Tax

Partnership taxpayers can electronically file now use the modernized e-File platform when filing Form 1065, “U.S. Return of Partnership Income,” and Form 1065-B, “U.S. Return of Income for Electing Large Partnerships.”

Liberty Tax Service announced the acquisition of eSmartTax, the income tax preparation business of San Jose, Calif.-based C&S Technologies.

Choosing 529 plans or qualified tuition programs as a savings strategy for the college-bound got more enticing in 2006 as the programs' tax-exempt status gained permanency, and student-owned accounts would no longer need to be reported on financial aid applications."New legislation in 2006 created a significant advantage in 529 plans," said Joe Hurley, CPA and founder of Savingforcollege.com. "Accounts owned by students or custodians by the Uniform Transfer to Minors Act are no longer reported on financial aid applications if the student files as a dependent student. Before, they were reported as student assets and assessed at a very high rate."

The Swedish Tax Authority is taking another route in its attempts to get a former member of ABBA to pay millions in allegedly undeclared royalties.According to published reports, tax officials want ABBA co-founder Bjorn Ulvaeus to pay $2.1 million for undeclared royalties from the music group’s hits. In May 2006 the authority claimed that Ulvaeus owed almost $13 million in back taxes, fees and interest on unpaid taxes related to contracts he signed before moving to England in 1984.

KPMG LLP has announced the establishment of the Tax Governance Institute, an open forum for board members, management, stakeholders and government representatives to debate various aspects of tax oversight and management.Through video and audio Web casts, roundtables, other events, and its Web site, the institute’s goal is to regularly bring together interested parties to discuss tax matters of common concern relating to day-to-day and long-term management of corporate tax risk.

It has been a natural progression for CPAs to gradually evolve their practices to include both tax and financial planning."There's a natural link between tax prep and financial planning," explained Stephen Parezo, media manager for multidisciplinary practice firm Fiducial. "In doing a client's taxes, you get to see their whole financial picture. You can see if they're making contributions to retirement plans, and get to see what kind of stocks and other investments they have."

In response to criticism from both lawmakers and taxpayer advocates who charged that its Free File Program was an entrée to sell pricey add-on offerings such as refund anticipation loans, the Internal Revenue Service announced that for the upcoming tax-filing season, its private-sector partners in the effort will remove any ancillary products from the FFP.Concerns over the Free File e-filing initiative had split Congress down the middle, with the IRS and some of the nation's leading tax software developers caught in the crossfire.

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.