September 19, 2021

Loopholes

All This Focus on Mitt Romney’s Taxes Could Ruin Things for All the Wealthy People

Today, a Bloomberg article by Jesse Drucker called attention to Mitt Romney's "intentionally defective grantor trust" aka "IDGT" or "I Dig It" trust. For the seasoned estate tax planning or wealth preservation professional, this is old hat, but for many people this is quite exciting. And by exciting I mean, "Holy shit, they can do […]

SEC Asking FASB About Looking Into That MF Global Accounting Thingamajig

Because, you know, it’s sorta tricky and it didn’t really turn out so well for Corzine & Co.

The SEC is in talks with the Financial Accounting Standards Board, which sets accounting standards, about “repurchase-to- maturity” agreements that MF Global used in off-balance-sheet accounting, Schapiro said today during a hearing before the U.S. Senate Agriculture Committee in Washington. “We are talking with FASB about whether we need more disclosure of those,” Schapiro said.

Senator Kent Conrad (D-ND) seems a little more urgent:

“How is it possible that someone is able to bet the farm here, multiple times, and it disappears from the balance sheet because of this repo-to-maturity technique?” asked Senator Kent Conrad, a North Dakota Democrat, noting that the technique made it appear as though the risk had been “sold.”

“That is a loophole so big you can drive a Mack truck through it,” Conrad said. “If that’s not closed, we should ask ourselves what we’re doing.”

I think we all know what a lot of people at the SEC are doing.

MF Global Accounting Technique Under Review, Schapiro Says [BBW]

This Trick *May* Give CPA Candidates a Sneak Peek at Whether They Passed the Final Section of Their Exam

Maybe we shouldn’t publish this, lest TPTB catch on and close this loophole but as it’s soon to be CPA exam score release season, we figured it might be helpful to share this little trick to get your score early.


Note, word is it only works if you are on your last section and testing in a NASBA state. It doesn’t work all the time and will really only give you your score a day or so earlier than you would have actually received it from your state.

So if you’re waiting for a score now, don’t bother, it doesn’t work until the AICPA releases scores to NASBA, which is supposed to be within a 7-10 day period beginning the third week of September for this quarter.

To try it, follow these simple steps:

1. Go to the CPA exam section of NASBA’s website and select Ohio regardless of which state you are testing in.

2. Choose Apply Now under the “Re-applying for the Uniform CPA Examination” tab.

3. You will be asked if you have an Ohio jurisdiction ID. Choose no and it will ask you if you have a Social Security number. Choose yes.

4. Follow the rest of the prompts, plug in the information it asks you for and if you get the following message, congratulations, the loophole worked and you passed:

We are sorry. Our system shows that you have already passed all parts of the Uniform CPA Examination. If you have questions, please call your Coordinator at the number given below. Please call the number below.

800-CPA-EXAM
615-880-4250

Some have stated that the loophole also works if you’ve failed. If you get in and see the exam section you are checking on not grayed out, that means it’s allowing you to get a new NTS which obviously means you did not pass.

Bottom line: maybe it works, maybe it doesn’t. If you’re driving yourself insane refreshing your score page waiting for an answer, maybe it wouldn’t hurt to try at the end of the month but you’re really only getting the news a few hours earlier than you would have if you just waited.

Can I Temp for a Local CPA Firm Prior to Starting My Full-time Job?

Welcome to the massive-hangover-creeping-up-on-you-yet? edition of Accounting Career Emergencies. In today’s edition, a future “Big 6” associate wants to know if temping for local CPA firms is kosher prior to starting at her full-time employer or if this sort of thing is frowned upon.

Trying to get a handle on Twitter? Need help writing an intriguingly vague farewell letter? Annoyed by a co-worker? Email us at advice@goingconcern.com and if I manage to sober up, I’ll respond in due time.

Back to our problem du jour:

Hi GC!

So here is the situation: I graduated in December with a Masters and I have a job at a “Big 6” firm that doesn’t start until next October. And while I would love to do what the recruiter suggested and go on a trip or hang out with my friends and do nothing for the next 6+ months, I need to pay rent/student loans/eat.

HR at the Firm told me I could do whatever I wanted except work in public accounting so I have been temping. Fine. Except that the only jobs that are currently available in my area are helping out a local CPA firm with tax returns. I explained to the temp agency recruiter that I can’t work in public but then we both came to the conclusion that since my timecards, paychecks, etc. all come from the temp agency, not the CPA that I am technically not working in public accounting.

Does this sound kosher? Or like my friend who calls herself a vegetarian but still eats bacon?

Thanks a bunch!
Signed,
Need to pay rent! (Rent’s too damn high) (‘Cause everything is RENT!)

Dear Need to pay rent! (Rent’s too damn high) (‘Cause everything is RENT!),

First off, in what year are you living? There hasn’t been a “Big 6” since BJs got a President impeached (I know, I still can’t believe it either). I’ll forgive your dated terminology and get to your problem at hand.

This is an interesting little loophole you’ve found and personally I feel as though you have a legitimate argument that you are complying with your future firm’s policy. The likely intention of said policy was to prevent you from landing a gig with a competitor and thus poaching you before you even start with them. As a temp, you’re simply bounding around to whomever needs the help. There’s very little risk of you joining one of these firms you’re temping for because you have a job waiting for you. Everyone involved – you, the temp firm, the temp placement agency – is aware of this. Getting your future firm involved will only cause headaches for you.

However, if you’re the anxious type that will start having nightmares about a mean ol’ partner breaking into your apartment to rifle through your records looking for any sign of your betrayal, you will run this past your future firm just to be sure but I personally don’t think it’s necessary. Temp it up!

Anyone else been in this pickle? Chime in.

The National Society of Accountants Has a Bone to Pick with the AICPA

A couple weeks back the AICPA gave its members the go-ahead to Crtl+C, Crtl+V its letter to the IRS about how certain parts of the proposed tax preparer regulations were a load of crap.

We just assumed that everyone in the accounting biz was on the same page here but boy we’re we wrong. The National Society of Accountants sent this letter to Treasury honcho Geithner stating that they don’t want any tax preparers exempted from obtaining a PTIN (among other complaints):

NSA Letter Regarding CPA Firm Exemption


What’s especially interesting is that the AICPA is not named in this letter once, however they are named specifically in the NSA’s press release:

Now, at the 11th hour, just before the registration process is scheduled to begin, some – including the American Institute of CPAs – are demanding that staff members of ‘CPA firms’ be exempted from the registration requirements. This flies in the face of why this registration program was set up. The point of the new regulations is to ensure that all tax preparers are accountable for their work in preparing returns, and that should include anyone who paid to prepare all or substantially all of a return, no matter where they may work.

The basic tenet here is that big firms will get away with letting the underlings preparing the returns not be held accountable for their (apparently) shoddy work. The NSA’s position is that if every single legit tax professional is registered then they can track down the shitty ones and the IRS can act accordingly. The NSA claims that the “loophole” proposed by the AICPA will let these amateurs skate the testing and registration requirements and thus won’t be serving taxpayers one iota.

On the one hand you might have been totally against the tax preparer regulations from the start but now that they’re unavoidable, the AICPA’s request for exemptions in some cases may burn the unlucky bunch that wouldn’t get to enjoy waiver.

Regulators’ Exposure of Accounting Loophole Helped Banks Hide Risk

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

Not exactly shocking news but one of the mysteries of the financial crisis is how it came to be that banks ended up with rtransferred to investors.

Sure, it’s well known that the assets banks removed from their balance sheets did not shift much risk to investors after all, thanks to liquidity guarantees they supplied to investors. But that even took former Citigroup vice chairman and Treasury secretary Robert Rubin by surprise, as Rubin said he didn’t know such guarantees existed until after the bank was forced to increase its capital reserves because it had to make good on them.

Now research that came out a year ago but was revised late last month helps clarify what went awry.


It turns out that a conflict between the Financial Accounting Standards Board and federal bank regulators was even more critical than I thought it was when I reported it in 2004. The conflict arose after FASB voted to require commercial banks to consolidate such vehicles after such financing arrangements caused energy trading firm Enron Corp. to fail.

I was aware that the regulators asked the FASB to delay the new accounting rule and that the board eventually provided an exemption for so-called “qualified” special purpose entities, which provided a loophole from consolidation so long as they vehicles weren’t actively managed.

But the full significance of that escaped me until I saw the research, which shows that securitization along the lines of Enron’s — guarantees that limited or even eliminated investor risk — exploded after bank regulators codified the exemption in their capital requirements. Indeed, the exemption essentially paved the way for banks to use more off-balance-sheet financing vehicles that masked their true risk.

How exactly? In late 2004, the Federal Reserve Board, Federal Deposit Insurance Corporation and the Office of Thrift Supervision decided that asset-backed commercial paper put into special purpose vehicles known as conduits would not have to be consolidated for purposes of calculating capital requirements. And the regulators decided that banks need only reserve against 10 percent of the amounts put into conduits even when they guaranteed that investors would be repaid if there were a run on the conduits. Previously, securitizations typically put investors on the hook for that risk.

The research, originally published in May 2009 but revised in late January and entitled “Securitization without Risk Transfer,” found that the amount of subprime assets securitized through such vehicles soared in the wake of the exemption, even though the liquidity guarantees extended to investors meant that little or no risk had been transferred to them.

“Regulation should either treat off-balance-sheet activities with recourse as on-balance sheet for capital requirement and accounting disclosure purposes, or, require that off-balance sheet activities do not have recourse to bank balance sheets,” the authors, Viral V. Acharya and Philipp Schnabl of New York University and Gustavo Suarez of the Federal Reserve, conclude. “The current treatment appears to be a recipe for disaster, from the standpoint of transparency as well as capital adequacy of the financial intermediation sector as a whole.”