Corruption revisited and (maybe) reversed: now's the time to get rid of accounting firm giveaways. (The Taxonomist).

MARK WEINBERGER DIDN'T SERVE LONG AS GEORGE W. Bush's assistant treasury secretary for tax policy, but until he retired last April, he was a man with a mission. Before and since--and apparently during--his brief stint at the U.S. Department of the Treasury, Weinberger worked at Ernst & Young, the outspokenly unpatriotic accounting giant [See Robert S. McIntyre, "Putting Profits over Patriotism," TAP, March 25, 2002.]. He was sent to the Treasury to accomplish one key goal: Undermine a law requiring corporations seeking a tax credit for research and experimentation to engage in, well, actual research and experimentation.

The law that raised the ire of Ernst & Young (along with other accounting firms) was enacted by Congress in 1986 to curb notorious abuses of the research tax break. Quite sensibly, the 1986 reform added two new conditions to get the credit: a "process of experimentation" and a focus on "discovering information."

But since then, the big accounting firms have routinely advised corporations to ignore the 1986 law's requirements. To reassure their understandably nervous clients, the accountants agreed to make their huge percentage fees contingent on this audacious ploy being upheld in court. Despite all the highpriced corporate lawyers, however, as research-credit cases have gradually made their way to litigation, the courts have repeatedly rejected these blatant attempts to evade the clear language of the law.

The felonious Sideshow Bob of The Simpsons warned that he'd eventually get out of jail because, "You can't keep the Democrats out of the White House forever!" Switch "Democrats" to "Republicans" and, by the end of the 1990s, fulfillment of that hope looked like the only way the accountants could possibly sustain their billions of dollars in ill-gotten research-credit gains.

Of course, the accountants' wish for a GOP White House came true--and Weinberger's appointment to Treasury's top tax policy job, like Harvey Pitt's to head the Securities Exchange Commission, was one of Bush's rewards to the accounting industry for all the financial support it had given him. As soon as Weinberger took office in early 2001, he scrapped the Treasury's prior, statutorily authorized research-credit rules. Then, at year's end, he proposed a very different regulation designed to give the accountants the huge payday they sought.