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Congressman Dave Camp (R-MI), Chairman of the Committee on Ways and Means, today announced that the Committee will hold the first of two hearings on how accounting rules affect how businesses evaluate tax policy. This hearing will focus on the interaction of tax policy and financial accounting rules (such as Generally Accepted Accounting Principles, or “GAAP”), and how this interaction affects how publicly-traded companies respond to tax policy. The second hearing will focus on the special challenges faced by small and closely-held businesses that are less concerned with GAAP but must confront tremendous complexity in dealing with tax accounting and related rules such as choice of entity. The hearing will take place on Wednesday, February 8, 2012, in Room 1100 of the Longworth House Office Building, beginning at 9:00 A.M.
In view of the limited time available to hear witnesses, oral testimony at this hearing will be from invited witnesses only. However, any individual or organization not scheduled for an oral appearance may submit a written statement for consideration by the Committee and for inclusion in the printed record of the hearing. A list of invited witnesses will follow.
Publicly-traded companies and other businesses that rely on outside investors must prepare financial statements (e.g., balance sheets and income statements) in conformity with GAAP. The impact of federal tax liability on certain key GAAP calculations, however, can diverge significantly from a company’s actual cash tax liability. For instance, full expensing of capital investments can improve a company’s cash flow in the short term, but it does not improve a company’s earnings per share (“EPS”) as calculated under GAAP. Thus, comparing a rate cut with expensing requires consideration of the impact of financial accounting considerations on business investment decisions.
More generally, tax policymakers might create unintended consequences when they enact tax policies without considering how such policies will affect financial statements. For instance, tax provisions might not work as intended if the GAAP treatment of such provisions diverges sharply from the effect on cash flows. Conversely, when policymakers structure tax policy around financial statement effects, they run the risk of adding complexity to the tax code in order to try to conform tax laws with financial reporting rules that were created without tax considerations in mind.
In any case, the large and growing number of enacted and proposed temporary business tax incentives and other provisions creates planning and economic uncertainty for public and private companies alike, and diminishes the intended policy objectives of these provisions. As a result, companies across the business community have identified the need to bring stability to our tax laws as a key tax reform objective.
In announcing this hearing, Chairman Camp said, “As the Committee evaluates tax reform options intended both to make the United States a more attractive place to locate activity and to simplify tax compliance for business taxpayers, it is important to understand how financial accounting rules influence behavior. Tax policy does not exist in isolation, and the Committee needs to understand the interaction between tax policy and accounting rules so that we make informed decisions about which policy choices will help employers grow and create jobs.”
FOCUS OF THE HEARING:
The hearing will consider how public companies evaluate tax policy options in light of financial accounting considerations. It will examine whether tax legislation works as intended when Congress fails to account for the effects of financial accounting on corporate behavior.
DETAILS FOR SUBMISSION OF WRITTEN COMMENTS:
Please Note: Any person(s) and/or organization(s) wishing to submit written comments for the hearing record must follow the appropriate link on the hearing page of the Committee website and complete the informational forms. From the Committee homepage, https://waysandmeans.house.gov, select “Hearings.” Select the hearing for which you would like to submit, and click on the link entitled, “Click here to provide a submission for the record.” Once you have followed the online instructions, submit all requested information. ATTACH your submission as a Word document, in compliance with the formatting requirements listed below, by the close of business on Wednesday, February 22, 2012. Finally, please note that due to the change in House mail policy, the U.S. Capitol Police will refuse sealed-package deliveries to all House Office Buildings. For questions, or if you encounter technical problems, please call (202) 225-3625 or (202) 225-2610.
The Committee relies on electronic submissions for printing the official hearing record. As always, submissions will be included in the record according to the discretion of the Committee. The Committee will not alter the content of your submission, but we reserve the right to format it according to our guidelines. Any submission provided to the Committee by a witness, any supplementary materials submitted for the printed record, and any written comments in response to a request for written comments must conform to the guidelines listed below. Any submission or supplementary item not in compliance with these guidelines will not be printed, but will be maintained in the Committee files for review and use by the Committee.
1. All submissions and supplementary materials must be provided in Word format and MUST NOT exceed a total of 10 pages, including attachments. Witnesses and submitters are advised that the Committee relies on electronic submissions for printing the official hearing record.
2. Copies of whole documents submitted as exhibit material will not be accepted for printing. Instead, exhibit material should be referenced and quoted or paraphrased. All exhibit material not meeting these specifications will be maintained in the Committee files for review and use by the Committee.
3. All submissions must include a list of all clients, persons and/or organizations on whose behalf the witness appears. A supplemental sheet must accompany each submission listing the name, company, address, telephone, and fax numbers of each witness.
The Committee seeks to make its facilities accessible to persons with disabilities. If you are in need of special accommodations, please call 202-225-1721 or 202-226-3411 TTD/TTY in advance of the event (four business days notice is requested). Questions with regard to special accommodation needs in general (including availability of Committee materials in alternative formats) may be directed to the Committee as noted above.
Note: All Committee advisories and news releases are available on the World Wide Web at http://www.waysandmeans.house.gov/.