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CPA Advocate February 2020

by MICPA | Feb 07, 2020   ()

Partnership Audit Legislation
Michigan piggybacks the federal definition of federal taxable income and adjusted gross income for individuals and corporations. Historically, the IRS would assess partnerships and LLCs for audit changes at the partner level so any IRS changes would flow to the individual or corporate partners and be reported to Michigan under the provisions of our current law. However, beginning in 2020, the IRS will now audit and assess partnerships and LLCs at the entity level, and our state law doesn’t contemplate IRS audit changes that aren’t pushed down to the partner level. The Multi-State Tax Commission (MTC) has developed a model act that makes the changes necessary for states to apply IRS audit changes to partnerships and LLCs operating in the state. The AICPA and Council on State Taxation (COST) are working with states to adopt these changes. Without enacting the proposed model act, it will not be clear how IRS audit changes are treated at the partner level in Michigan.

The MICPA is working with the Michigan Chamber of Commerce, Department of Treasury and the Senate Finance Chair Jim Runestad (R – Whitelake) to introduce legislation to incorporate these changes into Michigan’s revenue act.

Non-Compliance with Rules and Regulations (NOCLAR)
As of early 2017, the AICPA merged with CIMA and formed a joint international organization to broaden the reach of the CPA profession. AICPA members have traditionally only been required to adhere to the AICPA code of professional conduct and the laws and rules of their state. CIMA members similarly are required to adhere to the International Ethics Standards Board for Accountants (IESBA) standards. The AICPA code of professional conduct conflicts with the IESBA code of conduct regarding noncompliance with laws and regulations (NOCLAR).

IESBA’s standard states if a CPA comes across a noncompliance with laws and regulations, they are required to report it to a third party. This directly conflicts with the CPA-client privilege, which says that if you believe a client has committed a crime, you may report it. Incorporating IESBA’s standards would make reporting the findings to a third party mandatory. This new standard would pose a significant risk for CPAs not currently required to report NOCLAR.

The MICPA is working closely with the National Association of State Boards of Accountancy (NASBA) and the AICPA and will communicate the implications of any potential changes to our members.

Marijuana Guidance
The MICPA has been working with the Marijuana Regulatory Agency (MRA) to ensure that CPAs and members who are engaging in the industry have appropriate resources and guidance and understand the requirements including independence, competency and peer review if providing an opinion on behalf of a client.

The initial application for licensure includes an attestation requirement; MICPA members worked closely with the MRA to determine what level of service was expected of CPAs. The renewal of licenses also requires an attestation on a form prescribed by the department. The MICPA workgroup, comprised of members of some of the larger firms engaging in the industry with experience working on attestation standards, met with the department to define what that process looks like.

On December 5, the MICPA hosted more than 100 industry experts and members at our first Cannabis Summit. The event kicked off with a networking breakfast and provided attendees with critical industry information.

Changes to the Administrative Rules
The Department of Licensing and Regulatory Affairs (LARA) promulgated new Accountancy Rules in January of 2019. Shortly after, some concerns were brought to the attention of the MICPA and we are working closely with LARA on the development of a new ruleset, which is now in the drafting process.

Changes to the administrative rules will include the removal of self-study caps on Ethics and Accounting & Auditing CPE credit. A licensee will only be allowed to earn 50% (20 hours) of CPE in one continuing education period via self-study, but those hours can be in any of the three categories of CPE.

The other change in the administrative rules will be the removal of testing windows in Michigan. The AICPA and the National Association of State Boards of Accountancy (NASBA) have agreed to move away from testing windows to pursue a continuous testing model. This will allow CPA candidates to retake sections of the exam in the same testing window as opposed to waiting until the following window. CPA candidates will still need to pass all sections of the exam in an 18-month rolling window. In order to make this possible in our state, Michigan must remove testing windows from the administrative rules.

These changes are currently in the drafting process and will be promulgated by LARA once complete. The MICPA will communicate with members when the changes are in effect.

Small Business Reform Legislation
A package of legislation known as Entrepreneurship Led Economic Development (ELED) was introduced earlier this year to make Michigan more friendly to small business owners. The goal of the package is to remove barriers for entrepreneurs and provide them with the resources to navigate state government when starting businesses in our state.

The package includes legislation that would create a Small Business Acceleration Board within the Michigan Economic Development Corporation (MEDC). The Board would look at barriers to entry and growth for small businesses and address those barriers at the state level. The package would also create a Virtual Business Roadmap. This program would serve as a resource for small business owners who have questions such as how to apply for the licensure, what the rules and regulations for their industry are, and assist with state compliance issues.

Small business owners spend valuable time and resources trying to stay in compliance with state regulations. Providing entrepreneurs with a conduit to navigate through the various departments and requirements will allow them to focus on the growth of their business. The MICPA is in support of this legislation as many of our members and their clients will directly benefit from this resource.

Wayfair Legislation
Legislation was passed in response to the Supreme Court’s Wayfair v. South Dakota ruling, the package of bills was sent to Governor Whitmer for signature on December 10, 2019. The legislation amends the Sales Tax Act and the Use Tax Act to subject marketplace facilitators to Michigan sales and use tax.

Under this legislation, a marketplace facilitator, which includes companies such as Amazon and E-Bay, is required to remit sales tax for all sales made by the facilitator or on behalf of marketplace sellers to a purchaser in this state regardless of the seller’s physical presence in the state. A seller will be considered to have engaged in the business of making sales in Michigan if they have gross receipts from sales in Michigan that exceed $100,000 or if they had 200 or more separate transactions into the state in the previous calendar year. The bill package specifies that the law will apply to transactions occurring on or after October 1, 2018.

A marketplace facilitator is defined as a person who facilitates a retail sale by a marketplace seller by listing or advertising for sale by a marketplace seller in a marketplace, tangible personal property and either directly or indirectly through agreements or arrangements with third parties or its affiliates collecting payment from the customer and transmitting that payment to the marketplace seller for consideration. A marketplace facilitator does not include a person who operates a platform or forum that provides internet, print, electronic, or any other form of advertising services. A marketplace seller is a person making retail sales through a physical or electronic marketplace operated by a marketplace facilitator.

It is projected that this legislation will increase state sales and use revenue by $90 million per fiscal year with full compliance.

Source: MICPA
Source: MICPA

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