Tax Strategies

This week, the Tax Technical Corrections Act of 2006 was introduced in both houses of Congress. The legislation will essentially serve to cross the T’s and dot the I’s to several pieces of already-enacted legislation, clarifying definitions and refining certain timelines. Ways & Means Committee Chairman Bill Thomas, R-Calif., sponsored the bill in the House, while Finance Committee Chairman Charles Grassley, R-Iowa, and ranking member Max Baucus, D-Mont., did the same in the Senate. Among others, the bill would make changes to:

A $39.5 million settlement between PricewaterhouseCoopers and investors in a mortgage loan fund is a done deal, now that the California Supreme Court has officially dismissed the original filing. The state’s highest court had agreed to hear the case back in March, just days before the plaintiffs reached a settlement after agreeing to mediation with the Big Four firm. That settlement has since received approval from both a federal bankruptcy court as well as the Alameda County Superior Court. Both sides requested a dismissal of the case in early September. The plaintiffs sued PwC in 2002, accusing the firm of abetting a fraudulent scheme carried out by then general partner, James Hillman, of two partnerships in which they had invested. Hillman and the director of the mortgage fund were sued in 2001 by the Securities and Exchange Commission. According to court filings, PwC audited the financial statements of the two partnerships in 1999, but ended its audit after telling Hillman he had given the firm falsified audit reports. The case itself had questioned whether PwC was required to inform investors of the fraudulent scheme. The money will go into a fund established under a global settlement agreement reached in federal court in 2002, and be distributed to plaintiffs.

BNA Daily Tax Report recently reported that a California Franchise Tax Board employee disclosed confidential information about the Board’s audits of over 200 corporations. What was most interesting was the method of disclosure. It seems the employee accidentally e-mailed the information to a distribution list of members of the news media, including two BNA reporters. According to BNA, the e-mail identified a number of corporate taxpayers under audit for tax years 2003 and earlier. The names of the corporations, their identification numbers, and the auditor assigned to each case were identified. Notes indicated that several are being audited for possible participation in abusive tax shelters. An FTB spokeswoman told BNA that the employee intended to send the message to himself, but accidentally sent the message to a distribution list that included members of the news media who cover tax issues. This gaffe illustrates that hacking isn’t the only danger to be worried about in this technology age. A simple oversight when selecting a recipient of the e-mail can instantaneously broadcast confidential information to the outside world. There are many possibilities for e-mail causing problems that simply didn’t exist in the strictly paper world. For example, at my company years ago, an individual wrote a blistering e-mail intended to tell his boss that he deserved a substantial raise, detailing all he had done, criticizing the company, and listing his current salary and salary demands. By mistake, he inadvertently sent out the e-mail to an address that included all the employees in the company whose last name began with A through M. There are other more common instances, such as when you get an e-mail and compose a critical follow-up of the e-mail that you want to send to a fellow employee and you end up mistakenly sending the follow-up to the original sender of the e-mail because you hit “Reply” by mistake, rather than “Forward.” Technology is wonderful, but it is important to understand that it also means a need for an increased awareness, and that added safeguards must be put in place. It is scary that what in the paper age was difficult to do now can be done by a simple inadvertent touch of a keyboard. P.S.: Please let me know if you have special e-mail safeguards in place at your firm.

The Internal Revenue Service has launched its much-anticipated Income Verification Express Service or IVES, a program offering immediate electronic delivery of client tax and income information to financial lenders such as mortgage companies.

Just one week after the Treasury Department released a report on its strategy for closing the $300 billion tax gap, the ranking minority member of the Senate Finance Committee labeled the plan “incomplete” and not credible.Sen. Max Baucus, D-Mont., said he would continue to hold up the nomination of Eric Solomon as the assistant Treasury secretary for tax policy.

Several more 2007 Toyota models have been certified by the Internal Revenue Service to qualify for the hybrid tax credit enacted by the Energy Policy Act of 2005.

Tax software publisher CCH continued making an aggressive push into the small practitioner market, announcing its second major acquisition in as many months.The Wolters Kluwer business, which produces the ProSystem fx Office line of accounting and business software products, signaled its determination to take on the marketplace leader, Intuit Inc.'s QuickBooks, by striking a pact to purchase TaxWise Corp.

Although the program has been characterized by the Internal Revenue Service itself as potentially rampant with opportunities for scamming, and has attracted growing opposition, the agency nonetheless has moved forward with its plan to hire private debt collectors to track down delinquent taxpayers.The first phase, rolled out in September, enlisted a trio of private collection agencies to receive personal information about taxpayers with outstanding liabilities, including name and Social Security number of taxpayer (and spouse, if a joint tax liability), address, amount of tax debt and the year or years to which the debt applies.

Tax advisors are likely to hear from potential clients seeking advice on how to "re-enter" our tax reporting system.The reasons for failing to file tax returns vary with the client: the stress of a divorce or bankruptcy, ignorance of U.S. tax laws, or willful negligence. Similarly, the strategies for handling these cases should vary, considering the potential criminal, as well as civil, ramifications of a client's failure to file timely returns.

The Taxpayer Advocacy Panel has sent the Internal Revenue Service recommendations for easing taxpayer burdens in five areas.In a 12-page report dated Aug. 18, the panel made the following suggestions: