Daily Tax Update - August 2, 2007

TREASURY, IRS RELEASE REPORT ON TAX GAP AND VOLUNTARY COMPLIANCE:  Today, the Treasury Department and the IRS released an IRS report addressing the agency’s implementation of the 2006 strategy to improve voluntary compliance with federal tax laws.  The IRS said that in the 2001 tax year, more than 86 percent of tax liabilities were collected and the net tax gap was approximately $290 billion.

  • The IRS report, “Reducing the Federal Tax Gap:  A Report on Improving Voluntary Compliance,” details steps currently being taken by the IRS, as well as those under development, to address key elements of the “tax gap.” The report builds on the seven components of the “Comprehensive Strategy for Reducing the Tax Gap,” which the Treasury Department released in September 2006. 
  • Those components are:
    • Reducing Opportunities for Evasion
    • Making a Multi-Year Commitment to Research
    • Continuing Improvements in Information Technology
    • Improving Compliance Activities
    • Enhancing Taxpayer Service
    • Reforming and Simplifying the Tax Law
    • Coordinating with Partners and Stakeholders
  • Senate Finance Committee Chairman Max Baucus (D-MT) said, “I am very encouraged by today’s report and I believe it is an important step toward fairer and more efficient tax administration.  Treasury’s plan recognizes the importance of top-notch taxpayer service, reliable research, state-of-the-art technology and smart use of enforcement resources.  It dovetails with the strategic plans of the operating functions at the IRS, and contains benchmarks and timelines that are critical to a successful plan.”  Baucus added, “I am disappointed that Treasury chose not to set a specific goal for the rate of voluntary compliance, but if Treasury sticks to this plan, significant improvements in voluntary compliance can be achieved.  I intend to continue keeping a close watch on Treasury and the IRS to hold them accountable, to ensure that this plan actually is implemented and doesn’t just sit collecting dust.”
  • The report can be accessed via: http://www.treas.gov/press/releases/reports/otptaxgapstrategy%20final.pdf


TRANSFER PRICING DOCUMENTATION DEADLINE ON SEPTEMBER 15, 2007 FOR CALENDAR YEAR TAXPAYERS:  To avoid penalties, taxpayers should have appropriate documentation of their transfer pricing methodologies and results by the time they file their tax returns.  For calendar year taxpayers, this means that the documentation must be completed by September 15.  IRS agents have been instructed to look critically at this documentation, so companies may want to reconsider the standards they have used in the past for determining whether their documentation is rigorous and specific enough.  Steptoe's transfer pricing group is available and particularly well-situated to assist with that work.  Click here for more information

H.R. 3276: To amend the Internal Revenue Code of 1986 to deny refinery expensing to owners of refineries that are permitted to increase the discharge of pollutants into the Great Lakes.
Sponsor: Rep. Kirk, Mark Steven [IL-10] (introduced 8/1/2007)      Cosponsors (12)

H.R. 3303: To amend the Internal Revenue Code of 1986 to provide a tax credit for police officers and professional firefighters, and to exclude from income certain benefits received by public safety volunteers.
Sponsor: Rep. Paul, Ron [TX-14] (introduced 8/1/2007)      Cosponsors (None)

H.R. 3304: To amend the Internal Revenue Code of 1986 to provide for a nonrefundable tax credit for law enforcement officers who purchase armor vests, and for other purposes.
Sponsor: Rep. Paul, Ron [TX-14] (introduced 8/1/2007)      Cosponsors (None)

H.R. 3306: To amend the Internal Revenue Code of 1986 to allow amounts in a health flexible spending arrangement that are unused during a plan year to be carried over to subsequent plan years or deposited into certain health or retirement plans.
Sponsor: Rep. Royce, Edward R. [CA-40] (introduced 8/1/2007)      Cosponsors (None)

S. 1910: A bill to amend the Internal Revenue Code of 1986 to provide that amounts derived from Federal grants and State matching funds in connection with revolving funds established in accordance with the Federal Water Pollution Control Act and the Safe Drinking Water Act will not be treated as proceeds or replacement proceeds for purposes of section 148 of such Code.
Sponsor: Sen. Reed, Jack [RI] (introduced 8/1/2007)      Cosponsors (3)

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.