Tax Break

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

* ‘Fat tax’ proposed to cut obesity. Andrew Stack – The Financial Times. The UK needs to impose a “fat tax” of at least 20 per cent on unhealthy foods to have any significant impact on rising levels of obesity. A report published in the British Medical Journal drawing on obesity research from around the world argues that taxing a wide range of foods and subsidizing healthier options was likely to have the greatest effect. Link

* Boehner draws line in sand on debt. Damian Paletta – The Wall Street Journal. House Speaker John Boehner said Tuesday that any increase in the government’s borrowing limit must be accompanied by spending cuts and other budget savings of greater value, and he rejected tax increases as part of any deal to reduce the federal deficit. Democrats have called for a mix of tax increases and spending cuts to reduce the deficit and Republicans have called for spending cuts and overhauls of entitlement programs like Medicare. Link

* Higher taxes on wealthy unite Democrats. Paul Kane – The Washington Post. Even with signs of an economic recovery feeding optimism about President Barack Obama’s reelection chances, congressional Democrats continue to run highly individual reelection campaigns independent of the president’s record and agenda. Except on the issue of higher taxes for the wealthy, where they appear solidly unified across the political spectrum. Link

* State income up in April, but may not be enough. Lisa Lambert and Karen Pierog – Reuters. Personal income tax collections in states in April might have grown an average of more than 7 percent, but for some the increase may not be enough to ease budget crises. Reuters found that the average increase of personal income tax collections in April 2012 from April 2011 for the 20 states for which data are available was 7.3 percent. A handful of states that were lulled into a false sense of security from last year’s surge in collections, when the average April increase was 18.5 percent, are now wondering if revenue is growing enough to cover their spending plans. Link

* Tax increase would spare California of cuts. Jim Carlton – The Wall Street Journal. California Gov. Jerry Brown said the state’s projected budget deficit widened to $16 billion from about $9 billion, and he warned that the state would need deeper cuts to services such as education if voters don’t pass a tax-increase measure he is championing. The Democratic governor on Monday is set to release his revised 2012-13 budget. That measure would temporarily raise sales taxes, to 7.5 percent from 7.25 percent for four years, and it would boost income taxes by as much as three percentage points for seven years on individuals making more than $250,000 a year or households making more than $500,000. Link

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

* HP loses $190 million tax case against IRS. Lynnley Browning – Reuters. Hewlett-Packard Co on Monday lost a battle with the U.S. Internal Revenue Service for more than $190 million in tax refunds tied to a Dutch tax shelter designed by the derivatives arm of American International Group. The ruling turns a spotlight on an aggressive tax-cutting strategy created last decade by AIG Financial Products and bankrolled by several European banks. The strategy involved trading derivatives with the aim of generating capital losses and foreign tax credits for large corporations, like HP, which then used them to try to lower their U.S. tax bills. Link

* In Republicans’ push for tax overhaul, popular deductions on the block. Donna Smith – Reuters. Republicans have not touched hundreds of tax breaks in tax laws, fearing that doing so could be called a tax hike. That could be changing. They’re not advertising it, but Republicans in Congress, along with a few Democrats, are exploring the idea of limiting or ending some of Americans’ most sacred tax breaks. They include deductions on contributions to 401(k) retirement accounts and possibly those on home mortgage interest, each of which save millions of Americans thousands of dollars each year. Link

* Brown warns Californians: Taxes or cuts. Jim Carlton – The Wall Street Journal. California Gov. Jerry Brown laid out a revised budget plan that relies on deeper spending cuts and higher taxes to bridge a projected state deficit that has widened to $15.7 billion from $9.2 billion since January. The Democratic governor said Monday he had no choice but to cut even deeper into social services to help close a budget gap that has shot up due to lower-than-expected tax revenue and delays and court-ordered impediments to spending cuts. Brown proposes to nearly double spending cuts to $8.3 billion for fiscal year 2012-13 from a January estimate that $4.2 billion of reductions were needed. Link

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

* How Facebook’s elite skirt estate tax. Laura Saunders – The Wall Street Journal. Tax specialists are paying attention to how half a dozen of Facebook’s luminaries, including founder Mark Zuckerberg, appear to be using a perfectly legal maneuver called a grantor-retained annuity trust, or GRAT, to avoid at least $200 million of estate and gift taxes on their own Facebook shares. Facebook’s prospectus cites eight separate “annuity trusts” set up by insiders. All told, these trusts hold about 22 million shares that will be worth more than $690 million if Facebook goes public at $31.50 a share, the middle of its projected range. Link

* Brown pushes tax hike as California’s money woes deepen. Jim Christie – Reuters. California Governor Jerry Brown was elected in 2010 on a promise to fix the state’s chronic fiscal crisis. His weekend announcement of a much bigger-than-expected shortfall in the state budget signals how far he still has to go. In an unusual move that underscored the highly politicized nature of the state budget, Brown took to YouTube on Saturday to deliver the bad news: the state’s projected budget deficit for the fiscal year starting July 1 is now $16 billion, up from the $9 billion anticipated in January. Link 

* Arrest is warning on secret offshore accounts. Laura Saunders – The Wall Street Journal. In a fresh warning to U.S. taxpayers who haven’t confessed secret offshore accounts, the U.S. Attorney for the Southern District of New York and the Internal Revenue Service announced the arrest of Michael Little, a British investment adviser who allegedly helped several members of a prominent American family conceal more than $10 million in Swiss bank accounts for 11 years. According to the charges, Little advised the family members to set up Swiss accounts that would nominally be controlled by him and a Swiss lawyer. Link 

Top House Republican tax-writers are working full-tilt on a plan to have in place in case talk turns to a tax code overhaul after the Nov. 6 elections, a top tax aide said on Friday.

“Pretty much everybody on our tax staff is doing tax reform,” Ray Beeman, tax counsel to Representative Dave Camp, told lawyers at an American Bar Association meeting in Washington.

“We want to put ourselves into the best position we can be in, in the lame duck in the event that the focus turns to tax reform as a way of getting out of this fiscal cul-de-sac,” he said.

* Risks loom as China orders Big 4 auditors to go local. Kevin Drawbaugh – Reuters. China and the world’s largest audit firms face credibility risks under an order Beijing issued saying the firms must hire more Chinese citizens to manage operations there, analysts said. Thursday’s order follows a string of accounting scandals at Chinese companies listed on U.S. stock markets and amid broader questions about China’s willingness and ability to conform with international business standards and rules. Link to Reuters.  

 * Watchdog calls foul on IRS whistleblower office. Patrick Temple-West – Reuters. A Republican senator advocating for whistleblowers called on President Barack Obama to “light a fire” under the Internal Revenue Service’s whistleblower office after a new report highlighted concerns about the program. The comments, on Thursday, came shortly after a watchdog for the IRS criticized the agency’s whistleblower program, saying it may produce inaccurate data and that deadline goals are not strong enough. Link to Reuters.  

* Panorama to highlight Luxembourg tax role. Vanessa Houlder – The Financial Times. A BBC investigation is set to highlight the role played by Luxembourg in the tax structures of big British companies, in the latest sign of intensifying scrutiny on corporate tax planning. Next Monday’s Panorama is based on confidential documents said to show how companies including GSK, the pharmaceutical group, and Northern and Shell, the media company, used Luxembourg subsidiaries to lend money to their British operations. The investigation is the latest in a series of examinations of big companies’ tax planning which has triggered a public fightback from the CBI, the employers group. Link to The Financial Times. 

* China orders “Big Four” auditors to restructure. Koh Gui Qing and Rachel Armstrong – Reuters. The world’s top four accounting firms will have to bring in Chinese citizens to run their operations in China and end the dominance of foreign partners under new rules announced by the Finance Ministry on Thursday. The Big Four auditors – Deloitte, PricewaterhouseCoopers, Ernst & Young and KPMG – must start to convert their practices this August and comply with all the new rules by the end of 2017. The changes come at a difficult time for the Big Four as they grapple with the fall-out from a string of accounting scandals at Chinese companies listed in the United States that has left investors questioning the quality of auditing in China. Link to Reuters. 

* Obama threatens to veto Republican’s shield of defense cuts. David Lawder – Reuters. President Barack Obama threatened on Wednesday to veto a Republican bill that would partially replace looming automatic budget cuts and protect military spending at the expense of food stamps and other social programs. The House of Representatives on Thursday is expected to vote on the Republican plan. A Democratic plan would raise revenues by implementing the “Buffett rule”, a new minimum tax rate for those with incomes above $1 million. Ending tax breaks for the five largest large oil producers and cuts to crop subsidies would be the next largest savings contributors. Link to Reuters. 

* Reid issues threat on defense cuts. Janet Hook – The Wall Street Journal. Raising the stakes in the congressional budget debate, the Senate’s top Democrat Tuesday threatened to allow deep defense spending cuts to take effect at year’s end unless Republicans were willing to accept a broader budget deal that includes tax increases. Senate Democratic Leader Harry Reid said Democrats would insist on a more “balanced approach” to deficit reduction that includes tax increases, as well as cuts to both domestic and defense programs. Link to The Wall Street Journal. 

Good day and welcome to the top tax and accounting headlines from Reuters and other news sources.

* A tax loophole opposed by conservatives now divides the Senate. Jennifer Steinhauer – The New York Times. Republicans took to the Senate floor Tuesday to denounce a bill proposed by Democrats that would freeze student loan rates by closing a loophole that allows wealthy individuals to avoid paying Social Security and Medicare taxes on some of their income. The bill would pay for the $5.9 billion loan rate freeze by preventing individuals with incomes exceeding $250,000 who file their taxes as a small business to avoid paying Social Security and Medicare payroll taxes on some of their income. Democrats have referred to the bill as the Edwards bill, as it targets the tax strategy that former Senator John Edwards was criticized for using. In the past, however, many conservatives have dinged the same tax loophole that Democrats now seek to close. Link to The New York Times.  

* No tax reform plan yet: Obama aide. Kim Dixon – Reuters. President Barack Obama’s nominee to be the top tax official at the U.S. Treasury Department said on Tuesday that the administration is not actively working on a plan to revamp the tax code, frustrating some of Obama’s fellow Democrats. “At this point there is no plan that has been developed,” Mark Mazur, Obama’s nominee for Treasury’s top tax job, said at a Senate panel hearing on his confirmation. Tax reform was going to be a tougher slog than it was in 1986, when reform was “revenue neutral,” neither raising nor lowering the overall federal tax take. “We are going to need to modestly increase revenue, unlike in 1986,” Mazur said. Link to Reuters. 

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

* Private equity defends business-debt deductions. John McKinnon – The Wall Street Journal. A private-equity group will release a report on Tuesday that attacks one of the central tenets of many tax-overhaul plans in Washington – the idea of curbing deductibility of business debt. Limiting debt deductibility could raise the effective tax rate on new investment and could well stifle growth, said the Private Equity Growth Capital Council, a trade group. The group says that a limit on deductibility of interest expenses in exchange for a 1.5 percentage point reduction in the corporate rate, “would increase the marginal effective tax rate on new corporate investment from 31.0 percent to 33.1 percent. Link

* House bill shields defense from cuts. Janet Hook and Damian Paletta – The Wall Street Journal. House Republicans, seeking to prevent defense-spending cuts at the end of the year, advanced a plan that would instead reduce spending on health-care programs, food aid and other major domestic initiatives of the Obama administration. Democrats agree that the arbitrary cuts should be replaced with a more carefully calibrated budget agreement, but they want a mix of defense cuts, tax increases and domestic spending cuts. Many Republicans oppose any tax increases and want to avoid the $55 billion in scheduled defense cuts next year and partially replace them with cuts in domestic entitlement programs such as Medicaid. Link

* Brazil’s secret fiscal weapon: the tax “lion.” Alonso Soto – Reuters. In Brazil, groups of armed agents fly around the country by helicopter, pounding on doors and instilling fear in the hearts of those who break the law. They’re not the police – they’re from the tax agency. The Federal Revenue Service will be one of the most important keys to Brazil’s economic prospects in 2012. President Dilma Rousseff is counting on the agency’s tax-collecting prowess to help her government meet ambitious budget targets without smothering the country’s suddenly brittle economy. Link

PricewaterhouseCoopers CEO Dennis Nally sits between Eli Lily and Company Chairman and CEO John Lechleiter (L) and Singapore's Prime Minister Lee Hsien Loong (R) during the APEC CEO summit in Honolulu, Hawaii November 11, 2011. REUTERS/Chris Wattie

Big audit firms are hoping talks will resolve an impasse between Chinese and U.S. regulators over work papers of the firms’ Chinese subsidiaries.

Auditors landed in the center of an international spat last year when the U.S. Securities and Exchange Commission went to court to force a Chinese arm of Deloitte to hand over audit records on its China-based audit client Longtop Financial Technologies.

Some important tax and accounting dates in the week ahead:

 Tuesday, May 8

U.S. Senate Finance Committee hearing considering the nomination of Mark Mazur to be an Assistant Secretary of the Treasury, Matthew Rutherford to be an Assistant Secretary of the Treasury, and Meredith Broadbent to be a member of the United States International Trade Commission, to start at 10 a.m. EDT in Room 215, Dirksen Senate Office Building.

Two subcommittees of the U.S. House Ways and Means Committee joint hearing on tax fraud involving identity theft, to start at 10 a.m. EDT in Room 1100, Longworth House Office Building. Steven Miller, IRS Deputy Commissioner for Services and Enforcement, and Patrick O’Carroll, Social Security Administration Inspector General, will be witnesses, among others.

Tax Analysts, the National Association of Enrolled Agents, and Tax.com roundtable discussion on changes to the rules governing practice before the U.S. Internal Revenue Service. IRS Office of Professional Responsibility Director Karen Hawkins will speak.