The Fed’s Stock-Market Dependency Problem

Wall Street Journal

Stocks have been rebounding, but forgive Federal Reserve policy makers if they don’t entirely share investors’ sense of relief. The past few trading days have been good for the U.S. stock market, with the S&P 500 logging its biggest three-day gain since August. And it is easy to come up with reasons why. Saudi Arabia’s and Russia’s plan to cap crude production eased concerns over oil producers’ debt strains. The Chinese stock market didn’t fall apart after its week-long Lunar New Year break, like many investors worried. Recent economic data, including Wednesday’s report on industrial production, came in stronger than forecast, indicating the U.S. economy has so far ridden out the global storm.

IRS Begins EITC Due Diligence Audits

Accounting Today

The Internal Revenue Service has begun conducting on-site inspections of tax preparers who continue to have problems with verifying their clients’ eligibility for claiming the Earned Income Tax Credit, and warned that the penalty has increased. In an email to tax professionals last Friday, the IRS said that in keeping with its EITC Compliance Program, which ensures tax preparers practice proper due diligence, the IRS will begin conducting on-site audits of preparers who received pre-filing season warning letters and whose 2015 EITC returns appear not to have improved.  The IRS said it is also sending acknowledgement alerts to tax preparers who filed two or more tax year 2015 e-filed returns claiming the Earned Income Tax Credit without submitting Form 8867, Paid Preparers’ EITC Checklist. However, the alerts contained the wrong penalty of $500 per return.

IRS Offers Guidance To RICS On Refunds Of Foreign Taxes

Bloomberg BNA

The E.U. Court of Justice recently held that member states could not impose withholding taxes on certain foreign investors and numerous RICs are now seeking refunds of foreign taxes. When a taxpayer claims a credit for foreign tax paid or accrued under §901 and that foreign tax is refunded, §905(c) generally provides that the taxpayer must notify the IRS, which will then redetermine the amount of the taxpayer's U.S. tax liability for the year(s) affected. However, the Code does not explicitly address (1) how §905(c) applies to amounts that were treated as paid by a RIC's shareholders under §853, or (2) the manner in which a RIC and its shareholders may satisfy their obligations under §905(c). The application of §905(c) to amounts that were treated as paid by a RIC's shareholders could lead to significant administrative costs and uncertainty because the identities and addresses of RIC shareholders who claimed foreign tax credits in previous years may not be known.

Internal Auditors Tackling Cybersecurity

Accounting Today

Internal audit practitioners are facing new demands for improving cybersecurity and communicating the risks of cyberattacks to their organizations, according to a new report. The Institute of Internal Auditors’ Audit Executive Center surveyed chief audit executives about internal audit’s efforts to communicate cybersecurity risks to the board and executive management. It found that 40 percent said the audit department provides significant or extremely significant effort, according to the 2016 North American Pulse of Internal Audit. Yet when asked what level of effort internal audit departments should have, 69 percent of respondents said the effort should be significant or extremely significant, a 29 percent gap. Similarly, the gap was 22 percent for ensuring communication and coordination among all parties regarding cybersecurity risk, and the gap was 25 percent for working collaboratively with IT and other departments to build effective defenses and responses.

Stocks Lifted by Oil Rally, Consumer Sector

Wall Street Journal

U.S. stocks completed their first three-day rally this year on Wednesday, rebounding from multiyear lows as some of the anxiety that plagued markets for weeks eased. The change in sentiment sparked rebounds in shares of companies whose fortunes are closely tied to shifts in the U.S. economy, from banks to railroads. Those stocks have been hammered this year amid fears about the financial system and the U.S.’s ability to withstand turmoil overseas. A handful of upbeat U.S. corporate earnings and rumblings of a cap on oil production also boosted sentiment. “The market was deeply oversold and sentiment was really negative,” said Kelly Bogdanov, portfolio analyst at RBC Wealth Management. “Often, when that happens…you end up getting a bounce.” The Dow Jones Industrial Average gained 257.42 points, or 1.6%, to 16453.83. It was the first time ever that it has surged more than 200 points for three sessions in a row.

Champing at the Bitcoin

Crain’s New York Business

Last week, a Skyhook ATM in SoHo was offering Bitcoins to customers at a rate of $430.54. The machine, at the Bitcoin Center on Cleveland Place, is powered by a Nexus 7 tablet and allows users to insert stacks of cash to convert to digital currency. Next to it sits a Genesis ATM that lets users do the opposite: Turn their Bitcoins into stacks of $20 bills. Even with the upfront costs (the Genesis machine sells for $14,000), these machines are bringing their owners serious coin. New York has 43 publicly accessible Bitcoin ATMs, the most of any city in the world, according to the website Coin ATM Radar. The currency is notoriously volatile, but for owners of Bitcoin dispensers, the machines bring a steady source of revenue. Zach Harvey, CEO of Lamassu, which has a machine at Le Village French Petite Bistro in the East Village, told currency news site CoinDesk the average owner sees about $20,000 in cash deposited monthly, netting about $1,100 in commissions.

Possible Changes Afoot to Internal Auditing Standards

Accounting Web

The Institute of Internal Auditors (IIA) proposed changes to its standards for internal audit practitioners on Feb. 1 that are intended to help them meet the challenges and the evolving demands of today’s dynamic business environment. The proposed changes to the International Standards for the Professional Practice of Internal Auditing are focused on three areas: Enhancing existing standards on communications and quality assurance; Creating new standards addressing objectivity in assurance and consulting roles, as well as addressing new roles internal audit functions are taking on; Aligning existing standards to a new set of core principles incorporated into the International Professional Practices Framework (IPPF) last year.

Lawmaker wants to give SEC defendants greater rights

InvestmentNews

Resistance from investment advisers to the Securities and Exchange Commission's use of in-house judges to decide enforcement cases has helped spur a lawmaker's effort to strengthen defendants in the forums. Rep. Luke Messer, R-Ind., a member of the House Financial Services Committee, plans to introduce legislation in coming weeks that would give people appearing in administrative proceedings the same rights to counsel, evidence discovery and avoiding self-incrimination that they would have in federal court. Over the last year, several investment advisers have filed lawsuits against the SEC, charging that the administrative forums are unfair.

Fed Minutes Show Concern About Global Market Turmoil

Bloomberg Business

Federal Reserve policy makers debating their outlook for interest rates last month expressed concern that the fall in commodity prices and the rout in financial markets increasingly posed risks to the U.S. economy. “Participants judged that the overall implications of these developments for the outlook for domestic economic activity was unclear but they agreed that uncertainty had increased,” according to minutes of the Federal Open Market Committee’s Jan. 26-27 meeting released Wednesday in Washington. “Many saw these developments as increasing the downside risks to the outlook.” Policy makers, who projected in December that they’d raise interest rates four times this year, are grappling with the fallout of market turbulence that has cast doubt over the economic outlook globally. Fed Chair Janet Yellen suggested in congressional testimony last week that the central bank could delay its plans for tighter policy to assess how the economy reacts to current headwinds.

SEC proposes new liquidation rules for large broker-dealers

Thomson Reuters

The U.S. Securities and Exchanges Commission proposed a new rule on Wednesday that it said was designed to make the liquidation process for large broker-dealers more orderly and efficient. The new rule would implement part of the Dodd-Frank Wall Street Reform law known as "Title II" that created an alternative insolvency process for large financial companies. The SEC said it would "help ensure that customers are treated in a manner at least as beneficial as would have been the case in a liquidation under the Securities Investor Protection Act," referring to the established course currently followed by broker-dealers in insolvency. "This proposal will help ensure that in the event there is a need for the orderly liquidation of a broker-dealer, the process is handled in a manner that minimizes disruption and promotes public confidence," said SEC Chair Mary Jo White in a statement.

Break Up the Big Banks? Do This First

Wall Street Journal

Break up the big banks? The market​long ago ratified the new position of Minneapolis Federal Reserve President Neel Kashkari: Yes! But at this point in the postfinancial-crisis era, with banks far safer than they have been in years, the government shouldn’t be the lever that pries them apart. That role should fall to shareholders. The problem: So far, they show no sign of having the power to upend the likes of Citigroup Inc. or Bank of America Corp. That needs to change. The numbers speak for themselves: Shares of the six biggest U.S. banks are down 10% to 25% this year. More important, of the six, only Wells Fargo & Co. trades at a price that is more than its book value, or its net worth. In fact, the last time Citigroup or Bank of America traded at a price greater than their net worth was September 2008.