The House Ways and Means Committee is analyzing the Tax Simplification Act of 2002, a bill introduced late last week by Congressman Rob Portman, R-OH, and co-sponsored by 10 other Republican congressmen. The bill includes a repeal of the corporate and individual Alternative Minimum Tax, acceleration of some of the features of the Bush tax bill enacted last year, and an annual exclusion for $250 ($500 for married taxpayers filing jointly) of interest and dividend income.

The bill, H.R. 5166, is filled with many provisions that remove outdated portions of the tax code, and other provisions simplify and clarify current areas of the code that are confusing.

"Our current tax code is a mess," said Representative Portman in a press release. "It is filled with provisions that are complicated, confusing and contradictory. My legislation will take significant steps toward making our tax code simpler so that taxpayers can spend less time calculating their taxes."

According to a report published by the New York Times, the capital markets have good reason to worry about corporate earnings this year. Companies have at least three good reasons to drag all the skeletons out of the closet and try to wipe the slate clean with an earnings restatement. The three reasons:

But a backlash of sorts is already developing. Joseph Floyd, a director at Huron Consulting, is advising clients to listen carefully to managers and accountants, but also to "push back" and resist if anyone wants to restate earnings without a very good reason. "There are technical rules on when a restatement should occur," he explained. "If a company revises earnings reports only because its managers and directors want to apply a more conservative accounting approach to the past, they may be subject to SEC penalties." ("Re-computing Earnings With Lawbook and Eraser," New York Times, July 2, 2002.)

The Internal Revenue Service and the U.S. Treasury Department released proposed regulations this week that clarify the tax rules relating to split-dollar life insurance arrangements.

A split-dollar life insurance plan is one in which premiums and/or benefits of the plan are split between two parties. The new proposed regulations seek to provide guidance for tax assessments relating to these types of plans.

The application of the proposed rules depends on the ownership of the policy. If an employer is making payments on a policy that is owned by an employee, the premium payments that contribute to the cash value of the policy will be considered loans, and market-rate interest will be imputed and taxable to the employee until such time as the employee repays the employer for the premiums. If the employee is not expected to repay the employer for the premiums, then the amount of the premiums will be taxed as ordinary income to the employee at the time the premiums are paid. Alternatively, premiums may be treated as a transfer of the increase in case value. At present, the IRS has not chosen to tax cash surrender value that exceeds the amount of premiums.

If the employer is the owner of the plan, the employee will be taxed on the "economic benefit" he or she derives from the plan, including the value of life insurance protection and dividends earned. For purposes of determining the value of life insurance protection, taxpayers may refer to the premium rate table that appears in IRS Notice 2002-8 that was released earlier this year. This new table has been revised to reflect current mortality rates.

Although the IRS has revoked Revenue Ruling 55-747, the rate tables published in that ruling may still be used for determining the value of current life insurance protection for life insurance plans in place prior to January 28, 2002.

The new guidance is in the form of proposed regulations and it is expected that the insurance industry may lobby for changes to these rules. A public hearing on the proposed regulations is scheduled for October 23, 2002, at 10 a.m., Room 4718, Internal Revenue Building, 1111 Constitution Ave. NW, Washington D.C. Written comments, which must be received by October 7, 2002, may be sent to: Internal Revenue Service Attn: CC:ITA:RU (REG-164754-01), Room 5226, P.O. Box 7604, Ben Franklin Station, Washington, D.C. 20044

In light of the new Securities and Exchange Commission (SEC) requirement that corporate executives attest to the validity of their financial statements, there has been a wave of companies coming forward and asking to revise their financials before the August 14 SEC deadline.

On June 28, the SEC ordered that corporate officers must personally certify that their most recent reports filed with the Commission are both complete and accurate. The SEC also published a list of 945 companies whose chief executive and chief financial officers are now required to comply with the new order.

Officers will be able to offer explanations as to why they refuse to certify the report and that information will be made public. "Our goal is to supply a very clear picture of who's been in compliance and who has not," said Mr. Nester.

Although companies will not be allowed to modify existing reports, it appears from the statement the corporate officers are asked to sign that they will be able to file additional, corrected reports. The officer is to attest, "based on a review of the covered reports of [company name], and, except as corrected or supplemented in a subsequent covered report...," that his company's report contains no untrue statements of material fact and no omissions that would make the report misleading.

Meanwhile, many smaller companies not included in the original list of 945 are coming forward and voluntarily offering to certify statements and then issuing press releases to make sure investors are aware of their compliance.

Clarification - July 22, 2002: An SEC spokesman said today that there has been no change regarding modification of financials. Companies can still amend their filings, just as they did prior to the certification order. The covered reports in the certifications include 10Ks, 10Qs, 8Ks, all definitive proxy materials, AND any amendments of these forms.

By a vote of 362-61, the House of Representatives has approved a measure to provide an above-the-line tax deduction for long-term health care expenses, such as nursing home costs. Under current law such expenses are allowed as a tax deduction only to taxpayers who itemize deductions and then only to the extent that such expenses, combined with other deductible medical expenses, exceed 7.5% of the taxpayer's adjusted gross income.

It is estimated that the tax cut will provide $5.3 billion in savings to taxpayers over the next 10 years. Only taxpayers in lower tax brackets will qualify for the deduction. Individual taxpayers with adjusted gross income between $20,000 and $40,000, and married taxpayers who file jointly and whose adjusted gross income is between $40,000 and $80,000 will qualify for the deduction. The deduction, if made into law, will be phased in over 10 years.

It is the hope of the members of Congress that passage of this bill will encourage taxpayers to purchase private insurance and rely less on the federal Medicare and Medicaid programs. "If we don't put incentives in for individuals, our public funds will be depleted," said Representative J.D. Hayworth (R-AZ), sponsor of the bill.

Other provisions of the bill include a tax deduction for the care of a dependent in a taxpayer's home and expanded access to Archer Medical Savings Accounts (MSAs).

Dissenters of the bill, such as Representative Fortney Stark (D-CA) claim the bill is not designed to help taxpayers as much as it is designed to "bail out the insurance industry."