Tax practice

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.

The Internal Revenue Service has issued final instructions for Schedule M-3, Net Income (Loss) Reconciliation for Corporations with Total Assets of $10 Million or More.

As White House administration officials hint that Treasury Secretary John W. Snow will depart his post sooner rather than later, media reports are already swirling about who will be his successor.

Interest rates for calculating the amount owed on refunds and deficiencies will remain unchanged for the calendar quarter beginning Jan. 1, 2005, the Internal Revenue Service said.

The Internal Revenue Service will increase the minimum threshold for Federal Unemployment Tax Act deposits, a move that will impact more than 4 million small businesses.

Senate Finance Committee chairm Chuck Grassley and ranking member Max Baucus called for an independent investigation of the Internal Revenue Service's Offer in Compromise program by the Government Accountability Office.

The Internal Revenue Service has appointed Henry V. Singleton, CPA, as director of its Retailers, Food, Pharmaceuticals and Healthcare Industry Section, headquartered in Illinois. The section reports to the IRS Large and Mid-Size Business Division.

The City of Hartford filed a lawsuit in District Court this week to block an Internal Revenue Service test aimed at reducing erroneous earned income tax credit payments that the city alleges violates taxpayers' civil rights and discriminates against its African-American and Latino taxpayers, who make up the bulk of those who receive the credit.

The American Jobs Creation Act of 2004 will alter the rules for the contribution of used motor vehicles, boats and planes after Dec. 31, 2004, the Internal Revenue Service warned.

The IRS has reported that current refunds for nearly 90,000 taxpayers are going unclaimed due to unknown or incorrect addresses in the IRS records. More than $73 million is at stake for taxpayers who want to file corrected addresses with the taxing agency. The most common reasons for unclaimed refunds include name changes and address changes that aren't reported to the IRS, and address errors on the tax return. The IRS has no choice but to hold on to the refund checks until they are claimed, or until the law permits the government to keep the money. Taxpayers have until three years after the due date for filing their tax return to make a claim for their refund. After that time the money become the property of the U.S. Treasury. "Where's My Refund?" is a service provided by the IRS and can be found online at https://sa.www4.irs.gov/irfof/lang/en/irfofgetstatus.jsp. Taxpayers can enter their Social Security number, tax-filing status and the exact amount of the refund that was claimed on the original tax return, and the IRS will tell them the status of the refund and provide information for submitting a change of address form.

The Internal Revenue Service has issued proposed regulations for determining when a transfer of consideration to a partnership by a partner and a transfer of consideration from that partnership to a different partner constitute a disguised sale of a partnership interest. In response to a recommendation of the Joint Committee on Taxation in its "Report of Investigation of Enron Corporation and Related Entities Regarding Federal Tax and Compensation Issues, and Policy Recommendations" (February 2003), the regulations generally would extend the existing disclosure requirement for disguised sales of property from two years to seven years. The same disclosure requirement would be incorporated for disguised sales of partnership interests. "These proposed rules benefit both the taxpaying community and the Internal Revenue Service," said IRS chief counsel Don Korb. "The rules provide taxpayers and tax practitioners with guidance on how to structure partnership contributions and distributions without getting caught up in the disguised sale rules. They also provide for a longer disclosure period that will facilitate the examination of questionable transactions involving partnerships." The proposed regulations provide, generally, that where a transfer of consideration to partner A by a partnership would not have happened "but for" the transfer of consideration to the partnership by partner B, the transfers are treated as a sale of all or a portion of partner A's interest in the partnership to partner B for all purposes under the Internal Revenue Code. Where the transfers to and from the partnership do not occur on the same date, the transfers are treated as a sale only if the later transfer is not dependent on the entrepreneurial risks of partnership operations. The proposed regulations provide that these determinations are made based on all of the facts and circumstances.