IRS audits less than 1 percent of big partnerships
According to an April 17 report from the Government Accountability Office (GAO), the IRS audits fewer than 1 percent of large business partnerships, Stephen Ohlemacher of the Associated Pressreported yesterday.
That means some of Wall Street's largest hedge funds and private equity firms are largely escaping close scrutiny by the IRS, said Senator Carl Levin (D-MI), chairman of the Senate Permanent Subcommittee on Investigations.
The GAO says the number of large businesses organized as partnerships – defined as those with more than 100 partners and more than $100 million in assets – has more than tripled since 2002, yet hardly any get audited, Ohlemacher wrote. In 2012, only 0.8 percent were subjected to field exams in which agents do a thorough review of books and records.
“Auditing less than 1 percent of large partnership tax returns means the IRS is failing to audit the big money,” Levin said, according to the article.
The IRS said auditing partnership returns is a priority, but that budget cuts over the past four years have left the agency with the lowest number of enforcement personnel in years.
Mr. Bunny in the money for Easter … honestly it’s true
This gem comes from the Warrington Guardian in England yesterday: “Bookmakers feared the work of a prankster when the winner of a £124,987 first prize in a nationwide contest culminating ahead of Easter was Mr. Bunny. But the winner of the Easter cash is in fact retired accountant David Bunny who now plans to spend the money on his three cherished grandchildren.”
Ben Turnbull, commercial manager of the Tote-Ten-To-Follow competition, said when Bunny’s name popped up just ahead of Easter, “we thought it was a wind up and that someone was pulling our leg.”
“It didn’t help that he appeared at the top of the leaderboard around April Fool’s Day,” Turnbull said, according to the article. “But we got an even bigger surprise to discover that it actually was Mr. Bunny in the money in time for Easter.”
The British want to stop Starbucks from dodging taxes. It won’t work.
Starbucks was under so much pressure from paying little-to-no taxes in the United Kingdom, despite having hundreds of stores in the country, that it promised to pay the government $16.8 million in 2013 and another $16.8 million this year – all voluntarily.
Then on Wednesday, the coffee giant announced it was moving its European headquarters from the Netherlands to London, adding a “modest number of senior executives” to the London operation. The company also promises that the move will mean it pays higher taxes in the United Kingdom.
But as Jia Lynn Yang of the Washington Postwrote today, tax experts suspect that Starbucks could ultimately end up paying less in taxes, not more, by going to London.
“One of these new rules is called the Patent Box, which gives a special low tax rate to any royalty income received in the United Kingdom, according to [University of Southern California Gould School of Law Professor Ed] Kleinbard. The law is under review by the European Union, but if it holds up, it's not hard to imagine Starbucks' other units in Europe effectively shifting their royalty income to the United Kingdom to benefit from the low tax,” Yang wrote.
“David Murphy, a British accountant and tax activist, says there's still another possibility,” she continued. “The new business-friendly tax policies pushed by George Osborne, the UK's equivalent of US Treasury Secretary Jack Lew, also allow companies to pay no taxes on dividends shared between different units within the same firm. Murphy imagines it's possible, as a result, for Starbucks to turn royalty income from other European units into dividends that could be passed to the UK subsidiary, entirely untaxed.”
SEC’s information technology at risk of hacking: report
In another report from the GAO, it found that the US Securities and Exchange Commission (SEC) has failed to protect its data network against possible breaches, to encrypt highly sensitive information, or to use strong enough passwords, Sarah N. Lynch of Reutersreported yesterday.
In addition to the cybersecurity failings, even the physical security in place to protect SEC data and equipment from being accessed or stolen is lax, according to the 25-page report, with workstations located in an area open to all agency staff.
The report comes just two days after the SEC issued a nine-page blueprint that put Wall Street firms on notice that they should brace themselves for some tough questions from agency examiners about their cybersecurity policies and practices, Lynch noted.
“Information security control weaknesses in a key financial system's production environment may jeopardize the confidentiality, integrity, and availability of information residing in and processed by the system", the GAO wrote, according to the article. “Cumulatively, these weaknesses decreased assurance regarding the reliability of the data processed by the key financial system and increased the risk that unauthorized individuals could gain access to critical hardware or software.”
Some of the weaknesses identified by the GAO stem from the SEC's ineffective oversight over a contractor who was tasked with migrating the agency's system to a new production environment, the report said.
If Congress lets firms expense investments, it should take away their interest deduction
Congressional tax writers seem increasingly interested in allowing firms to rapidly write off the cost of their capital investments. Especially in the House, lawmakers would allow small businesses to expense the full cost of their investments in the year they are acquired, and let larger firms heavily front-load tax depreciation for their capital purchases.
While he finds some logic to this idea, Howard Gleckman, Resident Fellow at the Urban Institute and editor of TaxVox, the Tax Policy Center blog, wrote yesterday that in a well-designed consumption levy, expensing comes with an important trade-off: Firms lose their ability to deduct interest costs associated with those purchases.
“Unsurprisingly, none of the supporters of expensing or rapid depreciation has suggested this. But they should,” he added.
The bonus depreciation provision has been in and out of the tax code for more than a decade, Gleckman noted. Though businesses are currently awash in cash, many are pushing hard to make the generous depreciation rules permanent or, at the very least, bring them back for a few more years.
“But combining expensing or even very generous multiyear depreciation with an interest deduction allows firms to exploit tax preferences with borrowed money,” he wrote. “ It creates a classic tax arbitrage. If expensing and bonus depreciation are going to be made permanent, Congress should limit the interest expense deduction too.”
19 vintage Easter bunny photos that will make your skin crawl
Buzzfeed definitely saved the best for last – the No. 19 bunny WILL haunt your dreams.
- Herbalife making moves to become honey badger of investigations (Going Concern)
- AICPA seeks a few good volunteers to lend a hand to the CPA Exam (Going Concern)
- Shortage of young people entering New Hampshire’s accounting industry is a worrisome trend (New Hampshire Business Review)
- Economy can’t afford hatchet approach to tax reform (The Hill)
- Congress should ignore calls to extend expired wind subsidies (The Hill)
- Hollywood begs for a tax break in some states, including California (New York Times)
- Merely rich and superrich: The tax gap is narrowing (New York Times)
- Toby Keith’s I Love This Bar & Grill hit with tax warrant (Forbes)
- With Tax Day over, scammers are still in business (Forbes)
- Identity theft as rationale for tax evasion (American Thinker)
- Timing is everything with a 401(k) (Wall Street Journal)
- Roth 401(k) vs. traditional 401(k): Here’s the math (Wall Street Journal)