IRS MEMO SAYS CALIF. DOMESTIC PARTNERS MUST FILE SEPARATELY: Domestic partners in California must file their federal tax returns separately, despite a 2003 law that extended equal legal rights to registered same-sex couples in the state. A memo out of the Internal Revenue Service's Office of Chief Counsel cites case law from the 1930s and 1940s in which the Supreme Court ruled that community property laws can only be applied to husbands and wives.California is one of nine community property states and, since 1999, has extended certain legal rights of marriage to same-sex couples registered with the state. On Jan. 1, 2005, the state's Domestic Partner Rights and Responsibilities Act went into effect, providing domestic partners with the same rights as married spouses. The act removed a joint tax return provision that required partners to file separate state and federal returns. The IRS memo says that because the act does not "make an incident of marriage by the inveterate policy of the state," registered domestic partners in the state must report all of their income earned from the performance of their personal services.
The IRS memorandum cannot be used or cited as a precedent.
TAX PROTESTER SENTENCED TO 12 YEARS: Tax protestor Irwin Schiff was sentenced to 163 months in prison - including 151 months for tax fraud and an additional year for contempt of court. He was also ordered to pay more than $4.2 million in restitution.
In October 2005, Schiff was convicted in federal district court in Las Vegas of conspiring to defraud the United States, aiding and assisting in the preparation of false income tax returns, filing his own false tax returns, and evading the payment of millions of dollars in back taxes owed.
At trial, the federal agencies said that, beginning in 1995, Schiff aided thousands of taxpayers in filing false federal returns reporting zero taxable income, though the taxpayers did have reportable income. According to a witness, Schiff's Freedom Books business sold more than $4.2 million of books and tapes encouraging customers not to pay income tax. The evidence presented at trial also proved that Schiff evaded the payment of more than $2 million in taxes from 1979 through 1985.
This was the third time that Schiff was convicted for federal tax offenses. He has previously served more than four years in jail. Schiff's girlfriend Cynthia Neun and associate Lawrence Cohen were also convicted of aiding and assisting other taxpayers in the filing of false tax returns. Neun was sentenced to 68 months in prison and ordered to pay $1.1 million in restitution, while Cohen was sentenced to 33 months in prison.
H&R BLOCK ADMITS ANOTHER TAX GAFFE: H&R Block Inc. said that a miscalculation of its own state taxes will cost the company about $32 million in back taxes.
The tax prep giant said that it had underestimated its own state effective income tax rate in previous quarters stretching back into 2004 reported earnings. It's the second public tax gaffe in recent memory for Block, which said in an August 2005 filing with the Securities and Exchange Commission that it had overstated net income for 2003 and 2004 by $91.1 million, due mostly to accounting errors.
In worse news, the company also said that its third-quarter net earnings for the fiscal year fell 69 percent to $28.8 million, down from $92.3 million a year ago. Revenues for the quarter did rise 12 percent, to $1.2 billion.
The company blamed a slower start to the tax-filing season than in previous years, but did say that it had contributed to the problem by introducing a new technology that sent an estimated 250,000 customers to rivals. Block introduced a new software distribution system in January that caused persistent glitches, leaving some offices unable to process taxes.
Block also said that some of its third-quarter woes resulted from legal settlement costs related to its early refund program.
BNA NAMES TAX MANAGEMENT MARKETING HEAD: BNA has appointed David Schulbaum as the new director of marketing for its Tax Management Inc. subsidiary. Schulbaum, who most recently served as chief marketing officer for Decision Health/United Communication Group, has nearly 30 years of business-to-business marketing experience. He was also head of publications marketing at the American Chemical Society, served as director of journals marketing for Lippincott Williams & Wilkins, and was vice president of periodicals marketing at Elsevier's Health Sciences Division.
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