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The day of reckoning for financial institutions is upon us.  On Friday, June 16, 2016, the FASB issued the most substantial change to financial institution accounting in many years.  There has been a high volume of chatter, discussion, hand wringing and push-back form the financial institution community on the proposed CECL Standard.  Now that the standard is final, what are the next steps for financial institutions?  Financial institutions should form a CECL Implementation Committee (if not already done), analyze the standard, accumulate loan level data and begin the early stages of formulating a model for the calculation.   

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I came across this article with real-life examples a day before seeing Eastern Bank's retiring CEO appear in a TV commercial about the impact of data breaches and identity theft on community banks and their customers.  The timing is not coincidental: smaller banks are struggling to keep up with the technology needed to stay one step ahead of cybercrime, and criminals recognize easy targets when they see them.  Although industry groups have formed a united front against cybercrime, community banks are still less likely to have the sophisticated tools to prevent and react to it, and more likely to have customers who may be slow to recognize and mitigate a breach.  As a result, community banks represent the best possible scenario for hackers. Read full atricle here >>
 

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Regulatory agencies have clarified the expectations for the use of evaluations instead of appraisals to estimate a property's market value for certain real estate related transactions.  That being said, the evaluation preparer should be knowledgeable, competent and independent of the loan production function of the Institution.  Although there are no strict guidelines on how evaluations should be prepared, an institution should establish internal policies and procedures that specify the information that is required to prepare an evaluation. Lastly, regardless of the methodology used or approach taken in preparing the evaluation, it should contain sufficient and understandable information to support the market value and the Institution's ultimate decision of whether or not to engage in the real estate transaction. 

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Tier 1 Capital and Collateralized Debt Obligations Backed by Trust Preferred Securities  

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As community bankers to find the most effective and efficient way to communicate with and attract Millennial customers today and in the future, social media continues to forge to the forefront.  Take a look around the next time you are at a restaurant or the train on your way to work and see how many people have his or her head buried in his or her phone.  Social media is the way Millennials communicate today and it will be the way people communicate for generations. In this regard, community banking institutions need to focus on using social media to communicate with and attract Millennials, while also maintaining prudent risk and compliance management.  For more information or assistance please contact James Dowling, Manager, and member of Marcum's Financial Institutions Industry Group. 

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Many of our clients serve as trustees or executors and should be aware of certain elections that may be available to them. This is especially true now, as there are elections that need to be made by March 7 of this year.

The first election to consider is the 65-day rule election (IRS Section 663(b)) which states that a trustee or executor may elect to treat any distributions made during the first 65 days of the year as being made on the last day of the preceding calendar year (or fiscal year if the entity is an estate). This election gives the trustee or executor an opportunity to allocate distributions to a beneficiary who may be in a lower tax bracket than that for a trust. This is useful, as complex trusts and estates are taxed at the highest marginal rate beginning +at a lower threshold than for individuals (starting at $12,300).This also allows proper planning for the 3.8% net investment income tax which is also taxed at a higher threshold for individuals as compared to trusts and estates. 

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The Internal Revenue Service has issued new temporary regulations and proposed regulations providing that where a partnership owns 100% of the interests of a disregarded entity, a partner of the partnership cannot be treated as an employee of the disregarded entity. The Service believes that this is a clarification of the current rules. Additionally, the Service is requesting comments discussing situations where it would be appropriate to treat a partner performing such service for the disregarded entity or the partnership itself as an employee.

The question of whether a partner can be treated as an employee of his or her partnership has been an ongoing issue. Some partners prefer to be subject to regular income tax and payroll tax withholding as an employee to assure that these funds are turned over to the IRS and state tax authorities. They are concerned that they will not budget appropriately to pay quarterly estimated taxes. Others recognize that payroll taxes of employees are borne by both the employer and employee while self-employment taxes on partnership earnings are the sole responsibility of the partner. Many employees who receive equity interests in partnerships as an incentive are surprised to find that they may be required to be treated as partners and no longer receive a Form W-2 and may no longer qualify for certain tax-free employee fringe benefits. 

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The Financial Accounting Standards Board ("FASB") is considering a new loan-loss reserve model, which would require banks to set up an allowance for estimated losses at loan origination instead of when default is considered probable. Although this new Current Expected Credit Loss ("CECL") model has instilled some fear in community bankers as a result of the potential complex and costly reserve analysis it may bring, it is evident that concerns from bankers are being heard and considered by the FASB before any final decisions or mandates are made. Although many bankers left a February 2016 meeting with the FASB impressed by the teamwork of the FASB and bank regulators, and were also in agreement with the theory behind the change, some bankers left the meeting disgruntled when discussion of community banks' responsibility for the financial crisis was discussed. 

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In case taxpayers didn't already have enough reasons to keep current with their tax obligations, the Fixing America's Surface Transportation Act (FAST Act), signed into law in December, has added one more. This law contains a provision adding a new section to the Internal Revenue Code (Section 7345) which empowers the IRS and the Secretary of State with the ability to limit, deny, or revoke a seriously delinquent taxpayer's passport.

A "seriously delinquent" taxpayer is defined by the Act as someone who owes the IRS more than $50,000 in assessed taxes, interest, and penalties. However, even if taxpayers meet this definition, they would not be considered delinquent in any of the following cases:  

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On April 1st CMS launched the mandatory Comprehensive Care for Joint Replacement (CJR) program with a bundled payment model for health care costs for the procedure and 90 days after discharge. Earlier CMS alternative payment model programs were voluntary but this program places about 800 hospitals in 67 markets at financial risk if they do not reach Medicare's cost and quality targets for hip and knee replacements.

The Medicare Access and CHIP Reauthorization Act of 2015 (MACRA) allows CMS to create alternative payment mechanisms such as the CJ are and require hospitals and doctors to accept financial risk. 

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