Tax Break

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.

The largest chunk of the tax gap, $179 billion in 2006, came from the misreporting of business income and self-employment taxes, most often by sole proprietors, according to the GAO.

How much is intentional was not clear, though the GAO did find better compliance in categories like wages and salaries which third-party sources independently provide to the IRS. Things like rent and royalties and farm income, which have no such system, were far more likely to be misreported.

Essential reading: Islamic finance may enter accounting mainstream, tax pitfalls for fund investors, and more

 

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

 * Geithner swings back at critics of tax and regulatory policy. Damian Palleta – The Wall Street Journal. Treasury Secretary Timothy Geithner sharpened his rebuke of his political and private sector critics on Wednesday, saying many “misread the underlying dynamics of the economy today.” Geithner, in remarks at the Economic Club of Chicago, called out “business lobbyists” and others and said “many have claimed that the basic foundations of American business are in crisis, critically undermined by taxes and regulation.” Link 

* Christie leaning on tax subsidies in hunt for jobs. Charles Bagli – The New York Times. Since taking office in 2010, Republican Gov. Chris Christie has approved a record $1.57 billion in state tax breaks for dozens of New Jersey’s largest companies after they pledged to add jobs. Christie has emphasized that these are prudent measures intended to help heal the state’s economy, which lost more than 260,000 jobs in the recession. The companies often received the tax breaks after they threatened to move to New York or elsewhere. Link  

Tax and accounting calendar

U.S. President Barack Obama greets U.S. Supreme Court Justices Anthony Kennedy (C) and Ruth Bader Ginsburg (R) prior to his State of the Union address, January 24, 2012. REUTERS/Saul Loeb/Pool

Some important upcoming events in the tax and accounting world: Saturday, March 25 – Wednesday, March 28 - Tax Executives International three-day conference in Washington, D.C.
Monday, March 26 – The first of three days of oral argument the  U.S. Supreme Court will hear on the Obama administration’s healthcare reform. Argument today is  focused on the Anti-Injunction Act, which dates to 1867, and whether taxpayers must actually begin paying the penalty for not purchasing insurance before objections to the mandate can be raised in court. Argument starts at 10 a.m.
Tuesday, March 27 –

    The Subcommittee on Energy, Natural Resources and Infrastructure will hold a hearing on renewable tax incentives and whether they have affected the renewable energy industry at 2:45 p.m. The House Appropriations Financial Services and General Government Subcommittee will hold a hearing on President Barack Obama’s proposed 2013 budget for the Treasury Department. Treasury Secretary Timothy F. Geithner will testify. Starts at 10 a.m. Day two of the U.S. Supreme Court review of the Obama healthcare reform. Argument is scheduled for 10 a.m. and will address whether Congress overstepped its powers under the Constitution by adopting the individual mandate. This is the issue at the heart of the legal battle over the law that aims to provide health coverage to more than 30 million uninsured Americans.
Wednesday, March 28 -
    On the third and final day of U.S. Supreme Court oral argument on the Patient Protection and Affordable Care Act, a first session will begin at 10 a.m. focused on whether the entire law must fall if the insurance mandate was found to be unconstitutional, or if the other parts can survive. At 1 p.m. a second session will tackle whether Congress had the authority to require that states expand the number of people eligible for assistance from the Medicaid healthcare program for the poor and disabled. The House Financial Services committee will hold a hearing on accounting and auditing oversight at 10 a.m. The Public Company Accounting Oversight Board’s investor advisory group will meet in Washington to discuss an array of topics including independence, going concern warnings,  and others. 
Thursday, March 29 -
    Government Accounting Standards Board teleconference. The D.C. Bar will sponsor a luncheon program on temporary and proposed Treasury regulations on certain dividend equivalent payments. IRS official Peter Merkel and Treasury official Karl Walli will speak.

Thursday, March 29 – Friday, March 30 - The American Bar Association  and others are sponsoring a two-day conference in Vienna, Austria, on tax planning strategies in the U.S. and Europe, including discussions of cross-border losses in tax planning, tax risk management by multinationals, transfer pricing, and collective investment vehicles.

Essential tax and accounting reading: U.S. corporate income taxes hit a low, British tax shelters, Japan’s sales tax, taxing wealth around the world, and more

Francois Hollande, Socialist Party candidate for the 2012 French presidential election REUTERS/Jacky NaegelenWelcome to the top tax and accounting headlines from Reuters and other sources.

* U.S. corporate tax rates hit 10-year low. Telis Demos – The Financial Times. The effective tax rate paid by large U.S. public companies fell to its lowest in a decade in the fourth quarter last year as an increasing amount of revenue was generated outside of the country. According to figures compiled by Morgan Stanley, the unweighted average tax rate paid by the largest 1,500 U.S. public companies by market value in the fourth quarter was 31.9 percent of pre-tax income. About 100 companies are yet to report for the quarter. That puts the period on track for the lowest average in any quarter since 2001 and off sharply from the 35.4 per cent paid a year ago. Link

* Companies assess risks of tax planning. Vanessa Houlder – The Financial Times. Businesses are scrambling to assess the reputational risks of tax planning, after the closure of two “highly abusive” schemes designed by Barclays demonstrated the increasing public scrutiny of big companies’ tax affairs. The Treasury moved aggressively last week to block the bank from exploiting a loophole that could have cost the exchequer 500 million pounds ($792.80 million), marking the latest in a series of high-profile corporate tax disputes. Experts say the cases show how tax has joined executive pay at the forefront of debate over “responsible capitalism,” putting pressure on both the government and companies to demonstrate that businesses are paying their fair share. Link

Tax and accounting calendar

Some events in the week ahead:

Tuesday, March 6 – Thursday March 8
Government Accounting Standards Board meeting in Norwalk, Connecticut.

Tuesday, March 6
Senate Finance Committee Chairman Max Baucus to host a hearing on tax reform and incentives currently in the tax code for capital investment and manufacturing and their contributions to job creation and economic growth. 10:00 a.m. in Room 215 of the Dirksen Senate Office Building. Speakers include:

• Dr. Jane G. Gravelle, Senior Specialist in Economic Policy, Congressional Research Service
• Dr. Ike Brannon, Director of Economic Policy & Congressional Relations, American Action Forum
• Dr. Robert D. Atkinson, President, Information Technology and Innovation Foundation
• Dr. J.D. Foster, Norman B. Ture Senior Fellow in the Economics of Fiscal Policy, The Heritage Foundation
• Dr. Michelle Hanlon, Associate Professor of Accounting, Sloan School of Management, MIT

Tax and Accounting Calendar

A worker arranges a saree drying after dyeing in a village south of Kolkata REUTERS/Rupak De Chowdhuri

Some events in the week ahead:

Monday, February 27 – Tuesday, February 28
The Practicing Law Institute will sponsor a two-day program in New York featuring speakers from Treasury and the IRS on a number of topics including investment adjustments, accounting issues, Treasury Department developments, inter-company transactions, and tax attributes and consolidation.

Tuesday, February 28

* The Public Company Accounting Oversight Board will hold an open board meeting at its offices at 1666 K Street NW in Washington DC and via web conference to consider proposed standards on related parties, significant unusual transactions and other matters. Starting at 9:30 AM.

Essential tax and accounting news: “dozens” of corporate tax breaks in play, private equity taxation debated around the world, and Swiss banks’ new model

U.S. Treasury Secretary Timothy Geithner testifies before the Senate Finance Committee, February 14, 2012. REUTERS/Yuri Gripas

The top tax and accounting headlines from Reuters and other sources:

* Tentative deal reached to preserve cut in payroll tax. Jennifer Steinhauer – The New York Times. Members of a House-Senate committee charged with extending a payroll tax reduction and providing added unemployment benefits reached a tentative agreement Tuesday evening, with Republicans and Democrats claiming a degree of political victory in a fight with significant election-year implications. One day after House Republican leaders said they would offer a bill to extend the $100 billion payroll tax rollback for millions of working Americans without requiring spending cuts to pay for it, the Congressional negotiators struck a broader deal that would also extend unemployment benefits and prevent a large cut in reimbursements to doctors who accept Medicare. A vote on the measure would most likely happen by Friday. But senior aides warned that negotiators still had to sign off formally on the agreement and that obstacles could surface given the long-running tensions over the measure. Link

* Obama plan would end dozens of business tax breaks-Geithner. Kim Dixon and Rachelle Younglai – Reuters. The Obama administration’s corporate tax reform plan would end “dozens and dozens” of tax breaks, Treasury Secretary Timothy Geithner said on Tuesday as he defended the White House’s election-year call for higher taxes on the wealthy. Within days, the administration intends to unveil a blueprint aimed at eliminating inequities in the corporate tax system and lowering the top rate. Companies, which pay wildly different levels of taxes, are clamoring for a cut in the corporate tax rate – which tops out at 35 percent – but disagree about how to strip out preferences that benefit selected industries. Geithner spoke before the Senate Finance Committee a day after President Barack Obama unveiled a $3.8 trillion budget-and-tax proposal that called for aggressive government spending to boost the economy and higher taxes on the rich. Link

Treasury aims to make FATCA more user-friendly

Proposed regulations to implement a new law to fight offshore tax evasion may not be as burdensome as many have feared.

That’s the word from a U.S. Treasury Department official on soon-to-be released regulations affecting thousands of banks and brokers worldwide subject to the Foreign Account Tax Compliance Act (FATCA), signed into law in 2010.

FATCA has drawn sharp complaints from foreign banks because of its reach and costs of compliance. The Treasury Department is now “keenly aware” of the challenges of compliance, and the proposed regulations will answer many concerns, said Emily McMahon, acting assistant secretary for tax policy.