Practice management

Just one week after the Treasury Department released a report on its strategy for closing the $300 billion tax gap, the ranking minority member of the Senate Finance Committee labeled the plan “incomplete” and not credible.Sen. Max Baucus, D-Mont., said he would continue to hold up the nomination of Eric Solomon as the assistant Treasury secretary for tax policy.

Several more 2007 Toyota models have been certified by the Internal Revenue Service to qualify for the hybrid tax credit enacted by the Energy Policy Act of 2005.

During the past 15 years, I have had the opportunity to read and analyze nearly 150 partnership agreements, and it always amazes me how outdated and inadequate so many of them are.There are basically two major reasons for this. First, many firms just fail to give adequate attention to their partnership agreements. Second, over the years, the firm may have modified its original agreement or made separate agreements as new partners entered, and these agreements are significantly different from one another. None of the agreements have been consolidated into one current agreement.

H&R BLOCK, BANK REACH $39M SETTLEMENT: Tax prep giant H&R Block Inc. announced that a federal judge has approved a $39 million settlement of a class-action lawsuit brought by customers over the company's refund anticipation loans. The U.S. district court judge approved the settlement, the group's third effort to reach an agreement in the suit, which has dragged on since 1998. Block and co-defendant Beneficial National Bank - now owned by London-based HSBC - will split the payment.The lawsuit is one of several alleging that Block failed to disclose high costs and other features of RALs made to more than 17 million clients over a 13-year period.

Tax advisors are likely to hear from potential clients seeking advice on how to "re-enter" our tax reporting system.The reasons for failing to file tax returns vary with the client: the stress of a divorce or bankruptcy, ignorance of U.S. tax laws, or willful negligence. Similarly, the strategies for handling these cases should vary, considering the potential criminal, as well as civil, ramifications of a client's failure to file timely returns.

Deductible individual retirement accounts and Roth IRAs have been an attractive part of a retirement portfolio - if a taxpayer qualified for their use. The problem was that various income eligibility limits prevented many from taking advantage of IRAs.Nondeductible IRAs were generally available, but were often viewed as unattractive, since they offered only tax deferral on earnings - they offered no upfront deduction and required taxation at ordinary income rates on distribution and mandatory distributions starting at age 70-1/2.

In consideration of the continuing impact of Hurricane Katrina, the Internal Revenue Service has further postponed filing and payment requirements for businesses until Oct. 16, 2006, which is the same deadline established earlier for certain individual filers.The postponement now applies to individual, corporation, partnership, estate, trust, S corporation, generation-skipping, employment and certain excise tax returns with original or extended due dates that fall on or after Aug. 29, 2005, but before Oct. 16, 2006.

The Taxpayer Advocacy Panel has sent the Internal Revenue Service recommendations for easing taxpayer burdens in five areas.In a 12-page report dated Aug. 18, the panel made the following suggestions:

To divine the true meaning of a gap, I usually need to go beyond calculating the difference between my gross pay and net pay on the 15th and 30th of each month.That my friends, is Webster’s unabridged definition of a gap.

The share of income taxes paid by the top half of taxpayers reached its highest level in decades according to a report from the Joint Economic Committee.

A slow response to a Freedom of Information Act request has lead the L.A. Gay & Lesbian Center to sue the Internal Revenue Service. The center said that the documents requested in March 2005 are related to the rejection of its application for non-profit status in the early 1970s. In the court filing, the center accuses the IRS of attempting to “cover up its misconduct,” while chief executive Lorri Jean has said members are interested in reviewing the documents as a historical exercise. In October 2005, the center said it had received a written response to its information request from the IRS, which said that the documents had been located and were being reviewed by the IRS Office of Collection Policy. Since then, the center has not received any updates on its request. According to the center, then operating as the "Gay Community Services Center," it was the first organization with the word "gay" in its name to apply for non-profit status from the federal government. That application was rejected on the grounds that the center was not "organized and operated exclusively for charitable and educational purposes." Following several appeals, the IRS eventually awarded the center non-profit standing in August 1974, but included a number of caveats -- including that the center would not "contend that homosexuality is normal" and that the center's officers and directors not be “avowed homosexuals." Among the documents requested on behalf of the center are all records analyzing, discussing or considering its original 501(c)(3) application; a copy of the original IRS denial letter; all records in conjunction with the original denial letter; and all records in conjunction with the later IRS approval letter. The lawsuit requests that the court order the IRS to produce the requested records, provide a detailed explanation of why the requested documents were withheld and reimburse the center for its legal fees.

Two months after a senator said he would hold up Treasury appointments until the department provided a comprehensive plan to close the tax gap, the Treasury Department has issued a report titled, “A Comprehensive Strategy for Reducing the Tax Gap.”

More than 12,500 of the nation’s largest corporations electronically filed their 2005 corporate tax returns, according to the Internal Revenue Service. Large corporate taxpayers, defined as having $50 million or more in assets and filing at least 250 returns, were required to e-file for the first time beginning with their 2005 tax returns. Sept. 15, 2006 was the extended deadline for filing those returns. In total, more than half a million corporate tax returns were filed electronically, most on a voluntarily basis across a wide array of industries. Based on feedback from external groups, the IRS designed corporate e-file to be flexible enough to accommodate the various needs of large business filers, such as allowing transition rules during the first year. In a statement, the IRS noted that many business taxpayers used commercial software to prepare their returns, with about 400 taxpayers transmitting the return themselves. The agency hopes that electronic filing will allow the IRS to shave many months off of the audit process while allowing examiners to develop analytical tools to better select areas of audit inquiry. The electronic filing requirements will be expanded to include 2006 tax year returns of corporations with $10 million or more in total assets that file 250 or more returns a year. E-file has been available to corporations since 2004.

A church in California has refused to comply with an Internal Revenue Service request to turn over all the documents and e-mails it created during the 2004 election year containing references to political candidates. Last week, the 26-member vestry of All Saints Episcopal Church in Pasadena voted unanimously to challenge the IRS on the matter in court. The refusal to cooperate forces the IRS to either drop the case, or to ask the Justice Department to take the church to court. The agency could also revoke the church’s tax exemption. The church is one of dozens of tax-exempt groups under investigation by the Internal Revenue Service for possible violations of laws against political activities. The church said it regarded an IRS investigation of an antiwar sermon delivered by the church’s former rector on the Sunday before the 2004 election as an attack on freedom of speech and religion. The agency has not said what part of the sermon the reverend delivered may have violated the law. In the sermon, the former rector, imagined Jesus chiding President Bush and Democratic opponent Senator John Kerry on topics including the war in Iraq, nuclear weapons, poverty and the increasing income gap. In July, the IRS warned 15,000 tax-exempt groups across the nation to stay neutral on political matters. IRS officials said then that investigations into charges of improper campaigning would be carried out under a new enforcement program, the Political Activity Compliance Initiative. Under it, the IRS will no longer wait for an annual tax return to be filed or for the tax year to end before investigating allegations of improper campaigning.

The Internal Revenue Service has released the summer 2006 issue of the Statistics of Income Bulletin, taking a closer look at corporations claiming the possessions tax credit and the use of estate tax provisions. The bulletin includes in-depth looks at:

Though the Internal Revenue Service’s toll-free customer service line met its performance goals for the 2006 filing season, a federal report was still able to recommend a number of improvements for the system. Overall, the report from the Treasury Inspector General for Tax Administration found that callers waited less time to speak with assistors and abandoned fewer calls while on hold, but the level of service provided was still only on par with the 2005 season, and lower than the 2004 season. During the 2006 filing season, the IRS made approximately 9,900 customer service representatives available to answer the toll-free telephone lines at 25 call centers located throughout the United States and Puerto Rico. The agency met all of its goals -- an 81.8 percent level of service (according to a customer satisfaction survey), a 295-second average speed of answer, and 15 million answered calls. The call centers had originally planned to reduce their operating hours from 15 hours to 12 hours this year, and, accordingly, hire fewer assistors, but Congress passed legislation barring the cuts until the inspector general completed a study of the proposal. When the reduced operating hours didn’t happen, it was too late for the call centers to hire and train seasonal assistors, which the report noted means that the 2006 results were measured against years when there were more assistors available to answer the telephones. Between January and mid-April of 2006, TIGTA broke down the handling of customer calls as follows:

The Internal Revenue Service announced the selection of directors for its Government Entities and Employee Plans departments, as well as a new chief information officer. Michael Julianelle will take over as the director of Government Entities in mid-November, while Joseph H. Grant will serve as the director of Employee Plans beginning Oct. 1. Both organizations are part of the IRS’s Tax Exempt and Government Entities Division. As of Sept. 17, Richard A. Spires has taken over as the agency’s new chief information officer. Julianelle replaces Preston R. Butcher, who will retire at yearend but remain in the broader TE/GE division to work on special projects until then. Julianelle will oversee the operations of the three Government Entities offices -- Federal, State and Local Governments, Indian Tribal Governments and Tax Exempt Bonds. Julianelle has been director of EP examinations since 2004. Before that, he served as the international area director in the IRS’s Small Business/Self-Employed Division. Grant replaces Carol Gold, the employee plans director since November 1999, who has accepted a teaching position with the Federal Executive Institute in Charlottesville, Va. The division is responsible for administering the law affecting more than one million public and private retirement plans that have almost $12 trillion under management. Grant joined the IRS in August 2005, as of director of the EP rulings & agreements division. Before that, he was chief operating officer and a deputy executive director of the Pension Benefit Guaranty Corp. Spires, a private-sector information technology executive -- with software vendor Mantas Inc. and SRA International -- before joining the IRS in early 2004, will be responsible for virtually all aspects of the IRS’ information technology systems, including its mission-critical modernization program. Spires has had responsibility for more than 400 electronic systems within the IRS that support tax administration, as well as oversight of the projects within the Business Systems Modernization Program.

Comptroller General David Walker delivered testimony this week at the Senate Finance Committee’s hearing on “Our Business Tax System: Objectives, Deficiencies and Options for Reform.” Walker, who runs the Government Accountability Office, framed his testimony around the need for broader tax reform, telling the senators that the size of business tax revenues makes them very relevant to any plan for addressing the nation's long-term fiscal imbalance. In a report prepared by the GAO that accompanied Walker’s testimony, the office said that the design of the current system of business taxation is flawed. “It distorts investment decisions, hurting the performance of the economy,” the report said. “Its complexity imposes planning and record keeping costs, facilitates tax shelters and provides potential cover for those who want to cheat.” Walker said that some features of current business taxes channel investments into tax-favored activities and away from more productive activities, reducing the economic well-being of all Americans. Walker said principles that should guide the business tax reform debate include:

The U.S. government recorded record-high overall and corporate tax receipts on Sept. 15 -- a quarterly deadline for tax payments, the Treasury announced.

A church in Pasadena, Calif., says that the Internal Revenue Service has asked it to turn over all the documents and e-mails it created during the 2004 election year containing any references to political candidates.