Tax research

Statistics show that more than 50 percent of marriages in the United States end in divorce.The process of a divorce can create tremendous animosity between the parties, and this can lead to difficult financial issues for those affected by the split. There are many complex federal tax issues that need to be planned for, or they will create tremendous pitfalls. The Internal Revenue Code also contains several provisions that provide specific guidance for divorce-related transactions.

Year-end tax planning opportunities abound this year. They do so not only because it has been a particularly active year for tax legislation, but also because of other significant tax developments taking place in 2006, as well as changes from pre-2006 tax legislation that have a particular impact this year and next.Traditional year-end tax strategies should not be abandoned. Income should either be accelerated or postponed between 2006 and 2007, depending upon the anticipated tax brackets for each client. Similarly, deductions and credits should be manipulated to lower income either in the more favorable year or, in some cases, in both years, before midnight, Dec. 31, 2006, has come and gone.

The Tax Foundation has released the 2007 edition of its guide comparing the business tax climate between states.

A Los Angeles nurse has agreed to pay $33.8 million to settle federal charges that she defrauded Medicare and filed false tax returns to conceal her proceeds, federal prosecutors announced.Lourdes Perez, 53, pleaded guilty to the fraud charges in October 2004 as part of a deal. Perez owned two of California's largest home healthcare companies -- Provident Home Health Care Services Inc. in Eagle Rock and Tri-Regional Home Health Care Inc. in San Dimas -- which collectively billed Medicare about $80 million annually.

By 2009, the market for legal, tax and regulatory information will grow to $18.3 billion, according to Outsell Inc.

Congress left town without passing a number of tax breaks that expired at the end of 2005 -- among them the option to deduct state and local sales taxes in place of state income tax, a deduction for college tuition and fees, the deduction for school teachers, and a research and development credit for business.Although the breaks themselves are not controversial, and leaders of the Senate Finance Committee pushed for their enactment before Congress adjourned, the breaks became mired in political infighting when they were attached to “trifecta” legislation that would have included an increase for the minimum wage and a slash in estate tax rates.

The Tax Foundation has cross-tabulated state demographics with tax data from the Internal Revenue Service to take a look at which states benefited the most from the tax cuts enacted under the Bush administration in 2001 and 2003.

The Treasury Department and the Internal Revenue Service announced in a notice that individuals who work outside the United States and live in foreign countries with high housing costs will be able to deduct, or exclude, a greater portion of their housing costs.U.S. citizens and residents are generally subject to U.S. taxes on their worldwide income, and under the Tax Increase Prevention and Reconciliation Act of 2005, several changes were made to the Tax Code, one of which limited the amount of housing costs that could be deducted -- setting a cap of $11,536.

Federal prosecutors will split the 18 defendants facing charges over the sale of questionable-legal tax shelters into two separate groups. Sixteen former KPMG executives are among the defendants in what’s being billed as the largest criminal tax case ever. The other two indictees include a lawyer and an outside investment adviser to the Big Four firm. Under a proposal submitted in Manhattan Federal District Court, prosecutors have asked to hold two separate trials -- one for a group of former senior partners and executives and another for a group of more junior employees. The proposal doesn’t provide a timeline for when the separate trials might start, or in what order. Lawyers for certain defendants have previously argued that their clients should be tried separately. According to the New York Times, the senior defendants would include former vice chairman Jeffrey Stein, who was the No. 2 executive at the firm; former vice chairman in charge of tax services John Lanning; former chief financial officer Richard Rosenthal; former associate in-house lawyer Steven Gremminger; former partner Robert Pfaff, who worked with co-defendant John Larson to set up Presidio Advisory Services; former senior tax partner David Greenberg; and a former lawyer at Sidley Austin Brown & Woo, Raymond J. Ruble. The junior defendants would include the head of KPMG’s personal financial planning division, Jeffrey Eischeid; former KPMG employee Larson, who set up an investment boutique that sold shelters; former Deutsche Bank employee David Amir Makov, who later worked at Presidio; and former partner Gregg Ritchie, among others.

The chairman of the House Ways and Means Committee has asked for information on the NCAA’s finances -- suggesting in the process that he might next be questioning the association to justify its tax-exempt status. "Most of the activities undertaken by educational organizations clearly further their (tax) exempt purpose," Rep. Bill Thomas, R-Calif., wrote in a letter to NCAA president Myles Brand. "The exempt purpose of intercollegiate athletics, however, is less apparent, particularly in the context of major college football and men's basketball programs." Specifically, Thomas asked for information on the NCAA’s television contract, the salaries of coaches, school sports facilities and total annual revenues and expenditures for Division I-A football programs and Division I basketball programs. He requested a response by the end of this month. Since 2004, the Ways and Means committee of Representatives has been conducting a broad review of the tax-exempt sector -- already looking into the tax-exempt status of nonprofit hospitals and credit unions among others. The NCAA's projected 2006-07 budget anticipates nearly $563 million in revenue, most from its TV contracts. More than half that figure is distributed to member leagues and schools, through student-athlete welfare, academic-enhancement and other programs. The remainder is paid according to the success of schools in the annual NCAA men's basketball tournament. Thomas notes in his letter that the annual returns filed by the NCAA with the IRS states that the primary purpose of the NCAA is to "maintain intercollegiate athletics as an integral part of the educational program and the athlete as an integral part of the student body,” and goes on to obliquely question college athletics' connection to higher education.

Less than six months after announcing a plan to revamp its test for enrolled agents, the Internal Revenue Service said that the new version of the examination is ready. The first testing window opens today and runs through Dec. 1. The IRS contracted Thomson Prometric to redesign the test and stressed that experts within the Enrolled Agent community had played a role in shaping the new content that is included in the special enrollment examination. The exam has been reformatted from four sections, to three sections, in order to more accurately reflect the current state of taxpayer representation. Each of the three new sections -- individuals, businesses and representation, practice and procedures -- will contain about 100 questions. There are currently about 40,000 active enrolled agents, many of whom are attorneys and CPAs, and represent taxpayers in both examinations and collection matters. Other changes include that:

This week, the Tax Technical Corrections Act of 2006 was introduced in both houses of Congress. The legislation will essentially serve to cross the T’s and dot the I’s to several pieces of already-enacted legislation, clarifying definitions and refining certain timelines. Ways & Means Committee Chairman Bill Thomas, R-Calif., sponsored the bill in the House, while Finance Committee Chairman Charles Grassley, R-Iowa, and ranking member Max Baucus, D-Mont., did the same in the Senate. Among others, the bill would make changes to:

BNA Daily Tax Report recently reported that a California Franchise Tax Board employee disclosed confidential information about the Board’s audits of over 200 corporations. What was most interesting was the method of disclosure. It seems the employee accidentally e-mailed the information to a distribution list of members of the news media, including two BNA reporters. According to BNA, the e-mail identified a number of corporate taxpayers under audit for tax years 2003 and earlier. The names of the corporations, their identification numbers, and the auditor assigned to each case were identified. Notes indicated that several are being audited for possible participation in abusive tax shelters. An FTB spokeswoman told BNA that the employee intended to send the message to himself, but accidentally sent the message to a distribution list that included members of the news media who cover tax issues. This gaffe illustrates that hacking isn’t the only danger to be worried about in this technology age. A simple oversight when selecting a recipient of the e-mail can instantaneously broadcast confidential information to the outside world. There are many possibilities for e-mail causing problems that simply didn’t exist in the strictly paper world. For example, at my company years ago, an individual wrote a blistering e-mail intended to tell his boss that he deserved a substantial raise, detailing all he had done, criticizing the company, and listing his current salary and salary demands. By mistake, he inadvertently sent out the e-mail to an address that included all the employees in the company whose last name began with A through M. There are other more common instances, such as when you get an e-mail and compose a critical follow-up of the e-mail that you want to send to a fellow employee and you end up mistakenly sending the follow-up to the original sender of the e-mail because you hit “Reply” by mistake, rather than “Forward.” Technology is wonderful, but it is important to understand that it also means a need for an increased awareness, and that added safeguards must be put in place. It is scary that what in the paper age was difficult to do now can be done by a simple inadvertent touch of a keyboard. P.S.: Please let me know if you have special e-mail safeguards in place at your firm.

The Internal Revenue Service has launched its much-anticipated Income Verification Express Service or IVES, a program offering immediate electronic delivery of client tax and income information to financial lenders such as mortgage companies.

Just one week after the Treasury Department released a report on its strategy for closing the $300 billion tax gap, the ranking minority member of the Senate Finance Committee labeled the plan “incomplete” and not credible.Sen. Max Baucus, D-Mont., said he would continue to hold up the nomination of Eric Solomon as the assistant Treasury secretary for tax policy.

Several more 2007 Toyota models have been certified by the Internal Revenue Service to qualify for the hybrid tax credit enacted by the Energy Policy Act of 2005.

Tax software publisher CCH continued making an aggressive push into the small practitioner market, announcing its second major acquisition in as many months.The Wolters Kluwer business, which produces the ProSystem fx Office line of accounting and business software products, signaled its determination to take on the marketplace leader, Intuit Inc.'s QuickBooks, by striking a pact to purchase TaxWise Corp.

Although the program has been characterized by the Internal Revenue Service itself as potentially rampant with opportunities for scamming, and has attracted growing opposition, the agency nonetheless has moved forward with its plan to hire private debt collectors to track down delinquent taxpayers.The first phase, rolled out in September, enlisted a trio of private collection agencies to receive personal information about taxpayers with outstanding liabilities, including name and Social Security number of taxpayer (and spouse, if a joint tax liability), address, amount of tax debt and the year or years to which the debt applies.

Tax advisors are likely to hear from potential clients seeking advice on how to "re-enter" our tax reporting system.The reasons for failing to file tax returns vary with the client: the stress of a divorce or bankruptcy, ignorance of U.S. tax laws, or willful negligence. Similarly, the strategies for handling these cases should vary, considering the potential criminal, as well as civil, ramifications of a client's failure to file timely returns.

The Taxpayer Advocacy Panel has sent the Internal Revenue Service recommendations for easing taxpayer burdens in five areas.In a 12-page report dated Aug. 18, the panel made the following suggestions: