We've all seen lots of press coverage lately about the two proposed film studios for Massachusetts, Plymouth Rock Studios and the one planned for the former South Weymouth Naval Air Station. Driving all this film activity is the Massachusetts Film Tax Credit, which came into play in 2006. What many people don't realize is that this credit can provide benefits for many companies outside the film industry.

The credit is available for television commercials as well as for feature-length films and television series. Commercials accounted for 54% of the total number of credits awarded between 2006 and 2008 according to the Department of Revenue's recently released report on the film tax incentives. A production company making a commercial in Massachusetts may be eligible for credits of 25% of qualified payroll. They're also eligible for an additional credit of 25% of qualified production expenses when the total production expenses in Massachusetts exceed $50,000. And while that $50,000 threshold may sound hard to meet it can be applied to a series of commercials.

It isn't just the production company that can benefit from these credits. They can be transferred or sold to another taxpayer.

Is your company planning any television advertising? We can work with you and your ad agency to help you get the full benefit of these credits and assist in the application process. For more details, contact Melissa Peirce at 781-937-5312 or mpeirce@dgccpa.com.

Acquiring a business in 2009? Don’t be caught by surprise on accounting rule changes
By Jonathan Butler, CPA and Donna Marr, CPA

If your company is acquiring a business during 2009, be sure not to forget about the new accounting rules for business combinations. Statement of Financial Accounting Standards No. 141 (revised 2007), Business Combinations (now FASB ASC Topic 805 pursuant to the FASB Codification) (ASC 805) was applicable for transactions closing on or after January 1, 2009 for calendar year companies. ASC 805 supersedes Statement of Financial Accounting Standards No. 141, Business Combinations (FAS 141).

ASC 805 significantly changes the accounting for business combinations and could impact an acquirer’s future earnings. Purchase accounting guidance within FAS 141 largely involved allocating costs of acquiring an entity to the acquired assets and liabilities utilizing a combination of historical values and fair value. By contrast, ASC 805 utilizes the acquisition method to account for a business combination, resulting in assets and liabilities being recorded at fair value as of the acquisition date. The new acquisition method emphasizes that a business combination is about a change in control and does not necessarily involve an actual purchase transaction, but always involves an acquirer and an acquiree. Thus, a merger qualifies to be accounted for as an acquisition under ASC 805. Transactions not within the scope of ASC 805 include joint ventures, asset or group acquisitions that are not a business, a combination of entities under common control and not for profit combinations or acquisitions.

Following is a summary of the more significant changes to the accounting for business combinations under ASC 805 and how they impact you:

Research and Development – Acquired in-process research and development assets are measured at their acquisition date fair value and recorded as an indefinite-lived intangible asset. Pursuant to FAS 141, all in-process research and development costs were measured at fair value and expensed upon acquisition, unless they had an alternative future use. This change will introduce volatility in future earnings as the capitalized research and development is not amortized, rather, it is tested for impairment periodically until completion or abandonment. If the development is successfully completed, this asset will be amortized over its estimated useful life.

Transaction Costs – Costs incurred in relation to a business combination transaction are now expensed as incurred. Previously, such costs were capitalized as part of the acquired business and resulted in a higher goodwill amount with no immediate earnings impact. This change will typically decrease an acquirer’s earnings and goodwill.

Contingent Consideration - Contingent consideration, or earn-outs, shall be recognized at the acquisition date fair value and classified as a liability or equity in accordance with the relevant accounting guidance. If classified as a liability, the acquirer is required to re-measure the liability at fair value with subsequent changes in fair value reflected in earnings. Under FAS 141, contingent consideration was recognized as an additional element of the cost of the acquisition, generally as goodwill, as the contingent consideration became issuable.

Assets not fully used – In an acquisition it is not uncommon for there to be assets acquired that the acquirer does not intend to fully use or plans to abandon. The new guidance requires all assets to be measured at fair value based on market factors and amortized over the period such asset would contribute (even if indirectly) to the acquirer’s cash flows. Previously, entity specific factors were employed in determining the fair value of assets not fully utilized, oftentimes resulting in little to no value being assigned. This change in practice will likely reduce goodwill at the acquisition date and increase future amortization expense as these assets are amortized.

Restructuring – Restructuring costs associated with a business combination are now typically post combination expenses to be recorded in continuing operations. Previously, restructurings planned as a result of a combination were most often included as a liability assumed in the acquisition and recorded as part of the business combination accounting. Costs the acquirer expects to incur in the future relating to restructuring are no longer assumed liabilities at the business combination date unless the restructuring was a past transaction, already recognized by the acquiree before the business combination.

Bargain Purchase – In situations where the net fair value of identifiable assets acquired and liabilities assumed is greater than the consideration paid, a bargain purchase has resulted. The Company should first reassess the assumptions used in the valuation process, as bargain purchases are generally not common. However, if a bargain purchase remains after this re-assessment, the acquirer shall recognize the excess as an ordinary gain at the acquisition date. Previously, FAS 141 required the excess to first reduce the recorded value of certain acquired long-lived assets down to zero before an extraordinary gain would be recorded, if necessary, for the residual. Situations where a bargain purchase might occur are distressed sales or liquidations.

As noted, many of the differences between ASC 805 and FAS 141 are significant, require additional external assistance (e.g., for valuations), and are likely to increase the acquirer’s future expenses, where in the past certain costs might have been expensed immediately or captured in goodwill. Accordingly, it is very important for management to be aware of this new accounting rule, and to plan ahead to avoid potentially missing financial expectations of stakeholders or the bank due to accounting complexities.

If you have any questions on implementing ASC 805, please feel free to contact a professional at DGC today.

Expense Reduction Series – Travel Expenses
By David Staub

Business travel is one area companies can realize significant cost savings. Travel expense reduction strategies fall into two general categories. The first deals with broad strategies that will reduce travel expenses as a whole. The second deals with specific strategies that can be applied to particular travel expense areas, such as air transportation, hotels, etc.

Using Strategy to Reduce Travel Expenses
In terms of broad strategies, start with the basics. Instituting or changing your travel policy is the first step in savings. Here are some things you can do now:

• Finding Travel Savings – Significant savings can be achieved by joining travel associations like AAA. In addition to discounted rates, travel associations provide travelers with road side assistance and in some cases insures your transportation costs.
• Setting Strategy – First analyze spending patterns of your employees (i.e. frequent destinations, expenditures, and preferences). These criteria can be used to seize bargains and offer incentives to employees for saving. Implementing or outsourcing appropriate travel management will ensure the criteria are used accordingly.
• Assigning Travel Management – Companies benefit in additional costs savings when travel management is delegated in-house. It will be even more effective if payment and processing is combined with management responsibilities. If not, communication is essential to administer changes, issues, and spending.
• Finding Substitutes for Travel – Clearly, traveling less will reduce expenses so evaluating your prior travel experiences will help indicate areas where substitutes can be considered. The use of video and teleconferencing is becoming more efficient and can save your company substantial amounts of money if travel can be averted.
• Handling Travel Agencies – Be selective when determining the appropriate agency for your company. While large agencies have broader connections and tend to find better deals, smaller agencies are quicker and more personalized. To maximize savings, make sure the agency has an appropriate search engine.

Using Policies to Reduce Travel Costs
A company’s travel policy should be direct and take a position that any employee reading the policy has never made a business trip. The following are some helpful guidelines for establishing an ordinary travel policy:

• Use the Policy to Inform – The Policy should answer any questions an employee would have during a business trip (i.e. When should I rent a car? What are the limitations on meals?).
• Define Lowest Logical Airfair – Since airfair is typically the single biggest travel expenditure, the company must tell the traveler what the parameters are for purchasing. Avoid terms such as “lowest fair available” because this can mean many stops or long layovers which will cause more harm than good. A better statement is “Always seek the best value”.
• Mandate Traveler Spending – Implement ways to control traveler’s flexible expenses. Using a single company credit card can offer means to research spending patterns and earn rewards. Set guidelines for specific expenses and set limitations on amounts your company will reimburse.
• Motivate Travelers – Consider offering financial or other incentives to employees when they are inconvenienced by travel options that save money (i.e. split the savings with the employee). An alternative method is offering a Per Diem. A fixed Per Diem for travel will often cause the employee to spend less because they can keep the difference.

Each article in our Expense Reduction Series will focus on a significant overhead cost category and discuss strategies that can be implemented to improve your company’s spending policies. For more innovative ways to reduce your expenses, contact your DGC representative.

Rollover Window Widened for 2009 Required Minimum Distributions
By Kara Cefalo, CPA

Many taxpayers whose retirement funds were heavily invested in stocks or mutual funds had a difficult year in 2008 due to the decline in the stock and housing markets. The Worker, Retiree, and Employer Recovery Act (WRERA) may provide some relief to taxpayers who are 70 1/2 years of age or older and required to take Required Minimum Distributions (RMD) from their employer-provided defined contribution qualified retirement plans, IRAs and individual retirement annuities. If a taxpayer was required to take RMDs, they would be forced to sell stock or mutual fund shares at a time when the values are depressed.

The WRERA provides a tax break to help address this problem that does not require RMDs to be paid in 2009 that would be required under normal circumstances. Many people to whom this tax break would help were not aware of this tax break and already took RMDs in 2009. Additionally, many computerized programs at financial institutions began to pay out RMDs before they could be canceled due to the WRERA change. This caused many taxpayers to take RMDs in 2009 when they did not have to and would also cause them to have to pay taxes on the IRA distributions on their 2009 tax returns (unless tax had already been paid when contributed into the IRA).

To alleviate this burden on taxpayers who were not aware of the tax break, the IRS has given taxpayers an opportunity to correct RMDs that have already been taken. The IRS will not tax IRA or retirement plan distributions if the distributions were rolled over to an eligible retirement plan by the later of (1) 60 days of payout or (2) November 30, 2009. It is important to note that the one rollover per year rule was unchanged by WRERA so no more than one distribution from an IRA in 2009 is eligible for this rollover relief. Also, the reprieve that allows taxpayers to rollover RMDs does not have a requirement that the taxpayer shows that he/she mistakenly received RMDs. Therefore, if the financial situation of the taxpayer has improved throughout 2009 and they don't need the RMDs to live on, they can rollover the distribution amount into an eligible retirement plan.

If you have questions or concerns about Required Minimum Distributions, now is the time to contact a DGC team member.

Oct. 21 – 21st Annual REFA Gala
Oct. 25-28 – CCH User Conference (DGC presenting)
Oct. 28 – Association for Corporate Growth – Networking for Fundraising Success
Oct. 29 – Turnaround Management Association – Climbing the Ladder in Stilettos
Oct. 29 – REFA – Understanding Mezzanine Loans in Troubled Times
Nov. 3 – Boston Entrepreneur’s Network – Raising Angel Investment
Nov. 4 – Boston Chamber – Women’s Networking Breakfast
Nov. 5 – Boston Bar Association – How to Maximize the Use of Losses This Year (DGC presenting)
Nov. 6 – Turnaround Management Association – Alternatives to Bankruptcy
Nov. 18 – SBANE – MA Breakfast Series
Nov. 18 -19 – Build Boston (DGC presenting)
Nov. 19 – BOMA – TOBY & Industry Awards

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