Bramwell’s Lunch Beat: Issa and Koskinen to Square Off Next Week Over Lost Emails

$0 taxes! 13 big companies slip the taxman
There are 13 profitable companies in the Standard & Poor’s 500, including hard drive maker Seagate Technology, video game maker Electronic Arts, automaker General Motors, and food processor Mondelez International, that paid no taxes in the first calendar quarter, according to a USA Today analysis of data from S&P Capital IQ.

For example, Seagate Technology actually booked an income tax benefit of $5 million during the first calendar quarter, despite reporting earnings before taxes of $1.6 billion, Matt Krantz of the USA Today wrote on Monday. The company moved its headquarters to Ireland in 2010, in large part to take advantage of tax benefits. But the company said it was able to keep taxes below even the 25 percent Irish statutory rate by taking advantage of tax benefits in regions that have “tax incentive programs,” in addition to releasing tax reserves to audit settlements.

Similarly, Electronic Arts has also been able to outmaneuver Uncle Sam and report a tax benefit of $30 million during the first calendar quarter, says S&P Capital IQ, by releasing deferred tax assets, according to the article. That tax reserve allowed the company to bring $700 million in cash held overseas in the first quarter of 2014 without triggering a tax hit.

IRS commissioner to testify on ex-official’s lost emails
IRS Commissioner John Koskinen will testify before two House committees next week about the agency’s disclosure that it lost thousands of emails sought by investigators looking into accusations of politically motivated misconduct by the agency, David S. Joachim of the New York Times reported on Monday.

Koskinen is scheduled to appear before the House Oversight and Government Reform Committee on June 23. He voluntarily will go before the House Ways and Means Committee on June 24.

The IRS told congressional investigators on Friday that two years’ worth of emails sent and received by Lois Lerner, the former official at the center of the inquiry, had been destroyed because of a computer crash in mid-2011. The committees are examining whether the lost emails involved obstruction or a violation of the Federal Records Act, aides to the committees said.

“I will not tolerate your continued obstruction and game-playing,” House Oversight Committee Chairman Darrell Issa (R-CA) wrote in a letter to Koskinen on Monday after issuing a subpoena for him to appear before the panel, according to the article.

Joachim noted that an aide to Democrats on the House Oversight Committee, who spoke Monday on the condition of anonymity, said that the lost emails had been disclosed previously in IRS documents received by the committee under subpoena, and that Issa was feigning surprise.

Companies cash in on tax-credit arms race
In an effort to spur economic growth, states are digging deeper into their pockets, offering businesses lucrative tax credits for everything from brewing beer to renovating buildings, Emily Chasan, senior editor of the Wall Street Journal’s CFO Journal, wrote on Monday.

Companies are finding the new state tax credits especially alluring because many of their biggest federal tax breaks expired at the end of last year. In addition, an increasing number of the state credits are refundable or transferable, meaning they can guarantee a company cash regardless of the size of its state tax bill, Chasan wrote.

Some 46 states now offer such tax credits through more than 200 different programs, compared with only a handful of states a decade ago, and exchanges are popping up to help businesses trade them.

New York, which has one of the widest arrays of refundable and transferable tax credits of any state, now offers a refundable credit for breweries. Refundable credits reimburse a company for its investments, even if it doesn't owe any state taxes that year.

Without the credit, “we and many other brewers would have been forced to slow down expansion and hiring,” said Robin Ottaway, vice president of sales for Brooklyn Brewery, according to the article. He added that the refundable credit is worth about $350,000 a year to the company, so it “allowed us to continue investing.”

Expatriate Americans break up with Uncle Sam to escape tax rules
Liam Pleven and Laura Saunders of the Wall Street Journal wrote on Monday that 1,001 US citizens and green-card holders had renounced their citizenship in the first three months of the year.

That figure puts 2014 on track to top last year's total of 2,999 renunciations, which was the most since the government began disclosing the data, according to lawyer Andrew Mitchel, who analyzes US Treasury Department data.

Helping boost the exodus, experts say, is a five-year-old US campaign to hunt for undeclared accounts held by Americans abroad. Since 2009, the government campaign has collected more than $6 billion in taxes, interest, and penalties from more than 43,000 US taxpayers. Federal prosecutors have filed more than 100 criminal indictments, Pleven and Saunders wrote.

The tax dragnet has also swept up many middle-income Americans living abroad, prompting some to give up their US citizenship. While people who renounce aren’t freed of taxes due for past years, experts say they don’t want to risk sizable taxes and penalties for them and their children in the years ahead.

Deadline could force grand bargain on Internet taxes
The Wall Street Journal also reported on Monday that a House committee is expected to vote this week to renew a longstanding federal moratorium on Internet-access taxes.

The 15-year-old moratorium prevents most states and local governments from applying telecommunications excise taxes and other levies on Internet connections, of which there are about 262 million in the United States, John D. McKinnon wrote.

He noted that the move to extend the moratorium on access taxes creates an opening for senators who see it as a vehicle for their legislation to allow states to collect online sales tax from out-of-state Internet merchants.

“Right now, that’s difficult for states, because the Supreme Court said in 1992 that a state can’t force an out-of-state merchant to collect its sales tax unless the merchant has a physical presence in the state,” McKinnon wrote. “With Internet sales growing rapidly, governors and state lawmakers of both parties are pushing Congress to pass legislation that would set up a legal means for states to begin collecting their sales tax from more out-of-state vendors.

“So, when the moratorium bill comes over from the House to the Senate, it’s likely that key senators will seek to add their online sales-tax legislation,” he continued. “Then the question becomes what the House will do, as the clock ticks down to a fall deadline.”

Wealthy Clintons use trusts to limit estate tax they back
Bill and Hillary Clinton have long supported an estate tax to prevent the United States from being dominated by inherited wealth. But as Richard Rubin of Bloomberg wrote on Tuesday, that doesn’t mean they want to pay it.

To reduce the tax pinch, the Clintons are using financial planning strategies befitting the top 1 percent of US households in wealth. These moves, common among multimillionaires, will help shield some of their estate from the tax that now tops out at 40 percent of assets upon death.

Rubin noted that the Clintons created residence trusts in 2010 and shifted ownership of their New York house into them in 2011, according to federal financial disclosures and local property records.

According to David Scott Sloan, a partner at Boston-based Holland & Knight LLP, among the tax advantages of such trusts is that any appreciation in the house’s value can happen outside their taxable estate. The move could save the Clintons hundreds of thousands of dollars in estate taxes.

“The goal is really be thoughtful and try to build up the nontaxable estate, and that’s really what this is,” Sloan said, according to the article. “You’re creating things that are going to be on the nontaxable side of the balance sheet when they die.”

Offshore cash of $2 trillion sparks hunt for tax-friendly deals
Two tax-code quirks – one that charges US companies when they repatriate overseas earnings, the other that allows them to claim a foreign domicile without moving their senior leadership abroad – are motivating US companies to buy overseas counterparts in part to lower their bills, David Welch and Manuel Baigorri of Bloomberg wrote on Monday.

Takeovers by US companies of targets in low-tax environments – those with a corporate tax rate of below 20 percent – have doubled in proportion to all overseas deals, according to data compiled by Goldman Sachs Group Inc. analysts. The desire for such an arrangement, known as a tax inversion, is a factor in Medtronic Inc.’s $42.9 billion purchase of Covidien Plc and Pfizer Inc.’s more than $100 billion effort to buy AstraZeneca Plc.

According to a review by Bloomberg News of securities filings from 307 corporations, US companies have almost $2 trillion in profits stockpiled offshore. Since 2010, US purchases into the low-tax environments accounted for 15 percent of all overseas transactions with a value of $250 million or more, Goldman Sachs’s data show, up from an average of 7 percent in the previous 15 years, Welch and Baigorri wrote.

“If you have a lot of cash trapped offshore, then the potential tax savings are likely to be larger,” said Marc Zenner, co-head of JPMorgan Chase & Co.’s corporate finance advisory group, according to the article. “With bigger tax savings, you can offer a bigger premium and it’s harder for a target company to say no to an offer.”

Former Medtronic CEO defends inversion deal
Ex-Medtronic CEO Bill George came out last month against Pfizer’s proposed inversion – a deal to acquire an overseas competitor and reincorporate abroad, lowering tax rates and freeing up overseas cash.

But on Sunday, when it was his former employer doing the inversion, George was all in favor of the move, David Gelles of the New York Times wrote on June 16.

Medtronic is acquiring Covidien for about $43 billion, and will reincorporate in Ireland as part of the deal, making it the latest big American company to invert, Gelles noted. But the company claims that the move is not driven by financial engineering. The two companies make good strategic sense together, Medtronic argues, and its tax rate is already low. The big financial advantage, it said, will be the ability to access overseas cash more easily.

Despite his previous opposition to Pfizer’s inversion, George said Medtronic’s move to Ireland made sense. “The only reason they’re doing the inversion is to free up the cash overseas,” George said in an interview. “That money today can’t be put to good use right now.”

George did not back down from his critique of Pfizer’s attempted inversion. ”Pfizer’s rationale was wrong,” he said, according to the article. “They saw a chance to cut tax rates and cut people and R&D.”

When CPAs and wealth managers come together
At first blush, accountants and financial advisors appear to make strange bedfellows. The former are often perceived to be more analytical and the latter, more entrepreneurial. These perceptions aside, many medium to large accounting firms have taken steps to establish or greatly expand their financial services practices, wrote Mindy Diamond of WealthManagment.com.

“Accounting has been increasingly more competitive, and accounting firms need to be able to add value for their clients beyond traditional compliance work,” said Marc Scudillo, CPA and managing director of EisnerAmper’s wealth management unit, according to the article.

Accounting firms also see a sizable benefit in being able to work with their clients in a way that is unique to their profession. Clients already view their accountants as their “trusted advisor,” and they are generally more open to divulging their complete financial picture with little or no hesitation.

Diamond noted that another advantage accounting firms have over traditional brokerage and advisory firms is their clients don’t feel that they are being sold something. They view the investment advice they are receiving as part and parcel of their tax, estate, and business planning.

Quick Links:

  • Berry bad tax policy (Going Concern)
  • SEC fines hedge fund in demotion of whistle-blowing employee (DealBook)
  • Senate’s Wyden presses IRS over hedge-fund tax strategy (Bloomberg)
  • The problem with Gabriel Zucman’s estimates of offshore tax evasion (Forbes)
  • Paul Reddam’s KPMG tax shelter stunk in more ways than one (Forbes)
  • World Cup mania: Figuring out FIFA, soccer & tax (Forbes)
  • Is this stock the next tax-fleeing takeout? (Motley Fool)
  • Big deal by low-tax Medtronic has even bigger implications (Tax Analysts)
  • LA lawmakers question tax renewals for medical marijuana shops (Los Angeles Times)
  • Missouri considers tax credits for Gateway Arch (Associated Press)
  • Mueller Prost adds a partner (St. Louis Business Journal)

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