1/22. Securities and Exchange Commission (SEC) Commissioner Atkins gave a speech in San Diego, California, in which he discussed Section 404 of the Sarbanes-Oxley Act.

Atkins has previously discussed the problems created by implementation of Section 404 of the Sarbanes-Oxley Act. See, for example, stories titled "Atkins Says SEC Seeks More Rational Approach to Section 404" in TLJ Daily E-Mail Alert No. 1,395, June 20, 2006, and "SEC's Atkins Discusses E-Proxies, XBRL and 404 Reform" in TLJ Daily E-Mail Alert No. 1,405, July 6, 2007.

Small publicly traded technology companies, and the trade groups that represent them, have complained about unintended harmful consequences of Section 404.

Atkins (at right) said that "one section of the Act has caused Sarbanes-Oxley to become synonymous with American regulatory over-reach -- especially in the international community. That provision, of course, is Section 404. This section requires management to assess annually the effectiveness of internal controls for financial reporting and requires a company’s outside auditor to attest to, and report on, management’s assessment."

Section 404 is titled "Management assessment of internal controls". It provides, in full, as follows:

(a) RULES REQUIRED- The Commission shall prescribe rules requiring each annual report required by section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m or 78o(d)) to contain an internal control report, which shall--
   (1) state the responsibility of management for establishing and maintaining an adequate internal control structure and procedures for financial reporting; and
   (2) contain an assessment, as of the end of the most recent fiscal year of the issuer, of the effectiveness of the internal control structure and procedures of the issuer for financial reporting.
(b) INTERNAL CONTROL EVALUATION AND REPORTING- With respect to the internal control assessment required by subsection (a), each registered public accounting firm that prepares or issues the audit report for the issuer shall attest to, and report on, the assessment made by the management of the issuer. An attestation made under this subsection shall be made in accordance with standards for attestation engagements issued or adopted by the Board. Any such attestation shall not be the subject of a separate engagement.

Atkins said that the Congress and SEC incorrectly estimated how much it would cost companies to comply with this requirement.

He said that "management should have a reasonable control environment that provides assurance as to the integrity of the financial statements". However, there has been a "flawed implementation of Section 404."

He continued that "Benefits should exceed costs. When we embarked on implementing Section 404, the SEC envisioned a top-down, enterprise-focused approach, where a company would focus on entity-level controls that could materially impact the consolidated financial statements. The SEC rule was a principles-based approach aimed at management. However, the rules that the PCAOB developed for auditors had an entirely different effect. Of course, I am referring to the now-infamous Audit Standard No. 2 (AS 2), a 300-page rule that has been supplemented by a large amount of additional interpretive guidance."

He added that the "SEC approved the rule, mainly out of a misplaced sense of deference to the PCAOB."

Atkins argued that "the primary flaw of AS 2 was that it lacked a firm grounding in the concept of materiality." This and other factors led auditing firms to implement AS 2 in "a very process-intensive, document-oriented, bottom-up approach". He described "atmosphere in which what-if scenarios created mountains out of molehills" and companies where auditors told companies to "document, analyze, and create process charts for literally tens or hundreds of thousands of supposedly key internal controls"

Finally, he said that the "PCAOB proposed replacing AS 2 with a new audit standard, AS 5, for an outside auditor’s attestation of internal controls. Far from being a rollback or lessening of standards, I think the new proposals go a long way towards implementing the original vision of Sarbanes-Oxley."

He did not discuss the possibility of legislation in the prepared text of his speech.

1/26. The National Institute of Standards and Technology (NIST) published a notice in the Federal Register announcing that it seeks applications for grants in fiscal year 2007 under several grant programs, including the "Electronics and Electrical Engineering Laboratory Grants Program" (EEEL) and the "Information Technology Laboratory Grants Program" (ITL).

The notice states that the EEEL grant program "will provide grants and cooperative agreements for the development of fundamental electrical metrology and of metrology supporting industry and government agencies in the broad areas of semiconductors, electronic instrumentation, radio-frequency technology, optoelectronics, magnetics, superconductors, electronic commerce as applied to electronic products and devices, the transmission and distribution of electrical power, national electrical standards (fundamental, generally quantum-based physical standards), and law enforcement standards." (Parentheses in original.)

The NIST awarded $657,871 under the EEEL grant program in FY 2006. The notice also states that for FY 2007 "Individual awards are expected to range between $5,000 and $150,000." Applications are due by 5:00 PM on June 15, 2007.

The NIST's notice states that the ITL grant program "will provide grants and cooperative agreements in the broad areas of mathematical and computational sciences, advanced network technologies, information access, and software testing. Specific objectives of interest in these areas of research include: quantum information theory, computational materials science, computational nanotechnology, mathematical knowledge management, visual data analysis, verification and validation of computer models, software testing, human-robot interaction, human factors/security/core requirements/testing of voting systems, information visualization, systems biology, grid computing, service oriented architecture and complex systems, security for the IPv6 transition from and coexistence with IPv6, and device mobility among heterogeneous networks."

The NIST awared $266,366 under the ITL grant program in FY 2006. It expects to award between $10,000 and $150,000 per grant in FY 2007. Applications are due by 5:00 PM on June 29, 2007.

1/12. Rep. Mary Bono (R-CA) and Rep. George Radanovich (R-CA) introduced HR 436, the "Cell Phone Tax Moratorium Act of 2007", on January 12, 2007. Sen. John McCain (R-AZ), Sen. Jim DeMint (R-SC), Sen. Gordon Smith (R-OR), and Sen. John Sununu (R-NH) introduced S 166, also titled the "Cell Phone Tax Moratorium Act of 2007", on January 4, 2007. The two bills are substantially identical.

These bills provide that "No State or political subdivision thereof shall impose a new discriminatory tax on or with respect to mobile services, mobile services providers, or mobile services property, during the 3-year period beginning on the date of enactment of this Act".

The phrase "new discriminatory tax" encompasses various taxes that discriminate against wireless services, and that were not "generally imposed and actually enforced prior to the date of enactment of this Act".

The bill exempts state and federal universal service taxes, and taxes for "the support of E-911 communications systems".

Rep. Bono (at right) stated in a release that consumers have "witnessed dramatic increases in cell phone fees as a direct result of discriminatory taxes imposed by cities and states across the nation".

She continued that "Today, the national average sales tax is around six percent on goods and services; but Americans are paying an average of 17% in State and local taxes on cell phone service. With an ever-growing number of Americans utilizing wireless and broadband technology, these excess taxes being imposed on mobile service providers are crippling the efforts to expand and improve critical infrastructure needed to keep pace with demand."

Rep. Radanovich stated in this release that "Wireless services should not be taxed differently than any other good or service that is a part of our mainstream economy and can be important for both business and personal reasons."

Sen. McCain (at left) stated in a release that "Excessive taxes dampen innovation, and are regressive, hitting the most vulnerable customers the hardest. Although more then 72 percent of all Americans own a cell phone, 26 percent said they could not live without it because it is their only communications source".

"Cell phone only owners are often those who find it difficult to afford a wired and a wireless phone.  Additionally, according to the same report, 74 percent of the Americans say they have used their cell phone in an emergency and gained valuable assistance", said Sen. McCain. "Some State and local governments cannot move beyond the idea that wireless services are some kind of luxury item that can be taxed at a higher rate."

Steve Largent, head of the CTIA -- The Wireless Association, stated in a release that wireless users continue "to be the target of discriminatory taxation". He added that "As a nation, we simply cannot make the strides we have to make with regard to broadband adoption if we continue to tax this innovative and high-tech service in such an exorbitant and regressive fashion."

The House bill was referred to the House Judiciary Committee (HJC). The Senate bill was referred to the Senate Finance Committee (SFC).

1/22. Rep. Bobby Rush (D-IL), Rep. Ed Towns (D-NY), and Rep. Al Wynn (D-MD) introduced HR 600, the "Telecommunications Ownership Diversification Act of 2007".

This bill would amend the Internal Revenue Code to provide for a deferral of tax on gain from the sale of telecommunications businesses, and other tax benefits, to promote diversity of ownership of telecommunications businesses.

It was referred to the House Ways and Means Committee (HWMC).

This bill is a reintroduction of HR 1473 (109th Congress), titled the "Telecommunications Ownership Diversification Act of 2007". Rep. Rush introduced that bill on April 5, 2005. Neither the HWMC nor the full House took any action on that bill.

1/25. Mark Everson, Commissioner of the Internal Revenue Service (IRS), threatened in a release to freeze refunds of, audit returns of, and/or refer for criminal prosecution, taxpayers who claim incorrect amounts for refund of telecommunications taxes illegally collected by the IRS. He also threatened to investigate tax preparers.

Everson stated that "we are seeing some clear abuse involving overstated refund requests ... People requesting an inflated amount will likely see their refund frozen, may have their entire tax return audited and even face criminal prosecution where warranted."

This involves 26 U.S.C. § 4251, which imposes a 3 percent excise tax on some, but not all, communications services. This tax is sometimes referred to by its opponents as the "Spanish American War tax", since it was originally imposed as a tax to help fund that war.

The IRS previously applied a tortured interpretation to the applicable statutory language. 26 U.S.C. § 4252 contains the relevant definitions.

§ 4251(b) provides that the term ''communications services'' means "(A) local telephone service; (B) toll telephone service; and (C) teletypewriter exchange service". This matter concerns "toll telephone service".

26 U.S.C. § 4252(b) provides that to be taxable, a "toll telephone service" must include a "toll charge which varies in amount with the distance and elapsed transmission time". The key word here is "and". The carriers and taxpayers correctly asserted that the word "and" means "and". The IRS long asserted that "and" actually means "or", and thereby illegally collected billions of dollars of taxes on transactions not covered by the statute.

Taxpayers repeatedly challenged the illegal tax in federal court, and won. The IRS continued to collect the tax, even in jurisdictions in which the courts had ruled it illegal. The IRS appealed District Court judgments to the U.S. Courts of Appeals, and lost. Not until after five consecutive Courts of Appeal had ruled against the IRS did the IRS stop collecting the illegal tax.

See also, story titled "IRS Announces It Will Cease Its Illegal Collection of Excise Taxes on Phone Service" in TLJ Daily E-Mail Alert No. 1,379, May 26, 2006. That story lists each of the IRS's Appeals Court defeats, and hyperlinks to opinions and TLJ stories.

Taxpayers now seek refunds of amounts wrongfully collected by the IRS. And the IRS now seeks to intimidate tax return preparers and taxpayers from claiming refunds.

The House will not meet. The Senate will not meet.

2:00 - 3:00 PM. The Information Technology Association of America (ITAA) will host a webcast event titled "ITAA Tech Law: The new Federal e-Discovery Rules. Are You Ready? Privacy and Data Protection Series with Venable LLP". The speaker will be Damon Wright (Venable). See, ITAA notice.

The House will meet at 2:00 PM. It will consider several non-technology related items under suspension of the rules.

The Senate will meet at 2:00 PM for morning business. At 3:30 PM it will resume consideration of HR 2, the "Fair Minimum Wage Act of 2007".

9:00 AM - 3:30 PM. The National Institute of Standards and Technology's (NIST) Advanced Technology Program Advisory Committee will hold a partly closed meeting. See, notice in the Federal Register, January 16, 2007, Vol. 72, No. 9, at Page 1705. Location: NIST, Administration Building, Employees' Lounge, Gaithersburg, MD.

Deadline to submit comments to the Federal Bureau of Investigation's (FBI) Electronic Surveillance Technology Section (ESTS) regarding its Communications Assistance for Law Enforcement Act of 1994 (CALEA) related cost recovery process information collection activities. See, notice in the Federal Register, November 29, 2006, Vol. 71, No. 229, at Pages 69146-69147.

Deadline to submit comments to the Federal Communications Commission (FCC) regarding its review of regulations, pursuant to the Regulatory Flexibility Act of 1980, of FCC regulations that become ten years old in 2006, to determine whether such regulations should be changed, amended, or rescinded. See, notice in the Federal Register, November 29, 2006, Vol. 71, No. 229, at Pages 69085-69094. This notice includes a list of relevant regulations.

TIME? Day one of a two day closed meeting of the Department of Defense's (DOD) Defense Science Board's (DSB) Task Force on Space Industrial Base [PDF]. See, notice in the Federal Register, January 24, 2007, Vol. 72, No. 15, at Page 3116. Location: Science Applications International Corporation (SAIC), 4001 N. Fairfax Drive, Arlington, VA.

9:00 AM - 12:30 PM. The U.S. Chamber of Commerce (USCC) will host a workshop titled "Social Networking, Viral Campaigns, and Humor: What you Need to Know". This is the second of four workshops in a series titled "Online Strategies for Grassroots Advocacy". See, notice. Location: USCC, 1615 H St., NW.

9:00 AM - 3:30 PM. The National Institute of Standards and Technology's (NIST) Advanced Technology Program Advisory Committee will hold a partially closed meeting. See, notice in the Federal Register, January 16, 2007, Vol. 72, No. 9, at Page 1705. Location: NIST, Administration Building, Employees' Lounge, Gaithersburg, MD.

9:30 AM. The Senate Foreign Relations Committee will hold a hearing on the nomination of John Negroponte to be Deputy Secretary of State. See, notice. Location: Room 216, Hart Building.

10:00 AM. The House Ways and Means Committee will hold a hearing titled "Trade and Globalization". See, notice. Press contact: 202-225-1721. Location: Room 1100, Longworth Building.

12:00 NOON - 2:00 PM. The Center for American Progress (CAP) will host a panel discussion titled "Local Media Diversity Matters to All Americans". The speakers will be Rep. Xavier Becarra (D-CA), Robert Entman (George Washington University), Philip Napoli (Fordham University), Federico Subervi (Texas State University -- San Marcos), and Mark Lloyd (CAP). Lunch will be served at 12:00 NOON. The program will begin at 12:30 PM. See, notice. Location: Room B-340, Rayburn Building, Capitol Hill.

TIME? Day two of a two day closed meeting of the Department of Defense's (DOD) Defense Science Board's (DSB) Task Force on Space Industrial Base [PDF]. See, notice in the Federal Register, January 24, 2007, Vol. 72, No. 15, at Page 3116. Location: Science Applications International Corporation (SAIC), 4001 N. Fairfax Drive, Arlington, VA.

8:30 AM - 4:30 PM. The Center for Democracy and Technology (CDT) will host an event titled "3rd Annual Internet Caucus State of the Net Conference". See, notice and agenda. The basic price is $350. The price for members of the Internet Caucus Advisory Committee is $300. The price for non-profit and academic personnel is $75. The price for "current government employees and credentialed members of the press" is free. Location: Hyatt Regency Hotel, 400 New Jersey Ave., NW.

10:00 AM. The House Financial Services Committee (HFSC) will hold its organizational meeting for the 110th Congress. See, notice. Press contact: Steve Adamske at 202-225-7141 or Heather Wong at 202-226-3314. Location: Room 2128, Rayburn Building.

10:15 PM. The House Judiciary Committee will hold a hearing titled "Presidential Signing Statements under the Bush Administration: A Threat to Checks and Balances and the Rule of Law?". Location: Room 2147, Rayburn Building.

12:15 - 1:30 PM. The Federal Communications Bar Association's (FCBA) HLS/Emergency Communications Committee will host a brown bag lunch titled "Emergency Alert and Warning and the Warning, Alerts and Response Network (WARN) Act". The speakers will be Christopher McCabe (CTIA) and others. For more information, contact Jennifer Manner at jmanner at msvlp dot com or 703-390-2730. Location: Akin Gump, 1133 New Hampshire Ave., NW.

5:00 - 7:00 PM. The Center for Democracy and Technology (CDT) will host an event titled "10th Annual Kickoff Reception & Technology". See, notice. Location: Room 902, Hart Building, Capitol Hill.

6:00 - 9:15 PM. The DC Bar Association will host a continuing legal education (CLE) seminar titled "Harnessing U.S. Trade Policy to Solve International Intellectual Property Rights Problems". The speakers will include Sturgis Sobin (Heller Ehrman), Victoria Espinel (Assistant US Trade Representative for Intellectual Property Rights), Brian Pomper (Chief International Trade Counsel, Senate Finance Committee), and Yang Guohua (Counselor for Intellectual Property, Embassy of China). The price to attend ranges from $90 to $135. For more information, call 202-626-3488. See, notice. Location: DC Bar Conference Center, 1250 H St NW B-1 Level.

Deadline to submit initial comments to the Federal Communications Commission (FCC) in response to its Further Notice of Proposed Rulemaking (FNPRM) in its TV white space proceeding. This FNPRM is FCC 06-156 in ET Docket Nos. 04-186 and 02-380. The FCC adopted this item at an October 12, 2006, meeting, and released it on October 18, 2006. See, story titled "FCC Adopts Order and FNPRM Regarding TV White Space" in TLJ Daily E-Mail Alert No. 1,467, October 12, 2006, and notice in the Federal Register, November 17, 2006, Vol. 71, No. 222, at Pages 66897-66905.

EXTENDED FROM JANUARY 5. Extended deadline to submit reply comments to the Federal Communications Commission (FCC) to assist the Wireless Telecommunications Bureau (WTB) in drafting a report on the ability of persons with hearing disabilities to access digital wireless telecommunications. This proceeding is WT Docket No. 06-203. See, original FCC Public Notice [4 pages in PDF] (DA 06-2285) and Public Notice (DA 06-2498) extending deadlines.

The House will not meet due to party retreats.

9:00 AM - 4:30 PM. Day one of a two day meeting of the U.S.-China Economic and Security Review Commission. See, notice in the Federal Register, January 17, 2007, Vol. 72, No. 10, at Page 2088. Location: Room 562, Dirksen Building, Capitol Hill.

10:00 AM. The Senate Commerce Committee (SCC) will hold a hearing titled "Assessing the Communications Marketplace: A View from the FCC". See, notice. Location: Room 253, Russell Building.

Deadline to submit additional reply comments to the Federal Communications Commission (FCC) regarding the Missoula Plan, an intercarrier compensation reform plan. See, notice in the Federal Register, January 18, 2007, Vol. 72, No. 11, at Pages 2249-2250. This proceeding is CC Docket No. 01-92.

The House will not meet due to party retreats.

9:00 AM - 12:00 NOON. Day two of a two day meeting of the U.S.-China Economic and Security Review Commission. See, notice in the Federal Register, January 17, 2007, Vol. 72, No. 10, at Page 2088. Location: Room 562, Dirksen Building, Capitol Hill.

1/18. Rep. Peter DeFazio (D-OR) and fifteen other Democrats introduced HR 548, an untitled bill to create a Congressional Trade Office (CTO). The bill was referred to the House Ways and Means Committee.

The bill would create an office that would duplicate some of the functions of the Office to the U.S. Trade Representative (OUSTR). It would make the CTO an adjunct to the OUSTR and State Department in many executive functions, including trade negotiations, dispute resolution, and enforcement. However, the bill stops short of transferring executive authority from the executive to the legislature.

The head of this office would be appointed by the Speaker of the House of Representatives and the President pro tempore of the Senate.

The bill provides that the CTO and its personnel would "participate as observers in bilateral, regional, and multilateral trade negotiations".

It further provides that they would "Participate as observers on the United States delegation at dispute settlement panel meetings of the World Trade Organization" and "Evaluate the results obtained by the United States in dispute settlement proceedings at the World Trade Organization, under the North American Free Trade Agreement, and under any trade agreement"

The CTO would be tasked with monitoring compliance with trade agreements by "consulting with the affected industries and interested parties", "analyzing the success of those agreements based on the effect of the agreements on specific industries and the economy", and "assessing the extent to which those agreements comply with environmental goals" and "labor goals".

The bill also authorizes the CTO to "secure information, data, estimates, and statistics directly from any department, agency, or establishment of the executive branch of Government and any regulatory agency or commission of the Government. All such departments, agencies, establishments, and regulatory agencies and commissions shall furnish the Director any available material which the Director determines to be necessary in the performance of his or her duties and functions". The bill then requires the CTO to "post on an Office website all information, data, estimates, and statistics obtained under this Act", except information "exempted from disclosure by law" or which the CTO determines to fall within certain other exempted categories.

1/22. Securities and Exchange Commission (SEC) Chairman Chris Cox gave a speech at Northwestern University Law School. He once again discussed interactive data. He said that "at the same time that we are making the disclosure you get more thorough and easier to read, we're also working to make it interactive, so you can download it from the Web and compare it with other information from other companies. By going online, you won't just be reading a paper document in electronic form -- now you will be able to search a proxy statement for the items you want, and follow links to other, more detailed information."

1/26. The Bureau of Industry and Security (BIS), the federal export regulation agency, published a notice in the Federal Register that announces, describes, recites, and sets the effective date (January 26, 2007) of its rule imposing new export and reexport controls on North Korea. See, Federal Register, January 26, 2007, Vol. 72, No. 17, at Pages 3722-3730. This notice states that this new rule is promulgated as a consequence of North Korea's testing of nuclear weapons. The BIS rule prohibits the export to North Korea of, among other things, nuclear or missile-related items and other items included on the Commerce Control List (CCL). The new rule also prohibits the export of "Computer laptops", except for use by humanitarian organizations. It also prohibits the export of "Personal digital music players", "Flat-screen, plasma, or LCD panel televisions or other video monitors or receivers", and "electronic entertainment software". It also prohibits the export of musical instruments, tapestries, fashion accessories, and artificial furs. It prohibits the export of all "luxury goods". Moreover, according to the BIS's rule, beer is a luxury good.

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