| On Sept. 7, the House of Representatives passed major patent reform legislation, which would ban the issuance of patents on tax strategies. The AICPA is a strong advocate of Congress’ work in this area. The comprehensive patent reform bill (HR 1908) also contains provisions unrelated to patents on tax strategies, including measures to improve patent quality and reduce costly litigation. In the days prior to the House vote, the Bush administration made its first formal statement on the tax patent issue, stating it understands the concerns surrounding the trend toward patenting tax strategies and will work with Congress on a solution. The House Judiciary Committee, which has jurisdiction over patent legislation, issued its report on the patent bill, and it signals that serious consideration is being given to the tax patent issue on Capitol Hill. The report outlines a number of concerns about the phenomenon of patented tax strategies and their potential impact on the tax system. Among those concerns, the committee wrote, are the potential for lost revenue, the removal of particular ways to satisfy legal obligations from the public domain, and long-term damage to the tax system. The report is available on the committee’s Web site at http://judiciary.house.gov . It is legislative report number 110-314. In addition, in the first public statement from major tax writers on Capitol Hill, House Ways and Means Committee Chairman Charles Rangel, D-N.Y., and ranking member Jim McCrery, R-La., sent a letter to all their colleagues in the House urging support for a legislative ban on these patents. The action now shifts to the Senate, where a bipartisan group of senior senators from the Judiciary, Finance, and Homeland Security & Government Affairs committees are drafting a similar proposal to ban patents on tax strategies. The senators have expressed concern that tax patents interfere with tax compliance and undermine the integrity and fairness of our tax system. Legislation could move in the Senate in one of several ways. It could be attached as an amendment to the Senate’s own patent reform legislation (S 1145), a measure that the Senate Judiciary Committee approved in July and does not include tax patents. Alternatively, it could be introduced as a free-standing bill and passed on its own or get attached to another piece of legislation on the Senate floor.
Federal Housing Administration (FHA) Overhaul Legislation
The urgency to pass FHA reform legislation was given new impetus by the recent problems in the home mortgage market that have curtailed funding for home loans. FHA officials have asked Congress to quickly enact legislation to help the program compete more effectively against subprime lenders that have cut into the agency’s market share.
The House passed its FHA bill on Sept. 18. It includes several features that enjoy widespread support, including the risk-based pricing of mortgage insurance premiums, a zero down payment provision, elimination of the cap on Home Equity Conversion Mortgages, and an easing of limits on the value of mortgages that can be insured in high-cost areas. The House bill (HR 1852) makes the financial statement audits of FHA brokers and correspondent lenders voluntary for five years, with the goal of encouraging more brokers to sell FHA products. If a broker does not get an audit, they must get a surety bond instead. The bill would require the Government Accountability Office to study the new provision’s impact on default rates. The AICPA strongly opposes the congressional effort to remove the audited financial statement requirement for mortgage brokers originating FHA loans. This yearly audit is the only tool the federal government has at its disposal to ensure that the 7,500 mortgage brokers and loan correspondents who wish to offer FHA loans do so in accordance with all applicable laws and regulations. These audits protect not only the safety and soundness of the FHA, but homebuyers as well. Without it, federal regulators may not recognize the harm to both the FHA and consumers until it is too late. To satisfy the annual reporting requirements, mortgage brokers and loan correspondents must submit audited financial statements that are in accordance with the GAO’s Government Auditing Standards. HUD program managers, in turn, use these audits to determine that non-supervised mortgagees and loan correspondents use internal controls to provide reasonable assurance that FHA requirements are followed and expend federal funds properly with supporting documentation.
At a time of rising defaults, it is critical to both the FHA and its customers that adequate supervisory processes remain in place. The Senate Banking Committee approved its version of FHA legislation on Sept. 19, and it does not contain an audit provision. The next step is for the full Senate to consider the bill, which it is expected to do before the end of the year.
Senate Hearings Explore Convergence Blueprint
The AICPA’s Chuck Landes told a Senate panel on Oct. 25 that debate should no longer focus on whether U.S. GAAP converges with international accounting standards but when. Landes, the AICPA’s vice president for Professional Standards and Services, spoke during hearings of the Senate Banking Subcommittee on Securities, Insurance, and Investment that examined convergence. Landes told the panel that the AICPA supports the goal of creating a single set of high-quality, comprehensive accounting standards for public companies in preparation of transparent and comparable financial reports throughout the world. Subcommittee Chairman Jack Reed, D-R.I., said everyone supports the goal of convergence, but certain steps must be taken before it is achieved. The SEC is weighing whether to allow U.S. firms to report financial results using International Financial Reporting Standards (IFRS) rather than U.S. GAAP. The SEC’s concept release comes on the heels of a proposed rule that would allow foreign companies filing with the SEC to use IFRS without reconciling to U.S. GAAP. The proposed rule considers whether to require additional disclosures from companies that are not required to reconcile. The proposed rule is available at www.sec.gov/rules/proposed/2007/33-8818.pdf . The comment period ended Sept. 24. The concept release, issued in July, explores the possibility of giving domestic issuers the alternative to report using IFRS. The concept release is available at www.sec.gov/rules/concept/2007/33-8831.pdf . The comment period ended Nov. 13. FASB Chairman Robert Herz suggested developing a blueprint for coordinating and completing the transition to IFRS agreed to by all major stakeholders. The blueprint should identify the most orderly, least costly and least disruptive approach for a transition and should include target dates. Lisa M. Dinackus is manager of congressional affairs on the AICPA’s Congressional & Political Affairs Team.
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