Bramwell’s Lunch Beat: AgFeed Was Living High Off the Hog

State corporate income taxes edge higher, some states stand out
Emily Chasan, senior editor for the Wall Street Journal’s CFO Journal, reported yesterday that state corporate income tax revenue rose 5.5 percent in the fourth quarter as 23 of 45 states reported gains over the year-ago quarter. The other 22 states reported declines, according to quarterly data released Tuesday by the Nelson A. Rockefeller Institute of Government.

The winner was Louisiana, which reported its corporate income tax intake had grown 10 times from the previous fourth quarter. Connecticut reported a threefold increase, and Hawaii doubled its intake from a year ago, according to the article.

“Nevertheless, many states saw serious drops, including Ohio where the tax haul plunged 515 percent from the fourth quarter of 2012,” Chasan wrote. “Ohio led the United States in job losses in November, losing 12,000 jobs in the month, but added about 5,000 jobs in December. Rhode Island reported an almost 82 percent decrease in its corporate income tax haul, while Michigan’s fell by more than 55 percent.”

SEC says AgFeed case shows focus on accounting fraud
The US Securities and Exchange Commission (SEC) sued four Chinese executives of animal feed company AgFeed Industries Inc. and the chairman of its audit committee in connection with a fraud involving $239 million in bogus revenues, Greg Farrell and Dune Lawrence of Bloomberg reported yesterday.

The SEC accused AgFeed and its Chinese executives of fabricating earnings between 2008 and 2011. The agency also sued one of the company’s directors and its CFO for allegedly ignoring the fraud.

According to the article, the fraud began in 2008 when AgFeed’s top management acquired 29 Chinese farms for its new hog production division. In order to show strong growth, the Chinese executives allegedly inflated not only the weight of the hogs they sold, but the actual number of hogs sold, the SEC said in its complaint, which was filed in federal court in Nashville on Tuesday.

“Financial reporting simply cannot ignore reality even when the truth may be inconvenient,” Andrew Ceresney, the SEC’s enforcement director, said on a conference call, according to the article. “Today’s enforcement action is a cautionary tale about what happens when an audit committee chair fails to perform his gatekeeper function in the face of massive red flags.”

[Francine McKenna has written extensively about the AgFeed fraud on her website, re: The Auditors. Click here to read Part 1, here to read Part 2, and here to read Part 3.]

Accounting CEO looks beyond China roadblock
The Wall Street Journal conducted a Q&A with EY CEO Mark Weinberger, who answered questions about, among other things, the firm’s fast-growing consulting practice, the SEC ruling regarding the Big Four affiliates in China, and lessons learned from the financial crisis.

Regarding whether accounting firms’ shift to consulting is affecting audit quality, Weinberger said: “Our audit business is about 45 percent of our business today, [but] our other businesses are growing faster. By 2020, audit will remain our largest business at about $18 billion [in annual revenues]. It would be about 35 percent of our business. Advisory today is maybe 20 percent of our business or so. It will be closer to 30 percent.

“The key is that we have to make sure [consulting] doesn't do anything to affect our independence, our skeptical way we look at and conduct our audits,” he continued. “The rules have changed. There's Sarbanes-Oxley. There are [only] certain types of services we can provide to our audit clients. We have to make sure we follow those very strictly.”

Why expats are ditching their US passports
Sophia Yan of CNNMoney talked to five US citizens who have given up their passports – or are thinking about it – to escape an overly complicated tax code.

For example, Donna Lane-Nelson, who now lives in Geneva, Switzerland, said her decision to renounce her US citizenship in 2011 was triggered when her bank threatened to close her account because she was American.

“What would I do without a bank? Americans in Switzerland were having trouble with their investments, getting credit cards, and some weren’t even getting loans,” she told Yan.

“Filing taxes from abroad had always been a real pain. I was double taxed on my full pension, but it didn't bother me so much to pay taxes – it was the annoying paperwork,” she continued. “I used to do my own taxes, but I started going to a professional when I learned about the new disclosure laws. I'm glad I did, because there were a lot of forms. Tax prep costs me about 1,000 Swiss francs ($1,123) a year.”

Republicans seek to block IRS rule in Ukraine aid package
Kathleen Hunter and Derek Wallbank of Bloomberg reported yesterday that congressional Republicans want to add language to a US aid plan for Ukraine that would block a proposed IRS rule curbing political activity by tax-exempt groups.

Senator Bob Corker (R-TN), the top Republican on the Foreign Relations Committee, said the proposed IRS measure was one of the unresolved issues facing lawmakers working to complete a Ukraine aid package in time for the panel to consider it on Wednesday, the article stated.

The other was whether to add a boost in International Monetary Fund (IMF) resources that President Obama’s administration has requested, Corker said.

Republicans are reviving a failed effort earlier this year to link language delaying the proposed IRS rule with the IMF funding increase. Both provisions eventually were dropped from legislation to fund the US government through September 30, according to the article.

“Senate Minority Leader Mitch McConnell and other Republicans say the proposed IRS rule would wrongly suppress free speech,” Hunter and Wallbank wrote. “It could limit political spending by outside groups that receive tax exemptions as nonprofit social welfare organizations.”

Ten reasons voters should think before deciding about Camp’s tax reforms
Forbes contributor Clint Stretch provided today his list of 10 things he thinks voters should reflect on before they make up their minds on the tax reform proposals from House Ways and Means Committee Chairman Dave Camp (R-MI).

For example, his third reason is, contrary to published reports, the proposal does not have a 25 percent top rate for individuals.

“Taxpayers with incomes more than $300,000 face a rate of 30 percent as the benefit they got from the 10 percent bracket is taken away,” he wrote. “Above $450,000 of income, taxpayers face a 35 percent tax rate (or, if the recapture of the 10 percent bracket benefit applies, 40 percent).”

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