Piercy Bowler Taylor & Kern
PBTK Comments on AICPA Proposal Regarding Auditor Independence

October 23, 2017 – Full-service accounting firm Piercy Bowler Taylor and Kern (PBTK) recently issued a response to the AICPA Professional Ethics Division’s Proposed Interpretation entitled “Long Association of Senior Personnel with an Attest Client,” dated July 14, 2017. The firm opposes the proposal and advocates for its total and permanent withdrawal.

PBTK highlights some of its reasons why this proposal is unnecessary and inappropriate, including the belief that it is not the mere duration of the association that potentially poses a familiarity or any other threat to independence; rather, it is the nature of the association and the CPA’s behavior. An appropriately maintained long association with a client can enhance the audit quality because it enables the auditor to gain a better understanding of the client’s business.

Small firms may have serious economic consequences if the proposal is approved. Local and regional firms do not have large advertising and promotion budgets, but rather rely on their individual personnel building relationships over time with members of the business community, many of whom become clients.

It appears likely that mandated auditor rotations will become an outgrowth of this proposal. Such rotations can substantially heighten the risk and frequency of audit failures due to lack of depth of knowledge in the early years following a partner or firm rotation. For more information, read the full comment letter online or contact the letter’s author, Howard Levy, CPA.

About Piercy Bowler Taylor & Kern

Piercy Bowler Taylor & Kern is a full-service accounting and business advisory firm that provides accounting and auditing, tax, consulting, valuation and litigation support services. Founded locally in 1990, the firm specializes in the casino gaming and leisure time industries, governmental and not-for-profit organizations, real estate development and construction industries and the legal and general business communities. Now with offices in Salt Lake City, Reno, and Las Vegas, Nevada, PBTK is one of the few independent accounting firms in its local markets to perform SEC audits. For more information on PBTK, visit pbtk.com or contact Shannon Hiller at shiller@pbtk.com or 702.384.1120.

How to Maximize Deductions for Business Real Estate

When it comes to taxes, what deductions are available for commercial real estate? Currently, a valuable income tax deduction related to real estate is for depreciation, but the depreciation period for such property is long and land itself isn’t depreciable. Whether real estate is occupied by your business or rented out, here’s how you can maximize your deductions.

Segregate personal property from buildings

Generally, buildings and improvements to them must be depreciated over 39 years (27.5 years for residential rental real estate and certain other types of buildings or improvements). But personal property, such as furniture and equipment, generally can be depreciated over much shorter periods. Plus, for the tax year such assets are acquired and put into service, they may qualify for 50% bonus depreciation or Section 179 expensing (up to $510,000 for 2017, subject to a phaseout if total asset acquisitions for the tax year exceed $2.03 million).

If you can identify and document the items that are personal property, the depreciation deductions for those items generally can be taken more quickly. In some cases, items you’d expect to be considered parts of the building actually can qualify as personal property. For example, depending on the circumstances, lighting, wall and floor coverings, and even plumbing and electrical systems, may qualify.

Carve out improvements from land

As noted above, the cost of land isn’t depreciable. But the cost of improvements to land is depreciable. Separating out land improvement costs from the land itself by identifying and documenting those improvements can provide depreciation deductions. Common examples include landscaping, roads, and, in some cases, grading and clearing.

Convert land into a deductible asset

Because land isn’t depreciable, you may want to consider real estate investment alternatives that don’t involve traditional ownership. Such options can allow you to enjoy tax deductions for land costs that provide a similar tax benefit to depreciation deductions. For example, you can lease land long-term. Rent you pay under such a “ground lease” is deductible.

Another option is to purchase an “estate-for-years,” under which you own the land for a set period and an unrelated party owns the interest in the land that begins when your estate-for-years ends. You can deduct the cost of the estate-for-years over its duration.

More limits and considerations

There are additional limits and considerations involved in these strategies. Also keep in mind that tax reform legislation could affect these techniques. For example, immediate deductions could become more widely available for many costs that currently must be depreciated. If you’d like to learn more about saving income taxes with business real estate, please Scott Taylor, CPA.