Tuesday, October 30, 2007

IRS Defers Tax Deadlines for Taxpayers in Fire-Ravaged SoCal Counties

  • Taxable Talk on Fire Relief

  • Taxpayers in much of Southern California, including Los Angeles, San Diego and many of the counties made famous by the 1980s "Valley Girls" phenomenon have had tax deadlines extended to January 31, 2008. Deadlines include third quarter payroll tax returns (otherwise due October 31) and fourth quarter income tax estimates (deferred from January 15, 2008). A shorter deferral (until November 5) appears likely to become available for employment and excise tax deposits.

    The deferral of taxes is not surprising in view of deferrals extended to those affected by Hurricanes Katrina, Rita and Wanda in 2005. Obviously, I extend best wishes to those who have been affected by the wildfires. Less obviously, I extend best wishes and sympathies to California tax preparers, including bloggers Russ Fox and Trish McIntyre, whose tax season will be made even more condensed and hectic by the present deferrals.

    Monday, October 29, 2007

    Whistleblowing: One Woman's Tale

    Cynthia Cooper, former Worldcom internal audit vice president and a major party in the uncovering of the multi-billion dollar fraud there, recently spoke at a joint ASWA/American Women's Society of CPAs conference at Walt Disney World. Cooper talked of tremendous ethical pressure and the overwhelming fear she felt while staying at the firm long enough to complete the legal depositions. Cooper now is a consultant in internal audit and corporate governance.

    A reasonable definition of courage is the ability to stay on and do what must be done when you are scared out of "your mind" and circumstances appear overwhelming ("push forward through the fear" as Cooper put it). Certainly, Cooper qualifies with room to spare.

    Whistle-blowing is an extremely emotional issue which sometimes seems to take the wisdom of Solomon to handle well. Some level of secrecy is needed to operate businesses effectively and most professional bodies have confidentiality provisions within their codes of ethics. At the same time, hurtful or illegal behavior by management or auditors cannot be acceptable; too much damage is done to society. I feel that the ethical standard on confidentiality once held by the IMA was too harsh and penalized legitimate concerns about questionable acts by management; at the same time, there is a lot of cultural bias against "snitches and rats" and the whistle-blower must know that his or her future is likely to be a lonely one. Final conclusion (I think): internal and external auditors HAVE to be able to stand firm against unethical conduct; including whistle-blowing AFTER other approaches have been tried. Governmental auditors and even accountants are pretty much in the same boat since taxpayer money (involuntary sourcing) is involved. Private business accountants probably should be the last to whistleblow--if possible, talk to an internal auditor (external auditor in extreme cases or if internal auditor is not available) and start looking for employment elsewhere if the ethical climate where you work is intolerable.

    Friday, October 26, 2007

    IRS Sets Forth Strategy to Fight International Tax Evasion

    The Internal Revenue Service announced plans to reduce the tax gap from non-US taxpayers and transactions. Among the proposed efforts: greater outreach to international taxpayers, improve information reporting and withholding, work with tax treaty partners to discourage arbitrage and other abusive schemes and improved employee training.

    It is very hard to imagine anyone in the U.S. being overly unhappy with getting tax dollars legitimately due from ex-pats and noncitizens. While the proposed steps are reasonable and appropriate, a concern is that the IRS could get obsessive and spend more in pursuing overseas tax avoiders/evaders than the extra taxes gathered.

    Wednesday, October 24, 2007

    SEC and Arthur Andersen Partner Settle 2000 Audit Case

    The Securities and Exchange Commission announced a settlement where former audit partner Fred Gold will pay a $100,000 fine and be permanently barred from practice before the SEC. The settlement dates to an inventory fraud by American Tissue. The SEC asserted that Gold should have found that assets and earnings were overstated; additionally, he was found to have altered workpapers which were part of a peer review and destroyed documents when a subsequent firm discovered inflated inventory.

    The SEC settlement against Gold and fellow American Tissue auditors John Parson and Brendon McDonald are definitely cautionary tales of the dangers of audit failure and this settlement is likely to be added to the legal liability section of future auditing textbooks. I knew that Andersen was devastated by the shortcomings in auditing Enron; I guess that I was not aware of other companies where Andersen's audits came up this short.

    Tuesday, October 23, 2007

    Blackwater: The Waxman Cometh (So Might the Taxman)

    House Oversight and Government Reform Chair Henry Waxman (D-CA) has sent two letters to Erik Prince, chair of the business which owns Blackwater USA, a firm which supplies security personnel in Iraq. Waxman asked for financial management and annual profit information and implied that Blackwater was assigned two security contracts without proper bidding occurring. Among other allegations made by Waxman: misidentification of employees as contract labor (to avoid/evade social security and unemployment taxes) and the use of an "abhorrent" confidentiality clause before back pay was paid in a dispute with a former employee. For its part, Blackwater cites an SBA determination letter agreeing with its determination that security personnel hired by Blackwater are independent contractors and accuses Waxman of making a one-sided presentation to the public before all facts have been known.

    Witch-hunt, Blackwater malfeasance or some of both? Time will tell. The "independent contractor" tax issue will be particularly interesting with the SBA letter apparently favoring Blackwater while two other private security contractors (DynCorp and Triple Canopy) treating their Iraq security staff as employees might favor Waxman.

    Saturday, October 20, 2007

    Say it Ain't So, Joe

    Best wishes for a speedy recovery to Joe Kristan, poster-in-chief at Roth CPA Updates.

    Update: Some good news. Joe posted today about a meltdown at an L.A. post office regarding tax extensions.

    California's Most Wanted--for Taxes

  • Mary Barber Tax Evasion Conviction

  • 10/22 Update--Taxable Talk Detailed Post (Thanks, Russ)

  • (Tabloid journalism or substantive tax news--what do you think?)

    Present or past entertainers O. J. Simpson, Sinbad (Adkins) and Dionne Warwick are part of California's Delinquent Taxpayers List. Each owes over $1,000,000 in income taxes and each have had tax liens initiated prior to 2000. The California Tax Board publishes the list, which includes the top 250 "deadbeat" taxpayers with liabilities exceeding $100,000.

    Presumably, Simpson's tax bill does not include anything from the disputed judgment ordering him to pay tens of millions to the Goldman family. Meanwhile, Russ Fox of Taxable Tax is likely to have more on this story.

    Update: Russ has posted a fraud story from my present hometown where former bookkeeper Mary Barber is headed for 30 months of Federal prison time for bank fraud and tax evasion.

    Wednesday, October 17, 2007

    Chief Financial Officers: More Audit Competition, Please

    A national survey of CFOs and senior controllers/comptrollers by Grant Thornton believe that the benefits of greater competition between audit firms (lower audit fees, higher quality) outweigh the potential costs (investor unease about auditor switch, negative market reaction to switch). About five-ninths of those surveyed felt that there was too few audit firms large enough to provide competition on SEC audits. Almost three-fifths of CFOs believed that negative market reaction to auditor change was overrated.

    I can certainly understand why CFOs and controllers would like a break from the run-up in audit fees of the last several years. At the same time, I am not sure that competition necessarily would help quality on SEC audits; the pool of auditors sufficiently skilled to perform SEC audits is far from limitless and "audit shopping" for lower audit fees sounds too much like the sort of behavior that created the Enron, WorldCom, etc. accounting scandals earlier this decade.

    Monday, October 15, 2007

    AICPA Announces Plans to Clarify Audit Standards

    Charles Landes, VP of Professional Standards at the American Institute of CPAs, recently announced a two-to-three year project to revise standards by making them more understandable and less complex. The revised standards will have requirements distinct from application text, at least one specific objective and the same effective date. Additionally, the AICPA is considering changing some standards to reduce differences with International Standards of Auditing.

    Improved understandably and clarity is almost always a good thing (Hint, hint--Congress and the Internal Revenue Code). Best wishes to the AICPA on this project.

    Thursday, October 11, 2007

    GM's Experiment: Can You Defease a Pension?

  • Motley Fool's less favorable view

  • In 2003, General Motors issued about $10 billion in bonds, primarily to reduce a major underfunding problem in its pensions. Several good years in the stock market later, the gamble appears to have had at least some success; Motley Fool finds a slight shortfall while Allen Sloan (reference in title above) claims a multi-billion overage. GM has been very aggressive in its earning rate assumption; at one time 9% (now 8.5%) but at least for now they have succeeded.

    In effect if their strategy is fully effective, GM will have become the first known company to defease pension debt with standard debt. Pension accounting is very complex, but doubtlessly many pension managers in companies with defined benefit pension plans are looking closely at the GM experiment. This is particularly true with FASB making noises about finding ways to require inclusion of underfunded pensions in the balance sheet and not just the notes of publcly-traded companies.

    Wednesday, October 10, 2007

    Jackson Hewitt = Jarring Headaches for ex-Chair Lister

    Jackson Hewitt Tax Service has ousted chairman and CEO Michael Lister. The likely reason for this move was a recent Justice Department action which found that franchisee Forrukh Sohail had prepared fraudulent tax returns in Atlanta, Chicago, Detroit and Raleigh/Durham. The resultant repurchase of the franchise cost Jackson Hewitt corporate close to $19 million. Michael Yerington will be the new CEO while ex-IRS commissioner Margaret Richardson will become a non-management chairperson of the board of directors.

    Last year, I gave more than a little grief to H & R Block. Obviously, in Lister's drive to grow Hewitt and compete more vigorously with HRB, he didn't choose franchisee's carefully enough. Congrats to Jackson Hewitt for being ethically proactive.

    Monday, October 08, 2007

    A War Surtax? Not Yet, but Maybe Later

    Democratic Congressmen David Obey (WI), John Murtha (PA) and James Mc Govern (MA) have proposed a war surtax of about 2-12 percent to offset the cost of supporting the U. S. war effort in Iraq. The Congressmen criticized the $200 million proposed war supplement bill and the President's unwillingness to increase spending on health, education, science and law enforcement. However, both Speaker Nancy Pelosi (CA) and Minority Leader Roy Blunt (MO) have indicated that the bill has no chance at present.

    Although the bill is unlikely to succeed in 2007, it sets up for a return next year as a potentially effective election-year campaign tactic. The Democrats are feeling frisky on the child health veto and a "war tax" bill next year could put Bush in an awkward position of either supporting "his" Iraq war or breaking his "no tax increase" pledge.

    Saturday, October 06, 2007

    IG: Interior May Not Be Collecting All Petroleum Royalties

    Interior Department Inspector General Earl Devaney, upon request of Interior Secretary Dirk Kempthrone and several members of Congress, was asked to investigate "false claim" lawsuits (somewhat akin to whistleblowing suits) involving royalty payments to the Interior's Mineral Management Service (MMS) by oil companies (on leases). The results--auditors had not followed proper procedures--in part because of a lack of trust in management, and inconclusive on two other issues: misuse of proprietary information by auditors and evidence of retaliation by management. Lease royalties is one of the federal government's largest non-tax revenue sources with collections of over $8 billion per year. However, the Inspector General vigorously criticized MMS policy of calculating interest on leases rather than requiring oil companies to make the calculation. Because of shortcomings in MMS computers, MMS personnel (actually, Mineral Revenue Management, an office within MMS) were hand-calculating interest. Devaney wrote that failures existed in technology and communication and that a significant source of federal revenue collection depended on a "Band-Aid approach." Senator Jeff Bingamon and Congressman Nick Rahill called on Interior to submit a detailed plan for addressing Devaney's concerns.

    It is mind-boggling that a federal agency would resort to hand-cacluating interest for oil companies with far stronger computer capabilities for doing this calculation. Two questions: [1] do we REALLY want a government with this type of performance on present responsibilities taking on additional duties presently done by private, nonprofit or state/local governments, [2] is it fair for oil companies to expect the government to calculate interest and royalties on oil leases when individual taxpayers are expected to calculate their own tax liabilities?

    Wednesday, October 03, 2007

    Treasury Creates Audit Advisory Panel

    Treasury Secretary Henry Paulson announced the establishment of an Advisory Committee on the Audit Profession. Announced goals include sustaining the vibrancy of auditing, attracting talented young people into auditing and greater harmonization with international auditing standards. Former SEC Chairman Arthur Levitt and former SEC Chief Accountant Donald Nikolaisen will chair the new panel with other members including Timothy Flynn (KPMG), Barry Melancon (AICPA), Anne Mulcahy (Xerox), Gary John Previts (Case Western University), Paul Volcker (former Federal Reserve chairman) and Lynn Turner (former SEC chief accountant).

    I suspect that it will take a while for this group to figure out exactly what its mission is. Best wishes on its goal of attracting young people into auditing.

    I'm Back

    Had a little bug yesterday, but back at it today. Note that my post last week on the IRS webpage for home mortgage foreclosures was included in Carnival of Taxes #23 (Taxoberfest) at Don't Mess with Taxes (link in title above).

    My blog is worth $7,903.56.
    How much is your blog worth?