GAO SAYS IRS NEEDS TO IMPROVE INTERNAL CONTROLS
Washington, D.C. — The Government Accountability Office has issued a report containing dozens of recommendations for ways the Internal Revenue Service should improve its internal controls.
Among the problems identified were that summary information reported in the IRS's general ledger system for tax-related transactions could not be traced to the underlying detailed transaction records. The GAO also found that supervisory review procedures for the IRS's unpaid assessments estimation process were not effective in preventing or detecting errors.
Controls over computer programs affecting penalty assessments did not ensure that the programs always functioned in accordance with the IRS's policies and procedures. Key controls over the IRS's purchase card program were inadequate, and information on new assets was not always recorded in the IRS's inventory system on time.
The GAO recommended that the IRS document and implement the procedures to be performed by the statistician in each step of the unpaid assessments estimation process. It said that the IRS should require that a detailed supervisory review be performed to ensure the statistical validity of the sampling plans, and that data entered into the sample selection programs agree with the sampling plans.
CALLS TO EXTEND R&D CREDIT
Washington, D.C. — A report from Big Four firm Ernst & Young describes the potential adverse impact on the U.S. economy if the research and development tax credit is not renewed.
The report, prepared by E&Y for a lobbying group, the R&D Credit Coalition, argues that failure to renew the R&D tax credit would affect both small and large companies in most industries across all 50 states. The credit has been extended a dozen times since it was first enacted in 1981 and most recently expired, for the 13th time, on Dec. 31, 2007.
Bills are pending in Congress to renew the credit. The House recently passed a bill, H.R. 6049, which included a provision for extending the R&D credit, along with other recently expired credits. The Senate bill, S. 2886, may come up for debate this month.
IRS PREVAILS IN GERMAN TAX SHELTER CASE
Washington, D.C. — The Internal Revenue Service has won another tax shelter case, this one involving a sale-in/lease-out transaction. In the case, AWG Leasing Trust v. United States, two large national banks disputed adjustments that the IRS made to partnership returns for the 1999-2003 tax years. In those adjustments, the IRS found that the banks' partnership mischaracterized a 1999 transaction as a $423 million purchase of a German waste-to-energy facility. The IRS said that the transaction was a thinly veiled tax dodge. The IRS claimed that AWG owed approximately $88 million in taxes for the 1999-2003 tax years.
The judge sustained the IRS's determination that the asserted tax benefits were improper and denied the claimed deductions. The court also upheld the imposition of accuracy-related penalties at the partnership level for substantial understatement of tax liability.
