Bramwell’s Lunch Beat: Lawmakers Weigh In on IRS Bonuses Issue

Russia races to dodge sanctions by adapting law to FATCA
Russia is in a race against the clock to adapt its laws to the Foreign Account Tax Compliance Act (FATCA) and save its banks from financial sanctions, Peter Hobson of the Moscow Times wrote today.

Legislation allowing Russian financial institutions to share information about their US clients with the IRS was submitted to the State Duma on Wednesday, but has no hope of being passed before FATCA goes into effect on July 1.

Realizing this, legislators have resorted to creative lawmaking, pinning a package of stopgap measures to unrelated legislation due to be passed by the parliament on Friday, Hobson wrote. But this has not been enough to soothe bankers' nerves, and they have appealed to the Central Bank for clarity.

A bilateral agreement between Russia and the United States was supposed to create a compliance mechanism, but the United States left the negotiating table soon after Russia's annexation of Crimea from Ukraine in March.

The legislation submitted to the Duma on Wednesday would allow not just banks, but financial institutions, including brokers, depositaries, insurers, investment funds, and pension funds, to pass information to the IRS and give them the right to refuse clients who do not provide adequate personal information. However, the law will not give banks the right to withhold funds on behalf of the IRS, according to Hobson.

Manchin to IRS: Take back bonuses from tax delinquents
In a sternly worded letter to IRS Commissioner John Koskinen, Senator Joe Manchin (D-WV) demanded that the agency rescind bonuses to IRS employees who have failed to pay their taxes, Alexander Bolton of The Hill wrote yesterday.

An audit by the Treasury Inspector General for Tax Administration (TIGTA) found that the IRS gave $1.07 million in bonuses to 1,146 employees with tax problems between October 2010 and December 2012. Those staffers also received 10,500 hours in extra time off from the agency. Manchin called this “completely unacceptable.”

“How can we expect the American people – many of whom are struggling to make ends meet – to trust their government when they learn that the very agency charged with collecting their tax dollars is rewarding employees who haven't paid theirs?” Manchin wrote on Wednesday. “No federal agency should reward tax-delinquent employees with taxpayer-funded bonuses and rewards, least of all the IRS.”

Manchin said the IRS should implement TIGTA’s recommendation of awarding future bonuses and performance awards only to IRS employees who are fully compliant with federal tax law, and rescind awards to those with “substantiated tax compliance problems.”

Bill coming to block bonuses for IRS workers with unpaid taxes
The Hill also reported yesterday that Representative Sam Johnson (R-TX) plans to introduce a bill to prevent IRS employees who are delinquent on their taxes from receiving bonuses.

A Johnson aide said on Wednesday the congressman’s bill would prohibit the IRS from giving bonuses to employees who owe back taxes that are not caused by willful avoidance, according to Cristina Marcos. The IRS is already required by law to penalize workers who intentionally failed to file tax returns or understate their federal tax liabilities.

The TIGTA report said the IRS generally does not consider whether an employee has tax problems when evaluating bonuses.

Johnson issued the following statement yesterday on the IRS bonuses controversy: “This is outrageous! As I’ve said before, the IRS is out of control and out of touch. At a time when the IRS is under investigation for targeting Americans based on their beliefs and recent reports revealed IRS workers engaging in political activities on the job, the agency has the audacity to hand out taxpayer dollars to tax-cheating employees. The IRS is essentially telling its employees: Break the law and we will reward you. That’s just wrong! I’m working on a bill that will send a clear and strong message to the IRS to stop such abuse of taxpayer dollars, once and for all.”

Congress questions bonuses for disciplined IRS workers
Jamie Dupree, radio news director of the Washington bureau of the Cox Media Group, wrote in his Washington Insider blog yesterday that you could almost sense lawmakers’ frustration as they chimed in on Twitter back in their home districts.

“‘Insanity,’ said Representative Matt Salmon (R-AZ).

‘Total absurdity,’ added Senator Kelly Ayotte (R-NH).

‘Unacceptable,’ said Representative Kenny Marchant (R-TX).

‘Disturbing,’ said Senator Ted Cruz (R-TX).

‘Unreal,’ observed Representative Martha Roby (R-AL).”

Prosecutor: ID theft scheme cost US Treasury $10M
US Attorney David Hickton said yesterday that a massive identity theft and fake tax return scheme cost the US Treasury Department an estimated $10 million, Kevin Begos of the Associated Press reported.

Hickton announced the indictments of five men at a news conference in Pittsburgh. According to the indictment, the men allegedly sought $21 million in fraudulent tax refunds, and the IRS paid out about half of that between 2005 and early 2014.

“We have dismantled a massive stolen identity ring that involved thousands of victims and tens of millions of dollars in losses,” Hickton said, according to the article.

The defendants also allegedly obtained false driver’s licenses and Social Security cards, which were then used to open bank accounts in Washington, DC, Michigan, New Jersey, Pennsylvania, and other states. Then the five defendants allegedly submitted 2,400 fraudulent federal tax returns using the names from the stolen ID’s, Begos wrote.

The defendants allegedly spent some of the illegally obtained funds and sent some money to Nigeria. They have all been arrested, and four have been arraigned on charges, including conspiracy to commit fraud and aggravated identity theft, while the other man is in custody of US Marshals, according to the article.

McGladrey’s PCAOB inspection shows improvement in 2012
The Public Company Accounting Oversight Board (PCAOB) found fault with seven of the 16 audits inspected at McGladrey in 2012, a slight improvement for the firm over the eight-of-16 failed audits in the 2011 inspection cycle, Tammy Whitehouse of Compliance Week reported yesterday.

Inspectors found only one audit at McGladrey that was deficient in its audit of internal control over financial reporting. Four of the seven failed audits at McGladrey showed problems in the audit of fair value measurements, and inspectors found four instances where the firm failed to meet standards for audit evidence. Only two audits demonstrated problems with auditing accounting estimates, the article stated.

Whitehouse noted that McGladrey was the final firm among the Big Four and second-tier firms to see its 2012 inspection report made public. In all, Deloitte turned in the lowest failure rate of the year at 25 percent, followed by KPMG at 34 percent and PwC at 39 percent. McGladrey was next at 44 percent. Grant Thornton recorded the highest rate at 65 percent. BDO USA reached 55 percent, Crowe Horwath broke even at 50 percent, and EY fell at 48 percent.

Can the IRS tap citizen power to police tax-evading corporations?
Slovakia has mobilized an entire country to make sure businesses pay their value-added tax (a type of sales tax) by implementing a tax lottery for citizens. Even though it might be a stretch, could the IRS use a similar initiative in the future to catch America’s corporate scofflaws? Jana Kasperkevic asked in an article for The Guardian.

She added it would be difficult. “For starters, Slovakia's value-added tax differs from the US sales tax. Under the value-added tax system, merchants are required to assess and collect the tax at every transaction. As products move through the supply chain, the tax paid on the products by acquiring merchants can be deducted from the tax that the merchants then charge to their customers,” Kasperkevic noted.

Also there is no way to implement this on a federal level as there is no federal sales tax, according to Mitchell Kane, Gerald L Wallace professor of taxation at New York University's School of Law. It could, however, be relevant if the United States was to ever adopt a federal value-added tax.

“It's an idea. But considering how any tax reform has proven elusive over the past two years even within the halls of Congress, it's unlikely lawmakers would ever cast their eyes to Europe for ideas,” Kasperkevic wrote.

Quick Links:

  • NJSCPA wants you to sum up tax season in six words (Going Concern)
  • CohnReznick is probably better at audits than you, per PCAOB inspection report (Going Concern)
  • For private deals, no one is watching the watchdogs (Reuters)
  • Insider-trading tipper fares better than tippees (Bloomberg View)
  • Piketty’s tax hikes won’t help the middle class (Bloomberg View)
  • A problem with Thomas Piketty’s wealth tax solution to R > G (Forbes)
  • Even corporate tax experts are confused by cloud tax implications (Forbes)
  • Accounting firms merge to form Sitzberger Hau & Co. (Milwaukee Journal Sentinel)
  • Finding jobs for accountants proves a fun career (Portsmouth Herald)
  • IRS works on countering Heartbleed security bug (Accounting Today)
  • IASB launches dedicated research facility (Accountancy Age)
  • Got debts? They could eat into your tax refund (Don’t Mess With Taxes)

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