Discussion:Question regarding treatment of certain costs in CPA firm purchase
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Discussion Forum Index --> Tax Questions --> Question regarding treatment of certain costs in CPA firm purchase
| 14 November 2006 | |
| I purchased a CPA firm in 12/05. The predecessor sole practitioner has stayed on this year, per contract and has acted as 'General Manager' of practice. He has controlled receipts (paid to predecessor name) and disbursements, both of which I audit and obtain reasonable assurance and satisfaction that all is done properly.
The predecessor was on a cash basis. For the year 2006, we have received about $100k in A/R (from 12/31/05). We have agreed that even though I am the new owner, because of the first year setup (this changes beginning 2007), I would receive a 1099 for the revenues of the business. I do not believe this should include the A/R amount. Your thoughts? Thank you. hgatgun | |
| 14 November 2006 | |
| I vote that The 1099 should only show the cash receipts. When the A/R's are
collected in the following year, a second 1099 can be issued in the following year for the amount of the A/R collected. | |
Claudebass (talk|edits) said: | 11 December 2006 |
| Did you not address this issue in the purchase agreement? You actually passed the exam? | |
| 11 December 2006 | |
| Claudebass, I would think one would lose their creditability by being condescending as you were, not by asking a question. There is a lot that CPAs must retain and sometimes there are subjects that are not as memorable as others. I would hope the next "ignorant" question I ask on this board that you don't feel inclined to point out your superiority. A sign of a good CPA is one who recognizes that he/she doesn't know everything. Have a good week. | |
| 11 December 2006 | |
| Touche' PDX!! Sorry, but I feel much the same. Believe it or not...I ask stupid questions on occasion...hehehe | |
| 11 December 2006 | |
| As one who has been guilty of posting responses when I am in a particularly bad mood, I tend to agree with PDX. We should be more kind. The question does, however need to be addressed in terms of the purchase agreement. The possibility exists that receivables could have been aggregated rather than separately provided for (which would give seller a considerable tax tadvantge) in which case Hgatgun will have to recognize the income. | |
Poorhouse Road (talk|edits) said: | 11 December 2006 |
| I may be missing something, but I believe those receivables should only be counted if you got the funds during the year as part of the purchase agreement. | |
Michaelstar (talk|edits) said: | 11 December 2006 |
| The premise behind 1099's is the cash basis reporting of actual monies received. If you received those receipts and had full control of that money, then it would make sence that they be included in the 1099. I agree with Dennis on both of his points. As for his second point, does the purchase agreement address this issue? Also, it seems weird to me that anyone would pay for the collection of those A/R when the A/R was created by prior services of the guy who sold you the practice when the collection of those receipts are really his SE income. Without reading your agreement, I do tend to agree with you that the collection of "his" A/R would not be included in the 1099 to you and at the same time, he also would not be giving you any of those receipts but keeping them himself. | |
| 11 December 2006 | |
| Hgetgun. As I understand your posting, you purchased the CPA practice in Dec, 2005. The transition period appears to be one year (2006). During 2006, you agreed to have the payments received (receipts)made out to the seller. All the receipts were in the seller's name, even though, you are the owner of these receipts. The seller now wants to issue a 1099 showing these receipts as yours, not his. In 2007 all receipts will be made out to you, the owner since Dec. 2005. Was this done in order to transition the clients?
I sold my CPA firm in October 2006. The buyer immediately sent letters out to the clients informing them that he had purchased the practice. After these letters went out, I received many emails and cell phone calls asking that I remain their accountant. I received 60% down and the remaining 40% is due June 15, 2007. No client retention guarantee. I did not object to the immediate notification due to the favorable terms. However,I belevie it is good to kept the old accountant around during a reasonable transition period. | |
Claudebass (talk|edits) said: | 12 December 2006 |
| Sorry to have ticked off some people. But having bought and sold a couple of
CPA firms, accounts receivables, with the exception of goodwill, are usually the biggest asset. Normally, a/r goes to the seller unless the purchase agreement dictates otherwise. As Bbla says above, the key to any successful transition is some sort of continuity. | |
| 12 December 2006 | |
| I have purchase 5 firms and never purchased A/R with them. I might next time thou with a nice discount. | |
