Tax practice

One of the provisions inserted by the Conference Committee into the Tax Increase Prevention and Reconciliation Act of 2005, signed by President Bush on May 17, 2006, was a tax increase on citizens working abroad. The provision was not in either the House or Senate versions of the legislation, although Congress has considered a number of proposals related to the taxation of citizens working abroad over the years, including some Senate bills in the current Congress.It is estimated that over 4 million citizens work abroad. The U.S. Census does not count them, so we have no accurate numbers. The Treasury does try to tax them, but with questionable effectiveness. For the 1999 tax year, out of 127,667,890 returns filed, 1,350,890 had foreign addresses, but this included the APO and FPO addresses of members of the armed forces, as well as some Puerto Rico residents with offshore income. A 2004 Internal Revenue Service study reported that in 2001, fewer than 300,000 tax returns reported foreign-source-earned income.

Maintaining that there's near-universal agreement that the nation's tax code is too complex, Sen. Chuck Grassley, R-Iowa, chairman of the Senate Finance Committee, officially opened the committee's hearings titled "Kick-off for Tax Reform: Tackling the Tax Code."

Multinational businesses operating in the country could face stricter tax-compliance rules as a result of new rules proposed by the Internal Revenue Service and the Treasury Department.

Internal Revenue Service Commissioner Mark W. Everson has been elected chairman of the Forum on Tax Administration, a panel of national tax administrators that is part of the Paris-based Organization for Economic Cooperation and Development.

Before adjourning for a five-week summer recess, the House pushed through a bill pairing a minimum wage increase with a GOP-led effort to extend cuts on estate taxes.

Tax professionals will help launch a new system allowing many individuals who owe delinquent federal taxes to apply online for a payment agreement, the Internal Revenue Service announced.

The Internal Revenue Service is examining as many as 40 companies -- investigating the appropriateness of deductions for backdated stock options, as well as the reporting of income by affected executives and the relevance of the laws governing Incentive Stock Options.

The Internal Revenue Service released formal guidance on its new tip reporting procedure, the Attributed Tip Income Program.

The Boeing Co. won't look to take a tax deduction on a $615 million settlement it paid to settle federal ethics charges.

The success of the Internal Revenue Service's e-filing program has led to the elimination of several jobs, The Philadelphia Inquirer reported this week.

Over 90 tax professors have joined the tax sections of the American Bar Association and the New York State Bar Association in asking a senator to drop his attempt to block the confirmation of Eric Solomon for assistant Treasury secretary for Tax Policy.

A new report from the Treasury provides a detailed analysis of what effects proposals to permanently extend the tax cuts enacted in 2001 and 2003 might have on the country's economy.

States and cities could lose billions annually under a congressional bill that would require businesses to have employed at least one employee in a state for 21 days, or have leased or bought property, before having to pay the state's business taxes.

Reading about former California gubernatorial candidate George "Nick" Jesson, who recently finished pleading guilty to state and federal tax evasion charges, reminded me of conversation I'd had with a friend a couple of weeks back.

* BILLS INTRODUCED TO FORM NEW TAX REFORM COMMISSION: In the wake of a failed effort to push through a permanent repeal of the estate tax, two Republican congressman have introduced companion bills to form a new "Securing America's Future Economy Commission."The 15-member commission would have the ability to reform tax policy and entitlement benefit programs, and function similarly to the military base closing commission - with proposed legislative packages receiving an up-or-down vote from Congress. The president or the budget committee of either house of Congress would be able to submit alternatives.

In late May, the Internal Revenue Service produced interim guidance in the form of Notice 2006-9, describing the new credit for qualified hybrid vehicles. Spawned by the Energy Policy Act of 2005, the credit replaces the $2,000 clean-fuel vehicle deduction that was available in previous years.A hybrid vehicle is defined as a vehicle that must have both an internal combustion or heat engine and a rechargeable energy storage system. There are also emission requirements for the vehicles. Only new hybrid vehicles purchased on or after Jan. 1, 2006, qualify for the credit, which is based on a two-pronged system that incorporates calculations based on the weight and the estimated lifetime fuel savings of the vehicle.

Using cash in a like-kind exchange is similar to passing around the proverbial "hot potato" - you don't want to be the one holding the potato, i.e., the cash, at the end of the transaction. If you do so in a like-kind exchange, you are probably holding "boot" (non-qualifying property), which is taxable to the extent of any gain otherwise locked up in the relinquished property (i.e., the difference between its fair market value and basis).Sometimes, strategies that involve the use of cash to facilitate like-kind exchanges under Code Section 1031 begin to seem like shell games, in which labels matter a great deal. In the end, however, the only labels that have been successfully applied are those that have made sense within the basic framework of Section 1031.

For the next few months, the Internal Revenue Service's Statistics of Income Division will be testing a prototype SOI Table Wizard.The tool will allow users to create their own custom tables from SOI tabulated data in the 1999 and 2000 Corporate Source Books. If adopted, data from other forms could eventually be added, and the IRS is asking users to provide feedback on the new feature. The agency also warned that there are some limitations in the tables.

The ranking minority member of the Senate Finance Committee threatened to place a "hold" on President Bush's nomination for the top Treasury tax official, unless the department agrees to provide a comprehensive plan to close the tax gap by the end of September.

Some federal tax breaks for energy efficient hybrids will start shrinking this fall.