Tax Break

Essential tax and accounting reading: Targeting private equity taxes, IASB slows rate of change, struggling taxpayers get a break, California’s stock option addiction, and more

March 8, 2012

Hans Hoogervorst, head of the International Accounting Standards Board REUTERS/Gil Cohen Magen

Welcome to the top tax and accounting headlines from Reuters and other sources.

* Tax treatment of private equity: questions over quirk. Daniel Shafer – The Financial Times. Governments in the U.S. and Germany are examining proposals to take away the preferential treatment that has helped to turn swaths of private equity managers worldwide into millionaires and a few dozens into billionaires. The prospect of lower profits as well as higher taxes not only risks denting private equity’s ability to attract talent. It also brings back to the fore accusations that buyout bosses have amassed riches by paying low taxes and taking dividends from indebted companies in their portfolio – a debate that started before the crisis but became sidelined as public anger turned towards banks. Such indictments do not come from trade unions or leftwing anti-globalization groups alone. Calpers, the California pension fund that is among the most influential investors in buyout funds, recently called the U.S. tax break on private equity managers’ profit rewards “indefensible.” Link

* IASB eyes selective reforms after frantic change. Huw Jones – Reuters. Tackling company “disclosure overload” will be among cherry-picked projects for accounting standards reform after industry calls to ease the pace of change, a top accounting rule-setter said on Wednesday. “Now we have most of the world on board, even a small change to a standard can be like dropping a pebble into still water,” International Accounting Standards Board Chairman (IASB) Hans Hoogervorst said in a speech in Mexico. Over 100 countries have introduced IASB rules for use in listed company reporting over the past decade, during which the board also worked with its U.S. peer to align each others’ standards. The aim was to persuade the world’s biggest economy to adopt IASB rules, too. But America has delayed its decision, recently prompting Singapore to put back full adoption of IASB rules. Meanwhile, the IASB is finalizing work for its next phase. Link

* New breaks for struggling taxpayers. Laura Saunders – The Wall Street Journal. The Internal Revenue Service on Wednesday announced new additions to its “Fresh Start” program for struggling taxpayers. The new features include penalty relief for the unemployed and expanded installment-payment options. The agency began the Fresh Start program in 2008. The penalty relief for unemployed taxpayers is for “failure to pay” levies, which the IRS says are one of the biggest expenses that financially distressed taxpayers face on a tax bill. The relief grants a six-month grace period to pay taxes to those who have been unemployed for at least 30 consecutive days during 2011 or in 2012 up to this year’s April 17 filing deadline. Link

* Obama urges shift to fuel-efficient vehicles. Jared Favole – The Wall Street Journal. President Barack Obama on Wednesday proposed expanding tax credits to make alternative-energy cars and trucks more appealing to buyers. The president said rising gasoline prices show the U.S. needs to wean itself off oil. He told a crowd of several hundred people at a truck-manufacturing plant that you “know how quickly the price of gas is going up.” The president repeated his call for Congress to vote on ending tax breaks for oil and gas companies. Republicans have said ending those tax breaks will further drive up gas prices. Link

* With tax changes near, ‘you can’t wait to plan.’ Mickey Meece – The New York Times. With 10,000 Americans turning 65 every day, financial advisers say that more than ever, people who are thinking about second acts need a life plan to account for living expenses, and also health, tax, investment and estate issues. Special tax rates on capital gains and qualified dividends are set to expire; capital gains may rise to 20 percent in 2013 from 15 percent, or 10 percent from zero, depending on income level. Capital gains rates on qualified dividends may revert to ordinary income rates. A new 3.8 percent Medicare surtax on investment income for some individuals will add to the other tax increases in 2013. Link

* IRS does its job. The New York Times editorial. Taxpayers should be encouraged by complaints from Tea Party chapters applying for nonprofit tax status at being asked by the Internal Revenue Service to prove they are “social welfare” organizations and not the political activists they so obviously are. Tea Party supporters claim they are being politically harassed with extensive IRS questionnaires. But the service properly contends that it must ensure that these groups are “primarily” engaged in social welfare, not political campaigning, to merit tax exemption under section 501(c)(4) of the tax code. Such IRS inquiries are long overdue and should be applied across the board to the growing number of organizations, allied with the major political parties, that are also ludicrously posing as “social welfare” groups. Link

* Facebook to the non-rescue. The Wall Street Journal editorial. California is again in fiscal trouble and this time it’s betting on a new savior — the Facebook IPO. The state Legislative Analyst’s Office reports that the $5 billion stock offering expected this year could yield $2.5 billion over the next five years in extra revenue due to “extraordinary one-time” events. In 2004 Google’s IPO contributed to a one-time $7 billion revenue gusher that included a 49% leap in capital-gains receipts. The state was instantly flush with cash and Arnold Schwarzenegger and Democrats blew through the cash like they were Google partners — which, in a sense, they were. Now Gov. Jerry Brown is also assuming that voters will approve his huge tax increase ballot initiative in November. He predicts this would raise $31 billion over five years from a 0.5 percent increase in the state sales tax rate to 7.75 percent and by phasing in higher tax rates on Californians with incomes of more than $250,000 ($500,000 for couples). Millionaires would pay a 12.3 percent tax rate, the highest state rate in the nation. Link

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