Accounting Experts Ask Congress to Change Proposal on Minimum Corporate Tax

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

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

The plan is one of a number of corporate tax provisions intended to help pay for the Biden administration’s $1.85 trillion in proposed spending on healthcare, education and climate-change initiatives.

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

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

“There’s something fundamentally wrong with the tax code when year after year the biggest corporations report record profits to shareholders and pay little to no taxes,” Senate Finance Committee Chairman

Ron Wyden

(D., Ore.), one of the backers of the corporate minimum-tax plan, said in a statement. “There’s a more than $300 billion gap between what the biggest companies are paying in taxes and what they would be paying if they simply paid at least 15 percent in taxes. That needs to be fixed.”

Linking taxes to accounting measures 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-accounting and tax accounting rules risk complicating the tax calculation process for companies as well as the Internal Revenue Service, the letter added. Among the divergences cited: how the two accounting systems handle joint ventures, minority stakes in companies and non-U.S. entities, according to the letter.

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The letter follows another letter sent late last week by the American Institute of CPAs, a trade association for certified public accountants, that also urged lawmakers to reconsider its approach to a minimum corporate tax.

Among those listed as signing the latest letter:

Thomas Linsmeier,

a University of Wisconsin accounting professor who served from 2006 to 2016 on the Financial Accounting Standards Board, the nonprofit organization that sets U.S. generally accepted accounting principles, or GAAP, and retired Cornell University professor

Thomas Dyckman,

who held positions with groups affiliated with FASB in the 1980s and early 1990s.

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

Because FASB sets accounting rules, the proposal risks turning over significant decisions about the U.S. corporate tax base to a nongovernmental organization, the letter said.

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

“You’re opening up a whole new set of problems that the [tax] system currently doesn’t have,” said

Jeffrey L. Hoopes,

a University of North Carolina accounting professor who organized the letter with

Michelle Hanlon,

an accounting professor at the Massachusetts Institute of Technology.

Write to Theo Francis at [email protected]

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