As you may recall, after Joe Echevarria became CEO of Deloitte in 2011, we learned that his house in Westchester was up for grabs with an asking price of $2.8 million. The 6,000 square-foot spread had hit the market in March of that year listed at $3 mil, so you can safely assume that Joe and his wife Ana were anxious to move the thing.
The Echevarrias' broker was Bernice Gottleib, who had an exclusive 6-month contract to sell the house that would earn her a 4% commission. She was even a long-time friend of the couple and trained Ana to be a broker. That sounds like a pretty good deal -- friends helping each other out and all that.
Of course, people get a little prickly when it comes to their homes and Ana Echevarria didn't think things were moving along quick enough:[T]he couple secretly sold it to realty firm Weichert, which handles Deloitte relocations, in 2011. Small problem -- the sale occurred in the window of Gottleib's contract. Gottleib sued (see the suit on the next page), naturally, for breach of contract: [L]ast week, Supreme Court Justice Mary H. Smith ruled their contract “unambiguously” made it clear the Echevarrias were obligated to direct all sales inquiries to Gottlieb, and that “Ana had admitted that she had failed to inform Ms. Gottlieb of the Weichert offer.” Did we mention that the house only sold for $2.1 million? Yep! So that means Joe and Mrs. Joe cut their original asking price by 30% in five months and now they get to hand over $85k (plus, $25k in attorney's fees!) to their broker who didn't even earn it. Ms. Gottleib told the Post that she was relieved "just has been done" but was also "embarrassed, betrayed and humiliated." No one in Camp Echevarria (lawyer, Deloitte) commented. They're probably content to let this one go. Tax mogul must pay broker [NYP]
As you've probably heard by now, the head of the IRS's tax-exempt organizations divison, Lois Lerner, apologized on Friday that the agency targeted 501(c)4 organizations with "Tea Party" and "patriot" in their names. Lerner said this was not done out of political bias, because, as we all know, those words don't hold any political overtones.
What we also now know is that the audit from the IRS watchdog -- the Treasury Inspector General of Tax Administration -- will come out this week and say that the agents in Cincinnati who are being thrown under the bus for this fiasco actually expanded their search to include groups seeking to “make America a better place to live” or “criticize how the country is being run” and, as ABC reports, "limited government." So, if you weren't sure if the IRS was targeting groups based on political motivations before, you have to agree that this sorta looks bad! Add in the fact that former IRS Commissioner Doug Shulman testified in March 2012 that "There's absolutely no targeting," when Ms. Lerner knew about the targeting in June 2011 and this looks SUPER bad!
The President has said this targeting by the Service is "outrageous and there’s no place for it," vowing that someone will get to the bottom of this, but the Republicans are way ahead of him as hearings are already being scheduled. So if you enjoy bad political theater, get your DVRs ready.
Anyway, there's a roundup of things from across the web below and while it's still early on in this shitshow to come to any concrete conclusions, we're currently in the "this was gross incompetence in action" camp that Kevin Drum discusses (don't worry, the counter to this is below).
Simply, if you want your organization to be in compliance with 501(c)4, the majority of your activities have to be non-political. In their search for applicants who were not complying with those rules, the IRS employees involved figured they'd make their lives easier by searching for things like "Tea Party" and "patriot" in the names of the organizations. The problem is they didn't apply that kind of scrutiny to groups with "progressive" or "change" or "tea baggers" and the like in their names. Omitting those investigative measures makes things look incredibly biased against conversative conservative organizations. It doesn't matter if there was an explicitly political motive or not. The appearance is that these employees were using the political viewpoints of the Tea Party groups to conduct their investigations into compliance with 501(c)4.
The Washington Post Editorial Board, like Drum, wonders if stupid is as stupid does and they can't be trusted to find out:
If it was not partisanship, was it incompetence? Stupidity, on a breathtaking scale? At this point, the IRS has lost any standing to determine and report on what exactly happened. Certainly Congress will investigate, as House Majority Leader Eric Cantor (R-Va.) promised. Mr. Obama also should guarantee an unimpeachably independent inquiry.
Tax Analysts' Jeremy Scott continues with the dummies narrative:
The incompetence boggles the mind. It’s also bewildering how the Service could sit in front of GOP lawmakers and chastise them for underfunding tax enforcement when employees were using some of those supposedly precious funds to conduct a politically charged vendetta against conservative exempt organizations.
But at The Daily Beast, Megan McArdle doesn't buy it; that is, the IRS didn't need the magic words of "Tea Party" and "patriot" if they were doing investigations the right way:
[The IRS] have all the information they need to do that without any special filter. They can search for the date of the application. If what you're concerned about is that most of the new groups being created are in fact thinly disguised electioneering vehicles, then what you want to do is take a random sample of the new groups, review them, and see what percentage turn out to be self-dealing or otherwised engaged in inappropriate behavior. Instead, the IRS method for dealing with the volume was to take an unrandom sample. And how did they decide that you deserved extra scrutiny? Because you had "tea party" or "patriot" in your name. Since the Tea Party was a brand new movement in 2010, they couldn't possibly have had any data indicating that such groups were more likely to be doing something improper. So how exactly did they come up with this filter? There is no answer that does not ultimately resolve to "political bias".
Ezra Klein reminded everyone on Friday that most people are missing the broader point, which is that all 501(c)4 organizations need to be scrutinized:
The problem wasn’t that the IRS was skeptical of tea party groups registering as 501(c)4s. It’s that it hasn’t been skeptical of Organizing for America, Crossroads GPS, Priorities USA and Heritage Action Fund registering as 501(c)4s. The IRS should be treating all these groups equally and appropriately — which would mean much more harshly.
Writing at CNN, Michael Macleod-Ball and Gabe Rottman of the ACLU's Washington Legislative Office opine, "It shouldn't need to be said: Even the tea party deserves First Amendment protection."
[T]he IRS apology shows that concerns over selective enforcement are prescient. Those in power will always be tempted to use political speech restrictions against opposing candidates or causes.
The New York Times' Ross Douthat says the anxiety created at the IRS about Tea Party groups might be a "Brown Scare":
Where might an enterprising, public-spirited I.R.S. agent get the idea that a Tea Party group deserved more scrutiny from the government than the typical band of activists seeking tax-exempt status? Oh, I don’t know: why, maybe from all the prominent voices who spent the first two years of the Obama era worrying that the Tea Party wasn’t just a typically messy expression of citizen activism, but something much darker — an expression of crypto-fascist, crypto-racist rage, part Timothy McVeigh and part Bull Connor, potentially carrying a wave of terrorist violence in its wings.
Naturally, the Republicans are all over this and Senator Susan Collins (R-ME) thinks it goes higher than just the offenders in Cincinnati:
“I just don’t buy that this was a couple rogue IRS employees,” said Sen. Susan Collins, R-Maine, on CNN’s “State of the Union.” “There’s evidence that higher level supervisors were aware of this.”
Senator Marco Rubio (R-FL) wants Acting Commissioner Steven Miller to resign:
“It is clear the IRS cannot operate with even a shred of the American people’s confidence under the current leadership,” Rubio wrote in a letter today to Treasury secretary Jack Lew. “Therefore, I strongly urge that you and President Obama demand the IRS Commissioner’s resignation, effectively immediately. No government agency that has behaved in such a manner can possibly instill any faith and respect from the American public.”
Rep. Michael Turner (R-OH) has got the ball rolling on the impassable legislation front:
"Americans of all political beliefs have been rightly outraged by the revelation of the IRS's efforts to target certain political organizations," Turner said Monday. "The fact that this could occur with little to no corrective action against those who seek to silence their fellow citizens is unacceptable." Under current law, IRS workers who discriminate against taxpayers can already be fired, although discretion lies with their supervisors. Turner's bill would boost the maximum penalty to a $5,000 fine, five years in prison or both.
And believe it or not, even Democrats are jumping on the pile:Monday morning, Senate Finance Committee Chairman Max Baucus (D-Mont.) and Sens. Tim Kaine (D-Va.) and Joe Manchin (D-W.Va.) all issued statements denouncing the IRS and calling for an investigation and corrective action. “These actions by the IRS are an outrageous abuse of power and a breach of the public’s trust. Targeting groups based on their political views is not only inappropriate but it is intolerable,” Baucus said, adding: “The IRS will now be the ones put under additional scrutiny.” [...] “The actions of the IRS are unacceptable and un-American,” [Mancin] said. “Government agencies using their bureaucratic muscle to target Americans for their political beliefs cannot be tolerated. The president must immediately condemn this attack on our values, find those individuals in his Administration who are responsible and fire them.” Added Kaine: ”There’s no excuse for ideological discrimination in our system. The Administration should take swift action to get to the bottom of this to ensure those responsible for misconduct are held accountable and establish appropriate safeguards to prevent this from ever happening again.” As a sage greenskeeper once said, "I don't think the heavy stuff's going to come down for quite a while."
Protip: Threatening to Kill Your Colleagues, Even in the Midst of a Brutal Busy Season, Is Never Cool
Over the weekend, we received quite the disturbing item in the ole tip box. Our tipster did not leave an email address so we cannot possibly verify this but wanted to share anyway:
Something very interesting happened to me during busy season. An entry level threatened to kill me. He wrote a note saying he wanted to kill me. I scolded him for plugging numbers during testing and this is what happens to me. Funny thing is the guy didn't get fired. Didn't get reprimanded one bit. Got kicked off the client but that's about it. Absolutely unbelievable.
Presumably still fearing for his life, our tipster did not include a photo of this note or any other evidence, so we have included an artist's rendering of the note:
Now, I think we've all been to the point where we want to blurt out really inappropriate things like "FIRE!!" in a movie theater or "I AM GOING TO KILL YOU" to a manager but most of us have the sense to bite our tongues. I'm pretty sure I've told my esteemed editor Colin I want to strangle him more than once but I generally do this on the phone and if in a written communication, I make sure to include a condescending "haha" and my choice of emoticon at the end of the statement so he doesn't call the cops on me.
Threatening the life of a colleague is defintely a fireable offense, no? If I were the tipster, I'd find a new firm as the culture at this one clearly isn't a good fit if this murderous newbie is running around leaving notes like this.
Tipster, if you're out there, make up a Mailinator account or something and get back in touch, we have to see this note.
Accounting News Roundup: IRS Taking Heat; Deckers Keeping KPMG as Auditor; Signs Your Firm's Partners Don't Trust Each Other | 05.13.13
IRS targeted groups critical of government, documents from agency probe show [WaPo]
At various points over the past two years, Internal Revenue Service officials singled out for scrutiny not only groups with “tea party” or “patriot” in their names but also nonprofit groups that criticized the government and sought to educate Americans about the U.S. Constitution, according to documents in an audit conducted by the agency’s inspector general. The documents, obtained by The Washington Post from a congressional aide with knowledge of the findings, show that the IRS field office in charge of evaluating applications for tax-exempt status decided to focus on groups making statements that “criticize how the country is being run” and those that were involved in educating Americans “on the Constitution and Bill of Rights.” The staffers in the Cincinnati field office were making high-level decisions on how to evaluate the groups because a decade ago the IRS assigned all applications to that unit. The IRS also eliminated an automatic after-the-fact review process Washington used to conduct such determinations. Marcus Owens, who oversaw tax-exempt groups at the IRS between 1990 and 1999, said that delegation “carries with it a risk” because the Cincinnati office “isn’t as plugged into what’s [politically] sensitive as Washington.”
One of the small lingering questions from the insider-trading scandal involving a former KPMG LLP partner has finally been addressed: What would Deckers Outdoor Corp. do? [...] The answer for Deckers, disclosed this week: Keep KPMG as its auditor, but cancel its vote for its shareholders to approve KPMG, apparently out of concern that the insider-trading affair complicated efforts to ensure that shareholders had enough information and notice about what had happened before they cast their votes. Seven Signs You’re Working in a Firm Where the Partners Don’t Trust Each Other [CPAT] #8 -- They all work at Dewey, Cheatum & Howe. Minnesota budget deal: Higher taxes on high earners, tobacco [MST] DFL Gov. Mark Dayton and Democratic legislative leaders reached a budget agreement Sunday that calls for $2 billion in new taxes and boosts spending for schools and property tax relief. The Democrats are relying on a tobacco tax hike and the governor’s long-sought income tax increase on high earners to pay for the new spending. The budget outline scraps a proposed sales tax on clothing, but lawmakers continue to consider resurrecting at least part of a heavily criticized plan to tax businesses services. “It’s a budget that is going to work for Minnesota. It’s going to put Minnesota to work,” Dayton said Sunday afternoon. “It’s going to fulfill our promises to invest in education and infrastructure. We’re going to see a better Minnesota as a result of this budget.” Treaty shopping and auditor independence [China Accounting Blog]
Maybe a little heavy for a Monday morning, but Paul Gillis has a nice payoff at the end: "Auditors have a conflict of interest here. Setting up these treaty structures has been a profitable business for the firms. How can they now tell their clients that it is more likely than not that the structure does not actually work, and that they need to accrue withholding taxes at a higher rate? The audit partner may be concerned with this issue, but how can he demand the company accrue withholding taxes at the non-treaty rate when he has his tax partner who he uses as an expert to evaluate the issue advocating the client’s position? Audit committees should not permit audit firms to also provide tax services." DPS rehires accountant accused of fraud, forgery [ADS] The Arizona Department of Public Safety is rehiring an accountant who was fired for allegedly making false statements to the police agency about his qualifications. A state law-enforcement review board overturned the firing of Richard Echols, and DPS spokesman Bart Graves said the department is reinstating Echols because the board's decision is binding. "We will abide by the board's ruling," Graves said. [...] He has pleaded not guilty to the criminal charges of fraud and forgery and awaits trial in Maricopa County Superior Court. The charges accusing him of lying about his qualifications by signing employment applications and through other actions. His attorney contends prosecutors have insufficient evidence and that Echols had no criminal intent. According to the Arizona State Board of Accountancy, Echols has not been a certified accountant in Arizona since 2000.
Instagram 'food porn' photo leads IRS to identity thieves [OSS]
IRS agents on the trail of a man who claimed he had 700,000 stolen identities to sell said they only had a few clues about who he was early in the investigation. A witness working undercover for the IRS told agents the man went by the name "Troy," he was dating [Tenise] Thomason and said he was from Harlem during a Jan. 5 meeting at YOLO restaurant on Las Olas Boulevard. The break came Jan. 7 after the three met up again – at the swanky Morton's steakhouse on the corner of Federal Highway and Broward Boulevard – so the couple could turn over a flash drive containing 50,000 identities they thought would be used to file fraudulent income tax returns. When IRS agents examined the drive – which contained only 50 identities – they found hidden data linking the drive to "Troy Maye." Louis Babino, a special agent with the IRS criminal investigation unit, searched online and found a profile for "TROYMAYE" on Instagram, a social media website for sharing photos. Babino wrote that he found "a photo of a steak and macaroni and cheese meal containing the caption "Morton's" that coincided with the Jan. 7 meeting between the witness and the couple.
Apology not accepted, IRS. [FOX]
Republicans slam IRS on 'Tea Party' targeting [Reuters]
Clarity on Revenue Recognition Coming [CFO]
PCAOB member Jay Hanson gave a speech in Ohio today about auditing and stuff. [PCAOB]
Is Model N A Transparency Violation? [GOA]
Auditors miss basic steps in corporate fraud cases: study [Reuters]
The Charitable Contributions Deduction: A Tax Debate or a Question of Charity Versus Government? [TPC]
Joint Tax Committee Scores President's Budget as $890 Billion Tax Increase [TaxProf]
Officials in cash-strapped Los Angeles have uncovered almost $43 million that was just sitting in a Department of Transportation account unbeknownst to the city, prompting them to wonder if there's more magic money stashed away:
The discovery of $42.6 million will be a welcome one-time infusion into next year's budget, officials said, but has left them worried that other such funds may still be undiscovered.
Had the money been discovered sooner, it might have added a few million dollars annually to the city fund that pays for police, fire and other basic services during years that city employees were forced to take furloughs and pay cuts.
How exactly does a city in desperate need for spare pennies misplace $43 million? I'm glad you asked!
[F]rom 1995 to 2011, the city was reimbursed from the transportation grant fund only twice, according to a City Council memo. The money grew in a fund that was not audited or examined. The budget office does not know why, it said, because senior officials who managed the budget during those years have retired or resigned.
City Controller Wendy Greuel, who is running for mayor, said her office is auditing about 600 special funds but had not yet looked at the transportation grant fund. She now plans to put the audit "on the front burner," a campaign spokeswoman said.
It's kind of like when you find a $20 in your pants pocket and immediately check every coat pocket and couch cushion for more. Except in this case, we are talking about $43 million. Whatevs.
City Administrative Officer Miguel Santana told the L.A. Times that "the department's failure to see the nearly $43 million seemed to be the result of inadequate technology and — after auditors took early retirement during budget cuts — a lack of institutional knowledge."
"When all your focus is on providing resources and surviving another year, proactive review of our fiscal management can get lost in there," he said.
So remember, kids, if you misplace $43 million that isn't yours, just blame crappy technology, budget problems and guys who don't work for your company anymore.
Good day, fellow capital market servants. It’s been some time, hasn’t it? To those of you that are new-ish to this corner of the Interwebs, my name is Daniel Braddock, the resident Human Resources semi-professional. I typically cover HR related topics like compensation, recruiting trends, and topics like the always popular “how do I switch to advisory?!?”For you regulars -- hi again. I’m looking forward to getting back to our usual banter (here’s looking at you, Big4Vet). Let’s get started, shall we? Now that exodus from public has begun, it is important not to overlook the value you can reap from explaining your performance rankings to potential employers. The job market is still tight and employers have the upper hand, which means setting yourself apart from the pack remains downright crucial. One way to do this is to turn your performance rankings into a meaningful talking point during interviews. Highlight rankings on your resume. You have heard the phrase “everything on your resume is fair game” here on Going Concern and elsewhere before. Succinctly describing your rankings in one bullet point can set you up for a softball question during an interview. As an HR rep, I would much rather know about your back to back top rankings than the substantive testing you performed in a warehouse last quarter. Both are important, obviously, but you want to highlight -- and be ready to discuss in details -- some obvious positives about yourself. Know your firm’s ranking system -- This should be obvious, I know. Sometimes during an interview it can be the simple questions that you are not completely prepared for; be ready. If you discuss your rankings on your resume (or if they come up in an interview) you best be prepared to describe them in some kind of coherent fashion. Most importantly, know the scale and describe where you fall: “My firm uses a scale of 1-5, 5 being the best. I received 4s and 5s on my engagements and a 4 ranking at year end, which puts me in the top 80% of my peers.” Responding with “Uhhhh, I think the scale is 1-5?” will discredit your response. Don’t shoot yourself in the foot. Explain the unwritten rules -- Performance rankings are not immune to big time politics, like some of you are all too aware of. First year associates are never top-ranked. Maybe it’s impossible to receive an above average ranking without the CPA. Sometimes top rankings are limited in your office. If this has happened to you, be prepared to articulate this during an interview. Do not waste your breath bad-mouthing big firm politics but rather simply explain them matter of factly. If your year end rank is worse than what you received on your engagement reviews, emphasize the better rankings. Sometimes your ranking has nothing to do with your actual accounting skills. If you are a manager or senior manager and your ranking has been negatively affected because you are not bringing in enough new business, explain that. Not everyone at the management level wants to be constantly going to market. Turn this into a selling point in your interviews: “My role within the firm is becoming increasingly sales-driven. I genuinely enjoy -- and thrive -- within an environment where my primary responsibilities are accounting and finance driven, which is why this opportunity interests me.” You took one for the team and all you have to show for it is this lousy ranking -- This is a continuation of the of political point above. Firms are re-shuffling their practice lines; your firm brought on a new client (e.g. thanks KPMG insider trading scandal!). Whatever the reason, sometimes you are asked to take on an engagement that is out of your developing skill set. This is either rewarded at the end of the year with a great ranking or a great explanation. The latter often times goes like this: “your busy season clients were new to you and although you did nothing wrong, there are only so many 1 and 2 ranks to go around. Here’s a 3, congratulations on being average.” Explain in interviews how you were challenged by something new and how you succeeded on everything that mattered to your client - the actual work. Turn the negative into a positive. Have your performance rankings come up in interviews? Is the absence of a CPA keeping the top rankings out of your grasp? Share your thoughts.
The Internal Revenue Service inappropriately flagged conservative political groups for additional reviews during the 2012 election to see if they were violating their tax-exempt status, a top IRS official said Friday. Organizations were singled out because they included the words "tea party" or "patriot" in their applications for tax-exempt status, said Lois Lerner, who heads the IRS division that oversees tax-exempt groups. In some cases, groups were asked for their list of donors, which violates IRS policy in most cases, she said. "That was wrong. That was absolutely incorrect, it was insensitive and it was inappropriate. That's not how we go about selecting cases for further review," Lerner said at a conference sponsored by the American Bar Association. "The IRS would like to apologize for that," she added. Lerner said the practice was initiated by low-level workers in Cincinnati and was not motivated by political bias. [AP]
To Whom It May Going Concern: "Next time you abuse your first year, remember that they are the ones that pick up your food."
This is the latest edition of our infrequent feature, To Whom It May Going Concern. Here we share some of the more, shall we say, interesting messages that come across the wire. If you get the urge to tell us what you think about this here website, email email@example.com with "To Whom It May Going Concern" in the subject line, @ us on Twitter or just yell really loud and maybe we'll hear you. Just a reminder that all messages are considered on the record unless specified otherwise.It's Friday and you've all checked out so let's get right to the baseless and ridiculous, starting with Deloitte trying to get whiter and manlier: Deloitte bet too heavy on JPMC project. Using it as an excuse to force people out. Disproportionate number of women and minorities going. Speaking of Deloitte, they managed to find the most anxious recruit in the country: I accepted an offer from Deloitte back in November, but, as of now, I don't have a start date. I emailed the recruiter back in March to check in and she said they had not finalized start dates at that time. Should I be concerned? I'm pretty sure the recruiter hates you. Here's some competitivce poaching news that is a little light on details: 3 GT Fed partners bolted to EY Fed practice. Thanks. And thanks for leaving us an email address. We're not interested in things like names or locations anyway. Be kind to your first years -- some still revel in petty revenge: Next time you abuse your first year, remember that they are the ones that pick up your food. Here's some feedback for our publishing team: Hey GC, I really like your new ads that don't allow you to close them. Now I can get a larger penis and waste my afternoon at the same time. Here's more feedback for the publishing team: Here's a tip. Build a forum into this website. More clicks, more views, more advertising, more everything. Whoever runs the finances will thank you. Even more feedback for the publishing team: no comments on the sponsored content post? So fucking lame Here's an article suggestion if you can make sense of it: am not sure how many are interested as to why/when an accounting firm determines its best to part ways with its own CFO. Do the personal items on the expense reports matter? How about the personal charges on payables? the inexplicable lack of control of its own cash accounts? Does a firm do what they advise their clients, or do they part ways and term it merely a 'performance problem'? In other words, does an accounting firm drink the kool-aid that they sell to clients, or do something different? 'could be an interesting topic! Finally, Going Concern wasn't listed on The People CPAs need to follow on Twitter, so one person found this to be outrageous: No mention of @going_concern and no mention of @Big4Veteran! Yet Kyte and Francine get mentioned? And one just thought it was funny: http://www.cpa2biz.com/Content/media/PRODUCER_CONTENT/Newsletters/Articl... No mention of Going Concern? Ha ha
Neither Adrienne or I have slept since the list came out.
Thanks for your continued support of Going Concern.
Accounting News Roundup: Max and Dave's Mission Impossible; Jeff Skilling Sets a Good Example; Colorado's Pot Taxes | 05.10.13
‘Max and Dave’ Start Public Campaign for Simpler Tax Code [Bloomberg]
Getting a tax law that would accomplish their objectives is “going to be very, very difficult,” said Don Susswein, a principal in the Washington national tax office of the accounting firm McGladrey LLP. Just asking for public comments and suggestions isn’t enough to rally the country behind the effort, he said. “They need something specific that will be perceived as yes, gee, that would make my life simpler,” Susswein said. “You’ve got to propose something that’s going to capture the imagination.”
Ernst & Young Seizes Tax Transparency Issue But Advocacy May Break SEC Rules [Forbes]
FM: "Ernst & Young is preparing clients for a service that will audit their tax transparency reporting similar to what is developing around corporate social responsibility reporting. If the rules do change and bring more required disclosures to traditional financial statement quarterly and annual reporting, Ernst & Young as your auditor can help you with that, too."
Jeffrey Skilling, a Model Convict in More Ways Than One [Bloomberg]
If [Skilling] gets out four years from now, he will have served more than 10 years in prison, a long stretch. There's no reason to feel sorry for him: His crimes eroded faith in the integrity of corporate financial statements. He serves as a reminder, and exemplar, of how the system is supposed to work.
Colorado Lawmakers Set Taxes And Rules For Marijuana Sales [NPR]
Colorado is set to become the first U.S. state to regulate and tax sales of recreational marijuana, after lawmakers approved several bills that set business standards and rules. Legislators expect enforcement of the rules to be paid for by two taxes on marijuana — a 15 percent excise tax, and a 10 percent sales tax. Other measures included in the package set limits on how much marijuana visitors to Colorado can buy (a quarter of an ounce), as well as a limit on how many cannabis plants a private citizen can grow (six).
Marijuana taxes as a cash cow? Think again [CNN]
Taxing pot could raise hundreds of millions of dollars but still not be the moneymaker states were hoping for. Colorado and Washington State are launching their legal recreational marijuana industries, and both are coming to terms with scaled back expectations. Washington had projected up to $450 million in annual tax revenue, but the state's new pot consultant figures it could be little more than half that. In Colorado, the Colorado Futures Center think tank forecasts $130 million in taxes but thinks that won't even cover the cost of regulating the new industry.
Get excited. Accountant Faces Heat From Teed Off Golfer [CNS] In 2004, [Hank Kuehne] hired Thomas Bertsch, then an employee with McCormack Advisors International, to take care of his finances. Bertsch formed his owned company, FSM Capital Management, in 2007 and brought Kuehne over as a client. The relationship ended in 2011 after Kuehne allegedly learned he had racked up over $500,000 in income-tax liabilities and penalties for 2006 and 2007. He also discovered Bertsch had offered the Internal Revenue Service $90,000 to settle the debt, according to Kuehne's complaint. The IRS allegedly countered with a $342,000 settlement offer, which expired after Bertsch failed to respond. To make things worse, Kuehne said he learned that he still owed state taxes for 2006 because Bertsch included gambling income on his California return. Bertsch allegedly never communicated any of these problems or concerns about Kuehne's tax returns to the client and refused to give Kuehne a direct answer about the situation. Business Men [Tumblr]
An untold number of CPAs can be seen here.
Footnotes: You May Now Follow Tax Reform on Twitter; Jim Turley on the Boy Scouts' Gay Ban; Let's Go 990 Hunting | 05.09.13
Ernst & Young's Jim Turley on the Boy Scouts Reassessing Their Gay Ban There are many challenges to the current policy. It’s not in keeping with the thinking of the majority of Americans. And I don’t think it will lead the Scouts to be as robust and successful for the youth of the country as it can be. It’s not a policy I subscribe to. It’s something we know we need to wrestle with. [...] I came to the conclusion that the controversy risked damaging Ernst & Young’s brand. I felt I needed to speak out. [BBW]
FASB Requesting Participation in FASAC Survey [AWEB]
ProPublica has rolled out a Nonprofit Explorer that will allow you to examine file 990s. [ProPublica]
The two Europes, in one chart This is a thing that one might describe as not good. [Wonkblog]
Cyberthieves Looted A.T.M.’s of $45 Million in Just Hours [NYT]
No Bang for the Buck New York's hocus pocus math doesn't fool DCJ. [Tax Analysts]
Book On New Jersey Wines Does Not Support Deducting Trips To France [Forbes]
Deloitte to pay Xplore $700K to settle negligence suit [ABJ]
As we're sure you already know, Tax Prof has been on the vanity license plate beat this week. Naturally, one of our readers had a spotted plate to throw in the mix:
"Saw this little beauty walking out of work about a year ago"
Now, it's entirely possible this license plate is one of those co-dependent we-share-an-email-address-and-a-Facebook-account plates people get of their initials so everyone -- EVERYONE -- knows they're married and love each other. More likely, however, we have a CPA Diva on our hands.
CPA Diva Clue #1: It appears this person is so much of a big deal silly things like white lines on the pavement that signify where one parking space ends and the next starts mean nothing to this individual. NOTHING, you hear me?! Divas can park however they want thankyouverymuch, especially if they've disclaimed their superior status with a vanity license plate.
CPA Diva Clue #2: Miss CPA Diva requires extreme window tint, presumably because she's such a big deal she could cause an accident if common, non-diva folk are allowed to see her in her full glory.
Here's my license plate*, what's yours?
*Yeah right, like I'd give you stalker vultures my real license plate.
Considering the lengths that some companies go to manipulate massage their revenue, this passage from Tesla's Shareholder letter is rather refreshing:During Q1, we consistently produced 400 or more Model S vehicles per week, for a total of over 5,000 during the quarter. We recognized 4,900 vehicles as revenue, exceeding our initial Q1 guidance of 4,500, despite physically delivering a higher number of vehicles, as the standard for revenue recognition was extremely high. Even if a car was received, fully paid for and signed off as good by a customer, we did not recognize the revenue if the paperwork was incorrect. Incorrect paperwork? I'll bet Groupon wishes things were that easy. [via CI]
With full-time personnel already on notice, E&Y figured any interns not already familiar with insider trading should be made aware that material, non-public information about a client should not be used to trade securities. Nor should you pass it to your golfing buddy, local jeweler, or connection for hard-to-get concert tickets.
A tipster sent us the Q&A below, saying "Got this in a newsletter from EY for interns."
The takeaway being this -- if any of you grasshoppers out there use insider knowledge in the ways mentioned above that can result in 1) the end of your career at Uncle Ernie and 2) an all expenses-paid holiday to Club Fed.Insider trading: the hard facts At EY, it will cost you your job – and you could end up in prison. As media reports of insider trading increase, we ask Q&RM Leader Victoria Cochrane for her views. Q: What's insider trading? VC: Buying or selling securities – stocks, shares or options – when you possess information that's not available to other investors and the public. This includes passing what you know to others, except those who need to know because they are working on the same engagement. Q: Why is this important? VC: Insider trading breaches our clients' trust and is a criminal offence. Our clients trust us to keep their confidential information private. It's vital to our business and each of us personally that we handle confidential information with great care. If you’re in any doubt about what constitutes confidential information, consult your engagement leader. Q: Why are we seeing an increase in violations across the business world? VC: It’s difficult to say, but there’s no doubt that regulators around the world are cracking down hard on this sort of activity. These high-profile incidents are a warning. We must all understand what’s expected of us. Q: How are we protecting our business? VC: Our Insider Trading Global Policy says it all. It applies to all of us and makes our obligation not to trade with insider information absolutely clear. Read it now if you want to know more about insider trading, who to contact if you're unsure about what to do or how the policy applies in different situations. Q: What if I suspect something? VC: Contact your Regional Q&RM team or General Counsel immediately. Or contact our EY/Ethics Hotline anonymously to report any concerns about ethical, legal or professional issues. There's only one thing you should not do, and that’s ignore it. Consider bookmarking this page for future reference.
The following video from the New Jersey Society of CPAs features Marty Abo, CPA giving a tour of his hilariously awesome house. This house is great because it is the complete opposite of every CPA house I have ever been inside. It's kitschy. It's unpractical. IT'S FUN. Just watch and try telling me you don't feel the same way:
Personally, I could never live in such a place because clutter makes my skin crawl, BUT I do enjoy the following thins from Chez Abo:
- The red leather catsuit lamp.
- The Abo's Pizza box is a nice shout-out to Colorado.
- "Of course she's got Chardonnay."
- That TP roll mount is frightening.
- "Tell 'em it was the best minute-and-a-half of your life!"
Marty could chain his employees to their desks during busy season, feeding them only bagels and urine-temperature coffee and I'll still work for him so I could party at this house. He'd need to get better beer than Heineken, though.
Accounting News Roundup: KPMG Has a Few UK Problems; Useless Use Taxes; About Those Q1 Expat Numbers... | 05.09.13
Fannie Mae to Send $59.4 Billion to U.S. Treasury [WSJ]
Fannie Mae said Thursday it would make a $59.4 billion payment to the U.S. Treasury next month after reporting a $58.7 billion first-quarter profit thanks to a big tax benefit the bailed-out mortgage-finance company booked after determining it would generate profits in the coming years. Fannie recognized $50.6 billion in tax benefits during the first quarter, in addition to pre-tax income of $8.1 billion during the period. That compared to a $2.7 billion gain during the year-earlier period. The tax boost stemmed from reversing write-downs of its deferred-tax assets, which are unused tax credits and deductions that can offset future tax bills but which are worthless if a company isn't expected to turn a profit and have taxable income. The mortgage-finance company began writing down the tax benefits in 2008 as rising mortgage defaults threatened to wipe out thin capital reserves. Some assets had also counted towards the company's capital, further squeezing the company as the financial crisis deepened. Fannie reclaimed the deferred-tax assets during the first quarter because the company concluded it is likely to be profitable for the foreseeable future. The turnaround has been led primarily by the housing market's broad rebound over the past year and a continued decline in the share of homeowners that aren't making their mortgage payments.
KPMG Faces Two Investigations From U.K. Accounting Regulator [Bloomberg]
The U.K.’s accounting watchdog placed KPMG LLP under two separate investigations, examining its audits of a car seller and the conduct of one of its partners. The Financial Reporting Council will investigate whether KPMG “was independent” when it audited the annual accounts of Nottingham, England-based Pendragon Plc (PDG) for 2010 and 2011. The regulator is also probing the conduct of a KPMG partner in relation to a “non-timely disposal of a share-holding in a client entity,” the FRC said in separate statements on its website today. The probes mean the accounting firm could face three FRC inquiries as the regulator decides whether to investigate the audits of HBOS Plc. (LLOY) The FRC is waiting on reports from the U.K. Parliament and financial regulator to consider whether it has a case, spokeswoman Sophie Broom said last month. KPMG was the auditor for HBOS before it was taken over by London-based Lloyds Banking Group Plc in a government-backed deal in 2008. KPMG said it would cooperate with the investigations.
Musicians demand sports star tax breaks [AWEB] You see what happens? News Corp. Posts $42 Million Charge on Phone-Hacking Scandal [R&CJ]
Altogether, $390 million so far. Six Components of a Great Corporate Culture [HBR]
A solid offering of coffee options is a good start. Turn Bad Stress Into Good [WSJ]
That is, if you're experiencing any stress. Giant Swamp Rats Are Literally Eating Louisiana [Yahoo!] On the southern edge of Louisiana, there is almost as much water as land. You can't drive to anyone's house, you have to travel by boat, and sometimes there are hours of water between neighbors. It takes a special breed to make a home here, in the swamp, amongst the mosquitos and almost annual hurricanes. But those who do call it home, love it. They see a magical space of strange stillness and subtle rippling greens and grays where time worries no one and the freedom of the water is at your doorstep. But this Huck Finn way of life is being attacked on multiple fronts. Climate change's stronger storms are beating away at the fragile coastline, and the oil and gas industries are scarring the skyline while luring younger generations away from the local farming and fishing way of life. As if that weren't enough, 20-pound, semi-aquatic rodents, called nutria, which are native to Argentina, are taking over the marshes, devouring the native plants that hold the soil in place, and causing massive coastal erosion. Chris Metzier, an independent documentary filmmaker, has spent months in these swamps on the front lines of this battle, filming his upcoming documentary Rodents of Unusual Size.
Jeff Skilling might be out of prison sooner rather than later [AP]
A guy named Dick told Nikki Haley she needs to "go back to being an accountant in a dress store rather than being this fraud of a governor that we have" [TPM]
The "CPA Caucus" is in ur financials, fuxin wif ur reservez [Watchdog.org]
Silvio Berlusconi sentenced to 4 years in prison after tax fraud verdict upheld [AP]
679 people renounced their US citizenship in 1st quarter of year, IRS says [Fox]
Mary Jo White came out swinging in her first testimony before Congress as SEC chair, insisting the agency needs a 26% budget increase. Someone tell her Youporn is free! [Compliance Week]
Analysis: Immigration bill would add millions of US taxpayers A new analysis by the Social Security Administration (SSA) estimates that a bipartisan immigration reform proposal introduced in the Senate would increase the number of workers paying taxes by millions. "We estimate a significant increase in both the population and the number of workers paying taxes in the United States as a result of these changes in legal immigration," SSA Chief Actuary Stephen C. Goss writes to Sen. Marco Rubio (R-Fla.), one of the “Gang of Eight” who negotiated the proposal, in a letter that refers to the assessment. [The Hill]
The good news for ex-Enron CEO Jeff Skilling is that he'll be released from prison almost 10 years earlier than his original sentence of 24 years. The bad news is that the release date is still four years away and while his attorney appreciates the closure, he feels there's still some injustice:"The proposed agreement brings certainty and finality to a long painful process," said Skilling's longtime defense attorney, Daniel Petrocelli. "Although the recommended sentence for Jeff would still be more than double any other Enron defendant, all of whom have long been out of prison, Jeff will at least have the chance to get back a meaningful part of his life." [CNBC]
Groundbreaking CFO.com Survey Reveals Accounting Professionals Desperately Need Communication Skills
Make sure you're sitting down before you read this incredible news courtesy the CFO.com March survey of 422 public and private CFOs, controllers, chief accountants and other senior finance executives [note: free subscription required to read the article]:
The results show that today’s accounting and finance staffs have more than enough data skills. But they often lack the ability to wade through the numbers successfully to communicate with senior management, according to the respondents, who represent U.S. corporations with sales of between $50 million to over $1 billion.
What skill is most lacking in today's finance and accounting professionals? “Communicating with other groups” tied for first place among the respondents with “thinking about the company’s goals and focus as a whole.” Each answer drew a 29 percent response rate, followed by 25 percent who said “displaying abilities to take charge of situations,” 9 percent who chose applying IT skills, and 8 percent who said “traditional finance understanding.”
Here's the chart:
Gud riting skillz won't just help you pass BEC, they are essential to moving through the ranks. “The people that rise to the positions of senior team leadership or controllership typically have [verbal and written communication] skills,” said CBIZ CFO Ware Grove:
Focusing on data is a typical quality of most accountants, from entry level on up, says Grove. But they often underestimate the importance of softer skills like effective communication. “If people are frustrated with the controller, it’s not that the controller isn’t working until 8 p.m. or attending to details, it’s because he perhaps doesn’t communicate well,” he says.
Or he spends all day on Going Concern practicing his communication skills on trolls instead of mentoring young staff and writing killer memos?
You can find related survey results from CFO.com on Non-U.S. CFOs Donning Green Eyeshades and New Hires: A Skills-and-Demand Balancing Act here.
Ed. note: The following was written exclusively for Going Concern by a Big 4 auditor who wished to remain anonymous.
The PCAOB is turning into our parents. Or at least they are using the same tactics in handing out punishment. “We know you were up to no good last night, so if you just tell us what you did we’ll take that into consideration when deciding how long to ground you.”
I can understand where they are coming from. They want to make their jobs easier and they want to form a more cordial relationship with audit firms by cutting them some slack when the firms volunteer issues or resolutions. The problem is the PCAOB is a bit like Lucy holding the football -- we want to kick it but we’re afraid we’re going to end up like Charlie Brown on our backs.The best chance the PCAOB has of making this work is with the “voluntary and timely remedial or corrective actions.” At that point the PCAOB has already decided you’ve done something wrong so you might as well be cooperative when it comes to fixing the problems. However there are several problems with the voluntary reporting piece that I don’t see partners being able (or wanting) to overcome in the near term. The first is that engagement teams, partners and firms themselves don’t always agree with the PCAOB on what the issues are (act surprised). I had a job reviewed by the PCAOB in middle of the financial crisis. By all accounts everyone in the room was an intelligent person but none of us could agree on what issue they had with some of our fair value testing. Most of us in the profession still aren’t on the same page as the PCAOB when it comes to what does or does not constitute proper auditing of financial instruments. In addition, the PCAOB rarely tells you what’s right, only what’s wrong (like porn, they know it when they see it). This results in an interesting situation. It’s likely that if we do self-report we’re not going to bring up the issues they expect. This means we will bring to their attention something that might not have been on their radar. Doesn’t seem to be a good play. This isn’t to say we won’t admit when we’re wrong or offer to clean up the mess (see above) but it’s hard to lead the way in admitting what’s wrong when you don’t know what “wrong” is. A corollary to the above is that in a review the perception is that everything is negotiable. Every issue that the PCAOB finds turns into hours of review, meetings, document digging, expert gathering, whatever it takes to talk your way out of the issue. Most of us would rather take our chances with that process than lay it all out and beg forgiveness. Forget pleading guilty, we want the jury trial. There is also the question of “timeliness” when it comes to self-reporting. I’m not sure there would be many folks willing to report a potential violation unless they already knew they were picked for PCAOB review that year. Given that these reviews generally happen soon after the audit finishes, I’m not sure how much a team would be willing to discuss anything earlier. You're in a position of saying, “Yeah, we just did the audit but here’s what we screwed up.” Overshadowing everything is that the stakes are simply too high. This “extraordinary cooperation” “may” influence the PCAOB depending on facts and circumstances. I’m not the first auditor to say that I don’t exactly trust the PCAOB. I wouldn’t want to be the first team to test these waters. They aren’t looking for us to report the little things that went wrong in an audit; they want the big ticket items. You won't be sent to bed without dinner if you bring up an issue that could potentially lead to an audit failure. The PCAOB seems to like making examples out of firms when they screw up and I’m not sure firms playing nice in the sandbox will change that. It may be that I’m too cynical. PCAOB reviews come after an already exhausting busy season and lump on additional hours of prep and meetings on top of our other client responsibilities. It’s hard to look at them in a favorable light after having gone through a review. I also know I’m not the only one that feels that way in the firms. I’m sure folks higher up the food chain may feel a little different since it’s their jobs to make nice with our regulators. I just know those of us in the trenches aren’t going to be too willing to stick our necks out until we know the real consequences of “voluntary reporting." We’re told to exercise professional skepticism; I think we are when it comes to leniency of the PCAOB.