Frazier & Deeter, LLC

Recent Articles

Automating Workflow
Practical Accountant
October 2007

The 2007 Practice Innovation Award Winners; Firms to Emulate
Practical Accountant
September 1, 2007

Diversity of Candidates Slowly Grows
Atlanta Business Chronicle
August 10, 2007

The CPA/Outside Planner Connection
Practical Accountant
August 2007

Companies Socked Less by SOX
Atlanta Business Chronicle
June 1, 2007

Avoid Estate and Gift Tax Traps with a PFLP
Tax HOTline
April 2007

Executive Compensation: The Art of the Contract
Atlanta Business Chronicle
February 9, 2007

Executive Compensation: The Rules of Disclosure
Atlanta Business Chronicle
February 9, 2007

Cut Your Tax Bill
Kiplinger’s Personal Finance Magazine
December 2006

Perdue Pushes Tax-Break Pitch
Atlanta Journal Constitution
October 5, 2006

Automating Workflow
Practical Accountant
October 2007

By Jeff Stimpson

This article concerns the need for firms to gain greater control of their workflow. Outsourcing, going paperless, and staffing issues all contribute toward this need.

Ronni Scibetta, audit supervisor, and Aaron Spitalnick, IT director, say Atlanta-based Frazier & Deeter starts its new hires with training in automating workflow. "If you train your new hires from the start and develop an ongoing training culture for the firm, you have more-productive employees," they add, further claiming that the biggest challenge is building consensus for software or procedural changes. "You need one person at the top to take charge. Paperless is about a five percent technology change and a 95 percent cultural and procedural change," they maintain.

Other Necessary Changes

The main changes are in software, hardware, and personnel, Scibetta and Spitalnick say. "Our software solutions included hard drive encryption on our laptops and USB storage devices, Colligo for peer-to-peer networking, and PDF-to-Excel extraction software. Hardware solutions included portable scanners, faster laptops, and an SSL VPN to allow secure connections from the auditors working remotely." F&D also purchased several extraction licenses to enable conversion of scanned or direct-print PDF documents into Excel or Word, as well as scanners for all audit seniors and supervisors and for each person in the tax department. Each auditor also has an individual flash drive.

Template And Dashboard Advantages

"Dashboards are an excellent way to accumulate metrics and relay them to the teams," say Scibetta and Spitalnick, adding that their office-wide DM solution (iChannel) and T&B system (Practice Engine) use dashboards.

Practice Areas That Benefited

Scibetta and Spitalnick say F&D's audit practice has "benefited greatly" from use of templates. "We went full force," they add. "Those who weren't on board had a choice to be on board, or to leave. Fortunately, everyone was on board thanks to our firm retreat that enabled everyone to have input into the new process."

The Best Advice

Scibetta and Spitalnick advise hiring a consultant to evaluate your workflow, and to help set up templates or have them work with you to build your own. "Take one or two personnel within the firm and designate them 'firm experts.'" they add. "It's also important to update training."

For the full version of this article, please email info@frazierdeeter.com.

The 2007 Practice Innovation Award Winners; Firms to Emulate
Practical Accountant
September 1, 2007

By Jeff Stimpson

Practical Accountant's Practice Innovation Awards annually recognize accounting firms that take the lead in developing new or improved services and in promoting efficiency in the practice of public accounting. This is done in order for CPA firms to compare and contrast what they're doing with what other firms are doing, as well as encourage them to think about innovations they can implement.

In the article, the author highlights Frazier & Deeter as one of the recipients of the Practical Innovation Award for the 4th consecutive year.

Frazier & Deeter
Partners/Staff: 18/147
frazierdeeter.com

F&D, like many firms, looks to give back to its community. The firm has been able, however, to document feedback and ROI on this worthy effort. During F&D's 25th anniversary year, the firm saw an opportunity to increase positive visibility by committing financial resources and volunteer initiatives to a community relations campaign. Other objectives were to promote cooperation and boost morale of employees, contribute to the community, and secure an increase in new business relationships.

Civic sponsorships and volunteerism to benefit organizations supporting needy families, the arts, and others were selected by an internal task force comprised of a cross-section of employees and partners. Group activities were introduced with a goal in mind to have quarterly agenda of events that helped prepare meals for families, rejuvenated a local arts center, participated in quarterly non-profit fundraiser walks and civic sponsorships, and conducted drives to donate goods to needy families. F&D also allocated $25,000 to be distributed in $2,500 increments to the selected charities. Participation was across all employee levels, including owners, and because because employees were given the power to collectively select the projects and organizations, they were emotionally tied to the causes. Incentives and recognition programs were also part of the campaign.

In addition to contributing thousands of man-hours, F&D secured more than $184,000 of new business for its nonprofit services group, and experienced better than 40-percent growth across all practice areas. Increased morale was demonstrated by the firm being awarded as one of the best places to work among Atlanta's midsize businesses by the local business newspaper publication. F&D also experienced almost no staff turnover.

For the full version of this article, please email info@frazierdeeter.com.

Diversity of Candidates Slowly Grows
Atlanta Business Chronicle
August 10, 2007

By Lori Johnston

Atlanta Business Chronicle author, Lori Johnston, states that the desire to create a more diverse workforce coupled with the difficult time accounting firms are having hiring because of industry demands, means that firms have to recruit creatively. As companies reinforce internal departments to comply with Sarbanes-Oxley regulations, competition for professionals is growing.

Other firms are noticing a more diverse slate of candidates, but emphasize that recruiting is challenging. At Frazier & Deeter, human resources director Sarah Werner admits she's unable to focus on a niche group because of the sheer number of openings. "I want to bring in the best talent, no matter who they are," she said. "Of course, I want a more ethnic workforce here because it just adds to the richness of our firm and it makes us a better firm."

For the full version of this article, please email info@frazierdeeter.com.

The CPA/Outside Planner Connection
Practical Accountant
August 2007

By Howard Wolosky

Practical Accountant published an article written by Howard Wolosky regarding recent trends in the Accounting Industry where CPA firms are creating affiliates or making referrals to third-party financial planners in an effort to assist their clients in need of financial services. This is because financial planning with all the investment management, retirement planning, college funding, insurance, and estate planning ramifications requires a very specialized expertise, which many CPA firms aren't able to provide.

DIFFERENT ASSOCIATIONS

For example, in 1998, Atlanta-based Frazier & Deeter launched the wealth management group, F&D Advisors. F&D Advisors is currently affiliated with Frazier & Deeter and O'Sullivan Creel, another regional firm, in Florida. The main objective in creating the affiliate was to form "a seamless client experience to provide comprehensive wealth management services to the high-net-worth individual clients" of these firms. "Due to the needs of the accounting firm clients, offering this extension of services is as logical as hotels offering room service," is the analogy offered by David Deeter, managing partner of Frazier & Deeter. These services are co-branded under the brand name of each firm. F&D Advisors currently has nearly $1 billion of assets under management.

The Mechanics

Doug Liptak, managing director and partner at F&D Advisors says his firm uses a holistic wealth management approach, providing asset management, risk management, insurance, and residential mortgage services. F&D Advisors positions internal client services teams integrated within each of the accounting firms. Clients are introduced by the CPAs to the wealth management practice as an extension of the accounting firm, a relationship-based experience with the ability to discuss issues across all contact points of the organizations. The services it provides include investment strategies for IRA rollovers; establishing retirement plans such as traditional IRAs, Roth IRAs, SEPs, and profit-sharing plans; educational plans, primarily 529s; and other non-retirement wealth-building strategies. He also assists clients with their life, health, and long-term care insurance needs, and, together with a mortgage broker, client needs for new home funding or an existing home's refinancing. F&D Advisor fees often include tax preparation where the CPA firm is compensated on behalf of mutual clients.

What's Critical?

Liptak believes "Maintaining similar cultures between the financial services firm and the CPA firm is paramount. Putting clients' best interest first, having integrity, trust, and an open architecture platform is what most CPA firms should look for." Gariano points out that the relationship with any accounting professional needs to be nurtured over time. "At the initial stages, we both need to get comfortable and see if we were compatible enough to work with each other. Once that relationship is established and the CPA appreciates the value that the additional services will have to their clients, the referrals become a more steady flow," he says.

For the full version of this article, please email info@frazierdeeter.com.

Companies Socked Less by SOX
Atlanta Business Chronicle
June 1, 2007

By Justin Rubner

Atlanta Business Chronicle featured an article on the Sarbanes-Oxley Act. Nearly five years after the act was passed, major companies are beginning to spend significantly less on accounting, a field that has seen a surge in business since the law went into effect.
Public companies in 2006 spent 23 percent less on Sarbanes-Oxley compliance than in the prior year, according to a new report by research firm Financial Executives International.

The article quoted Jeff McMinn, principal at Frazier & Deeter LLC, a mid-sized accounting firm in Atlanta, in reference to factors causing the decline in SOX compliance costs. McMinn says new rules will let companies focus more on providing internal controls on high-risk aspects of business – such as forecasts – and focus less on non-risky aspects of business. Previously, companies had to document things such as payroll, just as they would management estimates. “Sarbanes got a bad rap because companies were having to document everything,” McMinn said.

Avoid Estate and Gift Tax Traps with a Preferred Family Limited Partnership
Tax HOTline
April 2007

Roger W. Lusby III, CPA CMA AEP and Andrew Burnett, Esq. CPA were interviewed for this article published by Tax Hotline.

Continued uncertainty about the federal estate tax makes some taxpayers (and their advisers) very cautious about taxable gifts.

The concern: Few people want to make large gifts (giving up assets and possible paying gift tax) and have those gifts prove to be unnecessary if the estate tax exemption goes up to very high levels. In this situation, creating a preferred family limited partnership (PFLP) can add certainty and be an estate tax saver.

How things stand: With the new Congress in Washington, the likelihood that the estate tax will be repealed altogether. Still, no one knows whether the federal estate exemption, now set at $2 million per person, will be increased or decreased. Meanwhile, the federal gift tax exemption remains at $1 million. Excess gifts will be taxed at rates ranging from 41% to 45%.

Potential trap: Few people are willing to pay gift tax unnecessarily, especially when the alternative (estate tax) is so up in the air.

Result: Estate tax-saving gifts are not made-therefore, essentially, nothing is done.

Example: John Smith is a widower with total assets of around $5 million. His assets consist largely of real estate that he believes will gain value in the future. He already has given his children $1 million of real estate worth of real estate, using up his lifetime gift tax exemption. If he gives away another $1 million to remove appreciating assets from his taxable estate, he will owe $435,000 in gift tax.

Dilemma: If John makes this gift, and the gift tax exemption moves up sharply, he will have paid $435,000 in gift tax for no reason. However, if he makes no gifts and the federal estate tax exemption stays at current levels, his heirs may have to pay an enormous amount of real estate tax at his death, especially if his real estate continues to appreciate.

The No-Gift Freeze

In such situations, a preferred family limited partnership may help. Done properly, this arrangement will enable you to avoid gift tax consequences. And the value of the assets you transfer into a PFLP can be frozen for estate tax purposes.

How it works: Two or more family members transfer assets (securities, real estate, shares in a family business) into a partnership. Some of those individuals (typically the senior generation) receive a “preferred” interest in the partnership. Holders of the preferred interest will receive preferred distributions from the partnership. The preferred distributions are cumulative (meaning that they accrue at a fixed rate until paid) and generally are paid at least on an annual basis.

Simplified example: Suppose John and his two children agree to create a PFLP. John transfers rental real estate valued at $2 million into the partnership. In exchange, he receives a preferred partnership interest with a 7% cumulative annual net cash flow preference. John is entitled to 7% a year in cash flow. If he doesn’t get it all, any shortfall will have to be made up before anyone gets any cash. Thus, John is entitled to receive $140,000 of rental income a year (7% of $2 million) from the PFLP.

Setting the return: The payout on the preferred interest should be comparable to the return available on other instruments with a comparable level of risk. As of this writing, the investment information service BondsOnline Group’s PreferredsOnline Index of preferred stocks (www.epreferreds.com/ratings) was 6.62%. Thus, a 7% return on a preferred partnership interest probably will be considered a fair return, so no gift tax will be incurred on the transfer of assets to the partnership.

Note: A valuation by an independent party is required to support the payout rate.

Nonpreferred interests: In our example, John’s two children might contribute a total of $250,000 of their own assets to the partnership, in exchange for common interests, at the same time that John contributes his real estate.

Required: The nonpreferred (or common) interests must make up at least 10% of the partnership’s original capitalization. Therefore, if John contributes $2 million worth of assets, while his two children put in $250,000, the common interests (equity ownership of partnership assets) of the children will represent 11.1% of the total capital ($250,000 as a proportion of $2.25 million), this PFLP will qualify.

Playing the Spread

As can be seen, for this partnership to work and move assets from one individual’s taxable estate with a reduced gift tax obligation, the return on its assets must exceed the preferred distribution rate.

Example: Suppose that the assets in the partnership (mainly real estate contributed by John) return 12% per year in rents and gains. Of that return, 7% is paid out to John but the other 5% remains in the partnership. Such excess return increases the value of the common interests. (This principle is similar to the growth in the value of the common stock of a corporation as long as the preferred stock dividends are paid.)

Doubling up: At the 5% rate of excess return assumed above, the PFLP in this example would roughly double in value in 14 years. Thus, at John’s death in 2020, the PFLP would be worth about $4.5 million.

Tax Treatment

At his death, John’s interest in the PFLP will be included in his taxable estate.

Valuation: Because this interest will still be entitled to income of $140,000 per year, that’s how it will be valued for estate tax purposes. Assuming interest rates in 2020 are comparable to the levels of 2007, its value will be set at around $2 million. Thus, John has frozen the value in that portion of his assets while locking in a stream of steady cash flow.

Loophole: If the PFLP holds assets worth $4.5 million in 2020, as assumed, and John’s interest is frozen at $2 million, then the children’s common interests have appreciated from $250,000 to $2.5 million ($4.5 million PFLP value minus $2 million of value allotted to the preferred interest). In effect, $2.25 million worth of real estate appreciation has been removed from John’s taxable estate without incurring gift tax or estate tax.

Added advantage: The preferred distributions payable to John can be deferred for up to four years. During that time, the entire $2.25 million of capital can remain in the PFLP, along with any appreciation during that period.

Under the law: Traditional family limited partnerships (FLPs) have come under fire by the IRS. The IRS has successfully argued in some cases that FLPs are shams with no purpose other than tax avoidance. In comparison, PFLPs have statutory backing. As long as the preferred distribution is fairly set and timely paid (with no more than a four-year deferral) and the common interests are at least 10% of the PFLP’s value, the benefits of this technique have support in the Tax Code. Putting together a PFLP requires dealing with many technicalities, so be sure to work with an experienced tax professional.

Executive Compensation: The Art of the Contract
Atlanta Business Chronicle
February 9, 2007

By Lori Johnston

Prominent national cases, including the criticism following Bob Nardelli's $210 million severance package, continue to fuel the debate about what constitutes a good executive contract. Boards of public companies are being forced to scrutinize what they are paying their top people due to controversies such as those that arose around Nardelli, combined with the Securities and Exchange Commission's new disclosure rules.

Executive compensation consultants and attorneys say the first question boards must consider before diving into details of yearly salary, benefits and severance packages is whether the CEO even needs a contract.

Another factor is the length of the contract. After the 2006 case in which The Walt Disney Co. shareholders sued the company for $260 million after former Disney President Michael Ovitz received a $140 million severance package, the Delaware Supreme Court set out better best practices for determining executive compensation. The court ruled in Disney’s favor, but stated that compensation best practices included preparing a spreadsheet disclosing all the amounts payable under various likely scenarios. Best practices are expected to become a norm over time, where they almost become mandatory.

The method is in line with new SEC disclosure rules requiring public companies to not only further reveal their compensation tables, but discuss and analyze their compensation packages, said Roger Lusby III, a partner with accounting firm Frazier & Deeter LLC.

To the extent that they can, board members should recruit a CEO on their own terms and not react to the candidate's terms, said Steve Harris, partner in Mercer Human Resource Consulting's executive compensation practice for the Southeast. By putting an offer on the table first, the board could keep the company from ending up in a debate with compensation packages on the table much larger than anticipated.

"It may be that if you're looking for a young Bob Nardelli that's going to have multiple offers," Lusby said. "Really now these CEOs of public companies are glorified rock stars."

To receive a copy of the full article, please email info@frazierdeeter.com.

Executive Compensation: The Rules of Disclosure
Atlanta Business Chronicle
February 9, 2007

A Q&A with local experts on the new SEC regulations

The first filings under the new Securities and Exchange Commission disclosure rules are bound to generate buzz, as public companies are forced to paint a more accurate picture of what top executives are being paid and why.

Bill Godshall, partner at Frazier & Deeter LLC discusses the rules' potential impact.

1. This month, companies will begin filing their first proxies under the new SEC disclosure laws. Do you believe these laws will lead to a significant change?

Godshall: Yes. We are already seeing far more comprehensive disclosures surrounding total executive compensation for named executives. Also, the new disclosures are now treated as a filed document, whereas before they were a furnished document. This means that the principal executive and finance officers (typically the CEO and CFO) have to certify these documents as they would any other 34-Act document.

2. What do you think these more in-depth proxies will reveal?

Godshall: I believe we are going to get a clearer picture of the numerous forms of non-cash compensation. Also, we should get a better understanding of how compensation is set for named executives.

3. Some theorize that the new SEC disclosure laws will actually lead to pay increases in the short term, as executives begin comparing their compensation packages with those of other CEOs. Do you agree or disagree with this theory?

Godshall: Maybe. But remember, compensation committees have to provide the basis and reasoning for how they determine and recommend compensation. Therefore, even if CEOs may feel they are not compensated fairly, the directors that sit on the compensation committee will be in the spotlight for any significant increases in pay that are approved in the near term.

4. Activist shareholders have been gaining respect and power in recent years. What are the pros and cons to their rise in influence?

Godshall: All changes have pros and cons. One could point to activist shareholders' influence in the passage of Sarbanes-Oxley, which has led to criticism and praise from many corners of the marketplace. On the one hand, the increased focus on controls is clearly beneficial to companies and shareholders; on the other, the increased cost of compliance, in many cases, is getting out of hand without any tangible benefits.

To receive a copy of the full article, please email info@frazierdeeter.com.

Cut Your Tax Bill
Kiplinger’s Personal Finance Magazine
December 2006

By Mary Beth Franklin

Kiplinger’s Personal Finance Magazine featured an article on ways to save money on your taxes before the end of 2006. Author, Mary Beth Franklin, says the best way to cut your tax bill today is to maximize your retirement savings for tomorrow.

Even if you're a W-2 wage earner, there's still time to contribute up to $15,000 to your 401(k) or similar tax-deferred retirement plan. Tell your employer to adjust your December paycheck to boost your contribution. Or if you receive a year-end bonus, ask if you can defer some or all of it to your retirement account.

Share the wealth

If you enjoy making donations to you favorite charities around the holidays, be sure to make the contribution by December 31 and keep the receipts. Remember to itemize your deductions to benefit from the tax break. Retirees get a new charitable tax break in 2006 and 2007. If you're 70½ or older, you can now take tax-free distributions of up to $100,000 a year from your IRA if the money is donated directly to a charity you select.

Another way to do well while doing good is to donate appreciated assets, such as stock, to your church or synagogue, or to your favorite charity. Not only do you get to deduct the full market value of the security at the time of donation (not just what you paid for it), but you also avoid the hassle of selling it and the expense of paying capital-gains taxes on the profit.

Think green

Concerns about fuel costs this winter may have you thinking about outfitting your home with new storm windows and doors. If you install qualified home improvements by December 31, you can claim an energy tax credit worth 10% of the cost up to a total credit of $500 -- although no more than $200 may be allocated to replacement windows. If you bought a hybrid car or truck this year, you qualify for a tax credit ranging from $250 to $2,600, depending on the make and model (check www.energytaxincentives.org).

Odds and ends

The AMT, a parallel tax system with its own set of rules, does not permit deductions for state and local taxes, home-equity-loan interest (unless the borrowed money was used for home improvements), or items such as investment expenses. Nor does it allow personal exemptions -- worth $3,300 this year -- for yourself, your spouse or your children.

Essentially, you have to figure your taxes under two sets of rules -- the regular tax code and the AMT -- and pay whichever is higher. Regular tax brackets are indexed for inflation but the AMT isn't. Consequently, your chances of being trapped by the AMT increase each year, particularly if you claimed large deductions for state income taxes or property taxes or have a large family. Although Congress approved a one-year reprieve that will prevent about 15 million new taxpayers from being hit by the AMT this year, if you paid it in 2005, you'll probably be caught again in 2006, says Roger Lusby, a CPA with Frazier & Deeter, in Atlanta.

Te receive a copy of this article in its entirety, please email info@frazierdeeter.com.

Perdue Pushes Tax-Break Pitch
Atlanta Journal Constitution
October 5, 2006

By James Salzer

Georgia is currently phasing in a Sonny Perdue law exempting the first $35,000 of retirement income from tax. Retirement income consists of pensions, annuities and other investments, but not Social Security as it is not taxed by the state. Governor Perdue is now calling for the state to stop assessing the 6 percent state income tax on any retirement income, regardless of a person’s wealth, for Georgians older than 65.

Derrick Dickey, Perdue’s campaign spokesman, says "This proposal will deliver real, meaningful tax relief to senior citizens." An estimate of $142 million lost revenue will result from the proposed cuts, which means the state would have to use other means to fund services for seniors like nursing homes and health care. Dickey said Perdue sees eliminating taxes on retirement income as a plus for both the state and for retirees because the goal is to attract and retain retirees to Georgia.

Economists and budget analysts who have looked at the plan say it's better election-year politics than policy. Some say that the law essentially gives a tax cut to the wealthy. Roger W. Lusby, a partner and certified public accountant with the Atlanta firm of Frazier & Deeter, said when the current law is fully phased in —- in 2008 —- a couple could have a portfolio worth $1.4 million earning a 5 percent annual return and pay no state income taxes. Perdue's latest proposal would shield even wealthier retired Georgians.

A study earlier this year on a similar proposal in Iowa found little evidence that seniors move to cut their taxes. But Lusby said it could help. "I would say that could be a boon for the state of Georgia in attracting and retaining retired senior citizens," he said. "Georgia would now become a very, very attractive market."

To receive a copy of the full article, please email info@frazierdeeter.com.