Paul L. Caron

Monday, September 2, 2019

WSJ: Companies Say They Can Ignore Cost Of U.S. Tax Rules For Financial Reporting Purposes

Wall Street Journal, Companies Say They Can Ignore Cost of U.S. Tax Rules:

Consumer-products conglomerate Newell Brands Inc., facing $180 million to $220 million in taxes because of Treasury Department antiabuse regulations, isn’t recognizing those costs in its financial statement, contending the new rules aren’t valid.

The move presages a legal fight between companies and the government. Beyond tax revenue, the outcome may shape the government’s ability to implement some of the most sweeping provisions of the 2017 tax law while Congress remains deadlocked over technical fixes.

Newell, which makes Sharpie markers, Mr. Coffee machines and Rubbermaid containers, told investors this month it was so confident the government’s rules will fall that it didn’t have to take an earnings hit. The tax cost would have swung the company from profit to loss in the second quarter. Maxim Integrated Products, an analog chip maker, made a very similar disclosure to its investors. ...

Accounting experts say that, in general, companies are expected to recognize expenses once they are quantifiable and sufficiently likely to occur. Where they can make the case that the position taken on their income taxes is likely to withstand a challenge, companies may be able to convince their auditors to sidestep recognizing the expense. ...

The corporations’ complaints are the leading edge of a legal challenge to the temporary, retroactive regulations, which the Treasury released in June to stop and overturn what it saw as abusive transactions made during gaps created by the 2017 tax law. ...

Newell and Maxim both wrote in securities filings that they believe they have strong arguments in favor of their position, enough to conclude that they are more likely than not to prevail in any challenge to the tax position they have taken. A court case could turn on the government’s regulatory authority to implement congressional intent, the viability of retroactive regulations and the question of whether the language of the statute was so clear that the Treasury and IRS didn’t have any ability to act. ...

“This will be litigated,” [David Rosenbloom, an international tax lawyer at Caplin & Drysdale,] said. “This is not going to go down like chocolate sauce.”

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Shouldn't the public know about tax avoidance even when the big guys *are* pretty sure it'll work?

I'm asking my Congresspeople to repeal Internal Revenue Code section 6110(b)(1)(B), which is about keeping "closing agreement" settlements under wraps (whereas other "written determinations" are released - with personally identifying information deleted - to prevent a body of "secret law"). And to request periodic statistical reports under IRC 6108 about financially important issues the IRS feels are unclear or difficult to enforce.

The Taxpayer First Act they just passed expects settlements to be "fair and impartial to both the Government and the taxpayer, promote[ ] a consistent appliaction and interpretation of, and voluntary compliance with, the Federal tax laws, and enhance[ ] public confidence in the integrity and efficiency of the Internal Revenue Service."

But the Treasury Inspector General for Tax Administration's 2016 report "Barriers Exist to Properly Evaluating Transfer Pricing Issues", 2017 "Better Documentation Is Needed to Support Office of Appeals' Decisions on International Cases", and 2019 "Few Accuracy-Related Penalties are Proposed in Large Business Examinantions, and They are Generally Not Sustained on Appeal" suggest to me they need some transparency to get there.

Posted by: Anand Desai | Sep 2, 2019 11:59:34 AM