Financial Planning: Its a Lucrative Life

A survey by the Collage of Financial Planners found an average annual salary of just over $283,000 among respondents, up about $50,000 per year from 2005. Respondents with 30 plus years as a planner averaged almost $500,000 per year. Typical clients averaged just over $1 million in net worth and a salary in the low six figures. They were considered strongest in budgeting and goal-setting while needing the most help in estate planning and retirement expectations.

It is hard for me to believe that the average financial planner earns in excess of $1/4 million annually. Nevertheless, congratulations to the survey respondents.

Sun Rises in East; Federal Judge OKs Constitutionality of PCAOB and SOX

In a completely unsurprising verdict, U.S. District Judge James Robertson dismissed a lawsuit challenging the constitutionality of Sarbanes-Oxley and the Public Companies Accounting Oversight Board. The challenge, brought by the Free Enterprise Fund and a small Las Vegas area accounting firm (Beckstead and Watts), charged that the President should appoint the members of the committee. Robertson disagreed, writing that the plantiffs had no standing and that the consent of the SEC chairman would have been seen as the equivalent of Presidential appointment anyway. The PCAOB applauded the verdict while the plantiffs were considering an appeal.

Given the history of constitutional challenges to the federal income tax, some of which might hold water with a hyperliteral reading, there could only have been one result expected. An appeal of this ruling would be sending good money after bad.

Springing into Carnivals--Albeit Somewhat Late

Two carnivals this week: Carnival of Taxes at Don't Mess with Taxes and Carnival of Fraud at Fraud Files. Both were this past Monday, should have mentioned this earlier.

Strange but True Tax Deductions

Kiplinger's Peter Blank gives a list of tax deductions which appears to be an April Fool's joke, but which actually held up in court. The deductions include: cat food for a junkyard kitty, moving expenses for dogs, Caribbean business travel, body oil for bodybuilders, cost of a private airplane for a couple renting a house in a remote vacation location, cost of babysitter to engage in volunteer work, breast augmentation for an exotic dancer, landscaping for a taxpayer whose office was at home, beer as a promotion for a gasoline station and a swimming pool for a taxpayer with emphysema.

Be VERY careful with deductions of this nature; at the same time, the moving deduction for dogs and swimming pool for medical expense are not highly surprising.

Treasury Treasury Administration Arm Wants More Scruntiny of Noncash Donations

The U. S. Treasury Inspector General (IG) for Tax Administration (TIGTA) has called for better IRS review of noncash donations. The IG estimated that as much as $1.8 billion in unsubstantiated deductions may have been claimed during an eight-month period in 2006. Form 8283, desinged by filed by taxpayers with at least $500 in noncash deductions, is an important concern, the IG calls for both a flagging of tax returns with over $500 noncash where no 8283 is filed and the IG also wants the IRS to notify taxpayers if their returns do not include the 8283.

My guess in most cases is failure to follow IRS procedures rather than overreporting deductions. Nevertheless, given Congressional pressure to reduce the tax gap, I foresee some IRS activity to get better information reporting from taxpayers on noncash contributions.

Marching on with the Madness: St. Paddy's Edition

Purdue (NCAA) and Ole Miss (NIT) still live, though probably not past Monday. As far as conferences, the OVC is (unsurprisingly) out; but the Big Ten went 5-1 (and just missed 6-0), the SEC was 4-1 and the Big Twelve was 3-1 in the NCAAs. The first round had an unusually small number of first round upsets (though there were many close calls); only two teams with seeds higher than Purdue's "9" are still in the tourney. My guess is that as a result; there WILL be a high number of upsets in Rounds 2 and 3--unfortunately, I don't know where the upsets will occur.

The Decline of Whistle-Blowing in the SOX Era

The National Bureau of Economic Research has found that 16% of "whistleblowers" of corporate fraud have been employees since 2002, down significantly from 21% during the 1996-2002 period. David Gebler of Working Values believes that although fraud "hotlines" are in place, that in the absence of a corporate culture committed to strong ethical values these hotlines offer illusory aid and may even be a source of retaliation. In a survey of larger businesses with corporate fraud, over 80% of whistleblowers reported resigning under pressure, being fired or being reassigned. In effect, the burden of fraud detection has moved to the auditor; 17% of fraud is caught by an auditor now vs. about 10% pre-SOX. Journalists, at 14%, are almost as effective in catching fraud as auditors while regulators badly trail both groups at 6%.

Several observations. First of all, in an environment where only reasonable assurance is possible, auditors have made admirable improvements in catching fraud since SOX (this finding in itself may be ammunition for the pro-SOX crowd). Secondly, anti-retaliation laws regarding whistle-blowing may need to be strengthened (and accounting organizations probably should revisit their stance on whistleblowing).

Tax Fraud Can Mean IRS Agents, Too!

Harry Willner, an IRS agent with over thirty years of experience, has been taken into custody on five tax fraud charges. Willner is accused of claiming excessive bad debt deductions related to a loan on an advertising business he ran on the side and attempting to offer the business loan as a tax shelter to other taxpayers. Additionally, he attempted to offset the loan against teaching income, thus alledgedly understating income.

This unquestionably will be embarrassing to the IRS, particularly regarding business audits in the New York City area. My guess is that the IRS will place stricter limits on outside work by their employees as a result of this.

AICPA Not on Board with Tax Strategy Patents

The American Institute of CPAs has asked Congress to restrict the issuing of patents for tax strategies/tax planning techniques. The statement criticizes patents for promoting exclusivity, threatening the integrity and increasing diffuculty in administering the tax system, mislead taxpayers into thinking that the patented technique was audit-proof and interfer with voluntary compliance with tax law. Though the report was willing to consider patents for tax computation software, the authors otherwise appeared to advocate a total ban on tax strategy patents.

Tax patents have previously been discussed on this and other tax-related blogs. I concur with the AICPA position on this issue.

Carnival of Fraud

The initial version of my post about the Tax Court decision on a case where the tax preparer committed the fraud is at the Carnival of Fraud today.

More March Madness

Since last Saturday, Austin Peay and Missouri appear headed for the NIT; Purdue probably is in the NCAAs and Ole Miss, IF they can beat Florida today, have a legitimate shot at the Big Dance. Congratulations to all readers who root for a team which has won a conference tourney.

Tax Fraud Might Mean Tax Preparer, Too

In a recent Tax Court (128 TC 4) ruling, the judges ruled that the three-year statute of limitations could be waived for fraud even if the fraudulent intent came from the tax preparer rather than the taxpayer. In the case, an Atlanta truck driver (Vincent Allen) used income tax preparer Gregory Goosby, who was convicted of fraudulent tax preparation in 2006. The questionable returns were filed for 1999 and 2000 and the tax deficiency notice was issued in 2005. Back taxes of about $12,200 were sought, but no penalties were assessed. Citing Section 6501 (c)(1), the court ruled that the presence of fraud outweighed lack of taxpayer intent.

It will be interesting to see whether the ruling is appealed and whether higher courts will accept the appeal. Nevertheless, the case sends a clear warning: Be careful who you engage as a tax preparer!

House Government Oversight Chair Alleges Misconduct by GSA Administrator

Rep. Henry Waxman (D-CA) has asked General Services Administrator Lurita Doan for a response to claims that she exercised undue influence to help Republican candidates and to help a contractor in dispute with the GSA. Among the allegations: using the opening of courthouses to promote Republican candidates during the 2006 elections; claims that Doan enabled Sun Microsystems to win a government information technology contract at noncompetitive rates, awarding of a public relations contract to a friend without bidding and support for five businesses in a dispute with the GSA over travel reimbursements.

Time will tell whether the charges have substance or are political posturing, though the involvement of Senator Charles Grassley (R-IA) on the IT contract does not bode well for Ms. Doan. Ms. Doan will testify before the House Government Oversight and Reform Commission on March 20.

Tour de Carnival--March 6

Noted on Versus the other day that the bicycle racers are starting a new season. With the best known (if somewhat shrouded by scandal last year) of these races being the Tour de France, let's take a different and less physically taxing tour--this one of some of the best accounting-related carnivals.

On Monday, Gina's Tax Page hosted the Carnival of Taxes in lieu of regular host Don't Mess with Taxes. Among the contributions: Blueprint for Financial Prosperity's "Where to Get Missing W-4 and 1099 Forms" and Free Money Finance's "Are Cash Rebates Taxable?"

Poor Tracy Coenen at Fraud Files had limited submissions for the Carnival of Fraud this week. One submission worth reading was "Codes of Unethics" by SOX First.

The aptly-named Mapgirl's Fiscal Challenge hosts the Carnival of Personal Finance. Among the entries (or perhaps entrees): "136 Tips for Saving Money at College" by Your Credit Advisor and "Different Forms of Taxes" by MoneyWalks.

Moving to a new home is the Carnival of Capitalists, now at Bizosphere. Insureblog reminds us of the importance of "Profit Motive" while All About the Money featured "Guerilla Recruiter."

We wrap the tour up with today's Festival of Frugality at Getting Green. The RE Forum includes PMI explained and Tight Fisted Miser (and, believe me, he means it) posts "Can I Be More Frugal?"

So much for your tour. Make sure to cool down properly.

Glass Lewis Gives Three Cheers for SOX over Restatements

Research firm Glass Lewis found that restatements jumped over 1500 for the first time in 2006. Almost one of ten public companies restated and Glass Lewis found that the increase was in spite of a decrease in restatements by companies previously subject to Sarbanes-Oxley provisions. Not surprisingly, Glass Lewis was supportive of SOX and even criticized the SEC and PCAOB for considering modifications to internal control provisions, suggesting that pressure to make the changes was driven more by desire for less scrutiny than by extra cost. An additional finding, companies audited by non-Big Four firms, such as BDO Seidman, were more likely to be restated than those audited by Big Four firms such as Ernst and Young.

This research will certainly add ammunition to those favoring present SOX provisions for all publicly-traded companies. Guess my dad would say to the restaters: "If it is worth doing, it is worth doing right the first time."

Start of March Madness

In the next couple of weeks, the NCAA and NIT basketball tournaments will begin. The NIT may be a little tougher to get into than in recent years for mid-pack teams in major conferences--the number of teams has been dropped to 32 and mid-major regular season champions now qualify for the NIT if they lose their conference tourney. For the universities where I got degrees: on the men's side: Purdue is on the NCAA/NIT bubble while Missouri and Ole Miss are likely to go to the "sock hop" (NIT). Both Purdue and Ole Miss are likely to send their women's teams to the "big dance" (NCAA). Meanwhile, the basketball team of my present employer, Austin Peay, plays in the finals of the OVC tournament tonight against Eastern Kentucky (Go Govs!). The conference tournaments next week will have a lot of influence over the actual brackets.

Accounting/Finance Skills Continue in Demand

Ron Blair of executive placement firm Century Group, anticipates strong demand for accounting and finance professionals to continue throughout 2007. Blair provided five reasons for this view:
[1] use of accountants/finance professionals (hereafter AFP) as temporary hires to control full-time staff levels in potentially recessionary times, [2] increased bankruptcy filings will require specialized AFP skills, [3] greater desire by AFPs to move from full-time employment to contract/project work, [4] increased auditing demands, especially for mid-sized companies, related to Sarbanes-Oxley, [5] greater turnover caused by need to replace departing AFPs.

US House Calls on FASB, PCAOB and SEC to Reduce Complexity of Financials

By an unianimous vote (412-0), the House of Representatives called on the Financial Accounting Standards Board, Public Companies Accounting Oversight Board and Securities and Exchange Commission to provide annual financial testimony before the House Financial Services Committee regarding how financial reporting can become less complex. Sponsor of the "Promoting Transparency in Financial Reporting Act" Geoff Davis (R-KY) said that the legislation would provide Congressional oversight to make financial reports less complex and more principles-based. Specific issues for the three bodies to address include reassessing outdated procedures, improving the understandability and consistency of auditing and accounting literature, developing "principles-based" accounting standards, encouraging the use and acceptance of interactive data and promoting disclosures in "plain English."

So many ways to comment on this. First of all, the goals here are desirable--whether they are realistic is a separate question. The SEC is already promoting XBRL which relates to the use of interactive data. Regarding complex and outdated standards--my guess is that very few accountants support these and the FASB has been pretty active in adjusting standards. FASB tried several years ago to develop "concept-based" standards; in my view, the attempt was only partially successful. Given the level of litigation in the country, I am very wary for the impact on practitioners if "plain English" disclosures become required. More than all this, however, I wonder about how Congress, no matter how well intentioned; can call on accountants to simplify financial reporting standards when the Internal Revenue Code created by Congress can turn even the brightest of brains into mush. The phrase "pot calling kettle black" comes to mind.