Tax Break

Essential tax and accounting reading:oil tax breaks challenged, Dow pushes R&D credit, Buffett’s company in tax dispute, and more

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

* Bill ending oil company tax cuts clears Senate hurdle. Ayesha Rascoe and Richard Cowan – Reuters. Legislation repealing tax breaks for major oil companies passed its first hurdle in the Senate on Monday, but is unlikely to become law, as Republicans and Democrats seek to score political points over rising gasoline prices. The Senate voted 92 to 4 to proceed with consideration on the bill that would eliminate billions of dollars in tax breaks for the “big five” oil companies: Exxon Mobil Corp, BP Plc, ConocoPhillips, Chevron Corp and Royal Dutch Shell Plc. The lopsided vote in favor of moving ahead with consideration of the oil tax cuts bill reflected political maneuvering in the chamber, not actual support for the measure. Link

* Dow court cases pushes limit of R&D tax credit. Patrick Temple-West and Ernest Scheyder – Reuters. Dow Chemical Co is challenging the U.S. Internal Revenue Service in a rare court case over expanding the research and development tax credit to cover the costs of supplies used to improve the ways existing products are made. Oral arguments are set for Thursday at the 2nd U.S. Circuit Court of Appeals in New York in a case that pits Union Carbide, a wholly owned subsidiary of Dow, against the IRS. A win for Dow would widen the scope of the R&D credit – a mainstay of the corporate tax code that costs U.S. taxpayers roughly $7 billion a year – at a time when corporate tax breaks, in general, are under scrutiny in Washington. Link

* New CEO at accounting firm BDO USA aims for growth. Nanette Byrnes – Reuters. The 270 partners of accounting firm BDO USA selected Wayne Berson, 50, as their leader for the next four years, it was announced on Monday. BDO USA, with $572 million in U.S. fee income last year, is the seventh-largest accounting firm in the country, according to International Accounting Bulletin. Link

* Private jets, Buffett and taxes. Andrew Ross Sorkin – The New York Times opinion. Get this: Uncle Sam is suing Warren Buffett’s company over taxes. Yes, taxes. The U.S. government, in a little-followed case in Ohio, filed a lawsuit this month against a unit of Buffett’s Berkshire Hathaway, seeking $366 million in taxes and penalties. The Berkshire division at the center of the suit is NetJets, the private-aircraft company that caters to the nation’s wealthiest — the people Buffett says should pay more in taxes. It is an odd twist that a company controlled by Mr. Buffett — perhaps the most outspoken businessman in the country in support of raising taxes on the “mega-rich” — is now in a dispute with the government over his company’s paying too little in taxes. Link

* Paul Ryan and his critics. The Wall Street Journal editorial. The Paul Ryan budget outline by design does not provide many tax specifics, aside from an instruction to the Ways and Means Committee to propose a reform plan that would swap lower rates for fewer loopholes and special exclusions. This overhaul is not even a net tax cut — the instructions are to design a reform that is revenue neutral. It would hold tax receipts to their post-World War II average of between 18 percent to 19 percent as a share of the economy. The liberal claim that this means a tax cut for the wealthy is based entirely on the fact that marginal tax rates would decline, even though the loopholes primarily benefit higher-income taxpayers. Link

Essential tax and accounting reading: Another Deloitte China resignation, Volcker backs rotation, Scholastic gets sales tax bill, and more

Former US Federal Reserve Bank Chairman Paul Volker

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

* Deloitte quits second Chinese firm as auditor fears grow. Donny Kwok – Reuters. Deloitte said on Thursday it had quit as auditor for Chinese milk formula products maker Daqing Dairy Holdings Ltd hours after its shares were suspended, the accounting firm’s second resignation from a Hong Kong-listed Chinese company in days. The news has sparked fears this could be the start of a much wider and deep-rooted problem at Chinese companies listed in Hong Kong, after a series of scandals at U.S.-listed mainland companies last year that has unnerved some of the big auditors. The Daqing resignation came a week after Deloitte quit as auditor of Boshiwa International Holdings, which holds the license to make Harry Potter- and Bob the Builder-branded clothes, attracting unwanted attention to one of the Big Four accounting firms. Link

* Volcker backs contentious auditor rotation idea. Dena Aubin and Sarah Lynch – Reuters. Former Federal Reserve Chairman Paul Volcker backed a controversial proposal to impose term-limits for audit firms on Wednesday, saying it would serve as “a powerful incentive to maintain professional discipline.” The proposal would effectively break up business relationships that have existed for years, and it has provoked strong opposition from the accounting industry. Volcker said he understands that the idea of requiring rotation of audit firms every so often makes the firms “uneasy.” But he said his personal experiences, including his deep involvement in probing accounting failures at Arthur Andersen, convince him that this is the right path forward. Link

* Rich would skirt ‘Buffett Rule,’ report shows. John McKinnon – The Wall Street Journal. Millionaires likely would find legal ways to avoid paying higher taxes under President Barack Obama’s proposed “Buffett Rule,” a new congressional estimate finds. Taxpayers’ likely efforts to sidestep the rule’s effects mean it would raise about $47 billion in extra revenue over the next decade, according to a new estimate by the nonpartisan Joint Committee on Taxation. That’s less than some outside experts had expected and a relatively small amount compared with the size of federal budget deficits, which are running at more than $1 trillion a year. Link

PCAOB panel to debate contentious auditor rotation idea

Tomorrow is day one of the Public Company Accounting Oversight Board’s high-profile gathering of accounting and financial luminaries debating the topic of auditor rotation.

Among the marquee names who will join the discussion: heads of each of the Big Four audit firms, three former SEC chiefs, former Fed Chairman Paul Volcker, and founder of The Vanguard Group John Bogle. On Thursday, a second day will feature top finance executives and audit board chairs from many of the largest U.S. public companies.

Fireworks are likely.

Following an August announcement that the auditor overseer would delve into whether or not to require companies periodically switch their audit firm, the PCAOB has been barraged with over six hundred comment letters on the idea and has extended the time for public comment until April 22.

Tax and accounting calendar

Some important events in the week ahead:    Monday, March 19 – Wednesday, March 21  The Institute of Internal Auditors will hold its general audit management conference. in Orlando, Florida.    Monday, March 19 – Friday, March 23 International Accounting Standards Board meeting in London.

Tuesday, March 20  

·         The Senate Finance Committee hearing, “Tax Fraud by Identity Theft, Part 2: Status, Progress, and Potential Solutions” will start at  10 a.m. in Room 215 of the Dirksen Senate Office Building. Testifying will be Steven T. Miller, IRS deputy commissioner for services and enforcement, Ronald A. Cimino, Justice Department deputy assistant attorney general for criminal matters, and National Taxpayer Advocate Nina Olson.

 ·         The House Financial Services Committee has scheduled a hearing on the state of the international financial system that will also begin at  10 a.m. but in Room 2128 of the Rayburn House Office Building. Treasury Secretary Timothy F. Geithner will testify.

Essential reading: Diamond Foods accounting, Swiss turmoil, GOP budget, uncertainty on Indian taxes, UK bonuses, and more

Representative Paul Ryan (R-WI) will submit a GOP budget proposal Tuesday. REUTERS/Joshua Roberts

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

* Seeds of trouble sown at Diamond Foods years ago. Nanette Byrnes, PJ Huffstutter and Mihir Dalal – Reuters. The accounting scandal at snack maker Diamond Foods in recent months may have shocked shareholders and some California walnut farmers. But a number of accounting and industry experts spotted red flags some time before. A close examination of business practices at Diamond Foods points up a number of warning signs, including unusual timing of payments to growers, a leap in profit margins, and volatile inventories and cash flows. The picture that emerges is of a company that for years seemed to push hard on every lever to meet increasingly ambitious earning targets and allowed top executives to pull in big bonuses, according to interviews with former Diamond employees and board members, rivals, suppliers and consultants, in addition to reviews of public and non-public Diamond records. Link

* Baer chairman steps aside, to deal with U.S. probe. Martin de Sa’Pinto and Emma Thomasson – Reuters. The chairman of Swiss private bank Julius Baer will head a special committee dealing with a U.S. tax probe after leaving his current role, underlining the pressure Swiss banks are feeling from claims they helped wealthy Americans dodge taxes. Raymond Baer, a 52-year-old member of the bank’s founding family who has been at the group almost 25 years and served as chairman for nine, will become honorary chairman of the bank as of its next shareholder meeting in April. As part of that new role, he has been elected to chair a special committee overseeing cooperation with U.S. authorities, the bank said on Monday. Link

Essential tax and accounting reading: a high-profile Deloitte resignation, Tea Party challenges Hatch, UK taxes, capital gains, and more

Senator Orrin Hatch (R-UT) REUTERS/Benjamin Myers

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

* Deloitte’s Boshiwa exit a precursor to more China auditor resignations. Rachel Armstrong – Reuters. Deloitte’s resignation as auditor of a Hong Kong-listed childrenswear company this week could be the first in a run of accountant departures from Chinese companies in the coming weeks as the audit season draws to an end. Last year’s spate of accounting scandals at U.S.-listed Chinese companies has made auditors more alert to the risk of financial irregularities and the consequences for them if they’re found to be negligent. It’s during the audit process, which usually finishes at the end of April, that problems come to the surface. Deloitte resigned from Boshiwa International Holdings, which holds the license to make Harry Potter- and Bob the Builder-branded clothes, saying it was not satisfied at the company’s response to questions about some of its transactions. Link  

* Geithner: Economy on the mend, still needs help. Glenn Somerville – Reuters. The economy shows encouraging signs of early expansion but still faces tough challenges that call for measures to create jobs to help restore fiscal sustainability, Treasury Secretary Timothy Geithner said on Thursday. In prepared remarks for delivery to the Economic Club of New York, Geithner said one way to sustain growth momentum was tax reform. The Obama administration is aiming for some tax increases for wealthy Americans, though that is opposed by Republicans. The corporate tax code is “a complex and unfair mess of subsidies…with a very high statutory rate,” he said. Link

Tax clips from the Web: Kanye’s charity blunders, D.C. lobbyists and identity fraud

A Federal Trade Commission report listed identity theft as the top complaint from consumers in 2011 – for the 12th year in a row. Of those 280,000 complaints, about 24% were tax or wage-related. This is something of a stark wake-up call to the perils of our electronic lives, which can be hacked without our knowledge, right up until we hit the send buttons on our electronic tax returns, says Jonnelle Marte for Smart Money’s tax blog: “For some victims, the fraud isn’t discovered until they hit the send button on their electronic tax returns — and get a rejection note from the IRS. Other times it takes a little longer to know something is wrong, such as not receiving a refund check.”

If you have been unlucky enough to be hacked, correcting the error could take the IRS from 6-12 months, according to Marte.

Home on the range

Here is a quote from the author of the Tax Foundation’s annual rating of the states with the best tax climates -“The lesson is simple,” wrote study author Mark Robyn, “A state that raises sufficient revenue without one of the major taxes, all things being equal, has an advantage over those states that levy every tax in the state tax collector’s arsenal.”

Tax and Accounting Calendar

Some important events in the week ahead:

Sunday, March 11 – Wednesday, March 14  
The National Association of State Boards of Accountancy will hold its conference in San Antonio, Texas.

Tuesday, March 13
Comment letters due to the Financial Accounting Standards Board on proposed standards on revenue recognition from contracts with customers.

Wednesday, March 14
The Practising Law Institute briefing on hedge fund tax issues that have attracted IRS attention will touch on ”effectively connected income” loan origination and dividend withholding, tax penalties, and managing an IRS hedge fund audit.

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

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

Essential tax and accounting reading: Targeting private equity taxes, IASB slows rate of change, struggling taxpayers get a break, California’s stock option addiction, and more

Hans Hoogervorst, head of the International Accounting Standards Board REUTERS/Gil Cohen Magen Welcome to the top tax and accounting headlines from Reuters and other sources.

* Tax treatment of private equity: questions over quirk. Daniel Shafer – The Financial Times. Governments in the U.S. and Germany are examining proposals to take away the preferential treatment that has helped to turn swaths of private equity managers worldwide into millionaires and a few dozens into billionaires. The prospect of lower profits as well as higher taxes not only risks denting private equity’s ability to attract talent. It also brings back to the fore accusations that buyout bosses have amassed riches by paying low taxes and taking dividends from indebted companies in their portfolio – a debate that started before the crisis but became sidelined as public anger turned towards banks. Such indictments do not come from trade unions or leftwing anti-globalization groups alone. Calpers, the California pension fund that is among the most influential investors in buyout funds, recently called the U.S. tax break on private equity managers’ profit rewards “indefensible.” Link

* IASB eyes selective reforms after frantic change. Huw Jones – Reuters. Tackling company “disclosure overload” will be among cherry-picked projects for accounting standards reform after industry calls to ease the pace of change, a top accounting rule-setter said on Wednesday. “Now we have most of the world on board, even a small change to a standard can be like dropping a pebble into still water,” International Accounting Standards Board Chairman (IASB) Hans Hoogervorst said in a speech in Mexico. Over 100 countries have introduced IASB rules for use in listed company reporting over the past decade, during which the board also worked with its U.S. peer to align each others’ standards. The aim was to persuade the world’s biggest economy to adopt IASB rules, too. But America has delayed its decision, recently prompting Singapore to put back full adoption of IASB rules. Meanwhile, the IASB is finalizing work for its next phase. Link