For July, IRS (HQ) is All Wet

Heavy rains in the Northeast have forced the Internal Revenue Service to close their headquarters in Washington, DC due to flooding damage to the grounds and the electrical system. Parts of the subbasement and basement were submerged in as much as 20 feet of water. In spite of crews working 24/7 after the building is pumped out; IRS Commissioner Mark Everson said that 2400 employees will either be assigned to other buildings or telecommute for at least 30 days. In addition, requests for letter rulings, determination letters and changes in accounting method should now be hand-delivered to 950 L'Enfant Plaza, 5th Floor, Washington, D.C., 20024.

The somewhat-jocular title aside, I saw a news clip on flooding in the Northeast and I'm sure that many people are suffering. If you are financially able, please consider a donation to the Red Cross, Habitat for Humanity or similar organizations in these areas.

Update on CPA Blogging

Prefaces: Ms. Golden's trackback code is http://www.typepad.com/t/trackback/4243144. Also, thanks to Eva Lang at the Business Valuation Blog for pointing out this article.

In "CPA Bloggers: Where are the Accountants?" Michelle Golden indicates the present state of accounting blogs. Though she is primarily a marketing person; Ms. Golden argues that accountants and especially CPA firms are missing a great opportunity. Her list has a small number of unfamiliar blogs--do not be surprised to see new links in the next several days.

Thanks to Ms. Golden for the update. The article remakes a point which I stated late last year.

US Tax Court Puts Deep Freeze on Foreign Tax Credit for Antartican Scientists

The Tax Court was recently asked if Antartica was a "foreign country" for the standpoint of the foreign tax credit. The Court concluded that no sovereign nation was in control of Antartica; thus no foreign tax credit applies.

I suspect that some researchers in the world's southernmost outpost would believe that some Tax Court Justices should be exiled to their locale for the "wonderful" July weather. Even I might appreciate Tennessee heat and humidity by comparison.

Day Trading Revisited

The stampede in over; the glamour gone; nevertheless, a sizable number of people continue as day traders in U. S. stock markets. Sobered by the stock market troubles earlier this decade, today's short-term investors are doing more research, using more hedging strategies and relying less on tips and trends. Options are more widely used today; more frequently to augment hedging than as a speculative investment on their own. With more thoughtful investing strategies come better results, Jarrett Lilien of e-Trade says that day traders have been holding their own against Wall Street in recent years. Lilien cautions those considering day trading to be patient, realize that they need some luck and leave emotions behind.

Ten years ago, day trading was every bit as risky as trying to make a living at playing poker professionally. Today, the more disciplined day traders can almost match the results of Greg Raymer and Daniel Negranu.

You MAY be a Tax Accountant...

Stealing the format from Jeff Foxworthy.

You MAY be a Tax Accountant if...the average resident of Barrow, AK or Inuvik, NT, Canada sees more of the sun than you do between New Year's Day and Valentine's Day.

You MAY be a Tax Accountant if...you know the names of more judges on the U.S. Tax Court than you know the combined names of American Idol finalists and best actor and actress Oscar nominees for this past winter.

You MAY be a Tax Accountant if...you know the difference between Form 1120-A and Form 1120S.

You MAY be a Tax Accountant if...you know the names of the blogs by Paul Caron, Russ Fox, Kerry Kerstetter, Joe Kristan, Eva Rosenberg and Joel Schoenmeyer.

You MAY be a Tax Accountant if...you have your junior high daughter teach you to text message so you can update clients on the status of their returns on April 12.

You MAY be a Tax Accountant if...you have ever used HTML code to transmit part of the Internal Revenue Code.

You MAY be a Tax Accountant if...you used vacation time to attention a state tax conference.

You MAY be a Tax Accountant if...you have more than half a dozen Master Tax Guides in your office library.

You MAY be a Tax Accountant if...you can quote more sections of the Internal Revenue Code than a pastor can quote chapters of the Bible.

Best of June Blogs--Part III, Tax Blogs

[Preliminary: Welcome to Fraud Files, a foresnic accounting blog which is the newest link.]

Tax blogs are primarily written by attorneys, but there is a significant number of accountants who write tax blogs. I have tried to link to most major tax blogs by accountants and an important sample of attorney tax blogs. I am excited that Don't Mess with Taxes (actually maintained by a journalist) has recently started a Calvacade of Taxes.

My four blogs in this category that I read most frequently presently would be: Roth CPA Updates (Joe Kristan), Taxable Tax (Russ Fox), TaxGuru (Kerry Kerstetter) and TaxProf (Paul Caron). I include one post from each of them plus a sampler of some other tax bloggers.

Death and Taxes--"The Break-Up" and Unmarried Clients--Joel Schoenmeyer discusses the difficulties of property settlements when unmarrieds who have lived together end their relationships in the context of a popular summer movie. [19]

Mauled Again--"Tax Stupidity? No, Tax Stupid Acts and Stupid Decisions"--Professor Maule points out the social costs of protecting thoughtless behavior (like pro football players riding motorcycles without helmets). He emphasizes that common sense is more determinate of stupid acts than a person' s IQ. [14]

Roth CPA Updates--"Sell It on e-Bay"--Joe notes the first known tax evasion conviction on online auction sales. [19]

Tax and Business Law Commentary--"Cheap Dates"--Stuart Levine (and James Maule and Dan Shivaro of Start Making Sense) have little use for the Republican estate tax reduction plan. In effect, Mr. Levine accuses Republican House Ways and Means chairman Thomas of treating Washington Senators Cantwell and Murphy (both women Democrats) as timber industry harlots. [21]

Tax Guru--"New Anti-Tax Song"--Kerry publishes a song written by a Republican challenger for a House seat in Missouri which praises the Boortz flat tax and scorches the present income tax and withholding system in the context of the Boston Tea Party. [23]

Tax Policy Blog--"The Tax Consequences of World Cup Office Parties"--Some English businesses may soon say "Hell, Brittania" to the British revenuers as there are plans to tax overly lavish office parties during the soccer competition. [19]

Tax Prof--"WSJ: IRS Revamps Its Whistle-Blower Program"--Paul cites a Wall Street Journal report noting the Internal Revenue Service is attempting to respond to Treasury concerns about efficiency and fairness for whistle-blowers. [22]

Taxable Talk--"Independent Contractor or Employee?"--Russ covers this contentious issue and points out that rules in California (and probably a number of other states) vary from US law. [21]

Best of June Blogs--Part II, Personal Finance

The personal finance blogging arena has mushroomed at almost geometric growth rates since I started blogging a little over a year ago. It is not hard to find dozens of good blogs on personal finance--in fact, a dedicated person can probably find a dozen or more good blogs in several different personal finance subcategories--such as debt reduction, frugality and investment.

My advice to those not presently reading PF blogs: start by reading carnivals. There are carnivals (or variants such as festivals or cavalcades) of debt reduction, enterpeneurship, frugality, investing and general personal finance). These carnivals can be accessed by links on the right side of this blog--most carnivals are done weekly and the typical carnival date is abbreviated in the link (I sporadically have posts in carnivals, especially the Carnival of Personal Finance). Most carnivals have 20-50 posts--tastes and preferences will vary from reader to reader but most readers will find a dozen or more of the posts of some level of interest and a smaller number worth reading in full.

Reading the Carnivals should expose you to a number of PF bloggers and many readers will settle on favorites that way. Another approach is to read PF anthologies, such as the Money Blog Network (made up of established PF blog stars such as Consumerism Commentary, Free Money Finance and Mighty Bargain Hunter) or pfblog.com. To get you started with the second approach, a sample of favorites from the Money Blog Network during the past 10 days.

All Financial Matters--"How to Compute the Remaining Balance on a Loan"--Not only does JLP explain the calculations behind determining a loan balance, he then sets up a remaining loan balance calculator. [14]

Blueprint for Financial Prosperity--"How to Time the Market""--Jim points out that (with the rare exception) the best approach to timing the market--is to not even try. Instead, buy and hold and in the long run, you will be at least as well off financially and avoid emotional wear and tear. [19]

Consumerism Commentary--"Pure Gold Coin for Investors and Collectors"--Flexo not only describes the new $50 gold piece put forward by the U.S. Treasury, he also clarifies coin collection terms such as proofs and bullion. [21]

Five Cent Nickel--"Americans Moving Back Into the City"--"Nickel" gives the advantages and downsides of living in a big city vs. a suburb. His conclusion (and I tend to agree): if possible, live in a small town. [19]

Free Money Finance--"Does a Second Income Pay"--The author looks at the benefits and costs of having a mom work while kids are at home. Primary conclusion: if Dad's income NEEDS supplementing or he is unemployed, by all means, mom should work outside; otherwise, families should look very closely at employment-related expenses, the nurture of the kids and need for personal/family time before mom takes an outside job--unless the second job significantly improves Mom's self-esteem. [22]

Mighty Bargain Hunter--"Doing What You Love vs. Doing What Pays Well"--John talks about the importance of knowing what you enjoy; at the same time, being aware of the price in extra salary which would make it worthwhile to work longer hours, work in a more structured environment, etc. [17]

Last Chance at Estate Tax Modification in 2006?

Amidst criticism from many Democrats regarding fiscal responsibility and revenue losses, the House passed 269-156 (about 5:3) legislation which would significantly reduce the number of estates which would be subject to estate taxes. Ways and Means Chairman William Thomas (R-CA) said that the bill would be the House's only attempt to revamp the estate tax during this session. Important facets of the bill include: making the changes permanent (no sunset after 2010); an increase in the exemption equivalent to $5 million (to be indexed in future years) and use of a two-tier rate ($5-25 million net of inflation adjustment to be taxed at capital gain rate (presently 15%); amounts in excess of $25 million to be taxed at double the capital gains rate). Estimated revenue losses from the bill were estimated at $283 billion over the next 10 years by the Joint Committee on Taxation.

This seems to me to be a good compromise between estate tax repeal and the present estate tax scenario which hits somewhat well-off people (including long-time family farmers). Certainly to goodness, Congress can find $28 billion in annual pork to eliminate to cover the cost of this adjustment.

Line Item Veto Gets Past House

Congress passed by a 247-172 (not quite 4:3) margin a bill authorizing the President to eliminate spending or tax provisions with limited beneficiaries. Sponsor Paul Ryan (R-WI) originally designed the bill to cover any amendment with no more than 100 beneficiaries; the final result limited the veto to single-beneficiary provisions. The bill permits veto of certain direct spending as well as tax provisions. OMB Director Rob Portman hailed the bill as a valuable tool in controlling federal spending while John Spratt (D-SC) considered the bill somewhat two-faced in view of the estate tax reduction bill passed the same day.

My only problem with this bill is that I would have liked to have kept Ryan's original language on number of beneficiaries. It looks like this version should escape the constitutional problems with the first line-item veto legislation in the late 1990s; here the President only proposes recissions.

Best of June Blogs, Part I--Accounting Blogs

I fail to cite fellow bloggers as much as I should, especially since many of them are doing a very good job. A sampling of some recent posts worth noting (caveat: I may not included your favorite bloggers or any given story, regardless of quality, from a given blogger).

Accounting Observer--"Summer at the SEC"--Jack Ciesielski talks about the Olson appointment to the PCAOB, the FASB fair value option and SEC's attempt to implement XBRL. [21]

Benefits Blog--"Clarification on Dependent Care Reimbursement Benefit Plans"--Janell Grenier covers the new IRS regulations on Dependent Care Reimbursement Programs. [9]

BSG Trendlines--"Tax Returns on a Platter"--Rick Telberg provides a story about a St. Louis CPA firm which used CDs to transmit tax returns to clients. [19]

Corporate Goverance--"Where Should Internal Audit Report?"--Mike Rhodes makes the case for having internal auditors report to the Audit Committee. [8]

CPA Technology Blog--"Users Helping Users: Newsgroups"--Brian Tankersley is all over the value of taking advantage of USENET groups to fill in needed information about technological applications. [22]

Tech Gap--"Superfetch Promises to Speed Vista"--Gregory LaFollette is VERY impressed with "Superfetch", a feature in Windows Vista which makes commonly used applications work more efficiently. [14]

Look for similar coverage of personal finance (yes, I still pay some attention to PF topics) and tax blogs in the next few days.

The "Gubenator" Under Fire for Ties with CPA Firms

The Los Angeles Times, along with the nonprofit group Foundation for Taxpayer and Consumer Rights, have criticized Arnold Schwarznegger for being too cozy with CPA organizations. A major point of contention is campaign contributions from the California Board of Accountancy, PriceWaterhouseCoopers and PWC client AIG (Insurance). AIG stock losses hurt the California Employees Pension Plan and the State Board has been harpooned for too great of eagerness for out-of-state firms to practice in the Golden State.

Probably a mixture of valid complaint (especially the State Board appointment) and campaign opposition. Will wait for Russ Fox and Taxable Talk to get a definitive read on this issue.

Olson in at PCAOB

Federal Reserve Board Governor Mark Olson has just been selected to head the Public Companies Accounting Oversight Board until 2010. SEC head Christopher Cox lauded Olson's breadth of experience; in addition tohis stint with the FRB, Olson was a partner at accounting firm Ernst and Young and a bank president. Olson starts over half a year after the departure of William Mc Donough. The PCAOB is under some fire at present; a number of companies want relaxation of internal control requirements and a lawsuit challenging the constitutionality of the organization is presently in court.

Tax Exemptions for Hospitals May Get More Scrutiny

The Internal Revenue Service has sent an 80-item questionnaire, including queries on billing practices and executive salaries to 550 hospitals presently filing Form 990s. There is no indication that the hospitals in question are under audit, but on the heels of recent actions involving credit counseling businesses and political activities of nonprofit organizations it appears as though the IRS intends to tighten requirements for tax-exempt status in the future. In the past year, the House Ways and Means Committee has held a hearing on financial practices of some exempted hospitals and some states have complained that abuse of tax-exempt status has been an issue.

Since a tax-exempt hospital has a cost advantage over for-profit, taxable hospitals, it is legitimate for the IRS to look at practices of hospitals. Unquestionably, state and locally-run hospitals should continue to be exempted; in my opinion, so should h0spitals clearly run on altrusic or religious principles. Beyond that, the IRS should be reasonable and fair in its determination of taxability, but should be able to tax hospitals primarily run with a profit motive.

Return of the Line Item Veto

The House Rules Committee approved by an 8-4 vote a proposal to provide line-item veto authority to the President. Chairman Daniel Dreier (R-CA) thought that the veto power would supplement present Congressional efforts to control "earmark" spending, while Democrats feared the potential for abusive or retalitory use.

Line-item veto power is an imperfect way to control "pork-barrel" spending and the Democratic point is perhaps theoretically valid. Nevertheless, pork has gotten way out of control and a line-item veto would be welcomed--assuming, of control, that this iteration passes Constitutional muster.

C Y'all

Little or no posting expected until after Father's Day. Enjoy the blogs and other sites linked at right.

FASB, AICPA Reach Meeting of Minds on SFAS and Private Companies

The Financial Accounting Standards Board and American Institute of CPAs jointly announced a new 11-member advsiory board which would explicitly consider the impact of new FASB statements on privately-held companies. Smaller companies are urged to send comments to the board; in addition, the FASB will take steps to improve process transparency. More information is available at www.pcfr.org; open comments can be made until August 15.

Reduced Readability of Financials Leads to Lower Future Profits

University of Michigan researcher Feng Li found that difficult to read SEC filings were associated with lower earnings in the following year. Li ran over 55,000 reports since 1994 using two tests of readability: the Fog index and the Kincaid index. Under both methods, SEC filings were rated difficult to read--in fact, the Fog index rated them almost unreadable (wow, you don't say :0). Insurance and healthcare companies were among the worst offenders with airlines being one of the easiest to read.

Li's research should be a boon to Michelle Leder and Footnoted, who heroically slogs through annual reports and SEC filings for her blog. An additional thought, based on this premise; maybe the IRS can generate more revenue without raising taxes simply by simplifying the Internal Revenue Code.

Thanksgiving in June

(Well, you HAVE heard of Christmas in July, haven't you?) Rarely would I celebrate the death of a fellow human; but the suffering caused by al-Zarqawi--the beheadings, ambushes, car bombing, etc. can only lead to a conclusion of "good riddance".

More Files Have Fled--This Time, It's the IRS's Turn

A less than wonderful trifecta , if one includes the VA and AICPA mishaps last month, has been completed as an IRS laptop containing personal information about employees and applicants is missing. Fingerprints, names, social security numbers and dates of birth are among the information on the laptop for 291 people; primarily believed to be from the Midwest and West. The computer was lost on an airline flight; the "good" news is that most of the information is heavily encrypted and would not be easily accessed even if it fell into unauthorized hands.

Welcome Newly Linked Blogs and Carnivals!

Welcome to Business Valuation Blog, Corporate Governance Blog, TechGap and CPA Sense blogs and the Carnivals of Debt Reduction (which actually has been around a while) and Taxes (which just started). I am also considering adding a blog about teaching Intermediate Accounting, but deferred at this time since there were no new postings since early April. In regard to the Carnival of Taxes, it should be noted that this will be a monthly (first Monday) feature through the summer and probably early fall; eventually it will become a biweekly, then weekly carnival as tax season approaches

Merit Pay? For Federal Employees?

The Office of Personnel Management announced yesterday that 25 agencies were making trial runs of performance-based pay based on the Bush Administration's preference for performance-based pay. The trial appears to primarily target managers and high-grade non-management personnel and base pay and basic cost-of-living-based raises will not be affected at this point. A form of performance-based pay is presently being used in the Department of Homeland Security.

It will be very interesting to see how the performance-based pay trials turn out. Even a limited use of merit pay would be a major change in the federal bureaucracy.

John Colvin is new Tax Court Chief Judge

The 19 members of the Tax Court just voted John Colvin as Chief Judge, who handles the administrative issues of the Court in addition to his load of cases. Dr. Colvin graduated from Georgetown, was appointed by President Reagan and was re-appointed by George W. Bush in 2004. Prior Chief Judge Joel Gerber will continue to serve on the Court.

Estate Tax Repeal?--A Congressional Update

After a nine-month hiatus to address last summer's hurricanes and other issues, the Senate is about to consider H.R. 9, which would repeal the estate tax. At present, Jon Kyl (R-AZ), a supporter of repeal, does not believe that full repeal is possible--he favors an increase in the estate exemption (or credit equivalent) to $5 million and equal to the capital gain rate (now 15%) on the rest. Ranking Senate Finance Committee member Max Baucus (D-MT) favors a $3.5 million exemption ($7 million if married) and a graduated set of rates from 15-35%. Robert Greenstein of the Center for Budget and Policy Priorities believes that even the Baucus plan is too generous to the very wealthy.

I am not a fan of the estate tax--nor do I presently favor its repeal. I would come in somewhere between the Baucus and Kyl plans--$4 million (indexed) lifetime exemption (including gifts) and 25% flat rate on the excess.