Category: Blog

Delving Into Forensic Accounting

What is Forensic AccountingAccording to a 2022 Allied Market Research report, the size of the global forensic accounting market is forecast to increase in value to $11.68 billion in 2031, up from its 2021 estimated value of $5.13 billion. Allied Market Research puts this compound annual growth rate at nearly 9 percent (8.8 percent). This same report found that the Covid-19 pandemic saw an uptick in the need for forensic accounting skilled professionals and approaches.

Forensic accounting is a specialization within the general accounting profession. Professionals in this specialized subset focus on allegations of financial fraud brought by individuals and businesses in the civil courts and government agencies in the criminal courts. Disputes can range from family members contesting assets and valuations of such assets in an estate, business, or divorce proceedings. When it comes to proving criminal allegations, government agencies look to forensic accountants to investigate financial records for evidence of fraud in the quest to prove crimes such as securities fraud or identity theft.   

Forensic Accounting Methodology

According to the Journal of Accountancy and the Association of Certified Fraud Examiners (ACFE), CPAs and specifically forensic accountants can use Benford’s Law to begin the process of identifying potential fraud. Examples of data sets that forensic accountants can build and analyze come from income statements, expense reports, ledgers, balance sheets, invoice and inventory data, accounts payable, and accounts receivable. When analyzing the leading or first digit in a data set, forensic investigators can take the data set and look at how the leading digits are distributed against the percentages that Benford’s Law sets out.

According to the ACFE, in contrast to the common belief that digits occur in equal probability, Benford’s Law states that numbers starting with 1 as the first digit occurs with the highest frequency. Then each subsequent number 2 through 9 occurs with lower probability. According to Carnegie Mellon University, per Benford’s Law, 30.1 percent of a data set will be led by a 1. The digit 2 will be the first in a data set 17.6 percent of the time. For numbers 3 to 9, the likelihood of each respective number leading the data set should become less frequent.

The ACFE gives the example of a counting exercise to illustrate Benford’s Law. When counting to 25, only one of the 25 numbers would lead with a 3; seven numbers would lead with a 2; and there would be 11 leading numbers beginning with 1. Numbers generated by a computer would give equal weighted probability to 1 to 9 being the first or leading digit. If equally weighted numbers were in fact generated, the results would deviate from Benford’s Law. However, simply because Benford’s Law is not observed in the dataset analyzed, it doesn’t automatically mean fraud occurred. But it is a tool that helps forensic accountants investigate further and determine through additional means if fraud did, in fact, occur.

Similarly, the ACFE points out that if someone wants to commit a financial crime, they would generate invoices worth a lot. It would be a lot more effective for someone to pass off invoices of $800 or $900, versus smaller $100 or $200 amounts. While this would make better use of a criminal’s time, according to Benford’s Law, if a forensic accountant were to test a data set against a few hundred invoices, they might see an abnormal percentage of them with high leading numbers, prompting further investigation.

The Journal of Accountancy reminds readers that it’s important to keep in mind a few caveats. The more numbers available in the data set, the better. It can work with as few as 50 to 100 numbers, but more is always preferred. Another consideration, per the ACFE, is where the data comprising the data set originates. Using a sports analogy, if players are between 5 feet and 8 feet tall, it would make testing the data set against Benford’s Law impossible because there’s zero chance of numbers 1 through 4 and 8 or 9 showing up in a probability test. In these scenarios, Benford’s Law wouldn’t apply.

While the method for detecting financial fraud is not black and white, the need for more forensic accountants will not slow down any time soon.

Sources

https://www.acfeinsights.com/acfe-insights/2023/3/28/benfords-law-how-to-use-it-to-spot-fraudnbsp?rq=Benford

https://www.acfeinsights.com/acfe-insights/2023/3/21/benfords-law-applicationsnbsp?rq=Benford

https://www.acfeinsights.com/acfe-insights/what-is-benfords-law?rq=Benford

https://insights.sei.cmu.edu/blog/benfords-law-potential-applications-insider-threat-detection/

https://www.journalofaccountancy.com/issues/2017/apr/excel-and-benfords-law-to-detect-fraud.html

https://www.alliedmarketresearch.com/forensic-accounting-market-A17182

Upholding Human Agency in an Era of Evolving Digital Systems

AI and Human AgencyTechnology has greatly contributed to improving and streamlining everyday life. However, as technology advances, there is an increased reliance on digital tools powered by artificial intelligence and machine learning. Unfortunately, these technologies are also challenging the fundamental notion of human agency. As a result, there are rising concerns about humans losing the ability to make independent decisions.

What is Human Agency?

Human agency refers to the capacity of individuals to act intentionally and make choices that shape their lives. Although the human agency is influenced by various factors, including social, cultural, and environmental contexts, individuals should maintain the ability to exert some degree of control and influence over their lives. As far as technology is concerned, individuals must retain control and decision-making power. This calls for technologies that support humans in making informed decisions rather than controlling the decisions made.

Concerns Over the Effects of Digital Systems on Human Agency

The Pew Research Center and Elon University’s Imagining the Internet Center conducted a nonscientific canvassing to gather expert views about the future of the human agency.

The experts were specifically asked, “By 2035, will smart machines, bots, and systems powered by artificial intelligence be designed to allow humans to easily be in control of most tech-aided decision-making that is relevant to their lives?”

Of the 540 experts from different fields, 56 percent disagreed with the statement, while 44 percent agreed. Some of the main themes raised by the experts who disagreed with the statement include:

  • The agendas of commercial interests and governments will determine the future.
  • The convenience that comes with automation makes users less vigilant over technology.
  • AI technology’s complexity and rapid evolution can be overwhelming, making it difficult for users to assert their agency.

Common themes raised by participants that agreed with the statement include:

  • Humans also will evolve with technology, and there is the expectation that AI and tech companies will be regulated.
  • Expectations that businesses will protect the human agency to retain public trust and to keep ahead of the competition.
  • Technology will allow varying degrees of human agency.

Key Considerations for Upholding Human Agency

Seeing that technology will keep advancing and more automated systems will be witnessed, it’s crucial to implement ways to help uphold human agency. Some considerations include the following:

  1. Implement mechanisms that contest AI systems. An AI system is as good as the information fed to it. Therefore, it can be faulty or deliberately flawed, and there should be ways to request redress. This can be through AI policies that allow users to contest or rectify a decision made by AI systems.
  2. Empower users through systems that include meaningful choices and controls, enabling users to decide how to interact with them. For example, a system should allow users to adjust preferences, customize settings and choose the features they want. This promotes a sense of ownership and autonomy over digital experiences.
  3. Promote digital literacy and education to teach about technology capabilities and limitations. Technology users must develop critical thinking skills to exercise human agency and make informed decisions.
  4. Integrate ethical principles into technology design and deployment. This can be done by creating guiding ethical frameworks that consider the likely societal impacts and consequences of digital systems.
  5. Guarantee transparency and explainability in technologies and algorithms, providing users with accessible explanations of how decisions are made and what data is utilized. This transparency fosters trust in the technology and empowers individuals to make informed choices.
  6. Establish accountability for the design, development, and implementation of digital systems. Holding individuals and organizations accountable for the impact of their technology helps maintain human agency and promotes ethical behavior.
  7. Implement robust measures to safeguard individuals’ privacy and protect their data. This includes incorporating strong data protection mechanisms, giving users control over their personal information, and establishing clear consent mechanisms for data collection and usage, accompanied by transparent policies. Respecting privacy rights is paramount for preserving human agency in the digital realm.

Conclusion

The essence of being human lies in exercising control over the nature and quality of an individual’s life. However, technological advances such as artificial intelligence are raising concerns about this human ability. Humans are responsible for actively embracing and comprehending the possibilities and implications of living in a world where digital systems take over various tasks and processes. Instead of surrendering their agency, humans should view partnering with these digital systems as a means to supplement and strengthen their intelligence rather than surrendering it.

Increasing the Federal Debt Limit, Improving Disaster Resources and Attempting to Reduce Government Waste

Increasing the Federal Debt Limit, Improving Disaster Resources and Attempting to Reduce Government WasteLimit, Save, Grow Act of 2023 (HR 2811) – This bill was introduced in the House by Rep. Jodey Arrington (R-TX) on April 26. It would authorize and increase the federal debt limit as well as specific cuts in spending, such as repealed energy tax credits, expanded work requirements for the Supplemental Nutrition Assistance Program (SNAP) and other programs, and nullifies regulations for the cancellation of federal student loan debt. This bill passed in the House on April 26 but was not expected to pass in the Senate.

Pharmacy Benefit Manager Reform Act (S 1339) – Co-sponsored by three Republicans, this bipartisan bill would provide for increased oversight of benefits managers that provide pharmacy management services on behalf of health insurers and employer health plans. The bill was introduced by Sen. Bernie Sanders (D-VT) on April 27. A committee report was ordered and returned on May 11, where it awaits assessment by the full Senate.

Fire Suppression and Response Funding Assurance Act (S 479) – This bill is designed to ensure that pre-deployed state and local fire suppression assets are eligible for FEMA’s Fire Management Assistance Grants (FMAG) in an effort to improve the federal government’s response to wildfire disasters. It would adjust the cost share for fire management assistance to no less than 75 percent of the eligible cost. The bill was introduced on March 14 by Sen. Alex Padilla (D-CA). A committee issued its report on the bill on March 29 and it is currently under consideration in the Senate.

National Weather Service Communications Improvement Act (S 1414) – This bill is designed to improve the instant messaging service used by the National Weather Service, as well as other purposes. The bill was introduced by Sen. Maria Cantwell (D-WA) on May 3; its committee report was returned to the Senate on May 10, where it currently awaits review.

NWR Modernization Act of 2023 (S 1416) – Introduced by Sen. Maria Cantwell (D-WA) on May 3, this bill would authorize upgrading and modernizing the National Oceanic and Atmospheric Administration Weather Radio All Hazards Network. The Senate committee issued its report to the Senate on May 10, where it currently awaits review.

A joint resolution providing for congressional disapproval under chapter 8 of title 5, United States Code, of the rule submitted by the Environmental Protection Agency relating to “Control of Air Pollution From New Motor Vehicles: Heavy-Duty Engine and Vehicle Standards” (SJ 11) – This joint resolution nullifies the Environmental Protection Agency rule that pertains to the control of air pollution by new motor vehicles. The current rule sets high emission standards for heavy-duty engines and vehicles in order to reduce air pollution. The bill was introduced by Sen. Deb Fisher (R-NE) on Feb. 9 and passed in the Senate on April 26. It is currently awaiting review in the House.

Identifying and Eliminating Wasteful Programs Act (S 666) – Introduced on March 7 by Sen. Margaret Hassan (D-NH), this bill would require the Chief Operating Officer of each federal agency to compile a list of unnecessary programs. The assigned committee issued its report on March 29; it is currently awaiting review in the Senate.

Federal Agency Performance Act of 2023 (S 709) – This Act also is designed to improve performance and accountability within the Federal Government. It was introduced by Sen. Gary Peters (D-MI) on March 8. The assigned committee issued its report for this bill on March 29; it is also awaiting review in the Senate.

How To Recession-Proof Your Portfolio (Just in Case)

How To Recession-Proof Your PortfolioSome economists and market analysts have been predicting a U.S. recession ever since last fall. They’ve been wrong before – but they’ve also been right. Rather than try to predict how the stock market will react during the next recession, investors are better off planning for a range of potential outcomes. This will help reduce the risk of losses regardless of whether or not the United States experiences a recession in 2023.

Bear in mind that stock and bond markets are forward-looking and typically priced to take into account economic conditions such as higher interest rates, inflation, and commodity prices. In response to whatever factors are in hand, the market adjusts in ways to try to keep returns on par with historical norms and practices.

In its market perspective for 2023, Merrill Lynch suggested that the economic cycle would bottom out, market returns would begin turning a corner, and investors who hold diversified portfolios would see less volatility and be positioned to fully participate in a renewed bull market.

There are several strategies you can implement to help mitigate the impact of an impending recession. Be aware, too, that these strategies are sound all-weather moves designed to help reduce your risk and maximize returns over the long term, regardless of economic and market conditions.

Diversify Your Portfolio

The recent failure of established regional banks is a reminder that there are no “safe” stocks – all stock market investing is subject to a wide range of risks. However, investors should be most wary of owning a high concentration in any single stock. After all, while it is unlikely the stock market will ever be reduced to zero, it is entirely possible for an individual stock to lose total value. This can happen due to a fall in demand, bankruptcy, corruption/embezzlement, a natural disaster, or a public relations scandal. There are many situations that are unforeseen and out of an investor’s control that can lead to substantial losses.

By diversifying your portfolio across a large number of stocks, even those within the same industry (such as competing banks), you can mitigate exposure to a single stock that experiences a major decline in performance. For 2023, Merrill Lynch recommended a broad global stock portfolio with a slight overweight in U.S. equities, including large-cap value stocks and a mixture of small-cap growth and value stocks. It contends that the Energy, Financials, Healthcare, Utilities, and Real Estate sectors offer stable returns via strong cash flow and attractive valuations.

Well-established dividend stocks pay out a steady income as well as offer growth opportunities, which is a good hedge for a strong long-term total return regardless of economic conditions.

Merrill Lynch also favors global fixed-income securities, including investment-grade corporates, 10-year Treasury bonds, and longer-maturity municipal bonds.

Fund Investing

An easy way to diversify across a wide range of stocks and/or bonds is to invest in asset category-specific mutual funds or exchange-traded funds. The immense universe of funds offers a broad range of stocks (e.g., growth, value, large-, medium- and small-cap) and bond (high yield, high quality, government, corporate) fund options. A balanced fund offers a combination of both stock and bond securities to help capture growth as well as capital preservation.

If you invest regularly through a 401(k) plan at work or defer income to an IRA, note that your money will purchase more shares when prices drop, which is often the case during a recession. As long as you have vetted and have faith in your investment choices, this discounted buying opportunity can set up your portfolio for stronger gains once the market recovers.

Cash Allocation

It is always a good idea – even more so during a recession – to hold an allocation in cash or cash-equivalent vehicles such as CDs and money market funds. However, it is not a good idea to sell stocks that have lost ground just to beef up your cash allocation. It may be better to sell a stock with significant appreciation instead, especially if it is in an industry that does not tend to perform well during a recession (e.g., Construction, Manufacturing, Retail, Leisure, and Hospitality).

Financial Tasks to Tackle in the Month of May

Financial Tasks to Tackle in the Month of MayNow that spring is here, it might be a great time to give your finances a fresh look. Here are a few key items to put on your May to-do list.

Say Bye-Bye to PMI

If you bought your home for less than 20 percent down, there’s a good chance you’ve been paying private mortgage insurance (aka PMI) on your loan, which is usually an extra 1 percent of what you paid. But here’s the good news: the rise in home prices over the past few years has meant one thing — a bump in your home equity. If your equity position is now at least 20 percent of the original purchase price, you might not have to keep paying your PMI. All you need to do is contact the company that services your mortgage and check things out. You might have to pay several hundred dollars for a new appraisal, but when you compare it to the thousands you could save in a year, it’s well worth it.

Take Advantage of 529 Day

That would be May 29, a day that has been reserved to remind parents of future college students to start saving in a tax-advantaged 529 savings account. Here’s how it works: whatever amount you put in it grows tax-free. And better still, you won’t pay any taxes on withdrawals used to pay for qualified college expenses. You can also use up to $10,000 tax-free for qualified K-12 expenses. How sweet is that?

Get Rid of Unnecessary Financial Documents

Do you have stacks of old tax returns, bill stubs, and old ATM and bank deposit receipts collecting dust inside your filing cabinet? If so, spring is a good time to go through and shred them. For instance, you can toss tax returns after 10 years and ATM and bank receipts after just one year. If you don’t have a shredder, check to see if and when your city holds free shredding days. And don’t forget about your computer, external drives, and mobile devices that also might be getting full. A great resource to securely delete your personal documents is Eraser, a free software program for PCs. Last but not least, clean out your phone. Take a few minutes to delete any unused apps. Digital spring cleaning is always a great idea.

Review Recurring Charges

Do you really need that magazine subscription? How about the channel you bought to watch a show but forgot to cancel? These are the kinds of small charges that can really add up — and cost you over time. Take a look at your credit card statements, give them a good once over, highlight the ones that can go, and then start the process of canceling. If you want to help streamline this process, check out free apps like Rocket Money and Trim. It’ll feel so good when you’re finished.

Budget for Home Improvement Projects

During May, especially Memorial Day, you can find big discounts on materials for all those projects around the house you want to dive into this summer. It’s best not to wait because prices can climb in June and July. If you’re thinking of bigger projects like putting in a deck or repairing your roof, you might need help. That’s why buying the materials in May could help you stretch your budget when it’s time to hire people to do the work. Even if you aren’t 100 percent ready to get started, you can still measure how much decking or roofing you’ll need and take advantage of holiday sales.

Whether you’re saving up, cleaning up or clearing out, May is a great month to take stock of your finances. Who knows? It might put a little spring in your step.

Sources

https://www.consumerreports.org/financial-planning/may-financial-to-do-list/

I Needed to Repay Part of My Compensation; Will I Get a Refund on My Taxes?

Repay Part of My Compensation, Refund on My Taxes?So, you filed and paid all your taxes on the money you earned in 2021. Now, the company you work for finds itself in trouble, and you are forced to pay back part of your compensation. The big question is, will the IRS refund you for the taxes you already paid related to this compensation? While this seems like a bizarre scenario at first glance, it is more common than you might think.

Reducing or holding back compensation that hasn’t been earned yet is easy. Simply pay an executive or employee less, or don’t grant the stock option or bonus. Just don’t pay it.

Things get tricky in a situation where compensation has already been paid and needs to be reversed. This is much, much tougher. If you are still within the same calendar year, then logistically, it’s easier to make an adjustment; but unwinding compensation already awarded is never simple or easy.

Requiring an employee to pay back compensation is not as uncommon as many think. The situation can be as simple as receiving a signing bonus with the stipulation to stay at least a year. IRS treatment of repaid compensation depends on the details.

Details on Compensation Clawbacks

The answer to the core question can vary, with the legal context and timing being the biggest drivers. For example, both Dodd-Frank and the Consumer Protection Act grant regulatory authority to mandate clawbacks, even in cases where the taxpayer was unaware of any wrongdoing. The Sarbanes-Oxlet Act has its own set of clawback regulations. In cases such as this, there is the possibility, due to legal concerns, that a refund is not due to the taxpayer.

Generally, in cases of contractual issues, the IRS doesn’t allow a taxpayer to undo an economic event as if it never happened. The general exception to this rule is if you receive and give back the same compensation within the same calendar year. The problem, however, is that clawbacks usually come in later years after a tax return has been filed.

If you are still employed at the same company, they could simply agree to reduce your current year salary. If you are a former employee, things get tricker. You also have the possibility of amending a prior tax return in some cases. Unfortunately, many people find themselves in a situation where they need to claim a tax refund under Section 1341 of the tax code.

Section 1341 is based on the claim of right doctrine and attempts to put a taxpayer in the same position he or she would have been in had they never received the income. To qualify for and file under this provision, the taxpayer must have included money in income in the prior year because they had an unrestricted right to it at that time and then later learned they did not have an unrestricted right to it after all, therefore having to give it back.

Conclusion

The rules and regulations around the taxability of compensation required to be repaid is not simple. While the core issue of whether one is voluntary or mandatory, givebacks almost always create tax problems. If you ever find yourself in a situation where you have to return a material amount of compensation, no matter what the source, it’s best to reach out to your trusted tax adviser for help navigating the complexities.

Defining and Understanding Reproduction Costs

What are Reproduction Costs, Reproduction Costs, Defining Reproduction CostsWhen it comes to businesses looking to mitigate risk, one concept that’s important to explore is reproduction costs. The first step is to distinguish between reproduction and replacement costs. Replacement cost refers to how much it would cost a company to replace an asset that will duplicate the performance of the beginning asset; however, it does not necessarily have to meet the same materials, specifications, etc. Reproduction cost refers to how much it would cost a company to reproduce the asset so that it’s constructed of the same materials, specifications, etc., based on current market prices.  

When looking to assess real estate accurately, the cost approach examines how much a builder would need to spend on the land and building outlays to replicate the original building and its functionality. This looks at what the current market conditions would assess the land for and the construction/development costs on said land. From there, it removes depreciation to obtain its property value.

It’s expressed as follows:

Property Value = Replacement / Reproduction Cost – Depreciation + Land Value

The first step is to determine the structure’s reproduction and replacement costs. The Replacement Method looks at expenses that would be incurred to build a structure featuring the same usefulness as the building under review, constructed with present-day raw materials, blueprints, specifications, etc. The Reproduction Method looks at how much it would cost to build an exact replica of the original structure, employing analogous inputs and building standards. It also requires adhering to historically accurate conventions and blueprints. Naturally, when comparing a historic property to a recent building, there would be a greater divergence between replacement and reproduction costs.

Depreciation of improvements for the next step must be estimated. This is defined as the difference between the value of renovations and the current contributing value of them, which is measured in three ways:

  • How much has the building physically deteriorated?
  • How much has the building has fallen out of favor with real estate purchasers over time?
  • How much value has the building lost due to factors beyond itself? Examples include deteriorating local economic conditions, recent and lasting environmental contamination, etc.

After calculating the three conditions in the aforementioned questions, the resulting figure is the accrued depreciation. This step entails looking at current property values to ascertain a competitive worth for the land. This can be referred to as the Estimated Assessed Value of Land to give the value a name.

From there, the accrued depreciation must be taken off the value of either the replacement cost or reproduction cost. It’s expressed as follows:

Replacement Cost or Reproduction Cost (either can be selected depending on the desired outcome) – Accrued Depreciation

The resulting figure is referred to as the Depreciated Cost of the Structure.

Once the Accrued Depreciation is accounted for, the land’s estimated assessed value must be added to the Depreciated Cost of the Structure figure. It is calculated as follows:

Completed Estimate of Real Estate = Depreciated Cost of the Structure + Estimated Assessed Value of Land

Contemplating the Cost Approach’s Drawbacks

One concern is that if there’s a problem finding the right lot, the parcel’s valuation might not reflect its true worth. Zoning or land-use restrictions can reduce the attractiveness of a parcel of land, thereby lowering its value. When it comes to calculating depreciation for older properties, age could skew the value estimate. For example, with construction materials for certain items may not be available anymore, making the calculation subject to interpretation.

Understanding how different cost assessments work allows business owners to make decisions that benefit their customers and their bottom line.

What Is Web 3.0? Understanding The Next Generation of the Internet

What Is Web 3.0? The internet keeps evolving. It started with static web pages in Web 1.0 before evolving to interactive and dynamic content in Web 2.0. A new phase of technology is now introducing Web 3.0, or the third generation of The World Wide Web. Although it is a work in progress, it is necessary to understand the new concept and how it will impact the future of online interactions.

What is Web 3.0?

Web 3.0 is a term used to describe the next generation of the internet. Industry experts consider it the next big thing in the evolution of the The Web after Web 2.0. Web 2.0 refers to the Internet era characterized by user-generated content, social networking, and interactive web applications; it is known mainly as the Internet of Information.

Web 3.0, on the other hand, is built on top of the existing infrastructure; however, it introduces new technologies that enable computers to interpret data in a more human-centered manner. It combines disruptive technologies such as blockchain, augmented reality, virtual reality, edge computing, IoT, etc. As a result, the internet will become a more intelligent and efficient tool for finding and processing information.

Web 3.0 is also referred to as the semantic web or decentralized web and aims to create a more meaningful online experience by integrating artificial intelligence (AI), decentralized networks, and semantic understanding.

Key Features of Web 3.0

Decentralization

Web 3.0 makes good the move toward decentralization. Decentralization implies that instead of relying on central authorities, data is simultaneously stored in multiple locations. Since Web 3.0 is built on decentralized networks, such as blockchain technology, it creates a more transparent, secure, and trusted web and gives users more control over their data.

Artificial Intelligence and Machine Learning

Web 3.0 will enable computers to comprehend information similar to the way humans do, using semantic web concepts and natural language processing. It also will utilize machine learning – technology that employs data and algorithms to imitate human learning and enhance accuracy. Web 3.0 is designed to leverage the power of artificial intelligence (AI), making web applications more intelligent and enhancing their capacity to make informed decisions. It also helps automate tasks, improve efficiency, and provide more personalized experiences for users.

Ubiquity and Connectivity

The rise of the Internet of Things (IoT) is another contributing factor, enabling information and content to be more connected and ubiquitous. It also means data is accessible via multiple applications and devices.

3D Visualization

Using augmented reality, virtual reality, and mixed reality combined with technologies such as IoT makes it possible to create a spatial web. This helps maintain real-life scale and experience on the web. A good example is the application of VR technology in e-commerce.

Openness and Accessibility

Web 3.0 is built on open standards and protocols, which make it more accessible to both developers and users. This promotes innovation and collaboration across different sectors and communities.

The Impact of Web 3.0 and Challenges

Web 3.0 will significantly change how users interact with information online and transform different aspects of life, including commerce, health, and education, among others. For instance, decentralization gives users greater control over their personal data. This might help limit the collection of data without user consent or compensation.

With blockchain technology as a foundation of Web 3.0, the data becomes immutable, transparent, and hard to hack. This is because all transactions will use self-executing smart contracts.

Web 3.0 will usher in a new era of automation as intelligent systems and algorithms become increasingly integrated into online experiences. This will include more intelligent chatbots, personalized recommendations, sophisticated predictive analytics, and autonomous systems.

As a result, there will be an improved user experience. Users will have a more personalized and interactive experience online, with applications that can better understand their needs and preferences.

Despite the impressive positive impact, Web 3.0 is still in its early emerging stage and is not without challenges. As more significant work and effort are being put toward its actualization, several issues must be addressed. First, to facilitate specific user functions, additional layers must be built on top of the blockchain to ease its complex operations.

Secondly, decentralization introduces data governance and regulation concerns. With no central control of data, bad actors can take advantage to promote hate speech, misinformation and cybercrime.

Thirdly, this new iteration of the internet also requires implementing new technologies and using advanced devices.

Conclusion

The evolution of the internet is inevitable. Although more effort is still required to realize the full potential of Web 3.0, business leaders should be aware of new developments to ensure they can take advantage of opportunities presented by the spatial web and venture into new avenues to remain competitive.

Shoring Up Services for Veterans, Energy Production and Cybersecurity Risks

Shoring Up Services for Veterans, Energy Production and Cybersecurity RisksRelating to a national emergency declared by the President on March 13, 2020 (HJ Res 7) – On March 13, 2020, then-President Trump declared a national emergency relating to the COVID-19 pandemic. Since then, emergency status has continued until the passage of this resolution. The national emergency status relaxed many healthcare rules, such as training mandates for nursing home aides, easier access to certain prescribed medications (e.g., Adderall, Ritalin, oxycodone, buprenorphine), and utilization of uncredentialed nurse practitioners and physician assistants for hospitalized Medicare patients. The resolution to end emergency status passed in the House on Feb. 1 and Senate on March 29. The resolution was introduced by Rep. Paul Gosar (R-AZ) on Jan. 9 and enacted by President Biden on April 10.

Wounded Warrior Access Act (HR 1226) – This bill requires the Department of Veterans Affairs (VA) to respond to online requests by claimants for records related to VA claims and benefits. The VA must notify a requester within 10 days that their request has been received and fulfill the request within 120 days. The bill was introduced by Rep. Pete Aguilar (D-CA) on Feb. 28 and passed in the House on March 7. It currently resides in the Senate.

Veterans’ COLA Act of 2023 (S 777) – Effective Dec. 1, 2023, this bipartisan bill would increase the rates of compensation for veterans with service-connected disabilities as well as dependency and indemnity compensation for the survivors of certain disabled veterans. The bill was introduced on March 14 by Sen. Jon Tester (D-MT). It passed in the Senate on March 30 and is currently under consideration in the House.

Understanding Cybersecurity of Mobile Networks Act (HR 1123) – Introduced by Rep. Anna Ashoo (D-CA) on Feb. 21, this bill would require the National Telecommunications and Information Administration to report on the cybersecurity vulnerability of mobile service networks and mobile devices to cyberattacks and surveillance by adversaries. The bill was passed unanimously in the House on March 7; its fate currently resides in the Senate.

Lower Energy Costs Act (HR 1) – This bill is designed to reduce energy costs by increasing American energy production, exports, infrastructure, and critical minerals processing by implementing transparency, accountability, and permitting rules as well as improving water quality certification and expediting energy projects. The bill was introduced by Rep. Steve Scalise (R-LA) on Jan. 26 and passed in the House on March 30. It is currently awaiting review in the Senate.

SECURE Notarization Act of 2023 (HR 1059) – This bipartisan legislation was introduced in the House by Rep. Kelly Armstrong (R-ND) on Feb. 17. It would permit notaries public to notarize electronic records and perform notarizations for remotely located individuals. The bill provides technical requirements, including creating and retaining video and audio recordings to conduct the transaction. Additionally, the bill would require all U.S. courts and states to recognize in-person and remoted notarizations affecting interstate commerce. The bill also allows a notary public to remotely notarize electronic records involving an individual located outside of the United States, subject to certain requirements. The bill passed in the House on Feb. 27 and is currently under consideration in the Senate.

Estate Taxes vs. Inheritance Taxes: Understanding the Differences

Estate Taxes vs. Inheritance TaxesEstate and inheritance (“death”) taxes are levied on the transfer of property at death. The difference between an estate tax and an inheritance tax is based on who pays the bill. An estate tax is levied on the estate of the deceased, while an inheritance tax is levied on the heirs of the deceased. That’s the simple explanation. As for execution, there are far more nuances based on the monetary value of a bequest; the status of the beneficiary/(ies); and where you live when you pass away.

Federal Estate Tax

An estate tax applies to the value of the assets left behind by a decedent and is paid out from the proceeds of the estate before the rest of the assets are distributed to heirs. Estate wealth is usually comprised of cash, securities, and real estate.

In 2023, if an estate is valued at more than $12.92 million ($25.84 million for couples), the estate will owe a progressive tax rate levied on the value above that amount. For example, if an estate is valued at $15 million, it will pay estate taxes on the $2,080,000 above the exemption. The federal tax rate ranges from 18 percent to 40 percent, depending on the taxable value of the estate.

Generally, the estate tax applies to only the wealthiest 2 percent of Americans, and only 0.07 percent of estates end up paying the tax, according to the Tax Policy Center. Note that assets inherited by a spouse or charitable organizations are generally not subject to an estate tax.

Some states also levy an estate tax based on the location of the property. Presently, 12 states plus the District of Columbia levy an estate tax:

  • Connecticut
  • District of Columbia
  • Hawaii
  • Illinois
  • Maine
  • Maryland
  • Massachusetts
  • Minnesota
  • New York
  • Oregon
  • Rhode Island
  • Vermont
  • Washington

Estate Tax Strategies

To minimize or eliminate estate taxes, the estate owner has several options. Among the more sophisticated are structuring an Irrevocable Life Insurance Trust, a Family Limited Partnership or funding a Qualified Personal Residence Trust. However, the easiest way to legally avoid estate taxes is to give assets away before you die. Estate owners can make tax-deductible contributions to charitable organizations or gift up to $17,000 in 2023 ($16,000 in 2022) a year, per person, to as many people as you want.

Inheritance Tax

An inheritance tax, on the other hand, is a state tax paid by the beneficiary (heir) of an estate. Not every state levies an inheritance tax, and the laws vary considerably by state. The tax is based on the relationship of the beneficiary to the decedent. For example, in some instances, a beneficiary who is a surviving spouse, parent, child or grandchild may be exempt from the tax, whereas a brother, sister, niece or nephew may be subject to an inheritance tax.

Presently, six states levy an inheritance tax (only Maryland levies both estate and inheritance taxes). Each state sets its own exclusion amount, ranging from $1 million to $9.1 million. Amounts above the state exclusion are then subject to a separate estate tax, which tends to range between 1 percent and 18 percent. The tax applies to decedents who lived in one of these states:

  • Iowa (phasing out tax by 2025)
  • Kentucky
  • Maryland
  • Nebraska
  • New Jersey
  • Pennsylvania

Inheritance Tax Strategies

Similar to estate tax strategies, an estate owner can minimize state inheritance taxes by transferring assets to a trust or family limited partnership or by gifting assets. Be aware that assets owned under a Roth IRA or Roth 401(k) – that has been open for at least five years – are not subject to any taxes since contributions were already taxed and earnings grow tax-free. You also might consider using a portion of your assets to purchase life insurance, naming your heirs as beneficiaries. Since life insurance proceeds are not taxable, this is a way to remove money from the estate to create a larger, tax-free inheritance.

As for current estate assets, one surefire way to legally avoid inheritance taxes is to move to a state that doesn’t levy them.