Tax practice

The Internal Revenue Service announced that the appeals arbitration process is no longer a pilot program but part of business as usual at the agency.

The chairman of the Joint Economic Committee is asking the Internal Revenue Service to refrain from taxing online gamers.

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

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 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.

Koch Industries Inc. has filed a lawsuit, claiming that the Internal Revenue Service used improper accounting to calculate taxes for a 1998 New Mexico highway project.

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.

In the wake of yet another governmental gaffe involving the mishandling of private records -- the Commerce Department announced last month that it had lost about 4 percent of its laptops over the course of the last five years -- a federal report says that the Internal Revenue Service could do a better job with its own controls.

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.

The leaders of the Senate Finance Committee have asked the Government Accountability Office to take a closer look at the Pension Benefit Guaranty Corp., which insures the private pension plans for millions of workers.

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:

The Internal Revenue Service has launched its much-anticipated Income Verification Express Service or IVES, a program offering immediate electronic delivery of client tax and income information to financial lenders such as mortgage companies.

Just one week after the Treasury Department released a report on its strategy for closing the $300 billion tax gap, the ranking minority member of the Senate Finance Committee labeled the plan “incomplete” and not credible.Sen. Max Baucus, D-Mont., said he would continue to hold up the nomination of Eric Solomon as the assistant Treasury secretary for tax policy.

Several more 2007 Toyota models have been certified by the Internal Revenue Service to qualify for the hybrid tax credit enacted by the Energy Policy Act of 2005.

H&R BLOCK, BANK REACH $39M SETTLEMENT: Tax prep giant H&R Block Inc. announced that a federal judge has approved a $39 million settlement of a class-action lawsuit brought by customers over the company's refund anticipation loans. The U.S. district court judge approved the settlement, the group's third effort to reach an agreement in the suit, which has dragged on since 1998. Block and co-defendant Beneficial National Bank - now owned by London-based HSBC - will split the payment.The lawsuit is one of several alleging that Block failed to disclose high costs and other features of RALs made to more than 17 million clients over a 13-year period.

Tax advisors are likely to hear from potential clients seeking advice on how to "re-enter" our tax reporting system.The reasons for failing to file tax returns vary with the client: the stress of a divorce or bankruptcy, ignorance of U.S. tax laws, or willful negligence. Similarly, the strategies for handling these cases should vary, considering the potential criminal, as well as civil, ramifications of a client's failure to file timely returns.

Deductible individual retirement accounts and Roth IRAs have been an attractive part of a retirement portfolio - if a taxpayer qualified for their use. The problem was that various income eligibility limits prevented many from taking advantage of IRAs.Nondeductible IRAs were generally available, but were often viewed as unattractive, since they offered only tax deferral on earnings - they offered no upfront deduction and required taxation at ordinary income rates on distribution and mandatory distributions starting at age 70-1/2.