The inauguration of President Barack Obama today presages a series of changes in tax laws and accounting standards that are weighing heavily on senior financial executives and business groups, and will require an increased focus on risk.
Slightly more than half (51%) of the 300 some accountants surveyed by Ajilon Professional Staffing expect the new administration to have a "negative impact on corporate tax policy."
Financial Executives International (FEI) and other business groups hope to stop that from happening by encouraging Congress to include more tax cuts to the economic stimulus plan, which House leaders promise to present to President Obama by Feb.13. Already squelched by Democrats was a proposed $3,000 tax credit for every worker hired or retained.
Still on the table are bonus depreciation, a five-year extension of the net operating loss carry-back and a one-year deferral of the 3% withholding tax for government contracts, according to Charles Rangel, a New York congressman and chairman of the tax-writing House Ways and Means Committee.
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FEI endorsed these proposals and remains "optimistic" they will end up in the final bill "and hopefully one or two more," says Matt Miller, the group's director of tax and economic policy. FEI's taxation committee recently urged house leaders in a letter to also extend the general business credit carry-back to five years from one; temporarily change the treatment of capital losses; extend and strengthen the R&D tax credit and allow foreign subsidiaries of U.S. companies to lend or send money to the United States without adverse tax implications. "All these recommendations would help with liquidity concerns and stimulate the economy," says Miller.
Even as the administration occupies the White House, concerns about tax risk are accelerating, according to a recent Ernst & Young global survey. Some 26% of the 581 tax managers polled say risk issues now take up more than one-fifth of their time, compared with 16 percent two years ago.
Many companies aren't prepared; just 35% say they have documented procedures for managing tax risk that extend beyond legal requirements, though 65% contend they have comprehensive coverage.
A shortage of skilled auditors magnifies the concerns, according to 77% of tax managers in the Ernst & Young study. The accountants in the Ajilon survey back that finding up, but hold out little hope for a remedy. Just 13% say they plan to hire staff to handle the additional work expected this tax season.
Meanwhile, 37% of North American respondents in the Ernst & Young study rated changes in financial standards their main external tax risk. "Uncertain economic times combined with a new administration foretelling tax reform and proposed roadmap of new financial reporting standards have made effective tax risk management and communication across the enterprise vital to success," says Carolyn Colias, Americas director of tax accounting and risk advisory services for Ernst & Young.
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