Tax practice

Completing a two-year project to shutter abusive transactions of 412(i) plans and other arrangements, the Treasury and the Internal Revenue Service have issued final regulations clarifying that any life insurance contract transferred from an employer or a tax-qualified plan to an employee must be taxed at full fair market value. The final regulations are aimed at arrangements that attempt to avoid taxes via the use of "artificial devices" to understate the value of insurance contracts.A 412(i) plan is a tax-qualified retirement plan that is funded by a life insurance contract. An employer is entitled to claim tax deductions for contributions that are used by the plan to pay premiums on an insurance contract covering an employee. The plan may hold the contract until the employee dies, or it may distribute or sell the contract to the employee at a specific point - like retirement. Some companies, however, have promoted a tax-avoidance scheme where an employer establishes a 412(i) plan under which the contributions made to the plan - which are deducted by the employer - are used to purchase a specially designed life insurance contract. Under that arrangement, the cash surrender value (the amount that the contract states the policy is worth if it were cashed in) is lowered to a level significantly below the paid premiums. The contract is then distributed or sold to the employee for the amount of the depressed cash surrender value.

Both the Government Accountability Office and the Treasury Inspector General for Tax Administration have some advice for the Internal Revenue Service.On the heels of an IRS decision to focus on S corporations in order to zero in on the compliance problems of small businesses, the TIGTA issued a report calling on the IRS to improve its efforts against employment tax noncompliance. The GAO also weighed in in the same week with its report, "Tax Compliance: Better Compliance Data and Long-term Goals Would Support a More Strategic IRS Approach to Reducing the Tax Gap."

Despite concerns over the rising deficit, both houses of Congress sent a $6.1 billion Katrina tax-relief bill to President Bush for his signature without a dissenting vote being cast.

A traffic accident above the San Francisco Bay could affect up to an estimated 30,000 taxpayers in 13 states.

In response to the housing crisis as a result of Hurricane Katrina, House Financial Services chairman Michael G. Oxley, R-Ohio, and Rep. Richard Baker, R-La., said they would adjust an affordable housing fund, currently in pending legislation, in order to meet housing needs of Katrina survivors.

Both the House and Senate passed nearly $5 billion in tax cut bills, aimed at helping victims of Hurricane Katrina and the people who provide them shelter.

The Government Accountability Office released a comprehensive overview of the tax reform debate.

The Internal Revenue Service announced that several thousand telephone operators are helping the Federal Emergency Management Agency answer calls from Hurricane Katrina victims.

The Internal Revenue Service and Treasury Department announced an increase to the optional standard mileage rates for the final four months of 2005.

The heads of the President's Advisory Panel on Federal Tax Reform announced that both of the panel's meetings scheduled for September will be postponed indefinitely.

In an effort to provide relief for the victims of Hurricane Katrina, the Internal Revenue Service said it would accelerate its review and approval process for new organizations seeking tax-exempt status in order to provide relief for victims of Hurricane Katrina.

The Internal Revenue Service currently has no corporate strategy to combat identify theft, according to the Treasury Inspector General for Tax Administration. Until it adopts an agency-wide strategy, it will be unable to help taxpayers and the government combat what TIGTA calls "the growing threat" of identity theft and support the prosecution of offenders.

A federal judge has filed paperwork alerting the Internal Revenue Service that he plans to halt their experiment in outsourcing debt collection, siding with a Texas company that claimed they had been unfairly excluded from the bidding process.

IRS TO PAY FOR INFORMATION DISCLOSURES: A judge has ordered the Internal Revenue Service to pay more than $250,000 after determining that an IRS agent disclosed confidential information during a criminal investigation.

The Energy Tax Incentives Act of 2005, passed as part of the 2005 Energy Act and signed by President Bush on Aug. 8, 2005, includes a series of new credits aimed at encouraging the purchase of various types of new alternative fuel vehicles.

With Congress preparing to reconvene in early September, Senate Majority Leader William H. Frist said a vote to fully repeal the estate tax will be tops on the to-do list.

The Internal Revenue Service will offer special relief to taxpayers in the disaster areas struck by Hurricane Katrina.

The 12th meeting of the President's Advisory Panel on Federal Tax Reform will be held on Sept. 15 in Washington.

Completing a two-year project to shutter abusive transactions of 412(i) plans and other arrangements, the Treasury and the Internal Revenue Service have issued final regulations clarifying that any life insurance contract transferred from an employer or a tax-qualified plan to an employee must be taxed at full fair market value.

Minnesota's Department of Revenue will give residents who have used abusive tax shelters until Jan. 31 to amend their tax returns without facing new penalties passed during the 2005 special legislative session.