New Links

I have updated the URL of Jeremy Newman's accounting blog and linked to three new blog sites today: Accounting Web's Blogging Crew (accounting links), Wise Bread (personal finance links) and IRS-Hit Man (tax links).

Oh Where, Oh Where is My Rebate Check...

Wrong Addresses on Rebate Checks (Accounting Web)

Over a quarter million economic stimulus checks for about $163 million and over 100,000 regular refund checks totaling about $100 million have been returned to the IRS because of wrong addresses. IRS Commissioner Doug Shulman says that his agency is trying to enable taxpayers to receive these checks by having taxpayers send updated addresses to the IRS by November 28. An IRS Web site page and toll-free numbers (866-234-2942 for stimulus and 800-829-2954 for regular refunds) are available to help.

By all means, if you can't figure out why your stimulus or rebate checks have not arrived, contact the IRS as they might be holding it.

P.S. While you are at Accounting Web, check out the "Bloggers Crew" section. Familiar names such as Michelle Golden (Golden Practices), Eva Lang (BV Girl) and Eva Rosenberg (Tax Mama) also blog for Accounting Web as do a number of others on topics ranging from practice development to tech issues to taxes.

You've Heard McCain and Obama--What Do the Other Parties Say?

Nader's position

Green Party position

Constitution Party position

Libertarian party position

A number of bloggers have posted on the tax platforms of Barack Obama and John McCain. so I thought it might be interesting to see what four would-be third parties propose on the tax front. The Constititution Party and Ralph Nader's Independent candidacy had the greatest level of detail. The Constitution Party favored the elimination of income, estate and payroll taxes, opposed flat-rate and value-added taxes and supported a system dominated by tariffs with provision for "state-rate" taxes (taxes based on a state's population) and highway excise taxes. Nader/Gonzales favored a "carbon pollution" tax, "sin" taxes on alcohol, tobacco and gambling, a transaction tax for sales of stocks, bonds and similar financial instruments, and the elimination of special tax rates for capital gains and dividends. Less verbose were the Green Party and, surprisingly, the Libertarians. All I could find on Green Party tax policy was support for a tax structure which leveled the economic playing field and which reversed corporate control of the economy. Libertarian party platform item 2.4 called for the repeal of the income tax (like the Constitution Party), elimination of using employers to collect taxes and balancing the budget by reducing federal spending.

There is no chance that any of these parties will win the 2008 election; in fact, any of them reaching the 5% threshold for qualifying for federal campaign financing would be a major upset. Nevertheless, "minor" party platform positions are sometimes adopted by larger parties later on--one could even argue that McCain's "spending freeze" is a variation on the Libertarian balancing budget by cutting spending plank. I could certainly see a Nader tax idea adopted by the Democrats at some future point; less likely would be a strong Republican candidate adopting a Constitutional or Libertarian tax position.

Auditors Chosen for Bank Bailout

PriceWaterhouseCoopers has been selected by the Treasury Department to audit the monies distributed in the multi-billion financial rescue packages approved late last month. Additionally, Ernst and Young has been selected to perform general accounting services which include but is not limited to internal control design. PWC will receive about $500,000 while E&Y are scheduled to be paid slightly less than $200,000. These contracts will run to the end of the government's 2010-11 fiscal year (September 30). The asset management firms which will assist the government in pricing, purchasing and maintaining loans and securities have yet to be chosen.

Congratulations (I think) to PWC and E&Y. I have EVERY confidence that they will do at least as good a job of accounting for bailout activities than the government will do on the bailout itself and will do a better job of accounting than Congress will do in "solving" the financial crisis.

Treasury Speaks Out on Refund Anticipation Loans

The Treasury Inspector General on Tax Administration (TIGTA) published its research of 250 taxpayers on Refund Anticipation Loans (RALs). A tax preparer and client agree to the RAL, which gets refund proceeds to the client more quickly for a cost. About 10 million RALs are made per year. The TIGTA indicated that taxpayers would be willing to wait up to nine days for their refund to avoid an RAL (note: I have never seen a taxpayer receive a refund in nine days, but I guess nine business days might be possible if the return is electronically filed). Moreover, TIGTA findings that many taxpayers which took out RALs would have been eligible for free filing assistance through Taxpayer Assistance Centers, VITA or the IRS Free File Program.

While I stop short of calling for the prohibition of RALs (hopefully states DO look at whether these loans are within usury guidelines), I find them morally repugnant and hope that most CPA firms leave such techniques to retail tax preparers. The IRS has tried to market their free preparation services with some degree of effort; I am not sure whether suspicion of the government or some other reason is the root of the small number of people which take advantage of IRS assistance efforts.

New FASB Statements on Going Concern and Subsequent Events

FASB Going-Concern Statement

FASB Subsequent Events Statement

The FASB has drafted modifications to Going Concern and Subsequent Event standards. The Going Concern modifications primarily seem to exist to conform U.S. GAAP to international GAAP but does throw in an interesting wrinkle--rather than the present requirement to have management look forward one year from report date, the proposed language would be one year from balance sheet date or longer if necessary. On the subsequent event front, the look forward time would be one year from issue of statements OR one year from date statements could be issued--an accomodation for nonpublicly traded entities. Additionally, the proposed statement makes a distinction between realized subsequent events (events prior to balance sheet date completed by report date--include in financials) and nonrealized subsequent events (occuring after balance sheet--disclose in notes) and disclosure of management's process for subsequent event evaluation.

It is my opinion (which may not be terribly valuable) that material going concern problems should either: [a] cause use of liquidation accounting (not generally accepted accounting principles as I understand it) with an explanatory paragraph where the auditor either disagrees (probably leading to an adverse opinion) or agrees and includes in the explanatory paragraph justification for GAAP departure or [b] require a qualified opinion if GAAP-based statements are issued unless GAAP basis would be so misleading that an adverse opinion is required. At present, explanatory paragraph and disclosure in notes of underlying problem is all that is required in most going-concern cases. The other question on going concern: is conformance with international GAAP worth giving up the bright line on 12 months after report date?--I guess I'm not sure. On subsequent events--I can foresee confusion on the concept of "date available to be issued."

Glass-Lewis Study of Executive CEO Cost and Benefits: Let the Shareholder Lawsuits Begin!

Glass-Lewis website (see Pay Dirt Report)

Proxy researcher Glass-Lewis found that 40 corporate executives had compensation in excess of $30 million last year--and the shareholders frequently did not get what they paid for. Particularly bad deals involved executives of Sprint/Nextel, General Motors, Ford, CBS and home builder KB Homes as each of these companies added injury (falling stock prices and/or net losses) to insult (the compensation packages).

Absent some new government regulation--which is very possible given the present political climate and the statements of Presidential candidates McCain and Obama (not to mention McKinney and Nader)--the only real resource available for excessive executive compensation packages would be shareholder lawsuits against boards of directors for negligence or bad faith in setting compensation packages. Given present law, as long as executive salaries were accurately reported where required (such as tax returns), CPA firms probably--PROBABLY--are reasonably safe unless they were hired by board of directors to consult on executive pay packages.

Taxoberfest and New Links

Kay Bell's 41st Carnival of Taxes (Taxoberfest) includes my "College Knowledge" post from last week, in addition to other quality posts by such blogs as Blueprint for Financial Prosperity, Free Money Finance and Wandering Tax Pro.

Six new blogs are linked as of today: Big 4 Alumni (news from the mega-CPA firms), CPA Firm Leaders (insights by Rita Keller, an Accounting Today Top 100 accountant, The Eyeshade (audit commentary by Michael Ramos), The Summa (financial accounting thoughts from Prof. David Albrecht), Tax Guy (from "Bruce--a recent post was on who qualified for a deduction) and Tax Lawyer's Blog (Peter Pappas writes this).

How the "Bailout Bill" Affected Taxes

The Emergency Economic Stabilization Act of 2008 (hereafter the bailout bill), originally designed to be strictly limited to eliminate "toxic mortgages" to improve credit markets, ended up with some 290 changes to the tax code. A number of these changes were routine, such as tax extenders for such issues as the AMT patch and deduction for K-12 teacher spending for school supplies; others continued the recent trend of providing tax relief to those affected by natural disasters such as the Midwest floods of early summer and Hurricane Ike. Other provisions include new energy-oriented tax incentives, such as solar electric investments, geothermal heat pumps, energy-saving windows and plug-in cars as well as lowering the floor income for refundability of the child care credit.

With the exception of the AMT patch, my guess is that most of the changes will affect relatively small numbers of taxpayers and primarily those who itemize deductions. Nevertheless, these changes will keep annual tax update instructors busy as demand by CPAs, EAs and attorneys for CE courses on tax updates will continue to be high.

Tax Clouds on the Horizon for the Palins?

Paul Caron at TaxProf cites Jack Bogdanski and Bryan Camp as finding several potential problems in the recently released tax returns of Todd and Sarah Palin, including a travel allowance for the "first dude" and their children and a deduction for Todd's snow racing. Camp also believed that there was some risk for a negligence penalty and said that Alaska's failure to include the allowance in Sarah's W-2 would not necessarily save the Palin's from this penalty. Caron and Camp also both criticized an opinion letter by tax attorney Roger Olson on the Palin's returns.

There likely is more heft to the Bogdanski/Camp criticism of the Palin tax returns than has been true of many of the recent media political comments on Sarah, though no one is talking fraud and even a negligence penalty, in my mind, is not a sure thing. The key issue here--check your tax return before sending it in, even if prepared by a paid preparer.

FAF Not Thrilled with SEC Adjustment to Mark-to-Market

The Senate (and eventually the House) gave permission to the Securities and Exchange Commission to suspend "mark-to-market" rules on securities held when no ready market exists. The SEC and Financial Accounting Standards Board issued a "clarification" that internal management estimates of cash flows could be used to measure fair value when no market evidence exists. Broker models and quotes could be considered in these estimates, but should not be used by themselves in an inactive market, according to the SEC. Reaction to the announcement was mixed with the American Bankers Association praising the decision while the Financial Accounting Foundation, FASBs parent, criticizing the SEC for letting political considerations get in the way of independence in the standards-setting process.

Given the state of the "bailout" bill, the "mark-to-market" in pre-October form was politically doomed. Personally, I prefer an approach similar to the "floor and ceiling" approach used in lower of cost or market inventory to using management estimates of cash flows--the latter seems to lack independence.