Practice management

Congress left town without passing a number of tax breaks that expired at the end of 2005 -- among them the option to deduct state and local sales taxes in place of state income tax, a deduction for college tuition and fees, the deduction for school teachers, and a research and development credit for business.Although the breaks themselves are not controversial, and leaders of the Senate Finance Committee pushed for their enactment before Congress adjourned, the breaks became mired in political infighting when they were attached to “trifecta” legislation that would have included an increase for the minimum wage and a slash in estate tax rates.

In the wake of yet another governmental gaffe involving the mishandling of private records -- the Commerce Department announced last month that it had lost about 4 percent of its laptops over the course of the last five years -- a federal report says that the Internal Revenue Service could do a better job with its own controls.

The chairman of the House Ways and Means Committee has asked for information on the NCAA’s finances -- suggesting in the process that he might next be questioning the association to justify its tax-exempt status. "Most of the activities undertaken by educational organizations clearly further their (tax) exempt purpose," Rep. Bill Thomas, R-Calif., wrote in a letter to NCAA president Myles Brand. "The exempt purpose of intercollegiate athletics, however, is less apparent, particularly in the context of major college football and men's basketball programs." Specifically, Thomas asked for information on the NCAA’s television contract, the salaries of coaches, school sports facilities and total annual revenues and expenditures for Division I-A football programs and Division I basketball programs. He requested a response by the end of this month. Since 2004, the Ways and Means committee of Representatives has been conducting a broad review of the tax-exempt sector -- already looking into the tax-exempt status of nonprofit hospitals and credit unions among others. The NCAA's projected 2006-07 budget anticipates nearly $563 million in revenue, most from its TV contracts. More than half that figure is distributed to member leagues and schools, through student-athlete welfare, academic-enhancement and other programs. The remainder is paid according to the success of schools in the annual NCAA men's basketball tournament. Thomas notes in his letter that the annual returns filed by the NCAA with the IRS states that the primary purpose of the NCAA is to "maintain intercollegiate athletics as an integral part of the educational program and the athlete as an integral part of the student body,” and goes on to obliquely question college athletics' connection to higher education.

The leaders of the Senate Finance Committee have asked the Government Accountability Office to take a closer look at the Pension Benefit Guaranty Corp., which insures the private pension plans for millions of workers.

Television viewers may know of The Amazing Kreskin, an entertainer who performs breathtaking mental feats that he says utilizes abilities we all have.

This week, the Tax Technical Corrections Act of 2006 was introduced in both houses of Congress. The legislation will essentially serve to cross the T’s and dot the I’s to several pieces of already-enacted legislation, clarifying definitions and refining certain timelines. Ways & Means Committee Chairman Bill Thomas, R-Calif., sponsored the bill in the House, while Finance Committee Chairman Charles Grassley, R-Iowa, and ranking member Max Baucus, D-Mont., did the same in the Senate. Among others, the bill would make changes to:

The Internal Revenue Service has launched its much-anticipated Income Verification Express Service or IVES, a program offering immediate electronic delivery of client tax and income information to financial lenders such as mortgage companies.

Just one week after the Treasury Department released a report on its strategy for closing the $300 billion tax gap, the ranking minority member of the Senate Finance Committee labeled the plan “incomplete” and not credible.Sen. Max Baucus, D-Mont., said he would continue to hold up the nomination of Eric Solomon as the assistant Treasury secretary for tax policy.

Several more 2007 Toyota models have been certified by the Internal Revenue Service to qualify for the hybrid tax credit enacted by the Energy Policy Act of 2005.

During the past 15 years, I have had the opportunity to read and analyze nearly 150 partnership agreements, and it always amazes me how outdated and inadequate so many of them are.There are basically two major reasons for this. First, many firms just fail to give adequate attention to their partnership agreements. Second, over the years, the firm may have modified its original agreement or made separate agreements as new partners entered, and these agreements are significantly different from one another. None of the agreements have been consolidated into one current agreement.

H&R BLOCK, BANK REACH $39M SETTLEMENT: Tax prep giant H&R Block Inc. announced that a federal judge has approved a $39 million settlement of a class-action lawsuit brought by customers over the company's refund anticipation loans. The U.S. district court judge approved the settlement, the group's third effort to reach an agreement in the suit, which has dragged on since 1998. Block and co-defendant Beneficial National Bank - now owned by London-based HSBC - will split the payment.The lawsuit is one of several alleging that Block failed to disclose high costs and other features of RALs made to more than 17 million clients over a 13-year period.

Tax advisors are likely to hear from potential clients seeking advice on how to "re-enter" our tax reporting system.The reasons for failing to file tax returns vary with the client: the stress of a divorce or bankruptcy, ignorance of U.S. tax laws, or willful negligence. Similarly, the strategies for handling these cases should vary, considering the potential criminal, as well as civil, ramifications of a client's failure to file timely returns.

Deductible individual retirement accounts and Roth IRAs have been an attractive part of a retirement portfolio - if a taxpayer qualified for their use. The problem was that various income eligibility limits prevented many from taking advantage of IRAs.Nondeductible IRAs were generally available, but were often viewed as unattractive, since they offered only tax deferral on earnings - they offered no upfront deduction and required taxation at ordinary income rates on distribution and mandatory distributions starting at age 70-1/2.

In consideration of the continuing impact of Hurricane Katrina, the Internal Revenue Service has further postponed filing and payment requirements for businesses until Oct. 16, 2006, which is the same deadline established earlier for certain individual filers.The postponement now applies to individual, corporation, partnership, estate, trust, S corporation, generation-skipping, employment and certain excise tax returns with original or extended due dates that fall on or after Aug. 29, 2005, but before Oct. 16, 2006.

The Taxpayer Advocacy Panel has sent the Internal Revenue Service recommendations for easing taxpayer burdens in five areas.In a 12-page report dated Aug. 18, the panel made the following suggestions:

To divine the true meaning of a gap, I usually need to go beyond calculating the difference between my gross pay and net pay on the 15th and 30th of each month.That my friends, is Webster’s unabridged definition of a gap.

The share of income taxes paid by the top half of taxpayers reached its highest level in decades according to a report from the Joint Economic Committee.

A slow response to a Freedom of Information Act request has lead the L.A. Gay & Lesbian Center to sue the Internal Revenue Service. The center said that the documents requested in March 2005 are related to the rejection of its application for non-profit status in the early 1970s. In the court filing, the center accuses the IRS of attempting to “cover up its misconduct,” while chief executive Lorri Jean has said members are interested in reviewing the documents as a historical exercise. In October 2005, the center said it had received a written response to its information request from the IRS, which said that the documents had been located and were being reviewed by the IRS Office of Collection Policy. Since then, the center has not received any updates on its request. According to the center, then operating as the "Gay Community Services Center," it was the first organization with the word "gay" in its name to apply for non-profit status from the federal government. That application was rejected on the grounds that the center was not "organized and operated exclusively for charitable and educational purposes." Following several appeals, the IRS eventually awarded the center non-profit standing in August 1974, but included a number of caveats -- including that the center would not "contend that homosexuality is normal" and that the center's officers and directors not be “avowed homosexuals." Among the documents requested on behalf of the center are all records analyzing, discussing or considering its original 501(c)(3) application; a copy of the original IRS denial letter; all records in conjunction with the original denial letter; and all records in conjunction with the later IRS approval letter. The lawsuit requests that the court order the IRS to produce the requested records, provide a detailed explanation of why the requested documents were withheld and reimburse the center for its legal fees.

Two months after a senator said he would hold up Treasury appointments until the department provided a comprehensive plan to close the tax gap, the Treasury Department has issued a report titled, “A Comprehensive Strategy for Reducing the Tax Gap.”

More than 12,500 of the nation’s largest corporations electronically filed their 2005 corporate tax returns, according to the Internal Revenue Service. Large corporate taxpayers, defined as having $50 million or more in assets and filing at least 250 returns, were required to e-file for the first time beginning with their 2005 tax returns. Sept. 15, 2006 was the extended deadline for filing those returns. In total, more than half a million corporate tax returns were filed electronically, most on a voluntarily basis across a wide array of industries. Based on feedback from external groups, the IRS designed corporate e-file to be flexible enough to accommodate the various needs of large business filers, such as allowing transition rules during the first year. In a statement, the IRS noted that many business taxpayers used commercial software to prepare their returns, with about 400 taxpayers transmitting the return themselves. The agency hopes that electronic filing will allow the IRS to shave many months off of the audit process while allowing examiners to develop analytical tools to better select areas of audit inquiry. The electronic filing requirements will be expanded to include 2006 tax year returns of corporations with $10 million or more in total assets that file 250 or more returns a year. E-file has been available to corporations since 2004.