Tax Break

When it comes to auditing, just what does familiarity breed?

Financial Times  columnist Lucy Kellaway has published a piece encouraging UK regulators to see the positives in the fact that many leading financial executives come from one of the Big Four audit firms – Deloitte, Ernst & Young, KMPG and PwC. 

Following on a UK Competition Commission report published last week that found two-thirds of all chief financial officers used to work for a Big Four firm,  hampering competition, Kellaway writes that there could be under-appreciated benefits to such closeness. Someone who once worked at an audit firm — or a newspaper — knows more about how their work is done and where the potential weaknesses lie, she writes.

So an honest thumbs-up from a current employee means quite a lot. But one from a former one means even more.

Kellaway’s readers seem to see more potential pitfalls than obvious benefits in this kind of closeness, judging by the comments section.

This is a central issue for auditors, companies and accounting regulators, as independence and skeptical  thinking are central to the external audit process, and something the Public Company Accounting Oversight Board (PCAOB), the U.S. auditing regulator, has said it finds lacking in too many audits.

Essential reading: New Jersey lags on sales tax, and more

A grocery store in Hoboken, New Jersey. REUTERS/Eduardo Munoz

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

 * N.J. lags on sales tax. Heather Haddon – The Wall Street Journal. A new analysis set to be released this week shows New Jersey is one of only nine states in the U.S. that saw a decline in sales-tax revenue this spring, a sign that consumers are holding back spending as the state’s economy struggles to recover. Link

* IASB chairman laments delays to reform. Adam Jones – The Financial Times. The chairman of the International Accounting Standards Board has delivered a scathing assessment of its progress in carrying out urgent reforms, saying repeated delays had shaken people’s faith in the body’s ability to meet deadlines. Hans Hoogervorst said the slow pace was redolent of “dysfunctional working processes and dysfunctional decision-making”. He added: “We have broken deadlines so often that nobody believes in them any more.” Link  

* Ryan says GOP win would spur a tax deal. Patrick O’Connor – The Wall Street Journal. Rep. Paul Ryan said the presidential campaign, despite its contentious tone, is putting a focus on taxes and deficit cutting that could pave the way for a bipartisan overhaul if running mate Mitt Romney wins the White House. The GOP ticket wouldn’t detail which tax breaks it wanted to scale back in order to prevent the tax cut from adding to the deficit, Ryan said. Link  

PILOTs remain a rarefied, academic phenomenon

Tight municipal budgets have led to a “no-rock-left-unturned” approach to taxes, and in due course the tax-exemptions enjoyed by non-profits have come in for close examination.

More U.S. communities are encouraging “payments in lieu of taxes,” (PILOTs) through which non-profits that rely on the same city services as everyone else, can, often on a voluntary basis, throw something into the pot.

Even if it’s not equivalent to the property taxes they would have paid, every little bit helps.

Critical swing states big part of Pulpit Freedom Sunday

Last Sunday, 1,586 priests and pastors stood up before their congregants across the United States and endorsed a candidate running for public office.  They were purposefully breaking the portion of the tax code which prohibits non-profits from making such endorsements, something they see as a violation of freedom of religion and speech. 

A tax-exempt group may take positions on political issues and argue for them, that  is allowed under U.S. law. Recommending a vote for or against a certain candidate, however,  is not permitted.

When Reuters spoke last week to Erik Stanley senior legal counsel of the Alliance Defending Freedom (ADF), which has been organizing “Pulpit Freedom Sunday” since it began in 2008, he said the group was not pushing any particular political agenda and participants came from both conservative and liberal churches. He also said no special focus had been put on the nine swing states expected to have the biggest impact on the Presidential election November 6.

Essential reading: Biden and Ryan dispute economic toll of raising the top tax rates, and more

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

 * Biden and Ryan dispute economic toll of raising the top tax rates – but both are correct. J.D. Harrison – The Wall Street Journal. One of the most politically charged small business matters resurfaced during the vice presidential debate when Paul Ryan and Joe Biden squared off on the connection between high-income tax rates and job creation. The contention centers around the fate of the Bush-era tax cuts that are set to expire at the end of the year. The administration wants to extend the current tax breaks for the middle class but allow them to expire for families earning more than $250,000 a year, while Republicans support reissuing the cuts for all Americans. Link 

 * Biden indicates shift to $1mln threshold for 2013 tax increases. Patrick Temple-West and Rick Cowan – Reuters. Did Vice-President Joe Biden shift on the Obama administration’s tax increase plan for the wealthy? During a debate on Thursday with Republican vice presidential candidate Paul Ryan, Biden signaled a possible change from that figure, saying tax increases would start with million-dollar earners – a level possibly more palatable to lawmakers in Congress. Link  

* Long on promised tax cuts but short on substance in costing. James Politi – The Financial Times. Mitt Romney’s plan is broader than extending Bush-era tax rates to all. The former governor of Massachusetts wants that merely to be a step towards a much broader effort comprehensively to reform the US tax code. This would involve a lowering of all rates by 20 percent – with the top rate falling from 35 per cent to 28 percent. Link  


Some important tax and accounting events in the week ahead:

 Wednesday, Oct. 17

* PwC Tax’s Global Transfer Pricing Conference panel featuring representatives from the U.S. Internal Revenue Service, the Organization for Economic Co-operation and Development, and the United Nations discuss transfer pricing and the challenges it presents for multinational corporations. 9:45 a.m. EDT, Sheraton New York Hotel. New York.

* Chris Wagner, chief of the IRS national office of appeals speaks to the University of California Los Angeles’ annual tax controversy institute. The Beverly Hills Hotel. Beverly Hills, California.

* Ronald Dabrowski, IRS deputy associate chief counsel, international, speaks to the International Tax Institute on new regulations that impact the way a foreign company’s acquisition of U.S. assets will be treated from a tax perspective. 12:15 p.m. EDT, Grand Hyatt. New York.

Essential reading: Romney pledges to keep tax deductions for mortgages, and more

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

 * Romney pledges to keep tax deductions for mortgages. Trip Gabriel and Helene Cooper – The New York Times. Continuing to embrace a more moderate political persona, Mitt Romney offered assurances on Tuesday that he would protect tax deductions for the middle class on home mortgages and charitable donations. Link  

* Reagan tax model obsolete in fiscal cliff talks-Schumer. Kim Dixon – Reuters. A top Senate Democrat on Tuesday said new tax revenues should go to reducing the federal deficit, not cutting tax rates, dismissing as “obsolete” a Reagan-era model of tax reform. Senator Charles Schumer, hardening his party’s negotiating position ahead of talks on the so-called “fiscal cliff,” declared President Ronald Reagan’s 1986 tax reform an unaffordable model for overhauling the tax laws. Link  

* N.Y. ranked last on taxes. Jacob Gershman – The Wall Street Journal. New York imposes a more onerous tax burden on businesses than any other state, according to a new study. The Tax Foundation, a nonpartisan research group in Washington, D.C., ranked New York last among the 50 states in its annual “business climate” analysis of local tax regimes. The group reviewed individual and corporate income-tax structures, as well as sales, property and unemployment insurance taxes on the state and local levels. Link  

Essential reading: Republicans shift tone on taxing the rich, and more

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

 * Republicans shift tone on taxing the rich. Stephanie Kirchgaessner and James Politi – The Financial Times. Some Republicans are shifting their tone on the prospect of increasing taxes on wealthy Americans, in a move that could ease concerns about the US plunging off the “fiscal cliff” after the November election. A senior Republican aide in the House of Representatives told the Financial Times there was an internal debate within the party, with one side arguing that Republicans would be better off to “give in” to Democratic demands for an increase in taxes for individuals making more than $250,000 if Barack Obama were re-elected. Link  

* Romney’s no-net-decrease tax stand may help him weather public’s dim view of Republican Party. The Associated Press. Mitt Romney is now distancing himself a bit from some Republican Party policies, most notably by emphasizing that he doesn’t want to cut taxes for high earners. That’s probably a smart move, say Republican activists in regions where it’s getting harder to sell the party’s brand. Link  

* UK’s Osborne to slash welfare but quiet on growth. Matt Falloon and Guy Faulconbridge – Reuters. Chancellor of the Exchequer (finance minister) George Osborne and Prime Minister David Cameron are trying to use their party’s annual conference in Birmingham to project an image of economic prudence and have promised more spending cuts across the board. His plans may cause tension with the government’s Liberal Democrat junior coalition partners. Osborne dismissed their calls for a “mansion tax” on expensive homes or a further tax on the wealthy. Link  

Essential reading: Foreign profits can create earnings illusion, and more

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

 * Foreign profits can create earnings illusion. David Reilly – The Wall Street Journal. Foreign-cash stashes and their impact on U.S. tax revenue are garnering increased attention given the looming presidential election and “fiscal cliff.” Investors should be concerned about the potential for these profits to distort earnings. Companies in the S&P 500 had $1.5 trillion parked outside the U.S. for which they hadn’t accrued tax expense in 2011, more than double the amount five years earlier. Link  

* The math behind Obama camp’s tax changes. Damian Paletta – The Wall Street Journal. One of the most divisive issues between the Obama and Romney campaigns is the math behind the Republican candidate’s proposal to overhaul the tax code. The debate has left many Americans’ heads spinning, given the large numbers and the complexities of the tax code. But it still remains one of the most important questions facing voters in the Nov. 6 election and comes down to this – whose math do voters trust? Link  

* Romney ad says Obama distorts tax cut plan. Trip Gabriel – The New York Times. In a television ad released Sunday, the Romney campaign returned to one of the most contentious issues of the presidential debate, accusing President Obama of falsely claiming that Mitt Romney would cut $5 trillion in taxes. Obama repeated the accusation several times in the debate last Wednesday and that assertion has been a staple of Democrats’ accusations that Romney’s economic plans favor the rich. Link  


Some important tax and accounting events in the week ahead:

 Tuesday, Oct. 9

Internal Revenue Service hearing on regulations affecting the indebtedness of S corporations to shareholders. 10 a.m. EDT, IRS Auditorium, Washington.

 Wednesday, Oct. 10

IRS transfer pricing expert Tom Ralph speaks to the International Fiscal Association’s Midwest chapter. 3 p.m. CDT, Chicago.

 Friday, Oct. 12

University of Chicago’s Casey Mulligan speaks about his book, The Redistribution Recession. 9:30 a.m. EDT, the American Enterprise Institute, Washington.