1. SFAS No. 144 Accounting for the Impairment or Disposal of Long-Lived Assets (“LLA’s”) Babush, Neiman, Kornman & Johnson, LLP www.bnkj.com Jeffrey G. Olson, CPA

2. Outline Introduction Introduction Assets to be held and used Impairment write-down Assets to be disposed of by sale Valuation reserves (FV - cost to sell) Presentation Assets to be disposed other than by sale Abandonment Exchange Distribution to owners (spin-out)

3. Overview

4. FAS 144 Supersedes Other GAAP Pronouncements FAS 121 FAS 121 But retains its impairment recognition and measurement principals APB 30 (disposal of a segment of a business) APB 30 (disposal of a segment of a business) But retains its discontinued operations presentation requirements Extends requirements to dispositions “other than by sale”

5. Effective Date FYE After 12/15/01 Not applicable to Not applicable to Goodwill and other non- amortizable intangibles Financial services intangibles – core deposits, servicing rights, DAC Equity investments Deferred taxes Unproved oil & gas properties Various other industry specific items

6. Group Concept LLA may be part of or in a group with other assets and liabilities LLA may be part of or in a group with other assets and liabilities Group is lowest level for which there are identifiable, independent cash flows - LLA itself may not have discrete cash flows Group becomes the measurement unit for FAS 144 (carrying values, cash flows, fair value) Does not change GAAP for those other assets and liabilities They are first measured under GAAP before applying FAS 144 to the group (valuation reserves, LCM write downs, etc.)

7. Group Concept Terminology “Asset Group” “Asset Group” LLA’s to be held and used “Disposal Group” “Disposal Group” LLA’s to be disposed (by sale or otherwise) In a single transaction Group includes liabilities to be transferred

8. Outline Introduction Assets to be held and used Assets to be held and used Impairment write down Impairment write down Assets to be disposed of by sale Assets to be disposed other than by sale

9. LLA’s to be Held and Used Impairment exists when Impairment exists when An asset’s (or a group’s) carrying value exceeds its fair value Recognized only if Recognized only if Carrying value is not recoverable from the sum of the future undiscounted cash flows to be derived from the asset (or group) from both Operations Future disposition When to test? (paragraph 8 of handout) When to test? (paragraph 8 of handout)

10. Example 1 in Appendix A - Handout Measurement at group level Measurement at group level Allocation of impairment loss Allocation of impairment loss Only to LLA’s on pro-rata basis Can limit allocation to FV of one or more LLA’s if FV higher than the resulting CV under pro-rata allocation of impairment loss Establishes new cost basis Establishes new cost basis Write-downs are not restored if value subsequently increases or if CV becomes recoverable Lowers future depreciation charges

11. Future Cash Flows Directly related Directly related Arise from use and sale of assets (or group) Exclude interest Exclude interest Un-leveraged asset cash flows Entities own assumptions Entities own assumptions Considering all available information Can use probability weighted CF’s Can use probability weighted CF’s

12. Future Cash Flows - Continued Remaining useful life Remaining useful life Of asset or of primary asset in group Based on existing service potential Based on existing service potential Cash flows for necessary maintenance included Cash flows that are for improving service potential are excluded Assets in development Assets in development Service potential when complete Include interest to be capitalized as a cash flow

13. Goodwill Inclusion Generally not applicable to real estate - no goodwill Generally not applicable to real estate - no goodwill Carrying value of goodwill assets Carrying value of goodwill assets Used in impairment test only when asset group is or includes a reporting unit (as defined in FAS 142) Lower level group with only part of a reporting unit Lower level group with only part of a reporting unit Will exclude goodwill carrying value in impairment test

14. Reporting & Disclosure Loss is part of continuing operations Loss is part of continuing operations Included in “income from operations” subtotal In the FS Notes In the FS Notes Description of assets and impairment Amount of loss, if not on face of the FS Fair value method used - market quote/DCF/appraisal/etc... If FAS 131 (business segment), then identify segment to which loss pertains

15. Outline Introduction Assets to be held and used Assets to be disposed of by sale Assets to be disposed of by sale Valuation reserves (FV- cost to sell) Valuation reserves (FV- cost to sell) Presentation Presentation Assets to be disposed other than by sale

16. Recognition Identified as held for sale (in FS or notes) during period in which first meet para 30 criteria - Handout Identified as held for sale (in FS or notes) during period in which first meet para 30 criteria - Handout General one year sale requirement, some exceptions Others Failure to continue to meet criteria Failure to continue to meet criteria Reclassify as “held and used” Newly acquired LLA Newly acquired LLA Held for sale if one year criteria met at acquisition and Others criteria are likely to be met “within a short period”

17. Measurement Lower of Lower of Cost, or Fair value less cost to sell Not a new cost basis Not a new cost basis Subsequent increases in value, net of disposal costs, can be booked up to previous losses recorded Other Other No depreciation while held for sale Future operating losses are recorded as incurred, not part of valuation write down

18. Presentation If a “component” of an entity If a “component” of an entity Then report current and prior periods as discontinued operations, net of income taxes if both: Related cash flows and operations will be eliminated as a result of the sale, and No significant continuing involvement after the sale If not a “component” If not a “component” Then continue to report as continuing operations Related assets and liabilities Related assets and liabilities Separately identified on the balance sheet

19. Presentation - What is a Component Component – operations and CFs clearly distinguished Component – operations and CFs clearly distinguished Reporting or operating segment Reporting unit Subsidiary Asset group

20. Disclosure in FS Notes Description of assets & circumstances leading to expected disposal Description of assets & circumstances leading to expected disposal Gain or loss recognized, if not on face of the FS Gain or loss recognized, if not on face of the FS Revenue & pre-tax profit (loss) in discontinued operation, if applicable Revenue & pre-tax profit (loss) in discontinued operation, if applicable FAS 131 segment information, if applicable FAS 131 segment information, if applicable

21. Change In Sale Plan Measurement – subsequent decision not to sell after “Held for Sale” treatment has been applied, then Measurement – subsequent decision not to sell after “Held for Sale” treatment has been applied, then Reclassify on BS as held and used Measure at the lower of –original cost less all depreciation that would have been allowed, or –Fair value on the date subsequently determined not for sale Any gain or loss is part of continuing operations Prior operations, previously presented as discontinued operations will, be reclassified as continuing

22. Outline Introduction Assets to be held and used Assets to be disposed of by sale Assets to be disposed other than by sale Assets to be disposed other than by sale

23. Other Than Sale Disposals Abandonment, exchange, or distribution to owners (spin-out) Abandonment, exchange, or distribution to owners (spin-out) Continue to be classified and accounted for as “held and used” until disposed, subject to impairment testing

24. Abandonment Disposed Disposed When it is no longer being used If committed to a “plan” of disposal If committed to a “plan” of disposal Shorten useful life for depreciation Temporarily idle is not abandoned Temporarily idle is not abandoned

25. Exchanged or Distributed Disposed Disposed When exchange or disposition takes place If tested for “held and used” impairment If tested for “held and used” impairment Then use cash flows for remaining useful life to test for recoverability Ignore anticipated disposition If a “component,” then presented as discontinued operations (current & prior periods) at disposal date If a “component,” then presented as discontinued operations (current & prior periods) at disposal date

26. Withholding Requirements for Foreign Partners in US Real Property Partnerships Babush, Neiman, Kornman & Johnson, LLP www.bnkj.com William S. Johnson, CPA Hunter M. Showalter

27. Summary of Code Section Section 1441-withholding on nonresident aliens-flat tax Section 1441-withholding on nonresident aliens-flat tax Section 1442-withholding on foreign corporations-flat tax Section 1442-withholding on foreign corporations-flat tax Section 1443-withholding on foreign tax-exempt organizations Section 1443-withholding on foreign tax-exempt organizations Section 1444-Withholding on Virgin Island income Section 1444-Withholding on Virgin Island income

28. Summary of Code Section Section 1445 - withholding on dispositions of US real property interests (FIRPTA)-Form 8288 Section 1445 - withholding on dispositions of US real property interests (FIRPTA)-Form 8288 Section 1446- withholding on foreign partners in US partnerships - Forms 8804, 8805 and 8813 Section 1446- withholding on foreign partners in US partnerships - Forms 8804, 8805 and 8813

29. Taxation of Transfers of US Real Property Interests Foreign Investment in US Real Property Tax Act of 1980 (FIRPTA) Foreign Investment in US Real Property Tax Act of 1980 (FIRPTA) FIRPTA treats gains and losses from dispositions of US real property interests as effectively connected with the conduct of a US trade or business FIRPTA treats gains and losses from dispositions of US real property interests as effectively connected with the conduct of a US trade or business Purchaser of US real property interest is generally required to withhold 10% of the purchase price Purchaser of US real property interest is generally required to withhold 10% of the purchase price

30. Taxation of Transfers of US Real Property Interests Tax due in 20 days of transfer Tax due in 20 days of transfer Exceptions to withholding requirements Exceptions to withholding requirements Non foreign affidavit FIRPTA withholding certificate -If filed by day of transfer, tax must be withheld but does not need to be paid to IRS until 20 days after IRS determination

31. Taxation of Repatriated Earnings Interest & dividends paid by US corporations to foreign shareholders are generally subject to a 30% withholding tax. The withholding rate may be lowered due to tax treaty. Interest & dividends paid by US corporations to foreign shareholders are generally subject to a 30% withholding tax. The withholding rate may be lowered due to tax treaty. Foreign corporations that are engaged in business in the US are subject to a 30% branch profits tax on earnings not reinvested in active US business assets. Treaties may lower the rate or even eliminate the tax. Foreign corporations that are engaged in business in the US are subject to a 30% branch profits tax on earnings not reinvested in active US business assets. Treaties may lower the rate or even eliminate the tax.

32. Taxation of Operating Income US source income that is not effectively connected with the conduct of a US trade or business US source income that is not effectively connected with the conduct of a US trade or business 30% withholding tax on gross US source income No deductions No treaty reduction in rate

33. Taxation of Operating Income US source income that is effectively connected with the conduct of a US trade or business US source income that is effectively connected with the conduct of a US trade or business Taxation at regular rates on net income after deductions Must file US tax returns

34. Federal Foreign Tax Withholding Options for Calculation Options for Calculation Safe Harbor Option Standard Option Option 1 Option 2

35. Safe Harbor Safe Harbor 4 Installments Due 4/15, 6/15, 9/15, 12/15 Each quarterly installment is 25% of prior year’s total withholding due on effectively connected income (ECI) provided that Prior year was 12 months Partnership filed prior year tax return Prior year ECI was not less than 50% of current year ECI Current year ECI can’t be twice that of prior year ECI Federal Foreign Tax Withholding

36. Standard option Standard option 4 Installments Due 4/15, 6/15, 9/15, 12/15 4 Installments Due 4/15, 6/15, 9/15, 12/15 1 st and 2 nd installments based on annualized ECI using first 3 months of current year 3 rd installment based on annualized ECI using first 6 months of current year 4 th installment based on annualized ECI using first 9 months of current year Federal Foreign Tax Withholding

37. Option 1 & 2 Option 1 & 2 Must elect to use either option each year by filing Form 8842 Election must be made by 4/15 for calendar year partnerships Options have different annualization periods than standard option

38. Federal Foreign Tax Withholding Example - Standard Option Example - Standard Option Assumptions Assumptions ECI for first 3 months is $106,000 ECI for first 6 months is $203,000 ECI for first 9 months is $290,000 Foreign partner’s income is 60% of partnership income

39. 1Annualization periods (see instructions)1First 3 Months First 6 MonthsFirst 9 Months 2 Enter the partnership’s effectively connected taxable income for each period2 106,000.00 203,000.00 290,000.00 3Annualization amounts (see instructions)3 4.00 2.00 1.33 4 Annualized effectively connected taxable income. Multiply line 2 by line 34 424,000.00 406,000.00 386,665.70 5 Foreign partner’s annualized effectively connected taxable income. Enter the foreign partner’s share of line 4(60%)5 254,400.00 243,600.00 231,999.42 6Multiply line 5 by 35% Sec.14466 89,040.00 85,260.0081,199.80 7Section 6655(e)(2) applicable percentage7 0.25 0.50 0.75 1.00 8Multiply line 6 by line 78 22,260.00 44,520.00 63,945.00 81,199.80 9Add the amounts in all preceding columns of line 109 (22,260.00) (44,520.00) (63,645.00) 10 Installment payments of section 1446 tax due for foreign partner.Subtract line 9 from line 8. If less than zero, enter -0-10 22,260.00 19,425.00 17,254.80

40. Federal Penalties Late payment of tax when tax is due - 1/2 of 1% for each month or part of a month the tax is unpaid Late payment of tax when tax is due - 1/2 of 1% for each month or part of a month the tax is unpaid Failure to withhold under section 1446 may be subject to civil penalty equal to amount that should have been withheld Failure to withhold under section 1446 may be subject to civil penalty equal to amount that should have been withheld Failure to file 8804 w/IRS & furnish 8805 to correct recipient can carry maximum penalty of $250,000 AND $100,000 respectively Failure to file 8804 w/IRS & furnish 8805 to correct recipient can carry maximum penalty of $250,000 AND $100,000 respectively

41. Georgia Foreign Withholding Withholding is 4% of distribution made to non-Georgia resident (foreign partner), not based on income Withholding is 4% of distribution made to non-Georgia resident (foreign partner), not based on income Georgia is unclear on whether withholding is required for distributions made on income or distributions made on return of capital Georgia is unclear on whether withholding is required for distributions made on income or distributions made on return of capital File Form GA-V on 15th day after each month a distribution is made File Form GA-V on 15th day after each month a distribution is made File Form G-7 each quarter after distribution(s) are made File Form G-7 each quarter after distribution(s) are made File Form G-2Aannually to foreign partners File Form G-2A annually to foreign partners