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Accounting News Roundup: Bank of America’s Shifty Restructuring; Financial Reporting’s Waning Relevance; Tax ‘Em if They Smoke ‘Em | 04.02.13

Bank of America Finds Profit in Foreign Tax Credit Moves [Bloomberg]
What the bank calls “restructuring” of its non-U.S. operations yielded $1.7 billion in foreign tax credits, or 41 percent of the $4.2 billion the company reported in 2012 earnings, according to securities documents including the form 10-K it filed Feb. 28. While the maneuvers didn’t provide an immediate cash tax benefit for Bank of America, the foreign tax credits count toward net income under accounting rules. The transactions and the bank’s decision to take some risk that the credits will expire unused indicate the sometimes contradictory incentives that companies have under the U.S. tax code’s treatment of income earned overseas. Bank of America, the second-largest U.S. bank by assets, hasn’t explained in any detail the structure of the transactions or its reasons for generating foreign tax credits that it can’t use immediately. None of the other six largest U.S. banks reported similar tax credit transactions in annual filings for 2012, though Citigroup Inc. already had a larger stockpile of foreign tax credits, which increased during the year.

Corporate-Tax Reform Without Tears [WSJ]
Given the importance of reducing the corporate rate—and the infeasability of the other options for paying for it—Rep. Kenny Marchant (R., Texas) and Rep. Jim McDermott (D., Wash.) are floating a proposal to modestly restrict the deductibility of gross interest expense for corporations. This change would meet two crucial criteria: It would raise a significant amount of revenue and significantly reduce economic distortions caused by the tax code. Based on Internal Revenue Service data from 2000 to 2009 (the most recent available), I estimate that disallowing roughly 30% of interest deductions (that is, allowing for a 70% deduction for gross interest expense) would have fully paid for a reduction in the corporate tax rate to 25% from 35%. Limiting interest deductions for corporations would also correct, to a degree, a serious imbalance. When a corporation finances an investment by issuing debt, the interest payments generate a stream of tax deductions. When a corporation finances an investment by using its cash on hand or by issuing new shares of stock, there are no analogous tax deductions.

Travelers Blames PwC For Embezzlement Scheme [Law360 (Subscription)]
Travelers Casualty and Surety Co. of America has sued PricewaterhouseCoopers LLP in New Jersey on behalf of Alfa Wasserman Inc., claiming PwC should have uncovered chinks in the laboratory instrument maker's accounting processes that enabled a nearly $880,000 embezzlement scheme. Terrance Armstrong, a former accounts payable manager for West Caldwell, N.J.-based Alfa, was able to carry out the alleged scheme from 2007 through 2011 because of significant deficiencies in the company's internal controls[.]

Minneapolis accounting firm ends dual CEO arrangement [MST]
Going Concern, an accounting industry blog, published the e-mails that Viere and McMasters sent to the company’s employees. Ellen Trytek, a CliftonLarsonAllen spokeswoman, confirmed Monday that the e-mails were authentic. “Kris was an integral part of our early merger discussions and instrumental in bringing our two firms together,” Viere wrote in his e-mail. “Change is never easy, but as hard as these decisions are, they are necessary to build for our firm’s future.”

Financial Accounting’s Relevance Lost [Accounting Onion]
Double-entry accounting was a great technological advancement when it was conceived however many centuries ago that was.  Further advances in technology have reduced costs associated with financial reporting, but other costs have increased because needed ‘rationalization of social institutions’ has been hindered by “dysfunctional political squabbles.” […] [A]ccounting standards setters are richly paid, and they serve at the pleasure of oligarchs, who require that more attention is paid to their predilections and ideologies than to the plausibly deniable costs of mis-pricing resources.  We can all recite the litany of problems that have occurred in our generation alone, and precisely identify who has benefitted while most everyone else has lost: treating stock options granted to employees as if there is no cost to other shareholders; not recognizing the implications on pension plans (private and governmental) when assets fail to grow as hoped; or misrepresenting the economics of banks and the loans they make. 

K Street Files: CEOs Lobby for Tax Reform [Roll Call via Joe Thorndike]
“As members of the RATE Coalition, representing 30 companies and organizations with more than 30 million U.S. employees, we stand ready to support your efforts to make the U.S. more competitive,” the CEOs added in the letter. “We know that some choices may be difficult and understand that base-broadeners, such as eliminating tax expenditures, may be necessary to achieve the significant reduction in the statutory rate that is required for the U.S. to better compete globally.”

JPMorgan Chase Still Haunted By Foreclosure Reviews, And More [Forbes]
FM on JPM's sticky situation with OCC and the Fed regulators: "Why is [former KPMG CEO Tim] Flynn the director most vulnerable to pressure from regulators and prosecutors? He’s the guy who threw his own partners under the bus and agreed to pay almost $500 million to save KPMG when it risked criminal indictment for tax shelter abuses. Flynn saved his own skin and his own reputation. I think he’ll do what has to be done at JPMorgan when the Feds come looking for scalps."

State Cigarette Tax Rates, 2013 [TF]
New York, at $4.35, runs away with it.

Bad Bard: a tax dodger and famine profiteer [LST]
“There was another side to Shakespeare besides the brilliant playwright — as a ruthless businessman who did all he could to avoid taxes, maximise profits at others’ expense and exploit the vulnerable — while also writing plays about their plight to entertain them,” said Jayne Archer, a researcher in Renaissance literature at Aberystwyth University.

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