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GoingConcern
July 21, 2010

A quick word of thanks to this week’s advertisers on Going Concern:

• Sunshine Suites

• Wiley

If you’re interested in advertising on Going Concern, email us at advertising@breakingmedia.com.

Thanks!

Tax Court Rules That Feng Shui-Inspired Business Plan Made Couple Professional Gamblers

Caleb Newquist
July 21, 2010

There are plenty of businesses out there that simply don’t have a plan. They may have a sign in the window, products on their shelves and a room full of “keepers” but not much else.

Trieu Le and Baymone Thongtheposmphou, on the other hand, had a plan. When Le’s company moved to Costa Rica in 2005, he opted to turn his focus towards professional gambling.

Sure, there are plenty of people out there that claim to be professional gamblers that would probably be better described as “degenerates” but not Le and Thongtheposmphou. They would use the principles of Feng Shui to focus their wagering efforts on their “lucky days,” increasing their wagering, foregoing sleep and possibly unnecessary food or bathroom breaks in order to maximize their luckiness.

Things were going on swimmingly for the couple until, at some point in 2007, they realized they were 200k in debt, having “withdrawn money from their retirement funds and borrowed against various assets to finance their attempt to make a profit.” These two were obviously committed to their idea and their plan.

TL and BT filed their losses (not to the exceed their winnings, of course) on a Schedule C to be included on the 1040. Unfortch, the IRS wasn’t buying the notion of this “professional gambling” and called bullshit:

Respondent treated petitioner’s winnings as not being from a business (i.e., that petitioner was not in the business of gambling) and accordingly determined that his losses should have been reported on Schedule A, Itemized Deductions, as an itemized deduction rather than a business deduction. The income tax deficiency respondent determined arose from the inclusion of the gambling winnings in income and the resulting increase of the limitations on miscellaneous itemized deductions claimed on Schedule A.

The tax court decided to boil this down to the facts. That being, these two people had a plan – to gamble based on Feng Shui principles. Was this a bad business plan? Certainly not the best but far from the worst. Was it harebrained? Maybe. But was the tax treatment correct? The tax court says yes!

We find that petitioner’s gambling activity was a trade or business that was pursued in good faith, with regularity, and for the production of income, and that it was not merely recreation or a hobby.

[…]

Respondent also argues that petitioners’ approach was not businesslike and that it was irrational. The standard, however, requires only that the profit objective be actual and honest. It would be difficult to find on the record before the Court that petitioner’s approach to making a profit was irrational. For example, if someone’s investment in a stock or a business were based on Feng Shui or some other cultural judgment, that would not per se be “irrational”. Petitioners used their best judgment and successfully tested their business approach. Ultimately, the fact that their approach was unsuccessful does not make it irrational.

So take heed degenerate gamblers with crackpot business plans! As long as you’re using your best judgment and have some semblance of an “business approach” you too can take on the IRS (these two were pro sese, no less). Good luck!

[h/t TaxProf]

Big 4

Which Big 4 Firm Is Getting Extra Anxious to Sign Off on Audit Reports?

Caleb Newquist
July 21, 2010

In this morning’s roundup we linked to the Accountancy Age story that reported the Audit Inspection Unit in the UK found that “Auditors have also been accused of altering documents before handing them to regulators and putting cost savings ahead of quality,” but also “The report also found some cases where partners signed audit reports before the audit was complete.”

Obviously this is no good but since the report was relevant to the FTSE 100 (and the report doesn’t name names), we just figured that this was just a blanket statement about the Big 4. However, over at FT Alphaville, Tracy Alloway shared a clipping from the report that got a little more specific:

“This issue appeared to be more prevalent at one major firm.” Okay! So one firm has a few extra partners that have itchy trigger fingers. This obviously begs the question of “which firm?” If you prefer to play the numbers, here’s the latest breakdown of the FTSE 100 we can find: PwC – 41; KPMG – 24; Deloitte – 20; E&Y – 17 (we realize the numbers don’t add up to 100, take it up with Accountancy Age).

But this is America, so we’ll put it to a vote:

Online Surveys & Market Research

What Would the Nonprofit Sector and Community Solutions Act Accomplish?

Adrienne Gonzalez
July 21, 2010

Representative Betty McCollum is upset that small businesses have the Small Business Administration but nonprofits don’t get a Nonprofit Administration to evaluate, build and monitor the capacity of America’s vital nonprofits. She believes nonprofits are an invisible but vital part to the economy and overlooked by Washington, DC except when it comes to tax issues.

She writes in the Hill:

This legislation represents a significant step toward creating a more effective partnership between the federal government and the nonprofit sector. H.R. 5533 establishes a new United States Council on the Nonprofit Sector. The Council will be a forum for leaders of nonprofits, foundations, businesses and government to discuss strategies for strengthening the nonprofit sector. The bill also creates an Inter-agency Working Group on the Nonprofit Sector. This group will ensure that high-level representatives from cabinet agencies and other key agencies coordinate and improve federal policies pertaining to nonprofit organizations. Finally, the legislation directs Federal agencies to collect and publish better data on nonprofits AND to support research that will lead to smarter Federal policy.

The goals of the Nonprofit Sector and Community Solutions Act are to build a stronger nonprofit sector, craft smarter federal policy, and create more vibrant communities in every state across the country.

Listen, we love working groups as much as the next cube-dweller but haven’t yet seen a copy of the Bill so can’t say either way at this point. What we do know is that the nonprofit sector is large enough to be in need of some help beyond whatever pestering they get from our friends at the IRS.

According to a 2009 Congressional Research Service report, nonprofits (mostly charities) make up over 5% of U.S. GDP. Charitable organizations are estimated to employ more than 7% of the U.S. workforce, while the broader nonprofit sector is estimated to employ 10% of the U.S. workforce. In 2009, nonprofits filing form 990s with the IRS reported approximately $1.4 billion in revenue and nearly $2.6 billion in assets.

Those numbers do not include the estimated 215,000 charities who have neglected (or completely blown off) their 990 responsibilities.

Update: Ms McCollum’s office was kind enough to get in touch and provide us with more information and a direct link to the Bill. We look forward to seeing how this works out.

Accounting News Roundup: Bankruptcy Examiner to Investigate WaMu Failure; Ex-KPMG Tax Principal Pleads Guilty; UK Inspector Says Audits Need ‘Significant Improvement’ | 07.21.10

Caleb Newquist
July 21, 2010

WaMu Shareholders Win Court Investigation of Biggest U.S. Bank Failure [Bloomberg]
WaMu gets their very own Anton Valukas! Colorful claims to come? “Shareholders of Washington Mutual Inc. won court approval of a new investigation of the biggest U.S. bank failure, further delaying the company’s effort to reorganize in bankruptcy.

U.S. Bankruptcy Judge Mary F. Walrath in Wilmington, Delaware, agreed that an examiner should be appointed to review WaMu’s assets, including the value of a potential lawsuit against JPMorgan Chase & Co. and the Federal Deposit Insurance Corp. for their role in the 2008 collapse of Washington Mutual Bank.”

Ex-IRS agent pleads guilty [WaPo]
John Venuti was also with KPMG from 2002 to until this past January. WaPo reports that he was a “tax consultant and principal.”

“According to the plea agreement, Venuti did not file federal tax returns from 2001 to 2006. Each year, though, he requested and was granted a six-month extension, and made a total of $97,060 in payments along with the extension requests. Authorities said he owes more than $789,000 in back taxes.”

Reckitt to Buy Durex Maker SSL [WSJ]
“Pushing further into the lucrative over-the-counter medical market, U.K. consumer-goods firm Reckitt Benckiser PLC agreed on Wednesday to acquire health-care-product company SSL International PLC, in a deal that values the world’s biggest condom maker at £2.54 billion ($3.88 billion).”

FASB Reveals Second Attempt at Standard on Contingencies [Compliance Week]
“The standard differs from one the FASB published in June 2008, which called on companies to use some conjecture and provide estimates of possible outcomes. Corporate counsel in particular buried FASB with objections that the proposed approach would force disclosure of privileged information, especially by giving legal adversaries access to information that would compromise the outcome of disputes. The current proposal steers clear of any requirement for companies to make any predictions or estimates about possible outcomes.”

FTSE 100 audits require “significant improvement”, inspectors find [Accountancy Age]
“Auditors have also been accused of altering documents before handing them to regulators and putting cost savings ahead of quality, in the review by the Audit Inspection Unit (AIU).

The report raised a number of concerns following its inspection of 109 audits from AIM and the FTSE 350.

The report also found some cases where partners signed audit reports before the audit was complete and one instance when an auditor tried to alter an internal file after the AIU requested it. Auditors had also changed internal materiality thresholds, which effectively reduced their workload, and had also not applied enough scepticism to internal asset valuations.”

Was the $550 Million Not Enough for You?

Caleb Newquist
July 21, 2010

“I couldn’t tell you, Mike, that there is a company in the world that does not have a threat of a criminal investigation at some point in time. I mean, every company in the entire world has that. All I can tell you is that we are not aware of any criminal investigation of Goldman Sachs.”

~ Goldman Sachs CFO David Viniar, responding to CLSA analyst Mike Mayo, who really, really, really, really wants to know if there is a threat of a criminal investigation into Goldman Sachs.

Deloitte

Deloitte Tax Sells Deloitte Investment Advisors to Aspiriant

Caleb Newquist
July 21, 2010

Don’t panic! DIA only has 40 professionals serving 450 clients so the band isn’t breaking up. Although, maybe this is a segue into Barry Salzberg’s shopping spree. Who’s to say?

Whatever it means, both c happy with how the deal turned out.

Deloitte’s Chet Wood: “We determined that divesting Deloitte Investment Advisors is in the best interest of DIA, our professionals and our clients. As part of the Aspiriant organization, the business will have greater latitude for growth through offering additional services and pursuing its own marketplace interests.”

Aspiriant’s Rob Francais: “This acquisition is another step in our long-term growth strategy to ensure that Aspiriant remains a leading independent wealth management firm that is well-positioned to serve the needs of wealthy families for generations to come. The employees at Aspiriant and DIA share the same high standards and values; we are truly cut from the same cloth, and we welcome this exceptionally skilled team to Aspiriant.”

So. D Tax is happy to free up some cash; Aspirirant is happy to get some exceptionally skilled cloth. Carry on.

BPR:

NEW YORK, July 19 /PRNewswire/ — Deloitte and Aspiriant today announced they have entered into a definitive agreement under which Aspiriant Investment Advisors, a subsidiary of Aspiriant, a leading independent wealth management firm, will acquire Deloitte Investment Advisors LLC (DIA), a fee-only registered investment advisory group owned by Deloitte Tax LLP. The transaction is expected to close in September 2010, subject to customary approvals and closing conditions. Terms of the agreement were not disclosed.

DIA commenced operations in 1998 and is comprised of approximately 40 professionals. The group provides investment advisory services to individual and institutional investors and currently has approximately $2.9 billion in assets under advisement for more than 450 clients.

After a review of strategic opportunities for the business and an analysis of regulatory considerations, Deloitte Tax concluded that divesting DIA provided the best opportunity for the group’s future growth.

“We determined that divesting Deloitte Investment Advisors is in the best interest of DIA, our professionals and our clients,” said Chet Wood, chairman and chief executive officer of Deloitte Tax LLP. “As part of the Aspiriant organization, the business will have greater latitude for growth through offering additional services and pursuing its own marketplace interests.”

“This acquisition is another step in our long-term growth strategy to ensure that Aspiriant remains a leading independent wealth management firm that is well-positioned to serve the needs of wealthy families for generations to come,” said Rob Francais, chief executive officer of Aspiriant. “The employees at Aspiriant and DIA share the same high standards and values; we are truly cut from the same cloth, and we welcome this exceptionally skilled team to Aspiriant.”

Once the transaction is completed, Aspiriant will serve approximately 800 clients through eight offices in the U.S., and have more than $7 billion in assets under management and advisement.

“We are confident that our expanded team and geography will enable us to deliver additional benefits to clients through a broader range of investment and financial planning services, as well as increased depth of management and investment talent,” Francais added.

Is Mary Schapiro Talking About a Certain Lehman Brothers Auditor?

Caleb Newquist
July 21, 2010

Maybe! After last week’s settlement with Team Jehovah and the financial reform bill allowing for a few more hands on deck, the SEC chair says there are some other smackdowns in the works.

Unfortunately she doesn’t name names but use your imagination:

“We have investigations in the pipeline, across products, across institutions, coming out of the financial crisis,” SEC Chairman Mary Schapiro said after testifying before a House of Representatives subcommittee hearing.

Asked if the bulk of the cases have already been brought to light, she said: “Not necessarily, not necessarily.”

So it’s a grab bag really. Although, as you may recall, Dick Fuld is on the record that E&Y was on board with whatever the dorks in accounting were doing. Or maybe MS is just messing with Congress. The situation remains fluid.

SEC chairman says more post-crisis cases in pipeline [Reuters]

How Big of a Burden Will the New 1099 Reporting Requirements Be for Small Businesses?

GoingConcern
July 20, 2010

This story is republished from CFOZone, where you’ll find news, analysis and professional networking tools for finance executives.

Slipped into the health care reform bill passed in March was a new tax reporting regulation likely to create a huge burden for businesses, something we wrote about recently. Now a government watchdog, the National Taxpayer Advocate, is questioning the rule’s potential unintended consequences for small companies.

Plus, it looks like the regulation won’t raise a heck of a lot of money anyway.

The rule would require anyone with business income to issue 1099 tax forms to all vendors from whom they bought more than $600 worth of goods and services that year.

In her report, Nina Olson, the Taxpayer Advocate, warned that the rule could prove to be an unacceptable added burden for small businesses, which would face a virtual cyclone of new paperwork to comply with the regulation. “The new reporting burden, particularly as it falls on small businesses, may turn out to be disproportionate as compared with any resulting improvement in tax compliance,” she wrote. And the rule could also give an unfair advantage to large suppliers that have the resources to help customers track purchases.

What’s really going on here? The regulation, which would take effect in 2012, seems to be yet another attempt by federal and state government agencies to shore up revenues by cracking down on unpaid tax liabilities–and taking steps that intentionally or unintentionally impact small businesses in particular. For example, a bevy of agencies, plus Congress, are on a regulatory jihad against corporate misclassification of independent contractors. And there are reports that the IRS is especially eyeing small businesses in that crackdown.

Thing is, like that effort, the new 1099 tax reporting regulation isn’t likely to reap a whole lot of money. For example, the nonpartisan Joint Committee on Taxation recently estimated the rule would raise an underwhelming $2 billion annually in added revenue, according to CNNMoney.com.

Will the Taxpayer Advocate’s remarks have any effect? Even before Olson’s report, there were signs that the IRS had started to backtrack. For example, the IRS announced in May that the rule won’t include transactions made through credit and debit cards. As the tax agency addresses all the compliance complexities of the rule, it’s likely to make other changes, as well.

But with government agencies in desperate need of money, the reporting rule isn’t going to disappear completely.

Salaries

Compensation Watch ’10: Grant Thornton – Was It Worth the Wait?

Caleb Newquist
July 20, 2010

Hard to believe that it’s been nearly two weeks since we first wondered out loud about the waning patience at GT. From the Blagojevich Circus grounds:

GT is releasing salary info across the US this week. Can we get a thread going about it?

Preliminary reports are looking bleak, per the last thread’s comments, including

Just had my fears confirmed…comp adjustments will be throughly disappointing. So much so that the partner charged with communicating those adjustments is stressing. That’s a great sign, right?

And:

a 5% raise and i am a 4 overall. grant thornton can watch their firm progress with one less person…

AND:

I could wipe my ass with the raise I got. Actually, I better not wipe my ass with it, it may be the only I can afford bread and water

Oh. Dear. So here’s your fresh thread – spread your joy/misery/reactions to your comp news below.

Job of the Day: Fannie Mae Needs a Director of Financial Reporting

GoingConcern
July 20, 2010

Fannie Mae is looking for an experienced professional to fill a Director of Financial Reporting position in its Washington, D.C. office.

This person will be responsible for coordinating the execution of day-to-day operations of financial reporting.

Qualifications include 8 – 10 years experience, CPA and public accounting experience preferred.

Company: Fannie Mae

Title: Director, Financial Reporting

Location: Washington, D.C.

Description: Coordinate strategy execution for a broad area of financial reporting. Direct day-to-day operations for a unit engaged in compiling, reviewing, and/or transmitting accurate financial results internally to the firm points of contact or externally to regulatory bodies (e.g., FHFA, SEC) for inclusion in board reports, news releases, and public financial reporting. Articulate goals, allocate resources, and manage workflow.

Responsibilities: Lead activities related to accounting, control, and financial reporting for responsible areas. Ensure that monthly, quarterly, and annual financial reporting is accurate, timely, and based upon internal and external reporting requirements; Research regulations and trends. Participate in discussions and conferences with regulators and other industry representatives. Work to influence future regulatory developments and interpretations; Report to senior management on the unit’s production, activities, and efforts; Represent the unit as an expert or resource to cross-functional project or coordinating teams; Report to senior management on the unit’s production, activities, and efforts; Represent the unit as an expert or resource to cross-functional project or coordinating teams; Plan, document, and manage the performance of subordinate managers and/or staff. Provide for professional or technical growth through assignment, mentoring, or training; Plan and manage the unit’s budget. Approve expenditures or budget transfers.

Qualifications/Skills: Bachelor’s Degree or Equivalent required; 8-10 years of related experience; CPA preferred; Public accounting experience preferred.

See the entire description over at the GC Career Center and visit the main page for all your job search needs.

People Get More Satisfaction From Filing Their Taxes Online Than Using Facebook

Caleb Newquist
July 20, 2010

The emphasis isn’t needed but we’ve provided it anyway:

Despite being the most popular website in America, consumers don’t like Facebook, according to the 2010 American Customer Satisfaction Index (ACSI) E-Business Report, produced in partnership with ForeSee Results. Facebook scored 64 on the ACSI’s 100-point scale, which puts its satisfaction even lower than IRS e-filers. This puts Facebook in the bottom 5% of all measured private sector companies and in the same range as airlines and cable companies, two perennially low-scoring industries with terrible customer satisfaction.

It makes sense, really. If someone is filing their taxes electronically and something goes wrong, he/she is probably able to keep it together long enough to call up the IRS and tell him what the problem is. On the other hand, if Farmville starts acting up on Patrick Byrne (just as an example), we’re guessing the man loses his shit.

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