Tax practice

The Treasury Department tapped Robert Carroll, deputy assistant secretary for tax analysis, and deputy assistant secretary for regulatory affairs, Eric Solomon, to assume interim leadership roles in tax policy until a new assistant secretary for tax policy is appointed. In those roles, Carroll will provide economic advice and analysis with regard to tax policy issues on behalf of the Treasury, while Solomon will continue to direct the regulatory guidance process in his current role as deputy assistant secretary for regulatory affairs. He also will serve as the acting deputy assistant secretary for tax policy. The moves come roughly one week following the Dec. 17 resignation of Greg Jenner, who served as acting assistant secretary for tax policy. Jenner assumed that post after incumbent Pamela Olson left the Treasury for a job in the private sector. Under current law, the president must either nominate a new Treasury assistant secretary for tax policy or designate an acting leader.

Before the end of the year, President Bush intends to select panelists to comprise a bipartisan tax reform commission, which would be charged with reporting any and all recommendations related to reforming the tax code to the Treasury Dept. According to Tax Analysts, the panel's recommendations will be given to Treasury secretary John Snow who in turn, will refer them to the president. However, as previously reported, heading the "to-do" list on the president's second term agenda will be the overhaul of the Social Security system and non-defense spending cuts rather than tax code reform. Most Capitol Hill observers believe that any tax reform would most likely be incremental and not be addressed until 2006.

With a planned overhaul of Social Security and pressing budget issues occupying center stage during the onset of the second Bush administration term, the president's planned reform of the tax code would most likely be pushed back at least one year. According to the Washington Post, the president plans to name a panel to examine the current tax policy but reportedly will assign the Treasury Department to monitor the panel's progress. The report said that Treasury Secretary John Snow would most likely recommend incremental changes to the tax code, rather than more dramatic reforms such as supplanting it with a "flat tax" or national sales tax. A White House spokeswoman, however, maintained that overhauling the tax code remains a priority.

The Internal Revenue Service has issued letters to 1,700 businesses and retirement plan sponsors alerting them to new income and excise taxes applicable to S Corporation employee stock ownership plans, and warning of the consequences of participating in abusive schemes involving ESOPs and S Corporations. The letters are being mailed to S Corporation ESOPs reporting 10 or fewer participants. The letters follow recently issued temporary regulations on ESOPs and S Corporations, which provide guidance concerning the application of Internal Revenue Code section 409(p). Section 409(p) was enacted to address concerns about ownership structures involving S Corporations and ESOPs that concentrate the benefits of the ESOP in a small number of persons. For S Corporation ESOPs in existence on March 14, 2001, section 409(p) is effective for plan years beginning after Dec. 31, 2004. This delayed effective date has allowed existing S Corporations that maintain ESOPs some time to restructure the stock ownership in order to avoid the tax effects of section 409(p). The IRS letters also call attention to other abuses connected with S corporation ESOPs. "The IRS has determined that many existing arrangements designed to take advantage of the benefits of S corporation ESOP rules would not only involve taxation under section 409(p) but would also violate qualification requirements of the tax law, such as the coverage rules under Code section 410(b)," said Carol Gold, director of the IRS Employee Plans division."When an ESOP is not qualified under such circumstances, the subchapter S Corporation may be taxable as a C Corporation and any highly compensated ESOP participant may be taxable on the value of his or her account balance."

The Internal Revenue Service has expanded a program aimed at enabling some business taxpayers to resolve certain tax issues before they file their returns.

The Internal Revenue Service is allowing limited exceptions from coverage of the new deferred compensation rules for certain stock appreciation rights, or SARs, that "do not present potential for abuse or intentional circumvention of the purposes" of Section 409A.

The Internal Revenue Service has appointed 12 new members for the Internal Revenue Service Advisory Council, the group that serves as a forum for IRS officials and public representatives to discuss relevant and emerging tax issues.

In addition to his role as a dictator who started World War II and sent millions of people to their deaths in concentration camps, Adolf Hitler was a tax evader, according to a recent report.

The Internal Revenue Service has released tax tables to help taxpayers determine whether they would benefit from an optional new sales tax deduction.

GAO SAYS IRS IMPROVED PERFORMANCE IN '04, BUT BETTER DATA NEEDED ON SOME SERVICES: The Internal Revenue Service scored high marks for processing returns and issuing refunds smoothly during the 2004 filing season, but didn't fare as well on accuracy in answering tax questions, according to a Government Accountability Office report.

Just as the Internal Revenue Service was becoming increasingly more aggressive in its settlement offers in tax shelter cases, and obtained a few additional weapons for its arsenal in the American Jobs Creation Act of 2004, a series of defeats on the litigation front may force the agency to reevaluate some aspects of its strategy.

Improving taxpayer service, enhancing enforcement of the tax law, and modernizing the Internal Revenue Service through its people, processes and technology should be the tax administration's top priorities for 2005, according to the American Institute of CPAs.

Tax reform under the second Bush administration will most likely take the form of piecemeal tax cuts, according to participants in a tax panel sponsored by the Council for Electronic Revenue Communication Advancement, a government-private industry trade association. President Bush has said that he would appoint a panel to recommend changes to the tax code that would make it simpler, fairer and less burdensome.

More than half of U.S. and European multinational companies will increase their compliance spending by an average of 23 percent over the next 12 to 24 months, according to a recent survey from Big Four firm PricewaterhouseCoopers.According to PwC's Management Barometer Survey, about 51 percent of those polled said that they would raise spending on compliance, while some 44 percent of senior executives revealed that their companies do not have a clear view of their total compliance spending.

As part of efforts to tighten ethical standards for tax professionals and curb abusive tax shelters, the Treasury has issued final regulations amending Treasury Circular 230, which governs the practice of attorneys, accountants and other tax professionals before the Internal Revenue Service.

With tax day fast approaching, CPAs may be feeling stressed. However, they may be able to make their own lives, as well as those of their small business clients, a little less tense by encouraging those clients to consider certain business expenditures before the upcoming tax season, according to Hewlett Packard and H&R Block.

The Internal Revenue Service has teamed with the Department of Housing and Urban Development in an effort to expand the agencies' outreach to low-income taxpayers.

Putting to rest rumors that he would replace John W. Snow as Treasury Secretary, President Bush has reportedly asked Snow to remain in his cabinet.

President Bush this week signed into law a less intrusive version of a sweeping $388 billion legislative package that covers the spending of early every federal agency.

Publisher Tax Analysts has tapped former Treasury official Pamela F. Olson and former Internal Revenue Service director Larry Langdon for seats on its board.