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Fiscal year 2014 statutory audit of compliance with notifying taxpayers Of their rights when requested to extend the assessment statute

September 18, 2014 Comments off

Fiscal year 2014 statutory audit of compliance with notifying taxpayers Of their rights when requested to extend the assessment statute
Source: Treasury Inspector General for Tax Administration

IMPACT ON TAXPAYERS
The IRS is required by law to notify taxpayers of their rights when requesting an extension of the statute of limitations for assessing additional taxes and penalties. Taxpayers might be adversely affected if the IRS does not follow the requirements to notify both the taxpayers and their representatives of the taxpayers’ rights related to assessment statute extensions.

WHY TIGTA DID THE AUDIT
TIGTA is required by law to annually determine whether the IRS complied with Internal Revenue Code Section 6501(c)(4)(B), which requires that the IRS provide notice to taxpayers of their rights to decline to extend the assessment statute of limitations or to request that any extension be limited to a specific period of time or specific issues.

WHAT TIGTA FOUND
TIGTA’s review of a statistical sample of 59 closed taxpayer audit files with assessment statute extensions found that the IRS is generally compliant with Internal Revenue Code Section 6501(c)(4)(B). However, TIGTA identified a few instances in which the taxpayer audit files did not contain documentation to support that the taxpayer or the taxpayer’s representative were properly notified of the taxpayer’s rights.

WHAT TIGTA RECOMMENDED
TIGTA did not make any recommendations in this report because the number of errors was relatively small and the recommendations made in previous TIGTA audit reports are still valid for the issues reported. IRS officials were provided an opportunity to review the draft report and did not provide any comments.

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2012 Individual Income Tax Returns Complete Report (Publication 1304) Now Available

September 16, 2014 Comments off

2012 Individual Income Tax Returns Complete Report (Publication 1304) Now Available
Source: Internal Revenue Service

The Internal Revenue Service today announced the availability of Statistics of Income—2012, Individual Income Tax Returns Complete Report (Publication 1304). U.S. taxpayers filed 144.9 million individual income tax returns for tax year 2012, down 0.3 percent from 2011. The adjusted gross income less deficit reported on these returns totaled $9.1 trillion, which is an 8.7-percent increase from the prior year.

The report is based on a sample drawn from the 144.9 million individual income tax returns filed for tax year 2012 and provides estimates on sources of income, adjusted gross income, exemptions, deductions, taxable income, income tax, modified income tax, tax credits, self-employment tax, and tax payments.

Classifications include tax status, size of adjusted gross income, marital status, age, and type of tax computation. A brief text reviews the requirements for filing tax returns, explains the changes in tax law, and describes the sample used to produce the report.

CRS — Corporate Expatriation, Inversions, and Mergers: Tax Issues (September 3, 2014)

September 15, 2014 Comments off

Corporate Expatriation, Inversions, and Mergers: Tax Issues (PDF)
Source: Congressional Research Service (via Federation of American Scientists)

News reports in the late 1990s and early 2000s drew attention to a phenomenon sometimes called corporate “inversions” or “expatriations”: instances where U.S. firms reorganize their structure so that the “parent” element of the group is a foreign corporation rather than a corporation chartered in the United States. The main objective of these transactions was tax savings and they involved little to no shift in actual economic activity. Bermuda and the Cayman Islands (countries with no corporate income tax) were the location of many of the newly created parent corporations.

These types of inversions largely ended with the enactment of the American Jobs Creation Act of 2004 (JOBS Act, P.L. 108-357), which denied the tax benefits of an inversion if the original U.S. stockholders owned 80% or more of the new firm. The Act effectively ended shifts to tax havens where no real business activity took place.

However, two avenues for inverting remained. The Act allowed a firm to invert if it has substantial business operations in the country where the new parent was to be located; the regulations at one point set a 10% level of these business operations. Several inversions using the business activity test resulted in Treasury regulations in 2012 that increased the activity requirement to 25%, effectively closing off this method. Firms could also invert by merging with a foreign company if the original U.S. stockholders owned less than 80% of the new firm.

Effects of Income Tax Changes on Economic Growth

September 11, 2014 Comments off

Effects of Income Tax Changes on Economic Growth
Source: Brookings Institution

This paper examines how changes to the individual income tax affect long-term economic growth. The structure and financing of a tax change are critical to achieving economic growth. Tax rate cuts may encourage individuals to work, save, and invest, but if the tax cuts are not financed by immediate spending cuts they will likely also result in an increased federal budget deficit, which in the long-term will reduce national saving and raise interest rates. The net impact on growth is uncertain, but many estimates suggest it is either small or negative. Base-broadening measures can eliminate the effect of tax rate cuts on budget deficits, but at the same time they also reduce the impact on labor supply, saving, and investment and thus reduce the direct impact on growth. However, they also reallocate resources across sectors toward their highest-value economic use, resulting in increased efficiency and potentially raising the overall size of the economy. The results suggest that not all tax changes will have the same impact on growth. Reforms that improve incentives, reduce existing subsidies, avoid windfall gains, and avoid deficit financing will have more auspicious effects on the long-term size of the economy, but may also create trade-offs between equity and efficiency.

‘Competitiveness’ Has Nothing to Do with it

September 9, 2014 Comments off

‘Competitiveness’ Has Nothing to Do with it
Source: Social Science Research Network

The recent wave of corporate tax inversions has triggered interest in what motivates these tax-driven transactions now. Corporate executives have argued that inversions are explained by an “anti-competitive” U.S. tax environment, as evidenced by the federal corporate tax statutory rate, which is high by international standards, and by its “worldwide” tax base. This paper explains why this competitiveness narrative is largely fact-free, in part by using one recent articulation of that narrative (by Emerson Electric Co.’s former vice-chairman) as a case study.

The recent surge in interest in inversion transactions is explained primarily by U.S. based multinational firms’ increasingly desperate efforts to find a use for their stockpiles of offshore cash (now totaling around $1 trillion), and by a desire to “strip” income from the U.S. domestic tax base through intragroup interest payments to a new parent company located in a lower-taxed foreign jurisdiction. These motives play out against a backdrop of corporate existential despair over the political prospects for tax reform, or for a second “repatriation tax holiday” of the sort offered by Congress in 2004.

TIGTA: The IRS Needs To Improve its Processing of Complaints Against Tax Preparers

September 8, 2014 Comments off

The IRS Needs To Improve its Processing of Complaints Against Tax Preparers (PDF)
Source: Treasury Inspector General for Tax Administration

The Internal Revenue Service (IRS) is not processing complaints against tax preparers in a timely manner, according to a report publicly released today by the Treasury Inspector General for Tax Administration (TIGTA).

The IRS processed about 77 million individually electronically filed (e-filed) Federal income tax returns prepared by paid tax return preparers in 2013.

Identifying problem preparers through the complaint process is an essential component of the IRS’s oversight responsibilities. Therefore, the IRS developed processes and procedures through which taxpayers can file a complaint with the IRS.

The overall objective of this audit was to determine whether the IRS’s tax return complaint process is effective.

TIGTA’s review of the 8,354 complaints against preparers received by the IRS between October 1, 2012 and September 11, 2013 identified 3,953 (47 percent) for which work on the complaints had yet to be initiated. Of the 3,953 complaints, 1,920 (49 percent) had been in the IRS’s inventory for at least 60 business days with no work initiated.

In addition, IRS processes do not ensure that complaints are accurately and consistently processed. Further, processes have not been established to effectively track complaint referrals to IRS business functions to ensure that the complaints are received for evaluation and track how the referred complaints are ultimately resolved.

TIGTA made eight recommendations to the IRS, including that it establish goals and procedures to ensure that complaints are timely processed; develop a process to ensure that complaints are recorded in inventory records; ensure that criteria for referring complaints to business functions are appropriately applied and that the business functions’ resolution of complaint referrals is tracked; and establish procedures to contact taxpayers for missing information.

CRS — Individual Mandate under ACA (August 12, 2014)

September 4, 2014 Comments off

Individual Mandate under ACA (PDF)
Source: Congressional Research Service

Beginning in 2014, ACA requires most individuals to maintain health insurance coverage or otherwise pay a penalty. Specifically, most individuals will be required to maintain minimum essential coverage, which is a term defined in ACA and its implementing regulations and includes most private and public coverage (e.g., employer-sponsored coverage, individual coverage, Medicare, and Medicaid, among others). Some individuals will be exempt from the mandate and the penalty, while others may receive financial assistance to help them pay for the cost of health insurance coverage and the costs associated with using health care services.

Individuals who do not maintain minimum essential coverage and are not exempt from the mandate will have to pay a penalty for each month of noncompliance with the mandate. The penalty is the greater of a flat dollar amount or a percentage of applicable income. In 2014, the annual penalty is the greater of $95 or 1% of applicable income; the penalty increases in 2015 and 2016 and is adjusted for inflation thereafter. The penalty will be collected through federal income tax returns. The Internal Revenue Service (IRS) can attempt to collect any owed penalties by reducing the amount of an individual’s tax refund; however, individuals who fail to pay the penalty will not be subject to any criminal prosecution or penalty for such failure. The Secretary of the Treasury cannot file notice of lien or file a levy on any property for a taxpayer who does not pay the penalty.

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