Essential reading: Supreme Court ruling casts tax shadow over US healthcare law, and more
Welcome to the top tax and accounting headlines from Reuters and other sources.
* Supreme Court ruling casts tax shadow over US healthcare law. Kim Dixon and Kevin Drawbaugh – Reuters. Republicans seized on a momentous U.S. Supreme Court ruling on Thursday to accuse President Barack Obama of hiding a tax increase in his healthcare law, an argument likely to intensify a congressional tax policy war already under way. The court ruled the 2010 law was valid because Congress has the power to impose taxes. The Obama administration played down the tax factor, but Republican opponents pounced on the decision, seeking to elicit political points from a legal issue. Link
* US IRS steps up scrutiny of tax-exempt political groups. Patrick Temple-West and Alina Selyukh – Reuters. The U.S. Internal Revenue Service is signaling that it will increase its scrutiny of tax-exempt political organizations, which are becoming a force in elections by raising tens of millions of dollars from undisclosed donors. The IRS has been corresponding with such groups and is preparing questions to ask them as part of effort to determine whether their fundraising or advertising work runs afoul of tax law. IRS spokesman Terry Lemons said on Thursday the scrutiny will affect a range of tax-exempt groups. Link
* Rotation not enough to improve audits-experts. Dena Aubin – Reuters. Making U.S. companies switch or rotate auditors every few years would not end audit failures, and regulators should consider additional measures to protect investors, former securities regulators and legal experts said on Thursday. The auditing profession has become a comfortable oligopoly and its basic product has become suspect, said Harold Williams, former chairman of the U.S. Securities and Exchange Commission, at a forum in San Francisco. Link
* Tax regime not competitive, says study. Vanessa Houlder – The Financial Times. The UK has one of the least competitive corporate tax regimes in the industrialized world, according to new analysis that casts doubt on George Osborne’s efforts to propel the business tax system to the top of the league. The Treasury rejected the findings published by the Oxford University Center for Business Taxation, arguing it took too narrow a view of competitiveness. Link
* Noda’s tax success may fail to end Japan deadlock. Linda Sieg – Reuters. After years of policy paralysis in Japan, Prime Minister Yoshihiko Noda has pushed a much-needed but unpopular sales tax hike through the lower house of parliament, but the chances of further reform in the world’s third-largest economy seem unlikely. Noda, 55, is low key and likened himself to a “dojo” bottom-feeding fish when he took office in September last year. However, the sixth prime minister since 2006 is set to achieve a breakthrough that has eluded several of his predecessors. Link
* A confused opinion. Richard Epstein – The New York Times opinion. What Chief Justice John Roberts took from Congress with one hand, he gave it with the other: a broad reading of the taxing power. His decision is wrong. As a matter of constitutional text, legal history and logic, the power to regulate commerce and the power to tax should not be separated. It is not good for the court or the country that the chief justice’s position in such an important case is confused at its core. Link
Calendar
With a national holiday in the middle of the week and both the U.S. Senate and House of Representatives on break, the coming week will be quiet in tax and accounting circles.
Tuesday, July 3 • The U.S. Taxpayer Advocacy Panel will hold a pair of open teleconference meetings. The first, on return processing delays, will start at 9:30 a.m. EDT. The second, on toll-free filing will be at 11 a.m. EDT.
Essential reading: Camp vows Republicans will resist tax revenue increases, and more
Welcome to the top tax and accounting headlines from Reuters and other sources.
* Camp: Republicans will resist tax revenue increases. James Willhite – The Wall Street Journal. House Ways & Means Chairman Dave Camp said Republicans won’t increase tax revenues to cope with deficits even though “revenue percentage of GDP is at a historic low.” When pressed on whether the Republicans in the House would tolerate offsetting a fourth of spending cuts with revenue increases, Camp said that such a proposal would likely not pass. A simpler tax code with a lower rate and fewer deductions is the goal, Camp said. Link
* Congress inaction risks 2013 tax delay: IRS watchdog. Patrick Temple-West – Reuters. Tax refunds in 2013 could be delayed if the U.S. Congress fails to address major fiscal policy questions soon, said the IRS in-house champion for taxpayers’ rights on Wednesday. National Taxpayer Advocate Nina Olson said in a report that “the 2013 filing season is already at risk” due to inaction by Congress on tax laws that have expired or will soon expire. Link
* U.S. anti-tax pledge creator says oath is strong. Kim Dixon – Reuters. Grover Norquist, the man dubbed by many the most powerful Republican in Washington, said on Wednesday that his anti-tax oath is alive and well despite opposition from senior figures in the party. Norquist, whose 1986 “taxpayer protection pledge” has been signed by the vast majority of elected Republicans, said the numbers prove his case that the oath is still in vogue. More Republicans today have signed the pledge than during the last election cycle, he said. Link
* IRS probes political group tied to Rove. Brody Mullins and Jacob Gershman – The Wall Street Journal. The Internal Revenue Service is taking initial steps to examine whether Crossroads GPS, a pro-Republican group affiliated with Karl Rove, and similar political entities are violating their tax-exempt status by spending too much on partisan activities. The review, which could last for years and is unlikely to be concluded before the November election, could ultimately force many of the political groups to disclose the names of their donors for the first time. Link
* Jerry Brown signs budget that relies on voter-backed tax hikes. Chris Megerian – The Los Angeles Times. California lawmakers finished their work on the budget, and Gov. Jerry Brown signed it late Wednesday, ending the haggling over final details of the state’s spending plan. The budget closes the state’s $15.7-billion deficit with cuts in social services and depends on voters approving more than $8 billion in temporary tax hikes at the ballot box in November. Without a higher sales tax and increased levies on the wealthy, the governor says, the state will cut billions from public schools. Link
* As his optimistic budget falters, Christie comes out swinging. Kate Zernike – The New York Times. Gov. Chris Christie of New Jersey promised a have-your-cake-and-eat-it-too budget for next year, one that would make the state’s pension payments, increase money for schools, provide drug treatment for nonviolent criminals, restore tax credits for the working poor and give every taxpayer a 10 percent income tax cut. But now rosy revenue projections are coming up short. With unemployment in New Jersey still higher than the national average, tax revenues have failed to meet targets for several months in a row. Link
Essential reading: H&R Block digital tax business grows, profit falls, and more
Welcome to the top tax and accounting headlines from Reuters and other sources.
*H&R Block digital tax business grows, profit falls. Reuters. H&R Block Inc posted a lower fourth-quarter profit on charges related to job cuts earlier this year, but the top U.S. tax preparer said it gained market share in the highly competitive tax filing business. The company cut jobs, shut stores and overhauled its management in April, to focus on the fast-growing digital tax preparation segment after several years of losing customers to do-it-yourself tax filing services like Intuit Inc’s TurboTax software. Link
*Hatch, Rangel beat back challenges. Andrew Grossman and Naftali Bendavid – The Wall Street Journal. Two longtime congressional incumbents beat back strong challenges to their careers in primary elections on Tuesday. In New York, Charles Rangel, the 82-year-old Democrat who once led the powerful House Ways and Means Committee, won his primary race and is on track to claim a 22nd two-year term. In Utah, Republican Sen. Orrin Hatch easily defeated a primary challenger who ran aggressively to his right. Link
* IRS offers reprieve to expat tax filers. Lynnley Browning – Reuters. Many Americans living abroad will get a small reprieve from U.S. Internal Revenue Service rules on reporting foreign assets, the agency announced on Tuesday. The IRS said it would allow some U.S. citizens, including dual citizens, who have not filed income tax returns or not disclosed their foreign bank accounts, to come forward without facing onerous penalties or the threat of prosecution. Link
* Portman tax plan to cut interest, write-offs. Kim Dixon – Reuters. Senator Rob Portman, a potential vice presidential pick by presumptive Republican nominee Mitt Romney, said his plan to revamp corporate taxes includes limits on investment write-offs and interest deductibility. Portman said the Obama administration has failed to lead on overhauling corporate taxes in the United States, which has among the steepest corporate tax rates among its industrialized peers at 35 percent. Link
* Christie laments a tax cut loss. Heather Haddon – The Wall Street Journal. It was billed as the year of the tax cut in the Garden State. Instead, there may be no tax cut at all. Saying lawmakers didn’t provide guaranteed tax relief in their $31.7 billion budget, Republican Gov. Chris Christie on Tuesday ramped up attacks on Democrats, vowing to tour the state and highlight what he said was a broken promise. Mr. Christie proposed slashing income taxes by 10 percent across all brackets. Link
* In Japan, sales tax increase advances in parliament despite ruling party rift. Chico Harlan – The Washington Post. With a parliamentary vote Tuesday to double the country’s sales tax, Japan took an important step toward stabilizing its finances and staving off a European-style debt crisis. But the lower house vote also exposed the tenuous position of the prime minister, Yoshihiko Noda, who had championed the controversial increase over objections from his own party. The higher tax rate is not yet law; the package of bills must still pass the weaker, opposition-controlled upper house in a vote expected next month. Passage is all but guaranteed, though, because Noda already has secured support for the legislation from Japan’s two main opposition parties, the Liberal Democratic Party and New Komeito. Link
Essential reading: Treasury resists Northern Ireland corportion tax cuts plan, and more
Welcome to the top tax and accounting headlines from Reuters and other sources.
* Treasury resists Northern Ireland corporation tax cuts plan. Jamie Smyth – The Financial Times. A plan to devolve the power to reduce corporation tax to the Northern Ireland assembly is being resisted by the Treasury, denting hopes that lower taxes can be introduced to boost an economy hit by three decades of violence. Ministers from the UK and Northern Ireland government held a third meeting on Monday to discuss the proposal, which would enable Northern Ireland to cut its corporation tax rate to 12.5 per cent to match that of the Irish Republic. Link
* New rules may make public pensions appear weaker. Lisa Lambert and Nanette Byrnes – Reuters. New accounting rules approved on Monday are likely to show public pension funds are in a weaker financial position than previously thought and intensify disputes over how public retirement systems are funded. State and local governments will have to post their net pension liability – the difference between the projected benefit payments and the assets set aside to cover those payments – up front on financial statements, under the changes. Link
* N.J. budget vote sets up showdown with Christie. Heather Haddon – The Wall Street Journal. New Jersey Democrats pushed through a $31.7 billion budget in a party-line vote Monday, setting the stage for a possible veto by Republican Governor Chris Christie later this week. The bill substitutes a property-tax credit for Christie’s proposal to cut income taxes by 10 percent, with a delay until revenue figures can be further studied later this year. Link
* EU exec sets steps to tax 2.4 trillion euro shadow economy. Francesco Guarascio – Reuters. The European Union is losing ound 1 trillion euros a year in tax evasion at a time when governments are struggling to improve public finances, the European Commission will say on Tuesday as it proposes steps to deal with tax fraud. The 27-nation EU, and especially the 17 countries in the euro zone, badly need higher tax revenues at a time when the economy is stagnating or contracting and investors lose confidence in government’s ability to service large debts. Link
* Japan must ensure sales tax doesn’t hurt economy-finance minister. Reuters. Japanese Finance Minister Jun Azumi said on Tuesday the government needs to ensure that a planned sales tax hike does not lead to an economic downturn. Azumi made the remarks after Japan’s lower house approved a plan to double the sales tax on Tuesday to help curb the nation’s snowballing debt. Link
* City hall budget deal, for now, includes few layoffs and no tax increases. Despite uncertainty over hundreds of millions of dollars in anticipated revenue, Mayor Michael Bloomberg and the City Council agreed Monday on a $68.5 billion budget for the coming fiscal year that would avoid tax increases, firehouse closings and widespread layoffs. Since February, the city calculated that tax revenue had increased more sluggishly than had been anticipated, while costs for social programs, including ones for the homeless, had risen more rapidly. Link
Essential reading: State, local fiscal burdens drag on economic recovery, and more
Welcome to the top tax and accounting headlines from Reuters and other sources.
* State, local fiscal burdens drag on economic recovery. Connor Dougherty – The Wall Street Journal. State and local government tax collections have improved from the recession years, they only recently regained their pre-downturn peak. Meantime, local governments, which unlike states rely on property taxes, continue to suffer from the big drop in real estate prices. Given political pressure to reduce the federal budget deficit, cities and states are likely to get less help from Washington. If that happens they would have to make up the gap with tax hikes of their own or else live more frugally—what they’re doing now. Link
* Public pensions to give ‘clearer picture’ of finances. Lisa Lambert – Reuters. Public retirement systems will have to make major changes in how they disclose their pension assets and liabilities, under new rules that the board in charge of accounting standards for U.S. state and local governments is set to approve on Monday. The Governmental Accounting Standards Board will vote on the changes at an afternoon meeting. The reforms were proposed nearly a year ago to give more detail on how pensions affect governments’ finances. Link
* IRS whistleblower tax take plunges, senator frets. Patrick Temple-West – Reuters. A report from the U.S. Internal Revenue Service’s troubled whistleblower program said tax collections from tipsters fell sharply last year, prompting a U.S. lawmaker on Friday to say he may delay two Treasury Department nominees until the program improves. In fiscal 2011, the IRS collected only $48 million through the program, down from $464 million in fiscal 2010, the agency reported to Congress on June 15. Link
* Germany builds core group for transactions tax. John O’Donnell – Reuters. Germany will work with a core group of European Union countries on introducing a financial transactions tax, its finance minister said on Friday, after efforts to get an agreement among all 27 EU countries fell short. Finance Minister Wolfgang Schaeuble said 10 countries were prepared to use an EU process known as ‘enhanced cooperation’ to push ahead with developing the tax, which Britain and other states, including some in the euro zone, oppose. Link
* MHRC looks to close 2 percent tax loophole. Kiran Stacey – The Financial Times. Tax officials have hinted they could close the six-year-old loophole which may have allowed wealthy people to reduce their tax rate to just 2 per cent by borrowing money from companies of which they were directors. The UK tax-collecting agency HM Revenue & Customs said yesterday its staff were looking into the scheme, which allows people to borrow large sums from their companies, free of tax. Link
* Tax case defeat weighs on Essar Energy. Mark Wembridge – The Financial Times. Essar Energy’s loss of a tax case in India’s Supreme Court has dragged the oil and power company to a pre-tax loss of more than $1 billion. The London-listed group on Monday said January’s negative ruling had pushed it to a pre-tax loss of $1.1 billion for the 15 months to March 31. January’s negative ruling by the Indian Supreme Court left the energy group liable for $1.2 billion in taxes, which weighed on the shares to such an extent that it dropped out of the FTSE 100 index earlier this year. Link
Calendar
Some important tax and accounting events in the week ahead:
Monday, June 25 • Deloitte Tax LLP webcast on the effects new tax legislation, standard-setting developments and regulatory matters could have on financial accounting and income tax reporting.
Wednesday, June 27 • Financial Accounting Standards Board (FASB) meeting on repurchase agreements and defining a nonpublic entity. Norwalk, Connecticut. Wednesday, June 27 – Saturday, June 30 • Internal Revenue Service Chief Counsel William Wilkins speaks at the Tax Executive Institute regional meeting. Hilton Head, South Carolina.
Thursday, June 28 • Hearing on tax reform and capital gains taxes before both the U.S. House of Representatives Ways and Means and Senate Finance committees. 10 a.m. Capitol Visitor Center. Washington. • Full-day meeting of the Private Company Financial Reporting Committee covers many topics including consolidation, leases and revenue recognition. Norwalk, Connecticut. • Public Company Accounting Oversight Board public meeting on audit firm independence and the rotation of auditors. San Francisco.
Friday, June 29 • Joint meeting of FASB and the Private Company Financial Reporting Committee. Norwalk, Connecticut. • U.S. citizens with a direct or indirect interest in foreign financial accounts must file foreign bank and financial accounts (FBAR) form with the U.S. Treasury by end of day.
Essential reading: California reaches a budget deal, and more
Welcome to the top tax and accounting headlines from Reuters and other sources. * California reaches a budget deal. Jennifer Medina – The New York Times. Gov. Jerry Brown and the Democratic-controlled legislature reached a budget deal on Thursday to close a nearly $16 billion budget gap. The agreement came after days of negotiations, with legislative leaders reluctant to make the cuts that Governor Brown said were urgently needed. Link * U.S. no-tax pledge creator entreats Republicans. Kim Dixon and David Lawder. The creator and enforcer of a no-tax-hike pledge Grover Norquist huddled with a small group of Republican lawmakers on Thursday in Washington to help strengthen their resolve ahead of tax battles expected to intensify in coming months. South Carolina Republican Senator Lindsey Graham and former Republican Florida Governor Jeb Bush are among prominent Republicans suggesting recently of the need for more flexibility on tax issues. Link
* As churches get political, IRS stays quiet. Nanette Byrnes – Reuters. Pastor Jim Garlow not only intends to break the rules, he also plans to spend the next four months recruiting other pastors to do the same as part of Pulpit Freedom Sunday. On that day each year since 2008, ministers intentionally try to provoke the Internal Revenue Service. The situation is fraught with peril for the IRS, which needs to be seen as apolitical. When it cracks down on political activities proscribed by the 501(c)(3) regulations, it is inevitably branded as partisan. Link * Christie allies vote against key spending bill. Heather Haddon – The Wall Street Journal. Members of New Jersey Gov. Chris Christie’s own party voted against a bill to help plug a budgetary hole to help pay for the administration’s tax cut—an unexpected wrinkle in an already fraught budgetary session. Two Republicans voted against the bill, which included reallocating $261 million from the Transportation Trust Fund to the general budget. Link
* IRS to review whistleblower program for speed, quality. Jessica Dye – Reuters. The Internal Revenue Service is planning a “comprehensive review” of its embattled whistleblower program to improve the speed and quality of its decisions, an agency official said in a June 20 memorandum. Link
* PM’s ‘political tin ear’ on tax attacked. Helen Warrell, Jim Pickard and Kiran Stacey – The Financial Times. David Cameron’s decision to criticizes tax avoidance by Jimmy Carr, the comedian, has prompted unease in Westminster from officials, Conservative MPs and peers who fear he showed a “political tin-ear” in singling out one person over their financial affairs. Link
* German finance min: Want to push transactions tax today with “all emphasis.” The Wall Street Journal. Germany and Austria will push for the creation of a financial transactions tax covering at least nine European countries Friday, their finance ministers said Friday. German Finance Minister Wolfgang Schaeuble told journalists he will push with “all emphasis” for a deal with at least nine states of the European Union. Link
* Japan risks delay in health, pension reforms over tax debate. Stanley White – Reuters. Japan’s breakthrough deal on sales tax increases, set to be sealed in a parliamentary vote next week, comes at a price of a delay in reforming healthcare benefits and pensions that must be tackled to curb the vast national debt. Parliament’s lower house looks certain to approve on Tuesday a plan to double the sales tax to 10 percent over three years, a first step towards restoring Japan’s fiscal health. Link
Essential reading: Japan premier wins sales tax deal, and more
Welcome to the top tax and accounting headlines from Reuters and other sources.
* Japan premier wins sales tax deal. George Nishiyama, Toko Sekiguchi and Alexander Martin – The Wall Street Journal. Japanese Prime Minister Yoshihiko Noda won the backing of the main opposition parties for a contentious bill to double the sales tax Thursday. But their support, which ensures the bill’s enactment, came at a high price—a possible ruling-party split led by the prime minister’s biggest rival. Noda’s ruling Democratic Party of Japan and the two main opposition parties agreed to enact the bill to raise the tax to 10 percent by 2015 in the current parliament session, which was extended to early September. The bill is seen as a long overdue first step in curbing the country’s massive debt, now more than twice the size of the economy. Link
* Soda taxes should be used to fight obesity: doctors. Julie Steenhuysen – Reuters. America’s largest physician organization recommended on Wednesday that taxes levied on sugar-sweetened sodas be used to fight the country’s growing obesity crisis. But the policy statement adopted by the American Medical Association’s House of Delegates meeting in Chicago fell short of outright support for taxing sugar-sweetened beverages to control use of these products. Link
* Health-care tax credit eludes some. Emily Maltby – The Wall Street Journal. Hundreds of thousands of small businesses are excluded from claiming a health-care tax credit, and many blame overly narrow restrictions. Small-business advocacy organizations had projected that millions of employers would be eligible for the health-care tax credit when the health-care overhaul law passed in March 2010. But most businesses either didn’t offer insurance or otherwise fell outside the eligibility requirements. Link
* Carr tax ‘morally wrong’, says PM. Jim Pickard and Vanessa Houlder – The Financial Times. David Cameron, The British prime minister, on Wednesday branded the tax arrangements of comedian Jimmy Carr “morally wrong” after press reports that he was one of a number of celebrities using elaborate schemes to avoid paying tax. The comments followed revelations that financial arrangements used by Carr and investments by members of the pop band Take That are being investigated by Revenue & Customs. Link
* Indonesia army to train tax collectors. Ben Bland and Taufan Hidayat – The Financial Times. Indonesia’s tax office has come up with an unconventional response to pressure to raise the paltry tax take and shed its reputation for corruption in the form of a military boot camp for tax collectors. The tax office said on Wednesday that it would soon start sending its 32,000 tax officers for two to three weeks of training with the army in an attempt to boost morale and promote professionalism. Link
David Cay Johnston on how the well-to-do can pay no taxes
In this video Reuters tax columnist David Cay Johnston interprets some of what we know — and don’t know – about the wealthiest Americans and their taxes.
Tax fairness has been a hot topic this year.
An IRS analysis shows that of the 3,975,288 tax returns reporting income of $200,000 or more for 2009, 35,061 had no U.S. income tax liability at all.
Another IRS report looks at the 400 very highest incomes and finds that a handful of this group also hit the tax-free list.
