Economic Recovery Advisory Board to Consider Tax Reform

Tax Prof's Take

Roth CPA Updates Commentary"

Kay Bell's Critique

The Economic Recovery Advisory Board (ERAB) will be asked by President Obama to develop a task force to study ways of simplifying the tax system, reducing tax evasion and reducing "corporate welfare" incentives in the tax system. Additional goals include streamlining tax credits and reducing the "tax gap," while parameters include no new taxes prior to the 2010 elections and no tax increases on taxpayers with AGI below $250,000. The ERAB includes Chair Paul Volcker (former Fed chair), Martin Feinstein (economic advisor to President Reagan), Cal economics professor Laura Tyson, TIAA CEO Roger Ferguson and former SEC head William Donaldson.

Several things--we probably are due another round of tax code overhaul--after 20 to 25 years (since 1986), some dead weight probably needs to be cleansed; the ERAB has an impressive pedigree and there DEFINITELY is a need for practitioner input to assure that the final legislation does not produce the sorts of dislocation that occurred in the wake of the TRA of 1986. One must also remember that a theoretically excellent tax reform package (like that of David Bradford in 1985/86) is likely to be mangled by Congress and that simplification--short of drastic changes such as the "fair/flat" tax espoused by Mike Huckabee and others--is much easier in theory than in practice.

Audit Committee Members: More Clarity Needed by Management on Financial Issues

Audit committee members attending a KPMG conference overwhelmingly said that the recent financial crisis had changed the nature of oversight by the board of directors and/or audit committee. Specific concerns: Over half felt that the Board of Directors at best did an adequate job of challenging management risk perceptions, half felt that management disclosure on accounting assumptions or estimates was insufficient and three out of eight felt that management forecasts of earnings and cash flow was adequate at best. Overall, audit committee members listed their five biggest concerns as: liquidity and access to funds, risk management, financial statement items, maintenance of internal controls and convergence of goals, culture, compliance and risk.

The concerns raised here strike me as being healthy; the days of a board of directors being a "rubber stamp" for management must come to an end, especially for publicly-traded companies. I also applaud KPMG for holding a conference for audit committee members--some may not know what they need to be doing to protect the interest of their shareholders (AND themselves from personal liability if things go wrong with the company that they are overseeing).

Happy 50th to Kay Bell

I have no idea what age Kay Bell of Don't Mess with Taxes fame is--I figure that that would be classified information for her parents, siblings, husband and children. In THIS case, the happy 50th refers to the Spring Tax Showers edition of the Carnival of Taxes. Since the number of carnival of taxes now equals the number of U. S. states and Hawaii was the last state admitted, we can assume that these tax showers were a tropical downpour producing Hawaiian orchids--perhaps our Hawaiian-born President would like one to place on Michelle or one of his daughters.

P. S. Previous silliness aside, the Spring Tax Showers features posts about a variety of tax topics. One of the posts was my Partial Homebuyers Credit post from last week.

AICPA Boss Speaks Out at U. S. Chamber of Commerce

AICPA CEO Barry Melancon defended fair-value accounting and argued that accounting standard-setting would be best left outside the federal government in a talk before the United States Chamber of Commerce. Melancon stated that "mark-to-market" accounting added transparency to accounting and recalled few complaints at the time that the standard was adopted. He did leave open the potential for "tweaking" the standard. On another topic, Melancon asserted that the FASB and not the federal government was the appropriate standard-setter for private-sector financial accounting and was noncommittal on a legislative proposal to develop a Federal Accounting Oversight Board. Melancon also briefly mentioned going concern opinions and IFRS convergence, indicating that IFRS questions could appear on CPA exams as early as late 2011.

I do not have any special opinion on "mark to market;" in theory, market efficiency should in most cases handle the information regardless of presentation form; having said that, the market seems to have been affected by an unusual level of panic and emotion over the last several months thus calling normal assumptions of market efficiency into temporary question. I cannot generate euthusiasm over a "Federal Accounting Oversight Board"; hopefully, a thorough job by the present SEC and PCAOB will suffice.

Partial Real Estate Tax Deduction Available Even for Non-Itemizers

WebCPA points out that a new, "two-year," deduction toward AGI is available for non-itemizers. Key features of the deduction include: [1] up to $500 if single, $1000 if married filing jointly on taxes actually paid, [2] taxes must be on you (apparently, taxes on home of parents qualifying as your dependent do not count), [3] you must actually pay the taxes during the tax year, [4] special assessment taxes do not qualify--the tax must be imposed based on assessed valuation on a general, government-wide basis, [5] qualifying real estate cannot be foreign or property used by a business, [6] must use Form 1040 (line 39c) or 1040A (line 23c) to qualify.

On the one hand, you would think that after years of AMT patching and one-year extensions for incentives such as teacher deductibility of school supplies and state sales taxes that Congress does not need to institute additional fluid income tax provisions. On the other hand, the provision will legitimately help fixed income homeowners and at least some middle-income taxpayers who are not able to itemize. By all means, if you qualify, take advantage of this deduction.

Hints for Transactions from Classroom to Workplace

As graduating seniors face the workplace, the present recession pushes them into a tough marketplace where businesses basically are hiring to replace, not to add, employees and experienced employees from firms which have already laid off workers contend for these jobs as well. Furthermore, the present generation has the reputation (deserved or not) of poor communication, writing and interpersonal skills plus questionable work ethic and knowledge of business etiquette. Sandra Naiman, who wrote The High Achiever's Secret Codebook has a set of five recommendations for workplace entrants. These are: [1] use networking skills, [2] competence are important not only in accounting techniques but communications and interpersonal skills, [3] punctuality, team play and preciseness matter, [4] getting the job does NOT automatically mean keeping the job, [5] watch and ask before trying to get noticed.

I have made numerous mistakes on these areas over the years; hopefully, younger readers of Tick Marks can avoid these mistakes and learn from Ms. Naiman's good ideas--it also helps to have good role models among your university faculty, such as Neil Dortch and Carmen Reagan here at Austin Peay. While accounting students may not have to resort to prayer to get a job (versus some fields where divine intervention almost is needed to enter), it is still a difficult field and swallowing pride and minding Ps and Qs may be more important than usual.

10 Ways to Avoid Tax Traps with an Early Retirement Distribution

10 Tax Issues with Early Retirement Plans

The IRS alerts you to the following information regarding early retirement programs:
[1] Most withdrawals from IRAs before age 59.5 will be treated as early distributions.
[2] Most early distributions are subject to a 10% (of distribution) tax. On a traditional IRA, the amount received is usually taxable income as well.
[3] All early distributions must be reported to the IRS, even if not subject to tax.
[4] The early distribution tax can be avoided (or mitigated) by rolling funds into a qualified retirement plan or another IRA within 60 days. You must roll the entire amount into the IRA to oompletely avoid taxation.
[5] Monies paid to you or a beneficiary from a traditional IRA generally are taxable income.
[6] Any part of a distribution from a traditional IRA which was initially nondeductible is not taxed when withdrawan.
[7] Withdrawals from a Roth IRA are not taxed (except for earnings on the Roth investment)
[8] Unless you made nondeductible contributions to other retirement plans; amounts received from those plans would be treated as taxable income.
[9] Certain early distributions, including first home purchase, certain educational expenses and costs associated with becoming disabled, may escape the 10% early distribution tax.
[10] IRS Publications 575 and 590 can be helpful if you are receiving early retirement distributions.

The article provides a concise summary of tax implications from distributions from IRAs and some pension plans. It needs to be more clear on the tax implications of salary-based bonuses for early retirement and post-retirement fringe benefits.