Highlights Final Report Issued on June 11, 2010
Highlights of Reference Number: 2010-30-067 to the Internal Revenue Service Commissioner for the Small Business/Self-Employed Division.
IMPACT ON TAXPAYERS
The Internal Revenue Service (IRS) examines income tax returns to determine whether corporations and other taxpayers have voluntarily complied with tax laws and reported the proper amount of tax. Despite continuing efforts to improve its examination process, Small Business/Self-Employed Division examiners closed almost 1 out of every 3 (32 percent) corporate return examinations in Fiscal Year 2009 without recommending any adjustments. Examinations that result in no change to the tax reported can result in an inefficient use of limited examination resources and place an unnecessary burden on compliant taxpayers.
WHY TIGTA DID THE AUDIT
The overall objectives of this review were to analyze IRS data for Fiscal Years 2005 through 2009 and to identify trends in the filings and audits of conventional small business corporate returns. This audit was part of our Fiscal Year 2010 Annual Audit Plan to highlight the important role a National Research Program study could have in understanding what the filings and audits of corporate returns mean for tax compliance. If approved and implemented, the National Research Program study would evaluate the extent to which corporations and their shareholders comply with the tax laws.
WHAT TIGTA FOUND
Between January 2005 and December 2009, the number of corporate returns processed annually by the IRS fell 7 percent, from almost 2.2 million to approximately 2 million. Despite the decrease in the number of filings, the amount of income taxes reported by corporate returns is significant. In Processing Year 2009, IRS records show that approximately $11 billion in corporate income taxes was reported from about 542,000 corporate returns.
One factor that may be contributing to the modest decline in corporate return filings is the popularity of organizing a business as a partnership or S corporation, which allows the partners and shareholders of these entities to avoid double taxation on business profits. According to the IRS, the number of partnership and S corporation filings is expected to increase by 49 percent and 39 percent, respectively, between 2006 and 2014.
IRS officials told us they are not permitted to set a target for the examination no-change rate. However, in 2003, the IRS reported to Congress that a high no-change rate means a significant amount of resources are being devoted to unproductive examinations, and compliant corporations are being unnecessarily burdened by examinations.
The results of the National Research Program study are expected to improve the IRS examination process by helping ensure the taxes on hundreds of billions of dollars of income earned by United States corporations are reported and paid properly. The statistical validity and comprehensiveness of the study is designed to provide the IRS with updated compliance data needed for deciding which corporate returns should be examined and how best to focus examination resources on the most significant areas of noncompliance.
WHAT TIGTA RECOMMENDED
Although TIGTA did not make any recommendations in this report, IRS officials were provided an opportunity to review the draft report. IRS management did not provide any comments on the draft report.
As always if you have any questions or comments please email me at rondazaragoza@gmail.com. I will try and reply to your question within 24-48 hours of receipt.
Showing posts with label IRS Rules. Show all posts
Showing posts with label IRS Rules. Show all posts
Thursday, August 12, 2010
Wednesday, July 21, 2010
THE CRIMINAL INVESTIGATION DIVISION CAN TAKE STEPS TO ENSURE ITS SEIZURE OPPORTUNITIES ARE MAXIMIZED
Issued on June 18, 2010
Highlights of Report Number: 2010-30-058 to the Internal Revenue Service Chief, Criminal Investigation.
IMPACT ON TAXPAYERS
The use of asset forfeiture has become one of the most important tools that Federal law enforcement can employ against criminals, such as drug dealers and white-collar criminals. Law enforcement officers believe that the effective use of forfeiture laws can result in a decrease in criminal activity. Our review determined that the Criminal Investigation (CI) Division can take steps to ensure its seizure opportunities are maximized. The use of seizure and the ultimate forfeiture of assets deprive individuals, who knowingly violate the nation’s tax laws, of their ill-gotten gains.
WHY TIGTA DID THE AUDIT
The CI Division uses its asset seizure and forfeiture authority as a tool for combating unlawful activities designed to evade taxes. The overall objective of this review was to evaluate whether the CI Division adequately considered the seizure of assets during its illegal source and narcotics investigations.
WHAT TIGTA FOUND
There are opportunities for the CI Division to improve its Asset Forfeiture Program. During Fiscal Year 2009, the CI Division seized just more than 1,600 assets, which is a 13 percent decline from the previous year and a 28 percent decline from the six-year high in Fiscal Year 2007. The decline in the number of assets seized can be partly attributed to the decrease in the number of illegal source and narcotics investigations initiated during that period and the loss of experienced special agents in recent years. In addition, there was a significant disparity in the number of assets seized among the field offices.
TIGTA’s analyses of the CI Division’s management information system data indicated that the CI Division may have missed some seizure opportunities. TIGTA analyzed a sample of investigations with money laundering or bank structuring violations and found that requests to pursue seizure were made in only 34 percent of the investigations with the percentage of requests varying significantly among field offices.
While the CI Division may have missed some seizure opportunities, its Asset Forfeiture Program is respected by outside stakeholders and, when compared to other Federal agencies, its Program appears to be productive.
WHAT TIGTA RECOMMENDED
TIGTA recommended that the Chief, CI Division, require contractor employees to review the CI Division’s management information system reports to identify recently initiated narcotics and illegal source investigations where there is no corresponding seizure investigative activity and proactively engage the special agents in discussions regarding the identification of forfeitable assets. TIGTA also recommended that the Chief, CI Division, require contractor employees to periodically contact special agents to determine the status of the seizure and offer additional assistance. In addition, TIGTA recommended that the Chief, CI Division, conduct an internal study of narcotics and illegal source investigations, where the seizure of assets was not pursued, to determine if seizure opportunities were missed.
Internal Revenue Service (IRS) officials agreed with four of the five recommendations and disagreed with one. The CI Division did not agree with conducting an internal study but plans to ensure the appropriate management reviews are being performed. However, because TIGTA is precluded from reviewing case file information due to grand jury restrictions, TIGTA believes the CI Division would benefit from conducting this review because it would determine the extent of the issue and provide ideas for improvement.
As always if you have any questions or comments please email me at rondazaragoza@gmail.com. I will try and reply to your question within 24-48 hours of receipt.
Highlights of Report Number: 2010-30-058 to the Internal Revenue Service Chief, Criminal Investigation.
IMPACT ON TAXPAYERS
The use of asset forfeiture has become one of the most important tools that Federal law enforcement can employ against criminals, such as drug dealers and white-collar criminals. Law enforcement officers believe that the effective use of forfeiture laws can result in a decrease in criminal activity. Our review determined that the Criminal Investigation (CI) Division can take steps to ensure its seizure opportunities are maximized. The use of seizure and the ultimate forfeiture of assets deprive individuals, who knowingly violate the nation’s tax laws, of their ill-gotten gains.
WHY TIGTA DID THE AUDIT
The CI Division uses its asset seizure and forfeiture authority as a tool for combating unlawful activities designed to evade taxes. The overall objective of this review was to evaluate whether the CI Division adequately considered the seizure of assets during its illegal source and narcotics investigations.
WHAT TIGTA FOUND
There are opportunities for the CI Division to improve its Asset Forfeiture Program. During Fiscal Year 2009, the CI Division seized just more than 1,600 assets, which is a 13 percent decline from the previous year and a 28 percent decline from the six-year high in Fiscal Year 2007. The decline in the number of assets seized can be partly attributed to the decrease in the number of illegal source and narcotics investigations initiated during that period and the loss of experienced special agents in recent years. In addition, there was a significant disparity in the number of assets seized among the field offices.
TIGTA’s analyses of the CI Division’s management information system data indicated that the CI Division may have missed some seizure opportunities. TIGTA analyzed a sample of investigations with money laundering or bank structuring violations and found that requests to pursue seizure were made in only 34 percent of the investigations with the percentage of requests varying significantly among field offices.
While the CI Division may have missed some seizure opportunities, its Asset Forfeiture Program is respected by outside stakeholders and, when compared to other Federal agencies, its Program appears to be productive.
WHAT TIGTA RECOMMENDED
TIGTA recommended that the Chief, CI Division, require contractor employees to review the CI Division’s management information system reports to identify recently initiated narcotics and illegal source investigations where there is no corresponding seizure investigative activity and proactively engage the special agents in discussions regarding the identification of forfeitable assets. TIGTA also recommended that the Chief, CI Division, require contractor employees to periodically contact special agents to determine the status of the seizure and offer additional assistance. In addition, TIGTA recommended that the Chief, CI Division, conduct an internal study of narcotics and illegal source investigations, where the seizure of assets was not pursued, to determine if seizure opportunities were missed.
Internal Revenue Service (IRS) officials agreed with four of the five recommendations and disagreed with one. The CI Division did not agree with conducting an internal study but plans to ensure the appropriate management reviews are being performed. However, because TIGTA is precluded from reviewing case file information due to grand jury restrictions, TIGTA believes the CI Division would benefit from conducting this review because it would determine the extent of the issue and provide ideas for improvement.
As always if you have any questions or comments please email me at rondazaragoza@gmail.com. I will try and reply to your question within 24-48 hours of receipt.
Sunday, February 28, 2010
Are Lower Small Business Taxes Worth a Move?
Many states will offer lower small business taxes to entice economic development. This is an entirely legal maneuver, and it has been used to sway major companies and industries to develop in new areas. If you are considering a move to save on your small business taxes, think about what the move means in terms of finances as well as personal lifestyle.
Geographic Considerations
Most cities or states that offer tax discounts to entice business lack other mechanisms to draw in business. There may be a lack of natural resources or business infrastructure. A place like New York City, by contrast, does not have to entice financial firms because it is home to Wall Street and can offer other incentives.
Actual Savings
The cost of moving a business to another state can be extremely high. You should price out this option in order to determine when you will break even based on the savings. You should also consider whether you will owe more to your employees in the new area as a result of minimum wage, have to pay more for raw materials due to the remote location of the new office and other factors that may add to your expense.
As always if you have any questions or comments please email me at rondazaragoza@gmail.com. I will try and reply to your question within 24-48 hours of receipt.
Geographic Considerations
Most cities or states that offer tax discounts to entice business lack other mechanisms to draw in business. There may be a lack of natural resources or business infrastructure. A place like New York City, by contrast, does not have to entice financial firms because it is home to Wall Street and can offer other incentives.
Actual Savings
The cost of moving a business to another state can be extremely high. You should price out this option in order to determine when you will break even based on the savings. You should also consider whether you will owe more to your employees in the new area as a result of minimum wage, have to pay more for raw materials due to the remote location of the new office and other factors that may add to your expense.
As always if you have any questions or comments please email me at rondazaragoza@gmail.com. I will try and reply to your question within 24-48 hours of receipt.
IRS Rev Ruling 2010-9
Information for those of you who will be receiving a refund so you can understand how the Internal Revenue Service computes any interest earned in addtion to your refund.
Section 6621 of the Internal Revenue Code establishes the rates for interest on tax overpayments and tax underpayments. Under section 6621(a) (1), the overpayment rate is the sum of the federal short-term rate plus 3 percentage points (2 percentage points in the case of a corporation), except the rate for the portion of a corporate overpayment of tax exceeding $10,000 for a taxable period is the sum of the federal short-term rate plus 0.5 of a percentage point. Under section 6621(a) (2), the underpayment rate is the sum of the federal short-term rate plus 3 percentage points.
Section 6621(c) provides that for purposes of interest payable under section 6601 on any large corporate underpayment, the underpayment rate under section 6621(a)(2) is determined by substituting "5 percentage points" for "3 percentage points."
See section 6621(c) and section 301.6621-3 of the Regulations on Procedure and Administration for the definition of a large corporate underpayment and for the rules for determining the applicable date. Section 6621(c) and section 301.6621-3 are generally effective for periods after December 31, 1990.
Section 6621(b) (1) provides that the Secretary will determine the federal short-term rate for the first month in each calendar quarter. Section 6621(b) (2) (A) provides that the federal short-term rate determined under section 6621(b) (1) for any month applies during the first calendar quarter beginning after that month. Section 6621(b) (2) (B) provides that in determining the addition to tax under section 6654 for failure to pay estimated tax for any taxable year, the federal short-term rate that applies during the third month following the taxable year also applies during the first 15 days of the fourth month following the taxable year.
Section 6621(b) (3) provides that the federal short-term rate for any month is the federal short-term rate determined during that month by the Secretary in accordance with section 1274(d), rounded to the nearest full percent (or, if a multiple of 1/2 of 1 percent, the rate is increased to the next highest full percent).
Notice 88-59, 1988-1 C.B. 546, announced that, in determining the quarterly interest rates to be used for overpayments and underpayments of tax under section 6621, the Internal Revenue Service will use the federal short-term rate based on daily compounding because that rate is most consistent with section 6621 which, pursuant to section 6622, is subject to daily compounding.
The federal short-term rate determined in accordance with section 1274(d) during January 2010 is the rate published in Revenue Ruling 2010-6, 2010-6 IRB 387 to take effect beginning February 1, 2010. The federal short-term rate, rounded to the nearest full percent, based on daily compounding determined during the month of January 2010 is 1 percent. Accordingly, an overpayment rate of 4 percent (3 percent in the case of a corporation) and an underpayment rate of 4 percent are established for the calendar quarter beginning April 1, 2010. The overpayment rate for the portion of a corporate overpayment exceeding $10,000 for the calendar quarter beginning April 1, 2010, is 1.5 percent. The underpayment rate for large corporate underpayments for the calendar quarter beginning April 1, 2010, is 6 percent. These rates apply to amounts bearing interest during that calendar quarter.
Under section 6621(b)(2)(B), the rate for determining the addition to tax for failure to pay estimated tax for the first15 days in April 2010 is the 4 percent rate that applied to underpayments of tax during the first calendar quarter in 2010.
Interest factors for daily compound interest for annual rates of 1.5 percent, 3 percent, 4 percent, and 6 percent are published in Tables 8, 11, 13, and 17 of Rev. Proc. 95-17, 1995-1 C.B. 556, 562, 565, 567, and 571.
Annual interest rates to be compounded daily pursuant to section 6622 that apply for prior periods are set forth in the tables accompanying this revenue ruling.
As always if you have any questions or comments please email me at rondazaragoza@gmail.com. I will try and reply to your question within 24-48 hours of receipt.
Section 6621 of the Internal Revenue Code establishes the rates for interest on tax overpayments and tax underpayments. Under section 6621(a) (1), the overpayment rate is the sum of the federal short-term rate plus 3 percentage points (2 percentage points in the case of a corporation), except the rate for the portion of a corporate overpayment of tax exceeding $10,000 for a taxable period is the sum of the federal short-term rate plus 0.5 of a percentage point. Under section 6621(a) (2), the underpayment rate is the sum of the federal short-term rate plus 3 percentage points.
Section 6621(c) provides that for purposes of interest payable under section 6601 on any large corporate underpayment, the underpayment rate under section 6621(a)(2) is determined by substituting "5 percentage points" for "3 percentage points."
See section 6621(c) and section 301.6621-3 of the Regulations on Procedure and Administration for the definition of a large corporate underpayment and for the rules for determining the applicable date. Section 6621(c) and section 301.6621-3 are generally effective for periods after December 31, 1990.
Section 6621(b) (1) provides that the Secretary will determine the federal short-term rate for the first month in each calendar quarter. Section 6621(b) (2) (A) provides that the federal short-term rate determined under section 6621(b) (1) for any month applies during the first calendar quarter beginning after that month. Section 6621(b) (2) (B) provides that in determining the addition to tax under section 6654 for failure to pay estimated tax for any taxable year, the federal short-term rate that applies during the third month following the taxable year also applies during the first 15 days of the fourth month following the taxable year.
Section 6621(b) (3) provides that the federal short-term rate for any month is the federal short-term rate determined during that month by the Secretary in accordance with section 1274(d), rounded to the nearest full percent (or, if a multiple of 1/2 of 1 percent, the rate is increased to the next highest full percent).
Notice 88-59, 1988-1 C.B. 546, announced that, in determining the quarterly interest rates to be used for overpayments and underpayments of tax under section 6621, the Internal Revenue Service will use the federal short-term rate based on daily compounding because that rate is most consistent with section 6621 which, pursuant to section 6622, is subject to daily compounding.
The federal short-term rate determined in accordance with section 1274(d) during January 2010 is the rate published in Revenue Ruling 2010-6, 2010-6 IRB 387 to take effect beginning February 1, 2010. The federal short-term rate, rounded to the nearest full percent, based on daily compounding determined during the month of January 2010 is 1 percent. Accordingly, an overpayment rate of 4 percent (3 percent in the case of a corporation) and an underpayment rate of 4 percent are established for the calendar quarter beginning April 1, 2010. The overpayment rate for the portion of a corporate overpayment exceeding $10,000 for the calendar quarter beginning April 1, 2010, is 1.5 percent. The underpayment rate for large corporate underpayments for the calendar quarter beginning April 1, 2010, is 6 percent. These rates apply to amounts bearing interest during that calendar quarter.
Under section 6621(b)(2)(B), the rate for determining the addition to tax for failure to pay estimated tax for the first15 days in April 2010 is the 4 percent rate that applied to underpayments of tax during the first calendar quarter in 2010.
Interest factors for daily compound interest for annual rates of 1.5 percent, 3 percent, 4 percent, and 6 percent are published in Tables 8, 11, 13, and 17 of Rev. Proc. 95-17, 1995-1 C.B. 556, 562, 565, 567, and 571.
Annual interest rates to be compounded daily pursuant to section 6622 that apply for prior periods are set forth in the tables accompanying this revenue ruling.
As always if you have any questions or comments please email me at rondazaragoza@gmail.com. I will try and reply to your question within 24-48 hours of receipt.
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