Tax practice

The multi-billion-dollar-gap between what publicly traded companies book as expenses for executive stock options and what they report cost the U.S. Treasury roughly $43 billion between 2004 and 2005, charged Sen. Carl Levin, D-Mich. Levin, who chairs the Homeland Security and Governmental Affairs Committee said at a hearing earlier this week that companies are reporting higher deductions for stock options to the Internal Revenue Service than what they are reporting to their shareholders. Levin said when company directors who approve executive compensation learn that the options, while an expense, also produce a huge tax break, it "becomes a tempting proposition for them to pay their executives with stock options instead of cash." Levin proposed that the massive gap be closed via legislation that requires a uniform reporting standards for options.

After resurrecting its Professor in Residence program earlier this year, the Internal Revenue Service has selected Gregg D. Polsky as its 2007-2008 PIR. Polsky recently joined the faculty at Florida State University's College of Law as the Sheila M. McDevitt Professor of Law. He also spent six years on the faculty at the University of Minnesota Law School. Polsky was also in private practice with the firm of White & Case LLP. He succeeds Calvin Johnson, whose term ended May 31. Polsky's term begins in September. Dormant since the late 1980s, the Professor in Residence program provides a forum for legal academicians to contribute and develop legal tax policy and administration. The professor in residence reports to IRS chief counsel Donald Korb.

Republican presidential candidates Rudy Giuliani and Sen. John McCain, R-Ariz., have each refused to sign a pledge not to raise taxes if either is elected as the nation’s chief executive.

Former Internal Revenue Service district director Jesse Ayala Cota pleaded guilty to conspiring to defraud the United States through his involvement in a tax fraud scheme promoted by the Topeka, Kansas-based organization Renaissance, The Tax People Inc.Cota admitted in his plea agreement that from 1997 through April 2002, the conspirators, through Renaissance, operated a scheme to defraud the government by marketing a program designed to sell illegal tax deductions through false and misleading representations.

After learning that more than 450,000 federal workers and retirees owe a whopping $3 billion in back taxes to the Internal Revenue Service, the Senate Finance Committee is urging the president to step up efforts to collect from those delinquent employees.Senate Finance Committee chair Max Baucus, D-Mont., and ranking Republican member Sen. Charles Grassley, R-Iowa, sent a letter to President Bush requesting that he remind the delinquent federal employees and warn them of the consequences of non-compliance.

Tax practitioners looking to Congress, the Treasury or the Patent Office for a solution to the perceived problem of tax strategy patents may instead have found some assistance from an expected source - the Supreme Court.A unanimous Supreme Court, in the case of KSR v. Teleflex, decided on April 30, 2007, overturned a decision of the U.S. Court of Appeals for the Federal Circuit and found a patent claim invalid. In doing so, the high court also criticized the Federal Circuit for applying the wrong standard on patent claims and being too liberal in upholding patent claims for obvious improvements.

Sen. Chuck Grassley, R-Iowa, ranking member of the Senate Finance Committee, has sent a letter to his chamber colleagues in an attempt to blunt what he termed "inaccurate claims" about the private collectors employed by the Internal Revenue Service.In a "Dear Colleague" letter, Grassley pointed out that the agency's own collection infrastructure is better set up for placing liens and garnishing wages than it is for making initial phone calls to delinquent taxpayers to set up a payment plan.

Nexus - the amount of contact between a taxpayer and the state that subjects the taxpayer to taxation - continues to vary widely from state to state. In addition, the nexus for sales and use tax differs from the nexus for income tax.The nexus requirement is derived from the language in two different places in the Constitution - the commerce clause, which prohibits states from unduly burdening interstate commerce, and the due process clause, which requires a minimum connection between a state and an entity it seeks to tax.

Just in time for the summer, the U.S. Tax Court denied the like-kind exchange treatment for vacation homes that are not strictly held for investment purposes.In a memo issued Wednesday, the court said that a Georgia couple's exchange of vacation homes did not qualify for the treatment according to Section 1031(a) of the tax code -- finding that the holding of any residence, even if motivated in part by an expectation that the property will appreciate in value, is insufficient to justify the classification of that property as being held for investment.

The Canada Revenue Agency will appoint a new independent tax ombudsman by the fall -- creating a post similar to the Internal Revenue Service’s National Taxpayer Advocate for the first time.

A memo issued by the Internal Revenue Service’s Office of Chief Counsel could possibly eliminate a tax-saving strategy used by some investors with brokerage accounts.Wrap accounts charge a flat percentage fee instead of a commission, and for tax purposes, the annual fees that investors pay are often treated as miscellaneous itemized deductions. But under a provision, some taxpayers can instead opt to add the fees to the cost basis of the securities, which could reduce potential capital-gains taxes (or enhance potential losses).

The Free File Alliance has sent a letter to the Senate Finance Committee, expressing concerns about a proposed government-funded Web portal that the alliance says is aimed at eventually providing tax preparation and e-filing services.

The supplemental budget legislation signed into law on May 25 did more than just give the green light to funding for the ongoing war effort in the Middle East.

Two bills circulating on Capitol Hill are looking at different ways to generate tax revenue from the Internet.

The Federal Reserve has proposed rules to simplify the disclosure of credit-card terms to consumers.

The Internal Revenue Service announced that the commissioners of the Australian, Canadian, U.K., and U.S. tax administrations will open a second office of the Joint International Tax Shelter Information Center in London this fall.The commissioners have said that exchanging information in real-time is making a significant difference to the complex task of tracking tax avoidance and abusive cross-border transactions. In recent months, center members have identified and challenged the following fraudulent arrangements:

National Taxpayer Advocate Nina E. Olson announced that the Internal Revenue Service has awarded almost $8 million in matching grants to Low-Income Taxpayer Clinics for the 2007 grant cycle.

There’s no real question that something needs to be done about the fate of the alternative minimum tax.

The House of Representatives passed a bill to shore up oversight of home mortgage giants Fannie Mae and Freddie Mac, the federally backed businesses that have been mired in accounting scandals and restatements.Under the legislation, a new, independent regulator will be created to oversee the businesses, and a portion of their profits will be set aside for an affordable housing fund (capped at $520 million). In the first year, the money would be earmarked for victims of Hurricanes Katrina and Rita.

The Supreme Court has ruled that only the U.S. Tax Court can review refusals by the Internal Revenue Service to reduce interest payments on people who underpay their taxes.