IRS OPENS 2006 FILING SEASON: The Internal Revenue Service sent out 17.7 million 1040 tax packages during the first week of January to taxpayers who have previously filed paper returns. The number of paper tax booklets being mailed to Americans continues to decline as more people opt for electronic filing.The IRS expects to process about 135 million individual tax returns in 2006 and to see continued growth for its e-filing service. The agency passed a milestone last year as more than half the nation's taxpayers filed their tax returns electronically.
New features for the service's Web site, www.irs.gov, in 2006 include:
* EITC 1040 Central. A section of the site where key forms, information about what's new in the tax code and answers to frequently asked questions are located.
* Free File. A service from the IRS and a consortium of tax software manufacturers that provides free tax preparation software and e-filing to individuals who earn approximately $50,000 or less.
* The Alternative Minimum Tax Assistant. The AMT Assistant is intended to provide a simple test for taxpayers who fill out their tax returns without using software. Similarly, the Earned Income Tax Credit Assistant helps determine an individual's eligibility for the tax credit.
* Hurricane Assistance Information. The IRS has established a toll-free number for hurricane victims, (866) 562-5227. There are also numerous tax law changes for victims of Hurricanes Katrina, Rita and Wilma, businesses located in the disaster areas and individuals donating to charities helping the victims.
This year, tax returns must be filed by April 17, 2006, because the traditional date of April 15 falls on a weekend. Some taxpayers living in the Northeast - Maine, Maryland, Massachusetts, New Hampshire, New York, Vermont and the District of Columbia - will have a filing deadline of April 18 because of a state holiday in Massachusetts where the IRS has a processing facility.
REPORT SAYS TAX COMPLIANCE COSTS 22 CENTS ON THE DOLLAR: A new study out of the Tax Foundation estimates that complying with the federal income tax code during 2005 cost U.S. taxpayers about $265 billion.
Scott Hodge, president of the Tax Foundation and co-author of the study, said that figure amounts to about 22 cents in overhead costs for every dollar of income tax collected. For 2005, the $265 billion compliance burden represented over 6 billion hours spent by individuals, businesses and nonprofits complying with the federal income tax code. Projections show that by 2015, the compliance cost will grow to $482.7 billion, or an inflation-adjusted $405.8 billion.
The authors of the study said that the burden estimate is cautious and excludes many costs, such as the productive value people may have added to the economy if they had been working instead of filling out forms, or the time that taxpayers disputing their bills spend in litigation.
The nonprofit Tax Foundation has monitored tax policy at the federal, state and local levels since 1937. The report is available at www.taxfoundation.org/publications/show/1281.html.
IRS REVOKING EXEMPTIONS OF CREDIT COUNSELORS: The Internal Revenue Service has revoked the tax-exempt status of more than 30 credit-counseling firms, which collectively account for more than half of the industry's revenue. The agency began its audits of more than 60 credit-counseling firms two years ago, after consumers complained about deceptive business practices - such as high fees, pressure tactics and inadequate educational services. About half of the industry's funding comes from banks and credit-card issuers that pay the counseling firms a percentage of money recovered through repayment plans. Currently, most banks require counselors to be tax-exempt to receive the funds. It is unclear whether the large national credit-counseling firms that are currently advising thousands of debtors a month could be affected.
New bankruptcy laws that went into effect on Oct. 17 require consumers to go through credit counseling before being eligible to file for bankruptcy, and the IRS's audits have raised questions of whether enough court-approved counseling firms will be available to debtors. The Justice Department's U.S. Trustee Program, which oversees the nation's bankruptcy courts, is developing a list of firms that it has approved to provide the education and counseling required by the new law.
