No sense in two standards

I read with interest Bill Carlino's Editor'sDesk column ("A private matter," Nov. 15-Dec. 12, 2010, page 4). I am a CPA who was in public accounting, but I am now an asset-based lender to small-to-medium-sized growing companies.

My company relies on financial statements to make credit decisions to provide funds to private companies, as do most finance companies and banks. While I agree that some of the provisions of GAAP are onerous, the overriding principle of financial statements is that they must give a true and fair view of the company's financial condition and earnings, and provide all the necessary information to enable the users - i.e., owners, management, creditors, rating agencies, etc. - to make informed decisions. I don't see what the size of the company has to do with this principle.

I am fully aware that the cost of complying with certain GAAP provisions can outweigh the benefits in some cases. For example, in terms of FIN 46, entities under common control must be combined. We have clients who own real estate companies for which the accountant only prepares tax returns, and often on a cash basis. To comply with FIN 46, these entities would have to be audited or reviewed in order to combine them with the operating company, which would incur further costs for the clients. In this situation, where the real estate entity is irrelevant to our credit line, we have given a waiver and agreed that the accountant need not comply with FIN 46 and can qualify his opinion accordingly.

For every entity to which we lend, we need to know the true value and nature of their assets and liabilities; what their equity and earnings are; and any other relevant information that users need.

A financial statement is either correct or it isn't, and having two standards doesn't make sense. Once changes are permitted for private companies, where will it end?

As most private companies prepare financials for their lenders, as suggested above, rather than come up with a new standard, have the accountants request specific waivers on a case-for-case basis for any deviations from GAAP they are proposing and let the lenders decide if they are acceptable.

Neville Grusd, CPA

President, Merchant Financial Corp.

New York City

Give 'em Hell, Harry

I had been looking forward to aresponse from Harry Bose, CPA, ever since his original letter I'm sure irritated more than a few conservative accountants.

He didn't disappoint, as his recent letter ("Where the tax burden falls," Nov. 15-Dec. 12, 2010, page 12) roundly illustrates the fallacies shouted out by all the right-wing pundits claiming the rich are overtaxed.

The only issue I have with Harry is where he says the top 1 percent ($400,000-plus adjusted gross income) are upper-middle class, not rich. For the few in that category that experienced a windfall in 2007, I agree. But for the average $400,000-plus taxpayer that makes such every year, sorry, you're rich.

I'm sure more angry retorts are coming, so give 'em Hell, Harry!

John Stark, EA

Stark & Co. PC

St. Louis, Mo.

Questioning Wallach

As an attorney who has litigated issues involving tax-advantaged life insurance plans for many years, I am disturbed by an article by Lance Wallach ("The dangers of being 'listed,'" Oct. 25-Nov. 14, 2010, page 18). I am concerned that it will create unnecessary, premature and, most likely, unfounded confusion and misguidance in the marketplace.

Many of the statements made by Mr. Wallach, a self-proclaimed expert, are erroneous conclusions. Mr. Wallach's use of a Treasury regulation to substantiate his claims regarding several of the programs he mentions, such as captive insurance companies and Section 79 plans, is simply incorrect. Mr. Wallach merely refers the reader to Section b2 of the Treasury regulation, and nowhere under the listed transaction guidance does it mention the two programs referenced above. Mr. Wallach should acquire a better understanding of the 6707A penalties, as his statements concerning the assessment of these penalties on taxpayers who were deemed to have participated in listed transactions by their utilization of Section 419 and 412(i) plans are outdated. Recent legislative action greatly reduces such penalties. Moreover, these amendments had been anticipated for some time and, as expected, were recently enacted into law.

Furthermore, Mr. Wallach makes blanket statements about how such plans were marketed, which, in many of the cases, are patently incorrect. While I concur that some may have been marketed incorrectly, the majority were structured and marketed properly.

Readers of such an article need to seriously consider the fact that people with different agendas have different opinions. Furthermore, since Mr. Wallach promotes VEBAs, which are No. 2 on the listed transaction list, one must question whether he should heed his own warnings.

Robert J. D'Anniballe Jr., Esq.

Pietragallo Gordon Alfano Bosick & Raspanti LLP, Attorneys at Law

Steubenville, Ohio

"The dangers of being "listed'" is demonstrably incorrect as it relates to captive insurance company arrangements.

The IRS's current list of abusive transactions does not include captive insurance arrangements. To the contrary, the one mention of captive insurance arrangements in that list relates to so-called Producer Owned Reinsurance Contracts, which were ultimately found by the IRS not to be abusive, and the IRS de-listed them in Notice 2004-65.

While it is always possible that a particular captive insurance arrangement could be deemed to be abusive, captive insurance companies in general are not considered abusive tax transactions and do not have the reporting requirements of such transactions.

This does not mean that the Treasury will not issue future guidance against captive insurance transactions that it considers abusive, but there is unlikely to be any significant change to the reporting requirements or favorable tax treatment for the many thousands of existing, legitimate captive insurance companies that have been successfully used as risk management tools by nearly all the largest corporations and many midsized businesses throughout the U.S. and abroad.

Unfortunately, the article has the effect of painting all captive insurance companies with the same broad brush that might be applicable to only a relatively few abusive ones, and to that extent is simply inaccurate.

Jay D. Adkisson

Partner, Riser Adkisson LLP Attorneys

Newport Beach, Calif.

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