SCOTUS Puts Parameters on Whistleblowing

In a 5-4 vote, the Supreme Court ruled that government employee whistleblowing was not fully protected speech under Sarbanes-Oxley. Opinion writer Anthony Kennedy wrote that not every word said by public employees in their jobs were protected speech; in effect concurring with the Bush administration position that alternative means of redress such as filing of civil service complaints should produce boundaries on whistle-blowing suits. Dissenter John Paul Stevens argued that the result produced an artificial boundary between employee speech and citizen speech. The case revolved around the acts and subsequent treatment of L. A. Deputy District Attorney Richard Ceballos and an unnamed L.A. Deputy Sheriff.

Whistle-blowing will continue to be a tricky topic both within and outside of accounting. The blanket condemnation of whistle-blowing which appeared to be the official position of the IMA and unoffical position of most other accountants prior to Sarbanes-Oxley probably is no longer an option; defining when whistle-blowing is appropriate and when it is inappropriate may take some insights from other professions.

Internal Revenue Makes It Easier for Corporations to e-File

The IRS recently adjusted corporate regulations to reduce the difficulty in filing an e-return for corporations and their shareholders. Commissioner Mark Everson called the adjustment a "win-win" by reducing obsolete paperwork while meeting IRS information needs. As an example, Section 351 transfers used to require virtually every shareholder to complete 18 information items (the corporation had 20). Now, considerably fewer items are required from shareholders--name, employer ID, date of transfer, market value and basis of property on date of transfer and date of private letter ruling (if applicable). Additionally, the number of shareholders required to file has been reduced and signiture verification requirements have been streamlined.

In a time when tax compliance can be a real pain, congratulations and good job to the IRS for simplifying corporate e-filing!

Anniversaries--#25 for Jim and Kim; #1 for Tick Marks

Congratulations to my brother Jim and his wife Kim on their 25th anniversary tomorrow. Not only is reaching a quarter-century impressive in the era of "easy" divorce, but they have three worthy sons and have accomplished a lot both professionally and in community service.

I am getting into the second year of this blog. Thank you for reading my thoughts and great thanks to those bloggers who link here; I realize that there is still room for improvement.

No Time to Camoflague Support for the Troops

May God bless the men and women who serve in the Armed Forces today and every other day; whether in hot spots like Iraq and Afghanistan, COLD spots like Greenland or in training (or being the trainers) whether at nearby Fort Campbell or far away.

A Little Help with the Phone Bill Is Better than None!

The Internal Revenue Service and Treasury Department announced acquiesence on telephone taxes on long-distance and wireless services. The elimination of the tax will cost about $13 billion in refunds and interest for 2006 and will reduce Federal tax revenue by about $6 billion annually. Taxpayers will be eligible for refunds on taxes paid from February 28, 2003 to May 25, 2006 plus accompanying interest. The tax was originally charged in 1898 and has been challenged in court since earlier in the decade. The IRS has continued to insist on the tax even though five circuit court have struck it down. Treasury Secretary John Snow said that the government did not deserve the taxes and that he will work with Rick Santorum (R-PA) to eliminate the tax on local service as well.

Although receiving the refund (which will be very small for most people) is nice, the most refreshing concept expressed in the article is the statement by Secretary Snow that taxes are not an automatic right of the U.S. Government.

Senate Taxwriters Put Squeeze on Illegal Aliens Seeking Patriation

Yesterday's Senate immigration bill included provisions reducing access to the Earned Income Credit for illegal aliens and also requiring full payment of back taxes before illegal aliens could have their status changed to temporary guest worker. The tax provisions showed somewhat of a split within Republicans; Jeff Sessions (AL) would have preferred complete elimination of eligibility for illegal aliens on the EIC while John McCain (AZ) thought that the full back tax provision was unduly harsh.

Fannie Mae takes a $400 Million Penalty Hit

The Office of Federal Enterprise Housing Oversight (OFEHO) and the Securities and Exchange Commission jointly announced a penalty of $400 million for the Federal National Mortgage Association for poor accounting procedures which misled the market and triggered unjustified bonuses to executives. The report blamed both management malfeasance and board carelessness for the flawed accounting. OFEHO and the SEC called for stronger accounting controls and more resources for conducting the audit.

Two things to hope for here: [1] New CEO Daniel Mudd means it when he says that Fannie Mae has learned some lessons in hubris and humility, [2] the taxpayers do not end up bailing out Fannie Mae.

GE and Pepsico Go with XBRL

Two additional American corporate icons, General Electric and Pepsico, along with an Italian bank holding company, have increased the number of businesses using the present XBRL reporting incentive to 20. Congratulations to the SEC and to the companies involved.

Idolizing Ad Time

Some have suggested that the finale of American Idol may be the biggest show on television after the Super Bowl (not sure--the BCS National Championship game in college football and NCAA men's basketball tournament final MIGHT be bigger but close). Certainly, advertisers treated the AI finale (rumored ad rates of over $1 million per spot) as though they were gold. Three insurance companies (Allstate, Nationwide and State Farm), three cosmetic products (Almay, Olay and Veet), MasterCard and VISA had competing ads and three (possibly four) movies had ads. Prime advertisers (two each) were Cingular, Coca-Cola, Ford and Mc Donalds. Among others shelling out for exposure: Hanes, Kraft, Monster, Old Navy, Sears and Taco Bell.

Oh--the performances, themselves. Judge Simon Cowell thought that Taylor Hicks won the competition--a boon for all grey-haired, overweight guys :). From what I saw, Taylor was more consistent but Katherine McPhee sang a beautiful "Over the Rainbow" from the Wizard of Oz; I can easily imagine her as a star on Broadway in a few years.

International Federation of Accountants Announces Electronic Handbook on Auditing and Ethics

The International Federation of Accountants (IFAC) recently revealed a new electronic handbook on international auditing standards and practice, international standards for reviews and the IFAC Code of Ethics. Called the 2006 Handbook of International Auditing, Assurance and Ethics Pronouncements, the book includes international standards through the end of 2005 and sells for $50.

Grassley, Thomas Debate How Comprenhensive the Charitable Tax Bill Should Be

Senate Finance Committee Chair Charles Grassley (R-IA) announced yesterday that charitable tax provision reform as well as charitable tax incentives should be included as a trailer to pension legislation facing Congress soon. Meanwhile, William Thomas (R-CA), chair of the House Ways and Means Committee, is uncomfortable with inclusion of the charitable provisions until additional hearings are held. Grassley also pointed out that negotiators had reached tentative agreement on five or six major issues on the underlying pension bill.

Given the complexies of the pension legislation and the bipartisan support for the primary trailer (sales tax and business credits) I tend to favor an approach closer to Thomas--defer charitable issues for a separate bill. I acknowledge that this would mean three tax laws in one year, but it sounds like chances of getting it right would be better if the charitable material received extra time.

Health Insurance Options for Small Businesses

One of the concerns frequently expressed about working for very small businesses is that only about half provide health insurance coverage for employees. This lack of coverage is understandable given the high administrative and coverage cost of health insurance. Some options presently used include a combination of medical savings accounts and catastrophic health insurance (essentially the George W. Bush plan), AARP insurance (if old enough) and discount programs which do not provide insurance as such but qualify the holder for discounted rates with qualifying health professionals (most commonly used for vision and dental needs). Massachusetts has passed a law which covers uninsured citizens--it will be interesting to see what happens there. At this point, the National Association of the Self-Employed (NASE) has opened a website,
http://www.microbusinesshealth.com which provides information about healthcare insurance alternatives for small business owners.

I am not a particular fan of centralized health insurance (though that is a very political issue that I don't want to address in depth); at the same time, the high cost of health care makes health insurance almost a necessity. I applaud the NASE for this guide and hope that office managers of small or very small businesses which either do not provide health insurance or are considering eliminating health insurance coverage because of high administrative costs will research this website. An additional question--is there any reason, especially in middle-sized and larger cities, why chambers of commerce could not form groups to allow better prices to small employers for health insurance?

Pension Reform and Tax Incentive Extender Legislation Probably Coming in June

House Majority Leader John Buehner (R-OH) recently announced that a bill which addresses pension issues in view of the pension plan problems faced by airlines last year probably would not be ready by the Memorial Day recess. Buehner did indicate that progress toward a bipartisan consensus was being made and that an agreement in principle was possible by next week--the formal language, however, could not be completed in time. A likely feature of the bill would be provisions extending popular tax incentives, such as the higher education expenses deduction, sales tax deduction and work opportunity credit. Charitable contribution issues, however, would likely be deferred until later legislation.

While the tax extenders are probably a good idea, taking an extra week or two and getting the pension reform langauge correct is really important.

The IRS and Latinos/Latinas: Is Something Being Lost in the Translation?

Market research firm Encuesta surveyed over 600 people (321Hispanics and 305 Non-Hispanics) about tax perceptions, knowledge and experience. Hispanic taxpayers were more likely to get a refund (73% vs. 62%) and less likely to pay taxes than non-Hispanic taxpayers. Hispanics were less familiar with tax incentives, including retirement savings and charitable giving and more likely (21% to 10%) to recruit a paid tax preparer. Hispanics were also less likely to be audited by the IRS and more skeptical of a national sales tax than non-Hispanics have been.

Sounds to that the IRS needs to provide basic tax preparation skills where possible and possibly increase the accessability of Spanish-language publications.

PCAOB Develops Four-Point Internal Control Reporting Plan

Public Companies Accounting Oversight Board brought forth a four-point plan designed to improve internal control reporting related to Sarbanes-Oxley. The Board acknowledged that they needed to balance the value of the internal control reporting requirements against the cost of increased procedures, but showed little if any willingness to jettison PCAOB Standard 2. The four-point included the following features: adjusting Statement 2 to make clear that auditors should emphasize areas with highest risk of fraud or material (significant) error, emphasize auditor efficiency in PCAOB inspections, provide more guidance and education for small accounting firms and continue to provide PCAOB small firm forums (eight scheduled in 2006).

For both good and ill (but in my opinion mostly good), PCAOB 2 and section 404 of Sarbanes-Oxley has had major impact on audit performance and cost. Possibily PCAOB could have offered more, but what they are offering here has value, especially to smaller CPA firms.

Supremes Keep Toledo Taxpayers Hanging On

A unanimous Supreme Court ruled that a taxpayers' group did not have standing to challenge the decision of Toledo and two school districts to provide $300 million in property and franchise tax incentives to DaimlerChrysler for building a Jeep plant. The taxpayer group favored using the money for educational spending. Yet to be addressed is the question as to whether state tax incentives are inconsistent with the commerce clause by discriminating against states which do not provide incentives.

Though not as onerous as Kelo, I am still concerned about where this decision, especially given the power that an unanimous decision has, might not lead future court decisions into scary ground. Though I do not automatically oppose state incentives for new businesses, I do NOT like the concept that taxpayers are to be a silent cash cow for whatever governments (and, in some cases, businesses) may desire.

Bringing Back Professionals of Yore

A growing number of universities, such as Babson College, Harvard and Dartmouth; and employers, such as Deloitte and Touche and Lehman Brothers, are developing programs for one-time professionals who left the workforce for primarily family or personal reasons. College programs include technology updates and refreshers in accounting and finance; employer programs include extended sabbaticals and Lehman's retraining program. Reasons given for the programs include increased access to trained professionals, reduced hiring costs and greater commitment and loyalty by employees, especially those in such programs.

While European-style employment paternalism is unlikely to take hold in the U.S. it is also true that not all employees which can add value to a business necessary desire the 40-70 hour pressure cooker that exist at many companies. Even within a specific employee's career, needs may change: the same person who willingly accepted 60 hour work weeks in their 20s and 30s to advance may need an extended sabbatical in their 40s to care for an ailing child or parent; improve their own health; work for a charity on an extended project or overcome "burnout". Another employee may be unable to work full time but could effectively contribute ten hours a day for three days a week.

AICPA Paging All "Where's Waldo" Sleuths

Some 300,000 AICPA members have to worry today about a lost hard drive which includes names, addresses and social security numbers of members. Apparently, the hard drive had been damaged and an unnamed AICPA employee sent it out for repair without following AICPA protocol. After considerable searching by AICPA and FedEx personnel, the decision was made to notify AICPA members. Additional information is available at www.aicpa.org/privacyinfo .

As an AICPA member, it is obviously unsettling to hear this type of news. Nevertheless, at least at this point, there is no evidence of anything more than an embarrassing incident for the AICPA.

Senate OKs $70 Billion Tax Bill

The $70 billion tax bill extending the AMT patch and capital gain and dividend cuts is almost sure to become law as it was passed 54-44 in the Senate yesterday. Democrats criticized the bill for overemphasizing low tax rates on investment income. Finance Chairman Charles Grassley promised to bring forth language extending tax relief on research credits, credits for higher education expenses and extending deductibility of state and local income taxes as part of a pension reform bill later this month, but Democrats noted that this reduced the likelihood of these extensions occuring.

Personally, I would have liked a longer AMT patch, extension of the bipartisan tax extensions (higher education, research credits) and a one-year, rather than two, extension of capital gain and dividend rates. Keep in mind, however, that I am a college faculty member and live in a state with no state income tax--therefore, my position is biased.

FASB Considers Expanding Required Disclosure of Lawsuits

Leslie Seidman of the FASB says that the threshold for requiring disclosure of a lawsuit may soon be reduced. Presently, disclosure requires an 80% likelihood that the plantiff will prevail. Seidman says that reducing this percentage to 51% is a real possibility. By contrast, the International Accounting Oversight Board prefers an expected value method. Under this method, a $2,000,000 million with a 40% chance of success would be valued at $800,000.

I tend to agree with the premise that 80% is too high a threshold for disclosure. As to whether the 51% or expected value approaches are better--perhaps a hybrid where a minimum likelihood of 20-25% (to take out frivolous suits) is used, then apply the expected value approach.

House Approves $70 Billion Tax Cut Bill

In an almost party-line vote, the House of Representatives approved a $70 billion tax relief bill which extended dividend and capital gain incentives for two years and a one-year patch of AMT relief for middle-income taxpayers. Although Democrats were satisfied with the AMT patch, most Democrats opposed the dividend and capital gain extension.

Senate Queries Tax Preparers

Senators Charles Grassley (R-IA) and Max Baucus (D-MT) have sent a 34-item questionnaire to major tax preparers. The questionnaire addresses such issues as employee training, prior IRS complaints, gross revenues and SEC filings. Recent issues such as a possible fraud finding, promotion of tax refund loans and other investment vehicles of questionable value to taxpayers and an unsuccessful Free File Alliance have also been addressed. Grassley asserts that the questionnaire is designed to buttress legislation that will assure that the taxpayer's interest is held paramount by preparers and make tax preparers accountable.

There may be evidence of some misconduct in the tax preparation market; in my opinion, however, misconduct has not been pervasive enough to justify government "jawboning", much less new regulations. Having said this, my guess is that Russ Fox (Taxable Talk), Kerry Kerstetter (Tax Guru), Joe Kristan (Roth CPA Updates) and others may have more forthright commentary on this questionnaire and possibility of new regulations.

Monicagate Prosecutor Goes After PCAOB

Kenneth Starr, prosecuting attorney for the impeachment of President Clinton eight years ago, is poised to represent the Free Enterprise Fund in a suit challenging the constitutionality of the Public Company Accounting Oversight Board. The legal theories set forth by Starr include excessive governmental enforcement power, violation of the separation of powers (too much power exercized by the executive branch) doctrine and insufficient accountability (no provision for executive discharge or legislative budgetary control). Not surprisingly, the PCOAB plans a vigorous defense as the AP believes that partial unconstitutionality could lead to the entire law being voided. The PCAOB announced plans to examine nine large CPA firms (including one Canadian firm) and review (on a three-year cycle) numerous smaller firms.

Starr's presence in the case will attract attention. Though I am far from a legal expert, my perception is that US Courts have not generally looked favorably on technical arguments for voiding federal intervention in recent years. Does Starr have a valid theoretical point? Perhaps, but I believe that the theoretical point, even if valid, will carry little weight in court here and that PCAOB will survive the challenge.

AMT Relief Nears Conference OK, Dividend and CG Cuts Kept for Two Years

Recent reports indicate that a two-year, approximately $70 billion deal will provide AMT relief to about 15 million taxpayers and keep the dividend and capital gains tax cuts in play. Speculation centers around keeping the Senate AMT language (about $42K for single, $62K for MFJ; nonrefundable credits allowed as offsets against the AMT) which would drop the number of Americans affected by the AMT from 18.9 million to 3.6 million. Senate Finance Committee Chair Charles Grassley is already telling off disaffected Democrats, claiming that they are ignoring the relief to middle-income families that would otherwise be affected by the AMT.

I LIKE the AMT move and would not mind either scrapping the AMT or at least setting the exemption so high that only very high income taxpayers would even have to pay attention to it. The dividend and capital gain portion is understandably more controversial; I hope that none of the middle-income tax incentive provisions (such as the teacher supplies incentive) were jettisoned for CG/dividend relief.

AICPA Unites with Most Other National Professional Accounting Organizations

The American Institute of Certified Public Accountants has combined with equivalent organizations in most other major commercial countries to form the Global Accounting Alliance (GAA). Other than the AICPA, English-speaking organizations involved in the GAA include the Institute of Chartered Accountants in England and Wales (ICAEW), Institute of Chartered Accountants in Australia (ICAA) and the Canadian Institute of Chartered Accountants (CICA). The AICPA is expected to play a major role in the new organization and its goals of increasing professionalism of the field, its membership of 337,000 comprise almost half of the membership of the various bodies in the GAA.

"Let's Hear for the Girl, Let's Give the Girl a Hand, Let's Hear It for My Lady...

Thirteen years ago I married the former Pamela Sharp. Thanks for all the good years and times!