Tax practice

The U.S. Department of the Treasury announced two initiatives aimed at simplifying the way small businesses, individual taxpayers and tax preparers file and pay their federal taxes.

The Government Accountability Office says that the performance of the Internal Revenue Service's Offers in Compromise program has been mixed, and suggests that a combination of better management information and simplification could improve it.

Several Republican members of Congress forwarded constituents' letters to the Internal Revenue Service claiming the NAACP had veered into political advocacy, a potential violation of the civil rights group's tax-exempt status.

In a pair of private letter rulings, the Internal Revenue Service said that it would allow a taxpayer to make a late election, agreeing that the taxpayer had relied on tax prep software that didn't adequately handle a tax provision.

While the extension of the reduced rates on capital gains and dividends, alternative minimum tax relief, and the continuation of enhanced Section 179 expensing have received the most publicity, there are a host of other changes in the Tax Increase Prevention and Reconciliation Act of 2005.

In a political victory for Republicans, President Bush signed the sixth tax cut in the past six years yesterday, in a Rose Garden ceremony.

Hispanics are less likely than non-Hispanics to say that they owe money to the Internal Revenue Service for 2005 (14 percent versus 22 percent) and they are more likely than non-Hispanics to report having received a refund for 2004 (73 percent versus 62 percent), according to poll results released by Hispanic market research firm Encuesta Inc.

A federal judge has sentenced Richard Hatch, who won the first season of the CBS reality show "Survivor," to 51 months in prison for tax evasion.

The Internal Revenue Service said that it plans to revoke the tax-exempt status of the 41 credit counseling agencies it has audited as part of a crackdown on the industry's practices.

Tax research and software provider RIA has upgraded its proprietary Checkpoint service to include expansion of user access to BNA content, international standards and titles from sibling Thomson company PPC.The company, headquartered here, said that, as part of the upgrade, the service will now make available more than 90 PPC auditing, tax and accounting titles, including its Guide to Public Company Audits and 1040 Deskbook materials.

On the heels of last month's Government Accountability Office study on the errors committed by commercial chain tax preparers, the legislative push toward preparer registration and licensing appears to have gained considerable traction."With the bills introduced last year and this latest report, it looks like preparer registration is on its way," opined John Hewitt, chief executive of Virginia Beach, Va.-based Liberty Tax Service. "We're going to do that internally. We've already taken steps to implement our own certification program in advance of any legislation."

LEGISLATION PROPOSED TO BAN 'RETURN-FREE' SYSTEM: H.R. 5114, the Tax Return Choice Act of 2006, was introduced in the House and referred to the Ways and Means Committee. The bill, which has 88 Republican and 17 Democrat co-sponsors, would prohibit the Internal Revenue Service from completing individual tax returns other than through the programs already offered through the Free File Alliance, Taxpayer Assistance Centers, Tax Counseling for the Elderly, and Volunteer Income Tax Assistance programs.The bill reflects the efforts of a number of groups concerned that a return-free system similar to the one used in the U.K., Germany and Japan would be a step backward from voluntary compliance, and would raise taxes on those who used it. Under such a system, the tax agency computes final tax liability based on third-party data, such as W-2s and Form 1099s, and sends the taxpayer a written determination and a bill. The taxpayer can accept the calculations and pay the bill, or wait for a refund. The taxpayer can then make minor adjustments, or may disregard the determination and prepare a separate return.

A husband and wife have filed a case against Ernst & Young, blaming the firm for the loss of $40 million in a shelter deemed abusive by the Internal Revenue Service.The Florida couple, Rocco and Mary Abessinio, are seeking class-action status for the lawsuit, which was filed in federal court in Manhattan in April.

Almost nine full years have passed since the $250,000/$500,000 exclusion of gain on the sale of a principal residence first became available. Little did many of us imagine how much would change in nine years.While the basic sale-of-a-principal-residence provision has remained the same, except for some minor congressional tinkering, the world in which it lives has not. The real estate "boom," capital gains rate reduction, subsequent rulings and other developments have all played a part in making this a particularly dynamic area of tax planning. A review of recent trends and developments over the past year is especially illuminating.

Both houses of Congress reached final agreement on a $70 billion package of tax cuts that will be spread over the next five years.

The U.S. Treasury Department announced that President Bush has nominated Treasury official Eric Solomon to be the department's assistant secretary for tax policy, filling a post that has been vacant since February 2004.

Washington - Organizations that provide seller-funded down-payment assistance to home buyers do not qualify as tax-exempt charities, the Internal Revenue Service said in a recent ruling.

National Taxpayer Advocate Nina E. Olson announced that the 2007 Low Income Taxpayer Clinic grant application process is now open. The grant program is in its eighth year and continues to expand.

Organizations that provide seller-funded down-payment assistance to home buyers do not qualify as tax-exempt charities, the Internal Revenue Service said in a ruling last week.

With the House Ways and Means Committee due to hold hearings on corporate tax reform next week, the Tax Foundation recently released a comparison of the U.S. corporate tax system to other countries around the world.