Accounting
Supreme Court hears case on insurance and estate taxes
In its second case this term
The petitioner, Connelly, argued that the IRS should not include the proceeds of the redemption of a family-owned company’s policy on his brother’s life in their construction firm’s value because that insurance money immediately bought the remaining shares. The IRS collected additional tax of $889,914 from the deceased brother’s estate based on the agency’s view that the proceeds boosted the company’s value. Two lower courts ruled in favor of the IRS.
Most observers
In theory, many tax experts could see how including the insurance proceeds in the company’s valuation “rises to the level of being unfair” to an estate when the policy requires them to be redeemed by purchasing the deceased family members’ shares, said Jose Reynoso, the head of personal financial planning and advance estate and tax for
“It’s really interesting to us as planners and practitioners that the Supreme Court even took it up,” Reynoso said in an interview. “It’s a unique, sort of nichey thing that impacts not too many people.”
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The issue does come up frequently for the owners of closely held businesses who purchase life insurance policies for their largest shareholders, he noted. The IRS valuation of the construction company “would destroy a valuable succession planning tool that the nation’s small businesses have openly used for decades,” the plaintiff’s attorney, Kannon Shanmugam, said at the hearing,
The U.S. Chamber of Commerce and the National Federation of Independent Business Small Business Legal Center
Their apparent siding with the IRS and “tepid reception to the taxpayer estate” was not “entirely surprising” to Frank Paolini, partner with the private wealth services group at the
“While I could make arguments on either side of the case, the taxpayer estate must still contend with the logically glaring issue that a policy covering the life of a key shareholder would have an impact on the fair market value of the shares in any other context,” Paolini said in an email.
“For instance, a hypothetical buyer of the company would ascribe additional value to the shares if the company held a policy on the life of key employees and shareholders,” he continued. “Just because the company must use the policy proceeds to pay the decedent’s family for the shares, the shares are still redeemed, and the value of the purchased equity is returned to the company on redemption,” he said.
“Essentially, the value of the shares must go somewhere when the decedent dies. In the end, the family receives the benefit of the payment from the policy and the company receives the shares back in return, which is presumably equal to the value of the shares purchased from the decedent’s estate. If the court held otherwise, it would seem incongruent with many other areas of estate tax valuation,” Paolini said.
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The plaintiffs held that the government was taking positions that are out of step with the fact that the surviving brother would still be subject to capital gains taxes and rulings in other cases that contradicted the use of the proceeds in a valuation. However, their argument revolved around the notion that “before you can value something, you must first subtract the price paid for the very thing you are trying to value,” U.S. Department of Justice Assistant to the Solicitor General Yaira Dubin told the court.
“A redemption obligation divides the corporate pie among existing shareholders without changing the value of their interests,” Dubin said. “And, here, the corporate pie was worth $6.86 million, not $3.86 million.”
Toward the end of the 54-minute hearing last month, Dubin spoke with the justices about how a cross-insurance agreement between the brothers or a trust structure could enable the taxpayers to avoid having the proceeds go into their corporation’s valuation. The Supreme Court will release decisions in the Moore and Connelly cases by the end of June or early July.
Aprio, a Top 25 Firm based in Atlanta, has acquired JMS Advisory Group, a firm that specializes in unclaimed property compliance and escheat process development, also based in Atlanta
Financial terms of the deal were not disclosed. Aprio ranked No. 24 on Accounting Today’s just released
JMS was founded in 2006 and helps clients mitigate risk and capitalize on opportunities through managed unclaimed property compliance. The team includes attorneys, CPAs, CFEs and others.
JMS has a wide range of clients, including enterprise companies, financial institutions, credit unions, insurance companies, hospitality and health care organizations.
“As Aprio continues its rapid growth, we are committed to expanding our services to meet the evolving needs of our clients,” said Aprio CEO Richard Kopelman in a statement Tuesday. “The addition of JMS gives us the opportunity to continue strengthening our position as a future-focused advisory firm. JMS’s focus on escheat management and asset recovery not only enhances our current capabilities but also allows us to deliver even more impactful solutions to help businesses navigate complex compliance challenges.”
JMS president and CEO James Santivanez is joining Aprio as a partner and provides guidance to clients on unclaimed property and state and local tax issues.
“We created JMS to make an impact nationally in the unclaimed property consulting industry, and I’m proud of our nearly 20-year history of helping clients mitigate risk and capitalize on opportunities resulting from accurate and properly managed unclaimed property compliance,” Santivanez said in a statement. “Joining with Aprio takes us to the next level, allowing us to build upon our success while providing even greater value to our clients. This is an exciting next step in our journey.”
JMS founder and director Sherridan Santivanez is also joining Aprio as a partner. He specializes in representing clients before state enforcement authorities and managing complex audits and voluntary disclosures for some of the world’s largest companies. She provides strategic guidance on audit preparation and navigates interactions with state and third-party auditors.
Aprio received a
The American Institute of CPAs and the National Association of State Boards of Accountancy are asking for comments on their proposal for an additional pathway to CPA licensure through
The AICPA and NASBA proposed the
The UAA changes would:
- Enable states to adopt a third licensure pathway that requires earning a baccalaureate degree with an accounting concentration, completing two years of professional experience as defined by Board rule, and passing the Uniform CPA Examination;
- Shift to an “individual-based” mobility model, which allows CPAs to practice in other states with just one license; and
- Add safe harbor language to ensure CPAs who meet existing licensure requirements preserve practice privileges.
The proposals come as several states are already moving forward with their own changes, including
The updates reflect feedback gathered during a late 2024 exposure draft period and forward-looking solutions being advanced by state CPA societies and boards of accountancy to increase flexibility for licensure candidates while maintaining the integrity of the CPA license.
The AICPA and NASBA are asking for comments on the proposed changes by May 3, 2025. They can be submitted through this
The UAA offers state legislatures and boards of accountancy a national model they can adopt in full or in part to meet the licensure needs of each jurisdiction.
The proposal would maintain the current two pathways to CPA licensure:
- Earning a post baccalaureate degree with an accounting concentration, completing one year of professional experience as defined by Board rule, and passing the CPA exam; and,
- Earning a baccalaureate degree with an accounting concentration, plus an additional 30 semester credit hours , completing one year of professional experience as defined by Board rule, and passing the CPA exam.
Small business employment held steady last month, according to payroll company Paychex, while wage growth continued below 3%
The
“Our employment data continues to show moderate job growth and wage growth below three percent,” said Paychex president and CEO John Gibson in a statement Tuesday. “The consistent long-term trend we’re seeing is a small business labor market that is resilient and stable with little job movement among workers. At the same time, small business owners are optimistic about future business conditions despite uncertainty about how to adapt to a rapidly evolving legislative and regulatory landscape.”
The Midwest remained the top region in the country for the ninth consecutive month with a jobs index level of 100.54. Seven of the 20 states analyzed gained more than one percentage point in February, led by Texas (up 2.11 percentage points).
Phoenix (101.92) increased its rate of small business job growth for the fourth month in a row in February to rank first among the largest U.S. metros.
Construction (3.29%) regained its top spot among industries in terms of hourly earnings growth in February, followed closely by “other services” (3.27%) and manufacturing (3.21%).
The pace of job growth in manufacturing gained 2.39 percentage points to 99.52 in February, the industry’s biggest one-month increase since April 2021.
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