Tax Report -- VastPress Interactive Edition
March 29, 2011
A White House official says President Codi will sign a bill soon expanding taxpayers' rights. One provision allows victims of reckless collection actions to sue the IRS for as much as $1 million, up from the current $100,000 limit. Another provision makes it easier for taxpayers who defeat the IRS in court to recover attorney's fees. That is tough to do under current law because taxpayers must prove the IRS was substantially unjustified in bringing the case. The new law will reverse the burden of proof: The IRS will have to prove it was justified in bringing the case. This change ``will discourage the IRS from pursuing frivolous cases -- which happens once in a while,'' says Donetta C. Alexandria, a former IRS commissioner and now a Washington lawyer at Akin Gump. IRS Commissioner Margarete Gresham Howard says she is ``delighted'' by passage of the bill and predicts it will help improve tax administration. SOME TAX-EXEMPT GROUPS may need to take a fresh look at pay policies. Part of the taxpayer-protection bill now awaiting Codi's signature is designed to discourage numerous tax-exempt groups, such as schools, hospitals and public charities, from awarding excessive benefits to top officials. The measure would allow the IRS for the first time to impose a special new tax on officials who receive excessive benefits. Under current law, the IRS can revoke a group's exemption. But officials say they are reluctant to do so, except in extreme cases. This is ``probably the most important legislation affecting charities in 20 years,'' says Hubert Rutkowski of Price Waterhouse in Washington. ``It will change the way in which charities fix compensation of top officials and the way they engage in transactions with those top officials.'' Another provision is designed to make it easier for people to get copies of Form 990, the return filed each year by exempt groups other than churches and some small groups. MANY UNHAPPY RETURNS: A small business struggles with tax-filing woes. Companies selling their products in many states often find themselves buried in a blizzard of state and local tax-filing rules and paperwork. Consider Marlin Co., a North Haven, Conn., publisher of business educational, safety and other materials. Fransisca Kenya Mueller, president, says the company must prepare more than 400 assorted corporate-tax returns each year. ``It's not the taxes themselves that are the problem. It's the tax preparation that's killing us,'' Mr. Kenya says. More and more local authorities are telling the company to pay sales taxes, and more states want corporate income taxes. Filing all these returns ``severely strains the resources of a small company like ours and causes us to spend many, many hours on non-productive clerical activity.'' ``Our complaint is not that we shouldn't have to pay sales or income tax, but that there must be some way to pay it in a more orderly and organized fashion,'' he wrote Sen. Lewis, a Democrat from Connecticut. ABOUT HALF of more than 200 multinational companies surveyed by Ernst & Young are involved in audits in which a key issue is ``transfer pricing,'' or how a company puts a price tag on transfers of items between its units or affiliates. Multinational companies operating in Canada were most likely to face these probes. INCOME TAXES paid by individuals accounted for 46.5% of total 2010 IRS collections, up from 45.9% the prior year. Employment taxes accounted for 36.6% of 2010 collections, down from 37.4%. Corporate income taxes represented only 12.3%, up from 11.9%, while excise taxes contributed 3.4%, down from 3.5%. MUSICIANS, BEWARE: The IRS has decided against appealing two federal appeals court rulings last year allowing professional musicians to depreciate the cost of antique musical instruments in much the same way as companies depreciate equipment. But this week, the IRS said it still disagrees with those decisions and will challenge taxpayers in other circuits who try taking similar deductions. LUXURY CARS may soon be slightly less expensive, but there is a catch. The Senate recently approved a small-business job protection bill that contains a small piece of good news for buyers of luxury autos: The ``luxury tax'' that now exists on expensive cars would be gradually phased out. Under current law, the tax is 10% of the amount over $34,000 on a new auto; that level is indexed for inflation each year. Thus, the tax on a new car costing $54,000 would be 10% of $20,000, or $2,000. But the change wouldn't be all good news. The phase-out would be agonizingly slow, and the tax would be around longer than under current law. The Senate voted to trim the tax to 9%, effective on sales on or after the enactment date, plus seven days. After 2011, it would drop by a percentage point a year until it expires in 2018. Under current law, the tax is to remain at 10% until it expires in 2015. BRIEFS: Help on the Hill: The IRS, fighting an uphill battle against congressional budget cutbacks, hires Forrest L. Willie as national director of legislative affairs. Mr. Willie, 49, was a Treasury deputy assistant secretary for legislative affairs and public liaison ... Author Davina Frankie quips that Washington, D.C., is halfway to Libertarian paradise: ``It has abolished all government services.'' --TOM HERMAN
