Tax Break

Essential tax and accounting reading: Swiss eager for U.S. deal, E&Y auditor/advocate, slow refunds, and more

March 9, 2012

Internal Revenue Service office near Times Square in New York.

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

* Swiss president wants tax accord with U.S. David Jolly – The New York Times. In the view of Switzerland’s president, her country would sign a deal on banking secrecy with the United States “tomorrow” if not for an impasse created by Washington. “We are ready,” President Eveline Widmer-Schlumpf, who is also finance minister, said on Wednesday. “We’ve made a lot of constructive proposals. We could sign it tomorrow if the United States wants to do it.” She said the countries had made “considerable progress” toward a global deal in the last few months. An agreement will include deferred prosecution deals against Swiss banks accused of helping American tax evaders, fines and a “substantial” transfer of client data to the Internal Revenue Service, she said. Widmer-Schlumpf said that Switzerland, which accounts for more than one-quarter of the world’s offshore wealth, was not prepared to abandon banking secrecy altogether and that the data transfer “has to take place within the existing legal procedures in both countries.” Link

* Ernst & Young tightropes between audit, advocacy. David Ingram, Dean Aubin and Sarah Lynch. Corporate audit giant Ernst & Young operates a lobbying firm in Washington, D.C., that has been hired in recent years by several corporations that were at the same time E&Y audit clients, prompting two senior lawmakers to demand closer regulatory scrutiny. Amgen Inc, CVS Caremark Corp and Verizon Communications Inc have ongoing lobbying contracts with Washington Council Ernst & Young, an E&Y unit, while also using the audit firm to review the corporations’ books, according to documents reviewed by Reuters. U.S. rules on “auditor independence” include one that bars auditors from serving in an “advocacy role” for audit clients. The rule is focused on legal advocacy, such as providing expert witness testimony, but several accountants said the general prohibition on advocacy may cover lobbying, as well. Link

* Tax break goes far beyond factory floor. Kim Dixon – Reuters. A Reuters analysis of company filings and government data shows how broadly the Section 199 manufacturing deduction is now used, suggesting it may be nearly impossible to keep it focused on manufacturing. From Starbucks Corp to Time Warner Cable Inc, businesses far beyond traditional manufacturers use the benefit. President Barack Obama wants to cut the top corporate tax rate from 35 percent to 28 percent, with a special 25 percent rate for manufacturing. Critics say the manufacturing focus is in large part politics as Obama faces a potentially tough re-election fight in battleground states such as Ohio and Pennsylvania, where manufacturing is important. Link

* Slow refunds rile taxpayers. John McKinnon – The Wall Street Journal. The Internal Revenue Service’s efforts to combat a surge in identity theft are yielding success but also a side effect: delayed tax refunds for many legitimate filers. The agency says it has strengthened the electronic system used to screen returns for potentially fraudulent refund claims by thieves who often use other people’s Social Security numbers or other identifying information. Tax preparers have experienced “intense early-season taxpayer frustration” over the delays, and “some storefront associates have been physically threatened or even sustained personal property damage” such as rocks being thrown through their car windshields, said the Council for Electronic Revenue Communication Advancement, a tax-preparation industry group, in recent testimony before an IRS oversight panel. Link

* Poll: Millionaires tax stands best chance of approval in November. Nicholas Riccardi – Los Angeles Times. Proponents of a California ballot measure to hike taxes on millionaires released a summary of a poll on Wednesday that showed theirs has the best chance of passing in November, especially should multiple tax measures end up on the ballot. Release of the latest poll information came as the three-way battle over taxes heated up, with the influential California Business Roundtable announcing that it opposed the millionaires tax and one advocated by a civil rights attorney, while taking no position on Gov. Jerry Brown’s tax proposal. Brown, who has assiduously courted business while crafting his combination of a half-cent sales tax hike and higher levies on high earners, argues that if the other efforts end up on the November ballot they will overwhelm voters and all three will be rejected. Link

* Pension tax breaks on Osborne’s radar. George Parker, Kiran Stacey and Josephine Cumbo – The Financial Times. Chancellor of the Exchequer George Osborne is looking to raise taxes on the pension contributions of the highest earners in this month’s budget, in a move which will release funds to help low earners escape the tax system but antagonizes some Tory MPs. Osborne has decided to fashion a budget to show his commitment to help the “middle Britain” voters who will determine the next election, even if that incurs some anger from high earners – including some top doctors, civil servants and head teachers. The centerpiece of his budget is expected to be a substantial increase in the income tax threshold – which will rise to 8,105 pounds ($12,800) in April – so that the coalition can hit a landmark target of 10,000 pounds ($15,800) before the next general election. Link

* The logic of cutting corporate taxes. Laura D’Andrea Tyson – The New York Times opinion. Corporate taxes – or rather their absence – have jumped to the top of the news in recent weeks, even drawing humorous commentary from Jon Stewart and Bill Maher. Many Americans are outraged to learn that some profitable American corporations pay little or no taxes in the United States, especially when corporate profits enjoyed their fastest growth ever in 2010. Shouldn’t the government raise the corporate tax rate to require corporations to contribute their “fair share” to deficit reduction and to enhance the progressivity of the tax system? The answer is no. In today’s world of mobile capital, increasing the corporate tax rate would be a bad way to generate revenues for deficit reduction, a bad way to increase the progressivity of the tax code and a bad way to help American workers and their families. Link

($1 = 0.6323 British pounds)

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