Eric Morgan

Eric Morgan


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Medical Office Accounting Software Information

One of the key components of a successful medical practice is the maintenance of accurate financial records. Medical practice accounting is much more than a chore that must be attended to in order to file annual tax returns—if done correctly; it can provide information useful for evaluating performance and for making decisions that have day-to-day and long-term implications.

Although this article focuses on Intuit’s QuickBooks accounting software for medical practices, many of our clients use other products such as (a web-based medical office accounting software). Most accounting products share similar feature sets, and so the information in this article can be easily applied to a variety of software.

Using Class Systems for Multi-Practitioner Offices

Many medical practices find the class system in QuickBooks to be very helpful. In a multi-practitioner medical office, the class system can be used to segregate revenues and expenses between providers. This is done by setting up a class code for each provider and then assigning a code to each revenue and expense transaction. You can then run a special Profit and Loss by Class report with columns that show the revenues and expenses that pertain to each provider. also provides a similar feature called “Categories” that works in the same way.

Budgeting with Medical Accounting Software

Being able to compare your expectations for the performance of your practice versus what actually happened is also essential. QuickBooks and both have the ability for you to enter budget amounts for the accounts you have set up and then provide various reports that allow you to compare actual results against your budget. This feature can be useful as a basis for determining rewards in employee incentive programs and for defining spending limits for administrative staff.

Bank Reconciliation

One of the most important things you can do to make sure you are capturing all transactions correctly is to make use of the Bank Reconciliation feature for each bank account active in the software. Using the Bank Reconciliation feature in your accounting software is similar to balancing your personal checkbook. It assists you with verifying that the transactions you have input into the bank accounts match the bank statements you receive. Performing monthly bank reconciliations will help ensure that the bank balances shown in the software are an accurate representation of the available cash on hand for operation of the practice.

If you find it burdensome to record each individual transaction, most medical office accounting software will allow you to download bank account and credit card activity from many financial institutions directly into the software. However, if you choose to do this, it will still be necessary to classify the nature of each transaction that is downloaded. For example, if you link your practice’s bank account to your software and then download a debit card transaction in which you purchased disposable plastic gloves, you will probably want to tell your software that the purchase was for “Medical Supplies” expense. In addition, you will be able to match transactions you have entered manually if they duplicate a transaction downloaded from the bank.

Benefits of Accounting for Medical Practices

One of the primary reasons that doctors should keep detailed accounting records is to be able to produce the necessary information for the annual filing of tax returns. Many of BiggsKofford’s physician clients submit a QuickBooks file or allow us to access their account so that we have the information we need to prepare the return. Prior to providing this information to us, there are a number of things you can do that will help reduce the amount of time and fees for tax return preparation. First, run the report that shows your Balance Sheet on the final day of the tax period. Examine the balances of each account. Do the balances seem reasonable? Do you see anything that is clearly wrong or that your CPA would question? If so, take a look at the activity in the account for that year and correct any errors that you encounter. Do the same for the Profit and Loss report for the period the tax return will cover.

Despite the fact that most consumer accounting software such as QuickBooks is designed for users without an accounting background, they can still seem overwhelming if you are not familiar with them. Even experienced users often encounter situations in which they are not sure how to proceed. BiggsKofford’s goal is to effectively support our physician clients in the use of their accounting software so they have the information necessary for successfully medical practice financial management.

If you have any questions about medical accounting software or the services we can provide for your practice, please contact Eric Morgan at BiggsKofford CPA:

Call: (719) 579-9090       Email:

The IRS released retirement and social security threshold adjustments for the 2014 tax season after the government shutdown ended. Many of these adjustments are made on a yearly basis to take into account inflation and other factors in our economy to keep deductions, and phase out amounts substantially the same year after year. The following chart depicts the changes made to various relevant phase outs for individuals in the 2014 tax year.




For more information, contact BiggsKofford, at (719) 579-9090.If you have any questions on how these changes will affect you and how to prepare for these changes please contact your BiggsKofford representative at (719) 579-9090, and we will be happy to serve you.


In case you missed last week’s breakfast on ‘Implementing Obamacare’, here are the handouts.

It was presented by Jeff Ahrendsen and George Martin, both Senior Vice Presidents with HUB International.  If you have any questions, please e-mail them by clicking their name above or call (719) 884-0700.

Deborah Helton

Deborah Helton


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Austin Buckett

Austin Buckett


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Practicing medicine is one of the highest earning careers a person can chose. That success is often bundled with complex financial decisions. How to best allocate earnings often tops the list. As a physician, you probably started your career with more than $100,000 in student loan debt. Couple this with personal debt and the financial considerations of running your own practice and making decisions about what to do with extra cash in your practice can quickly become difficult. Financial decisions can be infinitely calculated and modeled, but some basic guiding principles can help set parameters to simplify the process.

Generally, those options can be boiled down into four decisions:

  1. Pay off any existing debt (business or personal)
  2. Invest the extra cash into retirement or other savings plans
  3. Reinvest into your business (buy newer equipment, hire more people, etc.)
  4. Increase your personal expenses (i.e. buy nicer things!)

In general, we would always recommend you maximize the extent of the first two options before moving onto numbers 3 or 4 (although number 3 may require some action depending on how your business is performing). For the purposes of this article, we will discuss how to decide when to act on numbers 1 and 2 and by how much.
When deciding to pay down debt vs. building for retirement, there are three main decision criteria to consider.

  1. Rates of return under each scenario
  2. Risk Tolerance
  3. Taxes

Many people automatically gravitate to considering risk tolerance first when it comes to debt. For example, many people simply don’t like having debt and want to pay off all debt as soon as possible before considering alternative uses for their cash. However, by overlooking rates of return people can potentially miss an opportunity to maximize their wealth creation.

Take for example a situation where you have the funds to pay cash for a car but the dealership is offering zero percent finance. You would be better off financially taking the loan from the dealership and investing the cash in an interest bearing account. If you made the debt payments from your savings account each month you would get to the end of the loan term and have some funds left in the account from the interest received over time. With today’s rates this might not seem like a sizable difference but the situation is magnified when you start considering larger dollars and increased interest rates.
So the simple decision with regards to criteria 1 is to invest into the highest rate you can. For example, if your debt incurs interest at five percent but your investments return six percent per annum, then the choice would be to put extra cash into your investments as over the long term you will generate more returns than you will pay in interest expense on your loan.

While the criteria number 1 decision is fairly easy to determine, it does not consider risk. Investments have a certain level of risk to them, typically the larger the returns the greater the risk that is being taken. Unlike loan interest rates that are typically fixed for a period of time. So in the above example, one could argue that while the investment returns are greater the risk is higher. The loan interest is essentially a risk free rate as it is fixed for the term of the note (if it is variable then it will have some element of risk to it). So when you add risk to the situation, the conservative approach would be to pay off debt first to account for the reduced level of risk being taken. The decision to go either way will depend on each individuals risk tolerance and the relative gap in rates between the options. It should also be noted that while investments have more risk to them this should be factored into the rates and that these rates are expected averages over a long term. Therefore, this decision process should consider the length of time the person will be investing. If it’s short term then the risk is much greater than someone investing over a much longer period who can ride the ups and downs that the investment might take. As a result you should apply less weight to the risk decision if the investment holding period was very long.

Criteria 3, taxes, will differ by individual and situation but assuming the extra cash can go into a tax deferred account it will almost certainly make sense to maximize payments into a tax deferred retirement plan before paying off debt. The reason being is that contributions into a retirement plan are tax deductible whereas payments on debt principal are not. Assuming a person pays tax at 35 percent that would be a 35 percent difference in benefit before considering the rate differences discussed above. While it is true that the tax deferred account will pay taxes when the money is eventually pulled out of the account the time value of money (i.e. $1 is worth more today than it will be in the future) still makes this an overly compelling decision, especially for those people who are a long way from retirement age.
In summary, when deciding how to best utilize any excess cash from your practice, first make sure you are maximizing your tax deferred investment accounts (assuming that they are returning suitable returns) and then if you prefer the rates you would get from investing in an essentially ‘risk free’ savings account vs. investing in other ‘risker’ investments (stocks, bonds, mutual funds, etc.), then pay off your debt next, otherwise consider investing those funds instead and making normal payments on your debt.

If you have questions about how this could affect your practice, call or email Austin Buckett or Deborah Helton at (719) 579-9090.

Implementing Obamacare

Led by
Jeff Ahrendsen
Senior Vice President
HUB International Insurance Services
George Martin
Senior Vice President
HUB International Insurance Services

We’ll Discuss:

  • What 2014 will mean for your health insurance
  • Practical strategies to avoid insurance cost increases
  • Last minute changes in the law

Thursday, October 24, 2013

7:30 – 9 a.m.

BiggsKofford’s Office,

630 Southpointe Court, Suite 200





Executive Sustainable Growth Workshop 




Join us for the workshop that more than 20,000 executives and their leadership team members have successfully used for strategic planning and growth. 


Last year we helped more than 1,500 businesses on six continents…and have been doing it for more than 15 years. Invest a day to:


  • LEARN the Four Decisions™ that you must get right to grow your business.
  • GAIN practical, easy-to-use tools to improve your business results right away.
  • IDENTIFYyour A, B and C performers with a Team Talent Review and generate the “next steps.”
  • BUILD or refine an executable One-Page Strategic Plan™ with your team, that gives you thefocus you need to succeed.

Tuesday, November 5, 2013

7:30 a.m. – 4 p.m.

BiggsKofford’s Office,

630 Southpointe Court, Suite 200

Breakfast and lunch served.

Presented by: Chuck Kocher
Chuck brings 32 years of diverse business experience including 12 years as one of the top-performing coaches in the world. Chuck coaches high-growth companies to meet their maximum potential as businesses, leaders and teams. As a certified Gazelles International Coach, Chuck teaches companies how to utilize the Gazelles strategic planning tools and best practices to achieve sustainable long-term results. 



Deborah Helton

Deborah Helton


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Michael McDevitt

Michael McDevitt


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The health care legislation, commonly known as “Obamacare,” creates additional Medicare taxes for high-income taxpayers. There are two new Medicare tax increases: (1) a 3.8% tax on “net investment income,” and (2) a 0.9% Medicare tax on earned income. Generally, if your income exceeds $200,000 (single filing), or $250,000 (joint filing), you are at risk for these new taxes.

Net Investment Tax of 3.8 percent

Beginning in 2013, higher income individuals with “net investment income” will be subject to an additional 3.8% tax of the lesser of two amounts:

  • Your “net investment income,” or
  • the excess of the taxpayer’s modified adjusted gross income over a $200,000 (single) or $250,000 (joint filers) threshold amount.

If the taxpayer’s adjusted gross income is greater than the $200,000/$250,000 threshold, the excess becomes a limitation on the amount of net investment income exposed to the surtax. For example, if a joint return has a modified adjusted gross income of $260,000, the $10,000 excess becomes the limitation.

Net investment income includes three broad categories:

  • Interest, dividends, annuities, royalties, and rents
  • Income from a business in which the taxpayer does not personally, materially participate, and business income from trading and financial instruments or commodities
  • Capital gains and other net gains from the sale of property


Most investment income categories are exempt from the tax if they are derived from a business activity in which the taxpayer materially participates (other than trading in financial instruments and commodities).

Any income subject to the self-employed Social Security tax is excluded, as is tax-exempt interest income, retirement plan distributions, and tax-free gains from a principal residence.

Medicare surcharge tax on earned income

Presently, the Medicare tax applies to all wages and self-employment income. For wage earners, both the employer and the employee pay 1.45%, whereas a self-employed taxpayer pays the entire 2.9%.

Beginning in 2013, the health care legislation imposes an additional 0.9% surtax — but only on higher income households. The tax applies to income in excess of:

  • A single person’s wage and self-employment income over $200,000, or
  • the combined wage and self-employment income of a married couple exceeding $250,000.

While both taxes only impact high income earners, the threshold for the 3.8% tax focuses on total income in the tax return (technically “modified adjusted gross income,” which is generally the total income on page 1 of Form 1040). On the other hand, the 0.9% Medicare surcharge focuses only on the wage and self-employment earned income of the taxpayer. In both cases, the new taxes only apply to the investment income or earned income that is in excess of the thresholds.

Net investment income tax of 3.8% Planning

The more complex planning challenges come into play with the net investment income portion of the new tax. But with careful execution of a well-designed plan, there may be ways you can potentially reduce net investment income and, thus, the potential impact of this new tax.

If your income is at or near these thresholds, the focus will be on maintaining a consistency in reportable income from year to year so as to stay beneath the thresholds. Spikes in income from large IRA withdrawals, bonuses, and substantial capital gain recognition, can trigger these taxes.

Using an installment sale to shift a large capital gain from an investment into multiple tax years could help you stay beneath the threshold of the 3.8% tax.  Similarly, a lump sum distribution from a retirement account could trigger the 3.8% tax, so consider taking payments out over a number of years.

An owner occupied commercial building could utilize a strategy to manage the income in the LLC entity by modifying rents.  This strategy should take into consideration practical cashflow concerns of covering building expenses as well as ensuring the rent still represents a fair market value.  Consult with your tax advisor to implement a strategy that benefits you while ensuring you are within the regulatory boundaries.

One possible strategy would be to shift some of your investments with taxable earnings into municipal bonds and municipal bond funds, whose earnings are excluded from the MAGI and the net investment income calculation. They also provide a double potential benefit of not triggering the surtax on other investment income and are also excluded from the Medicare surtax. Additionally, investments that produce taxable interest or that pay dividends could be held in a tax-deferred account like an IRA or possibly a tax-deferred annuity.

You may also consider owning a form of permanent life insurance, as the cash value of these polices when withdrawn is not considered net investment income.

Medicare Surtax of 0.9% Planning

Be prepared. If you’re married, filing jointly, and your combined wages will exceed the $250,000 income threshold for couples, you’ll want to make sure that your joint Medicare surtax for the year isn’t significantly higher than you anticipated.

Your employer won’t take your spouse’s income into consideration when figuring your Medicare tax withholding, but you can use IRS Form W-4 to have an additional amount deducted from your pay to cover the extra 0.9% tax on the amount by which you and your spouse exceed the combined income threshold.

Reducing MAGI is difficult for those who are still working. One strategy would be to maximize your contributions to pretax retirement plans like traditional 401(k)s or 403(b)s.

If you have control over the level of wages paid to you (i.e., you are the owner of your company), consider whether the wages you pay yourself are too high for the services rendered to the company.  If so, you may want to consider reducing your wages and paying the difference in distributions.  Be careful though – if you need to maintain a high wage to justify large pretax retirement contributions, this strategy make backfire.  Careful consultation with your tax expert is required.

All in all, a tax-smart investment plan is more important than ever. Talk to your tax adviser to help ensure your tax planning matches your investment and income needs.

For questions, contact Deborah Helton, CPA, at

This morning’s Entrepreneurial Corner covered marketing vs. branding!

Here is a tool to assess how your company behaves when it comes to brand, as well as another handout.  To get help filling in the blanks in the handout or your company’s branding, feel free to speak directly with this morning’s presenter, Suzanne Tulien, at

If you would like to be included in these events in the future, e-mail Stephanie Johnson at

Beginning October 1, 2013, employers are required to provide written notices to all employees,  regardless of benefit enrollment status or full- or part-time status, about health coverage options, including notification about federal and state health insurance marketplaces. Employers can send the notices by mail or electronically. In 2014, an employer will have 14 days from the employee’s start date to provide a notice.

The Department of Labor has provided model notices for employers who do not offer insurance, as well as for employers who offer coverage to some or all employees.

Employers can also create their own notices, which must include:

  • An explanation of the marketplaces;
  • A reference to for employees to get information;
  • Information about premium subsidies that may be available to employees if they purchase a qualified health insurance plan through a marketplace; and
  • Notification that employees may lose their employer contribution to the health plan if it is obtained through a marketplace.

COBRA Election Notice

COBRA election notices for continuation coverage must also include information about the marketplaces.

Thank you to Meike Alberts, who is with Paychex, Inc.  For questions, contact Meike at or Deborah Helton, CPA, at

Deborah Helton

Deborah Helton


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Kris Ponnequin

Kris Ponnequin


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Are you a 401(k) plan fiduciary?  If you are, you have specific responsibilities and are subject to standards of conduct, because you act on behalf of the participants in the plan.   This position of trust has many embedded legal and ethical responsibilities you should be aware of to ensure you are meeting your obligations.

Some of these responsibilities include:

  • Acting solely in the interest of plan participants and their beneficiaries, with the exclusive purpose of providing benefits to them
  • Carrying out their duties with skill, prudence, and diligence
  • Following the plan documents (unless inconsistent with ERISA)
  • Diversifying plan investments
  • Paying only reasonable expenses of administering the plan and investing its assets
  • Avoiding conflicts of interest
  • Selecting the investment providers and the investment options, and monitoring their performance

As the fiduciary, your responsibility decreases and you’re not liable for losses because of the participant’s investment decisions if the plan is properly set up to give participants control over their investments. Should your participants have control over their investments, the Department of Labor (DOL) gives guidance so that participants can make informed decisions.

What if a plan fiduciary fails to carry out its responsibilities?

Fiduciaries that do not follow the required standards of conduct may be personally liable. If the plan lost money because of a breach of their duties, fiduciaries would have to restore those losses, or any profits received through their improper actions. For example, if an employer did not forward participants’ 401(k) contributions to the plan, they would have to pay back the contributions to the plan as well as any lost earnings, and return any profits they improperly received. Fiduciaries also can be removed from their positions as fiduciaries if they fail to follow the standards of conduct.

Not having a plan investment committee and regular meetings – ERISA requires that the named fiduciary make decisions regarding the plan that are in the best interests of plan participants and beneficiaries.   The regulations also state that if you lack the required expertise to make these decisions, that you enlist the support of those who have it.  Meeting regularly with your expert to oversee things are in order is part of this responsibility.

Not paying deposits on time employees and owners – The IRS and DOL have strict rules regarding the timing of deposits.  According to the IRS 20 – 25 percent of plans examined are not in compliance with these rules.  Since you are often in the trusted position of depositing money that doesn’t belong to you, penalties are steep for failing to comply with these simple fiduciary responsibilities.  If you don’t already have an automated process for making these deposits, consider talking to your professional advisors to ensure this process is automated and accurate.

Not following your plan document Recent and frequent law changes can leave your plan document out of date, make sure your plan document is updated regularly to remain in compliance with the IRS and other governing bodies.  Once you ensure it is up-to-date, follow the plan document.  If your document doesn’t allow for loans or self-directed accounts, and in reality the participants engage in this activity, you should update your document or change company practice to ensure actions match what is codified.  Don’t forget to notify employees, vendors and tax professionals of these changes.  Change is acceptable, but institutional practices without documenting and informing participants isn’t.

Not keeping good recordsIt is safe to say that you probably do not understand or want to understand the complexities associated with record keeping the assets that you have accumulated in your 401(k) plan. Ironically, even in today’s age of technology, record keeping is still a labor intensive endeavor, particularly if your records have to be generated for many years. Given these very extensive and complicated regulations, virtually none of the retirement plan providers will provide investor-friendly statements. Instead, they tend to generate what the law requires. Unfortunately, what is required by the law is not necessarily what you need in order to make a financial assessment of your investment strategy.

In order to evaluate performance, you need to know on a monthly basis:

  • What your beginning account balance is,
  • How much you and your employer contributed to your retirement plan account,
  • The amount of any transfers or withdrawals that you made during the period,
  • The amount of any gains or losses that you experienced and your endings balance.

Since your record keeper probably does not provide this information to you in a user-friendly way, you will most likely have to take the information from your monthly or quarterly statements, and build a spreadsheet that you can use to track your information. Once you have properly compiled the information, you will then need to manually calculate your annualized rate of return in order to conduct a thorough analysis and review. This process should also produce easy to read participant statements for your employees.

Not getting the most out of your 401(k) – Unfortunately, the cost structure of various investments can be confusing. According to the GAO, the company that administers the 401(k) “may also be receiving compensation from mutual fund companies for recommending their funds. … As a result, participants may have more limited investment options and pay higher fees for these options than they otherwise would.” The bottom line: Funds could get into 401(k) s because they provide the most advisor compensation, not because they are the best option for your plan.  The good news is that 2012 changes require plan fiduciaries to provide information to participants and beneficiaries about the existence of self-directed brokerage accounts if offered by the plan, fees related to accessing that account and at least quarterly, the amount of fees charged against participant’s account.

Not Appraising Alternative Investment Valuations – With a self-directed account it is important for the fiduciary to understand and trust the valuations received for alternative investments.  The valuations are pertinent when disclosing the overall plan assets.  A valuation of a small business or real estate holding is not always exact and can vary significantly depending on who conducts the valuations as there are several approaches that look at cost, comparables and income to determine the value of a business.  In addition there are discounts for marketability and non-controlling interest that can alter the value of a business.  The fiduciary, when possible, should vet the appraiser to make sure the appraiser has the appropriate qualifications and skills to accurately value the alternative investments.

Not researching advisors – Not all advisors are created equal.  It is necessary to evaluate and review the advisors before selection and once annually thereafter.  There are several questions that need to be addressed before making a decision:

    1. Does the advisor have the experience and credentials necessary?
    2. Is this in their area of expertise or is this a small side service the advisor provides?
    3. Is there a dedicated team of experts?
    4. How does one advisor compare to another?
    5. Are there any conflicts of interest?
    6. Can the advisor help educate the fiduciary and the plan participants?
    7. What are the fees and agreement terms?

Not following the terms of the plan document – Retirement plans develop certain patterns or routines that may not, over time, remain consistent with the terms of the plan.  This is true especially if you are using a plan document prepared by a provider that may accommodate that provider’s approach, but not how you administer the plan now.  It’s a good idea to do a document and process audit every few years to make sure the document reflects how you are actually operating and administering the plan.

Thinking your plan qualifies for 404(c) protection – Many plan sponsors think their plan meets the standards of ERISA 404(c) and therefore believe they are shielded them from being sued for participant investment decisions, so long as certain conditions are met.  However, industry experts are nearly uniform in their assessment that very few, perhaps no plans meet those standards.  Even if you think your plan does comply, double check, and remember that the DOL thinks you’re responsible for every participant investment decision, except those behind the 404(c) wall.  

If you have questions about how BiggsKofford can help you be a successful plan fiduciary, contact Deborah Helton, CPA, at or Kris Ponnequin, CPA, at


The Colorado Springs Technology Incubator
is pleased to host an

Information Session for the Colorado Advanced Industries Accelerator Grants
SEPTEMBER 16, 2013, 2:00 – 3:00 p.m.
at the
Tim Gill Center for Public Media
315 E. Costilla Street
Colorado Springs 80903
Plenty of free parking!

You will want to attend this event and learn about this potential opportunity for your business.

The Colorado Office of Economic Development and International Trade (OEDIT) will be providing updates and information on the Advance Industries Accelerator Grant Program. Additional information is contained in this attached flier.

Be sure to share this notice with interested entrepreneurs and RSVP to:

Stop Marketing (for now)…

Start Branding


Led by Suzanne Tulien  
Suzanne is founder and Principal of The Brand Ascension Group and co-pioneer of the
Brand DNA Methodology; a step-by-step brand-defining and positioning process for business owners and their employees. Suzanne is a consultant, speaker, award-winning graphic designer, certified trainer and certified in accelerated learning methodologies.

We’ll Discuss:

  • How to increase customer loyalty and referrals
  • Marketing vs. Branding
  • How to make marketing dollars work smarter, not harder
  • How to decrease marketing expenditures and price sensitivity



Thursday, September 19, 2013

7:30 – 9 a.m.

BiggsKofford’s Office,

630 Southpointe Court, Suite 200




Each year almost all retirement plans must file an annual report with the Department of Labor called Form 5500.  The length and complexity of the form depends upon the number of participants in the plan.  Generally, the large form, Form 5500, must be filed for plans with more than 100 participants; the short form, Form 5500-SF, must be filed for plans with less than 100 participants; and one-participant plans (with more than $250,000 in assets) must file Form 5500-EZ.

Regardless of the form that is filed, a treasure-trove of plan information is given to the Department of Labor each year which the Department uses to identify potential audit clients.  Former Department of Labor officials have confided that DOL audits are never random and that sometimes within 24 hours of filing the 5500 an auditor is examining its data to determine the potential of an audit. Here are 6 red flags that may guarantee a visit from your “friendly” DOL auditor.

  1. Late deposits:  Small retirement plans, those with fewer than 100 participants, must deposit participant 401(k) or 403(b) contributions within 7 business days of the date the employees are paid.  Large retirement plans must deposit these contributions as soon as possible.  Late deposits must be reported on Form 5500 and on Form 5330.  Form 5330 is used to pay the IRS penalties and interest on the late deposits.  Former DOL officials have confided that if late deposits are the only reported offense and the DOL has received Form 5330, it is very unlikely the plan will be chosen for an audit.
  2. No Fidelity Bond reported:  A Fidelity Bond is designed to protect the retirement plan in the event of fiduciary fraud.  All retirement plans that are subject to ERISA must carry a fidelity bond that is no less than 10% of the plan assets.  The maximum required bond is $500,000.  These bonds are relatively inexpensive, required, and its value must be reported on the 5500.
  3. Employer securities:  Some employers make contributions to the plan in the form of employer stock.  If this stock is not publically traded its value must be annually determined via an independent appraisal.  Employers have been known to “influence” the stock appraisal in order to manipulate the stock’s value which is why the DOL is so keenly interested in auditing these types of plans.
  4. Investment loans and real estate:  Most retirement plan documents allow Trustees to engage in issuing loans as a trust investment; however, the loans must be structured properly to avoid Unrelated Business Taxable Income and the investment must be permissible.  If the investment is, for example, a cozy little bungalow up in the Colorado mountains that the plan’s trustee happens to frequent, the plan has a serious problem since it has engaged in a “prohibited transaction”.
  5. Partnership and joint venture interests:  Similar to employer securities, the potential audit issue is the reported market value of these investments.  Without a secondary marketplace, the value is difficult to objectively determine.  The IRS and DOL are aware of this issue which is why these plans generate such regulatory interest.
  6. Tangible personal property:  Trust investments in personal property spark regulatory interest because they are difficult to value and are often personally used.

Example:  Using general retirement plan assets, enterprising Trustee, Bill, purchases his favorite Renoir oil painting and places it in the business lobby for all to enjoy.  Bill and the retirement plan have just engaged in a prohibited transaction since Bill and the company cannot derive any personal benefit from the plan’s investments.  As strange as it may be, to avoid a prohibited transaction, Bill would need to make sure this painting is stored, hung, or used in such as way as to create no benefit for the plan fiduciaries.  Note that participant-directed retirement accounts can never invest in collectibles.

Competent retirement plan Third Party Administrators can help structure your plans and properly complete Form 5500 so that your audit risk is significantly reduced.  If you receive that dreaded audit letter from your Department of Labor or IRS there are steps you should immediately take.  For more information, click here to receive our complimentary white paper entitled, “How to Prepare for a Department of Labor or IRS Qualified Plan Audit“.

Nathan Carlson, MBA, AIF, QPA, QKA, is the President of Retirement Planning Services, Inc., a provider of employee benefit solutions for over 25 years.  To contact Nathan, e-mail him here.

Did you miss Fred Crowley’s presentation on the local economy last week?  Check out his presentation here!

Have you signed up for the Southern Colorado Economic Forum? Learn more here.

Friday, September 20,
6:45 a.m.

1Engage your peers. Enjoy the best breakfast in Colorado Springs! 


El Paso Club, Downtown Colorado Springs 

30 E Platte Ave., Colorado Springs


Breakfast & Panel Discussion: 6:45a.m. to 9 a.m. 


Ownership Thinking: 
Best practices for creating a culture of accountability and productivity
  • How to create incentive plans that engage and excite your team
  • Why ownership thinkers don’t have to be owners
  • Why financial statements aren’t ‘enough’ when it comes to open book management 


David Cohn


Ownership Thinking


Peter Husak



Dan Schnepf

Dan Scheph


Matrix Design Group

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Warning, this is NOT the Colorado Department of Revenue. This is to make a payment to BiggsKofford, CPA Firm.