IRS ENFORCEMENT PAID OFF LAST YEARWashington, D.C. — The Internal Revenue Service stepped up its compliance activities last year and saw its revenues jump, according to a new report.

The percentage of tax returns examined by the IRS rose nearly 9 percent in fiscal year 2007 compared to fiscal year 2006, while revenue from IRS enforcement activities increased 22 percent to $59.2 billion in the same period, according to a report by the Treasury Inspector General for Tax Administration. The use of liens and levies by the IRS reached a 10-year high last year. Dollars collected on balance-due accounts rose nearly 3 percent last year.

The number of examinations of individual income tax returns has continuously increased since fiscal year 2000. That year, the IRS examined only 617,765 (or one out of every 202) individual income tax returns. In fiscal year 2007, the IRS ramped that up to 1,384,563 (or one of every 97 individual returns).

The picture was more complicated for business tax returns. The number of corporate income tax returns examined (excluding returns for foreign corporations and S corporations) rose by just over 4 percent in fiscal year 2007, following a 1 percent decline in fiscal year 2006. From fiscal year 1998 to 2007, the number of corporate tax examinations fell from 53,648 (one of every 48 returns filed) to 29,664 (one of every 75 returns filed), a 45 percent decline.

During fiscal year 2007, the number of corporate tax returns examined with assets of $10 million and greater decreased by almost 9 percent. However, examinations of the largest corporations (those with assets of $250 million and greater) decreased by nearly 20 percent in fiscal year 2007.


Washington, D.C. — The Internal Revenue Service has withdrawn proposed regulations that would have treated mortgage loans as capital assets and restricted the deductibility of mortgage defaults.

The Treasury Department and the IRS first published the proposed regulations on Aug. 7, 2006, seeking to clarify the circumstances in which accounts or notes receivable are “acquired ... for services rendered” within the meaning of Section 1221(a)(4). The IRS’s proposed regulations would only have allowed mortgage companies to use the losses from mortgage delinquencies to offset capital gains.

The IRS received written comments and held public hearings to discuss the regulations. The withdrawal of the regulations is mainly expected to benefit large mortgage organizations such as Fannie Mae and Freddie Mac, and other holders of defaulted loans.

The IRS said that it will not challenge return reporting positions of taxpayers under Section 1221(a)(4) that apply existing law, and that it would continue to study this area and may issue guidance in the future.


Ocala, Fla. — Actor Wesley Snipes was sentenced to the maximum of three years in prison for failing to file his income taxes.

Snipes was convicted in February on three misdemeanor counts of failing to file his income taxes for 1999, 2000 and 2001, but was acquitted of felony charges.

Snipes apologized for his actions. “I am very sorry for my mistakes and errors,” he said in a statement. “I acknowledge that I have failed myself and others.”

Prosecutors urged Judge William Terrell Hodges to impose the maximum sentence to discourage other tax protesters from following Snipes’ example.

Snipes’ lawyers asked the judge for probation and included letters of support vouching for Snipes’ character from fellow actors Woody Harrelson and Denzel Washington, in addition to Judge Joe Brown and other supporters.

Snipes’ lawyers asked to give the court envelopes containing checks for $5 million to pay his past tax bills, but the judge and prosecutor refused. An Internal Revenue Service agent later accepted the money.

Snipes’ co-defendants also faced sentencing on felony fraud and conspiracy charges. Eddie Ray Kahn, who ran the tax protest organization American Rights Litigators, received a term of 10 years in prison, while Snipes’ accountant, Douglas Rosile, who prepared his tax returns, was sentenced to four-and-a-half years in prison.

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