Accounting standards

The Joint Committee on Taxation has issued a report on the individual alternative minimum tax in advance of a Senate Finance Committee hearing scheduled for Wed., June 27. The JCT report listed several selected reform options, which include: indexing or increasing the exemption amounts; allowing the deduction for personal exemptions and standard deductions to be used when computing the AMT; permitting state and local taxes against the AMT; reducing the minimum tax rates; eliminating the phase-out of the minimum tax exemption; allowing nonrefundable personal credits to offset the minimum tax after 2006; and repealing the AMT. The report is available at: http://www.house.gov/jct/x-38-07.pdf.

The LexisNexis Tax Center platform will now include exclusive content from Ernst & Young's International GAAP Online. Written by the International Financial Reporting Group of Ernst & Young, International GAAP Online includes the full text of every International Financial Reporting Standard and a set of model IFRS financial statements. LexisNexis has also paired with Danielle Rolfes, tax attorney and CPA with Ivins, Phillips & Barker, to present information on FIN 48. "There's a sea change that's less about the mechanics of FIN 48 and more abut rigorous accounting to give investors enhanced insight into companies' overall income tax positions and the consequent ability to scrutinize and compare," said Rolfes. LexisNexis launched its Tax Center last year to help streamline analysis of tax strategies across the broadest array of tax publishers available on a single platform, including LexisNexis, CCH, BNA, Tax Analysts, the ABA Section of Taxation and Matthew Bender.

The Internal Revenue Service is expanding an outreach effort to ensure that public schools throughout the United States are complying with the universal availability requirement for retirement annuities they may offer.Some schools and school districts may be overlooking offering employees the opportunity to participate in these retirement plans. To assess the level of compliance, the IRS's Employee Plans Compliance Unit has started sending questionnaires to public school districts in all 50 states under the 403(b) Universal Availability project. A 403(b) plan is a retirement plan for certain employees of public schools, employees of certain tax-exempt organizations, and certain ministers. "Our pilot project in three states showed fairly widespread noncompliance by schools with the universal availability requirement for 403(b) plans," said Joseph Grant, director of the IRS Employee Plans Division. "But we believe most of it was due to a lack of understanding about what the law requires, not a deliberate failure to comply." "We know from our pilot project and from talking to representatives from schools and districts across the country that most of the problems stem from either misunderstanding the law or from confusion because of differing rules in various states," said Grant. "The project will give schools the chance to identify problems with their plans and to correct them on their own."

The head of the body that oversees both the Financial Accounting Standards Board and the Governmental Accounting Standards Board has petitioned Connecticut Governor Jodi Rell to veto a measure that would allow the state comptroller to set accounting standards and bypass GASB. Robert J. DeSantis, president and chief executive of the Financial Accounting Foundation, wrote to Rell requesting that she veto the legislation, which has already passed in both the Connecticut House and Senate. The legislation "threatens the integrity and objectivity of the independent standard-setting process and is a step backwards for public trust, government accountability, financial transparency and the state's investors," DeSantis wrote. Barry Melancon, president and chief executive of the American Institute of CPAs, also sent Rell correspondence urging a veto.

The Consulting Services Executive Committee of the American Institute of CPAs released a new standard on valuation services. Its Statement on Standards for Valuation Services No. 1, "Valuation of a Business, Business Ownership Interest, Security or Intangible Assets," provides guidelines to CPAs for developing estimates of value and reporting on the results. It applies to institute members who perform an engagement that estimates the value of a business, business interest, security or intangible asset for numerous purposes, including sales transactions, financing, taxation, financial reporting, mergers and acquisitions, management and financial planning, and litigation. SSVS No. 1 specifies two types of engagements: valuation engagements and calculation engagements. For valuation engagements, two types of written reports are permitted - detailed reports and summary reports. For calculation engagements, one type of written report is permitted - calculation reports. Oral reports are allowed for all engagements under the standard. SSVS No. 1 is effective for engagements accepted on or after Jan. 1, 2008. A copy of the standard has been posted to the AICPA Web site at http://bvfls.aicpa.org/Resources/Laws+Rules+Standards+and+Other+Related+Guidance/AICPA+Valuation+Standard+and+Implementation+Toolkit.htm.

As expected, the Securities and Exchange Commission voted to seek comment on a proposal to allow non-U.S. companies, that list on U.S. exchanges to reconcile their financials using International Financial Reporting Standards in lieu of U.S. generally accepted accounting principles. The comment period will be 75 days. To implement the change would require a second vote of the commissioners. As previously reported, the SEC will, in the upcoming months, issue a concept release to float the idea of giving U.S. firms the choice of reconciling in the international rules. That may lead to regulators eventually giving U.S. filers a choice between GAAP and IFRS. Currently, foreign companies trading on U.S. exchanges must convert their financial results to GAAP.

The Internal Revenue Service recommends that employers, payers and their agents begin using a new, improved version of the agent-appointment form immediately, to avoid delays in having the IRS approve the agent appointments. All versions prior to the May 2007 form are now obsolete. Form 2678, Employer/Payer Appointment of Agent, authorizes an agent to file tax returns and deposit and pay employment or other withholding taxes on an employer or payer's behalf. However, the employer retains responsibility for filing Form 940, Employer's Annual Federal Unemployment Tax Return, and depositing and paying FUTA tax. The IRS recently redesigned Form 2678 to make it clearer and more user-friendly. The redesign resulted from an initiative led by the IRS Office of Taxpayer Burden Reduction. The IRS will return any obsolete versions of Forms 2678 that are filed and ask senders to submit the May 2007 revision instead. When the IRS approves Form 2678, both the employer or payer and the agent are liable for the employer's employment tax.

Rep. Charles Rangel, D-N.Y., chairman of the House Ways & Means Committee, said House lawmakers might consider legislation that would raise taxes on the income of private equity and hedge fund managers. Under the current tax laws, private-equity companies can go public by paying a partnership tax rate of 15 percent versus the corporate tax rate of 35 percent. Rangel's proposal follows a Senate measure introduced last week requiring private-equity partnerships that go public after June 14 to pay corporate taxes.

The just-released spring 2007 issue of the Statistics of Income Bulletin includes the first article on farm proprietorship returns by the Internal Revenue Service in more than 20 years, as well as articles on high-income individual income tax returns, taxpayers reporting noncash contributions, qualified zone academy bonds, international boycott reports and S corporations. In addition, this issue of the bulletin presents selected tax year 1990-2004 individual income tax return data that have been indexed for inflation, and tax year 2005 individual income tax return statistics classified by state and size of adjusted gross income. For tax year 2004, there were 3,021,435 individual income tax returns filed with adjusted gross income of $200,000 or more and 3,067,602 returns with expanded income of $200,000 or more. The Bulletin highlights the following: * For tax year 2004, there were 25.3 million individual taxpayers who itemized deductions and reported a deduction for noncash charitable contributions. Those taxpayers reported $43.4 billion in deductions for these noncash contributions. Individuals whose total noncash charitable deductions on Schedule A, Itemized Deductions, exceed $500 are required to report these donations in detail on Form 8283, Noncash Charitable Contributions. For 2004, a total of 6.6 million individuals, representing a little more than a quarter of those who reported noncash charitable contributions, filed Form 8283. These individuals reported noncash contributions valued at almost $37.2 billion, or nearly 86 percent of all noncash contributions. * The number of farm proprietorship returns declined between tax years 1998 and 2004, with the majority of farm proprietorship returns showing a farm net loss. For tax year 2004, some 1.4 million farm proprietorship returns, or 70 percent of the total, had a farm net loss. Gross farm income reported on sole proprietorship returns totaled $93.3 billion for tax year 1998 and increased 8.3 percent to $101 billion in 2004. Total farm expenses grew even more during this period, by 12.9 percent, from $101.2 billion in 1998 to $114.3 billion in 2004. * For tax year 2003, some 1,268 taxpayers filed Form 5713, International Boycott Report; of these, 124 reported receiving boycott requests, and 36 agreed to participate in a boycott. There were 41 taxpayers who lost a portion of their tax benefits as a result of their participation in a boycott or because they had operations in a boycotting country and claimed the extraterritorial income exclusion. Similarly, 1,343 Forms 5713 were filed for tax year 2004; of these, 131 taxpayers reported boycott requests, 45 agreed to participate, and 46 taxpayers reported tax consequences. For both years, the percentage of filers who lost tax benefits was approximately 3 percent. * The final bulletin article takes a look at the dominance of the wholesale and retail trade division among S corporations since 1959. For tax year 2004, some 45 years after the creation of S corporations, wholesale and retail represented the largest portion of total receipts, total deductions, portfolio income, total net income (less deficit) and total assets.

From Boston to Beijing, the accounting profession may soon have a new type of financial statement - one without net profit at the bottom line, with finance information separated from operations, tax information off to the side and cash flow reported separately.

The tax gap - the difference between the amount that taxpayers pay voluntarily and on time and what they should pay - continues to generate congressional hearings and legislative proposals. The most recent data from 46,000 returns examined under the National Research Program show a net gap of $290 billion for the year 2001.

The Treasury Department has created a committee to study problems in the accounting profession - and in something of an unexpected move, former Securities and Exchange Commission chair Arthur Levitt was selected to lead the effort, along with former SEC chief accountant Donald Nicolaisen.

Valuation for financial reporting has long befuddled accounting professionals. Differences among industrial sectors often lead to inconsistencies, and recent new requirements for fair-value reporting have made the process even more confusing.

Williams & Webster PS, a CPA and business advisory firm with offices in Seattle and Spokane, has been censured by the Public Company Accounting Oversight Board for violations stemming from a 2004 client audit.

Senators Max Baucus, D-Mont., and Chuck Grassley, R-Iowa, chairman and ranking member of the Senate Finance Committee, respectively, have introduced legislation to give more than $550 million in tax relief for veterans, soldiers and their employers.

The Securities and Exchange Commission is preparing to fine telephone-equipment giant Nortel Networks as much as $100 million for accounting fraud, according to published reports. The reports also noted that SEC attorneys sought permission from the commissioners to inflict a fine of less than $100 million -- the first instance of a new policy that gives the politically appointed commissioners more say in corporate penalties. Previously, attorneys negotiated settlements without consulting the commissioners. Toronto-based Nortel inflated its earnings by $3.4 billion between 2001 and 2004, when the SEC began an investigation of the company's accounting. As an indicator of the scale of the possible fine, late in 2006, federal judges signed off on an estimated $2.4 billion payout by Nortel to settle a shareholder lawsuit.

Thomas R. Smith, one of the country's leading attorneys in the area of mutual funds, has joined the Investment Management Division of the Securities and Exchange Commission as a senior advisor to Andrew Donohue, the division's director. Prior to joining the SEC, Smith was a partner with the New York office of Sidley Austin LLP, and also served as managing partner at Brown & Wood LLP from 1996 until the firm's merger with Sidley Austin five years later.

In testimony on Capitol Hill, Securities and Exchange Commission Chairman Christopher Cox said that the costs of complying with Sarbanes-Oxley's Section 404 will go down, but reiterated his position that there was no need for another delay in 404 compliance for smaller filers. Testifying before the House Committee on Small Business, Cox said, "The focus of this hearing is on whether the SEC's new guidance for management, and the PCAOB's new standard for auditors, will lower compliance costs for small companies. The answer is yes." Cox said he did not support further delays in the current deadline for small companies -- generally defined as those with less than $75 million market cap -- to file their first management report on internal control. The chairman said the costs of SOX will go down under the SEC's new guidance because companies "will be able to focus on the areas that present the greatest risk of material misstatements in the financials," and will be able to "exercise significant judgment in designing an evaluation tailored to its individual circumstances."

The multi-billion-dollar-gap between what publicly traded companies book as expenses for executive stock options and what they report cost the U.S. Treasury roughly $43 billion between 2004 and 2005, charged Sen. Carl Levin, D-Mich. Levin, who chairs the Homeland Security and Governmental Affairs Committee said at a hearing earlier this week that companies are reporting higher deductions for stock options to the Internal Revenue Service than what they are reporting to their shareholders. Levin said when company directors who approve executive compensation learn that the options, while an expense, also produce a huge tax break, it "becomes a tempting proposition for them to pay their executives with stock options instead of cash." Levin proposed that the massive gap be closed via legislation that requires a uniform reporting standards for options.

A bill that is now before the Connecticut State Senate would give its state comptroller the legal authority to establish GAAP for the state’s financials, thereby sidestepping the Governmental Accounting Standards Board — the standard-setter for governments and municipalities.