Month: March 2020

Categories
News

A Message to Our Clients

FOR IMMEDIATE RELEASE
April 1, 2020

 

Short answer: your taxes will still be completed.

We realize that you have received many warnings on the Coronavirus (COVID-19) pandemic. Based on recent events and actions taken in other states over the weekend, we are taking the following precautionary steps in line with CDC recommendations in hopes of protecting our staff as well as our clients:

  1. We are going to limit access to the ATA office buildings with pick up and drop off only until further notice. We will maintain very limited staffing in our offices at this time.
  2. We are able to operate at full capacity in a remote function. All emails, phone calls, etc. will be answered and everyone will still be at work while not necessarily being at the office.
  3. We have the ability to transmit and receive all documents securely in an electronic format including the signing of your tax returns. Please contact your local ATA office if you would like a secure link to upload documents or would like to electronically sign your tax documents.
  4. Face to face meetings and client site visits are prohibited.
  5. We are continuing to operate with a plan to complete as many returns by April 15th (even though the IRS has extended the deadline to July 15th). We realize that may change as things occur that are out of our control and we will communicate that if necessary. We will also monitor the discussions around the extended tax deadlines and make tax planning recommendations as new developments unfold.
  6. We ask that all clients that have traveled outside of their home area or are attending any social events with more than 10 people not come into contact with an ATA staff member for the time being. We further ask that if you are feeling ill in any way that you do not drop off documents during that time or for at least 72 hours post fever.
We understand these are challenging and uncertain times, but we will get through this together. We are closely monitoring this ever-changing situation and will adjust as needed for the safety of our employees and clients. If you have any questions or concerns, please call your local office and they will put you in touch with the necessary ATA contact. Our different office contact information can be found here. As your long-term business partner, we are here to help and want to do whatever we can to make this time easy for you.
Please monitor our social media accounts for any new updates or visit our COVID-19 resource page.
Facebook: @ATACPAs
Instagram: @alexanderthompsonarnoldcpas
LinkedIn: @AlexanderThompsonArnoldPLLC
Twitter: @atacpa_1
Categories
Press Releases

ATA Named a 2020 Firm to Watch and a Top Regional Leader

FOR IMMEDIATE RELEASE
ATA
227 Oil Well Rd., Jackson, TN 38305
731-427-8571
along@atacpa.net
Twitter: @atacpa_1
Contact: Alexis Long, Marketing Director

 

Accounting Today Names Alexander Thompson Arnold PLLC a 2020 Firm to Watch and a Top Regional Leader

Alexander Thompson Arnold PLLC (ATA) has been named a 2020 Firm to Watch and a Top Regional Leader by Accounting Today. The roster includes firms with positive growth rates, which landed ATA on the top firms list for the southeast. The report also evaluates a firm in all aspects and not just growth numbers, looking at cutting edge business practices, which differentiated ATA and put the company on the firms to watch list.

“Kudos to our team for all of their hard work and dedication in making us a top firm,” said managing partner, John Whybrew, “this success was a group effort and we look forward to seeing what else ATA achieves.”

 

To see the full list of top firms from Accounting Today, click here.

About Alexander Thompson Arnold PLLC

ATA has 14 office locations in Tennessee, Kentucky and Mississippi. Recognized as an IPA Top 200 regional accounting firm, it provides a wide array of accounting, auditing, tax and consulting services for clients ranging from small family-owned businesses to publicly traded companies and international corporations.  The firm was recognized by Forbes in 2020 as a top recommended tax firm in the country. ATA is also an alliance member of BDO USA LLP, a top five global accounting firm. This alliance provides the highest level of resources and expertise for ATA’s clients.

###

Categories
Dyersburg, TN Financial Institutions and Banking Henderson, KY Henderson, TN Jackson, TN Martin, TN Memphis, TN Milan, TN Murray, KY Nashville, TN Owensboro, KY Paris, TN Trenton, TN Tupelo, MS Union City, TN

Six Key Cybersecurity Controls that are Critical to Banks

Cybersecurity risk heightened with bank wiring
The OCC and FDIC recently issued an interagency statement on heightened cybersecurity risks, prompted in part by a warning from the Department of Homeland Security of potential cyberattacks against U.S. targets because of increased geopolitical tension. The statement reminds banks not only to implement and maintain effective preventive controls, but also to prepare for a worst-case scenario by maintaining sufficient business continuity planning processes for the rapid recovery, resumption and maintenance of the institution’s operations.
The statement describes six key cybersecurity controls that are critical to protecting banks from malicious activity:
  1. Response, resilience and recovery capabilities,
  2. Identity and access management,
  3. Network configuration and system hardening (that is, modifying settings and eliminating unnecessary programs to minimize security risks),
  4. Employee training,
  5. Security tools and monitoring, and
  6. Data protection.
For a detailed discussion of these controls, you can read the statement at https://www.fdic.gov/news/news/financial/2020/fil20003.html.
OCC Annual Report emphasizes BSA/AML risk
The OCC recently issued its 2019 Annual Report. The report warned that compliance risk related to Bank Secrecy Act/anti-money laundering activities remained high last year. It encouraged banks to implement BSA/AML risk management systems commensurate with the risk associated with their products, services, customers and geographic footprint. Noting that BSA/AML compliance remains a priority, the OCC outlined recent guidance that embraces using innovative technologies to meet these compliance obligations. The agency also encourages community banks with lower BSA risk profiles to reduce costs and increase operational efficiency by sharing BSA compliance-related resources.
Debt collection: Handle with care
A recent federal court case, Hackler v. Tolteca Enterprises Inc., illustrates the importance of carefully following the Fair Debt Collection Practices Act (FDCPA). In that case, a collection agency sent a letter to a debtor attempting to collect a debt. It stated, “If you dispute the validity of this debt within 30 days, from receipt of this notice, we will mail verification of the debt to you. If you do not dispute the validity of this debt within 30 days, from receipt of this notice, we will assume it is valid. At your request, we will provide you with the name and address of the original creditor if different from the current creditor.”
Because the letter failed to specify that the debt must be disputed, and the request must be made “in writing,” as required under the statutory notice requirements, the U.S. District Court for the Western District of Texas found the defendant liable for violations of the FDCPA.
© 2020
Categories
Financial Institutions and Banking News

Breaking Up Is Hard To Do

Protect Bank Interests After a Divorce
Privately owned family businesses typically make up a significant portion of community banks’ loan portfolios. Often, such businesses are co-owned by two partners — who are also married. If the marriage falls apart, will the business follow suit? There are several factors to be aware of if your bank’s loans are at risk due to divorce.
Control and goodwill matter
Sometimes one spouse controls the business, and the other spouse pursues outside interests. A key question in these cases is how much of the private business interest to include in the marital estate. The answer is a function of purchase date, prenuptial agreements, length of marriage, legal precedent and state law.
Goodwill is another point of contention. If a business has value beyond its tangible net worth, how is intangible “goodwill” split up? All goodwill is included in (or excluded from) the marital estate in some states. But about half the states divide goodwill into two pieces: business goodwill and personal goodwill. The latter is excluded from value in these states.
Accurate valuations and reasonable payout periods are important. Settlements that disproportionately favor the noncontrolling spouse can drain company resources and cause financial distress. If the parties can’t reach an equitable settlement, it’s also possible for the court to mandate a liquidation, which threatens business continuity.
When the company buys out a spouse, Treasury stock might appear on the customer’s balance sheet. Or you might see an increase in shareholder loans if the owner-spouse borrows money from the business to pay divorce settlement obligations.
Avoidance strategies can backfire
The noncontrolling (or nonmonied) spouse also may receive alimony and child support from the controlling shareholder. Maintenance payments typically are based on the owner’s annual salary, bonus and perks.
Unscrupulous owner-spouses may try to change compensation levels in anticipation of divorce. Depending on the type of entity they own, a lower wage level may benefit them in negotiations for spousal maintenance and child support.
Also be aware that what divorcing borrowers say about unreported revenues, below-market compensation and personal expenses run through the business could lead to negative tax consequences. Publicly admitting these tax avoidance strategies puts both spouses and the business at risk for IRS inquiry, which could lead to difficulties repaying the loan.
Buyout plans can prevent dissolution
Many private businesses are run by both spouses, whose complementary skill sets make for a hard decision: Who’s going to run the business after the divorce? In limited cases, the spouses may want to continue to run the business together. Like most stakeholders, if co-owners decide to split up personally, but maintain their professional relationships and continue co-managing the business, you may be rightfully skeptical about their future business relationship. Usually, however, the parties can’t imagine working with each other. Such a scenario requires a buyout and a non-compete agreement.
Buyouts should occur over a reasonable time period and can include an earnout — wherein a portion of the selling price is contingent on future earnings — to avoid undue strain on the business. Future success is uncertain when a business loses a key person. It’s fair for both shareholders to bear that risk. If they don’t, the remaining owner, and your bank, could be at risk.
Even if your family-owned business borrowers aren’t currently contemplating divorce, consider what might happen if they did. Proactive family businesses have a buy-sell agreement in place before personal relationships sour. Factors to consider include valuation formulas and methods, valuation discounts, earnout schedules, postbuyout consulting contracts, non-compete agreements and payment of appraisal fees.
Staying engaged with borrowers is key
Keeping your bank’s loans stable and profitable requires you to stay aware of many issues that might crop up for your borrowers over time — including divorce. If you stay on top of potential problems, you’re likely to be able to help your borrowers navigate these difficult waters and come out relatively unscathed, protecting your loans in the process. Visit our financial institutions’ page to connect with an expert.  © 2020
Categories
Financial Institutions and Banking

AI Benefits in Community Banking

Artificial intelligence may be the future of community banking
Recent technological developments — such as artificial intelligence (AI), robotic process automation (RPA) and machine learning — are rapidly changing the way we do business. And the banking industry is no exception. Although large banks were the first to embrace these technologies, an increasing number of community banks are now recognizing their value. It may be some time before smaller banks can afford these technologies, but their potential benefits shouldn’t be ignored.
Enhance relationships
At first glance, AI and automation may seem inconsistent with the personalized attention most community banks rely on to distinguish themselves from their larger competitors. But in fact, these technologies enhance a community bank’s ability to personalize a customer’s experience.
Of course, technology can’t replace human judgment, but by automating and streamlining routine tasks, it can free up staff to focus on what they do best: onboarding new customers, developing personal relationships with current customers, and educating all customers about products, services and promotional opportunities.
Take advantage of new technologies
The potential uses for AI, RPA and other new technologies are virtually limitless. For instance, community banks can use these technologies to:
Open accounts. Some banks are using RPA to automate the account opening process and even accept loan applications. It may take a staff person only five or 10 minutes to open an account. But when you consider the many thousands — or tens of thousands — of accounts opened every year, automating the process can save a significant amount of staff time. Plus, automated systems can help ensure all required information is collected.
Change addresses and other information. Typically, when a customer calls a bank to change his or her address or other information, an employee must go through multiple computer screens in the bank’s system to process the change. With RPA, once the initial information is input, the system can complete the remaining steps automatically, saving time for both customers and bank staff.
Detect BSA/AML crimes. Banks can use AI and machine learning to support their Bank Secrecy Act (BSA) and anti-money laundering (AML) compliance efforts. For example, these technologies can sift through enormous amounts of transaction data and identify suspicious behavioral patterns that would be virtually impossible for humans to detect. And by minimizing the number of false positives and negatives, they can help ensure that investigators focus on truly suspicious activities rather than legitimate transactions.
Improve cybersecurity and fraud protection. The ability of AI to mine huge amounts of data and quickly spot anomalies makes it a powerful fraud detection tool. It’s particularly effective when it comes to cybersecurity. A bank’s IT department may receive hundreds of thousands, or even millions, of cyber threat alerts every month — too many to investigate effectively. AI can comb through this information and alert the bank to potential threats that require immediate attention.
Mind the data gap
As advanced technologies become more commonplace, one of the biggest challenges for community banks will be to ensure they have sufficient data to use these technologies effectively. To do their jobs, AI and machine learning require large amounts of data from which to learn and train. For large institutions with millions of customers, this generally isn’t an obstacle — but many community banks lack the data they need to ensure these technology solutions are effective and accurate.
To prepare to take advantage of the many benefits offered by AI and machine learning, banks should start by taking inventory of their own data. If necessary, banks can supplement this data through data-sharing arrangements or by purchasing data from third parties. A relatively new technique that shows promise is “synthetic data,” which is generated by applying algorithms to a bank’s existing data.
Ready for prime time?
AI and automation have great potential, but it may be some time before community banks fully embrace the technology, which is expensive to implement and maintain. In addition, there may be significant costs associated with gathering the data needed to run it effectively. Nevertheless, it’s important for community banks to monitor developments in this area and consider how these technologies might improve their businesses down the road. © 2020
Categories
Financial Institutions and Banking

Bank Stress Tests – Two Approaches, Four Methods

Should you be stress testing your borrowers?
Most banks are familiar with the concept of stress testing: By evaluating the impact of adverse external events on a bank’s earnings, capital adequacy and other financial measures, stress testing can be a highly effective risk management tool. And while community banks generally aren’t required to conduct stress testing, banking regulators view it as a best practice.
For example, Office of the Comptroller of the Currency (OCC) guidance considers “some form of stress testing or sensitivity analysis of loan portfolios on at least an annual basis to be a key part of sound risk management for community banks.” Stress testing is often performed at the enterprise, or portfolio, level. However, testing at the individual loan level — beginning during the underwriting process — can be a powerful technique for revealing hidden risks.
Two approaches, four methods
Stress testing generally involves scenario analysis. This consists of applying historical or hypothetical scenarios to predict the financial impact of various events, such as a severe recession, loss of a major client or a localized economic downturn. Tools for performing such tests can range from simple spreadsheet programs to sophisticated computer models.
The OCC’s guidance doesn’t prescribe any particular methods of stress testing. It describes two basic approaches to stress testing: “bottom up” and “top down.” A bottom-up approach generally involves conducting stress tests at the individual loan level and aggregating the results. In contrast, a top-down approach applies estimated stress loss rates under various scenarios to pools of loans with similar risk characteristics.
The guidance outlines four methods to consider:
  1. Transaction level stress testing. This estimates potential losses at the loan level by assessing the impact of changing economic conditions on a borrower’s ability to service debt.
  2. Portfolio level stress testing. This method helps identify current and emerging loan portfolio risks and vulnerabilities (and their potential impact on earnings and capital) by assessing the impact of changing economic conditions on borrower performance, identifying credit concentrations and gauging the resulting change in overall portfolio credit quality.
  3. Enterprisewide stress testing. This considers various types of risk — such as credit risk within loan and security portfolios, counterparty credit risk, interest rate risk and liquidity risk — and their interrelated effects on the overall financial impact under a given economic scenario.
  4. Reverse stress testing. This approach assumes a specific adverse outcome, such as credit losses severe enough to result in failure to meet regulatory capital ratios. It then works backward to deduce the types of events that could produce such an outcome.
The right approach and method for a particular bank depends on its portfolio risk and complexity, as well as its resources. Even a simple stress-testing approach can produce positive results. (See “Canada’s mortgage stress-testing law.”)
Stress testing and the underwriting process
A bottom-up approach at the transaction level may offer a significant advantage: In addition to assessing the potential impact of various scenarios on a bank’s earnings and capital, it can, according to the OCC, help the bank “gauge a borrower’s vulnerability to default and loss, foster early problem loan identification and strategic decision making, and strengthen strategic decisions about key loans.”
For example, when evaluating a loan application, consider gathering information on the various risks the borrower faces — including operational, financial, compliance, strategic and reputational risks. This information can be used to run stress tests that measure the potential impact of various risk-related scenarios on the borrower’s ability to pay. An added benefit of this process is that, by discussing identified risks and stress test results with borrowers, you can help them understand their risks and develop strategies for managing and mitigating them, such as tightening internal controls, developing business continuity / disaster recovery plans or purchasing insurance.
A powerful tool
Stress testing is an important part of a community bank’s risk management process. It can also be a powerful tool for evaluating loan applications and revealing hidden vulnerabilities that may jeopardize potential borrowers’ ability to pay down the road. 
Sidebar: Canada’s mortgage stress-testing law
Canada takes an interesting approach to evaluating mortgage loans. Under a law that took effect in 2018, federally regulated banks are required to “stress test” all mortgage applicants. To pass the stress test, an applicant must qualify for a loan at the contractual interest rate plus 2% or at the Bank of Canada’s five-year benchmark rate (5.19% at press time), whichever is higher. So, for example, a borrower applying for a 3.75% mortgage would have to qualify for a mortgage at 5.75%. The rule doesn’t apply to borrowers who are renewing a mortgage with the same lender.
The idea behind the law is that requiring borrowers to qualify at a higher rate than they’re actually paying prevents them from overextending themselves. And since the law took effect, delinquency rates are down. But the law is also controversial because, among other things, it reduces purchasing power for many homebuyers and the benchmark rate is susceptible to manipulation by the largest banks. © 2020
Categories
Financial Institutions and Banking General

Take steps to curb power of attorney abuse

A financial power of attorney can be a valuable planning tool. The most common type is the durable power of attorney, which allows someone (the agent) to act on the behalf of another person (the principal) even if the person becomes mentally incompetent or otherwise incapacitated. It authorizes the agent to manage the principal’s investments, pay bills, file tax returns and handle other financial matters if the principal is unable to do so as a result of illness, injury, advancing age or other circumstances. However, a disadvantage of a power of attorney is that it may be susceptible to abuse by scam artists, dishonest caretakers or greedy relatives.
  • Watch out for your loved ones. A broadly written power of attorney gives an agent unfettered access to the principal’s bank and brokerage accounts, real estate, and other assets. In the right hands, this can be a huge help in managing a person’s financial affairs when the person isn’t able to do so him or herself. But in the wrong hands, it provides an ample opportunity for financial harm. Many people believe that, once an agent has been given a power of attorney, there’s little that can be done to stop the agent from misappropriating money or property. Fortunately, that’s not the case. If you suspect that an elderly family member is a victim of financial abuse by the holder of a power of attorney, contact an attorney as soon as possible. An agent has a fiduciary duty to the principal, requiring him or her to act with the utmost good faith and loyalty when acting on the principal’s behalf. So your relative may be able to sue the agent for breach of fiduciary duty and obtain injunctive relief, damages (including punitive damages) and attorneys’ fees. 
  • Take steps to prevent abuse. If you or a family member plans to execute a power of attorney, there are steps you can take to minimize the risk of abuse: Make sure the agent is someone you know and trust. Consider using a “springing” power of attorney, which doesn’t take effect until certain conditions are met, such as a physician’s certification that the principal has become incapacitated. Use a “special” or “limited” power of attorney that details the agent’s specific powers. (The drawback of this approach is that it limits the agent’s ability to deal with unanticipated circumstances.) Appoint a “monitor” or other third party to review transactions executed by the agent and require the monitor’s approval of transactions over a certain dollar amount. Provide that the appointment of a guardian automatically revokes the power of attorney. Some state laws contain special requirements, such as a separate rider, to authorize an agent to make large gifts or conduct other major transactions. 
  • Act now. If you’re pursuing legal remedies against an agent, the sooner you proceed, the greater your chances of recovery. And if you wish to execute or revoke a power of attorney for yourself, you need to do so while you’re mentally competent. 
Considering appointing a power of attorney? Contact your long-term business partner to discuss planning. Contact us with questions.
Categories
Helpful Articles Jackson, TN Martin, TN Memphis, TN Milan, TN Murray, KY Nashville, TN News Owensboro, KY Paris, TN Tax Tupelo, MS Union City, TN

Reasons why married couples might want to file separate tax returns

The question raised is whether married couples should file joint or separate tax returns. The answer depends on your individual tax situation. It generally depends on which filing status results in the lowest tax. But keep in mind that, if you and your spouse file a joint return, each of you is “jointly and severally” liable for the tax on your combined income. And you’re both equally liable for any additional tax the IRS assesses, plus interest and most penalties. This means that the IRS can come after either of you to collect the full amount. Although there are provisions in the law that offer relief, they have limitations. Therefore, even if a joint return results in less tax, you may want to file separately if you want to only be responsible for your own tax. In most cases, filing jointly offers the most tax savings, especially when the spouses have different income levels. Combining two incomes can bring some of it out of a higher tax bracket. For example, if one spouse has $75,000 of taxable income and the other has just $15,000, filing jointly instead of separately can save $2,512.50 for 2020. 
Filing separately doesn’t mean you go back to using the “single” rates that applied before you were married. Instead, each spouse must use “married filing separately” rates. They’re less favorable than the single rates. 
However, there are cases when people save tax by filing separately:
  • One spouse has significant medical expenses. For 2019 and 2020, medical expenses are deductible only to the extent they exceed 7.5% of adjusted gross income (AGI). If a medical expense deduction is claimed on a spouse’s separate return, that spouse’s lower separate AGI, as compared to the higher joint AGI, can result in larger total deductions. 
Some tax breaks are only available on a joint return: 
  • The child and dependent care credit, adoption expense credit, American Opportunity tax credit and Lifetime Learning credit are only available to married couples on joint returns.
  • You can’t take the credit for the elderly or the disabled if you file separately unless you and your spouse lived apart for the entire year. You also may not be able to deduct IRA contributions if you or your spouse were covered by an employer retirement plan and you file separate returns. 
  • You can’t exclude adoption assistance payments or interest income from series EE or Series I savings bonds used for higher education expenses. 
  • Social Security benefits may be taxed more. Benefits are tax-free if your “provisional income” (AGI with certain modifications plus half of your Social Security benefits) doesn’t exceed a “base amount.” The base amount is $32,000 on a joint return, but zero on separate return (or $25,000 if the spouses didn’t live together for the whole year). 
The decision you make on your federal tax return may affect your state or local income tax bill, so the total tax impact should be compared. There’s often no simple answer to whether a couple should file separate returns. A number of factors must be examined. We can look at your tax bill jointly and separately. Contact us to prepare your return or if you have any questions.  © 2020
Categories
Helpful Articles Henderson, KY Henderson, TN Jackson, TN Martin, TN Memphis, TN Milan, TN Murray, KY Owensboro, KY Paris, TN Trenton, TN Tupelo, MS Union City, TN

3 best practices for achieving organic sales growth

Most business owners would probably agree that, when it comes to sales, there’s always room for improvement. To this end, every company should strive for organic sales growth — that is, increases from existing operations unrelated to a merger or acquisition. That’s not to say a merger or acquisition is a bad idea, but you can’t rely on major moves like this to regularly boost your numbers. 
Let’s look at three best practices for achieving organic sales growth. 
  1. Attentive customer service: Premier customer service is more than just a smile and a handshake. Are your employees really hearing clients’ problems and concerns? Do their solutions not only fix the issue but also, whenever possible, exceed the customers’ expectations? The ability to conduct productive dialogues with your customers is a key to growing sales. Maintaining a positive, ongoing conversation starts with resolving any negative (or potentially negative) issues that arise as quickly as possible under strictly followed protocols. It also includes simply checking in with customers regularly to see what they may need. 
  2. Smart marketing: Do you often find yourself wondering why all your marketing channels aren’t generating new leads for your business? Visit our website here to see how we can serve you in this area. Most likely, it’s because some of those channels are no longer connecting with customers and prospects. Therefore, you might want to step back and reassess the nature and strengths of your company. If you work directly with the buying public, you may want to cast as wide a net as possible. But if you sell to a specific industry or certain types of customers, you may be able to grow sales organically by focusing on professional networking groups, social organizations and trade associations. 
  3. Great employees: Ultimately, people are what make or break a company. Even the best idea can fail if employees aren’t fully prepared and committed to designing, producing, marketing and selling that product or service. Of course, as you well know, employing talented, industrious staff requires much more than simply getting them to show up for work. First, you must train employees well. This means they need to know both: 
1) how to do their jobs, and 2) how to help grow sales. 
You might ask: Does every worker really contribute to sales? In a sense, yes, because quality work — from entry-level office staff to executives in corner offices — drives sales. 
Once an employee is trained, he or she must be periodically retrained. Happy workers are more productive and more likely to preach the excellence of your company’s products or services to friends and family. Sales may occur as a result.  
These best practices are, obviously, general in nature. The specific moves you need to make to boost your business’s sales numbers will depend on your size, industry, market and focus. Our firm can help you identify optimal strategies for organic sales growth and measure the results. 
Click here to consult with your long-term business partner.  © 2020