Microsoft Issues Urgent Security Alert for IE Browsers

The American Institute of CPAs' top technologies list for 2002 ranks business and financial reporting at the top of the list. The topic rose from No. 3 in 2002. AICPA suspects this rise was driven by concerns raised in the wake of Enron. Wayne Harding, a member of the AICPA's Top Technologies Task Force and Information Technology Executive Committee, officially announced the 2002 rankings during a presentation at the AICPA's TECH 2002 Conference in Washington.

"The very nature of financial reporting - its purpose and significance - is now a major part of the national debate," explained Mr. Harding, "so it makes sense that reporting applications would figure so prominently on the list."

The full listing of the top ten issues for 2002, in order of importance, is as follows:

1. Business and Financial Reporting Applications

2. Training and Technology Competency

3. Information Security and Controls

4. Quality of Service

5. Disaster Recovery (includes business continuation and contingency planning)

6. Communication Technologies - Bandwidth

7. Remote Connectivity Tools

8. Web-based and Web-enabled Applications (Internet)

9. Qualified IT Personnel

10. Messaging Applications (e-mail, faxing, voicemail, instant messaging)

The rankings were determined by a web-based survey of those who hold the CITP (Certified Information Technology Professional) credential. Additional details are available on the applications, issues, technologies and emerging technologies included in the AICPA's survey.

Standard & Poor's stepped into a standard-setting vacuum and introduced a new set of definitions for measures of corporate earnings commonly used by the financial community. The newly-defined measure of core earnings will soon take on added importance, as the firm plans to incorporate this measure into its COMPUSTAT database for the U.S. and in its U.S. equity indices, including the S&P 500.

In addition to core earnings, Standard & Poor's considered "as reported" earnings, operating earnings and pro forma earnings. Highlights of definitions from the firm's white paper are as follows:

o As reported earnings include all charges except those related to discontinued operations, the impact of cumulative accounting changes, and extraordinary items as defined by generally accepted accounting principles.

o Operating earnings start with as reported earnings and exclude charges seen as corporate or one-time expenses. The paper says this measure is popular in corporate reports and seems to have been borrowed from management accountability reporting that is designed to measure business unit performance excluding corporate-level costs.

o Pro forma earnings originally meant a special analysis of a major change, such as a merger, where adjustments were made for an "as if" review. However, in recent times, the specific items included in "as if" reviews have not been clearly defined, leading to confusion and abuses.

o Core earnings include all the revenues and costs associated with a company's ongoing operations. These earnings include employee stock option grant expenses, restructuring charges from ongoing operations, write-downs of depreciable or amortizable operating assets, pension costs, and purchased research and development expenses. They exclude goodwill impairment charges, gains or losses from asset sales, pension gains, unrealized gains or losses from hedging activities, expenses related to mergers or acquisitions, and litigation or insurance settlements and proceeds.

In a fact sheet of frequently asked questions, Standard & Poor's answered the question: Why use core earnings to recalculate a company’s operating earnings? Aren't current accounting practices sufficient? Its answer: In the last few years, the reliability of earnings reports has dramatically decreased. As Standard & Poor's business is based on providing investors with reliable information, analysis and advice, it believes it is time for the investment community at large to take corrective action. . . . Earnings reports must be understandable, consistent and transparent.

The IRS is about to make history if it is successful with its plan to make incentive stock options (ISOs) and employee stock purchase plans (ESPPs) vulnerable to Social Security, Medicare, and other payroll taxes. Normally it's Congress that makes the rules about what does and doesn't get taxed, but this time the IRS is stepping into the circle and trying to assess a new tax that will add an estimated $23 billion to the federal coffers over the next 10 years.

Last fall, the IRS issued proposed regulations that clarify the law on withholding payroll taxes on ISOs and ESPPs and suggested that the withholding would be effective on January 1, 2003, leaving Congress with over a year to address the law.

During the past week the IRS held a public hearing at which members of the Securities Industry Association, the American Benefits Council, the Software Finance and Tax Executives Council, the American Payroll Association, the National Association of Stock Plan Professionals and others joined executives from Microsoft and Texas Instruments to speak out against the action.

Two bills that would overturn the plan are making their way through the Senate and voting is expected on them this summer. One bill is Senate Bill S 1383 and is sponsored by Senators Pat Roberts, R-KS, and Hillary Clinton, D-NY. The other is a bill sponsored by Representative Amo Houghton, R-NY. The Houghton bill has been attached to the Pension Security Act, HR 3762.

The House of Representatives has voted overwhelmingly to support an acceleration of the elimination of the marriage penalty from the standard deduction.

With a vote of 409-1 - only Representative Alan Mollohan (D-WV) voted against the measure - the House voted to begin eliminating the marriage penalty in 2003 instead of 2005 as originally scheduled.

Complete elimination of the marriage penalty will be accomplished when the standard deduction and the 15% income tax bracket for married filing jointly taxpayers is equal to exactly twice, or 200%, that of a single taxpayers. The original timetable for equalizing taxes among single and married taxpayers looked like this:

o 2005: Standard deduction for married filing jointly taxpayers goes to 174% of standard deduction for two single taxpayers; 15% tax bracket goes to 180% that of single taxpayers.

o 2006: Standard deduction for married filing jointly taxpayers goes to 184% of standard deduction for two single taxpayers; 15% tax bracket goes to 187% that of single taxpayers.

o 2007: Standard deduction for married filing jointly taxpayers goes to 187% of standard deduction for two single taxpayers; 15% tax bracket goes to 193% that of single taxpayers.

o 2008: Standard deduction for married filing jointly taxpayers goes to 190% of standard deduction for two single taxpayers; 15% tax bracket goes to 200% that of single taxpayers.

o 2009: Standard deduction for married filing jointly taxpayers goes to 200% of standard deduction for two single taxpayers.

Under House Bill HR4626, the equalization timetable would be changed to include an increase in the standard deduction for married filing jointly taxpayers beginning in 2003 to 170% of the standard deduction for two single taxpayers. All other relief measures would remain the same.

In 2001 the standard deduction was $4,550 for single taxpayers (or $9,100 for two single taxpayers) and $7,600 for married taxpayers filing joint returns. This represents a 164.8% disparity in the standard deduction between taxpayers who choose to get married and those who choose to stay single. Opponents of this disparity feel the additional tax burden on married taxpayers is actually a penalty for being married.

The House bill also modifies the Work Opportunity Credit and the Welfare-to-Work Credit, combining the two credits into one with a single set of requirements and rules. It is expected that this tax bill would reduce taxes by $906 million over a period of 10 years. You can view the complete text of the bill by entering HR4626 at the Thomas Web site.

The bill now goes to the Senate, where it is not expected to be met with as warm a reception as it was given in the House.

IRS Extends Tax Breaks From

Net Operating Losses

The Internal Revenue Service (IRS) is extending the time period for claiming tax breaks made available in March 2002 to individuals and businesses with net operating losses in tax years ending in 2001 or 2002.

Because of the timing of the Job Creation and Worker Assistance Act of 2002, many taxpayers filed their tax returns before this new law was passed and have not yet filed for refunds. Some may have been unaware that they could carry their losses back for five years, instead of the two year maximum allowed under prior law. Others may have felt time or cost pressures to make elections to forego the 5-year carryback. As a result, Revenue Procedure 2002-40 gives taxpayers additional flexibility and more time to take advantage of the new 5-year carryback.

An extended filing deadline of October 31, 2002 is designed to help taxpayers in a variety of situations:

o Taxpayers who made elections to forego the 5-year carryback can still revoke their elections.

o Taxpayers who simply applied the former 2-year period without making any elections can still apply for tentative carryback adjustments, even if the 12-month period for filing the application has expired.

o Taxpayers who neither made elections to forego the 5-year carryback, nor used the 2-year carryback period, can still make their elections to keep the 2-year period.

To make an election or apply for a refund, corporations should file Form 1139, "Corporation Application for Tentative Reform" or Form 1120X "Amended U.S. Corporation Income Tax Return." Individuals should file Form 1045, "Application for Tentative Refund," or Form 1040X, "Amended U.S. Individual Tax Return." Estates and Trusts should file a Form 1045 or amended Form 1041, "U.S. Income Tax Return for Estates and Trusts." Write across the top of the form, "Revocation of NOL carryback waiver under Rev. Proc. 2002-40" or "Amended refund claim under Rev. Proc. 2002-40," as applicable.

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