Disabled borrowers trade loan debt for a tax bill from the IRS
The IRS may count a forgiven debt as income, leaving some disabled borrowers with tax bills they cannot pay, Tara Siegel Bernard of the New York Timeswrote yesterday.
She noted that after much criticism, the US Department of Education has made it easier in recent years for disabled borrowers to have their federal student loans discharged. But now, as more people are qualifying for loan forgiveness, many of them are running into an unexpected consequence: They are often shocked to learn that they basically exchanged one debt for another, according to consumer advocates and tax and credit specialists.
“Borrowers who can prove they were insolvent may be able to ease the tax burden, but may not be able to eliminate it,” Siegel Bernard wrote. “And many people do not even know this exception exists. The insolvency calculation is notoriously complex, particularly for people who are dealing with medical problems or the death of a child, consumer advocates said, which is another instance in which student loan debts may be discharged.”
“The government gives with one hand, while taking back with the other,” said Mark Kantrowitz, a senior vice president and publisher of Edvisors, an informational website about paying for college, according to the article. “Morally, if debt is canceled because of the borrower’s inability to pay due to disability, the corresponding tax debt should also be forgiven.”
Kantrowitz added that the tax debt is generally a small fraction of the overall debt, but it can present a great burden because it is due in one lump sum instead of being spread over time, the article stated.
Ex-finance director of Dewey & LeBoeuf says its chairman feared audit
Francis J. Canellas, the former finance director of the bankrupt law firm Dewey & LeBoeuf, who pleaded guilty this year to taking part in a scheme to manipulate the firm’s financial statements, told New York prosecutors that the firm’s former chairman had been nervous before meeting with an Ernst & Young auditor to discuss the firm’s 2010 finances, Matthew Goldstein of the New York Timesreported yesterday.
In a statement made as part of his plea agreement with prosecutors, Canellas said he thought ex-chairman Steven Davis worried that the auditor would detect some of the “inappropriate adjustments” being made to Dewey’s financial statements by the firm’s finance team.
In a five-page statement to prosecutors, Canellas described how Dewey’s former CFO Joel Sanders had instructed him to make adjustments to the firm’s finances to comply with cash-flow covenant provisions contained in its bank lines of credit, the article stated. He also talked about instructing other employees how to carry out those adjustments and said that Davis and one-time Dewey executive director Stephen DiCarmine were aware of what he was doing.
“In regard to the meeting with the auditor over the firm’s 2010 financial records, Mr. Canellas said the auditor had told the firm’s top executives, including Mr. Davis, that its ‘accounting records were in good shape,’” Goldstein wrote. “After the meeting ended, Mr. Canellas said, Mr. Davis told Mr. Sanders ‘in a very sarcastic tone’ that he was ‘doing a great job.’”
Davis, Sanders, and DiCarmine, along with a low-level employee, Zachary Warren, were indicted this month by a New York grand jury on multiple counts of grand larceny and falsifying business records. The four men have pleaded innocent to the charges.
Senator Wyden will push to renew $54 billion in tax breaks
Emily Chasan, senior editor of the Wall Street Journal’s CFO Journal, reported yesterday that new Senate Finance Committee Chairman Ron Wyden (D-OR) hopes to strike a deal to renew some 55 tax credits and deductions that expired at the end of last year, and he doesn’t want to have to extend them again.
Calling the renewal of the so-called tax extenders one of his top priorities, Wyden said businesses and families need “certainty” on the tax breaks, which affect everything from research and development, renewable fuels, and employment opportunities for veterans.
“This means jobs and much-needed certainty for families and businesses alike,” Wyden said, according to the article. “But let me be clear – I’m determined that this is the last time we do extenders and would like to leverage this last extension to reform the broken tax code.”
Issuers share duty to fix controls, PCAOB member says
Public Company Accounting Oversight Board (PCAOB) member Jeanette Franzel told internal auditors earlier this week at an Institute of Internal Auditors conference that despite what they may be hearing from external auditors, the rules around internal control auditing have not changed in recent years, Tammy Whitehouse of Compliance Weekreported.
The PCAOB has not revised Auditing Standard No. 5, issued in 2007 to govern the audit of internal control, although it has offered more recent guidance in Audit Practice Alert No. 11. She acknowledged many companies are noticing changes to auditors' approaches as a result of that guidance and the board's recent approaches to audit inspections, the article stated.
Whitehouse wrote that Franzel is worried that auditors' responses may not dig deeply enough into the root problem, which is perhaps deficiencies in the controls themselves that management needs to address.
“I am concerned that, in some cases, the auditor's reaction is to bolt on a series of new audit steps when a more efficient and effective solution may require some tightening up of the controls on the part of management, in addition to changes to the audit procedures,” she said, according to the article.
Click here to read a transcript of Franzel’s speech.
[Click here to read AccountingWEB’s article from last October on the PCAOB issuing Audit Practice Alert No. 11.]
Darrell Issa rankles some Republicans in handling IRS tea party probe
It’s been almost a year since the IRS targeting scandal first made headlines all around the nation. Some Republicans are unhappy with their party’s investigation – and they point a finger at the man who helped sustain the national uproar: House Oversight and Government Reform Committee Chairman Darrell Issa (R-CA), Rachael Bade and Lauren French of Politico reported yesterday.
In background interviews with more than a half-dozen House Republicans on the Oversight and Ways and Means committees, the two panels probing the matter in that chamber, members expressed frustration that the investigation has become a spectacle that’s dragged on and distracted from serious charges.
Representative Jason Chaffetz (R-UT), who is hoping to replace Issa as chairman next year once Issa’s term expires, expressed regret over the pace of the investigation, saying it’s “lost momentum,” the article stated. Others were more blunt.
“There’s a far better way to take this on. … There’s broad frustration with how this has played out, with the road he’s taken,” one Oversight Republican, who asked for anonymity to speak frankly, said of the investigation, according to the article.
Bade and French wrote that the list of complaints includes: Issa waited nearly a year to bring a key IRS witness back to his panel; he let an offer to hear that witness speak slip and may even be causing sympathy for ex-agency official Lois Lerner.
Lerner’s admission that the agency held up applications from tea party conservative groups seeking nonprofit status sparked the controversy last May, followed by a critical inspector general report.
Three myths and realities of client newsletters
Despite this article appearing on the New Jersey Society of CPAs’ (NYSCPA) website on March 1, it’s still worth mentioning in today’s “Lunch Beat.” In case you missed it, Gordon C. Andrews, managing partner of Highlander Consulting Inc., wrote about three highly subjective myths and realities to help you determine whether a client newsletter is a worthwhile tool or, if you currently have one, how to improve it.
- The more money your parents made, the less likely you are to become an accountant (Going Concern)
- Congress faces gas tax dilemma (The Hill)
- Audit: IRS needs stronger oversight of tax deduction (The Hill)
- New tax legislation would increase the return to work for low- and middle income working families (The Hamilton Project)
- IRS scandal 101: Why House doesn’t have all Lois Lerner e-mails yet (Christian Science Monitor)
- States pursue tax cuts as recovery takes hold (USA Today)
- German states seek tougher penalties for tax evaders who turn selves in (Reuters)
- US Supreme Court agrees severance pay is taxable (Tax-News.com)
- Last minute tax tips for first time filers (Forbes)
- Abuse victims who file separate returns are eligible for premium tax credit (Journal of Accountancy)
- Six cybersecurity basics (Journal of Accountancy)
- What is the cheapest way to start an accounting firm? Read this list (BoxFreeIT.com)
- Broken tax promise earns Bush 41 the JFK courage award (Don’t Mess With Taxes)
- You could owe capital gains taxes when you spend Bitcoin (TaxVox)
- Mission impossible? An upcoming TPC panel will explore the politics of tax reform (TaxVox)
- Rectifying China’s legal profession (China Accounting Blog)
About Jason Bramwell
Jason Bramwell is a staff writer and editor for AccountingWEB. He has nearly 20 years of experience in print and online media as a journalist and editor.