Tax research

The president and vice president saved a combined $110,182 in taxes last year under the income tax cuts passed by their administration, according to an analysis of the 2004 tax returns released by the White House.

Tax preparation and related fees from H&R Block Inc.'s U.S. retail operations increased 6.4 percent to $1.9 billion through March 31, 2005, the tax prep giant reported.

President Bush has signed into law H.R. 1134, exempting qualified disaster mitigation payments from tax.

Washington - The call for the nation's tax preparers to be more closely monitored for proficiency has been echoed by the National Taxpayer Advocate, as well as by a number of tax professional membership associations.

Apparently, there's a good reason the regular 1040 is referred to as the "long" form -- it takes the average taxpayer more than a full day to prepare the form with three common schedules, according to an annual study of tax complexity.

The Internal Revenue Service needs to remedy serious weaknesses over taxpayer and Bank Secrecy Act data that leave its systems vulnerable, according to a report released by the Government Accountability Office.

Employees at the Greenwood, Ind., office of the Internal Revenue Service were more than a little surprised a few weeks ago when a disgruntled man pointed a gun at a revenue officer saying, "You can't do this. You can't take my money like this."No one was injured and the man was arrested, but it leads one to wonder about a system that brings out such a violent response from someone who clearly wasn't satisfied with his tax situation.

Washington - A ruling by the Tax Court has underscored the way the alternative minimum tax penalizes holders of incentive stock options when the stock loses value after the option is exercised.

With the April 15 tax filing deadline looming, the Internal Revenue Service says that e-filing, direct deposit and e-payment programs continue to move at record paces so far this year.

-- Tax audits by the Internal Revenue Service on companies in the financial sector are undertaken far less frequently than those in other sectors such as manufacturing, agriculture and mining, according to a report from Syracuse University's Transactional Records Access Clearinghouse. The financial services sector -- which includes banks, insurance companies and brokerage firms -- received less than one-fifth of the audit frequency of other sectors during the years 2002 to 2004. The TRAC study examined the audit rates of companies in a number of sectors, each of which had at least $250 million in assets. "The very low attention being given to the financial sector by the IRS is particularly surprising in light of the leading role this industry plays in the country's economy, including the level of income subject to federal corporate income taxes," the report stated. However, the IRS contended that the TRAC data was flawed due to the fact that an audit of a financial concern would be reported as a manufacturing sector audit if the branch conducting the examination did not have a financial industry specialist on staff.

The Internal Revenue Service announced that as of April 1, some 52 million returns had been filed electronically, 7 percent above last year's e-filing pace. Overall, 65 percent of all returns were e-filed -- up from 60 percent for the same period last year. The service also reported that roughly 4 million returns have been filed via the Free File program -- up 44 percent from the year-ago figures. "As we get deeper into the tax filing season, the percent difference between how many people are using e-file and how many used it last year keeps going up," said IRS Commissioner Mark W. Everson. "This shapes up as a really strong year. Taxpayers who haven't filed yet should check into e-file and Free File." The IRS also said that 42 million refunds have been paid through direct deposit, up 5.7 percent for the same time last year.

Senators from both sides of the aisle and the Treasury Inspector General for Tax Administration questioned the plan by the Internal Revenue Service to cut back its walk-in and telephone Taxpayer Assistance Centers during a hearing on the 2006 IRS budget. IRS Commissioner Mark Everson discussed the agency's plan to close as many as 105 TACs and cut back its toll-free telephone service by 15 hours a week at the Senate Appropriations Subcommittee hearing. TACs are located nationwide and allow taxpayers to have face-to-face meetings with IRS employees who can assist taxpayers with tax law, tax return preparation and account inquiry resolution. "The IRS needs to balance customer service with its compliance and enforcement efforts," said Sen. Christopher Bond, R-Mo., chairman of the Transportation, Treasury and Housing and Urban Development Subcommittee. "I believe that most people who fail to comply with the tax code do so unintentionally because of its difficulty and complexity. Accurate and timely guidance from the service is imperative to ensuring taxpayer compliance." Colleen M. Kelley, president of the National Treasury Employees Union, warned that closing Taxpayer Assistance Centers will result in reduced taxpayer education and compliance at a time when the gap between taxes owed and amounts paid has increased to upwards of $298 billion.

The government is upping its enforcement measures in the wake of its success in catching tax cheats, penalizing promoters, barring unscrupulous preparers and shutting down abusive tax shelters, according to officials. At a joint Internal Revenue Service-Justice Department briefing, agency executives noted that last year, IRS Criminal Investigation referred more than 3,000 cases to the Justice Department for possible criminal prosecution, nearly a 20 percent increase over the previous year. During fiscal year 2004, the conviction rate on cases investigated by the IRS and referred to Justice was 95.4 percent. "If you're thinking about cheating on your taxes, think twice," said IRS Commissioner Mark W. Everson. "The IRS is ramping up its enforcement efforts, particularly for high-income individuals and corporations. Where we need to, we turn to the Justice Department to take people to court." The Justice Department's Tax Division's criminal enforcement priorities include prosecuting schemes that involve using trusts or other entities to conceal control over income and assets; shifting assets and income to hidden offshore accounts; claiming fictitious deductions; using frivolous justifications for not filing truthful tax returns; failing to withhold, report and pay payroll and income taxes; failing to report income; and failing to file tax returns.

Former Senators Connie Mack and John Breaux, chairman and vice-chairman of the President's Advisory Panel on Federal Tax Reform, are inviting interested parties to submit ideas for reforming the tax code. "At our six public meetings that were held all over the country, we learned about the complexities of the tax code and its impact on taxpayers," said Mack. "This request for ideas to reform the tax code marks a shift of our focus from defining the problems in the current code to considering options for reform. We will be reviewing specific proposals for reform that have been offered in the past as well as new ideas that are submitted. We expect to hold more public meetings in the coming months to discuss these options and alternatives." "It is important that we hear from Americans about the kind of tax system they want," added Breaux. "We look forward to receiving comments from all interested parties." This is the panel's second specific request for comments. In connection with its first request, the panel received thousands of comments describing complexities and burdens, unfair aspects, and distortions in the current tax system. Information on how to submit comments, as well as details on the format for comments, are available at www.taxreformpanel.gov/contact/ .Comments submitted in connection with this second request should be received by the panel no later than April 29, 2005. All comments submitted will be made available to the public.

The Justice Department has asked a federal court to bar Ella Mae Peterson, a St. Louis preparer for H&R Block, from preparing income tax returns for others. Peterson worked for 20 years at the St. Louis office. For tax years 2000 through 2003, she prepared 1,751 returns for Block customers. Internal Revenue Service audits of 31 of those returns revealed improper deductions on each return. The deductions included fictitious or inflated charitable contributions, business and medical expenses, and state and local taxes paid. The complaint estimates that returns Peterson prepared for the tax years from 2000 to 2003 have cost the Federal Treasury more than $6.5 million. "People who prepare false or fraudulent tax returns cheat their customers and unfairly shift the tax burden to honest American taxpayers," said Eileen J. O'Connor, assistant attorney general for the Justice Department's Tax Division. "If you have your tax return prepared, review it carefully, and make sure that what you file with the Internal Revenue Service is accurate." Block spokesperson Nancy Wagoner stated: "Our training, monitoring and supervision of tax professionals is unquestionably the best in the industry. Should an incident such as this occur, we do our best to learn from the situation and communicate the appropriate messages to both our clients and our tax professionals." "H&R Block's policy is to cooperate fully with authorities on any investigation, and we have done so in this case," she continued. "We do not, however, comment on employee matters."

The Internal Revenue Service is accepting applications for joining its Taxpayer Advocacy Panel. The TAP provides a forum for citizens from each state to make suggestions regarding IRS decision-making, and works to identify and prioritize taxpayer issues. "We are committed to working with taxpayers to improve the customer-service focus of the IRS," said Nina Olson, IRS National Taxpayer Advocate, in a statement. "Working with taxpayers directly helps us identify issues that may not be on the IRS radar screen. We can also hear their concerns about issues the IRS is already addressing." TAP applicants must be U.S. citizens and be able to commit 300 to 500 hours during the year to the panel. In addition, they must be current with their tax obligations and pass a criminal background check. The application is available at www.improveirs.org, or by calling (888) 912-1227. Applications must be received by the TAP office by April 29.

The 2005 filing season is heading into the homestretch with growth in nearly every category of filing, according to the latest interim figures released by the Internal Revenue Service.

In recent testimony before the President's Advisory Panel on Federal Tax Reform, Federal Reserve Chairman Alan Greenspan floated the idea of a consumption tax to replace all or part of the current income tax.

Federal penalties for taxpayers accused of tax evasion, failure to file a return or making false statements to the Internal Revenue Service could increase dramatically later this year if Congress approves legislation being pushed by Sen. Russ Feingold, D-Wis., to sweeten tax deductions for charitable volunteers.

* SUPREME COURT REQUIRES TAX COURT TO INCLUDE TRIAL JUDGES' REPORTS ON APPEAL: The Supreme Court ruled in a 7-2 decision that the Tax Court may not exclude from the record on appeal Rule 183(b) reports submitted by special trial judges.The Tax Court's chief judge appoints special trial judges to hear certain cases, but the ultimate decision, when tax deficiencies are greater than $50,000, is reserved for the court itself. Tax Court Rule 183(b) directs the special trial judge to submit a report to the chief judge, who assigns the case to a judge of the court. The Tax Court judge is to give due regard to the report and presume that findings of fact contained in the report are correct. The Tax Court judge may then adopt the report "or may modify it or reject it in whole or in part."