The Office of the Comptroller of the Currency releases interim guidance to financial institutions on complying with two anti-money-laundering provisions of the Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism (USA PATRIOT) Act of 2001 ( www.occ.treas.gov/fr/fedregister/66fr59342.pdf ). As of December 25, 2001, this
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TOPICS
Tax
Underreported Income
TAX CASE When the IRS suspects a taxpayer is underreporting income, various IRC sections come into play. Section 6001 requires a taxpayer to keep adequate records to compute taxable income. When a taxpayer’s accounting method does not clearly reflect income, section 446(b) gives the IRS authority to compute taxable income
Tax Collections Go Up
TAX MATTERS Source: Tax Foundation, www.taxfoundation.org .
Financial Reporting
The AICPA and the Big Five issue a document ( http://ftp.aicpa.org/public/download/news/risk_factor.doc ) that assesses current economic and business conditions that could hinder complete and accurate financial reporting. It offers financial statement preparers, auditors and audit committees advice on how to make their financial reports more useful to investors. SEC Chairman
Auditing
The auditing standards board issues Statement on Auditing Standards no. 95, Generally Accepted Auditing Standards, superseding the section by that name in SAS no. 1, Codification of Auditing Standards and Procedures (AICPA, Professional Standards, AU section 150). To purchase a copy of the SAS (product no. 060697JA), call 888-777-7077.
Insurance
According to Fitch IBCA, Duff & Phelps, a rating service, life insurers face an estimated $3 billion to $5 billion in losses related to the September 11 terrorist attacks. But, Fitch says, the industry has $3.1 trillion in assets, it already pays—on average—$52 billion in claims annually, and it has
FYI
The AICPA publishes a document, Accounting and Auditing for Related Parties and Related Party Transactions, which it describes as a free “tool kit.” It gives CPAs an overview of selected authoritative literature, SEC requirements, best-practice guidance and illustrative checklists. ( http://ftp.aicpa.org/public/download/news/relpty_toolkit.doc ) GASB issues an implementation guide to Statement no.
International
The International Accounting Standards Board issues six interpretations of international accounting standards. The new guidance applies to evaluating the substance of leasing transactions, business combinations, disclosure of service concession arrangements, currency reporting, barter transactions revenue and the consolidation and equity method of accounting for ownership interests. ( www.iasb.org.uk/cmt/0001.asp?s=319297&sc={D06C3078-9A3D-47C9-A481-DF2FA450F624}&n=63 ) A
Accounting
For news from the AICPA and state societies, visit www.cpa2biz.com , which also offers online CPE, AICPA professional literature, practice management aids and links to state society Web sites. The AICPA accounting standards executive committee issues SOP 01-6, Accounting by Certain Entities (Including Entities With Trade Receivables) That Lend to
Deducting Recurring Expenditures
TAX CASE Many companies incur expenses that provide benefits in future years. A business must capitalize most of these expenditures. However, some of the expenses are annual, recurring items. The Seventh Circuit Court of Appeals recently reexamined the deductibility of these items, reversing the Tax Court. U.S. Freightways is a
Retirement
The President’s Commission to Strengthen Social Security calls for the establishment of “voluntary personal accounts” in which workers would own their contributions and be able to pass them on to heirs. The group has developed three model accounts and says any of them would bolster Social Security’s financial stability and
Individuals Bear the Burden
TAX MATTERS Source: Tax Foundation, www.taxfoundation.org .
Tax
The IRS is offering to waive certain penalties if taxpayers that participated in illegal tax shelters disclose them and identify their promoters. The amnesty does not apply to taxpayers involved in fraud, crime, concealment of foreign financial accounts or reporting of personal expenses as deductible business expenses. ( http://ftp.fedworld.gov/pub/irs-news/ir01-121.pdf )
The Research and Experimentation Credit
or the past 20 years, a research and experimentation (R&E) credit has been part of the tax law. Unfortunately, because of its complexity, many businesses (particularly smaller ones) have failed to take advantage of this credit. Recently issued proposed regulations should make it easier to qualify. R&E CREDIT In general,
Deducting Environmental Cleanup Costs
TAX CASE Environmental remediation costs can be deductible trade or business expenses under IRC section 162. However, under IRC section 263, businesses must capitalize expenditures that increase a property’s value or its useful life or adapt it to a different use. The tax treatment of specific remediation costs is determined
Collection Costs Fall
TAX MATTERS Source: IRS, www.irs.gov.
Covenants Not to Compete
TAX CASE For legitimate business purposes and occasionally to modify the taxation of a business sale, taxpayers—over time—have used covenants not to compete. Under current law, these covenants may be covered by IRC section 197. Recently the Tax Court considered the application of section 197 to a stock redemption including
Tax “Tips.”
oes the IRS have the authority to assess restaurateurs for employer FICA taxes related to workers’ unreported tip income? In a recent ruling the Ninth Circuit Court of Appeals called this authority into question, parting ways with earlier decisions in the Seventh, Eleventh and Federal circuit courts. In the 2001
More Ways to Give
TAX MATTERS Source: IRS, www.irs.gov .
Contingent Attorney Fee Is Income to Client
TAX CASE In today’s litigious society, many class action lawsuits have contingent attorney fee arrangements. Although the reasons for the lawsuits differ—age discrimination, wrongful termination and the like—the tax issue is the same. Contingent fees are paid directly out of a taxpayer’s judgment or settlement award. The IRS position is
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