Tax practice

Next year's budget proposals offered by Senate Democrats contain a material increase in spending that is contrary to sound fiscal policy, according to Senator Chuck Grassley, R-Iowa, ranking member of the Committee on Finance. In his opening statement on the Senate floor debate of the Fiscal Year 2009 Budget, Grassley noted that the proposals would raise discretionary spending by 9 percent over last year's spending. "How many Americans got a 9 percent raise? How many American families raised their discretionary household spending by 9 percent? You would think proponents of fiscal responsibility would be looking at spending cuts, not 9 percent increases," he said. The consequences are not merely imposed on high-income taxpayers, according to Grassley. "Low-income folks, including millions of seniors, pay no tax on their dividend or capital gain income," he said. "If this budget stands, even with the Baucus amendment, millions of these low-income taxpayers, especially seniors, will pay a 10 percent rate on capital gains and could pay as high as a 15 percent rate on dividends."

The 80 percent e-filing goal by 2007 has been moved forward five years to 2012, now making it entirely possible that it will actually be reached. Calling the new goal "difficult but doable," the IRS Oversight Board blamed the inability to meet the original 2007 goal on a number of factors, including problems and delays with the IRS Business Systems Modernization program and a public wariness about transmitting personal data over the Internet. The good news is that the board singled out the professional tax prep industry for praise. "Particularly impressive has been the growth in individual returns prepared by tax professionals and filed electronically, which increased from approximately 27 percent of paid preparer returns in 1998 to around 70 percent today." Moreover, the report said that achieving the new goal is doable only with the help of the preparer community. "Given Current progress and strategic planning, the Board believes that the IRS can meet an 80 percent e-file goal by 2012--but will need the help of the professional tax community and Congress to do so," it said. Just in case, though, it recommends some initiatives first proposed by ETAAC (the Electronic Tax Administration Advisory Committee) that will have an impact on the life of tax preparers. Among them are lifting the congressional prohibition on the IRS' ability to require the electronic filing of Form 1040 returns, and giving the IRS the discretion to implement e-file mandates for individual returns in the future, "particularly for those returns prepared by paid tax professionals." Fortunately, the board softens the blow by recommending that the IRS exhaust all reasonable steps to maximize voluntary participation first, and that it study the trade-offs between the expected benefits from increased e-file and the burden imposed on filers and preparers before setting any mandates. It goes without saying that if 2011 comes and the 80 percent goal hasn't been reached, it will be tempting to issue mandates to push the results over the goal line. That's not a good idea. Here's hoping Congress and the IRS resist the temptation to resort to draconian measures in order to achieve what should be voluntary behavior.

The Internal Revenue Service needs to improve oversight of its process for interpreting tax laws through its published guidance program, according to a new audit publicly released today by the Treasury Inspector General for Tax Administration. The audit, "The Public Guidance Program Needs Additional Controls to Minimize Risks and Increase Public Awareness," examined the process by which the IRS Office of Chief Counsel develops tax guidance, including a pilot guidance program to request and evaluate public submissions before considering changes to existing regulations. The chairman and ranking member of the Senate Finance Committee requested the review after news articles questioned whether the pilot program was putting special interest before the public's interests when developing tax guidance. "We believe the pilot program does not present an increased risk of influence by special interest groups in the selection of guidance projects," TIGTA Inspector General J. Russell George said. "The pilot program did not directly create tax guidance or circumvent existing internal controls." "Although Counsel considers ideas from a wide variety of sources when selecting guidance projects for its annual business plan, it does not track all open projects on the business plan, which could lead to an increased risk of untimely actions, less management oversight, and less public awareness," George added. The audit makes seven recommendations to IRS, including expanding written procedures for developing and monitoring the guidance business plan, issuing more frequent updates to and establishing a reasonable expectation in the Priority Guidance Plan, and improving recordkeeping.

The Internal Revenue Service's Business Systems Modernization, a $200 million-plus effort to upgrade the service's systems and processes, is moving ahead, but several of the project's milestones have been riddled by completion delays and cost overruns, the Government Accountability Office said. Specifically, the GAO cited the Customer Account Data Engine -- the new taxpayer information database -- as exceeding its planned schedule by 66 percent and experiencing a 15 percent cost increase; a companion project to the CADE incurred a 153 percent cost overrun; and the modernized e-file program experienced a 41 percent schedule delay.

The Internal Revenue Service has issued guidance for the proper pooling treatment of automobiles, light-duty trucks, and crossover vehicles that have the characteristics of trucks and cars under the dollar-value, last-in, first-out inventory method. To address the distinctions between cars and light-duty trucks, and in response to an Industry Issue Resolution Program request submitted by Miller Chevalier Chartered and the National Auto Dealership Association, the Treasury Department and the Internal Revenue Service issued Revenue Procedure 2008-23. Light-duty trucks are trucks with a gross vehicle weight of 14,000 pounds or less. Effective for tax years ending on or after Dec. 31, 2007, the revenue procedure provides a safe harbor pooling method, the Vehicle-Pool Method, for resellers of cars and light-duty trucks. The Vehicle-Pool Method allows a reseller to establish a new vehicle pool for inventories of new vehicles including new cars, new light-duty trucks, and new crossover vehicles including SUVs, minivans and other similar vehicles and a used vehicle pool for inventories of used vehicles. Revenue Procedure 2008-23 also provides the procedures for a reseller subject to the LIFO pooling requirements to obtain automatic consent to change to the Vehicle-Pool Method.

The House Ways and Means Oversight Subcommittee plans to hold a hearing on the 2008 tax-filing season, Internal Revenue Service operations, fiscal year 2009 budget proposals and the IRS National Taxpayer Advocate's annual report.

The Internal Revenue Service has opened its IRS Free File program to individuals who do not normally file tax returns so they can receive economic stimulus payments.

Democratic lawmakers in the New York State Assembly are reportedly considering the idea of levying an extra 1 percent income tax on everyone with income over $1 million in order to balance the state's budget and help fund transportation costs, but the proposal is likely to run into opposition from the governor and the State Senate.

The Internal Revenue Service has issued final regulations for tax deductions on domestic film productions, while revising the definition of the types of films that qualify for the deduction.

The House Subcommittee on Select Revenue Measures held a hearing to examine whether there is a need for a more uniform treatment of various derivative structures.

The Internal Revenue Service said it won't challenge the accuracy of income tax returns filed by eligible individuals who claim just $1.00 in adjusted gross income in order to receive an economic stimulus payment.

The Internal Revenue Service has automated user fee calculations for taxpayers who enter into installment agreements to make it easier to determine their eligibility for fee reductions for low-income taxpayers.

The Internal Revenue Service has decided to renew the contracts of two companies involved in its controversial private debt collection program.

The Internal Revenue Service said that electronic filing is already off to a strong start, with more than 38 million tax returns filed electronically so far.

After the Cook County Board voted over the weekend to double the county's sales tax rate to 1.75 percent, Chicagoans found themselves about to pay the highest sales tax rate of any major city in the nation: 10.25 percent.

The Internal Revenue Service said it is encouraging business taxpayers, associations and other interested parties to submit controversial tax issues to its Industry Issue Resolution Program.

The Internal Revenue Service is sending out letters this week to more than 130 million American households reminding them to file a 2007 tax return in order to receive a tax rebate or economic stimulus payment.

A new book explains how companies can avoid "deadly tax mistakes" that could cripple their business.

A House subcommittee plans to conduct a hearing into the tax treatment of derivatives next week.

When you think about filing your tax return, do you have more questions than answers? The entire process can be confusing and frustrating, but a little information can make the experience much more bearable. Here are some common tax-season questions, along with practical answers, from the New Jersey Society of Certified Public Accountants (NJSCPA):