Tax strategies

IRS OPENS 2006 FILING SEASON: The Internal Revenue Service sent out 17.7 million 1040 tax packages during the first week of January to taxpayers who have previously filed paper returns. The number of paper tax booklets being mailed to Americans continues to decline as more people opt for electronic filing.The IRS expects to process about 135 million individual tax returns in 2006 and to see continued growth for its e-filing service. The agency passed a milestone last year as more than half the nation's taxpayers filed their tax returns electronically.

More than half of all professional liability claims against accountants are tax-related, according to insurance industry executives. As accountants plunge ahead into their busy season, they should take note of their increasing exposure.Although audit malpractice claims are the highest in terms of severity, the most frequent claims are those for tax services, said Joe Wolfe, assistant vice president for risk control at CNA, in an interview last fall. CNA is the underwriter for the American Institute of CPAs' professional liability insurance program.

In violation of a longstanding court order, the Internal Revenue Service has stopped providing detailed statistics about how the agency enforces the nation's tax laws, according to a motion filed in the United States District Court for the Western District of Washington.The legal challenge was brought by Susan B. Long, a professor of management information and decision sciences at Syracuse University's Martin J.Whitman School of Management. Long has used the IRS data to document its performance for more than 30 years. Since 1989 she also has been co-director of the Transactional Records Access Clearinghouse, a data-research organization that provides the public with detailed information about the operation of hundreds of federal agencies, including the IRS.

Practitioners and industry observers concur with the call by Taxpayer Advocate Nina E. Olson for tax simplification.Although legislation calls for the Taxpayer Advocate to list at least 20 of the most serious problems facing taxpayers, Olson went a step further and included a major section on tax simplification.

The Internal Revenue Service has come out of the gate in 2006 with a shiny new employment tax form for small employers.Effective January 1, employers who expect to owe no more than $1,000 in federal employment taxes for the 2006 calendar year will be required to file Form 944, Employer's Annual Federal Tax Return, replacing the quarterly Form 941.

Many of the 19 former tax professionals facing trial over the sale of KPMG tax shelters, whose legality has been questioned by the federal government, have asked for the dismissal of the charges in a variety of joint motions.More than 25 motions were filed in Manhattan's U.S. District Court, several requesting that the charges against the professionals be dropped entirely, as no court has ever actually ruled the shelters to be illegal. Many additional motions asked for the dismissal of charges because the defendants said that they were being unfairly singled out from other KPMG officials who sold similar shelters.

The Roth 401(k) contribution option, even with almost five years of advance warning, is taking a while to catch on.Reports are that fewer than 20 percent of eligible 401(k) plans now have them, with the rest sticking with tried-and-true pre-tax deferral contributions. If field data is accurate, however, this tepid reception is about to change. When employers, especially those also wearing the hat of the highly paid employee, begin to run the numbers, Roth 401(k) accounts are looking very attractive. This view is especially true following the recent release of favorable final regulations on Roth 401(k) contributions.

Approval of the $195 million settlement between KPMG and investors in possibly illegal tax shelters has stalled, as the sides reportedly renegotiate the terms of the deal.

The Internal Revenue Service issued the 2006 "Dirty Dozen" -- the annual round-up of some of the most notorious tax scams.

The Internal Revenue Service announced new steps to improve the Questionable Refund Program and reduce the number of taxpayers subject to frozen refunds.

Citing rising costs in Medicaid and education which in turn led to higher spending levels and ultimately higher taxes, state taxpayer burdens rose more than 40 percent between 1994 and 2004.

The Senate passed a bill containing $70 billion in tax cuts, part of a budget push Republicans are hoping will lead to an extension of President Bush's tax cuts.

The Internal Revenue Service will host a series of six tax forums across the nation this summer for tax professionals.

President Bush did not mention tax reform in his State of the Union Address, generally talking only about the importance of keeping the country competitive in the world marketplace by ensuring the economy continues to grow.

Smart and Associates LLP has acquired the compensation and benefits tax practice of KPMG. Terms of the transaction were not disclosed.

Living in the world of accounting news from 9 to 5 everyday, it's become apparent that not a heck of a lot of my day job transfers over to my world outside of work.

H&R BLOCK TO PAY $62M TO SETTLE REFUND SUITS: Tax preparation giant H&R Block Inc. will pay $62.5 million to settle class-action lawsuits over its use of refund anticipation loans. Block said that the settlement would cover more than 8 million customers who received the loans between 1989 and 2005. The company has already set aside money for the potential settlement and announced that it plans to take a third-quarter charge of $31 million to cover the remainder of the settlement.The lawsuits said that RALs took advantage of financially unsophisticated taxpayers who were not adequately informed about high interest rates. Besides the cash settlement, Block agreed that it would better advise customers in the future about other options in filing taxes and gaining refunds quickly, as well as any interest charges or other fees they would have to pay. A federal judge in West Virginia was scheduled to review the settlement. If approved, the deal will resolve four class-action suits filed in West Virginia, Ohio, Alabama and Maryland, along with claims pending in 22 other states and Washington, D.C. Block still faces two other lawsuits tied to the loans.

Tax law changes, a surge in business e-filing, and a move by practitioners toward greater use of the Internet will impact the type of filing season that tax preparers have this year."It will be typical year in terms of filing," observed John Hewitt, chief executive officer of Virginia Beach, Va.-based Liberty Tax Service. "About a million-and-a-half to two million more people will file returns than last year."

Although tax experts from across the spectrum predict that a real tax reform is in our future, they are divided on how soon it will happen or what form it will take.Mark Weinberger, former Treasury assistant secretary for tax policy, said during a recent Tax Analysts-sponsored Webcast that tax reform will eventually happen. However, said Weinberger, currently Americas vice chair for tax services for Ernst & Young, the structure and timing are still up in the air.

Congress, in the waning days of its 2005 session, after failing to carry out significant parts of its tax agenda for the year, has managed to pass a Gulf Coast recovery tax act. As is common with the "last stagecoach out of town" for the year, a lot of things managed to "jump on."The hurricane provisions take up 84 pages of bill text, but the legislation goes on for another 100 pages. Among the areas addressed beyond hurricane recovery and relief are a few extensions of expiring provisions, a couple of miscellaneous items, and a huge package of technical corrections covering 10 pieces of tax legislation going back as far as 1987.