We are pleased to release MaloneBailey's February 2019 issue of The Crunch, our newsletter highlighting recent accounting, regulatory and tax updates. Please note that the updates provided in this newsletter are not a comprehensive list.  We encourage you to visit the  SEC ,  FASB   and  IRS   websites for more information as well as a complete list of updated rules, regulations and proposals.  We invite you to   contact us   should you have any questions about the information provided in this issue.  Please visit our website to review   archived versions   of this newsletter containing past accounting, regulatory and tax updates. The MaloneBailey Team www.malonebailey.com

What's the Crunch? Featured Podcast Interview Techniques: Tips & Tricks Accounting and Regulatory Updates Recent FASB Updates & Proposals FASB Proposed Accounting Standards Update 2018-320 —Intangibles —Goodwill and Other (Topic 350), Business Combinations (Topic 805), and Not-for-Profit Entities (Topic 958): Extending the Private Company Accounting Alternatives on Goodwill and Certain Identifiable Intangible Assets to Not-for-Profit Entities FASB Proposed Accounting Standards Update 2018-310 —Leases (Topic 842) —Codification Improvements for Lessors FASB Discusses Segment Reporting   Recent SEC Updates & Proposals Release No. 34-84875: Transaction Fee Pilot for NMS Stocks Release No. 34-84858: Applications by Security-Based Swap Dealers or Major Security-Based Swap Participants for Statutorily Disqualified Associated Persons to Effect or be Involved in Effecting Security-Based Swaps Release No. 33-10593: Disclosure of Hedging by Employees, Officers and Directors Release No. 33-10577: Form N-1A; Correction Release No. 34-84861: Risk Mitigation Techniques for Uncleared Security-Based Swaps Release No. 33-10590: Fund of Funds Arrangements Release No. 33-10588: Request for Comment on Earnings Releases and Quarterly Reports Release No. BHCA-5: Proposed Revisions to Prohibitions and Restrictions on Proprietary Trading and Certain Interests in, and Relationships With, Hedge Funds and Private Equity Funds  Tax Updates FAQs Regarding 2018/2019 Tax Updates Extra Crunch OTC Markets Whitepaper: Small-Cap Company Guide - Navigating Mergers & Acquisitions About MaloneBailey, LLP

Featured Podcast

Our featured podcast for February 2019 highlights everything you need to know to prepare for an interview with a CPA firm. Learn the tips and tricks, the do's and don'ts and much more from Lead Recruiter, Raven Fournier. Click the podcast image below to listen to this month's episode!

Recent FASB Updates & Proposals

FASB Proposed Accounting Standards Update 2018-320 —Intangibles —Goodwill and Other (Topic 350), Business Combinations (Topic 805), and Not-for-Profit Entities (Topic 958): Extending the Private Company Accounting Alternatives on Goodwill and Certain Identifiable Intangible Assets to Not-for-Profit Entities Summary - The FASB has issued a proposed ASU that would reduce the cost and complexity of accounting for goodwill and measuring certain identifiable intangible assets for not-for-profit (NFP) organizations. Stakeholders are encouraged to review and provide input on the proposed ASU by February 18, 2019. In this proposed ASU, instead of testing goodwill for impairment annually at the reporting unit level, a NFP organization that elects the accounting alternative would: Amortize goodwill over 10 years or less, on a straight-line basis; Test for impairment upon a triggering event; Have the option to elect to test for impairment at the entity level; and Have the option to subsume certain customer-related intangible assets and all non-compete agreements into goodwill. For more information, click here . © 2019 CCH Incorporated and/or its affiliates. All rights reserved. Used with permission.

FASB Proposed Accounting Standards Update 2018-310 —Leases (Topic 842) —Codification Improvements for Lessors Summary - The FASB has issued a proposed Accounting Standards Update (ASU) that would address potential lessor implementation issues related to ASU No. 2016-02, Leases (Topic 842) . The proposed ASU aligns the guidance for fair value of the underlying asset by lessors that are not manufacturers or dealers in Topic 842, with that of existing guidance. As a result, the fair value of the underlying asset at lease commencement is its cost, reflecting any volume or trade discounts that may apply. However, if there has been a significant lapse of time between when the underlying asset is acquired and when the lease commences, the definition of fair value (in Topic 820, Fair Value Measurement ) should be applied. The proposed ASU would also require lessors within the scope of Topic 942, Financial Services—Depository and Lending , to present all “principal payments received under leases” within investing activities. Stakeholders are encouraged to review and provide comment on the proposal by January 15, 2019. For more information, click here . © 2019 CCH Incorporated and/or its affiliates. All rights reserved. Used with permission.

FASB Discusses Segment Reporting  As reported in its "Summary of Board Decisions" publication, the FASB met on December 19, 2018, and discussed feedback received on the 2018 segment aggregation study. That study considered alternatives to improve the aggregation criteria and the reportable segments process. The FASB acknowledged the challenges identified by participants in the study. Specifically, the FASB was concerned that the alternatives could increase the frequency of restatements of segment information in prior reporting periods. The FASB also was concerned about the incentive for entities to use the flexibility within the management approach to work around the alternatives. Overall, the FASB was not persuaded that the alternatives provided cost-beneficial solutions. The FASB directed its staff to focus next on the segment disclosure requirements in order to facilitate a second segment reporting study. As part of that effort, the FASB staff will analyze options to improve how the management approach applies to the segment disclosure requirements, specifically, the meaning of “regularly reviewed” information. The staff plans to bring that analysis to the FASB at a later date. The FASB plans to make technical decisions upon the conclusion of both studies. For more information, click here . © 2019 CCH Incorporated and/or its affiliates. All rights reserved. Used with permission.

Recent SEC Updates & Proposals

Release No. 34-84875: Transaction Fee Pilot for NMS Stocks Summary - The SEC adopted new Rule 610T of Regulation NMS to conduct a Transaction Fee Pilot in NMS stocks. The pilot is designed to generate data that will help the Commission analyze the effects of exchange transaction fee and rebate pricing models on order routing behavior, execution quality, and market quality generally. Data from the Pilot will be used to facilitate an empirical evaluation of whether the exchange transaction-based fee and rebate structure is operating effectively to further statutory goals and whether there is a need for any potential regulatory action in this area. The Transaction Fee Pilot, which will apply to all stock exchanges, will create two test groups with new restrictions on the transaction fees and rebates that exchanges charge or offer to their broker-dealer members. One test group will prohibit exchanges from offering rebates and linked pricing and the other group will test a fee cap of $0.0010. The rule is effective 60 days from the date of publication in the Federal Register . The Commission will subsequently announce by notice the commencement dates for the pre-Pilot, Pilot, and post-Pilot Periods. Approximately one month prior to the beginning of the Pilot Period, the Commission will issue the List of Pilot Securities, which will include the securities in the Pilot and their Test Group assignments. For more information, click here . © 2019 CCH Incorporated and/or its affiliates. All rights reserved. Used with permission.

Release No. 34-84858: Applications by Security-Based Swap Dealers or Major Security-Based Swap Participants for Statutorily Disqualified Associated Persons to Effect or be Involved in Effecting Security-Based Swaps Summary - The SEC has adopted Rule of Practice 194. In general, this rule creates a transparent, efficient, and comprehensive process for a registered security-based swap dealer or major security-based swap participant, collectively known as SBS Entities, to apply to the Commission for relief from the statutory disqualification prohibition found in Exchange Act Section 15F(b)(6). Rule of Practice 194 also provides an exclusion for an SBS Entity from the prohibition in Exchange Act Section 15F(b)(6) with respect to associated persons entities, consistent with the Commodity Futures Trading Commission’s approach with respect to the statutory prohibition for swap entities.  Rule of Practice 194 is effective 60 days after publication in the Federal Register . However, the compliance date for the SBS Entity registration rules depends on the adoption of two pending rules, and will be the later of: six months after the date of publication in the Federal Register of a final rule release adopting rules establishing capital, margin and segregation requirements for SBS Entities or the compliance date of final rules establishing recordkeeping and reporting requirements for SBS Entities. For more information, click here . © 2019 CCH Incorporated and/or its affiliates. All rights reserved. Used with permission.

Release No. 33-10593: Disclosure of Hedging by Employees, Officers and Directors Summary - The SEC approved final rules to require companies to disclose in proxy or information statements for the election of directors any practices or policies regarding the ability of employees or directors to engage in certain hedging transactions with respect to company equity securities. The final rules, which implement a mandate from the Dodd-Frank Act (new Rule 406(i) of Regulation S-K), will require disclosure of practices or policies in full, or, alternatively, a summary of those practices or policies that includes a description of any categories of hedging transactions that are specifically permitted or disallowed. If the registrant does not have any such practices or policies, it will disclose that fact or state that hedging is generally permitted. For more information, click here . © 2019 CCH Incorporated and/or its affiliates. All rights reserved. Used with permission.

Release No. 33-10577: Form N-1A; Correction Summary - The SEC has published a technical correction to several amendments to Form N-1A, which the Commission adopted previously. This document is being published to correct the paragraph designations that appeared in the amendatory instructions preceding certain of the form amendments that the SEC adopted as part of each of these rulemakings. This document makes technical corrections only to the paragraph designations that appear in the amendatory instructions preceding these form amendments. This document does not make any substantive changes (i.e., changes except corrections to typographical errors) to the text of the form amendments themselves. For more information, click here . © 2019 CCH Incorporated and/or its affiliates. All rights reserved. Used with permission.

Release No. 34-84861: Risk Mitigation Techniques for Uncleared Security-Based Swaps Summary - The SEC proposed rules requiring the application of risk mitigation techniques to portfolios of uncleared security-based swaps. Proposed Rules 15Fi-3 through 15Fi-5 would establish requirements for registered security-based swap dealers and major security-based swap participants (SBS Entities) with respect to:  Reconciling outstanding security-based swaps with applicable counterparties on a periodic basis. Engaging in certain forms of portfolio compression exercises, as appropriate. Executing written security-based swap trading relationship documentation with each of its counterparties prior to, or contemporaneously with, executing a security-based swap transaction. Comments are due 60 days following publication in the Federal Register . For more information, click here . © 2019 CCH Incorporated and/or its affiliates. All rights reserved. Used with permission.

Release No. 33-10590: Fund of Funds Arrangements Summary - The SEC proposed a new rule and related amendments designed to streamline and enhance the regulatory framework for fund of funds arrangements. Funds of funds are created when a mutual fund or other type of fund invests in shares of another fund. The SEC's proposal would allow a fund to acquire the shares of another fund in excess of the limits of the Investment Company Act without obtaining an individual exemptive order from the Commission. In order to rely on the rule, funds must comply with conditions designed to enhance investor protection, including conditions restricting funds' ability to improperly influence other funds, charge excessive fees, or create overly complex fund of funds structures. Because the proposed rule would create a new, comprehensive exemptive rule for funds of funds to operate, the Commission is proposing to rescind rule 12d1-2 as well as most exemptive orders permitting fund of funds arrangements. The SEC will seek public comment on the proposal for 90 days. For more information, click here . © 2019 CCH Incorporated and/or its affiliates. All rights reserved. Used with permission.

Release No. 33-10588: Request for Comment on Earnings Releases and Quarterly Reports Summary - The SEC published a Request for Comment soliciting input on the nature, content, and timing of earnings releases and quarterly reports made by reporting companies. The request “solicits public input on how the Commission can reduce burdens on reporting companies associated with quarterly reporting while maintaining, and in some cases enhancing, disclosure effectiveness and investor protections.” In addition, the SEC is seeking comment on how the existing periodic reporting system, earnings releases, and earnings guidance, alone or in combination with other factors, may foster an overly short-term focus by managers and other market participants. For more information, click here . © 2019 CCH Incorporated and/or its affiliates. All rights reserved. Used with permission.

Release No. BHCA-5: Proposed Revisions to Prohibitions and Restrictions on Proprietary Trading and Certain Interests in, and Relationships With, Hedge Funds and Private Equity Funds Summary - Five federal financial regulatory agencies have proposed revisions to the regulations implementing the Bank Holding Company Act (BHCA). The proposed amendments, Proposed Revisions to Prohibitions and Restrictions on Proprietary Trading and Certain Interests in, and Relationships With, Hedge Funds and Private Equity Funds , would exclude certain community banks from the Volcker Rule, consistent with the Economic Growth, Regulatory Relief, and Consumer Protection Act (EGRRCPA). Comments are due 30 days after publication of the proposal in the Federal Register. The Volcker Rule generally restricts banking entities from engaging in proprietary trading and from owning or sponsoring hedge funds or private equity funds. The agencies are jointly proposing to exclude community banks with $10 billion or less in total consolidated assets and total trading assets and liabilities of 5 percent or less of total consolidated assets from the restrictions of the Volcker Rule. In addition, the proposal would, under certain circumstances, permit a hedge fund or private equity fund to share the same name or a variation of the same name with an investment adviser that is not an insured depository institution, company that controls an insured depository institution, or bank holding company. The federal agencies that issued the proposal are the SEC, the Federal Reserve Board, the Commodity Futures Trading Commission, the Federal Deposit Insurance Corporation, and the Office of the Comptroller of the Currency.   For more information, click here . © 2019 CCH Incorporated and/or its affiliates. All rights reserved. Used with permission.

Tax Updates

Frequently Asked Questions & Answers Regarding 2018/2019 Tax Updates By Nicole Zhao, CPA, Senior Tax Manager at MaloneBailey, LLP This article covers some of the commonly asked questions I receive during tax season along with the responses I provide.   Q. The federal government was partially shut down, which created delays and backlogs within the government. Can I pay my taxes and file my income tax returns later? A. No. The IRS announced that the tax season began January 28, 2019. The shutdown will impact the IRS’s processing time, but it does not extend the tax due dates.   Partnership and S Corporation tax returns are due by March 15, 2019, while C Corporation and individual income tax returns are due by April 15, 2019. If you need additional time to digest the new tax law, you may apply for a 6-month extension to file your tax return. However, the tax payments are due by the original due dates.   Q. I am an individual taxpayer. Do I need to hire a tax CPA to deal with the tax reform? A. It depends. One of the goals for tax reform is to make tax filing simpler for taxpayers. The IRS has published the 2018 form 1040 ( https://www.irs.gov/pub/irs-pdf/f1040.pdf ), which appears to be much shorter than the 2017 version. For those who have business income, tax returns can be way more complicated than before. Talking to a CPA is always recommended.   Q . Are itemized deductions obsolete beginning in 2018? A. It is a misconception. Itemized deductions are not obsolete after the tax reform. However, some limitations have been added to the state taxes and mortgage interest deductions; at the same time, the standard deduction has been increased to $24,000 for married filing jointly taxpayers. For many families, it turns out that the standard deduction is more than the itemized deductions.   Q. I had a new baby in 2018. I was told that the personal exemption is gone. Does Congress provide any support to welcome babies? A. The child tax credit is $2,000 per child and the phase-out threshold is $400,000 for married filing jointly family. Before 2018, the credit was $1,000 per child and the phase-out kicked in when family income reached $110,000. So, welcome babies.   Q. I heard about 20% additional tax deduction for pass-through entities. What is that? A. It’s called Qualified Business Income (QBI) Deduction under Internal Revenue Code 199A. The rules are complicated and there are several things we want to clarify: It is a benefit not only for partnership and S Corporation but also for individuals who conduct a trade or business. Don’t exclude yourself simply because you did not set up an LLC for your business. In fact, the deduction is claimed on form 1040 line 9. A trade or business for IRC 199A purpose is different from non-passive activities defined in IRC 469. You do not need to materially participate in a trade or business in order to claim this deduction.   Q. I have read about discussion regarding real estate investors’ eligibility to claim the QBI deduction. Some say yes while the others say no. I’m very confused. A. The essential issue is whether the taxpayer’s real estate business is a trade or business under Internal Revenue Code (IRC) 199A, as the QBI is available only to a trade or business. Again, this definition has nothing to do with the passive activity under IRC 469. Don’t walk away simply because your rental activity loss is limited. Sometimes it is hard to tell whether a business or an investment is a trade or business. The IRS recently issued a proposed revenue procedure to provide a safe harbor for certain real estate enterprises that may be treated as a trade or business for purpose of the QBI deduction ( https://www.irs.gov/pub/irs-drop/n-19-07.pdf ). It is not a final rule, but the taxpayer can rely on this until further decision is made by the IRS.   Q. I am the owner of a small business. With an estimated 20% additional deduction on the business income, I expect lower income taxes in 2018 and thus, I did not pay my individual estimated tax payments. Now I see that there are lots of limitation in calculating the QBI deduction. What will happen if my tax payments fell short? A. The IRS recently announced that it will waive the estimated tax penalty for any taxpayer who paid at least 85% of their total tax liability for 2018. Without this special waiver, the threshold is 90% to avoid a penalty.   Q. With the changes in corporation and individual tax rates, are there any changes on the withholding tax rates for foreign corporations and individuals? A. Yes. For example, the withholding tax on foreign partners’ share of Effectively Connected Income has changed from 35% to 21% for corporate foreign partners, and from 39.6% to 37% for non-corporate foreign partners. Should you have any questions, please contact Nicole Zhao for more information.

Extra Crunch

OTC Markets Whitepaper: Small-Cap Company Guide - Navigating Mergers & Acquisitions  In December 2018, OTC Markets Group issued a guide for small-cap companies that focuses on M&A. According to OTC Markets Group, “this report looks at M&A for small caps, including six reasons why a merger may be appealing for small cap companies, from driving faster growth, to exploring new avenues to increase shareholder value and returns, and more. It also examines strategies to ensure a successful merger, with tips for the two key phases: analysis and implementation, covering cash and non-cash considerations, calculating the purchase price, conducting due diligence and much more.” To access the guide, please click here .

About MaloneBailey, LLP

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