Accounting News Roundup: Tax Reform; GM Dumps Deloitte for EY; Fax Machines | 09.28.17

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How’s tax reform coming along?

The Trump Administration is making progress on tax reform, people. Back in April, officials released a one-page set of bullet points. Yesterday, after months of hard work, Trump and Congressional Republicans presented “Seven pages of general highlights and a disturbing absence of detail” according to Tony Nitti. No matter how you slice it, seven is greater than one. Great job, everyone.

Tony’s post is catnip for tax nerds, but in general, the highlights include: 1) Reducing the top corporate rate from 35 percent to 20 percent; 2) Consolidating individual income brackets into 12, 25, and 35 percent; 3) Doubling the standard deduction and eliminating personal exemptions; 4) Reduce the tax rate on pass-through entities to 25 percent. Oh, and 5) It isn’t even close to being revenue neutral, meaning that it’s just a massive tax cut, not tax reform.

The framework — it’d be generous to call it a plan at this point — also eliminates the estate tax, the state and local tax deduction, and partially limits the corporate interest deduction. To make up for the latter, it allows for full expensing of capital investments for five years. The mortgage interest deduction remains, however, as one expert said, “only people with very large charitable contributions or million-dollar homes will benefit from it,” due to the increase in the standard deduction.

One potential problem that Neil Irwin of The New York Times dove into is the reduced pass-through rates. For wealthy taxpayers, there’s an incentive to source all their income through an S-Corporation, LLC or partnership to avoid the 35 percent individual rate in favor of the 25 percent pass-through rate. Treasury Secretary Steve Mnuchin has said that accounting firms — which are mostly partnerships — aren’t going to enjoy this reduced rate “that’s clearly [individual] income.” But as anyone who’s familiar with the tax code knows, what’s “clearly income” is never clear. Regardless, I think I’ll set up an LLC and offer my services to Going Concern as a consultant.

Things promise to get interesting when Congress finally releases a bill with all the fleshed out details. For now, along with everything above, Scott Greenberg has an excellent summary at the Tax Foundation, the Tax Policy Center has its takeaways, and Richard Rubin’s Twitter feed is indispensable. And here, have some charts.

Auditor musical chairs

We don’t follow the auditor musical chairs like we used to, but General Motors dumping Deloitte for Ernst & Young seems notable:

General Motors Co. (NYSE: GM) announced today that the Audit Committee approved and its Board of Directors unanimously ratified the appointment of Ernst & Young LLP as the company’s independent registered public accounting firm for the fiscal year ending Dec. 31, 2018.

The action reflects the company’s and the GM Board of Directors’ commitment to strong corporate governance, by introducing a fresh perspective.

May you have many happy years together, GM & EY.

Fax machines

I didn’t know fax machines were still a thing, but apparently they are, and the blockchain will be the final nail in the coffin:

The finicky, archaic fax machine still somehow survives in the back offices of some big financial institutions. But this technology may finally face extinction as execs update their operations with blockchain-based systems.

Take SEB, a Nordic bank that is working with Nasdaq to create a new mutual fund trading platform. Right now, the process can involve placing orders by fax and following up with phone calls, just the sort of lengthy, manual routine that’s ripe for automation. The companies think blockchain technology, the distributed ledger that backs bitcoin, could improve the process. Similarly, Daimler, the maker of Mercedes-Benz cars, is working with a German bank on a blockchain-based loan process that would allow it to scrap its fax machines once and for all.

Of all the hype around blockchain, killing off fax machines might be the most trivial thing yet. I’m rooting for fax machines.

Previously, on Going Concern…

KPMG CEO Lynne Doughtie knows that you suck at golf.

In Open Items, someone wants to transfer to a different group within their practice. Also: Dangers of working in public accounting and technology roles for accountants.

In other news:

  • FASB proposes technical corrections to 2 standards
  • ‘Network issue’ causes global airport delays
  • National Coffee Day is tomorrow, so you better queue up now.
  • Hugh Hefner is dead.
  • “Way of the Future has not yet responded to requests for the forms it must submit annually to the Internal Revenue Service (and make publically [sic] available), as a non-profit religious corporation. However, documents filed with California show that Levandowski is Way of the Future’s CEO and President, and that it aims ‘through understanding and worship of the Godhead, [to] contribute to the betterment of society.'”

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