"Fool Us Once, Shame on You; Fool Us Twice..."

Other views:

Kay Bell

Joe Kristan

Peter Pappas

Treasury Secretary Timothy Geithner and HUD Secretary Shaun Donovan have called for an extension of a modified Homebuyers' Credit through the second quarter of 2010. Among the changes proposed: extending (at a reduced amount of $6,500) the credit to non-first time buyers, increasing income levels to $250,000 MFJ and $125,000 otherwise and adding antifraud provisions including an age test and documented proof of purchase. Support appears to be present from three Senate powerhouses: Chris Dodd (D-CT), Mitch McConnell (R-KY) and Harry Reid (D-NV) and from two Georgia representatives: Johnny Isakson (R) and John Lewis (D).

According to standard political theory, the only supporters who might make some sense are Izakson and McConnell, since Republicans are supposedly the party of "special interests" and the three biggest beneficiaries of this legislation are bankers, land developers and realtors. Even without the fraud component of the present credit, the Homebuyers credit was on iffy ground as a tax expenditure; given the fraud history and expansion of qualifying parties--thus adding to the revenue loss at a time where new taxes and tax hikes are being floated as trial balloons almost every day--it is hard to see how this extension could be a good idea for the taxpaying public as a whole.

You've Earned Your Break--Now Make Sure that You Can Afford It

Congress designated last week as National Save for Retirement Week. The Illinois CPA Society has developed a five-step plan to evaluate your progress toward saving for retirement: [1] start with a plan--and realize that the older you are, the harder you will have to work to get where you want; [2] set priorities--how do YOU value retirement saving vs. saving for a child's college education; [3] think practically--if the numbers aren't coming out the way you would like; see if there are "little luxuries" (example: eating lunch out rather than "brown bagging") which you can reduce or eliminate; [4] check your plan regularly to make sure that it is keeping up with your needs; [5] consider your options--for example, can you leverage retirement savings by getting a match by your employer? Also, make sure that you are saving enough--the Illinois CPAs recommend 15-18% of income (as does Dave Ramsey). The article also points out that Social Security is only likely to provide about 40% of your preretirement earnings, but most people would like to spend 70-80% of preretirement level, meaning that even the people with the greatest confidence in Social Security need a second source which provides almost as much as their monthly Social Security check.

The advice of the Illinois CPAs, though hardly groundbreaking, is very reasonable. Particularly valuable--the idea that your retirement savings should allow you to take out the equivalent of 35-40% of preretirement income for 10-20 years (depending on health, age at retirement, whether your home is paid off and gender, among other things).

FEMA Can Estimate, But Can It Measure?

FEMA Deputy Administrator Timothy Manning stated that he believed that $29 million in funds to the Federal Emergency Management Administration within Homeland Security had helped prepare for potential terrorists attacks, but that he could not measure these benefits nor develop a return on investment for the funds. Congressmen Bennie Thompson (D-MS) and Henry Cuellar (D-TX) criticized FEMA for slow performance towards measuring effectiveness of emergency response programs and also indicated that Congress was likely to overturn recent FEMA policy barring states and municipalities from using new Homeland Security funds to maintain assets acquired with previous funding.

FEMA appears to be a political trap for the unwary; its dubious performance in the wake of Hurricane Katrina spelled the beginning of the end for George W. Bush's political popularity. Manning deserves some sympathy as benefits from insurance are hard to measure when no insurable events occur; nevertheless, taxpayers deserve some assurance that their tax dollars are not being wasted.

Calling Stanley Surrey: Excessive Homebuyer Credits Exceed $600 Million

An audit by the Treasury Inspector General of Tax Administration (TIGTA) indicated that over 90,000 claims of the new Homebuyer credit (total taxes foregone: $636 million) appeared to be either errant or fraudulent. The credit, lauded by the real estate and construction industry as protecting those industries from collapse, allowed first-time homebuyers to claim a refundable credit of up to $8,000. The most common problem (about 70,000 cases) were when the credit was claimed by buyers not buying their first house. About 20,000 cases involved credit claims by people who intended to buy but had not yet bought a home and 500-600 cases involved claimants under the age of 18 (a four year-old in one case) who generally would not be legally able to contract for the purchase of a home.

Presumably, the late Stanley Surrey, who with Paul McDonald wrote the seminal piece on tax expenditures, would be horrified by this credit even before this level of tax credit abuse. As often happens with Big Government, good intentions lead to questionable law which then leads to bad results.

WashTimes: Federal Regulators Misled Congress on BoA bonuses

Court documents obtained by the Washington Times indicated that regulators were aware of bonuses awarded to Merrill Lynch executives between the time Elijah Cummings (Democratic Representative from Maryland) asked Henry Paulson (former Secretary of Treasury) about bonuses in July 2008 and the time that $20 billion in aid to Bank of America (which acquired Merrill Lynch) was approved in January 2009. A letter by Darrell Issa (R-CA) asks why neither Paulson nor Fed chairman Ben Bernanke objected to the aid, seeing that Bank of America documents about the Merrill Lynch documents were available to the public by mid-December 2008. Public opinion on the issue of bonuses for executives of TARP beneficiaries has been raw since AIG received aid of over $150 billion in March, then disclosed over $150 billion in executive bonuses. Bank of America is also hounded by accusations of failure to disclose losses and Merrill Lynch bonuses before the merger.

Comments: [1] The probable result of the Merrill Lynch--Bank of America merger fiasco is likely to be heavy fines and possibly imprisonment for the most at fault. One hopes that governmental officals who knowingly misled the public will suffer comparable consequences to those Merrill Lynch and Bank of America executives who acted in bad faith; [2] yet again, are we REALLY sure that the U.S. Government is going to be effective in regulating new activities when past regulators have failed?

No More Life for LIFO?

Last-in, first-out inventory method faces several challenges to its continued existence. Congress in a period of deficit reduction eagerly eyes the close to $1billion in tax revenue from just the construction industry which would come if LIFO's place in the IRC was repealed and LIFO reserves of nearly $3 billion were subject to recapture. Additionally, present IFRS standards make no provision for LIFO, thus financial statements would have to be restated because of the IRS's conformity rule for LIFO.

There is a theoretical case for LIFO in inflationary times; because it assumes sales of goods most recently priced it provides the most accurate measure of income if inflation is significant and inventory changes little if at all from year to year. This nonwithstanding, it looks like LIFO will soon go the way of pooling of business combinations and the political contribution tax credit.

Putting a Premium on Health Insurance Premiums?

Democrats reacted sharply to a report issued by PriceWaterhouseCoopers, CPA which estimated that family health insurance premiums would rise by over $1,000 by 2013 and close to $4,000 by 2019 (single insurance up $600 and $1500 respectively) in comparing the "Baucus Bill" to coverage without major changes. NOTE: The CPA report estimates an increase of over 50% in health insurance premiums even if no major changes occur. Health Reform chairwoman Linda Douglass blasted the report as self-serving and suspicously timed and AARP offical John Rother called it worthless. Robert Zirklebach of a trade group for health insurors, however, defended the report. Zirklebach claims that reduced penalties for young people not buying insurance will shift costs to other purchasers of insurance.

I am assuming that Congress ultimately will pass some form of health legislation before the end of the year and probably fairly close to the Baucus bill. Time will tell whether the fears given by the health insurance lobby are valid or not. Of more importance to accountants: we have just seen Fox News be frozen from White House access by the Obama Administration for the rest of 2009. If action is taken against the CPA profession and particularly the "Big 4"(perhaps in the nature of proposed tighter tax registration legislation or tightened Sarbanes-Oxley provisions) in the wake of the PriceWaterhouseCoopers report, we would be seeing at minimum a real demonstration of hypersensitivity and perhaps the equivalent of a Nixonesque "enemies list" developing from the Obama administration.

A Different Type of "Tweet"--Whistleblowers and the IRS

A report from the Treasury Inspector General of Tax Administration (TIGTA) found that a new whistleblowing program developed less than three years ago is having problems with timely processing, internal controls and documentation of questionable tax behavior. The program, which allowed whistleblowers up to 30% of added taxes collected, received almost 1900 claims in 2008. TIGTA found that the presence of three separate inventory systems has contributed to processing delays and inaccuracies. Additionally, the underlying legislation was faulted for failing to provide sufficient employment protections for whistleblowers.

Since I do not work for the IRS, I cannot tell whether legislation flaws, inefficient monitoring systems, dubious claims or IRS management deficiencies has caused the sluggishness in the whistleblower program. Hopefully, the audit points mentioned in the TIGTA report will be taken seriously and IRS will improve its performance.

Taxoberfest!

[Post #1000] Kay Bell's Carnival of Taxes (58th edition called Taxoberfest 2009) included my article "QTIPs Remove Golddiggers from Your Heirs" from last week. I am also flattered that Ms. Bell suggested me as a possible candidate for a "National Tax Bee" in a post last Friday--though the other bloggers mentioned would be formiddable competition indeed! Additional names which could have been mentioned (still not an exhaustive list): Richard Close (IRS Hit-Man); Russ Fox (Taxable Talk); Gina Gwozdz (Gina's Tax Tips) and Kerry Kerstetter (Tax Guru).

Meanwhile, it looks like ready or not Max Baucus, Harry Reid and company are going to insist that the presently proposed health care legislation is worthy of passage and our tax dollars. As the saying goes, elections have consequences.

Getting Started in the Accounting Profession: What Skills are Needed?

Dr. Cory Comments in San Antonio Journal

Suzanne Cory, Thomas Madison and Thomas Persillin recently conducted a survey of Texas Society of CPA members, South Texas IMA members and employers who had recently interviewed students of St. Mary's University. Survey participants were asked to rate the importance of accounting courses and cite skills which they desired entering accountants to have when they first came to work. Rating high among respondents were fluency in computer spreadsheet applications and interpersonal skills such as ability to work in teams, professional demeanor and written and oral communication skills. Additional findings included an emphasis on intermediate financial knowledge compared to auditing knowledge and the growing importance of computer skills.

Ms. Cory's comments should be etched on the minds of accounting juniors and seniors--in fact, it would not be unreasonable to request from Dr. Cory a summary of the paper to see if there were other available tidbits of value. Though specific priorities may vary by region, I am not really surprised to see interpersonal skills and technological fluency rate almost as high as expertise in accounting and tax knowledge.