Accountants call on Congress to change corporate minimum tax proposal

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More than 200 accountants and tax experts, including at least two former U.S. accounting standards officials, have called on federal lawmakers not to tie a proposed minimum corporate tax to income measures reported to investors.

According to the proposal, businesses reporting at least $ 1 billion in pre-tax accounting income would have to pay a minimum tax of 15% of that figure, adjusted for a variety of deductions and tax credits. Accounting income is the amount of income that companies publicly report on their financial statements to shareholders.

The plan is one of several corporate tax provisions intended to help pay off the $ 1.85 trillion in spending proposed by the Biden administration for health, education and anti-cancer initiatives. climate change.

The proposal risks politicizing accounting rules, encouraging companies to skew their financial results and unnecessarily complicate tax calculations, experts said in a letter to lawmakers on Thursday.

“It would be cleaner and simpler to simply correct the tax code if there are perceived problems with the tax system”, the letter added.

“There is something fundamentally wrong with the tax code when, year after year, the biggest companies report record profits to their shareholders and pay little or no tax,” the chairman of the Senate finance committee , Ron Wyden (D., Ore.), One of the company’s supporters. minimum tax plan, said in a statement. “There is a gap of over $ 300 billion between what the biggest companies pay in taxes and what they would pay if they simply paid at least 15% in taxes. This needs to be corrected.

Tying taxes to accounting metrics has led companies to try to reduce their tax bills by manipulating financial results in the past, the letter said, citing academic research.

Significant differences between financial and tax accounting rules may complicate the tax calculation process for businesses as well as for the Internal Revenue Service, the letter adds. Among the differences cited: the way the two accounting systems handle joint ventures, minority stakes in non-US companies and entities, according to the letter.

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Letter follows another letter sent late last week by the American Institute of CPAs, a professional association of chartered accountants, which also urged lawmakers to reconsider its approach to a minimum corporate tax.

Among the signatories of the latest letter: Thomas Linsmeier, professor of accounting at the University of Wisconsin who served from 2006 to 2016 on the Financial Accounting Standards Board, the non-profit organization that defines generally accepted accounting principles in the United States. United, or GAAP, and retired Cornell University professor. Thomas Dyckman, who held positions in FASB affiliate groups in the 1980s and early 1990s.

Mr. Linsmeier and Mr. Dyckman confirmed that they signed the letter.

Because the FASB sets accounting rules, the proposal risks leaving important decisions about the corporate tax base in the United States to a non-governmental organization, the letter said.

Lawmakers could seek to become involved in the making of accounting rules, but this would risk politicizing the process, the letter added, noting that the FASB “is separate from the government in order to be free from lobbying and to arrive. ideally to the most appropriate financial accounting standards. “

“You open up a whole new set of problems that the [tax] system doesn’t currently, ”said Jeffrey L. Hoopes, professor of accounting at the University of North Carolina who arranged the letter with Michelle Hanlon, professor of accounting at the Massachusetts Institute of Technology.

Write to Theo Francis at [email protected]

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