FASB is coming up on the launch of its “codification” effort, as it streamlines rules into more of a single-source organization.  The initiative is designed to make guidelines more navigable, and while it will make things easier in the long run there undoubtedly will be some short term pain.

As CFO magazine points out in their recent piece on the new FASB Code:

The debut of the online filing cabinet promises to streamline GAAP by grouping all rules into roughly 90 topics, and should draw a sharper distinction between authoritative and non-authoritative GAAP. However, less than three weeks away from the launch, there are still many unknowns, including whether or not the FASB’s promise that GAAP is not changing will turn out to be true.

With questions still swirling, MFA invites those trying to get ahead of the issue to download more background on the FASB accounting standards codification or for a higher level look, register for this week’s webinar on the purpose of the new codification and the best way to make the transition.

The International Accounting Standards Board made another attempt to bring order to the global uncertainty around fair value.  This serves as one more step to closing the distance between GAAP and IFRS, and according to this article from Accounting Today the guidance defines fair value as “the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date,” or the exit price.

I noted in March that Mary Schapiro may be looking to slow the convergence process; even so, agreement on fair value continues to be a dominant point of discussion.

Interesting red flag thrown up by CFO magazine in its recent article on the new administration’s multinational tax plan.  Quoting from the story, “President Obama is pushing Congress to rework tax rules affecting U.S. multinational corporations so that more revenue will flow back into the United States - about $210 billion over the next 10 years, according to the Treasury Department.”

This will be accomplished in large part through the expense-deferral rule, which will restrict deferring tax payments on cross-border profits.

The outlook sheds new light on the international tax story, which we checked in on in this MFA Business Insights post from last month.  We like to keep an eye on these global tax themes, as the opportunities to strengthen business by conducting operations overseas continue to have great appeal.

An interesting look ahead, flagged for us by our peers at TaxProf Blog: Mihir A. Desai (Harvard Business School) has posted a new paper on evolving tax policy for companies operating overseas. Check out Securing Jobs or the New Protectionism?: Taxing the Overseas Activities of Multinational Firms; the abstract reads:

Tax policy toward American multinational firms would appear to be approaching a crossroads. The presumed linkages between domestic employment conditions and the growth of foreign operations by American firms have led to calls for increased taxation on foreign operations - the so-called end to tax breaks for companies that ship our jobs overseas. At the same time, the current tax regime employed by the U.S. is being abandoned by the two remaining large capital exporters - the UK and Japan - that had maintained similar regimes. The conundrum facing policymakers is how to reconcile mounting pressures for increased tax burdens on foreign activity with the increasing exceptionalism of American policy. This paper address these questions by analyzing the available evidence on two related claims - i) that the current U.S. policy of deferring taxation of foreign profits represents a subsidy to American firms and ii) that activity abroad by multinational firms represents the displacement of activity that would have otherwise been undertaken at home. These two tempting claims are found to have limited, if any, systematic support. Instead, modern welfare norms that capture the nature of multinational firm activity recommend a move toward not taxing the foreign activities of American firms, rather than taxing them more heavily. Similarly, the weight of the empirical evidence is that foreign activity is a complement, rather than a substitute, for domestic activity. Much as the formulation of trade policy requires resisting the tempting logic of protectionism, the appropriate taxation of multinational firms requires a similar fortitude.

A reminder that May is fast approaching, and with it comes the deadline for companies to apply to be considered for the Massachusetts Life Sciences Tax Incentive Program. That date is May 15, and qualifying companies will benefit from the $1 billion investment Massachusetts is making in life sciences over 10 years.

Specific tax incentives include an Investment Tax Credit for 10% of the cost of qualifying property, of which 90% may be refundable, as well as new credits for certain R&D, changes to existing R&D credits (again, of which 90% may be refundable) and an extension of the Net Operating Loss carryforward from 5 to 15 years.

We outline these incentives and more in this Tax Alert, and of course feel free to comment or contact us with questions.

As noted on the FEI blog, FASB is taking more steps towards addressing fair value.  Specifically, the organization has released staff positions that will help assess the environment and make appropriate determinations.  This kind of proactivity helps FASB to at least appear as if they’re prioritizing the issue, which we wondered about on MFA’s Business Insights back in January.

The recent passage of the Stimulus Package (American Recovery and Reinvestment Tax Act of 2009) creates a wealth of tax planning opportunities for 2009 and 2010. The goal of the Stimulus Package is to provide money to taxpayers; the Government’s plan is create an incentive for taxpayers to spend their money in order to stimulate the economy and create jobs.

As the saying goes, “the devil is in the details” – most of the new rules are complicated, technical and temporary. The Stimulus Package includes a wide range of components, many of which can be broken out into three main categories intended to impact particular taxpayers and various aspects of the economy. The three main categories include Individuals, Small Businesses and Low Income/Unemployed Taxpayers.

• Individuals – Families, Education, Real Estate and Auto Industry.

• Small Businesses – Additional Depreciation Elections, Net Operating Losses, Conversion of C-Corp to S-Corp, Work Opportunity Credits.

• Low Income/Unemployed Taxpayers – Enhanced unemployment benefits, COBRA health insurance subsidy, One-time Social Security benefit payments.

Some of the more prominent tax law provisions in the Stimulus Package are available for 2009 and 2010 only; (more…)

As we continue to adapt to the downturn, there are a number of factors around the valuation of companies that are coming into play and, in the end, motivating leaders to re-value options.  We’re seeing this trend develop in real time, and it prompted us to put pen to paper for our most recent Perspectives article, “Giving Stock Options A Second Look: The benefits of new grants at low values.”

In a nutshell, there is some opportunity that comes with economic free-fall: those companies that provide options are now in a position to get a new valuation and re-energize their workforces with incentives.  That means that even as downsizing and paycuts spread out across the country, management still has the power to provide strong compensation packages.

As we write in the article:

When the profits don’t exist to pass on in the way of high compensation, stock options are routinely used to incentivize the employee base and retain key people. With fair values near rock bottom, companies are seizing this opportunity to strategically grant additional options or reprice existing stock options.

(more…)

The question of whether fair value is, well, “fair” could be sorted out sometime soon, although the priority placed on addressing the issue remains in question.  This is reflected nicely in a pair of CFO Magazine articles that paint a picture of a true tug-of-war going on from ocean to ocean.

As the magazine writes in its January 20 article, What’s More Important than Fair Value? Plenty a panel of experts from the Financial Crisis Advisory Group (FCAG), assembled by the International Accounting Standards Board and the Financial Accounting Standards Board, met in London to discuss where the focus should lie over the next year:

The call to shut down fair-value accounting, especially for financial instruments in illiquid markets, may be waning…For his part, former U.S. Securities and Exchange Commission chairman and FCAG cochair Harvey Goldschmid said that the group had reached something of a consensus about keeping fair value accounting, but working to improve it.

On the other hand, the magazine also reported on January 16 in Volcker Calls for a New Look at Fair Value that a new report by the Group of 30 suggested a greater sense of urgency.  It states:

Calling for a fresh look at current mark-to-market financial reporting rules, Paul Volcker, a top economic adviser to President-elect Obama, has signed off on a financial-reform program more sympathetic to bankers’ views than the current Financial Accounting Standards Board’s fair-value regime has been thought to be.  The group [of 30 recommends that] fair value accounting principles and standards should be reevaluated with a view to developing more realistic guidelines for dealing with less liquid instruments and distressed markets.

We will continue to monitor the seesaw of motivation; as the new administration begins work, will fair value modifications rise to the top of the To Do list?

As we keep our feet under us making the transition to a new year, we also have to keep our eyes on changes to the tax code that will impact filers. Every state has its annual updates, and we did an extensive walkthrough of Massachusetts changes at our tax seminar towards the end of 2008.

An online version of state-specific information is posted here, and some highlights include:

- significant incentives designed to spur innovation, especially for life sciences companies

- combined reporting that alters the way multi-state corporations will calculate income

- corporate tax rate reductions that better align C corps and S corps

We encourage you to check out the presentation, and to let us know if there are other 2009 questions that we should take a look at.