Please refer to the ICW #4 Instructions below and complete and submit the assignment (Business Letter) during regular class hours.
Your new client,
Totals, has extensive corporate accounting experience (over 10 years), but recently moved to California and has not passed her CPA exam (none of the four parts). She has a few questions that she recently wrote you about, and she is expecting you to write back soon. In fact, you should send the letter by the end of this class period.
Here is her letter:
Totals Accounting LLC
1357 Career Blvd.
San Diego, CA 91111
September 27, 20XX
[Your name]
2468 SDSU Lane
San Diego, CA 92222
Dear [Your name]:
Subject: Question about getting a CPA license
As you know, I just finished by BSBA in Accounting from East Coast University and now I need to look into how to become a CPA in California. Since you are already licensed, I thought you might be able to answer a few questions and provide any other details I might have missed. I included my questions below. Thanks in advance!
What are the educational requirements to sit for the CPA exam in California? I cannot seem to tell if a Bachelor’s is adequate or do I need 150 hours? I cannot seem to make heads or tails of the California Business and Professions Code Section 5090-5094.
Does California have an experience requirement? How long? What do I have to file with the Board to show I have the experience? Who “signs off” on my experience? Am I required to get any certain kind of experience? Do all CPAs have to have that experience? Does the Board have any opportunity to review/audit my experience?
Once I have passed the CPA exam, are any other exams required for licensure? If so, what kind of exams? How are those exams administered and by whom?
Addy ASTER ACCOUNTING SERVICES, INC
September 25, 2015
Ms. Ellen Baker, CEO
Darwin Medical Corporation
56 West Beech Street
San Diego, California 92101
Re: Affordable Care Act
Dear Ms. Baker:
The IRS has issued guidance indicating that health reimbursement arrangements (HRAs) that do
not comply with the Affordable Care Act (ACA) are subject to severe penalties.
An HRA is an arrangement whereby the employer reimburses the employee for part or all of
qualified medical care expenses and provides coverage up to a maximum dollar amount for the
period covered.
Generally, small employers are not required to provide health insurance to their employees.
However, many small employers provide cash reimbursement for employees who purchase an
individual policy. Under prior law, reimbursements for the employee’s share of medical insurance
premiums were treated as contributions by the employer to the health plan and, thus, deductible
by the employer and excluded from wages by the employee. Recent guidance indicates that
beginning in 2014, employers with two or more employees may be subject to severe penalties
were they to use such an arrangement.
Under the current guidance, an HRA that covers two or more employees is deemed a group
health plan and is subject to ACA requirements which include, among other things, a prohibition
on annual and lifetime limits, and a prohibition on cost-sharing for preventive services.
Although there are limited exceptions, IRS guidance makes clear that HRAs, HSAs, and most
other pre-tax arrangements that reimburse insurance premiums are non-qualifying. These
arrangements are deemed non-qualifying whether or not the coverage purchased by the
employee complies with the ACA rules. Non-qualifying arrangements are subject to penalties as
high as $100 per day, per individual. The penalty is an excise tax that is required to be
self-reported on Form 8928. In certain circumstances, a waiver of the tax may be permitted and
no tax will be due upon filing.
Beginning January 1, 2014, for an employer to be able to provide a deductible health insurance
fringe benefit to an employee, the health plan must be sponsored and paid for by the employer on
a non-discriminatory basis. The employee may pay a portion of the coverage through a pre-tax
flexible spending account (FSA), or absent FSA participation, on a post-tax basis.
1401 North Main Street, Suite 101, San Diego, California 92101
Phone: 555-5455
Options for Small Employers
Based on this, a small employer (less than 50 full time equivalent employees) has three options:
1. Offer an employer-sponsored plan
2. Offer nothing
3. Offer nothing and increase taxable (perhaps, even gross-up) wages
In the absence of further guidance from the Department of Labor or Treasury, entities with two or
more employees should avoid reimbursement of health care premiums outside of an
employer-provided group health care plan.
Temporary Relief from Penalties
On February 18, 2015, the IRS issued Notice 2015-17, which provides relief from the $100 per
day per employee penalty for calendar year 2014 and through June 30, 2015 for most insurance
reimbursement plans. The Notice is designed to provide transition relief to allow employers to
meet the requirements of the Affordable Care Act.
Employers with compliance questions or those who utilized an HRA in 2014 should consult with
their payroll advisor or benefits plan administrator regarding corrective measures.
Sincerely,
Roxanna Forman
Roxanna Forman, CPA
Enclosure
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