Tax Break

U.S. tax prosecutor Downing resigns, joins Miller & Chevalier

The logo of Swiss bank UBS at the company's Zurich office. Kevin Downing, the former U.S. Department of Justice Tax Division Attorney, had investigated UBS. REUTERS/Arnd Wiegmann

The U.S. prosecutor most responsible for piercing the veil of Swiss bank secrecy has joined the law firm of Miller & Chevalier, where he will focus on defending banks and other institutions involved in tax-related matters and controversies.

Kevin Downing, who resigned last week from the U.S. Department of Justice, said he expects to advise companies rather than individuals. Miller & Chevalier, based in Washington, D.C., has an extensive concentration in tax and international litigation.

Downing, 46, had led the Justice Department’s criminal probe of the Swiss banking industry. He oversaw the deferred-prosecution agreement sealed in 2005 with UBS AG, Switzerland’s largest bank, over charges that it sold tax-evasion services through its private bank to wealthy Americans.

Downing was not a political appointee to the department but is still banned from contact with former agency colleagues for one year. In an interview on Sunday, he said he expected part of his work to involve advising financial institutions on complying with the Foreign Account Tax Compliance Act, or FATCA.

Essential reading: HP loses Dutch tax shelter case, popular deductions on the block, and more

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

Essential reading: Facebook elite set up to skirt estate tax, California tax hike talk, and more

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 

Essential reading: Ernst & Young no longer lobbying for companies it had audited, and more

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

* Ernst, audit clients cut lobbying ties-records. David Ingram and Dena Aubin – Reuters. Ernst & Young’s lobbying unit is no longer listed as a lobbyist for three major U.S. companies, all of whom were 2011 audit clients of the accounting giant. The deregistration follows questions raised by two U.S. senators in March about whether the dual relationships crossed auditor independence boundaries. Documents filed last month with Congress showed that Washington Council Ernst & Young, the E&Y unit, was no longer registered as doing lobbying work for Amgen Inc, CVS Caremark Corp and Verizon Communications Inc. Link

* House Democrats plan to pounce again on GOP budget. Ed O’Keefe – The Washington Post. House Democrats plan to attack the spending plan next week as the GOP-controlled House votes on a budget reconciliation package that includes cuts to replace automatic, across-the-board reductions set to begin in January as part of the Budget Control Act. The BCA raised the debt ceiling, cut $1 trillion in federal spending and authorized another $1.2 trillion in cuts over the next decade, with roughly half of the money coming from defense spending. Link

Essential reading: How Apple keeps its tax bill low, KPMG inquiry in UK, and more

   

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

* How Apple sidesteps billions in taxes. Charles Duhigg and David Kocieniewski – The New York Times. As it stands, Apple Inc paid cash taxes of $3.3 billion around the world on its reported profits of $34.2 billion last year, a tax rate of 9.8 percent. Apple was a pioneer of an accounting technique known as the “Double Irish With a Dutch Sandwich,” which reduces taxes by routing profits through Irish subsidiaries and the Netherlands and then to the Caribbean. Today, that tactic is used by hundreds of other corporations — some of which directly imitated Apple’s methods, say accountants at those companies. Without such tactics, Apple’s federal tax bill in the United States most likely would have been $2.4 billion higher last year. Link  

* KPMG faces inquiry over rescue of HBOS. Helia Ebrahimi – The Sunday Telegraph. Accountancy giant KPMG could face a formal investigation by the UK’s accountancy watchdog for its conduct leading up to the rescue of HBOS by Lloyds TSB. HBOS whistleblower and former head of risk, Paul Moore, has referred KPMG to the regulator in a formal complaint. Moore also has written to Treasury select committee chairman Andrew Tyrie, seeking his support. Moore’s complaint comes a week after it emerged that the former head of HBOS’s corporate bank, Peter Cummings, is to fight a seven-figure fine handed out by the Financial Services Authority for his part in the collapse of the bank. Link  

* Amazon seals sales tax deal with Texas. Barney Jopson – The Financial Times. Amazon has struck an unexpected deal with Texas to start collecting sales tax from consumers at the start of July, in a further sign of its readiness to accept a levy that it had long opposed at state level. Under the deal Amazon will invest at least $200 million to build distribution centers in Texas and create at least 2,500 jobs over the next four years while beginning to collect sales tax on July 1. Link  

Essential reading: UK tax evaders face higher penalty, challenges of fixing U.S. taxes, more

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

* Tax evaders face higher penalty. Vanessa Houlder – The Financial Times. British tax evaders with secret accounts in Switzerland will pay more than originally planned to legitimize their holdings under a revised deal signed on Wednesday. Revenue & Customs demanded that Switzerland increase the maximum one-off penalty to cover former unpaid tax from 34 per cent to 41 per cent, after a similar revision to the Swiss-German tax deal earlier this month. The program is expected to bring in billions of pounds. Link

* US pressure over India tax law. James Politi and James Crabtree – The Financial Times. US business groups are putting pressure on Tim Geithner, the treasury secretary, to intervene to try to stop India from enacting a contentious retroactive taxation law that they argue would have “severe consequences” for American investors in the country. They have asked him to “raise concerns” about the tax bill in talks with Indian officials during the spring meetings of the World Bank and International Monetary Fund this week. Link

* What Hong Kong knows about China. Joseph Sternberg – The Wall Street Journal. In a bit of virtuous contagion, a coughing fit of accounting honesty concerning Chinese companies appears to be spreading from the U.S. to Hong Kong. The earnings season just concluded has seen a mini-spate of delayed accounts. Trading in 13 companies’ shares is currently suspended pending incomplete audits. Link

Essential Reading: Deductions Romney would target, Buffett Rule politics, more

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

* Romney specifies deductions he would cut. Sara Murray – The Wall Street Journal. In order to offset the 20 percent income tax cut he has proposed for all taxpayers, Romney would eliminate or limit for high-earners the mortgage interest deduction for second homes, and likely would do the same for the state income tax deduction and state property tax deduction. He also said he would look to the Department of Education and the Department of Housing and Urban Development for budget cuts. Link

* Q+A: The ‘Buffett Rule,’ a minimum tax on the rich. Kim Dixon and Patrick Temple-West – Reuters. President Barack Obama and congressional Democrats are laying a political trap for Republicans to be sprung on Monday when the U. S. Senate is slated to vote on the proposed “Buffett Rule,” which would slap a minimum tax on the highest-income Americans. Link

* For Americans abroad, taxes just got more complicated. David Jolly – The New York Times. Americans overseas face a new form that will add to the hassle of tax time for many and, critics say, set up the unwary for penalties. The new requirement comes courtesy of the Foreign Account Tax Compliance Act, or FATCA, an effort to crack down on offshore tax evasion by U.S. citizens. Link

Essential reading: Global focus on taxing the rich, tax day crashes, and more

U.S. President Barack Obama arrives to speak about tax fairness and the economy at Florida Atlantic University, April 10, 2012. REUTERS/Kevin Lamarque

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

* Soaking the rich might not be a panacea. Vanessa Houlder – The Financial Times. The super rich are under fire across much of the developed world. U.S. President Barack Obama is on the road this week promoting the “Buffett rule”, a minimum tax on millionaires. In France, François Hollande is proposing a 75 per cent tax rate on the rich. In Britain, George Osborne, chancellor, has expressed shock at evidence showing the scale of tax planning by some of the wealthiest people in the country. Link

*Obama to enlist millionaires in Buffett Rule campaign. Margaret Talev – Bloomberg News. President Barack Obama is intensifying his campaign for higher taxes on top U.S. earners, casting the issue against Republican opposition as one of fairness and support for the middle class. Link

Essential reading:Empire State IPO tax, bankers find opportunity in tax haven crackdown

     

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

 

 * Empire state owners go ape over IPO tax issue. Craig Karmin – The Wall Street Journal. The fight over the proposed Empire State Building public offering has moved to a new battleground: a spat between small investors and the Malkin family over taxes arising from the iconic skyscraper’s coming listing. The tax bill from the initial public offering could more than wipe out any cash many of the 2,800 investors would initially receive from the sale, according to filings with the U.S. Securities and Exchange Commission. The Malkins would be allowed to defer some of their tax and could be reimbursed about $83 million for other tax liabilities, the filings say. Link  

* Labour challenges Osborne over his tax. Jim Pickard – The Financial Times. U.K. Chancellor George Osborne has been challenged by the Labour party to clarify whether he will benefit personally from next year’s cut in the top rate of income tax despite having said last month he was “not personally affected” by the move. When the chancellor announced the cut from 50 percent to 45 percent for those earning 150,000 pounds ($237,500)– to start next April – he prompted questions about whether it would benefit any senior ministers. Link  

* Tax haven crackdown creates opportunities for bankers. Mark Scott – The New York Times. As regulators clamp down on money flows around the globe, governments, even those that prided themselves on the strength of their secrecy laws, like Switzerland, are facing pressure to share banking information and change their policies. Now, private banks and wealth managers are scrambling to convert so-called black money — assets that have not been disclosed — into accounts that are above board. The shift may provide opportunities for the industry. As more funds become legitimate, analysts say financial institutions will be able to sell extra wealth management products to affluent people and enter markets that had previously been off limits. Link  

Tax and accounting calendar

Some important upcoming events in the tax and accounting world:

Tuesday, April 10 -
* House Budget Committee Chair Paul Ryan will give the keynote address at the George W. Bush Institute forum on tax policies that encourage economic growth in New York. Canadian finance minister James Flaherty will also speak.
* Manal Corwin, Treasury deputy assistant secretary for international tax affairs is the keynote speaker at a one-day tax lecture on the taxation of intangibles in a global economy sponsored by the NYU School of Law and KPMG.

Wednesday, April 11 - The DC Bar is hosting a luncheon program from noon to 2 pm on the legal aspects of representing whistleblowers who are federal employees. Speakers include Daniel Meyer, Director, Whistleblowing and Transparency Office of the Inspector General, at the U.S. Department of Defense.

Thursday, April 12 - The Tax Policy Center, a joint venture of the Urban Institute and Brookings Institution, is sponsoring a program entitled, “Should the Rich Pay Higher Taxes?” from noon to 1:30pm at the Urban Institute with a live webcast as well.