SUIT FILED AGAINST PLANS TO REIMBURSE PHONE TAX: A class-action lawsuit has been filed challenging the Internal Revenue Service's plan to reimburse taxpayers for their past three years' worth of long-distance phone taxes.The lawsuit claims that small businesses and low-income taxpayers will be shortchanged, or completely excluded, from the refunds.

In May, the Treasury Department conceded a legal dispute over the tax, after five federal appeals courts upheld rulings that the 3 percent federal excise does not apply to long-distance service as billed today. As part of that concession, the government announced that it would officially end the tax on July 31, and taxpayers would be eligible to file for refunds of all tax, plus interest, that they have paid on long-distance service billed to them after Feb. 28, 2003.

The Treasury Department said that about $13 billion will be refunded, while IRS Commissioner Mark Everson said that the process of obtaining a refund would be "simple and fair." No estimates of how much the average phone customer might receive have been offered.

The lawsuit said that many senior citizens and other phone customers wouldn't be able to collect a refund because their income is so low that they don't file tax returns. A study by the nonprofit Center on Budget and Policy Priorities said that more than 10 million households could be left out of the rebate program. Attorneys also argue that consumers should be entitled to refunds covering most of the past decade, not just the past three years. The Bush administration has asked the court to dismiss the suit.

WAYS AND MEANS CHAIR CRITICIZES IRS CONTRACTOR: The chairman of the Ways and Means Committee, which oversees the Internal Revenue Service, has urged the agency to reconsider its contracts with Computer Sciences Corp. Rep. Bill Thomas, R-Calif., wrote a letter to Treasury Secretary Henry M. Paulson Jr. complaining that the agency paid Computer Sciences more than $18 million over the course of two years for a revamped screening system that is still not in place. Worse, the IRS recently announced that because not even the old system was online for tax returns filed in 2006, the government had not caught an estimated $200 million to $300 million of fraudulent returns.

"Despite these failures, the IRS continues to contract with this company," Thomas wrote. "A four-month investigation by this committee has uncovered incompetence at all levels."

Computer Sciences declined to comment on Thomas' letter.

In August, the IT services company announced that more than a third of its $3.5 billion in first-quarter sales had come from its federal government unit.

Thomas said that he found CSC's involvement in the failure particularly troubling because of the company's role as the primary contractor responsible for the IRS's business systems modernization effort. "This effort is still in progress after eight years and expenditures of more than $2 billion," he wrote. "Considering the inability of CSC in this case to deliver a functional product to the government and its inability to provide accurate information to the IRS, it may be an appropriate time to re-examine the dependence of the IRS on CSC and determine whether the federal government is best served by this particular contractor."

CCH TO HELP IRS WITH SALES TAX DATA: The Internal Revenue Service has again selected CCH to provide sales tax information for the 2006 filing period, providing the sales tax data for use by all taxpayers who file a 1040 return.

The information for the IRS tables - which taxpayers use to determine the optional sales tax deduction on their tax return - is derived from numerous CCH workflow tools, including CCH's ZIPSales Database and ZIPSales Database with Taxability, as well as customized research using the CCH Tax Research Network. CCH is a Wolters Kluwer business.

The American Jobs Creation Act of 2004 allows individuals to choose to deduct their state and local sales tax, rather than their state and local income tax, on their federal tax return. Using the IRS tables, taxpayers can determine whether to deduct their state and local sales tax versus their state and local income tax without having the burden of saving all their receipts to tally the sales tax they actually paid. For the 2004 tax year, the first year that the deduction was allowed, about 11 million individuals claimed the general sales tax deduction.

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