TDR’s arise when the creditor grants a concession to the debtor for outstanding debt.  This concession includes any restructuring that is made for economic or legal reasons related to the debtor’s financial difficulties.  The concessions are usually developed under one of two situations: A) an agreement is made between the borrower and creditor or B) the concession is mandated by law or court order.  These concessions usually include, but are not limited to, the following two scenarios: 1) the creditor modifies the terms of the debt or 2) the creditor accepts cash, an equity interest in the debtor, or some other form of assets in full satisfaction of the debt even though the value received is less than that of the balance owed by the debtor.  Regardless of the form of the concession, the objective of the creditor for granting this concession is to maximize the probability of receipt for the outstanding debt.  We will take a look at both scenarios to ensure TDR’s are appropriately identified and accounted for.

Scenario 1): When the creditor modifies the terms of the debt by making the terms more favorable to the debtor to protect the creditor’s investment, the modified terms usually include one or a combination of the following:  A) Reduction of the stated interest rate for the remaining original life of the debt; B) Extension of the maturity date or dates at a stated interest rate lower than the current market rate for new debt with similar risk; C) Reduction of the face amount or maturity amount of the debt as stated in the agreements; or D) Reduction of accrued interest.  Although the terms listed above are characteristics of TDR’s, the underlying cause and availability of the modified terms for the debtor is what ultimately determines if a TDR truly exists.

If the Debtor is experiencing financial difficulties and the creditor grants the debtor a lower interest rate than that of the original terms but this decrease is primarily due to a decrease in market interest rates or the decrease is done to maintain a relationship with the debtor because the debtor could obtain simliar funds from other sources at the current lower market rates then this does not constitute a TDR.  What constitutes the TDR as such, under the modified terms scenario, is that the debtor could only obtain funds from other creditors at interest rates so high that it cannot afford to pay them.

Scenario 2): Assuming the creditor accepts some form of cash, or other form of assets in full satisfaction of the debt, the creditor must determine if the fair value of the assets received, less cost to sell, will be less than the outstanding debt.  If so, this will be considered a TDR.  However, if the fair value of the assets received, less cost to sell, are equal to or greater than the outstanding debt, this would not be considered a TDR.  The creditor must use professional judgement, based on the circumstances, to ensure a TDR is properly identified.  Once a TDR is identified, the creditor should determine the appropriate accounting treatment.  This treatment will differ based on scenario one or two.

The accounting treatment for a TDR in which the creditor receives cash or some other form of assets if full satisfaction of the outstanding debt is fairly straightforward.  The creditor should account for the asset received at fair value less cost to sell.  The excess of the debt over the fair value of the asset received, less cost to sell, must be recorded as a debit to the allowance for credit/loan losses or as a debit against income if no allowance account is available.  Also, any legal fees and/or other direct cost incurred by the creditor to obtain the asset should be charged to expense when incurred.  Subsequent to the initial recording of the TDR, the creditor should account the assets received just as if the assets had been acquired by cash.

A creditor that recognizes a TDR under the modified terms scenario should account for the transaction as impaired debt under FAS114.  A loan is considered impaired when, based on current information and events, it is probable that a creditor will be unable to collect all amount due according to the contractual terms of the loan agreement.  The creditor must remember for TDR’s that the contractual terms of the loan agreement refers to the terms specified by the original loan agreement and not the terms of the restructuring agreement.  Additional consultation of  FAS114 may be needed to insure proper accounting and monitoring is acheived.  Do not hesitate to contact us with any questions or concerns.

The full article is available here courtesy of Safe Systems and ComplianceGuru.com!

Due to the relative ease of mitigating this vulnerability, all WordPress users should take heed and follow the fix outlined below.

It is common practice to rename or remove the default install.php file found in the wp-admin directory and most WordPress security scanners will detect if the installer file has been removed. This exploit, however, uses the resource file setup-config.php which is often overlooked.

The long and short of it is, if you are running a WordPress blog or website, make sure that you rename or remove both the install.php and the setup-config.php file after installation of the site has been completed as well as any time a WordPress update is installed (these files may be replaced and recreated during the update process). Another more permanent, albeit more technical, solution would be to prevent access to the wp-admin directory from internet IP addresses using Apache directory permissions or a web application firewall.

For the true geeks, POC code is available here.

Go to any hotel, and you are liable to see a wireless network that is named after the hotel. Before you connect, consider whether or not that network is REALLY the hotel network. It is trivial for an experienced attacker to set up a fake wireless network that looks like a legitimate one using only a laptop. To make the attack even more convincing, the attacker can then pass the traffic received out to the internet so that the unsuspecting victim can surf away to their hearts content. The “Fake AP” attack is particularly dangerous as the access point can also negate any benefit of https security by decrypting and re-encrypting the traffic as it is passed between the victim and the website that they are browsing.

Taking this attack a step further, an attacker can exploit a victim’s tendency to store wireless networks that they have previously connected to and pretend to be one of those trusted networks. Chances are one of those stored networks will be an unsecured one (e.g. from a hotel or coffee shop). When a laptop or smartphone “remembers” a wireless network, the device will send out broadcast packets looking for that network whenever it is in an unconnected state – it is the wireless equivalent of a game of Marco-Polo. By watching for these broadcast packets, the attacker can then determine the network name the device is looking for and impersonate it, to which the device then happily connects (maybe an iPhone from inside the pocket of the unsuspecting victim as they are walking through the airport).

A variant of this attack is known as the “Café Latte” attack. This attack uses the same “Fake AP” theory and applies it to a client that is attempting to connect to a stored network that uses WEP encryption (as opposed to impersonating an open access point that does not require an encryption key). WEP is a flawed encryption mechanism that is unfortunately still fairly common in consumer grade wireless networks. This attack can successfully crack the WEP key of a company’s access point in a matter of minutes while the unsuspecting employee is sitting in a coffee shop 1,000 miles away from the office (hence the name “Café Latte”).

The following practices will help mitigate the risk associated with fake access point attacks:

1. If staying in a hotel or working in a location where there is an option of wired vs. wireless networking, always choose the wired option
2. Do not allow your laptop or smartphone to remember wireless networks to which they have previously been connected to
3. Disable Wifi on your laptop or smartphone when you are not using it
4. Employ WPA2/WPA Enterprise encryption on your home or office access point as opposed to WEP

Note that this is the third of a four part series of articles dealing with WiFi security for the non-technical user. The previous article in the series may be found here. Stay tuned for the final installment of this series, which deals with securing your home or small business wireless network! Please do not hesitate to contact us if you are interested in our various IT general control review, penetration testing, and vulnerability assessment services.

In general, if you receive a Form 1099-C from a creditor, you must report the indicated amount as ordinary income on your return.  However, if you meet a certain exception or exclusion, you do not have to include the canceled debt in income. The following are the common exceptions and exclusions:

Exceptions

1. Amounts specifically excluded from income by law such as gifts or bequests
2. Cancellation of certain qualified student loans
3. Canceled debt that if paid by a cash basis taxpayer is otherwise deductible
4. A qualified purchase price reduction given by a seller

          Exclusions

1. Debt canceled in a Title 11 bankruptcy case – you must be under the jurisdiction of the court and the cancellation of the debt is granted by the court or occurs as a result of a plan approved by the court.
2. Debt canceled due to insolvency- If you are insolvent immediately before a debt is canceled, the canceled debt can be excluded from income to the extent you are insolvent.  You are considered insolvent if the fair market value of all your assets is less than your total liabilites.  For example, if you have assets worth $10,000 and debt totaling $20,000, you are insolvent to the extent of $10,000 and can exclude canceled debt up to $10,000.
3. Cancellation of qualified farm indebtedness – you can exclude canceled farm debt from income if all of the following apply:
• The debt was incurred directly in connection with the operation of your farm.
• 50% or more of your total gross receipts for the three previous years prior to the current taxable year were from the trade or business of farming
• The cancellation of was made by a qualified person. A qualified person is an individual, organization, partnership, association, corporation, etc., who is actively and regularly engaged in the business of lending money.
4. Cancellation of qualified real property business indebtedness – real property (a.ka. real estate) is land and generally anything built on or attached to it. Qualified real property business indebtedness is debt that was incurred or assumed in connection with real property used in a trade or business and is secured by that real property.
5. Cancellation of qualified principal residence indebtedness – canceled debt from your home mortgage can be excluded from income, assuming the mortgage was used to buy, build, or substantially improve your home

Generally, if you exclude canceled debt from income for one of the above exclusion reasons, you must also reduce certain tax attributes (certain credits, losses, and basis of assets).

If a lender forecloses on your loan and repossesses the property, it is treated as a deemed sale from which you may realize gain or loss.  If the outstanding loan balance was more than the fair market value of the property and the lender cancels all or part of the remaining loan balance, you also may realize ordinary income from the cancellation of the debt.  You must report this income on your return unless certain exceptions or exclusions apply.

Please contact us if you have had debt canceled and we will be glad to address the tax implications as it relates to your particluar situation.

This concept applies to a wired network as much as it does to a wireless network, however I still think this needs to be mentioned. I’m sure that the other guests who happen to be staying at Caesar’s Palace during the annual BlackHat convention would think twice against connecting to that hotel wireless network if they knew that there were hundreds of experienced hackers also connected and just looking for some unsuspecting victim to play with.

No matter what operating system you run (Yes, EVEN Mac OSX despite what a die-hard Mac fan will tell you), there are inevitably going to be vulnerabilities discovered that have to be patched and maybe a zero-day or two out there that have not been patched yet. Some of these vulnerabilities can potentially be remotely exploited by an attacker on the same network and give them remote access to your computer. It is always wise to keep your system patched and install updates in a timely manner.  A properly configured software firewall and antivirus software that is also up to date are also key protections to be employed to mitigate the risk of a successful attack.

Even in the case of a wired network, techniques such as ARP Poison Routing can be used to trick your computer into sending data packets out through an attacker’s machine as opposed to a legitimate gateway. In addition, DNS spoofing can be combined with ARP cache poisoning to redirect a victim to an evil website when they attempt to go to a legitimate website. The details of these types of attacks are way beyond the target audience of this article, however the concept is simple: The victim types www.google.com into their browser and they are instead taken to an evil website on the attacker’s machine that may be designed to capture login credentials or maybe run some nasty exploit code and gain control of their computer. These types of attacks are generally easier to successfully implement on a wireless network than on a wired network and the anonymous nature of wireless traffic makes it virtually impossible for the attacker to be physically tracked down by a security professional as would be possible when physically plugged into a wired network.

The following practices will help you mitigate the risks of falling victim to traffic redirection and interception techniques (which are similar to techniques outlined in our previous article on sniffing and sidejacking):

1. Avoid using open / unsecured wireless networks such as public wifi, coffee shop networks, etc. where possible.
2. If you do use an open WiFi network, avoid logging in to sensitive sites such as internet banking sites, email accounts, or social media sites.
3. Pay close attention to your browser for certificate errors, which would indicate that an SSL secured site is being spoofed and transmissions are being intercepted:
   
4. Use a VPN tunnel . All traffic that is transmitted through the tunnel is encrypted between your computer and the VPN device by the tunnel, regardless of the type of data.

Note that this is the second of a four part series of articles dealing with WiFi security for the non-technical user. The previous article in the series may be found here. Stay tuned for the remaining articles in the series! Please do not hesitate to contact us if you are interested in our various IT general control review, penetration testing, and vulnerability assessment services.

Definition of Capital Asset
The use and treatment of property determines whether or not it is considered a capital asset. Assets for personal use are not considered capital assets. An asset must be used for income generation and not used in the taxpayer’s ordinary course of business. Investments in securities or other income generating materials such as gold or silver are considered capital assets. However, if the taxpayer buys and sells items such as gold or silver in his or her trade or business, they are not considered capital assets. If an asset is received as a gift or inheritance that would otherwise be considered a capital asset, it is taxed differently than if it were actually purchased.

Capital Gain Tax Consequences
When a capital asset is sold for a profit, the difference between the taxpayer’s original cost and the selling price is considered a capital gain. The profit or gain from the sale is taxed at a lower tax rate than the taxpayer’s regular income tax rate. However, there are some exceptions to this rule such as gains on sales of collectibles. There are also special tax rules for selling a capital asset for a loss.

Capital Loss and Tax Deductions
If the taxpayer realizes a loss from the sale of a capital asset, he or she may deduct up to $3,000 if married or $1,500 if single on his or her tax return. Keep in mind that the use of an asset determines whether the asset qualifies for capital loss treatment. An individual’s car or home does not qualify for a capital loss deduction. Losses exceeding the described limitations may be carried forward to future tax years.

Capital Asset Long-Term, Short-term Tax Treatment
How long a taxpayer owns a capital asset before selling it also affects the tax treatment of the profits from the sale. If the taxpayer has owned a capital asset for more than one year, it will be taxed at a different rate than a capital asset owned for less than one year.

Capital Gains and Losses for Corporations
When a corporation sells a capital asset for a profit, that profit is taxed at the corporation’s ordinary income tax rate. If the corporation sells the capital asset for a loss, that loss can only be used to offset the current and future year’s capital gains.

If you have any questions about this article, please do not hesitate to contact us.

• 55.5 cents per mile for business miles driven
• 23 cents per mile driven for medical or moving purposes
• 14 cents per mile driven in service of charitable organizations

• Businesses should consider making expenditures that qualify for the business property expensing option. For tax years beginning in 2011, the expensing limit is $500,000 and the investment ceiling limit is $2,000,000. And a limited amount of expensing may be claimed for qualified real property. However, unless Congress changes the rules, for tax years beginning in 2012, the dollar limit will drop to $139,000, the beginning-of-phaseout amount will drop to $560,000, and expensing won’t be available for qualified real property. The generous dollar ceilings that apply this year mean that many small and medium sized businesses that make timely purchases will be able to currently deduct most if not all their outlays for machinery and equipment. What’s more, the expensing deduction is not prorated for the time that the asset is in service during the year. This opens up significant year-end planning opportunities.
• Businesses also should consider making expenditures that qualify for 100% bonus first-year depreciation if bought and placed in service this year. This 100% first-year write-off generally won’t be available next year unless Congress acts to extend it. Thus, enterprises planning to purchase new depreciable property this year or the next should try to accelerate their buying plans, if doing so makes sound business sense.
• Nail down a work opportunity tax credit (WOTC) by hiring qualifying workers (such as certain veterans) before the end of 2011. Under current law, the WOTC won’t be available for workers hired after this year.
• Make qualified research expenses before the end of 2011 to claim a research credit, which won’t be available for post-2011 expenditures unless Congress extends the credit.
• If you are self-employed and haven’t done so yet, set up a self-employed retirement plan.
• Depending on your particular situation, you may also want to consider deferring a debt-cancellation event until 2012, and disposing of a passive activity to allow you to deduct suspended losses.
• If you own an interest in a partnership or S corporation, you may need to increase your basis in the entity so you can deduct a loss from it for this year.

These are just some of the year-end steps that can be taken to save taxes. Again, by contacting us, we can tailor a particular plan that will work best for you.

• Increase the amount you set aside for next year in your employer’s health flexible spending account (FSA) if you set aside too little for this year. Don’t forget that you can no longer set aside amounts to get tax-free reimbursements for over-the-counter drugs, such as aspirin and antacids.
• If you become eligible to make health savings account (HSA) contributions in December of this year, you can make a full year’s worth of deductible HSA contributions for 2011.
• Realize losses on stock while substantially preserving your investment position. There are several ways this can be done. For example, you can sell the original holding, then buy back the same securities at least 31 days later. It may be advisable for us to meet to discuss year-end trades you should consider making.
• Postpone income until 2012 and accelerate deductions into 2011 to lower your 2011 tax bill. This strategy may enable you to claim larger deductions, credits, and other tax breaks for 2011 that are phased out over varying levels of adjusted gross income (AGI). These include child tax credits, higher education tax credits, the above-the-line deduction for higher-education expenses, and deductions for student loan interest. Postponing income also is desirable for those taxpayers who anticipate being in a lower tax bracket next year due to changed financial circumstances. Note, however, that in some cases, it may pay to actually accelerate income into 2011. For example, this may be the case where a person’s marginal tax rate is much lower this year than it will be next year.
• If you believe a Roth IRA is better than a traditional IRA, and want to remain in the market for the long term, consider converting traditional-IRA money invested in beaten-down stocks (or mutual funds) into a Roth IRA if eligible to do so. Keep in mind, however, that such a conversion will increase your AGI for 2011.
• If you converted assets in a traditional IRA to a Roth IRA earlier in the year, the assets in the Roth IRA account may have declined in value, and if you leave things as-is, you will wind up paying a higher tax than is necessary. You can back out of the transaction by recharacterizing the rollover or conversion, that is, by transferring the converted amount (plus earnings, or minus losses) from the Roth IRA back to a traditional IRA via a trustee-to-trustee transfer. You can later reconvert to a Roth IRA.
• It may be advantageous to try to arrange with your employer to defer a bonus that may be coming your way until 2012.
• Consider using a credit card to prepay expenses that can generate deductions for this year.
• If you expect to owe state and local income taxes when you file your return next year, consider asking your employer to increase withholding of state and local taxes (or pay estimated tax payments of state and local taxes) before year-end to pull the deduction of those taxes into 2011 if doing so won’t create an alternative minimum tax (AMT) problem.
• Take an eligible rollover distribution from a qualified retirement plan before the end of 2011 if you are facing a penalty for underpayment of estimated tax and the increased withholding option is unavailable or won’t sufficiently address the problem. Income tax will be withheld from the distribution and will be applied toward the taxes owed for 2011. You can then timely roll over the gross amount of the distribution, as increased by the amount of withheld tax, to a traditional IRA. No part of the distribution will be includible in income for 2011, but the withheld tax will be applied pro rata over the full 2011 tax year to reduce previous underpayments of estimated tax.
• Estimate the effect of any year-end planning moves on the AMT for 2011, keeping in mind that many tax breaks allowed for purposes of calculating regular taxes are disallowed for AMT purposes. These include the deduction for state property taxes on your residence, state income taxes (or state sales tax if you elect this deduction option), miscellaneous itemized deductions, and personal exemption deductions. Other deductions, such as for medical expenses, are calculated in a more restrictive way for AMT purposes than for regular tax purposes. As a result, in some cases, deductions should not be accelerated.
• Accelerate big ticket purchases into 2011 in order to assure a deduction for sales taxes on the purchases if you will elect to claim a state and local general sales tax deduction instead of a state and local income tax deduction. Unless Congress acts, this election won’t be available after 2011.
• You may be able to save taxes this year and next by applying a bunching strategy to “miscellaneous” itemized deductions, medical expenses and other itemized deductions.
• If you are a homeowner, make energy saving improvements to the residence, such as putting in extra insulation or installing energy saving windows, and energy efficient heaters or air conditioners. You may qualify for a tax credit if the assets are installed in your home before 2012.
• Unless Congress extends it, the up-to-$4,000 above-the-line deduction for qualified higher education expenses will not be available after 2011. Thus, consider prepaying eligible expenses if doing so will increase your deduction for qualified higher education expenses. Generally, the deduction is allowed for qualified education expenses paid in 2011 in connection with enrollment at an institution of higher education during 2011 or for an academic period beginning in 2011 or in the first 3 months of 2012.
• You may want to pay contested taxes to be able to deduct them this year while continuing to contest them next year.
• You may want to settle an insurance or damage claim in order to maximize your casualty loss deduction this year.
• Purchase qualified small business stock (QSBS) before the end of this year. There is no tax on gain from the sale of such stock if it is (1) purchased after September 27, 2010 and before January 1, 2012, and (2) held for more than five years. In addition, such sales won’t cause AMT preference problems. To qualify for these breaks, the stock must be issued by a regular (C) corporation with total gross assets of $50 million or less, and a number of other technical requirements must be met. Our office can fill you in on the details.
• If you are age 70- 1/2 or older, own IRAs, and are thinking of making a charitable gift, consider arranging for the gift to be made directly by the IRA trustee. Such a transfer, if made before year-end, can achieve important tax savings.
• Take required minimum distributions (RMDs) from your IRA or 401(k) plan (or other employer-sponsored retired plan) if you have reached age 70- 1/2. Failure to take a required withdrawal can result in a penalty of 50% of the amount of the RMD not withdrawn. If you turned age 70- 1/2 in 2011, you can delay the first required distribution to 2012, but if you do, you will have to take a double distribution in 2012—the amount required for 2011 plus the amount required for 2012. Think twice before delaying 2011 distributions to 2012—bunching income into 2012 might push you into a higher tax bracket or have a detrimental impact on various income tax deductions that are reduced at higher income levels. However, it could be beneficial to take both distributions in 2012 if you will be in a substantially lower bracket that year, for example, because you plan to retire late this year.
• Make gifts sheltered by the annual gift tax exclusion before the end of the year and thereby save gift and estate taxes. You can give $13,000 in 2011 to each of an unlimited number of individuals but you can’t carry over unused exclusions from one year to the next. The transfers also may save family income taxes where income-earning property is given to family members in lower income tax brackets who are not subject to the kiddie tax.