The Internal Revenue Service recommends that employers, payers and their agents begin using a new, improved version of the agent-appointment form immediately, to avoid delays in having the IRS approve the agent appointments. All versions prior to the May 2007 form are now obsolete. Form 2678, Employer/Payer Appointment of Agent, authorizes an agent to file tax returns and deposit and pay employment or other withholding taxes on an employer or payer's behalf. However, the employer retains responsibility for filing Form 940, Employer's Annual Federal Unemployment Tax Return, and depositing and paying FUTA tax. The IRS recently redesigned Form 2678 to make it clearer and more user-friendly. The redesign resulted from an initiative led by the IRS Office of Taxpayer Burden Reduction. The IRS will return any obsolete versions of Forms 2678 that are filed and ask senders to submit the May 2007 revision instead. When the IRS approves Form 2678, both the employer or payer and the agent are liable for the employer's employment tax.

Rep. Charles Rangel, D-N.Y., chairman of the House Ways & Means Committee, said House lawmakers might consider legislation that would raise taxes on the income of private equity and hedge fund managers. Under the current tax laws, private-equity companies can go public by paying a partnership tax rate of 15 percent versus the corporate tax rate of 35 percent. Rangel's proposal follows a Senate measure introduced last week requiring private-equity partnerships that go public after June 14 to pay corporate taxes.

The just-released spring 2007 issue of the Statistics of Income Bulletin includes the first article on farm proprietorship returns by the Internal Revenue Service in more than 20 years, as well as articles on high-income individual income tax returns, taxpayers reporting noncash contributions, qualified zone academy bonds, international boycott reports and S corporations. In addition, this issue of the bulletin presents selected tax year 1990-2004 individual income tax return data that have been indexed for inflation, and tax year 2005 individual income tax return statistics classified by state and size of adjusted gross income. For tax year 2004, there were 3,021,435 individual income tax returns filed with adjusted gross income of $200,000 or more and 3,067,602 returns with expanded income of $200,000 or more. The Bulletin highlights the following: * For tax year 2004, there were 25.3 million individual taxpayers who itemized deductions and reported a deduction for noncash charitable contributions. Those taxpayers reported $43.4 billion in deductions for these noncash contributions. Individuals whose total noncash charitable deductions on Schedule A, Itemized Deductions, exceed $500 are required to report these donations in detail on Form 8283, Noncash Charitable Contributions. For 2004, a total of 6.6 million individuals, representing a little more than a quarter of those who reported noncash charitable contributions, filed Form 8283. These individuals reported noncash contributions valued at almost $37.2 billion, or nearly 86 percent of all noncash contributions. * The number of farm proprietorship returns declined between tax years 1998 and 2004, with the majority of farm proprietorship returns showing a farm net loss. For tax year 2004, some 1.4 million farm proprietorship returns, or 70 percent of the total, had a farm net loss. Gross farm income reported on sole proprietorship returns totaled $93.3 billion for tax year 1998 and increased 8.3 percent to $101 billion in 2004. Total farm expenses grew even more during this period, by 12.9 percent, from $101.2 billion in 1998 to $114.3 billion in 2004. * For tax year 2003, some 1,268 taxpayers filed Form 5713, International Boycott Report; of these, 124 reported receiving boycott requests, and 36 agreed to participate in a boycott. There were 41 taxpayers who lost a portion of their tax benefits as a result of their participation in a boycott or because they had operations in a boycotting country and claimed the extraterritorial income exclusion. Similarly, 1,343 Forms 5713 were filed for tax year 2004; of these, 131 taxpayers reported boycott requests, 45 agreed to participate, and 46 taxpayers reported tax consequences. For both years, the percentage of filers who lost tax benefits was approximately 3 percent. * The final bulletin article takes a look at the dominance of the wholesale and retail trade division among S corporations since 1959. For tax year 2004, some 45 years after the creation of S corporations, wholesale and retail represented the largest portion of total receipts, total deductions, portfolio income, total net income (less deficit) and total assets.

One month after four employees of Big Four firm Ernst & Young were charged with conspiracy to commit tax fraud, a former employee of the audit firm has pled guilty to similar charges. Dallas-based E&Y employee Belle Six entered her plea in Federal District Court in Manhattan. Six, who worked in the firm's Viper Group that created and sold tax shelters, will, according to her agreement, forfeit some $13 million she received as compensation.

Democratic members of Congress have introduced a plan that would close a tax loophole that allows tens of thousands of dollars in tax write-offs for only the largest luxury SUVs. The bill introduced by Reps. Allyson Schwartz, D-Pa., Rahm Emanuel, D-Ill., and Earl Blumenauer, D-Ore., who all serve on the Ways and Means Committee, as well as Rep. Ed Markey, D-Mass., chairman of the Select Committee on Energy Independence and Global Warming, would fix a provision in the Tax Code that provides an additional tax incentive for the luxury market of SUVs weighing over 6,000 lbs. Originally intended to help businesses buy necessary heavy-duty work vehicles, the "Hummer Tax Loophole" has for years allowed write-offs of anywhere from $100,000 to the current figure of $25,000 for the purchase of the largest, most gas-guzzling luxury SUVs, even as concerns over gas prices and dependence on oil have grown. The change would not affect legitimate business investments in trucks or vans, such as plumber and contractor trucks, farm vehicles, construction vehicles, flatbed trucks, cement mixers, and a variety of other vehicles as designated by the IRS. "This bill fixes a perverse, unintended incentive to buy the biggest and most polluting vehicle on the market," said Blumenauer.

The vast majority - 88 percent - of small employers used a tax professional to prepare their most recent federal tax return. For those employers who employ 20 or more people, the percentage using a tax professional increased to 95 percent, according to the National Federation of Independent Business.

GAO EXAMINES IRS '08 BUDGET