Practice Management

The Internal Revenue Service needs to remedy serious weaknesses over taxpayer and Bank Secrecy Act data that leave its systems vulnerable, according to a report released by the Government Accountability Office.

With the April 15 tax filing deadline looming, the Internal Revenue Service says that e-filing, direct deposit and e-payment programs continue to move at record paces so far this year.

The Internal Revenue Service announced that as of April 1, some 52 million returns had been filed electronically, 7 percent above last year's e-filing pace. Overall, 65 percent of all returns were e-filed -- up from 60 percent for the same period last year. The service also reported that roughly 4 million returns have been filed via the Free File program -- up 44 percent from the year-ago figures. "As we get deeper into the tax filing season, the percent difference between how many people are using e-file and how many used it last year keeps going up," said IRS Commissioner Mark W. Everson. "This shapes up as a really strong year. Taxpayers who haven't filed yet should check into e-file and Free File." The IRS also said that 42 million refunds have been paid through direct deposit, up 5.7 percent for the same time last year.

Senators from both sides of the aisle and the Treasury Inspector General for Tax Administration questioned the plan by the Internal Revenue Service to cut back its walk-in and telephone Taxpayer Assistance Centers during a hearing on the 2006 IRS budget. IRS Commissioner Mark Everson discussed the agency's plan to close as many as 105 TACs and cut back its toll-free telephone service by 15 hours a week at the Senate Appropriations Subcommittee hearing. TACs are located nationwide and allow taxpayers to have face-to-face meetings with IRS employees who can assist taxpayers with tax law, tax return preparation and account inquiry resolution. "The IRS needs to balance customer service with its compliance and enforcement efforts," said Sen. Christopher Bond, R-Mo., chairman of the Transportation, Treasury and Housing and Urban Development Subcommittee. "I believe that most people who fail to comply with the tax code do so unintentionally because of its difficulty and complexity. Accurate and timely guidance from the service is imperative to ensuring taxpayer compliance." Colleen M. Kelley, president of the National Treasury Employees Union, warned that closing Taxpayer Assistance Centers will result in reduced taxpayer education and compliance at a time when the gap between taxes owed and amounts paid has increased to upwards of $298 billion.

The government is upping its enforcement measures in the wake of its success in catching tax cheats, penalizing promoters, barring unscrupulous preparers and shutting down abusive tax shelters, according to officials. At a joint Internal Revenue Service-Justice Department briefing, agency executives noted that last year, IRS Criminal Investigation referred more than 3,000 cases to the Justice Department for possible criminal prosecution, nearly a 20 percent increase over the previous year. During fiscal year 2004, the conviction rate on cases investigated by the IRS and referred to Justice was 95.4 percent. "If you're thinking about cheating on your taxes, think twice," said IRS Commissioner Mark W. Everson. "The IRS is ramping up its enforcement efforts, particularly for high-income individuals and corporations. Where we need to, we turn to the Justice Department to take people to court." The Justice Department's Tax Division's criminal enforcement priorities include prosecuting schemes that involve using trusts or other entities to conceal control over income and assets; shifting assets and income to hidden offshore accounts; claiming fictitious deductions; using frivolous justifications for not filing truthful tax returns; failing to withhold, report and pay payroll and income taxes; failing to report income; and failing to file tax returns.

Daszkal Bolton LLP, an area CPA and business advisory firm, has merged with the practice of DeWoody & Co., effective immediately. Terms were not disclosed. DeWoody & Co. specializes in tax and accounting services for high-net-worth individuals in north Palm Beach County. As a result of the union, Daszkal Bolton has opened a 21-person office in Palm Beach Gardens, Fla. That unit will be headed by DB principal Jeff Bolton. "As the Big Four national CPA firms jettison clients to service larger national and multi-national companies, we expect middle-market professional services firms such as ours will continue to benefit," said Bolton. "We are gaining clients because they have ready access to our expertise and resources and understand our commitment to grow as they grow." Going forward, the firm will operate under the Daszkal Bolton brand. The merger boosts Daszkal Bolton's total employees to 100 in its two offices.

South Bay area CPA and business advisory firm Windes & McClaughry Accountancy Corp. said that it would merge its practice with Torrance-based Timothy Good & Co., effective immediately. Terms were not disclosed. Going forward, the consolidated firm will operate under the Windes & McClaughry brand. The addition of Timothy Good & Co. bolsters Windes & McClaughry's partner ranks to 24 shareholders. "The South Bay is a growing, dynamic market, and we are very excited to expand our presence there," said Jack Hinsche, managing partner of Windes, in a statement. One of the larger accounting firms in the South Bay area, Good serves a variety of privately held businesses with financial statements, tax planning, and estate and trust services. Founded in 1926, Windes offers audit and assurance, business valuation, cost segregation, employee benefits, estate and trust planning, human resources recruiting and consulting, litigation support, and tax planning and consulting.

The Internal Revenue Service is accepting applications for joining its Taxpayer Advocacy Panel. The TAP provides a forum for citizens from each state to make suggestions regarding IRS decision-making, and works to identify and prioritize taxpayer issues. "We are committed to working with taxpayers to improve the customer-service focus of the IRS," said Nina Olson, IRS National Taxpayer Advocate, in a statement. "Working with taxpayers directly helps us identify issues that may not be on the IRS radar screen. We can also hear their concerns about issues the IRS is already addressing." TAP applicants must be U.S. citizens and be able to commit 300 to 500 hours during the year to the panel. In addition, they must be current with their tax obligations and pass a criminal background check. The application is available at www.improveirs.org, or by calling (888) 912-1227. Applications must be received by the TAP office by April 29.

* SUPREME COURT REQUIRES TAX COURT TO INCLUDE TRIAL JUDGES' REPORTS ON APPEAL: The Supreme Court ruled in a 7-2 decision that the Tax Court may not exclude from the record on appeal Rule 183(b) reports submitted by special trial judges.The Tax Court's chief judge appoints special trial judges to hear certain cases, but the ultimate decision, when tax deficiencies are greater than $50,000, is reserved for the court itself. Tax Court Rule 183(b) directs the special trial judge to submit a report to the chief judge, who assigns the case to a judge of the court. The Tax Court judge is to give due regard to the report and presume that findings of fact contained in the report are correct. The Tax Court judge may then adopt the report "or may modify it or reject it in whole or in part."

The American Jobs Creation Act of 2004 enacted Code Sec. 409A, which requires the current inclusion in income of deferred compensation that does not meet the new, more stringent requirements of Code Sec. 409A.