Tax practice

* TAX REFORM PANEL GETS TWO-MONTH REPRIEVE: The President's Advisory Panel on Tax Reform will get an additional two months to complete its work. The White House amended the executive order creating the panel to give the group until Sept. 30, 2005, to complete its work. The original deadline was July 31, 2005.The panel will present Treasury Secretary John Snow with a report that includes revenue-neutral policy options for reforming the Internal Revenue Code. Those options are supposed to simplify federal tax laws to reduce the costs and the administrative burden of compliance, and to include at least one option that uses the federal income tax as the base for its recommended reforms.

Middle-class taxpayers who sell their first investment property are shocked when they find that a major portion of their gain on the sale is due on the alternative minimum tax.That's because most of them don't bother consulting with their accountant ahead of time, according to Stephen Wayner, vice president of Miami-based Bayview Financial Services.

Chief Counsel Advice 2000524001 recently reminded self-employed individuals of a fine point that some apparently have been missing lately. The earned income (net earnings) limitation for above-the-line medical premium deductions must be applied on a business-by-business basis for sole proprietors.This is not welcome news for the many individuals who cobble together a variety of jobs, none of which is a principal source of income but which, together, had been assumed to form a tax-advantaged way to cover a family's health insurance costs.

In a victory for accounting firm BDO Seidman, a federal appeals court judge reversed a district court decision and ruled in late June that a group of investors can't sue BDO Seidman over the sale of an illegal tax shelter, and instead must arbitrate their claim.

Taxpayers and tax professionals who filed for an extension can use e-file to file their 2004 tax returns, according to the Internal Revenue Service.

The government's Base Realignment and Closure Commission voted unanimously on Tuesday to review a Pentagon plan to move thousands of Defense Department finance and accounting jobs.

The Internal Revenue Service has experienced declines in enforcement productivity in the past, according to the Government Accountability Office.

The White House midyear budget says that an increase in tax revenues, mostly coming from relatively wealthy taxpayers, along with a good stock market performance, will drop the deficit to $333 billion this year.

Corporate officers or authorized agents can now sign employment tax forms by facsimile, including alternative signature methods such as computer software programs or mechanical devices.

Fixing the controversial alternative minimum tax has been termed a priority for the President Bush's Tax Reform Panel, according to a key White House advisor.

* IRS CONTINUES CRACKDOWN ON FRIVOLOUS CASES: The Internal Revenue Service is reminding taxpayers that the agency isn't kidding around when it comes to frivolous cases aimed at delaying tax collections.

The decline in ethics that took place over the 1990s hurt not only the taxpayers who took positions they shouldn't have taken, but it also hurt responsible tax practitioners, who saw their business taken away by the more aggressive practices, according to Internal Revenue Service Commissioner Mark W. Everson.

National Taxpayer Advocate Nina E. Olson urged the Internal Revenue Service to focus more broadly on steps to increase voluntary compliance.

Some taxpayers apparently believe that the ability to claim a charitable deduction for donation of an automobile ended on Dec. 31, 2004. The advertisements on the radio would make one believe that nothing has changed, and that you can still claim a deduction for donated automobiles just as before Jan. 1.

The U.S. House of Representatives passed a Treasury appropriations bill last week to provide the Internal Revenue Service with $10.5 billion in fiscal year 2006. The Senate has yet to take up consideration of the bill.

For the first time, the Internal Revenue Service's Statistics of Income Bulletin takes a detailed look at taxable real estate investment trust subsidiaries. The REIT Modernization Act of 1999 provided for the creation of taxable REIT subsidiaries, corporations that could be 100 percent owned by REITs. The just-released Spring 2005 issue of the SOI Bulletin shows that in 2001, the first year of TRS tax returns, 480 firms elected to be TRSs. Of these, a total of 404 filed corporate income tax returns, reporting total gross income of $8.1 billion and total assets of $19.4 billion, and remitting $85.4 million in total taxes. Although TRSs tend to be highly leveraged, with 31 percent of those that reported Schedule L data showing negative book equity, loans from shareholders, including parent REITs, account for only 3.3 percent of total TRS debt. In other bulletin news, 3.2 million S corporation returns were filed for tax year 2002, an increase of 5.6 percent from tax year 2001. S corporations continue to be the most popular corporate entity choice, representing 59.8 percent of all corporate entities. Women-owned sole proprietorships grew faster than those owned by men in terms of numbers and net income from 1985 to 2000, according to the bulletin. However, male-owned businesses were larger and more disparate in terms of business earnings.

The Internal Revenue Service has certified the 2006 Toyota Highlander hybrid as being eligible for the clean-burning fuel deduction. This certification means that taxpayers who purchase one of these hybrid vehicles new during calendar year 2005 may claim a tax deduction of up to $2,000 on Form 1040. Under the Working Families Relief Act of 2004, the clean-burning fuel deduction is limited to up to $2,000 for certified vehicles first put into service in 2005, and $500 for vehicles placed in service in 2006. No deduction will be allowed after 2006. Federal law allows individuals to claim a deduction for the incremental cost of buying a motor vehicle that is propelled by a clean-burning fuel. By combining an electric motor with a gasoline-powered engine, these hybrid vehicles obtain greater fuel efficiency and produce fewer emissions than similar vehicles powered solely by conventional gasoline-powered engines. This one-time deduction must be taken in the year that the vehicle is originally used. The taxpayer must be the original owner. Individuals do not have to itemize deductions on their tax return to claim this deduction. This benefit can be taken as an adjustment to income on the Form 1040.

The Internal Revenue Service will install a software upgrade for e-Services from July 21 through Aug. 4. During installation of the upgrade, e-Services will not be available. This is a scheduled outage and is needed to upgrade the current e-Services software, according to the IRS. E-Services are Web-based products that allow tax pros and taxpayers to do business with the IRS electronically. They include preparer tax identification number application, online e-file application, and taxpayer identification number matching. In addition, tax professionals who e-file five or more accepted business or individual tax returns in a season are also eligible to use three additional e-Services products -- disclosure authorization, electronic account resolution and a transcript delivery system.

QuickBooks users can now calculate sales tax using Avalara's AvaTax ST for Intuit's QuickBooks Pro, Premier and Enterprise Editions. The Web-based AvaTax ST automates the sales tax compliance function by performing address validations, jurisdiction and rate research, tax calculations, and detailed reporting. It also automatically generates prepopulated returns for any of the over 800 North American taxing jurisdictions. AvaTax ST is designed to meet the needs of firms that are running operations where the person processing orders and setting up new customers may be the same person who could be out making sales or generating billable hours. The integrated AvaTax ST for Pro, Premier and Enterprise QuickBooks users can be downloaded now at www.avalara.com, and will be available for purchase in late July 2005. QuickBooks users can order the service at $9.95 per month with per-transaction and activation fees, or purchase transactions-included packages starting at $29.95 monthly, plus activation fee.

The Panel on the Nonprofit Sector, a collaboration of leaders of America's charitable organizations, presented its final report to Sens. Chuck Grassley, R-Iowa, and Max Baucus, D-Mont., chairman and ranking member of the Senate Finance Committee.The report contains more than 120 actions to be taken by charitable organizations, Congress and the Internal Revenue Service, which together would strengthen the sector's transparency, governance and accountability.If implemented, these recommendations would be the most sweeping changes to the operation and regulation of charities and foundations in three decades.Among its proposals, the panel recommended that:-- Charitable organizations adopt audit procedures and policies on travel expenses, conflicts of interest and whistleblower protection.-- Audits be required of charitable organizations with annual revenue of $1 million or more.-- Non-cash contributions support charitable causes, rather than providing improper tax deductions for donors.-- Penalties be strengthened on board members who approve and executives who receive excessive compensation."The panel report will inform the committee and its work, particularly in the important areas of governance and transparency," said Grassley. "I recognize, though, that the IRS is the one that must shoulder the burden of enforcing the law and so we will certainly look to Commissioner [Mark] Everson and his staff, as well as the Treasury, for their judgment on reforms, particularly in addressing the abusive situations that the commissioner highlighted with such candor in his April letter to the committee. My time line is to have legislation this summer for Finance Committee members to be able to review, and then to have the committee mark up legislation soon after that."