Tax Break

ABA members argue legality of audit firm rotation proposal

The watchdog for U.S. auditors has been debating some of the toughest reforms in many auditors’ memories this year. Now some legal experts are questioning whether it has the authority to impose its most controversial idea – making companies switch, or rotate, audit firms after a set number of years.

In a letter to the Public Company Accounting Oversight Board, members of the American Bar Association joined a long line of critics of rotation. The lawyers cited the 2002 Sarbanes-Oxley act, which created the PCAOB, and questioned where it gave the board any authority to mandate rotation.

The letter was signed by the chairs of ABA’s federal regulation of securities committee and its law and accounting committee.

If they are correct, it would be a blow to investor advocates, who fought for years to have an independent standard-setter with broad powers over audit firms.

Before Sarbanes-Oxley, the audit profession set its own standards, which were often criticized for being laced with qualifications that helped auditors avoid legal liability.

Calendar

Some important tax and accounting events in the week ahead:

Monday, July 9
•    U.S. Internal Revenue Service hearing on proposed regulations for government retirement plans. 10 a.m. EDT, IRS auditorium. Washington.

Monday, July 9 – Thursday, July 12
•    Steven Miller, IRS deputy commissioner of services and enforcement, is among the speakers at the National Association of Tax Professionals conference. Baltimore.

Tuesday, July 10
•    U.S. House Ways and Means Committee hearing on the implication of the Supreme Court ruling on the individual mandate and Congress’s authority to lay and collect new taxes. 10:30 a.m. EDT Longworth House Office Building. Washington.
•    U.S. Senate Finance Committee hearing on tax reform. 2 p.m. EDT, Dirksen Senate Office Building. Washington.
•    Beverly Katz, special counsel to the IRS Office of Associate Chief Counsel, speaks at the D.C. Bar Taxation Section Pass-Throughs and Real Estate Committee luncheon program. 12 noon EDT. Washington.

Essential reading: Romney campaign’s missteps have some Republicans grumbling, and more

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

* Romney campaign’s missteps have some Republicans grumbling. Steve Holland – Reuters. Conservatives were particularly disappointed in Mitt Romney’s policy dance this week over whether requiring Americans to buy health insurance under Obama’s healthcare plan should be considered a tax, as the Supreme Court ruled last week, or a penalty. His position put the presumed party nominee squarely in opposition to the view held by Republican leaders of Congress and many Republican voters. Some Republicans said that by continuing to discuss the healthcare ruling, Romney’s team was reminding voters of his role in creating the Massachusetts plan – and diverting the campaign from its focus on jobs and the economy, which most Republicans see as Obama’s biggest weakness. Link

* In defending his healthcare plan, Romney often called its mandate a tax. Michael Shear and Ashley Parker – The New York Times. Four months before Mitt Romney signed his healthcare plan into law in Massachusetts in 2006, he told a conservative group that the state’s tax code would be the hammer that would make the plan work. As the Massachusetts governor and then as a presidential candidate, Romney spent the next six years describing in a variety of different ways the possible punishments for ignoring the Massachusetts mandate: as “free-rider surcharges,” “tax penalties,” “tax incentives” and sometimes just as “penalties.” Link

* Tax vote splits snarled Atlanta. Cameron McWhirther – The Wall Street Journal. Voters here will decide this month whether to increase their sales taxes by a penny to raise billions of dollars for improved roads and mass transit in a city notorious for its grinding congestion and dysfunctional train and bus service. Political and business leaders conceived the referendum— for a tax of one cent on the dollar, in addition to any other taxes in a given county — several years ago and got the proposal through the state legislature in 2010. They estimate that the tax would raise $8.5 billion within the next decade for projects they say are desperately needed to help Atlanta heal its battered economy and improve its quality of life. Link

Essential reading: Romney now says health mandate by Obama is a tax, and more

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

* Romney now says health mandate by Obama is a tax. Jeremy Peters – The New York Times. Mitt Romney declared on Wednesday that President Barack Obama’s healthcare mandate was in fact a tax, shifting his campaign’s characterization of the law and aligning himself with the conservative voices in his party. Two days earlier, his chief spokesman and senior strategist had said that Romney did not believe the mandate should be called a tax. Link

* Christie makes new appeal for a 10 percent income tax cut. Kate Zernike – The New York Times. New Jersey Gov. Chris Christie called a special session of the Legislature on Monday to argue his case again for a 10 percent income tax cut, saying “the New Jersey comeback” depends on it. But as with most things the governor does, Democrats viewed his half-hour speech less in terms of what he actually said and more for what it said about his national ambitions, and what some believe are his hopes to be the Republican vice-presidential nominee. Link

* France set to raise taxes on firms, rich. William Horobin and Gabriele Parussini – The Wall Street Journal. The government of Socialist President François Hollande announced plans to hit companies and the rich with higher taxes this year, as the country battles against weak economic growth to stay on track with deficit-reduction goals. The government said it would seek Parliament approval for 7.2 billion euros ($9.08 billion) in extra taxes this year. The plan, which had been outlined by cabinet members in recent days, calls for higher taxes on dividends and oil companies, while 2.3 billion euros of the tax increases would come from wealth taxes, the government said. Link

Essential reading: Romney campaign and GOP at odds on healthcare tax, and more

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

* Romney campaign and GOP at odds on healthcare tax. Michael Shear – The New York Times. Mitt Romney’s presidential campaign threw cold water on a central Republican attack line on Monday, saying that President Obama’s healthcare mandate should be thought of as a penalty and not a tax. That message, delivered first by a top aide to Mr. Romney on television and later by the campaign, contradicts top Republican Party officials and leaders in Congress, who have spent the last several days eagerly accusing the president of levying a new tax. Link

* IRS may botch complaints of tax-exempt abuse-watchdog. Patrick Temple-West – Reuters. The Internal Revenue Service is missing opportunities to catch possible abuse by tax-exempt groups, the agency’s watchdog said on Monday amid concern that some groups are spending heavily on the political campaign for the November 6 elections. Allegations of abuse may be mishandled or lost, said the report by the Treasury Inspector General for Tax Administration. Lax IRS enforcement may cost the government millions of dollars in uncollected taxes, the report said. Link

* Christie’s call for tax cut is unheeded. Heather Haddon – The Wall Street Journal. Gov. Chris Christie forced lawmakers back to the statehouse Monday and made another pitch for a tax cut, a significant piece of his agenda that Democrats took a firm stand against. Christie, a Republican, convened the special session of the Legislature just three days after signing a $32 billion budget and helping shepherd passage of a landmark overhaul of the teacher tenure system. Link

Essential reading: Jumping off the fiscal cliff, and more

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

* Analysis: Jumping off the fiscal cliff. Kim Dixon and Richard Cowan – Reuters. Members of Congress from both parties are increasingly mulling the unthinkable: going home in December without acting to avoid the $4 trillion in tax hikes and deep spending cuts known as the fiscal cliff. Neither Democrats nor Republicans claim this is their preferred option, as it could rattle global financial markets badly and anger their constituents. But as they circle each other in an ever-more partisan atmosphere they see little prospect for a settlement acceptable to both parties in the lame duck session of Congress after the Nov. 6 election. Link

* Get ready for the new investment tax. Laura Saunders – The Wall Street Journal. When the court affirmed the law on Thursday, investors — and tax advisers — started scrambling. The new tax, which Congress passed in 2010, affects the net investment income of most joint filers with adjusted gross income of more than $250,000 ($200,000 for single filers). Starting on Jan. 1, 2013, the tax rates on long-term capital gains and dividends for these earners will jump from their current historic low of 15 percent to 18.8 percent, assuming Congress extends the current law. Link

* GOP’s new health-law front. Louise Randofsky – The Wall Street Journal. Republicans are planning to use the main component of the Supreme Court decision upholding President Barack Obama’s healthcare law as a weapon to try to repeal it. Republicans are preparing a fresh assault on the law, including a move by the Republican-controlled House to vote to repeal the entire overhaul July 11. Link