Tax Break

Essential reading: H&R Block cuts back, Supreme Court restrains IRS, and more

U.S. Supreme Court building in Washington, D.C. REUTERS/Molly Riley

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

* H&R Block to close stores, cut jobs. Jochelle Mendonca – Reuters. H&R Block said the head of its U.S. retail tax services unit resigned, and the top U.S. tax preparer announced another round of store closures and job cuts, as it realigns its business to focus on the fast-growing digital tax market. Separately, the company said the number of tax filings it prepared through April 18, grew 4.5 percent to 22.2 million. Link

* Supreme Court restrains IRS in tax shelter case. Patrick Temple-West – Reuters. The Supreme Court ruled on Wednesday that the Internal Revenue Service took too much time to try to collect back taxes from a business in a tax shelter case, a decision with wider impact for dozens of related cases. The high court said the agency could not use an extended, six-year statute of limitations period. The IRS had said the extended period, an exception from the normal three-year limit, was justified in the case. But the court disagreed with the tax-collecting agency in a 5-4 decision in United States v. Home Concrete & Supply LLC. Link

* French front-runner says he’d seek to renegotiate fiscal treaty if elected. Steven Erlanger and Nicholas Kulish – The New York Times. The front-runner for the French presidency, the Socialist candidate François Hollande, said on Wednesday that if elected he would ask other European leaders to renegotiate a fiscal treaty in order to promote growth. He said he would also call for a financial transaction tax, as his rival, President Nicolas Sarkozy has done. Link

* Bernanke warns lawmakers on ‘fiscal cliff’ Kristina Peterson – The Wall Street Journal. Federal Reserve Chairman Ben Bernanke delivered his strongest warning yet to lawmakers, who appear likely to put off until after the November elections any decisions on what to do about the year-end expiration of the Bush-era tax cuts and a payroll-tax break as well as $1.2 trillion in automatic spending cuts that are scheduled to kick in at the start of 2013. If lawmakers allow the tax cuts to expire and the spending cuts to take effect, “there is absolutely no chance that the Federal Reserve would be able to have the ability whatsoever to offset that effect on the economy,” Bernanke said at a news conference Wednesday. Link

* Real wages tumble in developed countries as taxes rise. Paul Hannon – The Wall Street Journal. Governments in developed economies raised income taxes last year in an effort to cut their budget deficits, reversing a decade-long decline in the share of labor costs accounted for by the state, the Organization for Economic Cooperation and Development said Wednesday. In its annual Taxing Wages report, the OECD said the tax wedge rose in 26 of its 34 members during 2011, and fell in seven. The tax wedge is the proportion of labor costs accounted for by the state in the form of income taxes and social security contributions from both employers and workers. Link

Tax returns as campaign fodder

Tax returns are playing a role in Senate campaigns this year as candidates reveal intimate, sometimes awkward financial details.

In Massachusetts, Democratic U.S. Senate challenger Elizabeth Warren put herself in an awkward position when she revealed last week that she did not pay the higher of  two state income tax rates. Massachusetts allows residents to voluntarily pay 5.85 percent or the state’s standard 5.3 percent rate.

Warren has been a supporter of the Buffett Rule, which calls for a minimum tax for high-income earners, named for billionaire investor Warren Buffett who backs the rule being promoted by President Barack Obama.

Essential reading: Amazon will collect Nevada sales tax, debating tax cuts, more

A rainbow appears over hotels on the Las Vegas Strip in Las Vegas, Nevada, REUTERS/Ethan Miller

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

* Amazon agrees to begin collecting sales taxes in Nevada.  The Wall Street Journal. Inc. has agreed to collect a sales tax on items sold in Nevada beginning in 2014, or earlier should proposed federal legislation mandate that online retailers collect sales taxes. The online retailing giant said it will collect taxes in the same manner as traditional brick-and-mortar retailers, an agreement that is expected to raise at least $16 million a year for the state, according to the Las Vegas Sun, which initially reported the news. Link

* German cabinet approves Swiss tax deal. Madeline Chambers – Reuters. German Chancellor Angela Merkel’s cabinet passed a revised deal to tax secret deposits in Swiss bank accounts on Wednesday, betting that the opposition Social Democrats (SPD) will drop their objections and back the accord in parliament. Switzerland and Germany hammered out the new deal earlier this month after a diplomatic spat that lasted years. Link

Essential reading: Looking for tax money to fund a student loan break, WIN America shuts down, more

A student studies on the campus of San Francisco State University in San Francisco, California REUTERS/Robert Galbraith

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

* ‘Loophole’ closing eyed to fund student loan policy. Carol Lee and John McKinnon – The Wall Street Journal. The White House and Senate Democrats are looking at ending a tax provision benefiting some small business owners to pay for a year-long extension of a freeze in student loan interest rates, which are scheduled to double from 3.4 percent to 6.8 percent this summer, people familiar with the discussions said. The measure would change a feature of tax law that critics say has allowed many owners of small businesses—particularly those known as Subchapter S corporations—to escape employment taxes on much of their earnings. Link

* SEC charges SinoTech, execs with lying to investors. Sarah Lynch – Reuters. U.S. securities regulators charged China-based SinoTech Energy Ltd and its senior executives with misleading investors on Monday, part of an effort to crack down on accounting problems at Chinese companies listed in the United States. The Securities and Exchange Commission’s civil suit, filed in a U.S. district court in Louisiana, alleges that the oil field services company and its executives “continuously and intentionally misled investors” about the value of its assets and how it used the $120 million in proceeds from its November 2010 initial public offering. Link

Essential reading: Seeking common ground in Washington, shorting India on tax fears, more

A tea vendor holds an umbrella at a roadside in Mumbai. REUTERS/Sima Dubey

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

* In presidential race’s give-and-take, hope for a fiscal compromise. John Harwood – The New York Times. Some elected officials and policy experts see improving odds for 2012 to end up yielding much more, including progress toward a deal on tax and budget issues that have confounded Washington’s divided government. Some say the campaign dialogue could even bring a deal closer. Senator Charles Grassley of Iowa, a member of the Finance Committee, recently urged fellow Republicans to accept Democrats’ demand for some tax increases, as long as Democrats accepted the longstanding argument by conservatives that revenue calculations account for at least some positive effect on economic growth from changes in the tax code. Link 

* Macquarie hedge fund exits short bets in India on tax fears. Nishant Kumar – Reuters. Macquarie’s Asia hedge fund has exited its short positions in Indian single stock futures in response to a controversial set of proposed tax rules that could lower investment returns. Foreign investors have raised concerns on two recent Indian provisions to tax indirect investments and combat tax evasion. Link

* Filmmaker wins case against IRS. Michael Cieply – The New York Times. Documentary filmmakers can breathe a sigh of relief, knowing that the producer and director Lee Storey won her case last week against the commissioner of Internal Revenue in United States Tax Court. The IRS tried to disallow Storey’s deduction of expenses incurred while making and marketing the film “Smile ’Til It Hurts: The Up With People Story.” Link 

Closing the $450 billion tax gap

Fundamental tax reform, more funding for the IRS, and increased third-party disclosure were among the many solutions to the $450 billion tax gap offered at a Congressional hearing Thursday.

Closing the gap between taxes owed and taxes paid will require a multi-faceted approach, testified James R. White, the director of strategic issues at the Government Accountability Office (GAO) before the IRS oversight subcommittee of the House of Representatives. (His testimony and report is available here.)

Growth in the tax gap, which added $105 billion between 2001 and 2006 (their most recent figures), has made it more urgent, though closing the entire gap may not be possible given public resistance to excessive government intrusion and limits on IRS resources, White noted.

Fate of ex-UBS client cases uncertain, lawyers say

Tax lawyers are divided over the legal consequences of the bruising defeat in court of a billionaire former client of UBS AG who sued the Swiss bank for allegedly giving him incorrect tax advice.

On April 10, Judge Andrew Guilford of U.S. District Court in Santa Ana, Calif., dismissed a case brought by Igor Olenicoff, a Russia-born property developer. Olenicoff had accused the bank of improperly telling him he didn’t have to disclose certain Swiss-held assets on his U.S. tax returns.

In ruling for UBS, the judge said that because Olenicoff had been convicted in 2007 of tax evasion and of lying on his tax returns about having offshore accounts, he did not have a solid claim of fraud and breach of fiduciary duty against UBS. Judge Guilford wrote that because Olenicoff had admitted to tax evasion, he had placed “nearly every room of his legal house of cards into jeopardy.”


Some important tax and accounting dates in the week ahead:

Tuesday, April 24 - Comment letters due to the Financial Accounting Standards Board on its proposed update on accounting for intangibles

Wednesday, April 25

    International Financial Reporting Standards (IFRS) Taxonomy Annual Convention in London. The Senate Finance Committee has scheduled a hearing, “Tax Reform: What It Means for State and Local Tax and Fiscal Policy,” to start at 10 am in the Dirksen Senate Office Building. House Ways and Means Oversight Subcommittee will hold a hearing on the impact of limitations on the use of tax-favored accounts to buy over-the-counter medication at 2:30 pm, the Longworth House Office Building. Karin Gross of the IRS will speak on conservation easements at a luncheon sponsored by the D.C. Bar Taxation Section Exempt Organizations Committee.

Thursday, April 26

    The Senate Finance Committee will hold its second tax hearing of the week, this one entitled, “Tax Filing Season: Improving the Taxpayer Experience,” starting at 10 am in the Dirksen Senate Office Building. At the same time, the House Ways and Means Subcommittee on Select Revenue Measures will hold a hearing on the merits of extending or not extending tax breaks that expired in 2011 or will expire in 2012 in the Longworth House Office Building.

Friday, April 27 - At 10 am an IRS hearing will be held in the IRS Auditorium on proposed guidance to nonresident aliens and foreign corporations regarding financial products derived from dividend payments from sources within the United States.

Essential reading: U.S. House passes small business tax cut, New York sues Sprint, more

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

* House passes Republican business tax cut. Kim Dixon – Reuters. The Republican-controlled House of Representatives on Thursday passed a tax break for small businesses, giving voters a stark alternative to President Barack Obama’s politically popular “Buffett Rule” surtax on the wealthy. In an escalating election-year war of words over taxes, the Republican measure, like the Buffett Rule, is not expected to become law. It is opposed by Democrats, who control the Senate, where the bill was expected to die. Link

* Olympus eyes fresh start, ex-CEO mulls legal threat. Tim Kelly and Yoko Kubota – Reuters. Shareholders of Olympus Corp approved a new board on Friday, hoping for a fresh start at the camera and medical device maker that hid $1.7 billion of investment losses in Japan’s biggest corporate scandal in decades. While Olympus will hope the vote draws a line under a scandal that has wiped more than $4 billion off its market value, its former CEO and foreign investors, who own 25-30 percent of the company, have sought a change in a deep-rooted culture of cross-shareholdings and cozy ties between banks and boardrooms. Link

* State tax collections pass peak from recession’s start. Michael Cooper – The New York Times. State tax collections, which during the recession  experienced their steepest and longest drop since at least the Great Depression, have been climbing back for the last two years and finally surpassed their previous peaks as 2011 drew to a close, according to a report issued on Thursday. But huge challenges remain, as their populations and the cost of providing services have continued to rise, and the growth in tax collections has begun to soften. Link

Congressional report: small business tax break impact “so small as to be incalculable”

In what our colleague Kim Dixon termed “an escalating election-year war of words over taxes” the Republican-controlled House of Representatives has passed a 20 percent tax break for small businesses, that will likely face the same fate as the Buffet tax Democratic senators voted for earlier in the week: death in the other party’s chamber.

Democrats opposed to the tax blasted it as favoring small businesses that are also tremendously profitable. Steven Dennis wrote in Roll Call that it looked like businesses like the New York Giants football team, which employs 210 people but is worth $1.3 billion, according to Forbes, could qualify for the tax break.

But former presidential advisor Bruce Bartlett, who worked in the first Bush administration and for Ronald Regan, argues with the deeper premise – the axiom that small businesses are the drivers of job creation.
He lays out the argument in a New York Times Economix post from earlier this week: