Crackdown In 2012 Tax Laws Affect Corporate Tax Accounting

Corporations throughout the United States are going to be heavily affected by the 2012 Fiscal Year Budget Proposal that President Obama has put forth. The proposal includes a variety of tax increases, some of which resulted from the expiration of former President Bush’s 2001 tax cuts. For example, a few of the changes involve the treatment of insurance companies and products, how taxation rules are internationally applied, and the elimination of certain preferences afforded to companies working with fossil fuels. The new proposal will initiate a large crackdown on corporation taxation, which is going to turn corporate tax accounting into a whole new animal. Businesses will find it highly beneficial to turn to companies like KPMG for tax accounting and advice.

Insurance companies will now have an expansion to the disallowance on pro rata interest expense. Currently, interest accrued on life insurance policies is untaxed, and if money is borrowed to purchase one of these policies, the policy cannot be deducted on tax claims. One exception exists for policies used to maintain coverage on a person who is an employee, director, or an officer of a corporation. The new proposal will repeal this exception for all policies issued after January 1, 2012.

International taxation reforms will be included in the proposal, mainly relating to the deduction of interest expenses. Currently, deferred foreign income and the application of foreign tax credits to U.S. companies can be used to deduct from overall interest. A new proposal will make it less advantageous to defer paying taxes on foreign incomeso deductions can no longer be claimed until U.S. taxes have been paid on those investments.

Several special tax benefits for domestic fossil fuel production will be repealed under President Obama’s 2012 budget proposal. Some of these are the percentage depletion for wells producing oil, natural gas, and mineral fossil fuels, expensing of intangible drilling costs, coal exploration, and development expensing, and capital gains treatment for coal royalties. Other repeals include the enhanced oil recovery credit and credits from marginal wells. Furthermore, the limitation exemption for interests in oil and natural gas properties (and the deduction for tertiary injectants) is on the chopping block.

The list of changes to taxation is extensive, and unfortunately, corporate tax accounting will face even more challenges as these increases are implemented in 2012, just when an improved economy is expected. If you have experience as a tax professional, join KPMG in one of 300 available positions. Browse job openings and descriptions at Big4.com, which is dedicated completely to listing opportunities for the Big Four accounting firms.