Daily Tax Update - June 17, 2006

IRS: ELECTRONIC FRAUD DETECTION SYSTEM "UNACCEPTABLE":
Late last week, the IRS acknowledged that approximately $300 million in fraudulent tax refunds may have been issued so far this year. IRS Commissioner Mark Everson said, "The management efforts of both the IRS and its contractor to improve our automated refund fraud detection system were insufficient and are unacceptable. Over the last several years, we've made a number of improvements to our automated systems, helping to bring in billions to the Treasury. Given this progress, I'm particularly disappointed that our efforts here have been so ineffectual." Everson continued, "We have initiated appropriate action against IRS employees who failed to act responsibly, up to and including dismissal. We have brought in experts to help us correct the way we manage contracts as we move forward. And now that we have received third-party reports on what happened, we are reviewing our options with the contractor." Everson added, "The 2006 numbers show a healthy gain in this year's tax revenues. Sound tax administration played a role in that. The failure of EFDS to provide additional protection to those revenues is unfortunate, but the IRS is moving aggressively to fix this problem.

  • Senate Finance Committee Chairman Charles Grassley (R-IA) commented on the issue. Grassley said, "The IRS continues to rely on a contractor that for the past two filing seasons couldn't deliver what it promised and accepted $20.5 million to deliver. Because of this contractor, the IRS' poor oversight of that contractor, and the IRS' own poor judgment, the IRS lost as much as $320 million over this botched project. That's money down the drain." Grassley added, "My committee, which has exclusive Senate jurisdiction over the IRS and tax policy, learned about this mess through back channels, not from the IRS. I wonder if the IRS ever would have come clean if congressional committees hadn't started looking into the issue."

INTERNAL REVENUE SERVICE - CIRCULAR 230 DISCLOSURE:
As provided for in Treasury regulations, advice (if any) relating to federal taxes that is contained in this communication (including attachments) is not intended or written to be used, and cannot be used, for the purpose of (1) avoiding penalties under the Internal Revenue Code or (2) promoting, marketing or recommending to another party any plan or arrangement addressed herein.

STEPTOE & JOHNSON LLP - TAX PRACTICE
Steptoe & Johnson LLP has one of the largest and most diverse law firm tax practices in the country. The practice covers the entire spectrum of federal taxation, including representation of businesses before the Congress, Treasury and the national office of the IRS; transactional planning for domestic and multinational corporations; complex audit and controversy work for corporations and other business interests contesting IRS adjustments; litigation before the Tax Court, Court of Federal Claims, district courts, courts of appeals and the Supreme Court. The firm's tax practice also encompasses all aspects of employee benefits (ERISA), executive compensation, tax-exempt organizations and charitable giving.  Steptoe has an extensive state and local tax practice, representing an array of business clients on complex sales and use tax, corporate income tax and property tax matters, both advising those clients and handling audits, administrative appeals, and litigation for them.  Read  more information on Steptoe's tax practice