President Obama announced his intention to curb the use of offshore tax havens for multinational corporations. The Treasury Department is looking to raise tax revenues and believes that by closing the use of offshore tax shelters it will be able to raise over $200 bn over the next ten years. According to the New York Times, firms like Citibank, Morgan Stanley, GE and Proctor and Gamble utilize hundreds of these type structures to shelter revenue from being taxed by the IRS. It has effectively driven down the tax rates these companies pay and has been a key driver in maintaining corporate profitability.
This move should come as a surprise to no one. The Treasury Department needs to find sources of tax revenues to cover the massive spending programs necessitated by the credit crisis and the global economic meltdown. The TARP program designed to revitalize banks has expenditures that amounted to $700 bn. Amounts pledged for economic recovery through EESA, PPIP and ARRA will push Treasury Department expenditures targeting economic stimulus projects and programs to approximately $2 tn. These amounts are over and above routine federal budget expenditures that is running significant deficits as well.
The planned move by the Treasury Department to rewrite the tax code may be an intentional effort to close budget deficits but it also represents a significant rise in tax audit risk. For the past two years the IRS has been developing a practice strategy and organizational assets to more effectively enforce existing tax laws. Private sector expertise, practices and resource has significantly out gunned the IRS’s ability to detect and develop a regulatory comprehension of the tax implications of the sophisticated multidomiciled structured transactions flowing through highly stratified and dispersed corporate structures. The IRS is looking to level the playing field by adding to its arsenal of resources required to engage the high powered legal and accounting expertise that corporate entities employ.
The IRS has hired hundreds of new agents and has developed risk based audit assessment guidelines for field agents when examining corporations with sophisticated structures and business models. As such investment partnerships, global multinational corporations and companies utilizing offshore structures can expect to receive more attention from IRS examiners.
The IRS had developed Industry Focus Issues (IFI) to be used as an examination framework to guide audit engagements for sophisticated investment partnerships and Large and Mid-size Businesses (LSMB). The IFI for LSMB has developed three tiers of examination risk. Each tier has comprises about 12 examination issues that will help examiners focus attention of audit resource on areas the agency considers as high probability for non-compliance. Clearly the audit risk factors risk
To respond to this challenge, Sum2 developed an audit risk assessment program to assist CFO’s, tax managers, accountants and attorneys conduct a through IFI risk assessment. The IRS Audit Risk Program (IARP) is a mitigation and management tool designed to temper the threat of tax audit risk. A recent survey commissioned by Sum2 to measure industry awareness of IFI risk awareness indicated extremely low awareness of tax audit risk factors.
Sum2’s IARP helps corporate management and tax planners score exposure to each IFI risk factor. It allows risk managers to score the severity of each exposure, mitigation capabilities, mitigation initiatives required to address risk factor, responsible parties and mitigation expenses. The IARP allows corporate boards and company management to make informed decisions on tax exposure risk, audit remediation strategies, arbitration preparation and tax controversy defense preparation.
The IARP links to all pertinent IRS documentation and information on each tax statute and IFI audit tier. The IARP links to pertinent forms and allows for easy information retrieval and search capabilities of the vast IRS document libraries. The IARP also has links to FASB to have instant access to latest information on accounting and valuation treatments for structured instruments.
The IARP is the newest risk application in the Profit|Optimizer product series. The Profit|Optimizer is a enterprise risk management tool used by SME’s and industry service providers.
The IARP is available in two versions.
The IRS Audit Risk Program for investment partnerships (IARP)
Buy it on Amazon here: IARP
The Corporate Audit Risk Program (CARP)
Buy it on Amazon here: CARP
Sum2’s Audit Risk Survey results are here: IFI Audit Risk Survey
You Tube Video: Chairman of the Board, Pay to the Piper
I always thought the quote “Whats good for General Motors is good for America.” was a vile admission that the rights and interests of individual citizens was subservient to the vested interests of corporations. I always thought this was uttered by Calvin Coolidge or Herbert Hoover, the historical poster boys of an out of touch presidency intellectually immune and emotionally removed from the pain and troubles of the working class. Happily ignorant or seemingly unconcerned of a country slipping into a paralyzing depression while they whistled past the grave yard.
More recently the voices of average citizens have again been raised to decry the power and privilege of special corporate interests. They buy access and favor through the deft abilities of well compensated lobbyists and generous financial contributions by the monied interests to encourage politicians to adopt their world view. America’s economic and political history is a sometimes sordid, sometimes splendid tale of the restive relationship of labor and capital and how their respective political interests are made manifest in our laws, policies and programs that emanate from Capitol Hill.
Since at least the beginning of this year we have been barraged with prognostications of a catastrophic economic collapse. The Federal Reserve and Treasury Department have moved with dispatch to bolster bank capital to assure that liquidity and confidence in the banking system is protected. The EESA and TARP responded to the capital formation needs of banks. Most legislators supported EESA even though it only had tepid support by taxpayers. But the deal went through because we were told that if we failed to pass the bailout legislation for banks our nation would be swallowed by an economic black hole. Paulson’s defense of the TARP and its strategic transformation will be covered in subsequent posts but this authors skepticism of the TARP and Paulson’s intention is on record. The TARP and EESA are temporary short term liquidity fixes to frozen credit and capital markets. Supporting and protecting manufacturing is how the US will transition its bankrupt merchant capitalism to an economy based on the manufacture of value capable of long term sustainable growth.
So today we go on record in support of a Federally mandated capital infusion and formation initiative for the automotive industry. As we have previously stated the dismantling of our countries manufacturing infrastructure lies at the root of our current economic dilemma. We advocate acceptance of The Hamilton Plan to address economic recovery and long term sustainability of the US economy. Manufacturing is the bedrock of recovery and the Federal Government needs to encourage the formation of capital clusters of all stakeholders to incubate support structures that will accelerate the recovery of manufactures. The support program is not about writing a blank check to an industry that is badly managed. The automotive recovery plan needs to recognize, aggregate and focus all forms of capital to address this rapid deterioration of our ability to create value through manufactures.
The Hamilton Plan advocates that the Treasury Department form an SME Development Bank to encourage manage and administer the capital formation required to address a GM turnaround. The recovery proscription will need capital, cooperation and political will from all parties. Those include, government, business, labor, social service and academic institutions. The need to support manufacturing is paramount if we hope to recover from structural economic malaise. The failure of GM would have a profound impact on the fiscal, physical and psychological health of the US economy and its citizens. In this instance what is good for GM is not only good for America but it is vital for its survival.
We will offer a more detailed outline in future posts.
You Tube Music Video: James Cotton, Rocket 88
Risk: manufacturing, recession, unemployment, sustainability
I like Mike. Michael Bloomberg has been a wonderful mayor for the City of New York. I am in awe of his accomplishments as a businessman and as a political leader. As a person, from what I have been able to observe through the lenses of the media I like his temperament, sensibility and believe him to be a good man. I feel a strange kinship with the man. He seems honest, direct is beholden to no one and seems to be a man of his word in whom I can trust. I also believe Mr. Bloomberg to be a man of integrity and his dedication to public service is borne from a desire to serve and to give back to society some of the bounty that society has richly conferred on him. Yes, he is a billionaire and I guess it is at this point that my kinship with the man takes diverging paths. Yet I believe Mr. Bloomberg is one of the best and most capable persons ever to sit in the NYC mayoral office. So it is with regret that I cannot support Mr. Bloomberg’s desire to change the election laws so he can run for a third term in office.
Democracy in the United States is imperiled. The United States once seen by the world as the great laboratory of participatory democracy with the constitution and a citizens Bill of Rights as its guarantor is quickly losing that honored designation. The passage of FISA by our legislative branch of government is a clear and present danger to The Bill of Rights. And during the eight years of the Imperial Presidency of George W. Bush, at times he and his lieutenants seemingly treated the Constitution as an occupational nuisance and an unfortunate cost of doing business for America Incorporated.
The ascending power of the US Treasury threaten unfettered markets operating free from government control. Unilateral interventionist actions into the capital markets and the tremendous power that EESA confers on Cabinet officials to throw a TARP on toxic assets, is a transformational event in how our economy functions and is controlled by the influence of appointed government officials.
The continued war posture of our country and the seeming abrogation of the executive branch’s responsibility to decide strategy, direction and manner of how to prosecute the Iraq war to General David Petraeus’s discretion is a dangerous surrender of civilian control of the military branches.
The judicial branch of our government is also complicit in the dismantling of the great experiment of American democracy. Their autocratic decision to sanction the Florida election that gave Mr. Bush the presidency was based on no precedence nor will it carry the weight of precedent for future cases heard before the court. Bush may have won the election but the protection of voter rights and a respect for the electoral process was the clear loser.
I believe that these represent serious challenges to a free and democratic society and the institutions that support it. That is why I cannot sanction Mr. Bloomberg’s desire to change the law so that he can run for election.
If I recall correctly Bloomberg’s first mayoral primary election was scheduled for 9/12/01. That is a day after that transformative event that continues to inform and direct Americans political consciousness. Though we didn’t vote on the 12th, New Yorkers eventually went to the polls and brought this great mayor into office. I am glad that New Yorkers had the wisdom and foresight to elect Mr. Bloomberg.
But the election process and protocol was respected and continued. Mr. Giuliani wanted to run for a third term but thankfully he did not run. This opened the door for Mr. Bloomberg. I remember at the time thinking that whoever takes office under these conditions will be severely tested by the adverse economic and political conditions of the time. Mr. Bloomberg has conquered and mastered the adversity and his constituents are the better for it. Thank you Mr. Bloomberg.
But you can do one more great service to New York and to our country Mr. Bloomberg by stepping down in deference to democracy. During the next four years you can work to get the law changed so you may assume the office you so richly deserve.
Honor the existing term limits law that were enacted to protect against the abuse of power. Honor a crumbling remnant of our rapidly evaporating democratic culture. Your honor is at stake.
Thank you for your service Mr. Bloomberg.
You Tube Video: Johnny Cash, I Am The Nation
You Tube Video: Be Like Mike
Risk: term limits, representative democracy, elections, laws
“The People, Yes!”
The economic recovery program is creating new acronyms faster then Hank Paulson can spend a $100 billion of taxpayers money.
This is an modest attempt to develop a glossary of acronyms so taxpayers can keep track of where, how and who is spending the dough.
EESA: Emergency Economic Security Act
TARP: Toxic Asset Recovery Program
VEPP: Voluntary Equity Purchase Program
LIBOR: London Interbank Overnight Rate
FDIC: Federal Deposit Insurance Corp
SEC: Security Exchange Commission
The US passed EESA to legalize TARP and VEPP to lower LIBOR so the FDIC and SEC can help banks get us out of this xo#*!&^ mess.
You Tube Video: Carl Sandburg: The People Yes!
Risk: language, communication, humanity
Now that the Federal Government has entered the commercial paper market and will serve as a lender of last resort to all types of corporations; we are a bit taken aback by the sweep and scope of power that EESA has conferred on our Treasury Department.
In the Federalist Papers, Publius is very clear about the need for Treasury to raise revenues through the power of taxation. Don’t see anything about going into the commercial lending business. I wonder how this will encourage the private sector to begin lending again?
Music Video: Dean Martin Three Coins in the Fountain
Risk: state monopoly, managed economy
EESA went to the house for a second time. It has passed and will now be signed into law. The Emergency Economic Stabilization Act is loaded with earmarks and special provisions so that congressmen can go home to their districts and brag about bringing home the bacon. It is an unpopular bill. To quote W “I appreciate their leadership.”
I suspect that some congressmen may be dismayed that they received too little for their vote. I wonder what future generations will feel about the value they receive from the passage of this bill? In times of national crisis the price of a senators integrity rises or falls in proportion to its severity. Lets see how the USS EESA performs. Lets see if it raises the our nation from the depths of a looming recession.
We are in this thing together. Everyone has just been impressed as a crewmen on this national ark of economic salvation. I just hope no mutinies occur as we journey through rough seas that are sure to come.
See Risk Rap post: Our Ship of State
I hope that the big suspendered bankers aren’t snickering about the fast one they just pulled. I have visions of them snapping towels at each other in the locker room at some fancy country clubs after a day of hard golf. They’re joking about the fast one Paulson pulled over the country, pulling their cookies out of the fire and keeping the good times rolling.
I hope not. I pray for success, peace and prosperity for everyone.
Music Video: BB King, Bobby Blue Bland, Let The Good Times Roll
Risk: depression, credit market stabilization,
National Federation of Independent Business (NFIB) members had an opportunity to participate in a conference call with Secretary of the Treasury Henry Paulson. Mr. Paulson was keen to solicit the support of NFIB members for the passage of the Emergency Economic Stabilization Act, (EESA).
NFIB members are small business owners who are generally very conservative, free market advocates who vigorously support tax relief, oppose regulatory oversight and large governmental spending programs. NFIB member firms are the entrepreneurs, shopkeepers, service providers and small business risk takers who populate the small stores and office space on Main Street USA.
Small business owners are a politically vocal and influential constituency whose support proponents need to gain passage of EESA. Last night EESA passed the Senate. It will now return to the House of Representatives for a vote. Secretary Paulson asked NFIB members to contact congressmen, senators and media to urge support of EESA passage.
Key points raised were as follows:
FDIC deposit insurance limit was raised to $250,000
EESA Bill included riders with tax cuts and other rebate incentives
EESA has a recoupment provision “put” that allows Treasury to sell assets back to banks at a previously agreed upon price
Failure of EESA will curtail community bank lending activity to small businesses
Large businesses and municipalities dependent on credit markets for short term funding will scale back purchases with small businesses
Current Treasury tools are not sufficient to deal with problem
EESA funding (Federal Budget program cuts) will need to be addressed in next budget cycle
Regulatory frameworks of financial services industry need to be streamlined, strengthened and reformed
Mark to Market of toxic bank assets will help to temporarily address bank solvency and capitalization ratios
Music Video: Blondie, Hangin on the Telephone
Risk: bank solvency, credit, interest rates, recession
The Republicans have turned their back on Wall Street and the EESA. Apparently their feelings were hurt when Nancy Pelosi gave a partisan speech that made some GOP’ers cry.
Other then Ms. Pelosi’s rhetorical fusillade that blew a gaping hole in the collective ego of the GOP, I don’t know what their real reason is other then an ideological commitment to a policy direction that has brought the banking system to the brink of collapse.
Oil is way down on the assumption of much lower demand due to an economic slowdown. Gold is going up as a safe haven for assets. The DOW is down 600 points and the yields on Treasuries continue to plunge.
Republicans can boast their populist credentials as they return to their districts for the coming election. They can blame majority party democrats who control both houses for the legislative failure. Maybe their constituencies are sufficiently capitalized to weather this economic storm.
Liquidity in the credit markets is critical. An important barometer will be lending activity of community banks. No liquidity will acutely show itself in community bank lending.
We seem to be entering a state of perpetual crisis. Anything that is perpetual in nature is not a crisis it is the usual state of things. Any condition of perpetuity is a falsehood and cannot abide.
Welcome to the new normal state of things.
Music: Rolling Stones, Gimmie Shelter
Risk: markets, banking
Hank Paulson, the Senate and Congress are taking earnest steps to hammer out an agreement to create a super fund to acquire toxic bank assets, package them up, securitize the assets and release them in global secondary markets.
The program, Fund for Asset Remediation of Toxicity (FART) is requesting $700 billion dollar capital infusion from taxpayers. Paulson and leading members of the legislative branch of government are pumped to get a deal done and leading democrats are smelling sweet success of pushing this major legislative action through.
Though bipartisan support is strong some republicans are getting a whiff of potential problems in the plan. Tennessee Senator Jim Bunning, says the deal stinks and he won’t support socialists and communists running the Treasury Department. Says Bunning, “We won the cold war. We beat them. Why are they imposing their stuff on us. This reeks to high heaven.”
As part of the deal a special entitlement rider was added to the bill. All banks who participate in the FART program will be required to provide odor eaters to all new loan applicants to make sure that they are comfortable with the terms and conditions of the loan agreement.
Sarah Palin thinks she smells a rat. She said she’s oiling up her 22 and will shot on sight any rat or any rascally critters that will skunk the deal.
McCain and Obama were unavailable for comment at press time.
Music: Loudon Wainwright 3rd, Dead Skunk in the Middle of the Road
Risk: Taking things to seriously