"Our tax code is so complicated, we've made it nearly impossible for even the Internal Revenue Service to understand" --Treasury Secretary Paul O’Neill

Tax News from Washington, the IRS and Texas

IRS is going after firms that misclassify workers   Feb, 2008

The IRS is unveiling an electronic matching system to identify firms issuing 1099s with payments of at least $25,000 to five or more workers who don't have any other sources of earned income. The Service suspects the contractors may be employees for tax purposes. Businesses meeting these criteria should expect employment tax audits in 2008.

IRS Free File Program is Faulty   June, 2007

The Treasury Inspector General for Tax Administration (TIGTA) tested the software of participating Free File Alliance providers and discovered that some software did not always calculate tax amounts accurately.

The software is a partnership between 19 software companies and the IRS. It is available for free to taxpayers with AGIs of $52,000 or less, but only 3% of all taxpayers used it in 2006.

The report highlighted a number of problems including that one quarter of the software programs did not allow taxpayer to take either the EITC or the child and dependent care credit without taking the dependency exemption. There were not sufficient interview questions to help the taxpayer determine eligibility for the dependency exemption in 45% of the software.

The report encourages the IRS to establish a program to determine the accuracy of the tax software before next filing season. However, the IRS has rejected the recommendation that they provide tax law accuracy testing of the software, stating that "testing of commercial tax preparation software to determine its accuracy in applying the tax law would be a monumental challenge".

IRS 2006 Data Book   March 16, 2007

The Internal Revenue Service announced today that its 2006 Data Book is available on the IRS Web site at IRS.gov. The report describes activities conducted by the IRS from October 1, 2005, through September 30, 2006, and includes information about returns filed and taxes collected, enforcement, taxpayer assistance and the IRS budget and workforce.

During Fiscal Year (FY) 2006, the IRS collected more than $2.2 trillion in tax and processed over 228 million returns. Over 80 million returns, including 54.3 percent of individual income tax returns, were filed electronically in FY 2006. Over 108 million individual income tax return filers received tax refunds totaling $243 billion. In FY 2006, IRS spent an average of 42 cents to collect each $100 of tax revenue.

IRS examined nearly 1.3 million individual income tax returns in FY 2006, more than double the number examined in FY 2000. Examinations of business tax returns grew for the second year in a row, reaching over 52,000 in 2006. IRS personnel answered over 32.6 million toll-free calls from taxpayers, and the IRS Web site received about 194 million visits.

IRS Launches On-Line Workshop for Exempt Organizations   

The IRS launched a new Web-based version of its popular Exempt Organizations Workshop covering tax compliance issues confronted by small and mid-sized tax exempt organizations.

The free online workshop–Stay Exempt–Tax Basics for 501(c)(3)s–consists of five interactive modules on tax compliance topics for exempt organizations:

* Tax-Exempt Status – How can you keep your 501(c)(3) exempt?
* Unrelated Business Income – Does your organization generate taxable income?
* Employment Issues – How should you treat your workers for tax purposes?
* Form 990 – Would you like to file an error-free return?
* Required Disclosures – To whom do you have to show your records?

Users can access this new training program at www.stayexempt.org. Users can complete the modules in any order and repeat them as many times as they like. The online training website does not require registration and its visitors will remain anonymous.

April 17, 2007 Tax Deadline    IR 2007-15; Q&A—April 17 Deadline

IRS has announced since Monday April 16 is a legal holiday in the District of Columbia, returns and payments that would otherwise be due on that date will be timely if filed or paid by Tuesday, April 17, 2007. The deadline will apply to any of the following:

* 2006 federal individual income tax returns, whether filed electronically or on paper.
* Requests for an automatic six-month tax-filing extension, whether submitted electronically or on Form 4868.
* Tax year 2006 balance due payments, whether made electronically (direct debit or credit card) or by check.
* Tax-year 2006 contributions to a Roth or traditional IRA.
* Individual estimated tax payments for the first quarter of 2007, whether made electronically or by check.
* Individual refund claims for tax year 2003, where the regular three-year statute of limitations is expiring.

Bill to Repeal AMT for Individuals    Jan. 4, 2007

Baucus and Grassley introduce bill to repeal AMT for individuals, effective for 2007 On Jan. 4, Max Baucus (D-MT), incoming Chair of the Senate Finance Committee, and Chuck Grassley (R-MT), incoming Ranking Member, introduced a bill to repeal the alternative minimum tax (AMT) for individuals. The “Individual Alternative Minimum Tax Repeal Act of 2007” would apply for tax years beginning after Dec. 31, 2006. Baucus commented that AMT repeal is “really a bellwether for one of the Finance Committee's biggest priorities this year. The new Congress intends to provide tax relief to middle-income Americans in a fiscally responsible way, and the AMT is the right place to start,” he said. “It's time not only to stop this stealth tax for 2007, but to look for longer-term solutions that are actually financially feasible,” he added.

Baucus didn't discuss how he would pay for AMT repeal, which would cost an estimated $600 billion over ten years.

IRS Announces 2007 Standard Mileage Rates   

Beginning January 1, 2007, the standard mileage rates for the use of a car (including vans, pickups or panel trucks) will be:

48.5 cents per mile for business miles driven;
20 cents per mile driven for medical or moving purposes; and
14 cents per mile driven in service to a charitable organization.

The new rate for business miles compares to a rate of 44.5 cents per mile for 2006. The new rate for medical and moving purposes compares to 18 cents in 2006. The rate for charitable miles is set by the code and is not adjusted for inflation. The primary reasons for the higher rates were higher prices for vehicles and fuel during the year ending in October.

Installment Agreement Fees Increase   

The IRS issued final regulations increasing the user fees for submitting an installment agreement. The fees increase from $43 to $105 on January 1, 2007. The user fee for low-income taxpayers and taxpayers who pay through a direct debit program remains at $43. The user fee for restructuring an installment agreement increases from $24 to $43.

Form 1040 Changes for 2006   

Because of the late passage of the extenders, the 2006 tax forms do not contain specific lines for entering the deductions.

The deduction for state and local general sales taxes will be claimed on Schedule A Line 5, "State and local income taxes." Enter "ST" on the dotted line to the left of Line 5 to claim the general sales tax deduction instead of the deduction for state and local income tax.

The $4,000 deduction for tuition and fees will be claimed on Form 1040, Line 35, "Domestic production activities deduction." Enter "T" on the dotted line to the left of that line entry if claiming the tuition and fees deduction, or "B" if claiming both a deduction for domestic production activities and the deduction for tuition and fees. For those entering "B," taxpayers must attach a breakdown showing the amounts claimed for each deduction. The tuition and fees deduction cannot be claimed on Form 1040A.

The $250 deduction for educator expenses will be claimed on Form 1040, Line 23, "Archer MSA Deduction." Enter "E" on the dotted line to the left of that line entry if claiming educator expenses, or "B" if claiming both an Archer MSA deduction and the deduction for educator expenses on Form 1040. If entering "B," taxpayers must attach a breakdown showing the amounts claimed for each deduction. The educator deduction cannot be claimed on Form 1040A.

Refund of Federal Excise Tax on 2006 Tax Return   

In response to five U.S. circuit court decisions, the IRS announced it will issue refunds of federal excise taxes collected on long distance telephone services billed to customers after February 28, 2003 and before August 1, 2006 (IRS Notice 2006-50, 2006-25 IRB 1141). The courts ruled that the 3% federal telephone service excise tax does not apply to long distance service as it was previously billed (not based on the time and distance of a telephone call and thus not subject to the tax imposed by IRC Sec. 4251).

Refunds will be claimed on a separate line on the 2006 individual federal income tax return filed. The IRS is creating a special short form (Form 1040EZ-T) for taxpayers who do not need to file a return.

In IRS News Release 2006-137, the IRS announced standard safe harbor amounts that individuals may claim for their refund in lieu of claiming the refund for actual taxes paid (and having to be ready to provide the necessary backup documentation). The standard amounts are based on the total number of exemptions claimed on the 2006 federal income tax return, and are as follows:

$30 for an individual filing a return with one exemption,
$40 for an individual filing a return with two exemptions,
$50 for an individual filing a return with three exemptions,
$60 for an individual filing a return with four or more exemptions.

When Rental Income is Not Rental Income    May 2006

Here is one from the “boy that’s a bummer” file. Have you seen the reality show Extreme Makeover Home Edition? If not, it is a show that builds a new home for a deserving family. What a great idea, a free new home. Not exactly. In this particular case, the show’s producers paid rent in the amount of $50,000 to the family for the use of their home. Section 280A(g) provides, in part, that rental income from a residence that is rented for less than 15 days during the year is excluded from the taxpayer's gross income. Based on that, it would appear the homeowners received $50,000 in tax-free income. Not so.
The IRS, in an information letter, pointed out that Section 74(a) states that gross income includes amounts received as prizes and awards, and that under Reg. 1.74-1(a), taxable prizes and awards specifically include amounts received from radio and television giveaway shows. So there you have it, rental income is not always rental income. In this particular case, it was a taxable prize.

2006 Mileage Rates    IR-2005-138 December 2, 2005

Beginning Jan. 1, 2006, the standard mileage rates for the use of a car (including vans, pickups or panel trucks) will be:

·    44.5 cents per mile for business miles driven;
·    18 cents per mile driven for medical or moving purposes; and
·    14 cents per mile driven in service of charitable organizations, other than activities related to Hurricane Katrina relief.

The new rate for business miles compares to a rate of 40.5 cents per mile for the first eight months of 2005. In September, the IRS made a special one-time adjustment for the last four months of 2005, raising the rate for business miles to 48.5 cents per mile in response to a sharp increase in gas prices, which topped $3 a gallon.

Non-filers Tax Gap Estimated at $30 Billion    November 28, 2005

TIGTA audit says IRS should establish a Non-Filer Program Office [Audit No. 2005-30-011]: The recommended office would be responsible for developing a strategy, implementing management control systems and providing accountability for all IRS non-filer efforts, the Treasury Inspector General for Tax Administration (TIGTA) said in an audit released on Nov. 28. "The IRS needs better coordination among its business divisions to ensure resources are being effectively used to bring non-filers into the tax system and ensure future compliance," TIGTA said. The tax gap due to non-filers has been estimated at $30 billion. According to the audit, since fiscal year 2001, each IRS business division has independently directed its own non-filer activities. The agency lacks a comprehensive, national non-filer strategy as well as an executive responsible for overseeing each business division's non-filer efforts, TIGTA said, adding that measurable program goals would also be in order. Examples of measurable goals suggested by TIGTA include the number of returns secured from non-filers, total payments received and the recidivism rate. "Without such measurable program goals, management is unable to determine whether efforts to improve program efficiency and effectiveness are achieving desired results," TIGTA said. The audit can be found at http://www.treas.gov/tigta .

IRS' Private Debt Collection Project    November, 2005

It's full speed ahead for IRS' private debt collection project. The Service now expects to award contracts to three collection companies in February, 2006 and launch the program in June. The firms will be tasked with collecting unpaid income taxes from folks owing $25,000 or less. Originally, IRS hoped to start collections in January, 2006 but it was forced to redo the bidding process after a firm barred from bidding sued IRS and won. IRS will add seven to nine more collection firms to the program over the next few years and expand collection efforts to businesses.

More Productive Audits Starting in 2006    November, 2005

More-productive audits will soon be on the way. The Service has just finished recalibrating its examination selection formulas for individual returns, the first such overhaul since the late 1980s. The new formulas will be used starting in 2006 and are expected to result in fewer no-change audits among both individuals and the self-employed.

Automatic 6 Month Extension    IR-2005-131 November 4, 2005

Taxpayers will be able to request an automatic, six-month tax-filing extension for most common individual and business returns under regulations released today by the Treasury Department and the Internal Revenue Service.

The new regulations provide streamlined and simplified procedures that are expected to save taxpayers between $73 million and $94 million annually, by eliminating or consolidating several existing IRS forms. Beginning Jan. 1, 2006, most individuals and businesses will be able to request a full six-month tax-filing extension, without a reason or even a signature.

Who pays taxes?

High-incomers are bearing a larger share of the income tax burden, according to new Internal Revenue Service data from 2003 returns, the most recent year it has analyzed.

The top 1% of filers paid 34.3% of all federal income tax in 2003, up from 33.7% in 2002. They made just 16.8% of all adjusted gross income. An AGI of more than $295,500 was needed to be in this group of taxpayers.

The top 5% paid 54% of total income tax and made 31% of total AGI. They all had incomes of $130,100 or more.

And the top 10% of all filers, those with AGIs of at least $94,900, bore 66% of the income tax burden while tallying a little more than 42% of total adjusted gross income.

The bottom 50% of filers paid just 3.5% of total income tax. Their share is so low because payroll taxes aren't included in the figures and because many of them receive tax relief from the earned income credit. In fact, the lowest earners actually had a negative income tax rate.

Standard mileage rate increases by 8¢ for last four months of 2005-medical rate up by 7¢     IR 2005-99

In response to the recent dramatic gas price increases, IRS has announced that the optional standard mileage rate has increased 8¢ to 48.5¢ a mile for all business miles driven between Sept. 1 and Dec. 31, 2005, up from 40.5¢ for the first eight months of 2005. The rate for computing deductible medical or moving expenses between Sept. 1 and Dec. 31, 2005 is boosted to 22¢ a mile, up from 15¢ for the first eight months of 2005. The rate for providing services for charitable organizations is set by statute, not the IRS, and remains at 14¢ a mile.

Employers that require employees to supply their own autos may reimburse them at a rate that doesn't exceed 48.5¢ a mile for employment-connected business mileage during the last four months of 2005, whether the autos are owned or leased. The reimbursement is treated as a tax-free accountable-plan reimbursement if the employee substantiates the time, place, business purpose, and mileage of each trip. Additionally, an employee's personal use of lower-priced company autos during the last four months of 2005 may be valued at 48.5¢ per mile if the conditions specified in Reg. § 1.61-21(e)(1) are met.

IRS Increasing Company Executives Audits    July 15, 2005

A recent series of business audits uncovered much noncompliance by corporate officers. Agents are focusing their sights on executives with incomes over $100,000. Currently, 6,800 returns are being reviewed. Examiners will be looking at many issues, including deferred-pay plans and fringe benefits. New IRS audit guidelines for big firms require IRS agents to audit automatically the 1040s of the top five officers.

About 5,000 S Corporations Face Line-by-Line Audits    July 15, 2005

The next National Research Program, dubbed NRP2 by some insiders, will start this October, 2005 examining 2003 and 2004 returns filed by S-corps (SB/SE is on the hook for 4,700 returns while LMSB is to audit 300 returns). The IRS will use the results of these detailed compliance examinations to recalibrate its outdated audit selection formulas for S companies. Agents will watch out for cases where businesses pay little or no salary to owners in an attempt to minimize their employment tax liabilities.

Misuse of Tax Court Leads to Hefty Fines    IR-2005-64, June 2, 2005

Taxpayers who improperly use the courts to delay tax collections are paying a stiff price, according to the Internal Revenue Service.

In published cases since the beginning of 2004, the U.S. Tax Court imposed penalties totaling $117,500 against taxpayers for pursuing frivolous cases to delay tax collections. This brings the total penalties in such cases since 2001 to $378,900.

Treasury inspectors have uncovered massive noncompliance with S Corps   May, 2005

36,000 one-owner S corporations with profits of $100,000 or more paid NO payroll taxes on the profits because no salary was taken. Ditto for 40,000 S corporations with profits in the $50,000-$100,000 range. This costs the government about $15 billion a year in payroll tax revenue. Although the IRS now has a special audit project for cases where S owners take unreasonably low pay, it lacks the staff to audit all these firms.

Treasury is recommending that Congress close the loophole. It wants to subject to employment taxes all ordinary operating gains of S corporations that accrue to more-than-50% owners and their relatives.

With all the talk about Social Security's solvency, any plan to raise the system's revenues will get serious consideration by Congress.

Cafeteria plan "use it or lose it rule" may be modified to allow for a 2-1/2 month grace period     Notice 2005-42, 2005-23 IRB

In a surprise move, IRS has announced that employers may elect to modify the cafeteria-plan "use it or lose it" rule to allow for a 2-1/2 month grace period. More specifically, if their cafeteria plan is amended, participants with a balance remaining at the end of the plan year will be able to use it for qualifying expenses within a 2-1/2 month grace period following the end of the plan year.

Self-Employed Health Insurance Legislation

Senate Finance Committee members Jeff Bingaman (D-NM) and Craig Thomas (R-WY) recently introduced legislation that would reduce the cost of health insurance for the self-employed by allowing these workers to exclude the cost of their health insurance from their income when calculating payroll taxes. Upon introducing the bill, S. 663, the Equity for Our Nation’s Self-Employed Act of 2005, Bingaman said, “It is unfair for self-employed workers to pay payroll taxes on their health insurance payments while larger businesses do not. We owe it to these hard-working men and women to give them the same treatment as large corporations.” The bill is endorsed by a number of organizations, including the NFIB (National Federation of Small Businesses) and the U.S. Chamber of Commerce.

Form 941 Annualization

IRS plans to let small firms file employment tax returns annually instead of quarterly for 2006. To be eligible, firms must have deposited less than $1,000 a year in payroll taxes and not made any late deposits for two years. IRS is developing a new Form 944 for these annual filers.

Tax Preparation Qualifications

IRS-licensed enrolled agents and certified public accountants must pass training and certification requirements. But the unenrolled preparer doesn’t have to have any training to set up shop. "Unenrolled preparers are responsible for the most number of cases where filers get into trouble," said Dianne Glass, the IRS's Taxpayer Advocate for South Texas. "They don't have anyone to regulate them, any testing requirements, or any continuing education requirements to stay up on tax law."

President to Request Extra Budget for IRS Enforcement

The President’s FY06 budget will request an additional $500 million for enforcement activities, which is a 7.8% jump over FY05 enforcement levels. The FY06 request of $6.89 billion is intended to provide additional resources to examine more tax returns, collect delinquent taxes and investigate allegations of tax avoidance. Treasury Secretary Snow stated in a press release that “Increasing enforcement not only catches tax cheats, but discourages others from avoiding paying their taxes.” Meanwhile, Commissioner Everson stated that “enforcement more than pays for itself.”

Texas - Sales And Use Tax - Occasional use tax return.

The January 2005 issue of Texas Tax Policy News reports that the Texas Comptroller's Office has developed a use tax return for Texans who do not have sales tax permits but need to pay Texas use tax on goods purchased from out-of-state suppliers. Form 01-156, Texas Occasional Use Tax return, is available on-line from the Comptroller's website at http://window.state.tx.us/taxinfo/taxforms/01-forms.html. Texas allows a credit for legally imposed sales or use tax paid to another state.

National Taxpayer Advocate Releases 2004 Report to Congress
Cites Tax Law Complexity as Most Serious Problem Facing Taxpayers - January 11, 2005

WASHINGTON National Taxpayer Advocate Nina E. Olson today released a report to Congress that identifies the complexity of the Internal Revenue Code as the most serious problem facing taxpayers and the IRS alike.

“Without a doubt, the largest source of compliance burdens for taxpayers and the IRS alike is the overwhelming complexity of the tax code, and without a doubt, the only meaningful way to reduce these compliance burdens is to simplify the tax code enormously,” Olson writes. The report cites the alternative minimum tax (AMT), the earned income tax credit (EITC), and the large number of provisions designed to encourage taxpayers to save for education and for retirement as key illustrations of the problems of complexity wrought by the 1.4 million-plus word tax code.

The report praises the IRS for making major strides in several areas. With respect to the EITC, the report compliments the IRS for developing a positive strategic vision for administering the program, for discontinuing its use of confusing “combination letters” in EITC correspondence audits, and for improving the quality and clarity of its letters and notices. It states that the IRS has continued to improve its toll-free phone service. It also finds that the IRS has initiated important innovations in correspondence imaging that should significantly reduce the number of lost or misplaced taxpayer submissions and lead to quicker processing and responses.

At the same time, the report notes that the IRS is trying to compensate for budget constraints by expanding its use of centralized and automated examination and collection processes and limiting processes that require human intervention or contact. “In the Examination and Collection functions, the movement away from direct human interaction can create problems for the tax system as well as for taxpayers,” Olson writes. To help protect taxpayers, Olson urges the IRS to bolster support for “safety valves” like the offer in compromise program, collection due process proceedings, the Taxpayer Advocate Service (TAS), and an independent Office of Appeals.

The report contains an IRS research study, published in a separate volume, which suggests the need for improvement in EITC examination procedures and highlights the importance of direct conversations with taxpayers. In a sampling of cases in which EITC claims had been denied and the taxpayer requested reconsideration of the initial determination, 43 percent of taxpayers ultimately received the EITC, and the amount received was, on average, 94 percent of the amount claimed on the original return. Moreover, when TAS employees initiated contact with taxpayers by phone instead of relying solely on correspondence, the likelihood of a taxpayer receiving additional EITC increased with the number of phone calls made by the TAS employee. Olson observes that the results of this study have “far-reaching implications for the tax system.”

The report cites a separate research study which found that only a tiny percentage of taxpayers who qualify for assistance from TAS (i.e., because they are suffering a significant hardship) have ever heard of TAS or end up requesting assistance from TAS. Olson urges the IRS to provide expanded training to employees about when it is appropriate to refer cases to TAS and to support an outreach campaign to make those taxpayers most likely to need TAS’s services more aware generally of TAS’s existence.

The report notes that four proposals the National Taxpayer Advocate recommended in recent reports to Congress were enacted into law last year – a uniform definition of a child, an “above-the-line” deduction for contingent attorney fees and attorney fee awards in certain nonphysical personal injury cases, authorization for the IRS to enter into partial-pay installment agreements, and the availability of income averaging for commercial fishermen.

“There is, however, one nagging problem that has not been adequately addressed – the Alternative Minimum Tax (AMT) for individuals,” Olson writes. “The need for AMT relief looms like the proverbial elephant in the room, and for that reason we once again, for the third year, recommend its repeal.”

The report also recommends that Congress simplify certain tax burdens on small businesses, streamline and simplify tax incentives for education savings and spending, streamline and simplify tax incentives for retirement savings, provide guidance to the IRS to accept a broader array of offers in compromise submitted under a new “equitable consideration” standard, retain but make certain changes to improve collection due process (CDP) hearings, direct the IRS to develop a basic e-filing template and a direct filing portal so that all taxpayers can electronically file their returns without paying fees, and take steps to reduce the enormous burden that the tax gap imposes on compliant taxpayers.

The Taxpayer Advocate Service is an independent organization within the IRS.

IRS Updates Private Delivery Service List    IRS Publication 15 - Reminders Section, January 2005

In general, a return is deemed to be timely filed if it is mailed on or before the prescribed due date. Formerly applicable only to returns mailed via the U.S. Postal Service, this so-called timely-mailing-as-timely-filing rule now covers returns mailed via certain IRS-designated Private Delivery Services as well.

DHL Express (DHL): DHL Same Day Service; DHL Next Day 10:30 am; DHL Next Day 12:00 pm; DHL Next Day 3:00 pm; and DHL 2nd Day Service.

Federal Express (FedEx): FedEx Priority Overnight, FedEx Standard Overnight, FedEx 2 Day, FedEx International Priority, and FedEx International First.

United Parcel Service (UPS): UPS Next Day Air, UPS Next Day Air Saver, UPS 2nd Day Air, UPS 2nd Day Air A.M., UPS Worldwide Express Plus, UPS Worldwide Express.

IRS Issues Tables for Computing Optional Deduction for State and Local Sales Taxes    December 17, 2004

The IRS announced Publication 600, Optional State Sales Tax Tables, is available on its web site. The IRS also will send Pub. 600 to all taxpayers who receive a Form 1040 tax package. The tax law authorizing this optional deduction for state and local sales tax instead of state and local income tax was enacted too late in the year to include the tables in the tax instruction books.

Optional sales tax deduction    The American Jobs Creation Act of 2004 authorized the sales tax deduction as an option for taxpayers who itemize deductions, allowing them to choose between deductions for state and local income or sales taxes. Taxpayers will indicate by a checkbox on Line 5 of Schedule A which type of deduction they are claiming. The law provides this choice for Tax Years 2004 and 2005 only.

Tables provide alternative to saving receipts    The tables provide taxpayers a sales tax deduction amount as an alternative to saving their receipts throughout the year and tabulating the amount actually paid. Taxpayers use their income level and number of exemptions to find the sales tax amount for their state. The table instructions explain how to add an amount for local sales taxes if appropriate.

Taxpayers also may add to the table amount any sales taxes paid on the following:

a motor vehicle, but only up to the amount of tax paid at the general sales tax rate; and
an aircraft, boat, home (including mobile or prefabricated), or home building materials, if the tax rate is the same as the general sales tax rate.

IRS Pub. 600 cautions that sales taxes paid on items used in the taxpayer's trade or business should not be included.

Taxpayers likely to benefit from the deduction    While this deduction will mainly benefit taxpayers who live in a state with a state or local sales tax but no income tax, i.e., Alaska, Florida, Nevada, South Dakota, Texas, Washington, and Wyoming, it may provide a larger deduction to any taxpayer who paid more in sales taxes than state income taxes. You must itemize (Schedule A) to take advantage of this deduction.

IRS New Nonfiler Initiative     From National Assoc of Enrolled Agents News April, 2004

In the next few months, IRS will unveil a comprehensive, national nonfiler initiative. It will include identification and selection using automated processes and will have a compliance piece. This will be a research and data driven program rather than the previous scattered approach of many little programs. IRS already knows 98% of individual nonfilers and the states are sharing information, particularly from state amnesty programs, with the feds.

"Pennies on the Dollar" Claims     IR-2004-17, Feb. 3, 2004

WASHINGTON — The Internal Revenue Service today issued a consumer alert advising taxpayers to beware of promoters’ claims that tax debts can be settled for “pennies on the dollar” through the Offer in Compromise Program.

Some promoters are inappropriately advising indebted taxpayers to file an Offer in Compromise (OIC) application with the IRS. This bad advice costs taxpayers money and time. An Offer In Compromise is an agreement between a taxpayer and the IRS that resolves the taxpayer's tax debt. The IRS has the authority to settle, or "compromise," federal tax liabilities by accepting less than full payment under certain circumstances.

“This program serves an important purpose for a select group of taxpayers. But we are increasingly concerned about unscrupulous promoters charging excessive fees to taxpayers who have no chance of meeting the program’s requirements,” said IRS Commissioner Mark W. Everson. “We urge taxpayers not to be duped by high-priced promises.”

The OIC may be considered only after other payment options have been exhausted. If taxpayers are unable to pay their taxes in full, there are other payment options, such as monthly installment agreements, that must be explored before an OIC can be submitted.

National Taxpayer Advocate Service has 2100 employees scattered around the U.S. and closed 230,000 cases in their fiscal year ending September 31, 2003.

Tax Receipts Fall. Individual income tax receipts dropped to about $794 billion in the year ending September 30, 2003 from $858 billion the prior year. Corporate income tax revenues fell to $131.8 billion from $148 billion. Federal estate and gift tax revenues slid to $22 billion from $26.5 billion.