Frequently Asked Questions
From tax advisory services to outsourced accounting services, our collaborative approach brings the best of our firm to you.
Yes. It is essential to discuss accounting systems, budgets, entity structure, and much more with a CPA before starting a business. Without seeking advice from a CPA, you could be making decisions that could end up hurting you financially or legally.
Rubino can provide the following financial statement services:
- Preparation: A preparation is intended for business owners’ use only to manage the business. For financial statement preparation services, Rubino will not verify the accuracy or completeness of the information, and we are not required to issue a formal report on the financial statements.
- Compilation: A compilation is intended for use by outside parties who may appreciate the business’s association with a CPA without requiring a level of assurance on the accuracy of your financial statements. For compilation services, Rubino is required to read the financial statements in light of the financial reporting framework being used and consider whether the financial statements appear appropriate in the form and are free from obvious misstatements.
- Review: A review is intended for use by outside parties with limited assurance on the accuracy of financial statements. A review is appropriate as an organization grows and seeks larger, more complex levels of financing and credit. During a review, Rubino will perform analytical procedures, inquiries, and other procedures to obtain “limited assurance” on the financial statements, and review is intended to provide a user with a level of comfort on their accuracy.
- Audit: An audit is intended to provide outside parties with a higher level of comfort on the accuracy of the financial statements. An audit is typically appropriate and often required when an organization is seeking complex or high levels of financing and credit. In an audit, Rubino is required to obtain an understanding of the organization’s internal control and assess fraud risk. In addition, Rubino is also required to corroborate the amounts and disclosures included in the financial statements by obtaining audit evidence through inquiry, physical inspection, observation, third-party confirmations, examination, analytical procedures, and other procedures.
We recommend keeping all tax returns and support for the income and deductions claimed on those returns for seven years after the date the return was filed.
Nonprofit organizations, and in some cases for-profit organizations, are required to have a Single audit performed under the Uniform Guidance or a Uniform Guidance Audit if they incur Federal expenditures of $1,000,000 (effective 10/01/2024) or more in a fiscal year.
Yes, in certain cases, commercial or for-profit entities may be subject to the audit requirements of the Uniform Guidance. For instance, HHS regulations state the following:
Recipients and subrecipients that are commercial organizations and incur more than $1,000,000 (effective 10/01/2024) of Federal expenditures under have two options regarding audits:
- A financial-related audit (as defined in the Government Auditing Standards, GPO Stock #020-000-00-265-4) of a particular award in accordance with Government Auditing Standards, in those cases where the recipient receives awards under only one HHS program; or, if awards are received under multiple HHS programs, a financial-related audit of all HHS awards in accordance with Government Auditing Standards; or
- An audit that meets the requirements contained in this subpart (45 CFR Part 75.501)
Government Contractors
Answer: The Defense Contract Audit Agency (DCAA) is responsible for auditing Department of Defense (DoD) contracts and ensuring that government contractors comply with federal regulations, particularly the Federal Acquisition Regulation (FAR) and Cost Accounting Standards (CAS).
DCAA compliance is critical for government contractors because failure to adhere to these standards can lead to penalties, loss of contracts, or disqualification from future contract opportunities. DCAA audits focus on verifying the accuracy and allowability of costs charged to government contracts, ensuring that the contractor’s accounting systems can properly segregate direct and indirect costs
Answer: Indirect costs are expenses that cannot be directly attributed to a specific government contract or project but support the overall operation of the business. Common examples include utilities, administrative salaries, and office supplies.
In government contracting, indirect costs are categorized into different pools, such as overhead, general and administrative (G&A), and fringe benefits, which are then allocated to contracts based on a consistent and logical method. Proper management and allocation of indirect costs are essential to ensure compliance with government regulations and avoid under- or overcharging the government.
Answer:
- A fixed-price contract is an agreement where the contractor agrees to deliver a product or service for a set price. The contractor assumes most of the risk because they are responsible for any costs that exceed the agreed-upon price.
- A cost-reimbursement contract, on the other hand, allows the contractor to be reimbursed for allowable, allocable, and reasonable costs associated with fulfilling the contract. However, cost-reimbursement contracts often come with more oversight, including strict auditing and reporting requirements to ensure compliance with FAR and other regulations.
Answer: Allowable costs are expenses that are reasonable, allocable to the contract, and compliant with the specific terms of the contract and FAR Part 31. Common examples of allowable costs include direct labor, materials, subcontractor costs, and indirect costs that support contract performance.
Unallowable costs, on the other hand, are expenses that cannot be billed to the government under any circumstances. Examples include entertainment, lobbying expenses, fines and penalties, and personal expenses. Unallowable costs must be segregated in the contractor’s accounting system to avoid charging them to the government, which can lead to audit findings or penalties.
Answer: A compliant accounting system is critical for government contractors because it ensures that costs are accurately recorded, allocated, and reported in line with FAR and DCAA requirements. A compliant system must:
- Segregate direct and indirect costs.
- Identify and track allowable and unallowable costs.
- Provide timely, accurate financial reports.
- Support audits and other reviews by government agencies.
DCAA audits will evaluate whether a contractor’s accounting system meets these standards. Failure to maintain a compliant system can result in contract delays, disallowance of costs, or loss of government business.
Answer: Incurred Cost Submissions (ICS) are required for government contractors with cost-reimbursement contracts or other types of contracts that require cost data reporting. The ICS details all costs incurred by the contractor during the fiscal year, including direct and indirect costs.
Contractors are required to submit their ICS within six months after the end of their fiscal year. The DCAA reviews these submissions to ensure that the costs billed to the government are allowable, allocable, and reasonable. Failure to submit an accurate and timely ICS can lead to penalties, disallowed costs, or increased scrutiny in future audits.
Answer: Allowable costs are expenses that are reasonable, allocable to the contract, and compliant with the specific terms of the contract and FAR Part 31. Common examples of allowable costs include direct labor, materials, subcontractor costs, and indirect costs that support contract performance.
Unallowable costs, on the other hand, are expenses that cannot be billed to the government under any circumstances. Examples include entertainment, lobbying expenses, fines and penalties, and personal expenses. Unallowable costs must be segregated in the contractor’s accounting system to avoid charging them to the government, which can lead to audit findings or penalties.
Answer: A forward pricing rate is an estimate of future indirect costs that a contractor anticipates over the life of a contract. These rates are typically negotiated with the government in advance of contract performance and are used to establish billing rates for cost-reimbursement contracts.
Accurate forward pricing rates are important because they help both the contractor and the government plan for the financial aspects of contract performance. Therefore, forward pricing rates must be reasonable, realistic, and justifiable.
Answer: A timekeeping system is an essential component of a government contractor’s accounting system because it tracks the hours worked by employees on various projects or contracts. For labor costs to be allowable under government contracts, timekeeping systems must:
- Record time daily.
- Properly allocate labor hours to the appropriate contract or indirect pool.
- Ensure that employees certify the accuracy of their time records.
Inadequate timekeeping systems can lead to audit findings, penalties, or disallowed labor costs. A compliant timekeeping system ensures that labor costs are accurately recorded and allocated, minimizing the risk of noncompliance.
Answer: The Cost Accounting Standards (CAS) are a set of standards designed to ensure uniformity and consistency in cost accounting practices across government contracts. Key CAS requirements include:
- Consistent treatment of costs (CAS 401).
- Allocation of costs based on their beneficial or causal relationship to cost objectives (CAS 403).
- Treatment of direct labor, materials, and indirect costs in a consistent manner (CAS 418).
For contracts exceeding certain thresholds (currently $2 million), compliance with CAS is mandatory. Non-compliance with CAS can lead to penalties, increased scrutiny in audits, and potential contract loss.
Answer: FAR Part 31 governs the principles for determining the allowability, allocability, and reasonableness of costs charged to government contracts. It applies to all contracts, regardless of size, and provides guidelines on allowable and unallowable costs.
Cost Accounting Standards (CAS), on the other hand, are more specific rules that apply to larger contracts. CAS focuses on the methods and practices used to allocate costs, ensuring that costs are consistently treated across all government contracts.
While FAR Part 31 applies universally to government contracts, CAS only applies to contracts that meet specific thresholds. However, both sets of regulations must be adhered to by contractors, and non-compliance can result in serious repercussions.
Answer: Contract closeout is the process of completing all the necessary administrative and financial tasks associated with a government contract once the work is finished. This process includes ensuring that all costs are correctly billed, all deliverables are submitted and accepted, and any remaining payments or adjustments are made.
From an accounting perspective, contractors must ensure that:
- All allowable costs have been billed.
- Final indirect rates are applied.
- Final financial reports and incurred cost submissions are filed.
Failure to properly close out a contract can delay final payments, lead to disallowed costs, or create challenges in future contract negotiations.
Answer: Yes, small businesses can seek help from specialized accounting firms, consultants, and outsourced accounting services that focus on government contracting. Many of these providers have expertise in DCAA compliance, FAR regulations, and CAS requirements, and they can help small businesses navigate the complexities of government contract accounting.
In addition, the Small Business Administration (SBA) and other government organizations offer resources and training programs to help small businesses understand and comply with government contract regulations.
Answer: A compliant accounting system for government contracting should have the following features:
- Ability to segregate direct and indirect costs.
- Support for tracking allowable and unallowable expenses.
- Real-time tracking of project costs.
- Automated timekeeping integration.
- Reporting capabilities that comply with FAR, CAS, and DCAA requirements.
Additionally, the system should be scalable to accommodate the growth of your business and the complexity of future contracts.
International Tax Services
General FAQs:
Answer: International tax compliance refers to the adherence to tax laws and regulations by individuals and multinational businesses in the countries in which they operate, have income, own assets, or have tax obligations.
Answer: Yes, U.S. citizens and Green Card holders must file a U.S. tax return regardless of where they live. The U.S. taxes its citizens on their worldwide income.
Answer:
Foreign income earned by U.S. taxpayers is subject to U.S. taxation. However, taxpayers may be able to reduce their U.S. tax liability through the Foreign Tax Credit (FTC) or Foreign Earned Income Exclusion (FEIE).
Answer:
The FEIE allows U.S. citizens and residents living abroad to exclude a certain amount of their foreign-earned income from U.S. taxes, provided they meet certain requirements.
Corporate/Business FAQs:
Answer:
Businesses can mitigate their risks and financial burdens associated with international operations by leveraging tax treaties to prevent double taxation, claiming foreign tax credits, using international tax structures, and optimizing transfer pricing policies while ensuring compliance with global tax regulations.
Answer:
Transfer pricing regulations govern transactions between related entities of multinational companies to ensure that they are conducted at arm’s length and that profits are properly allocated. These regulations aim to prevent profit shifting and tax avoidance.
Filing and Documentation FAQs:
Answer:
There are myriads of foreign reporting and/or disclosure forms to report on when US taxpayers have interest in foreign assets or accounts. Depending on the type of foreign asset and ownership interest there may be filing requirement as described below.
- FBAR (Foreign Bank Account Report): A United States person that has a financial interest in or signature authority over foreign financial accounts must file an FinCEN Report 114, FBAR, if the aggregate value of the foreign financial accounts exceeds $10,000 at any time during the calendar year.
- Form 8938 (Statement of Specified Foreign Financial Assets): This form must be filed if you own foreign financial assets exceeding certain thresholds. The thresholds vary based on your filing status and whether you live in the U.S. or outside.
It’s important to note that you may need to file both forms depending on your specific situation.
- Other forms and reporting requirements: U.S. taxpayers with ownership/interest in foreign corporations, partnerships, or trusts, including family-owned businesses, and/or having foreign investments, like mutual funds personal retirement accounts, insurance policies and pension accounts, are subject to additional reporting obligations on their U.S. tax returns.
These may include reporting and filing Form 5471 for ownership in foreign corporations or Form 3520 for foreign trust interests.
Answer: The Foreign Account Tax Compliance Act (FATCA) requires U.S. taxpayers to report foreign financial assets if they exceed certain thresholds. It also requires foreign financial institutions to report accounts held by U.S. taxpayers.
Tax Treaty FAQs:
Answer: A tax treaty is a bilateral international agreement between two countries intended to prevent double taxation and to establish rules for taxation in cross-border situations. Residents of certain countries may be entitled to reduced tax rates or exemption from income tax withholding under a tax treaty between their country and the U.S.
Answer: Tax treaties significantly impact your tax filing by providing various benefits and clarifying tax obligations for individuals and businesses with international income. These agreements between the U.S. and other countries aim to prevent double taxation and offer tax advantages.
Many of the individual states of the United States tax the income of their residents. Some states honor the provisions of U.S. tax treaties, and some states do not. Therefore, you should consult the tax authorities of the state in which you live to determine the tax treaty benefits are applicable in your case.
Expatriation and Residency FAQs:
Answer: Renouncing U.S. citizenship has several significant tax implications and includes being subject to an exit tax if you meet certain criteria. You will also have to file a final U.S. tax return Form 8854 for the year of renunciation, covering the period up to your renunciation date. You must be fully tax compliant for the five years preceding renunciation, including filing all required U.S. tax returns and paying any outstanding tax debts. It’s crucial to carefully consider these implications and ensure full tax compliance before proceeding with renunciation.
Answer:
Residency for tax purposes is determined by several factors, primarily focusing on an individual’s physical presence and intentions. The two main tests used to determine tax residency are the Green Card test and the Substantial Presence Test.
For state tax residency, the rules can vary, but generally most states consider you a resident if you spend 183 days or more in that state and have a permanent place of abode there.
Cross-Border Tax Planning FAQs:
Answer: You can minimize your tax liability through strategic planning, such as leveraging tax treaties, claiming foreign tax credits, using international tax structures, optimizing transfer pricing policies and taking advantage of foreign earned income exclusion. Remember that while these strategies can help minimize tax liability, it’s crucial to ensure compliance with all applicable laws and regulations.
including filing all required U.S. tax returns and paying any outstanding tax debts. It’s crucial to carefully consider these implications and ensure full tax compliance before proceeding with renunciation.
Answer: Yes, generally you can either deduct foreign income taxes paid as an itemized deduction or claim them as a Foreign Tax Credit (FTC) to reduce your U.S. tax liability. Not all foreign taxes can be deducted on a U.S. tax return. While taxpayers have the option to deduct certain foreign taxes, there are specific limitations and exclusions to be aware of.
Estate and Gift Tax FAQs:
Answer: All worldwide assets are included in your estate if you are a U.S. citizen or resident for estate tax purposes. Non-residents are taxed only on U.S.-situs assets.
Answer: Yes, U.S. taxpayers must report foreign gifts exceeding certain thresholds using Form 3520.
Compliance and Penalty FAQs:
Answer: Penalties can be severe for failing to file forms such as FBAR, FATCA, or Form 5471. Penalties range from monetary fines to criminal charges.
Answer:
Yes, you can correct past mistakes or omissions through voluntary disclosure programs, such as the Streamlined Filing Compliance Procedures.
Consult with international tax experts to develop a comprehensive tax planning strategy tailored to your specific situation.
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Rubino's Webinar: Total Time Accounting: Exploring Compliance Through Time-Keeping Methods
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