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Bramwell’s Lunch Beat: How Accounting Trick Profits Banks

Mar 31st 2014
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Caterpillar set to defend its tax bill
Caterpillar Inc. will go before the Senate Permanent Subcommittee on Investigations on Tuesday to explain strategies designed to shrink tax bills, James R. Hagerty and John D. McKinnon of the Wall Street Journalreported on March 30.

Caterpillar already has said its effective income tax rate is relatively high at about 29 percent despite those strategies. The subcommittee’s report on Caterpillar’s tax practices is due today.

Subcommittee Chairman Carl Levin (D-MI) has long decried the ability of corporations to elude taxes through what he has called “complex structures, dubious transactions, and legal fictions,” the article stated.

“Caterpillar officials are preparing to defend a corporate restructuring in the late 1990s that helped the company reduce US taxes, particularly on sales of parts to foreign customers,” Hagerty and McKinnon wrote. “Caterpillar devised the restructuring with advice from the accounting firm PricewaterhouseCoopers LLP. A PwC spokeswoman said the restructuring ‘better aligned an American company's global operations with economic realities and was fully compliant’ with tax law.”

Accounting trick helps banks dodge capital pain
US banks are reclassifying their bonds as “held to maturity” as a way to shield some of their holdings from potential hits due to rising interest rates and new regulations, John Carney of the Wall Street Journalwrote on March 28. The amount of securities banks pledge to hold to maturity rose last year by 61 percent, to $492.3 billion.

“When securities are classified as held to maturity, they are carried at their original cost, typically face value,” Carney wrote. “Declines in market values hit neither book value nor earnings. Their value is written down only if they are considered to be permanently impaired.

“It's no coincidence this occurred as long-term interest rates started rising, which sends bond prices lower,” he continued. “The greater use of the held-to-maturity classification helped banks to potentially avoid billions of dollars in losses.”

But the embrace of held to maturity wasn't just caused by rising rates. It was also a response to changing capital and liquidity regulations.

Under older rules, unrealized losses on available-for-sale securities didn't hit capital ratios, he wrote. Starting in 2015, that will no longer be the case for banks with more than $250 billion of assets.

Dave Camp’s decision still awaited
Representative Dave Camp (R-MI) has not yet committed to senior House Republican leaders that he’s running for re-election in November, according to multiple sources, Jake Sherman and John Bresnahan of Politicoreported today.

The chairman of the Ways and Means Committee has not yet filed for re-election, and Michigan’s filing deadline is April 22. Camp, who released his proposal to reform the nation’s tax code at the end of last month, has reached the term limit as chair of the tax-writing panel. Representative Paul Ryan (R-WI) is widely seen as the committee’s next chairman.

“Camp has pushed a tax-reform package along with the now ex-Senator Max Baucus (D-MT), but House GOP leaders have not embraced the package,” Sherman and Bresnahan wrote. “The Michigan Republican has worked on his proposal for three years, only to see it stall as the critical midterm elections loom closer. Camp plans to hold hearings on portions of his tax-reform package in upcoming weeks and months.”

Asked if he would run again, Sage Eastman, Camp’s longtime aide, said in an e-mail, “The chairman formally makes his election announcement close to the filing deadline. This year is no different and there is no announcement yet,” according to the article.

A tax break to anchor tech growth in San Francisco
A series of tax breaks given to tech companies to ensure that they stay in San Francisco seems to be benefiting both startups and the city, if even just a little, Nick Bilton of the New York Timeswrote yesterday.

The tax break, called a “community benefit agreement,” makes it possible for companies housed in specific low-income areas of San Francisco to receive breaks on some of the city’s payroll taxes, but to do so, they must perform a number of tasks that help improve their neighborhoods.

David Augustine, San Francisco’s tax collector, said in a memo that 14 businesses had been approved for the tax breaks, which excluded them from paying 2012 taxes on a total of $126,888,132. That’s $1,903,321 in taxes that these companies did not have to pay in 2012 alone, according to the article.

Last year, Zendesk, a customer support firm, spent just under $100,000 in donations and hiring local businesses. This included $3,500 being spent with the program CHEFS (Conquering Homelessness through Employment in Food Services), which works with startups to cater events with the hopes of eventually finding the homeless students in the program employment in kitchens. Zendesk has also donated computer equipment, provided volunteers, and held fundraisers, the article stated.

Aguilar pitches creation of an SEC Cybersecurity Task Force
During a cybersecurity roundtable held last week by the US Securities and Exchange Commission (SEC), one of the agency’s commissioners proposed the creation of a Cybersecurity Task Force.

According to an article by Joe Mont of Compliance Week, the task force proposed by SEC Commissioner Louis Aguilar would comprise representatives from each SEC division who will meet regularly to discuss evolving issues and advise the agency on its future demands and disclosure requirements.

“I have become particularly concerned about the risks that cyberattacks pose to public companies and to ... exchanges, clearing agencies, transfer agents, broker-dealers, and investment advisers,” Aguilar said, according to the article. “Cyberattacks aimed at these market participants can have devastating effects on our economy, on individual consumers, and on the markets and investors the SEC was created to safeguard.”

For today’s college students, accounting is a rising field
Despite its stolid reputation, accounting is exciting more and more college students – especially in Virginia, Philip Walzer of the Virginian-Pilotwrote on March 30.

The number of US graduates with accounting degrees jumped 20 percent – to more than 61,300 – from 2010 to 2012, according to the American Institute of CPAs (AICPA). Virginia has experienced a nearly 60 percent increase in accounting graduates in the past decade. The number of available positions grew by more than 13,500 to 82,200 during the same two-year period, the AICPA said, according to Walzer.

One stereotype, though, still holds true for many accountants: This is a grueling time of year, with tax deadlines bearing down. Brandon Sabetta, a staff accountant at Wall, Einhorn & Chernitzer in downtown Norfolk, Virginia, estimated he’s working 55 to 65 hours a week.

At Dixon Hughes Goodman’s office in Norfolk, accountant Maxim Urenev, who graduated from Old Dominion University (ODU) in 2012, estimated he worked 68 hours one week this month and 80 the week before.

“I did 72 the week you did 80,” piped in Gabby Briggs, an intern who will graduate from ODU in May, according to the article.

Quick Links

  • A phone call from your mom will NOT help you land a Big 4 job (Going Concern)
  • Ordinary decisions with not so ordinary consequences (New York Times)
  • New York judge unseals guilty pleas in Dewey law firm fraud (Reuters)
  • Bush 41’s tax flip-flop hailed as courageous (The Hill)
  • Dem senator expects renewable credits to be extended (The Hill)
  • MEP calls for independent review into IASB (Accountancy Age)
  • KPMG announces Xero tie-in (Accountancy Age)
  • One shouldn’t have to be an auditor to understand an audit report (Accounting Onion)
  • All the auditors are above average; Jay Hanson allergic to “audit failure” (re: The Auditors)
  • Selfies used as tax claim documentation, audit defense (Don’t Mess With Taxes)
  • Tax scams ramp up as filing deadline nears (Don’t Mess With Taxes)
  • More depressing law student loan news (TaxProf Blog)
  • Spacey urges ‘House of Cards’ tax break with real lawmakers (Bloomberg)
  • Under Russian rule, Crimea gets tax breaks for investors (Forbes)
  • Will tax reform happen in our time? (Forbes)
  • Major tax reform efforts look likely to stall again (Town Hall)

Replies (1)

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By PedophileStateNittanyLiarz
Jun 25th 2015 20:11 EDT

Caterpillar and Apple are two of the most unamerican companies out
there. By not paying their fair share, the rest of us have to make up
for it.
It's time to put tax cheats like Mitt Romney and these CEOs
in prison for life. And if McCain is on the take again (see Keating 5),
then he should go to prison too. And the unamerican accounting firms
that enable these tax cheats should also be charged as the criminals that they are.

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