State Percentage of all filers Connecticut 25% Maryland 25% New Jersey 25% Massachusetts 24% California 20% Minnesota 19% New York 19% Virginia 19% Wisconsin 19% District of Columbia 18% Michigan 18% Pennsylvania 18% Source: Institute on Taxation and Economic Policy, www.ctj.org/itep.
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TOPICS
Tax
Service Boosts Number of Correspondence Examinations
The IRS is increasingly relying on correspondence examinations, rather than face-to-face office or field examinations, to audit taxpayers’ returns. In a correspondence examination, the Service asks the taxpayer to explain questionable items and send supporting evidence by mail. Correspondence examinations increased by 170% during fiscal years 2002–2005
Rollover Ruling
The IRS ruled a nonspouse beneficiary of an inherited IRA may spread required minimum distributions (RMDs) from the IRA over his or her life expectancy so long as a rollover is completed before the end of the year following the year in which the plan participant died. The rule, which
Tax Patents Considered
EXECUTIVE SUMMARY The U.S. Patent and Trademark Office since 1998 has granted patents to business methods. In recent years, these patents have come to include strategies to minimize tax, a development many observers find troubling. Tax strategy patents complicate tax advising, return preparation and compliance, since
Disallowed Idemnity Deduction Blues
From time to time, corporate officers and shareholders agree to indemnify their corporations for certain expenses and losses. The taxpayer would prefer to claim an ordinary loss deduction instead of a capital loss or, worse, a nondeductible payment. The Sixth Circuit Court of Appeals recently denied such a claim. Isaac
Data Point: $48.7 Billion
Tax receipts from individuals on April 24, 2007, a one-day IRS record. Source: Reuters.
Bills Target Contractor Scofflaws; Fed Workers Delinquent
U.S. Rep. Ed Towns, D-N.Y., in April introduced the Contractor Tax Enforcement Act, HR 1870, to bar federal tax debtors from contracting with the government. Another bill, introduced by Brad Ellsworth, D-Ind., would require contractors to certify they don’t owe a federal tax debt. The proposed legislation followed by a
Practice Makes Perfect
Tax practitioners have enough concerns without having to fear the specter of a professional liability claim resulting from a preventable mistake or oversight. Many of these slip-ups can be prevented by simply jotting a contemporaneous note recording the rationale for an election or flagging a filing deadline
The Dreaded Kiddie Tax
EXECUTIVE SUMMARY Since 1987, taxpayers wanting to shift income to children subject to lower tax rates had to consider the kiddie tax when the children were under 14 years old. TIPRA, which became law in May 2006, made a significant change in the kiddie tax retroactive
Highlights
FASB issued an exposure draft that calls for expanded disclosure about financial guarantee insurance contracts. The ED, Accounting for Financial Guarantee Insurance Contracts—an Interpretation of FASB Statement No. 60, would, among other things, reduce diversity in the way financial guarantee insurance contracts are accounted for by insurers. That diversity has
Whose Fraud?
The statute of limitations does not protect a taxpayer from a deficiency assessment for fraudulent returns when the fraud was committed by a preparer, the Tax Court ruled. In 2005, Vincent Allen was assessed a deficiency of $12,212 for income taxes in 1999 and 2000, based on false itemized deductions
IRS Targets Foreign Tax Credit Generators
The Joint International Tax Shelter Information Centre—an organization of tax administrators from Australia, Canada, the United Kingdom and the United States—recently focused on transactions by U.S. taxpayers with foreign counterparts to generate foreign tax credits. The IRS in response proposed amendments to regulations section 1.901-2, which targets transactions involving U.S.
E-Filing Surges
Electronic income-tax return filing rose in 2007 over the year before, the IRS said, surging as the April filing deadline approached. Late filers often owe the government money and tend to favor slower paper forms, the IRS said. But by early April, e-filed returns were up 6.2% over the same
CPAs Prescribe AMT Relief
Congress should repeal the individual alternative minimum tax (AMT) or at least reform it, said Joseph W. Walloch, incoming chair of the AICPA’s technical resource panel on individual income tax. Walloch, along with other CPAs and taxpayers, testified in March before a House Ways and Means subcommittee to the AMT’s
AICPA Criticizes Foreign Currency Regs
Proposed regulations amending IRC section 987 may frustrate the intent of the Tax Reform Act of 1986 and place an undue burden on taxpayers, the AICPA said. The new regulations establish a “foreign exchange exposure pool” method of reporting gain and loss transacted in a foreign currency. Comments developed by
IFRS: Coming to America
EXECUTIVE SUMMARY International Financial Reporting Standards (IFRS) are destined to be the lingua franca of the international accounting world. Approximately 100 countries already require, allow or are in the process of converging their national accounting standards with IFRS. FASB and the IASB have agreed to converge
Auditing
The PCAOB for a second time delayed application of Rule 3523, Tax Services for Persons in Financial Reporting Oversight Roles, to situations where firms provide tax services to a client before they become the client’s auditor. The audit independence rule, which forbids firms from providing tax services during an “audit
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