This week has been an interesting week for my internship at Stephano Slack. The office has been relatively quiet this week, with a good portion of the staff either on vacation or out with clients. Because of this, I’ve ended up with a slightly lighter – but very diverse – workload.
On Monday, I finished up one of my bigger projects from last week – creating new engagement letter templates for our tax clients. It took a lot of leg-work and multiple checks and re-checks to make the templates as close to perfect as possible, but it will reduce the firm’s workload as a whole in the future. One of the most important parts of completing this project was creating a step-by-step instruction manual of the processes necessary to create new templates and new letters in the future. This was almost the most gratifying part of the project; from now on, whenever an employee needs to create template letters, they’ll refer to my instructions.
I continued work on one of our client’s 401(k) employee benefits by continuing to compile sample information for audit testing. I got to a point where I thought I was doing something wrong, because I couldn’t find the data sources I needed for some of the testing sheets. After asking a senior staff member, it became clear that I wasn’t doing anything wrong – we just didn’t have the information yet. It wasn’t until then that I realized how important close relationships with clients are during engagements. The client is responsible for providing us with all the raw information that we need to audit their financial statements; if they are late in providing us with information (or provides us with incomplete information), it hinders our ability to work for them and can even halt operations completely. This is an interesting microcosm of the business world because it demonstrates that business cannot occur without human interaction and active efforts toward cooperation.
I worked on another 401(k) audit by compiling and printing twenty-five confirmation letters and then preparing them for shipment. Though it may seem menial, these confirmations are extremely important – they are sent directly to the sample employees of the company being audited so that the employees themselves can independently confirm that the company has been honest in the operation of their 401(k) program.
A couple of my projects this week introduced me to accounting and tax research. The rules set forth by financial reporting entities and the IRS can be (and usually are) quite extensive and complex. Unfortunately, there are just too many different cases with extenuating circumstances for these rules, extensive as they may be, to cover everything. In cases where the codifications or regulations are not clear, accountants turn to research. Our firm – as I’m sure others do too – subscribes to an online database called IntelliConnect. IntelliConnect’s publishers constantly update the database with new tax and accounting regulations. Though IntelliConnect simplifies our job somewhat, it can still be difficult to search through the database’s tens of thousands of documents for information pertinent to an individual case. Not surprisingly, research projects and papers in college helped me prepare for research like this; conducting research on IntelliConnect and knowing which sources to use is not unlike conducting research on online databases like JSTOR.
In one of the cases I examined, a client bought stock in their parents’ company on a loan which they agreed would be repaid at $10,000,000 in ten years (to protect client privacy, all names have been omitted and all numbers changed). The children who took out the loan found that they had extra expendable capital, so they offered to pay the parents $5,000,000 immediately. Theoretically, this could be a great deal for the parents – that $5,000,000 can be invested, and will likely be worth far more than the original $10,000,000 in the future. Because this was a business transaction that technically cancelled a loan, it usually would incur a “cancellation of indebtedness” tax. Cancellations of debt usually only occur only certain circumstances, and are usually not beneficial to the creditor. In this situation, it would actually be beneficial for both the creditor and the debtor; moreover, the two parties are directly related, and there are often contingencies in IRS regulations that are more lenient towards transactions between related parties. My task was to research whether or not these two circumstances could lower their tax liability on the early repayment. I looked to IntelliConnect for more information. Unfortunately, I didn’t find specific regulations that concerned cancellation of indebtedness tax during a transaction between related parties in which both were beneficiaries of early debt repayment. After that came up dry, I utilized IntelliConnect’s compilation of the legal records of resolved cases to see if this had ever been addressed in court. Unfortunately, it had not. As it turns out, the client will likely have to pay tax on the difference between the originally agreed-upon amount and the amount they want to pay to settle the debt early. Though this demonstrates the limitations of the IRS in implementing case-specific regulations, it also shows their plasticity: if this case were to go to court, it could change the tax regulations, and in a couple of years it would be one of the reference cases in IntelliConnect’s database.
The other research I conducted involved setting up a 501(c)(3) tax-exempt non-profit organization. A group of friends wanted to raise money for a person who could not pay their medical bills, and were looking to form a non-profit organization to facilitate the fundraising. I had to figure out whether or not a 501(c)(3) could be formed with only one person as the intended beneficiary. As it turns out, there is no specific regulation on the number of beneficiaries (or the type, whether it be a person or an organization) necessary for the formation of a 501(c)(3); the IRS states that they must serve a “charitable” purpose, such as “religious, educational, scientific, literary, [or] testing for public safety.” It was interesting for me to notice the contrast in the specificity of some IRS regulations and the broadness of others.
I learned that slow weeks often lead to more mundane, “interny” tasks, such as filling up printers and organizing kitchens. I had no problem with doing work like this; though they are small tasks, they are necessary to help keep the operations of the firm moving smoothly. Keeping on my toes while doing these tasks is important – at any time, work could come across my desk that requires more immediate attention.
For the last four weeks of my time here, I will continue to write a weekly blog post with a description of day-to-day life at the Firm, life as an accounting intern, and the acclimations that are required when switching from classroom culture to a 9-5 culture. Hopefully, this will help to enlighten college students or aspiring accountants to understand what it might be like to work in an accounting firm. Feel free to contact me at kpollack@stephanoslack.com if you have any questions, comments, or suggestions for these blog posts. If I cannot answer any of your questions, I will make sure they are directed to the appropriate person.
Thanks for reading.
Kurt Pollack
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