Tax strategies

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.

In one of the stiffest jail sentences handed down in a tax case, Dallas' Daniel A. Fisher was sentenced to serve 235 months and pay a $1 million fine.

As the Senate approved a measure with $60 billion in tax cuts, the House will consider its own measure containing $56.6 billion in cuts. Both plans are spread over the next five years.

Although President Bush's tax reform advisory group recommended against shifting the U.S. to a European-style value added tax or a national sales tax system, congressional advocates of consumption taxes haven't given up the fight.

The Senate will debate a tax bill that would cut taxes by about $61 billion over the next five years, and would include a $5 billion tax next year for the nation's biggest oil companies.

Citing a lack of Republican support, Senate Finance Committee Chairman Charles Grassley, R-Iowa, yanked a near-$70 billion tax bill prior to a committee vote -- a measure that would have extended 15 percent rates on capital gains and dividends for five years.

The Internal Revenue Service has issued Notice 2005-88, which explains steps that large corporations and tax-exempt organizations can take to seek waivers from electronic filing requirements.

The heads of the nation's five major oil companies testified about their $30 billion in third-quarter profits before a joint session of the Senate's Energy and Natural Resources Committee and Commerce Committee.

Taxpayers will be able to request an automatic, six-month filing extension for most common individual and business returns, according to new regulations released by the Treasury Department and the Internal Revenue Service.

Senate Finance Committee Chairman Charles Grassley, R-Iowa, announced a plan to cut taxes by nearly $70 billion by 2010.

The current business and regulatory climate has fueled so much demand for accountants across the board that it will make seasonal staffing during tax time more difficult than ever, according to industry observers."Demand is even higher than last year, with more needs and less people available," said John Grammer, CPA, regional managing director of Spherion's professional services division in New York. "Firms are calling up and wanting to increase our fees, hoping if they pay us more we'll send qualified people to them rather than somewhere else. But besides being unethical, even if you pay me double it won't make any difference as to how many qualified candidates I can get."

States have taken two different paths in response to falling revenue from corporate tax collections.On the one hand, some states have focused on lowering corporate taxes or at least changing them to make themselves more attractive for investment. At least five states have debated bills to reduce corporate tax rates in 2005, while dozens of others have introduced bills that shift corporate taxes away from the property and employees of corporations, and onto the customers of corporations.

Several provisions of the American Jobs Creation Act of 2004 have required tax advisors to be very proactive with their clients to consult with them about the impact of the statutory changes, as well as subsequent regulatory developments.Among the more significant areas requiring immediate attention have been the new domestic manufacturing deduction, the brief window for repatriation of dividends, the tax shelter reporting and disclosure rules, and the new requirements with respect to nonqualified deferred compensation.

The Internal Revenue Service released its enforcement results for fiscal year 2005.