Tax practice

Business taxpayers in Illinois will be the first in the country able to pay state withholding and federal taxes at the same time, through a single system.

The Internal Revenue Service will begin processing both e-file and paper tax returns that include claims for the major “extender” provisions enacted by Congress on Feb. 3.

Joining an increasingly loud chorus, National Taxpayer Advocate Nina E. Olson released her annual report to Congress, designating the alternative minimum tax and the federal tax gap as the most serious problems facing taxpayers.Olson also reserved a healthy dose of the 80-page-report’s scorn for concerns about the Internal Revenue Service’s collection policies and the transparency of IRS information to the tax-paying public.

Partnership taxpayers can electronically file now use the modernized e-File platform when filing Form 1065, “U.S. Return of Partnership Income,” and Form 1065-B, “U.S. Return of Income for Electing Large Partnerships.”

Liberty Tax Service announced the acquisition of eSmartTax, the income tax preparation business of San Jose, Calif.-based C&S Technologies.

A company's obligation to a worker for federal tax purposes depends primarily on whether the worker is an employee or an independent contractor, according to G. J. Stillson MacDonnell, a shareholder at the national labor and employment law firm of Littler Mendelson. "There is no other option," she said.While independent contractor status provides benefits to companies and individuals, it draws hostility from the Internal Revenue Service and state tax agencies, she said.

The Internal Revenue Service announced a formula allowing businesses and tax-exempt organizations to estimate their federal telephone excise tax refunds.In May, the government announced that it would stop collecting the federal excise tax on long-distance telephone service beginning Aug. 1, 2006, and provide refunds for taxes billed after Feb. 28, 2003.

Tax strategies don't just come from nowhere. They arise out of necessity and typically are reactive, constructed as work-arounds to avoid certain tax pitfalls or to meet certain rules. Viewed from this perspective and appropriate to the start of a New Year, we offer our list of the Top 10 tax developments of 2006 that will shape tax strategies in 2007.* No. 1: The IRS's use of the economic substance doctrine. Under the economic substance doctrine as adroitly used by the Internal Revenue Service Chief Counsel's Office in the Coltec case, Black & Decker and other tax-shelter-related litigation, a tax strategy can conform to the letter of the Revenue Code, yet fail to win the desired result.

The Internal Revenue Service officially began its 2007 filing season on Thursday, making note of new developments, including telephone excise tax refunds, a new refund deposit feature and recently enacted tax breaks that may require extra attention.

Senators Max Baucus, D-Mont., and Chuck Grassley, R-Iowa, introduced legislation on the first day of the 110th Congress to repeal the individual alternative minimum tax beginning in the 2007 tax year.It’s just the most recent attempt the men have made to get the legislation passed. Congress has taken to patching the AMT one year at a time -- six years in a row -- usually by increasing the exemption amount. According to the Joint Committee on Taxation, in 2007 the patch will cost about $50 billion and hold the number of affected taxpayers at close to the 4 million taxpayers affected this year. Without a patch, about 23 million households would have been affected by the AMT.

Rep. Barney Frank said that wage inequality among U.S. workers is his No. 1 priority as he prepares to take over chairmanship of the House Financial Services Committee this week.In a speech at the National Press Club, Frank, D-Mass., said that he will hold hearings about wages over the next two years in an attempt to address the gap between economic growth and workers' wages.

Two unmarried taxpayers can exclude gain from the sale of their home -- even though they fail the two-year ownership and use tests of the tax code -- because the primary reason for the sale was an unexpected pregnancy.In a Dec. 29 letter responding to a ruling request, the Internal Revenue Service said that a pregnancy meets the “unforeseen circumstances” exclusion outlined in Section 121(a)(c)(2) of the code.

The Internal Revenue Service recently issued a notice outlining how individuals and businesses can obtain refunds and credits on their 2006 returns of the long-distance telephone excise tax.

For taxpayers with income at or below certain levels, the Internal Revenue Service announced that user fees for payment-installment agreements will hold steady in 2007.

After four months, the Securities and Exchange Commission has already revisited its rule on disclosing executive compensation.In a statement issued Dec. 22, SEC Chairman Christopher Cox said that the new requirements will make it easier for companies to prepare statements and for investors to understand the cost of stock options.

With the Tax Relief and Health Care Act of 2006 now signed into law, the Internal Revenue Service has rolled out guidance to help taxpayers filing in 2007 claim the extended deductions and other tax advantages contained in the act.

For a government agency with such a bad rap in popular culture, the Internal Revenue Service performed well in a recent survey asking taxpayers to comment on customer service levels.

The thoroughness of Internal Revenue Service enforcement efforts for the nation’s largest corporations, measured by the number of hours devoted to each audit, has substantially declined since Fiscal 2002, according to data obtained by the Transactional Records Access Clearinghouse.

The Internal Revenue Service is lifting a moratorium on determination letter applications for conversions from traditional defined benefit pension plans to so-called cash balance plans.

As expected, President Bush signed a massive bill that would extend expiring tax, health and trade legislation.