On Tuesday, Iran reached a nuclear agreement with the U.S. and five other world powers after years of negotiations and political uncertainty. The deal is designed to prevent Iran from producing nuclear weapons. In exchange, the world powers will provide relief of economic sanctions to the country. Once these sanctions are lifted, it is predicted that Iran will quickly begin exporting more oil, something that could drive down the price of oil further. The lift on sanctions are predicted to provide an additional 7-8% in growth for the country, something that shows the true impact the sanctions had on the country in the first place.
It remains to be seen if Iran will follow through with this agreement. There is certainly a lot of worry among neighboring countries and the United Nations on what would happen should Iran go back on their word.
Earnings Season in Full Force:
Several companies reported earnings this week. Below is a brief summary of a few of these companies:
Bank of America (BAC) reported earnings that surpassed analyst expectations, as litigation charges declined. Overall, the bank earned $0.45 per share, ahead of the $0.36 per share analysts were expecting. This also represents a 136% increase over the second quarter of 2014. Growth, however, was essentially flat year-over-year. Besides the cost cutting measures, which are expected to continue, the company’s investment banking business was down 6% year-over-year and the trading business was down 2%. Bank of America did see a 40% increase in mortgages and home equity loans over last year. CEO Brian Moynihan said on the conference call that the company is still working on growing its revenues and he expects the bank’s cost cutting initiatives to begin to bear fruit.
Citigroup (C) also benefited from the decline in litigation expenses and earned $1.45 per share in the second quarter, higher than the average analyst estimate of $1.34 per share. Like Bank of America, revenue was essentially flat year-over-year, though it was still higher than analysts anticipated. Citigroup is also anticipating growth in North America consumer banking, which along with the cost cutting measures, should propel the EPS growth for the upcoming quarters.
Blackstone Group (BX) saw its second-quarter profit drop 74% year-over-year, though with the nature of the company’s business, earnings can (and typically are) volatile. This is because a large part of their profitability will come as Blackstone sells properties or closes other private equity deals, both things that do not necessarily have a set timetable. Still, the results were disappointing, as the $0.43 per share was short of the anticipated $0.47 per share analysts were expecting. The company remained positive on its outlook and set this quarter’s dividend payout to $0.74 per share, nearly 35% higher than its payout of $0.55 per share at this time last year.
General Electric (GE) saw revenue rise in the second quarter by 1.5%, surpassing analyst expectations. Overall, the company matched analyst expectations, earning $0.28 per share. The company also stated they are on track to continue shrinking their finance unit. CEO Jeff Immelt stated he believes 90% of the company’s profits will come from selling equipment for airplanes, railroads, oil extraction, and electricity generation by 2018. While the company raised its overall profit forecast, they also warned of continued headwinds in the oil and gas segment, stating earnings could fall as much as 10% this year in that part of the business.
Kinder Morgan Inc (KMI) missed its average analyst earnings estimate and revenue expectations, but shares rose as the company’s outlook was strong. Kinder Morgan had previously said they would increase the dividend to its full-year target of $2.00 per share. Due to their outlook on the market, they were able to raise next quarter’s dividend 14% to $0.49 and stated they still believe they are on track to reach the $2.00/year target. Kinder Morgan stated it added $3.7 billion to its backlog of planned investments, most from the Northeast Energy Direct pipeline, which will allow the company to bring natural gas to the northeast.
Next week will see a large number of companies report. Just a few scheduled to report include: Haliburton (HAL), IBM (IBM), Apple (AAPL), Verizon (VZ), Yahoo! (YHOO), Boeing (BA), Coca-Cola Company (KO), Qualcomm (QCOM), 3M (MMM), AT&T (T), Caterpillar (CAT), Freeport McMoRan (FCX), General Motors (GM), Starbucks (SBUX), and Visa (V).
IRS Report for Tax Filing Season:
National Taxpayer Advocate Nina Olson released her mid-year report to Congress providing data on items such as tax fraud services and call wait times, as well as issues that the IRS will face in the upcoming year. The agency has seen funding drop significantly over recent years despite the growing number of tax fraud cases that require a significant amount of time. Olson’s report identified that the decline in service leads to opportunities for mistakes to be made and a possible breakdown in compliance by many taxpayers.
Her report calls for additional funding in order to meet service needs but suggested that in the near term some inefficiencies should be addressed by the agency. She recommended that more resources should be allocated towards the service component of the IRS and less towards enforcement. As she points out, over 98% of tax revenue is collected voluntarily and timely, and less than two percent of revenue is collected through enforcement. Yet more resources (twice as many in fact) continue to be funded towards enforcement collections. Additionally, she points out that more funding is going towards improving online resources to replace real life agents. While many questions may be answered online, often times taxpayers and tax professionals alike need the ability to speak with someone to explain the situation and avoid issues down the road.
Some notes from the report:
1. IRS representatives only answered 37 percent of phone calls in 2015, compared to 71 percent in 2014. In cases relating to tax fraud, only 17 percent of calls were answered. At one point during filing season less than 10 percent of these calls were being answered.
2. Tax preparers were only able to get through to a representative via their specified line on 45 percent of their calls, with average wait times of 45 minutes.
3. One common complaint this year was that after long wait times callers were told to call back another day and given a “courtesy disconnect”. In 2014, approx. 544,000 taxpayers experienced this “courtesy”. That number leaped to 8.8 million in 2015!
4. As the number of tax fraud cases rise, steps are being taken to catch these before refunds are mailed. IRS filters stopped over 1.5 million tax returns in 2015 (up from approx. 765,000 in 2014) during the filing process to authenticate identity of the taxpayer. Roughly one third of these returns turn out to be authentic, therefore additional steps had to be taken for legitimate tax filers to receive their refunds.
One common complaint from tax fraud victims is that there is not one agent responsible for their case and it often requires multiple agents to help with a resolution. Thus taxpayers find themselves having to continuously call and sit on hold for long wait times only to have to explain their case to a new agent. Simplifying the process of resolving these issues and reducing the amount of time for taxpayers is a priority for the upcoming filing season, but it will be a tough task as the number of fraud cases increase and the agency remains understaffed and underfunded.
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