IRS Finds Possible Problems with How Colleges Report Business Income and Set Salaries

While many colleges might be tax-exempt on reported college enterprises such as facility rentals, bookstores, and food services, colleges are still supposed to report their profits and losses to the IRS on these services. Yet many small colleges, the IRS is finding out, have never even filed the appropriate tax forms for such activities. The IRS sent a 42-page survey to 400 private and public colleges in late 2008 asking the institutions to disclose financial details about their business ventures and executive compensation. The IRS began auditing 30 institutions of higher learning based on their responses, as well as thirteen that did not respond to the survey. The article in The Chronicle of Philanthropy website reads that the IRS is concerned with unreported business activities and questions the compensation of the most valuable university employees such as presidents and chancellors. Private colleges are supposed to follow IRS guidelines on compensation. The IRS also found that most of the institutions surveyed also are not seeking out expert advice to determine whether to report those activities.

Read the full article here.

Wells Fargo Projects Record $3 Billion 1Q Profit

From Yahoo Finance:

Wells Fargo & Co. said Thursday it expects record first-quarter earnings of $3 billion, easily surpassing analysts' estimates and providing an encouraging sign for the banking industry.

Wells Fargo is the first major bank to give an indication of how the first-quarter looked. Several pessimistic forecasts about potential loan losses have jolted the market in recent days, and investors have been anxious as Citigroup Inc., Goldman Sachs Group Inc. and JPMorgan Chase & Co. all report next week.

Wells Fargo's stock surged $2.71, or 18.2 percent, to $17.60 in midday trading. Broader markets also rose on the Wells Fargo report, with the Dow Jones industrial average gaining more than 159 points to 7,996.

San Francisco-based Wells Fargo, which has received $25 billion in funds as part of the government's bank bailout plan, anticipates earnings after preferred dividends of about 55 cents per share. Revenue for the period ended March 31 is expected to climb 16 percent to $20 billion.

Analysts polled by Thomson Reuters forecast profit of 23 cents per share on revenue of $19 billion. Analysts' estimates typically exclude one-time items.

Wells Fargo earned $2 billion during the first quarter last year.

The bank's chief financial officer, however, did caution that the economy hasn't necessarily recovered yet.

"It's premature to conclude the economy has turned," said Howard Atkins, Wells Fargo's CFO. "All I can tell you is we're seeing a lot of business."

Revenue at Wells Fargo, which has been one of the strongest banks during the ongoing credit crisis and recession, was bolstered by strong mortgage banking and capital markets business, Atkins told The Associated Press. During the first quarter, Wells Fargo received about $190 billion in mortgage applications, a 64 percent jump from the previous quarter. More than 40 percent of that volume came in March.

Most of that business was refinance applications, but about 25 percent came from customers looking to purchase homes, Atkins said, noting the recent quarter's mortgage activity has been among the strongest quarters since the housing market began to collapse in 2007.

The government has been implementing many new programs in an effort to cut interest rates, hoping to bolster the beleaguered housing market, and those programs have definitely helped, Atkins said.

"For sure the reduction in interest rates is having an impact on the wave of activity in the mortgage market," Atkins said.

The company also credited its Wachovia acquisition, which was completed Jan. 1, for helping boost revenue. Atkins said Wachovia accounted for about 40 percent of revenue during the first quarter, and that business at Wachovia has steadily improved since Wells Fargo announced it would acquire the Charlotte, N.C.-based bank last fall.

Obama's Oil Company Windfall Profits Tax and the Wall Street Journal's Celebration

From HuffingtonPost.com:

Friday's Wall Street Journal editorial, "Barack's Windfall Reversal," in barely contained gleeful terms crowed that a transition spokesman "explained this week that that the drop in oil prices to $50 barrel has made the windfall tax a dead letter." The editorial goes on to point out with degree of "I told you so" smugness, "left unexplained was why the oil companies suddenly decided to stop profiteering, or manipulating commodity prices."

Exactly the point. The oil companies were not manipulating commodity prices. Their role was limited to cheering on OPEC and lobbying our government to remain dangerously benign, playing ostrich to OPEC's manipulation of the oil market.

You see, cartels are most effective in rising markets where supply is relatively balanced or there is perceived shortage of supply, thereby causing the cartel's manipulations to be supportive toward ever-increasing prices. Discipline among cartel members is readily maintained in that revenue from lower production is made up from higher prices.

And as the oil hedge fund speculators got blown away this year and as the world's need for oil began to recede in the face of economic crisis, OPEC's control of the market began to fade in classic cartel tradition. As supply moves from shortage to balance and oversupply, control of the market begins to slip away from the cartel. Revenues from reduced production can no longer be made up from higher prices and the discipline of the cartel begins to collapse. The OPEC cartel has no enforcement capability in place to police production quotas of its members, and the propensity for cartel producers in analogous situations has most always been to "cheat" around the edges.

More than anything, the march to $147/bbl this year was in large measure due to the OPEC cartels success in manipulating the supply of oil on the world market. Its success was tantamount to a cartel imposed tax on consumers here and throughout the world. It had nothing to do with the free functioning of the marketplace. At this very moment OPEC is plotting to curtail production again at its scheduled December meeting in the hope of changing the free market dynamics of the market from current price softness (at the beginning of the Bush presidency the price was closer to $20/bbl so even here "softness" is relative) toward programming tighter supply and higher prices.

Should OPEC be successful in any way in regaining their hegemony over the market the new Obama administration should make it clear that the imposition of the oil windfall profit's tax will be applied forthwith, in that higher oil prices under these circumstances and in turn higher oil company profits have nothing to do with the workings of a free market.