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My Autobiography as a CPA

May 29, 2018

Ed's Book CoverOver the past four years I have been writing a short autobiographical column about my experiences as an accountant, what I have learned and how I applied them in my practice and with clients. These have been posted on Accounting Today web edition and here is a link to many recent columns

Rick Telberg of CPA Trendlines asked me if he could publish the columns which he felt would include a wide body of knowledge in an easily accessible book. How could I deny him this pleasure…..As a result there is a 400+ page book with the first three year’s columns. It’s title is Call Me Before You Do Anything and enjoyed reliving these circumstances as I wrote each column. I have been truly fortunate to enjoy working in this fine profession with great partners, bright staff and clients that are the smartest people on earth – entrepreneurs and corporate executives and directors, and managers of not-for-profit organizations.

While my experiences were as an accountant, most of what I encountered can apply to anyone in business or in a managerial position. You don’t need to be an accountant to manage staff, get new business, satisfy clients and customers and provide exceptional service and value, develop a brand and emphasize your USP (Unique Selling Proposition) and promote your business, or to deal with pricing your services and collecting what is owed to you. You can access much of what I wrote for free at the above link. However, you can also buy the book and have it near you at all times to flip through to find a solution to a current problem that I might have had quite some time ago and worked out in an effective way that I shared in a column.

I have to admit that I really like what I wrote and hope you can share, relate and benefit from my experiences.

If you want to buy the book, here is a link and if you claim an EdSentMe coupon code you will get a 25% discount. The code is also good for any other book published by CPA Trendlines.

Here is a takeaway for you based on my experience (to make this blog useful besides being a “commercial” for my book). Throughout my years of practice I realized that the most successful accountants are not the smartest, or those who had the highest GPA in college, or the best organized, although many very successful accountants are all three. The most successful are the ones that remembered what they worked on if and when the situation reoccurred; know experts to go to when confronted with complicated issues; meet deadline commitments; are fully accessible to their staff and clients; are clear about their pricing policies; and are able to train staff to get the right work done the right way at the right time. Oh yeah – they also look for every opportunity to learn new things, and are obsessive about systems and procedures and creating value for their clients. Consider if you meet all of these “success” attributes and if not, then start doing so.

Selling Unwanted Life Insurance Policies

May 24, 2018

Last week a friend told me he was going to let his term life insurance policy lapse since he felt he no longer need it. This led to a discussion of how he could sell it to an institutional investor and receive a very nice check for it. Here is what I was talking about.

Selling a life insurance policy is a transaction called “a life settlement.” This is where the owner of an unwanted life insurance policy transfers ownership and beneficiary rights to an institutional investment fund. In exchange for transferring ownership, the owner receives a cash settlement that can be much greater than the cash surrender value or more than you might believe possible if it is a term policy. A life settlement is a one-time cash transaction. Policies with as little as a $100,000 death benefit can be sold in this manner, although I’ve known of transactions for policies over $35 million being sold.

Many people that no longer want to maintain a policy terminate the policy and take the cash value, if there is any; or let the cash value run out until the policy is terminated. If they have term life policies with no cash value they are simply terminated for nonpayment of premiums. In any event, the insurer never pays a death benefit, an advantage the insurance industry has come to rely on.

Common Reasons for Pursuing a Life Settlement: There is a variety of motivating factors for seniors who sell their policies, some of which include the following:

  • No longer a need for the insurance originally bought for a spouse to rely on the funds.
  • Spouse or beneficiaries have passed away.
  • Spouse that was beneficiary is divorced from insured.
  • Children have attained their financial independence.
  • Insured has “outlived” the policy and cash value is as much as the coverage.
  • Premiums are no longer affordable.
  • Financial assistance is needed to pay for medical bills.
  • Funds are needed for long-term care.
  • A family business is sold or the owner retires and key person insurance is no longer needed.
  • The business loan that the policy was obtained to provided added comfort to the lender has been paid.
  • Cash is needed to pay off debt.
  • Funds are needed for retirement or lifestyle enhancement.
  • Getting cash that can be used for gifts to family members or to make an unusual purchase such as a vacation home.

When a decision is made not to keep a policy, a life settlement should be considered. For existing term policies, the policy must be within the guaranteed convertibility period in order to qualify for a life settlement option. In those cases the policy will be converted to a permanent policy and paid for by the institutional investor. All permanent life insurance policies may qualify and would need to be analyzed to determine eligibility. Many policies that appear not to be convertible are. Always check it out.

How life settlement proceeds are taxed: The general treatment is that the amount received to the extent of cost basis is tax free; amounts above basis up to the cash surrender value in the policy is treated as ordinary income; and anything above the cash surrender value would be taxed as capital gains.

Conclusion: A life settlement can be an extremely viable option to keep in mind to consider when you no longer need the insurance coverage. We strongly recommend consulting with your insurance, tax or financial advisor should you find yourself with an unwanted life insurance policy. There is no downside to finding out what can be done.

The above was written with the assistance of Richard Machado, CFP® who can be reached at You can also contact me for additional information at

Ed Mendlowitz

13 Tips for a Resilient Not-for-Profit Board

May 22, 2018

This blog was written by Brad Caruso, CPA and Withum Partner and my go-to person for Not-For-Profit issues.

Being a member of the governing body of a not-for-profit is a prestigious honor. One joins a board for various reasons – they believe in the charitable mission and the worthy cause the organization fights for, to bring expertise to the board or to act as a liaison for another organization or public body.

In that light, however, one cannot overlook the fiduciary responsibility and due care required by every governing body member. A governing body member is responsible for overseeing compliance and transparency of the financial information to the public, providing effective governance, financial oversight and fundraising among other things. A board member needs to understand how to achieve these goals in order to be effective.

As an example of what can go wrong if a governing body does not exercise appropriate responsibility, one can look to the headlines and news stories that are increasing with unseemly frequency. Some such deviations from sound governance indicate disclosures of some executive directors and financial officers engaging in wasteful and abusive spending practices; issuing unauthorized payroll checks, bonuses or salary advances; maintaining brokerage or bank accounts with unauthorized trades or transactions; ignoring formal bidding procedures for contracts; making no-interest loans or distributing large sums to another not-for-profit or community organization without proper authorization and which was operated by a trustee of the entity issuing the loan; and failing to follow procedures concerning reimbursement of expenses.

When such defalcations are uncovered or even when an investigation starts those on the governing body can come under fire and could even face legal consequences. The bottom line causes are inadequate governing body oversight and poor exercise of fiduciary responsibility.

In order to safeguard the organization, the governing body member, or sub-committees of the governing body, should consider the following:

    1. A strong system of written internal controls is required. Review and approval annually by the oversight group is also a strong practice.
    2. A sub-committee structure whereby individuals with different expertise on the board oversee different areas is a strong mechanism for oversight.
    3. Significant transactions and contracts carry additional risk and should have an ancillary layer of review outside of the Executive Director, namely, by a governing body member, and contractual obligations may require full board approval.
    4. The 501(c)(3) exemption is conditioned on the organization being one “of which no part of the net income inures to the benefit of any private shareholder or individual.” A strong conflict of interest policy should be in place and enforced to identify related party transactions and instances where private inurement arises. A written statement from members on conflicts or lack thereof from management and the governing body can accomplish this task with annual attestations required to ensure compliance with this policy for a board member and key employees.
    5. NFP accounting nuances exist, including additional layers of disclosure as well as differences in the treatment of revenue as compared to for-profit accounting. Be careful when reviewing not-for-profit financial statements to consider the unique operating metrics of NFPs.
    6. Revenue generated from activities which are outside of the organization’s charitable mission may be subject to income tax. Performing too many unrelated tasks could lead to loss of tax exemption. The governing body should verify that management or a third party consultant are evaluating each revenue stream for potential Unrelated Business Income issues.
    7. Non-filing of the 990 tax return for three consecutive years will lead to loss of tax-exempt status. The governing body is required to be a part of the review and filing process as well as for overall compliance with the filing requirements. The 990 is also a great marketing tool for contributions so governing body involvement is key.
    8. Annual discussion of agency-wide risk and threats to the organization, including evaluating internal controls, legal and compliance risk, reputation risk, operational risk and other significant risks to the organization is strongly suggested. The governing body should maintain written notation of the risk assessment performed.
    9. Compliance with all federal, state and local laws, including payroll and income tax liability is required and governing body members can be held liable personally for lack of compliance. The governing body should verify management is handling these matters.
    10. Grant contracts and donor contributions are complex and the organization needs to monitor these agreements closely and carefully to ensure compliance. In today’s environment, states and local governments are trying to cut, not increase, their budgets – the first place they look are organizations with habitual non-compliance.
    11. Executive Compensation must meet the IRS criteria of “rebuttable presumption of reasonableness” which means there must exist a formal process to determine and evaluate officer compensation – the process must be written and based on an analysis of comparable data. This documentation generally occurs at the governing body level and should be performed annually.
    12. Meeting minutes must be written and contain information concerning significant actions of the board as well as sub-committees of the board. The minutes should be approved by the governing body members by vote.
    13. If the organization has an endowment fund, each state generally has laws for the prudent management over the endowment and the investments. For example, in New Jersey, not-for-profits must follow the “UPMIFA” laws as well as specific contract laws associated to the agreements establishing the funds, unless the donor instructions include details on how the funds are to be maintained. An investment committee of the governing body generally oversees the management of endowment funds and establishes an investment policy.

Although governing body positions are generally held by volunteers, it is important to remember that being a member of the governing body of a not-for-profit requires due care, strong oversight and exercising of fiduciary responsibility.

If you have any questions about the above or a NFP board you are on, you are welcome to contact me at or Brad Caruso at

David Rockefeller’s Art Collection

May 17, 2018

Last week David Rockefeller’s art collection realized over $825 million at auction. The proceeds will be distributed to about a dozen of his favorite charities.

Rockefeller was the last surviving grandson of John D. Rockefeller and was the son of John D. Rockefeller, Jr. During his lifetime he donated selected art to museums and some years ago he sold a painting at auction intending to donate the proceeds to a museum. Well, after he saw the tax bite, he decided that any sales during his lifetime made no sense. The federal taxes are 28% on capital gains of collectibles which category art falls in. He also got hit for the added 3.8% net investment income tax and NYS and NYC income taxes. By having his estate sell the art, there would be no income or capital gains taxes, nor would there be any estate taxes as bequests to charities are deductible from the taxable estate. He also reasoned that the cash starved museums would appreciate the cash more that some additional paintings.

Many people donate collectibles to charitable organizations that immediately sell it to get the proceeds. What is not widely known by many contributors is that when the art is sold within three years the tax deduction is limited to their basis, which for most people is their cost. The deduction will be allowed at the fair market value on the date of the gift provided the charity retains the item and uses it in connection with its charitable activities. An example is where a painting is donated to a museum that cost the donor $2,000 but is valued at $100,000 at the time of donation, the donor would be entitled to a $100,000 tax deduction if it is retained in the museum’s collection. If it is sold within three years, the deduction will be limited to $2,000 regardless of the proceeds the museum receives. Further, all such donations of individual items valued over $5,000 must have a certified appraisal and adhere to strict compliance rules. A tax professional should always be consulted with before any such donations are made.

Successful bidders at the auction for David Rockefeller’s collection would not be entitled to any charitable deduction since the proceeds went to his estate which will disburse the funds to the charities. In cases where the charity conducts the auction and receives the proceeds, a tax deduction would be available for any excess over the fair market value that is paid. For example, a painting appraised with a $75,000 fair market value (FMV) that is sold for $90,000 would permit the winning bidder to take a $15,000 tax deduction, subject to how they file their taxes. However, any sales tax paid would not be added to the tax deduction. Note that the $75,000 paid would be a quid pro quo benefit the buyer received. Comment: If there is an appreciation in the value due to a time gap between the date of the gift to the charity and sale at auction, then the quid pro quo benefit might be the entire amount paid and there would be no charitable deduction for the purchaser. If you believe this might be the situation, then the FMV should be ascertained before you enter any bids.

Donating to charities is admirable but anything other than cash is fraught with minefields. Once you decide what you want to do, meet with a tax professional to determine the way to proceed.

Brian Lovett, CPA, JD and Withum Partner assisted in the preparation of this blog.

Investing Cliché of the Week

May 15, 2018

Investment analysts, financial writes, television and radio commentators and fund managers need to introduce change. Without change, the impression of their value would dissipate at best or disappear at worst. The best way change seems to be introduced is with an acronym or cliché. This method must work because it is continuously being done and the revenues for such sage advice keep rolling in.

Let’s get real. For most people the purpose of investing is to provide for specific goals or overall financial security. This security comes in two ways. Having sufficient 1) assets or 2) cash flow. Nothing else really matters. If you are investing to accumulate a certain amount of assets at a specific time such as to pay children’s college costs, start a business, buy a house or vacation home, or take a major trip you would invest one way. If you are investing to accumulate sufficient assets to provide necessary cash flow at a later period, such as when you retire or to be able to retire early or start a new career, you would invest another way. I see no other purpose of investing. If you want to make a killing or amass wealth beyond imagination, that is not investing but trading or speculating; and, in my opinion, the average person concerned about attaining their goals should stay away from this and stick to achieving their goals.

I suggest ignoring the clichés and doing the following. Note this is not new from me, I have been saying this for years and it can be found in many of my previous blogs, and it is still the right advice!

  1. Determine your goals
  2. Set aside your “rainy day” funds
  3. Pay off ASAP any credit card debt and certainly do not add to it
  4. If you have a short term goal, i.e. less than 7 years, stay out of the stock market. Stick to bank certificates of deposit, fixed annuities or corporate bonds
  5. If your goal is to have sufficient cash flow that will last you for the rest of your life after you retire, then you should invest in well-diversified stock funds, particularly index or exchange traded funds.
  6. Depending upon when you start, you might not be able to accumulate a sufficient stock account to provide the needed cash flow, then you should put as much as necessary in longer term bonds so that reasonable projections will indicate that you will attain your cash flow goal. Once that is assured, then any new investments should be in the stock market
  7. If you still will not attain your cash flow goals, then, when you reach your retirement point, you should consider an immediate annuity for up to 20% of your investments or a reverse mortgage. Note that these are only to be used if you fall short of your goals and not for any other purpose
  8. In determining the cash flow you need from your investments, you will need to consider Social Security and retirement account balances that you will have at that time
  9. Part of your cash flow projections can include withdrawing some principal. How much will depend on your age and the current dividends and interest from the investments
  10. Another factor if it appears you will fall short is to reduce spending, or to get a part time job, or to start reducing your spending prior to retirement
  11. If your goals do not include using your tax sheltered retirement accounts prior to retirement, then these should be fully invested in the stock market, again in well diversified funds
  12. Keep in mind that whatever age you retire at is not the point when your investment should change. Your investments have to last you the rest of your life which can be decades after retirement. You need a long view, not a near term perspective
  13. My definition of retirement: When you stop working and stop receiving your salary from your full time job, or business

This is a step by step model of what to consider. Each person is different and while I believe this is an excellent guide, only you [and your advisor if you consult with one] can apply it to your individual situation. Good luck!

I noticed I listed 13 steps to follow. I also posted a related blog on February 20, 2014 with 13 steps. 13 must be a lucky number. Check that out too. Here is a link.

Ed Mendlowitz

Lying is Not a Sustainable Strategy

May 10, 2018

The explosion of lies by public officials is unbelievable. Its proliferation is completely unacceptable for a civilized people, yet it has become acceptable and is now considered business as usual. I don’t have any answer except that we need to call to account every instance of this shameful behavior and if not publicly then at least to keep it in our minds to be considered if we ever have a chance to act on this knowledge.

I included a chapter on this in my Power Bites book and want to post that chapter here. This is Chapter 18 in my short book of 48 chapters.

Never Lie

Your boss shows you her newly designed corporate logo that cost $182,000 to produce and asks your opinion about what you think of it. You really think it stinks. What do you say?

Your reputation is the most valuable thing you have when you deal with people. Building that reputation takes a lifetime. One false step can shatter it. You must protect it with everything you have. One fib, one falsehood, one sentence less than the complete truth in a volume of remarks, one slip, however unconscious, can doom that reputation. Scrupulously guard your reputation. Never lie!

Telling your boss that you think the new logo is very, very, very interesting is a fine way of getting out of what could be a very embarrassing situation—and is a factually correct statement! Perhaps the blunt truth is more appropriate—as long as it is said in private and framed as your “uninformed” opinion.

There is a credibility threshold for most people and things. At some point, if it is crossed, you can’t get it back. This applies to governments and its leaders, parents and children, and in business situations. If you cross that threshold, you lose respect for yourself, for your company or organization, and for what you are trying to accomplish. If you have credibility, you don’t have to be well liked to get your points across. If you don’t have credibility, you can never be well liked, and you will never get your points across. You cross the threshold when you lie or hide or cover up the truth!

Someone lied to me when I was fourteen years old, and I never forgot it. A large and well-known stamp dealer offered, at a special guaranteed price if he received payment in advance, a set of stamps honoring the marriage of Grace Kelly to Prince Rainier. When the set was issued, he did not honor the price. I received a letter telling me the price would be higher. I don’t remember what I did, but I remembered that the stamp dealer lied in his advertisements, and I never bought from him again. He claimed a reputation for integrity. I know differently!

Reprinted from Power Bites: Short and to the Point Management, Leadership and Lifestyle Advice I Give My Clients! by Edward Mendlowitz, CPA ©2010. Available for sale at and

Additional services from your tax professional

May 8, 2018

Tax season is over and within a few weeks your tax preparer will have returned from their vacation. Now is a good time to think about additional services you could use them for. Here is a “short” listing to get you started with the thinking process..

  1. Estate planning
  2. Inheritance advice and guidance
  3. Succession planning
  4. Personal financial planning
  5. Investment allocation construction
  6. Investment management
  7. Investment clubs
  8. Elder care assurance services
  9. Business performance measurement services
  10. QuickBooks® training and consulting
  11. Outsource business and back office services
  12. Outsourced CFO services
  13. Outsourced corporate tax preparation – income taxes, executive tax preparation, sales taxes, state registrations
  14. Second opinions
  15. Business valuations
  16. Retirement planning and counseling
  17. Pension planning
  18. IRA distribution analysis
  19. IRS tax audit protection service
  20. Conflict resolution
  21. Single couples living together planning
  22. Second marriage assistance
  23. Pre-nuptial agreement analysis
  24. Divorce settlement planning
  25. Conflict resolution
  26. Buying and selling a business assistance
  27. Starting a business
  28. Buying a franchise
  29. Entering a partnership
  30. Getting stock in a corporation
  31. Receiving stock options
  32. Projecting financial aspects of proposed actions
  33. Basis calculations for pass through activities
  34. Employment contract negotiations
  35. Executive compensation review
  36. Downsize structuring
  37. Business downturn or winding down consulting
  38. Corporate management and financial planning training
  39. Industry specific tax and business advisory services
  40. Structuring partnership and buy sell agreements

Many accountants have expertise beyond tax preparation. You should take advantage of the existing relationship and database of knowledge the accountant has about you and your affairs and inquire about what you might need and any charges and how an initial consultation would work.