Tax

LEGISLATION PROPOSED TO BAN 'RETURN-FREE' SYSTEM: H.R. 5114, the Tax Return Choice Act of 2006, was introduced in the House and referred to the Ways and Means Committee. The bill, which has 88 Republican and 17 Democrat co-sponsors, would prohibit the Internal Revenue Service from completing individual tax returns other than through the programs already offered through the Free File Alliance, Taxpayer Assistance Centers, Tax Counseling for the Elderly, and Volunteer Income Tax Assistance programs.The bill reflects the efforts of a number of groups concerned that a return-free system similar to the one used in the U.K., Germany and Japan would be a step backward from voluntary compliance, and would raise taxes on those who used it. Under such a system, the tax agency computes final tax liability based on third-party data, such as W-2s and Form 1099s, and sends the taxpayer a written determination and a bill. The taxpayer can accept the calculations and pay the bill, or wait for a refund. The taxpayer can then make minor adjustments, or may disregard the determination and prepare a separate return.

A husband and wife have filed a case against Ernst & Young, blaming the firm for the loss of $40 million in a shelter deemed abusive by the Internal Revenue Service.The Florida couple, Rocco and Mary Abessinio, are seeking class-action status for the lawsuit, which was filed in federal court in Manhattan in April.

Online tax preparation services are using the Internal Revenue Service's Free File program to promote "get rich quick" schemes and overpriced refund anticipation loans to low-income taxpayers, some lawmakers have charged.In a sharply worded letter to IRS Commissioner Mark Everson, Senate Finance Committee chair Chuck Grassley, R-Iowa, placed much of the blame for these practices on the IRS officials who negotiated a new contract with 20 online tax prep companies to provide taxpayers with free electronic tax preparation and filing services during this tax season.

Almost nine full years have passed since the $250,000/$500,000 exclusion of gain on the sale of a principal residence first became available. Little did many of us imagine how much would change in nine years.While the basic sale-of-a-principal-residence provision has remained the same, except for some minor congressional tinkering, the world in which it lives has not. The real estate "boom," capital gains rate reduction, subsequent rulings and other developments have all played a part in making this a particularly dynamic area of tax planning. A review of recent trends and developments over the past year is especially illuminating.

Both houses of Congress reached final agreement on a $70 billion package of tax cuts that will be spread over the next five years.

The U.S. Treasury Department announced that President Bush has nominated Treasury official Eric Solomon to be the department's assistant secretary for tax policy, filling a post that has been vacant since February 2004.

New York's Attorney General accused higher-ups at H&R Block of being aware that the tax prep giant's Express IRA accounts would be money losers for many of the same clients the chain was targeting to buy the retirement plans.

Creative Solutions, a unit of Thomson Tax & Accounting, has acquired the assets of Dunphy Systems, a Columbus, Ohio-based publisher and marketer of tax software.

National Taxpayer Advocate Nina E. Olson announced that the 2007 Low Income Taxpayer Clinic grant application process is now open. The grant program is in its eighth year and continues to expand.

Organizations that provide seller-funded down-payment assistance to home buyers do not qualify as tax-exempt charities, the Internal Revenue Service said in a ruling last week.