Tax research

The Internal Revenue Service has certified the 2005 Honda Insight, Honda Civic Hybrid and Honda Accord Hybrid as eligible for the clean-fuel vehicle deduction. Taxpayers who purchase one of these hybrid vehicles new may claim a tax deduction of up to $2,000 on Form 1040. Under the recently signed Working Families Relief Act of 2004, the clean-burning fuel deduction is up to $2,000 for certified vehicles first put into service in 2004 and 2005. The deduction will be limited to $500 for vehicles placed in service in 2006, and no deduction will be allowed after 2006. The Tax Code allows individuals to claim a deduction for the incremental cost of buying a motor vehicle that is propelled by a clean-burning fuel. By combining an electric motor with a gasoline-powered engine, these hybrid vehicles obtain greater fuel efficiency and produce fewer emissions than similar vehicles powered solely by conventional gasoline-powered engines. This one-time deduction must be taken in the year the vehicle is originally used. The taxpayer must be the original owner. Individuals do not have to itemize deductions on their tax return to claim this deduction. The benefit can be taken as an adjustment to income on the Form 1040.

Unclaimed refunds totaling more than $2 billion are awaiting about 1.7 million people who failed to file an income tax return for 2001, according to the Internal Revenue Service. However, in order to collect the money, a return must be filed with the IRS no later than April 15, 2005. The IRS estimates that half of those who could claim refunds would receive more than $484. In some cases, individuals had taxes withheld from their wages or made payments against their taxes out of self-employed earnings, but had too little income to require filing a tax return. Some taxpayers may also be eligible for the refundable Earned Income Tax Credit. "The window is closing for 2001 refunds," IRS Commissioner Mark W. Everson said. "As soon as you send us your tax return, you'll get your money. But if you don't file, you won't get anything." In cases where a return was not filed, the law provides most taxpayers with a three-year window of opportunity to claim a refund. If no return is filed to claim the refund within three years, the money becomes the property of the U.S. Treasury. For 2001 returns, the window closes on April 15, 2005. The law requires that the return be properly addressed, postmarked and mailed by that date. There is no penalty assessed by the IRS for filing a late return qualifying for a refund.

Super-regional CPA and consulting firm Virchow Krause has named Richard Shapland as director of international tax services, effective immediately. Shapland, who will be based in Chicago, comes aboard at Virchow Krause after serving as managing director of international taxes for Big Four firm Ernst & Young. At VK, Shapland will be responsible for all international and cross-border tax issues. International tax services is part of VK's International Services Group, a global services umbrella that provides revenue enhancement programs, marketing and business development, global project management, management consulting, compliance support, and strategic-sourcing programs. The firm ranked No. 18 on Accounting Today's 2004 Top 100 Firms list with revenues of $104.1 million.

The Public Company Accounting Oversight Board's plan to place new restrictions on the ability of accountants to offer tax services to their audit clients doesn't go far enough to restore investor confidence in financial reporting, critics of the accounting profession warned.

Tax prep conglomerate H&R Block and the Association of Community Organizations for Reform Now have teamed up in a partnership to help boost awareness of the Earned Income Tax Credit and to reduce filing costs for low-income taxpayers.

Although nearly 65 percent of Earned Income Tax Credit returns are prepared by paid preparers, the error rate is roughly the same as when the return is prepared by the individual, according to Internal Revenue Service spokesperson Nancy Mathis.

Long-awaited final Circular 230 regulations, issued Dec. 17, 2004, govern the latest set of standards on attorneys, accountants and other professionals providing not only tax shelter opinions but also tax advice in general. It is how these standards relate to general tax advice that concerns the vast majority of tax practitioners. These regs are part of a multi-pronged effort on the part of the Internal Revenue Service to deter the involvement of promoters, advisors and investors in abusive transactions.

IRS UPDATES SALES TAX TABLE PUBLICATION: The Internal Revenue Service has updated for three states the tables that taxpayers can use to determine whether they'll benefit from deducting sales tax rather than state and local income taxes. The agency updated the optional sales tax tables in Publication 600 for Arkansas, California and Virginia. The tables, which give taxpayers a sales tax deduction amount as an alternative to saving receipts throughout the year and tabulating the amount actually paid, were updated to reflect sales tax changes made by the three states during 2004; the original tables were based on the states' sales tax rates as of Jan. 1, 2004.

Regional powerhouse J.H. Cohn has expanded its New York tax practice with the addition of tax consulting firm Becker & Co. LLC.

Just in time for consideration by President Bush's new bipartisan panel on tax reform, National Taxpayer Advocate Nina Olson told Congress that the complexity of the Internal Revenue Code is the most serious problem facing both taxpayers and the Internal Revenue Service.

President George W. Bush has named two former senators to lead a new nine-member bipartisan panel charged with arriving at options to reform the tax code.

In his State of the Union address this week, President Bush pushed his plan to overhaul Social Security and add optional private accounts for younger workers, as the White House unveiled some new details of how that plan would work.

The Internal Revenue Service has revised the form used by municipalities and other issuers of tax-exempt bonds to make arbitrage-related payments.

The Internal Revenue Service can use the efforts of CPAs and other tax practitioners as a springboard to leverage IRS initiatives to improve taxpayer compliance, Tom Purcell, chair of the American Institute of CPAs' Tax Executive Committee, told the IRS Oversight Board.

Thomas Wilson, former Large and Mid-Size Business Division industry director for the telecommunications, media, high technology, publishing, entertainment, sports and gaming industries at the Internal Revenue Service, has joined PricewaterhouseCoopers as a managing director in the Washington National Tax Service's IRS Service Team, the Big Four firm said.

Tax prep giant H&R Block has launched a new business employing CPAs to serve the needs of small business owners.

Members of the Association of Community Organizations for Reform Now, or Acorn, announced plans to protest at Liberty Tax offices in more than 60 cities throughout the U.S. and Canada from Feb. 1 to Feb. 4 to demand that the tax preparer change its refund anticipation loans practices.

The National Association for the Advancement of Colored People said that it is refusing to comply with an Internal Revenue Service request for documents that came as part of the agency's investigation into alleged improper political bias by the civil rights group.

The Joint Committee on Taxation has suggested over 60 options to close the $311 billion gap between taxes owed and collected. The report, requested by Sen. Chuck Grassley, R-Iowa, chairman of the Committee on Finance, and ranking member Sen. Max Baucus, D-Mont., consists of numerous revenue raisers, in addition to compliance provisions. The largest revenue raiser, to the tune of $164 billion, is a proposal to include in FICA wages salary reduction amounts used to provide benefits under a cafeteria plan or to provide qualified transportation fringe benefits. Proposals affecting individual income tax include a repeal of the exclusion for employer-provided care, making the dependent care credit the exclusive means for receiving tax benefits for dependent care expenses; a modification of the "kiddie tax" by increasing the age of children to which the kiddie tax provisions apply from under 14 to under 18; and a repeal of the deduction for interest on home equity indebtedness. "High-priced lobbyists won't be able to eat their eggs Benedict when they see this report," Grassley said. Grassley said that he was especially pleased to see the report's extensive discussion about possible changes in the law governing nonprofits and charitable donations. "These recommendations should help to remove the rose-colored glasses that a lot of people use to view tax-exempt organizations," he said.

The 2006 budget reportedly will not address the hot-burner issue of revamping or eliminating the controversial alternative minimum tax or other tax reforms, but will allow President Bush's recently appointed tax reform panel to tackle them. According to Tax Analysts, the bipartisan tax reform panel is expected instead to examine tax reform options that will make the code simpler and fairer. The panel is supposed to make recommendations to Treasury Secretary John Snow by July 31. In her recent report to Congress, National Taxpayer Advocate Nina Olson recommended the repeal of the AMT, which she described as the biggest problem of the Internal Revenue Code. However, costs to fix the AMT are estimated to be roughly $700 billion.