Tax news July 2007

A&A

Sec. 199 deductions: Use statistical samplings

Even expert tax practitioners can become confused by the complex tax rules pertaining to the Sec. 199 domestic "manufacturing" deduction. The IRS has already issued hundreds of pages of regulations on this issue. Fortunately, it is also taking steps to cut down on some of the paperwork. Alert: The IRS continues to provide guidance for claiming the deduction. The latest missive explains how to use a statistical sampling for this purpose. (IRS Revenue Procedure 2007-35) But the new IRS procedure only goes so far.
Technology

Urgent: New IRS rule for e-file providers

The IRS has established new e-file rules to enable it to more quickly identify fraud schemes including phishing. These new IRS e-file rules apply to all Authorized IRS e-file Providers, including Online Providers, Intermediate Service Providers, and Electronic Return Originators (EROs) that obtain taxpayer information via the Internet directly or through third parties in order to e-file federal returns.Providers must submit to the IRS by August 9, 2007 an Excel spreadsheet that has been encrypted using WINZIP 9 with password protection.
Tax

Treasury conferees agree corporate tax must be overhauled

Last week, members of the U.S. Treasury met with executives and economists for the purpose of discussing America's system of corporate taxation in terms of global competitiveness. At the conference, Treasury Secretary Henry Paulson received support from participants for considering an overhaul of the U.S. business tax system.Among those in attendance were former U.S.
Tax

Section 403(b) retirement plan rules finalized

The Treasury Department and the IRS have released final regulations related to retirement savings arrangements sponsored by public schools and charitable organizations, often referred to as "section 403(b) plans." These regulations are the first comprehensive section 403(b) regulations since 1964.
Tax

Red Cross draws fresh blood from IRS

American Red Cross President and CEO and former IRS Commissioner, Mark W. Everson, has announced that current IRS Acting Commissioner Kevin M. Brown will join the charity as the Chief Operating Officer on September 10, 2007. In this role, Brown will oversee all six lines of business, including Biomedical Services, Service to Armed Forces, Disaster Response, International Services, Chapters, and Preparedness, and Health and Safety Services. "Kevin has a proven track record as an effective manager. He is a personable leader with sound judgment and a man of great integrity," said Everson.
Tax

Shoppers in fourteen states prepare for sales tax holidays

Residents of at least fourteen states and the District of Columbia can look forward to purchasing clothing, school supplies, and computers within certain price limits without having to pay state sales tax during tax holidays next month. Anyone can take advantage of the tax breaks, but the sales are intended to coincide with the re-opening of schools. The National Retail Federation estimates that the average family with school-age children will spend $563.49 this year on back-to-school supplies and clothing.
Tax

Is London becoming a tax haven?

Earlier this year, an International Monetary Fund working paper classified the United Kingdom as an "offshore financial centre," alongside jurisdictions such as the Cayman Islands and Bermuda.
Tax

Tax Court hears case on deductibility of sex change operation

A potentially groundbreaking case is underway in the U.S. Tax Court in Boston where a former man is arguing that the medical expenses relating to her sex change operation should be allowed as a medical deduction on Schedule A of her income tax return.The defendant, Rhiannon O'Donnabhain, has indicated that she had been diagnosed with a disease known as gender identity disorder, and her doctor recommended the sex change surgery, claiming it was a medical necessity. Her psychologist agreed with the recommendation.O'Donnabhain had surgery to remove male genitals and augment breasts.
Tax

TIGTA: Demise of TeleFile is costing taxpayers millions

The U.S. Treasury Inspector General for Tax Administration (TIGTA) has issued a new report indicating that the IRS's decision to end its call-in tax filing program, TeleFile, has increased the financial burden on taxpayers by as much as $23.6 million.Results of a TIGTA study disclosed that in 2006, 541,000 taxpayers who formerly phoned in their tax return information spent $23.6 million on tax preparation software.
Tax

National Taxpayer Advocate sets out priority issues

National Taxpayer Advocate Nina E. Olson has delivered a report to Congress that identifies the priority issues the Office of the Taxpayer Advocate will address in the coming fiscal year.
Tax

Taxpayer advocate calls for end to IRS tax privatization program

Just a day after a key House committee voted to repeal the Internal Revenue Service tax debt privatization program, the agency's own National Taxpayer Advocate has once again sharply criticized the program and called for an end to it.
Tax

House Ways and Means Committee votes to stop IRS debt collection program

On Wednesday, the House Ways and Means Committee agreed to pull the plug on the IRS's controversial debt collection program. The IRS has been contracting out a portion of its federal tax debt collection to private companies."The collection of taxes is a core government function," said Representative John Lewis (D-GA). "It is the Internal Revenue Service's mission.
Tax

States quick to take advantage of new nexus non-rules

It was only a couple of weeks ago that we reported the U.S. Supreme Court had refused to hear two cases that would have addressed the issue of substantial economic presence in a state being enough to constitute nexus. In Lanco, Inc. v. Director U.S. and FIA Card Services N.A. f/k/a MBNA America Bank, N.A. v. Commissioner, U.S., NJ and West Virginia chose to apply income taxes on corporations that had no physical presence in the state. In Lanco, A Delaware-based company licenses trademarks to women's apparel stores in New Jersey.
Tax

Charges dropped against former KPMG execs, appeal filed

Federal indictments have been dropped against 13 KPMG execs accused of orchestrating a tax shelter scheme that cost the government $2.5 billion. Cases are still pending against three former KPMG executives for whom the firm was not required to pay legal fees, Robert Pfaff, John Larson and David Greenberg, and two others who are not affiliated with KMPG.
Tax

Small tax-exempt organizations face new postcard reporting requirement

The Internal Revenue Service has announced that it began mailing educational letters this month to more than 650,000 small tax-exempt organizations that may be required to submit a new annual notice, Form 990-N, "Electronic Notice (e-Postcard) for Tax-Exempt Organizations Not Required to File Form 990 or 990-EZ."IRS expects to mail the letters over a period of several months, finishing in December.With the enactment of the Pension Protection Act of 2006 (PPA), the majority of small tax-exempt organizations are now required to submit the e-Postcard.
Tax

IRS budget continues path through Congress

The Senate Appropriations Subcommittee on Financial Services and General Government has approved the IRS budget of $11.1 billion for fiscal year 2008 after the budget was approved by the House. The amount is slightly ($112.5 million) above President Bush's suggested budget and $544.5 higher than the fiscal year 2007 budget.Included in the IRS budget is $6.8 billion slated for enforcement activities, $2.1 billion for taxpayer services, and $282 million for modernization.
Tax

UK 'fat tax' could save more than 3,000 lives

An article that is appearing in the August issue of Journal of Epidemiology and Community Health discusses the possible effects of instituting a tax on salty, sweet, and fatty foods including cookies, cakes, and processed meals. Using consumption patterns provided by the National Food Survey of Great Britain, researchers at England's Oxford University are suggesting that a Value Added Tax (VAT) of 17.5 percent could have the effect of reducing consumer demand and, as a result, reducing heart attacks and strokes.
Tax

TIGTA takes another jab at IRS

The Treasury Inspector General for Tax Administration has issued a new report citing problems the IRS experienced with electronic tax return providers this past tax season. According to the report, on October 30, 2006, the IRS suspended 12,588 e-file Providers for not submitting the required Forms 8453, U.S. Individual Income Tax Declaration for an IRS e-file Return.
Tax

Cigarette taxes go up while gas and sales tax rates remain stable

Many smokers are feeling a greater squeeze on their wallets as more states increase cigarette taxes, while most states have held the line on gas and sales tax rates over the last year, according to CCH, a Wolters Kluwer business and a leading provider of tax information, software and services. As part of its annual survey of consumption taxes, CCH takes a look at gasoline, cigarettes and sales tax.
Tax

Cadaver dealer pleads guilty to tax evasion

Henry Reid, the former director of UCLA's Willed Body cadaver donation program has pleaded guilty to filing a false federal income tax return for the year 2002 and admitted to concealing $54,400 in income from the IRS over a four-year period. In 2004, Reid was accused of selling body parts to a middleman for a profit, and the middleman was supposedly reselling the body parts to research companies.

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