Oregon Paid Family Leave Program Begins in 2023

The State of Oregon enacted a new Paid Family Leave Program in 2021, which was originally to become effective in 2022, but was delayed to 2023 due to the COVID-19 pandemic.  The new effective date is January 1, 2023, for employee and employer contributions, and September 2023 for employee benefits to begin.

The system works like an insurance program, requiring contributions from all Oregon employees.  However, only employers with 25 or more employees will also be required to contribute.  The contribution rate is 1% for 2023 which is shared 60/40 with employees and employers.  Consequently, all Oregon employees will have a .6% tax withheld from their paychecks beginning 1/1/23, while only those employers with 25 or more employees will contribute the other .4% of wages.  However, it should be noted that the 25-employee threshold is a worldwide number, not the number of Oregon employees.  So, a multi-state company that has only 1 Oregon employee, but more than 24 employees will need to contribute on behalf of the Oregon employee.

ALL employers are required to post a notice no later than 1/1/2023 informing employees of the program details.  A model notice can be found on Oregon’s website:  https://paidleave.oregon.gov/Pages/default.aspx  Likewise, ALL employers must begin withholding the .6% tax as of 1/1/2023.  If your business uses one of the major payroll companies, such as Paychex or ADP you should expect this to be taken care of automatically.  However, if you use a smaller service or use software, such as QuickBooks, you’ll need to make sure that this new tax is properly set up in your payroll system.

Employers can opt out of the program by providing an “equivalent plan”, which must be pre-approved by the state.  Likewise, small employers can opt in to the plan and will then be eligible for grants to help offset the cost of temporary hires while employees are away on leave.

Oregon’s plan has one of the lowest thresholds in the U.S. for employee eligibility. Employees need earn only $1,000 over the prior 4 of 5 quarters to be eligible for benefits.  There are no minimum hour’s requirements so part-time employees will be eligible if they meet the wage threshold.

The program is intended to pay 100% of wages, up to a maximum weekly amount of $1,469 (to be adjusted annually) and for a maximum of 12 weeks (or more under certain conditions) in a year for certain family leave events, such as the birth of a child, serious illness or injury, adoption, domestic violence, and other events identified in the legislation. 

Employees must provide 30 days’ notice (except in the case of emergencies) to employers and must submit an application to the state in order to be eligible for benefits.  The benefits are reduced dollar for dollar by employer paid leave provided by an employer during the leave period.  Employees can take one day off at a time or in any combination of time, up to the 12-week total per year.

Employers must hold open the employee’s job (or an equivalent position) and are not permitted to change any seniority rights or otherwise discriminate based on an employee taking leave.  However, this requirement only applies to employees who have been employed for at least 90 days.

Difficulties with implementation could include employee privacy issues (especially as related to domestic violence, harassment and stalking), employee difficulty in completing the application, and employees not being properly notified of the benefits.  Employees will need to be mindful of the potential loss of company paid health insurance during a paid leave period, as many employers do not cover these costs if employees do not work a minimum number of hours per week.  That cost alone could wipe out any benefits provided under the plan.

The program’s administration will be done by the Oregon Employment Division, which will charge the fund for the administrative costs.  Claims will apparently be paid on a first come first served basis and if the fund runs out of money before eligible claims can be paid, then those employees will not receive any benefits under the plan.  The state of Oregon is exempted from any obligation to pay unpaid claims due to fund shortages under ORS 675B.050(4).

With the extraordinary complexity that will be involved in reviewing applications, accepting or rejecting them, adjudicating appeals, investigating potential fraud and malfeasance, and with no way to know how many claims might be filed in a given year, the program is likely in for a bumpy ride in its first year of implementation.  Meanwhile, employers should take care to ensure that employees are notified of their rights under the plan and that all compliance requirements are met.

New State and Local Taxes for 2021


An astounding number of new state and local single purpose taxes and assessments have been enacted over the last several years.  Below are brief summaries of the most recently enacted taxes becoming effective this year and next, as well as an overview of other recently enacted state and local taxes.


Effective in 2021

Multnomah County Preschool Personal Income Tax

An individual income tax of up to 3.0%, as follows:

  • Unmarried – Income over $125,000 taxed at 1.5%, income over $250,000 taxed at 3.0%
  • Married Filing Joint – Income over $200,000 taxed at 1.5%, income over $400,000 taxed at 3.0%
  • Note the significant marriage penalty

Withholding will be required in 2022, but employees may be able to opt out.

Tax is due 4/15 on a separately filed return. It is currently unknown who is going to administer the tax program.

No estimated taxes required (as of yet).

Tax is imposed on 100% of Oregon taxable income, above thresholds noted above, even if earned outside Multnomah County or the state of Oregon, for all Multnomah County residents.  It is also imposed on any income earned within the County for those who are non-residents of Multnomah County.

Metro Supportive Housing Services Business and Personal Income Tax

Business income tax of 1% of net profits for any business with total gross receipts of more than $5 million.

Personal income tax of 1%, as follows:

  • Unmarried – Income over $125,000 taxed at 1%
  • Married Filing Joint – Income over $200,000 taxed at 1%
  • Note the significant marriage penalty

There will be a provision to eliminate the double taxation which exists in the current law, as it was drafted.  The law was not drafted by tax policy experts.

Withholding will be required but employees can opt out in 2021. Businesses will be required to make quarterly estimated tax installments, but the procedures are to be determined.

Tax is due 4/15 on a separately filed return, to be administered by the City of Portland.  Businesses will also have to file quarterly and annual withholding reconciliation returns, separate from the Oregon OQ.

The tax is imposed on all residents of Metro Districts, and on any income earned within a Metro District.

It should be noted that with these two new taxes, residents of Multnomah County will now face the highest marginal tax rate of anywhere in the U.S., according to a study by Ernst & Young.

Effective in 2022

Oregon Paid Family and Medical Leave (“PFMLI”) Payroll and Wage Earner Tax

A payroll tax beginning in 2022, with an initial rate of 1% (to be determined annually by the Oregon Employment Division).  Employees will contribute 60% of the tax, employers will contribute 40% of the tax.

It will function similarly to unemployment insurance and benefits are to be used for up to 12 weeks of family and medical leave beginning in 2023.

Self-employed individuals can opt in.

Small businesses with fewer than 25 employees are not subject to the 40% of the 1% contribution but can voluntarily do so.  If they do, they will be eligible for worker replacement grants to help cover the cost of temporary employees during the absence of staff due to family/medical leave.

And, don’t forget about new State and local taxes enacted in 2020 and 2019:

Oregon Commercial Activity Gross Receipts Tax (CAT)

A new gross receipts tax effective in 2020.

A rate of .57% of Oregon sourced gross sales over $1 million.

All businesses with gross receipts over $750,000 must register with the State of Oregon.

Tax is due 4/15 on a separately filed return.  The tax is a calendar year tax, regardless of a business’ fiscal year.

Complex rules govern amounts allowed as a 35% subtraction against gross receipts, generally either cost of goods sold or compensation costs.  Once the subtraction is applied to gross receipts, the tax rate of .57% is applied to the result.

Complex rules govern sourcing and nexus.  There are different rules for revenues and for expenses.

Commonly owned enterprises are grouped together under rules for unitary filing.

Quarterly estimated tax payments are required if total tax is expected to exceed $10,000.

Oregon Statewide Transit Wage Earner Tax

A tax on wages of .1%, effective in 2018.

Paid by employees through required withholding, employer transmits and reports the tax on a separately filed quarterly return.

All Oregon wages are subject, even if the employee does not reside in the state.

City of Portland Residential Rental Registration Unit Tax

A per unit fee of $60 on all residential units located within the City of Portland, effective in 2019.

Tax is due 4/15 and included with the City of Portland/Multnomah County Business Tax Return.  A separate schedule identifying all residential rental units is required.

The above are brief summaries only.  Each tax is very complex, and in the case of the newly enacted taxes, many administrative rules will need to be issued to clarify the details. To learn more about these taxes and other potential taxes which may affect you, visit the official websites for the state of Oregon and for your local municipalities.

The CARES Act Includes a New SBA Loan Program

The Corona Virus Aid, Relief and Economic Security (CARES) Act was signed into law on March 27th.  The legislation provides for a new loan program – dubbed the “Paycheck Protection Program” – to be administered by the SBA.  Up to $349 billion will be available to eligible businesses and non-profit organizations, which generally include those with fewer than 500 employees, but with some exceptions.

The maximum loan amount will be determined based on an entity’s monthly average prior payroll costs times 2.5, using a formula specified in the law.  Payroll costs can include most types of compensation, retirement and health insurance benefits, and payroll taxes, except that salaries above $100,000 per individual will be excluded.  Loan terms are favorable with no personal guarantees or collateral of any kind required.  The loan will be due in 2 years, unless all or a portion is converted to a grant (see below).  The interest rate is currently under negotiation between lenders and the SBA.  This is because bankers have feared that the proposed rate of .5% is too low for them to be able to adequately service the loans without losing money.

To apply for such loans, eligible employers should contact their local SBA-approved banker.  There will be an expedited process for loan approval, but applicants will be required to certify that the loan is necessary due to the economic impact of COVID-19, and proceeds will only be used to retain its workers and pay only eligible expenses, which include salaries and wages, paid leave and severance, health benefits, retirement benefits, payroll taxes and occupancy costs such as mortgage, rent and utilities.  The loan proceeds can also be used to pay interest on other debt obligations incurred before February 15, 2020.

Maximum lending per entity will be $10 million, but a portion of the loan can be forgiven for any expenditures for payroll, mortgage interest or rent, and utilities incurred within the first 8 weeks after the loan’s origination date, at the lender’s discretion.  Forgiven amounts would be adjusted downward for employees that have not been retained or to the extent employee compensation has been reduced by more than 25%.  And,  at least 75% of the loan proceeds must be used for payroll costs in order for the loan to be eligible for forgiveness. Any amounts forgiven will not be subject to income tax, which is another generous feature of the program.

As lenders will likely be overwhelmed with applications, businesses and non-profit organizations affected by the COVID-19 virus should begin the loan application process as soon as possible.  We will have to see how this plays out and if it will help keep businesses alive and employees working as we learn to cope with the virus.

There are many other provisions in the new CARES Act, including a new refundable payroll tax credit, as well as payroll tax deferrals, which I will address in upcoming posts.

ALERT:  This post as been updated with current information as of 4/4/20.  For the most current information, contact your local banker for loan terms.

2019 Filing Season & COVID-19 – Update #2

To Our Clients:

Due to the COVID-19 outbreak, we will be using this site to keep you abreast of the tax and business impacts of new legislation as well as filing and payment delays allowed by the federal government, and state and local municipalities.  Please subscribe to this blog, or check in frequently to make sure you have the most recent information.


Finally the state of Oregon has agreed to delay its filing deadline for many taxpayers in a way that is mostly (but not completely) similar to the recent decision by the U.S. Treasury to delay tax filing and payments normally due April 15th to July 15th.  This means that individuals, trusts, and corporations whose filing deadline was normally 4/15 can now wait to file a return or an extension until July 15th, and can also defer 2019 taxes normally due as well.  For estimated tax payments due 4/15, the State of Oregon elected NOT to change that deadline, so even if a taxpayer takes advantage of the filing and payment delay for 2019 taxes, they will still have to estimate and pay their 1st quarter Oregon taxes, even though they can defer their federal estimated taxes.

Fortunately for our clients who file California returns, the FTB announced on March 13th that all California taxpayer are granted an automatic extension of time to file and pay both 2019 taxes as well as 2020 1st quarter estimated taxes.

However, our focus at Wilken & Company will be to continue working as if the April 15th deadline is unchanged.  Since we don’t know what the future will bring, we can’t take the risk of not completing our work while we are all still able to do so.  We are planning to prepare and file all returns and extensions that would normally be due 4/15 by that date and will provide our clients with payment vouchers for 2019 taxes due and for estimated taxes due for 2020, as we always have.  Clients can determine when (between 4/15 and 7/15) they would like to make those payments, remembering that there is no delay allowed in making the Oregon estimated tax payments.  As we’ve said before, we advise anyone paying after the normal deadline to be sure to record the dates of any “late” payments so that we can request proper penalty relief when the time comes.

Since our offices are now closed to the public, we will be delivering tax returns and payment vouchers either via courier or electronically.  We will be in touch with each of you to determine which method works best for you.

After 4/15, assuming we are all still healthy, we will begin to prioritize the completion of any tax returns where clients are expecting refunds.

We don’t know yet whether the May 15th deadline for non-profit organizations’ Form 990 will be delayed, as there has been no specific guidance from Treasury yet.  However, this matter is currently under discussion.  Meanwhile, Oregon has specifically stated that nonprofit organizations with a May 15th deadline are not being granted any relief.  Many NPOs have had to close their doors or substantially alter their operations, so it would seem logical to also grant filing relief, but for now we have to assume that the deadline for calendar year 990’s is still May 15th.

At the federal level, several pieces of legislation designed to provide COVID-19 relief were enacted.  The Oregon legislature will convene soon to craft its own assistance package, and the City of Portland recently did so.

At the federal level, here is what we know so far:


Businesses with fewer than 500 employees will receive payroll tax credits for providing newly mandated paid sick leave and paid family leave for employees affected by the Coronavirus outbreak.  The refundable credit will be 100% of the costs, up to certain limits, and will be claimed on an employer’s Form 941 so that the tax benefit can be realized quickly.

Smaller businesses with less than 50 employees can be exempt from certain of the mandated paid leave requirements, but the exemption will only be granted on a case by case basis.  However, there will be a non-enforcement provision in place for 30 days after enactment, so that businesses have time to adjust.

Please note that this is new legislation and some of the provisions will likely require further clarification, so patience is required as we work through the process of staying abreast of these fast-moving changes.

Our clients who use payroll service bureaus should contact their provider to determine how wages paid under the new law should be categorized to ensure that they receive their full tax credits.  Clients running their own payrolls are at greater peril, as it will take time for each business owner to fully understand these provisions and then to properly report qualifying wages and related credits on the Form 941.

More information about the new law is available here: https://www.irs.gov/newsroom/treasury-irs-and-labor-announce-plan-to-implement-coronavirus-related-paid-leave-for-workers-and-tax-credits-for-small-and-midsize-businesses-to-swiftly-recover-the-cost-of-providing-coronavirus


The Senate approved today a proposed $2 trillion stimulus package that would contain a number of provisions affecting businesses and individuals.  The package will include checks issued to individuals, a  zero interest loan/grant fund available for businesses, robust unemployment benefits to laid off employees as well as, for the first time, unemployment benefits for self employed individuals who have lost their revenue stream due to the Corona virus outbreak.  The bill now goes to the House, and if unchanged in its current form is expected to be signed into law.  Once that happens, we’ll provide another update on its provisions.

We hope all of you are staying safe and well during this crisis and we thank all of those who are working tirelessly to provide health care, food delivery and other basic services to those in need.

2019 Filing Season & COVID-19 – Update #1



A Message for our Clients:



Accounting firms who assist others with tax compliance are deemed an essential service, so even if there are more draconian measures coming in the future, we will be able to continue operating.  However, we have changed our operating procedures, as follows:

  1. We are no longer open to the public.  If you need to drop something by, we have an outside secure drop box at our front door for this purpose.  Alternatively, please consider scanning documents to our portal, or faxing them to us at 503-225-1395.  Documents that are emailed should be password protected if they contain sensitive information.
  2. We will deliver all client returns using our couriers or using a paperless method involving uploading the tax returns and e-file forms to our portal. We will communicate with each of you individually regarding which method will work best for you.
  3. There is no change to the 4/15 deadline, so please be mindful that we are under the same time constraints as any other tax season and we ask your cooperation in returning your signed e-file forms to us as soon as possible. We ask you not to mail e-file forms if you are doing so within 7 days of the filing deadline, due to uncertainties in postal delivery.  In that case, you can scan the e-file forms to our portal, or fax them to us, as noted above.
  4. Although payment delays are permitted, we are advising all of our clients who can to pay all taxes and estimated taxes as usual on 4/15. If you are going to take advantage of payment delays, please be sure to record the date you actually made your payments, so that we can make the appropriate penalty relief request as may be required.

Thank you for your cooperation and understanding.  We hope all of you are staying well during these uncertain times, and we appreciate the opportunity of working with you.

Putting the General Back in Your General Ledger

Using accounting software makes it seem like a “no-brainer” to set up the Chart of Accounts for your business or non-profit organization.  Just select a sample chart and away you go, adding additional accounts on the fly as new expense categories emerge.

Sadly, it is the “no-brainer” part of this process that results in a cumbersome Chart of Accounts and a General Ledger with transaction details scattered across multiple accounts.  My rule of thumb is this:  if your chart of accounts is over 3 printed pages long or you have any accounts with less than $500 posted during a year, you’ve missed the whole point of your accounting system.  And you’ve been led down this path, usually, by QuickBooks.

The purpose of the Chart of Accounts is to arrange your transactions in a standard format which achieves the following:

  • Year over year comparability
  • Comparability with similar businesses or operations
  • Ratio Analysis
  • Budgeting
  • Financial Reporting in accordance with GAAP
  • Tax Reporting in accordance with IRS requirements

A Chart of Accounts that tries to incorporate departments or divisions into the numbering scheme rather than as account classes (Quickbooks) or departments (other more sophisticated software) will result in a cumbersome system that makes it difficult for management and for outside professionals to efficiently do their work.

Many business owners who also attempt to do their own bookkeeping fall prey to the ease with which accounts can be added and before they know it, they have created a mess which makes it tough to run the business efficiently and to make decisions based on accurate information.  Accounting fees for outside CPAs will increase significantly where a client’s Chart of Accounts has been poorly thought out and is way too lengthy.

Those who use accounting software are often not trained as accountants, so don’t realize the purpose of the Chart of Accounts, and its offspring, the General Ledger.  Within the General Ledger are all the transaction details, organized by account.  The details of your transactions should live here, not in the Chart of Accounts.  The General Ledger is meant to be organized by “general” and widely accepted categories.

So, it’s a good idea to meet with your outside CPA every few years to see if the Chart of Accounts can be successfully truncated so that management has more useful information, and the process of preparing financial statements and tax returns is more efficient.

The 10 Minute Bank Reconciliation

I am re-posting this blog from a few years back.  Many business owners, bookkeepers and accountants struggle with performing bank reconciliations and resolving variances.  And yes, there are times when I can do a bank reconciliation in 10 minutes, even for clients with hundreds of transactions per month.

Over the years, I have developed a number of techniques to help me quickly identify bank reconciliation errors and potential causes. But before I get to the “how” of performing bank reconciliations, what are they and why should you do them?

The purpose of a bank reconciliation is to allow you to determine the accuracy of cash balances on a specific period-end date (usually monthly) as recorded in your general ledger.  You should always perform your bank reconciliation as of the last day of the accounting period, not mid-month, because that’s not the date that you are closing the accounting period.  So, get the bank to give you statements with a month-end cut off.  The bank statement tells you which transactions have cleared the bank, regardless of whether such transactions are known to you.  Your books have the complete record of all of your known transactions, but items can appear on your bank statement that you don’t know about.  These are, generally:  NSF checks, interest earned, bank fees, other automatic debits, and deposit errors.  Likewise, items that you know about may not be known to the bank, such as outstanding checks and deposits in transit.  So, the bank reconciliation ties together these two separate sets of records, with your own books trumping everything, because that’s what will be reflected in the general ledger.

Bank reconciliations before the existence of accounting software were often performed in a “4 column” format, with the following column headings:  Beginning Balance, Deposits, Checks, Ending Balance.  This format allowed the accountant or bookkeeper to quickly identify reconciliation issues because each column would then be totaled to agree to the bank’s totals.  This would mean that you could tell if your error was in the checks or in the deposits section of your bank reconciliation.  With accounting software, even though the process is the same, your ability to identify errors is reduced.  A lot of software packages will try to give you hints, but sometimes the hints add to the confusion.  In addition, with accounting software, you can fail to mark items that have cleared and still appear to have correctly performed a bank reconciliation.  This occurs when you or your CPA make journal entries to correct errors, but the journal entries and the errors themselves never get marked as cleared.  I have seen bank reconciliations with un-cleared transactions going back 5 years!  Obviously, this cannot be even factually true, and it means that whoever is performing the bank reconciliations does not understand their function very well.

Aside from ensuring the accuracy of your general ledger cash balances, timely and accurate bank reconciliations are one of the most important elements of your internal control system.  Stale items or unusual outstanding items at period end can indicate financial fraud.  Cash accounts are involved in 93% of all frauds, which is why auditors are trained to search for and identify unusual transactions when reviewing bank reconciliations.  Management review of bank reconciliations is a critical function, but often managers don’t actually know what to look for.  If this describes you, contact your CPA and ask them to show you how to perform this kind of review and what to document, and I’ll offer a few tips below.

Now, back to the 10 minutes I have allotted for the bank reconciliation:  open up your reconciliation tab in your accounting software and enter the period end date and the bank statement balance where indicated.  Make sure that you have the software set up NOT to show transactions for periods after this date.  Mark all of the transactions as cleared.  Now, working backwards, take your bank statement and identify the last check which cleared, and breaks in the check sequences and unmark those checks which haven’t cleared.  Then, enter any automatic debits that you haven’t yet recorded in your books, but which are shown on your bank statement.  Check the last deposit in your books to see if it has cleared the bank.  If not, unmark deposits that have not cleared.  Enter your interest earned and any bank charges shown on the bank statement.  Not in balance yet?  Scan the bank statement for any surprises, such as NSF checks and deposit errors.  Most of the time, the bank reconciliation has now been balanced and is ready to be printed (yes, always print or pdf it because certain software may not allow you to do this later, and your CPA wants it and so does the IRS if you are ever audited).

If you are still out of balance at this point, it is now time to check each item from the books to the bank, one by one.  Again, I usually start backwards because it is generally the month-end transactions that are the culprit.  Remember that your books trump all, so you use your book transactions as your source and compare that to what has cleared the bank, not vice versa.

Once in balance, the bank reconciliation is now ready for management review.  The business owner or manager should confirm that only current transactions are listed in the outstanding checks.  Checks older than 6 months are considered stale.  Usually, these are errors or duplicates that have not been corrected, but if not, Oregon businesses are required to turn over any unclaimed payments to the State Department of Lands.  If you see any unusual outstanding checks, or any “corrections” entered immediately after month end, this could indicate fraud.  Likewise, outstanding deposits or transfers among accounts that are from a prior period or are immediately reversed after month end could also indicate fraud. Scan through all the transactions listed and make sure that the totals appear reasonable in comparison to your typical monthly volume and dollar amounts of transactions, and that check sequences make sense.  Scan check payees to make sure you recognize the vendors.  Review the payroll entries and trace them back to the payroll reports provided by your service bureau.  And, even though most bank reconciliations are performed by the same person who recorded the transactions (your bookkeeper), make sure that this person IS NOT a check signer.

The internal control function of the bank reconciliation is where you should spend your time.  The routine part involving doing the reconciliation itself should not be a hassle, and if it is – get in touch with your accountant for their advice on how to make the process more efficient.

How to Communicate (and Commune) with your CPA

When I started my accounting career back in the mid 1980’s, written business communications were a formal affair, conducted via correspondence carefully tapped out on an IBM Selectric by a highly competent office manager with lightning speed dexterity.  The missive (or missile, in some cases) followed a strict three paragraph format:  introduction, body, and conclusion.  Attachments were provided to elucidate whatever was discussed in paragraph 2, and the composition adhered rigidly to formal requirements (thank you, high school English teacher).

Informal communications which required a back and forth discussion and exploration of ideas were handled in face to face meetings, or over the telephone.  Voice mail did not exist. So, upon arriving at work, a stack of messages would be waiting upon one’s desk, haphazardly arranged on a spiky metal implement which could double as a weapon if needed.  Such messages were the original of a triplicate carbon form, with copies dutifully archived in the client’s file as well as the firm’s master file.

Back then, sometimes the volume of telephone communications from clients could be overwhelming especially during tax season, but we CPAs didn’t have to deal with junk calls or other unwanted communications from unknown individuals.  We relied on our highly competent admin staff to field every communication, and filter out all but that which mattered.

Since then, many extraordinary changes have taken place.

First and foremost:  the volume and detail of information needed to prepare a client’s tax returns increased significantly, more than can be described in this post.  Compliance requirements such as 1099 and 1098,and K-1 reporting and matching upped the number of documents needed to proceed with tax preparation, but represent just a small fraction of the increased complexity of tax law in the U.S. from the 1980’s to the present.

Amidst all of these tax law changes, the internet emerged in the 1990’s, with its related instant communications via email. In 2007, Apple introduced the first iPhone, although BlackBerry (“CrackBerry”) had dominated the smartphone market prior to this.  With the immediacy offered by these new forms of communication, the quality and reliability of such communications seemed to deteriorate proportionally with the increase in technological advances.  The temptation to send out a communique (or a series of communiques) with little detail, and in a reactive mode is, I think, too great even for the most contemplative of souls.

As it turns out, there’s a reason for this.  Humans convey information most effectively in face to face encounters.  That’s how our ancient brains are wired.  Researchers have determined that emails convey only 7% of the information that would otherwise be conveyed in a face to face meeting.  And, voice communications convey about 45%.  Why?  Human brains are programmed to do very complex stuff.  Facial cues, body language, and vocal intonations all contribute to the layers of complexity and meaning in any face to face communication.  Voice communication via telephone has the benefit of conveying the information supplied by vocal intonations.  Who doesn’t want to receive a telephone call from their doctor, as opposed to an email response?  There is a lot of information about trust and caring that can only come through with voice or face to face communications.

And that’s another interesting aspect of communications.  Humans need to determine whether or not they can trust the person they are communicating with.  Face to face communications provide all the cues one can ask for – although many people are still manipulated in face to face encounters by bad actors.

The trust factor that is normally evaluated in face to face communications is apparently replaced (according to research) by the quickness of response in email or text communications – obviously a very unreliable criteria in evaluating trustworthiness.  Having more emails than can be responded to in 24 hours is the new normal for professionals.

What to do?  If you only need to forward documents or send otherwise “inert” information – forward an email.  But, if you really want to explore ideas and share information about changes in your financial situation, pick up the phone and give us a call.  We would like to talk with you.

Retroactive 2017 Tax Law Changes

While I’ve had many a melt-down over the years regarding federal tax legislation enacted late in the tax year, or even a few days after the tax year has ended, never before has there been a retroactive change to prior year tax law enacted after tax filing season has actually begun..

These are the tax breaks that officially expired on 12/31/16, also known as “extenders” because they are typically re-upped each year by Congress.  Why weren’t they included in the “tax reform” package that was hastily enacted in late December of 2017?  Well, because they are tax expenditures, and therefore cost money – billions of dollars in fact.  That would have blown Congress’ contrived $1.5 trillion net expenditure limit, so they couldn’t be added to that legislation.  Solution?  Just add them later to a budget deal, raise the debt ceiling, and away you go.  After all, the true cost of the extenders is hidden in plain sight behind their sunset dates.  By making them “temporary”, these extenders cost far more than what is included in the federal budget, by some accounts, approaching $100 billion.

Meanwhile, IRS must now revise dozens of tax forms and schedules, including the 1040 itself in the middle of the 2018 filing season.  In response to this unheard of development, IRS issued what is probably the shortest press release in history – a 3 sentence “statement” promising to assess the significant changes to the tax law “as quickly as possible”.

The newly enacted budget deal includes money for lots of stuff (how about a parade?) but doesn’t provide funding for IRS to address not only the “tax reform” package passed in late 2017, but the newly revived extenders as well.  The IRS has estimated that it will need $397 million to upgrade systems and hire new staff for the expanded workload.  However, they were only given $90 million to do so.  In my profession, it may seem odd to have compassion for IRS and its workers, but this year I do, more than ever.

Taxpayers who have already filed their 2017 tax return, but could benefit from an extender that was retroactively re-enacted, will need to amend their tax return to claim any benefits.  Sadly, the cost of doing so may outweigh the tax savings.  This fact pattern affects mostly lower income filers who tend to file early in the season.  Score another goal for income inequality that is baked right in to the cake.

Oregon’s Measure 97: A Lazy Cheap Shot, Vote No


Oregon’s proposed Measure 97, which will appear on the November ballot, is now being hotly debated, with proponents and opponents gearing up to outspend each other and do a little economic stimulus for the advertising and lobbyist industries.

The measure provides for an unprecedented 2.5% gross receipts tax on certain C corporations with sales in Oregon above $25 million. The proposed law exempts S corporations, LLCs, and “Benefit” Corporations from its provisions. It is projected to raise a whopping $3 billion per year from its tiny tax base. It is not a true VAT tax, so its effects will be multiplied across various levels of the supply chain as it forges its regressive path down to consumers. And, thanks to our world of corporate monopolies who influence pricing, some affected companies, such as our very own Powell’s, will not be able to raise prices to help absorb the tax hit, and so instead will be faced with cost cutting decisions such as employee layoffs. Other businesses that operate at a loss, or with thin margins would still have to come up with a way to pay the tax.

The measure is being sold as a way to “save the children” – an appeal so dishonest and crass as to be sickening. It is, in fact, a PERS bailout plain and simple. And it is a regressive tax, sloppily drafted with gaping loopholes, relying on a narrow tax base. In short, it is just about the worst piece of tax policy I think I have seen in a while (not including the Pdx Arts Tax).

So, let’s break it down:

Tax Reform – It’s tempting to get excited about a tax that falls on “the man” rather than on ourselves. Isn’t it only right that big corporations pay their fair share? For tax policy scholars, fairness has a specific meaning: progressivity. A tax can only be fair if it is progressive. Hence, most tax policy reformers rule out consumption taxes as falling too heavily on the poor, who need to spend most if not all of their income just to survive. Consumption taxes miss the mark in terms of fairness, and are to be avoided if fairness is your actual goal. Here we have a hidden consumption tax masquerading as a gross receipts tax. ALL of the economists who studied the proposal have concluded that the tax is regressive. The impact could be especially bad in the health care industry, where medical providers will be forced to pass on the rising costs to those least able to afford the increase. For these reasons, you can conclude that this tax is grossly unfair to the working poor in Oregon. And, as any good tax policy scholar knows, a well drafted tax policy is one which relies on a broad tax base. So, the measure fails miserably as tax reform. That’s because it was drafted by political activists who developed the measure by hiring consultants to conduct focus groups, to see what would “sell” in Oregon. It is our legislature that should undertake meaningful tax reform, not marketing experts. We recently had significant corporate tax reform back in 2010 with the passage of Measure 67. Now, all corporations must a least pay a minimum tax that ranges from $150 for small C corporations to $100,000 for businesses grossing $100 million or more. Our current minimum tax exempts S corporations and LLC’s from these provisions, which provides a loophole that could be closed should the legislature deem this as a legitimate way to raise additional funds. But, that’s just one idea among many that could have been considered by the legislature.

Loopholes Galore – The gaping loopholes in Measure 97 provide for a number of simple solutions that corporations can employ to escape the gross receipts tax: elect S status, reorganize as a partnership or LLC, choose to be a “benefit” corporation (which involves a meaningless set of steps that will keep law firm paralegals busy for a little while), relocate out of state, and best of all: constitutional challenges to the law. Larry Brant of Garvey Schubert Barer, among other legal experts, have already outlined a laundry list of possible constitutional challenges, which you can read about here.

School Funding – There’s no doubt that our public schools need more money to adequately prepare our children for adulthood. The reason that they need more money is that the unfunded $21 billion PERS liability is looming, and each year schools are assessed their contribution requirement, which now takes up a larger and larger portion of each school’s budget, leaving not enough left for teachers and curriculum. While various PERS reforms have been attempted, as it turns out, it’s illegal to break a contract with your employees. And, I for one do not begrudge a single teacher or other public servant their pension benefits – they were earned fair and square.

Let’s get some perspective, though, on the enormous burden the PERS board has laid before us, which was decades in the making:

2015 Annual Oregon budget: $33.4 billion
2015 Portion of budget spent on education: 19%
2015 Portion of budget spent on Medicaid: 21%
(source – BallotPedia)

As you can see from the above numbers, the unfunded PERS liability dwarfs the ENTIRE education budget by a factor of 3. How on earth will Oregon ever have enough money to fund this debt that we owe to our public servants? Add to that the ever increasing costs of Medicaid, transportation, and other programs, and one can see the temptation to try to find someone else to pay the bill. The legislature must work very hard to come up with viable solutions, and those solutions must include a combination of tax increases and tax savings. Closing loopholes, enacting viable PERS reforms, eliminating wasteful spending, and rooting out fraud need to be at the top of our priority list. Tax reform must be based on sound policy that involves both fairness and simplicity, and that relies on a broad tax base.  That is how we will “save the children.” We won’t save them by passing a feel good tax that purports to tap evil corporations, and instead hurts the very children we need to help.

Is Social Enterprise a Con?

That’s the argument is made by David Groshoff, a Harvard educated law professor and business executive. In his treatise “Contrepeneurship? Examining social enterprise legislation’s feel-good governance giveaways” Groshoff asserts that, based on his academic research, Social Enterprise is a “con” led by promoters, dubbed “contrepeneurs”. These players navigate the murky, greenwashed world which resides at the nexus of private equity, legislatures, academia, and guilt-ridden wealthy investors.

He maintains that these con artists possess and advance interests which are opposed to those of actual equity holders, and that they have nothing but disdain for longstanding business governance practices. They use a deceptive maze of ethically questionable marketing tactics to promote their fake objectives. And, they have created a self-serving and self-reinforcing cottage industry whose aims run counter to that of the very communities they claim to benefit.

Harsh words? We’ll see.

In my own CPA practice I can attest to the hypocrisy of Social Enterprise proponents’ claims of “triple bottom line” and community and environmental benefits. I have observed the opposite: private equity which uses B Lab certification to promote its portfolio of business acquisitions to the conscientious wealthy investor class, all the while destroying those very businesses with ill-conceived scaling,  greenwashing, and the burden of massive and hidden management fees which characterize the world of private equity. This process can lead to the destruction of the business investee, which was once a healthy enterprise. That is not “beneficial” to anyone but the promoters who get their fees no matter how their portfolio of acquisitions actually performs. Without transparency, wealthy investors rely on their personal relationships with these promoters and on Social Enterprise’ claims of ethereal benefits to the world at large. Their guilt is assuaged.  Meanwhile, businesses, jobs, and communities are harmed.

While my experience is only anecdotal, Groshoff has done the research to support his claims. He has found that, despite the marketing and brand managing of Social Enterprise to investors and legislators, these new enterprises have costs which substantially outweigh any benefits.

First of all, what the heck is Social Enterprise? Unfortunately there exists no basic definition. “An organization which advances a social mission through entrepreneurial, earned income strategies” is one definition, among many. But, the lack of clarity in defining what it actually is only serves to benefit its promoters. It’s hard to be held accountable to goals when those goals are not clearly defined. And, while Social Enterprise may possess legitimate, if ill-defined goals, related legislative efforts are a result of vigorous brand management and marketing that appeals to “unsophisticated equity investors” – Groshoff’s unflattering term for what I call the conscientious wealthy investor class.

Leaving the definition issue aside, Groshoff reviews the legislative history of the lobbying efforts led by Social Enterprise Legislation (“SEL”) promoters. In various states, one can find Benefit Corporations, L3C’s (low-profit LLCs), and FPCs (Flexible Purpose Corporations).

Using California as an example, Groshoff discusses how these entities were created under new state legislation, much to the chagrin of the California State Bar, which was genuinely concerned that such legislation would marginalize shareholders and rely on an un-vetted 3rd party standard setter (B Lab), an entity who derives benefit from doing so in a circular self-serving industry of its own creation and of which it is the only player. Further, the California Bar expressed dismay that legislation was being considered which was directly harmful to shareholders by removing the fiduciary duty of a business’ directors and thus allowing them to act in a morally hazardous manner that would otherwise lead to liability claims under traditional corporate law. But, the legislation passed anyway, and the B Corporation bandwagon was underway. All aboard!

The resulting rush of legislative activities across the U.S., and indeed throughout the world, has been fueled by B Lab and its many minions. Though B Lab currently enjoys tax exempt status, and so is conducting its lobbying efforts at taxpayers’ (our) expense, those days may be numbered. Groshoff asserts that B Lab is not deserving of its tax exempt status for a variety of reasons, one of which is that its extensive lobbying activities were not properly disclosed, and if they were disclosed would reveal that much of B Lab’s resources are spent on lobbying.

But, is Social Enterprise a con?  I think it is more of an agenda whose aims are not fully known or understood.  One of those aims may be the elimination of government as a regulator, replaced by “benevolent” private interests.  And, Social Enterprise is certainly a magnet for con artists of all types, as the legislative parameters governing them have no regulatory teeth.

Meanwhile, I have seen a kind of grassroots form of social enterprise emerging among the businesses and non-profit organizations that I work with. These new entities are often democratically governed, and some are organized as multi stakeholder cooperatives. They don’t need or want private equity, and they scale up as resources and market forces allow. Funding comes from small, local investors, bank lending, and from the ability to reach global markets via technology. These enterprises are closer to “true capitalism” than the corporate capitalism we see in today’s economy. They work to treat one another, their vendors, their community, and their environment with respect. Existing corporate law allows them to consider the interests of those other than investor/owners, and, they don’t need anyone to “certify” that they are doing well by doing good.

The B (S?) Corporation

(c) Nola Wilken

Now that so-called “B Corporations” are popping up around the country, it’s a good time to review what they are, how (and if) they differ from “regular” corporations, and whether they have lived up to their mission, which is to benefit not only shareholders, but the entire community.

The B in the name stands for “benefit”, with the idea that these types of entities are better than non-B corporations because they are structurally required to consider what is best not only for their shareholders, but for others involved with the business, such as employees, vendors, the community, and the environment. Currently, 28 states  have laws on the books which permit the formation of a B Corporation, requiring that their organizational documents comply with governance principles that are, in theory, designed to benefit other stakeholders, in addition to the corporation’s shareholders.

The B Corporation designation is not a tax concept, and is ignored for all taxation purposes.  However, a few states have seen fit to offer tax credits and other incentives to B Corporations.

B corporations formed under state law can also seek certification from the one and only self-appointed bodyB Lab – a non-profit organization formed exclusively for this purpose.  How does it work?  Well, B Lab does not permit their standard-setting process to be transparent.  In order to get certification, the B Corporation not only has to pay an annual sliding scale fee, but then has to submit to the process of trying to prove that the corporation meets B Lab’s objectives.  Without competition, or community input, it is unknown whether the B Lab certification means much, except as a marketing tool.

For anyone who is curious about B Lab, they would be well advised to by-pass its annoying website, and go straight to a review of B Lab’s 990 Forms.  There, you will find a some interesting information, including the relationships that B Lab has with other entities, such as a controlling (67%) ownership in a for profit entity called B Lab IP LLC, which produced $2.5 million in net income for B Lab in 2013, bringing B Lab’s total revenues to over $7 million.

B Lab’s board and the Advisory Council appear to be dominated by wealthy individuals, and/or those involved in managing venture capital funds, private equity funds, and private foundations.  These are the same funds that package B corporations into their portfolios to help them raise investment funds from the conscientious wealthy investor class.  It is very troublesome to me that the overseers of B Lab benefit financially (albeit indirectly) from B Lab’s primacy.   The lack of truly independent governance and any standards transparency renders B Lab illegitimate as a 3rd party regulator, in my opinion.

B Lab’s website touts the primary benefits of obtaining certification as brand differentiation, generating press, saving money, and being able to attract investors. Also included in this laundry list are tag lines like “protect your mission”  and “lead a movement”.  Why would a 3rd party regulator offer financial incentives to the very companies it is regulating?  It seems unethical.

Apparently, I’m not the only one who thinks so.  Professor Rae Andre’ of the Northeastern University College of Business,  in her research paper entitled Assessing the Accountability of the Benefit Corporation:  Will This New Gray Sector Organization Enhance Corporate Social Responsibility?, concludes “…the emergence of the benefit corporation demonstrates how some companies are determined to control the process by which businesses are held accountable, making them accountable to each other rather than to society.”  She goes on to state: “The research suggests that benefit corporations follow accountability practices that serve particular private interests, and because of this, the probability that they will be responsive to the citizenry as a whole, to society, is low.”

Of the over 1,000 B certified companies listed on B Lab’s website, I easily spotted quite a few that are controlled by private equity and venture capital firms.  Once the exit strategy for the investment has been triggered, many of these companies will be sold to large publicly traded corporations where they will be taken apart and absorbed, or simply shut down.  Employees will lose their jobs, and once vibrant workplaces will go dark.  Companies that cannot be sold because they are unprofitable are sometimes pawned off on inexperienced employees, or simply quietly liquidated.  I wouldn’t call that “beneficial.”

Some legal scholars have begun to weigh in on the troubling legal aspects of B Corporations.  One of these is the myth that under traditional corporate governance laws, corporate managers are not permitted to act in the best interests of the community at large or other stakeholders, and can in fact serve only one god:  the shareholders.  According to the legal experts, this is simply not true.  In fact, many states have adopted “constituency statutes” that expressly permit managers of plain old corporations to consider the interests of other stakeholders.  Apparently, there has never been a single court case in which business directors were held liable for considering non-shareholder interests nor any case that imposed a general duty to maximize profits and short-term shareholder value.  Professor Lynn Stout of Cornell Law School has debunked this myth in her book, The Shareholder Value Myth: How Putting Shareholders First Harms Investors, Corporations, and the Public.

While there are probably many B Certified Corporations that are well-run, are privately or employee-owned, and walk their talk, there is no reason, other than brazen “profit motive” to become B Certified by B Lab.  And that, as Professor André points out, is the height of hypocrisy.  It is also a waste of time, effort, and money that could instead be spent on actually benefiting a company’s stakeholders.

If you are inclined to consider alternative business structures, you could take a look at the Multi-Stakeholder Cooperative business model.  This structure is a modification of the old cooperative model, whose humble origins stem from small farmers banding together to market and distribute their products.  In fact, the landmark Tax Court case which established many of the income tax principles related to cooperatives hails from right here in the Pacific Northwest – Linnton Plywood v. United States.

If you really want to operate your business ethically and mindfully, and to consider the interests of all stakeholders, there is nothing to stop you.  And, no certification is required.

Last Minute Tax “Relief”

Western Snowy Plover

Whew!  I am so relieved to have a full two weeks to do an entire year of tax planning for our clients.  Thank you, Congress.  Nice holiday gift.

2014 Tax Increase Prevention Act

In the recently enacted “Tax Increase Prevention Act of 2014,” Congress has once again extended a package of expired or expiring individual, business, and energy provisions known as “extenders.” The extenders are a varied assortment of more than 50 individual and business tax deductions, tax credits, and other tax-saving laws which have been on the books for years but which technically are temporary because they have a specific end date. Congress has repeatedly temporarily extended the tax breaks for short periods of time (e.g., one or two years), which is why they are referred to as “extenders.” The new legislation generally extends the tax breaks retroactively, most of which expired at the end of 2013, for one year through 2014.

This is an overview of the key tax breaks that were extended by the new law.

Individual extenders

The following provisions which affect individual taxpayers are extended through 2014:

… the $250 above-the-line deduction for teachers and other school professionals for expenses paid or incurred for books, certain supplies, equipment, and supplementary material used by the educator in the classroom;

… the exclusion of up to $2 million ($1 million if married filing separately) of discharged principal residence indebtedness from gross income;

… parity for the exclusions for employer-provided mass transit and parking benefits;

… the deduction for mortgage insurance premiums deductible as qualified residence interest;

… the option to take an itemized deduction for State and local general sales taxes instead of the itemized deduction permitted for State and local income taxes;

… the increased contribution limits and carryforward period for contributions of appreciated real property (including partial interests in real property) for conservation purposes;

… the above-the-line deduction for qualified tuition and related expenses; and

… the provision that permits tax-free distributions to charity from an individual retirement account (IRA) of up to $100,000 per taxpayer per tax year, by taxpayers age 70 and ½ or older.

Business extenders

The following business credits and special rules are generally extended through 2014:

… the research credit;

… the temporary minimum low-income housing tax credit rate for nonfederally subsidized new buildings;

… the military housing allowance exclusion for determining whether a tenant in certain counties is low-income;

… the Indian employment tax credit;

… the new markets tax credit;

… the railroad track maintenance credit;

… the mine rescue team training credit;

… the employer wage credit for activated military reservists;

… the work opportunity tax credit;

… qualified zone academy bond program;

… three-year depreciation for racehorses;

… 15-year straight line cost recovery for qualified leasehold improvements, qualified restaurant buildings and improvements, and qualified retail improvements;

… 7-year recovery period for motorsports entertainment complexes;

… accelerated depreciation for business property on an Indian reservation;

… 50% bonus depreciation (extended before Jan. 1, 2016 for certain longer-lived and transportation assets);

… the election to accelerate alternative minimum tax (AMT) credits in lieu of additional first-year depreciation;

… the enhanced charitable deduction for contributions of food inventory;

… the increase in expensing (up to $500,000 write-off of capital expenditures subject to a gradual reduction once capital expenditures exceed $2,000,000) and an expanded definition of property eligible for expensing;

… the election to expense mine safety equipment;

… special expensing rules for certain film and television productions;

… the deduction allowable with respect to income attributable to domestic production activities in Puerto Rico;

… the exclusion from a tax-exempt organization’s unrelated business taxable income (UBTI) of interest, rent, royalties, and annuities paid to it from a controlled entity;

… the special treatment of certain dividends of regulated investment companies (RICs);

… the definition of RICs as qualified investment entities under the Foreign Investment in Real Property Tax Act;

… exceptions under subpart F for active financing income;

… look-through treatment for payments between related controlled foreign corporations (CFCs) under the foreign personal holding company rules;

… the exclusion of 100% of gain on certain small business stock;

… the basis adjustment to stock of S corporations making charitable contributions of property;

… the reduction in S corporation recognition period for built-in gains tax;

… the empowerment zone tax incentives;

… the American Samoa economic development credit; and

… two provisions dealing with multiemployer defined benefit pension plans (dealing with an automatic extension of amortization periods and shortfall funding method and endangered and critical rules), are extended through 2015.

Energy-related extenders

The following energy provisions are retroactively extended through 2014:

… the credit for nonbusiness energy property;

… the second generation biofuel producer credit (formerly cellulosic biofuels producer tax credit);

… the incentives for biodiesel and renewable diesel;

… the Indian country coal production tax credit;

… the renewable electricity production credit, and the election to claim the energy credit in lieu of the renewable electricity production credit;

… the credit for construction of energy efficient new homes;

… second generation biofuels bonus depreciation;

… the energy efficient commercial buildings deduction;

… the special rule for sale or disposition to implement federal energy regulatory commission (FERC) or State electric restructuring policy for qualified electric utilities;

… the incentives for alternative fuel and alternative fuel mixtures; and

… the alternative fuel vehicle refueling property credit.

Happy Shopping!

IRS Phone Scams and Email Phishing


For many U.S. residents, nothing is more frightening than hearing from the IRS.  We seem to all suffer from an irrational fear that “the government” is going to take our money, our freedom, and maybe even our 1st born child.

Scammers know just how to exploit this fear which is why their scams are so successful.  By playing on your emotions, they can trick even a sophisticated mark.  Here are a few ways to determine if you are being scammed:

  1. You got an email from IRS:  NO YOU DIDN’T!  The IRS DOES NOT EVER use email to communicate with taxpayers.  ANY email purporting to be from IRS is a scam.  The IRS is strictly forbidden from using email to communicate with taxpayers, primarily due to privacy reasons.
  2. You got a phone call from IRS: VERY UNLIKELY!  While the IRS may try to contact you by telephone, this will only occur after you have ignored many, many IRS notices bombarding your mailbox.  ALL initial communications from IRS come via the mail.  Always hang up the call, never respond or give out any information about yourself, and immediately call the Treasury Inspector General to report the call:  1-800-366-4484.
  3. You got a text from IRS: NEVER!  The IRS does not use texting as a form of communication.

If you have been scammed or are worried that the caller has obtained personal information, contact the Federal Trade Commission at FTC.gov and initiate a complaint.  Be sure to save your evidence:  caller id, voice mail messages and email messages so that you can include this in your complaint.  You should also contact law enforcement and notify your CPA firm.

One thing you should always do is open any mail that seems to be from the IRS and respond appropriately.  If you suspect the IRS correspondence is a scam, forward it to your CPA, and if you don’t have a CPA, contact the IRS at 1-800-829-1040.

Here is a link to IRS’ latest phone scam alert:  http://www.irs.gov/uac/Newsroom/IRS-Repeats-Warning-about-Phone-Scams