§ As national debt rises, other factors may have impact too
The national debt is expected to reach $13 trillion this year and $22 trillion by 2020 thanks to spending on two wars, 10 years of tax cuts and spending to head off an economic disaster. Economists are worried about a number of issues not counted in the national debt that could make the forecast even more grim, including losses from Freddie Mac and Fannie Mae, borrowing from Medicare and Social Security and the cost of tax breaks and new IRS rules. CNNMoney.com (3/1) 
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§ Fannie Mae will seek $15.3 billion in government aid
Fannie Mae reported a $16.3 billion fourth-quarter loss, its 10th straight quarterly loss, and will seek $15.3 billion from the Treasury Department. "Our financial results for 2009 reflected the continued adverse impact of the weak economy and housing market, which has resulted in record mortgage delinquencies and contributed to our recording significant credit-related expenses and net losses during each quarter of the year," Fannie Mae said in a filing with the Securities and Exchange Commission. Bloomberg (2/27)
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§ AIG will sell Asian life insurer to Prudential for $35.5 billion
The board of American International Group approved the sale of the company’s crown jewel, American International Assurance, to Prudential of the U.K. for about $35.5 billion. The sale, along with a separate deal, could generate about $50 billion, half of which will go to the Federal Reserve Bank of New York. Prudential’s acquisition of AIA was welcomed by government officials because it will generate more cash to repay taxpayers. The Wall Street Journal (3/1) , The New York Times (free registration) (3/1) 
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§ Panel examining financial reporting for private companies named
The AICPA, the Financial Accounting Foundation and the National Association of State Boards of Accountancy on Friday announced who will be serving on a new blue-ribbon panel focused on U.S. accounting standards for private companies. The 18-member panel is expected to issue recommendations to the FAF Board of Trustees in about a year. JournalofAccountancy.com (2/28)
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§ Fed officials voice concern about possible additional power
Recent reports indicate the Federal Reserve might gain additional power as the primary regulator of major financial institutions. If so, officials are concerned with what is expected to be a significant increase in pressure on the central bank from the financial-services industry. They said that while the industry has become comfortable with interest-rate changes and other monetary-policy decisions, it is not prepared for the central bank to control lending volume. MarketWatch (2/26)
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§ Harry Markopolos says it took him just minutes to spot Madoff’s fraud
Former derivatives fund manager Harry Markopolos spent nearly a decade attempting to convince the Securities and Exchange commission that Bernard Madoff’s fund was bogus. Markopolos now seeks to uncover fraud at major firms. CNNMoney.com/Fortune (2/25)
The IRS has announced that the interest rates on overpayments and underpayments of tax for the calendar quarter beginning April 1, 2010, will remain the same as from the previous calendar quarter.
The rates will be 4 percent for overpayments (3 percent in the case of a corporation); 4 percent for underpayments; 6 percent for large corporate underpayments; and 1.5 percent for the portion of a corporate overpayment exceeding $10,000. The interest rates are computed from the federal short-term rate for January 2010 to take effect February 1, 2010, based on daily compounding. Annual interest rate tables for prior periods were also issued.
Code Sec. 6621 provides that the rate of interest is to be determined on a quarterly basis. For taxpayers other than corporations, the overpayment and underpayment rate is the federal short-term rate plus three percentage points. Generally, in the case of a corporation, the underpayment rate is the federal short-term rate plus three percentage points, and the overpayment rate is the federal short-term rate plus two percentage points. The rate for large corporate underpayments is the federal short-term rate plus five percentage points. The rate on the portion of a corporate overpayment of tax exceeding $10,000 for a tax period is the federal short-term rate plus one-half of a percentage point. The rate for determining the addition to tax for failure to pay estimated tax for the first 15 days in April 2010 is the 4-percent rate applicable to underpayments during the first calendar quarter of 2010.
IR-2010-22, 2010FED ¶46,288
Weekly Report from Washington
President Obama unveiled a health care reform plan in preparation for the bipartisan health care summit held on February 25. However, House and Senate leaders reported little progress after the seven-hour-long summit. The president concluded that the two sides found common ground in a few areas, including purchasing insurance across state lines and some form of medical malpractice reform. The Senate approved a $15-billion jobs package that Democrats hope will be the first of several successful job-related measures to pass over the next several months. In addition, Treasury Secretary Timothy F. Geithner told House lawmakers that the administration supports small business tax cuts and other incentives to restart hiring in the U.S. Meanwhile, IRS Commissioner Douglas H. Shulman, testifying before the House Appropriations Subcommittee on Financial Services and General Government, said that sophisticated business and individual taxpayers who operate on a global basis can expect greater scrutiny.
White House
President Obama’s health care reform plan embraces many provisions of the Senate’s Patient Protection and Affordable Care Bill (HR 3590) but also includes modified and added proposals (TAXDAY, 2010/02/23, W.1). The plan would raise the Senate bill’s excise tax threshold on high-end insurance, delaying the effective date to 2018. For high-income singles and households, the plan would impose an additional 0.9 percentage point hospital insurance tax and add a 2.9-percent tax on unearned income, such as interest, dividends and annuities.
During the health care summit, Republicans advocated starting over and taking an incremental approach toward reform, standing firm against the cost and scope of the Democratic plan, particularly inclusion of a health insurance exchange TAXDAY, 2010/02/26, W.1). Democratic leaders expressed little hope for bipartisan support while noting that a final bill would incorporate some GOP proposals. Although the president noted there is some common ground, a major sticking point rested with requiring insurance companies to cover individuals with pre-existing medical conditions. The president, at the summit, said he is willing to give the process a little more time if there is a serious effort to bridge differences. On February 26, White House Press Secretary Robert Gibbs noted that the president is expected to announce the week of March 1 what he believes is the best way forward on health care reform. Democrats have not backed away from employing the budget reconciliation process, if necessary, to move a final package forward.
Congress
The Senate on February 24 approved, by a 70-to-28 margin, the Hiring Incentives to Restore Employment (HIRE) Bill (HR 2847) which Democrats hope will be the first of several successful job-related measures to pass over the next several months (TAXDAY, 2010/02/25, C.1). Thirteen Republicans joined Democrats in voting for the bill. The measure provides a payroll tax break for new hires and a $1,000 credit is also provided for any employee who qualifies for the payroll tax holiday and who remains continually employed for 52 weeks by an employer. The bill now moves to the House where lawmakers are expected to take action sometime during the week beginning March 1.
Senate Finance Committee member Ron Wyden, D-Ore., and Senate Budget Committee ranking member Judd Gregg, R-N.H., on February 23 unveiled a broad tax reform proposal that they say would create a simpler and fairer system by lowering tax rates and eliminating narrow tax breaks that benefit special interests (TAXDAY, 2010/02/24, C.1). The plan would also simplify tax returns into a one-page Form 1040. The most significant individual provisions of the Bipartisan Tax Fairness and Simplification Bill of 2010 would reduce the number of income tax brackets from six to three—15 percent, 25 percent and 35 percent—increase the amount of the standard deduction, eliminate the alternative minimum tax and allow an exclusion for capital gains. On the business side, the proposal would establish a single corporate income tax rate of 24 percent and allow a simplified cash flow accounting for businesses with gross receipts of less than $1 million per year.
The Senate on February 26 attempted for the third time to pass by unanimous consent a 30-day extension of unemployment and COBRA benefits, along with a fix for Medicare payments to physicians and the flood insurance program. In each instance the move was objected to by Sen. Jim Bunning, R-Ky. The programs expired on February 28 and leadership gave no indication when they would attempt again to pass the short-term fix. A longer extension of those benefits, possibly up to one-year, is currently in the works as part of a third jobs-related bill that would provide tax breaks and loan programs for small business. The Senate plans during the week beginning March 1 to take up a $30-billion, House-passed tax extender bill (HR 4213).
Treasury Secretary Timothy F. Geithner said in testimony before the House Budget Committee that the Obama administration supports small business tax cuts and other incentives to restart hiring in the U.S (TAXDAY, 2010/02/25, C.3). According to Geithner, the administration wants to continue to allow small businesses to deduct the full cost of new investments in qualifying equipment and to take bonus depreciation deductions for qualifying capital investments. He also plugged the administration’s proposal to allow all businesses a $5,000 tax credit for every new employee hired in 2010 and said that the administration also wants to expand the Advanced Energy Manufacturing Tax Credit and extend the American Opportunity Tax Credit.
IRS Commissioner Douglas H. Shulman, testifying before the House Appropriations Subcommittee on Financial Services and General Government, said that sophisticated business and individual taxpayers who operate on a global basis can expect greater scrutiny (TAXDAY, 2010/02/25, C.2). Shulman said that the IRS is undertaking a multi-year tax compliance strategy targeted at high-wealth individuals and the business entities they control. Shulman also promised to improve the IRS’s customer service, which has come under fire in recent weeks. The Global High-Wealth Industry Group, which the IRS launched in 2009 (TAXDAY, 2009/10/27, I.4), will initially focus on individuals with tens of millions of dollars in assets or income.
Treasury/IRS
FBAR. The Treasury Department’s Financial Crimes Enforcement Network (FinCEN) issued proposed revisions to the regulations implementing the Bank Secrecy Act (BSA) regarding reports of foreign financial accounts (RIN 1506-AB08, TAXDAY, 2010/02/26, T.1). The proposals would clarify which persons must file reports of foreign financial accounts and which accounts are reportable. They would also exempt certain persons with signature or other authority over foreign financial accounts from filing reports and include provisions intended to prevent United States persons from avoiding this reporting requirement. The proposed rule makes several significant changes, including changes to the definition of a "United States person," adds definitions of the accounts subject to reporting; defines "financial interest" and "signature or other authority," and provides several special rules to simplify FBAR filings for certain U.S. persons.
U.S. Competitiveness. The U.S. business community was urged to be "fully engaged" in the debate over corporate and international taxation and move away from past rhetoric (TAXDAY, 2010/02/25, T.2). Manal Corwin, international tax counsel, Treasury Office of Tax Policy, told the 11th Annual Tax Policy & Practice Symposium, sponsored by the Tax Council Policy Institute in Washington, D.C., that U.S. competitiveness in the global economy is measured not only by the rate of taxation at home compared to foreign countries but also by investments in education and social welfare.
IRS Collection Activity. The Treasury Inspector General for Tax Administration (TIGTA) released an audit report on Code Sec. 6103(e)(8) disclosure of collection activity with respect to joint returns (TAXDAY, 2010/02/25, T.1). TIGTA found that IRS procedures provide employees with sufficient guidance for handling joint filer collection activity information requests. However, TIGTA could not determine if the IRS fully complied with Code Sec. 6103(e)(8) requirements when responding to written collection activity information requests from joint filers. IRS management information systems do not separately record or monitor joint filer requests; also, there is no legal requirement for the IRS to do so. Additionally, TIGTA did not recommend the creation of a separate tracking system.
Settlements. Victims of sexual abuse and wrongfully incarcerated individuals should be presumed to have physical injuries without observable harm for purposes of Code Sec. 104(a)(2), the IRS heard at a hearing on February 22 in Washington, D.C. (TAXDAY, 2010/02/24, I.1). Code Sec. 104(a)(2) generally excludes compensatory damages received on account of personal physical injury or physical sickness from an individual’s gross income. The IRS issued proposed regulations under Code Sec. 104(a)(2) in 2009 (TAXDAY, 2009/09/15, I.1), which reflect changes to Code Sec. 104(a)(2) made by the Small Business Job Protection Act of 1996 (P.L. 104-188).
Reporting of Uncertain Tax Positions. The American Institute of Certified Public Accountants (AICPA) asked the IRS to extend the comment period in Announcement 2010-9, I.R.B. 2010-7, 408 (TAXDAY, 2010/01/27, I.2) on the reporting of uncertain tax positions. "Many of the AICPA’s members are deeply interested in the proposal and wish to respond with detailed and helpful comments. However, the 60-day comment period provided in the announcement falls at a time when they are working extended hours and long weeks preparing financial statements, tax returns and tax return extensions," the AICPA told the IRS. In Announcement 2010-9, the IRS explained that it will require some business taxpayers to report their uncertain tax positions as determined under Financial Accounting Standards Board Interpretation No. 48, Accounting for Uncertainty in Income Taxes (FIN 48).
Worker Classification President Obama’s fiscal year (FY) 2011 federal budget proposes an overhaul of the worker classification rules, experts from Grant Thornton, LLP, said during a February 23 webcast on the budget (TAXDAY, 2010/02/02, W.1). The Obama administration proposes to permit the IRS to require prospective reclassification of workers who are currently misclassified. The administration also proposes to allow the IRS to issue generally applicable guidance about the proper classification of workers. "The budget does not specify whether it would amend Section 530 of the Revenue Act of 1978 (P.L. 95-600) and move new amended rules into a new Code section," Dustin Stamper, manager, Grant Thornton, explained. "The major congressional proposals would take Section 530, amend it and place it in the Internal Revenue Code."
By Jeff Carlson, Stephen K. Cooper, Paula Cruickshank and H. Goehausen, CCH News Staff
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Tis easy enough to be pleasant, When life flows along like a song; But the man worth while is the one who will smile when everything goes dead wrong."
–Ella Wheeler Wilcox, |
