IRS ISSUES SPRING '06 SOI BULLETIN: The Internal Revenue Service announced the release of its Spring 2006 issue of the Statistics of Income Bulletin. For the first time, the bulletin takes a detailed look at individual non-cash charitable contributions. The bulletin also includes information about high-income individual income tax returns for the 2003 tax year, S corporation returns for 2003, split-interest trusts for the 2004 filing year, controlled foreign corporations for the 2002 tax year, and the accumulation and distribution of IRAs for both the 2001 and 2002 tax years.For Tax Year 2003, individuals reported non-cash donations valued at $36.9 billion. Of these donations, corporate stock was the largest type, with 37.2 percent of the total value deducted. The average value of these stock donations was $79,279 per return. The largest number of donations reported was for clothing, representing 48 percent of all donations. Foundations were earmarked as the recipients of more than 30 percent of donations. Also, in the 2002 tax year, individual income taxpayers contributed approximately $42.3 billion to IRAs, representing an 18 percent increase over 2001 contributions. More than $204 billion flowed into IRAs during 2002 as rollovers, up from $187 billion in 2001 and most coming from employer-sponsored plans, such as 401(k) plans. Another $3.3 billion was converted from traditional IRAs into Roth IRAs.

In spite of the increase in funds contributed into IRAs for 2002, their year-end market value fell from just over $2.6 trillion for 2001, to just over $2.5 trillion for 2002.

Information on receiving the complete bulletin is available at www.irs.gov.

IRS SAYS LACK OF PROGRAM COSTS GOVERNMENT UPWARDS OF $200M: The failure to get a revamped computer program online to screen for fraudulent 2006 tax returns will cost the federal government between $200 million and $300 million, the Internal Revenue Service has estimated.

Contractor Computer Sciences Corp. had promised to deliver a new version of the screener program, which has searched for signs of fraud in every return claiming a refund since 1996. When the firm was unable to produce a working program by the January deadline, the IRS couldn't restore the old program in time for April 15.

The agency said that it has stopped just 34 percent of the fraudulent refund claims that it had caught by this time last year. IRS Commissioner Mark Everson has said that he is reviewing options with the contractor, and has punished or fired agency employees responsible. The contractor has already been told to stop work on the new Web-based program, which carries a $21 million price tag, and restore the old system before next year's returns begin to be filed.

The ranking members of the Senate Finance Committee, Charles Grassley, R-Iowa, and Max Baucus, D-Mont., heavily questioned Eric Solomon, the president's nominee for assistant Treasury secretary for tax policy, about the problems with the redesign of the electronic fraud detection system in late July. An investigative report on the matter is due soon from the Treasury Inspector General for Tax Administration.

Grassley accused the IRS of failing to appreciate the risks of the new system or properly fund the project from the outset - resulting in a lack of oversight and allowing for inaccurate reporting by the contractor throughout the entire process.

EMPLOYER INCENTIVES FOR HYBRIDS ARE TAXABLE: The Internal Revenue Service has ruled that employer incentives encouraging their employees to purchase environmentally friendly hybrid cars are considered taxable compensation. The agency said that several companies have reportedly been offering rebates or cash incentives to employees in certain regions to offset the purchase price of the vehicles. Similar to other forms of compensation, these cash incentives will be considered taxable compensation by the government.

Employers should include the cash incentive amounts in employees' compensation reported on Form W-2 earnings statements. The incentives are also subject to income tax withholding and employment tax. The Tax Code only provides an exclusion from income for employee discounts if the employer produces the product and certain other requirements are met.

The Tax Code already includes incentives for the purchase of hybrid cars. The Alternative Motor Vehicle Credit applies to vehicles purchased on or after Jan. 1, 2006, and it may be worth as much as $3,400 for purchases of the most fuel-efficient cars.

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