Wall Street Journal: Accounting Body Plans to Clarify Rules for Booking New Tax Break:

Accounting-rule makers will clarify how companies should book a huge tax break under the newly enacted tax law. The legislation, dubbed the "American Jobs Creation Act of 2004," cuts by three percentage points, to 32%, the top tax rate on American manufacturers that engage in "domestic production." The reduction will save an estimated 200,000 companies $76.5 billion over 10 years.

The Financial Accounting Standards Board, at a meeting today, will decide whether the tax break should be accounted for as "a special deduction" or as "a rate reduction," said Russell Golden, a senior technical adviser at the FASB. A special deduction would reduce companies’ taxable income over time — just as long as they perform, on a continuing basis, the manufacturing activity that qualifies them for the tax benefits. A rate reduction, by comparison, would require companies to immediately recalculate their deferred income-tax balances, resulting in a one-time effect on earnings. Specifically, the effect of "a tax rate reduction" on earnings would depend on whether a company carries on its balance sheet more in deferred tax liabilities or deferred tax assets.

Wall Street Journal: IRS Is Auditing Bank of America Over Pension, 401(k) Tax Returns:

The Internal Revenue Service is auditing the 1998 and 1999 tax returns of Bank of America Corp.’s pension plan and 401(k) plan in a review that is looking at whether it was legal for the bank’s employees to transfer 401(k) assets to the company’s pension plan.

The Charlotte, N.C., banking company disclosed the audit in its quarterly filing with the Securities and Exchange Commission. Bank of America’s report didn’t elaborate on the nature of the IRS review or the company’s position on the legality of transferring 401(k) assets to the pension plan. The report of the audit comes on the heels of a lawsuit filed this summer by Bank of America employees. The suit asserts that the company used its cash-balance pension plan as part of an "arbitrage scheme" to boost the company’s bottom line at the expense of plan participants.

According to that complaint, the bank, the nation’s third largest in terms of assets, encouraged employees to transfer more than $2.7 billion of 401(k) assets into the bank’s pension plan in 1998 and 2000. The employees’ lawsuit, filed June 30 in a federal district court in Illinois, alleges that those transfers allowed Bank of America to invest the money for higher returns than what the bank would dole out to employees. The suit says the asset transfers violated the Employee Retirement Income Security Act, or Erisa. The bank has said that its cash-balance plans were designed and operated in accordance with applicable law and that it planned to defend itself against the claims in the lawsuit.

Wall Street Journal, Tom Herman: Know Your Optimal Year-End Tax Strategies:

There is a rash of new tax laws that millions of Americans will need to consider when mapping out their year-end tax-saving strategies:

• AMT
• Donating Cars to Charity
• Donating Stock to Charity
• Generating Capital Losses
• Sales Tax Deduction

Wall Street Journal: Russian Taxman Irks Investors:

In September, Procter & Gamble Co.’s Russian operation got a nasty shock. Tax inspectors showed up to audit its detergent factory in Novomoskovsk, south of Moscow, and soon after, P&G got a $1 million bill for back taxes. The inspectors had latched onto a recent court ruling on an arcane aspect of value-added tax. P&G insisted it was wrongly applied, but the matter was resolved only after the Cincinnati consumer-goods company raised the issue with senior government ministers. "No business likes taxes … but we certainly weren’t expecting this," says Andrei Bashkirov, P&G’s tax manager in Moscow. Companies with less clout have been less fortunate, lawyers and executives say.

Overall, the government’s newly toughened line on tax enforcement is creating deep uncertainty among investors, both foreign and domestic. Already worried about property rights and the rule of law in light of the Kremlin’s pursuit of oil giant OAO Yukos companies now fear they could face huge bills — or even criminal charges — for using tax strategies that for years were perfectly legal. There is concern the new rigor may snare law-abiding companies along with cheats.

Wall Street Journal: HCA: IRS Claims Co Owes $397M More In Tax, Interest:

HCA Inc. (HCA) disclosed Tuesday that it is contesting U.S. Internal Revenue Service claims associated with an examination of the hospital operator’s 1994 to 2000 federal income tax returns and other matters. Items under dispute between HCA and the IRS include the company’s timing of patient-service revenue in 2000, the amount of insurance expense deducted in 1999 and 2000 and the amount of gain or loss recognized on the divestiture of certain non-core business units in 1998. The IRS is claiming an additional $397 million in income tax and interest through Sept. 30 associated with those items, HCA said in a quarterly filing with the Securities and Exchange Commission. HCA said it is appealing the IRS claims in the tax agency’s appeals division, the U.S. Tax Court and the U.S. Court of Federal Claims.

Wall Street Journal: Cost of Divorce Just Went Up — In Your 401(k):

It is getting more expensive to get a divorce — and the extra bite is coming out of couples’ retirement plans. A little-noticed change in federal policy means that a growing number of divorcing couples are being billed by employers for the legal and accounting costs associated with splitting up a retirement plan. That charge can reach as much as tens of thousands of dollars — and in a period of low investment returns and high legal expenses for divorce, it is an unwelcome additional cost.

People are just starting to feel the impact of the barely noticed Labor Department policy change, which lets employers withdraw certain legal fees required for dividing up defined-contribution retirement plans such as 401(k)s from a divorcing employee’s account. Previously, employers could choose between paying those costs themselves and splitting them among all plan participants. The fees surround a legal document called a qualified domestic relations order, or QDRO (pronounced QUA-dro), that a divorcing couple must submit to a plan sponsor in order to split retirement accounts and retain tax benefits. QDROs contain basic information about how the money should be divided. Under federal law, a QDRO doesn’t technically become "qualified" until an employer makes sure it fits certain requirements of the tax code, processing that can run from hundreds to thousands of dollars, depending on how much legal advice a company needs.

Washington Post: Rouse Sale Clears Shareholder Vote, IRS:

A Chicago mall developer’s plan to buy Rouse Co. cleared two major hurdles yesterday when the Columbia-based company won shareholder approval for the sale and resolved a tax issue with the Internal Revenue Service that threatened to sink the $12.6 billion deal.

To end its IRS problem, Rouse agreed to pay $23 million in interest, a $21 million penalty and an extra dividend to its shareholders, according to a document it filed with the Securities and Exchange Commission. Rouse executives could not be reached for further comment. The tax issue threatened Rouse’s status as a real estate investment trust. Without REIT status, Rouse would not have been able to satisfy a condition of its sale to General Growth Properties Inc.