Tax News

CCH (cch.taxgroup.com) reports:

  Spousal support payments that an individual received from her former husband pursuant to a divorce decree were alimony and were includible in her income in the year received. The taxpayer failed to establish that: (1) the divorce decree designated each of the monthly payments at issue as a payment that is not includible in gross income under Code Sec. 71(a) and not allowable as a deduction under Code Sec. 215; (2) she and her former husband were members of the same household at the time the monthly payments were made; or (3) the divorce degree provided that her former husband was obligated to make any spousal support payments after the taxpayer's death. Under state (Ohio) law, any award of support payments will terminate automatically upon the death of either party unless the order expressly provides otherwise.

  The taxpayer was liable for the Code Sec. 6662 underpayment penalty because she failed to show that she had reasonable cause for not including the payments in her income or that she acted in good faith with respect to the underpayment. Her claimed belief that the term "alimony" related to child support or that an amount paid as spousal support was not includible in gross income was without a reasonable basis.

K.J. Reid, TC Memo 2008-177, Dec. 57,498(M)

Other References:

 
Code Sec. 71

  CCH Reference - 2008FED ¶6094.265

  CCH Reference - 2008FED ¶6094.38

 
Code Sec. 6662

  CCH Reference - 2008FED ¶39,651G.305

  Tax Research Consultant

  CCH Reference - TRC INDIV: 21,200 CCH Reference - TRC PENALTY: 3,106.10

CCH (cch.taxgroup.com) reports:

  "More than 1 million businesses are cheating on their payroll taxes to the tune of $58 billion," reported Sen. Norm Coleman, R-Minn., ranking member of the Senate Homeland Security and Governmental Affairs Permanent Subcommittee on Investigations. The July 29 subcommittee hearing coincided with the release of a related Government Accountability Office (GAO ) report, "Tax Compliance --Businesses Owe Billions in Federal Payroll Taxes (GAO-08-617).". The subcommittee examined the magnitude of unpaid payroll taxes by businesses and the IRS's collection enforcement methods for unpaid payroll taxes.

GAO Analysis

  The GAO study revealed that, as of September 30, 2007, over 1.6 million businesses owed more than $58 billion in unpaid payroll taxes. The study also indicated that more than 70 percent of all unpaid payroll taxes are owed by businesses with more than four quarters of unpaid federal payroll taxes. Additionally, more than 25 percent are owed by businesses that have tax debts for more than 12 quarters, according to the GAO.

Lien Filings

  According to the GAO study, approximately $9 billion (of the $58 billion in unpaid payroll taxes) was in a queue awaiting assignment for collection action. Over 80 percent of payroll tax cases (as of September 2007) in the queue awaiting assignment did not have a lien filed. When a lien is not filed, the federal government's interest in the property of the tax debtor is not protected, Coleman noted.

  IRS Deputy Commissioner Linda Stiff admitted that the "queue is a weakness in the system."" "We have to identify actions so that taxes can be assessed and liens can be filed." Stiff told the subcommittee that she is working with the Service-Wide Employment Tax Advisory Council collections task force on how the IRS should handle the cases in the queue. Subcommittee Chairman Carl Levin, D-Mich., questioned whether there was any reason a lien should not be automatically filed in such situations. Stiff agreed that, under certain circumstances, a lien should be automatically filed.

Criminal Prosecution

  Voluntary compliance is not working, according to Sen. Claire McCaskill, D-Mo., based on her review of several studies on payroll abuse. "Individuals are purposely engaging in criminal activity because they know they can get away with it. If an individual has received notice after notice and still refuses to comply with the tax laws, I don't see why we need to a task force to tell us that." McCaskill emphasized the need for the IRS to focus on criminal prosecution for repeat offenders.

  Steven Sebastian, director, Financial Management and Assurance, GAO, testified that revenue officers have indicated that the IRS and the Department of Justice are reluctant to prosecute such cases in the criminal arena because prosecution is too laborious. Sebastian added that, in all of the studies he has participated in over the last few years, he continues to see repeat offenders flagrantly disregard the tax laws. Stiff agreed that individuals should be criminally prosecuted when warranted.

  By Chandra Walker, CCH News Staff

Opening Hearing Statement of Chairman Levin

Opening Hearing Statement of Ranking Member Coleman

Written Testimony of IRS Deputy Commissioner Stiff

GAO Report: Tax Compliance --Businesses Owe Billions in Federal Payroll Taxes (GAO-08-617)

GAO Testimony: Tax Compliance --Businesses Owe Billions in Federal Payroll Taxes (GAO-08-1034T)

CCH (cch.taxgroup.com) reports:

  The Senate on July 29 voted again on a motion to proceed to a House-approved tax extenders bill, the Energy and Tax Extenders Bill of 2008 (HR 6049), but the motion did not garner the necessary two-thirds majority and failed 53-43; the previous vote to proceed to the House bill, on June 17, failed as well (TAXDAY, 2008/06/18, C.1). The vote was an attempt to avoid procedural issues by moving first to a House vehicle that could be amended with Senate language --as, by law, tax bills must originate in the House.

  The Senate plans to proceed to the Jobs, Energy, Families, and Disaster Relief Bill of 2008 (Sen 3335) offered by Senate Finance Committee Chairman Max Baucus, D-Mont., on July 30. That bill does not offset the cost of a one-year patch for the alternative minimum tax, an issue that has led many Republicans to vote against the House extenders package, which is fully paid for. The Baucus measure also includes temporary, rather than permanent, offsets for temporary extensions of tax cuts and omits controversial provisions that have drawn objections from Republicans. The Senate can comply with procedural requirements for tax legislation by passing the Baucus bill, and then replacing the text of a House bill with the same language.

  The vote on extenders legislation came about as Senate Democratic and Republican leaders sparred over procedural moves on energy legislation that would curb the practice of oil speculation (Sen 3268). As both parties jockey for voter approval on addressing rising fuel costs, Senate Majority Leader Harry Reid, D-Nev., linked approval of the extenders legislation, which contains approximately $17 billion in renewable energy-related tax breaks, with Republican demands to offer amendments to Sen 3268 allowing oil drilling in U.S. coastal waters. Democrats are adamantly opposed to such action. "This is the third time this year Republicans have said no to creating incentives for innovators to invest in alternative energy sources, which would also create good-paying jobs here at home and begin to break our dependence on oil and move the nation toward clean, affordable and renewable fuels," said Reid following the vote.

  Earlier in the day, Baucus spoke to reporters at a press conference ostensibly promoting renewable energy, but the forum served more as a soapbox to promote his extenders package. "Americans want Congress to steer this country toward alternative and renewable energies," Baucus said. "With gas at $4 a gallon, why on earth would we wait another minute to start boosting the new energy technologies promoted in this tax relief bill?"

  The House measure (HR 6049) would also extend a group of expiring business and family tax provisions and provide a host of tax incentives to increase the production of renewable energy. House Ways and Means Committee Chairman Charles B. Rangel, D-N.Y., had tried to portray his extenders bill, which was approved by the House on May 21, as a significant step toward reducing American dependence on foreign oil, but GOP lawmakers were more intent on adding provisions that would repeal the alternative minimum tax and extend the Bush tax cuts passed in 2001 and 2003. At the time, Rangel criticized the provisions because they were not offset by spending cuts or tax increases, saying they would add to the federal budget deficit.

  By Jeff Carlson, CCH News Staff

SFC Release: Baucus Statement on Sen 3335, the Jobs, Energy, Families, and Disaster Relief Act of 2008

SFC Release: Democratic Senators, Energy Expert Discuss Efforts to Increase Investments in Alternative and Renewable Energy, Conservation
 

Tax Analysts report: