WASHINGTON, D.C. – Tax Analysts, a nonpartisan, nonprofit organization that provides tax news and analyses, hosted a conference on Friday, April 25 at the Ronald Reagan Building at which a panel of tax policy experts discussed marking securities to market and House Ways and Means Committee Chair Dave Camp’s recent comprehensive tax reform discussion draft.
The panel discussion, which was moderated by Tax Analysts President and Publisher Christopher E. Bergin, included presentations by Lee A. Sheppard, contributing editor at Tax Analysts; Yoram Keinan, a partner at Carter Ledyard & Milburn LLP; and Viva Hammer, legislation counsel at the Joint Committee on Taxation.
“When some people hear ‘mark to market,’ they think of Enron. That company abused mark-to-market accounting and other accounting rules,” said Bergin. “Or they may think of the 2008 financial meltdown, when some legislators demanded and got regulatory changes because mark-to-market accounting made insolvent banks look bad. We are not here to debate the merits of mark-to-market accounting for tax purposes. That debate has been largely settled.”
The discussion highlighted the politics and history of mark-to-market in tax, examined Camp’s derivatives plan in detail, and debated marking certain types of derivatives. While the panelists disagreed on how to implement the system, they agreed that marking financial derivatives to market is the optimal solution to reducing the complexities of derivative taxation because most taxpayers already mark their portfolios to market.
“The reason I believe mark-to-market is a practical solution is because it would consolidate timing and character for derivatives,” said Keinan. “There is no other alternative. We need a coherent and comprehensive set of rules for taxing derivatives.”
Sheppard argued that valuation concerns are exaggerated because taxpayers who trade in derivatives are already doing the calculations for financial accounting purposes.
“Nearly all sophisticated holders of these contracts have a marked book somewhere even if you aren't a reporting company, because you cannot do this without knowing what your position is on a pretty regular basis,” Sheppard said.
Hammer added that when it comes to valuation, “it’s simply false, specious, and disingenuous to say you don’t know what mark to use.”
Read more about the conference here and watch the video.
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