Where TF Is the IRS Supposed to Find 87,000 Agents?
While various factions bicker over the Inflation Reduction Act, we have one question: where is the IRS supposed to find 87,000 agents!? In case you haven’t heard or seen your aunt sharing Impact font memes about it, Senate Democrats want to throw some cash at the IRS (among other things not getting into here): The […]
Senate Manages to Stay Out of Its Own Way, Passes 1099 Repeal
Now that the repeal has passed, where will all the energy spent on pandering to small businesses go?
Bowing to pressure from business groups worried about an avalanche of paperwork, the U.S. Senate voted on Tuesday to rescind a tax-reporting requirement included in last year’s healthcare overhaul law.
With bipartisan support, the Senate voted 87-12 to pass legislation sponsored by Republican Senator Mike Johanns that repeals a requirement for businesses and landlords to file a Form 1099 document with the Internal Revenue Service for purchases of goods and services exceeding $600 a year.
President Obama is expected to sign the bill at which point GOP leaders are expected to criticize him for something.
US Senate votes to repeal healthcare tax measure [Reuters]
Just a reminder: Oh, By the Way, There’s Still a New 1099 Reporting Requirement for 2012 in the Proposed Budget
Paul Ryan: Tax Reform Hero?
It is fine for Republicans to refuse to raise taxes as long as they admit we must have significant cuts in entitlements. Ryan is leading the way for the Republicans. For this he deserves kudos. It is fine for Democrats to refuse cutting entitlements as long as they admit we must have significant tax increases. Nobody is leading the Democrats. And politics requires that the President stall because he cannot even hint at a tax increase before the 2012 election. [Martin Sullivan]
Congress Continues to Successfully Drag Out the 1099 Repeal
If only somehow they could kill it completely, could we fully revel in the disfunction of the legislative branch:
What is clear is that nothing is certain with moving a 1099 repeal. The House passed a standalone measure on March 3 and the Senate tacked on an amendment to the Federal Aviation Administration (FAA) authorization bill, which passed the upper chamber, each with different offsets to cover the costs of the repeal.
The White House and House and Senate lawmakers across both parties back the elimination of the 1099 provision from the healthcare law but are at odds over how to make up for $22 billion in lost revenue as projected by the Joint Committee on Taxation.
Fate of 1099 repeal still up in the air [The Hill]
Earlier: How Will the Senate Screw Up the 1099 Repeal Bill This Time?
Even Earlier: Vastly Unpopular 1099 Requirement Survives Thanks to the Reliable Dysfunction of the U.S. Senate
During the 1099 Repeal Debate, a Democrat More or Less Called a Bunch of Republicans Liars, Then Took it Back, and Then May Have Called Them Liars Again
The repeal of the 1099 reporting provision of the healthcare reform bill was finally passed by the House today but not before things got a little awkward when Represenative Earl Blumenauer (D-OR) “said Republican claims that the law is a government takeover of healthcare had been deemed ‘the 2010 political lie of the year.’ ”
Now, on its surface, this seems like a little bit of tangential grandstanding by the man-child gentleman from Oregon but his colleague Dan Lungren (R-CA) didn’t appreciate the remark and was not about to let this slide:
Blumenauer seemed to gesture toward Lungren, who had just finished speaking, and said the Republican member called the healthcare law a government takeover.
Lungren did not directly say the law is a government takeover, but did criticize the laws in other ways.
After Blumenauer’s “lie of the year” comment, Lungren quickly interrupted to raise a point of order and ask whether Blumenauer should be allowed to say, or imply, that Lungren is a liar.
Blumenauer – not to be outdone – countered this challenge with one of his own:
Asked if he was demanding Blumenauer’s words be “taken down” — a challenge to their propriety — Lungren said no, but did ask the acting Speaker to warn members about referring to colleagues in this way.
The exchange continued: Blumenauer said he was simply citing a Politifact finding that Republican claims of a government healthcare takeover are the political lie of the year. Lungren then immediately asked that Blumenauer’s words be taken down.
Blumenauer, knowing he was beat, then capitulated (he’s a Democrat, after all), “Several minutes later, Blumenauer asked unanimous consent to strike his words,” and then thought better of it, “[he] repeated the Politifact citation again in his explanatory comments.”
“I’m not calling anybody a liar,” Blumenauer said. “What I intended to say … is that as we have repeated talking points about a government takeover of healthcare, this has been judged by an independent undertaking as the political lie of the year.”
It could probably go either way but someone seems to be getting called a liar in there somewhere.
Lawmakers spar over ‘lie of the year’ in debate over healthcare provision [Floor Action/The Hill]
Idaho Congressman Latest to Waste Everyone’s Time by Introducing a Bill That Would Terminate the Tax Code
Mike Simpson has represented Idaho’s 2nd Congressional District since 1999 and in that time he has cosponsored legislation that would abolish our beloved Internal Revenue Code. And even one time, in 2000, the House of Representatives managed to pass a bill that did exactly that by a vote of 229-187. It’s safe to say that, if similar legislation had been passed by the Senate and then followed up by the signature of the President, you would have heard about it. Since we haven’t heard any such news or seen any reports of this monumental legislative achievement, we can only assume that it has always been, and thus, always will be a failure and complete waste of everyone’s valuable time.
No matter! Congressman Simpson will press on for this all-important goal and making another run at ending the tyranny once and for all:
Idaho Congressman Mike Simpson is an original cosponsor of H.R. 462, the Tax Code Termination Act. This legislation would abolish the Internal Revenue Code and call on Congress to fundamentally reform the federal tax system.
“Over the last few years there have been several proposals to curtail the Internal Revenue Service’s (IRS) intrusion into the American homes. These include proposals to implement a flat tax or a national sales tax,” said Simpson. “I believe the most effective course of action is to sunset the current complex and unfair federal tax code and replace it with a simple and fair alternative.”
[via State Column]
How Will the Senate Screw Up the 1099 Repeal Bill This Time?
The upper chamber is making yet another run at repealing the 1099 requirement that was part of the healthcare overhaul despite miserable failures in the past.
The Hill reports that the new bill has 52 co-sponsors which lead you to believe that this time, repeal will be a cinch:
Senators reintroduced bills that would eliminate the 1099 requirement for businesses to report annual purchases of at least $600 from each vendor. Most Democrats, including the Obama administration, support repealing the provision, but lawmakers have clashed over how to offset the $19 billion in lost revenue.
A bill introduced Tuesday by Sens. Mike Johanns (R-Neb.) and Joe Manchin (D-W. Va.) authorizes the Office of Management and Budget to identify unobligated federal funds to cover the cost of repeal.
“It’s a bad policy; it hurts businesses and it should be repealed, enough said,” Johanns said in a conference call with reporters.
The measure has 52 co-sponsors including 12 Democrats: Sens. Mark Begich (Alaska), Michael Bennet (Colo.), Maria Cantwell (Wash.), Kay Hagan (N.C.), Amy Klobuchar (Minn.), Manchin, Ben Nelson (Neb.), Mark Pryor (Ark.), Debbie Stabenow (Mich.), Jon Tester (Mont.), Mark Udall (Colo.), Mark Warner (Va.).
With such an overwhelming show of bipartisan support the only issue now is who will get the credit for saving small business as we know it?
Both parties have seized on the 1099 requirement to score political points. Republicans are posing repeal of 1099 as part of their promise to chip away at the reform law, while Democrats are touting it as a sign of their willingness to improve the current law.
Just for the sake of spiteful mischief, we’re hoping this goes nowhere (any and all theories on how they manage to do that are encouraged). Stay tuned!
Senators introduce bipartisan 1099 repeal bill [On the Money/The Hill]
Poll: This Balanced Budget Idea Starts with Higher Taxes for the Wealthy
Republicans take control in the House of Representatives this week and boy, are they ever ready. With the ink safely dry on the extension of the Bush tax cuts, the GOP is moving on to spending cuts, supporting the troops, restoring honor, launching investigations and whatever hell else was in that pledge. Wait, that last one wasn’t in there?
Anyhoo, the idea of lower taxes and spending cuts to get the federal budget in ship shape has been the GOP song and dance long before Ronnie had his own float at the Tournament of Roses Parade but a recent poll has discovered that lots of people don’t agree with that sentiment:
Raising taxes on the rich beats out cuts to defense spending, Medicare and Social Security as U.S. adults’ top preference on how to close the deficit, according to a 60 Minutes/Vanity Fair poll.
Sixty-one percent of Americans said that increasing taxes to the wealthy should be the first step toward balancing the budget.
By contrast, 20 percent of respondents preferred cuts to defense spending as the first option, while 4 percent said that cutting Medicare would be the best way to start cutting the deficit. Three percent said they preferred cutting Social Security.
Now you might expect a major backlash from the more affluent citizens, you know, grumbling at polo matches, yacht races and beside the swimming pools filled with gold doubloons but surprisingly, quite a few of them are okay with it:
Increased taxes on the wealthy tops those four options even among higher earners who might be most affected by a tax hike, the poll suggested. Fifty-eight percent of respondents making between $50,000 and $100,000 per year rated tax hikes as the best first step to balancing the budget, while 46 percent of those making more than $100,000 said it was their top choice, as well.
But as we have learned, the GOP isn’t really down with this. Besides, tax rates won’t be an issue again the until the second and third weeks of December 2012, so they’d prefer we concentrate on things that aren’t already safely chiseled into the political dogma.
The House Will Have a Half-Ass Vote on Tax Cuts Tomorrow
Don’t get too excited, the vote will only be on the tax cuts for those of you earning less than $250k. The vote that really counts (for the people that may be able to afford Snooki!) is being slapped onto the extension of unemployment benefits.
The bulk of the tax cuts — for lower and middle-class incomes — will be considered in a separate vote on Thursday. Democrats have long sought to only renew tax breaks for households under $250,000 in income, but Republicans have insisted on an extension of current tax rates for everyone.
Right, then. So this is a political play by the Democrats to show everyone that they don’t suck as much as the election results would have you believe. Republicans, however, do not care for this maneuver. Rep. Dave Camp (MI) is especially annoyed and evokes small business in the process:
“This is disappointing and a sign of bad faith after the president agreed to bipartisan, bi-cameral talks. There will be bipartisan opposition to the Democrats’ push to raise taxes on small business,” Camp said.
Gotta say, it is a pretty shrewd move by the Democrats (where was this spunk in October?) but at least everyone will have to get off their ass tomorrow and do something. God forbid the Republican members of Congress actually vote on something during the lame duck session.
House Democrats set Thursday tax vote [Politico]
House GOP Balks at Middle-Class Tax Cut Vote Scheduled Thursday [Fox News]
IRS Commish Reminds Congress That If They Blow Off Tax Policy, We’ll Have a Giant Mess on Our Hands
There’s a small part of us that hopes the lame-o Congress just throws their hands up and lets all the outstanding tax policy issues expire, just to see what the fallout would be.
While we wish no harm to our practitioner friends like Joe Kristan, watching the pols in Congress squirm from the wrath of the American populace would be rather enjoyable.
Doug Shulman, on the other hand, does not share our impish impulses and wrote a letter to Congressional members on the Senate Finance and House Ways & Mean Committees, reminding them that if they let this one get away, his agency will have one hell of a mess on their hands.
Reuters has some excerpts:
“Of course, if legislation has not passed by the end of this year, our computers will have been programed incorrectly and we will need to delay filing for these individuals,” he said in a letter to the top lawmakers on the congressional committees charged with tax policy.
Realizing that the members might not quite understand what all this crazy-talk means, the Commish gave some details:
“It would be an unprecedented and daunting operational challenge to open the tax filing season under one set of tax laws with respect to AMT and extenders, begin accepting tax returns, and then have the law change,” Shulman wrote.
So essentially, re-doing a bunch of work. Nobody wants that. Luckily for everyone involved, Shulman appears to understand that while dysfunction is standard operating procedure on the Hill, most CPAs prefer providing above average client service.
Congress: Come Hell, High Water or Spiteful Democrats, We’ll Patch the AMT in the Lame Duck Session
“We plan to do everything possible to enact AMT relief legislation in a form mutually agreeable to the Congress and the president. We urge the Internal Revenue Service to take all steps necessary to plan for changes that would be made by the legislation.”
~ One of those “letters” that legislators write to bureaucrats as a form of grandstanding. This particular letter was from Max Baucus, Chuck Grassley, Sandy Levin and Dave Camp to Doug Shulman
Lame Duck Tax Policy Prognostication
From tax policy cynic Joe Kristan:
It’s unlikely that the lame ducks will accomplish much.
Jesus, that’s no way to start.
I expect an AMT patch to pass (though you should bet the other way if they offer points). I would bet against the extenders getting past the lame ducks, though it could happen. Action on the Bush tax cuts and the estate tax seems unlikely to me. It would require a triumphal GOP to work out a deal with a President whose response to disagreement so far has been to repeat himself slower and louder. The same dynamics bode poorly for the next Congress when it meets in January.
After such an ugly campaign, we wouldn’t put it past a bunch of losers (read: Democrats) to spite the entire country just because they couldn’t effectively communicate any accomplishments from the past two years. Of course, that’s us being cynical to a fault.
Thinking a little more practically, we agree with Joe on his AMT patch prediction. The rules are such a mess that it could stand a complete overhaul but we realize that’s nothing short of water into wine with less than two months left in 2010.
As far as the tax cuts are concerned, the shred of political capital that the members of Congress who will remain in DC have left simply cannot be lost. And besides, the President and Congress fundamentally agree on a major portion of the policy – that is, to extend tax cuts for the middle class. Again, this could be a pipe dream, but compromising on the extension of the cuts for the wealthiest Americans for two years seems like a simple solution (as bad of an idea as it is).
As for the estate tax – it’s toast. No one seems to give a shit about it except for Jon Kyl but once the first decrepit billionaire (who is unwilling to pull the plug on themselves) kicks the bucket in 2011, thus paying 55% tax on the estate, it will only take one phone call and Congress will spring into action.
Sigh. Place your bets.
Betting on Estate Tax Inaction
“It’s not a sure thing that they’ll actually get around to doing anything about it.”
~ Craig Jennings, federal fiscal policy analyst at OMB Watch, doesn’t have much faith that Congress.
Death to the Death Tax Fails
South Carolina Senator Jim DeMint had the perfect solution to this estate tax fiasco. GET RID OF THE DAMN THING ENTIRELY!
Unfortunately for DeMint, not too many people think the permanent abolishment of the estate tax is that hot of an idea.
Namely, a whole bunch of Democrats (minus Lincoln and Nelson of Neb) led by Majority Leader Harry Reid. The amendment failed 39-59 in a vote yesterday but no worries lovers of tax-free death! A few races in this fall’s election could kick around the this particular political pigskin, including Reid’s in Nevada where Tea Party darling Sharron Angle supports the permanent repeal.
It’s worth noting that J DeM considered the abolishment of the tax not to be a ‘tax cut’ but a “continuation of current policy since Congress let the tax lapse this year.” In that context, it sounds like Senator DeMint is embracing the fact that Congress screwed the pooch on the whole damn thing and figured that continuing the impotence of Congress was easier than having the same debate over and over.
Estate Tax Vote: An Issue in Fall Vote? [Washington Wire/WSJ]
Senate rejects permanent estate tax death [Don’t Mess With Taxes]
Also see: Senate Rejects Measure to Permanently Abolish Estate Tax [TaxProf]
George Steinbrenner’s Final Win: The Estate Tax?
By now most of you have heard that George Steinbrenner passed away this morning at age 80. We’d ask that you to wait at least a few hours before you start dispensing with the Costanza or GS quotes in Larry David’s voice (“Big Stein wants an eggplant calzone!”) but we realize not every one was a fan of the Boss.
The silver lining in Big Stein’s death is that since the estate tax still remains in limbo among the hallowed walls of Congress, his $1.1 billion fortune (Forbes’ latest ranking) could possibly pass to his heirs tax free.
It’s an especially well-timed passing if you read yesterday’s morbid Wall St. Journal article. If you didn’t happen to read it, the article more or less made the case for every wealthy person to give serious consideration to paging Jack Kevorkian, taking a nice warm bath with a toaster or whatever their preferred method of self-imposed death would be.
Steinbrenner is the third billionaire to pass on to the big baseball diamond in the sky (btw, can someone up there keep him away from Billy Martin?) this year – Walter Shorenstein and Dan Duncan are the others – and if the family is as shrewd about their money as they are about their baseball team, they will likely fight any retroactive provisions in the new estate tax (assuming it ever passes).
As with mentioned in the Duncan post, we hope that the Steinbrenners are able to keep their fortune; not because we’re opposed to taxing the rich (just ask AG), it’s because we’re opposed to an incompetent and impotent Congress who allowed the estate tax to expire in the first place. Besides, GS went out with the Yankees as reigning champs, so it seems fitting that he gets a final win against the tax man as well.
RIP Big Stein.
Patch This or: How to Learn to Stop Worrying and Love the Alternative Minimum Tax
Congress has been twisting itself into knots to pass 70-odd special interest “expiring provisions” this spring, though without success. These provisions that have come within one or two votes of being extended one more time are almost all special-interest provisons, providing tax breaks or direct cash subsidies to folks like biodiesel producers and race-track operators.
Meanwhile, the grandaddy of all expiring provisions goes largely unmentioned. Without new legislation, 24 million additional taxpayers will pay alternative minimum tax this year. That will happen because the AMT exemption for joint returns will fall from $70,950 to $45,000, and from $46,700 to $33,750 for single filers.
The AMT is a shadow tax system with fewer deductions and credits and a different rate schedule; it only applies when it gives a higher tax than the “regular” income tax. The reduction of regular tax rates in 2001 brought the regular and AMT brackets much closer, threatening to bring millions of voters into the AMT system. Congress has been passing “patches” to raise the AMT exemption for a year or two at a time since 2001 to avoid that. The last “patch” expired at the end of 2009.
An unpatched AMT would hit hardest taxpayers in the $100,000-$500,000 income range. Congress doesn’t want to anger that many potential campaign contributors. But where will Congress find the $68 billion or so of income that the AMT is budgeted to raise next year without a patch? The six month unemployment extension failed yesterday in the Senate because it would have increased the deficit by $34 billion.
So what will happen? Presumably an AMT patch will pass to appease voters as the election approaches, deficits be damned. Still, that’s not certain, especially in the current political environment.
So what can taxpayers do? They should start by projecting their tax for 2010. If you have one, your tax preparer is likely to have software to enable you to run the projection. If you use home tax software, it may also include a tax projection feature. Otherwise, you will have to use a 2009 copy of Form 6251, but using the reduced 2010 exemption amounts. Then you should fiddle with some items that affect AMT:
• The timing of your state and local tax payments.
• The timing of your miscellaneous itemized deductions.
• The timing of your capital gains, including capital losses.
Don’t be surprised if you find you have alternative minimum tax no matter what you do, especially if you live in a high-tax state. Then call your Congresscritter and ask for your patch.
Joe Kristan is a shareholder of Roth & Company, P.C. in Des Moines, Iowa, author of the Tax Update Blog and Going Concern contributor. You can see all of his posts for GC here.
SCOTUS Rules PCAOB Unconstitutional; Auditors’ Lives Will Continue to Suck
What does this mean (besides the fact that more than a few partners are eating their hats, shaving their heads, coming to work naked, etc.)?
The Board itself is not unconstitutional and thus will continue operating (sorry E&Y) so it’s not going anywhere. The problem is, Congress will have to get involved in order to and who knows what the brain trust will cook up.
Francine McKenna has some suggestions (including making the part 2 of the inspections public) and Matt Kelly at Compliance Week reported on May 31 that no one really knows what the hell is going to happen now:
I asked SEC Commissioner Luis Aguilar how the SEC might want to resolve the issue. He said the commissioners know the problem is out there and they have “Plans A, B and C” to respond, but declined to say what any of those plans might be. I asked [Barney] Frank as well, and he essentially said his committee would work with the Senate Banking Committee to craft some legislative response, depending on exactly what the Supreme Court’s ruling says.
The Court ruled 5-4 (Roberts, Scalia, Kennedy, Thomas, Alito Dissent: Breyer, Stevens, Ginsburg, Sotomayor)
From Chief Justice Roberts’ opinion:
The President cannot “take Care that the Laws be faithfully executed” if he cannot oversee the faithfulness of the officers who execute them. Here the President cannot remove an officer who enjoys more than one level of good-cause protection, even if the President determines that the officer is neglecting his duties or discharging them improperly. That judgment is instead committed to another officer, who may or may not agree with the President’s determination, and whom the President cannot remove simply because that officer disagrees with him.
And Justice Breyer’s dissent (citations omitted):
The Court holds unconstitutional a statute providing that the Securities and Exchange Commission can remove members of the Public Company Accounting Oversight Board from office only for cause. It argues that granting the “inferior officer[s]” on the Accounting Board “more than one level of good-cause protection . . . contravenes the President’s ‘constitutional obligation to ensure the faithful execution of the laws.’” I agree that the Accounting Board members are inferior officers. But in my view the statute does not significantly interfere with the President’s “executive Power.” It violates no separation-of-powers principle. And the Court’s contrary holding threatens to disrupt severely the fair and efficient administration of the laws.
So day-to-day auditors lives won’t change but some new wrinkles could be thrown in now that the law will have to be tweaked. So who knows what will happen! In the meantime, here’s your light reading for the day:
A Few Senators Would Like Billionaires to Pitch in with the Deficit Problem
The latest act in the ongoing circus known as the estate tax debate has three “liberal” senators – Bernard Sanders (I-VT), Tom Harkin (D-IA), and Sheldon Whitehouse (D-RI) – calling for billionaires to help close the $13 trillion some-odd federal deficit that these über-rich people ate.
Forbes reports that the Messrs. Sanders, Harkin and Whitehouse sent a letter to their fellow Senators laying out their case, “According to Forbes Magazine, there are only 403 billionaires in the U.S. with a collective net worth of $1.3 trillion. Clearly, the heirs to these multibillion fortunes should be paying a higher estate tax rate than others.”
The champs of the bill also go to the trouble of singling out Dan L. Duncan whose family stands to inherit his $9 billion fortune tax free. It’s a good thing those staffers pointed out that article in the Times to their respective Senators!
Anyhoo, TaxProf summarizes the details of the “Responsible Estate Estate Tax Act”:
• Exempts the first $3.5 million of an estate from federal taxation ($7 million for couples), the same exemption that existed in 2009. Doing this would mean that 99.75% of all estates would be exempted from the federal estate tax in 2011 alone.
• Includes a progressive rate structure so that the super wealthy pay more. Under our bill, the rate for the value of the estate above $3.5 million and below $10 million would be 45%, the same as the 2009 level. The rate on the value of estates above $10 million and below $50 million would be 50%, and the rate on the value of estates above $50 million would be 55%.
• Includes a billionaire’s surtax of 10%. Our bill also imposes a 10% surtax on the value of an estate above $500 million ($1 billion for couples). According to Forbes Magazine, there are only 403 billionaires in the United States with a collective net worth of $1.3 trillion. Clearly, the heirs to these multi-billion fortunes should be paying a higher estate tax rate than others.
• Closes all of the Estate and Gift Tax Loopholes requested in President Obama’s Fiscal Year 2011 budget. These loophole closers include requiring consistent valuation for transfer and income tax purposes; a modification of rules on valuation discounts; and a required 10-year minimum term for Grantor Retained Annuity Trusts (GRATS). OMB has estimated that closing these loopholes that benefit the super-wealthy, would raise at least $23.7 billion in revenue over 10 years.
• Protects family farmers by allowing them to lower the value of their farmland by up to $3 million for estate tax purposes. Under current law, the value of farmland can be reduced up to $1 million for estate tax purposes under § 2032(a) (Special Use Valuation). Our bill increases this level to $3 million and indexes it to inflation.
• Benefits farmers and other landowners by providing estate tax relief for conservation easements. Our bill provides tax relief to farmers and other landowners by amending estate tax rules for conservation easements through an increase in the maximum exclusion amount to $2 million and increasing the base percentage to 60%.
Nice work on those last two Senator Harkin; you couldn’t be more obvious.
In case you didn’t catch it in there, the estate tax on the billionaires will be 55% PLUS! an additional 10% surtax. Sounds crazy right? Congress royally fucks things up by letting the estate tax expire in the first place and then has the stones to throw the double whammy on the rich because of it. Had they simply extended the estate tax (which seems to be a popular solution, btw) this political pigskin wouldn’t even be an issue.
But guess what? There are people behind this thing lock, stock and barrel. For one, the United for a Fair Economy (“UFE”) more or less says that this legislation is the catalyst to fixing everything, “The Sanders-Harkin-Whitehouse Responsible Estate Tax Act is an important step on the road to an economic recovery that benefits all Americans.”
Well, not all Americans.
Accounting News Roundup: UBS Clients Have ‘Mere Hours’ to Come Clean; Dixon Hughes Sued for ‘Comfort Report’; “Big 4 Only” Bank Covenants – Revealed! | 06.18.10
UBS Customers May Have `Mere Hours’ to Report to IRS [Bloomberg]
Since the Swiss Parliament were finally able to give the OK on the agreement to disclose UBS client names to the U.S., it’s only a matter of time until the IRS starts kicking down doors in the middle of the night.
“For UBS account holders, they have mere hours to run to the IRS and hope they can disclose the account before the Swiss hand the data over,” said Asher Rubinstein, a partner at Rubinstein & Rubinstein LLP in New York who said he’s been “getting panicked calls all week.”
The lesson to be learned here, it appears, is that he IRS on a bluff, you are likely to be wrong, wrong, wrong. Doug Shulman doesn’t like to be take for a fool, “We will immediately follow up on the information we receive from the Swiss and we will vigorously enforce the laws against those who have attempted to evade their tax responsibilities by hiding their assets offshore.”
KPMG chief calls for audit reform [Accountancy Age]
John Griffith-Jones, who wishes everyone would get comfortable with the idea of the Big 4, does admit that the question about the purpose of audit is a legit one that should not be ignored, “What is the point, they and others ask, of doing extensive and increasingly elaborate audits of the financial accounts of our banks, when audits failed to identify the huge and systemic risks which led to the near collapse of the Global banking system in the Autumn of 2008?”
Campbell Recalls SpaghettiOs [WSJ]
UH OH…
600 Parish investors sue accounting firm [Charleston Post Courier]
Dixon Hughes is being sued by 600 investors of convicted mini-Madoff Al Parish for their “Comfort Report.” “The lawsuit alleges that the firm claimed to compile the report from brokerage statements, when it received statements generated only by Parish that ‘summarized imaginary account balances.’ ” Oops.
Oh, You Mean Like the Same Fed Audits We Already Have? Way to Go, Congress! [JDA]
“As any accountant will tell you, we perform audits each year to ensure the comparability of financial statements for the sake of investors. Since there is no comparing Fed statements and there are no investors (excluding the banks with mandated stock holdings in the Fed banks they are regulated by), basically all we’re doing is jerking off with our left hands pretending it is someone else doing the jerking.”
Firing squad execution sobering, but dramatic [AP]
And who doesn’t like drama?
Restrictive bank covenants keep the Big Four on top [Accountancy Age]
“Big 4 only covenants” in lending agreements are blackballing smaller firms according to BDO International CEO Jeremy Newman and others. Nonsense, you say? AA presented an example:
Buried in the 81-page credit agreement for US-based healthcare provider Amedisys is a 22-word stipulation that highlights a problem some fear is threatening the stability of the global economic system.
“Audited consolidated balance sheets of the group members… [must be] reported on by and accompanied by an unqualified report from a Big Four accounting firm,” the phrase reads.
There’s no telling how many loan agreements have this exact language but “Big Four” is often replaced by “reputable” so it’s not if the “Big 4 covenant” is cooked right into the template. That being said, AA reports that the Big 4 + GT and BDO admitted last month that the covenants do exist in the UK.
Strangely enough, Amedisys is currently in the cross-hairs of Crooked CFO-turned-Forensic sleuth Sam Antar.
CFOs on vacation: Fewer call office [San Francisco Business Times]
God forbid.
Lazarus Was a Piker or: How the Extenders Bill Resurrects Bad Tax Provisions Year After Year
The Book of John says that Lazarus emerged from his tomb four days after his death. While impressive, Lazarus has nothing on the Section 41 Research Activities Tax Credit. While Lazarus is credited with only one extension, the Research Credit, first enacted in 1981 as a temporary measure, it has been extended at least 12 times — several times after it had expired.
If it’s such a wonderful tool for our economy, as its beneficiaries always say, and if it is y isn’t it just made permanent? There are two main reasons, one only slightly less cynical than the other.
First, the credit costs the government a lot of revenue. The one-year extension in H.R. 4213, the current “extender” bill, is scored as a $6.6 billion revenue-loser. By extending it only a year at a time, the Congresscritters disguise the real cost of the credit, which they have no intention of allowing to expire. Remember this phony accounting the next time some corporate shmoe trembles while Henry Waxman berates his accounting methods.
Even more cynical: it forces the lobbyists for the credit to pay tribute to their Congressional patrons every year to keep their pet corporate welfare provisions alive. A former Congressional staffer explains (my emphasis):
I never understood the “why” about expiring tax provisions until one very late night markup of the “extenders bill” several years ago while I was working for the Ways and Means Committee. Bleary-eyed, one of usually twinkly-eyed members plopped down in a chair next to me in back of the dais–just to take a little rest away from his member’s seat. I asked him “why do we have to do this every year?…why can’t we just pass these things permanently?”
His eyes suddenly twinkled again, as he looked at me with a combination of amusement and disbelief. He said: “Are you kidding me?… We couldn’t do that!… Why, I’d lose all my friends!…Who would come visit me and say kind things to me and do nice things for me then, if they didn’t have to come back every year to ask for these tax provisions?!!”
The research credit is just one of 70 or so “temporary” provisions included in this year’s omnibus “extender” bill. Other tax breaks critical to the continued robust functioning of the economy include the Indian employment tax credit, the special short depreciation life for qualified leasehold and restaurant improvements, subsidies for biodiesel, and the all-important “7-year recovery period for certain motorsports complexes.”
To “pay for” these “temporary” provisions, Congress each year reaches deeper into its bag of tricks for permanent tax increases. The chumps this year: private equity, hedge funds, and small professional corporations. When these things “expire” a year later, this year’s victims will continue to pay their higher tax without Congress having to pass another bill; they will be forgotten while Congress is busy looking for its next revenue fix. And like any junkie, it will give up the addiction only when it’s impossible to score.
Joe Kristan is a shareholder of Roth & Company, P.C. in Des Moines, Iowa, author of the Tax Update Blog and Going Concern contributor. You can see all of his posts for GC here.
Accounting News Roundup: Senate Proposal Would Double Tax on Carried Interest; Take Client Compliments with Skepticism; Agents Honored for Busting Petters | 06.09.10
Showdown on Fund Taxes [WSJ]
The U.S. Senate plan to tax private equity and hedge fund managers who earn carried interest has been rolled out and it would double the rate on this income from 15% to 30% in 2011 and 33% in 2013. Supporters of the bill argue that carried interest is “basically wages” and that the 15% is a “fundamental unfairness in the tax code.”
The industry is not amused by the Senate’s latest rich hating measures. The Journal quotes Douglas Lowenstein, president of the Private Equity Council, “[E]arning carried interest involves taking risks, making long-term investments and exposing yourself to t you’ll have to return your earnings if things don’t work out. No one who gets a paycheck has to face those consequences.”
But that’s not all! Also in the proposal is a “enterprise-value tax” provision that would tax the sale of any private equity fund, hedge fund, or real estate partnership at higher rates than of other businesses including publicly traded oil and gas partnerships.
Ex-CEO and CFO of Duane Reade Convicted in NY [AP]
No matter what Anthony Cuti and William Tennant did (“scheming to falsely inflate the income and reduce the expenses that Duane Reade reported to investors.”), if you bank with Jamie Dimon, you’re grateful for every DR.
How White-Collar Criminals Exploit Your Vanity – Beware of Compliments [White Collar Fraud]
Sam Antar has all but eliminated any possibility of ever getting a date ever again by admitting that any compliment that he gives is may have an ulterior motive, “The more likable and charming that I was as a criminal, the easier it was for me to successfully lie to my victims and deceive them. People are far less skeptical of people who they like and the white-collar criminals know it and exploit it.”
Most of you have never been paid a compliment by Sam but maybe some of you can think of a client that seems to go out of their way to stroke your ego. Or maybe it’s a combination of a compliment here or there (e.g. “you’re looking buff” or “nice ass”) from the controller and the hot junior accountant that keeps inviting you out to lunch for no discernible reason.
The lesson here is be skeptical of things being a little too good to be true for an audit. If your client doesn’t particularly like you and they look like they came from deep inside the ugly forest you might be able to rest easy. Otherwise, stay on your toes.
EBay’s Whitman Faces Brown for California Governor [Bloomberg]
A former auctioneer will face off against a failed Presidential candidate for the arguably the worst job in the country.
Four who took down Petters honored [Minneapolis Star-Tribune]
Swashbuckling industrialist-cum-Ponzi Scheme architect Tom Petters is doing 50 years for his crimes but the four investigators – FBI special agents Brian Kinney and Eileen Rice, FBI forensic accountant Josiah Lamb and Kathy Klug of the IRS’ Criminal Investigation Division – were honored yesterday for their efforts with a 2009 Law Enforcement Recognition Award by the Minnesota U.S. Attorney.
Of course, they couldn’t have done it alone (plus it’s honor just to be nominated), as they were assisted by more than 100 other agents who brought down Petters. Then someone made a Bernie Madoff joke and the fun ended right there.
Doing Penance for John Edwards’ Sins: Provision Could Hit “Skilled” S Corp Owners
Long before John Edwards became known as a well-coiffed skirt-chasing weasel, he was a well-coiffed successful trial lawyer. He was successful enough to afford good tax advice, so he conducted his law practice in an S corporation.
Back in the old days, professional practices were conducted as sole proprietorships or general partnerships, reportable as self-employment income, subject to the 15.3% self-employment tax up to the FICA base (currently $106,800), and to the 2.9% Medicare portion of the tax to infinity.
When state laws allowed professionals to incorporate, attorneys and accountants quickly noticed that income on S corporation K-1s is not subject to self-employment tax. This makes S corporations a popular way to run a professional practice. The professionals take a “reasonable” salary out of the business (subject to employer and employee FICA and Medicare tax) – enough to not raise IRS eyebrows – and take the rest out as S corporation distributions with no employment tax.
John Edwards did well by this. His law practice generated millions dollars of K-1 earnings in excess of his salary, saving him hundreds of thousands of dollars in payroll and self-employment tax.
Now that he has been reduced to a wealthy target of mockery, Congress is ready to crack down on the John Edwards S corporation tax shelter. The annual “extenders” bill has a provision – almost as absurd as Edwards love life – that will hit professional S corporation K-1 income with self-employment tax. The SE tax will apply when the “principal asset” of the S corporation is the “reputation and skill” of three or fewer professionals – defined for this purpose as “services in the fields of health, law, lobbying, engineering, architecture, accounting, actuarial science, performing arts, consulting, athletics, investment advice or management, or brokerage services.”
Congress doesn’t muss its hair worrying about how taxpayers in multi-owner S corporations are supposed to figure out whether its “principal asset” is the “reputation and skill” of three or fewer owners. However it works, this provision is too late to hurt John Edwards — his reputation isn’t much of an asset anymore.
Joe Kristan is a shareholder of Roth & Company, P.C. in Des Moines, Iowa, author of the Tax Update Blog and Going Concern contributor. You can see all of his posts for GC here.
You Can Forget That Deal on the Estate Tax
Yes, the brain trust known as the U.S. Senate has managed to prolong the agony on the estate tax. There was a deal on the table as of yesterday but you can forget it! Hard to believe this could happen. Was it a fundamental disagreement on the proposal? Was it because everyone was broken up that Arlen Specter?
No, it’s mostly because some people (the R’s) don’t like that other people (the D’s) are being fraidy cats about not having enough votes:
Senate Minority Whip Jon Kyl (R-Ariz.) said the accord, which was all but forged a week ago, began to dissolve Monday night and broke down Tuesday after talks between leaders in both parties.
After talks with Senate Finance Chairman Max Baucus (D-Mont.) and Senate Minority Leader Mitch McConnell (R-Ky.), they scrapped a plan to move forward with the tax that expired at the end of 2009.
The reasoning, Kyl said, is that Senate Democrats aren’t allowing any legislation to reach the floor that doesn’t have support from the majority of its members.
“We no longer have an agreement because the Democratic side has decided that unless a matter has a guaranteed majority of Democratic votes going in, they’re not going to allow it on the floor, at least not voluntarily,” he said. “So we have to find a way to get a reasonable permanent estate tax reform to the floor where members can vote on it.”
For crissakes. This is this biggest case of “I’m taking my ball and GOING HOME” we’ve seen this week.
Joe Kristan does put the whole thing in perspective however, “Congress has been botching the estate tax for almost ten years now; why should they start getting anything right now?”
Kyl: Senate deal off on estate tax [On the Money/The Hill via TaxProf]
Estate Tax Deal? Not so Fast [Tax Update Blog]
AICPA, Others Ask U.S. Senate to Kindly Keep Their Filthy Mitts Off Accounting Standards
After the wisdom displayed by Senators in the Goldman Sachs hearing a couple weeks ago, it must have become evident to a group of concerned organizations took it upon themselves to voice concern with regard to any elected official that might give consideration to tipping his or her toe into the accounting standard waters.
Enter Son of Ohio, Sherrod Brown (D) who has proposed amendment SA 3853 to the financial regulation reform bill. The amendment would legislate financial reporting standards by forcing companies to “submit reports to the commission under this section record all assets and liabilities of the issuer on the balance sheet of the issuer.”
But don’t worry if you can’t figure out what the value of a liability is because you can just leave it off altogether granted that you don’t mind explaining:
“(i) the nature of the liability and purpose for incurring the liability; (ii) the most likely loss and the maximum loss the issuer may incur from the liability; (iii) whether any other person has recourse against the issuer with respect to the liability and, if so, the conditions under which such recourse may occur; and (iv) whether the issuer has any continuing involvement with an asset financed by the liability or any beneficial interest in the liability.”
While this seems all very well thought out, the CAQ, CFA Institute, AICPA, FEI and a gaggle of others smelled amateur hour and wrote a letter to the old boys in the Senate letting them know, in no uncertain terms, that this pretty much the worst idea they’ve ever heard:
[W]e are concerned with any amendment that would legislate accounting standards, including Brown amendment SA 3853 regarding “Financial Reporting.”
…
The accounting standards underlying such financial statements derive their legitimacy from the confidence that they are established, interpreted and, when necessary, modified based on independent, objective considerations that focus on the needs and demands of investors – the primary users of financial statements.
…
We believe political influences that dictate one particular outcome for an accounting standard without the benefit of a public due process that considers the views of investors and other stakeholders would have adverse impacts on investor confidence and the quality of financial reporting, which are of critical importance to the successful operation of the U.S. capital markets.
So in other words, Sherrod Brown, you can suck it. The FASB might not be hottest piece of ass around but by GOD, it’s what we’ve got. And we’ll be damned if you’re going to propose your hocus pocus American people Main St. financial statement Act.
Accounting Groups Object to Brown Amendment [Web CPA]
Standard_setter_independence_letter_to_Senate
Closely-Held Corporations May Want to Take a Bullet Over the Pending Dividend Tax Hike
As a role model, Andrew Jackson has serious shortcomings, not least his penchant for genocide. But some of his policies are back in vogue, like the casual destruction of the national banking system. Taxpayers may be choosing to be like Andy in another way before the end of t had the bad fortune to get crossways with Charles Dickinson, one of the best pistol shots in Tennessee, when dueling was still fashionable. He met his antagonist across the state line in Kentucky, where duels were legal. Jackson was serious about this one, so he decided to take all the time he needed to do Dickinson in. Given Dickinson’s marksmanship, that meant accepting a bullet. Sure enough, Dickinson’s shot hit home:
The bullet struck him in the chest, where it shattered two ribs and settled in to stay, festering, for the next 39 years. Slowly he lifted his left arm and placed it across his coat front, teeth clenched. “Great God! Have I missed him?” cried Dickinson. Dismayed, he stepped back a pace and was ordered to return to stand on his mark.
Blood ran into our hero’s shoes. He raised his pistol and took aim. The hammer stuck at half cock. Coolly he drew it back, aimed again, and fired. Dickinson fell, the bullet having passed clear through him, and died shortly afterward.
Taxpayers owning C corporation stock might also want to take a bullet, figuratively speaking, this year. That’s because the tax rate on dividends will either leap or soar in 2011.
The increase in the dividend rate is a consequence of the scheduled expiration of the 2001 Bush tax cuts after this year. Prior to the Bush administration, dividends were taxed as ordinary income. As dividends are distributions of corporate income already taxed at a corporate rate as high as 35%, that meant a combined rate of 57.75%. The Bush tax cuts tied the dividend rate to the capital gain rate, now 15%.
When the Bush tax cuts expire, the capital gain rate is set to return to 20%. But without Congressional action, dividends will again be taxed as ordinary income. Given the size of the deficit, the poisonous election-year political atmosphere, and that the President promised to hold the dividend rate to 20%, it’s likely that dividends will be taxed as ordinary income in 2011. That would means a 164% increase the top dividend rate.
But wait, there’s more! Starting in 2013, Obamacare will tack another 3.8% to the top rate on investment income, resulting in a top dividend rate of of 43.4%, making the total tax increase over 189%.
This makes it tempting to take the bullet – a big 2010 dividend out of a closely-held C corporation. It will be especially attractive for shareholders who lack the ability to suck out corporate cash using the usual tricks of shareholder bonuses or rent payments.
Yes, it means taking a bullet. Taking dividends out of closely-held corporations breaks the rules of the C corporation tax planning crib book. Taxpayers go to elaborate lengths to avoid taking income before they have to. But a 189% tax increase might be enough to make some taxpayers take the bullet, like Andy, for the greater good.
You Can Blame the Tax Code for Expensive Baseball Tickets
Since it’s opening day for baseball, there are probably a few of you (non-tax accountants) that are at the ballpark enjoying sun, overpriced beers and, if you’re lucky, some complimentary tickets on behalf of your firm.
If you happen to be shelling out your own hard-earned money however, you’re no doubt aware that price of your tickets continue to go up season after season. Throw in $9 beers and Brother Jimmy’s BBQ and you’ll spend a small grip just to enjoy a day of sport and no work.
What’s the cause of the skyrocketing cost of attending a baseball game, you ask? The tax code of course!
That’s according to an op-ed by two professors, Duke law professor Richard Schmalbeck and Rutgers business professor Jay Soled, in today’s Times.
There are many reasons for the price explosion, but a critical factor has been the ability of businesses to write off tickets as entertainment expenses — essentially a huge, and wholly unnecessary, government subsidy.
These deductions have led to higher ticket prices in two ways. On the demand side, they have fueled competition for scarce seats, with business taxpayers bidding in part with dollars they save through the deductions.
On the supply side, the large number of businesses bidding for expensive seats has driven the expansion of luxury skyboxes and a reduction in overall seats in new ballparks.
The authors note that baseball was, until the 1970s, a “populist sport” and fans of all economic classes could attend games for a reasonable cost. Those days are long gone and the professors blame the ability of corporations to deduct business-entertainment expenses as the culprit. They state that you not need look further than the opening of the new Yankee Stadium that has “3,000 fewer seats than its 1923 predecessor but almost three times as many skybox suites.”
The professors advocate a limit on deductions for on luxury tickets to a low fixed amount (e.g. $50). They cite the outright elimination as “unrealistic” but we can’t recall at time when “realistic” and “Congress” collided in a sentence.
We agree with our esteemed colleague at ATL that if you really want to stick it to the companies who take advantage of tax code’s generous provisions, just make skybox tickets non-deductible altogether.
As the authors note, Corporate America has a love affair with sports-related perks and we’d guess that eliminating the deduction would not stop them from buying luxury tickets. The client relation types in your firms know that there is an intangible value to wooing potential clients in some comfortable confines as opposed to cramped seating in the stands with the commoners.
Throw Out Skybox Tax Subsidies [NYT via ATL]
Possible New Tax Forms Under Healthcare Reform
As we plod into the glistening new vistas of Obamacare, what sort of wonderful tax returns await us there?
The biggest change, one that will hit every 1040 from the simple 1040-EZ to the full-blown 1040 starting in 2014, will be the new “personal responsibility payment.” The PRP is the marketer’s name for a fine for not having an approved health insurance plan.
We’ve mentioned some of the weird enforcement problems this will bring – problems addressed in more technical detail here. The PRP can’t possibly work with rting – the individual numbers are just too small, and the IRS can’t audit everyone. If they are ever serious about this, there will have to be a new information reporting form issued by the health insurers, something like the 1098 form. The form will need to have the taxpayer’s social security number, and maybe some new number identifying the taxpayer’s IRS-approved health insurance plan. We’ll call this Form 1098-BCBS.
The 1040s will have a new form, or at least a new schedule – we’ll call it Schedule DRE. Schedule DRE will have a space to put the number from the 1098-BCBS, or lacking that, boxes to check for why you have failed to do your part to support health care in this great nation. If you don’t check the right boxes, there will be further lines to compute your PRP, which can range as high as 2% of your income. The final tax will carry to the taxes summary at the bottom of the second page of the 1040.
In the higher rent district, there will be new forms, or at least worksheets, to compute the two new Medicare taxes that apply starting in 2013. An additional .9% wage tax will apply to wages over $200,000 for single filers, $250,000 for joint returns, and $125,000 on married filing separate returns. While employers of single taxpayers who employ them all year will cover their tax through withholding, single job-switchers and married taxpayers will have to do this weird new computation on their 1040s somewhere. This one isn’t indexed for inflation, so we should all be there in a few years.
The wage tax computations will be childs play compared to the new 3.8% tax on “unearned income” – a phrase reeking of chutzpah, coming as it does from freaking Congress. This tax applies not only to old-fashioned investment income – interest, dividends and capital gains – but to royalties, rents, and to “passive” income from partnerships and S corporations. Auditing this tax may require all 16,000 of the new IRS agents called forth by Obamacare. “Passive” is defined here by the Sec. 469 rules, which were enacted to deal with tax shelter losses. Tax preparers will need to be very careful in distinguishing “passive” from “non-passive” income in many cases where it never used to matter.
IRS agents will have a field day trying to trip up folks who liked the income to be “passive” when it enabled them to use other losses. This will stimulate the economy of high-end tax consultants, who will quickly earn enough to qualify for the tax themselves, where they don’t already.
The unearned income tax tax will apply to the lesser of “unearned income” or the amount adjusted gross income exceeds $200,000 for single filers, $250,000 on joint returns ($125,000 on separate returns). So a new form will have to add up the “unearned” income from Schedule B, Schedule D, Schedule E, and maybe Schedule F, and compute the tax, which will also carry to the nether regions of Schedule 1040, page 2.
There will be plenty of other changes applying to 1040s between now and whenever Obamacare fully kicks in. There is a nice timetable here.
The IRS isn’t waiting to prepare to enforce these new rules. Going Concern has obtained an exclusive early draft of Schedule DRE.
Quote of the Day: Explaining Accounting Principles to Congress | 03.30.10
“There’s no chance that four CEO’s are going to explain the accounting code to the fine folks in Congress; explaining how to boil water would challenge the format.”
~ Megan McArdle, Business and Economics Editor of the Atlantic, on why asking CEOs to explain why they are complying with GAAP vis-à-vis healthcare reform is a pointless exercise.
Accounting News Roundup: GOP Says Healthcare Bill Will Expand IRS ‘Tentacles’; Jonathan Weil Counts Some of E&Y’s Bodies; RIP Jerry York | 03.19.10
• GOP targets IRS in latest health battle [The Hill via TaxProf]
The GOP is still fighting the health care bill tooth and nail and this may be the most effective strategy we’ve seen so far. Forget about debating coverage, preexisting conditions, etc. etc. Just name drop the IRS and a large group of people may change their minds about the whole thing.
“This is a vast expanse of power,” said Rep. Charles Boustany Jr. (R-La.) during a Thursday call organized by Republicans on the Ways and Means Committee. He said the IRS provisions in the healthcare bill “dangerously expand, in an ominous way, the tentacles of the IRS and its reach into every American family.”
On the surface this appears to be the typical GOP “the IRS is eeeevilllll” pandering but the real concern should be that the Service already has a lot to do. The Hill reports that if taxpayers are required to purchase health care insurance but fail to do so they could face fines. The IRS would be responsible for administering and collecting these fines.
Add that to this small task, “The IRS retrieved $2.35 trillion in 2009 by processing 236 million tax returns. It also is working to reduce a $345 billion gap in the taxes it collects and should collect.” Not to mention they’re trying to update systems, answer more phone calls, getting into high speed car chases. There’s always a lot going on.
And in case Rep. Boustany needs caught up, the Service is already auditing more people and trying to collect every dime nickel penny it can.
• Lehman’s Auditor Goes Blind From the Cooking [Bloomberg]
Jonathan Weil is not buying what Ernst & Young is selling. He reports that E&Y spokesman Charlie Perkins denied that the firm had “mischaracertized [the Bankruptcy Examiner’s] findings,” and characterized it this way, “[B]y E&Y’s twisted logic, it would be possible for a company to lie in its financial statements about its off-balance-sheet liabilities, and still manage to account correctly for them in the same financial statements. Imagine that.”
Weil takes off the gloves and digs up some old bodies, namely: partners recently sentenced to prison time for tax shelters; Bally’s (including vice chair Randy Fletchall); HealthSouth; Cendant (man, he’s going way back). Weil then thinks out loud, “With that kind of track record, it’s a wonder anyone would accept anything this firm says at face value again.”
• Jerry York, Iconic CFO, Dies at 71 [CFO]
Served as CFO for IBM, Chrysler. Adviser to Kirk Kerkorian and board member at Apple.
Tax Changes for Haiti Donations Is Bad Legislation. So What?
Not surprisingly, the House passed H.R. 4462 earlier today in order to accelerate charitable donations made for the relief efforts in Haiti. The bill was sponsored by Charlie Rangel (D-NY) and Dave Camp (R-MI).
We pointed out the thoughts of Howard Gleckman over at Tax Vox this morning and our contributor, Joe Kristan chimed in agreement earlier over at Tax Update Blog:
When something bad happens, politicians reflexively reach for the tax code. They should put it down and back away slowly…As bad as Haiti is, it’s not the first disaster ever, and one more change to the tax law isn’t going to solve that sad country’s problems. Of course, the proposed changes are more about politicians making a show of concern than actually accomplishing anything.
While our sentiments are with these two tax gurus, let’s not forget that every single member of the House of Representatives is up for re-election in less than 10 months. No one was going to vote against this bill. The Senate will pass it and the POTUS will sign it.
Noting that the bill is bad policy misses the point. We’ve all gotten used to Congress making the tax law progressively worse, so is it really necessary to mention that two-thirds of taxpayers don’t itemize deductions and thus, won’t see any benefit at all on their 2009 tax returns?
Those two-thirds of taxpayers don’t think about the standard deduction when they donate money to anything. It’s not about solving the problems of the mind job of the IRC, it’s about encouraging people to do what they can to help.
Save the bitching about Congress for [insert anything else].
Haiti Tax Relief [TaxProf Blog]
hr-4462.pdf
Section 409A: Worst Tax Enactment of the Decade
Editor’s note: Welcome to GC’s first edition of “Taxes: Because We’re the Little People” by Joe Kristan. Joe Kristan is a tax shareholder for Roth & Company, a Des Moines, Iowa CPA firm, where he works with closely-held businesses and their owners. Prior to helping start Roth & Company, he worked for two of what are now the Final Four CPA firms. He writes the Tax Update Blog and is available for seminars, first communions, Bar Mitzvahs, etc.
Sure, those Northwest pilots who missed Minnesota were off the mark. So was Arthur when he signed off on the Enron audit. But as badly as they missed the target, they look like Annie Oakley compared to Congress in its response to Enron.
Congress takes aim at the national firms whose audits failed to spot the looting at places like Enron. The result? SarBox, the greatest gravy train for the Final Four firms since the invention of the senior accountant.
The Congressional response on the tax side took a different approach. Rather than reward the guilty, they chose to beat the innocent. Hence Section 409A.
The Enron scandal featured elaborate deferred compensation plans to provide executives a gilded liferaft when the ship sinks. Congress responds with a code section affecting schoolteachers. They showed Ken Lay what for by designing a tax on folks on money they may never see because of somebody else’s foot fault.
Sec. 409A clobbers its victims two ways:
• It taxes employees on their deferred comp balances when the plan is out of compliance, even if the employee doesn’t get the money, ever.
• It hits them again with a 20% excise tax.
Worse, the code section imposing these penalties is so complicated that it took 3 years to complete the regulations that run to 200 pages, and are so complicated and intrusive that accidental noncompliance must be rampant.
This all makes Sec. 409A my choice as the worst tax enactment of the decade. But tastes differ. Let us know your nominee for the worst tax provision enacted from 2000 through 2009 in the comments and if we get some good submissions, we’ll put it to a vote.
Preliminary Analytics | 12.14.09
• H.R. 4173, Summary of Accounting and Audit Related Provisions – Lots to digest here but it’s all important, including a possible GASP name change for the PCAOB. [FEI Financial Reporting Blog]
• Invitation to a Conversation: If the Auditors Were Missing from the Financial Crisis — Let’s Ask Why – Jim Peterson doesn’t mince words: “The simple if depressing reason is that their core product has long since been judged irrelevant. The standard auditor’s report is an anachronism — having lost any value it may once have had, except for legally-required compliance.” [Re: Balance/Jim Peterson]
• Accenture Makes Right Decision, Drops Tiger Sponsorship – The awkward inappropriateness of the whole situation is now hitting T. Dubs in the wallet, as Accenture jumps into the “your services are no longer needed” camp. He won’t starve. [The Big Four Blog]
• Open Letter to the Securities and Exchange Commission (Part 5): Issuer Retaliation Complaint Against Overstock.com – Patrick Byrne’s attempt to develop his own Richard Nixon-esque enemies list has been met with fierce resistance. [Sam Antar/White Collar Fraud]
• CPA firms face pricing pinch – “After years of gains since the government started keeping track in December 2003, overall prices for CPA firm services plummeted with the onset of recession in December 2007.” [CPA Trendlines]
• Citigroup to Repay $20 Billion of Government Bailout – $25 bil to go. Get on it. [Bloomberg]
Cutting Out SarbOx for Small Business? Here’s a Better Idea: Take the PCAOB…Please
HR 3817: Investor Protection Act of 2009. We’re going to stop worrying about HR 1207 since “auditing the Fed” was always a fundamentally moronic idea (even when I cheered it in lieu of ending the Fed outright) and worse, just here, since no one even knows what it means anymore) is on the chopping block now, and for some reason a ballet dancer with a serious grudge against the world is going after it. Fine, he’s just a little later than some of us.
The White House is quietly working to undercut a key post-Enron reform, significantly weakening protection for everyday investors and threatening the administration’s image as a champion for financial regulatory reform.
I’m not sure whose image they are referring to but it certainly cannot be this administration’s (and I say that in the most politically asexual way possible). The only part that bothers me about this is the “quietly”, don’t make it so sinister, please.
HuffPo continues:
White House Chief of Staff Rahm Emanuel has been telling Democratic members of the House Financial Services Committee that he supports amending the Investor Protection Act of 2009 — a bill designed to beef up protection for investors — in order to exempt small businesses from a requirement in the Sarbanes-Oxley Act that mandates audits of internal controls. The Sarbanes-Oxley Act was enacted in 2002 in the wake of accounting scandals at Enron and Worldcom that rocked investors and damaged confidence in the markets.
Accounting Onion explains the effectiveness of Sarbanes Oxley in a little more detail than we care to, and if it doesn’t feel like you’re chasing your tail yet, wait, we’re not done.
Former SEC Chairman Arthur Levitt made it sound as though investors’ balls — and our only hope of getting out of this mess — were instantly twisted at the news.
Call me absolutely out of my fucking mind but this sounds like a small business bailout to me, at least indirectly. Save small business the costs (and benefits) of extensive audits and allow them to pocket the difference?
Good. While we’re at it, fire the PCAOB to save more money.
The PCAOB seems to think that we’ve got an audit problem. I contend here that the problem is with the auditors, and how many of them are being asked to go in there head down and pretend they don’t see a thing? I talk to them all the time. Does the PCAOB? I tell all of them to take notes when they ask me what to do. You PCAOB people should really see some of this, you’d be absolutely appalled.
Skeptical CPA argues that this was bullshit all along and I agree. He shares a moment at a Houston Financial Reporting Symposium. The PCAOB’s own Charles Niemeier (CN) is kind enough to explain his agency’s uselessness:
Someone asked, “Are PCAOB CPAs competent”? CN fumfered that one. Someone else noted most PCAOB CPAs were “former” Big 87654 partners. CN has no problem with that, since only those with large client audit experience could inspect the Big 87654’s work. Hey, CN, I’ve got some oceanfront property in Arizona to sell you. CN explained Sarbox was passed to prevent fraud. I ask, has Sarbox improved bank accounting? Some CPAs do what I call “disclosure” audits, i.e., they never dig into “non-accounting” data to ascertain the correctness of a client’s accounting records. For instance, looking at industrial engineering reports which might underlie a manufacturing company’s inventory costs. The Big 87654 is full of CPAs who do not understand cost accounting. CN reminded us the “PCAOB can’t reveal its findings”. I ask why not. Who or what is the PCAOB protecting?
I agree, they don’t know cost accounting. Do you know how many of them fail BEC every CPA exam testing window? It gets tiring.
The point is, I’m not sure this is worth bemoaning. Or maybe it’s just not worth caring anymore, they’re going to do whatever they want with accounting.
Worse, Citigroup, Bank of America, SunTrust, LandAmerica (the list goes on and on) all of these large, unstable financial firms continue to get unqualified audit opinions while 1,790 of 1,800 CPA firms have these guys breathing down their necks. Well not LandAmerica, they already failed miserably.
Your AICPA Dues at Work
We know you’re all worried about the financial regulation overhaul because it may just make your lives more of a living hell. PCAOB, IRS, state accountancy boards, etc. are bad enough but no, we could all be looking at more alphabet soup (in this case the Consumer Financial Protection Agency) in the name of political grandstanding.
Fear not. The bastions of accountant lobbying, the AICPA, is all over this like Barry Salzberg at a Rogaine convention.
Continued, after the jump
[AICPA Chairman, Bob] Harris argued that the proposed legislation creating the agency, the Consumer Financial Protection Act, was overly broad.
“The definition of ‘financial activity’ in the bill is so broad as to include many services that CPAs routinely provide to their clients in accordance with a very strict regulatory and oversight regime,” he said. “The bill would result in redundant regulation of CPAs and CPA firms that are already subject to appropriate and significant oversight by the IRS, Treasury, state boards of accountancy, and professional and ethical standards for the AICPA’s members.”
Sweet Jesus, Bob. We actually agree with you on this. The situation sounds oddly similar to the situation the brain trust in DC is trying to fix now. Too many regulators let the sketchy stuff fall between the cracks and now we’re in economic no man’s land. Add more
Who knew that there was common sense being shoveled around in the halls of Congress? The problem is, we’re certain the amount of bullshit being shoveled outweighs the common sense by an exponential margin.
AICPA Wants CPAs Exempted from Consumer Agency [Web CPA]
Congress Needs More Testimony on Accounting Stuff They Won’t Understand
We don’t know about you but we here at GC are relieved that Congress is back in session this week. For starters, we’re trying to find someone that will help Charlie Rangel keep track of all his money.
Also, we feel as though we’re a little overdue for some legislative nose-poking into accounting and auditing rules. Thankfully, the House Financial Services Committee is scheduled to revisit H.R. 2664 this week.
The Promoting Transparency in Financial Reporting Act would require annual testimony from the SEC, FASB, and PCAOB big wigs on accounting and auditing rules before the committee.
More legislative wisdom, after the jump
The testimony is supposedly going to enlighten the committee on progress of:
• Reassessing complex and outdated accounting standards;
• Improving the understandability, consistency, and overall usability of the existing accounting and auditing literature;
• Developing principles-based accounting standards;
• Encouraging the use and acceptance of interactive data; and
• Promoting disclosures in ”plain English”.
Excuse the cynicism, but since this particular bill’s title doesn’t include the words “patriot”, “American People”, or “anti-bonus”, there is virtually no opportunity for shameless grandstanding and most members of the committee will probably opt out of sitting in on the testimony.
That being said, the collective competence of the committee will increase exponentially if Maxine Waters is not in attendance so maybe our judgment is premature.
Promoting Transparency In Financial Reporting Act Up For Vote In Congress [FEI Blog]
We’re Probably Going to Have to Accept the Fact That Accounting Rules are No Match for the Bank Lobby
We’ve been over this 1000 times but like a bad rash, the issue keeps coming back.
NYT has already accused politicians of meddling in the esoterica of accounting, though personally I think that accusation might have been expressed just a tad too late.
As I mentioned when the July article came out:
More, after the jump
Ex FASB chair and former KPMG partner Edward Trott got it right saying “The area for bank regulators to be involved with accounting standards setting is to help identify the financial information the banks need from others to make appropriate lending and investing decisions. In my experience, banks want current fair value information about assets that serve as collateral for loans. They do not want information about what assets cost two or three years ago.”
Exactly! So what’s the debate about?
Assets are not being valued rationally. If someone can explain the model to me, I would love to hear it.
Or as we now call it, “fuzzy math.”
I’ve never been a huge fan of math, probably a large part of why I ended up on the fringes of the accounting industry, we hardly use it. It’s the rules that are being perverted, not necessarily the numbers. That’s Trott’s point, and he’s not the only one who feels that way.
The problem is that companies (non-financials) need to navigate these waters that have been artificially stirred up to allow banks to appear healthier than they are. Companies are licking their wounds and selling off assets while banks are preening over their profitable quarters? That doesn’t make sense.
Accounting pressure is not new either:
What’s gone unnoticed is that in the late ’90s Summers did nothing to stop former Fed chair Alan Greenspan from pressuring US accounting rule makers to water down a proposed new derivatives accounting rule that may have helped stop the current crisis. Many business leaders had strongly opposed the new rule…In fact, in 1998, Summers testified in Congress against regulating the derivatives market.
The ongoing debate gets stranger. What is there to debate about? The pressure is there, minus the understanding of what occurs as a consequence of these actions. Somehow, the behavior continues and we’re still arguing over it.
Arlen Specter Not Pandering to the Bean Counter Vote
Arlen Specter is many things. Senator. Cancer survivor. Some might say, turncoat. And since he is a newly minted Democrat, Specter is expected to prove his political stripes.
Well, Specter has decided that the best way to earn those stripes is to embrace the recent investor outrage and introduce legislation that will allow investors to sue accountants, lawyers, and investment banks, that provide, what Specter calls “substantial assistance” in a fraud.
More, after the jump
According to Bloomberg:
Shareholders are barred from suing parties that have only an indirect role in a fraud after Supreme Court decisions that limited liability to those directly and publicly involved in the scheme.The Specter measure would upend rulings in Stoneridge Investment Partners LLC v. Scientific-Atlanta Inc. of 2008 and Central Bank of Denver v. First Interstate Bank of Denver. Prior to the rulings, investor lawsuits against fraud accomplices were common, Langevoort said. The 1994 Central Bank decision was a “major gift” to individuals and corporations that aided in a fraud
The Refco scandal is right at the heart of this debate as attorneys, auditors, and investment bankers were all misled by Philip Bennet, Refco’s then-CEO. Suits against PwC, Grant Thornton, KPMG, and E&Y were dismissed back in April along with suits against several investment banks. Refco’s outside counsel Joseph Collins of Mayer Brown is currently involved in a lawsuit that is being reviewed by the SEC.
We’re all for making accountants responsible when they screw the pooch but if clients just flat out lie and go way the hell out of their way cover those lies up, there’s very little that can be done.
And if there’s one thing that keeps Big 5 4 partners up at night it’s the threat of litigation. The premise that this legislation would increase that litigious exposure is, at the very least, disconcerting to partners.
Specter Law Would Let Investors Sue Fraud Accomplices [Bloomberg]
Barney Frank Doesn’t Legislate Accounting, He Only ‘Exerts Pressure’
As you may know, the mere thought of Congress legislating accounting rules makes us nauseous to the point of passing out. Barney Frank, in an attempt to alleviate this common malady among accountants, has been quoted by Web CPA saying that “We will never legislate accounting while I’m chairman [of the Financial Services Committee]”.
According to the piece, Barn says that when he, and the rest of the committee, whipped Bob Herz, FASB Chairman, into submission over changes in mark-to-market rules, this was not legislating, this was “exerting pressure”.
Depending on who you ask (ahem, Hank Paulson), exerting pressure could easily be confused with “threatening” and threatening is clearly how legislation gets done in this country, whether it’s got a signature on it or not. So call it what you like, Barney-boy, we’re on to your doublespeak .
Barney Frank: ‘We Will Never Legislate Accounting’ [Web CPA]
Newt Gingrich Doesn’t Like the FASB
Congress seems hella determined to keep accountants from writing accounting rules. HR 1349, aka the Federal Accounting Oversight Board Act, which was introduced in the Spring would create a board that would consist of the chairs of the Fed, SEC, FDIC, PCAOB, and the Secretary of the Treasury.
This merry band of bureaucrats would basically get to slap the FASB around whenever they want. According to Newt “My head isn’t that big” Gingrich, a supporter of the bill, because of the FASB’S independence, politicians can’t torpedo accounting rules that are “destructive”.
More, after the jump
This gem of legislation has 14 co-sponsors, including seven members from the House Financial Services Committee, along with Gingrich and Paul Volcker. It has been referred to the Financial Services Committee so it will getting some Barney Frank lovin’ soon enough.
Say what you will about the wonks in Norwalk but we’re of the strong opinion that handing over the accounting rule bazooka to this board could possibly be the worst legislation since…anything Maxine Waters has introduced.
Congressional Bill Supports Federal Takeover of Financial Reporting [FinCriAdvisor via Jr. Deputy Accountant]
When $11.99 at Taco Bell Can Cost You $300
Now that American consumers have maxed out their credit cards, they’re trying to pay for everything in cash or using their debit cards. Noble attempt but if they buy something when their account is zero, the dreaded overdrafts fees are bleeding them out. IT’S NOT FAIR!
It’s becoming apparent that banks will be vilified for anything that results in revenue. And who comes to the rescue when banks are wronging the American people? Congress, obv.
That’s right, thank God we’ve got lawmakers working for the people because right now the banks are “walking across the battlefield and shooting the wounded”, which, we have to admit, is a pretty awesome analogy.
Yes, banks are charging fees for too many things that shouldn’t be allowed. Consumers need to be able keep to spending long after their accounts are at zero. How hell else can this economy get rolling again if Americans aren’t spending?
Nevermind that 3,000 banks may collapse if legislation passes that would limit overdraft charges. And forget about setting up automatic transfers from savings, THERE ARE NO SAVINGS. Help us, Congress. PLEASE.
Overdraft Debit Fees Treat Customer to $300 Fast-Food Charge [Bloomberg]