Practice Management

Regional CPA and business advisory firm WithumSmith+Brown has merged with Morristown N.J.-based Gershon, Pierce, Lissak & Co. Terms were not disclosed. Founded in 1984, GPL provides financial planning and tax compliance services, estate and trust administration, litigation support, joint defense funds administration, and forensic accounting services. The union adds seven partners and 26 staffers to WithumSmith+Brown and brings the firms partner total to 27. In 2004, WS+B posted revenues of roughly $31 million. The marriage with GPL marks the second merger in as many months for WSB. In January, it merged in another New Jersey firm, Mendlowitz Weitsen, which added three principals and 10 staff members.

Tax shelters provided by accounting firms or external auditors potentially siphoned an aggregate $129 billion in revenue from U.S. coffers over the period from 1998 to 2003, according to a report from the Government Accountability Office. According to the GAO, some 207 Fortune 500 companies, or about 40 percent of the companies in that category, purchased tax shelters from their auditor or from CPA firms, resulting in a potential revenue loss of $56.6 billion. Meanwhile, tax shelter transactions involving the auditor for 61 Fortune 500 companies sidestepped paying about $3.4 billion in taxes between 1998 and 2003, but as a result of the shelter received $1.8 billion in federal tax benefits. The study, which calculated revenue loss from tax shelters purchased by both Fortune 500 corporations and individuals, was launched at the behest of Sen. Carl Levin, D-Mich., the ranking Democrat on the Senate Permanent Subcommittee on Investigations. The GAO noted, however, that the study included only those transactions known to the Internal Revenue Service, and said that its estimates were imprecise because some of the shelters may not be abusive and some transactions may have been counted more than once. The names of the companies and individuals purchasing tax shelters were not identified.

The Internal Revenue Service has redesigned Form 941, Employer's Quarterly Federal Tax Return. The new, simplified form is intended to help businesses, tax practitioners and payroll companies avoid common errors, and to reduce the burden associated with completing and filing the form. Form 941 is used to report wages, tips and other compensation paid, as well as Social Security, Medicare and income taxes collected. More than 23 million of these forms are filed annually by 6.6 million employers. The redesigned form features an improved layout, plain-language instructions, simplified deposit reporting and paid preparer identification. The form is also scannable, which the IRS expects will reduce transcription errors. "The new 941 is much easier on the eye and much more user-friendly," said Scott Mezistrano, senior manager of government relations for the American Payroll Association. "With the shading, bigger boxes and improved instructions right on the form, you know exactly what you are supposed to report and where to put it. The IRS did a very thorough job of reviewing every line on the 941 and considering how it could be made more clear."

Dr. David Frantz Bradford, a tax economist who proposed the "X tax," a controversial alternative to supplant the Internal Revenue Code, died at his home here. He was 66. The cause of death was burns suffered in a fire at his home earlier this month. Bradford, a professor of economics and public affairs at Princeton, as well as a professor at New York University, had advocated switching to a system that taxed people on their spending levels. His subsequent proposal, the X tax, was a distant relative to a flat tax system, but Bradford's system applied a graduated rate schedule for people in the higher income brackets. A flat tax applies a single rate of tax for all income brackets. Bradford served as deputy assistant secretary of the Treasury for tax policy in the Ford administration, and later was appointed by President George H. W. Bush to the Council of Economic Advisors from 1991 to 1993. He joined the economics department at Princeton in 1966. He also authored "Untangling the Income Tax."

The average combined sales tax rates across the nation hit a record 8.587 percent over 2004, which fueled some 764 tax rate changes, according to the 2004 Sales Tax Rate Report. The report, released by Vertex, a provider of tax technology solutions headquartered here, said that although 237 new rates were established over the course of 2004, the year also saw a record number of decreases, 160, the highest figure since 1996. Other findings included: o- Three states had state rate increases. Arkansas went from 5.125 percent to 6 percent, California went from 6 percent to 6.25 percent, and Virginia went from 3.5 percent to 4 percent. o- Mississippi, Tennessee and Rhode Island have the highest state sales tax rates, at 7 percent. The average sales tax rate is 5.318 percent. o - Wrangell, Alaska, has the highest city sales tax rate, at 7 percent. The average city sales tax rate is 1.583 percent. o- Arab, Ala., was the jurisdiction with the highest combined sales tax rate of 12 percent. The average combined rate is 8.587. The Vertex Sales Tax Rate Report provides a summary of sales tax rate changes at the state, county, city and district levels nationwide. It is available online at www.vertexinc.com.

The Internal Revenue Service issued a reminder to taxpayers and tax preparers that certain returns from Arizona, Connecticut, Utah and Virginia need to be sent to different service centers than last year. For tax year 2004, the changes affect Connecticut and Virginia returns with or without payments, and Arizona and Utah returns with payments. o Connecticut returns without payments should be sent to the IRS in Kansas City, Mo. o Connecticut returns with payments should be sent to the IRS in St. Louis. o Virginia returns without payments should be sent to the IRS in Fresno, Calif. o Arizona, Utah and Virginia payments with payments should be sent to the IRS in San Francisco. The envelopes included in the tax packages of taxpayers filing paper returns have the correct center addresses; taxpayers who do not receive a package should refer to the back cover of the Form 1040, 1040-A or 1040EZ instructions. E-filing taxpayers are unaffected by the changes.

A report by the Treasury Inspector General for Tax Administration absolves the procedures used by the Internal Revenue Service's Tax Exempt and Government Entities Division for reviewing political activities by exempt organizations. While many charities speak out on public issues, the code prohibits Section 501(c)(3) organizations from specific types of political activities. In response to media reports of allegations that the TE/GE Division was examining these types of activities just prior to the 2004 presidential election for politically motivated reasons, the IRS asked the TIGTA to investigate. "This report confirms what we've said all along," said IRS Commissioner Mark W. Everson. "Political considerations played absolutely no part in the inquiries we launched last summer." Everson said that recommendations in the report would be addressed by the IRS and would be in place for future election cycles.

Tax practitioners preparing 2004 client business and self-employed returns are confronted with a bewildering maze of tax law changes, which in some cases can lead to mistakes.Significant changes affecting 2004 returns include multiple changes to depreciation and expensing, with new limits for sport utility vehicles, passenger automobiles, trucks and vans; bonus depreciation for qualified leasehold property; and newly redesigned Schedule K-1s for partnerships and S corporations.

On Jan. 19, 2005, the Internal Revenue Service released some initial guidance to taxpayers for claiming the new manufacturing deduction available for the first time in 2005 with respect to qualified domestic manufacturing, production, growing and extraction activities.

IRS, TREASURY ISSUE GUIDANCE ON NEW PENALTIES ON POTENTIALLY ABUSIVE TRANSACTIONS: The Treasury Department and the Internal Revenue Service issued interim guidance on two new penalty provisions enacted as part of the American Jobs Creation Act of 2004.