Bramwell’s Lunch Beat: PCAOB Will Consider Standard on Related Parties Next Week

SEC buys time trying to settle with Big 4 firms over China flap
Tammy Whitehouse of Compliance Week reported on Wednesday that the US Securities and Exchange Commission (SEC) has extended its briefing schedule in its case against Big Four network firms in China to allow more time to pursue some kind of settlement.

The SEC issued an extension order indicating Ernst & Young Hua Ming, KPMG Huazhen, Deloitte Touche Tohmatsu, and PricewaterhouseCoopers Zhong Tian along with the SEC's enforcement division were requesting a 90-day extension of the schedule set by the SEC to hold briefings on the continued standoff over audit work papers in China, according to the article.

An SEC administrative law judge in January determined the four firms along with BDO China Dahua would be banned from performing work regulated by the SEC for six months as the firms have refused to produce audit work papers related to their work for companies in China that are listed on US exchanges.

The SEC extension says the enforcement division and the firms believe the 90-day extension would “facilitate the parties' continued settlement efforts,” Whitehouse wrote. They also say continuing the talks while also holding briefings would be difficult, given the breadth, complexity, and sensitivity of the issues involved.

“Extensions of time are disfavored,” the extension order says. “It appears appropriate, however, to grant the requested extension.”

PCAOB to consider adopting an auditing standard on related parties, amendments regarding unusual transactions, and other amendments
The Public Company Accounting Oversight Board (PCAOB) will consider adopting an auditing standard on related parties, amendments to certain PCAOB auditing standards regarding significant unusual transactions, and other amendments to auditing standards during an open meeting scheduled for 10:30 a.m. ET on June 10.

According to a PCAOB release on June 4, the standard and amendments would revise auditor performance requirements in areas that could pose significant risks of material misstatement in company financial statements.

The board initially proposed the standard and amendments on February 28, 2012, and reproposed them on May 7, 2013. Additional information is available on the PCAOB website under Rulemaking Docket No. 038.

The meeting is open to the public and will take place in the board’s meeting room at 1666 K St. NW in Washington, DC. A webcast via a link on the PCAOB website will be made available the day of the meeting. The meeting also will be available via podcast later in the day.

Risking a health insurance strategy the IRS may not approve
Defined contribution health plans have obvious appeal for businesses. It largely frees the company from the headaches of arranging health coverage by reimbursing employees for insurance they buy on their own. At the same time, it allows the company to help its employees find affordable, often cheaper, options on the individual market. And, importantly, it promises that the contribution the company makes to its employees’ coverage is tax-free for the employees and excluded from payroll taxes for the employer.

However, as Robb Mandelbaum of the New York Times wrote yesterday, in technical guidance issued last year and reiterated in May, the IRS sent a clear warning about such health reimbursement arrangements. The guidance “makes it very difficult, if not impossible, for an employer to pay for an employee’s individual insurance with tax-free dollars,” said Seth Perretta, a health and tax lawyer with the Groom Law Group in Washington, according to the article.

The issue, at least on the surface, is language in the health law meant to make sure there are no dollar limits on the coverage for a person’s basic medical needs, which the law calls essential health benefits, Mandelbaum wrote. The IRS asserts that a plan reimbursing employees for insurance they buy on their own cannot comply with this prohibition on annual limits because the company’s contribution is by definition limited – even though the health insurance the employee ends up buying would have no annual limits.

Fortune 500 has thousands of tax shelters holding $2 trillion offshore
Ben Hallman of the Huffington Post wrote this yesterday: “Apple, Nike, Citigroup, and a few hundred other Fortune 500 companies have created a whopping 7,827 offshore shell companies to stash nearly $2 trillion in places like Bermuda and the Cayman Islands in order to avoid paying US taxes, according to a new report from Citizens for Tax Justice, a tax reform advocacy group. The amount of cash offshore has doubled since 2008.

“All this sheltering costs the US Treasury an estimated $90 billion in lost revenue per year, according to Kimberly Clausing of Reed College, cited in the report.

“Not all of these numbers are new, but some of the details in the report are, including the striking number of tax-haven subsidiaries, which were created by just 362 companies.”

US sues tax lawyer for aiding unlawful shelter schemes
Patricia Hurtado of Bloomberg reported yesterday that the United States sued tax attorney Harold Levine, alleging he made more than $5 million in fees for helping cheat the government out of hundreds of millions of dollars in tax revenue while leading the tax practice at New York law firm Herrick Feinstein LLP.

Levine, current chairman of the tax practice group at Moritt Hock & Hamroth LLP, worked with other shelter promoters and used companies with phony losses on their books to shield millions of dollars in income, US Attorney Preet Bharara alleged in a lawsuit filed in Manhattan federal court on Wednesday.

According to Hurtado, the United States said Levine knowingly lied or caused corporations to tell falsehoods concerning the supposed tax benefits of the illegal shelters. He’s also accused of promoting and participating in at least 90 unlawful tax schemes and not disclosing the transactions to the IRS.

The corporations also improperly deducted more than $515 million in bad debt losses on their tax returns, according to the government’s complaint.

“Every one of the alleged incidents cited in the lawsuit occurred before Mr. Levine joined Moritt Hock,” the firm said in an e-mailed statement. “Although any charges like these are concerning, we firmly believe in Mr. Levine and our legal system.”

Court: Judge wrong to toss SEC-Citigroup settlement
The US Court of Appeals for the Second Circuit said on Wednesday that a judge was wrong to throw out a settlement between the SEC and Citigroup, saying he failed to show proper “deference” to the regulator, Peter Schroeder of The Hill reported.

The appeals court determined that the court that tossed the settlement “abused its discretion by applying an incorrect legal standard.”

Schroeder noted that in 2011, Judge Jed Rakoff tossed out a proposed $285 million settlement the SEC struck with Citigroup for its role in structuring and selling risky securities loaded with subprime mortgages. Rakoff blasted the SEC for the settlement, which did not require the bank to admit or deny any wrongdoing. He said the dollar amount “shortchanged” investors wronged by the bank, and the deal was “neither fair, nor reasonable, nor adequate, nor in the public interest.”

The appeals court’s ruling said that an admission of liability should not be a condition for a judge signing off on a settlement. Rather, the court said the decision to require an admission of wrongdoing “rests squarely” with the SEC.

Quick Links:

  • This accounting firm hopes its marketing campaign will change the way you look at bad words (Going Concern)
  • Deloitte prepares for IMPACT Day by making an impact on talking about IMPACT Day (Going Concern)
  • Three book reviews: Naked bankers, mute watchdogs, and youthful luchre (Re: The Auditors)
  • Registration opens for June 23 webcast on FASB update for private companies and not-for-profits (FASB)
  • Expired corporate tax breaks may have to wait out November elections (Wall Street Journal)
  • SEC awards two whistleblowers $875,000 (Wall Street Journal)
  • Senate quickly moves Dodd-Frank fix (The Hill)
  • Donald Sterling’s last laugh: Tax-free $2 billion Clippers sale (Forbes)
  • California court rules that research fee on electric rates not a tax (Forbes)
  • A 6-cent tax could be enough to get Americans to drink less soda (Vox)
  • Protecting confidentiality when information is exchanged between tax authorities (Tax Analysts)
  • John Daly used tax records to figure $55M in gambling losses (Don’t Mess With Taxes)
  • Thomson Reuters Checkpoint releases special report on FASB and IASB revised accounting model for revenue recognition (Thomson Reuters)
  • Thomson Reuters plans full-day Bisk CPEasy tax and accounting & auditing webinars for CPAs (Thomson Reuters)
  • Wolters Kluwer, CCH debuts new “quick answers” content library and previews innovative CCH IntelliConnect Direct (Wolters Kluwer, CCH)
  • Wolters Kluwer, CCH eSign solution wins prestigious Tax & Accounting Technology Innovation Award (Wolters Kluwer, CCH)
  • TSheets and ZenPayroll partner to streamline time tracking and payroll (ZenPayroll)

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