Hertz withdraws full-year forecast, cites accounting review, challenges
Rental car company Hertz Global Holdings Inc. said on Tuesday it is withdrawing its full-year financial forecast and expects 2014 results to be “well below” its previous guidance due to business challenges and costs related to a review of the past three years’ results, Ramkumar Iyer of Reutersreported.
The company said in a regulatory filing that its full-year results would be affected by operational challenges, including recalls by car makers, higher-than-expected operating expenses, and weak demand in its equipment rental business.
In addition, the company said on Tuesday the divestiture of its equipment rental business, announced in March, could be delayed beyond the previously announced early 2015 date due to its accounting review, Iyer wrote.
Hertz said in June that it would restate or correct financial results for the past three years to fix accounting errors originating in 2011. The company previously said it had identified errors totaling $46.3 million in prior periods.
Hertz, under pressure from investors to focus on car rentals, had said in March that it would spin off its equipment rental business, raising $2.5 billion to reduce debt and fund a $1 billion share buyback, according to the article.
Report: Medical device tax missing revenue mark
A tax imposed on medical devices included in the Affordable Care Act is raising roughly three-quarters of the revenue originally expected, according to a new government report.
The Treasury Inspector General for Tax Administration (TIGTA) reported on Tuesday that the IRS was still facing problems implementing the medical device tax included in the 2010 healthcare reform law, wrote Peter Schroeder of The Hill.
TIGTA said the IRS needs to continue to tweak its compliance rules for the tax, identifying several mistakes when it came to collecting money owed the government. IRS agents were still having a hard time determining exactly which medical device manufacturers were subject to the tax; both the returns filed and revenue raised have come in well short of expectations, Schroeder wrote.
Originally, the IRS estimated it would receive between 9,000 and 15,600 forms to pay the tax, raising $1.2 billion in the second and third quarters of 2013, according to TIGTA. But the IRS only received roughly 5,100 forms, and reaped just $913.4 million.
Republicans were quick to seize on the report as proof that the medical device tax, a key revenue-raiser included in the healthcare reform law that has bipartisan opposition, is flawed and should be scrapped.
“Everything from this ill-conceived tax’s structure to its implementation has been a disaster,” said Sen. Orrin Hatch (R-UT), the top Republican on the Senate Finance Committee, according to the article. “As I have said all along – the only real way to fix this tax is to repeal it.”
Walgreen shakeup followed bad projection
Michael Siconolfi of the Wall Street Journalreported on Wednesday that a billion-dollar forecasting error in Walgreen Co.’s Medicare-related business has cost the jobs of two top executives and alarmed big investors.
At an April board meeting, CFO Wade Miquelon forecast $8.5 billion in fiscal 2016 pharmacy-unit earnings, based partly on contracts to sell drugs under Medicare. Last month, directors got a shock when Miquelon suddenly cut that forecast by $1.1 billion.
In August, it was announced that Miquelon was being replaced. Walgreen said several days earlier that its pharmacy chief, Kermit Crawford, would retire at year-end.
Behind the botched numbers and management shake-up are Walgreen’s efforts to capture a larger role as a middleman dispensing prescription drugs under Medicare’s Part D, which subsidizes costs for the elderly and disabled, Siconolfi wrote.
“The saga at Walgreen – which derives 25 percent to 30 percent of its prescriptions from Medicare Part D plans – shows the broader risks for those operating in the Medicare ecosystem,” he continued. “The bottom line: Walgreen hadn’t factored in, among other things, a spike in the price of some generic drugs that it sells as part of annual contracts.”
Walgreen directors have told investors they were stunned by the change in the pharmacy forecast, which was for earnings before interest and taxes. Miquelon, 49, said his departure wasn't forced. People familiar with the decision say both executives were pressured to leave. The 55-year-old Crawford, a 31-year Walgreen veteran, said: “I made the decision to retire,” according to the article.
Alaska oil tax repeal measure losing
An Alaska ballot measure to repeal a 2013 oil tax law that drastically cut the amount major oil companies in the state pay was losing early Wednesday morning, Reid J. Epstein and Zusha Elinson of the Wall Street Journalreported.
The referendum was losing by a 52.1 percent to 47.9 percent margin, with 80 percent of precincts reporting results, but it was still too close to call, according to the Associated Press.
The No on One campaign opposed the measure to revive oil tax policies enacted under former Gov. Sarah Palin. The state's Republican and business establishments waged a $15 million campaign – funded in large part by three oil companies – to defeat the question.
Outspent by more than 15-to-1, supporters of the ballot question, including Palin, wanted to revert to the old oil tax structure that featured progressive taxes when oil prices rose. The 2013 law backed by state Republicans carried a flat tax on revenues, Epstein and Elinson wrote.
Dem senators call for more info on education tax credits
Nearly a dozen Senate Democrats on Tuesday asked the Obama administration to provide more information to families about higher education tax credits to reach the goal of making college more accessible and affordable, wrote Vicki Needham of The Hill.
Sen. Debbie Stabenow (D-MI), along with 10 Democrats and one Independent senator, asked the US Education and Treasury departments to create an easy-to-understand guide about the education tax benefits that are available through the federal government.
“We firmly believe that one of the best investments we can make in our economy is in post-secondary education whether through job training, certifications, or a college degree,” they wrote to Education Secretary Arne Duncan and Treasury Secretary Jack Lew, according to the article. “That is why we need to make sure that they know about all of the tools available, beyond student loans, to help pay for college – including savings plans, tax credits, and tax deductions.”
Additionally, they asked that an estimate of education tax benefits be made available through the federal student aid application process, Needham wrote. They said a guide could be distributed to parents, prospective students, school counselors, financial aid administrators, tax preparers, and college admission counselors.
A 2012 US Government Accountability Office report showed that one in six tax filers failed to take the maximum higher education tax benefit available to them.
More UK companies reviewing their auditors – PwC
Huw Jones of Reutersreported that Britain's top companies are reviewing early who checks their books ahead of new rules to increase competition introduced to counter concerns about accounting, figures from auditor PwC showed on Monday.
All listed companies have long had to hire an outside firm of accountants to sign off on their annual accounts. But some companies, especially banks, have kept the same accountant for decades, raising concerns among regulators and lawmakers about cozy relationships between company and client.
The UK Competition and Markets Authority will introduce new rules later this year making it compulsory for the top 350 listed companies to put their annual audit out to tender every 10 years to give rival accountants a chance to offer an alternative service, Jones wrote.
But a new European Union law approved earlier this year will go a step further from 2016 to force listed companies across the bloc to actually change their accountant at least every 20 years. PwC said a snapshot of tendering among Britain’s top 350 listed companies last month showed 56 likely tenders this year, up from 30 tenders in 2013 and 18 in 2012.
“Tendering activity is at unprecedented levels,” James Chalmers, UK head of assurance at PwC, said in a written statement, according to the article. “Now that there is greater clarity on the implications of the EU rules, companies are able to make decisions on when to tender at a time that makes most sense for their particular circumstances.”
Florida man, 83, admits hiding $1.1M from IRS
Bernard Kramer, 83, of Delray Beach, Florida, pleaded guilty on Tuesday to hiding at least $1.1 million from the IRS in secret Switzerland and Israel bank accounts for more than a quarter century, wrote Kevin McCoy of the USA Today.
Kramer held the secret accounts from 1987 to about 2012. He used the code phrase “Hot Lips” to refer to them in communications with Swiss bankers in Zurich, where he opened the first account, according to a criminal filing in Manhattan federal court.
Kramer pleaded guilty to conspiracy and agreed to cooperate with government investigators and pay a civil penalty of $588,042 along with past due taxes, McCoy wrote. He potentially faces a maximum eight-year prison term at a Manhattan federal court. His sentencing is set for February 6, 2015.
“Today Mr. Kramer acknowledged responsibility for his conduct. He looks forward to putting the matter behind him,” said defense attorney Brian Ketcham, of Kostelanetz & Fink in New York City, according to the article.
Kramer filed false tax returns with the IRS from approximately 1987 through 2012, court filings show.
Do sales tax holidays ever make sense?
Not as tax policy, wrote Richard Auxier, a research associate with the Urban Institute, in an August 18 blog for TaxVox.
“While ostensibly a tax break to help working families afford the costs of sending kids back to school, the holidays are more beneficial to affluent shoppers, who have the means to change the timing and amount of their purchases,” he noted. “And because consumers are mostly shifting (rather than increasing) their purchases, the holidays do little (if anything) to boost economic growth.”
But there are two reasons why sales-tax holidays might not be all bad, according to Auxier.
“First, as policymakers search for ways to make their states more competitive, a sales-tax holiday might be the least-bad option,” he wrote. “Sales-tax holidays don’t cost much revenue because they last only a few days and the prices of eligible items are typically capped. For example, Maryland’s FY 2013 tax holidays cost about $11 million, less than a third of a percent of the state’s $4.1 billion in sales tax revenue collected that year. Meanwhile, North Carolina recently eliminated its holiday but deeply cut its income and corporate taxes in a tax reform package. The sales-tax holiday cost the state $14.5 million in 2011, a fraction of the half-billion-dollar price tag of the tax cuts this fiscal year. And if the economy goes south or adequate revenue does not materialize, holidays are far easier to change than other tax policies.
“Second, shifting the timing of consumer’s purchases is sometimes worthwhile,” Auxier continued. “That’s not likely the case for back-to-school holidays – families buy clothing throughout the year, not just in late summer – but encouraging residents to stock up on emergency supplies before hurricane season could help when storms hit.”
[I started a discussion in the AWEB Forum on Tuesday asking for your thoughts on whether the back-to-school sales-tax holidays have any merit. Let us know what you think!]
- The Monthly Close: Accounting with your shirt buttoned (Going Concern)
- AICPA celebrates 400,000th member just because (Going Concern)
- New York regulator didn’t find statements by supposed objective PwC director to be all that objective (Going Concern)
- Wealth Magnets: Assets under management at top CPA financial planners (Audit Analytics)
- Tax authorities grow wary of master limited partnerships (CFO Journal)
- IRS reviewing records from DC housing complex (Associated Press)
- The tax dodge that has plagued the US for more than a decade (The Atlantic)
- Is Treasury about to curb tax inversions on its own? (TaxVox)
- I call BS on tax-inversion outrage! (CNBC)
- Tax inversion wave is sweeping away American jobs (Huffington Post)
- For Lionel Messi or ‘Hot Lips’ Kramer, secrecy can spell tax evasion (Forbes)
- Does the IRS have the power to correct tax law typos? (Forbes)
- Robert Redford’s New York tax trouble provides lessons for planners (Forbes)
- Flipping through history: Online retailers owe popularity and tax treatment to mail order catalogs (Forbes)
- 10 facts about FATCA, America’s manifest destiny law changing banking worldwide (Forbes)
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- Individual Tax Insights: Audits are another off-field headache for athletes and their advisors (Bloomberg BNA)
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- Would you trust your taxes to a robot? (Don’t Mess With Taxes)
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- Emanuel says Rauner should release tax returns (Chicago Tribune)
- California may quadruple tax breaks for filmmakers (Bloomberg)
- Two Faribault prisoners accused of filing fraudulent tax returns (Minneapolis Star Tribune)
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.