Tax planning

Individuals who owe delinquent federal income taxes will now be able to apply online for a payment agreement, the Internal Revenue Service announced.

H&R Block Inc., best known for its tax preparation services, is expanding into banking.The company, based here, announced at its annual meeting in mid-September that it will begin offering bank accounts to customers to facilitate direct deposit of tax refunds.

The tax prep software industry is both expanding and contracting, as Wolters Kluwer and Thomson continue their acquisitions, while new entrants surface with online and application service provider offerings.Thomson's Creative Solutions purchased Dunphy Systems in May, with the intention of converting existing Dunphy customers to Creative Solutions. CCH, on the other hand, announced its acquisition of Rockville, Md.-based ATX/Kleinrock in August, but will keep it as a distinct product line. CCH followed this move with an announcement in September that it would acquire Rome, Ga.-based TaxWise. It likewise will keep TaxWise as a separate product line, according to CCH president and chief executive Kevin Robert.

SURVEYED TACS ARE RIGHT 75 PERCENT OF THE TIME: Using one of dozens of scenarios, undercover government auditors were mostly satisfied with the levels of assistance that they received at several of the Internal Revenue Service's Taxpayer Assistance Centers. A report from the office of the Treasury Inspector General for Tax Administration details the results of auditor visits to more than 70 TACs during the 2006 filing season. Using 47 standard scenarios, the auditors made anonymous visits to 50 TACs asking 200 tax law questions. Later, an additional 10 scenarios relating to the Katrina Emergency Tax Relief Act of 2005 were developed and another 20 visits to additional TACs were made to ask 80 questions.The report found that TAC workers:

A professional tax preparer has received a prison sentence of 10 years and five months for her role in a scheme that allowed businesses to claim false business deductions on their income taxes.

A Senate panel’s review of interactions between imprisoned former lobbyist Jack Abramoff and a number of tax-exempt organizations had lead the committee to question the groups’ tax status and a portion of the federal Tax Code dealing with unrelated business income taxes.

Statistics show that more than 50 percent of marriages in the United States end in divorce.The process of a divorce can create tremendous animosity between the parties, and this can lead to difficult financial issues for those affected by the split. There are many complex federal tax issues that need to be planned for, or they will create tremendous pitfalls. The Internal Revenue Code also contains several provisions that provide specific guidance for divorce-related transactions.

Year-end tax planning opportunities abound this year. They do so not only because it has been a particularly active year for tax legislation, but also because of other significant tax developments taking place in 2006, as well as changes from pre-2006 tax legislation that have a particular impact this year and next.Traditional year-end tax strategies should not be abandoned. Income should either be accelerated or postponed between 2006 and 2007, depending upon the anticipated tax brackets for each client. Similarly, deductions and credits should be manipulated to lower income either in the more favorable year or, in some cases, in both years, before midnight, Dec. 31, 2006, has come and gone.

The Tax Foundation has released the 2007 edition of its guide comparing the business tax climate between states.

A Los Angeles nurse has agreed to pay $33.8 million to settle federal charges that she defrauded Medicare and filed false tax returns to conceal her proceeds, federal prosecutors announced.Lourdes Perez, 53, pleaded guilty to the fraud charges in October 2004 as part of a deal. Perez owned two of California's largest home healthcare companies -- Provident Home Health Care Services Inc. in Eagle Rock and Tri-Regional Home Health Care Inc. in San Dimas -- which collectively billed Medicare about $80 million annually.

By 2009, the market for legal, tax and regulatory information will grow to $18.3 billion, according to Outsell Inc.

Congress left town without passing a number of tax breaks that expired at the end of 2005 -- among them the option to deduct state and local sales taxes in place of state income tax, a deduction for college tuition and fees, the deduction for school teachers, and a research and development credit for business.Although the breaks themselves are not controversial, and leaders of the Senate Finance Committee pushed for their enactment before Congress adjourned, the breaks became mired in political infighting when they were attached to “trifecta” legislation that would have included an increase for the minimum wage and a slash in estate tax rates.

The Tax Foundation has cross-tabulated state demographics with tax data from the Internal Revenue Service to take a look at which states benefited the most from the tax cuts enacted under the Bush administration in 2001 and 2003.

The Treasury Department and the Internal Revenue Service announced in a notice that individuals who work outside the United States and live in foreign countries with high housing costs will be able to deduct, or exclude, a greater portion of their housing costs.U.S. citizens and residents are generally subject to U.S. taxes on their worldwide income, and under the Tax Increase Prevention and Reconciliation Act of 2005, several changes were made to the Tax Code, one of which limited the amount of housing costs that could be deducted -- setting a cap of $11,536.

Federal prosecutors will split the 18 defendants facing charges over the sale of questionable-legal tax shelters into two separate groups. Sixteen former KPMG executives are among the defendants in what’s being billed as the largest criminal tax case ever. The other two indictees include a lawyer and an outside investment adviser to the Big Four firm. Under a proposal submitted in Manhattan Federal District Court, prosecutors have asked to hold two separate trials -- one for a group of former senior partners and executives and another for a group of more junior employees. The proposal doesn’t provide a timeline for when the separate trials might start, or in what order. Lawyers for certain defendants have previously argued that their clients should be tried separately. According to the New York Times, the senior defendants would include former vice chairman Jeffrey Stein, who was the No. 2 executive at the firm; former vice chairman in charge of tax services John Lanning; former chief financial officer Richard Rosenthal; former associate in-house lawyer Steven Gremminger; former partner Robert Pfaff, who worked with co-defendant John Larson to set up Presidio Advisory Services; former senior tax partner David Greenberg; and a former lawyer at Sidley Austin Brown & Woo, Raymond J. Ruble. The junior defendants would include the head of KPMG’s personal financial planning division, Jeffrey Eischeid; former KPMG employee Larson, who set up an investment boutique that sold shelters; former Deutsche Bank employee David Amir Makov, who later worked at Presidio; and former partner Gregg Ritchie, among others.

The chairman of the House Ways and Means Committee has asked for information on the NCAA’s finances -- suggesting in the process that he might next be questioning the association to justify its tax-exempt status. "Most of the activities undertaken by educational organizations clearly further their (tax) exempt purpose," Rep. Bill Thomas, R-Calif., wrote in a letter to NCAA president Myles Brand. "The exempt purpose of intercollegiate athletics, however, is less apparent, particularly in the context of major college football and men's basketball programs." Specifically, Thomas asked for information on the NCAA’s television contract, the salaries of coaches, school sports facilities and total annual revenues and expenditures for Division I-A football programs and Division I basketball programs. He requested a response by the end of this month. Since 2004, the Ways and Means committee of Representatives has been conducting a broad review of the tax-exempt sector -- already looking into the tax-exempt status of nonprofit hospitals and credit unions among others. The NCAA's projected 2006-07 budget anticipates nearly $563 million in revenue, most from its TV contracts. More than half that figure is distributed to member leagues and schools, through student-athlete welfare, academic-enhancement and other programs. The remainder is paid according to the success of schools in the annual NCAA men's basketball tournament. Thomas notes in his letter that the annual returns filed by the NCAA with the IRS states that the primary purpose of the NCAA is to "maintain intercollegiate athletics as an integral part of the educational program and the athlete as an integral part of the student body,” and goes on to obliquely question college athletics' connection to higher education.

Loretta Doon was named chief executive of the California CPA Society and the CalCPA Education Foundation this May, after serving for just over a year as the chief operating officer for both groups.

Less than six months after announcing a plan to revamp its test for enrolled agents, the Internal Revenue Service said that the new version of the examination is ready. The first testing window opens today and runs through Dec. 1. The IRS contracted Thomson Prometric to redesign the test and stressed that experts within the Enrolled Agent community had played a role in shaping the new content that is included in the special enrollment examination. The exam has been reformatted from four sections, to three sections, in order to more accurately reflect the current state of taxpayer representation. Each of the three new sections -- individuals, businesses and representation, practice and procedures -- will contain about 100 questions. There are currently about 40,000 active enrolled agents, many of whom are attorneys and CPAs, and represent taxpayers in both examinations and collection matters. Other changes include that:

A “practice privilege” requirement introduced in Illinois -- which would have required out-of-state CPAs to register with a state agency -- appears on the verge of meeting a fate close to a similar proposal in California. That fate being, in this case, compromise. Both the Illinois CPA Society and the American Institute of CPAs had objected to the new registration requirement -- with the society requesting a delay to the law’s Oct. 1 effective date and the institute voicing its concerns over the “onerous” stipulation in a Sept. 28 letter to Illinois Gov. Rod Blagojevich. Contained in a broader piece of legislation that made changes to the regulation and licensing of CPAs in the state, the Illinois Department of Financial and Professional Regulation would have required CPAs from other states to apply for temporary practice privilege or obtain full licensure as a CPA in the state of Illinois, regardless of whether the CPA or client ever entered the state. According to the AICPA, thousands of CPAs from across the country could have been impacted. On Sept. 29, the Illinois regulation department filed an emergency amendment, which read that out-of-state accountants would not have to follow the new requirement, “So long as the individual CPA is temporarily practicing in this state incidental to practice in another state and does not solicit Illinois clients nor have a physical presence in Illinois.” After much debate, a requirement that would have required out-of-state CPAs doing business in California to register with the state’s Board of Accountancy never made it out of committee this past June. Several taxpayer groups said that not requiring the registration could make it easier for accounting firms to market improper tax shelters without proper oversight. Proponents of the bill, including the state Board of Accountancy and the California CPA Society, said that their intention was merely to eliminate unnecessary red tape for neighboring accountants to provide basic services across state lines.

This week, the Tax Technical Corrections Act of 2006 was introduced in both houses of Congress. The legislation will essentially serve to cross the T’s and dot the I’s to several pieces of already-enacted legislation, clarifying definitions and refining certain timelines. Ways & Means Committee Chairman Bill Thomas, R-Calif., sponsored the bill in the House, while Finance Committee Chairman Charles Grassley, R-Iowa, and ranking member Max Baucus, D-Mont., did the same in the Senate. Among others, the bill would make changes to: