More than 200 accounting and tax professionals, including at least two former U.S. accounting standards officials, have urged federal lawmakers not to tie a proposed minimum corporate tax rate to income measures reported to investors.
The proposal would require companies with a pre-tax book gain of $ 1 billion or more to pay a minimum tax of 15% of that figure, adjusted for a variety of deductions and tax credits. Book income is the income that companies publicly report to shareholders in their annual financial statements.
The plan is one of a series of corporate tax regulations designed to help pay for the $ 1.85 trillion proposed spending by the Biden government on health, education and climate protection initiatives.
Subscribe to Newsletter
WSJ | CFO journal
The Morning Ledger provides daily news and insights into corporate finance from the CFO Journal team.
The proposal risks politicizing accounting rules, encouraging companies to skew their financial results and making tax calculations unnecessarily difficult, the experts said in a letter to lawmakers on Thursday.
“It would be cleaner and easier just to correct the tax number when problems with the tax system are noticed,” the letter said.
“Something is fundamentally wrong with the tax code when the largest companies report record profits to shareholders year after year and pay little or no taxes,” said a spokeswoman for the chairman of the Senate Finance Committee, Ron Wyden (D., Ore.), one of the funders of the company’s minimum tax plan, it said in a statement. “There’s a gap of more than $ 300 billion between what the largest corporations pay in taxes and what they would pay if they just paid 15 percent or more in taxes. That has to be fixed. “
Linking taxes with accounting measures has led companies to reduce their tax burdens by manipulating past financial results, the letter said, citing earlier academic research.
Significant differences between financial accounting and tax accounting regulations could complicate the tax calculation process for businesses as well as the Internal Revenue Service, the letter added. Among the divergences mentioned: How the two accounting systems, according to the letter, handle joint ventures, minority stakes in companies and non-US companies.
The letter follows another letter from the American Institute of CPAs, a trade association for accountants sent late last week, which also urged lawmakers to reconsider its approach to a minimum corporate tax.
Among those listed as signing the most recent letter: Thomas Linsmeier, an accounting professor at the University of Wisconsin who served on the Financial Accounting Standards Board from 2006-2016, the non-profit that promotes generally accepted accounting principles in the United States ( GAAP), and retired Cornell University professor Thomas Dyckman, who held positions in FASB-affiliated groups in the 1980s and early 1990s.
Mr. Linsmeier confirmed that he had signed the letter. Mr. Dyckman did not immediately respond to a request for comment.
Because the FASB sets accounting rules, there is a risk that important decisions about the U.S. corporate tax base will be left to a non-governmental organization, the letter said.
Legislators could try to get involved in accounting rules, but doing so would politicize the process, the letter added, noting that the FASB “is demarcated from the government to be free from lobbying and ideally to be part of the AM to achieve the best suitable accounting standards ”. . “
“They open up a whole new set of problems that the [tax] System doesn’t currently have, ”said Jeffrey L. Hoopes, an accounting professor at the University of North Carolina, who organized the letter with Michelle Hanlon, an accounting professor at the Massachusetts Institute of Technology.
—Richard Rubin contributed to this article.
Write to Theo Francis at email@example.com
Copyright © 2021 Dow Jones & Company, Inc. All rights reserved. 87990cbe856818d5eddac44c7b1cdeb8