Viagra ruled kosher for Passover

Good News: A way has been found to prevent Viagra from coming into contact with the body a leading Israeli rabbi has ruled that the anti-impotency pill Viagra can be taken by Jews on Passover, reversing a previous ban.

Justices Rule IRAs Protected in Bankruptcies

The Supreme Court unanimously agreed on Monday that individual retirement accounts, like pensions, should be shielded from bankruptcy creditors. The ruling in Rousey v. Jacoway settles an issue that had divided lower courts and could have exposed billions of dollars in IRAs to being used to pay off debts.

 

High Court Shields IRAs in Bankruptcy Cases

The unanimous decision came in a case involving a bankrupt Arkansas couple fighting to keep more than $55,000 in retirement savings, the Associated Press reported. The ruling puts IRAs in the same protected position in bankruptcy cases as pensions, 401(k)s, Social Security and other benefits tied to age, illness or disability.

The pending bankruptcy law overhaul, which the House is expected to send to President Bush as early as Wednesday, would explicitly shield from creditors not only tax-exempt retirement savings accounts, but also education-savings deposits made one year or more before a bankruptcy filing.

The bill generally would make it harder for individuals to erase all their debts under Chapter 7 bankruptcy proceedings. Many people instead would have to file under Chapter 13, which requires repayment of debts over time.

WASHINGTON - The Supreme Court gave bankrupt Americans another layer of financial protection Monday, ruling that creditors cannot seize their Individual Retirement Accounts.

The unanimous decision shields a nest egg relied upon by millions of people. The justices said IRAs should join pensions, 401(k)s, Social Security and other benefits tied to age, illness or disability that are afforded protection under federal bankruptcy law.

Top court protects IRAs

Supreme Court rules unanimously that accounts are shielded from creditors in bankruptcy proceedings.

April 4, 2005: 12:39 PM EDT

WASHINGTON (Reuters) - The Supreme Court ruled Monday that individual retirement accounts, a popular way to save for retirement used by millions of Americans, are shielded from creditors in bankruptcy proceedings.

The unanimous high court reversed a ruling that a bankrupt Arkansas couple could not keep from creditors the money in IRAs that they rolled over from an employer-sponsored retirement plan.

Social Security benefits, company pensions, 401(k) plans and other benefits tied to age, illness or disability are protected under federal bankruptcy law.

The issue of whether tax-deferred IRAs also are exempt from creditors could affect hundreds of thousands of people every year, lawyers in the case have said. More than 45 million Americans have IRAs and about 1.6 million declared bankruptcy in 2003.

The case involved Richard and Betty Jo Rousey, who had accumulated $55,000 in a company-sponsored pension. After they each left the company, they rolled the money into two IRAs.

The out-of-work couple filed for bankruptcy in 2001 and sought to shield the money in the IRAs.

In the court's 14-page opinion, Justice Clarence Thomas said, "The bankruptcy code permits debtors to exempt certain property from the bankruptcy estate, allowing them to retain those assets rather than divide them among their creditors."

"The question in this case is whether debtors can exempt assets in the Individual Retirement Accounts (IRAs) from the bankruptcy estate....We hold that IRAs can be so exempted," he wrote.

Thomas said IRAs fulfilled both requirements under the law for an exemption. They confer a right to receive payments based on age and are similar to plans or contracts cited in the law, such as stock pensions or annuities.


See related link... for all the details...

When the Fed Is Tightening, a So-So Market Isn't Bad By JONATHAN FUERBRINGER Published: April 17, 2005
FTER seven quarter-point interest rate increases by the Federal Reserve, it may appear that rising rates are really bad for stocks. After all, the equity market has been stalled for most of this year.
But in some respects, the stock market has not done that poorly. Since May 28, a month before Fed policy makers began tightening the monetary screws, the Standard & Poor's 500-stock index is up 2 percent, even after a 3.3 percent swoon last week.
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That's not great by the standards of the late 1990's, but it is not a bad performance during a cycle of Federal Reserve rate increases. Before June, there had been eight periods since 1971 in which the Fed systematically raised its short-term benchmark interest rate, the federal funds rate on overnight loans between banks, to slow growth and to fight inflation.
The average increase in the S.& P. 500, from a month before the rate increases began to a month after they ended, was 3.5 percent; the index rose in six of the eight periods. The biggest loss was 26.6 percent, from February 1972 to August 1974. The biggest gain was 16.4 percent, from November 1986 to March 1989.
So a climb of 2 percent in the stock index in the current, not yet completed, cycle is comparatively good. In the cycle from January 1994 to March 1995, by contrast, the Fed raised the benchmark rate to 6 percent, from 3 percent. By the time the rate was up to 4.75 percent - representing the same 1.75 percentage point increase as in the current cycle - the S.& P. 500 was down 0.4 percent.
This year's climb in the S.& P. 500 has come despite plenty of negatives: crude oil prices hit a record $58.20 a barrel in intraday trading on April 4. A sudden surge in interest rates last month sent the yield on the Treasury's 10-year note to a nine-month high of 4.64 percent. And there is the prospect of slower growth in corporate profits for the rest of the year.
But doing well in tough circumstances is little comfort. Investors, money managers and analysts are still worried about how much further and how fast the central bank will go in raising interest rates. The best of this cycle's stock market rally - whatever it amounts to - is not likely to come until investors are pretty sure that the end of rate increases is nigh.
But predicting the end is becoming more complicated, with all the economic and other crosswinds now buffeting the stock and bond markets.
Despite the Fed's increase in its short-term rate benchmark to 2.75 percent, from 1 percent, longer-term rates are still below where they were in June 2004, when this cycle began. And although the yield on the Treasury's 10-year note popped up to 4.64 percent in March, it was back below 4.24 percent at the end of last week.
The yield on the the 10-year note is crucial in setting mortgage and other lending rates; that means it needs to rise to slow economic growth. This yield usually climbs when the Fed raises its short-term rate; its failure to do so means that policy makers may have to raise the benchmark rate higher than anticipated to achieve the desired monetary tightening.
"The Fed believes it has to get the financial system into a neutral state" in which interest rates neither push growth nor act as a drag on it, said Robert J. Barbera, chief economist at ITG/Hoenig. Without higher longer-term interest rates, housing is providing more stimulus than the Fed wants, he said.
But just as the stubbornness of longer-term rates could make this Fed rate cycle last longer than expected, new indications of slower-than-expected economic growth could calm some inflation fears and even lead to a pause in the Fed's ramping up of interest rates.
Weak job creation and retail sales in March and a ballooning trade deficit in February led some economists to mark down their economic growth forecasts for the first quarter to around 3 percent, almost a full percentage point lower than just a few weeks ago.
THE S.& P. 500-stock index fell 3.8 percent from Wednesday through Friday after it was reported that retail sales grew just 0.3 percent last month, well below the Wall Street forecast of 0.8 percent.
These questions about the economy, the Fed and the near-term direction for stocks will intensify the market's focus on the economic data due in the next three weeks. These include reports on the Consumer Price Index; housing starts; the first reading on economic growth in the first quarter; and the April employment numbers, which are due on May 6. On May 3, Fed policy makers hold their next meeting on interest rates.
The only thing that seems clear in such crosswinds is that there could be more market volatility. And if growth continues to weaken, much of that volatility is likely to have a downward bias.

Your Child Got Into an Ivy! Do You Have to Say Yes?By HUBERT B. HERRING
OR many parents of high school seniors, this isn't just the season of that nail-biting, soul-searching, wallet-weighing decision about where that suddenly adult bundle of joy goes to college. It's also the season of wondering where on earth the Fafsa gremlins got that bizarre E.F.C. number.
For the uninitiated, here's how it works: parents, hoping against hope for a bit of scholarship help, fill out personal financial data on the government's Free Application for Federal Student Aid. And soon - very soon, if they do it online - they are blessed with what some highly creative computer considers a reasonable "expected family contribution."
When parents see this number, a common reaction is stunned disbelief. How, they ask, could any reasonably intelligent computer look at their assets and income and expect them to shell out that much for college? Should they, perhaps, not eat for four years? Should they move to the nearest park bench for the duration?
Unfathomable as it may be, though, that E.F.C. is a powerful number. The numerous colleges that vow to "meet demonstrated need" use the E.F.C. to measure that need. Some have their own formulas, but when they follow the Fafsa number strictly, and if the expected contribution is $20,000 and the college cost $32,000, "need-based" aid is $12,000. But if the expected contribution is $32,000 - and such a number is quite possible for families of relatively modest means - the college aid office is likely to turn down a family's request for help.
This system, left alone, would populate campuses with the rich, who can write big checks and feel no pain, and the poor, who qualify for substantial aid. Many colleges realize this and award a variety of academic scholarships, also known as merit aid - basically charging the better students wholesale.
This can give rise to some wrenching choices. Suppose a student gets into a top school, with no merit aid, and a quite decent school that has less of a name, with substantial merit aid.
The instinct of parents to want "the best" for their children can be overpowering. Parents don't want to have their offspring, who in all likelihood have questioned their competence as parents in recent years, now accuse them of cutting corners, of being cheapskates, on so vital an expense. But where do parents draw the line?
Say the choice comes down to two schools: one, which offers substantial merit aid, would end up costing $20,000 a year, while the other runs $40,000 and offers neither merit aid nor, because the parents' estimated contribution is fairly high, need-based aid. The second school may or may not be better - how can one really know? - but it does have the bigger name. Do parents bankrupt themselves to go for the name? Do they eat beans in some rusted trailer in retirement to have their pride and joy have that little frill on her résumé? Or do they say: "Look, kid, college is a privilege, and be thankful that we're paying anything. And, by the way, clean up your room."
And never forget: to teenagers, a brand name - whether of jeans or colleges - can be a blindingly powerful lure.
Parents could, of course, take a coldly practical approach and think of the "name" college as a better investment, and graduates of top schools have indeed been shown to earn more - up to 30 percent more, in some studies. But that raises two questions: First, will that presumably richer offspring, in return for the largess, bring alms to her parents when those benefits eventually roll in? And, more to the point, is the idea really valid that a prestige school automatically means higher income?
Alan B. Krueger, a Princeton economist and New York Times columnist, has studied the issue and questions the validity of this. "Students who attend more selective colleges," he wrote in 2000, "are likely to have higher earnings regardless of where they attend college for the very reasons that they were admitted to the more selective colleges in the first place." In other words, intelligence, like cream, will rise to the top. But definitely go to college, he stresses; that's "more important than where you go."
That's not to say it isn't important to go to a decent college, but in an essay in The Atlantic Monthly last year titled "Who Needs Harvard?" Gregg Easterbrook (Colorado College, class of 1976) argued that "any of a wide range of colleges can equip its graduates for success." Part of his reasoning is that there has been a "profusion of able faculty members" but only a finite number of top schools for them to funnel into. As a result, the pretty good schools "have gotten much better, while the great schools have remained more or less the same," narrowing the quality gap considerably.
And if the goal is graduate school, Mr. Easterbrook asserts, the elite schools are no longer the "exclusive gatekeepers," as more and more schools feed students into advanced study, even at top graduate schools.
Mr. Krueger, a product of the Ivy League, asked recently for his latest thinking on the value of elite schools, reiterated his skepticism about blindly going for the "name" school. "I think it is very wrong," he said, "to advise students to automatically go to the most selective or elite school that accepts them, without regard to the match between the particular student's interests and personality and the school's strengths and weaknesses."
The next hurdle, of course, is explaining all this to a teenager obsessed with sporting a sweatshirt with a high-status college name on it. Well, parents can always buy the "name" sweatshirt but send her to the affordable college.
Hubert B. Herring is even now weighing the pros and cons of prestigious poverty in helping guide his daughter toward college.

The New York Times > Business > Your Money > Here It Comes: The Sarbanes-Oxley Backlash

OR corporate America, it is always a good time to lobby - even when the public image of business is increasingly associated with executive perp walks.

Last week, business representatives gathered in Washington at an all-day roundtable discussion held by federal regulators and complained about the cost of complying with a provision of the Sarbanes-Oxley corporate reform law. Not one business leader asked to repeal the law, which was passed in 2002 after a wave of financial scandals, or to gut it. Nearly every executive, however, lamented the costs of compliance.

The criticism is striking, given that it comes against a backdrop of continuing revelations of potential fraud, criminal prosecution of fraud and convictions on fraud charges. Bernard J. Ebbers, the former chief executive of WorldCom, is awaiting sentencing after being convicted last month of fraud, conspiracy and filing false reports. Trials of former Enron executives are set to begin this week. Arthur Andersen, audit firm to both WorldCom and Enron, is still fighting to save its reputation and its few remaining assets in a lawsuit brought by WorldCom shareholders.

"There've been so many companies that have gotten in trouble, none of them want to come out now and say we oppose" the law, said Lynn E. Turner, a former chief accountant at the Securities and Exchange Commission who now works at Glass, Lewis & Company, an investment research firm in San Francisco. "It just leaves people with a bad feeling about that company."

He added that the last person whom he had heard was bashing Sarbanes-Oxley was Maurice R. Greenberg of the American International Group, who resigned as chief executive last month amid a review of the company's accounting and who invoked the Fifth Amendment when being interviewed by investigators last week.

"I don't think you're going to see that anymore," Mr. Turner said of executives' campaigning against Sarbanes-Oxley.

Instead, executives are pushing for what they describe as specific changes in the implementation of the law, while singing its praises in general terms.

"There is no question that, broadly speaking, Sarbanes-Oxley was necessary," said John A. Thain, chief executive of the New York Stock Exchange, in remarks echoed by others at the roundtable.

Nick S. Cyprus, controller and chief accounting officer for the Interpublic Group of Companies, was even more specific, praising a provision of the law that has become a particular target for many critics. "I'm a big advocate of 404," he said, referring to Section 404 of the law, "and I would not make any changes at this time."

Section 404 requires companies and their auditors to assess the companies' internal controls, which are the practices or systems for keeping records and preventing abuse or fraud. Something as simple as requiring two people to sign a company check, for example, is one type of internal control.

Of the 2,500 companies that filed internal controls reports with the Securities and Exchange Commission by the end of March, about 8 percent, or 200, found material weaknesses, the agency's chairman, William H. Donaldson, said at the roundtable. That exceeds the 5.6 percent rate that Compliance Week magazine found in a review of the first 1,457 companies to report.

Executives at the roundtable consistently said that complying with Section 404 has been more expensive than they had anticipated, and they questioned whether the benefit - which no one has been able to quantify - is worth the cost.

There are, perhaps unsurprisingly, several studies of the cost of compliance from various business groups. Financial Executives International, a networking and advocacy organization, said last month that a survey of 217 publicly traded companies showed they had spent $4.36 million, on average, to comply with Section 404.

A different survey, of 90 clients of the Big Four accounting firms - Deloitte Touche Tohmatsu, Ernst & Young, KPMG and PricewaterhouseCoopers - found that the companies spent an average of $7.8 million on compliance. That was about 0.10 percent of their revenue, and less than the $9.8 million paid, on average, to C.E.O.'s at 179 companies whose annual filings were surveyed earlier this month in Sunday Business.

The accounting firms noted that as companies become more familiar with Section 404, the amount they spend to comply with it may drop this year, by as much as 46 percent, according to the survey.

Despite forecasts like this, complaints seem to have registered with regulators. William J. McDonough, the chairman of the S.E.C.'s Public Company Accounting Oversight Board, said at Wednesday's event that the agency would consider ways to provide more guidance on 404 requirements in the next few months.

The quiet campaign against provisions of the Sarbanes-Oxley Act may have had something to do with the proposal by Representative Ron Paul, a Republican from Texas, on Thursday to eliminate Section 404 entirely. In a statement, the congressman said the provision "has raised the costs of doing business, thus causing foreign companies to withdraw from American markets and retarding economic growth."


But representatives of institutional investors emphasized that they are the real parties paying the bill for compliance, and that they are happy to do so. Changes to the rules - and certainly to the underlying legislation - are premature, Cynthia L. Richson, corporate governance officer for the Ohio Public Employees Retirement System, said in a telephone interview after the roundtable. "At this point," she said, "the benefits are just starting to be realized and, of course, the first year is going to be somewhat difficult from a cost perspective."

Scott C. Newquist, chief executive of Board Governance Services, a consulting firm to corporate directors, said he felt little sympathy for executives seeking to lighten the burden of the new reporting requirements. After all, he said, the law was passed in the wake of several big corporate frauds. "It relates back to the argument that there are only a few bad apples and it's not a systemic problem," he said. "I would argue that a lot of these problems are systemic."


BEYOND the costs of assessing their internal controls, executives focused on a few specific concerns. Auditors, they said, were too conservative - requiring disclosure of everything, testing controls that could not have a material effect on financial reports - because they worry about second guessing by regulators and plaintiffs' lawyers.

Meeting the demands of Section 404, they added, also took time away from more productive activities. Executives from smaller public companies said they should not have to meet the same requirements as larger companies, which they said have more resources to handle regulatory compliance. Several executives complained that relations with outside auditors had deteriorated.

Raymond J. Beier, a partner at PricewaterhouseCoopers, said that while some of these concerns had merit, 2004 was the first year that the new rules had been in place. "Refinements in the process will better serve the system," he said in a telephone interview after the roundtable.

Ms. Richson of the Ohio pension fund said the environment might only become more charged, and added that she expected companies to try to weaken Section 404 and other Sarbanes-Oxley provisions once the atmosphere turned more friendly to business.

"If you listened carefully, you can reach the conclusion that there's more to come, if the business interests are successful at trying to erode some of the investor protections that were put in place three years ago," she said. "That would not be a good thing."

Copyright 2005 The New York Times Company

Luke Ford

untitled

 

 

Mideast Adversaries Touched by John Paul II (washingtonpost.com):

"John Paul II's similar gestures toward Jews were welcomed in Israel, according to Haaretz. 'From his first visit to Auschwitz-Birkenau in 1979 to his visit to Israel in 2000 -- during which he asked forgiveness at Yad Vashem [the Holocaust memorial] and put a note in the Western Wall -- the 26 years of his papacy were full of efforts to effect a major reform' in the relationship between Jews and Christians, said the liberal daily.

Pope John Paul II prays at the Western Wall in Jerusalem in March 2000, a gesture that made him popular in Israel. (AP)

'He was the first pope to visit a synagogue, when he prayed at the Great Synagogue in Rome in 1986; in a speech in 1997 he said that Christians had failed during the Holocaust; during his visit to Israel, he apologized for the behavior of Christians who had caused the Jews to suffer; and he coined the term 'elder brothers' to describe the Jews.' "

Improve the Quality of Investment Advice:

"Improve the Quality of Investment Advice"

The vast majority of the nation’s investable wealth is in the hands of fiduciaries—more than five million men and women responsible for managing others’ money. While corporate malfeasance has cost shareholders billions in losses, such damage may be far smaller than that resulting from investment advisers’ and trustees’ failure to competently manage client and trust assets.
In response, the Foundation for Fiduciary Studies and the AICPA have published Prudent Investment Practices—a handbook for investment fiduciaries—which contains a conceptual framework for following a disciplined investment process. To introduce the handbook to members and help them use it effectively, the AICPA has added explanatory sessions to this month’s Personal Financial Planning Technical Conference and the 2004 Practitioners’ Symposium in June. The aim in these efforts is to protect the average investor’s interests and to promote the delivery of competent and objective investment advice.

This article explains how fiduciaries can implement the guide’s best practices and avoid making investment decisions influenced by emotion or irrelevant market factors.
CPAs, who often are themselves fiduciaries or act as advisers to fiduciaries and others, will find the handbook useful in determining whether an investment process corresponds with defined prudent practices. It also will help practitioners understand which new investment strategies, products and techniques fit their clients’ priorities.

THE TOP PRIORITY
A fiduciary’s primary duty is to manage a prudent investment process, without which the components of an investment plan cannot be defined, implemented or evaluated. Statutes, case law and regulatory opinion letters dealing with investment fiduciary responsibility reinforce this concept.

RESPONDING TO VARIED NEEDS
The handbook contains practical advice for CPAs who

Work in business and industry, supervising or advising investment committees. It describes the roles and responsibilities of investment committee members. CPAs can use this information as a checklist for reviewing the committee’s investment decision-making process and identifying any deficiencies in it.

Prepare financial statements for—or serve as a business consultant to—foundations, endowments or high-net-worth individuals. The handbook is particularly useful to these practitioners because it defines the specific functions an investment adviser should perform. Armed with this knowledge, the CPA can help evaluate a client’s adviser and provide valuable insight into the performance of those on whom the client relies for investment advice.

Serve as investment advisers. Given investors’ trust in CPAs, it’s not surprising that some practitioners have agreed to play this role for their clients. But such confidence in their CPAs can raise clients’ expectations and prompt practitioners to observe performance standards—such as those communicated in the handbook—that are more stringent than even securities regulators require.

NAVIGATING THE HANDBOOK
The handbook identifies 27 practices that detail a prudent investment process from beginning to end. Each practice is accompanied by a brief explanation of its intent and practical application. Among the subjects addressed are
Procedures for developing an asset allocation strategy.

Preparation and maintenance of investment policy statements.

Implementing an investment strategy with appropriate money managers.

Monitoring and supervising an investment strategy and procedures for controlling and accounting for investment expenses.

The handbook has several useful features.

You (Should) Know Who You Are
“Some practitioners functioning as investment fiduciaries don’t realize the true nature—or the attendant responsibilities—of their role,” said Anat Kendal, AICPA director of financial planning. In general, a fiduciary

Manages property for another’s benefit.

Exercises discretionary authority or control over assets.

Acts as a trusted professional, rendering comprehensive, ongoing investment advice.

“Examples—many of whom are CPAs or are advised by them—include investment advisers, trustees and investment committee members,” Kendal said. “It’s important to note that many investment fiduciaries erroneously believe they are responsible for making investment decisions, when in fact their charge is managing them.”

Money managers make investment decisions by selecting stocks and bonds for their clients’ portfolios. But fiduciaries manage the overall investment process by setting the portfolio’s goals and objectives and preparing and maintaining its investment policy statement; by overseeing due diligence and the selection of investment options; by monitoring chosen investment options and by controlling and accounting for portfolio investment expenses.

The practices are applicable to any size or type of fiduciary portfolio—private trust, foundation, endowment or retirement plan. So the CPA need become familiar with only one set of procedures, rather than learning one for private trusts, another for qualified retirement plans and so on. There is one set of practice standards; the same standards are applicable to any fiduciary portfolio, such as a private trust, foundation, endowment or retirement plan.

A Diagnostic Checklist
CPAs should ask themselves the following questions—derived from the handbook’s practices—to help them detect deficiencies in clients’ or prospects’ investment processes.
Do the members of the investment committee fully understand their duties and responsibilities as investment fiduciaries? The investment committee’s responses to the following questions are one of the best ways to test their understanding of investment fiduciary responsibility.

Does the client have an investment policy statement (IPS)? If so, is the investment committee in compliance with those guidelines? The preparation and maintenance of the IPS is one of the most critical functions an investment fiduciary performs.

Does the client’s asset allocation strategy reflect an appropriate risk/return profile, given its investment goals and objectives?

Has the client followed a consistent due diligence process in selecting investment managers? Is the process documented? A comprehensive IPS should identify and describe in detail the due diligence process to be followed in selecting each investment option.

Given the account’s level of assets and its reporting and administrative requirements, has the client chosen an appropriate custodian?

Does the client receive, at least quarterly, a performance report? If so, does the report specify each money manager’s performance against stated objectives in the IPS, the manager’s peer group and the manager’s appropriate performance index?

Is the client monitoring the soft dollars, best execution, and proxy voting (if it is delegated) of each one of its money managers?

Does the client follow formal procedures for placing money managers on a watch list when a manager’s performance begins to deteriorate?

Does the client follow formal procedures for terminating money managers?

In the case of participant-directed defined contribution (401k) plans, has the client elected to follow the “safe harbor” provisions of the Sarbanes-Oxley Act of 2002? If so, has the client communicated to plan participants the intent to seek section 404c protection; provided at least three investment options, each with a different risk/return profile; and provided education and training and enabled participants to change their investment allocation at least quarterly?

If the client charges marketing expenses to its shareholders by means of 12-b-1 fees, are the fees being properly used and accounted for?

If the client has retained an investment consultant, has the consultant acknowledged cofiduciary status in writing? Is the consultant aware of his or her duties and responsibilities? Is the consultant’s compensation (whether in hard or soft dollars) fair and reasonable for the services he or she rendered? Is the consultant objective in the search for and monitoring of money managers?


The Handbook Can Help You…
n Assist fiduciary clients to establish evidence that a prudent investment process is being followed in order to minimize litigation risk and enable clients to negotiate lower insurance premiums for errors and omissions coverage. Litigation involving breaches of investment fiduciary responsibility is growing at the compounded rate of 22% per year; in 2002 plaintiffs filed an estimated 15,000 suits and arbitration cases.
Apply the handbook’s recommendations to all parties involved in the client’s investment decisions, including money managers, investment advisers, consultants and attorneys. The handbook also provides an educational outline of an investment fiduciary’s duties and responsibilities.

Work with clients to increase long-term investment performance by identifying more appropriate procedures for

Managing their portfolios across multiple asset classes and peer groups.

Evaluating fees and expenses for investment management services.

Selecting appropriate money managers.

Terminating ineffective or otherwise inappropriate money managers.

Assist clients in detecting investment and/or procedural risks not previously identified, which may help prioritize investment management projects with consultants, advisers and vendors. In addition, the handbook can supply information for establishing benchmarks to measure the progress of an investment committee and/or consultant.


A Practitioner’s View of the Handbook
Joel Framson, CPA, PFS, chairman of the AICPA personal financial planning executive committee and principal of Allied Consulting, a financial planning, wealth management and investment advisory practice, discussed how various constituencies will benefit from the handbook’s recommendations.
Q: How will this handbook help protect the interests of the investing public?

A: As employee pension plans deteriorate because of poor investment practices and the SEC prosecutes fiduciaries for having conflicts of interest, the handbook reassures the public that there are financial advisers who will put their clients’ best interests ahead of those of their own investment advisory firms. It does this by providing investors with criteria for identifying competent and ethical advisers and for comparing the scope and level of their services. And it protects the public by showing the benefits of requiring investment planners and advisers to identify prudent processes within the legal and regulatory framework.

Q: How can the handbook help CPAs provide personal financial planning services?

A: The handbook lays out prudent practices that serve as investment planning guidelines for CPA financial planners and, more specifically, for AICPA personal financial planning (PFP) section members. Following the guidelines outlined in the handbook will help CPAs reduce their financial planning practices’ exposure to lawsuits and investment regulation pitfalls. Much of the handbook’s technical and legal content came from a law firm specializing in pension plans. Among the subjects covered are fiduciary work, case law, regulations and other information related to the fiduciary aspects of investment practice. Following these practices will help CPAs differentiate themselves from other types of fiduciary service providers.

Q: Will the fiduciary handbook help improve the image of CPAs?

A: As CPAs in public practice and those in industry embrace the practices contained in the fiduciary handbook, the public will see how CPA financial planners deliver the best financial advice with the highest standards of integrity. That will significantly enhance the image of CPAs willing to observe the high level of fiduciary care the handbook recommends.


The practices are equally applicable to trustees and investment advisers. CPAs can use the handbook to inform investment committee members of their duties and functions. They also can go to it for guidance in assigning to an investment adviser specific responsibilities as part of its management of a client’s account.

Each of the practices has been fully substantiated by legislative acts that define general fiduciary procedures and, when applicable, regulatory opinion letters and case law. In the handbook a discussion of each practice is accompanied by the relevant legal citations. The publication represents the investment industry’s first attempt to create a compendium of all the citations associated with the subject of investment fiduciary responsibility. These citations also help show the industry does not need new legislation and/or regulations as much as it needs to provide education and training on existing fiduciary requirements. The handbook, Prudent Investment Practices, can be ordered online at www.fi360.com or by calling 866-390-5080. The cost to AICPA members is $20 plus shipping.


The handbook is concisely written in plain English. (Information on ordering this publication can be found above.)

--------------------------------------------------------------------------------

Donald B. Trone is an accredited investment fiduciary auditor. He also is president and founder of the Pittsburgh-based Foundation for Fiduciary Studies, whose mission is to develop and advance fiduciary standards of care for trustees, investment committees and advisers. He can be reached at don@fi360.com.

The Sarbanes-Oxley Act of 2002 and Personal Financial Planning Members: "The Sarbanes-Oxley Act of 2002 and Personal Financial Planning Members


September 2002

Dear PFP Section Member:

The accounting profession faces many significant challenges and opportunities with the recent enactment of the Sarbanes-Oxley Act of 2002 ("Act"). Many of the provisions of this Act will redefine the way in which CPAs serve their publicly-traded audit clients. The AICPA recognizes that many of our Personal Financial Planning Section members will not be directly impacted by the Act because their firms do not provide audit services to publicly-traded clients. Nonetheless, we felt it was important to share with you the provisions of the Act because: 1) many PFP section members and their firms do serve public companies and 2) the Act may very well influence other federal or state legislation and rule changes that could extend beyond public companies.

The Sarbanes-Oxley Act of 2002

The provision of the Act with the greatest potential to have an impact on CPA financial planners is the prohibition on certain non-audit services provided to publicly-traded audit clients. Also significant is that all non-audit services that are not expressly prohibited must receive advance approval from the client's audit committee. The remaining provisions affecting the CPA financial planner can be categorized as disclosures of non-audit related fees and the extension of powers to various federal and state agencies against investment advisors committing or participating in the commission of wrongful acts.

Provisions of the Act Affecting Firms that Audit Public Companies

The Act specifically makes "unlawful" the delivery of a specified list of "non-audit" services to publicly-traded audit clients. How those services are ultimately defined and interpreted could be important for CPA financial planners.

Non-audit services are defined in the Act as those professional services provided to a publicly-traded audit client by a registered public accounting firm, other than those provided to the client in connection with an audit or a review of the financial statements of the client. Depending on the circumstances, an interpretation by a rulemaking body of that definition could include all personal financial planning (PFP) services provided to the corporate executives and employees of the audit client. For example, a company that pays for and/or promotes the availability of PFP services to executives from the audit firm could be considered in violation of the Act.

Beyond that blanket concern, of greatest relevance to CPA financial planners from the Act's "prohibited" list are the following:

broker or dealer, investment adviser, investment banking services;
legal services and expert services unrelated to the audit;
bookkeeping or other services related to the accounting records or financial statements of the audit client;
appraisal or valuation services, fairness opinions, or contribution-in-kind reports; and
any other service that the Board (Public Company Accounting Oversight Board) determines, by regulation, is impermissible.
In the list of prohibited services, the most significant concern to CPA tax and financial planners would be the bans on "expert", "broker or dealer" and "investment adviser" services. The Act does not specifically define an expert service, which would again be up to the determination of a rulemaking body. Of additional concern to CPA investment advisors is the prohibition on "broker or dealers" and "investment adviser" services.

Note that, as with independence provisions currently in place through the SEC rule or AICPA standards, the prohibition on bookkeeping services applies only to those services "related to the accounting records or financial statements of the audit client."

The Board may, on a case by case basis, exempt any person, issuer, public accounting firm, or transaction from the list of prohibited services, but also retains the power to issue regulations to expand the list of prohibited non-audit services. It is also important to note the Act does not prohibit CPAs from providing consulting, tax and PFP services to non-audit clients.

Advance Approval Requirement

All non-audit services that are not expressly prohibited under the Act must be pre-approved by the audit committee. The pre-approval requirement is generally waived when the services were not recognized by the issuer at the time of the engagement to be non-audit services (Note: Not likely in the case of PFP services), total fees received during the year from all non-audit services are less than 5% of the total fees received from the audit client, and the services are brought to the attention and approved by the audit committee prior to the completion of the audit. The audit committee's approval of all non-audit services must be disclosed to investors in regular SEC filings.

Disclosure of Fees

As part of the registration process required by the Act, CPA firms must disclose the annual non-audit service fees received from each publicly-traded audit client.

Expansion of the Investment Advisers Act of 1940

The Act extends the powers of state securities commissions, state insurance commissions, an appropriate Federal banking agency or the National Credit Union Administration to punish or bar from practice any investment advisor who commits a wrongful act.

Financial Planning Provisions of the Act that Impact Corporate Executives:

In addition to the provisions affecting firms providing auditing services, there are financial planning provisions in the Act that apply to executives of publicly-traded corporations. While many of these provisions will presumably be handled internally by the corporation, it is important you understand the implications to the executives who may be receiving your PFP services.

Prohibition on Certain Loans to Corporate Executives

Any permissible loans must be made in the ordinary course of business, of a type made available to the public and made on market terms no more favorable that those offered to the general public. In other words, publicly-traded companies covered by the Act, must include consumer financial services among their business lines. If the conditions above are met, companies may issue the following types of loans to executives:

home improvement loans,
manufactured home loans,
consumer credit,
an extension of credit under an open end credit plan,
a charge card, or
an extension of credit by a broker or dealer employer to an employee to buy, trade, or carry securities.
Note: The CPA financial planner should become familiar with the list of permissible loans and notify the executive of any prohibited loans that come to the planner's attention during the course of a PFP engagement.

Prohibition on Insider Trading During Pension Fund Black-Out Periods

Executives should be aware of black-out periods in their pension funds before committing to any securities transactions. Due to the complexity of the legal issues surrounding black-out periods, CPA investment planners should generally consult legal counsel.

Cascade Effect Beyond Public Companies

Of particular concern for all CPA financial planners is the cascade effect the scope of service restrictions of the Act could have. The new law may become the template for similar federal regulatory and state legislative and rule changes that would also directly affect both non-publicly traded companies and the CPAs who provide financial planning services to them.

Shortly following the President's signing of the Act into law, several states began moving forward with legislation that would result in additional burdens for CPAs. We have also observed renewed activity surrounding the regulation and licensing of financial planners in the area of investment advisory services

Conclusion

The AICPA will continue to monitor and update you on legislative activities impacting the accounting profession. We are actively working with the state CPA societies and various legislative and regulatory agencies to ensure that our concerns and suggestions are addressed in current and future legislation and rule making. We encourage you to contact your congressional representatives, your state society and the AICPA concerning any current or proposed legislation that may impact CPAs and CPA financial planners. If you have any close contacts in your state houses of legislature, you may wish to talk with and help them understand the impact of this cascade effect on privately-owned businesses.

You can view the recent AICPA News Alert on the Sarbanes-Oxley Act at http://www.aicpa.org/info/aicpa_update_7.htm. Members who have questions about the new law and how it will impact their firm or company, should call 866-265-1977. The hotline will be staffed Monday through Friday for the remainder of 2002. You may also send questions or concerns to the PFP membership section at pfp@aicpa.org.

The summary of the Act serves as a general outline of the issues that may impact the CPA financial planner and should not be relied upon for technical interpretation.

Yours truly,

James K. Mitchell
Chair, Personal Financial Planning Executive Committee

MSN Money - 10 big tax breaks for the rest of us

Think the rich guys get all the tax breaks?

Wrong, deduction denier.

In fact, most of the big tax breaks go to middle-income earners like you and me. We don’t call them tax shelters. But that’s really what they are.

The tax pros call these shelters “tax expenditures.” These darling deductions and credits have the same impact on the federal budget as direct expenditures. That’s because they represent dollars not collected by the government. And each of these expenditures gives special or selective tax relief to only certain targeted groups of taxpayers.

Sounds like a tax shelter -- or at least a loophole -- to me.

These targeted provisions either encourage some desired activity or provide special aid to certain taxpayers. Some of them make a lot of sense. For example, the federal government seeks to encourage certain forms of investment. So, Congress has legislated accelerated rather than straight-line depreciation on new plants and equipment. This produces more tax savings up front, creating additional capital for business to expand.Banks and insurers
check your credit.
So should you.



Tax-advantaged investments help create new businesses and new jobs. These new jobs produce more paychecks, and those additional paychecks produce more taxes. In the long run, if everything works as it should, everyone wins.

Some tax expenditures have been adopted as relief provisions to ease tax hardships or to simplify tax computations. The elderly and the blind receive special financial benefits through a deduction called the “additional amount,” which is added to their standard deduction. Other tax benefits for the aged -- the retirement income credit and the potential exclusion of Social Security payments from taxable income -- also fall into this personal or hardship category.

Cost: $800 billion per year
Back in 1980, the Congressional Budget Office had 92 provisions that qualified as tax expenditures, at a cost of $206 billion. President Bush’s fiscal year 2004 budget listed 137 individual tax expenditures projected at more than $800 billion.

The financial benefits offered by these tax expenditures resemble those available on the spending side of the budget. A tax expenditure provision can provide special tax relief in any of the following ways:


Special exclusions, exemptions and deductions. These reduce taxable income and result in a smaller tax bills. Examples are tax-exempt municipal bond interest, the exclusion of employee discounts from taxable income, and dependent-care assistance programs.


Preferential rates. These reduce tax bills by applying lower rates to all or part of your income. Congress gave taxpayers a big one in 2003: the new special maximum tax rate on long-term capital gains or on qualified dividends. (It’s 5% for taxpayers in the 15% bracket or lower; 15% for everyone else.)

While the dividend and capital gains breaks are available to all, it is true that higher-end taxpayers will derive more benefit than anyone else. The Citizens for Tax Justice estimates that more than half of the benefits will go to taxpayers with incomes above $145,000.


Special credits. These are subtracted from your tax bill, rather than from the income on which your taxes are figured. For example, the child tax credit or the foreign tax credit.


Tax deferrals. Deferrals let you pay later rather than now. Such deferrals really constitute interest-free loans from the IRS. The best-known deferrals today are the contributions we make to Individual Retirement Accounts, 401(k) accounts or similar retirement funds.

The other side of big spending
Tax-expenditure spending and direct spending are two sides of the same coin. Nearly any tax expenditure can be recast as a spending program. One side reduces the revenues collected. The other side increases the actual cash outflows. The real difference is nothing more than a choice between alternative administrative mechanisms.

So much for the theory. In fact, just like spending provisions, these tax expenditures are really the result of pressure applied by special-interest groups seeking relief provisions for their own constituencies.

For example, the additional amount added to the standard deduction for the blind isn’t available for the deaf. I suspect this may have more to do with the political and lobbying power of the two groups than with any inherent difference between the hardships.

What kind of savings are you getting from your own expenditure tax shelters? A lot, according to a 2003 report by the Joint Committee on Taxation on tax expenditure estimates for fiscal years 2004-2008. Check out the tax shelter deals you may be getting. (Note: These are ranked by size.)

The biggest tax breaks
And if you’re not claiming the tax break, investigate to see if you can.
Health-care benefits. You don’t pay any tax when your employer pays the premiums for your health insurance and health care. Cost to the government over these five years: $602.7 billion.

This total doesn’t include the estimated cost for deductible health insurance and long-term care insurance premiums. That’s an additional $20 billion.


Contributions to retirement accounts. You don’t pay any current tax when you or your employer sock money away in pension and retirement plans. Cost to the government: $522.1 billion.


Lower rates on dividends and long-term capital gains. Cost to the government: $406.3 billion.


The mortgage-interest deduction. We all love the deduction for home-mortgage interest. But renters and those who own their homes free and clear get nothing. Cost to the government: $372.7 billion.

About 73% of the taxpayers who claimed this deduction on their 2002 returns earned $50,000 or more. About 47% of the total earned between $50,000 and $100,000.


State and local income taxes and personal property taxes. You get a deduction for state and local taxes and personal property taxes paid. Cost to the government: $195.2 billion.

About 94% of the 36.7 million tax returns that claimed the income tax deduction reported earnings of $50,000 or more. And 46% of the total earned between $50,000 and $100,000.


Charitable contributions. Very noble of you. But the rest of us kick in a part of your cost. Cost to the government: $158 billion.

About 81% of the 38.1 million tax returns that claimed this deduction reported earnings of $50,000 or more. About 43% of the total had earnings of between $50,000 and $100,000.


Children under age 17. The child tax credit puts $1,000 per child in your pocket. Cost to the government: $173 billion.

About 53% of the 31 million tax returns that claimed this deduction reported earnings of $50,000 or more. And 75% of that group earned between $50,000 and $100,000.


The earned income credit. You qualify for the earned income tax credit, which is targeted at low-income taxpayers. Cost to the government: $179.7 billion.

About 96% of the tax returns that claimed this benefit last year had earnings of $40,000 or less.


Life insurance or annuity contracts. No current tax on the inside investment income. Cost to the government: $137.5 billion.


You die. The basis for all of your assets (the value at which you start to calculate potential capital gains) is stepped up to fair market value on the date of your demise. That means that the tax on all capital gains you earned up to the date of death is lost. Cost to the government: $202.6 billion.
The total for the 10 above? $2.95 trillion over five years. And I haven’t even mentioned that the deduction you get to take for property taxes on your home will cost the feds $77.8 billion over the next five years. (A total of 34.5 million tax returns claimed the real estate property tax deduction last year.)

And the big break you now get on any profits from selling your home: Another $91.4 billion.

I’m not saying that any of these exclusions, deductions, or credits is a bad idea. I’m just shining a light on the fact that all the breaks don’t really go to the big guys.

I guess that if the expenditure puts money in my pocket, it represents good, sound tax policy.

On the other hand, if I’m a renter in a state with a high sales tax and no income tax, your deductions for interest, real estate tax and state income tax are coming out of the taxes I pay. And you’re the one with a real tax shelter. I’m the one making up the difference.

Smartmoney.com: Print: Ten Things the IRS Won't Tell You:

"DON'T GET US wrong. The Internal Revenue Service actually does try to be helpful. It publishes scores of booklets on doing your return, and the instructions for Form 1040 even include taxpayer-assistance telephone numbers you can call for help in filling it out. But there are still many things about taxes that the IRS would rather you didn't know.

1. “Later is safer.”
If you're worried about getting audited-who isn't?-put off filing your return for a while. The Internal Revenue Service denies it, but "they work on quotas," insists one former IRS lawyer. "The later you get your return in, the better your chances they'll have filled their quotas."

A four-month extension is yours for the asking (on Form 4868), and a simple letter explaining that you need more time will almost always buy at least two more months.

Keep in mind, however, that some tax preparers warn against this delaying tactic if your return is waving lots of "red flags," such as a string of unusually high deductions. In that case, you may be better off filing by April 15, so you'll be less likely to stand out.

2. “Later is safer (part II).”
You've just dropped your 1992 return in the mailbox when it hits you: You forgot an important deduction. Don't necessarily rush off an amended return to correct the error. You're allowed three years to send it in, and you may want to wait that long. Here's why: Just as you have three years to send in an amended return, the IRS has three years from the date of your filing to assess whether you owe any additional taxes. For obvious reasons, you may not want IRS agents going back and taking another look at your return. But they're almost certainly going to do so if you send in an amended return, because they're going to want to compare it with the original. Dangerous.

One way around this is to file your amended return just days before the three-year cutoff. Once this statute of limitations has passed, your original return is untouchable. The only thing the IRS can mess with is the specific change you made on the amended return. True, the IRS has had your money for the past three years. But you'll get interest on it.

3. “Accidents will happen.”
If you get a mailing from the IRS saying it has made an adjustment to your return because you goofed, check it carefully. The IRS is often the one that goofed. A typical example: Last year, one client of accountant Stuart Kessler owed $8,000 in quarterly income tax and $5,000 in gift taxes. The IRS mistakenly credited the entire $13,000 to his income tax and sent him a refund of $5,000. Days later, he got an urgent notice saying he hadn't paid any gift tax. "I swear, 85 percent of the notices we get are wrong," says Kessler, senior tax partner at Goldstein Golub Kessler & Co. in New York. Neil O'Keefe, IRS public-affairs officer for the Manhattan district, doesn't dispute that mistakes happen. "Of course you should always double-check," he adds. "It's your money."

4. “Everything (almost) is negotiable.”
"People get a notice from the IRS, and they automatically start writing a check," says Milton Pickman, an accountant with Anchin, Block & Anchin. Bad move. If you've been assessed a penalty for filing late or misfiling or whatever, you may not have to pay the full amount. The IRS may threaten to put a lien on your property and other assets, but it doesn't really want to go that route. It wants cash, even if it's not the full amount you owe.

This is especially true if you can prove that you can't afford the full penalty. How little can you get away with paying? There aren't precise guidelines, but remember: IRS collection officers have more authority to give you a break than anyone else in the entire agency, says Keith Fevurly, director of the certified financial planner program at the College for Financial Planning in Denver. "Whatever the collection officer wants to do, he can do," he says.

Similarly, if the IRS is nailing you with a negligence penalty-i.e., for taking deductions on something ridiculously undeductible, like your dog-negotiate it. Many times the agency will actually waive the penalty if you agree not to argue over whether the deduction was qualified or not.

And finally, if you can show reasonable cause for filing late or paying late, such as medical bills showing you were sick, the IRS will generally waive any penalties-though not the interest.

5. “Don't go out alone.”
In one of the most common types of audits, known as office audits because you have to go to an IRS office, the agency will usually encourage you-in writing-to come in alone. Don't. "You're too encumbered by the facts," warns Pickman. Even though the IRS will often say the issues aren't complex enough to warrant bringing a professional, agents can ask you about anything once you're there. Your answers may trigger more lines of questioning. "IRS agents are trained to be friendly and cooperative, and they listen well," says Doug Stives, a Red Bank, N.J., accountant. "Anything you say can and will be held against you-it's like being arrested."

6. “Agents may act like know-it-alls, but they do not know it all.”
Don't accept what an IRS agent says as the gospel truth. They are often wrong. Accountants say agents are especially confused by more complicated issues, such as the treatment of passive losses. If you get in a disagreement with an agent, you can ask to call in a supervisor for help. If you like, you may even leave the audit to consult with your lawyer or accountant. The agent will probably try to get you to stay, since he or she wants to close as many cases as possible, but you do have the right to postpone your audit mid-session.

7. “Timing may not be everything, but it helps.”
If you are being audited, the IRS will tell you when to come in. There's nothing to keep you from saying, "I can't come in then." Try setting up your meeting for a Friday afternoon, ideally on a long weekend. It will probably be a lot shorter, and a lot less painful.

You can also move your audit from one district to another if it's more convenient for you. Sometimes this can work to your advantage, as different IRS offices have different reputations. "The bigger the city and office, the harsher," says Stives. Responds O'Keefe of the IRS: "That I really can't comment on."

8. “You can play 'chicken' with the IRS and win.”
Let's say you and the IRS can't reach an agreement over how much you owe. Many people will take their complaint to the IRS's appeals office, while only an angry few will actually file a petition to argue the case in Tax Court. Of course, the natural inclination is to appeal, especially since the IRS will encourage you to do so. But appeals officers can be stubborn. You may be better off filing a petition in Tax Court-even if you have no intention of suing.

What happens is this: The IRS chief counsel's office sees your petition and immediately notifies the appeals officers, putting pressure on them to settle your complaint. The IRS doesn't want to be messing around in court any more than you do. And in most cases, you don't even need a lawyer. You can get the tax-court petition form from the IRS and fill it out yourself. Filing fees are around $65. Says O'Keefe of the IRS: "The taxpayer has this right. I'm not going to comment on it one way or another."

9. “There are some things even the IRS doesn't know.”
If you're a regular old wage earner, as opposed to a self-employed entrepreneurial type who must pay estimated taxes throughout the year, the IRS doesn't know when your tax is being withheld. So if you would prefer to keep the money in your hands for as long as possible, you can withhold very little until, say, December, when you pay it all in one lump sum. Bear in mind, though, that this is risky. If you claim any more than 10 exemptions on your withholding form, your employer must report it to the IRS, which could result in unwanted scrutiny for both you and your company. "That's a kind of shady area," says O'Keefe. "I really couldn't comment on that."

10. “Don't pay more interest than you have to.”
The tax gods have smiled on you and, somehow, you've gotten an erroneous refund. But a year later, you get the bad news. The IRS has found out about it and demands that you return the money immediately-plus interest all the way back to the refund date. Don't pay it. The IRS can only charge you interest from the date it notifies you the money is due.

Similarly, let's say you and an IRS agent agree to a settlement over some disputed taxes. If you owe money, you should get a bill within 45 days. But if the agent drags his or her feet in getting you the paperwork-and sometimes it takes a year or more-you have a right to suspend the interest owed for that period.