IRS warns businesses: more audits on the way

Filed under: Banking & Finance |

The Internal Revenue Service plans to boost the number of audits it conducts next fiscal year.

And if that’s not enough to get your attention, the added audits are just one of the measures that are part of a renewed effort to crack down on compliance.

While the IRS is giving few details about how it plans to step up enforcement, officials did say they plan to pay closer attention to taxpayers with incomes greater than $100,000, as well as self-employed workers and small businesses with less than $10 million in assets.

IRS officials say they’re relying on the idea that more audits will send a clear message about compliance.

A little more than 600,000 people were audited in 2001. That number jumped to 1.2 million last year, according to IRS attorneys’ figures.

The added efforts accounted for an estimated 10 percent increase in enforcement revenue last year, which reached a record $47.3 billion.

Getting even more money could be a motivating factor.

An IRS study found that the gap between what the agency estimates it will collect and what it actually collects costs the government more than a quarter of a trillion dollars in lost revenue.

UBS slapped with $49.5 million fine

UBS Financial Services Inc. was fined $49.5 million last week for improper mutual fund trades.

The New York Stock Exchange and New Jersey state regulators hit UBS with the fines for allegedly trading mutual funds illegally on behalf of hedge funds and other clients.

Brokers in at least seven UBS branch offices allegedly used deceptive trading practices on behalf of clients so they could trade shares of mutual funds ahead of the close of stock trading, according to the NYSE.

Regulators call the illegal practice “market timing.” Also, from 2000 through 2002, UBS brokers were accused of using multiple identities, computer codes and other methods to disguise wholesale fund share sales.

News of the fines comes as regulators and the mutual fund industry announced measures to crack down on market timing.

The value of mutual fund shares is recalculated once daily, after the close of trading. Market timing takes advantage of the time between the market’s close and the recalculation to sell fund shares and prevent losses, which are absorbed by the fund company and, ultimately, the company’s fund investors.

Part of what made the penalty so stiff is that regulators say fund companies complained to UBS about the market-timing activities, and UBS in turn warned its brokers. But those involved in the market-timing plan allegedly used further deceptive measures to avoid detection, regulators said.

Thus, UBS was cited for failing to adequately supervise its brokers in addition to the market timing itself.

Fed joins hurricane aid

Federal financial regulatory agencies have embarked on a service campaign to help in the financial recovery of victims of last year’s hurricanes.

Although four months have passed since hurricanes Katrina and Rita made landfall, some bank customers have not yet been in contact with their lenders, and agency officials say communication is an essential step in the road to financial recovery.

The Office of the Comptroller of the Currency, the Board of Governors of the Federal Reserve System, the Federal Deposit Insurance Corp., the Office of Thrift Supervision, the National Credit Union Administration and state financial regulators are encouraging banks, thrifts and credit unions to continue to work with borrowers affected by the hurricanes.

Assistance may include waiving fees, lowering interest rates, extending repayment schedules or deferring principal or interest for an additional period.

However, borrowers must contact their lenders for extensions to be considered.

BOA celebrates banking heritage

Bank of America has opened a museum for those who are passionate about all things banking.

Last week, the financial institution opened the Banking Heritage Center in Charlotte, N.C. The center is an interactive museum housing what BOA officials say is the nation’s most treasured banking artifacts.

Highlights of the Heritage Center:

  • A replica of a 1784 bank charter signed by John Hancock, making The Massachusetts Bank the first independent joint-stock owned bank in the United States and only the second bank to receive a charter
  • A shareholders’ register from 1784 noting that 15 of the 105 original shareholders were women
  • Detailed accounts about how predecessor banks played integral roles in the rebuilding of Washington, D.C., after the War of 1812, funding one-fifth of the city’s reconstruction
  • The camera used by Cecil B. DeMille, a former banking center manager, to film the “The Ten Commandments”
  • Portrayals of the bank’s role during a variety of key points in American history, such as the San Francisco earthquake, the Great Depression and the emerging technology age, including a display of part of the original Electronic Recording Machine Accounting, which was created in 1955 to automate booking.

Rob Larimer covers banking and finance for the Colorado Springs Business Journal.