Congress passes Katrina tax cuts
Both the House and Senate passed nearly $5 billion in tax cut bills aimed at helping victims of Hurricane Katrina and the people who provide them shelter.
The bills have slight differences that will need to be ironed out before moving to President Bush for his signature. At press time, that process was not expected to take long, with both chambers having passed the bills by a voice vote. The cuts are designed to give people affected by the hurricane easier access to their retirement savings and to encourage charitable giving. Among other provisions, both versions of the plan waive penalties for victims who withdraw cash from their retirement savings accounts, solidify an earned income tax credit for the working poor, and provide a $2,000 tax break to anyone who houses victims for two months or longer.
Other provisions include the extension of a tax credit for employers who keep workers in the disaster zone on their payroll; the elimination of a limitation on casualty losses, making it easier for victims to get a refund of taxes they paid in 2004; and an allowance for survivors to exempt from taxes any debts that are canceled because of the hurricane.
The bills would also make it easier for individuals to donate funds from their individual retirement accounts, and raise the charitable deduction limit for corporations to 15 percent of income. The legislation also would increase the mileage deduction for cars driven for charitable purposes to 24.25 cents per mile, up from 14 cents.
GAO outlines tax reform debate
The Government Accountability Office has released a comprehensive overview of the tax reform debate. "Understanding the Tax Reform Debate: Background, Criteria and Questions" begins with a history and general explanation of the evolution and need for taxes. The report also notes that, in 2005, Americans will pay about $2.1 trillion in combined federal taxes, including income, payroll and excise taxes, or about 16.8 percent of gross domestic product.
The document also provides an overview of the fundamental design of the federal tax system, explaining the question of whether to use a base income or a consumption tax, and whether the rate structure should be flat or more progressive.
The report, which notes that it is not intended to break new conceptual ground, brings together a number of topics that experts have identified as those to be considered when evaluating tax policy. The report attempts to provide information about these topics in an easily understandable manner for a non-technical audience, and draws on a number of government studies, academic articles and the advice of tax experts as its sources.
The 77-page overview is available online at www.gao.gov/new.items/d051009sp.pdf.
Tax errors lead Sun to restatements
Computer manufacturer Sun Microsystems Inc. will restate its 2003 and 2004 financial results after identifying errors related to the accounting for various tax-related issues. In a filing with the Securities and Exchange Commission, the company said that the issues started with deferred taxes taken in foreign jurisdictions, eventually spilling over into corrections for state and foreign tax returns and withholding taxes.
The changes will reduce the company's benefit from income taxes for the 2005 fiscal year by $45 million, and decrease the provision for income taxes in 2003 by $45 million. The company also trimmed its 2003 losses slightly, to $3.38 billion, from $3.43 billion.
Sun said in the filing that the errors were identified through the internal controls that the company has in place. The company said that the errors and revisions will not impact its 2004 financial statements, and the adjustments have no impact on Sun's revenue, gross margin, pretax income and operating cash flows for the restated periods.
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