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A Newsletter of Rothstein Kass®

First Quarter 2009


Safeguard Deductions for Charitable Gifts 3 On the Inside 4

When Do 401(k) Deferral Contributions Really Need to be Remitted to the Plan?

So your company sponsors a defined contribution 401(k) plan. The employees are happy to have this option available to them and the company also makes matching contributions to the participants' accounts, which makes the employees even happier. The plan has been in compliance with the IRS non-discrimination rules and there are no complaints from the employees. But what's this? The Department of Labor (DOL) has just completed a desk review of the plan and they have determined that the company is in violation of compliance with the rules related to the timely remittance of employee deferral contributions. How can this be? The company always remits the employees' 401(k) deferral contributions to the plan's asset manager by the end of each month. As required by the DOL Regulation 2510.3-102, an employer must remit the deferred contributions of employees participating in an employer sponsored employee benefit plan to the plan as soon as the monies can be reasonably segregated from the general assets of the company, but no later than the 15th business day of the month subsequent to when the employee deferrals were withheld. There has been a misconception by the sponsors of 401(k) plans as to how long the company has to remit the employee deferral contributions to the plan. Many of those responsible for the administration of the plans believe that as long as the monies are remitted to the plan by the 15th business day of the month subsequent to when the employee deferrals were withheld, that the company was safeharbored and in compliance with the requirement to timely remit employee deferral contributions to the plan. This is not the case and has resulted in: 1) the DOL assessing penalties and excise taxes to the company sponsoring the employee benefit plan; 2) the sponsoring company is being required to make the participants in the plan whole for earnings lost during the time the remittances were delinquent; In addition, these are considered prohibited transactions, regardless of the amount involved and require disclosures in the plan's financial statements.

(continued on page 2)

Top Ten Benefits of a Business Plan

In this uncertain economy, only the strongest businesses will survive. Despite the gloomy prospects predicted by many experts, some operations will manage to thrive in their particular industries. It takes clear vision of the future and firm leadership in order to move forward. The starting point is often the creation of a comprehensive business plan. The document can serve as a guideline for 2009 and beyond. Here are ten ways in which a business plan may be used. 1. Cover all aspects of the business. A business plan can provide a valuable overview of the entire operation. It can identify who does what, when, where and how. The overview should include projections of profitability. 2. Assess financial needs. The plan should require assessments of the company's finances at regular intervals. This can help pinpoint the need for additional funding and future expansion. 3. "Practice what you preach." To determine if new business concepts will work, establish procedures for putting those ideas into practice. The best approach is to use a detailed step-by-step outline and a methodology for analysis. 4. Investigate the market. The process of developing a business plan requires research, assessment and writing. These steps will provide more insight into the overall market and indicate where a niche may be available. 5. Attract potential investors. These investors will want to study specific financial information about the company before they commit any funds. The plan should spell out ways in which investment funds will be spent. 6. Develop benchmarks. It is important for the company to set realistic milestones and determine if they have been achieved. Do not limit the practice

(continued on page 3)

When Do 401(k) Deferral Contributions Really Need to be Remitted to the Plan?

(continued from page 1)

The following is an example of when employee deferral contributions should be remitted to the plan by the company.

"There will always be oneoff situations that arise that prohibit a company from being able to remit the employee deferral contributions either on or within the first few days after the pay date."

ABC Corporation sponsors a 401(k) plan, which has approximately 130 individuals participating in the plan. The company's payroll is paid on a bimonthly basis. The company uses a third party automated payroll administrator, which calculates the total amount of employee 401(k) deferral contributions and the employer matching contributions, as of the date of the payroll. ABC Corporation on average maintains approximately $800,000 in cash in its general checking account. Based on this scenario, ABC Corporation should be remitting the employee deferral contributions on the same day as the date of the employees' paychecks, but no later than two or three business days thereafter. Any later than this and the company subjects itself to being considered delinquent in contributing employee deferral contributions. As with any rule or regulation, there will always be one-off situations that arise which prohibit a company from being able to remit the employee deferral contributions either on or within the first few days after the pay date. Examples of such one-off situations are when the pay date falls on a weekend, or when a holiday falls on or about the date of the pay date. If the company can show that these situations arose on occasion and that in all other instances, employee deferral contributions were remitted on a timely basis, then remittances made more than a day or two after the pay date will most likely not result in penalties. Another situation that may give rise to a company's inability to remit deferral contributions is if the company is having financial difficulties (e.g., pending bankruptcy, cash flow problems, etc.). It is for these types of situations that the DOL established the rule allowing companies to remit employee deferral contributions to the plan by the 15th business day of the month subsequent to the date such deferrals were withheld from the employees. It should be noted, that while a company in financial distress has this extended window option to remit the employee deferral contributions, such transactions will be scrutinized in-depth by the DOL and the plan's auditors (if the plan requires an audit). In the event a company finds itself in a delinquency situation (whether it be for only one payroll or on a more recurring basis), it should register for the Voluntary Fiduciary Correction Program (VFCP). The VFCP is an on-line reme-

diation option on the DOL's website (http:// which allows companies that have made delinquent employee deferral contributions to self correct the delinquency. The site provides a DOL approved online calculator which companies can utilize to calculate the amount of lost earnings to the plan participants. Taking this course of action will still result in the company having to make additional contributions to the plan participants for lost earnings, but it will avoid any penalties or excise taxes normally assessed by the DOL. Failure to voluntarily self-correct any delinquent contributions could result in the DOL assessing penalties and excise taxes to the company, along with the company having to make additional contributions to make the employees whole for lost earnings on delinquent contributions. Rather than having to deal with the consequences of delinquent employee deferral contributions, there are options available to companies to assist in mitigating this issue. Generally, if an outside payroll service is being used, it can be authorized to automatically impound and remit the employee deferral contributions and employer matching contributions to the trustee/asset manager of the plan as of the pay date. Alternatively, the company can implement a formal internal control procedure whereas, on the day the payroll reports are received from the payroll company, a system check can be generated or a wire transfer can be initiated to remit the aggregate of the employee deferral contributions and the employer matching contributions. While companies establish 401(k) plans to assist employees with saving for retirement and to show their appreciation for the employees hard work by providing for employer matching contributions, if the company is not remitting the contributions on a timely basis, then the company is not appropriately honoring the spirit of the establishment of the plan and is opening itself up to potential penalties, as well as the scrutiny of the DOL and IRS. Accordingly, management needs to evaluate if those remittances are being made in a timely fashion as defined by the DOL.

For more information, please contact Jeffrey Davis, CPA, Principal at 973.994.6666 ext. 2236 or via e-mail at [email protected]


Rothstein Kass | on point | First Quarter 2009

Top Ten Benefits of a Business Plan

(continued from page 1)

to the current year. For instance, goals may be established for three, five and ten years in the future. 7. Secure additional credit. This is extremely important in the current economic environment. The plan may demonstrate the objectives that have been met and illustrate projected growth. Lenders will need a complete financial picture. 8. Impress job candidates. A well-devised business plan can attract top-quality employees to the company. The plan will contain vital information that can provide valuable insights to outsiders. 9. Include contingency plans. It is advisable to incorporate contingency plans into the overall document. Rely on the outlined procedures in the event of an emergency or other events requiring immediate action.

10. Position the company for sale. Last, but not least, a business plan is vital if the owner is contemplating a sale in the near future. It can help maximize the sale price during negotiations. Do not think that a business plan should be completed by just one person. Business advisers and key employees can provide necessary assistance.

For more information, please contact Paul Rich, CPA, CM&AA, Principal at 212.997.0500 ext. 3962 or via e-mail at [email protected]

Safeguard Deductions for Charitable Gifts

First, Congress passed tougher substantiation rules for gifts of cash and cash-equivalents to charitable organizations. It also modified the rules for certain noncash donations. Now the IRS has followed up with new proposed regulations that mirror the spirit of the law. Practically speaking, this means that individual donors must be more careful when they give gifts to charity. Proper record keeping can protect your deductions. This is especially important as April 15 nears. items) of noncash property (other than publicly traded securities and certain other excepted items) must obtain a qualified appraisal and keep it in their records. They also must complete the appraisal summary on section B of Form 8283, which must be signed and dated by both the qualified appraiser and the donee. Donors claiming a deduction of more than $500,000 for an item (or group of similar items) donated to one or more donees must attach their qualified appraisal to their returns. However, an exception to these rules may be allowed due to "reasonable cause." Pursuant to the new regulations, the donor must provide an explanation of the extenuating circumstances. In addition, the donor should generally obtain a contemporaneous written acknowledgment and a qualified appraisal. Used clothing and household goods Due to the recent law change, deductions for donations of used clothing and household items are disallowed if the item is not in "good condition." The regulations highlight a notable exception in the law, however. A deduction for a single item of clothing or household item valued above $500 may be permitted if a qualified appraisal is submitted with the return. Qualified appraisals As discussed above, the new regulations emphasize the need for qualified appraisals in certain situations. This requires using an appraiser who follows the Uniform Standards of Professional Appraisal Practice (USPAP). Furthermore, qualified appraisers must provide information on their education and experience in valuing property for this purpose. It is critical to comply with the latest rules to maximize deductions on 2008 tax returns.

For more information, please contact Alan Kufeld, CPA, Principal at 212.997.0500 ext. 3992 or via e-mail at [email protected]

"Individual donors must be more careful when they give gifts to charity."

Basic rules A taxpayer may claim deductions for monetary gifts-- including cash, checks and credit card charges--that are substantiated by a bank record or written communication from the charity. The written communication must indicate the amount of the contribution, the date and the name of the charity. Following are some of the key points illustrated in the new regulations. No "de minimis" exception The new regulations did not approve a "de minimis" exception, as requested by numerous tax practitioners. The IRS determined that such an exception would conflict with the intent of the law. However, the regulations do acknowledge that certain types of payments may be exempt when the charitable beneficiary has not yet been identified or the beneficiary has no firsthand knowledge of the payment amount. This could occur with respect to transfers to charitable remainder trusts. Gifts of property To claim a deduction for a noncash contribution of less than $250, an individual must obtain a receipt from the charitable organization or keep reliable records. A donor who makes a contribution of $250 or more but not more than $500 is required to obtain a contemporaneous written acknowledgment from the charity. All donors claiming a charitable deduction of more than $500 but less than $5,000 for an item (or similar

Rothstein Kass | on point | First Quarter 2009


On the Inside

speaking out

Jeff Davis, CPA, Principal was featured in "Ask the Expert" column of the New Jersey newspaper, The Record. Jeff answered questions that sponsors of 401(k) plans are getting from their employees and gave ideas on how they should be communicating to their employees. Vincent Calgagno, CPA, Principal sat on a panel at the BNP Paibas 7th Annual West Coast CFO/COO Summit held at the Ritz-Carlton Hotel in San Francisco. He discussed current auditing and accounting considerations. Jeffrey Schwartz, CPA, Principal spoke at the FRA's Hedge Fund Accounting and Administration Forum held at the Helmsley hotel in New York. He spoke on the issue of "Valuation Process: Best Practices to Protect Your Fund." Daniel Byrne, CPA, Principal was a panelist at FRA's Private Equity Financial Management Summit at The Flatotel Hotel in New York City. He discussed various tax structuring techniques for portfolio company transactions. Robert Hartnett, CPA, Principal spoke at the Colorado Hedge Funds Roundtable: Model Validation held at The Ritz-Carlton Hotel in Denver. He spoke about 2008 tax updates and their impact. Paul T. Kangail, CPA, Principal spoke at the Bloomberg Hedge Fund and Regulatory Forum held at the Le Meriden Hotel in San Francisco. Paul was part of a panel that discussed current hedge fund tax issues. Wayne Kellner, CPA, Principal spoke at the Life Insurance Settlement Association's 14th Annual Fall Conference held at the Omni Shoreham Hotel in Washington D.C. He discussed the steps and best methods for structuring life settlement funds. Andrea Kalliaras, CPA, Principal spoke at the 8th Annual Tax Practices for Private Equity Funds Conference held at The Harmonie Club in New York. Rosalie Mandel, CPA, Principal spoke at the Women's Initiative Committee of the California Society of CPAs' 2nd Annual Women Leadership Forum held at the Wilshire Grand Hotel in Los Angeles. She sat on a panel titled, "Attaining Leadership." Guy Miller, CPA, Principal spoke at the Current Issues in the Audits of Broker Dealers Conference held at John Jay College in New York. Christopher Mears, CPA, Principal; Ralph Natilli, CPA, Principal; Charles Plavesky, CPA, Principal; Stacey Schell, CPA, Principal and Rich Sumida, CPA, Senior Manager all spoke at the Financial Research Association's Hedge Fund Financial Statement Preparation Seminar held at the 3 West Club in New York. Stacey Schell, CPA, Principal spoke at the AWSCPA's Success Factors for Women Leaders event held in New York. Kelly Easterling, CPA, Principal spoke at the Northwest Hedge Fund Society event held at the Washington Athletic Club in Seattle. She sat on a panel to discuss counterparty and regulatory risk and valuations. Christopher Mears, CPA, Principal spoke at the GAIM 2008 Fund of Funds Conference held at the Grand Hyatt Hotel in New York. He moderated a panel of SFAS 157, the new fair value financial reporting standards relating to fund of funds vehicles. Christopher spoke at the FRA's Preparing Your Financial Statements Conference at the Harvard Club in New York. His panel discussed financial reporting disclosure requirements for alternative asset vehicles. Christopher was a speaker at the Regulatory Compliance Association's Hedge Fund Thought Leadership Summit held at the Marriott Hotel in Stamford, CT. He discussed hedge fund structures, fund liquidations, side pockets, SFAS 157 and hybrid funds. Eugene Chew, CPA, Manager attended the Hedge Fund Regulatory Forum held at the Le Meridien Hotel in San Francisco. Salvatore Collemi, CPA, Senior Manager attended the FAE 1st Annual International Financial Reporting Standards Conference held at the Marriott Marquis Hotel in New York. Salvatore also attended the AICPA/FMD 20th Annual National Conference on the Securities Industry Update at the Pierre Hotel in New York. Daniel Byrne, CPA, Principal attended Argyle Executive Forum's 2008 Leadership in Private Capital Markets Forum at The Princeton Club in New York. Members of Rothstein Kass attended the Women's Initiative Committee of the California Society of CPAs' 2nd Annual Women Leadership Forum held at the Wilshire Grand Hotel in Los Angeles. Members of Rothstein Kass also attended the NJ Biz 50 Fastest Growing Companies dinner held at The Palace at Somerset Park in Somerset, NJ. Seth Blackman, CPA, Principal; Vincent Calcagno, CPA, Principal and Paul Kangail, CPA, Principal attended the BNP Paribas CFO/COO Summit held at the RitzCarlton Hotel in San Francisco. Matt Anderson, CPA, Principal; Seth Blackman, CPA, Principal; Marc Wolf, CPA, Principal and Tami Kautzman, Director of Business Development attended the Alternative Asset Summit held at the Wynn Hotel in Las Vegas. Stuart Bender, CPA, Principal attended the AICPA National Real Estate Conference held at the Grand Resort in Phoenix.

recent recognition

Salvatore Collemi, CPA, Senior Manager was listed as a contact for Rothstein Kass with the Italy-America Chamber of Commerce. Paul T. Kangail, CPA, Principal and Navin Sethi, CPA, Senior Manager are currently teaching a Master of Taxation class at Golden Gate University (GGU) in San Francisco. The Taxation of Financial Products class is a 16-week course offered as part of GGU's Master of Taxation program. Andrew Botwin, SPHR, Principal was recently admitted to the New Jersey State Bar Association. Andrew was also named to the Core Team Leaders Group of AGN International, LTD. This group focuses on human resources and firm administration issues. Kelly Easterling, CPA, Principal was honored at the Women's Initiative Committee of the California Society of CPAs' 2nd Annual Women Leadership Forum held at the Wilshire Grand Hotel in Los Angeles. She received the 2008 Women to Watch Award.

on point is published by Rothstein Kass, Certified Public Accountants, for the general information of our clients, friends and business associates and should not be acted upon without prior professional consultation. If you have any inquiries or would like to have your name placed on our mailing list, please contact our office. Managing Editor Amy Sharry, Senior Marketing Manager Contributing Editors Anthony Aceti, CPA Thomas Angell, CPA Jeffrey Parker, CPA, JD Barry Stadlin, CPA Rothstein Kass Locations Beverly Hills 310.273.2770 Dallas 214.665.6000 Denver 303.675.0666 Grand Cayman 345.949.6333 New York 212.997.0500 Orange County 949.833.8900 Roseland 973.994.6666 San Francisco 415.788.6666 Walnut Creek 925.946.1300

Rothstein Kass is a registered trademark of Rothstein, Kass & Company, P.C. and its related affiliates, each of which is a separate legal entity.

getting involved

Norman Goldberg, CPA, Manager; Sameer Khan, CPA, Manager and David Ondrejcak, CPA, Manager attended the SIFMA Internal Audit Division Conference in Del Ray, FL. Sylvie Gadant, CPA, Senior Manager attended the TMA/ ACG Distressed Capital Conference held at The Roosevelt Hotel in New York.


Rothstein Kass will be participating at the following events:



ACG InterGrowth conference attracts more than 2,000 middle market M&A professionals who attend to network, source deals and learn best practices in M&A. Participants include senior-level private equity professionals, intermediaries, corporate development officers, lenders, lawyers and accountants. This conference will feature keynote speakers T. Boone Pickens and Newt Gingrich. For more information and details on registering, visit


April 6­8, 2009


Institutional Investor's 14th Annual Hedge Fund Institutional Investment Conference held at the Fairmont Hotel in San Francisco


A member of AGN International Ltd, a worldwide association of separate and independent accounting and consulting firms.

April 13­16, 2009


Institute for International Research's GAIM Cayman 2009 held at the Ritz-Carlton Hotel in Grand Cayman

May 12-14, 2009


Association for Corporate Growth InterGrowth 2009 Wynn Hotel, Las Vegas, Nevada

In order to comply with U.S. Treasury Regulations governing tax practice (known as "Circular 230"), you are hereby advised that any tax advice provided herein was not intended or written to be used, and cannot be used, by any taxpayer for the purpose of (i) avoiding U.S. federal, state or local tax penalties, or (ii) promoting, marketing, or recommending to another party any transaction or matter addressed herein.


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