Tax practice

The Internal Revenue Service said it plans to simplify the signature process for electronically filed individual tax returns by allowing tax practitioners to avoid the need to send a paper signature document in support of their clients' e-filed returns.

The Internal Revenue Service said it has begun mailing educational letters this month to more than 650,000 small tax-exempt organizations to let them know they need to start submitting a new annual electronic notice known as an e-Postcard.Form 990-N, the electronic notice they have to send, is intended for tax-exempt organizations with gross receipts of $25,000 or less. Until the passage of the Pension Protection Act of 2006, charities of that size weren't required to submit either the Form 990 or 990-EZ.

Senate Finance Committee Chairman Max Baucus, (D-Mont.), and fellow committee member Chuck Grassley, (R-Iowa), are calling on the Internal Revenue Service to do a better job of publicizing the Saver's Credit to encourage more low-to-middle-income workers to save money for retirement.The credit applies to up to 50 percent of the first $2,000 of retirement contributions for families earning up to $50,000 a year. First created in 2001, the credit became permanent in the Pension Protection Act of 2006.

The Internal Revenue Service said it would add three more excise tax forms to the lineup of federal tax return forms and schedules that taxpayers can file electronically.The first form that will be available for e-filing is the 2290, Heavy Highway Vehicle Use Tax Return, debuting this summer. Form 720, Quarterly Federal Excise Tax Return, and Form 8849, Claim for Refund of Excise Taxes, will premiere later this year.

The White House has lowered projections for the federal budget deficit to $205 billion, from an earlier forecast of $244 billion by the Office of Management and Budget.

The IRS said it is reconsidering some of the private letter rulings its associate chief counsel’s office has issued regarding the gift tax consequences of trusts that employ distribution committees.The IRS’s chief counsel has discovered that some of the conclusions in the rulings may disagree with some prior revenue rules.

Franklin Raines, the ousted chairman of mortgage securities concern Fannie Mae, has filed suit against government regulators in order to receive a $3.9 million stock award.

CONGRESS EYES INTERNET TAXESWASHINGTON, D.C. - Two bills circulating on Capitol Hill are looking at different ways to generate tax revenue from the Internet.

Blues singer Robert Cray is singing the blues about his accountants, and taking them to court. Cray filed a suit in Los Angeles Superior Court against Chapnick, Smuckler & Associates, and its principals Jerry Chapnick and Keith Smuckler, according to CBS. He accuses the firm of cheating him, his wife, and their company, charging them with fraud, negligence, and breach of contract and fiduciary duty. The Crays claim the firm did not inform them it was drawing up to $235,000 from their credit line. They say Chapnick, Smuckler also did not check on whether the Crays were entitled to a $55,000 refund in taxes they paid in the United Kingdom. In addition, the Crays blame the firm for a $2,000 penalty on unpaid property taxes. After they engaged the firm around the end of 2001, the Crays learned the firm was not licensed to operate in the state of California. They sacked the firm in August 2006.

The IRS has certified that some models in Mazda’s 2008 line of hybrid cars qualify for the Alternative Motor Vehicle Credit.

Think you've come up with a perfect tax strategy for your high-end clients? Before you go ahead with it, you might want to check if it's been patented. You're liable to be sued for patent infringement if someone else thought of it first.It all started in 1998, when a federal appeals court ruled that business methods could be patented. Since then, more than 60 tax-strategy patents have been granted, and 86 more are pending. And the first infringement suit has been filed over the SOGRAT patent.

One way to judge which are the most significant provisions in the Small Business and Work Opportunity Tax Act of 2007 - signed by President Bush on May 25, 2007, as part of a larger bill focused on war funding - is to look at which provisions are projected to cost the most or to raise the most revenue.The tax breaks included in this legislation are fully paid for with revenue increases. The main premise behind the legislation is that small business should receive some tax breaks to help offset the cost of being required to pay workers more due to the minimum wage increase. It would be a rare small business that finds that the cost of increasing the minimum wage for its workers is fully offset by the tax breaks included in the legislation.

A Greenville, S.C. federal judge has permanently barred Robert Barnwell Clarkson and his "Patriot Network" from promoting tax fraud schemes, the Justice Department announced. The court found that Clarkson falsely instructed Patriot Network members that they need not file federal income tax returns, and helped members obstruct Internal Revenue Service efforts to collect taxes. In seeking the permanent injunction, the Justice Department submitted Clarkson's Untaxing Packet, which he sold for $300. The packet contained form letters that he falsely claimed would exempt purchases from federal tax laws. Papers filed in the case showed that Clarkson boasted that he "untaxed" more than 8,000 people over 30 years. The court detailed Clarkson's efforts at interfering with tax collection, including his instruction to transfer property to nominees and to sue IRS agents who attempt to collect taxes. Clarkson, a disbarred attorney from Anderson, S.C., has twice been convicted of federal tax-related crimes. The court ordered Clarkson to give copies of the injunction to people who bought his products and to post the injunction on the Patriot Network Web site.

The Internal Revenue Service has redesigned Form 8857, Request for Innocent Spouse Relief, to help reduce follow up questions and taxpayer burden. The form will ask more questions initially, but collecting critical information early in the process will allow faster processing of the request. The IRS says that the new design will eliminate an estimated 30,000 follow-up letters annually, resulting in a reduced burden and quicker answer for taxpayers and less cost for the government. When a taxpayer files a joint return, both spouses are jointly and individually responsible for the tax. If one taxpayer believes that only his or her spouse or former spouse should be responsible for the tax, the taxpayer can request innocent spouse relief. The redesigned form will be easier to understand and to complete and will help educate taxpayers about the process. Previously, the questionnaire was separate from the form.

Fewer taxpayers took advantage of the Internal Revenue Service's free electronic tax-filing service in 2007 than in previous years, according to a new audit report by the Treasury Inspector General for Tax Administration. In 2005, a record 5.12 million taxpayers used the Free File Program. That number fell to 3.9 million in 2006, in large part due to a new requirement that limited eligibility for the program to taxpayers with an adjusted gross income of about $50,000 a year or less. In testimony before the House Ways and Means Committee's Oversight Subcommittee last year, Inspector General J. Russell George expressed concern about the eligibility limitations, which he said, could contribute to a significant slowing of the growth in electronic filing. Although no further adjustments were made to the program in 2007, as of April 14, auditors found that only 3.3 million taxpayers filed returns using the free service -- a decline of 4.7 percent below the same period last year. "It is imperative that the IRS carefully examine the reasons this free service is not being used by more taxpayers," George said. "The IRS must review its marketing strategy to better target taxpayers who file paper returns even though they are eligible for this program. Equally important, the IRS must ensure that the software it promotes on its Web site provides taxpayers with accurately calculated tax returns," he said. The decline in the Free File Program comes at a time when the IRS is under pressure to increase the number of taxpayers who file electronically. In 1998, Congress established a goal for the IRS to have 80 percent of all federal tax and information returns filed electronically by the end of 2007. The Free File Program was one of several initiatives designed to help meet that goal, which is unlikely to be fulfilled this year.

By a margin of 240-179, House lawmakers approved funding for the Internal Revenue Service for fiscal 2008 and in the process eliminated a provision that would have capped spending on the service's private debt collection program at $1 million. The program, which has divided Congress along party lines, allows the IRS to contract with private debt agencies to collect delinquent taxes. Having a $1 million limit would have ended the program. Currently the IRS has contracted with two private agencies, but is looking to expand the program this year according to reports.

The IRS has publicized a new draft version of Form 1118, "Foreign Tax Credit - Corporations," used by U.S. corporations to compute the foreign tax credit for taxes paid or accrued to foreign countries or U.S. possessions. "They adjusted the form to accommodate changes made by the 2004 American Jobs Creation Act," said Selva Ozelli, a New York-based CPA and international tax attorney. Under the act, the number of separate foreign income categories has been reduced from eight to two, and U.S. source income is re-characterized as foreign source income in cases where a taxpayer's foreign tax credit limitation has been reduced in an earlier year due to an overall domestic loss. "The most important change is that they've added a column to help taxpayers determine U.S. income that could be recharacterized due to recapture of overall domestic losses," said Ozelli. "This column will also help them in tracking their balances of overall domestic losses," she said.

Internal Revenue Service chief counsel Donald L. Korb has named Stephen Kesselman to become deputy chief counsel, operations, succeeding IRS veteran Donald T. Rocen. Kesselman is currently serving as counsel in the IRS' Small Business/Self-Employed Division. Rocen, who has held a number of posts in the Office of the Chief Counsel for 15 years, will leave the service July 27 for the Washington law firm of Miller & Chevalier. Lon B. Smith, associate chief counsel of financial products and institutions, will now become national counsel to the chief counsel for special projects. He has served in the Office of Chief Counsel for 30 years.

In an effort to increase diversity in the financial services industry, the House Financial Services Committee has passed H. Con. Res.140, the Financial Services Diversity Initiative. The bill, sponsored by Rep. Gregory W. Meeks, D-N.Y., specifically will: * Encourage financial institutions to promote workforce diversity, including partnering with organizations that focus on developing opportunities for minorities and women; placing youth in internships, summer jobs and full-time positions within the industry; and partnering with inner-city high schools and girls' high schools to establish financial literacy programs and provide mentoring. * Encourage financial institutions and federal and state financial institutions' agencies to attract and retain a diverse workforce by recruiting at women's colleges and colleges that serve minority groups; sponsoring and recruiting at job fairs in urban communities; and placing employment ads in media outlets oriented to people of color; and, * Require that active measures should be taken by employers and educational institutions to increase the demographic diversity of the financial services industry. Meeks cited a Government Accountability Office report on diversity within the financial services industry that said that "representation for minorities in the financial services industry still lagged behind reasonable numbers on all levels and for women in upper management levels exclusively."

The Supreme Court has agreed to decide whether an exception in the Internal Revenue Code allows a trustee to deduct the full amount of fees paid to an investment advisor. The case of Knight v. Commissioner of Internal Revenue, U.S., No. 06-1286, centers on trustee Michael J. Knight, who paid an investment advisor to manage the assets of a trust. When the trust filed its tax return, Knight sought to deduct the full amount of the fees under 26 U.S.C. Section 67(e)(1). However, the IRS said the fees are subject to the 2 percent rule. The U.S. Tax Court agreed with the IRS, as did the U.S. Court of Appeals for the Second Circuit, which ruled against Knight in October. But Knight argued the fees fall under an exception to the general rule because they were paid in connection with the administration of the trust, and because they would not have been paid unless the assets were held in trust. In May, both the New York Bankers Association and the American Bankers Association May 22 filed a brief in support of the trustee, urging the U.S. Supreme Court to hear the case.