Tax strategies

LEGISLATION PROPOSED TO BAN 'RETURN-FREE' SYSTEM: H.R. 5114, the Tax Return Choice Act of 2006, was introduced in the House and referred to the Ways and Means Committee. The bill, which has 88 Republican and 17 Democrat co-sponsors, would prohibit the Internal Revenue Service from completing individual tax returns other than through the programs already offered through the Free File Alliance, Taxpayer Assistance Centers, Tax Counseling for the Elderly, and Volunteer Income Tax Assistance programs.The bill reflects the efforts of a number of groups concerned that a return-free system similar to the one used in the U.K., Germany and Japan would be a step backward from voluntary compliance, and would raise taxes on those who used it. Under such a system, the tax agency computes final tax liability based on third-party data, such as W-2s and Form 1099s, and sends the taxpayer a written determination and a bill. The taxpayer can accept the calculations and pay the bill, or wait for a refund. The taxpayer can then make minor adjustments, or may disregard the determination and prepare a separate return.

A husband and wife have filed a case against Ernst & Young, blaming the firm for the loss of $40 million in a shelter deemed abusive by the Internal Revenue Service.The Florida couple, Rocco and Mary Abessinio, are seeking class-action status for the lawsuit, which was filed in federal court in Manhattan in April.

Online tax preparation services are using the Internal Revenue Service's Free File program to promote "get rich quick" schemes and overpriced refund anticipation loans to low-income taxpayers, some lawmakers have charged.In a sharply worded letter to IRS Commissioner Mark Everson, Senate Finance Committee chair Chuck Grassley, R-Iowa, placed much of the blame for these practices on the IRS officials who negotiated a new contract with 20 online tax prep companies to provide taxpayers with free electronic tax preparation and filing services during this tax season.

Almost nine full years have passed since the $250,000/$500,000 exclusion of gain on the sale of a principal residence first became available. Little did many of us imagine how much would change in nine years.While the basic sale-of-a-principal-residence provision has remained the same, except for some minor congressional tinkering, the world in which it lives has not. The real estate "boom," capital gains rate reduction, subsequent rulings and other developments have all played a part in making this a particularly dynamic area of tax planning. A review of recent trends and developments over the past year is especially illuminating.

Both houses of Congress reached final agreement on a $70 billion package of tax cuts that will be spread over the next five years.

The U.S. Treasury Department announced that President Bush has nominated Treasury official Eric Solomon to be the department's assistant secretary for tax policy, filling a post that has been vacant since February 2004.

New York's Attorney General accused higher-ups at H&R Block of being aware that the tax prep giant's Express IRA accounts would be money losers for many of the same clients the chain was targeting to buy the retirement plans.

Creative Solutions, a unit of Thomson Tax & Accounting, has acquired the assets of Dunphy Systems, a Columbus, Ohio-based publisher and marketer of tax software.

National Taxpayer Advocate Nina E. Olson announced that the 2007 Low Income Taxpayer Clinic grant application process is now open. The grant program is in its eighth year and continues to expand.

Organizations that provide seller-funded down-payment assistance to home buyers do not qualify as tax-exempt charities, the Internal Revenue Service said in a ruling last week.

Charles W. McClure, a Colorado tax preparer, pleaded guilty to p reparing a false income tax return and will face up to a three-year jail term, a $100,000 fine and restitution of up to $12,516.

With the House Ways and Means Committee due to hold hearings on corporate tax reform next week, the Tax Foundation recently released a comparison of the U.S. corporate tax system to other countries around the world.

Both houses of Congress appear to have reached a deal on a $70 billion package of tax cuts, according to published reports.

The Taxpayer Advocacy Panel, a volunteer group that works to improve customer service and satisfaction at the Internal Revenue Service, has released its 2005 Annual Report.

As quickly as the idea was proposed, the prospect of $ 100 gas-rebate checks for taxpayers was taken off the Senate table.

Another federal regulator has publicly floated the idea of the government requiring the release of tax information from public companies.

Aspen developer George Gradow, who made his money in mobile homes, was sentenced to 15 months after pleading guilty to tax fraud and obstructing an Internal Revenue Service audit.

Following a damning government report, lawmakers opened fire on the nation's commercial tax preparers, charging that the current "tax preparation system is severely breaking down," and that "bad practices seem to be pervasive and systematic in the industry."The sharpest criticism levelled against the paid preparer companies came from the one lawmaker that tax services can't afford to alienate - Senate Finance Committee chair Chuck Grassley, R-Iowa.

Intuit Inc. has sued H&R Block Inc. for copyright infringement, alleging that Block's television spots echoed Intuit's promotions for its market-leading TurboTax software.Intuit sought a court order to stop the H&R Block ads airing in Oregon and Florida.

DECISION TO CLOSE TACS BASED ON BAD INFO: The Treasury Inspector General for Tax Administration, J. Russell George, said that bad data is to blame for the Internal Revenue Service's never-realized plan to close 68 Taxpayer Assistance Centers across the country.Late last year, Congress stopped the IRS from reducing any taxpayer service functions or programs until TIGTA completed a study detailing the effect of the planned reductions on taxpayer compliance and assistance.