GAO EXAMINES IRS '08 BUDGET

WASHINGTON, D.C. - The Government Accountability Office wants to see better descriptions and more cost and expected-performance information on the Internal Revenue Service's new initiatives in the agency's future budget submissions.

The IRS's budget request for 2008 includes a spending increase of almost 5 percent, to $11.6 billion, and the GAO noted that the agency's budget proposes shifting a greater proportion of spending to enforcement, continuing a trend.

But the GAO said that justifications for the new initiatives varied too much, lacking significant information in some cases. For example, an initiative for improving compliance estimates provided no information on how the budget, staff requests or specific work to be accomplished had been determined.

The GAO did say that the IRS has made noticeable progress in its enforcement efforts; for example, between 2004 and 2006, enforcement revenue increased 13 percent, to $48.7 billion. However, at the same time, the GAO also mentioned the agency's lack of a data-based plan to improve compliance.

And as far as IRS technology was concerned, the GAO still wants to see a long-term strategy that includes time frames for retiring legacy computer systems. The GAO's report also noted that, disappointingly, the latest release of the Customer Account Data Engine, a faster tax-processing system, was delayed.

The full report is available online, at www.gao.gov/new.items/d07719t.pdf.

IRS IDENTIFIES ILLEGAL REFUND SCHEME

SEATTLE - The Internal Revenue Service has identified a significant refund scheme involving hundreds of people living in the Commonwealth of the Northern Mariana Islands.

According to the agency, many nonresidents and locals of the islands filed income tax returns requesting refund checks including the Earned Income Tax Credit. But Northern Mariana Island residents are not required to file a return with the IRS, and are not eligible to claim the credit.

Island taxpayers who received improper refunds, as well as individuals who had their bank accounts frozen in the process of receiving a refund, should file Form 1040X, "Amended U.S. Tax Return," to repay the amount to the IRS.

The IRS and the islands' Department of Revenue and Taxation are working to sort out the scheme and explain to filers why they are not eligible for the refund. More information about how to complete the form is available online at www.irs.gov.

AD BRINGS BAUCUS' TAX MISTAKES TO LIGHT

WASHINGTON, D.C. - Embarrassingly for Senate Finance Committee chair Max Baucus, D-Mont., one of the loudest proponents of reducing the tax gap, two mistakes that he made in recent years on his own property taxes have recently come to light.

A political ad sponsored by the Montana Republican State Central Committee has brought to light local property taxes in both Washington and Montana that tripped up Baucus.

The senator underpaid his tax bill on his $1.4 million Georgetown house from 2003 to 2005 because of a computer error by city tax collectors, according to property records. Tax assessors incorrectly gave him a credit on his property tax bill that should only apply to those who claim a property as their primary residence (Baucus's main residence is in Montana). When the city realized the error, Baucus had to pay the $5,625.72 in back taxes within 30 days, according to published reports. The senator paid the back taxes, but not until accruing another $500 in penalties and interest for being late with that payment.

The other tax problem involves Baucus' purchase of his childhood home from a brother. The two men agreed to split the tax payments, but there was some confusion over who would make the first payment of $1,650. Because of that misunderstanding, the bill was paid a few weeks late and Baucus was charged $60.36 in penalties and interest.

A spokesman for Baucus said that the problems were honest mistakes.

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