Tax Quarry

Ernst &Young, we at TaxQuarry want to say congratulations on being ranked the 2012 best accounting firm to work for!  

We know that this is a tremendous accomplishment.  This is particularly momentous in a tough economy where many employees have become disenchanted with their jobs and are more reluctant to shower praises on their employers. 

According to an article written by Jacquelyn Smith for Forbes Magazine which quotes the senior finance editor at Vault.com, E&Y used a fairly simple formula to beat out the competition:

Ernst & Young took the No. 1 spot thanks to the company’s kinder corporate culture and good work-life balance. “Ernst & Young makes working long hours more manageable for employees, treats its employees a bit better than other big firms, and provides excellent training to its employees and the ability to take on as much work as they can handle, which in turn can lead to fast career growth. It’s also incredibly prestigious”

Keep up the good work!

Congratulations Deloitte on being named accountingTODAY'S top ranked accounting firm in the United States.  

The firm was also ranked as the number two leader in tax.

Both rankings are based on total firm revenues for the US.

Laura D’Andrea Tyson, a professor at the Haas School of Business at the University of California, Berkeley, wrote an article that was published on the NY Times online newspaper on March 9, 2012, entitled “The Merits of a Corporate Tax Overhaul”. 

She is open about her potential for bias - she served as chairwoman of the Council of Economic Advisers under President Bill Clinton, and was a member of the Economic Recovery Advisory Board where the president recommended reforming the corporate tax code to limit loopholes, deductions, credits and other “tax expenditures. 

However, she presents the policy and rationale behind the Obama Administration’s proposals from the perspective of someone who is informed.  This makes her piece a very valuable read.  

Laura reminds us that “in a world of mobile capital, corporate tax rates matter.”  For this reason, she argues that it is essential for the United States to reduce its corporate tax rates to remain competitive.  The proposal includes a reduction in the corporate tax rate to 28 percent, which Laura identifies as being within the vicinity of the weighted average for statutory rates of the other O.E.C.D. countries, as well as broadening the tax base from which the United States can impose tax and reducing the tax preferences for pass-through businesses. 

Click here to read Laura’s entire article

Department of Finance Canada Press Release dated August 19, 2011

The Honourable Jim Flaherty, Minister of Finance, today released for consultation a package of draft legislative proposals relating to the Income Tax Act and Income Tax Regulations concerning the taxation of Canadian multinational corporations with foreign affiliates.

The package includes revisions to the foreign affiliate reorganization and distribution rules originally proposed in a February 27, 2004 release. It also includes new proposals in place of the 2004 proposals which suspended certain gains from the sale of shares and other assets of foreign affiliates for the purposes of the surplus accounting rules.

Consistent with the approach adopted in a December 18, 2009 release in which other measures from the 2004 proposals were revised and simplified, the legislative proposals being released today are intended to be easier for taxpayers to comply with and for the Government to administer.

In its December 2008 report to the Minister of Finance, the Advisory Panel on Canada’s System of International Taxation recommended fundamental changes to Canada’s system of international taxation, particularly in respect of its exemption system for foreign source business income earned by foreign affiliates.

At this time, however, the priority of the Government is to encourage countries to enter into Tax Information Exchange Agreements with Canada and to provide exempt surplus treatment as an incentive to those which choose to do so. The measures released today are aimed at improving the current international tax system, which the Panel characterized as a “good one that has served Canada well.”

The Government remains committed to continuing its review and analysis of all of the Panel’s recommendations and consideration of further legislative amendments.

The attached Annex outlines the key measures proposed in today’s package, while explanatory notes provide further details.

References to “Announcement Date” in the draft legislation and explanatory notes should be read as referring to today’s date.

Interested parties may submit comments on the package until October 19, 2011. The Government will then proceed with legislation at an early opportunity to implement the amendments, taking into account comments received.

Comments can be sent to [email protected] or to:

Tax Policy Branch

Department of Finance

140 O’Connor Street

Ottawa, Ontario

K1A 0G5

Click here for a copy of the proposal or download the document: Download Foreign_Affiliates_Legislative_Proposal

On June 20, 2011, President Obama released a statement reaffirming the United States’ commitment to an “open investment policy”.   In the words of the President, this commitment is “a commitment to treat all investors in a fair and equitable manner under the law”.  President Obama continued to elaborate stating the following:

My administration is committed to ensuring that the United States continues to be the most attractive place for businesses to locate, invest, grow, and create jobs.  We encourage and support business investment from sources both at home and abroad.

According to Obama’s press release, in support of encouraging inbound investments to the US, he mentions that

“Investments by foreign-domiciled companies and investors create well-paid jobs, contribute to economic growth, boost productivity, and support American communities.  The United States consistently receives more foreign direct investment than any other country in the world.  By voting with their balance sheets, businesses from abroad have clearly stated that the United States is one of the best places in the world to invest.  This is because we have a strong and open economy, the world’s most productive workforce, a unique culture of innovation and entrepreneurship, remarkable colleges and universities, and a business environment marked by transparency, protection of intellectual property, and the rule of law.

What does this mean from a tax perspective?  Specifically, what does this mean in the context of a discussion about a proposal to reduce taxes on repatriation of profits for a discrete, specified period of time in order to stimulate cash flow and tax receipts in a struggling US economy?  Essentially, this proposal would give corporations, with significant profits accumulating outside of the US, a “repatriation holiday”.

In an article by David Kocieniewski from the New York Times, entitled, “Companies Push for Tax Break on Foreign Cash”, the author describes the way the current proposed repatriation holiday would work. 

According to Mr. Kocieniewski's description, where a US corporation has amassed a profit in a foreign jurisdiction, “the federal income tax owed on ... profits returned to the United States would fall to 5.25% for one year, from 35%”.  The idea, if perfectly executed in alignment with the proposal, would, “generate tens of billions in tax revenues as companies transfer money that would otherwise remain abroad, and it could ease the huge budget deficit”.    

However, critics, including Mr. Kocieniewski believe that perfect execution is unlikely and not possible without extensive monitoring.  Further, they question whether the long-term impact of such a policy would end up costing taxpayers more in lost revenue outweighing the short-term benefits to the Treasury. 

Mr. Kocieniewski lists Mr. Obama and his administration in the list of hardliners against the repatriation holiday proposal. 

But, in light of Mr. Obama’s acknowledgement of the increasing global competition that the US faces for jobs and industries; and the desire for the US to remain the destination of choice for investors around the world, would it make good business/political sense to cash in on the short term gains of a repatriation holiday?  

For a copy of the press release, click here.

June 20, 2011

By: Marsha Henry © 

So, what are the Top US Accounting firms in 2010?  accountingTODAY has prepared the list for us so we don’t have to do the ground work ourselves.  Any accounting firm on this list should be very proud since many have faltered during the economic downturn.   In fact, the magazine is actually predicting growth for many of these firms now that the worst part of the downturn, presumably, has passed.  

Below is a list of the top 15 firms in the United States, ranked according to revenue:

 Under the Regulated Investment Company Modernization Act (2009), the government is attempting to modernize the rules governing the tax treatment of regulated investment companies (RIC).  What is an RIC?  Well, these vehicles provide the average investor with the ability to invest in a diversified pool of professional managed investments.  

Below is a summary of a few of the changes expected to come into effect soon:

Capital Loss Carryovers: 

After the changes the capital loss carry-forward rules for RIC will be changed to match the rules governing individuals investing directly in securities.  Essentially, this means that RICs would have unlimited carry-forwards of the net capital losses. 

Modification of Gross Income and Asset Tests: 

The income and asset modification has been significantly updated.

 First, commodities will be included in the list of enumerated sources from which RICs must earn 90% of their income.  Accordingly, going forward shareholders will be able to access commodity investments through mutual funds. 

Second, where there is a breach of the income test, which requires an RIC to earn 90% of its income from certain enumerated investments, an RIC will be able to pay tax on the excess amount of the breach without losing its status. 

Third, RICs will be eligible to take advantage of the same saving provisions under the tax code, when the RIC fails to satisfy the gross income test, which requires certain asset diversification.  Under the REIT asset test, for non- de minimis the entity must pay an excise tax on only the bad assets if the breach was due to a reasonable cause, the IRS is notified and the assets are disposed of.   For de minimis breaches, if cured within six months the entity will be deemed to be in compliance. 

Modification Rules Related to Dividends and Other Distributions:

Some of the new rules that you will see as a result of the bill are:

(a)          written notice of the tax treatment of various distributions made by the RIC is no longer required at the end of the RIC tax year;

(b)          excess amount of specially-designated dividends, including capital gains dividends (made prior to December 31^st by an RIC with a year end other than a calendar year end) can be reduced before filing an amended tax return;

(c)           certain disallowed deductions associated with tax-exempt income will be taken into account in calculating earnings and profits used to determine taxable income; 

(d)          pass-through of exempt interest dividends and foreign tax credits in fund-of-funds structure will be permitted without regard to the requirement that more than fifty percent of the RIC’s assets are comprised of municipal bonds or stock and securities issued by foreign corporations;

(e)          when computing the RIC’s dividend paid deduction for a taxable year, a spillover dividend can be made with the first dividend payment of the same type of dividend and it must be paid within nine months after the taxable year;

(f)           earnings and profits shall be allocated first to distributions made prior to December 31 and then to distributions occurring after December 31 instead of requiring earnings and profits be allocated pro-rata over all distributions during the taxable year;

(g)          publicly traded RICs with shares that are redeemable upon demand may treat distributions in redemption of stock as exchange of fund shares;

(h)          loss deferral rule for redemptions[1] of stock in fund-of-funds structure does not apply to redemption of stock of a RIC if the redemption is upon the demand of a shareholder which is another RIC;

(i)            repeal of rule, as it applies to publicly offered RICS, disallowing a deduction for a preferential dividends paid to shareholders;

(j)            election available to treat a post-December 31 loss (otherwise known as a late-year loss) as arising on the first day of the funds next taxable year

Modification Rules Related to Excise Taxes

There are three main changes to make note of: 

(a)          excise tax exemption extended to RICs that are owned by pension and retirement plans that are not subject to tax on RIC distributions;

(b)          rules expanded to allow all ordinary gains or losses from the sale, exchange, or other disposition of property, including foreign currency gains and losses, to be considered as derived on the first day of the following calendar year where income was derived after October 31. 

(c)           Estimated tax payments may now be taken into account for purposes of the annual excise tax

Other Provisions to Note

• Repeal of assessable penalty with respect to liability for tax; and
• Modification of sales load basis deferral rule

See H.R. 4337 for more details. 

Copyright ©

Written by Marsha Henry

It’s finally here.  Health Reform.  It comes to us in a package called the Affordable Care Act (ACA).  While all the provisions of the ACA that were passed by Congress will take years to fully phase in, some of the benefits of the health reform bill can be accessed immediately.  This is great news, especially for small businesses that historically have found the cost of health care to be a crippling obstacle to them in offering health insurance to their employees.

Included in the ACA approved by Congress in March and signed into law by the President, the small business health care tax credit, which is in effect this year, is designed to encourage small employers to offer health insurance coverage for the first time or maintain coverage they already have.

The Internal Revenue Service today issued new guidance to make it easier for small businesses to determine whether they are eligible for the new health care tax credit under the Affordable Care Act and how large a credit they will receive.  The guidance makes clear that small business receiving state health care tax credits may still qualify for the full federal tax credit.  Additionally, the guidance allows small businesses to receive the credit not only for regular health insurance but also for add-on dental and vision coverage. 

Notice 2010-44 provides detailed guidelines, illustrated by more than a dozen examples, to help small employers determine whether they qualify for the credit and estimate the amount of the credit.  The notice also requests public comment on issues that should be addressed in future guidance. 

For tax years 2010 to 2013, the maximum credit is 35% of premiums paid by eligible small business employers and 25% of premiums paid by eligible employers that are tax-exempt organizations.  The maximum credit goes to smaller employers – those with 10 or fewer full-time equivalent (FTE) employees – paying annual average wages of $25,000 or less.  The credit completely phased out for employers that have 25 FTEs or more or that pay average wages of $50,000 per year or more.  Because the eligibility rules are based in part on the number of FTEs not the number of employees, businesses that use part-time help may qualify even if they employ more than 25 individuals.

Eligible small businesses can claim the credit as part of the general business credit starting with the 2010 income tax return they file in 2011.  For tax-exempt organizations, the IRS will provide further information on how to claim the credit. 

For more information, search for the Affordable Care Act in Google or other search engines to locate the step-by-step guide and frequently asked questions on the IRS website.

Marsha Henry
Tax Quarry
May 18, 2010

Tax Audits of Big Business Are Declining, Study Says 
 http://www.nytimes.com/2010/04/12/business/12audit.html?ref=business

 Are big businesses really escaping being audited or are they just more honest or effective at filing error free returns?  As Study by the Transaction Records Access Clearinghouse argues the form while the IRS defends its position based on the latter argument.  Who’s right?  We probably will never know.

Smart Tax Strategy: Remember Muni Bonds
 http://www.cnbc.com//id/36325179

Investing in Municipal Bonds might be better than investing in stocks.  According to a CNBC article, which reminds us that home state bonds are unaffected by federal and state taxes and the Medicare surtax, investors might be better with munis because they will otherwise have to reduce healthy stock market returns by the new government taxes that are being introduced.  

Cheers,

Marsha Henry

Information overload is an understatement when describing the wealth of information an average American taxpayer has to review before they truly appreciate and understand the rules governing the filing of a basic tax return.  This year’s return is further complicated by all the changes ushered in with the American Recovery and Reinvestment Act, 2009 and other measures taken by the government to stabilize an evaporating economy. 

In order to present this information in a more digestible form the IRS has provided a list of the top changes that may affect the average taxpayer.  The list below is a general summary only.  If you require more specific information, please contact the IRS of visit the website at www.irs.gov.

1. The American Recovery and Reinvestment Act

ARRA provides several tax provisions that affect tax year 2009 individual tax returns due April 15, 2010. The recovery law provides tax incentives for first-time homebuyers, people who purchased new cars, those that made their homes more energy efficient, parents and students paying for college, and people who received unemployment compensation.

2. IRA Deduction Expanded

You may be able to take an IRA deduction if you were covered by a retirement plan and your 2009 modified adjusted gross income is less than $65,000 or $109,000 if you are married filing a joint return.

3. Standard Deduction Increased for Most Taxpayers

The 2009 basic standard deductions all increased. They are:

•                $11,400 for married couples filing a joint return and qualifying widows and widowers

•                $5,700 for singles and married individuals filing separate returns

•                $8,350 for heads of household

Taxpayers can now claim an additional standard deduction based on the state or local sales or excise taxes paid on the purchase of most new motor vehicles purchased after February 16, 2009. You can also increase your standard deduction by the state or local real estate taxes paid during the year or net disaster losses suffered from a federally declared disaster.

4. 2009 Standard Mileage Rates

The standard mileage rates changed for 2009. The standard mileage rates for business use of a vehicle:

•                55 cents per mile

The standard mileage rates for the cost of operating a vehicle for medical reasons or a deductible move:

•                24 cents per mile

The standard mileage rate for using a car to provide services to charitable organizations remains at 14 cents per mile.

5. Kiddie Tax Change

The amount of taxable investment income a child can have without it being subject to tax at the parent's rate has increased to $1,900 for 2009.

Marsha Henry
February 3, 2010