Spring 2015 issue of Horizons

RubinBrown's Spring 2015 issue of Horizons covers globalization and the impacts it has on the way we do business. The spring issue features articles on RubinBrown's International Business Summit and how key industries are adapting to the global economy.

horizons

SPRING 2015 A publication by RubinBrown LLP

globalization : CHANGING THE WAY WE DO BUSINESS

FEATURING

u RubinBrown Hosts International Business Summit

u How Key Industries Adapt to the Global Economy

PLUS

u RubinBrown Enters the Nashville Market

u No Lab Coats Needed! Your Company Can Take Advantage of the Research & Experimentation Tax Credit

u The New Revenue Recognition Standard: Changes Ahead for Your Top & Bottom Line

TABLE OF CONTENTS

horizons A publication by RubinBrown LLP SPRING 2015

Features

1 2 5

Welcome from the Managing Partner

RubinBrown News

Chairman James G. Castellano, CPA, CGMA

Chairman’s Corner

6 12 57 18 22

RubinBrown Hosts International Business Summit

Managing Partner John F. Herber, Jr., CPA, CGMA

RubinBrown Enters the Nashville Market

Denver Managing Partner Michael T. Lewis, CFA

No Lab Coats Needed! Your Company Can Take Advantage of the Research & Experimentation Tax Credit

Denver Resident Manager Gregory P. Osborn, CPA

The New Revenue Recognition Standard: Changes Ahead for Your Top & Bottom Line

Kansas City Managing Partner Todd R. Pleimann, CPA

Timely Reminders

Editor Dawn M. Martin

Industry-Specific Articles

Art Director Jen Chapman

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transportation & dealerships

not - for - profit

private equity Global Sourcing Trends for Manufacturing Companies An interview with Forsyth Advisors about manufacturing sourcing strategies. construction Before Going Overseas, Consider These Tax Issues A look at tax issues to be aware of with multi- national operations.

Transportation: The Heartbeat of Globalization

A Practical Approach to Combating Fraud in a Not-For-Profit Organization An outline for non-profit organizations to identify and manage fraud risks. law firms Increasing Law Firm Profitability by Measuring Client Satisfaction The impact a formal service quality program can have on a law firm. healthcare How Data is Changing the Healthcare Industry Increasing transparency of health data continues without federal standards in place.

Horizons , a publication of RubinBrown LLP, is designed to provide general information regarding the subject matters covered. Although prepared by professionals, its contents should not be construed as the rendering of advice regarding specific situations. If accounting, legal or other expert assistance is needed, consult with your professional business advisor. Please call RubinBrown with any questions (contact information is located on the back cover).

Demand on trucking companies to meet transportation needs, plus the impact of globalization on auto dealers.

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public sector How Recent Changes in Federal Grant Rules Impact You An explanation of the changes to administrative requirements and cost principles effective with the Uniform Grant Guidance.

Any federal tax advice contained in this communication (including any attachments): (i) is intended for your use only; (ii) is based on the accuracy and completeness of the facts you have provided us; and (iii) may not be relied upon to avoid penalties.

Readers should not act upon information presented without individual professional consultation.

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life sciences & technology

Intellectual Property Considerations in a Global Economy Key practices to protect your IP.

WELCOME FROM THE MANAGING PARTNER

An Entrepreneurial Spirit at RubinBrown

“Innovation and continuous improvement” is one of RubinBrown’s core values. That spirit has never been more evident than it has been over the past few months at our firm. RubinBrown has implemented a number of entrepreneurial initiatives—all of which have been originated by our talented team members. ∙ Cyber Security Advisory Services : Earlier this year, RubinBrown launched a new practice to provide cyber security advisory services. We hired Partner Rob Rudloff, a leader for this new practice, who worked previously at the Pentagon and NSA. We recognize the growing need for cyber security assistance for our clients as their services and organizations continue to expand and interact in digital space. ∙ Research & Experimentation Tax Credit Services: Late last fall, RubinBrown created a new practice led by Partner Rich Wile to assist clients with a very specialized tax credit (read more on page 18). We hired two specialty experts for this new practice and they are working to help our clients take advantage of the R &E Tax Credit, as well as develop processes to continue to do so in the future. ∙ CIC@4240: In order to establish a presence in the center of St. Louis’ innovation ecosystem, we decided to open a satellite office in the CORTEX Innovation Center, specifically at the new Cambridge Innovation Center (CIC). RubinBrown is now able to provide some of the region’s largest life science organizations and promising start-ups with valuable tax, accounting and advisory resources. We are proud to support the community. ∙ Nashville: RubinBrown is very excited to enter the Nashville market! The Nashville office will serve as a specialty office that will focus initially on serving real estate clients which we will expand as the client base grows. The office opens on June 1. Please read more on page 12. These initiatives, as well as those to come, are developed with our clients in mind. We are always looking for new and innovative ways to help grow your businesses and solve complex issues.

John F. Herber Jr., CPA, CGMA Managing Partner

Pleasant reading,

www.RubinBrown.com | page 1

RUBINBROWN NEWS

100+ RubinBrown Alumni Attend 2014 Alumni Reception

Last October, more than 100 alumni gathered in the RubinBrown Center in Clayton to catch up with friends and former colleagues at the 2014 RubinBrown Alumni Reception. It has been many years since RubinBrown alumni gathered together. It was a beautiful fall evening and current and former team members enjoyed food and beverages while reminiscing and updating each other on our work and families.

The night was so successful that RubinBrown is planning to hold another alumni event on October 28, 2015.

RubinBrown Forms New Research & Experimentation Tax Credit Practice

RubinBrown’s new Research & Experimentation (R&E) Tax Credit Services Group helps companies take advantage of the R&E Tax Credit as well as to develop and implement the processes to continue doing so in the future.

The R&E Tax Credit is capable of producing significant tax savings for the research, development, and improvement initiatives a company is already undertaking.

The practice is headed by RubinBrown Partner Rich Wile and Manager Rich Pickett . See the article on page 18 for more information.

RubinBrown Forms New Cyber Security Advisory Services Practice

With the emergence of the cloud and growing engagement through mobile and social networks, IT and business processes need to adapt to meet compliance requirements and general best practices. RubinBrown has a new, dedicated team that specializes in cyber security services designed to meet each client’s requirements. The RubinBrown Cyber Security Advisory Services team employs a risk-based approach, including security status health checks, policy and procedure enhancements, vulnerability assessments, penetration testing, and breach response planning.

The practice is led by RubinBrown Partners Rob Rudloff and Audrey Katcher .

RubinBrown Sponsors Denver Business Journal C-Suite Award

For the second year, RubinBrown will serve as presenting sponsor for the Denver Business Journal’s CFO of the Year Award. This award is presented annually along with several other prestigious awards during the Denver Business Journal’s C-Suite Awards luncheon.

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RubinBrown Sponsors St. Louis Regional Chamber Arcus Awards

RubinBrown proudly served as presenting sponsor for the second annual Arcus Awards. The Arcus Awards are presented to one company in each of the economic clusters that has demonstrated an exceptional commitment to advancing the St. Louis region’s global strength.

Olympic Athlete Jackie Joyner-Kersee and RubinBrown Chairman Jim Castellano attended the Arcus Awards.

RubinBrown Managing Partner John Herber spoke at the Arcus Awards presentation.

RubinBrown Partner Honored With Outstanding Public Service Award & 40 Under 40

Brandon Loeschner, CPA, Partner in RubinBrown’s Business Advisory Services Group, was recently honored with two awards. The first was the Missouri Society of Certified Public Accountants’ 2014 Outstanding Public Service Award, which recognized Brandon’s work in the community. Brandon was also honored with the St. Louis Business Journal’s 40 Under 40 Award.

RubinBrown Partner Nominated for Women to Watch Award

RubinBrown is proud to announce that Sharon Latimer, CPA, Partner in RubinBrown’s Assurance Services Group was selected as a nominee for the Kansas Society of CPA’s Fifth Annual AICPA/KSCPA Women to Watch awards.

RubinBrown Manager Named 2015 KC Business Rising Star Honoree

Congratulations to Michael Fox, CPA, a Manager in RubinBrown’s Assurance Services Group, who was named a 2015 KC Business magazine Rising Star honoree.

www.RubinBrown.com | page 3

RUBINBROWN NEWS

New RubinBrown Talent FIRM LEADERS & PARTNERS RubinBrown recently added Rob Lewis as its

Rich Wile joins RubinBrown’s Federal Tax Services Group as a partner and leads the new Research & Experimentation Tax Credit Practice. Rich provides clients in the manufacturing

chief information officer. In his role, Rob is responsible for aligning IT strategy with the business, developing the technology vision and strategy, and providing innovative thought leadership to senior firm leaders.

and distribution, construction, architectural and contracting and engineering services industries with tax and incentive services as well as, budgeting, due diligence and other manufacturing consulting.

Rob Rudloff recently joined RubinBrown as a partner in the Business Advisory Services Group. Rob has more than 20 years of information security experience on

security reviews, mitigation, strategy, and architecture development. He consults with clients on a variety of information security projects ranging from penetration testing to security assessments to implementation of security architectures.

MANAGERS

David Steepleton is a new manager in RubinBrown’s State and Local Tax Services Group. He has more than 35 years of experience and consults on issues related to multistate sales/use and property tax issues.

Bobbi Brown , a returning manager in the Entrepreneurial Services Group, focuses on state and local tax, sales and use tax, employee benefits and tax consulting, preparation and planning. Rich Pickett is a new manager in RubinBrown’s Tax Services Group. Rich has expertise in various tax disciplines including tax consulting, tax incentives, tax planning and research tax credits. Kim Ryan recently joined RubinBrown in its Tax Services Group. She has more than 15 years of public accounting experience. Kim works primarily in the Not-For-Profit and Family Office areas.

A new manager in the Tax Services Group, Bruce

Welikson focuses on tax credit incentive properties, including low-income housing, historic rehabilitation, new markets and renewable energy credits.

Justin Wenzelman is a new manager in RubinBrown’s Tax Services Group. He has more than ten years of accounting experience. Justin works with clients in various industries with a focus on professional services and real estate.

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CHAIRMAN'S CORNER

Baker Tilly International: RubinBrown’s Global Reach by Jim Castellano, CPA, CGMA

T he global economy continues to integrate. And, as a result, businesses everywhere are impacted in some way by the policies, laws, complex regulations and economic developments of nations far and wide. Our clients increasingly look to us for services and advice to help them implement their international strategies or to deal with the complexities of doing business across national boundaries. More than twenty-five years ago, RubinBrown became a founding member of an international network of accounting firms, now known as Baker Tilly International. Our vision at that time led us to the inevitable conclusion that we must have the capabilities to take care of our client needs wherever they may arise around the world. Baker Tilly International has enabled us to achieve that vision. Baker Tilly International has grown to become the world’s eighth largest network of independent accounting firms. Proudly, RubinBrown has played a leading role in the creation and development of the network. It has been my privilege to serve as chairman of the International Board of Directors since 2002. Many of our partners serve in influential positions in the network, chairing committees and leading innovative initiatives, such as the development of cybersecurity capabilities. Our clients benefit in many ways from our leading role in the network. The global coverage enables us to assist clients with their existing operations or with their expansion into new markets. Quality assurance is a serious requirement of our network, with major resources devoted to monitoring the quality of services provided by each member firm. Therefore, our clients can expect not only worldwide coverage, but also that services are provided at the highest level of quality wherever the need. Perhaps surprisingly, the need for service outside the United States arises almost weekly within our client base. Common examples range from the need for tax advice on starting a new venture, due diligence on an acquisition target of a U.S. company and internal audit services covering the operations of major U.S. companies

operating abroad, to ongoing accounting, auditing and tax services for our clients operating internationally. Our membership in Baker Tilly International enables us to deliver on our vision of having totally satisfied clients. Likewise, the benefits to our inspired Team Members arising from our leadership in the network are significant.

Jim Castellano, CPA, CGMA Chairman

∙ Our people receive valuable training and access to resources covering topics such as international accounting and auditing standards, international tax and numerous specialized consulting subjects. ∙ We offer our professionals the opportunity to work abroad at one of our member firms through a vibrant secondment program in countries such as Australia, New Zealand, Scotland, England, France and Germany. ∙ We host at least two team members from member firms around the world in our offices each year, enabling all of our team members the opportunity to interact with our international colleagues and form lasting relationships. ∙ The Leaders in Collaboration leadership development program (created and conducted by the University of Chicago Booth School of Business) affords one of our partners the opportunity to train in London, Singapore and Chicago each year. If you are doing business internationally or thinking about doing so, RubinBrown can provide valuable assistance to you. Please contact me or your RubinBrown engagement partner to explore the resources available from our valuable and high quality international network, Baker Tilly International.

www.RubinBrown.com | page 5

FEATURE

rubinbrown hosts INTERNATIONAL BUSINESS SUMMIT

by Rick Feldt, CPA

The RubinBrown International Business Summit gathered hundreds of executives and international leaders together in St. Louis to discuss issues related to the global marketplace and ways to expand operations overseas. The summit was sponsored by the RubinBrown Manufacturing & Distribution Services Group and featured presentations by five of our Baker Tilly International partner firms, as well as a keynote address from Steve Burrows, former CEO of Anheuser-Busch International. International expansion can be a winning strategy to grow and diversify sales in both good and bad U.S. economic conditions. Depending on your product, the international markets can be a way to reduce manufacturing costs and open new distribution channels. However, the risks of international expansion are often hard to identify and quantify from our vantage point in the U.S. An international move, even into neighboring countries Canada and Mexico, can drain cash and management resources resulting in dramatically lower profits and cash flow. Expansion into other continents presents varying degrees of risk that should be considered with experts in each of those countries. The International Business Summit provided attendees a “local” look into both the opportunities and risks of doing business in Brazil, China, Germany, Ireland and Mexico. Leaders from each of our Baker Tilly affiliates in these countries presented their first-hand views on how to do business locally. The leaders presenting were:

Stone Yan, Baker Tilly China, Director of International Business Service

Ricardo Julio Rodil, Baker Tilly Brazil, Partner

Dr. Claus-Michael Allmendinger, Baker Tilly Germany, Partner

John Glennon, Baker Tilly Ireland, Managing Partner

Manuel Aguilar, Baker Tilly Mexico, Partner

Several common themes were evident in each presentation:

∙ Each country is interested in more investment from U.S. companies. Your investment could be a manufacturing facility, sales office or simply selling products through an existing distribution channel. In return, each country may offer varying incentives to begin or expand your business operations. ∙ You must understand the local culture. U.S. businesses must understand how to do business within each country’s regulatory framework. Just as important, you must understand how to work with the local employees.

∙ The tax structures worldwide are just as complicated as they are in the U.S. Prior to expansion, tax considerations must be understood and built into financial projections.

www.RubinBrown.com | page 7

FEATURE | RubinBrown Hosts International Business Summit

∙ Obtain a How To Do Business guide that is published by Baker Tilly International through RubinBrown. This guide will help you consider which questions to ask and what risks are present in each country. ∙ Consult directly with local experts within the target country prior to making a decision to expand. The Baker Tilly International network can be an excellent resource to accomplish this task. ∙ Prepare a detailed pro forma projection of expected sales and expenses. Include appropriate tax considerations. Share your pro forma with your business advisors to get an independent look at overall assumptions and calculations. International expansion can greatly improve your profitability or create a serious cash flow emergency. It is imperative that knowledgeable and local financial experts be consulted and detailed projections be completed. For a copy of your How To Do Business guide in a country of interest, you can contact any RubinBrown advisor at your convenience.

However, even though common themes are present, each country or region is distinct and different. Training within the local labor force has given rise to various industries within each country. In Mexico, the automotive and electronics industries are prevalent. Pharmaceutical, medical device and software companies are thriving. In Brazil, agriculture and minerals are ready for international participation. In addition, RubinBrown was honored to host Steve Burrows, former CEO of Anheuser-Busch International. He shared his experiences related to expanding business both domestically and internationally. Steve shared ten lessons learned in overseas business development including the vital importance of learning the cultures of the countries in which you plan to expand. Steven shared many serious, as well as some amusing, experiences he encountered during his years with Anheuser-Busch International. If you are considering international expansion, RubinBrown recommends your due diligence efforts include the following:

More than 250 attendees gathered in St. Louis for RubinBrown’s International Business Summit.

RubinBrown Chairman Jim Castellano also serves as chairman of Baker Tilly International and moderated the panel with our international business leaders.

Former Anheuser- Busch International CEO Steve Burrows shared lessons learned

about expanding business overseas.

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Baker Tilly International CEO and President, Geoff Barnes discusses how businesses can benefit from expanding overseas and the value of working with members of the Baker Tilly International network.

Helping Businesses Go Global Up until a few years ago, there was a perception that if you were an owner-

as unforeseen commercial difficulties at their new location.

managed business or SME (small to medium enterprise), the international scene wasn’t something you needed to worry about. How times have changed. Accelerated globalization and rapid technological advancements paradoxically are making the world a smaller place, while creating a massive global marketplace. With an uncertain macro-economic environment persisting in many markets, and the medium-term outlook unlikely to change, businesses of all sizes are being forced to look further for growth opportunities; in many cases, just to survive, let alone thrive. In this climate of uncertainty, one fact is clear— staying at home is not an option. Challenges Facing Businesses While many businesses hope that expanding abroad will generate profits and positive cash flow, they may be surprised at the quantum and complexity of some of the costs, as well

The decision to embark on international expansion integrates a whole range of business, fiscal, legal, cultural, emotional and other issues. These issues can be extremely complex and can significantly impact the success and profitability of an investment. From a business perspective, entry into overseas markets presents challenges that may include changes to key manufacturing processes, identification of new distribution channels, or accessing new sources of funding. Other challenges include understanding the local business culture and economic conditions, getting to grips with local regulations and laws, and dealing with exchange rate fluctuations. In essence, two opposing forces are at work: the drive to grow and expand beyond traditional markets versus an inherent desire to minimize risk and protect the business legacy.

www.RubinBrown.com | page 9

FEATURE | RubinBrown Hosts International Business Summit

Getting It Right Regardless of industry or service sector, size or geographic location, any business considering international expansion needs to make sure it is heading down the right path. This means ensuring that your trading operations in your home market are on a sound financial and commercial footing and your balance sheet is sufficiently robust to support your expansion plans. The next step is to have a clear strategy with goals and a well-structured game plan to achieve it. Choosing the right model is vital. When a SME has made a choice to enter a foreign market, there are a variety of options open to it, each with varying levels of risk, cost and degrees of control. The simplest form of entry strategy is exporting, either directly or indirectly in cooperation with an agent. This is the most likely route to be selected by SMEs. They may, however, consider or evolve toward more complex models of international operations which may involve joint ventures, strategic alliances or direct investments. Whichever route is chosen, the internationalization process is inevitably one change that will impact every aspect of the company–including management and its aspirations, planning, finance and its corporate structure–as well as a range of other unique considerations that will vary by market and

new target groups characterized by different cultures and ways of doing business.

Local knowledge is key to overcoming these challenges and is something best obtained by building a network of contacts and advisors in your target market. This knowledge will also prove invaluable in finding, recruiting and developing talent, an ongoing challenge for all businesses, but one that is even more important when entering new markets. The Need for a Trusted Business Advisor Many of the changes that have occurred over the last decade, for instance, the evolution of the internet, have increased globalization by fostering greater cross- border communication and the ability to trade internationally. It is in this international arena that a trusted business advisor can add the most value to businesses by helping with issues such as tackling regulatory red tape, facilitating introductions to funding at an international level and understanding the complexities of taxation. All of the 27,000 people working at the 154 Baker Tilly International member firms see their role as helping businesses deliver relevant and transparent financial reports, manage risk, optimize operations and profitability, and meet tax compliance and reporting obligations, all against a backdrop of constantly evolving business needs. The philosophy of our network has always focused on the need to stay close to clients and to understand their businesses in order to provide the services they need wherever in the world they choose to operate. When clients turn to our member firms, they expect more than just a physical presence in a country or region. They want advisors who understand what it takes to operate successfully in today’s global business environment, as well as having a genuine understanding of the nuances of local economies.

RubinBrown, an Independent Member of Baker Tilly International

Baker Tilly International is a network of high quality, independent accountancy and business advisory firms, all of whom are committed to providing the best possible service to their clients in their own marketplaces and across the world, wherever the client needs help.

As the 8th largest accounting network in the world, Baker Tilly International continues to grow through uncompromised integrity and dedication to the profession.

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Our multidisciplinary service model and combination of global presence and local expertise provide member firms with a unique opportunity to deliver solutions that help clients grow their business and address changing market realities. This is why leading national and global organizations count on us. Whether clients are addressing issues around financing, succession, acquisition or simply dealing with growing pains, we provide a full range of audit, tax, corporate financial and advisory services, and the skill set to help at every step of the way. By combining global reach and local expertise, our network members help clients realize their ambitions as they enter and seek to prosper in new markets.

The approach of our network is based on a breadth of experience across multiple jurisdictions and a culture we have developed over 27 years in which our people consult with one another, share knowledge and collaborate to deliver high performance client service. Many of the issues that the clients of member firms face are not limited to one country. What is happening in one part of the world may well have a commercial effect which needs addressing somewhere else. As part of a global network, our members bring an international perspective to local challenges, bringing knowledge of what has worked elsewhere to help clients stay competitive and prosper.

RubinBrown’s Manufacturing & Distribution Services Group RubinBrown’s Manufacturing & Distribution Services Group is nationally recognized for superior assurance, tax and consulting expertise coupled with solid international business knowledge, exceptional inventory management and process improvement services.

Jim Mather, CPA — St. Louis Partner-In-Charge Manufacturing & Distribution Services Group 314.290.3470 jim.mather@rubinbrown.com

Todd Pleimann, CPA — Kansas City Kansas City Managing Partner 913.499.4411 todd.pleimann@rubinbrown.com

Rick Feldt, CPA — St. Louis Partner & Vice Chair Manufacturing & Distribution Services Group 314.290.3220 rick.feldt@rubinbrown.com

Russ White, CPA — Denver Partner Manufacturing & Distribution Services Group 303.952.1247 russ.white@rubinbrown.com

Mike Lewis, CPA — St. Louis Partner & Vice Chair Manufacturing & Distribution Services Group 314.290.3391 mike.lewis@rubinbrown.com

www.RubinBrown.com | page 11

FEATURE

rubinbrown ENTERS THE NASHVILLE MARKET

On June 1 of this year, RubinBrown will open a specialty office serving real estate clients in Nashville, Tennessee. Nashville is a city that RubinBrown has been looking toward to expand its practice. “We already had several long-time real estate clients in Nashville and saw a need for our specialized services in that market. This, along with the dynamic growth in Nashville and throughout the entire state of Tennessee, makes it a fantastic business opportunity,” says John Herber, RubinBrown Managing Partner.

Amy Broadwater, Partner in the Real Estate Services Group, has relocated to Tennessee and will be the lead partner in the Nashville office.

When the Real Estate Services Group began working with one of its newest Nashville clients, Elmington Capital Group, in the spring of 2014, the decision to develop a business plan and move forward with establishing a Nashville office fell into place very quickly.

“Elmington’s CEO Cary Rosenblum encouraged us to open an office here at our first meeting,” explains Bryan Keller, Partner-In-Charge of the Real Estate Services Group.

“And this wasn’t the first time we heard this comment. In fact, all of our clients in Nashville have suggested for several years that we open an office here to help serve the market with our specialized real estate expertise,” says Keller. “The thing that I love about Nashville is how supportive and business friendly we have found it to be. The growth here is significant, there is a tremendous entrepreneurial spirit and energy, and everyone is very supportive and cheerleads for each other,” says Broadwater. Keller adds, “Although Nashville is booming right now, I am very impressed with the focus being placed on trying to make sure the growth is meaningful and figuring out how best to plan for it. This is what I have heard over and over again when talking with those in the business community.”

Broadwater agrees and says that is exactly why she felt inspired to take this on, relocating to launch the new office. “Nashville has been my favorite city to visit and work in for some time and it is one of the fastest growing cities in the country. It has a very diverse economy, strong leadership, great education and an amazing tourism industry centered around the best county music and entertainment in the country. We really wanted to be a part of it and I was so excited to accept this challenging opportunity.” RubinBrown’s Real Estate Services Group has a national practice serving real estate developers, investors, syndication firms, state housing agencies, investment banks, construction companies, home builders, lenders and others throughout the United States. The group has deep expertise in affordable housing, Low-Income Housing Tax Credits, New Markets Tax Credits, Historic Rehabilitation Tax Credits, Investment Funds and HUD.

www.RubinBrown.com | page 13

FEATURE | RubinBrown Enters the Nashville Market

Perspectives on the Growing Nashville Real Estate Market: Q & A with Elmington Capital CEO

RubinBrown and Elmington Capital have worked on several real estate projects together. Recently, RubinBrown discussed the real estate market in Nashville with Cary Rosenblum, CEO of Elmington Capital Group. Elmington Capital Group is a privately owned commercial real estate investment and development firm headquartered in Nashville, Tennessee.

Describe the current overall economic state of Nashville.

Rosenblum: The Nashville economy is experiencing a period of unprecedented growth. Several firms with national and even global prominence are beginning to call Nashville home. Among those are Nissan North America and Bridgestone Tire, which is relocating their North American headquarters to a new 500,000 square foot office building in downtown Nashville. Warby Parker recently opened their only office outside of New York, and the building of Google Fiber was announced, both of which will undoubtedly be a boon for the local economy. The growth of the

entrepreneurial and tech communities in Nashville, combined with being the music capital of the world, has driven significant millennial population growth. The recent addition of the 1.2 million square foot Music City Convention Center, along with 20+ new hotels, has provided a shot in the arm to Nashville’s already strong tourism industry. Additionally, Nashville continues to be stabilized by its position as the state capital, and the exceptional healthcare and higher educational community have the area poised for continued growth in the future.

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Describe the current economic state of real estate development in Nashville.

How has the real estate market changed?

Rosenblum: Many national firms are looking at Nashville in a different light than a few years ago. Once viewed as a secondary or even tertiary market by national firms, Nashville now attracts interest from California to New York and all points in between. The pricing of assets in Nashville is beginning to reflect the pricing experienced in the gateway markets over the past 12-18 months. Institutional investment groups such as Hines, JP Morgan and Carlyle are seeking yield when they can no longer find it in New York, San Francisco, Washington D.C. or Miami. Groups that have a lower cost of capital and are used to even more severely constrained cap rates of the gateway markets are finding investments in Nashville to rank well on a risk-adjusted basis. As Nashville continues to grow, we expect this level of aggressive pricing to persist making it more difficult for local and regional firms to compete. Rosenblum: We are very fortunate to have attracted the highest quality team I could have imagined. Each member of our team is passionate, dedicated and creative. And moreover, they have intense integrity and are family focused. I believe every member of the team would say this is the last place they ever intend to work. The culture of Elmington is empowerment, so it’s no coincidence that every member of the leadership team has previously worked in large, bureaucratic institutions. Elmington provides a space for each teammember to be themselves and shepherd their own ideas to reality. While these concepts may sound cliché, we truly focus on creating an environment in which we all want to work. It helps that a large part of the extensive interview process is to ensure a shared sense of humor and enjoyment of margaritas. How would you describe Elmington Capital Group?

Rosenblum: Until recently, real estate development had been largely muted amongst the major product types except for multifamily and hotel. However, the office development machine is picking up in force. Nashville boasts one of the lowest Class A vacancy rates in the country at less than 5%. The market has taken notice as Market Street Enterprises came out with a new speculative 205,000 square foot office building in the Gulch, which was followed by Eakin Partners beginning construction on a 15-story speculative office building a couple of blocks from Market Street. Recently, Hines Company announced their return to Nashville after a 15-year hiatus. They are partnering with C.B. Ragland & Co. to build a 300,000+ square foot office building in the heart of downtown on Demonbreun and 2nd Avenue, which is located less than two blocks from where Bridgestone is building their new 500,000 square foot corporate office location. We believe there will be more activity in the coming months with new office projects to be announced or started. Multifamily has seen a tremendous amount of new development. Much of this is located in urban infill pockets such as Germantown, the Gulch, 12th Avenue South, Charlotte Pike and the Melrose/Franklin Road corridor. The desire to live near the urban core has drawn developers from Phoenix, Atlanta, Charlotte, Dallas and many other national development firms to Nashville. As you drive around Nashville, there is an abundance of construction cranes delivering thousands of Class A apartment units with new projects being announced almost weekly. Retail continues to have limited activity largely due to the inability to find sites, so most retail is concentrated within a mixed-use development that has offices or apartments above it.

www.RubinBrown.com | page 15

FEATURE | RubinBrown Enters the Nashville Market

Explain how your three divisions – Capital, Affordable Housing and Property Management – have evolved over the years. Rosenblum: When Elmington Capital was created in 2010, it was formed with the explicit idea that it would always remain a nimble, entrepreneurial company focused on sourcing and closing unique opportunities as they arise. Elmington Capital was birthed during the recession and spent its first years purchasing and working out notes and real estate owned properties. The initial focus did not include the acquisition of existing multifamily properties, the development of affordable housing or creation of a property management company. All of these businesses came about through unique opportunities that we capitalized on. Elmington Capital now owns $250 million of stabilized, cash-flowing real estate assets including 3,500 apartment units, five office properties and select retail and industrial properties. We also have completed or are in the process of developing five low-income housing tax credit developments. Elmington Property Management has quickly grown to 400+ employees that manage over 13,000 apartment units and one million square feet of commercial property. We have had the benefit of attracting the best talent in the market and creating systems and processes without being burdened with legacy systems.

NASHVILLE BY THE

NUMBERS

# 20 AMERICA’S FASTEST-GROWING CITIES 2015 | FORBES # 10 THE 15 HOTTEST U.S. CITIES FOR 2015 | BUSINESS INSIDER

# 12 2015’S BEST METRO AREAS FOR STEM PROFESSIONALS | WALLETHUB # 86 2014 LARGEST METRO ECONOMIES IN THE WORLD | BROOKINGS INSTITUTE # 15 AMERICA’S BEST-PERFORMING CITIES IN 2014 | MILKEN INSTITUTE # 4 MOST AFFORDABLE BIG CITIES IN THE U.S. (2014) | KIPLINGER # 3 GREAT CITIES FOR STARTING A SMALL BUSINESS (2014) | MSN MONEY

TOP INDUSTRIES

Advanced Manufacturing

Communications & Information Technology

Entertainment

Health Care

Real Estate

Transportation & Logistics

JOB GROWTH RATE

HQ IN NASVILLE 27 OF 50 NASHVILLE’S LARGEST EMPLOYERS

SOURCE: FORBES LIST OF AMERICA’S FASTEST GROWING CITIES 2015 2.76%

HQ HQ HQ HQ

HQ HQ

ARE ALSO COMPANY HEADQUARTERS

SOURCE: NASHVILLE AREA CHAMBER OF COMMERCE

POPULATION & NUMBER OF COUNTIES IN NASHVILLE MSA

27.37%

14.74%

NASHVILLE 1,792,649

NASHVILLE 14 COUNTIES

STATE OF TN 6,549,352

STATE OF TN 95 COUNTIES

SOURCE: U.S. CENSUS BUREAU AMERICAN FACT FINDER

METROPOLITAN STATISTICAL AREA: NASHVILLE-DAVIDSON--MURFREESBORO--FRANKLIN, TN

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What does the future hold for Elmington Capital? What kind of growth are you hoping to achieve? Rosenblum: We are planning for Elmington to continue to grow, along the same growth curve that our three primary business divisions have recently enjoyed. Oftentimes a start-up company will achieve a certain level of size and begin to incrementally grow from there. We are spending a lot of time and energy to hire the right people and provide the right infrastructure to grow exponentially versus incrementally. This will include expanding our acquisition area to outside of our traditional markets with entry into Atlanta, the Carolinas and Florida in the next 5 years. I expect within five to seven years, we will begin looking to Texas and perhaps Denver. While Elmington has growth in its DNA, we also are striving to maintain the nimbleness and flexibility that has helped us get to this point.

What do you think about RubinBrown opening a real estate office in Nashville?

Rosenblum: RubinBrown’s decision to enter the Nashville market is well timed. Nashville is starting to hit its stride as a non-traditional location for corporate and regional headquarters. The leadership of both Nashville and Tennessee have fostered an extremely business friendly environment to help lure companies while providing a cost-of- living below the national average and a very diversified and educated workforce. Nashville will continue to expand as the growth of the last few years settles in. I project the life cycle of Nashville’s growth as being in the second or third inning, and if that is true, then RubinBrown is getting in close to the ground floor of what will be a long, stable market with an expanding base of prospective opportunities.

RubinBrown’s Real Estate Services Group RubinBrown has developed a strong reputation nationally as a leader in accounting and advisory services for real estate companies. Today, we provide specialized services to more than 2,000 real estate entities.

Bryan Keller, CPA — St. Louis Partner-In-Charge Real Estate Services Group 314.290.3341 bryan.keller@rubinbrown.com

Amy Broadwater, CPA — Nashville Partner Real Estate Services Group 615.253.5200 amy.broadwater@rubinbrown.com

Dave Herdlick, CPA — St. Louis Partner & Vice Chair Real Estate Services Group 314.290.3383 dave.herdlick@rubinbrown.com

Jeff Cunningham, CPA — Denver Partner Real Estate Services Group 303.952.1257 jeffrey.cunningham@rubinbrown.com

www.RubinBrown.com | page 17

FEATURE

NO LAB COATS NEEDED! your company can take advantage of the research & experimentation tax credit

by Richard Wile, MBA & Rich Pickett

The Research and Experimentation (R&E) tax credit is an income tax credit that rewards companies for developing innovative solutions to many of the challenges they encounter on a daily basis. Also known as the “R&D tax credit,” or “Research tax credit,” the R&E tax credit applies to taxpayers engaged in the development and/or improvement of a product, process, formula, technique, software or invention. Expenses that may qualify for the credit include those for in-house wages and supplies, as well as those for contract research, which are costs incurred for third-party services that would have been qualified had they taken place within the company. According to a 2011 report from the United States Department of the Treasury, Office of Tax Policy, “The Research & Experimentation (R&E) tax credit encourages innovation and provides a powerful incentive for businesses to continue to invest in research projects. Investments in research and experimentation produce technological advancements that drive productivity growth and improvements in U.S. living standards. Businesses may underinvest in research, however, because they may not be able to capture the full benefit of their spending. The R&E tax credit is designed to address this underinvestment and to increase the total amount of research activity undertaken in the United States.” Using the latest available figures from 2011, R&D expenditures in the United States stood at $424 billion. This is approximately 30% of the worldwide total of over $1.4 trillion in the same year. Although a very significant percentage, the U.S. share of the global total has been steadily decreasing since 2001, when it stood at 37%. Not surprisingly, China has seen an explosive rate of growth in R&D expenditures, averaging around 20% annually in the period between 2001 and 2011, reports the National Science Foundation. This international picture defines the competitive landscape for R&D spending and is indicative of the need to continue to provide incentives to U.S. companies to keep the research spending and associated technical jobs within our shores.

The R&E tax credit has evolved substantially over the years, with significant changes and clarity coming from a variety of sources, including the U.S. Treasury Department, the judicial system and Congress. Many of these changes have been taxpayer friendly. The biggest change occurred when the Treasury Department issued Treasury Decision (TD) 9104 in 2004, which backed away from what was called “the discovery test.” At the credit’s inception, an extremely high level of innovation was needed for a taxpayer to qualify for the credit. The level of innovation needed to pass the discovery test was that the research had to expand or refine knowledge within the industry. This usually required a patent to support the position. TD 9104 removed the discovery test language, effectively lowering the “innovation bar” to where it only has to be new to the company.

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FEATURE | No White Lab Coats Needed! Your Company Can Take Advantage of the R&E Tax Credit

“Research” Defined “We don’t have scientists wearing white lab coats using beakers and test tubes. Improving our products and processes is a normal part of our company culture. How can this be research?” This is a common reaction when introducing the R&E tax credit to companies. People often think of research as needing to revolutionize an industry or redefine a technology to qualify for a research credit. While these activities are indeed research in the traditional sense, the innovation no longer has to pass the discovery test to be eligible for the credit. When looking at research activities as possibly qualifying for the tax credit, the U.S. Tax Code’s current requirements have a unique definition of research and experimentation. A four-part test must be met for projects and activities to be eligible for the research credit. ∙ The first, known as the “Business Component” test, references the six project types — product, process, formula, technique, software or invention.

∙ The final requirement calls for the existence of a process of experimentation, which can include: modeling, simulation and a systematic process of trial and error.

Activities that Do Not Qualify for the Credit ∙ Activities after commercial production

∙ Adaptation of existing research

∙ Duplication of existing research

∙ Surveys and studies

∙ Research performed outside the U.S.

∙ Research in the social sciences

∙ Research deemed to be funded ( A research project is deemed to be funded if the taxpayer is not at economic risk for the research or does not retain substantial rights to the outcome of the research. ) Examples of Experimentation According to the definitions referenced above, the concept of experimentation is evidenced by a variety of everyday activities within various industries. For example, companies that develop and/or improve proprietary products, but outsource the manufacturing of these products, can claim the credit just for the product development portion. Conversely, many contract manufacturing and “job shops” do not design the products they produce, but use trial and error to develop or improve the process needed to meet their customers’ specifications. These specifications might include dimensional requirements, metallurgical or mechanical properties or other factors related to function, performance, quality and/or reliability.

∙ The second requires the existence of uncertainty in one of three categories:

– Capability (Can we do it?)

– Method (How do we do it?)

– The appropriateness of the design (What will it look like?)

The ultimate success or failure of the project is not relevant.

∙ The third requirement is that the research must be technological in nature; fundamentally relying on the principles of the physical or biological sciences, engineering or computer science.

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Why Now? If you have not considered the research credit in the past, now is a great time to review your activities to determine your eligibility. From a legislative view, the President signed another extension of the research credit in December 2014. The credit has broad bipartisan support and has been extended numerous times over the years. By continually extending the credit, with talk of even making it permanent, Congress has shown its commitment to the research credit program to help support U.S. innovation. The U.S. Treasury Department has been doing its part lately by issuing rules that make the credit more attractive in terms of the calculations, as well as expanding the definition of qualified activities. In June 2014, the Treasury issued rules allowing a taxpayer to claim what is known as the Alternative Simplified Credit (ASC) calculation on an amended return for which no credit claim had previously been made. Prior to this, taxpayers were restricted from using the ASC calculation method on amended returns for which no credit claim had previously been made. One month later, in July 2014, the Treasury issued rules that expanded the definition of supply costs that qualify for the credit.

More recently, the Treasury has issued long awaited proposed regulations on software, providing clarity and guidance for taxpayers developing both internal use software, as well as external use software. Over the last several years, the courts have provided several taxpayer-friendly decisions helping companies claim the research credit. In October 2014, the tax court issued a decision providing more guidance and clarity on the research credit. In Suder v Commissioner , the court reaffirmed the use of estimates in calculating the credit, provided guidance on reasonable salaries for officers’ compensation in relation to the credit, allowed eleven of twelve representative projects as qualifying for the credit and allowed amounts paid to law firms for patent research and prosecution as eligible research expenditures. As evidenced by all of this activity, there have been many changes with the R&E tax credit in the last year alone. Even if you have taken the credit in the past, you will want to make sure you are in compliance with all the recent changes and that you are maximizing the credits available to you.

RubinBrown’s Research & Experimentation Tax Credit Services Group RubinBrown’s Research & Experimentation Tax Credit Services Group specializes in helping companies take advantage of R&E Tax Credits and developing the processes to continue doing so in the future.

Richard Wile, MBA Partner-In-Charge R&E Tax Credit Services Group 314.290.3367 richard.wile@rubinbrown.com

Rich Pickett Manager R&E Tax Credit Services Group 314.678.3610 richard.pickett@rubinbrown.com

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