Top Story

§ Deal for payroll-tax cut is near, lawmakers say
Republican leaders in Congress say they’re close to a compromise with Democrats to extend a payroll-tax cut that is scheduled to expire Feb. 29. The lawmakers didn’t say how they plan to pay for it. TheFiscalTimes.com/Reuters (1/29), Bloomberg Businessweek (1/30)     

Financial Focus

§ Consumer confidence index hits highest level in nearly a year
Consumer confidence was at its highest in nearly a year last month, according to the Thomson Reuters/University of Michigan index of consumer sentiment. It was the fifth consecutive month of increases. The Hill/On the Money blog (1/27)     

§ Study: High CFO pay can lead to earnings manipulation
Companies whose CFOs are paid large bonuses report higher discretionary accruals, excess sales and face more lawsuits in the future, a study from two researchers at Harvard Business School finds. "The magnitudes of these effects are much larger for CFOs in comparison to both CEOs and division managers," Felix Oberholzer-Gee and Julie Wulf write in the study, which has not yet been published. The study suggests that companies pay close attention to incentive policies for CFOs and other managers. CFOworld (1/30)     

Tax Season Watch

79 days left to file tax returns

§ IRS modifies streamlined installment agreement program
The Internal Revenue Service’s Small Business/Self-Employed Division recently made changes to its streamlined installment agreement program. The changes include raising the unpaid balance of assessment threshold and extending the time during which payments can be made under such agreements. JournalofAccountancy.com (1/27)     

Leadership & Trends

§ Employers look to mobile tools for greater collaboration
David Lavenda offers a roundup of studies that show how mobile technology is changing the way people collaborate in the workforce. Employees increasingly expect to use technology at work and at home, but companies should choose carefully to ensure that new tools give them a competitive edge. "Smart companies will look for ways to adapt their workforce gradually to new tools and processes," Lavenda writes. FastCompany.com/FC Expert Blog (1/27)     

SmartQuote

Motivation is like food for the brain. You cannot get enough in one sitting. It needs continual and regular top ups." –Peter Davies, British composer and conductor

Top Story

§ Bankers express optimism as they meet in Davos
The banking industry continues to face significant challenges, but executives gathering this week at the World Economic Forum’s annual meeting have expressed optimism about their prospects. Although they have kept a relatively low profile in Davos, Switzerland, some CEOs, including Société Géneralé’s Frédéric Oudéa and JPMorgan Chase’s Jamie Dimon, have offered their views. Reuters (1/26), CNBC (1/26), CNBC (1/26)     

Financial Focus

§ Shareholders step up proxy proposals on political disclosures
Shareholders so far this year have submitted 100 proxy proposals for more disclosures on corporate political activities, the most ever, according to Institutional Shareholder Services. Shareholders want more information on political donations, lobbying, and contributions to industry associations. Some of the proposals call for votes on political spending. The Wall Street Journal/CFO Journal (tiered subscription model) (1/26)     

§ AT&T contributed $1 billion to pension plan in Q4
AT&T joins the growing number of companies with underfunded pensions. The telecom carrier contributed $1 billion to its pension plan in the fourth quarter of 2011, and took a $6.3 billion charge for the year related to the remeasurement of benefits. AT&T says there will be no need to contribute more to the plan in 2012. The Wall Street Journal/CFO Journal (tiered subscription model) (1/26)     

§ Jacobs Engineering to try again with say-on-pay proxy vote
Jacobs Engineering Group will be the first large company this year to ask shareholders to approve its compensation packages. The so-called say-on-pay vote is required by the Dodd-Frank Act. Last year, Jacobs Engineering only 45% of shareholders supported its pay packages. The Wall Street Journal/CFO Journal (tiered subscription model) (1/26)     

§ 2011 was worst sales year on record for new-home sales
Sales of new homes fell in December to a seasonally adjusted 307,000 for 2011, down 7.3% from December 2010, the Commerce Department reported. Last year turned out to be the worst sales year ever recorded for new homes, with total sales 6.2% below 2010 levels. The Hill (1/26)     

A&A Report

§ CFOs unsure about effect of rule change on tangible property costs
Chief financial officers are unsure what the change to the treatment of capitalization costs incurred in the acquisition, maintenance or improvement of tangible property will mean for their businesses, according to a KPMG LLP survey. Sixty-two percent of survey respondents said they were unsure whether the Treasury Department regulation, released on Dec. 23, would have a positive or a negative effect. Forty-two percent expect the new rules to be more difficult to administer. CFOworld (1/27)     

Tax Season Watch

82 days left to file tax returns

§ Handling IRS requests for accounting software backup data
Internal Revenue Service agents have begun requesting backup files from taxpayers’ accounting software during examinations. Practitioners need to understand the scope of the IRS’s authority to make these requests and how to help clients provide the necessary data, but not more information than is required. Journal of Accountancy (1/2012)     

§ Tax advisers assume new duties with increased scrutiny of foreign accounts
AICPA Insights (1/26)     

Policy & Regulatory

§ Report: Government has lost $12 billion on bailouts
The U.S. government has lost $12 billion so far on its bailout programs, and with $142.9 billion still tied up in the effort, more could be lost, the special inspector general for the Troubled Asset Relief Program said in a quarterly report. Estimates of the total cost of the $700 billion program, much of which is to be paid back, range from $34 billion to $68 billion. The government is looking to sell its TARP-related holdings in some companies, but low stock prices are complicating that effort. The Hill (1/26)     

§ Senate investigates IRS rulings on mutual funds
The Senate Permanent Subcommittee on Investigations us looking into private-letter rulings from the Internal Revenue Service that have resulted in some mutual funds using offshore shell corporations to circumvent tax-code limits on commodity trading. Sen. Carl Levin, D-Mich., chairman of the subcommittee, said the rulings have led to an increase in commodity speculation by mutual funds. Accounting Today (1/26)     

International View

§ Greek economy might not recover, IMF says
Greece’s economy is deteriorating so fast that there are doubts whether it can ever recover without defaulting on its bonds, according to an analysis by the International Monetary Fund. The analysis suggests that even after spending cuts and tax increases, Greece’s debt in 2020 won’t be significantly lower than it is now. The New York Times (tiered subscription model) (1/26), Kathimerini (Greece) (1/26), Reuters (1/26)     

SmartQuote

I am sustained by the tranquility of an upright and loyal heart." –Peter Stuyvesant, Dutch-American statesman

Top Story

§ Fed officials expect to keep rates near zero for years
Officials at the Federal Reserve indicated they might resume the central bank’s bond-buying program and that they expect to maintain near-zero interest rates for about three more years. Chairman Ben Bernanke said that although there has been "more encouraging news" about the economy, "I don’t think we’re ready to declare that we’ve entered a new, stronger phase" of growth. The Wall Street Journal (1/26), Reuters (1/25), Los Angeles Times (1/26)     

Financial Focus

§ U.S. public pension plans boost investment in private equity
Major public-employee pension plans in the U.S. are significantly increasing their investment in private-equity funds, according to data from Wilshire Trust Universe Comparison Service. A decade ago, public pensions had less than $1 billion, or 3% of their assets, in private equity. By September, such investment was worth $220 billion, 11% of the total. The Wall Street Journal (1/26)     

§ Boeing faces higher pension expense
Boeing is among the companies with higher pension expenses because of low interest rates. The aerospace giant said its fourth-quarter pension expense rose 35% from the fourth quarter of 2010, to $344 million. The company plans a $2.76 billion contribution to its pension plan this year, up from $1.65 billion in 2011. The Wall Street Journal/CFO Journal (tiered subscription model) (1/25)     

§ Bank of America loan program offers financing for CPA firms
Bank of America’s Practice Solutions program for CPAs, launched this month, offers loans of up to $1 million to finance mergers and acquisitions, expand an office, and buy equipment and software. Bank officials said they want to lend $30 million through the program in the first year. Accounting Today (1/25)     

A&A Report

§ FASB proposal tackles impairment testing of indefinite-lived intangible assets
A proposed accounting standards update issued by the Financial Accounting Standards Board on Wednesday aims to simplify assessment and reduce costs of indefinite-lived intangible asset impairment testing. If the proposal is approved, organizations would be allowed to assess qualitative factors to determine whether a quantitative impairment test is necessary. JournalofAccountancy.com (1/25)     

Tax Season Watch

83 days left to file tax returns

§ Worker classification becoming major tax administration issue
Between the recent voluntary classification settlement program introduced by the Internal Revenue Service, a memorandum of understanding between the IRS and the Department of Labor to share employment tax data, and the president’s proposed economic growth plan, misclassification of workers and independent contractors has been receiving a lot of attention in Washington. This article takes a look at recent developments of which practitioners should be aware. The Tax Adviser (1/2012)     

§ Many tax deductions remain uncertain until Congress acts
MarketWatch (1/26)     

Policy & Regulatory

§ Geithner says he probably wouldn’t stay for a second term
Treasury Secretary Timothy Geithner said President Barack Obama is likely to be re-elected, but he isn’t likely to stay for a second term. "I’m confident he’ll be president. But I’m also confident he’s going to have the privilege of having another secretary of the Treasury," Geithner said. The Hill/On The Money blog (1/25), The Washington Post/The Associated Press (1/25), Reuters (1/25), Bloomberg Businessweek (1/25)     

§ New financial crimes unit to look into mortgage abuses
In his State of the Union speech, President Barack Obama announced plans to establish a Justice Department unit to investigate major financial crimes. The unit will look into mortgage processes that contributed to the housing bubble and bust, New York state Attorney General Eric Schneiderman said. "Our working group is focusing on conduct related to the pooling and creation of mortgage backed securities, issues related to conduct that created the crash, not abuses that happened after the crash," Schneiderman said. The Wall Street Journal (1/26), Bloomberg (1/25), The Hill/On The Money blog (1/24)     

International View

§ Companies prepare a Plan B in case of eurozone collapse
Companies with operations in Europe are making contingency plans in case some nations decide to leave the eurozone as a result of the financial crisis. Steps include re-evaluating hedging strategies and purchasing currency options, executives say. Bankers are telling clients to document their transactions and to limit hedging activities to a few jurisdictions to make contracts easier to settle. Reuters (1/25)     

§ India’s chronic electricity shortage cripples growth § Despite having the world’s fifth-largest coal reserves and some oil and gas, India’s economic growth is stifled by the nation’s inability to generate enough electricity, according to The Economist. "If the test is avoiding a national catastrophe, India’s power sector will pass it," the magazine noted. "But if it is delivering the infrastructure that can allow the economy to grow at close to a double-digit pace and industrialise rapidly, India is failing." The Economist (1/21), The Economic Times (India)/Figuring It Out blog (1/25), NDTV (India)/Press Trust of India (1/25)

Leadership & Trends

§ Smartphones expose more people to cybercrime
Experts predict an increase in cybercrimes targeting smartphones, which are becoming more like mini-computers than phones. While smartphones make users vulnerable to hacking and other issues, there are things people can do to protect themselves. The New York Times (tiered subscription model) (1/25)     

SmartQuote

The best executive is the one who has sense enough to pick good men to do what he wants done, and self-restraint to keep from meddling with them while they do it." –Theodore Roosevelt, U.S. president

Top Story

§ America’s wealthiest should pay at least 30% tax, Obama says
President Barack Obama, in his State of the Union address, proposed a minimum 30% tax on income over $1 million. High earners would lose deductions for mortgage interest, health care, retirement and child care. Obama also said he would increase scrutiny of Wall Street by setting up a Financial Crimes Unit in the Justice Department to investigate fraud. Bloomberg (1/24), McClatchy Washington Bureau (1/24)     

§ Obama proposes refinancing help for U.S. homeowners: President Barack Obama called for legislation that would make it easier for homeowners to take advantage of historically low interest rates and refinance their mortgages. Los Angeles Times (1/24), The Washington Post/Where We Live blog (1/24)     

Financial Focus

§ Pension problems hit Verizon’s earnings
Verizon said it would to triple contributions to its pension plan this year, after taking a $5.6 billion charge for noncash pension and benefits for 2011. The company’s pension assets returned only 5% last year, while it had assumed an 8% return. Verizon is one of several large companies that have adopted an accounting policy requiring actuarial gains and losses to be recognized in the year they occur. The Wall Street Journal/CFO Journal (tiered subscription model) (1/24)     

§ Taxes, reporting drive corporate accounting purchases, survey finds
The three main drivers of corporate tax service spending were tax accounting and reporting, transfer pricing and tax compliance, according to a PricewaterhouseCoopers global survey. Tax accounting and reporting was ranked first by 44% of the respondents. Bangkok Post (Thailand) (1/24)     

A&A Report

§ U.S. "will come on board" with IFRS, IASB chairman predicts
Hans Hoogervorst, the chairman of the International Accounting Standards Board, said Monday that he believes the Securities and Exchange Commission ultimately will adopt International Financial Reporting Standards for U.S. issuers. Hoogervorst was optimistic, even though he said he doesn’t have any privileged insight into the SEC’s decision. In December, SEC Chief Accountant James Kroeker said the commission will need at least a few more months to prepare a final report that will guide the SEC on IFRS. JournalofAccountancy.com (1/24)     

§ Survey: Companies want continuous audits
Internal auditors increasingly are helping companies improve their operations, including risk-management functions, according to a survey of auditors by ACL Services. More auditors are helping companies implement processes using technology to improve their internal monitoring. The goal for most clients is to develop automated, continuous auditing. Business Finance (1/23)     

Tax Season Watch

84 days left to file tax returns

§ IRS updates Form 990 for 2011 filings
The Internal Revenue Service has posted a new version Form 990 for 2011 filings by tax-exempt organizations. Among other changes, the new form revises how exempt organizations report income from joint ventures, and changes the threshold for required reporting of activities outside the United States. JournalofAccountancy.com (1/24)     

Citibank raises question of whether frequent-flier miles are taxable
Los Angeles Times (1/24)     

§ Other News

· Oil will cost $247 a barrel by 2035, IEA says
Bloomberg (1/24)     

SmartQuote

Only the mediocre are always at their best." –Jean Giraudoux, French writer and diplomat

Top Story

§ Stakes are high as World Economic Forum meeting begins
Bankers, officials and other interested parties from around the world are converging on Davos, Switzerland, for the World Economic Forum’s annual meeting. With Europe’s sovereign-debt crisis ongoing, the stakes are high. "We’re fighting the last war. The sovereign-debt crisis is undermining the global banking system," said Tobias Levkovich, chief U.S. equity strategist at Citigroup. "We need to take the dire scenario off the table and get a credible path to a resolution." CNBC (1/23), Financial Times (tiered subscription model) (1/23), BBC (1/23)     

Financial Focus

§ Carmakers look to U.S. plants to avoid currency exposure
Foreign automakers are putting more of their operations in the U.S. and Mexico to avoid currency risk and the cost of exporting cars, says Tim Denoyer, an analyst with Wolfe Trahan & Co. Japanese companies in particular are embracing the strategy as the yen has risen 6.5% against the U.S. dollar in the past year. The Wall Street Journal/CFO Journal (tiered subscription model) (1/23)     

§ Poll: Two-thirds of Americans find it harder to get ahead
Nearly two-thirds of respondents to a poll by The Hill say it is harder these days to move from one economic class to another. According to 33%, moving up is much harder than it used to be, and another 33% say it’s somewhat harder. The Hill (1/23)     

Tax Season Watch

85 days left to file tax returns

§ IRS sends PTIN renewal reminders to practitioners
The Internal Revenue Service is sending letters to tax practitioners who have not yet renewed their preparer tax identification numbers for 2012, telling them that after Feb. 21 they will be dropped from the list of valid PTIN holders if they do not renew. The IRS has also posted troubleshooting tips for preparers who have trouble renewing. JournalofAccountancy.com (1/24)     

Policy & Regulatory

§ Writing down mortgage principals would cost $100B, FHFA says
If Fannie Mae and Freddie Mac were to reduce the mortgage principal on government-owned mortgages that are underwater, the cost to the government would be $100 billion, according to an analysis by Federal Housing Finance Agency. Nearly 3 million mortgages held by Fannie Mae and Freddie Mac have outstanding balances estimated to be greater than the value of the homes. The Hill/On the Money blog (1/23)     

§ Other News

· OECD: Eliminating tax relief on mortgages and pensions would boost growth, equality
The Wall Street Journal (1/23)     

International View

§ Japan is expected to announce first trade deficit in 3 decades
Japan is expected to report its first full-year trade deficit since 1980. Economists say Japan could have years of trade deficits if its currency remains strong and global demand for its exports continues to fall. The Wall Street Journal/Dow Jones Newswires (1/23), Bloomberg (1/24), The Wall Street Journal (1/24)     

§ Greece edges toward default after bondholders’ offer is rejected
The threat of a Greek default increased after eurozone finance ministers rejected a debt-restructuring proposal that private bondholders said was their final offer. Ministers opposed a 4% coupon on long-term bonds that would be exchanged for Greece’s existing debt. Reuters (1/24), European Voice (Brussels) (1/24), Kathimerini (Greece) (1/23)     

SmartQuote

A great deal of talent is lost to the world for want of a little courage." –Sydney Smith, British writer and cleric

Financial Focus

§ Analysis: Secret U.S. corporate ownership encourages financial crime
The ability to use corporations to hide the ownership of companies facilitates money laundering and other financial misconduct, but the U.S. isn’t doing much about it, according to The Economist. Sen. Carl Levin, D-Mich., proposed legislation that would require American companies to disclose who owns them, but the measure is stalled in committee. The Economist (1/21)     

§ Home sales rose for the third month in a row in December
Sales of previously owned homes increased 5% last month to a seasonally adjusted annual figure of 4.61 million, the National Association of Realtors said. Sales were the highest since January 2011, and the third consecutive monthly increase. The Hill (1/20)     

§ How the U.S. avoided Europe’s economic failure
Recent data on the housing market and private debt suggest that the U.S. economy is on the slow track to recovery, economist Paul Krugman writes. Meanwhile, Europe is struggling to recover, in part because of its focus on austerity and worries about inflation. While U.S. policymakers could have done more to boost the economy, Krugman argues that the country would be in worse shape if leaders had cut federal spending and kept the Federal Reserve from holding down interest rates. The New York Times (tiered subscription model) (1/22)     

A&A Report

§ Commentary: Start preparing for new fair-value accounting
Implementation of the new fair-value accounting standards, or IFRS 13, is just a year away. Managers should prepare for IFRS 13 by taking steps such as determining how it will affect valuation policies; showing regulators and outside auditors that they grasp the change, and discussing the change with vendors, appraisers investment advisers and investment custodians, writes Francisco Roque A. Lumbres of SGV & Co. BusinessWorld (Philippines) (1/23)     

Tax Season Watch

86 days left to file tax returns

§ IRS issues final regulations on damages received for personal injury or sickness
The Internal Revenue Service on Friday issued final regulations removing the requirement that damages received from a legal suit, action or settlement for personal physical injury or sickness must be based on “tort or tort type rights” in order for the taxpayer to exclude them from income. They also clarify the excludability of damages for emotional distress. The final regulations adopt rules that were proposed in 2009, and they apply to damages received after Aug. 20, 1996. JournalofAccountancy.com (1/20)     

§ Experts caution that unemployment benefits are taxable income
The Boston Globe/The Associated Press (tiered subscription model) (1/23)     

Market Update

§ Fed officials to outline interest-rate expectations
Federal Reserve officials this week will explain their expectations for short-term interest rates over the next few years. Release of the forecast, which is intended to increase the central bank’s transparency, might provoke a market jolt. "There is in fact going to be so much information … that the risk of confusion and volatility hangs over the unveiling," said Sassan Ghahramani, CEO at SGH Macro Advisors. The Wall Street Journal (1/23)     

Policy & Regulatory

§ Labor Department could ease fiduciary liability for CFOs
The personal liability of chief financial officers who oversee retirement plans could be reduced under a rule expected from the Labor Department this year. The rule would redefine the term "fiduciary" for the purposes of 401(k)s and other plans under the Employee Retirement Income Security Act. The rule, which was proposed last year, is being revised after public comments. CFO.com (1/19)     

International View

§ Greek debt-restructuring talks deadlock over interest rate
Negotiations to restructure Greece’s privately held debt reached an impasse over the interest rate to be paid in a bond swap. Government officials and bankers said they still expect an agreement. The New York Times (tiered subscription model) (1/22), Kathimerini (Greece) (1/22), Reuters (1/22)     

Leadership & Trends

§ How to build a strong network in a social media era
Social media can open doors to professionals looking to build and maintain strong networks to advance their careers. However, challenges from the days before social media, such as how to build a relationship with a new contact, still exist. Four key steps are establishing strategic and practical networking expectations, setting networking goals and objectives, targeting networking efforts to maximize results, and using your time and other people’s time judiciously. Career Insider (1/19)     

SmartQuote

We can’t solve problems by using the same kind of thinking we used when we created them." –Albert Einstein, German-born physicist

A Utah ruling discusses the applicability of sales and use tax to various charges made by a scaffolding sales and rental company for activities occurring in Utah. The company states all charges on its invoices as separate items.

Each of the following are taxable, before and after legislative changes effective July 1, 2011, even if they are separately stated items on the company’s invoices: (1) sales and rentals of scaffolding; (2) freight charge for the return delivery; (3) labor charge for disassembling; (4) shrink wrap charge; (5) plywood charge; and (6) consumables charge incurred for disassembly. The following items are not taxable: (1) freight charge for the initial delivery; (2) labor charge for the initial assembly; (3) combined labor charge for disassembling, moving and reassembling; (4) consumables charge incurred for the initial assembly; and (5) combined consumables charge incurred for disassembling, moving and reassembling.

Freight charges are not taxable when the charges are for transportation, shipping, handling, crating or packing an item for delivery to a customer. A return delivery charge, however, is not made to deliver to a customer’s location and is taxable.

Labor charges for initial installation of rented scaffolding are nontaxable charges made to install tangible personal property. Charges for disassembly or disassembling, moving and reassembling to a new location are charges for an additional nontaxable service, separate from the rental of the scaffolding. Charges for consumables used in the assembly and disassembly process are both treated as taxable.

Charges for shrink wrap attached to assembled scaffolding to create an artificial wall are not installation charges or assembly charges and, thus, are taxable. Charges for plywood returned to the company or sold to the customer also are taxable as the plywood is not part of the installation process but, instead, is part of the scaffolding.

The resale exemption may apply to the following company purchases made for resale or rental: scaffolding, shrink wrap, and plywood.

Private Letter Ruling, Opinion No. 11-002, Utah State Tax Commission, December 21, 2011, ¶400-748

Top Story

§ Initial unemployment claims in U.S. drop
First-time claims for U.S. unemployment benefits fell 50,000 last week, to a seasonally adjusted 352,000, the fewest since April 2008, the Labor Department said. The four-week rolling average fell to 379,000. MarketWatch (1/19)     

Financial Focus

§ Survey: CIOs expect flat IT budgets in 2012
A survey of chief information officers by Gartner Inc. shows that IT budgets worldwide are expected to increase just 0.5% in 2012. IT budgets in North America and Europe are expected to decline slightly in 2012, according to the survey. JournalofAccountancy.com (1/19)     

§ Wall Street continues to cut jobs
Wall Street firms cut 2,000 jobs last month. James Brown, a labor-market analyst at the New York State Department of Labor, said it was the largest reduction since summer interns were released. Reuters (1/19)     

§ 30-year U.S. mortgage rate falls to record low
The average interest rate for 30-year fixed-rate mortgages in the U.S. fell to 3.88% this week, a historic low, Freddie Mac reported. It is the seventh week in a row the rate is less than 4%. The Mortgage Bankers Association said mortgage applications rose 23% last week. The Washington Post (1/19), eCreditDaily.com (1/19)     

Tax Season Watch

89 days left to file tax returns

§ IRS updates adequate disclosure rules for understatement and preparer penalties
The Internal Revenue Service issued its annual guidance update on when a taxpayer has adequately disclosed an item or position in an income tax return for purposes of the substantial understatement aspect of the accuracy-related penalty and the preparer penalty for understatement due to an unreasonable position. The new rules are effective for 2011 income tax returns. JournalofAccountancy.com (1/19)     

§ Companies get ready for 1099-K forms
Companies that receive payments from credit cards or third-party settlement agencies may have to keep an eye out for 1099-K forms this year. The forms will be sent to businesses that receive more than $20,000 in gross payments from at least 200 transactions annually. Companies that receive both a 1099-K and a 1099-MISC should make sure their income wasn’t reported twice. Business Finance (1/18)     

§ IRS to hold second public meeting on Real-Time Tax System
Accounting Today (1/19)     

Market Update

§ Fed might consider more bond buying
Officials at the Federal Reserve are scheduled to meet Tuesday and Wednesday, and some are open to another bond-buying program if the economic recovery falters. Meanwhile, Fed officials are preparing a communications policy to include publishing interest-rate projections and a statement outlining their objectives for the labor market and inflation. The Wall Street Journal (1/20)     

SmartQuote

No man, who continues to add something to the material, intellectual and moral well-being of the place in which he lives, is left long without proper reward." –Booker T. Washington, American educator, author and political leader

Income attributable to a couple’s rental of a commercial office building to the husband’s wholly-owned medical corporation was nonpassive income under the self-rental rule of Reg. §1.469-2(f)(6).

Therefore, it could not be offset against accumulated and unused passive losses. The written binding contract exception, which provides transitional relief for binding written contracts entered into before February 19, 1988, and would have characterized the couple’s rental income as passive income because they entered into the lease agreement with the husband’s medical corporation in 1980 did not apply. However, under state (New Jersey) law, an enforceable agreement only exists when the two parties agree on essential terms and agree to be bound by them. Thus, the lease agreement did not remain in force and was not binding for the tax years at issue because the couple did not pay the rent required by the lease and did not pay it monthly. Furthermore, the husband did not consult the lease in making his annual allocation between his salary and rental income. Finally, the rental income reported on the couple’s returns and the rental expense deducted on the medical corporation’s returns for the tax years at issue not coincide with what should have been reported under the 1980 lease. Finally, although the couple was negligent in treating the rental income they received from the medical corporation as passive income, the accuracy-related penalty did not apply because they reasonably relied on the advice of their tax advisor in doing so.

L.A. Samarasinghe, TC Memo. 2012-23, Dec. 58,925(M)

Top Story

§ President’s jobs council recommends tax reform
The President’s Council on Jobs and Competitiveness recommended corporate tax reforms in its latest proposals. The council’s report calls for lowering corporate tax rates and broadening the corporate tax base, expediting infrastructure projects, eliminating burdensome federal regulations and streamlining government. Reuters (1/17)     

Financial Focus

§ Companies invest more in U.S. Treasurys, less in corporate debt
Companies invested less in corporate debt in December, according to data from Clearwater Analytics. The decline by 3 percentage suggests a growing unease with corporate debt. Companies preferred investing in government debt, as holdings in U.S. Treasurys rose in December. The Wall Street Journal/CFO Journal (tiered subscription model) (1/18)     

§ U.S. companies hold the line on overhead
Private companies in the U.S. are holding down costs, according to an analysis by Sageworks. Overhead costs held steady from 2010 to 2011, amounting to about 23% of sales, on average. Companies are saving money in areas such as rent and employee salaries. Payoffs from investments in technology also are helping keep expenses down. Forbes (1/18)     

§ S&P president defends downgrades and rejects criticism
Doug Peterson, president of Standard & Poor’s Ratings Services, rejected criticism that the agency has become more aggressive in its ratings after the financial crisis, as he defended recent downgrades of European and U.S. sovereign debt. Peterson said the criteria by which S&P rates government debt were strengthened just before U.S. debt was downgraded. The Wall Street Journal (1/19)     

§ Short on cash, Kodak seeks to reorganize in Chapter 11 bankruptcy
Eastman Kodak filed for Chapter 11 bankruptcy protection. The 130-year-old company’s filing lists $5.1 billion in assets and $6.75 billion in debts. "The business reorganization is intended to bolster liquidity in the U.S. and abroad, monetize non-strategic intellectual property, fairly resolve legacy liabilities, and enable the company to focus on its most valuable business lines," a Kodak statement said. USA TODAY/Rochester Democrat and Chronicle (1/19)     

§ Harvard alums say tax code, politics drive U.S. decline
Harvard Business School alumni are pessimistic about the U.S. economy, with 71% expecting a decline in competitiveness over the next three years, according to a survey of 10,000 former students. The political system and its broken tax code were the top reasons cited. The Hill (1/18)     

Tax Season Watch

90 days left to file tax returns

§ Tax season requires due diligence by practitioners
Recent developments should remind practitioners of their due diligence obligations during tax season. The Internal Revenue Service’s recent round of letters and visits to return preparers focused on issues with Schedules C and E, and California has been reviewing cancellation of debt reporting and property tax deductions. This article explores these issues and describes actions practitioners can take to help meet their due diligence obligations. The Tax Insider (1/12)     

§ Confusion expected with new cost-basis reporting for stocks
MarketWatch (1/19)     

SmartQuote

For the person for whom small things do not exist, the great is not great." –José Ortega y Gasset, Spanish philosopher and essayist

A couple’s ownership of an out-of-state cattle ranch was a passive investment for the tax years at issue and, therefore, their losses from their investment were subject to the passive loss limitation under Code Sec. 469.

The couple’s ownership of the ranch was determined to be a passive investment because they did not materially participate in the management and activities of the ranch. There was little evidence, other than the assertion by the couple, that their activities with respect to the ranch, satisfied the 500-hour test or that they participated in ranch activities on a regular, continuous and substantial basis during the tax years at issue. The accuracy-related penalty did not apply because they reasonably, and in good faith, relied on the advice of their tax advisor in claiming the deductions that were disallowed.

A.A. Iversen, TC Memo. 2012-19, Dec. 58,921(M)

Top Story

§ World Bank slashes forecast for global growth to 2.5%
The World Bank cut its forecast for global economic growth this year to 2.5%, from 3.6%. The bank revised its estimate for the U.S. economy to 2.2% growth, from 2.9%. The eurozone forecast is for 0.3% contraction, compared with the 1.8% expansion previously predicted. Bloomberg (1/18), The Globe and Mail (Toronto)/Economy Lab blog (1/18), The New York Times (tiered subscription model) (1/17)     

§ Some economies still haven’t recovered from financial crisis: Some of the world’s largest economies have still not recovered from the recession, according to an output-per-person comparison. The Economist Intelligence Unit forecast that people in Britain, America, France and Japan will be less well-off this year than they were in 2007. But economies in other countries, including Germany, India and China, are expected to improve this year, compared with 2007. The Economist (1/16)     

Financial Focus

§ 28% of high-tech manufacturing jobs left U.S. in a decade
The U.S. lost 687,000 high-tech manufacturing jobs, 28% of the total, from 2000 to 2010, as companies moved research and development overseas, according a report by the National Science Board. Most of the business went to Asia. The Washington Post (1/17), Dayton Daily News (Ohio) (1/17)     

§ Banks report strongest growth in lending since 2008
Citigroup, Wells Fargo and JPMorgan Chase reported the most growth in loans since the financial crisis. Bank-industry officials say demand for loans by businesses and individuals is finally rising again. "Companies that are creditworthy haven’t been in a borrowing mood, but we are starting to see that change," said Jeffrey Harte, a principal with Sandler O’Neill & Partners. The Wall Street Journal (1/18)     

A&A Report

§ Most CFOs surveyed oppose mandatory auditor rotation
More than 75% of the 84 chief financial officers responding to Deloitte’s quarterly CFO Signals survey oppose a proposal to require auditor rotations. They cited internal costs, audit fees and loss of managerial discretion as reasons. About 20% of CFOs support the concept. The AICPA also opposes mandatory auditor rotation and said so in a comment letter to the Public Company Accounting Oversight Board. The Wall Street Journal/CFO Journal (tiered subscription model) (1/17)     

§ Citigroup used accounting tactics to boost profits
Citigroup missed its fourth-quarter earnings estimates, despite its use of accounting tactics that allowed it to release $8.2 billion of loan-loss reserves into 2011 earnings. The bank also booked profits of $1.8 billion in paper gains on its debt. Those two maneuvers accounted for 88% of the company’s reported 2011 profit of $11.3 billion. Fox Business (1/17)     

§ Investment bankers are wary of Chinese offerings, survey finds
Investment bankers have become more cautious about China-based offerings because of the Chinese accounting scandals, a BDO USA survey shows. More than three-quarters of respondents said they are more careful in their due diligence for China-based offerings. In addition, 43%, predicted a decrease in the number of Chinese businesses listing on U.S. exchanges this year, with 57% of those respondents citing the scandals as the reason. Accounting Today (1/17)     

Tax Season Watch

91 days left to file tax returns

§ Partners’ interest expense allocation subject of new regulations
New temporary and proposed regulations issued by the Internal Revenue Service make changes to the way partners allocate and apportion interest expense. The changes affect corporate partners with a 10% or more interest in a partnership as well as certain other partners. The regulations also address allocation and apportionment of interest expense using the fair market value method. JournalofAccountancy.com (1/17)     

Payroll-tax-cut extension deadline looms with no agreement in sight
CQ Today (1/16)     

Policy & Regulatory

§ U.S. curtails spending temporarily to avoid exceeding debt limit
The Obama administration has reduced its investment in a retirement fund to avoid exceeding the federal debt ceiling as Congress decides whether to raise the limit as agreed upon last summer. The White House notified Congress that the federal government is near its $15.194 trillion borrowing limit and will take action to raise the limit, giving lawmakers 15 days to reject the increase. President Barack Obama could still veto such a measure. The Wall Street Journal (1/17)     

SmartQuote

Never tell people how to do things. Tell them what to do and they will surprise you with their ingenuity." –George S. Patton, U.S. Army general

Top Story

§ Employment lags as companies add equipment and software
A tax break last year that allowed companies to write off 100% of capital investment in the first year had the unintended consequence of causing many companies to delay hiring. Historically low interest rates to finance equipment purchases also fueled this trend. In general, since 2009, equipment and software spending has increased 31%, adjusted for inflation. At the same time, companies realized they could do more with fewer employees. The Wall Street Journal (1/17)     

Financial Focus

§ Cloud-based finance helps Pandora manage growth, CFO says
Pandora CFO Steven Cakebread is focused on growing the Internet radio company, and one of his tools is moving core finance functions to the cloud. "Everybody’s chasing profit margins and cash flow, and I think what you’ll see in cloud computing it’s much more cost effective," he said. Cloud solutions can be in place relatively quickly, and they can be upgraded as the company grows while keeping expenses in line with revenue, he said. Discover cloud computing solutions offered by the AICPA. The Wall Street Journal/CFO Journal (tiered subscription model) (1/13)     

§ Commentary: Overly complex regulations won’t prevent crises
Columnist Joe Nocera writes that financial industry experts are raising concerns about the onslaught of regulations hitting the financial sector. Nocera explains that the regulations are often too complex, contradictory or both, and that they are unlikely to prevent crises. The New York Times (tiered subscription model) (1/16)     

§ Prosecutors intensify investigation of S&P
Federal prosecutors are moving faster in their investigation into possible misconduct by credit rating agency Standard & Poor’s in the marketing of mortgage-backed securities. Investigators are trying to find out whether firms selling the securities pressured analysts to weaken standards normally used to rate bonds backed by mortgages. The Wall Street Journal (1/17)     

§ National Retail Federation report predicts slower sales in 2012
The National Retail Federation is predicting 3.4% growth in retail sales in 2012, compared with 4.7% last year. At a 3.4% growth rate, retail sales will reach $2.53 trillion this year. The Hill (1/16)     

Tax Spotlight

§ Tax season gets underway
Today is the official start of tax season, as the Internal Revenue Service starts accepting e-filed and Free File tax returns for individual taxpayers. Tax season will run through April 17. JournalofAccountancy.com (1/16)     

§ Commentary: Lower corporate tax rate won’t boost economy
A coalition of businesses and trade groups is pushing to lower the 35% corporate tax rate, and says a 10 percentage-point decrease would increase economic output by up to 2 percentage points. The coalition wants the cut to be part of a broader, fundamental reform. Columnist David Cay Johnston writes that a rate cut alone will not stimulate growth in the U.S. as it would in poorer countries. The coalition should promote broad reform before a tax rate reduction, he writes. Reuters/David Cay Johnston Blog (1/13)     

§ Poll: Public disapproval of Congress reaches a record 84%
As Congress returns for an election-year session, public disapproval is at 84%, an all-time high, a Washington Post-ABC News poll found. Nearly two-thirds of respondents said they "disapprove strongly" of Congress. The Washington Post (1/16), ABC News/Polls blog (1/16)     

§ Other News

· Regulators plan to cut pay of Fannie and Freddie chiefs
The Wall Street Journal (1/17)     

International View

§ Analysis: Ireland’s economic troubles to snap back into focus
Ireland’s flagging economy has faded to the background with the international focus on Italy and Spain’s fiscal problems. That could change, however, as research companies scale back Ireland’s gross domestic product forecasts for 2012. One company predicts 0.4% growth for the year, compared with its previous estimate of 1.7%. That would put Ireland’s economy on par with Europe’s most economically troubled nations. 24/7 Wall St. (1/16)     

SmartQuote

Laugh at yourself once in awhile; give yourself a break." –Greg Evans, American cartoonist