Tax Break

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

* Overseer: IRS could face ‘serious problems.’ Siobhan Hughes – The Wall Street Journal. The Internal Revenue Service is under strain as it faces a flood of new demands at a time of budget cutbacks, its government overseer said in a report on Tuesday, posing a risk that the tax collector will experience “serious problems in the future.” Link

* Bill Clinton: Extend all Bush-era tax cuts for a year. Reuters. Former President Bill Clinton on Tuesday jumped into the debate over how to handle the looming expiration of historically low tax rates, putting him somewhat at odds with fellow Democrat President Barack Obama. Clinton, on cable television’s CNBC, said Congress may have to temporarily extend all the low tax rates that expire at year-end to give lawmakers more time to come up with a plan to cut deficits. Link

* Unchanged tax, health policies to explode U.S. debt-CBO. David Lawder – Reuters. U.S. public debt would balloon to twice the size of the nation’s economy in 25 years if current tax and spending policies are extended, Congress’ budget referee said on Tuesday, delivering fresh fodder for a year-end budget brawl. The Congressional Budget Office said in a report that if tax cuts enacted under George W. Bush are allowed to expire as scheduled on Dec. 31, along with some other tax and spending policies, U.S. public debt would shrink significantly, falling to 53 percent of gross domestic product by 2037 from 73 percent this year. Link

* Greece warns of going broke as tax proceeds dry up. Liz Alderman – The New York Times. As European leaders grapple with how to preserve their monetary union, Greece is rapidly running out of money. Greek leaders said that despite their latest bailout of 130 billion euros, or $161.7 billion, they face a shortfall of 1.7 billion euros because tax revenue and other sources of potential income are drying up. Link

* Tribunal faces rise in number of tax disputes. Vanessa Houlder – The Financial Times. More than 20,000 tax disputes are queuing to be heard by the recently established tribunal system as the government struggles to crack down on avoidance. The backlog of unheard cases rose by a third over a year to stand at 22,100 in the fourth quarter of 2011, according to the UK Ministry of Justice figures. The number actually heard by the tribunal also rose sharply, from 9,100 in 2010 to 11,000 in 2011. Link

Americans for Tax Reform President Grover Norquist. REUTERS/Jonathan Ernst

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

* No comment necessary: Grover Norquist plays the Nazi card. Andrew Rosenthal – The New York Times opinion. Senators Chuck Schumer and Bob Casey introduced legislation last week that would penalize Americans who renounce their citizenship to evade taxes. Grover Norquist, the president of Americans for Tax Reform, had this to say: “I think Schumer can probably find the legislation to do this. It existed in Germany in the 1930s and Rhodesia in the ’70s and in South Africa as well. He probably just plagiarized it and translated it from the original German.” Link

* Ireland-bound Eaton is latest to end U.S. corporate citizenship. Nanette Byrnes – Reuters. Eaton Corp’s purchase of electrical equipment maker Cooper Industries means another U.S. company will soon leave the United States in favor of relocating its headquarters to a foreign country with sharply lower taxes. In the case of diversified industrial manufacturer Eaton, a complicated corporate structure will allow it to become part of an Irish corporation and enjoy that country’s low 12.5 percent corporate tax rate. Link

* Yahoo to sell Alibaba stake, take hit on taxes. Maxwell Murphy – The Wall Street Journal. Yahoo tried for years to find a tax-efficient way to unlock the value in its partial Alibaba ownership, but ultimately decided to eat the full 38 percent in federal, state and local taxes in order to finalize a deal, CFO Tim Morse said on Monday. Though a tax-free deal eluded Yahoo and Alibaba, the taxable alternative is nonetheless complex, and is designed to incentivize Alibaba’s initial public offering. Link

* Brazil makes new tax cuts to revive economy. Luciana Otoni and Tiago Pariz – Reuters. Brazil’s government on Monday unveiled a new round of temporary tax cuts worth about $1 billion to boost the struggling automotive sector and other industries in its latest attempt to restore a lost economic boom. Investor jitters about the economy at home and abroad helped send Brazil’s currency to its weakest closing level in three years on Monday. But Finance Minister Guido Mantega said the measures should help revive an economy that has been stagnant since mid-2011, while also providing protection from the debt crisis in the euro zone. Link

* Japan tax hikes can’t wait; BOJ stimulus still needed-OECD. Reuters. Japan should stick to its plan of raising the consumption tax from 2014 or even earlier to demonstrate budget prudence and avert a run-up in borrowing costs, the OECD said, adding that a credible fiscal consolidation plan must be top priority. The Organization for Economic Co-operation and Development also urged the central bank to maintain the zero rate policy and quantitative easing mainly via asset purchases until inflation returns and reaches the Bank of Japan’s target of 1 percent. Link

* IRS widens debt forgiveness program. Patrick Temple-West – Reuters. More middle-class Americans will be able to work out their debts to the U.S. Internal Revenue Service because of changes in a tax payment forgiveness program, the agency announced on Monday. The “Offer in Compromise” program lets taxpayers negotiate agreements with the IRS to pay less than the full tax owed. The announced changes make the program more flexible for taxpayers, with some people able to pay off their debts faster, according to the IRS. Link

* Would Romney be another Bill Clinton or another George W. Bush? Bruce Bartlett – The New York Times opinion. The Bill Clinton and George Bush 43 administrations are almost perfect tests of starve-the-beast, tax and spending theory; Clinton raised taxes in 1993, while Bush signed into law seven different major tax cuts, according to a Treasury Department study. If there were any truth whatsoever to starving the beast, we should have seen a rise in spending during the Clinton years and a fall in spending during the Bush years. In fact, we had exactly the opposite results. 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

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

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.

Some important upcoming events in the tax and accounting world:

Sunday, April 1 – Tuesday, April 3 – Council of Institutional Investors annual meeting in Washington, D.C.. Speakers include Hewlett-Packard CEO Meg Whitman, SEC Commissioner Troy Paredes, New York Attorney General Eric Schneiderman, and Chinese accounting critic Carson Block, among others.

Tuesday, April 3 -

The IRS will hold a hearing on the allocation of interest expense by companies with a significant investment in a partnership, or which use the fair market value method. Starts at 10 a.m. in the IRS Auditorium in Washington. The Urban Institute is sponsoring a Washington event, also being webcast, entitled “Are There Too Many Nonprofits?”

Thursday, April 5 –

A luncheon at the National Press Club in Washington will feature IRS Commissioner Douglas Shulman speaking on the future of the U.S. tax system and the IRS. The University of San Diego School of Law will sponsor a one-hour tax lecture by lawyer Leslie B. Samuels, a former Treasury Department and OECD official, on “Tax Reform in Today’s Fiscal Environment: Principles to Guide the Debate.”

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

A stack reclaimer with a pile of iron ore at the Rio Tinto Parker Point ship loading terminal in western Australia

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

* Republican budget draws election contrast with Obama. David Lawder – Reuters. Paul Ryan’s proposed budget plan would shrink deficits to $3.13 trillion over 10 years – less than half the size of the deficit projected under President Barack Obama’s plan. It would dismantle Obama’s 2010 healthcare reform law and make deep cuts to federal employee pensions and to social programs such as food stamps and the Medicaid healthcare program for the poor. The Ryan plan proposes to grind down public debt as a share of economic output to 63.5 percent by 2021, compared with 76.3 percent under Obama’s plan. It was 67.7 percent at the end of 2011. Link

* UK budget to juggle politics of austerity. Matt Falloon – Reuters. British finance minister George Osborne looks set to divert attention from the country’s limp economy with politically driven tax measures in Wednesday’s budget, aiming to appease both parties in the ruling coalition and keep financial markets onside. He may remove a 50 percent income tax band for the highest earners. The Conservatives say that high a levy is a barrier to aspiration, while the Labour opposition say it is a fair way to spread the pain. To please the Liberal Democrats, the junior coalition partner, Osborne is expected to raise the income tax threshold by more than previously announced to 9,000 pounds ($14,300), which may please some low and middle earners. Link

Paying taxes is about as stressful as the airport body scanner. Now the Senate wants to combine the two.

"The $50,000 check to the IRS in a separate bin, please" (Reuters)

The Senate last week passed a $109 billion highway trust fund reauthorization bill. To help pay for roads and bridges, the Senate is hoping to ferret out big tax dodgers with the threat of nabbing your passport for tax liabilities.

The Senate bill would revoke or deny a passport to anyone who owes $50,000 or more in federal taxes. The government could revoke a passport upon reentry into the United States for such people.

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.