Tax planning

The Internal Revenue Service said it would begin sending out more than 130 million economic stimulus payments in weekly installments starting May 2, with the distribution schedule based on the last two digits of the recipient's Social Security number.

The Senate has confirmed Douglas H. Shulman as the new commissioner of the Internal Revenue Service.

Sage Software has updated its Sage FAS software with a service update to reflect the economic stimulus package recently enacted by Congress.

There are a lot of very good research tools on the market. But what's available for the small practitioner who needs less than high-powered products?

The ink hadn’t dried on the new economic stimulus bill before federal tax authorities began receiving complaints about vicious new tax rebate scams targeting taxpayers and their accountants.The new flurry of fraudulent activity is directed at taxpayers expecting to receive the rebates of up to $1,200 per couple that Congress voted to send out after the close of this year’s tax filing season.

By the time this column appears, CPAs everywhere are going to be tackling stacks of paperwork for income taxes. This will be true whether they are up to their necks in client returns, or struggling in an audit to reconcile book and tax income in Schedule M.With those pains in mind, it only makes sense that accountants would prefer GAAP accounting for income taxes to be relatively simple.

The Government Accountability Office has issued a report on the Internal Revenue Service's performance so far this filing season, including a prediction that the IRS will lose hundreds of millions of dollars responding to calls about tax rebates.

There are a lot of very good research tools on the market. But what's available for the small practitioner who needs less than high-powered products?

The administration’s budget proposal to conform the penalty standards applicable to preparers and taxpayers has been welcomed by tax professionals concerned about possible conflicts of interest between preparers and their clients.The budget, the administration’s blueprint for legislative proposals, also calls for making permanent the 2001-2003 tax cuts, and offers measures to increase savings and investment and to improve compliance with the tax system. Rather than address Alternative Minimum Tax reform, it proposes a one-year patch to keep the number of taxpayers subject to the tax at around 4 million.

While many Washington observers have called much of the tax revenue side of the Bush administration’s Fiscal Year 2009 budget proposals dead on arrival, this year’s “Blue Book” of Treasury explanations nevertheless remains an important tax-planning tool.It underscores what the Bush administration considers are problems remaining to be solved. As such, they are problems that need to be either addressed or “planned around” in the meantime. Here is our take on some of the highlights in making that determination.

The Senate has voted to extend $340 billion worth of President Bush's tax cuts that were due to expire in 2010, but has rejected extensions of some other tax cuts.

The Internal Revenue Service has issued a notice with procedures for vehicle manufacturers to certify that a fuel cell vehicle meets the requirements for a tax credit. It also provides guidance to taxpayers who purchase certified vehicles regarding what they must do to use the credit. Under the law, the new qualified fuel cell motor vehicle credit is available to purchasers of qualified vehicles. The amount of the new qualified fuel cell motor vehicle credit is based on the weight of the vehicle and on when the vehicle is placed in service. An additional credit may be available for a fuel cell passenger automobile or light truck based on a comparison of the city fuel economy rating of that vehicle with the 2002 model year city fuel economy of a vehicle in its weight class. For fuel cell vehicles that weigh not more than 8,500 pounds, the base credit amount is $8,000 if the vehicle is placed in service on or before Dec. 31, 2009. The base credit amount is reduced to $4,000 if the vehicle is placed in service after that date. The amount of the credit available for heavy vehicles varies from $10,000 to $40,000, depending on the weight of the vehicle. The purchaser may claim a credit for the certified amount for a fuel cell vehicle if it is placed in service by the taxpayer after Dec. 31, 2005, and is purchased on or before Dec. 31, 2014.

The Internal Revenue Service has awarded roughly $9 million in matching grants to low income taxpayer clinics for the 2008 grant cycle, which runs from Jan. 1, 2008, through Dec. 31, 2008. LITCs are organizations independent from the IRS that provide low-income taxpayers with pro bono or nominal fee representation in federal tax controversies with the IRS. The clinics also provide tax education and outreach for taxpayers who speak English as a second language. IRS Publication 4134, Low-Income Taxpayer Clinic List, provides information on local clinics and contains details about the languages each clinic serves in addition to English. Through the LITC program, the IRS awards matching grants of up to $100,000 a year to qualifying organizations. For the 2008 grant cycle, the IRS awarded LITC grants to 154 organizations representing all 50 states, plus the District of Columbia, Puerto Rico and Guam.

One quarter of all individual tax returns so far this filing season are being processed by the Internal Revenue Service's modernized account information computer system. The Customer Account Data Engine, or CADE, has processed 15.1 million individual tax returns through March 7, more than 25 percent of all those processed so far this year by the IRS. The number of tax returns processed this year by CADE has already topped the 11.2 million returns the system handled for all of last year. CADE, which is at the core of the effort to replace many of the agency's aging systems, dramatically speeds up internal IRS processing, permitting taxpayer accounts to update on a daily basis, rather than the older system's weekly basis. The IRS is rolling out CADE in a series of "releases," each improving on and adding to the system capabilities. The current release, launched in January, permits CADE to process certain 1040, 1040A and 1040EZ forms, as well as Schedules C, E and F for Form 1040 and a number of other IRS schedules, such as the Earned Income Tax Credit.

The American Institute of CPAs sent a letter to the Senate Finance Committee prior to its March 12 hearing on estate tax reform urging lawmakers to make permanent changes to the estate tax prior to the current law expiring in 2010.In a letter, the institute reiterated a prioritized series of reforms -- a list that the AICPA had previously sent to Congress in 2005 and again in 2006.

Sen. Max Baucus, D-Mont., chairman of the Committee on Finance, and Sen. Chuck Grassley, R-Iowa, ranking member, have written to several religious ministries to urge cooperation with an earlier information request from Grassley. The ministry inquiry that Grassley launched last November is meant to gauge the effectiveness of certain tax-exempt policies. "This ought to clear up any misunderstanding about our interest and the committee's role," Grassley said. "We have an obligation to oversee how the tax laws are working for both tax-exempt organizations and taxpayers. Just like with reviews of other tax-exempt organizations in recent years, I look forward to the cooperation of these ministries in the weeks and months ahead." Grassley wrote to six ministries in November, asking a series of questions on the nonprofit organizations' expenses, treatment of donations and business practices. The questions were based on presentations of material from watchdog groups and whistleblowers and on investigative reports in local media outlets. One of the six ministries, Joyce Meyer Ministries of Fenton, Mo., has cooperated substantially with his request and provided the requested information. Benny Hinn Ministries of Grapevine, Texas, has indicated a willingness to cooperate and provided answers to five of the 28 questions so far. Representatives for Randy and Paula White of Without Walls International Church/Paula White Ministries, Tampa, Fla., have verbally indicated to Finance Committee staff that they would cooperate. The remaining ministries have not cooperated, citing privacy protections or questioning the committee's standing to request the information. Baucus and Grassley wrote to them on March 11 to describe the committee's jurisdiction and role in determining the effectiveness of tax policy developed by the committee, distinct from the Internal Revenue Service's role, which is to enforce existing law. The three ministries are: Kenneth and Gloria Copeland of Kenneth Copeland Ministries, Newark, Texas; Creflo and Taffi Dollar of World Changers Church International/Creflo Dollar Ministries, College Park, Ga.; and Eddie L. Long of New Birth Missionary Baptist Church/Eddie L. Long Ministries, Lithonia, Ga.

Next year's budget proposals offered by Senate Democrats contain a material increase in spending that is contrary to sound fiscal policy, according to Senator Chuck Grassley, R-Iowa, ranking member of the Committee on Finance. In his opening statement on the Senate floor debate of the Fiscal Year 2009 Budget, Grassley noted that the proposals would raise discretionary spending by 9 percent over last year's spending. "How many Americans got a 9 percent raise? How many American families raised their discretionary household spending by 9 percent? You would think proponents of fiscal responsibility would be looking at spending cuts, not 9 percent increases," he said. The consequences are not merely imposed on high-income taxpayers, according to Grassley. "Low-income folks, including millions of seniors, pay no tax on their dividend or capital gain income," he said. "If this budget stands, even with the Baucus amendment, millions of these low-income taxpayers, especially seniors, will pay a 10 percent rate on capital gains and could pay as high as a 15 percent rate on dividends."

The Internal Revenue Service needs to improve oversight of its process for interpreting tax laws through its published guidance program, according to a new audit publicly released today by the Treasury Inspector General for Tax Administration. The audit, "The Public Guidance Program Needs Additional Controls to Minimize Risks and Increase Public Awareness," examined the process by which the IRS Office of Chief Counsel develops tax guidance, including a pilot guidance program to request and evaluate public submissions before considering changes to existing regulations. The chairman and ranking member of the Senate Finance Committee requested the review after news articles questioned whether the pilot program was putting special interest before the public's interests when developing tax guidance. "We believe the pilot program does not present an increased risk of influence by special interest groups in the selection of guidance projects," TIGTA Inspector General J. Russell George said. "The pilot program did not directly create tax guidance or circumvent existing internal controls." "Although Counsel considers ideas from a wide variety of sources when selecting guidance projects for its annual business plan, it does not track all open projects on the business plan, which could lead to an increased risk of untimely actions, less management oversight, and less public awareness," George added. The audit makes seven recommendations to IRS, including expanding written procedures for developing and monitoring the guidance business plan, issuing more frequent updates to and establishing a reasonable expectation in the Priority Guidance Plan, and improving recordkeeping.

Big Four firm KPMG LLP is offering two Webcasts this week, with one on the potential affect of proposed Treasury Department regulations on contract manufacturing arrangements, and another on recent developments for companies doing business in India. "Proposed Regulations May Affect Taxation of Contract Manufacturing Arrangements" will take place on Thurs., March 13, at 2:00 p.m. EST, and will examine the Treasury and Internal Revenue Services' Feb. 27 proposed regulations on the foreign-based company sales income consequences under the Subpart F provisions of U.S. tax law. The proposed regulations are intended to modernize the FBCSI rules to reflect new manufacturing arrangements. Experts from KPMG's national tax, international corporate tax, and global transfer pricing services practices will discuss the proposed regulations and their potential impact on the supply chains of multinational companies. The other Webcast, "2008 India Budget Briefing," will take place on Wed., March 12, at 2:00 p.m. EST, and will discuss the potential implications of the country's recently introduced budget proposal for U.S. multinational companies with investments or operations in India, with a focus on various tax changes, and will include a Q&A session. Continuing professional education credits are available for both Webcasts, for participants who meet the eligibility requirements. To register, go to www.kpmgtaxwatch.com.

The Internal Revenue Service has issued guidance for the proper pooling treatment of automobiles, light-duty trucks, and crossover vehicles that have the characteristics of trucks and cars under the dollar-value, last-in, first-out inventory method. To address the distinctions between cars and light-duty trucks, and in response to an Industry Issue Resolution Program request submitted by Miller Chevalier Chartered and the National Auto Dealership Association, the Treasury Department and the Internal Revenue Service issued Revenue Procedure 2008-23. Light-duty trucks are trucks with a gross vehicle weight of 14,000 pounds or less. Effective for tax years ending on or after Dec. 31, 2007, the revenue procedure provides a safe harbor pooling method, the Vehicle-Pool Method, for resellers of cars and light-duty trucks. The Vehicle-Pool Method allows a reseller to establish a new vehicle pool for inventories of new vehicles including new cars, new light-duty trucks, and new crossover vehicles including SUVs, minivans and other similar vehicles and a used vehicle pool for inventories of used vehicles. Revenue Procedure 2008-23 also provides the procedures for a reseller subject to the LIFO pooling requirements to obtain automatic consent to change to the Vehicle-Pool Method.