PCAOB keeps Big 4 problems quiet

The Public Company Accounting Oversight Board said that it won't publicly release the control problems and structural deficiencies uncovered at the Big Four firms during its initial round of inspection reports. The board said that those issues, originally reported directly to the firms in August 2004, were adequately addressed by the firms over the following year as required under the Sarbanes-Oxley Act.

In the first of two releases, the PCAOB provided information about its process for determining whether a registered accounting firm has satisfactorily addressed quality control criticisms in an inspection report. In the second release, the board described observations about efforts undertaken by the Big Four firms to address the identified quality control concerns. Both reports are available at www.pcaob.net/inspections.

"The large firms were responsive to the board's supervisory model," said acting chair Bill Gradison, in a statement, "and as a result of the process, the board believes that the firms have crafted and undertaken important steps that, if conscientiously implemented, will have beneficial effects on audit quality."

IRS considers loosening tax privacy

The Internal Revenue Service is considering a proposal to loosen the privacy standards of federal income tax returns. The change could allow accountants and other tax return preparers to sell information from individual returns to marketers and data brokers, according to published reports.

The change was originally included in the Dec. 8 Federal Register as part of a set of proposed rules from the Treasury Department and the IRS. The IRS later separately announced the change as a proposed regulation to safeguard taxpayer information, but the announcement did not mention the potential sale of tax information.

According to published reports, a spokesman for the IRS said that the proposal would require a tax preparer to obtain written consent before selling tax information. IRS rules currently prohibit tax preparers from selling returns to third parties for marketing purposes, and require written consent if preparers want to use them for marketing by companies under their own corporate umbrella.

GAO: Gov't contractors owe billions

Widespread tax cheating by the government's own outside contractors is costing American taxpayers hundreds of millions of dollars and giving crooked firms an edge over honest competitors, congressional auditors charged.

Testifying before the Senate Homeland Security Subcommittee on Investigations, the General Accountability Office's forensic audits chief, Gregory Kurtz, said that literally thousands of private contractors doing business with the government's General Services Administration are abusing the federal tax system "with little consequence."

During the past two years, GAO investigators uncovered evidence of tax abuse by one in 10 government contractors - more than 3,800 individual companies. The GAO estimated the tax debts run up by these contractors at $1.4 billion. An in-depth review of 25 selected contractors uncovered "instances of abusive or potentially criminal activity."

In addition to owing payroll taxes that in some cases dated back to the 1990s - a federal crime punishable by up to five years imprisonment - these companies failed to pay corporate income and excise taxes, and their owners often dodged their individual tax obligations, the GAO said.

Part of the difficulty in curbing this kind of abuse is that neither federal law nor GSA procurement policies require contracting officers to specifically consider the tax debts of firms when awarding or renewing contracts.

According to the GAO, the worst offenders tend to be "wage-based businesses that provide homogenous types of goods and services" such as contractors who offer building maintenance, security or computer services.

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