Daily Tax Update - August 25, 2006

The Daily Tax Update will be published on a periodic basis until Congress returns from its August recess on September 6, 2006.

On September 6, the Senate Finance Committee will hold a hearing regarding executive compensation including backdating of stock options and tax treatment of executive compensation, retirement and benefits.

  • In announcing the hearing, Committee Chairman Charles Grassley (R-IA) said, “It’s one thing for an executive to make big profits because he’s improved his company, but it’s a whole different thing to make big profits because he’s playing fast and loose with the books.  Outside the corporate suite, Americans don’t get to pick and choose how much of their employer-provided income is taxed.  Their employers report their salaries to the IRS and that’s that.  It’s frustrating to think that after the corporate scandals of recent years, some executives are still looking for ways to take unfair advantage for personal gain.  On top of that, it looks as though boards of directors are approving bad deals without shareholder approval.  On the backdating of stock options, the federal government needs to take a hard look at that problem.  I continue to ask federal officials to let me know whether the current tax laws are adequate to rein in and prosecute stock options backdating.  If the tax laws are inadequate on stock options backdating, I want to beef them up.”  Grassley added, “At the September 6 hearing, I’m especially interesting in hearing the panelists’ views on the adequacy and the appropriateness of the current tax treatment of executive compensation, including perks and retirement benefits.  I want to find out more about the effectiveness of the tax code, as well as how improved transparency for shareholders could address concerns about executive compensation abuse.”

This week, the IRS announced that it is beginning its private debt collection effort, where a small segment of taxpayers who owe back taxes will be contacted by private sector debt collectors.  The IRS reminds taxpayers there are several steps that can provide protection against scam artists.  The IRS indicated it would notify taxpayers by letter if they will be part of the private debt collector program.  All participants will subsequently receive a second letter, this one from the collection agency, informing the taxpayer they will be contacted soon regarding back taxes.

  • IRS Commissioner Mark Everson said, “We’re going to implement this program very carefully so we have a good program on sound footing.  We are working hard to protect taxpayer privacy and taxpayer rights.”  Everson added, “Redirecting relatively simple cases to private firms will permit the IRS to continue to focus its existing collection and enforcement personnel on more complex tax issues.”
  • Kevin Brown, IRS Commissioner of the Small Business / Self-Employed Division said, “Don’t be fooled by scam artists claiming to be from the IRS. People selected for the private collection program will be notified in advance from the IRS.  There are clear processes in place for this program, so don’t fall victim to fraudsters who are constantly looking for new ways to trick people.”

Additional information can be accessed here.

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 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

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