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New Billionaires' Tax May Spark Questionable Accounting, Critics Say

Critics say companies may now look beyond generally accepted accounting principles to show investors how much they earn.

A new billionaire tax proposal meant to increase the link between what major companies report to investors and what they pay in taxes could lead to companies to avoid traditional accounting methods, critics said this week.

Sponsored by Senate Democrats Elizabeth Warren (D-MA) and Ron Wyden (D-Oreg.), the proposal known as the "billionaires' tax" passed by a seven-vote margin in the House on Friday. 

Now awaiting a Senate vote, the proposal would require those with over $1 billion in assets or $100 million earnings a year to pay a 15% tax based on pretax income reported to investors, rather than waiting until holdings are sold.

David Zion, head of the accounting and tax research firm Zion Research Group, told the Wall Street Journal that such a bill could encourage affected companies to look beyond generally accepted accounting principles (GAAP) to show investors how much they earn.

"This is just another incentive, I guess, to even use that much more non-GAAP," he said.

Intended to help fund social programs like healthcare and education, the bill would only affect around 200 of the country's largest publicly-traded companies. 

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But taxing book income, which is what companies typically provide investors, can fundamentally change how businesses report earnings since revenue deductions are typically not included in that number.

"You’re building from ground up if you’re going with the book income base as opposed to a variation of a taxable income model, which is remodeling an existing structure," Helen Carlier, the global head of tax for Motorola ( (MSI) - Get Motorola Solutions, Inc. Report), told the WSJ.

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Houston-based CenterPoint Energy ( (CNP-B) - Get Centerpoint Energy Inc Deposit Shs Repr 1/20th 6 % Cum Conv Red Pfd Shs Series B Report)'s Chief Financial Officer Jason Wells said that some companies may put off buying expensive equipment in order to report higher earnings to investors. 

And Financial Accounting Standards Board Chairman Richard Jones argued that it could steer the organization away from its mission of making sure companies accurately inform investors, instead forcing it to focus on raising tax revenue.

"It would be an additional pressure, there’s no doubt, on our mission and what we do," he told the WSJ last week.