November 14, 2018

Accounting News Roundup: Delaware LLCs; Bitcoin Gains; Fake IRS Agents | 02.14.18

New Hedge-Fund Tax Dodge Triggers Wild Rush Back Into Delaware [Bloomberg]
In the new tax bill, Congress thought it could stick it to private equity and hedge fund managers by requiring them to hold investments for three years in order to have their carried interest income taxed at the capital gains rate. Private equity funds typically hold their investments for a lot longer than three years, so the new rule is unlikely to affect them at all. Hedge funds, on the other hand, sometimes hold investments for very short periods of time, so I imagine lawmakers felt pretty good about limiting the carried interest treatment for them.

But, come on. You knew they were going to find a way around that:

The rule, however, exempts carried interest from the longer holding period when it’s paid to a corporation rather than an individual. To the surprise of legal and accounting experts, the law didn’t specify that it applied solely to regular corporations, whose income is subject to double taxation.

Hedge funds are preparing to exploit the wording: Managers are betting that by simply putting their carried interest in a single-member LLC — and then electing to have it treated as an S corporation — the profit will qualify for the exemption from the three-year holding period and be taxed at the lower rate. The maneuver by money managers contributed to a 19 percent jump in the number of LLCs incorporated during December in Delaware.

Most experts believe there was an error in drafting the legislation, and that the loophole will be closed before long. A Withum partner says that he’s “telling everybody, ‘Don’t do anything at this point,” in case the whole thing blows up in their face.

Barely anyone is paying the taxes they owe on their bitcoin gains [CNBC]
Only 100 of the 250,000 returns filed so far report any cryptocurrency gains and losses, which is lower than what some experts expected. Given the fact that no one knows what they’re doing, I’ll bet everyone is extending to see if something magical comes around to wipe out all the taxes owed.

Shavertown accountant gets prison for bank fraud [TCV]
File to Accountants Behaving Badly: Terrible last-ditch ideas. Richard J. Morgan will serve over 3 years for embezzling $376,225 from his clients, but what’s most enjoyable about this story is his bumbling actions when clearly the jig was up: “When questioned by the IRS, the complaint said, Morgan invented a fake IRS employee who he said was helping him find tax deposits that had been misplaced because of a computer glitch and sent altered bank statements to the federal agency.”

I know lots of people don’t hold the IRS in high regard, but who thinks they wouldn’t confirm Agent So-and-so’s employment? Let’s give our Treasury Department civil servants some credit, guys.

The Metamorphosis: A Tax Season Transformation [McSweeney’s]
Maybe I’ll be an LLC one day, too, she thought to herself.”

Previously, on Going Concern…

Megan Lewczyk wrote about the insecure overachievers in public accounting.

In Open Items, “[D]oes anyone have experience or know anyone who has gone from Tax to Government?

From the archives: All’s Unfair on Valentine’s Day During Busy Season

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Funny homeless guy sign

You Know That Guy Who Panhandles on Your Block? He May Be a CPA.

Anybody out there looking to help their fellow CPA, who’s down on his luck?
The Wall St. Journal is reporting that the former BDO Seidman LLP CEO, Denis Field may have to pay back a portion of $180 million that is being sought by prosecutors in the tax shelter case that involves Field and six others.
Natch, everybody has denied wrongdoing. The charges include conspiracy and tax evasion. Good luck with that.

Prosecutors Seek Ex-BDO Seidman CEO, 6 Others To Forfeit $180M

Partners at Grant Thornton are Just Getting Lazy

Grant-thornton-logo.JPGGrant Thornton is really making our lives easy today: “Grant Thornton has agreed to pay nearly £6,000 in fines and costs after it failed to correctly sign off 43 audit reports.”
Measly fine, obv but 43 audit reports? And a incorrectly signed off report is one that, “had not been signed off by a responsible individual of the firm”.
So apparently the Brits have got their interns signing off on the audits. Gold star for you today, GT.
ICAEW fines Grant Thornton over audit sign-offs [Accountancy Age]