Outright Shale Sales Are Another Option For Landowners

Jim Fracker | August 26th, 2014

The work to unearth valuable minerals from the Utica and Marcellus shale deposits in Eastern Ohio continues to move forward at full speed. While many of the area’s landowners entered into mineral land leases years ago, some chose to put off the leasing process for later – it is now 2014. Several years have passed and the landowners who chose to wait are now facing a different set of choices and options concerning their land and the minerals found within.

What Has Changed?

If you’re looking to cash in on the shale boom, the traditional land/mineral lease alternative is no longer your only option. Today, some landowners are considering the outright sale of their mineral interests to an acquiring entity. While both options have their merits, this discussion is not intended to weigh the economic consequences when comparing land/mineral leasing versus the outright sale of your mineral interest. You should be aware of a few points surrounding the sale of mineral interests that may help govern your decision.

  • Outright sale agreements typically state that the landowner will agree to sell their mineral interests, specific to formation or generic, to an acquiring entity.
  • Per the agreement, the seller typically relinquishes all incidents of mineral ownership – and usually all rights to any future income streams based on the future production from the minerals in question.
  • If you choose to sell your mineral interest outright, your decision to do so may trigger tax planning opportunities, such as the “like-kind exchange” tax treatment for real estate transactions also known as the IRC1031 exchange. In other words, this particular transaction could qualify your gain from the sale of mineral interests to be deferred into the acquired “like-kind” real property. The acquired real estate must be held for trade, business or for other investment purposes.

Proceed With Caution

Before jumping the gun and making a decision based on the possibility of triggering the like-kind exchange, understand that the rules governing IRC1031 are very complex. The sale of mineral interest just adds to the complexity. It’s important that you speak with an advisor concerning a “like-kind exchange” before closing on the mineral interest sale, or the replacement property.

The like-kind exchange opportunity is not for everyone. For those who qualify, however, a mineral sale scenario with the right fact pattern coupled with a properly executed 1031 exchange could result in a significant tax planning opportunity for landowners who are seeking ways to minimize the current tax consequences.

While it’s great to have a range of choices when dealing with matters such as these, the larger selection has a tendency of making it harder to zero in on the information needed to make an informed decision. If you’re considering a land/mineral lease or an outright sale alternative, email Rea & Associates to get more information about these options.

Author: Jim Fracker, CPA (Zanesville office)

 

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Fraud Hotlines Deter Occupational Fraud

Annie Yoder | August 25th, 2014

When it comes to your business or organization, you are passionate about making sure your staff embodies your mission and objectives. You take care to select only the best candidates; and when you find them, you conduct thorough interviews, background checks and offer extensive training and timely performance reviews. Months later, now that you have invested significant resources into finding, training and polishing your new employee, you can finally rest easy knowing that you created a team dedicated to common goals and objectives – right?

Fraud Happens

In its most recent version of The Report to the Nations on Occupational Fraud and Abuse, the Association of Certified Fraud Examiners (ACFE) analyzed 1,483 cases of occupational fraud, which resulted in losses totaling more than $3 billion. Of those cases, the ACFE found that businesses with 100 employees or less are more susceptible to financial losses as a result of the three categories of occupational fraud – corruption, asset misappropriation and financial statement fraud.

Here’s A Tip

Maybe, like so many other business owners, you have already considered these facts and have taken steps to deter fraud in your own offices by establishing and implementing codes of conduct and external audits. While those measures provide a good foundation, you may be surprised to learn that of the nearly 1,500 cases of fraud that were reviewed, auditing only revealed a few instances of fraud. On the other hand, 42 percent of these cases were detected by tips. These tips were frequently reported on fraud hotlines and resulted in a 50 percent quicker response time when it came to detecting and stopping fraud.

The Value of a Fraud Hotline

Be proactive about fraud prevention, instead of reacting when you’re caught in the middle of it. A fraud reporting hotline service, such as Red Flag Reporting, has helped clients stay informed about what’s going on in their businesses. Services like Red Flag provide businesses with an opportunity to focus on building relationships, increasing revenue and improving community outreach instead of chasing down occupational fraud in the workplace.

Fraud hotlines are utilized by small and large businesses alike and can help identify and deter other types of unethical behavior before it grows out of control. Fraud hotlines can result in:

  • Fewer OSHA violations
  • Lower Workers’ Compensation costs
  • A decreased likelihood of employment practices lawsuits
  • Zero-tolerance of discrimination in the workplace

Not all employees are bad and not everybody is looking for an opportunity to financially ruin their employer. In fact, fraud hotlines are great because they prove that you are have a team made up of responsible, honest, hard-working men and women. These professionals are the eyes and ears of your business or organization and you not only depend on them to help identify instances of fraud, you need them to report issues to you before they explode into situations that severely damage your financial well-being, employee morale and reputations. By providing your team with a hotline, they will be even more inclined to provide you with a tip or two without feeling like they are rocking the boat.

Are you concerned about the potential for fraud in your organization? Email Rea & Associates to learn more about how a fraud hotline could work for you.

Author: Annie Yoder, CPA, CFE, CFF (New Philadelphia office)

 

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Fraud: Could It Happen To You?

Does Your Audit Process Protect You From Fraud?

How Can Analytics Help Reduce Fraud Risk At Your Business?

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New Form of Malware Catching Retailers Off Guard

Joe Welker | August 25th, 2014

Last week, UPS announced that 51 of its stores were infected by point-of-sale (POS) malware that has been affecting other retailers across the U.S. In total, UPS estimates that approximately 105,000 POS transactions were comprised in the data breach, leaving many customers’ financial and contact information exposed, increasing their risk of identity theft and fraud.

POS malware, known as Backoff, was identified last week as having targeted a New Orleans restaurant, a much smaller retailer than UPS. On July 31, several government agencies sent out an alert about Backoff. The alert explained the risks that Backoff posed to U.S. businesses, including smaller merchants, and that this new form of malware was found to infect POS systems via access to a remote-access portal.

And just a few days ago, the U.S. Secret Service announced that an estimated 1,000 businesses have been infected by Backoff. Now the Department of Homeland Security is encouraging all businesses – no matter the size – to scan their POS systems to check for a possible compromise.

While these recent incidents may not affect you or your business directly, the discovery of this new form of malware should cause you to stop and assess your business’s IT security situation. Do you have the right security protocols in place to protect your business – and your customers – from a potential data breach?

How To Protect Your Business From A Data Breach

Your mind may be far from thinking about your business’s IT environment. You’re probably focused more on the day-to-day operations of your business and serving your customers. But think of protecting your business’s IT environment as one way of serving your customers. By protecting your IT systems, you are helping ensure that your customers’ personal and financial data is safe. Here are some ways you can protect your business’s IT environment:

  • Use End Point Protection monitoring to verify that all workstations are current on their virus definition files and OS patches.
  • Make sure all servers are patched with the most current operating system security patches.
  • Employ a vendor to complete penetration testing to find any open avenues to your network.
  • Consider implementing Intrusion Detection Systems (IDS) or Security Information & Event Management (SIEM) applications. Many companies utilize IDS/SIEM to monitor their incoming and outgoing network traffic. If the expense is too great or you don’t have qualified personnel, then consider a vendor to provide the service. Many vendors provide these services at a very reasonable price.
  • Review the Mitigation and Prevention Strategies of the Department of Homeland Security July 31, 2014, announcement of the Backoff malware.

The Cost of Protecting Your Customers

What cost is too much to protect my customers’ data? Only you can answer this question. UPS and the restaurant have chosen to pay for identity theft and credit monitoring services for customers who may have been affected from their data breaches (a data breach-related expense many companies don’t consider). But take that one step further. What cost is too much to protect my business’s reputation? In order for your company to survive in today’s digital world, it’s critical for your business to cultivate a culture of trust with your customers. Many businesses find that they’ll do what it takes to prevent security breaches. What will you do?

Want more IT tips? Check out other articles that provide best practices on how to secure your business’s IT environment.

Author: Joe Welker, CISA (New Philadelphia office)

 

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Do You Know Who Has Access To Your IT Network?

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When Scammers Demand That You Pay Up, IRS Says You Should Hang Up

Maribeth Wright | August 18th, 2014

More than 1,000 American taxpayers have collectively lost about $5 million as a result of a recent phone scam that has been reported to be active in virtually every corner of the nation. The Internal Revenue Service (IRS) reminds everybody to be vigilant, to never give personal financial information to anybody over the phone, and to report instances of phone scams to the IRS and/or to the Treasury Inspector General for Tax Administration (TIGTA).

According to IRS Commissioner John Koskinen, “Taxpayers should remember their first contact with the IRS will not be a call from out of the blue, but through official correspondence sent through the mail. A big red flag for these scams are angry, threatening calls from people who say they are from the IRS and urging immediate payment. This is not how we operate. People should hang up immediately and contact TIGTA or the IRS.”

To date, more than 90,000 complaints regarding the scam have been made to the IRS and TIGTA.

Signs of An IRS Phone Scam

A media release, sent Aug. 13, reports that scammers will use fake names and IRS badge numbers, are able to recite the last four digits of a victim’s social security number, and spoof the IRS’ toll-free number on caller IDs so that the calls appear legitimate. Victims reported that they were threatened with jail time or driver’s license revocation if they refused to comply with demands. After hanging up, scammers call back claiming to be local law enforcement or a DMV representative. The second phone call is supposed to reinforce their original claim and demands.

Don’t Be An IRS Phone Scam Victim

  • If you think you might owe taxes or that there may be an issue with your taxes, call the IRS directly at (800) 829-1040. An authorized IRS representative can help you determine if you have a payment due.
  • If you get a suspicious call from someone claiming to be from the IRS and you know that you have no IRS issues, report the incident to TIGTA at (800) 366-4484. You should also contact the Federal Trade Commission and use its “FTC Complaint Assistant” at FTC.gov. Be sure to add “IRS Telephone Scam” to the comments of your complaint.
  • Don’t let scammers catch you off your guard with questions about your tax history. Call your CPA and be confident about whether you owe money to the IRS or not. When it comes to your financial security, take a proactive approach.

Email Rea & Associates if you’re ever unsure about anything you received from the IRS, whether it is a letter, a phone call or an email. We can help you determine if the inquiry is legitimate.

By Maribeth Wright, CPA (Cambridge office)

 

Looking for other articles on how you can protect yourself and your business? We recommend these:

How Can I Protect My Business From A Data Security Breach?

Are You Secure? Cyber Security Targets Employee Benefit Accounts

How Do You Protect Yourself From Identity Theft?

 

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Obtaining Tax-Exempt Status Just Got Easier

Lisa Beamer | August 12th, 2014

Many individuals want to know how easy it is to obtain tax-exempt status. About a month ago, you would have been told that the application process alone was rather lengthy. In fact, the standard Form 1023, which is the Application for Recognition of Exemption Under Section 501(c)(3) of the Internal Revenue Code, is 26 pages in length. On July 1, the Internal Revenue Service introduced a significantly shorter application form – Form 1023-EZ – which is just three pages long.

What Is Form 1023-EZ?

Form 1023-EZ is a simplified version of Form 1023 and its use is limited to organizations with gross receipts of $50,000 or less and total assets of $250,000 or less. The IRS says that 70 percent of new applicants should be able to use the new form, but to ensure that the right organizations are using the right form; the IRS has outlined factors that may disqualify larger organizations from using the new form. Be sure to read the instructions carefully.

The IRS says it currently has more than 60,000 backlogged 501(c)(3) applications. The new, streamlined application form is anticipated to speed up the approval process for smaller groups, which means the agency will have more resources available to review applications submitted by larger organizations.

What You Need To Know About The 1023-EZ Form

If you are planning to fill out the new EZ form, here are three things you need to know:

  • The new EZ form must be filed online.
  • A $400 user fee is due at the time the form is submitted and must be paid through pay.gov.
  • Users must complete an eligibility checklist, which is included in the instructions for Form 1023-EZ, before filing the form.

Obtaining Tax-Exempt Status and Creating A Tax-Exempt Organization

The new EZ form makes it very easy to create a tax-exempt organization, but applicants should always seek professional assistance to ensure that their organization is operating, and will continue to operate, in accordance with their tax-exempt purpose.

Email Rea & Associates and ask if your organization qualifies to use Form 1023-EZ. Our team of business accounting and consulting professionals can answer your questions and guide you on your path to formally establishing your tax-exempt organization.

Author: Lisa Beamer, CPA (New Philadelphia office)

 

Want more best practices for nonprofit organizations? Check out these blog posts:

How Effective Is Your Nonprofit Organization?

How Do You Build A Strong Not-for-Profit Board?

How Do You Protect Your Non-Profit’s Donations From Fraud?

 

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