to pay for the parade
Regulatory Projects
• Home Construction
– Drafted revised regulations stalled in Treasury approval process
• Still on the Priority Guidance plan
• No indication of future release date
• Contractors required to apply interpretation based on pre-proposed
regulation IRS positions
– Home must be under construction
– Super completed contract
Chief Counsel Projects
• Look-back – exempt owners
– Issue brought to IRS by Marc Porter – Law Construction
• Original look-back regulations were issued prior to 1996 when law
changed allowing tax exempt entities such as an ESOP to own stock
in an S corporation
• Regulations do not have any allowance for excluding non-taxable
entities allocable income from the lookback computation when
lookback is performed at the entity level.
Chief Counsel Projects
• Look-back – exempt owners
– Issue brought to IRS by Marc Porter – Law Construction
– IRS processing center (and the J Wierman lookback Excel
spreadsheet) calculates look-back interest for a passthrough
paying look-back at the entity level using Corporate rates
• Marc argues that this should be at non-corporate rates
• Citing Garwood Irrigation Company v. Commissioner., U.S. Tax Court,
CCH Dec. 56,500, 126 T.C. No. 12, 125 T.C. No. 233, (May 1, 2006)
Section 444 Deposits
Can an S corporation with ESOP ownership exclude the ESOP
ownership portion of deferred income when computing the Section
444 deposit?
Answer – No
The Section 444 deposit is based on taxable income at the S
corporation level. Any limitations of tax at the shareholder level
(including a shareholder that is tax exempt) is disregarded in
computing the required payment/deposit.
Reasonable Compensation
Assume that your company will recover in the future and may desire to
pay larger compensation to officers.
• Document past earned but unpaid compensation
• Consider dividend payments concurrently with added compensation
Case Law - Severance Payments
US vs. Quality Stores, Inc. – Sixth Court of Appeals held that
severance pay was not subject to FICA.
Decision is inconsistent with 2nd District case
Supreme Court will make a determination in the fall of 2013 as to
hearing the matter to resolve conflicting opinions.
Consider filing protective claims for refunds for all open years.
Case Law – Cost Allocations
• Frontier Custom Builders v Commr.
– TC Memo 2013 – 231 September 30, 2013
• Speculation and Custom Home Builder
• Detail analysis of production, indirect and overhead costs determining
tax treatment
– Production cost
– Mixed service cost
– Deductible
Unreasonable Tax Positions
Beginning in 2014 –
Unreasonable Tax Position disclosures are required for corporations
with gross assets of $10 million (vs. $50 million)
– Evaluate positions prior to year end
– Consider changes in accounting methods to mitigate financial statement and tax
disclosure impacts.
Tax Provisions Expiring at the end of 2013
Tax credit for research and experimentation
Credit for construction of new energy efficient homes (sec. 45L(g))
Work opportunity tax credit (sec. 51(c)(4))
15-year straight-line cost recovery for qualified leasehold
improvements, qualified restaurant buildings and improvements, and
qualified retail improvements (secs. 168(e)(3)(E)(iv), (v), (ix),
168(e)(7)(A)(i) and (e)(8))
• Additional first-year depreciation for 50 percent of basis of qualified
property (secs. 168(k)(1) and (2) and 460(c)(6)(B))
• Election to accelerate AMT credits in lieu of additional first-year
depreciation (sec. 168(k)(4))
Tax Provisions Expiring at the end of 2013
• Increase in expensing to $500,000/$2,000,000 and expansion of
definition of section 179 property (secs. 179(b)(1) and (2) and 179(f))
• Energy efficient commercial buildings deduction (sec. 179D(h))
• Deduction allowable with respect to income attributable to domestic
production activities in Puerto Rico (sec. 199(d)(8))
• Special rules for qualified small business stock (sec. 1202(a)(4)
• Reduction in S corporation recognition period for built-in gains tax
(sec. 1374(d)(7))

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