Bramwell’s Lunch Beat: The IRS Has Got the Archivin’ Blues

DC Council votes to keep ‘yoga tax’ as part of tax-cutting budget deal
Mike Debonis of the Washington Post reported that DC Council members approved a 5.75 percent city sales tax on gym memberships and yoga classes for the first time on Tuesday, over the objections of people who called it a “wellness tax” or “yoga tax.”

The roughly $5 million it would generate yearly would be used to partially offset a package of tax cuts that could leave as much as $143 million a year in taxpayers’ pockets.

A vote to reject an amendment that would have canceled the sales tax expansion and a subsequent vote to approve the broader budget deal also represented a victory for the council chairman, Democrat Phil Mendelson, who orchestrated the District’s most significant tax breaks in 15 years, Debonis wrote.

Mendelson was acting on dozens of recommendations made by the DC Tax Revision Commission, a blue-ribbon panel that concluded an 18-month examination of the District’s revenue structure late last year. The overhaul provoked the wrath of Mayor Vincent Gray, a Democrat – not to mention the scorn of gym owners and members unhappy about the sales tax expansion – and financial officials had questioned whether the new budget is viable.

Lane Hudson, a political activist who helped organize opposition to the gym tax, said Mendelson worked to dissuade several members who had indicated support for the amendment. “It’s hard to defeat the chairman,” Hudson said, according to the article. “He took us head-on and took a few votes away.”

Archivist: IRS did not follow law on lost emails
During a House Oversight and Government Reform Committee hearing on Tuesday, US Archivist David Ferriero told lawmakers that the IRS “did not follow the law” when it failed to report the lost Lois Lerner emails, which could have included official documents, wrote Rachael Bade of Politico.

Ferriero stopped short of saying the IRS “broke” the law, adding “I am not a lawyer.” But when pressed by Representative Tim Walberg (R-MI) about whether the IRS failure to inform the National Archives when it learned that two years of Lerner’s email were lost, Ferriero said: “They did not follow the law,” according to the article.

Ferriero said the IRS didn’t follow the law because the Federal Records Act requires agencies to “notify us when they realize that they have a problem” – meaning any time documents or official emails are intentionally destroyed or lost on accident, they’re supposed to know, Bade wrote.

The law requires agencies to save official records – defined in a National Archives guidance post as “documentary materials that agencies create and receive while conducting business that provide evidence of the agency’s organization, functions, policies, decisions, procedures, and operations, or that contain information of value.”

Bade noted that at the IRS, employees who send such official correspondences via email are supposed to print them out and file hard copies.

IRS Commissioner John Koskinen said before a House Oversight Committee hearing on Monday that they had some hard copies of Lerner’s emails, suggesting she “complied with agency policy at least in some instance.” He didn’t know how many.

An arrogant and lawless IRS
In a column that appeared in the Washington Post on Monday, nationally syndicated columnist Michael Gerson wrote about the lost IRS emails. He thinks that IRS Commissioner John Koskinen, a noted management expert, was called out of retirement to “destroy what is left of his agency’s credibility.”

“In recent congressional testimony, Koskinen admitted that the emails were irretrievably gone; that the ‘backup tapes’ had been erased; and that Lerner’s hard drive was apparently destroyed in an aggressive act of recycling,” Gerson wrote. “With that settled, Koskinen expressed his ‘hope that the investigations can be concluded in the very near future.’

“It is a mix of arrogance and delusion that seems designed to incense Republicans,” he continued. “Koskinen had delayed informing Congress of the lost emails for months, even while assuring members they would be provided. ‘It was my decision that we complete the investigation,’ he said, ‘so we could fully advise you as to what the situation was.’ Translation from management-speak: We wanted to get our story straight before we advised you of anything. Koskinen complained about the breadth of subpoenas and the ‘piecemealing out’ of information. Translation: We will provide you what we want when we want. ‘Every email,’ Koskinen assured the House Ways and Means Committee, ‘has been preserved that we have.’ Except the ones they don’t have – and somehow snuffed out, tied to an anvil, and thrown into the ocean.”

IRS pays $50k to anti-gay marriage group
Mackenzie Weinger of Politico reported on Tuesday that the IRS will pay the National Organization for Marriage (NOM) $50,000 to settle a lawsuit over claims the agency improperly disclosed confidential tax information, according to a consent judgment released this week.

The group pushing for laws defining marriage as between a man and a woman had filed suit against the tax agency seeking damages for disclosure of its donors, and the $50,000 the IRS will shell out represents actual damages from the unauthorized release.

Weinger wrote that the lawsuit stemmed from information an IRS worker sent to an individual who identified himself as a member of the media who requested it in the midst of the 2012 presidential campaign, which he then sent to the pro-gay rights group Human Rights Campaign. The Huffington Post then ran a story noting a political action committee linked to Mitt Romney had been a donor to NOM.

A federal district court judge, however, ruled on June 3 that there was not enough evidence to demonstrate the disclosure was willful and that the record showed it was released “inadvertently as part of a single employee’s mistake.”

Shortly after the judge’s opinion, the IRS and NOM struck a deal to resolve NOM’s claims for actual damages and costs that resulted from the disclosure, Weinger noted.

John Eastman, NOM’s chairman, claimed victory on Tuesday: “Thanks to a lot of hard work, we’ve forced the IRS to admit that they in fact were the ones to break the law and wrongfully released this confidential information,” according to the article.

IRS’s proposed voluntary program for tax preparers is unlawful and improper, says AICPA
The American Institute of CPAs (AICPA) has sent another letter to IRS Commissioner John Koskinen strongly opposing the agency’s proposed voluntary certification program for tax return preparers, saying the program “would cause significant legal problems that may ultimately frustrate the IRS’s goals, confuse the public, and lead to litigation.”

The AICPA first expressed its concern with the program in a letter to Koskinen on May 21. In the June 24 letter, written by AICPA Board Chairman Bill Balhoff and President and CEO Barry Melancon, the AICPA emphasized the following points:

  • No statute authorizes the proposed program.
  • The program will inevitably be viewed as an end-run around Loving v. IRS (a federal court ruling rejecting an earlier IRS attempt to regulate tax return preparers).
  • The IRS has evidently concluded, in developing the proposed program, that it need not comply with the notice and comment requirements of the Administrative Procedure Act. This is incorrect.
  • The current proposal is arbitrary and capricious because it fails to address the problems presented by unethical tax return preparers, runs counter to evidence presented to the IRS, and will create market confusion.

Describing the proposed program as “unlawful and improper,” the letter stated that it is essential that any regulatory approach instituted by the IRS to address this issue has a firm legal basis and reflects sound policy.

“We continue to believe that additional regulation of tax return preparers might yield significant benefits and that the IRS can achieve these objectives while remaining consistent with Loving and other statutory limitations on the IRS’s authority,” the letter stated. “We have sought to work with the IRS to achieve workable solutions to regulate tax return preparers and protect the public, and we stand ready to continue these efforts.”

Walgreen considers moving its headquarters abroad to cut taxes
Greg Wasson, chief executive of Deerfield, Illinois-based Walgreen Co., said for the first time on Tuesday that the company is weighing moving outside of the United States, as it considers buying the shares it doesn't already own in European pharmacy Alliance Boots GmbH, Paul Ziobro and Anna Prior of the Wall Street Journal reported.

Under pressure from shareholders to use a merger with Alliance Boots to cut its tax bill through a so-called inversion, Wasson said the company is looking at how to structure its tax liabilities as part of its discussions over whether to buy the remaining 55 percent of Alliance Boots it doesn't already own.

“We're looking at all and everything,” Wasson said, according to the article, in response to a question about inversions from an analyst on a conference call. He said the company is looking at the tax structure and “what the structure could do as far as our effective tax rate.”

Walgreen is also considering other issues, such as the timing and the structure of a deal to obtain the remainder of Alliance Boots, but investors have been focusing more on whether the company can lower its tax bill by relocating its corporate home overseas to Switzerland, where Alliance Boots is based, Ziobro and Prior wrote.

Walgreen plans to hold a conference call in the coming weeks to lay out its plans.

2nd accountant pleads guilty in Madoff scam
Paul Konigsberg, the accountant for some of Bernard Madoff’s wealthiest former clients, pleaded guilty on Tuesday to conspiracy, falsifying records of a broker-dealer, and falsifying records of an investment adviser, Kevin McCoy of the USA Today reported.

Konigsberg, 78, admitted he was present in 2003 when Madoff assistant Annette Bongiorno changed annual account statements for one client, and subsequently filed a false tax return using the altered data.

This “was wrong, and I knew it at the time,” said Konigsberg, dressed in a gray suit and blue-checked tie as he spoke in Manhattan federal court. However, he said he “was not aware of Madoff's horrific and evil Ponzi scheme, which has brought great suffering to so many.”

Konigsberg faces a potential maximum prison term of 30 years, plus heavy financial penalties, including $4.4 million in forfeiture and more in restitution. He will be sentenced on September 19.

Quick Links:

  • Don’t freak out but NASBA will be down this weekend (Going Concern)
  • Networking tips for young CPAs who think networking is stupid (Going Concern)
  • 35-year-old accounting firm joins national company (The Coloradoan)
  • Munger’s publisher found to lack accounting controls (Bloomberg)
  • AbbVie won’t rule out going hostile in tax-slashing deal (Bloomberg)
  • Exchanges get test to curb dark trading in SEC program (Bloomberg)
  • Expert calls on SEC to crack down on Herbalife (New York Post)
  • American Airlines worried sales tax hike could cost $500,000 (Charlotte Observer)
  • A bad law addressing a bad business tax (Tax Analysts)
  • Medtronic could avoid $3.5B to $4.2B in taxes with merger (Minneapolis Star Tribune)
  • IMF says global economy hurt by low-tax maneuvers by Apple and others (MarketWatch)
  • Pennsylvania weighs new tax on natural-gas drilling (Wall Street Journal)
  • NJ budget clears first hurdles in Legislature, with $1 billion in tax hikes (The Star-Ledger)
  • The real IRS flap is about dark money, not emails (TaxVox)
  • Constant Contact and Xero partner to give small businesses marketing intelligence based on customer sales data (Constant Contact)
  • CCH IntelliConnect Direct now broadly available (Wolters Kluwer, CCH)

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