Corporate and Shareholder Reporting    
SEC Approves PCAOB Rules for Tax Services    Additional Extension of Time to File for Taxpayers Out of U.S. (box)    Financial Service Organizations' Coordinated Effort (box)
 

Lesli S. Laffie, J.D., LL.M.

From the IRS

Corporate and Shareholder Reporting

The IRS announced new regulatory revisions that will reduce the reporting burden on corporations and shareholders, while also making it easier for them to file electronically; see Rev. Proc. 2006-21, TD 9264 and REG-134317-05 (all dated 5/26/06). The announcement is part of an ongoing effort by the Service to remove impediments to e-filing from its regulations. In addition, it simplified, clarified and eliminated various reporting requirements. 

The changes apply to more than 20 regulations involving corporate and shareholder reporting requirements. A number of the revisions address rules governing corporate transactions, such as transfers to a corporation, mergers, spinoffs or liquidations. 

Sec. 351 reporting: For example, Sec. 351 covers transfers of property to corporations. It applies not only to property transfers to large, multinational corporations, but also to transfers to small corporations, such as those formed when a partnership or sole proprietorship opts to become a corporation. 

Before the changes, the Sec. 351 regulations had imposed reporting requirements on anyone who owned a share of a company involved in a Sec. 351 transfer and on the company itself. Those requirements involved 18 information items from shareholders and 20 information items from corporations. 

The revised regulations limit the Sec. 351 reporting requirement to only those stockholders who own either 5% or more of a public company, or 1% or more of a privately held companydrastically reducing the number of stockholders who must file a report. Also, the revised regulations reduce the reportable information to four items: the companys name and employer identification number, the date of the asset transfer, the fair market value and basis of the assets transferred, and the date of any IRS letter ruling. 

The Service will still receive information to help determine compliance, but the amount of information, and the burden on taxpayers, is greatly reduced. There is also a more realistic reporting requirement for shareholders. Indeed, many shareholders will not be required to report at all. 

Electronic filing: The revised regulations also eliminate several requirements for taxpayers to provide their signatures, allowing more taxpayers to file their returns electronically. Most large corporations and tax-exempt organizations are now required 
to file electronically. 

Miscellaneous

SEC Approves PCAOB Rules for Tax Services

The Securities and Exchange Commission (SEC) has approved rules proposed by the Public Company Accounting Oversight Board ( PCAOB) limiting the tax services that accounting firms can offer to companies for which they also serve as the auditor. ( For background, see NewsNotes, PCAOB Rules for Tax Services, TTA, March 2005.)

Ban on some tax services: The new rules bar auditors of public companies from providing the following types of tax services to audit clients:

• Those involving contingent-fee arrangements. ( This rule will not apply if the fees were paid in their entirety, converted to fixed-fee arrangements or otherwise unwound by June 18, 2006.) 

• Tax marketing, planning or advice in favor of tax treatments considered confidential or based on an aggressive interpretation of applicable tax laws and regulations (including listed transactions). (This rule will not apply to services provided by a registered accounting firm that were completed by June 18, 2006.)

• Tax services to certain corporate managers who serve in financial reporting oversight roles at an audit client, or tax services to the immediate family members of such corporate managers. (This rule will not apply to tax services being provided pursuant to an engagement in progress on April 19, 2006, provided such services are completed by Oct. 31, 2006.)

Increased responsibilities: Auditors seeking pre-approval of tax services (as required by the Sarbanes-Oxley Act) are required to:

1. Describe in writing the proposed tax services engagements for the audit committee.

2. Discuss with the audit committee the potential effects of the service on the firms independence.

3. Document the substance of that discussion.

These rules will not apply to any tax service pre-approved on an engagement-by- engagement basis before June 18, 2006. For tax services provided to audit clients whose audit committees pre-approve tax services pursuant to policies and procedures, these new rules will not apply to any such tax service that is begun by April 20, 2007. 

Ethics rule: Effective April 29, 2006, individual accountants and other persons associated with a registered public accounting firm can be held responsible when they contribute knowingly or recklessly to a firms legal, regulatory or professional standards violation.