TAX COURT RULES FOR EMBEZZLER'S HUBBYWASHINGTON, D.C. - The U.S. Tax Court has ruled in favor of a taxpayer, David Billings, who asked to be relieved from liability for the tax owed on money that his wife embezzled from her employer without his knowledge.

The court had originally declined to rule on the case, saying it was outside its jurisdiction. Billings appealed, and while his appeal was pending, Congress amended the Tax Code to give the court jurisdiction over cases like his.

Billings married his wife Rosalee in 1996. They kept two checking accounts. Both accounts were jointly held, but each spouse kept almost exclusive control over their own account. In 1999, she transferred money from her employer's payroll account into her checking account. Her embezzlement continued until 2000, but she kept it secret from her husband until she was caught. Her lawyer advised her to file an amended return, as he believed a judge would be inclined to be more lenient if she took responsibility for her actions. Her husband signed the amended return, which showed a tax increase of $16,000. The couple filed for bankruptcy, but even though they received a discharge, the IRS still insisted they pay the tax.

Billings retired and asked for innocent spouse relief from the Internal Revenue Service for joint liability for the unpaid tax. The IRS denied his request, he appealed, was denied again, and then took his case to U.S. Tax Court.

IRS DIDN'T PROVE 'SAVINGS'

WASHINGTON, D.C. - The Internal Revenue Service received a double barrel of criticism from Treasury Department watchdogs for not validating the amount of savings that it claimed it would be generated by various taxpayer service projects, and for laxness in security.

The Treasury Inspector General for Tax Administration issued two reports on the IRS's shortcomings. In one report, the TIGTA said that the IRS had estimated it would achieve more than $160 million in savings on taxpayer service in fiscal 2006 and 2007 from various re-engineering and improvement projects, as well as from efficiency initiatives.

But the TIGTA complained that neither the estimates nor the achievements could be validated or supported. The report warns that when budget savings are estimated without an adequate analysis of the effect on the level of taxpayer service, the budget may not provide enough resources to offer sufficient service.

In the other report, the TIGTA chided the IRS for lax security procedures, echoing another recent report that faulted IRS employees for changing their passwords at the behest of unauthorized callers. The new report criticized employees for not safeguarding their laptop computers, not encrypting the data on their computers, and ignoring IRS policies on the use of e-mail.

THOMPSON WANTS TAX OVERHAUL

HOUSTON - Potential Republican presidential candidate Fred Thompson has indicated that he would be willing to support an overhaul of the Tax Code called the FairTax, which would replace income and payroll taxes with a national retail tax.

In a letter to Americans for Fair Taxation, Thompson wrote, "We share the same belief that the next president should enact a fundamental overhaul of the Tax Code that makes it fairer, simpler and more pro-growth." He added that the "principles and ideas found in the FairTax are a good place to start." While he stopped short of endorsing the approach completely, Thompson signaled his willingness to revamp the Tax Code. Several Republican presidential candidates have also spoken favorably of FairTax proposals, as has one Democratic candidate, Mike Gravel.

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