Practice management

A company's obligation to a worker for federal tax purposes depends primarily on whether the worker is an employee or an independent contractor, according to G. J. Stillson MacDonnell, a shareholder at the national labor and employment law firm of Littler Mendelson. "There is no other option," she said.While independent contractor status provides benefits to companies and individuals, it draws hostility from the Internal Revenue Service and state tax agencies, she said.

The Internal Revenue Service announced a formula allowing businesses and tax-exempt organizations to estimate their federal telephone excise tax refunds.In May, the government announced that it would stop collecting the federal excise tax on long-distance telephone service beginning Aug. 1, 2006, and provide refunds for taxes billed after Feb. 28, 2003.

Tax strategies don't just come from nowhere. They arise out of necessity and typically are reactive, constructed as work-arounds to avoid certain tax pitfalls or to meet certain rules. Viewed from this perspective and appropriate to the start of a New Year, we offer our list of the Top 10 tax developments of 2006 that will shape tax strategies in 2007.* No. 1: The IRS's use of the economic substance doctrine. Under the economic substance doctrine as adroitly used by the Internal Revenue Service Chief Counsel's Office in the Coltec case, Black & Decker and other tax-shelter-related litigation, a tax strategy can conform to the letter of the Revenue Code, yet fail to win the desired result.

The Internal Revenue Service officially began its 2007 filing season on Thursday, making note of new developments, including telephone excise tax refunds, a new refund deposit feature and recently enacted tax breaks that may require extra attention.

Senators Max Baucus, D-Mont., and Chuck Grassley, R-Iowa, introduced legislation on the first day of the 110th Congress to repeal the individual alternative minimum tax beginning in the 2007 tax year.It’s just the most recent attempt the men have made to get the legislation passed. Congress has taken to patching the AMT one year at a time -- six years in a row -- usually by increasing the exemption amount. According to the Joint Committee on Taxation, in 2007 the patch will cost about $50 billion and hold the number of affected taxpayers at close to the 4 million taxpayers affected this year. Without a patch, about 23 million households would have been affected by the AMT.

The card was not all that unusual. "With all the best wishes for the New Year." But the postmark was.

Rep. Barney Frank said that wage inequality among U.S. workers is his No. 1 priority as he prepares to take over chairmanship of the House Financial Services Committee this week.In a speech at the National Press Club, Frank, D-Mass., said that he will hold hearings about wages over the next two years in an attempt to address the gap between economic growth and workers' wages.

Two unmarried taxpayers can exclude gain from the sale of their home -- even though they fail the two-year ownership and use tests of the tax code -- because the primary reason for the sale was an unexpected pregnancy.In a Dec. 29 letter responding to a ruling request, the Internal Revenue Service said that a pregnancy meets the “unforeseen circumstances” exclusion outlined in Section 121(a)(c)(2) of the code.

The Internal Revenue Service recently issued a notice outlining how individuals and businesses can obtain refunds and credits on their 2006 returns of the long-distance telephone excise tax.

For taxpayers with income at or below certain levels, the Internal Revenue Service announced that user fees for payment-installment agreements will hold steady in 2007.

After four months, the Securities and Exchange Commission has already revisited its rule on disclosing executive compensation.In a statement issued Dec. 22, SEC Chairman Christopher Cox said that the new requirements will make it easier for companies to prepare statements and for investors to understand the cost of stock options.

With the Tax Relief and Health Care Act of 2006 now signed into law, the Internal Revenue Service has rolled out guidance to help taxpayers filing in 2007 claim the extended deductions and other tax advantages contained in the act.

For a government agency with such a bad rap in popular culture, the Internal Revenue Service performed well in a recent survey asking taxpayers to comment on customer service levels.

The thoroughness of Internal Revenue Service enforcement efforts for the nation’s largest corporations, measured by the number of hours devoted to each audit, has substantially declined since Fiscal 2002, according to data obtained by the Transactional Records Access Clearinghouse.

The Internal Revenue Service is lifting a moratorium on determination letter applications for conversions from traditional defined benefit pension plans to so-called cash balance plans.

Derrick Kinney is one of the most charming people on the face of the earth. He is also recognized as one of the nation’s leading authorities on helping small business owners, entrepreneurs, and the self-employed succeed with the affluent. Moreover, he is the author of the bestselling "Master the Media to Attract Your Ideal Clients."

As expected, President Bush signed a massive bill that would extend expiring tax, health and trade legislation.

Once again Congress has amazed me in how it handles tax legislation. It should come as no surprise because I have been reporting on tax legislation for over 30 years, but Congress still makes it much more difficult for taxpayers, practitioners, and tax prep software providers than it has to be. Congress, rather than passing the “Tax Relief and Health Care Act of 2006” just before it adjourned last week, could have done so at the beginning of 2006. But in reported attempts to pass other unrelated legislation, the tax provisions supported by both sides of the aisle were tacked onto controversial legislation. When those proved unsuccessful, the tax provisions eventually were separated from any controversial legislation and the “Tax Relief and Health Care Act of 2006” was passed last week. Here is explanation of the ramifications of the delay by Senator Baucus on the floor of the Senate: “Congress's delay in extending these tax provisions caused uncertainty. And the delay until now will have real consequences for taxpayers. Just this week, I received a report of the contingency plan at the IRS for the 2007 filing season. The IRS identified about 60 tax forms and products that will be affected by this delay. “The Form 1040 has already gone to the printer. That happened back in November. More than 120 million taxpayers use that form. The IRS will not reprint those forms. “The IRS expects taxpayer confusion. The IRS expects more phone calls to the IRS with questions. The IRS expects delays in filing. The IRS expects incorrect returns. And the IRS expects more amended returns. “Further, the IRS will need at least six weeks to reprogram its systems to accommodate the changes. It is simply too late for the IRS to implement the 2007 filing season on time. This means delays in starting to process and issue refunds. And it means money. It may cost the IRS millions in additional costs because of our delay. And the cost to taxpayers could be even greater. “In September, I brought a display of the draft Form 1040 for next year. Already, the classroom teachers' deduction and the college tuition deduction were gone. Millions of families that normally take those deductions, and other popular incentives like the state sales tax deduction, will wonder why those lines no longer appear on the Form 1040. And, unless taxpayers are willing to get on the Internet and search, they may never know that we extended these incentives in the nick of time.” Tax prep software providers will face similar problems in rushing modifications to the programs for the 2006 tax year. This reminded me of tax legislation that came down many years ago right after Christmas. Tax practitioners had only to end of the year to advise some of their clients of what to do to take advantage of a tax benefit added by the legislation. This time of the year is hard enough for those with a vested interest in the tax season, whether it be the IRS, tax practitioners, tax prep software providers, or taxpayers, Congress seems to have no qualms about making it more difficult, expensive, and frustrating for those interested parties or adding greatly to the possibility that taxpayers will not take advantages of tax benefits because they aren’t listed on tax returns where they are supposed to be and could easily have been put. Will Congress act any differently in the future? I think you know my answer based on 30-plus years of observation.

Though revenues from the U.S. Government rose 12 percent over fiscal 2006, to $2.4 trillion, the future costs for social insurance programs such as Medicare and Social Security will be trillions more than initially projected.

Tax research and products provider RIA, a Thomson business, has upgraded its proprietary Checkpoint service, adding a research tool that can be used for tax and auditing simultaneously.The "bridge" comes in the form of RIA sister company PPC's e-Practice Aids, Microsoft Word and Excel versions of all of the editable practice aids in the related PPC Guide, including those from WG&L, and materials from the Securities and Exchange Commission.PPC's e-Practice Aids work with paperless engagement software or with Word and Excel."One thing we heard from our customers, tax people were saying 'There was a reason we work in taxes, because we didn't want to do auditing'" said Ron Burkett, RIA's director of product management, in response to Sarbanes-Oxley. "It helps them bridge over to something they may not be that familiar with."Checkpoint is featuring a series of other enhancements as well, including a customized home page capability, which allows users to customize their research platform by selecting from a list of predefined views including accounting and auditing; corporate finance; tax; and estate and retirement planning, and decide their significance. In addition, users can create their own home page by selecting the content panes based on content they subscribe to that best fits their research needs. For more information about Checkpoint, visit http://ria.thomson.com or call (800)-950-1216.