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IRS 2008 draft forms released: Speak now or forever hold your peace KPMG sponsorship brings baseball to inner city children in Los Angeles
KPMG report lists most tax-favorable cities Who bears the tax burden in the U.S.? Industry blog helps accounting professionals deal with today's issues Government reports faulty oversight at SBA
The draft forms reflect changes suggested in comments received from the initial drafts released in Aug. 2007. "The draft revisions and new forms will increase transparency about the ownership and relationships between entities that make up complex enterprise business structures," said Frank Y. Ng, Commissioner of the Large and Mid-Size Business Division of IRS. "This will enable IRS to better assess compliance risk." The major change to Form 1120 is to Schedule K and involves reporting direct and indirect ownership. When ownership meets certain percentage thresholds, it must be reported on Schedule K. Certain questions on Schedule K have been revised for this reporting. The new Schedule B (Form 1120) is required of corporations that file Form 1120 Schedule M-3. Schedule B (Form 1120) will provide IRS information about allocations, transfers of interest, cost sharing arrangements, and changes in methods of accounting. The major changes to the Form 1065 also involve ownership issues. When ownership meets certain percentage thresholds, it must be reported on Schedule B (Form 1065). The revised Schedule B (Form 1065) will also be used to provide information about cancelled debt, and like-kind exchanges that the partnership may have participated in at any time during the tax year. For small partnerships, the asset threshold for filing Schedules L, M-1 and M-2 with Form 1065 has been increased from $600,000 to $1,000,000. New instructions for Item J of Schedule K-1 (Form 1065) clarify how partnerships determine partners' percentage share in the profit, loss, and capital at beginning and end of the partnership's tax year. The redesigned forms are available at the IRS Web site. Questions and comments regarding these changes only should be e-mailed to the IRS at Judith.A.McNamara@irs.gov by Aug. 25, 2008.
IRS to release instructions for new Form 990 The upcoming release of revised Form 990 (2008) instructions will be accompanied by background documents which will explain changes made to the draft instructions in response to public comments. These changes will include the following: 1. A revised definition of key employee for purposes of reporting executive compensation, transactions with interested persons, and other items. In general, the three prong definition will require reporting as a key employee only those persons, other than officers, directors, and trustees, who (a) had reportable compensation exceeding $150,000 for the year (the "$150,000 test"); (b) had or shared organization-wide control or influence similar to that of an officer, director, or trustee, or managed or had authority or control over at least 10 percent of the organization's activities (the "responsibility test"); and (c) were within that group of the organization's top 20 highest paid persons for the year who satisfied both the $150,000 test and the responsibility test. The IRS anticipates the complete revised set of draft instructions for the core form and all schedules will be posted on the IRS web site by Aug. 15, 2008. Because IRS Forms and Publications will not complete its review and formatting of these instructions until later this year, the upcoming release will be in regular text format rather than the standard triple-column format used for official and final forms. KPMG sponsorship brings baseball to inner city children in Los Angeles "As we launch the 16th annual RBI World Series, it is important to note that these games feature more than just great baseball and softball," said Allan H. (Bud) Selig, Commissioner of Baseball. "This year we have been able to recognize and reward the off-field talents of many young athletes through the RBI for RBI scholarship program, jointly funded by Major League Baseball and KPMG. On behalf of Major League Baseball, I congratulate every player and coach who has reached the Series. RBI is a great example of Major League Baseball's commitment to reaching out to and providing boys and girls the opportunity to play the game and improve their lives." In addition to the round robin RBI World Series tournament, participating teams will attend Major League Baseball games and welcome receptions that feature guest speakers such as Don Newcombe, Director of Community Relations, Los Angeles Dodgers; Sharon Robinson, daughter of baseball legend Jackie Robinson and MLB Educational programming consultant; Tom Brasuell, Vice President, Community Affairs, Major League Baseball; Tim Flynn, Chairman and CEO, KPMG; Bruce Pfau, Vice Chair, Human Resources of KPMG and Princess Palmer, Partner for KPMG. Earlier this year, RBI presented by KPMG program announced the "RBI for RBI" scholarship Fund, a new initiative created by Major League Baseball and KPMG to provide financial support in the form of scholarships to selected recipients who participate in an RBI League. Six $5,000 "RBI for RBI" scholarships are being awarded to select high school seniors. This year's recipients will be recognized on Wednesday evening at the welcome reception of the RBI World Series presented by KPMG. RBI and the RBI World Series presented by KPMG are supported by KPMG and the Cal Ripken, Sr. Foundation -- which are committed to helping expand and enhance the program. KPMG, which became the first presenting sponsor of the RBI Program in June of 2007, assists RBI with expanding and enhancing the program and through the development of financial literacy and other life skills courses. In addition to the more than 250 volunteers who supported this year's RBI Regional presented by KPMG tournaments, KPMG volunteers will assist in facilitating the 2008 RBI World Series. "Over a thousand of our employees have served RBI this year as volunteers and have found working with these youth tremendously rewarding. We are all very proud to contribute to such a worthwhile program," said Tim Flynn, Chairman and Chief Executive of KPMG LLP. "We salute the regional winners on their achievements and wish them the best of luck in the World Series." Since it was established in 1989, the RBI program has provided a path for many players to enter the college and professional game. More than 180 RBI participants have been drafted by Major League Clubs in the program's 19-year history. Economic anxiety has nearly tripled among consumers in past six months The latest Yankelovich tracking of economic worries finds that 37 percent of consumers feel severe economic anxiety, a number that has nearly tripled in only six months. In the first wave of tracking in January 2008, only 14 percent of consumers felt severe economic anxiety, while 19 percent felt high anxiety and 32 percent felt moderate anxiety. "As the price of gas and other necessities rise, consumer anxiety is following suit," said J. Walker Smith, president of Yankelovich MONITOR. "This has huge implications for marketers, because people will continue to make significant cutbacks." According to Smith, the often ambiguous and sometimes conflicting economic indicators don't show the reality of the current economy. "What matters is what people feel. And what people feel right now is verging on panic," said Smith. "What the economy needs most right now is firm, confident leadership -- a strong voice to steady the nerves and boost the resolve of consumers." The big question is who will step up to calm consumer anxiety. "Political leaders aren't doing it, so business leaders must," Smith said. "Our data show a clear need for something in addition to a fiscal stimulus; there is a huge need for leadership. Economic anxiety is too high to be solely a function of pocketbooks alone. People want to budget, economize and save money, but they want a reason to believe in their economic futures again, too." Back to school shoppers planning to spend less this year The Deloitte study shows 71 percent of parents expecting to spend less on back-to-school shopping this year than they did in 2007. Other surveys predict that back to school totals will increase slightly for the kindergarten to grade 12 groups or be flat for the year. Nearly nine in 10 people surveyed by Deloitte said they will shop at discount and bargain stores. They plan to look for sale items, purchase only what they need, and will use coupons. Higher gas and food prices were cited as the most common reasons for spending less this year. The National Retail Federation's 2008 Back to School survey predicts that spending in most categories will be flat, but families with school-aged children will spend 5 percent more on back-to-school items, $594.24 per family, compared with $563.49 last year. The slight spending increase will be driven by consumer electronic purchases and economic stimulus payments, CNNMoney.com says. America's Research Group predicts that back-to-school spending this year will fall as much as 2 percent. A study conducted by International Council of Shopping Centers found that 90 percent of households will shop for everything at discount stores. That's up 16 percentage points over last year, foxbusiness.com reports. The Deloitte survey results indicate that 19 percent plan to shop for back-to-school items online or from catalogs. The shifts in consumer spending patterns for back-to-school items may not be limited to one shopping season, foxbusiness.com reports. "There's some element of this that is permanent," said Stacy Janiak, Deloitte's U.S. retail leader. "We don't know how big of an element that is yet but I don't think our gas prices and food prices are going to go back to where they were." Estimates of the expected percentage decline in back-to-college spending vary. The National Retail Federation's survey predicts that spending in this category will drop 7 percent from $641.56 per person in 2007 to $599.38 this year, according to CNNMoney. BIGresearch predicts that college students will spend 12 percent less this year, foxbusiness.com says. One reason for the drop in spending by college students may be that this has been the worst summer employment season for teenagers in more than 30 years, according to Britt Beemer, president of America's Research Group. "Over the years summer jobs have provided about 19 percent of the dollars teenagers and college students spend of their own money on back-to-school apparel," Beemer said. "That's a huge shift out there that can't be replaced," foxbusinessnews.com says. But a new school year still means new clothes and other hot items as well as necessities like backpacks and pencils. Linda Kowalske, assistant manager of the Baraboo, Wisconsin Wal-Mart Supercenter, thinks her store will be successful this year. "People are already buying items children need, especially electronics," she said. "Computer makers are putting different types out there now to make buying a laptop cost effective." Terry Sutton of J. C. Penney in Baraboo thinks that girls will still want their Hannah Montana clothes. "We have the fashion here that people will want," he said, according to wiscnews.com. Chains are marketing to young shoppers and teens through the media. Kmart is sponsoring the new reality show, "High School Musical," on the Disney Channel. Various scenes will be in Kmart stores and Kmart products will be featured. "We are delighted to be working with ABC Television and "High School Musical: Get in the Picture" to showcase Kmart as a modern, hip, fun brand," said Andrew Stein, interim Chief Marketing Officer, Kmart. Marketing core service and niche practices after Sarbanes-Oxley SOX 404 compliance is a significant niche practice for Thompson Dunavant PLC, the largest Memphis-based CPA firm, according to the Memphis Business Journal. "We work with companies on their SOX compliance, and I help market those services to our clients and to other public companies we know are going to have to comply with the same regulations," says Megan Murdock, marketing coordinator. Murdock helped to organize a SOX 404 conference held at Christian Brothers University in June, where George M. Wilson, CPA, vice president and principal of the SEC Institute was keynote speaker. The conference demonstrated Thompson Dunavant's prominence in SOX compliance. "We . . . invited a lot of companies in the Southeast region, so we [were] providing a service for them and at the same time trying to promote our risk management and assurance services practice," Murdock said. In Aug., Thompson Dunavant is planning to start a Webinar series on their niche practices. David Curbo, audit director of Cannon and Co., another Memphis-based CPA firm, says that although they have become more aware of marketing because the environment is more competitive, their basic approach to marketing has not changed. "We tend to be more aware of building our referral network, networking with clients, attorneys, bankers, other business people, etc. But the basic approach hasn't changed," the Memphis Business Journal says. Although Cannon & Co. performs audits in specialized areas that large firms cannot do because of Sarbanes-Oxley, Curbo does not think that his firm is large enough to justify an investment in a marketing department. Even though prospective clients will rarely select an accounting firm from an Internet search, an up-to-date Web site that introduces the firm and its specialized practices is a vital marketing tool, according to Bruce Clark writing for Accounting Today. Firms should make their Web sites come alive with video or even music. Low cost improvements might include video of a promotional presentation that can be transferred from a CD-ROM. If a company does not have a promotional video for a specialized practice, it should consider producing one. Another low-cost addition to a Web site would be the storage of electronic newsletters that the firm sends out to clients and prospects. Rusty Butcher, partner and firmwide director of financial institutions at HORNE LLP says that while his firm has a marketing group, the marketing is "more for public relations and advertising," the Memphis Business Journal reports. A business development team at HORNE calls prospects and targets to introduce the firm, and engagement teams market to existing clients. When an outbound telemarketing effort directs prospects to an informative Web site, it can be a good investment, according to Clark. "Not only will this drive tremendous traffic to your site, it will also result in appointments with potential clients, which should be the main reason for doing telemarketing in the first place." KPMG report lists most tax-favorable cities Of the 35 large international cities highlighted in the study, San Juan, Baltimore and Atlanta all rank in the top ten -- first, eighth and ninth, respectively. And among the 10 countries in the study, the U.S. ranked fifth in terms of the favorability of its overall tax structure for business. KPMG's 2008 Competitive Alternatives: Focus on Tax study is a global comparison of the total tax burden that may be faced by companies in 102 cities throughout 10 countries including corporate income taxes, capital taxes, sales taxes, property taxes, miscellaneous local business taxes and statutory labor costs. The study is intended to provide a guide for companies wanting to compare the tax burden they may incur in different cities around the world. "Cities across the United States recognize that attracting and retaining businesses of all sizes is important for a vibrant local economy," said Hartley Powell, national leader of the Strategic Relocation and Expansion Services practice at KPMG LLP, the U.S. member firm of KPMG International. "As the survey results indicate, certain cities are leaders in developing a tax environment that encourages business development, and tax costs are a key consideration in the site selection process." According to the study, San Juan had a total tax index of 46.6 representing tax costs 53.4 percent below the U.S. national average of 100.0. San Juan was followed by Baltimore and Atlanta at 92.1 and 95.1, respectively. Other high-ranking large U.S. cities included Tampa, Fla. (98.1), Detroit (98.6), and Phoenix (98.8). Industry Classifications The results of the study also vary depending on the type of business. As a location for R&D operations, the three cities with the most cost-effective tax structure in the large-sized city category were San Juan (61.8), Baltimore (88.4), and Portland, Ore. (88.5). For manufacturing operations, where property taxes and taxes on equipment and capital are of interest, the three, large-sized U.S. cities with the most cost effective tax structure were San Juan (42.4), Baltimore (91.3), and Atlanta (95.3). The services industry, on the other hand, tends to be most affected by statutory labor costs. The top three, large-sized U.S. cities with the most favorable tax structure for services included San Juan (65.5), Atlanta (92.7) and Baltimore (94.2). Mid-sized Cities In the mid-sized city category (populations between 500,000 and 2 million), the top cities included Omaha, Neb. (94.2), Greenville-Spartanburg, S.C. (95.2), Little Rock, Ark. (95.7), Milwaukee, Wis. (96.0), Youngstown, Ohio (97.1), Raleigh, N.C. (98.1), McAllen, Texas (98.5), Buffalo, N.Y. (98.9), and Salt Lake City, Utah (99.1). Small-Sized Cities In the small-sized city category (populations between 100,000 and 500,000), the top cities included Saginaw, Mich. (92.0), Cheyenne, Wyo. (92.1), Cedar Rapids, Iowa (92.1), Sioux Falls, S.D. (92.8), Shreveport, La. (92.9), Lexington, Ky. (93.0), and Montgomery, Ala. (95.2). The full text of the 2008 study by KPMG International is available online. Total tax indexes for all large-sized U.S. and affiliated cities studied follow. KPMG's 2008 COMPETITIVE ALTERNATIVES FOCUS ON TAX STUDY City Total Tax Index Rank The total tax index is a measure of the total taxes paid by corporations in a particular location and industry, expressed as a percentage of total taxes paid by similar corporations in the United States. Thus the United States has a total tax index of 100.0, which represents the benchmark against which the other countries and cities are scored. Who bears the tax burden in the U.S.? Now that the 2006 IRS figures are out, we know that almost all taxes that were collected were paid by people labeled as "the rich." Supporters of tax cuts have been claiming for years that it is the rich who pay the lion's share of taxes. But this time, the news is even more telling. Thanks to President Bush's 2003 tax cuts, total tax payments by the rich have never been higher… and not because of inflation. According to the Treasury Department, the number of millionaires in the U.S. nearly doubled between 2003 and 2006, from 181,000 to 354,000. Part of the reason for that increase is that favorable capital gains rates encouraged Americans to invest more, and corporations that pay lower tax rates are more able to pay dividends. But also, history shows that when taxpayers feel tax rates are fair, they are less likely to invest in tax shelters or to simply hide income, and more likely to report what they actually earned. John Kennedy and Ronald Reagan both knew and proved that theory. President Kennedy said, "It is a paradoxical truth that tax rates are too high today and tax revenues are too low and the soundest way to raise revenues in the long run is to cut rates now." Under his administration, the top tax rate was cut from a high of over 90 percent to 70 percent causing many naysayers to swoon. The result? Tax revenues climbed from $94 billion in 1961 to $153 billion in 1968, an increase of 62 percent. During this time, the rich saw their share of taxes increase from 11.6 percent to 15.1 percent. Under Ronald Reagan, tax revenues in the 80s climbed 99.4 percent. For the top 1 percent of taxpayers, their share of total tax rose from 17.6 percent in 1981 to 27.5 percent in 1988. In 2003, millionaire households paid $136 billion in taxes, or 19 percent of all taxes. Then tax rates were cut, and naysayers including those in the Congressional Budget Office and the Tax Policy Center woefully predicted that a trillion dollars in lost revenue would result. Instead, in 2006, millionaire households paid $274 billion in taxes, about 40 percent of all taxes. In the same period, the deficit as a percentage of GDP fell from 3.5 percent in 2003 to 1.9 percent in 2006. The same naysayers that wrongly predicted a trillion dollar loss didn't learn from their error. Now they predict that if the Bush tax cuts are repealed, the federal coffers will rake in a cool extra trillion. Time will tell, but if history is an indicator, the naysayers will not be laughing all the way to the bank, but the ones who qualify as "rich," that is, with incomes of at least $108,904, will be hocking their jewels to pay their own tax bills, if they aren't too busy hunting for tax shelters. Here's how the figures break down. The top 1 percent of taxpayers (those with incomes of at least $388,806) earn 22 percent of all U.S. income, but pay 40 percent of the total tax. The top 5 percent of taxpayers (with income of at least $153,542) earn 37 percent of all U.S. income, but pay 60 percent of all tax. The top 10 percent of taxpayers (those with incomes of at least $108,904) earn 47 percent of all U.S. income, but pay 71 percent of the total tax. The top 50 percent of taxpayers (those with incomes of at least $31,987) earn 87 percent of all U.S. income, but pay 97.1 percent of the total tax. The lower 50 percent of earners in the U.S. (those making below $31,987) earn less than 13 percent of all U.S. income, collectively pay only 2.9 percent of the total tax. Because of refundable credits like the Earned Income Credit, many pay nothing yet get refunds. In 2006, taxpayers who earned less than $32,001 and had at least one child or those who did not have children, earned less than $12,120 and met other criteria were eligible for the EIC. The IRS reports that in 2006, $43.7 billion was paid out in Earned Income Credits. Sources:
Industry blog helps accounting professionals deal with today's issues Payne says that "a 'career peak' is a point in your life where you feel your career ceases to hold the allure it once had; a time when you don't feel inclined to set goals you really want to strive for and which therefore act as a motivational force for you." Payne says, "Some people career peak early in their life and others peak later, but from talking to lots and lots of people in the profession, I believe it's the norm rather than the exception." Payne regularly posts blogs that deal with issues impacting the accounting profession on his company's Web site. This week's blog has created a lot of interest with many professionals commenting on its relevance to them. One professional said, "There is a fair degree of burn-out in the early-mid 40s and, in effect, they feel that there is nothing left." Other comments include, "Career peaking results in a slowing down in motivation, a lessening of pressure, and the dimming of enthusiasm and energy." Ric Payne, known as an industry thought leader, encourages everyone in the accounting profession to read his blogs and discuss any issues that may be of relevance to them. His blogs not only examine the state of the professional landscape but they also address issues and ideas that today's professionals should be thinking about to build a firm with a future. For example, on the issue of career peaking, Payne suggests dedicating time to build a new practice by transferring half or all of your existing clients to another partner and concentrating on bringing on new clients who you will enjoy working with, given their potential to grow; "who you really get a kick out of working with," says Payne. "Professional development programs and useful mentoring will also be beneficial to help understand the condition of career peaking". About Principa More than 6,700 advisors around the world have graduated from Principa's flagship programs – the Accountants' and Business Advisors' Boot Camps – and have discovered how to run a better practice, deliver value added consulting services, and enjoy their work again. Government reports faulty oversight at SBA Internal SBA investigators charged in the memo that the SBA also disregarded evidence in its own records suggesting that "independent contractors" hired by Blackwater to do security work for the State Department in Iraq were actually under Blackwater's supervision. It is unclear how or whether the SBA will follow up on the findings, according to commentary on PilotOnline.com. Anne Tyrrell, a Blackwater spokeswoman, called the SBA memo "unnecessarily speculative." She released a statement asserting that everyone working in Iraq on government contracts with Blackwater is "under the direct operational control of the United States government" and not working for Blackwater. The GAO's investigating team, headed by Gregory Kutz, managing director of forensic audits and special investigations, found serious problems in monitoring and accountability in the SBA's HUBZone program, which awards $8 billion worth of federal contracts annually. One of the tests that highlighted weakness involved four bogus companies created by GAO investigators -- including one that shared the same address as a Starbucks coffee shop -- that were certified by the agency for the contracting breaks, BizJournal's Washington bureau reports. SBA Acting Administrator Jovita Carranza told the House Small Business Committee that the SBA is taking steps to remedy the problems, including replacing the manager of the HUBZone program, requiring site visits to companies that are awarded contracts, and barring companies that misrepresented their HUBZone eligibility from receiving federal contracts. The SBA has also announced that it is contracting with an independent auditor to perform an in depth analysis of the entire program. "This audit will be the basis to make several more program improvements: introduce proper internal controls, make necessary policy changes, training, process improvements, IT modernization to handle the additional controls and processes, implement quality controls to ensure data integrity, and to identify the weaknesses in the program on an ongoing basis," according to the agency's memo. Kutz said that it was "too early to tell" if these efforts would be successful. "We haven't seen a fraud prevention plan yet," he said according to bizjournals. The first of the government's recent reports of oversight weaknesses at the SBA was produced by the inspector general of the Department of the Interior (DOI) who found that contracts listed as going to small businesses went to Fortune 500 corporations including Xerox Corporation and the John Deere Company, The New York Times reports. While the results of that investigation, released on July 1, revealed only $5.7 million in misdirected contracts, Earl Devaney, the department's inspector general said that what his audit team uncovered was just the "tip of the iceberg" because they had reviewed only three-tenths of a percent of contracts. "These are not just clerical mistakes that can be tagged on two little clerks," Devaney said. "This is not one single report, but our fourth in the contracting area." The SBA had responded that errors in coding had been found in the contract files. Xerox and John Deere said they were moving to correct the errors and Senator John F. Kerry (D-MA) who heads the Senate Committee on Small Business and Entrepreneurship called for all federal agencies to audit their small business contracting practices, The New York Times reports. Molly Brogan, vice president of the National Small Business Association says that the situation is much better, however, than it was five years ago, according to a bizjournals report. "The SBA deserves some credit for reducing the number of miscoded contracts and holding contracting officers more accountable."
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