US Government's Corporate Transparency Moves Gain Momentum

by Leroy Baker, Tax-News.com, New York

25 May 2004

The US government’s push to increase corporate transparency and ensure that firms report the same amount of income for tax purposes to both shareholders and the Internal Revenue Service is to continue, a Treasury official indicated last week.

Speaking at the spring symposium of the National Tax Association last Friday, George Manousos, tax specialist with the Treasury Department's Office of Tax Legislative Counsel, observed that large firms would be likely to go along with the initiative, as they would be reluctant to backtrack on commitments to clean up corporate America’s image in the wake of recent Wall Street scandals.

"This is not the time when companies are going to say they do not want to increase transparency. Their concern is how we get that increased transparency and how quickly we get it," remarked Manousos.

One proposed measure to allow the IRS to reconcile income reported in corporate income tax returns with that reported to the SEC is a new form known as Schedule M-3, which under the new rules must be completed by all firms with assets of more than $10 million.

However, critics of this system contend that the asset threshold has been set too low, and will impose an onerous compliance burden on relatively small firms.

For example, accounting firm Grant Thornton, in written comments to the IRS, observed that many mid-sized firms are likely to require outside help to complete the form and many smaller companies will not have the sophisticated accounting procedures in place assumed by the Schedule M-3.

Grant Thornton recommended that a more appropriate asset threshold to begin using Schedule M-3 would be $250 million.

Manousos indicated that the Treasury is hoping to finalise the new form by June of this year, with a view to it being used by large and mid-sized firms by December 31 2004.

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