from www.mercurynews.com
By Mark SchwanhausserMercury News
Article Launched: 10/27/2007 01:39:24 AM PDT
Few regions have more people who would benefit from a new Democratic proposal to eliminate the alternative minimum tax than Silicon Valley, one of the dreaded tax system's prime hunting grounds. But don't hold your breath.
The revamping of the tax code unveiled Thursday has virtually no chance of passing in its current form this year, before the 2008 elections - and may never be approved.
It's not even clear whether Congress could approve a temporary fix to save millions of Americans from getting caught by the AMT when they file their 2007 returns. There's pressure to move quickly because the Internal Revenue Service starts sending its tax forms to be printed Nov. 7.
But the proposal from Rep. Charles Rangel, the Democratic chairman of the powerful House Ways and Means Committee, does accomplish one important thing. It has framed the election year debate over tax policy:
• Should Congress eliminate the AMT, which was designed to snare 155 wealthy taxpayers in 1969 but could whack an estimated 21 million Americans in 2007?
• If so, should lawmakers raise other taxes to offset the $800 billion in revenue that would be lost by eliminating the AMT? If Congress sticks to its pay-as-you-go policy vs. adding to the budget deficit, should rich Americans, corporations like Hewlett-Packard or venture capitalists along Sand Hill Road pay more?
• And can the nation afford to eliminate the AMT and keep President
Bush's tax cuts in effect, rather than letting them phase out as originally planned?
"Rangel is making a statement," said Clint Stretch, director of tax policy for accounting powerhouse Deloitte & Touche in Washington. "Implicitly, everyone wants to talk about eliminating the AMT, and everyone is talking about extending the Bush tax cuts. And he is putting squarely on the table the question, 'How would we do that?' "
Many taxpayers don't realize they're supposed to calculate their income tax under both the regular rules and the AMT rules - and pay whichever bill is larger. The tax's reach is spreading to the middle class because every cut under the regular tax system forces more taxpayers into the AMT, which never has been indexed to inflation.
Democrats have led the push to repeal the AMT because its bite is deepest in "blue states" such as California, New Jersey, New York and Virginia. But Republicans have resisted, with House GOP leader John Boehner of Ohio calling Rangel's bill "the mother of all tax hikes."
Even if the bill goes nowhere, Democrats will paint Republicans as the bad guys, said Thomas Ochsenschlager, vice president of the American Institute of Certified Public Accountants. "Rangel and the Democrats can say, 'Hey, we were going to eliminate the AMT - the big bogyman - and the Republicans wouldn't let us do it.' "
Many residents in affluent Silicon Valley have a lot at stake in this debate. If Congress fails to pass the one-year fix, the AMT will strike 71 percent of taxpayers with incomes between $75,000 and $200,000 - and more than one-third of the taxpayers with incomes between $75,000 and $100,000, Ochsenschlager said.
Rangel, of New York, plans to break out the patch from the giant bill into a separate bill that he will announce next week. To pay part of the bill for the patch, which is estimated to cost the government $50 billion in revenue over 10 years, Rangel has targeted venture capitalists and hedge fund investors. He aims to tax them at ordinary income-tax rates rather than the sharply lower capital-gains rates they currently pay.
Monday, the National Venture Capital Association is primed to deliver letters to lawmakers from 500 entrepreneurs who oppose such a tax change.
Finding a way to kill the AMT is politically sensitive. In 2005, President Bush's tax reform panel ignited a firestorm by suggesting the lost revenue could be offset by slashing coveted deductions such as mortgage interest, state and local tax payments and health insurance premiums.
Rangel's plan would pay for the lost AMT revenue primarily by taxing the wealthiest Americans more. He proposes a 4 percent surcharge on taxpayers earning at least $200,000, and a 4.6 percent surcharge on incomes above $500,000. High-income taxpayers also would face limits on itemized deductions and personal exemptions.
Rangel's bill also would extend a raft of tax breaks that are scheduled to expire, including the research-and-development credit and deductions for private mortgage insurance and state and local sales taxes.
In addition, the bill would cut corporate tax rates, with the top rate dropping from 35 percent to 30.5 percent. To offset those cuts, though, Rangel would tighten rules that favor relatively small numbers of corporations.
For example, the plan would force U.S. companies to defer deductions from overseas divisions if they keep those profits overseas. In 2005, U.S. companies were given a one-year break that slashed taxes on so-called repatriated profits, and billions of dollars flowed back home.
Silicon Valley's 20 largest public companies brought back $28.7 billion in foreign profits, with Hewlett-Packard accounting for $14.5 billion.
Saturday, October 27, 2007
Tuesday, October 23, 2007
2008 Inflation Adjustments Widen Tax Brackets
from www.irs.gov
IR-2007-172, Oct. 18, 2007WASHINGTON — For 2008, personal exemptions and standard deductions will rise, tax brackets will widen and workers will be able to save more for retirement, thanks to inflation adjustments announced today by the Internal Revenue Service.
By law, the dollar amounts for a variety of tax provisions must be revised each year to keep pace with inflation. As a result, more than three dozen tax benefits, affecting virtually every taxpayer, are being adjusted for 2008. Key changes affecting 2008 returns, filed by most taxpayers in early 2009, include the following:
The value of each personal and dependency exemption, available to most taxpayers, is $3,500, up $100 from 2007.
The new standard deduction is $10,900 for married couples filing a joint return (up $200), $5,450 for singles and married individuals filing separately (up $100) and $8,000 for heads of household (up $150). Nearly two out of three taxpayers take the standard deduction, rather than itemizing deductions, such as mortgage interest, charitable contributions and state and local taxes.
Tax-bracket thresholds increase for each filing status. For a married couple filing a joint return, for example, the taxable-income threshold separating the 15-percent bracket from the 25-percent bracket is $65,100, up from $63,700 in 2007.
The maximum earned income tax credit for low and moderate income workers and working families with two or more children is $4,824, up from $4,716. The income limit for the credit for joint return filers with two or more children is $41,646, up from $39,783.
The maximum Hope credit, available for the first two years of post-secondary education, is $1,800, up from $1,650 in 2007.
The income limit for the savers credit is $53,000 for joint filers (up $1,000), $39,750 for heads of household (up $750) and $26,500 for singles and married persons filing separately (up$500). Low-and moderate income workers who contribute to a retirement plan, such as an IRA or 401(k), may qualify for the credit, which is available in addition to any other tax savings that apply.
The contribution amount allowed for Roth IRAs begins to phase out for joint filers with incomes exceeding $159,000 (up from $156,000) and $101,000 (up from $99,000) for singles and heads of household.
For contributions to a traditional IRA, the deduction phase-out range for an individual covered by a retirement plan at work begins at income of $85,000 for joint filers (up from $83,000) and $53,000 for a single person or head of household (up from $52,000).
Participants in most employer-sponsored 401(k) plans and 403(b) plans for employees of public schools and certain tax-exempt organizations can contribute up to $15,500, unchanged from 2007. Individuals, age 50 or over, can make an additional contribution of up to $5,000, also unchanged from 2007.
Individuals participating in SIMPLE retirement plans can contribute $10,500, unchanged from 2007. Those, age 50 or over, can make an additional contribution of up to $2,500, also unchanged from 2007.
The annual contribution limit for most defined contribution plans rises to $46,000, up from $45,000 in 2007.
IR-2007-172, Oct. 18, 2007WASHINGTON — For 2008, personal exemptions and standard deductions will rise, tax brackets will widen and workers will be able to save more for retirement, thanks to inflation adjustments announced today by the Internal Revenue Service.
By law, the dollar amounts for a variety of tax provisions must be revised each year to keep pace with inflation. As a result, more than three dozen tax benefits, affecting virtually every taxpayer, are being adjusted for 2008. Key changes affecting 2008 returns, filed by most taxpayers in early 2009, include the following:
The value of each personal and dependency exemption, available to most taxpayers, is $3,500, up $100 from 2007.
The new standard deduction is $10,900 for married couples filing a joint return (up $200), $5,450 for singles and married individuals filing separately (up $100) and $8,000 for heads of household (up $150). Nearly two out of three taxpayers take the standard deduction, rather than itemizing deductions, such as mortgage interest, charitable contributions and state and local taxes.
Tax-bracket thresholds increase for each filing status. For a married couple filing a joint return, for example, the taxable-income threshold separating the 15-percent bracket from the 25-percent bracket is $65,100, up from $63,700 in 2007.
The maximum earned income tax credit for low and moderate income workers and working families with two or more children is $4,824, up from $4,716. The income limit for the credit for joint return filers with two or more children is $41,646, up from $39,783.
The maximum Hope credit, available for the first two years of post-secondary education, is $1,800, up from $1,650 in 2007.
The income limit for the savers credit is $53,000 for joint filers (up $1,000), $39,750 for heads of household (up $750) and $26,500 for singles and married persons filing separately (up$500). Low-and moderate income workers who contribute to a retirement plan, such as an IRA or 401(k), may qualify for the credit, which is available in addition to any other tax savings that apply.
The contribution amount allowed for Roth IRAs begins to phase out for joint filers with incomes exceeding $159,000 (up from $156,000) and $101,000 (up from $99,000) for singles and heads of household.
For contributions to a traditional IRA, the deduction phase-out range for an individual covered by a retirement plan at work begins at income of $85,000 for joint filers (up from $83,000) and $53,000 for a single person or head of household (up from $52,000).
Participants in most employer-sponsored 401(k) plans and 403(b) plans for employees of public schools and certain tax-exempt organizations can contribute up to $15,500, unchanged from 2007. Individuals, age 50 or over, can make an additional contribution of up to $5,000, also unchanged from 2007.
Individuals participating in SIMPLE retirement plans can contribute $10,500, unchanged from 2007. Those, age 50 or over, can make an additional contribution of up to $2,500, also unchanged from 2007.
The annual contribution limit for most defined contribution plans rises to $46,000, up from $45,000 in 2007.
Monday, October 22, 2007
Poker Tournament Winnings MUST be Reported to the IRS
from www.irs.gov
Poker Tournament Winnings Must be Reported to the IRS
IR-2007-173, Oct. 19, 2007
WASHINGTON — Starting next year, casinos and other sponsors of poker tournaments will be required to report most winnings to winners and the Internal Revenue Service, according to the IRS.
The new requirement, which goes into effect on March 4, 2008, was contained in guidance released Sept. 4 by the Treasury Department and the IRS. The guidance is designed to clear up confusion about the tax reporting rules that apply to poker tournaments. In recent years, some casinos and players have been confused over whether poker tournament sponsors who hold the money for participants in a poker tournament are required to report the winnings to the IRS and withhold tax on the winnings.
For tournaments completed during 2007 and before March 4, 2008, casinos and other sponsors of poker tournaments will not be required to report the winnings to the IRS or withhold tax on the winnings. But beginning March 4, 2008, the IRS will require all tournament sponsors to report tournament winnings of more than $5,000, usually on an IRS Form W-2G.
Tournament sponsors who comply with this reporting requirement will not need to withhold federal income tax at the end of a tournament. If any tournament sponsor does not report the tournament winnings, the IRS will enforce the reporting requirement and also require the sponsor to pay any tax that should have been withheld from the winner if the withholding requirement had been asserted. The withholding amount is normally 25 percent of any amounts that should have been reported.
So that tournament sponsors can comply with this requirement, tournament winners must provide their taxpayer identification number, usually a social security number, to the tournament sponsor. If a winner fails to provide this identification number, the tournament sponsor must withhold federal income tax at the rate of 28 percent.
The IRS reminds tournament winners that, by law, they must report all their winnings on their federal income tax returns. This rule applies regardless of the amount and regardless of whether the winner receives a Form W-2G or any other reporting form. This is true for 2007 and earlier years, and will continue to be the case after the new reporting requirement goes into effect.
Related Item: Revenue Procedure 2007-57 in Internal
Poker Tournament Winnings Must be Reported to the IRS
IR-2007-173, Oct. 19, 2007
WASHINGTON — Starting next year, casinos and other sponsors of poker tournaments will be required to report most winnings to winners and the Internal Revenue Service, according to the IRS.
The new requirement, which goes into effect on March 4, 2008, was contained in guidance released Sept. 4 by the Treasury Department and the IRS. The guidance is designed to clear up confusion about the tax reporting rules that apply to poker tournaments. In recent years, some casinos and players have been confused over whether poker tournament sponsors who hold the money for participants in a poker tournament are required to report the winnings to the IRS and withhold tax on the winnings.
For tournaments completed during 2007 and before March 4, 2008, casinos and other sponsors of poker tournaments will not be required to report the winnings to the IRS or withhold tax on the winnings. But beginning March 4, 2008, the IRS will require all tournament sponsors to report tournament winnings of more than $5,000, usually on an IRS Form W-2G.
Tournament sponsors who comply with this reporting requirement will not need to withhold federal income tax at the end of a tournament. If any tournament sponsor does not report the tournament winnings, the IRS will enforce the reporting requirement and also require the sponsor to pay any tax that should have been withheld from the winner if the withholding requirement had been asserted. The withholding amount is normally 25 percent of any amounts that should have been reported.
So that tournament sponsors can comply with this requirement, tournament winners must provide their taxpayer identification number, usually a social security number, to the tournament sponsor. If a winner fails to provide this identification number, the tournament sponsor must withhold federal income tax at the rate of 28 percent.
The IRS reminds tournament winners that, by law, they must report all their winnings on their federal income tax returns. This rule applies regardless of the amount and regardless of whether the winner receives a Form W-2G or any other reporting form. This is true for 2007 and earlier years, and will continue to be the case after the new reporting requirement goes into effect.
Related Item: Revenue Procedure 2007-57 in Internal
Wednesday, October 17, 2007
Celebrity Tax Scofflaws in California Announced
from www.latimes.com
California Local News
April L. Brown / Associated Press
The comedian and actor Sinbad, whose last name is Adkins, resides in Oak Park, Ill., and is listed as owing $2,138,592 in personal income taxes to the state.
California tax scofflaws include O.J., Sinbad
April L. Brown / Associated Press
The comedian and actor Sinbad, whose last name is Adkins, resides in Oak Park, Ill., and is listed as owing $2,138,592 in personal income taxes to the state.
The state releases a list of 224 people who owe money. The goal is to shame people into paying up.
By Patrick McGreevy, Los Angeles Times Staff Writer 12:36 PM PDT, October 17, 2007
SACRAMENTO -- Tapping into the fear of public humiliation to get Californians to pay up on delinquent state income taxes, the state has released a list of California's 224 worst scofflaws, including celebrities Dionne Warwick, O.J. Simpson and comedian Sinbad.The list was originally 250 people. But just the threat of their names going on a public website convinced 26 of the biggest tax scofflaws to agree to settle their bills, bringing in about $300,000 in payments so far, according to State Controller John Chiang.
Related
-
California's official list of the top 250 delinquent taxpayers
"Unfortunately these 250 people have put themselves above the 14 million people who have done the right thing and paid their taxes," Chiang said today.Although a bill approved by the state Legislature compelled the list to be released publicly on the website of the state Franchise Tax Board, Chiang said he supports the action and believes it will be effective in cases in which tax liens and warning letters have failed."Certainly people don't want the public embarrassment of being on the list," the controller said. "I wouldn't want to be on a list with O.J. Simpson."The list says Orenthal Simpson of Miami, Fla., owes $1,435,484 in personal income taxes with a tax lien dating back to 1999.Simpson, the former professional football player and actor, left California for Florida after he was acquitted of murdering his ex-wife and her acquaintance.The list says that the state is owed $2,665,305 in personal income taxes by singer Dionne Warwick of South Orange, N.J., with the tax lien dating back to 1997.The comedian and actor Sinbad, whose last name is Adkins, resides in Oak Park, Ill., and is listed as owing $2,138,592 in personal income taxes to the state, with the tax lien dated from 1999.patrick.mcgreevy@latimes.com
California Local News
April L. Brown / Associated Press
The comedian and actor Sinbad, whose last name is Adkins, resides in Oak Park, Ill., and is listed as owing $2,138,592 in personal income taxes to the state.
California tax scofflaws include O.J., Sinbad
April L. Brown / Associated Press
The comedian and actor Sinbad, whose last name is Adkins, resides in Oak Park, Ill., and is listed as owing $2,138,592 in personal income taxes to the state.
The state releases a list of 224 people who owe money. The goal is to shame people into paying up.
By Patrick McGreevy, Los Angeles Times Staff Writer 12:36 PM PDT, October 17, 2007
SACRAMENTO -- Tapping into the fear of public humiliation to get Californians to pay up on delinquent state income taxes, the state has released a list of California's 224 worst scofflaws, including celebrities Dionne Warwick, O.J. Simpson and comedian Sinbad.The list was originally 250 people. But just the threat of their names going on a public website convinced 26 of the biggest tax scofflaws to agree to settle their bills, bringing in about $300,000 in payments so far, according to State Controller John Chiang.
Related
-
California's official list of the top 250 delinquent taxpayers
"Unfortunately these 250 people have put themselves above the 14 million people who have done the right thing and paid their taxes," Chiang said today.Although a bill approved by the state Legislature compelled the list to be released publicly on the website of the state Franchise Tax Board, Chiang said he supports the action and believes it will be effective in cases in which tax liens and warning letters have failed."Certainly people don't want the public embarrassment of being on the list," the controller said. "I wouldn't want to be on a list with O.J. Simpson."The list says Orenthal Simpson of Miami, Fla., owes $1,435,484 in personal income taxes with a tax lien dating back to 1999.Simpson, the former professional football player and actor, left California for Florida after he was acquitted of murdering his ex-wife and her acquaintance.The list says that the state is owed $2,665,305 in personal income taxes by singer Dionne Warwick of South Orange, N.J., with the tax lien dating back to 1997.The comedian and actor Sinbad, whose last name is Adkins, resides in Oak Park, Ill., and is listed as owing $2,138,592 in personal income taxes to the state, with the tax lien dated from 1999.patrick.mcgreevy@latimes.com
Sunday, October 14, 2007
U.S. Income Gap Widens. The Richest Share Hits Record.
from www.yahoo.com
U.S. income gap widens, richest share hits record
By Karey Wutkowski Fri Oct 12, 2:22 PM ET
WASHINGTON (Reuters) - The gap between America's richest and poorest is at its widest in at least 25 years, with the wealthiest taking home a record share of the nation's income that exceeds even the previous high in 2000.
According to recent data from the Internal Revenue Service, the richest 1 percent of Americans earned 21.2 percent of all U.S. income earned in 2005. That is a significant increase from 2004 when the top 1 percent earned 19 percent of the nation's income.
The previous high over the past 25 years, when such data were compiled, was in 2000 when a bull market brought the figure up to 20.81 percent.
The Tax Foundation, a nonpartisan tax research group based in Washington, said the wealthy benefited in 2005 from a healthy, growing economy and higher-than-average price inflation.
The IRS data included all of the 132.6 million tax returns filed in 2005 with a positive adjusted gross income, or AGI, also including people who did not earn enough to owe taxes.
AGI is a figure used to calculate an individual's income tax liability and includes all gross income adjusted by certain allowed deductions, such as moving expenses, health savings account deductions, alimony paid and retirement contributions.
In 2005, 90.6 million people who filed tax returns paid taxes into the Treasury, and 42 million with a positive AGI used exemptions, deductions and tax credits to reduce their federal income tax liability to zero.
Democratic U.S. presidential candidates have raised the widening income gap as a campaign issue, proposing to raise taxes on wealthier Americans to pay for programs that would benefit lower-income families.
To make the top 1 percent of wealthiest Americans in 2005, a taxpayer had to earn at least $364,657. That figure is an increase from 2004, when the cut-off point stood at $328,049.
In 2005, the top 50 percent of American earners brought in 87.17 percent of the nation's income, also an all-time high for the data available.
The previous high for that figure was also in 2000, when the richest 50 percent of Americans earned 87.01 percent of the income.
U.S. income gap widens, richest share hits record
By Karey Wutkowski Fri Oct 12, 2:22 PM ET
WASHINGTON (Reuters) - The gap between America's richest and poorest is at its widest in at least 25 years, with the wealthiest taking home a record share of the nation's income that exceeds even the previous high in 2000.
According to recent data from the Internal Revenue Service, the richest 1 percent of Americans earned 21.2 percent of all U.S. income earned in 2005. That is a significant increase from 2004 when the top 1 percent earned 19 percent of the nation's income.
The previous high over the past 25 years, when such data were compiled, was in 2000 when a bull market brought the figure up to 20.81 percent.
The Tax Foundation, a nonpartisan tax research group based in Washington, said the wealthy benefited in 2005 from a healthy, growing economy and higher-than-average price inflation.
The IRS data included all of the 132.6 million tax returns filed in 2005 with a positive adjusted gross income, or AGI, also including people who did not earn enough to owe taxes.
AGI is a figure used to calculate an individual's income tax liability and includes all gross income adjusted by certain allowed deductions, such as moving expenses, health savings account deductions, alimony paid and retirement contributions.
In 2005, 90.6 million people who filed tax returns paid taxes into the Treasury, and 42 million with a positive AGI used exemptions, deductions and tax credits to reduce their federal income tax liability to zero.
Democratic U.S. presidential candidates have raised the widening income gap as a campaign issue, proposing to raise taxes on wealthier Americans to pay for programs that would benefit lower-income families.
To make the top 1 percent of wealthiest Americans in 2005, a taxpayer had to earn at least $364,657. That figure is an increase from 2004, when the cut-off point stood at $328,049.
In 2005, the top 50 percent of American earners brought in 87.17 percent of the nation's income, also an all-time high for the data available.
The previous high for that figure was also in 2000, when the richest 50 percent of Americans earned 87.01 percent of the income.
Friday, October 12, 2007
Honda Vehicle Certified As Qualified Hybrid Vehicle
from www.irs.gov
Honda Vehicle Certified As Qualified Hybrid Vehicle
IR-2007-168, Oct. 12, 2007WASHINGTON — The Internal Revenue Service has acknowledged the certification by American Honda Motor Company, Inc. that its Model Year 2008 Honda Civic Hybrid CVT meets the requirements of the Alternative Motor Vehicle Credit as a qualified hybrid motor vehicle.The credit amount for the 2008 Honda Civic Hybrid CVT is $2,100.Original owners may claim the full amount of the allowable credit up to the end of the first calendar quarter after the quarter in which the manufacturer records its sale of the 60,000th vehicle. For the second and third calendar quarters after the quarter in which the 60,000th vehicle is sold, taxpayers may claim 50 percent of the credit. For the fourth and fifth calendar quarters, taxpayers may claim 25 percent of the credit. No credit is allowed after the fifth quarter.As of June 30, 2007, Honda sold a total of 58,872 qualifying hybrid vehicles.
Related Items:
Honda Vehicle Certified As Qualified Hybrid Vehicle
IR-2007-168, Oct. 12, 2007WASHINGTON — The Internal Revenue Service has acknowledged the certification by American Honda Motor Company, Inc. that its Model Year 2008 Honda Civic Hybrid CVT meets the requirements of the Alternative Motor Vehicle Credit as a qualified hybrid motor vehicle.The credit amount for the 2008 Honda Civic Hybrid CVT is $2,100.Original owners may claim the full amount of the allowable credit up to the end of the first calendar quarter after the quarter in which the manufacturer records its sale of the 60,000th vehicle. For the second and third calendar quarters after the quarter in which the 60,000th vehicle is sold, taxpayers may claim 50 percent of the credit. For the fourth and fifth calendar quarters, taxpayers may claim 25 percent of the credit. No credit is allowed after the fifth quarter.As of June 30, 2007, Honda sold a total of 58,872 qualifying hybrid vehicles.
Related Items:
Thursday, October 11, 2007
IRS Offers Relief for Late S Corporation Elections
from www.irs.gov
IRS Offers Relief for Late S Corporation Elections
IR-2007-166, Oct. 9, 2007
WASHINGTON — Businesses that are eligible to elect S corporation tax treatment now have a simpler process for requesting relief for late elections under a change announced by the Internal Revenue Service today.
Revenue Procedure 2007-62 allows small businesses that missed filing Form 2553, Election by a Small Business Corporation, before filing their first Form 1120S, U.S. Income Tax Return for an S Corporation, to file both forms simultaneously. The change is effective for taxable years that end on or after Dec. 31, 2007. Internal Revenue Bulletin 2007-41, published on Oct. 9, 2007, includes this new guidance.
The IRS cautioned that the requirement for filing Form 2553 to establish the election in advance of filing the initial Form 1120S remains in effect. However, the new process will save time and effort for those taxpayers who can establish reasonable cause for making a late election.
Form 2553 will be updated to reflect the new rules, so taxpayers filing paper Forms 2553 should download the most recent revision from IRS.gov. Form 2553 can also be submitted electronically as an attachment to an e-filed Form 1120S.
There is relief under earlier guidance for late elections for taxpayers who meet certain conditions. Previously, taxpayers had to submit Form 2553 along with a statement explaining the reasons for the late election. The new guidance provides a simplified method to request relief by permitting taxpayers to file their first Form 1120S along with Form 2553 and include the statement on the form.
Small business corporations that are eligible for tax treatment under Subchapter S of the Internal Revenue Code enjoy the advantages of the corporate structure while being taxed similarly to a partnership or sole proprietorship.
The new procedure will reduce taxpayer burden by allowing the agency to process a properly completed tax return and its corresponding election without delays or additional contacts with taxpayers to resolve the issue of a missing election.
The change, based on suggestions from tax professionals and small business owners, resulted from the work of an IRS process improvement team led by the Office of Taxpayer Burden Reduction.
IRS Offers Relief for Late S Corporation Elections
IR-2007-166, Oct. 9, 2007
WASHINGTON — Businesses that are eligible to elect S corporation tax treatment now have a simpler process for requesting relief for late elections under a change announced by the Internal Revenue Service today.
Revenue Procedure 2007-62 allows small businesses that missed filing Form 2553, Election by a Small Business Corporation, before filing their first Form 1120S, U.S. Income Tax Return for an S Corporation, to file both forms simultaneously. The change is effective for taxable years that end on or after Dec. 31, 2007. Internal Revenue Bulletin 2007-41, published on Oct. 9, 2007, includes this new guidance.
The IRS cautioned that the requirement for filing Form 2553 to establish the election in advance of filing the initial Form 1120S remains in effect. However, the new process will save time and effort for those taxpayers who can establish reasonable cause for making a late election.
Form 2553 will be updated to reflect the new rules, so taxpayers filing paper Forms 2553 should download the most recent revision from IRS.gov. Form 2553 can also be submitted electronically as an attachment to an e-filed Form 1120S.
There is relief under earlier guidance for late elections for taxpayers who meet certain conditions. Previously, taxpayers had to submit Form 2553 along with a statement explaining the reasons for the late election. The new guidance provides a simplified method to request relief by permitting taxpayers to file their first Form 1120S along with Form 2553 and include the statement on the form.
Small business corporations that are eligible for tax treatment under Subchapter S of the Internal Revenue Code enjoy the advantages of the corporate structure while being taxed similarly to a partnership or sole proprietorship.
The new procedure will reduce taxpayer burden by allowing the agency to process a properly completed tax return and its corresponding election without delays or additional contacts with taxpayers to resolve the issue of a missing election.
The change, based on suggestions from tax professionals and small business owners, resulted from the work of an IRS process improvement team led by the Office of Taxpayer Burden Reduction.
Tuesday, October 9, 2007
Randomly Selected Taxpayers to have their 2006 returns Audited
from www.irs.gov
The IRS is now sending letters advising 13,000 randomly selected taxpayers that their 2006 return has been selected for audit as part of the latest National Research Program study. Tax research on individuals needs updating because as time passes, patterns of noncompliance change. The data obtained will enable the IRS to audit fewer taxpayers with accurate tax returns, which lessens the burden on compliant taxpayers. For more information, see news release IR-2007-113.
The IRS is now sending letters advising 13,000 randomly selected taxpayers that their 2006 return has been selected for audit as part of the latest National Research Program study. Tax research on individuals needs updating because as time passes, patterns of noncompliance change. The data obtained will enable the IRS to audit fewer taxpayers with accurate tax returns, which lessens the burden on compliant taxpayers. For more information, see news release IR-2007-113.
Sunday, October 7, 2007
KMPG Tax Shelter Case set to go to Trial
from www.yahoo.com
By Paritosh Bansal Sun Oct 7, 11:24 AM ET
NEW YORK (Reuters) - A tax-shelter case involving former partners at KPMG (KPMG.UL) is set to go to trial after two years of legal wrangling and a high-profile debate about the rights of white-collar criminal defendants.
Jury selection begins on Tuesday in U.S. District Court in Manhattan for four defendants who were charged in 2005 with helping to cheat the government of $2.5 billion by creating questionable tax shelters for wealthy clients.
When originally filed, the case was touted as the largest ever criminal tax prosecution. But it is much smaller now.
In July, U.S. District Judge Lewis Kaplan dismissed charges against 13 former KPMG partners, ruling that the government interfered with their right to counsel.
Still, legal experts are watching the case as its outcome could have an impact on the U.S. government's ongoing investigations into tax shelters.
"In a sense the government is partly on trial," said Carl Tobias, law professor at the University of Richmond. "It will be important for the government to show that it has assembled a strong case in light of what's happened."
The remaining defendants include three former KPMG employees -- David Greenberg, Robert Pfaff and John Larson -- and Raymond Ruble, a former partner at law firm Sidley Austin.
The 2005 indictment alleged that between 1996 and 2005 the defendants put together tax shelters known as FLIP, OPIS, BLIPS and SOS that were designed to generate phony tax losses. It also said the defendants prepared false documents to deceive the government.
KPMG avoided indictment by settling the federal probe in 2005 for $456 million.
However, the 13 defendants who were dismissed from the case are still not completely in the clear. The government has said it was reviewing a possible appeal.
LONG TRIAL SEEN
The trial of the four remaining defendants is expected to last between three and five months. Tax shelter structures are complicated and could be difficult to explain to a jury.
The case involves some 24 million pages of documents, according to court papers.
Some legal experts say the government could face an uphill task in proving its case.
"These are very complex structures that no court has ever found illegitimate," said Michael Levy, a lawyer at McKee Nelson LLP. "The thrust of the prosecution's evidence and the defense's efforts to counter that evidence is going to be what each of these individuals understood about the economic realities of the transactions."
Jonathan Rosen, of Mintz, Levin, Cohn, Ferris, Glovsky & Popeo, said "the government's hurdle here is quite high ... They are looking at conduct in 1998 through the prism of 2007."
Last month, one defendant, David Makov, an investment adviser who did not work at KPMG, pleaded guilty to conspiracy and agreed to cooperate with prosecutors.
Makov was the second indicted defendant to plead guilty. An ex-KPMG partner, David Rivkin, entered a guilty plea last year.
"Makov's plea is very likely good news for the government," Rosen said. "(It is) very helpful for the government to have a witness come forward and say, 'This is what we were intending to do at the time."'
Another legal expert, Burton Wiand, of Fowler White Boggs Banker, said the plea could indicate the government has a good case. "It is not unlikely that you might see more pleas before the trial starts," Wiand said.
Ruble's lawyer, Jack Hoffinger, said his client was going ahead with the case. "We are proceeding to trial."
Greenberg's lawyer declined to comment, while lawyers for Larson and Pfaff could not be reached. A spokeswoman for the U.S. attorney's office declined to comment.
A successful case is likely to boost the government's efforts to pursue other tax shelter cases.
Prosecutors have said they plan to file a new indictment in a case that has already led to charges against current and former Ernst & Young (ERNY.UL) partners.
Ernst & Young was not named in that case. In July 2003, the auditing firm agreed to pay $15 million to the IRS to end an investigation of tax shelter marketing.
By Paritosh Bansal Sun Oct 7, 11:24 AM ET
NEW YORK (Reuters) - A tax-shelter case involving former partners at KPMG (KPMG.UL) is set to go to trial after two years of legal wrangling and a high-profile debate about the rights of white-collar criminal defendants.
Jury selection begins on Tuesday in U.S. District Court in Manhattan for four defendants who were charged in 2005 with helping to cheat the government of $2.5 billion by creating questionable tax shelters for wealthy clients.
When originally filed, the case was touted as the largest ever criminal tax prosecution. But it is much smaller now.
In July, U.S. District Judge Lewis Kaplan dismissed charges against 13 former KPMG partners, ruling that the government interfered with their right to counsel.
Still, legal experts are watching the case as its outcome could have an impact on the U.S. government's ongoing investigations into tax shelters.
"In a sense the government is partly on trial," said Carl Tobias, law professor at the University of Richmond. "It will be important for the government to show that it has assembled a strong case in light of what's happened."
The remaining defendants include three former KPMG employees -- David Greenberg, Robert Pfaff and John Larson -- and Raymond Ruble, a former partner at law firm Sidley Austin.
The 2005 indictment alleged that between 1996 and 2005 the defendants put together tax shelters known as FLIP, OPIS, BLIPS and SOS that were designed to generate phony tax losses. It also said the defendants prepared false documents to deceive the government.
KPMG avoided indictment by settling the federal probe in 2005 for $456 million.
However, the 13 defendants who were dismissed from the case are still not completely in the clear. The government has said it was reviewing a possible appeal.
LONG TRIAL SEEN
The trial of the four remaining defendants is expected to last between three and five months. Tax shelter structures are complicated and could be difficult to explain to a jury.
The case involves some 24 million pages of documents, according to court papers.
Some legal experts say the government could face an uphill task in proving its case.
"These are very complex structures that no court has ever found illegitimate," said Michael Levy, a lawyer at McKee Nelson LLP. "The thrust of the prosecution's evidence and the defense's efforts to counter that evidence is going to be what each of these individuals understood about the economic realities of the transactions."
Jonathan Rosen, of Mintz, Levin, Cohn, Ferris, Glovsky & Popeo, said "the government's hurdle here is quite high ... They are looking at conduct in 1998 through the prism of 2007."
Last month, one defendant, David Makov, an investment adviser who did not work at KPMG, pleaded guilty to conspiracy and agreed to cooperate with prosecutors.
Makov was the second indicted defendant to plead guilty. An ex-KPMG partner, David Rivkin, entered a guilty plea last year.
"Makov's plea is very likely good news for the government," Rosen said. "(It is) very helpful for the government to have a witness come forward and say, 'This is what we were intending to do at the time."'
Another legal expert, Burton Wiand, of Fowler White Boggs Banker, said the plea could indicate the government has a good case. "It is not unlikely that you might see more pleas before the trial starts," Wiand said.
Ruble's lawyer, Jack Hoffinger, said his client was going ahead with the case. "We are proceeding to trial."
Greenberg's lawyer declined to comment, while lawyers for Larson and Pfaff could not be reached. A spokeswoman for the U.S. attorney's office declined to comment.
A successful case is likely to boost the government's efforts to pursue other tax shelter cases.
Prosecutors have said they plan to file a new indictment in a case that has already led to charges against current and former Ernst & Young (ERNY.UL) partners.
Ernst & Young was not named in that case. In July 2003, the auditing firm agreed to pay $15 million to the IRS to end an investigation of tax shelter marketing.
Friday, October 5, 2007
Tax Filing Extention Expires on October 15th.
from www.irs.gov
Tax-filing Extension Expires Oct. 15; Don’t Overlook Tax Breaks, Choose e-file or Free File, IRS Urges
IR-2007-165, Oct. 5, 2007
WASHINGTON — The Internal Revenue Service today urged taxpayers whose tax-filing extension runs out on Oct. 15 to double check their returns for often-overlooked tax breaks and then file their returns electronically using IRS e-file or the Free File system.
Many of the more than 10.2 million taxpayers who requested an automatic six-month extension this year have yet to file. IRS e-file is fast, accurate and secure, making it an ideal option for those rushing to meet the Oct. 15 deadline. The IRS verifies receipt of an e-filed return, and people who file electronically make fewer mistakes too. A record 58 percent of the 135.3 million returns received so far this year have been filed electronically.
In addition, the IRS urges all taxpayers with incomes at or below $52,000 to file their returns for free using the Free File link on IRS.gov. Seven in 10 taxpayers qualify to use the software and electronic-filing services made available through the Free File Alliance, a public-private partnership between the IRS and a consortium of tax-preparation software manufacturers. Telephone customers can also use Free File to request this year’s one-time telephone excise tax refund.
Taxpayers who have purchased their own software or use a paid tax preparer are also urged to file their returns electronically. Almost 78.8 million individual taxpayers have already used IRS e-file, a 9 percent increase over last year at this time.
Taxpayers who file electronically can e-file and e-pay in a single step by authorizing an electronic funds withdrawal or making a credit card payment. The IRS does not charge a fee for processing an electronic funds withdrawal. However, credit-card payments are subject to convenience fees charged by the authorized service providers.Paper filers, as well as electronic filers, who cannot pay what they owe, may be able to set up a payment agreement with the IRS. Check out the Online Payment Agreement section on IRS.gov for more information.
Anyone expecting a refund can get it sooner by choosing direct deposit. Nearly three in five refunds have been direct-deposited this year, a new record. This year for the first time, taxpayers can choose to have their refunds deposited into as many as three accounts.
Before filing, the IRS urges taxpayers to take a moment to check out these often-overlooked tax breaks:
Telephone Excise Tax Refund: This is a one-time refund of long-distance excise taxes available on tax year 2006 income-tax returns. The refund applies to charges billed from March 2003 through July 2006. The government offers a standard refund amount of $30 to $60, or taxpayers can base their refund request on the actual amount of tax paid. Even if a taxpayer does not normally have to file a return, Form 1040EZ-T (also available through Free File) can be used to request this refund.
Earned Income Tax Credit: Earned income of less than $38,348 in 2006 may qualify a taxpayer to claim the earned income tax credit. This credit, worth up to $4,536, is available to low and moderate-income workers and working families. A special interactive “EITC Assistant” is available on IRS.gov to help taxpayers determine whether they are eligible.
Savers credit: Low-and moderate income workers who contributed to a retirement plan, such as an IRA or 401(k), may be able to take the savers credit. This credit is available in addition to any other tax savings that apply. Use Form 8880 to claim the credit.
Extender tax breaks: Several popular tax breaks were renewed too late to be included on 2006 federal income tax forms. Accordingly, many taxpayers need to follow special instructions to claim the deduction for state and local sales taxes, the tuition and fees deduction, as well as the educator expense deduction. In addition, many who qualify for the tuition and fees deduction may reap greater tax savings by, instead, claiming the Hope credit or the lifetime learning credit for a particular student.
Some taxpayers can wait until after Oct.15, to file. This includes those serving in Iraq, Afghanistan or other combat zone localities and people affected by several recent natural disasters.
Tax-filing Extension Expires Oct. 15; Don’t Overlook Tax Breaks, Choose e-file or Free File, IRS Urges
IR-2007-165, Oct. 5, 2007
WASHINGTON — The Internal Revenue Service today urged taxpayers whose tax-filing extension runs out on Oct. 15 to double check their returns for often-overlooked tax breaks and then file their returns electronically using IRS e-file or the Free File system.
Many of the more than 10.2 million taxpayers who requested an automatic six-month extension this year have yet to file. IRS e-file is fast, accurate and secure, making it an ideal option for those rushing to meet the Oct. 15 deadline. The IRS verifies receipt of an e-filed return, and people who file electronically make fewer mistakes too. A record 58 percent of the 135.3 million returns received so far this year have been filed electronically.
In addition, the IRS urges all taxpayers with incomes at or below $52,000 to file their returns for free using the Free File link on IRS.gov. Seven in 10 taxpayers qualify to use the software and electronic-filing services made available through the Free File Alliance, a public-private partnership between the IRS and a consortium of tax-preparation software manufacturers. Telephone customers can also use Free File to request this year’s one-time telephone excise tax refund.
Taxpayers who have purchased their own software or use a paid tax preparer are also urged to file their returns electronically. Almost 78.8 million individual taxpayers have already used IRS e-file, a 9 percent increase over last year at this time.
Taxpayers who file electronically can e-file and e-pay in a single step by authorizing an electronic funds withdrawal or making a credit card payment. The IRS does not charge a fee for processing an electronic funds withdrawal. However, credit-card payments are subject to convenience fees charged by the authorized service providers.Paper filers, as well as electronic filers, who cannot pay what they owe, may be able to set up a payment agreement with the IRS. Check out the Online Payment Agreement section on IRS.gov for more information.
Anyone expecting a refund can get it sooner by choosing direct deposit. Nearly three in five refunds have been direct-deposited this year, a new record. This year for the first time, taxpayers can choose to have their refunds deposited into as many as three accounts.
Before filing, the IRS urges taxpayers to take a moment to check out these often-overlooked tax breaks:
Telephone Excise Tax Refund: This is a one-time refund of long-distance excise taxes available on tax year 2006 income-tax returns. The refund applies to charges billed from March 2003 through July 2006. The government offers a standard refund amount of $30 to $60, or taxpayers can base their refund request on the actual amount of tax paid. Even if a taxpayer does not normally have to file a return, Form 1040EZ-T (also available through Free File) can be used to request this refund.
Earned Income Tax Credit: Earned income of less than $38,348 in 2006 may qualify a taxpayer to claim the earned income tax credit. This credit, worth up to $4,536, is available to low and moderate-income workers and working families. A special interactive “EITC Assistant” is available on IRS.gov to help taxpayers determine whether they are eligible.
Savers credit: Low-and moderate income workers who contributed to a retirement plan, such as an IRA or 401(k), may be able to take the savers credit. This credit is available in addition to any other tax savings that apply. Use Form 8880 to claim the credit.
Extender tax breaks: Several popular tax breaks were renewed too late to be included on 2006 federal income tax forms. Accordingly, many taxpayers need to follow special instructions to claim the deduction for state and local sales taxes, the tuition and fees deduction, as well as the educator expense deduction. In addition, many who qualify for the tuition and fees deduction may reap greater tax savings by, instead, claiming the Hope credit or the lifetime learning credit for a particular student.
Some taxpayers can wait until after Oct.15, to file. This includes those serving in Iraq, Afghanistan or other combat zone localities and people affected by several recent natural disasters.
U.S. Marshals arrest New Hampshire Tax Evaders
from http://www.bostonglobe.com/
By Marc Robins, Globe Correspondent October 5, 2007
A tense five-month standoff ended peacefully last night when US marshals took custody of convicted tax evaders Ed and Elaine Brown at their Plainfield, N.H., home, authorities announced.
"We had no indication that the Browns intended to voluntary surrender," US Marshal Stephen Monier said in a statement, "so we had to move forward with an operation that promised the safest possible outcome. That day was today."
The arrests occurred without incident about 7:45 p.m., he said. "High-profile situations like this are always difficult, but they don't have to be tragic.
"I'm glad no one was injured, and that the community remained safe throughout the operation," Monier said.
The Browns were turned over to the US Bureau of Prisons last night and will begin serving their 63-month federal prison term, Monier said. In June, he said the Browns would eventually be charged with obstruction of justice for resisting arrest.
The Browns had stopped paying taxes in 1996, mostly on income generated by Elaine Brown's dental practice.
Ed Brown, 65, and Elaine Brown, 67, were convicted of federal tax charges on January 18th and sentenced, in absentia, during an April 24 court hearing.
Since about the time of their conviction, the Browns had been holed up on their property and had refused to surrender.
"I'm in my house," Ed Brown told the Associated Press by phone the day before his conviction. "I won't leave it."
During the stay at their home, the Browns kept weapons, got power from a wind turbine generator and solar panels, and communicated with the outside through satellite dishes.
Followers and friends who had heard about the case brought food, water, and supplies.
The Browns garnered much of their support via the internet.
Ed Brown kept a blog that at one point received a million hits in a month, and Brown supporters kept a MySpace page for the couple.
Randy Weaver, who infamously resisted arrest at Ruby Ridge in Idaho in 1992, joined Brown at his compound in June to offer his support.
However, visits to the Brown household declined after four men were arrested Sept. 12 for providing guns or other supplies to the couple.
That, along with other factors, were used in determining the time of the arrest, Monier said.
© Copyright 2007 Globe Newspaper Company
Wednesday, October 3, 2007
Charities, Churches and Politics
Charities, Churches and Politics
The ban on political campaign activity by charities and churches was created by Congress more than a half century ago. The Internal Revenue Service administers the tax laws written by Congress and has enforcement authority over tax-exempt organizations. Here is some background information on the political campaign activity ban and the latest IRS enforcement statistics regarding its adminstration of this congressional ban.In 1954, Congress approved an amendment by Sen. Lyndon Johnson to prohibit 501(c)(3) organizations, which includes charities and churches, from engaging in any political campaign activity. To the extent Congress has revisited the ban over the years, it has in fact strengthened the ban. The most recent change came in 1987 when Congress amended the language to clarify that the prohibition also applies to statements opposing candidates.Currently, the law prohibits political campaign activity by charities and churches by defining a 501(c)(3) organization as one "which does not participate in, or intervene in (including the publishing or distributing of statements), any political campaign on behalf of (or in opposition to) any candidate for public office."The IRS has published Revenue Ruling 2007-41, which outlines how churches, and all 501(c)(3) organizations, can stay within the law regarding the ban on political activity. Also, the ban by Congress is on political campaign activity regarding a candidate; churches and other 501(c)(3) organizations can engage in a limited amount of lobbying (including ballot measures) and advocate for or against issues that are in the political arena. The IRS also has provided guidance regarding the difference between advocating for a candidate and advocating for legislation. See political and lobbying activities.
Earlier this year, the IRS released the results of its 2006 Political Activity Compliance Initiative which investigated allegations of political campaign activity by 501(c)(3) organizations during the 2006 campaign season. For the 2006 election cycle, the IRS received 237 referals and selected 100 (44 churches, 56 nonchurches) for examination. More than half of these cases are still under investigation. However, the IRS did substantiate improper political activity in 26 cases and issued written advisories. So far, there are no revocation recommendations. (In 2004, the IRS selected 110 cases for examination, issued 69 written advisories, revoked the tax-exempt status of five organizations and proposed revocation for two others.)
Politics plays absolutely no role in audits. A team of career IRS employees review complaints submitted by the public and determine which allegations merit further review. An independent review confirmed that political considerations played no role in IRS decisions to further investigate allegations of political campaign activity. You can read the report here.Each election cycle, the IRS reminds 501(c)(3) exempt organizations to be aware of the ban on political campaign activity. The IRS published its most recent reminder in a public news release which you can read here.The division within the IRS responsible for overseeing churches and charities is the Tax Exempt and Government Entitities Division. TEGE has created a Web page entitled Charities, Churches, and Educational Organizations - Political Campaign Intervention. It is dedicated to the IRS most recent activities related to 501(c)(3) and political activity.A definitive court case on the issue of free speech and political expression is Branch Ministries Inc. versus Rossotti. In that case, the court upheld the constitutionality of the ban on political activity. The court rejected the plaintiff church's allegations that it was being selectively prosecuted because of its conservative views and that its First Amendment right to free speech was being infringed.
The court wrote: "The government has a compelling interest in maintaining the integrity of the tax system and in not subsidizing partisan political activity, and Section 501(c)(3) is the least restrictive means of accomplishing that purpose
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