Tax research

The Internal Revenue Service recently estimated that the 2001 tax gap ranged from $312 billion to $353 billion. Although the IRS said that it would eventually recoup some of that shortfall, it still leaves a huge net tax gap that the IRS sets at between $257 billion and $298 billion.Previous estimates of the tax gap relied on research conducted for tax years 1988 and earlier. The National Research Program, which examined 2001 returns, was completed in the fall of 2004, and provided the data that the IRS now uses to project estimates of the tax gap. The study found that underreporting of income is the largest component of the tax gap, accounting for more than 80 percent of the total. Non-filing and underpayment account for about 10 percent each.

Until now, individual taxpayers who were unable to meet the April 15 tax return filing deadline could file a Form 4868 and receive an automatic four-month filing extension until August 15. And if August 15 didn't provide enough time to get the tax return completed, taxpayers could provide a good reason for the delay on a Form 2688 and request another extension for two months until October 15.Effective for tax returns due after Jan. 1, 2006, the kinder, gentler, more cost-effective Internal Revenue Service has done away with the second extension request and changed the initial automatic extension period from four months to six. Not only will this action remove the need for taxpayers to come up with a reason for requesting the extra two months to file tax returns, it will cut back on lots of paperwork and processing time.

The Justice Department has filed to stop Ohio twin brothers Joseph and Edward Flickinger from promoting alleged tax fraud schemes.The suit also asks the court to permanently bar the Flickinger brothers from preparing federal income tax returns for others.

The Ohio Department of Taxation will begin accepting tax amnesty applications on Dec. 15.

A new study out of think tank the Center on Budget and Policy Priorities says that despite recent revenue growth and budget surpluses in some states, most states continue to feel the after-effects of a recession that hit in 2000.

An European Union court ruled that British retailer Marks & Spencer PLC can deduct losses from other countries on its tax bill if the company can't claim the losses in those countries.

Tax scam promoters John J. Rizzo and his wife, Carol, were sentenced to 43 months and 24 months in prison, respectively, for their roles in a tax evasion scheme, the Department of Justice and Internal Revenue Service announced.

The House of Representatives has already passed three tax cuts and had the details of a fourth nearly pinned down, cutting taxes by $94.5 billion over the next five years.

The Internal Revenue Service issued proposed guidance on the disclosure or use of tax return information by tax return preparers.

Reports from inside the White House are that President Bush's administration may wait until 2007 to begin pushing a proposal to overhaul the tax code.

After checking with the state's attorney general, a Texas nepotism law will prevent the Kerr County tax assessor/collector, Paula Rector, from marrying one of the district's tax appraisers.

As most every tax practitioner in town makes their pitch on year-end tax planning to clients, research organization the Tax Foundation recently released a new report making an economic case against the federal deduction for charitable gifts.

Tax protestor Larken Rose of Hollywood, Pa., was sentenced to serve 15 months in prison for failing to file tax returns for the years 1998 to 2002, the Justice Department and Internal Revenue Service announced.

A new study from the Tax Foundation says that the federal tax deduction for charitable gifts is highly regressive and subsidizes many organizations that are questionably charitable.

The final report of the President's Advisory Panel on Tax Reform attracted a heavy dose of criticism even before it was released, failing to satisfy the interest groups most concerned about tax reform.The panel offered two options. Plan A, the "Simplified Income Tax Plan," would create four tax brackets of 15, 25, 30 and 33 percent; replace the standard-deduction personal exemption and the child and earned income tax credits with family and work credits; reduce long-term capital gain rates; replace the mortgage interest deduction with a credit; end tax-free health insurance from employers; and eliminate the deduction for state and local taxes.

Electronic Data Systems Corp. will pay the U.K. government $122 million to settle a dispute over a faulty system the tech company supplied to administer tax credits.

Tax practice for CPAs is changing. Recent modifications to Circular 230, the U.S. Treasury Department regulations that govern practice before the Internal Revenue Service, have established several changes that leave CPAs with a new standard for the practice of taxation.The rationale for the revised regulations is part of an IRS effort to promote ethical tax practices and curb abusive tax avoidance programs promoted by some tax professionals. Some CPA and law firms were coming up with tax-motivated transactions for clients and then packaging those transactions to sell to other companies.

Advanced degrees are being obtained by a higher percentage of the middle- and upper-class population than ever before. Many of these students hold full-time jobs. The recent development of online universities has only served to fuel this trend. The ability of working students to take a business expense deduction for tuition expenses likewise has grown in importance.With MBAs being one of the hot degrees to have as of late, because of its apparent ticket to success in many different business settings, it's a small wonder that a recent Tax Court decision has attracted more than its share of attention. That case (Allemeier Jr., T.C. Memo. 2005-207) appears to have opened up the possibility that the expense for obtaining a larger number of MBA degrees can be written off as a trade or business expense.

A member of the President's Advisory Panel on Federal Tax Reform has been complaining loudly about the requirement that the panel always meet in public to discuss its plan, according to reports.

The recently passed Treasury appropriations bill for next year sets a budget of $10.7 billion for the Internal Revenue Service, with most of the agency's $434 million increase tabbed for enforcement efforts.