Other Insights

Competency, Trustworthiness of Ratings, and Conflicts of Interest

Credit rating agencies have not been held accountable for their ratings. Meaning, an inaccurate rating brings no repercussion to these agencies. If one is not held accountable for their actions, logically there is less incentive to perform well or even at a high standard.

These agencies knew their services were needed under government recommendation yet they were not held to a standard which required the utmost diligence and scrutiny to measure the accuracy of their ratings (15 Chap. L. Rev. 138). This type of attitude towards the agencies allowed the agencies to become comfortable with their existing practices and did not encourage any improvements in the methods these agencies used to rate the instruments.

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What is a Credit Rating Agency and What Task Does it Perform?

Since 1931, the United States government has encouraged or even required certain types of investors to use financial instruments or securities that have been rated high by rating agencies (15 Chap. L. Rev. 139). These agencies use available financial data, economic conditions, and various other factors to determine the strength of a particular firm, security, or instrument offered on the market. Logically, no rational investor would choose to use a financial instrument that possessed primarily bad qualities. The market should realize these bad qualities and the price of this instrument should decrease accordingly.

The credit rating agencies provide ratings which investors are advised or even required to rely on when investing in certain financial instruments. These ratings are intended to provide the investor with an accurate picture toward the quality of the financial instrument without having to do the tedious homework required to determine if credit rating given by an agency is in fact an accurate rating. Under this logic, in comparison to the average individual investor, shouldn’t a credit rating agency be more qualified and have more information to provide the most accurate credit ratings available?

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Circular 230[1] is a publication of the U.S. Treasury regulations that include the rules that govern the practice of licensed professionals before the Internal Revenue Service.[2] These rules apply to those qualified and licensed to prepare tax returns and provide legal advice to do certain things within the boundaries of the field, including this San Diego tax attorney. The rules both encourage and prohibit certain conduct. Penalties are assessed when an admitted member is found to be non-compliant. With this in mind, rules of Circular 230 apply to attorneys, certified public accountants, enrolled agents, enrolled actuaries, appraisers, and enrolled retirement plan agents.

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Let me tell you a quick story. When I was a second year law student, I had an idea about how to provide the perfect tax return by combining the expertise of a CPA and a lawyer to tackle the preparation process. I had my million-dollar idea! So I sat on my couch with my laptop and said, “Ok, time to make this work.” And then I came to the realization that I did not know the first thing about what it took to run a business or where to start. And then I came to another realization that, if I did not know the first thing about running a business, what made me qualified to give people legal and tax advice about how to run their business. I could not answer that, so I went to business school.

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As our techno-centric culture increasing depends on email as a form of communication, an increasing amount of regulatory attention has been devoted to policing unsolicited bulk electronic communication, much of it unwanted, also known as “SPAM.” Although bulk mail has been in existence for decades, mass electronic messages are extremely inexpensive to produce and distributed, especially when programmers use cookies[1] or other “trolling” features to obtain them. While direct email marketing (along with search engine marketing) is widely considered as the next evolution for early-stage companies looking to raise awareness of their product/service, SPAM is viewed as a considerable annoyance by the general public. Users are often inundated with unsolicited messages and have to waste a lot of precious time sorting through a sea of junk mail, often risking the possibility that legitimate or important email messages will be lost while deleting unwanted mail messages from their inboxes.[2] In addition, a vast majority of the messages received are for products of suspect legality, scams, chain letters, and often pornographic material.[3]

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An increasing number of legal challenges for startups that utilize the Internet, are in the area of informational privacy protection. To date, there is no single piece of legislation or bill of rights which provides comprehensive regulation of the collection, storage, transmission or use of personal information.[1] Personal information is defined as data that is used to identify, contact, or locate a person, including name, address, telephone number, or email address. [2] Currently, protection of consumer privacy over the Internet is a piecemeal collection of various state and federal statutes. However, as users and regulators become increasingly savvy about the methods of data collection and its uses, that legislation slowly creates a framework that becomes of increasing importance to small businesses and startups that utilize the internet. The Federal Trade Commission has been particularly active in recent years in assessing the threats posed by online data collection and issuing several reports on the subject.[3] In particular, Congress has already taken action with respect to data collection obtained from minors.[4] Failure to take privacy issues into consideration may subject companies to federal or state action, in addition to consumer class action suits. Because enforcement actions are on the rise, startup companies must exercise particular vigilance in this area to protect themselves and the privacy of their users.

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Because of public vehemence toward SPAM communication, small businesses and startup must exercise extreme caution when engaging in electronic marketing or any other communication that is not specifically solicited by the user. Failure to do so, in addition to regulatory and civil penalties, can expose a new business to significant damage to their goodwill, which depending on the nature of the business could be fatal to an early-stage company. However, early stage companies can avoid violation of the CAN-SPAM act by engaging in good business practices related to electronic communications. Messages that are advertisements or that otherwise solicit business should identify themselves as an advertisement. The Federal Trade Commission has not issued guidelines on how to achieve disclosure, given the variance in messages and their layout it might be difficult to do so, but communicating in a manner that is clear to the recipient will generally comply with the requirements of the statute.[13] In addition, the message must provide to the recipient the identity of its sender, including critical contact information, such as physical address or registered post-office box and some other means of communication with the sender, such as telephone number or reply email address.

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I have prepared a list of tips to help you chose a tax preparer and to make sure they are doing the job that you hired them for.

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Introduction

Every tax season, many fear the tax return preparation process. Preparing and filing your taxes can be complicated and costly; not to mention the impending fear of owing money to the government. Tax season should not be this stressful though. With a little advanced planning and by following a few simple tips, you can make tax season painless as possible. Here’s how to make it through your annual filing obligation and save yourself both time and money.

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