Tax Strategies

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

The rules for the deductibility of prepaid expenses are riddled with exceptions to the basic premise that neither cash nor accrual-basis taxpayers ought to deduct any prepayment except to the extent that the purchase - whether it is in the form of an asset or a service - is used in the same tax year. Grace periods, exceptions and additional restrictions can all change a result. The latest variation on the theme of "things are not always what they appear," comes in the form of a chief counsel's advice memorandum.

The Internal Revenue Service is reminding tax professionals to make reservations now for one of six Nationwide Tax Forums being held throughout the country. The Nationwide Tax Forums are three-day events that provide tax professionals with the most up-to-date tax information through training seminars presented by IRS experts and partnering organizations. Forums offer an opportunity to receive up to 18 continuing professional education credits through a variety of training seminars. The locations are: · Atlanta - July 17-19· Chicago - July 31-Aug. 2· Las Vegas - Aug. 21-23 · New York - Aug. 28-30 · Anaheim - Sept. 11-13· Orlando - Sept. 18-20 The cost of enrollment is $165 per person, per city for pre-registration and $299 for late or on-site registration. The pre-registration period ends two weeks prior to the start of each forum. Members of the following associations qualify for discounted enrollment costs: the American Association of Attorney-CPAs; the American Bar Association; the American Institute of CPAs; the National Association of Enrolled Agents; the National Association of Tax Professionals; the National Society of Accountants; and the National Society of Tax Professionals.

The Senate Finance Committee has released an energy tax package addressing advanced electricity infrastructure, domestic fuel security, advanced technology vehicles, and conservation and energy efficiency. The committee is scheduled to consider the bill on Tuesday, June 19.Among its provisions, the bill authorizes $750 million in each of calendar years 2008 and 2009 for clean renewable energy bonds; creates a new category of tax credit bonds for advanced coal facilities; and extends the 30 percent investment tax credit for solar and fuel cells, and the 10 percent credit for microturbines for two years. It expands the investment tax credit for clean coal facilities. The bill also extends for two years and modifies the personal tax credit for residential solar electric, solar water heating, and fuel cell property. The modification raises the cap on the credit for solar electric property to $4,000. "This bill reflects energy needs in the 21st Century," said Sen. Chuck Grassley, R-Iowa, and ranking member of the Finance Committee. "People need tax certainty to invest in infrastructure and keep production moving. Production has to meet demand, and alternative energy has never been in such demand."

The tax gap - the difference between the amount that taxpayers pay voluntarily and on time and what they should pay - continues to generate congressional hearings and legislative proposals. The most recent data from 46,000 returns examined under the National Research Program show a net gap of $290 billion for the year 2001.

Thomson Tax & Accounting has acquired the Employee Benefits Institute of America Inc., an Edmonds, Wash.-based provider of benefits research and guidance to corporations and advisory firms.

Taxpayers have an additional two days this year, until July 2, 2007, to file the Report of Foreign Bank and Financial Accounts, Form TD F 90-22.1, according to the Internal Revenue Service.The deadline for FBAR forms is June 30, 2007. But because June 30 falls on a Saturday, the IRS is allowing taxpayers to file by July 2. FBAR information returns for the 2006 calendar year must be filed with the U.S. Department of Treasury, P.O. Box 32621, Detroit, Mich., 48232-0621. The address for commercial delivery is: U.S. Department of Treasury, Currency Transaction Reporting, 985 Michigan Avenue, Detroit, Mich., 48226. The FBAR form is not available for electronic filing, but many income tax software packages can prepare a printed copy. FBAR forms are also available on the IRS Web site or FinCEN Web site, and from the IRS via telephone at (800)-829-3676. The FBAR form is required for each U.S. person who has a financial interest in, or signature authority or other authority, over any financial accounts, including bank, securities or other types of financial accounts, in a foreign country, if the aggregate value of these financial accounts exceeds $10,000 at any time during the calendar year.

A new Treasury Inspector General for Tax Administration audit has found that changes in the Internal Revenue Service's Questionable Refund Program, along with a significant technological failure, dramatically decreased the effectiveness of the program for the 2006 filing season. The IRS relies on the Questionable Refund Program to identify and prevent fraudulent refund claims from being paid. Since its inception in 1977, this program has identified more than $4.3 billion in fraudulent refunds and prevented the issuance of over $3.6 billion in refunds. However, over the past several years, TIGTA has reported that the QRP was becoming increasingly unmanageable due to the growing number of fraudulent claims and the IRS's lack of resources to combat the fraud. "The IRS reacted to legitimate congressional concerns that taxpayers were not being notified when their refunds were delayed, sometimes for years," said Inspector General J. Russell George. "Unfortunately, the IRS overreacted, and it is costing taxpayers millions of dollars." Last tax season, the IRS appropriately began notifying taxpayers when their accounts were temporarily frozen as a result of a suspicious return. However, the agency limited the length of these freezes, which also limited its ability to properly scrutinize many of these returns. "This decision had a direct cost to taxpayers," George said. "Our audit identified nearly $15.9 million in potentially fraudulent refunds that were allowed to be issued."

Senators Max Baucus, D-Mont., and Chuck Grassley, R-Iowa, chairman and ranking member of the Senate Finance Committee, respectively, have introduced legislation to give more than $550 million in tax relief for veterans, soldiers and their employers.