IRS TO CHALLENGE CERTAIN S CORP AND EXEMPT ENTITY TRANSACTIONS: The Internal Revenue Service said that it intends to challenge certain transactions involving S corporations and tax-exempt entities, such as charities, that improperly shift taxation away from S corporation shareholders. In Notice 2004-30, the IRS declared that these abusive transactions are considered “listed transactions.” Participants in a listed transaction must disclose their participation, and promoters must keep lists of investors and, in certain cases, register the transactions with the IRS.
This notice is the first time that the IRS has exercised its authority under the tax shelter regulations to specifically designate a tax-exempt party as a “participant” in a tax avoidance transaction.
“The participation of tax-exempt entities in these abusive transactions is a worrisome trend,” said IRS Commissioner Mark W. Everson. “We are acting today to ensure the integrity of our charities.”
The IRS said that it will amend Form 8886, Reportable Transaction Disclosure Statement, to require parties filing the form to identify the names of all parties to a listed transaction, including any tax-exempt parties that facilitate the transaction.
GRASSLEY, BAUCUS PETITION IRS, TREASURY: Sen. Charles Grassley, R-Iowa, chairman of the Senate Finance Committee, and Sen. Max Baucus, D-Mont., the ranking minority member, have petitioned the Internal Revenue Service and the Treasury Department to supply the names of various charities and tax-exempt organizations that have purchased tax shelter products.
The senators’ request comes on the heels of the release in early April of Notice 2004-30, which identifies improper transfers of taxation from S corporations to tax-exempt entities.
Grassley and Baucus have asked the IRS to provide the committee a listing of tax-exempt entities that have participated in transactions such as those described in the notice.
TAXPAYERS WANTED FOR IRS PANEL: The Internal Revenue Service is looking for civic-minded taxpayers to serve as members of a volunteer panel aimed at helping the agency improve customer service.
The Taxpayer Advocacy Panel — which was established in 2002 as a way of improving IRS responsiveness to taxpayers’ needs — makes recommendations on customer-service issues; identifies and prioritizes taxpayer issues; reports annually to the Treasury and the National Taxpayer Advocate; participates in meetings where taxpayers are invited to raise issues about their IRS experiences; and refers taxpayers who contact the panel to the IRS offices best able to address their issues.
TAP members serve a two-year term. To qualify as a TAP member, applicants must be U.S. citizens and be able to commit about 300 hours during the year to the panel. In addition, they must be current with their tax obligations and pass a criminal background check.
Applications are available at
E-FILE LAUNCHED FOR CORPORATIONS, EXEMPT ORGS: Charitable organizations and most corporations can ditch paper returns — for the first time, corporations and tax-exempt organizations can file Forms 1120 and 990 electronically, the Internal Revenue Service announced.
The release of the new electronic filing system is the first Extensible Markup Language-based system that the IRS has used to receive tax returns over the Internet. The new system provides corporations and tax-exempt organizations the option to transmit tax return data using a secure Internet connection in place of a modem.
Taxpayers and tax professionals can prepare the returns using IRS-approved software. The returns are then transmitted to the IRS through a secure Internet site that is accessible only to registered users. Practitioners will have the ability to attach PDF documents to returns and, in future releases, will be able to file federal and multiple-state returns in a single electronic transmission, the IRS said.
