Thursday, February 28, 2008

It's not all DAT! Beware of Distressed Asset Trusts

The Internal Revenue Service indicated that distressed asset trust transactions would be treated as tax avoidance transactions and would require additional disclousre and be at higher risk for penalties. The IRS sees this type of trust as attempting to do an end-run around limitations on partner losses on property contributed to a partnership which has a lower fair value than cost basis. These rules, instituted by the Jobs Creation Act of 2004, accomplish the same goal as related party loss limitations. The IRS Notice backdates potential review of DATs to any transaction occurring after October 22, 2004. The IRS recommends amending prior returns if DAT-related losses in prior years.

On the surface, a fairly harsh ruling, though I can see the consistency argument that the IRS is making. Courts will probably agree with the IRS going forward; I wonder if they will accept the retroactive facet of the ruling.

Tuesday, February 26, 2008

House Dems Pushing Renewable Energy Tax Credits

Congressional Democrats plan to introduce a bill this week to shift tax credits from large oil and gas producers to renewal energies. Leading Democrats, such as Nancy Pelosi, Steny Hoyer and Charles Rangel, want less dependence on foreign petroleum if energy sources such as biodiesel, solar, water and wind can be encouraged. Estimated amount shifted will be close to $18 billion. Certain tax breaks for large petroleum companies will be eliminated or reduced; one example--an increase in the amortization period on geological expenditures.

Must give the House Democrats some credit here--clearly, there needs to be expanded efforts to find a way to make the U.S. less dependent on petroleum. At the same time, the attempt to reduce oil company profits by cutting out tax breaks probably is naive--in all likelihood, increased income tax expense will proabaly be passed on to consumers at the pump.

Saturday, February 23, 2008

There's Tax Scams in Them There Hills (Beware, (SF) 49ers)

(Post #800) The Justice Department is bringing legal action against two tax preparers for fraudulent mining deductions. Eric Peterson of Texas and William Camp of DC sold "investments" in a project called Midas through Merendon Mining of Colorado and an Canadian outfit called the Institute of Financial Learning. Customers made no investments but claimed passed-through tax deductions from bogus returns/1099s prepared by Peterson and Camp. At least seven of the customers were past or present NFL players.

No word on consequences to the footballers, but the Justice Department wants a permanent ban on Peterson and Camp as tax preparers. Once again, the old adage applies: If it sounds too good to be true; it almost certainly is.

Thursday, February 21, 2008

Exec CPAs Fear Economic Slowdown

A joint poll of the AICPA and North Carolina Flagler Business School found that about three of five of the 1,500 executive CPA respondents were at least somewhat pessimistic about economic prospects during the upcoming year with only about one in nine showing optimism. Nevertheless, a plurality of respondents (slightly over a two-to-one margin) believed that their own firm would be fine. About four in seven agreed with two other recent moves: the tax rebate stimulus package and the move to allow foreign-based companies to file U.S. financials using IFRS without reconciliation to U. S. GAAP.

The despair amongst executives is not a good sign; a lack of confidence in the economy often becomes a self-fulfilling prophecy even if financial fundamentals are acceptable. Bush, Congress and the Fed have tried several short-term approaches (tax rebate, interest rate cuts to name two), now structural strengthening of the economy, perhaps by taking another look at government regulations, is the next step.

Tuesday, February 19, 2008

Interactive and Almost Real Time: SEC Introduces "Financial Explorer" and XBRL

The Securities and Exchange Commission announces Financial Explorer, which through Extensible Business Reporting Language allows interactive evaluation of corporate financial performance. Similar tools available at the SEC website allow users to evaluate compensation for top executives and access to interactive financial reports. Additionally, the SEC is attempting to require investment advisers to provide clients business practice and investment history brouchres written in "plain English."

Congratulations to the SEC as their XBRL project comes to fruition. It should be interesting to see what impact XBRL and interactive information might have on the stock market.

Sympathies for Northern Illinois

While not widely known outside the Midwest, Northern Illinois has one of the best teaching-oriented accounting programs in the nation. Sadly, last week, six students and a gunman were killed in what appeared to be a random act of violence. The American Accounting Association said that no one in the accounting department was directly affected; nevertheless, an incident of this nature has some impact on even the most isolated of students and personnel. My sympathies to the Northern Illinois community.

Thursday, February 14, 2008

A Busy Time for the Jackson Hewitts and H & R Blocks?? Low-income Taxpayers Must File to Get Rebates

IRS Acting Commissioner Linda Smith says that taxpayers must file to get the tax rebate, even if they have no tax liability, because the law requires at least $3,000 in qualifying income to be eligible for even a $300 rebate. Additionally, the taxpayer must file with an valid Social Security Number; Individual Tax Identification Numbers are not sufficient to prevent undocumented workers/illegal aliens from receiving rebates. The IRS has budgeted just over $200 billion for the checks and additional processing costs; the agency expects an additional 10 to 20 million returns. Stiff says that the IRS will work with the Social Security Administration and Veterans Affairs to make sure that qualifying seniors and veterans are aware of the need to file.

The filing requirement is interesting and will likely provide extra work for tax preparation businesses, enrolled agents, etc. This may also place an additional burden on VITA volunteers. A potentially interesting unintended consequence--some qualifying people may not file to get the refund to avoid having to declare unreported income.

Tuesday, February 12, 2008

Inside Internal Audit at Deloitte

The officers at Austin Peay's IMA Chapter (Heather Stanley, Michelle Permenter, Ashley Sheffield and Amanda Ohlman) have consistently done a good job of lining up guest speakers for this academic year. Yesterday, David Shipley and Jamie Spears (no, not Britney's sister) came to speak on Deloitte's internal audit area. In this case, they work on auditing the procedures of Deloitte as opposed to providing consulting advice to outside businesses (which under SOX generally could not be Deloitte audit clients). The speakers talked about what internal audit entailed and some characteristics which would improve the likelihood of success. Many of the 15 or students in attendance had questions after the presentation. An indication of the shortages in CPA firms; Deloitte's internal audit department, which apparently at one time only accepted manager level personnel, is now accepting entry-level personnel.

Thanks to Deloitte and Mr. Shipley and Spears for appearing yesterday. Internal audit is a career worth considering for a graduating accounting major.

Thursday, February 07, 2008

"Dear God: Please Let these Survey Respondents Be Right!"

A survey of leading corporate tax executives by law firm Miller and Chevalier predicted few if any changes in the tax code (excepting the annual AMT and "tax credit" patch; the tax rebate and extension of earlier Bush tax cuts beyond 2010 were not considered) during 2008. Two of larger concerns at present are the effective tax rate and ramifications of FIN 48. Economic substance, hedge fund taxation and taxation of international activities also drew consideration as possible changes this year. It is possible that there may have been a conservative bias in the responses; Milt Romney was seen most favorably and Hillary Clinton and John Edwards were tied for least desired presidential option by the respondents.

The "practitioner prayer" in the title indicates that short of fundamental reform including simplification of the tax code and regulations, that the next best option is minimal change from one year to the next. For an example of the dangers of tinkering with the tax code, one must only look at how the proposed tax rebate has been loaded up in Senate deliberations.

Tuesday, February 05, 2008

"Fairness" Opinions: A New Service for Deloitte and Touche

Deloitte Financial Advisory Services (presumably the consulting arm of Deloitte and Touche) has begun offering fairness opinions in regard to mergers, acquisitions, divestitures and transactions where publicly-traded companies go private. Chris Riggeri of DFAS points out that Deloitte may be more independent than investment bankers and that the opinions provide some security to boards of directors seeking to satisfy due diligence expectations and increase safety from shareholder suits.
Riggeri points out that Deloitte has provided these services in Europe.

"Fairness" opinions are an interesting concept. If they become popular in M & A settings, the potential exists to expand to other situations--such as executive bonuses and stock options, early retirement packages and partner buyouts.

Saturday, February 02, 2008

KPMG: How to Succeed as an Audit Committee

Global accounting firm KPMG recommended 10 procedures to make an audit committee successful. These procedures include: be a catalyst for improving risk management, closely monitor management disclosure, get up to speed on fair value and other accounting standard developments, make sure that the CFO and accounting and finance departments have the resources to do a good job, assure a shared vision of internal audit, encourage frequent communication with the external audit partner, be prepared for a crisis, make sure the full board of directors knows the plans and needs of the audit committee, assess the tone at the top and do a through self-examination of audit committee performance.

All these KPMG procedures are appropriate and worth implementing (if not already in place). Sam Antar would add one more--intensely scruntize all documents provided by management, especially if the committee has been given even a iota of a reason to be concerned about management integrity.

UPDATE: Thanks to Sam Antar for the additional recommendations included in the Comments Section!

PA Groundhog Sees Shadow; 6**6 More Weeks of Taxes Forecast

"Punxsutawney Phil," the world's most famous groundhog, saw his shadow today. The traditional interpretation is for six more weeks of winter, but in honor of global warming, a more up-to-date interpretation might be six to the sixth power (about 900 years) of additional tax assessments. A Southern compatriot, General Beauregard Lee of the Atlanta area, did not see a shadow, thus Georgia taxpayers might be looking a shorter period of taxation; perhaps a mere 600 years.

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