Following are a few important issues our accounting professionals wanted to briefly share with you. As always, should you desire more in-depth information please feel free to contact us.
MAJOR CHANGES IN CAPITAL RAISING
Major changes for capital raising are on the way that should substantially benefit emerging growth companies.The SEC’s proposed rules, informally dubbed Regulation A+, would update and expand the existing but infrequently used Regulation A exemption by creating the following two tiers of Regulation A offerings:
* Tier 1, which would consist of offerings already covered by Regulation A, namely securities offerings of up to $5 million in a 12-month period, including up to $1.5 million for the account of selling security-holders.
* Tier 2, which would consist of securities offerings of up to $50 million in a 12-month period, including up to $15 million for the account of selling security-holders.
Companies conducting Tier 2 offerings would be subject to the following requirements:
* Investors would be limited to purchasing no more than 10 percent of the greater of the investor’s annual income or net worth.
* The financial statements included in the offering circular would be required to be audited.
* The company would be required to file annual and semi-annual ongoing reports and current event updates that are similar to the requirements for public company reporting.
The exemption would not be available to companies that:
* Are already SEC reporting companies and certain investment companies.
* Have no specific business plan or purpose or have indicated their business plan is to engage in a merger or acquisition with an unidentified company.
* Are seeking to offer and sell asset-backed securities or fractional undivided interests in oil, gas, or other mineral rights.
* Have not filed the ongoing reports required by the proposed rules during the preceding two years.
* Are or have been subject to a Commission order revoking the company’s registration under the Exchange Act during the preceding five years.
* Are disqualified under the proposed “bad actor” disqualification rules.
The SEC has also stated that because of the range of investor protections provided under the proposal, state securities law requirements would be preempted for Tier 2 offerings-state Blue Sky Laws have been cited as a major reason that existing Regulation A was so infrequently used.
The Commission will seek public comment on the proposed rules for 60 days and then determine whether to adopt the proposed rules.
TAX REFORM UNCERTAIN AS CONGRESS RETURNS
Congress returned to Washington after the holiday recess, but non tax issues such as unemployment insurance and poverty are likely to dominate debate in the House and Senate at least for now according to Weinberg’s Director of Tax, Jeffrey B. Engler.
Tax reform seemed to be gaining momentum spearheaded by Senate Finance Committee Max Baucus (D-Montana), but that momentum appears stalled now that Baucus has been nominated by President Obama for Ambassador to China. Lobbyist and lawmakers fear the departure of the Senate’s top tax writer will blunt any remaining momentum and greatly handicap efforts for tax reform.
“Baucus and House Ways and Means Committee Chairman Dave Camp (R-Mich.) already faced long odds in getting tax reform across the finish line, in no small part because of a stark divide between the two parties on revenue,” noted Engler.
The Finance Committee chairmanship is expected to go to committee member Ron Wyden (Dem-Oregon). Wyden has been very vocal in his support of comprehensive tax reform. Currently chairman of the Energy and Natural Resources Committee, he has also been complimentary of some of the building blocks that Baucus has put into place on tax reform. Additionally, he has pushed to extend expired tax provisions, especially those for renewable energy, which could give efforts to retroactively extend those provisions a shot in the arm.
House Republicans support comprehensive tax reform to get Americans working again and the U.S. economy back on track. Independent economists estimate that, when coupled with reduced federal spending, comprehensive tax reform could lead to the creation of 1 million jobs in the first year alone.
Congressman Camp previously outlined a comprehensive tax reform plan that calls for significantly lowered rates while making the tax code simpler and fairer. His plan specifically focused on reducing the burden the tax code imposes on small businesses and has indicated he will continue with his tax reform plan, in spite of Baucus’s retirement. Wyden, who will have to work closely with Camp to pass a tax reform bill, has not indicated how he will approach the matter. For now, Camp’s bill has not been well received among other Republicans on the Ways and Means Committee, although there is indication he may release an updated plan in the next month or two.
“Although Congressman Camp is more focused on tax reform instead of tax extenders,” said Engler, retroactive extension of the expired provisions remains a stronger possibility if enactment of tax reform does not occur this year.
The Democratic leadership in the Senate and GOP leaders in the House both seemed lukewarm at best to tax reform in recent months, if for very different reasons.
In the Senate, Majority Leader Harry Reid (D-Nev.) and other top Democrats have poured cold water on Baucus’s efforts, demanding that tax reform raise more revenue than the Finance panel chairman is willing to deliver.
In the House, Speaker John Boehner (R-Ohio) and his lieutenants have been more than willing to let voters concentrate on the troubles weighing down ObamaCare. The GOP rank and file in the House also doesn’t seem totally sold on a plan that would slice very popular tax breaks, forcing Camp to back away from his plan to release and mark up a tax overhaul.
Pouring more cold water on comprehensive tax reform, another tax writer, Sen. Ben Cardin (D-Md.), said, “the recent two-year budget agreement, which sets top-line numbers into the next Congress, took away even more of the motivation for reform. I’m not optimistic you’re going to see a broad-based reform proposal.”
LOOK WHAT THE NEW YEAR BROUGHT
You can start by checking which of the 40,000 new laws that take effect in 2014 will affect you. If you thought Congress could not agree on much of anything you would be correct. Less that 60 pieces of legislation made it to the President’s desk making it one of the least productive sessions in history.
Different story, however, for state lawmakers. They were very prolific and missed few opportunities to enact all sorts of new laws — from what we eat, to which bathroom school kids may frequent.
Tempting as it may be, we’ll not comment on those issues. But, we do have a few business related items that may come your way in 2014.
* As the ball dropped in Times Square we said goodbye to 2013. We also said so long to several business tax breaks including one for research and development. Now expired are business R&D write-offs, 50% deductions on new equipment, and tax credits for hiring vets. Gone, gone, go… well maybe not. Just like the perpetual Barbara Streisand Farewell Concerts, the R&D tax break never quite seems to permanently go away. In fact Congress is already talking about restoring the breaks as part of a larger tax reform effort. It won’t be the first time Congress has restored these benefits months after its expiration. And just to keep things interesting, if it is restored later this year, it will likely be retroactive back to the beginning of 2014.
* Did you just spill coffee on your old laptop keyboard? Companies are now allowed larger deductions for repairing or replacing tangible property.
* Overworked and underpaid? Or is it the other way around? The Securities and Exchange Commission (SEC) wants to know and is expected to issue new rules on executive pay. It’s part of the still unfolding and expanding 2010 Dodd-Frank bill. Expect pay-for-performance disclosures, executive pay claw-backs upon financial restatements, and a more controversial requirement that companies disclose ratios between CEO pay and median employee pay.
* As reported in earlier issues of Simply Stated, expect the issuance of new rules for revenue recognitions and lease accounting as the U.S. and its international counterparts reach final agreement on how to include leases onto corporate balance sheets. We expect to see final product by the second quarter of 2014, although any implementation will probably not be required until 2017.
* You may not have operations or customers in the Congo, but you may be contributing to the regional violence there. At least that is the thinking behind a new requirement compelling companies to file reports on the origin of the elements that go into producing their products. Termed “conflict minerals” the first reports are due by March 31st. Business groups have filed legal action to overturn the requirement.
* Companies are now required to update their internal controls to prevent financial misstatements and fraud. The controls framework was revised last year and the old framework will be considered out of date by regulators after December 15, 2014.
* And finally, one just for us… The U.S. Public Company Accounting Oversight Board (PCAOB) is considering a requirement for audit firms to disclose the lead partner and provide more info on the focus areas of each audit. Auditor rotation requirements, however, are no longer being proposed at this time.
BURIED IN PAPERWORK?
They did promise “shovel ready” jobs.
Led by the Environmental Protection Agency, the Department of Energy and health care agencies, the federal government added 157.9 million hours of paperwork for U.S. workers last year representing a cost to our economy of $112 billion.
According to a report by the Washington think tank American Action Forum (AAF), which was reported in the Washington Examiner, two major proposed rules involving emissions standards and efficiency standards for motors drove the regulatory costs of the year.
The largest new burden in terms of paperwork came from an “obscure” rule relating to affirmative action and nondiscrimination for contractors and is responsible for an additional 9.9 million hours of paperwork.
AAF also measured the cost of regulations on individual companies by examining their 10-K reports. They reported that the biggest losers were Bank of America, with $1.7 billion in annual compliance costs, Duke Energy with $5.7 billion, and Pfizer with $1.6 billion.
So, get your shovel…might want some high boots too.
Simply the right choice
Weinberg & Company is a leading, international, full service, multi-office CPA firm serving clients throughout the United States and the Pacific Rim. Founded over two decades ago, the practice groups include: Assurance and Audit, Tax and Accounting, and Advisory Services. Weinberg has a depth of knowledge and experience to meet the needs of both public and privately held companies, high net worth individuals, entrepreneurs, family offices, and can provide customized business management services. www.weinbergla.com
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Our firm provides the information in this e-newsletter for general guidance only, and does not constitute the provision of legal advice, tax advice, accounting services, investment advice, or professional consulting of any kind. The information provided herein should not be used as a substitute for consultation with professional tax, accounting, legal, or other competent advisers. Before making any decision or taking any action, you should consult a professional adviser who has been provided with all pertinent facts relevant to your particular situation. Tax articles in this e-newsletter are not intended to be used, and cannot be used by any taxpayer, for the purpose of avoiding accuracy-related penalties that may be imposed on the taxpayer. The information is provided “as is,” with no assurance or guarantee of completeness, accuracy, or timeliness of the information, and without warranty of any kind, express or implied, including but not limited to warranties of performance, merchantability, and fitness for a particular purpose.
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