February 2012

March may be the perfect month for CPAs and tax professionals to brush up on divorce-related tax issues. So say Armand and Robbin D’Alo, a husband-and-wife team of Certified Divorce Financial Analysts and tax professionals, who along with, Eva Rosenberg, EA teach a CPE Link course on tax issues related to divorce.

That’s because February, the month of “will you be my Valentine?” is also the month of “I want a divorce.” Yes, February is the most active month for couples to start divorce proceedings. Unfortunately, most of these breakups are at least somewhat contentious: 80 percent of divorces are one-sided decisions. So get ready! (You can relax and breathe a sigh of relief in October, when divorce filings are at low ebb.)

“Attorneys usually do not properly address the tax implications when preparing divorce documents,” says Rosenberg.

Do you know the top 10 tax issues that have the most impact on divorcing couples?

There are several things you can do to improve the efficiency of closing the books. Here are the top two:

Correct Errors Early: Transactional errors can arise throughout the month, which means that you can run the financial statements a few days prior to month-end and spot most of them. This is a vast improvement over waiting until you are in the midst of the closing process and then finding problems. By spotting errors a few days early, the accounting staff can research and correct items at their leisure, rather than doing so in a hurry at month-end. Also, a rushed error correction at month-end may not yield a proper fix, which means that someone has to research and correct the issue a second time – which may delay closing the books.

If you use early error correction, there will still be a few days near the end of the month where errors may arise, since the accounting staff will not have reviewed financial statements that include those days. Still, there should be far fewer errors to deal with.

Reconcile Accounts Early: One of the lengthier tasks at month-end is to reconcile all of the accounts in the balance sheet that have significant ending balances, to ensure that their contents are correct. The accounting staff could start these reconciliations a few days before month-end, and then update them for any transactions that occurred during the last couple of days of the month. This is not a cure-all by any means, since many accruals are generated at month-end, and so will not appear in early versions of account reconciliations. Nonetheless, it can remove a fair amount of reconciliation labor from the core closing period.

The concept of reconciling early is especially important for the bank reconciliation. The cash account may have many adjustments each month that are caused by unrecorded bank fees, transactional errors, not-sufficient-funds check rejections, and so forth. You can reconcile the bank accounts a few days early based on the on-line account information that most banks make available to their customers over the Internet. This leaves just a day or two of final reconciliation work during the core closing period.

Additional tip: Many banks automatically generate PDF versions of monthly bank statements and post them to their web sites, where you can download them. These statements should be available within 24 hours of the end of each month; you can complete the monthly bank reconciliation with this report.

These tips courtesy of CPE Link self-study course author, Steven Bragg. Happy closing!

Where will you find one sentence that is nearly twice as long as the entire Gettysburg Address? The Internal Revenue Code, of course. The Gettysburg Address is 278 words, while one whopper of a sentence in the IRC exceeds 450 words. And this isn’t the only instance of a long and confusing sentence! The IRC, with its 4 million words, is full of mind-bending sentences about limitations that hinge on combinations of multiple variables. Think algebra!

There are, however, some secrets to breaking the Internal Revenue Code, says Annette Nellen, CPE Link instructor on tax research (and San Jose University professor). “The Internal Revenue Code is not an easy document to navigate, read and effectively use. But there are tactics that knowledgeable researchers use.” The first, says Nellen, is to understand the structure of the code, so you can narrow your search.

So say you have become intimate with the code structure and have zeroed in on the relevant sections, subsections, and paragraphs. You’ve read carefully, paying close attention to the and’s and or’s; to the less than’s, more than’s, and at least’s (and to the words in parentheses.) You’ve scoured the code for relevant definitions, and you’ve checked out cross-references looking for clarifications or conflicts.

But even after all the reading, rereading, and reading again, the IRC hasn’t yielded a clear answer to your tax question. That’s not surprising, says Annette Nellen. “The IRC is the place to start and you may find your answer there, but that’s not usually the case.”

Your next step: the Federal Tax Regulations.