Tax Break

Essential reading: HP loses Dutch tax shelter case, popular deductions on the block, and more

Welcome to the top tax and accounting headlines from Reuters and other sources.

* HP loses $190 million tax case against IRS. Lynnley Browning – Reuters. Hewlett-Packard Co on Monday lost a battle with the U.S. Internal Revenue Service for more than $190 million in tax refunds tied to a Dutch tax shelter designed by the derivatives arm of American International Group. The ruling turns a spotlight on an aggressive tax-cutting strategy created last decade by AIG Financial Products and bankrolled by several European banks. The strategy involved trading derivatives with the aim of generating capital losses and foreign tax credits for large corporations, like HP, which then used them to try to lower their U.S. tax bills. Link

* In Republicans’ push for tax overhaul, popular deductions on the block. Donna Smith – Reuters. Republicans have not touched hundreds of tax breaks in tax laws, fearing that doing so could be called a tax hike. That could be changing. They’re not advertising it, but Republicans in Congress, along with a few Democrats, are exploring the idea of limiting or ending some of Americans’ most sacred tax breaks. They include deductions on contributions to 401(k) retirement accounts and possibly those on home mortgage interest, each of which save millions of Americans thousands of dollars each year. Link

* Brown warns Californians: Taxes or cuts. Jim Carlton – The Wall Street Journal. California Gov. Jerry Brown laid out a revised budget plan that relies on deeper spending cuts and higher taxes to bridge a projected state deficit that has widened to $15.7 billion from $9.2 billion since January. The Democratic governor said Monday he had no choice but to cut even deeper into social services to help close a budget gap that has shot up due to lower-than-expected tax revenue and delays and court-ordered impediments to spending cuts. Brown proposes to nearly double spending cuts to $8.3 billion for fiscal year 2012-13 from a January estimate that $4.2 billion of reductions were needed. Link

* Hollande faces budget shortfall test. Hugh Carnegy – The Financial Times. There will be none of the “bling-bling” that accompanied Nicolas Sarkozy’s entry to the Elysée palace five years ago when François Hollande is inaugurated as France’s new president on Tuesday. To finance his campaign promises — estimated at 20 billon euros over five years — and to cut the deficit, Hollande has laid out a raft of new tax measures. These include repealing a range of tax breaks for companies and households, raising corporation tax on big companies to 35 percent from 30 percent, a surtax on banks and an increase in wealth taxes, inheritance tax, capital gains taxes and income taxes — including a marginal rate of 75 percent on incomes above 1 million euros. Link

* California ugly. The Wall Street Journal editorial. It looks as if that Facebook IPO may not be enough to save California’s fiscal crisis after all. Facebook co-founder Eduardo Saverin has renounced his U.S. citizenship to move to Singapore, which has no capital gains tax. And now we learn the Golden State’s budget deficit will come in at $16 billion, up from a merely awful $9.2 billion estimate in January. California Controller John Chiang reported last week that April tax collections were a gigantic 20.2 percent, or $2.44 billion, below 2012-13 budget projections. You have to admire Mr. Chiang’s capacity for understatement as he noted that “revenues disappointed.” Yes, and J.P. Morgan’s whale trade was a $2 billion rounding error. Link

* Saying no to state bailouts. Kevin Brady and Jim DeMint – The Wall Street Journal opinion. States that have followed Europe’s economic policy model of unbridled spending are getting Europe’s economic results: low growth and looming fiscal catastrophe. Higher taxes called for by California Gov. Jerry Brown to help pay for an “unexpected” 74 percent increase in the state’s budget shortfall this year, and Illinois’s recent income tax hikes of 67 percent on individuals and 30 percent on businesses, have done and will do nothing to stem the flood of people and businesses out of those states. It is becoming clear that the only way to force recalcitrant states to put fiscal reform on the table is for Congress to take state bailouts off of it. Link

Essential reading: Private equity defends deductions, Brazil’s tax “lion,” and more

Welcome to the top tax and accounting headlines from Reuters and other sources.

* Private equity defends business-debt deductions. John McKinnon – The Wall Street Journal. A private-equity group will release a report on Tuesday that attacks one of the central tenets of many tax-overhaul plans in Washington – the idea of curbing deductibility of business debt. Limiting debt deductibility could raise the effective tax rate on new investment and could well stifle growth, said the Private Equity Growth Capital Council, a trade group. The group says that a limit on deductibility of interest expenses in exchange for a 1.5 percentage point reduction in the corporate rate, “would increase the marginal effective tax rate on new corporate investment from 31.0 percent to 33.1 percent. Link

* House bill shields defense from cuts. Janet Hook and Damian Paletta – The Wall Street Journal. House Republicans, seeking to prevent defense-spending cuts at the end of the year, advanced a plan that would instead reduce spending on health-care programs, food aid and other major domestic initiatives of the Obama administration. Democrats agree that the arbitrary cuts should be replaced with a more carefully calibrated budget agreement, but they want a mix of defense cuts, tax increases and domestic spending cuts. Many Republicans oppose any tax increases and want to avoid the $55 billion in scheduled defense cuts next year and partially replace them with cuts in domestic entitlement programs such as Medicaid. Link

* Brazil’s secret fiscal weapon: the tax “lion.” Alonso Soto – Reuters. In Brazil, groups of armed agents fly around the country by helicopter, pounding on doors and instilling fear in the hearts of those who break the law. They’re not the police – they’re from the tax agency. The Federal Revenue Service will be one of the most important keys to Brazil’s economic prospects in 2012. President Dilma Rousseff is counting on the agency’s tax-collecting prowess to help her government meet ambitious budget targets without smothering the country’s suddenly brittle economy. Link

* Could dividend tax policy knock 30 percent off stocks? It’s complicated. Jonathan Cheng – The Wall Street Journal. We haven’t seen much of a drop-off in investor interest in dividend payers, or stocks generally. There has already been an odd pick-up in stock prices after the weekend’s European elections. If anything, dividend payers have been surging lately, as part of an increasingly noticeable shift in weight towards safer, steadier dividend payers. Telecommunications stocks, a steady dividend-paying group, are among the day’s best performers and have been the strongest stocks so far this month, together with favorites consumer staples and utilities stocks. Link

* Tax planning: Global crackdown on avoidance forces wealthy to be transparent. Elaine Moore – The Financial Times. The UK government’s announcement this year that it would crack down on aggressive tax planning has prompted some of the country’s wealthiest individuals to reconsider their financial arrangements. The emphasis on closing tax loopholes has led to a rise in the number of clients who wish their affairs to be structured in a more transparent and holistic way. Authorities in Europe and the United States have also been taking increasingly tough stances on tax avoidance and financial secrecy over the past few years, forcing national and international investors to disclose more information. Link

* Of course 70 percent tax rates are counterproductive. Alan Reynolds – The Wall Street Journal. President Obama and others are demanding that we raise taxes on the “rich,” and two recent academic papers that have gotten a lot of attention claim to show that there will be no ill effects if we do. The first paper, by Peter Diamond of MIT and Emmanuel Saez of the University of California, Berkeley, appeared in the Journal of Economic Perspectives last August. The second, by Mr. Saez, along with Thomas Piketty of the Paris School of Economics and Stefanie Stantcheva of MIT, was published by the National Bureau of Economic Research three months later. Both suggested that federal tax revenues would not decline even if the rate on the top 1 percent of earners were raised to 73 percent to 83 percent. Link

Essential reading: How Apple keeps its tax bill low, KPMG inquiry in UK, and more

Welcome to the top tax and accounting headlines from Reuters and other sources.

* How Apple sidesteps billions in taxes. Charles Duhigg and David Kocieniewski – The New York Times. As it stands, Apple Inc paid cash taxes of $3.3 billion around the world on its reported profits of $34.2 billion last year, a tax rate of 9.8 percent. Apple was a pioneer of an accounting technique known as the “Double Irish With a Dutch Sandwich,” which reduces taxes by routing profits through Irish subsidiaries and the Netherlands and then to the Caribbean. Today, that tactic is used by hundreds of other corporations — some of which directly imitated Apple’s methods, say accountants at those companies. Without such tactics, Apple’s federal tax bill in the United States most likely would have been $2.4 billion higher last year. Link  

* KPMG faces inquiry over rescue of HBOS. Helia Ebrahimi – The Sunday Telegraph. Accountancy giant KPMG could face a formal investigation by the UK’s accountancy watchdog for its conduct leading up to the rescue of HBOS by Lloyds TSB. HBOS whistleblower and former head of risk, Paul Moore, has referred KPMG to the regulator in a formal complaint. Moore also has written to Treasury select committee chairman Andrew Tyrie, seeking his support. Moore’s complaint comes a week after it emerged that the former head of HBOS’s corporate bank, Peter Cummings, is to fight a seven-figure fine handed out by the Financial Services Authority for his part in the collapse of the bank. Link  

* Amazon seals sales tax deal with Texas. Barney Jopson – The Financial Times. Amazon has struck an unexpected deal with Texas to start collecting sales tax from consumers at the start of July, in a further sign of its readiness to accept a levy that it had long opposed at state level. Under the deal Amazon will invest at least $200 million to build distribution centers in Texas and create at least 2,500 jobs over the next four years while beginning to collect sales tax on July 1. Link  

* US election noise obscures approaching fiscal precipice – Robin Harding – The Financial Times. The path to economic recovery runs along the edge of a fiscal cliff and few countries seem able to walk it without falling off. As 2012 turns into 2013, by political design, the income tax cuts passed by former president George W. Bush will expire, a temporary payroll tax cut will end, and spending cuts worth $1.2 trillion over 10 years will come into effect. This amounts to an overnight fiscal tightening of about 4 percent of gross domestic product. It means an automatic recession unless Congress acts to stop it. Link  

* Sarkozy on defensive in bitter final election battle. Catherine Bremer and Daniel Flynn – Reuters. French President Nicolas Sarkozy called for tougher borders and a stronger national identity on Sunday and accused the left of petty slander as he struggled to catch up with his Socialist rival a week before a presidential runoff. Francois Hollande’s tax-and-spend program seeks to balance the budget in 2017, a year after Sarkozy, who wants to trim labor costs to boost competitiveness. Analysts say that whoever wins, big austerity cuts will be needed in the months ahead. Link  

Essential reading: Cuts debated on tax breaks for retirement savings, Simpson-Bowles vote, more

Nanette Byrnes

Apr 18, 2012 15:00 UTC

Welcome to the top tax and accounting headlines from Reuters and other sources.

* Lawmakers consider changing tax breaks on retirement savings. Lori Montgomery – The Washington Post. The painful trade-offs of tax reform came into sharper focus on Tuesday as lawmakers began considering reducing or otherwise changing specific tax breaks, starting with laws that allow millions of Americans to avoid taxes while saving for retirement through 401(k) plans, employer pensions, IRAs and other programs. Link

* White House says Obama would veto Republican tax cut. Alister Bull – Reuters. The White House said on Tuesday that President Barack Obama would veto a small business tax cut proposal by Republicans in the House of Representatives that his Democrats complain is biased toward helping the rich. Link

* Senate to take up Simpson-Bowles deficit plan. James Politi – The Financial Times. The centrist Democrat who chairs the Senate budget committee will present legislation on Wednesday to implement the recommendations of a 2010 bipartisan debt reduction panel, in a surprise move to force the upper chamber to consider the contentious plan. In a sign that the Simpson-Bowles plan is unlikely to garner much traction in the Senate, Republicans mocked the move. Link

* How to pay no taxes: 10 strategies used by the rich. Jesse Drucker – BloombergBusinessweek. If you have lots of money, Tuesday, April 17, was one of the best tax days since the early 1930s: Top tax rates on ordinary income, dividends, estates and gifts remain at or near historically low levels. Our era is rife with opportunities to avoid — or at least defer — tax bills, according to tax specialists and public records. Link

* IRS rule threatens bank capital flight: analysts. Kevin Drawbaugh – Reuters. Banks in Texas, Florida and other southern states could face a pull-out of non-U.S. depositors due to a new U.S. rule finalized on Tuesday. The rule, part of efforts to combat offshore tax evasion and issued by the Internal Revenue Service, will require U.S. banks, starting on Jan. 1, 2013, to report to the IRS payments of interest made to non-resident aliens. Link

* Sino-Forest says ex-CEO leaves firm, three fired. Reuters. Embattled Chinese forestry company Sino-Forest Corp said on Tuesday its former CEO had quit his final role at the company and three other executives were fired after securities regulators signaled they could press charges against them. Link

If you think 2011 taxes were bad, wait until this year’s tally

Nanette Byrnes

Apr 17, 2012 11:53 UTC

“This is going to be one of the craziest years I’ve seen,” said Mark Steber, chief tax officer for Jackson Hewitt Tax Services. “It’s kind of the perfect tax storm.”

For those of us still smarting from the 2011 tax comeuppance, 2012 is nothing to look forward to.

A host of tax deductions are set to expire by Dec. 31. Together they add up to many billions of dollars in breaks for taxpayers.

Of course, 2012 is also an election year. So fixing any of that before mid-November is not even getting serious discussion. That will leave only a month or so for the new Congress to do its typical patching and extending of various breaks. Whether they’ll be able to agree on such moves at all will have a lot to do with the Nov. 6 election results.

Some of the writeoffs scheduled to expire or drop significantly in value in 2012 include:

• The Alternative Minimum Tax patch
• Bush tax cuts
• Student loan interest deduction
• Child and dependent care credit deduction
• Earned income tax credit
• Student loan interest deduction

A full list from Congress’ Joint Committee on Taxation is available here.

Essential reading: RBC accused of tax scheme, Groupon hiring more auditors

Welcome to the top tax and accounting headlines from Reuters and other sources.

*U.S. regulator accuses RBC of massive trading scheme. Alexandra Alper – Reuters. The U.S. futures regulator accused the Royal Bank of Canada of running a “trading scheme of massive proportion” to gain lucrative Canadian tax benefits. The Commodity Futures Trading Commission’s civil lawsuit alleges RBC employees created and managed a “wash trading” strategy in which they improperly coordinated to buy and sell stock futures without taking a position in the market. RBC declined to comment on whether the trades in question were structured to realize Canadian tax credits, as alleged in the lawsuit. Link

*SEC probes Groupon. Shayndi Rice and Jean Eaglesham – The Wall Street Journal. The Securities and Exchange Commission is examining Groupon Inc’s revision of its first set of financial results as a public company, according to a person familiar with the situation. Groupon has hired a second accounting firm, KPMG, in addition to its current accountant Ernst & Young. KPMG’s role is to make Groupon compliant with Sarbanes-Oxley, federal regulations around accounting and disclosures of public companies. In addition, Groupon plans to hire more accounting and finance staff, said a person familiar with the matter. Link

*Obama to assail Republican budget plan as ‘social Darwinism.’ David Nakamura – The Washington Post. President Barack Obama on Tuesday plans to accuse Republicans of trying to impose a “radical vision” on the nation through a budget plan that would create a form of “social Darwinism” by pitting the poor against the wealthy. In prepared remarks, Obama aims to further accentuate the differences between the parties, using the Paul Ryan budget plan as a metaphor for a GOP vision for a country that is “antithetical to our entire history” as a land that promises the path to upward mobility for the middle class. Link

*Global business groups warn India over new tax plan. Henry Foy and Matthias Williams – Reuters. International trade groups representing more than 250,000 companies have told Prime Minister Manmohan Singh in a letter that his government’s new retrospective tax proposals have led foreign businesses to reconsider their investments in the country. The union federal budget last month outlined a proposal to enable the tax authorities to make retroactive claims on overseas corporate deals and bring in new anti-avoidance measures, moves that have been criticized for further denting investor sentiment. On Monday the UK’s finance minister George Osborne also raised his concerns over the issue with his Indian counterpart Pranab Mukherjee. Link

*Germany risks tax deal defeat after Swiss warrants. Annika Breidthardt – Reuters. The German government’s deal to stem tax evasion via Swiss bank accounts risks being defeated in the opposition-controlled upper house of parliament after Switzerland issued arrest warrants for three German tax inspectors. But an outcry over the warrants has emboldened the deal’s domestic critics who think it too soft on Switzerland, and opposition-led states have said the tax agreement is full of loopholes. Link

*Half of Irish homeowners join boycott of new tax that has symbolized fiscal woes. Douglas Dalby – The New York Times. Anti-austerity protesters are claiming victory after the government acknowledged that around 50 percent of Ireland’s estimated 1.6 million homeowners failed to pay a new, flat-rate $133 property tax by the March 31 deadline. Introduced on Jan. 1, the household charge was intended as a forerunner to a comprehensive property tax next year. It has become a lightning rod for widespread disenchantment on an assortment of issues like cuts to services political corruption and taxpayer liability for debts to private banks.Link

Essential tax and accounting reading:oil tax breaks challenged, Dow pushes R&D credit, Buffett’s company in tax dispute, and more

Welcome to the top tax and accounting headlines from Reuters and other sources.

* Bill ending oil company tax cuts clears Senate hurdle. Ayesha Rascoe and Richard Cowan – Reuters. Legislation repealing tax breaks for major oil companies passed its first hurdle in the Senate on Monday, but is unlikely to become law, as Republicans and Democrats seek to score political points over rising gasoline prices. The Senate voted 92 to 4 to proceed with consideration on the bill that would eliminate billions of dollars in tax breaks for the “big five” oil companies: Exxon Mobil Corp, BP Plc, ConocoPhillips, Chevron Corp and Royal Dutch Shell Plc. The lopsided vote in favor of moving ahead with consideration of the oil tax cuts bill reflected political maneuvering in the chamber, not actual support for the measure. Link

* Dow court cases pushes limit of R&D tax credit. Patrick Temple-West and Ernest Scheyder – Reuters. Dow Chemical Co is challenging the U.S. Internal Revenue Service in a rare court case over expanding the research and development tax credit to cover the costs of supplies used to improve the ways existing products are made. Oral arguments are set for Thursday at the 2nd U.S. Circuit Court of Appeals in New York in a case that pits Union Carbide, a wholly owned subsidiary of Dow, against the IRS. A win for Dow would widen the scope of the R&D credit – a mainstay of the corporate tax code that costs U.S. taxpayers roughly $7 billion a year – at a time when corporate tax breaks, in general, are under scrutiny in Washington. Link

* New CEO at accounting firm BDO USA aims for growth. Nanette Byrnes – Reuters. The 270 partners of accounting firm BDO USA selected Wayne Berson, 50, as their leader for the next four years, it was announced on Monday. BDO USA, with $572 million in U.S. fee income last year, is the seventh-largest accounting firm in the country, according to International Accounting Bulletin. Link

* Private jets, Buffett and taxes. Andrew Ross Sorkin – The New York Times opinion. Get this: Uncle Sam is suing Warren Buffett’s company over taxes. Yes, taxes. The U.S. government, in a little-followed case in Ohio, filed a lawsuit this month against a unit of Buffett’s Berkshire Hathaway, seeking $366 million in taxes and penalties. The Berkshire division at the center of the suit is NetJets, the private-aircraft company that caters to the nation’s wealthiest — the people Buffett says should pay more in taxes. It is an odd twist that a company controlled by Mr. Buffett — perhaps the most outspoken businessman in the country in support of raising taxes on the “mega-rich” — is now in a dispute with the government over his company’s paying too little in taxes. Link

* Paul Ryan and his critics. The Wall Street Journal editorial. The Paul Ryan budget outline by design does not provide many tax specifics, aside from an instruction to the Ways and Means Committee to propose a reform plan that would swap lower rates for fewer loopholes and special exclusions. This overhaul is not even a net tax cut — the instructions are to design a reform that is revenue neutral. It would hold tax receipts to their post-World War II average of between 18 percent to 19 percent as a share of the economy. The liberal claim that this means a tax cut for the wealthy is based entirely on the fact that marginal tax rates would decline, even though the loopholes primarily benefit higher-income taxpayers. Link

Essential tax and accounting reading: Californians support tax hikes, dividend taxes, $1 trillion of tax breaks, inheritance tax, and more

Welcome to the top tax and accounting headlines from Reuters and other sources.

* Strong majority back Jerry Brown’s tax-hike initiative-poll. Anthony York – The Los Angeles Times. California voters strongly support Gov. Jerry Brown’s new proposal to increase the sales tax and raise levies on upper incomes to help raise money for schools and balance the state’s budget, according to a new USC Dornsife/Los Angeles Times poll. Sixty-four percent of those surveyed said they supported the governor’s measure, which he hopes to place on the November ballot. It would hike the state sales tax by a quarter-cent per dollar for the next four years and create a graduated surcharge on incomes of more than $250,000 that would last seven years. Link

* Will a dividend-tax hike spoil the party. Jack Hough – The Wall Street Journal. Apple’s dividend announcement this past week is good news for income investors, but bad news might be lurking around the corner. Unless Congress takes action, the top tax rate for the highest earners on most dividends, currently 15 percent, is set to jump to a whopping 43.4 percent next year. That is a maximum income-tax rate of 39.6 percent —since dividends will once again be taxed as regular income — plus a 3.8 percent tax on investment income as part of the health-care overhaul passed in 2009. Link

* Tax breaks exceed $1 trillion: Report. John McKinnon – The Wall Street Journal. A congressional report detailing the value of major tax breaks shows they amount to more than $1 trillion a year — roughly the size of the annual federal budget deficit — and benefit wide swaths of the population. The new report, by the nonpartisan Congressional Research Service, underscores how far-reaching many of the tax breaks are. They include the exclusion from taxable income for employer-provided health insurance, the biggest break, at $164.2 billion a year in 2014; the exclusion for employer-provided pensions, the second-biggest, at $162.7 billion; and the exclusions for Medicare and Social Security benefits. Link

* The rich get even richer. Steven Rattner – The New York Times opinion. New statistics show an ever-more-startling divergence between the fortunes of the wealthy and everybody else — and the desperate need to address this wrenching problem. Even in a country that sometimes seems inured to income inequality, these takeaways are truly stunning. In 2010, as the nation continued to recover from the recession, a dizzying 93 percent of the additional income created in the country that year, compared to 2009 — $288 billion — went to the top 1 percent of taxpayers, those with at least $352,000 in income. That delivered an average single-year pay increase of 11.6 percent to each of these households. Link

* Death tax defying – The Wall Street Journal editorial. While Washington continues to debate what to do with the federal death tax — the top rate is now 35 percent and is scheduled to rise to 55 percent  next year — states are starting to recognize that their high estate taxes are a good way to chase away wealth producers. Last year Ohio abolished its estate tax, joining the 28 other states that do not impose such a tax at death. The left has long been flummoxed by polls showing that roughly two of three Americans want this tax abolished. Americans instinctively understand that the tax is unfair. It punishes a lifetime of thrift and investment solely due to the accident of death. And it does so in a way that imposes another tax on income that in most cases has already been taxed once, or sometimes twice. Link

* Judge a tax plan by its loopholes. James Stewart – The New York Times opinion. Representative Paul Ryan wants two simple tax rates: 25 percent for higher incomes and 10 percent for lower incomes. He wants the results to be revenue-neutral. But there’s no getting around the fact that a 25 percent rate on the top earners would nearly double Mitt Romney’s effective rate and more than double it for the 101 of the top 400 taxpayers who pay less than 10 percent, assuming the loopholes are indeed closed. A top rate of 25 percent may sound like a cut from current higher rates, but so few wealthy taxpayers pay the top rate that it would be a significant increase for many of them. Link

Essential tax and accounting reading: Swiss eager for U.S. deal, E&Y auditor/advocate, slow refunds, and more

Welcome to the top tax and accounting headlines from Reuters and other sources.

* Swiss president wants tax accord with U.S. David Jolly – The New York Times. In the view of Switzerland’s president, her country would sign a deal on banking secrecy with the United States “tomorrow” if not for an impasse created by Washington. “We are ready,” President Eveline Widmer-Schlumpf, who is also finance minister, said on Wednesday. “We’ve made a lot of constructive proposals. We could sign it tomorrow if the United States wants to do it.” She said the countries had made “considerable progress” toward a global deal in the last few months. An agreement will include deferred prosecution deals against Swiss banks accused of helping American tax evaders, fines and a “substantial” transfer of client data to the Internal Revenue Service, she said. Widmer-Schlumpf said that Switzerland, which accounts for more than one-quarter of the world’s offshore wealth, was not prepared to abandon banking secrecy altogether and that the data transfer “has to take place within the existing legal procedures in both countries.” Link

* Ernst & Young tightropes between audit, advocacy. David Ingram, Dean Aubin and Sarah Lynch. Corporate audit giant Ernst & Young operates a lobbying firm in Washington, D.C., that has been hired in recent years by several corporations that were at the same time E&Y audit clients, prompting two senior lawmakers to demand closer regulatory scrutiny. Amgen Inc, CVS Caremark Corp and Verizon Communications Inc have ongoing lobbying contracts with Washington Council Ernst & Young, an E&Y unit, while also using the audit firm to review the corporations’ books, according to documents reviewed by Reuters. U.S. rules on “auditor independence” include one that bars auditors from serving in an “advocacy role” for audit clients. The rule is focused on legal advocacy, such as providing expert witness testimony, but several accountants said the general prohibition on advocacy may cover lobbying, as well. Link

* Tax break goes far beyond factory floor. Kim Dixon – Reuters. A Reuters analysis of company filings and government data shows how broadly the Section 199 manufacturing deduction is now used, suggesting it may be nearly impossible to keep it focused on manufacturing. From Starbucks Corp to Time Warner Cable Inc, businesses far beyond traditional manufacturers use the benefit. President Barack Obama wants to cut the top corporate tax rate from 35 percent to 28 percent, with a special 25 percent rate for manufacturing. Critics say the manufacturing focus is in large part politics as Obama faces a potentially tough re-election fight in battleground states such as Ohio and Pennsylvania, where manufacturing is important. Link

* Slow refunds rile taxpayers. John McKinnon – The Wall Street Journal. The Internal Revenue Service’s efforts to combat a surge in identity theft are yielding success but also a side effect: delayed tax refunds for many legitimate filers. The agency says it has strengthened the electronic system used to screen returns for potentially fraudulent refund claims by thieves who often use other people’s Social Security numbers or other identifying information. Tax preparers have experienced “intense early-season taxpayer frustration” over the delays, and “some storefront associates have been physically threatened or even sustained personal property damage” such as rocks being thrown through their car windshields, said the Council for Electronic Revenue Communication Advancement, a tax-preparation industry group, in recent testimony before an IRS oversight panel. Link

* Poll: Millionaires tax stands best chance of approval in November. Nicholas Riccardi – Los Angeles Times. Proponents of a California ballot measure to hike taxes on millionaires released a summary of a poll on Wednesday that showed theirs has the best chance of passing in November, especially should multiple tax measures end up on the ballot. Release of the latest poll information came as the three-way battle over taxes heated up, with the influential California Business Roundtable announcing that it opposed the millionaires tax and one advocated by a civil rights attorney, while taking no position on Gov. Jerry Brown’s tax proposal. Brown, who has assiduously courted business while crafting his combination of a half-cent sales tax hike and higher levies on high earners, argues that if the other efforts end up on the November ballot they will overwhelm voters and all three will be rejected. Link

* Pension tax breaks on Osborne’s radar. George Parker, Kiran Stacey and Josephine Cumbo – The Financial Times. Chancellor of the Exchequer George Osborne is looking to raise taxes on the pension contributions of the highest earners in this month’s budget, in a move which will release funds to help low earners escape the tax system but antagonizes some Tory MPs. Osborne has decided to fashion a budget to show his commitment to help the “middle Britain” voters who will determine the next election, even if that incurs some anger from high earners – including some top doctors, civil servants and head teachers. The centerpiece of his budget is expected to be a substantial increase in the income tax threshold – which will rise to 8,105 pounds ($12,800) in April – so that the coalition can hit a landmark target of 10,000 pounds ($15,800) before the next general election. Link

Trying to move a mountain: Why Congress debates tax reform in an election year

Kim Dixon

Mar 8, 2012 23:15 UTC

Tax reform is coming! 

Many people say that momentum is building to revamp the tax code, but the pace can seem glacial on Capitol Hill.

Nearly everyone agrees the tax code needs a rewrite but they also agree it won’t happen in an election year.

In an effort to lay the groundwork, congressional leaders held another set of major tax reform hearings this week, dragging experts into Capitol Hill hearing rooms to discuss something that’s less likely to hit DC than a blizzard in March.

“It is going to be politically difficult … but nevertheless we have to try,” Democrat Max Baucus, chairman of the Senate Finance Committee, said on Tuesday at a hearing examining tens of billions in annual deductions and credits companies now enjoy – and whether they are worth the cost.

Since the last tax code revamp in 1986, the code has been larded up with hundreds of new provisions favoring selected individuals and industries over others. With deficits over $1 trillion and many businesses clamoring for a lower corporate rate, many believe the time will be ripe in the next few years to overhaul the code.

So tax-writers in Congress continue to weigh a broad overhaul of the U.S. tax code, including a cut to the top 35 percent corporate tax rate, among the highest in the industrialized world. To prevent such a revamp from bloating the already high U.S. deficit, certain tax deductions, credits and other benefits may need trimming, some economists say.