IRS REVISES OFFER IN COMPROMISE APPLICATIONWASHINGTON - The Internal Revenue Service announced that its revised taxpayer application for an offer in compromise, Form 656, is now available. The Form 656 package was last revised in 2004 to help taxpayers prepare an offer correctly and completely.
The new form retains the 2004 changes and adds significant changes as a result of the Tax Increase Prevention and Reconciliation Act of 2005. The changes include:
* New payment terms and submission rules;
* A new matrix to assist in determining the number of forms, $150 application fees and TIPRA payments to submit to the IRS depending on the number of individuals submitting the offer and the types of liabilities being compromised;
* A revised section defining the contractual terms of the offer; and,
* An application fee and payment worksheet to determine eligibility for claiming exception to the payment of the application fee and the mandatory offer payments imposed by the legislation.
The 44-page Form 656 package is located online at www.irs.gov/pub/irs-pdf/f656.pdf.
TAX COURT: NO DICE ON $55K CLOTHING DEDUCTION
WASHINGTON - A Goldman Sachs investment banker who earned $115,000 in 2002 will not be able to take a $55,000 charitable contribution deduction for used clothing that she donated to a thrift store that same year.
In an opinion issued in mid-March, the U.S. Tax Court said that it had reservations about the valuation methods used by the banker in determining the fair market values she assigned to the donated items. According to court documents, the banker - who described herself as an impulsive buyer who often only wore an outfit or pair of shoes once or twice before donating them to a high-end thrift store in New York - testified that she determined the fair market value of an item and then assumed that the cost of the item was at least twice as much.
"We recognize that the determination of the fair market value of an item involves an approximation, and is, at best, an inexact science," the court wrote. "However, we cannot ignore that [personal items] will be worth far less than their original purchase price immediately after they are purchased. [Furthermore], the original costs of the donated items shown on the Forms 8283 are themselves not actual costs, but only estimates based upon petitioner's optimistic estimates of the items' fair market values."
After reviewing the average deduction claimed by similarly situated taxpayers, the court said that the banker was entitled to a charitable contribution deduction for property contributions of just under $9,000. The court also said that it did not believe that the "optimistic" valuation constituted negligence, and ruled that she does not have to pay the nearly $3,000 accuracy-related penalty assessed by the Internal Revenue Service.
The opinion is available online at www.ustaxcourt.gov/inophistoric/stamoulis.sum.wpd.pdf.
FREE FILE OFF TO A SLOW START
WASHINGTON - The Internal Revenue Service announced that through March 13, more than 2.6 million taxpayers have electronically filed their returns using the agency's Free File program, although that's about a 4 percent drop from the number of returns filed during the same time last year.
Accessed through the IRS Web site, Free File is available to 70 percent of U.S. taxpayers - those with an adjusted gross income of $52,000 or less. The program is a partnership between the IRS and the Free File Alliance, a group of 20 private companies that provide their tax prep software free of charge if accessed through the IRS Web site.
Free File is part of the IRS e-file program, and through early March, the number of overall e-filed returns had increased by about 5 percent. Returns prepared on home computers, including returns prepared through Free File, were up by 8 percent.
While Free File started out a bit more slowly this year, the IRS said that the returns filed in recent weeks are now topping comparable weeks from last year, and the IRS expected the program to equal or surpass last year's numbers by the end of the filing season.
The IRS made a number of changes and improvements to the program this year, including eliminating the sales pitches for ancillary return products, such as refund anticipation loans. The agency also created an enhanced "Guide Me to a Company" wizard that is aimed at making it easier for a taxpayer to determine what Free File software is best suited to their needs.
NON-CPA TAX PREP BUSINESS SUBJECT TO CORPORATE TAX
WASHINGTON - The U.S. Tax Court found that a non-CPA tax preparation and bookkeeping business is an accounting service and subject to the 35 percent tax applicable to qualified personal service corporations.
The Las Vegas firm had argued that because it was not a public accounting firm, its employees didn't perform services that required them to be CPAs, and because state law does not state that accounting services can only be performed by CPAs, it shouldn't be defined as a provider of accounting services as outlined under Section 448(d)(2) of the Tax Code.
The Internal Revenue Service had flagged deficiencies in the firm's 2002 and 2003 returns totaling about $17,000. On each of the firm's corporate returns, it calculated its income tax liability using the graduated income tax rates applicable to corporations. But the IRS argued that the business should be treated as a qualified personal service corporation and be subject to the 35 percent tax rate.
The court ruled that the firm didn't appreciate the distinction between "public accounting" and "accounting." The court said that public accounting work, which generally requires a CPA license, represents a branch of accounting, and not the entire realm of accounting.
Section 448 only requires that the services provided by a firm be in the "field of accounting" - which the court said that both tax return preparation and bookkeeping services are generally considered to be.
The full decision is available at www.ustaxcourt.gov/inophistoric/rainbow.tc.wpd.pdf.
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