Bramwell’s Lunch Beat: Senators Outline Case Against Accrual Accounting Proposal

Judge sides with IRS in search for Lerner emails
Bernie Becker of The Hill reported that a federal judge on Thursday delivered an early setback to a conservative group’s lawsuit against the IRS, denying a request to allow an independent expert to search for former agency official Lois Lerner’s missing emails.

Judge Reggie Walton of the US District Court in Washington ruled that the conservative group, True the Vote, had provided no evidence that the IRS had already intentionally destroyed evidence or would do so in the future. He added that approving True the Vote’s request could jeopardize the confidentiality of taxpayer information and complicate the efforts of an inspector general currently investigating what happened to Lerner’s emails.

Cleta Mitchell, a lawyer for True the Vote, downplayed the significance of Walton’s ruling, saying the judge had only rejected their request for expedited assistance, according to the article.

The government has asked the court to dismiss True the Vote’s lawsuit, a request that Mitchell said could be ruled on shortly. If Walton allows the suit to continue, Mitchell said that True the Vote would have other opportunities to get the independent forensic expert and other relief it requested, Becker wrote.

In addition to the forensic expert, True the Vote had asked Walton to force the IRS to preserve all relevant documents for its lawsuit.

Nearly half of US senators sign letter expressing concern about accrual accounting proposal
Forty-six senators signed a letter to Senate Finance Committee Chairman Ron Wyden (D-OR) and Ranking Member Orrin Hatch (R-UT) expressing concern about a proposal that would require companies to use the accrual method of accounting instead of the cash method of accounting for tax purposes.

“As the Finance Committee develops its comprehensive tax reform package, we ask that you consider the negative impact that this proposal would have on the professional services sector, as well as farming and ranching businesses,” the senators wrote in the letter, which was sent to the media by the American Institute of CPAs (AICPA). “We believe that such a change has not been fully vetted and many of the concerns raised by these businesses have not been addressed.”

The AICPA has opposed tax reform proposals that mandate the use of accrual accounting for businesses and individuals who exceed $10 million in annual gross receipts. The AICPA has partnered with state CPA societies and CPA firms to voice the profession’s concerns about the accrual accounting requirement.

Senators pointed to the impact of having to convert to the accrual basis for previously exempt businesses, including CPA, medical, dental, architectural, engineering, and law firms.

“[T]he acceleration of the business’ tax liability combined with the inability to match revenues with expenses would force businesses to borrow money to meet their tax liability,” they wrote. “The basic tenet of taxation is ‘ability to pay.’ Forcing businesses to recognize income before they receive payment violates this basic tenet.”

The senators’ letter goes on to explain that the proposal “would cause numerous adverse unintended consequences and as a result is opposed by many members of both parties. Therefore, we strongly encourage you to maintain the current ability of pass-through entities, personal services corporations, and farming and ranching businesses to use the cash basis for tax purposes irrespective of annual gross receipts.”

Click here to read the letter.

Obama explores tax-code weapons in inversion-merger fight
Maureen Farrell and Damian Paletta of the Wall Street Journal wrote on Thursday that the Obama administration is exploring a range of possible weapons in the tax code to try to deter companies from relocating overseas for tax purposes through so-called inversion mergers.

Each potential change comes with its own potential pitfalls and risks, and no decisions have been made. Meantime, lawyers and bankers are busy doing their own homework in order to gauge how any changes might hurt existing or proposed corporate deals.

For example, one approach would involve cracking down on companies that use inversion to access the cash they hold overseas, Farrell and Paletta wrote. With these deals they do what's been deemed a “hopscotch” loan, moving funds from an overseas subsidiary of their existing company to a new company formed from an inversion to largely avoid foreign dividend taxes.

Harvard Law School Professor Stephen Shay, a former administration official who wrote an article on July 29, 2014, for Tax Notes on how the administration could change the tax code to “take the tax juice out of corporation expatriations,” noted the US Treasury Department could change Section 956 of the tax code to treat these loans as an investment in US property subject to dividend taxes.

According to three people involved in ongoing inversion transactions, so far neither the more heated rhetoric from the Obama administration nor Walgreen Co.’s decision to keep its headquarters in the United States has put a stop to any pending deals, according to the article.

CVS has mulled moving HQ overseas due to taxes
First it was Walgreen Co. Now, another drugstore giant, CVS Caremark Corp., confirmed on Thursday that it has examined moving its corporate headquarters overseas to avoid the nation’s high corporate tax rate, Ted Nesi of WPRI.com in Rhode Island reported.

“We have an obligation to our employees, our shareholders, and our customers to understand all of our potential options,” Carolyn Castel, CVS Caremark’s vice president of corporate communications, told WPRI.com in an email, according to the article. “That said, we are an American company, and we want to stay where we’ve been for more than 50 years. It is imperative that Congress removes the perverse incentives that currently reward corporate inversions, and we want to work with them to find a solution.”

Castel’s statement followed comments made to the Washington Post by Senator Chuck Schumer, who told the newspaper that CVS CEO Larry Merlo told him during a meeting that the company “might be forced” to shift its headquarters offshore for competitive reasons if Congress doesn’t overhaul the tax code, Nesi wrote.

In the email, Castel downplayed Merlo’s conversation with Schumer, saying CVS executives have been talking with members of Congress and Obama administration officials “for some time” about what the company sees as the “urgent” need for “corporate tax reform that includes a significant rate reduction,” according to the article.

Mark K. Rich presented with AICPA’s Maximo Mukelabai Award
The AICPA has named Mark K. Rich, CPA, director of investments at the Kimbell Art Foundation, winner of the Maximo Mukelabai Award. Rich was honored for his work with the Fort Worth chapter of the Texas Society of CPAs (TSCPA) and his service to his local community.

The Maximo Mukelabai Award recognizes a young CPA who personifies an unwavering commitment as demonstrated through their successful practices, involvement, and contributions for the interest of the accounting profession. The award was presented to Rich by Jeremy Dillard, CPA, partner at Rivera, Jamjian & Dillard LLP, at the AICPA’s E.D.G.E. Conference for leadership development in New Orleans. Dillard was honored with the Maximo Mukelabai Award last year.

“One of the hallmarks of a CPA is their willingness to volunteer their time to give back to their profession,” said Cheryl Reynolds, AICPA vice president of communications, advertising, and brand management. “Mark’s impressive success spearheading programs to promote accounting careers to students in the Fort Worth area serves as an inspiration to others and made him a fitting selection for the Maximo Mukelabai Award.”

A member of the AICPA and the TSCPA, Rich has been an active volunteer in the profession. In 2011, Rich utilized AICPA data on the number of students who began their accounting careers at community colleges to design a program called “Pathway to CPA.” The goal of the program was to raise awareness of the benefits of a career in accounting at a local community college. Energized by his experience, Rich began working with the Accounting Career Education (ACE) committee of the Fort Worth chapter of the TSCPA, training numerous volunteers and expanding the network of CPA volunteers in the Fort Worth area. Since inception, the Pathway to CPA program has reached approximately 470 community college students.

“My grandfather is a CPA; my father and his two brothers are also CPAs. Growing up, I had the ability to see firsthand the positive impact earning a CPA license had on the careers and the lives of the people who were closest to me. Having this early exposure to the profession instilled a desire to share information with students in my community about the great possibilities a career as a CPA offers,” Rich said in a written statement.

Rich has continued to expand his outreach in the community, serving as chair of the ACE committee since 2012-2013. Rich was honored by the Fort Worth chapter of TSCPA as Young CPA of the Year 2012-2013. He was also named a TSCPA Rising Star in 2014, an award given to a select group of CPAs under 40 who have demonstrated exemplary leadership skills and active involvement in their community.

Expanding upon his outreach to students at community colleges, Rich began a new program to reach out to undergraduate business students who were attending their required accounting course. Rich and TSCPA volunteers crafted personalized presentations designed to educate students about the different career possibilities earning a CPA offers. The program generated positive feedback and reached more than 570 students in its first year.

“Being honored with the Maximo Mukelabai Award validates the work we are doing in Fort Worth as we reach out to students and encourage them to earn the CPA license,” Rich said. “It has been a team effort, and I’m excited for us to continue to look for new ways to attract students of all backgrounds, educate them about the great opportunities available in the accounting profession, and facilitate their path in becoming CPAs.”

The primary criteria used to judge nominations for the Maximo Mukelabai award are:

  • Demonstrates passion and eagerness to encourage and pique students’ interest in accounting as a career.
  • Contributes recommendations and best practices toward improving processes and/or activities.
  • Performance in committee and/or other volunteer activities that relate to the engagement and advancement of the profession.
  • Involvement in community-based organizations to improve the lives of citizens.

Mukelabai was a member of the inaugural class of the AICPA Leadership Academy and the youngest chair of the North Carolina Association of CPAs board of directors. Tragically, his life ended abruptly at the age of 36. The AICPA established the award in 2011 as a tribute to Maximo’s legacy.

Peers, AICPA staff, employers, and state CPA societies submitted nominations for the annual award. The AICPA’s Young CPA Network Task Force then reviewed all qualified nominations and determined the winner.

Those with questions on the nomination process may contact YoungCPANetwork@aicpa.org. The application period for next year’s award will open in early 2015.

Quick Links:

  • President Obama is mad at accountants for being accountants (Going Concern)
  • One PwC manager learned abusing your expenses might get you thrown out of the club (Going Concern)
  • PwC US appoints Terri McClements as managing partner of the Washington Metro market (PwC)
  • Gross Mendelsohn promotes 5 staff members (Gross Mendelsohn)
  • Whistleblower final rules expand definition of collected proceeds (Journal of Accountancy)
  • Biden: Congress ‘can’t even decide on a gas tax’ (The Hill)
  • DOT chief wants ‘noisier’ calls for funding (The Hill)
  • Dems eyeing ‘inversion’ tax language in CR (The Hill)
  • How Obama can stop corporate expatriations, for now (DealBook)
  • Tax inversions help, not hurt, the economy (MarketWatch)
  • Tax inversions threaten US economy (Seattle Times)
  • Beware the individual income tax inversion (Tax Analysts)
  • Why Walgreen stayed put (Crain’s Chicago Business)
  • How Americans scared Walgreens out of a $4 billion tax dodge (Huffington Post)
  • The market may have overreacted to Walgreen’s decision against tax inversion (Forbes)
  • Of course we should abolish the corporation tax (Forbes)
  • John Koskinen indicates IRS revolving door is a feature not a bug (Forbes)
  • Son of powerful congressman charged with bank & tax fraud (Forbes)
  • Many Americans renounce citizenship, hitting new record (Forbes)
  • Governor Quinn tries to fool Illinois taxpayers (Forbes)
  • Tax Court rejects asset-based valuation for stock owned by decedent (Tax Litigation Survey)
  • FTC sending $16 million to former American Tax Relief clients. Don’t fall for tax relief scams in the first place (Don’t Mess With Taxes)
  • LeBron James, Kevin Love signings will mean more tax money for cities (Cleveland Plain Dealer)
  • Court rules Bears owe Cook County $4.1 mil in back taxes (Chicago Sun-Times)

 

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