GAO SAYS CHALLENGES REMAIN IN IRS FINANCIAL CONTROLS: While the Internal Revenue Service has made "great strides" in addressing financial management challenges and internal control deficiencies, a report from the Government Accountability Office stated that the service still faces substantial hurdles in that area.Citing audits of the IRS's 2004 and 2005 financials, the GAO report said that the service had to rely heavily on "resource-intensive compensating processes to prepare its financials," as a result of its inability to maintain effective internal controls.

Over 2005, the IRS implemented its new Integrated Financial System, which is designed to provide improved audit trails and more up-to-date information on such activities as travel, goods and services purchases, and budgeting. However, the GAO said that the service has lapsed on such issues as revenue collections and information security. The investigative arm of Congress said that it would monitor the IRS's progress in implementing 84 recommendations that remain open that the GAO had proposed during prior audits.

IRS ISSUES E-FILE GUIDANCE FOR CORPORATIONS, TEOS: The Internal Revenue Service has issued Notice 2005-88, which explains steps that large corporations and tax-exempt organizations can take to seek waivers from electronic filing requirements.

The notice establishes that taxpayers can generally request waivers from the electronic filing requirement where the taxpayer can't meet the requirements due to technology constraints, or where compliance with the requirements would result in undue financial burden on the taxpayer.

For tax years ending on or after Dec. 31, 2006, the electronic filing requirement will be expanded to include the tax year 2006 tax returns of corporations and tax-exempt organizations with $10 million or more in total assets.

In addition, private foundations and charitable trusts will be required to electronically file their Form 990-PF, regardless of asset size. Corporations and tax-exempt organizations outside of announced parameters may voluntarily electronically file.

IRS QUESTIONS CALIFORNIA CHURCH'S EXEMPT STATUS: In early November, Rector J. Edwin Bacon told parishioners at the All Saints Episcopal Church in Pasadena, Calif., that the Internal Revenue Service was examining the church for a possible violation of its nonprofit status.

According to the IRS, the investigation is due to an antiwar sermon delivered by a former rector, George Regas, on the weekend before the 2004 election. In the sermon, which Regas prefaced by saying that he didn't intend to tell anyone how to vote, Regas imagined a debate between Jesus and candidates George W. Bush and John Kerry, and rebuked President Bush for the war in Iraq. The IRS has said that the sermon might have violated the ban on campaign intervention by nonprofits, including churches. The tax code bars nonprofits from endorsing or campaigning against candidates in an election.

The church has hired lawyers and will defend its own case. The investigation of All Saints is part of a yearlong investigation by the IRS into 100 nonprofit groups accused of promoting political candidates. The church is one of California's largest.

BAIL DENIED TO FORMER KPMG EXEC: Bail was denied to one of the former KPMG partners charged by the government in connection with the sale of allegedly fraudulent tax shelters. Called a flight risk by federal prosecutors, David Greenberg was the only defendant to be arrested by authorities. He has also been accused of falsifying documents, coaching a co-conspirator to lie to investigators, and misleading investigators about whether he had surrendered all his passports. If convicted, Greenberg could face more than 25 years in prison.

U.S. District Judge Lewis A. Kaplan said that he believed that Greenberg, 46, had expressed an intention to flee in the event of an indictment, and would have financed his flight with assets he placed in accounts created under his ex-wife's and father's names. While Greenberg's lawyer disputed the allegations, Kaplan pointed to Greenberg's 2004 formation of a limited liability company that now holds more than $11 million.

In October, a New York federal grand jury charged 19 defendants in the case with at least 39 counts of tax evasion and a single count of conspiracy to defraud the Internal Revenue Service. Earlier, KPMG agreed to pay $456 million to avoid prosecution over its sale of abusive tax shelters.

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