Election over: Change is coming
The election is finally and thankfully over. Come January, President-elect Trump will take the Oath of Office becoming our nation’s 45th President and begin a new path that will bring major change to the way Americans live, work and do business.
The two areas that we as CPAs work with every day–tax and audit–appear at the top of the list for change under the new administration.
Tax: Comprehensive tax legislation is already waiting in the wings. With the White House, Senate and House now controlled by the same party, there is an easier path to comprehensive tax reform. It will be at the top of the legislative agenda and we expect that a tax bill will be passed and signed into law in the first year of President Trump’s term. This is not historically unusual. Congress has passed major tax legislation in the first year of the Reagan, Clinton, George W. Bush and Obama presidencies.
There are two tax reform plans already floating out there: House Speaker Paul Ryan’s plan, and President-elect Trump’s plan that was posted on his website during the campaign. Ideas from a 2014 tax package by then House Ways & Means Chairman Dave Camp may also be revived. The devil is in the details, but we are pleased to note that all plans promise to simplify the tax code–and, as you know, we love the simply stated.
Audit: The regulatory environment under which businesses operate has become overly cumbersome, overly punitive, and expensive. In many areas regulatory agencies have run amok. The business community will attest that over-regulation is a top-of-list impediment to expansion and job creation. In large part it can be blamed for our anemic economic recovery.
We expect to see major changes that hopefully will bring regulatory relief. Much will be fiercely debated in the legislature and receive lots of media attention. But, in deference to all the political grandstanding, the real effect occurs when the reg-writers get their agenda and go to work in the back rooms of the various agencies. So, we will be watching carefully the appointment of new agency heads as early indicators of policy direction and the likely implementation that will follow.
An immediate vacancy has already opened with the resignation of Obama-appointed SEC Chair Mary Jo White. President-elect Trump and his transition team have said they plan to roll back the sweeping regulation of Wall Street that White has spent the last 4 years implementing, including Dodd-Frank, which soon looks to be an immediate target for repeal or repair.
We optimistically look forward to regulatory relief. It will be good for our clients, good for our economy, and we believe it can be accomplished without jeopardizing important protections for investors and the public.
Change is coming. No matter what form it takes, it will be our job to have early knowledge and analysis so that we may best advise you, our clients.
What is the SEC commenting on lately?
Our Weinberg professionals are all Big 4 accounting firm alumns. As such, we all continue to keep up with the many industry research pieces published by our alma mater firms. Recently, our friends at Deloitte released an interesting update to their ninth edition of SEC Comment Letters - Including Industry Insights: What “Edgar” Told Us. The report provides an excellent analysis of SEC staff comments to help registrants understand trends and improve their financial statements and disclosures. The full report is posted on the Deloitte website, but in keeping with our Simply Stated format, we wanted to share a few brief excerpts:
* The SEC recently announced that in its fiscal year ended September 2016, it filed 868 enforcement actions, a new single-year high, and obtained orders totaling more than $4 billion in disgorgements and penalties for a third year in a row.
* The SEC’s whistleblower program has continued to have a tremendous impact on the agency. Since the program’s inception, the SEC has awarded $111 million to 34 whistleblowers.
* SEC officials over the past year started discussing non-GAAP measures and the staff continues to monitor the use of these measures closely.
* The SEC staff has continued to emphasize that successful implementation of new accounting standards, including the new revenue, lease, and credit loss accounting standards, is critical to the financial reporting system given the pervasiveness of the expected changes.
* Internal control over financial reporting (ICFR) continues to capture the attention of regulators, preparers, and auditors, including the importance of having sufficient competent accounting staff resources.
The top 6 topics in reviews with comment letters issued in review year 2016 are ranked as follows:
1. MD&A -SEC staff made comments related to (1) results of operations, (2) critical accounting policies and estimates, (3) liquidity and capital resources, (4) tabular disclosure of contractual obligations, and (5) early-warning disclosures.
2. Non-GAAP measures -Comments focused on (1) undue prominence of a non-GAAP measure, (2) when a non-GAAP measure is not appropriately reconciled to the most directly comparable GAAP measure, (3) disclosures about the purpose and use of non-GAAP measures and clear labeling, (4) liquidity versus performance measures, and (5) the nature of reconciling adjustments and the related disclosures.
3. Fair value -Approximately one in five reviews included a comment on fair value.
4. Segment reporting -Comments about (1) the identification and aggregation of operating segments, with a particular focus on identifying the chief operating decision maker; (2) the analysis supporting the aggregation of operating segments, including consideration of qualitative factors (e.g., similar products and customers); (3) changes in reportable segments; (4) identification of product and service revenue by segment and disclosure of total “revenues from external customers for each product and service or each group of similar products and services”; and (5) information related to geographic areas when information was not disclosed but may need to be.
5. Income taxes -Comments on (1) the potential tax and liquidity ramifications related to the repatriation of foreign earnings, (2) valuation allowances, (3) rate reconciliations, and (4) unrecognized tax benefits.
6. Revenue recognition -Comment letters include (1) the completeness and consistency of disclosures about revenue recognition policies, (2) accounting for and disclosures related to sales returns, (3) accounting for multiple-element arrangements, (4) principal-versus-agent analysis (i.e., gross versus net reporting), and (5) revenue recognition for long-term construction and production-type contracts.
The taxpayer gift that keeps on giving
It’s been eight years since taxpayers rescued the U.S. financial system, yet some of the country’s largest banks continue to receive billions in bailout money, reports The Washington Post. “Wells Fargo is eligible for up to $1.5 billion in bailout funds over the next seven years. JP Morgan and Bank of America could receive $1.1 billion and $964 million respectively.”The continuous flow of funds is a remnant of the $700 billion TARP bailout that included $28 billion to help distressed homeowners by paying banks to lower their interest rates and monthly payments under the Home Affordable Modification Program (HAMP). In spite of several revamps, the program has fallen short of helping the projected 3 to 4 million homeowners the Obama administration initially hoped, according to the Post.
Moody’s Investors Service slashed its operating-profit growth forecast and lowered its outlook for the restaurant sector. “Consumers are wrestling with higher nondiscretionary spending needs, while restaurant companies face higher operating costs, predominantly labor and challenged traffic trends,” Moody’s analyst Bill Fahy wrote in a note.
“One factor is pressure on discretionary income from the rising costs of staples such as rent, medicine and education. Then there’s the steady rise in the cost of eating out, which has come just as grocery bills are getting cheaper. The cost of food purchased for home use–that is, groceries–has fallen 2.4% in the past year, government data showed in October. That’s the biggest decline over a 12-month period since the end of the Great Recession in 2009,” as MarketWatch’s Jeffry Bartash reported.
RENOUNCING U.S. CITIZENSHIP
Leaving the U.S. …not because of Trump
The number of Americans renouncing their citizenship is on the rise, according to the U.S. Treasury Department which tracks and publishes a quarterly list of expatriates. Third quarter 2016 was the second highest in history at 1,380, reports FORBES Contributor Robert W. Wood. There were approximately 4,300 expatriations in all of 2015, which is 18 times as many as in 2008. That’s a 560% increase from their Bush administration high.
What’s driving the increase?
No, it’s not the usual list of Hollywood Celebs that promise to leave the country every time a Republican wins the presidency — they never really leave.
It’s the Foreign Account Tax Compliance Act (FATCA) enacted in 2010 that seems to be a driving force for the increase.
“FATCA has been painstakingly implemented worldwide by President Obama’s Treasury Department. It now spans the globe with an unparalleled network of reporting. America requires foreign banks and governments to hand over secret bank data about depositors. Non-U.S. banks and financial institutions around the world must reveal American account details or risk big penalties,” says Woods. Worried about keeping the IRS happy, a growing number of foreign banks do not want American account holders on their books.
Individuals whose foreign accounts reach an asset threshold level are required to file a disclosure with the IRS or face oversized civil and criminal penalties.
For those who are determined to exit, it isn’t easy or cheap.
“If you have a net worth greater than $2 million, or have average annual net income tax for the 5 previous years of $160,000 or more, you pay an exit tax. It is a capital gain tax, calculated as if you sold your property when you left,” says Woods.
If you stand in the meat section at the grocery store long enough, you start to get mad at turkeys. There’s turkey ham, turkey bologna, turkey pastrami. Someone needs to tell the turkey, “Man, just be yourself.” - Mitch Hedberg
You can tell you ate too much for Thanksgiving when you have to let your bathrobe out. -Jay Leno
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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