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Bramwell’s Lunch Beat: Tax Extenders Deal Not Close, as Small Business Owners Wait

Nov 14th 2014
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Auditor independence is the CFO’s responsibility, too
What should a CFO do if an auditor independence violation has occurred? Who should she or he discuss this matter with? What should the company have done differently? What’s the audit committee’s responsibility?

These are the questions that Jay Bornstein, a retired EY tax partner, and Steve Blowers, a retired EY audit partner, answered in an article they composed this week for CFO.

Bornstein and Blowers emphasized that company leaders, especially CFOs, must understand the nature of the violation, its root cause, and whether it could have been prevented by actions of the company. While the independence regulations are both rules-based and principles-based, there are no exceptions for immateriality in terms of dollars or subject matter.

“Auditors must be independent both in fact and in appearance,” they wrote. “It is key for the finance chief, other senior managers, and the audit committee to reach their own assessments regarding the nature of the violation and its impact on the auditor’s independence. The finance chief’s assessment should be a thorough and detailed analysis, not merely a concurrence with the audit partner’s point of view.”

Tax break negotiations in ‘preliminary’ stage
Discussions on extending a slew of expired tax breaks could take until the end of the current lame-duck session of Congress, top tax writers said Thursday, according to an article by Bernie Becker of The Hill.

Top Republicans and Democrats on the Senate Finance and House Ways and Means committees are trying to hash out a deal on the so-called “tax extenders,” the dozens of temporary provisions that expired at the end of 2013. But both Ways and Means Committee Chairman Dave Camp (R-MI) and Rep. Sandy Levin (D-MI), the top Democrat on the panel, said the discussions have a long way to go.

“The likelihood is that the final decision will be in December,” Levin said, according to the article. “It would be better if we could do it quickly. But we’re not at that point yet.” Camp, who is retiring at the end of the year, added that it would be a “mistake” if negotiations dragged into 2015.

House Republicans are seeking to revive certain tax breaks that help business, like a popular credit for research and a couple of incentives for business expensing, without an expiration date, Becker wrote. Conservative groups, like Americans for Prosperity and Heritage Action, are also urging the GOP to kill the tax break for wind, known as the production tax credit.

The Senate Finance Committee crafted a measure to extend most of the expired provisions through 2015. Sen. Orrin Hatch (R-UT), who will likely be the next chairman of the Finance Committee, said this week that he was open to making some tax breaks permanent, but he also was committed to his panel’s bipartisan package, according to the article.

NSBA: Small businesses want tax breaks extended during lame-duck session
According to the results of a new survey from the National Small Business Association (NSBA), small business owners overwhelmingly support Congress approving an extension of the expired tax breaks before the lame-duck session concludes.

Of the nearly 800 small business owners who were surveyed for the NSBA report, Lame Duck Session Priorities, 76 percent said enactment of the tax extenders was either “very important” or “somewhat important.” Seventy-two percent support the Senate’s proposal of a temporary two-year extension of the tax breaks, while 74 percent favor the House’s approach of permanently extending only certain tax breaks, such as research and development, bonus depreciation, and Section 179 expensing.

In addition, 75 percent of small business owners believe it is important that Congress approve spending bills through appropriations during the lame-duck session, while 67 percent favor an extension of the Internet tax moratorium. Sixty-one percent want lawmakers to take action on corporate inversions.

The biggest long-term issue small business owners want Congress to address is simplifying the tax code (18 percent), followed by reducing the national deficit (16 percent) and reducing the tax burden (14 percent).

“Small businesses need Congress to move on the tax extenders soon, but keep at the top of their list for next year broad tax reform that will provide small businesses with some relief,” NSBA President and CEO Todd McCracken said in a written statement.

The NSBA also asked small business owners a few questions about Congress and found that not only is Congress’ inability to enact long-term, meaningful tax proposals lessening the average small business owner's confidence in his or her elected officials, it's negatively impacting nearly half of small firms' ability to plan for the future.

“Underscoring their ongoing call for Congress to function properly, there is broad opposition among small businesses to certain procedural maneuvers, such as anonymous holds and policies where leadership will only bring to the floor bills that have the support of the 'majority of the majority,’” said NSBA Chair Jeff Van Winkle.

CBPP: Bonus depreciation tax break should remain expired
In an article posted on its website on Thursday, the Center on Budget and Policy Priorities (CBPP) said the bonus depreciation tax break, which expired at the end of 2013, does not belong in any tax extenders package and should remain expired.

Under bonus depreciation – first enacted by Congress in 2002 and then brought back in 2008 – businesses would be able to claim an additional first-year depreciation tax deduction equal to 50 percent of the value of qualified property investments, such as machinery and equipment.

The CBPP argues that Congress enacted the business tax break on a temporary basis in 2008 to bolster the economy during the recession, not to make it a permanent component of the tax code or extend it year after year like a tax extender, wrote Chuck Marr, director of tax policy at the CBPP, and Brandon DeBot, a research assistant at the CBPP.

The group added that any modest stimulus bonus depreciation may provide stems entirely from it being temporary in nature. “If it is permanent – or if repeated short-term extensions lead firms to expect it will be routinely extended – it will no longer encourage [businesses] to accelerate their purchases during economic downturns, as they will get the same tax break regardless of whether the purchases occur when the economy is weak or when it’s strong,” Marr and DeBot wrote.

Extending bonus depreciation permanently would cost $276 billion over the next decade, according to the Joint Committee on Taxation.

FASB kicks consolidation standard out to 2015
Tammy Whitehouse of Compliance Weekwrote on Thursday that companies will not have a final new consolidation standard by the end of 2014, despite expectations that the standard would be completed by the end of this year.

The Financial Accounting Standards Board (FASB) learned from its staff that the “fatal flaw” review of the final standard revealed a big number of issues the staff needs to analyze, a handful of which could require the board to re-open discussion on some technical issues.

The staff hopes to complete its analysis of the 140 “significant” comments raised by 25 separate external reviewers and plans to provide the board with fresh recommendations at a Dec. 10 meeting. The staff indicated the 140 collective comments contain many areas of overlap, so the true number of issues is much smaller, Whitehouse wrote.

Under a best-case-scenario timeline, the standard won’t be completed before early February, staff members told the FASB in an open meeting. FASB member Tom Linsmeier noted, “We’re not going to be able to have an effective date for the 2014 cycle,” according to the article. FASB Chairman Russell Golden said it might still be possible for companies to apply the new standard to their 2014 financial statements if the board is able to issue final guidance in early February and companies elect to adopt it early.

[Some additional reading: FASB members agreed to the new consolidation guidance in July. Click here for our article.]

Starbucks’ Dutch tax deal may constitute illegal state aid, says EU
European Union (EU) regulators explained on Friday why they think a tax deal struck by Starbucks Corp. in the Netherlands amounts to illegal state aid, marking the next phase of an investigation that could force the US coffee chain to pay large sums in back taxes, wrote Tom Fairless of the Wall Street Journal.

In a letter to the Dutch government, the European Commission said it had reached the preliminary view that a tax deal struck by Starbucks’ Dutch manufacturing arm constituted illegal state aid. The regulator said the method used by Dutch authorities to calculate taxes appeared to violate guidelines produced by the Organization for Economic Cooperation and Development (OECD).

EU regulators are focusing on transfer pricing, where multinational companies set internal prices for goods or services sold by one subsidiary to another. Companies have an incentive to exaggerate the price of goods sold by a subsidiary in a low-tax jurisdiction to a subsidiary in a high-tax jurisdiction to reduce taxes. OECD guidelines stress that transfer prices must be established at “arms’ length,” reflecting fees among independent companies, Fairless wrote.

In its letter on Friday, which runs to 40 pages, the commission said the royalties paid by Starbucks’ Dutch manufacturing business may have been overestimated to reduce the company’s tax burden. “The commission is of the opinion that [the tax deal] tolerates questionable adjustments which allow Starbucks Manufacturing BV to lower the resulting corporate income tax basis in the Netherlands,” the commission wrote, according to the article.

The Dutch government hit back swiftly at the allegations, saying it was “convinced” that its tax deal with Starbucks didn’t constitute illegal state aid.

RCS Capital seeks to distance itself from American Realty Capital Properties
The Wall Street Journal also reported that shares of RCS Capital Corp. fell more than 8 percent on Thursday after the New York brokerage firm fell short of analysts’ third-quarter earnings expectations and warned it couldn’t offer financial projections for 2015.

RCS Capital’s stock price has declined by more than 49 percent since real-estate investment trust American Realty Capital Properties Inc. disclosed accounting irregularities on Oct. 29, Robbie Whelan of the Wall Street Journal wrote. Both firms are chaired by real-estate investor Nicholas Schorsch. RCS Capital sells nontraded REITs sponsored by AR Capital LLC, another company controlled by Schorsch.

American Realty Capital Properties revealed last month that it had overstated its adjusted funds from operations – a common measure of REIT performance that shows a trust’s net income – from the first and second quarters of 2014 by about $23 million. The company is being probed by the FBI and the US Securities and Exchange Commission (SEC) for possible criminal and regulatory infractions, according to people familiar with the matter.

Michael Weil, chief executive of RCS Capital, told analysts during Thursday’s earnings call that the accounting scandal had “clouded the market” and said he expects most RCS products that have been suspended by retail brokerages to be reinstated by year’s end. The company said it would be more able to provide guidance on its expectations for the next year by the middle of next quarter, according to the article.

Quick Links:

  • Spotted: The AICPA’s restroom marketing campaign (Going Concern)
  • Here is a non-exhaustive list of things that are better than coming out of a successful meeting (Going Concern)
  • The PCAOB may or may not be trying to stir the pot (Going Concern)
  • Dell CFO: Building your finance team (CFO Journal)
  • Espírito Santo’s Swiss bank may exit US tax program (Wall Street Journal)
  • Ex-banker at Switzerland’s Rahn & Bodmer charged in US for tax scheme (Reuters)
  • 7 things you can do now to lower next year’s tax bill (Washington Post)
  • Buffett to save more than $1 billion on taxes in swap (Bloomberg)
  • Should I pay the Obamacare tax penalty? (US News and World Report)
  • Obamacare ushers in pile of new 2014 tax forms (Forbes)
  • Taxpayers dump tax-hungry governors nationwide (Forbes)
  • Do property tax consultants need to be reined in? (Forbes)
  • We don’t know whether the US provides more tax incentives than the EU (Forbes)
  • Will court conservatives doom Maryland double-taxation case? (Forbes)
  • The top ten tax cases (and rulings) of 2014: #7 – buy a building, get an immediate deduction? (Forbes)
  • The US labor force is smaller today than in the past 30 years (Tax Foundation)
  • The US economy is recovering too slowly from the last recession (Tax Foundation)
  • The ghost of Captain Renault (Tax Analysts)
  • How did medical device makers become poster children for Obamacare critics (TaxVox)
  • ‘Redskins’ cited as basis to revoke NFL’s tax-exempt status (Don’t Mess With Taxes)

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