Bramwell’s Lunch Beat: Them’s the (Tax) Breaks
House contempt vote for IRS’ Lois Lerner set for next week
April 10 is the day we find out whether the House Oversight Committee will hold former IRS official Lois Lerner in contempt of Congress, according to Rachael Bade and Lauren French of Politico.
Lerner, a key figure in the IRS targeting controversy last year, has been under the threat of contempt for more than a month after she again invoked her Fifth Amendment right not to testify at a House Oversight Committee hearing.
Oversight Committee Chairman Darrell Issa (R-CA) said Americans expect accountability and want Congress to do what it can to prevent a similar incident from ever happening again.
“Ms. Lerner’s involvement in wrongdoing and refusal to meet her legal obligations has left the committee with no alternative but to consider a contempt finding,” he said, according to the article.
Bade and French noted that Lerner could theoretically be jailed if found in contempt, though that power has been used rarely.
The contempt vote, which is backed by Republican leadership, including House Speaker John Boehner (R-OH), is expected to pass the Oversight Committee where it will be sent to the House.
Why most tax extenders should not be permanent
What to do about the tax breaks, or tax extenders, that were part of a bill approved by the Senate Finance Committee yesterday? Gene Steuerle, Richard B. Fisher chair and Institute Fellow at the Urban Institute, noted in a blog on TaxVox yesterday that Finance Committee Chairman Ron Wyden (R-OR) and House Ways and Means Committee Chairman Dave Camp (R-MI) are approaching the tax breaks in different ways.
Camp would take them on one by one this year, making some permanent and killing others, whereas Wyden and senior panel Republican Orrin Hatch of Utah would restore nearly all of them but only through 2015.
“Making them permanent would reduce complexity and uncertainty. But keeping them temporary would allow Congress to regularly review them on their merits,” Steuerle wrote. “I believe that, with a few exceptions, most should not be made permanent. However, I’d extend most of them for more than a year at a time according to the purpose they are meant to serve.
“Why not make them permanent? As Professor George Yin of the University of Virginia School of Law has argued, most of these provisions really look more like spending than taxes,” Steuerle continued. “We must distinguish, therefore, between those items that legitimately adjust the income tax base, and those that, like direct expenditures, subsidize particular activities or persons, or respond to a temporary need.”
Paying for the tax extenders
In a blog post on its website, the Committee For a Responsible Federal Budget wrote if lawmakers were interested in taking a fiscally responsible approach to the tax breaks and either reducing the size of the extenders or offsetting the costs, they had a number of options.
“The Finance Committee extended them for two years, but lawmakers could also get creative by modifying some, making them permanent, or choosing to keep some expired,” the blog stated. “For instance, the package of education reforms in Camp's discussion draft let one education break expire and repealed several other permanent ones to pay for a permanent extension of the American Opportunity Tax Credit, which is scheduled to expire in 2017. As another example, Camp's discussion draft shrank the expiring renewable energy production tax credit back to its original pre-inflation level, which pays for the credit to be extended and phased out over the next 10 years.
“Importantly, the $85 billion two-year cost to extend all of these provisions is deceptive,” the blog continued. “In reality, if lawmakers continue the current trend of extending all the provisions year after year, the cumulative cost would sum to approximately $750 billion (or almost $930 billion with interest) over the next 10 years. One provision alone, bonus depreciation, accounts for two-fifths of the cost of the entire package.”
[Click here for AccountingWEB’s article on the Senate Finance Committee’s vote to revise most of the 55 tax breaks that expired at the end of 2013.]
Dave Camp, John Boehner clash in private meeting
Back to Politico, as Jack Sherman and Anna Palmer wrote on Wednesday about an alleged tiff between Camp and Boehner over a recent bill to patch Medicare reimbursement rates.
“The tension ran so high that Representative Dave Camp of Michigan, the [Ways and Means Committee’s] typically reserved chairman, late last week laced into Speaker John Boehner (R-OH) during a tense interaction in a closed-door meeting of the tax-writing panel, accusing the Ohio Republican’s staff of being dishonest, multiple Republican sources said. Majority Leader Eric Cantor (R-VA), who once served on the Ways and Means Committee, was also in attendance,” Sherman and Palmer wrote.
Camp, who is retiring at the end of this Congress, wanted a long-term fix to the formula. Boehner thought Congress had to settle for a yearlong patch.
“That Camp and Boehner had such a poisonous interaction is rare. The two came into Congress together in 1991, and have long worked closely on budgetary issues,” the article stated. “The feud highlights the intensity of the internecine fights among House Republicans. But, more importantly, the argument illustrates how some lawmakers are chafing in a cautious Congress that is focused on the November midterm election.”
Voices: Term limits for committee chairmen are bad idea
Susan Davis, who covers Congress for the USA Today, wrote on Wednesday that Camp’s decision to retire from Congress earlier this week shows that the GOP's self-imposed term limits for committee chairmen are a mistake and should be scrapped.
“But after nearly two decades in practice, GOP term limits have served only to centralize power within the party leadership,” she wrote. “It has likewise shifted power away from chairmen and to K Street. Washington's powerful lobbyists worked swiftly this year to quash any expectation that Camp's tax overhaul proposal – the first real attempt to fix the tax system since 1986 – could go anywhere once they realized that some of his proposals went against their interests.
“The corporate lobby plays the long game,” the article continued. “A chairman limited to six years can easily be out-waited. It's the ones who aren't going anywhere who must be reckoned with.”
European Parliament approves mandatory auditor rotation
More on the decision by the European Parliament yesterday to bring mandatory auditor rotation into one of the world’s biggest economic regions. According to an article by Emily Chasan, senior editor of the Wall Street Journal’s CFO Journal, the rules require European-listed companies, banks, and financial institutions to appoint a new auditor every 10 years, though this can be extended if companies put their audit contract up for bid at the decade mark or appoint another audit firm to do a joint-audit.
The rules would also prohibit certain nonaudit consulting services and cap the amount of additional fees auditors can charge their clients. The European Council, which includes the heads of the 28 European Union member states, is expected to formally adopt the rule in the coming weeks.
Under the new legislation, Europe’s restrictions would be tougher than the US restrictions required by the 2002 Sarbanes-Oxley Act.
“If you go back 10 years ago, Europe was more reluctant to make changes,” Ed Nusbaum, chief executive of auditing firm Grant Thornton International, one of the biggest audit firms after the Big Four, told CFO Journal in an interview. “What you see now is the exact opposite.”
He added: “We’re already seeing some companies voluntarily discussing audit rotation, or at least putting their audits out for bid.”
Accounting for past sins
Credit Suisse Group AG on February 6 said fourth-quarter net income was 267 million Swiss francs ($299 million). But that was only a preliminary result contained in an earnings release, noted Bloomberg View columnist Jonathan Weil on April 3.
“Today Credit Suisse said it had ‘updated’ that to a net loss of 476 million francs. Whoops,” he wrote.
Weil said the reason mostly had to do with the US Justice Department’s investigation into the tax-evasion services the Swiss bank used to provide to its US customers before it got caught and had to stop. Credit Suisse said it recorded a related charge to earnings of 468 million francs, which it hadn’t included in the fourth-quarter numbers it first reported.
“Under the accounting rules, the change means it was probable that Credit Suisse had incurred those expenses as of December 31. And for some reason, it seems the bank's management was unaware of them back in February. But at least the company discovered the need to fix its numbers in time to file its audited financial statements. So it isn't a restatement in the formal sense, only a revision,” he wrote.
“Even so, this raises questions about the quality of Credit Suisse's internal controls over financial reporting. A bank of Credit Suisse's size and sophistication shouldn't have any major errors in its earnings release. Investors rely on those preliminary numbers to make decisions. The company is supposed to get its numbers right the first time.”
How would auditors’ reporting affect “other information”?
During the second of two days of public hearings on the PCAOB’s auditor’s reporting model proposal, panelists debated the merits of having auditors evaluate and report on “other information” that is included in an annual report filed in Form 10-K but is outside the audited financial statements, Journal of Accountancy Senior Editor Ken Tysiac reported yesterday.
Jeremy Perler, CPA, director of research for forensic accounting consultancy Schilit Forensics, said enhancing auditor responsibility will help provide assurance for investors that information presented by management is accurate.
“I recognize that evaluative scrutiny likely means added procedures,” he said, according to the article. “However, the benefits to investor protection and public disclosure far outweigh the costs.”
But Michael Young, a partner with law firm Willkie Farr & Gallagher, said the proposal would reduce the useful information available to investors. He said the proposal would give management incentive to present objectively verifiable information that is easier for auditors to evaluate, Tysiac wrote.
Benjamin Wey sent me a threatening e-mail about AgFeed
As you probably are already aware, Francine McKenna has written extensively about the AgFeed accounting fraud in China on her website, re: The Auditors.
It just so happens that on April 2 she received an e-mail from Chinese stock promoter Tianbing “Benjamin” Wey, whose New York Global Group was closely affiliated with AgFeed during the period under litigation by the US Securities and Exchange Commission (SEC) and shareholders. Wey apparently did not like McKenna mentioning his relationship to AgFeed, its auditor, and its executives in one of her posts.
In that post, she provided details of the lawsuit, Lawrence Blitz v. AgFeed Industries, Inc., Goldman Kurland & Mohidin LLP, McGladrey & Pullen LLP, et al, which described the close relationship between Wey and Ahmed Mohidin, the lead audit partner on the AgFeed engagement, as well as Wey’s relationship with several AgFeed officers/directors.
Yesterday, McKenna posted the e-mail in its entirety on her website and highlighted what she felt were threats from Wey. In it he writes, “If you do not have any factual basis for your statements, I consider it libel and please take immediate actions to correct the mistake. It would go a long way towards your redemption. I am not your enemy. Please do not create a hostile environment for yourself. It is not necessary. It is up to you to remove your slanderous statement before April 3, 2014.”
Her response: “In spite of Wey’s signature identifying him as a ‘Publisher and Investigative Reporter,’ I think we can surmise from all the evidence here and otherwise what Wey really is. I would suggest Wey look over his own shoulder. I think I can see the SEC, Department of Justice, and FBI gaining on him.”
Oh, and if you’re so inclined, go over to our sister site, Going Concern, to see what Managing Editor Adrienne Gonzalez wrote yesterday about Wey’s e-mail.
- PwC’s new name for Booz worst marketing choice since Coke II (Going Concern)
- Why PwC just changed the name of its 100-year-old consulting acquisition (Quartz)
- PwC’s Booz deal revives specter of Enron-era conflicts (Bloomberg)
- Accounting correction hits the brakes on CarMax earnings (Fox Business)
- George Will: Wyden may be the man to drain the tax swamp (Anchorage Daily News)
- House GOP: Dave Camp’s tax plan is only one option (Politico)
- A really bad idea: Attacking the tax deduction on ads (CNNMoney/Fortune)
- Friended on Facebook? Praised on Yelp? The SEC may take a look (Compliance Week)
- Two ways to fix the corporate income tax: Internationalize it or kill it (TaxVox)
- Is the taxman coming for retirement entrepreneurs (Bloomberg Businessweek)
- Justice Dept. looking into high-frequency trading (USA Today)