• Feature: Regulators Take Aim



• Feature: SFBI Honors Argiz



• Feature: Accounting for Certain Loans...



• Feature: Shared-Based Payment



• Feature: American Jobs Creation Act of 2004

Industry regulators, including the U.S. Office of the Comptroller of the Currency (OCC) and the Federal Deposit Insurance Corp., are taking aim at banks they feel are not in compliance with the Bank Secrecy Act and the 2001 USA Patriot Act. Five South Florida financial institutions have already faced disciplinary action.

The OCC has attributed many enforcement actions to banks failing to follow through with commitments to correct significant or repetitive secrecy act deficiencies. When it comes to money laundering activities, the OCC also has cited banks with "significant foreign account exposure" as those with a greater risk. That has many South Florida banks taking notice.

The Financial Institutions Division at Morrison, Brown, Argiz & Farra currently works with more than 30 domestic and international financial institutions, providing tax, auditing and consulting services. MBAF is assisting a number of banks in their efforts to comply with today's more stringent anti-money laundering regulations.

If you feel your organization’s compliance efforts are not meeting these elevated standards and would like to schedule a consultation, please contact Frank Gonzalez, CPA, at fgonzalez@mbafcpa.com or at 305-373-5500.

Morrison, Brown, Argiz & Farra, LLP, is proud to announce that Managing Partner Antonio "Tony" Argiz, CPA, ABV, CFE, CVA, ASA, was honored with the Leadership of the Year Award by the South Florida Banking Institute at an awards ceremony in January.

Every year the SFBI recognizes a leader that has displayed a generosity of spirit and made exceptional contributions to the banking community.

"This year our board members are pleased to acknowledge Tony Argiz's contributions both professionally and to the community," explains Wilfredo B. Jauregui, president of the South Florida Banking Institute.

Pictured at the South Florida Banking Institute awards ceremony are (L to R): Raul Incera, partner with MBAF; Frank Gonzalez, partner with MBAF and SFBI board member; Alex Sueiro, SFBI board member; honoree Tony Argiz; Julio Martinez, SFBI board member; and Wilfredo Jauregui, president of SFBI.

Statement of Position (“SOP”) 03-3 addresses accounting for differences between contractual cash flows and cash flows expected to be collected from an investor’s initial investment in loans or debt securities (loans) acquired in a transfer if those differences are attributable, at least in part, to credit quality. It includes such loans acquired in purchase business combinations, but does not apply to loans originated by the bank.

This SOP limits the yield that may be accreted (accretable yield) to the excess of the investor’s estimate of undiscounted expected principal, interest, and other cash flows over the investor’s initial investment in the loan. It requires that the excess of contractual cash flows over cash flows expected to be collected (nonaccretable difference) not be recognized as an adjustment of yield, loss accrual, or valuation allowance. It also prohibits investors from displaying accretable yield and nonaccretable difference in the balance sheet.

Subsequent increases in cash flows expected to be collected generally should be recognized prospectively through adjustment of the loan's yield over its remaining life. Decreases in cash flows expected to be collected should be recognized as impairment.

In addition, the statement prohibits "carrying over" or creation of valuation allowances in the initial accounting of all loans acquired in a transfer that are within the SOP's scope. The prohibition applies to the purchase of an individual loan, a pool of loans, a group of loans, and loans acquired in a purchase business combination.

SOP 03-3 is effective for loans acquired in fiscal years beginning after December 15, 2004. Early adoption is encouraged. For loans acquired in fiscal years beginning on or before December 15, 2004, and within the scope of Practice Bulletin 6 [section 12,060], as they apply to decreases in cash flows expected to be collected, should be applied prospectively for fiscal years beginning after December 15, 2004.

If you have any questions regarding SOP 03-3, please contact Frank Gonzalez at fgonzalez@mbafcpa.com or at (305) 373-5500.

In December 2004, the Financial Accounting Standards Board issued Statement on Financial Accounting Standard No. 123 (Revised – 2004), Share-Based Payment. It is a revision of SFAS No. 123, Accounting for Stock-Based Compensation and supersedes APB Opinion No. 25, Accounting for Stock Issued to Employees, and its related implementation guidance.

The statement eliminates the alternative to use Opinion 25's intrinsic value method of accounting. Under Opinion 25, issuing stock options to employees generally resulted in recognition of no compensation cost. This revised statement requires banks to recognize the cost of employee services rendered in exchange for awards of equity instruments based on the grant-date fair value of those awards (with limited exceptions).

The effective date of SFAS No. 123 (Revised – 2004) varies by type of institution:

	•		For public banks that do not file as small business issuers – as of the beginning of the first interim or annual reporting period that begins after June 15, 2005
	•		For public banks that file as small business issuers – as of the beginning of the first interim or annual reporting period that begins after December 15, 2005
	•		For nonpublic banks – as of the beginning of the first annual reporting period that begins after December 15, 2005.

Please contact Frank Gonzalez at fgonzalez@mbafcpa.com or at (305) 373-5500, if you have any questions regarding Shared-Based Payment.

The following is a broad overview of the "American Jobs Creation Act of 2004," which became effective on October 22, 2004. The Act is mainly directed toward large businesses, particularly multinationals, but has several wide-ranging provisions that affect individuals and small or closely-held businesses, as well. Several of these provisions may impact your financial institution directly or its executives, employees or customers.

Here is a quick summary of some of the key provisions of the new law, which:

	•		creates a new deduction for businesses having income "attributable to domestic qualified production activities;"
	•		extends previously-enacted increases in the small business "expensing" allowance;
	•		liberalizes the rules governing S corporations;
	•		permits itemizers to deduct their state and local sales taxes in lieu of state and local income taxes (effective for tax years 2004 and 2005);
	•		limits the "expensing" allowance for sport utility vehicles (SUVs) placed in service after the new law's enactment date to $25,000;
	•		imposes tighter rules for deducting and documenting charitable contributions of property;
	•		dramatically toughens the rules for "nonqualified" deferred compensation plans, which are used by business owners and other executives as a supplement to, or in lieu of, the "qualified" retirement plans generally available to a business's employees.

Qualified Production Activities Income Deduction
This deduction replaces the "extraterritorial income exclusion," which had been ruled by the World Trade Organization to be a prohibited export subsidy. The new "qualified production activities income" deduction could be broadly applicable, and could apply to many customers of financial institutions. When fully phased in, the deduction could be as much as nine percent of "qualified production activities income." In addition to traditional manufacturers, any business might qualify if it produces, grows or extracts any tangible personal property, computer software, or sound recordings in the United States, while deriving income from that property.

Other qualifying activities include:

	•		performing construction in the United States;
	•		performing engineering or architectural services in the United States for construction projects in the United States;
	•		producing electricity, natural gas, or potable water in the United States;
	•		producing films for which at least 50 percent of the total compensation was paid for services in the United States.

Taxpayers eligible for the deduction include individuals and pass-through entities such as S corporations, partnerships, and limited liability companies, as well as C corporations.

Extensions of Increase in Small Business "Expensing"
Previous legislation increased the annual allowance for the acquisition of certain fixed assets for taxable years beginning after 2002 and before 2006 to $100,000 (from $25,000) and the "phaseout" threshold to $400,000 (from $200,000), with annual inflation adjustments. Off-the-shelf software was also added as eligible property.

For taxable years beginning after 2005, the dollar amount was scheduled to revert back to $25,000. The new law extends the increased annual allowance through taxable years beginning before 2008. This extension will defer the need to plan for the acceleration of fixed asset acquisitions until the year 2007.

S Corporation Provisions
Several new rules make it easier to qualify as an S corporation or to retain that status. One provision in particular increases the number of financial institutions that will be qualified to elect "S" status. The new law:

	•		treats certain family members as one shareholder for purposes of the limit on the number of eligible shareholders;
	•		increases the number of eligible shareholders to 100;
	•		provides relief from inadvertently invalid qualified subchapter S subsidiary ("QSST") elections;
	•		allows an IRA or Roth IRA to hold shares of an S corporation that is a bank, but only to the extent of the shares held in the IRA or Roth IRA in the bank on Oct. 22, 2004;
	•		in the case of a bank holding company or a financial holding company, passive investment income does not include interest income earned by the bank or company or dividends on assets that must be held by the bank or company.

New Deduction for State and Local Sales Taxes
Individuals who itemize their deductions can now elect to deduct state and local sales taxes instead of state and local income taxes. The amount of the deduction can be based on actual taxes paid or by using IRS-prepared tables. This provision is retroactive to January 1, 2004.

Limitation of SUV Expensing Allowance
Previously, SUVs weighing more than 6,000 pounds were not subject to the limitations imposed on so-called "luxury" automobiles. The new law creates a separate category for such SUVs (including those rated at a gross vehicle weight of not more than 14,000 pounds) and imposes a $25,000 limit on the deduction. This limit is effective for automobiles placed in service on or after October 22, 2004.

International Tax Provisions
Several new rules make it easier to qualify as an S corporation or to retain that status. One provision in particular increases the number of financial institutions that will be qualified to elect "S" status. The new law:

	•		The new law simplifies the foreign tax credit rules and provides a 10-year carryforward and one-year carryback of the foreign tax credit. This provision could affect financial institutions with income subject to foreign withholding taxes.
	•		It repeals the 90 percent limitation on using foreign tax credits against the alternative minimum tax (AMT).
	•		A temporary incentive is provided in the form of an 85 percent dividends-received deduction for corporations to "repatriate" their foreign earnings within a limited timeframe.
	•		It also repeals the foreign personal holding company and foreign investment company rules.

Revenue Raising Provisions
The new law adds an extensive collection of revenue-raising measures, broken down into four broad categories: expatriation, tax shelters, fuel tax evasion, and "other revenue provisions." For instance, it adds expatriation rules for business entities and tightens the rules applicable to individuals.

Included in these provisions is a new rule which prevents a taxpayer from excluding gain on the sale of a principal residence acquired in a tax-deferred like-kind exchange within the preceding five-year period. This provision could affect financial institutions that act as qualified intermediaries. Another new rule seeks to curtail the tax benefits of certain leasing transactions with "tax indifferent parties" such as tax-exempt organizations and government entities, including foreign governments.

Among these provisions is one that seeks to prevent businesses from deducting the full cost of providing an aircraft to certain employees.

This overview provides a synopsis of some of the key provisions of the new tax act. Keep in mind the actual tax act, HR 4520, is 650 pages long and contains a number of additional provisions which may apply to specific taxpayers.

If you have any questions on specific provisions of this act or would like to know how it applies to your financial institution, its employees or its customers, please contact Raul Incera at 305-377-9224 or rincera@mbafcpa.com.

Partners Recognized for Excellence in Accounting

The South Florida Business Journal recently asked "Who are the best accountants in South Florida?" Based on a peer-nomination process combined with an independent selection committee, that question was answered. On the list of 85 South Florida honorees were three partners from Morrison, Brown, Argiz & Farra: Antonio "Tony" Argiz, CPA, ABV, CFE, CVA, ASA; Frank Gonzalez, CPA; and Rick Covert, CPA.

We would like to take this opportunity to congratulate Tony, Frank and Rick for their excellence in accounting. They are three of the reasons Morrison, Brown, Argiz & Farra is an eight-time "Best of the Best" honoree on Inside Public Accounting's list of top 25 performing CPA firms in the nation.

Yvette Garcia
CPA

Yvette Garcia, CPA, is a senior manager with Morrison, Brown, Argiz & Farra, LLP. A member of the Assurance Services Department, she focuses her practice on auditing and consulting with financial institutions. Yvette is particularly adept in matters related to the Sarbanes-Oxley Act and Section 404: Management Assessment of Internal Controls. In addition to helping clients test their internal control implementation process, she also works with banks in the preparation of reporting requirements to the Securities and Exchange Commission.

Yvette graduated magna cum laude with a bachelor’s of science in accounting from Central Connecticut State University in New Britain, CT, and she is currently working on her master’s degree at Florida International University. She is a member of the AICPA and FICPA.

In addition, Yvette is a United Way of Miami-Dade Young Leader and volunteers on the organization’s audit committee. She is also a member of the Junior League of Miami.

If you would like to talk with Yvette about your organization's auditing needs, please call her at (305) 373-5500 or email her at ygarcia@mbafcpa.com.