The Streamlined Sales Tax (SST) Governing Board, meeting in Seattle, December 11-14, 2006 12/28/06

voted to repeal the controversial multiple points of use (MPU) provisions in the SST Agreement, adopt instead sourcing rules for software transactions, and approved a compromise rule on bundled transactions. The controversy surrounding replacement taxes, and the now notorious fur taxes in Minnesota and New Jersey, continues.

  • The Agreement contains a definition of “bundled transaction” that includes a de minimis test (and a related “primary” test for transactions including food, drugs, or medical equipment). If the taxable products represent 10% or less of the price of what would otherwise by considered a bundled transaction, then the sale falls outside the definition. Nebraska withdrew its request for a dollar cap and a compromise version of the rule was approved.
  • The Agreement’s definition of “sales price” includes “delivery charges”. A member state may, in turn, exclude from the definition of “delivery charges” charges for the delivery of “direct mail.” An interpretive rule was not passed.
  • At a prior meeting, the Board approved relief for purchasers from penalty liability (not tax or interest) for reliance on erroneous state-provided data.
  • Motions to adopt definitions of “digital products” at the Seattle meeting were withdrawn while the work group continues to refine the draft definitions.
  • The Board approved several noncontroversial interpretive rules (on telecommunications, exemption administration, and drop shipments) prepared by the SLAC, 4 interpretive recommendations made by the Compliance Review and Interpretations Committee, an amendment to the telecommunications sourcing definitions, and various provisions relating to certified service providers and certified automated systems.

Washington State is likely to pass full conformity legislation during the 2007 session. Idaho and Wisconsin could do so as well, and New Mexico in 2008. Associate members: Tennessee, Wyoming and Ohio is as well (sourcing issues may resurface) are on track to become full members. Arkansas needs to resolve relief for purchasers that will suffer from the elimination of a local tax cap. There has been no significant progress with resolving the sourcing problems in Utah. The next meetings are in Charlotte, North Carolina, March 14-17, 2007, and Detroit, June 20-23, 2007. 12/28/06

The IRS has awarded a contract to Avineon, Inc., a private firm, to develop a prototype electronic system for the filing and release of notices of federal tax liens, eliminating paper documents and reducing IRS and state and local government costs. 12/28/06

The IRS, the Department of Labor, and the Department of Health and Human Services jointly issued final regulations under § 9802 that prohibit discrimination in health plan coverage 12/28/06

The nondiscrimination regulations do not require a plan or insurance policy to provide coverage for any particular benefit, but provided benefits and any restrictions imposed on benefits must be applied uniformly to similarly situated individuals. Restrictions cannot be directed at participants or beneficiaries based on their particular health factors. A plan is permitted in some cases to provide more favorable treatment of individuals with medical needs. The regulations allow employers to operate wellness programs and to offer discounts, rebates, lower copayments or other incentives. The rules allow employer-paid health reimbursement arrangements (HRAs), even though the maximum reimbursement to any employee may vary based on the employee’s health. Amounts remaining at the end of the year may be used to reimburse medical expenses in later years. A separate set of regulations explains the requirements for church plans in existence on July 15, 1997 to be grandfathered from nondiscrimination requirements that apply to most group health plans. T.D. 9298, T.D. 9299.

The IRS issued final regulations under § 409(p) for employee stock ownership plans (ESOPs) holding stock of S corps. ESOPs will lose their status if there is a prohibited allocation during a nonallocation year 12/28/06

The final regulations generally follow temporary and proposed regulations issued in 2004 and apply to plan years beginning on or after January 1, 2006. Generally, during an allocation year, no portion of the assets of the plan attributable to, or allocable in lieu of, the employer securities (consisting of S corp stock) may accrue or be allocated directly or indirectly for the benefit of any disqualified person. A nonallocation year includes any plan year during which the ownership of the S corp is so concentrated among disqualified persons that they own or are deemed to own at least 50% of its shares. The 2004 regulations described several methods that a plan might use to prevent the occurrence of a nonallocation year. They include:

  • Reducing synthetic equity;
  • Selling S corp securities held in the participant’s account before a nonallocation year; and
  • Transferring S corp securities held for the participant out of the ESOP. T.D. 9302

The IRS provided guidance for taxpayers making charitable donations to reflect important changes in the Pension Protection Act of 2006 (PPA). IR-2006-192 12/28/06

  • Owners of IRAs, age 70 1/2 or over, can directly transfer up to $100,000 per year to an eligible charitable organization from their IRA without incurring a taxable event for tax years 2006 and 2007. The amount is counted towards fulfilling the account owner’s required minimum distribution but no deduction is allowed for the donation. A special rule treats donated amounts as coming first from taxable funds, instead of proportionately from taxable and nontaxable funds as with regular distributions. Donations to private foundations, donor advised funds, supporting organizations, charitable remainder trusts, or gift annuities do not qualify for this treatment.
  • Household goods must be in a “good used condition or better” to be claimed as a tax deduction. Taxpayers must provide a qualified appraisal of any deduction of $500 or more for a single item, no matter what its condition.
  • Charitable deductions for direct donations of money must be substantiated by a bank record or a written communication from the charity showing the name of the charity, date of the donation and amount of the contribution. For payroll deductions, taxpayers must retain a pay stub, Form W-2 wage statement or other document showing the total amount withheld, along with a pledge card showing the name of the charity. The rules apply to tax years beginning after August 17, 2006, so for most calendar-year taxpayers, this means 2007.

New IRS guidance expands taxpayer choices when using health flexible spending arrangement (FSA) or health reimbursement arrangement (HRA) debit cards for medical expense reimbursements 12/28/06

temporarily allowing transactions at supermarkets, wholesale clubs and other stores that do not have healthcare merchant category codes. The IRS has also refined the rules for using debit cards at drug stores and pharmacies. Notice 2007-2

The President Signed the Tax Relief And Health Care Act Of 2006, P.L. 109-43 12/28/06

including “extenders” made retroactive to the start of 2006 on 2006 returns (The official 2006 tax returns and instructions were printed without incorporating any of theses eleventh hour changes and the IRS has no intention of reprinting them).

  • For the State and Local General Sales Tax Deduction: Enter “ST” on the dotted line to the left of line 5, “State and local income taxes,” on Schedule A (Form 1040);
  • For the Higher Education Tuition and Fees Deduction: Enter “T” on the dotted line to the left of line 35, “Domestic production activities deduction” on Form 1040; except if claiming both the tuition and the domestic production activities deduction, enter “B” and attach a breakdown showing the amounts claimed for each deduction.
  • For the Educator Expense Adjustment to Income: Enter “E” on the dotted line to the left of line 23, “Archer MSA Deduction,” on Form 1040 (not Form 1040A); except if claiming both an Archer MSA deduction and the educator deduction, enter “B” and attach a breakdown showing the amounts claimed for each deduction.

The Virtual Taxman Cometh ? 12/19/06

“Virtual worlds are now producing real millionaires. … Let’s say you’ve been playing World of Warcraft for the last year and you’ve got a few level-60 characters. Well, according to the going rates on IGE or eBay, you’ve created an account that could be worth more than $1,000.”

IRS draft revenue ruling concluding payments to a farmer from the U.S. Department of Agriculture under its Conservation Reserve Program (CRP) are earnings from a trade or business 12/17/06

The IRS is asking for comments on the proposed draft revenue ruling concluding that payments to a farmer from the U.S. Department of Agriculture under its Conservation Reserve Program (CRP) (whether the farmer actively engages in farming or ceases all farming activities) are earnings from a trade or business, resulting in the farmer owing self-employment tax on the payments. Notice 2006-108.

Streamlined Sales Tax (SST) State and Local Advisory Council (SLAC) debate 12/17/06

The Streamlined Sales Tax (SST) State and Local Advisory Council (SLAC) debated bundled transactions, digital property, and multiple points of use (MPU), during a December 5, 2006 conference call. Retailers do not want to have to remit use tax on innumerable small components of exempt transactions (e.g., toys in cereal boxes, baskets in food baskets), but several states object to the Board mandating any such taxability determinations. A proposed amendment offered by Nebraska would permit states to exclude transactions that include royalty or franchise fees (desired by South Dakota) from the de minimis determination, and place a $10,000 cap on included taxable products (in addition to being 10% or less of the total transaction price) (sought by states concerned about “big-ticket” sales). Disagreement between states and businesses over whether a state may tax undefined digital products under its general definition of “tangible personal property” had been “somewhat resolved.”

The Tax Relief and Health Care Act of 2006 (H.R. 6111) 12/14/06

passed the House and Senate and President Bush is expected to sign it. Extended through 2007 (7 permanent, 9 2-year extensions and 12 1-year extensions.):

  • State and local sales tax deduction (The state and local sales tax deduction could avoid AMT, and taxpayers are not required to take the greater of the the sales or income tax deduction);
  • Higher education tuition deduction;
  • Teacher’s classroom expense deduction;
  • Research tax credit (with enhancements for 2007);
  • Work Opportunity and Welfare-to-Work credits (with a consolidated credit for 2007);
  • 15-year recovery period for certain leasehold (and restaurant) improvements;
  • Brownfields remediation expensing;
  • Qualified Zone Academy Bonds;
  • Corporate donations of computers and scientific equipment;
  • Archer Medical Savings Accounts;
  • Native American tax incentives;
  • District of Columbia tax incentives;
  • Parity for mental health benefits; and
  • Cover over to Puerto Rico and the U.S.V.I. of rum excise tax.

Energy tax extenders include:

  • Deduction for energy efficient commercial buildings;
  • Business credit for energy efficient new homes;
  • Credit for residential alternative energy expenditures;
  • Renewable electrical energy production credit; and
  • Clean renewable energy bonds.

The new law also:

  • Modifies the unrelated business income tax (UBTI) on charitable remainder trusts;
  • Creates new incentives for mine safety training and equipment;
  • Makes permanent some temporary incentives in the Tax Increase Prevention and Reconciliation Act of 2005 (TIPRA);
  • Grants the Tax Court jurisdiction over stand-alone nondeficiency equitable innocent spouse cases;
  • Extends the New Markets Tax Credit through 2008;
  • Allows military personnel to include combat pay when calculating the EITC;
  • Enhances home-sale exclusion rules for members of the intelligence community;
  • Permanently modifies the definition of active business under Code Sec. 355;
  • Expands the Code Sec. 199 deduction to U.S. businesses with manufacturing activities in Puerto Rico;
  • Temporarily suspends the limit on percentage depletion for oil and gas from marginal wells.

Premiums paid or accrued for qualified mortgage insurance in connection with residence acquisition indebtedness will be treated as qualified residence interest and can be deducted (phased out for higher income taxpayers) effective for amounts paid or accrued after December 31, 2006 and terminating after 2007.

Penalties on taxpayers filing frivolous returns and other bogus submissions can reach as high as $5,000. H.R. 6111 also enhances the IRS’s reward program for taxpayers who turn in tax cheaters, and authorizes continued IRS undercover operations and information sharing with law enforcement through 2007.

H.R. 6111 technical corrections to past tax bills apply to look-through treatment of payments between related controlled foreign corporations under the foreign personal holding company rule and allow broader Treasury delegation of the authority to suspend interest when a taxpayer involved in tax shelters acted reasonably and in good faith.

Notice 2006-109 provides interim guidance under the Pension Protection Act of 2006 (PPA) 12/14/06

for the 20% tax on sponsoring organizations and 5% on fund management taxable distributions from donor advised funds and private foundations to: i) Type III supporting organizations (that support a public charity) that are not functionally integrated, or ii) Type I, II and III supporting organizations where disqualified persons within the private foundation control the supporting organization. Supporting organizations may be classified into 3 different categories:

  • Type I are controlled by the public charity;
  • Type II are controlled by an entity which also controls the public charity; and
  • Type III are significantly involved in the activity of the public charity, including “functionally integrated” Type III supporting charities.

The IRS provides several ways private foundations and donor advised funds can avoid taxable distributions to supporting organizations. Grantors may rely on:

  • the IRS Business Master File or the grantee’s current IRS letter, recognizing the grantee as exempt from federal income tax and as a public charity;
  • written representation from the grantee that they are either Type I, II, or functionally integrated III;
  • written opinion of counsel or either grantor or grantee concluding that the grantee is a Type I, II, or functionally integrated III; and

Private foundations, making grants to Type I, II, or functionally integrated III supporting organizations, may obtain a list of grantee supported organizations to determine whether any supported organization is controlled by disqualified persons of the private foundation.

Excess benefit transactions. § 4958(c), as amended by the PPA, automatically subjects payments by supporting organizations to substantial contributors and loans to disqualified persons to excise taxes. The provision is effective for all transactions occurring after July 25, 2006, however, since the law takes effect on August 17, 2006, the IRS will not apply the tax to payments made under written contracts or certain arrangements that were binding on August 17, 2006 if they meet certain requirements.

Donor advised funds. Distributions by donor advised funds to natural persons are subject to excise tax, except in certain instances. One exception occurs if employers establish a disaster relief fund that accepts donations from its employees. Grants to those same employees and family members who meet certain requirements and were victims of a major disaster are not subject to the excise tax.

Educational grants by donor advised funds to natural persons are now subject to excise taxes irrespective of whether the grant is excludable from the recipient’s income as a scholarship or fellowship under § 117. While this applies to grants made after August 17, 2006, the law does not apply to grants made or committed to an individual on or before this date with payments that extend beyond that date.

The California Superior Court for San Francisco County case of Northwest Energetic Services, LLC, No. CGC-05-437721, April 13, 2006, CCH ¶403-999, found that the annual fee imposed on LLC’s, not the $800 minimum franchise tax, was unconstitutional 12/8/06

It appears that LLCs should continue to pay the graduated fee until the legal issues are resolved, but may want to file a protective claim with the California Franchise Tax Board. A protective claim can either be an amended LLC return (Form 568), or simply a letter that provides:

  1. The LLC’s name, address and Secretary of State file number;
  2. A statement that it is a protective claim;
  3. The tax years at issue;
  4. That the grounds for the claim are based on the Northwest Energetic Services, LLC case and that the LLC fee is unconstitutional;
  5. The amount of the claim (which is the annual fee, not the $800 minimum franchise tax imposed on LLC’s); and
  6. A fax number that the FTB can use to contact the representative for the LLC.

The letter should be signed by the managing member or designated person of the LLC which may include a power of attorney. The letter should be sent via fax to the California Franchise Tax Board at (916) 845-9796, or alternatively by registered mail to: California Franchise Tax Board, P.O. Box 942876, Sacramento, CA 94267-8888.

The IRS has published tables showing the amount of an individual’s income that is exempt from a notice of levy 12/7/06

The exempt amount does not vary based on cost of living in any particular geographic area. E.g., amount exempt from levy taxpayer with 4 exemptions (including one for him or herself), and wages, salary, or other income: single: weekly $364.42; monthly $1,579.17; married-joint: weekly $467.31; monthly $2,025.00. Notice 2006-106, I.R.B. 2006-49, 1033, December 4, 2006, page 1031.

IRS has provided guidance that charitable contributions made by payroll deduction 12/7/06

The IRS has provided guidance that charitable contributions made by payroll deduction may meet the requirements of Code Sec. 170(f)(17) (requiring that taxpayer maintain a bank record or a written communication from the donee showing: (1) the donee organization’s name, (2) contribution date, and (3) contribution amount). The require for contributions made by payroll deduction are met if the taxpayer retains a pay stub, Form W-2 or other employer-furnished document that indicates the amount withheld for payment to the donee organization, along with a pledge card from the donee organization showing the donee’s name. Taxpayers may rely on the notice until revised regulations are issued and effective. Notice 2006-110, I.R.B. 2006-51, December 1, 2006.

West Virginia Supreme Court of Appeals held that “economic exploitation” without physical presence was sufficient to establish nexus 11/16/06

In Tax Commissioner of the State of West Virginia v. MBNA America Bank, N.A., CCH ¶400-436, November 21, 2006, the Supreme Court of Appeals of West Virginia held that “economic exploitation” without physical presence was sufficient to establish nexus for application of business franchise tax and corporation net income tax and did not violate the Commerce Clause. The principal business of MBNA at the relevant times in this case was issuing and servicing VISA and MasterCard credit cards. MBNA had no real, intangible or tangible personal property and no employees located in West Virginia. A substantial economic presence standard “incorporates due process `purposeful direction’ towards a state while examining the degree to which a company has exploited a local market.” Edson, 49 Tax Lawyer at 943. The Court found that “The Due Process Clause requires merely some minimum connection between a state and the person, property or transaction it seeks to tax. In contrast, a substantial nexus under the Commerce Clause requires that an entity’s contacts with the taxing state be more frequent and systematic in nature. Additionally, an entity’s exploitation of the market must be greater in degree than under the Due Process standard so that its economic presence can be characterized as significant or substantial. In sum, although a substantial economic presence standard is by nature more elastic than the bright-line physical presence test, we are convinced that when properly applied, a greater nexus is required under the substantial economic presence standard that under the minimum contacts analysis.” The Court noted that The record shows that MBNA continuously and systematically engaged in direct mail and telephone solicitation and promotion in West Virginia. Further, in tax year 1998, MBNA had significant gross receipts attributable to West Virginia customers.

IRS Adds Flexible Averaging Test To Meet 183-Day “Presence” For U.S. Possessions Residency T.D. 9297 (February 21, 2006) 11/16/06

The new alternative to the existing “presence test” bases its averaging assumptions on the fact that the 183-day requirement over a three-year period is the equivalent to 549 days.

Businesses and Tax-Exempts Can Use Formula for Telephone Tax Refund. IR-2006-179, Nov. 16, 2006 11/22/06

To request a refund, businesses (including sole proprietors, corporations and partnerships) and tax-exempt organizations must complete Form 8913, Credit for Federal Telephone Excise Tax Paid. They may determine the actual amount of refundable long-distance telephone excise taxes they paid for the 41 months from March 2003 through July 2006, or use the formula to figure their refunds. Businesses should attach Form 8913 to their regular 2006 income tax returns. Tax-exempt organizations must attach it to Form 990-T. They can figure their refund amounts by comparing 2 telephone bills with a statement date in April 2006 and the bill with a statement date in September 2006 to determine the percentage of their telephone expenses attributable to the long-distance excise tax. They must first figure the telephone tax as a percentage of their April 2006 telephone bills (which included the excise tax for both local and long-distance service) and their September 2006 telephone bills (which only included the tax on local service). The difference between these two percentages should then be applied to the quarterly or annual telephone expenses to determine the amount of their refunds. The refund is capped at 2% of the total telephone expenses for businesses and tax-exempt organizations with 250 or fewer employees.

The IRS already has provided individual taxpayers with the option to use standard amounts based on the number of exemptions allowed to that taxpayer. Individual taxpayers can request a $30 refund with one exemption, $40 for two exemptions, $50 for three exemptions and $60 for four or more exemptions.

Sole proprietors who report gross income of $25,000 or less on their Schedule C may use the standard amounts or their actual expenses. Sole proprietors reporting more than $25,000 of gross income have three options: they can use the standard amounts which cover both personal and business expenses, they can use the formula for their business expenses and actual for their personal ones, or they can choose to use actual amounts for both business and personal.

Similar rules depending on the amount of gross income reported on Schedule F or Schedule E apply to farmers and individual owners of rental property.

Trusts and fiduciaries may not use the standard amount available to individuals. They should use the formula to figure their refunds, or request the actual amount paid.

A federal tax lien is not valid against (1) certain purchasers 11/16/06

who purchased personal property in a casual sale for less than $1,290, or (2) a mechanic’s lienor that repaired or improved certain residential property if the contract price with the owner is not more than $6,450. IRS News Release IR-2006-173, November 9, 2006.

IRS Publishes Official 2007 Tax Rates, Standard Deduction And Other Key Inflation-Adjusted Amounts. IR-2006-173, Rev. Proc. 2006-53, November 16, 2006 11/16/06

  • Personal exemption $3,400 ($3,300 in 2006);
  • Standard deduction:
    • Married/joint $10,700 ($10,300 in 2006);
    • Singles and married/separate $5,350 ($5,150); and
    • Heads of households $7,850 ($7,550);
    • Individuals claimed as dependents by other taxpayers: (1) the greater of $850, or (2) sum of $300 and individual’s earned income
    • Additional standard deduction amounts for aged and blind: $1,050 each, and increased to $1,300 if an individual is unmarried and is not a surviving spouse
  • Itemized deduction phase out begins at AGI above $156,400 ($150,500 in 2006); $78,200 for married/separate ($75,250);
  • Tax-bracket thresholds increase for each filing status, e.g., married/joint return, the 15% bracket increases to $63,700 ($61,300 in 2006);
  • Annual gift tax exclusion stays at $12,000 ($11,000 in 2005);
  • Roth IRA contributions AGI limits:
    • Married/joint $156,000 (formerly 150,000)
    • Married/separate (still $0);
    • Other filing statuses $99,000 (formerly $95,000);
  • IRA deductible contributions by active participants in a retirement plan AGI limits:
    • Married/joint $83,000 ($75,000 in 2006)
    • Head of household, single $52,000 ($50,000 in 2006); and
    • Married/joint when only spouse is covered by a qualified plan $156,000 ($150,000 in 2006).
  • AGI limits for the retirement contributions credit, also known as the Saver’s Credit (permanently extended by the PPA) adjusted for inflation for the first time in 2007:
    • Married/joint for 50% credit $31,000, for 20% credit $34,000, and for 10% credit $52,000;
    • Head of household for 50% credit $23,250; for 20% credit $25,500, and for 10% credit $39,000;
    • All other filers for 50 percent credit $15,500, for 20 percent credit $17,000, for 10% credit $26,000;
  • Maximum credit for adoption of a child with special needs is $11,390
  • Maximum credit for other adoptions is the amount of qualified adoption expenses up to $11,390; phased out for taxpayers with modified AGI in excess of $170,820 and completely phased out with modified AGI of $210,820 or more;
  • potentially refundable child tax credit is $11,750;
  • Education credits
    • 100% of qualified tuition and related expenses up to $1,100 and
    • 50% over $1,100 for the Hope Scholarship Credit;
    • modified AGI over $47,000 ($94,000 for joint filers) used in determining the reduction in the Hope Scholarship and Lifetime Learning Credits otherwise allowable under Code Sec. 25A(a);
    • $2,500 maximum deduction for interest paid on qualified education loans is reduced when modified AGI exceeds $55,000 ($110,000 for joint returns), and is completely eliminated when modified AGI is $70,000 ($140,000 for joint returns);
  • Qualified retirement savings contributions. A new 2007 table issued showing the applicable percentage under § 25B with respect to elective deferrals and IRA contributions by certain individuals;
  • Earned income credit (EIC) increased to:
    • $8,390 for 1 child,
    • $11,790 for 2 or more children, and
    • $5,590 for no children,
    • EIC denied if the aggregate amount of certain investment income exceeds $2,900;
  • Child Tax Credit $11,750;
  • Low income housing credit – amounts used to calculate the State housing credit ceiling is the greater of:
    (1) $1.95 multiplied by the State population, or
    (2) $2,275,000;
  • Alternative minimum tax – 2007 inflation-adjusted tax rate tables for tax years beginning in 2007 for a child to whom the “kiddie tax” applies, the exemption amount for purposes of the alternative minimum tax may not exceed the sum of:
    (1) such child’s earned income for the tax year, plus
    (2) $6,300;
  • Exclusion from income of United States savings bonds for taxpayers who pay qualified higher education expenses begins to phase out for modified AGI
    • joint returns above $98,400 (total phase out $128,400), and
    • other returns $65,600 (total phase out $80,600);
  • State ceiling for the Private activity bonds volume cap is the greater of:
    (1) $85 multiplied by the state population, or
    (2) $256,235,000;
  • Unrelated business income of certain exempt organizations does not include a low cost article of $8.90 or less. The $5, $25, and $50 guidelines in Rev. Proc. 90-12, 1990-1 C.B. 471 (as amplified and modified), for disregarding the value of insubstantial benefits received by a donor in return for a fully deductible charitable contribution are $8.90, $44.50, and $89, respectively;
  • Aggregate cost of any § 179 property shall not exceed $112,000, reduced (but not below zero) by the amount by which the cost of property placed in service during the 2007 tax year exceeds $450,000;
  • Long-term care insurance limitations regarding eligible long-term care premiums includible in the term “medical care” are as follows:
    (1) 40 years or less, $290;
    (2) More than 40 years but not more than 50, $550;
    (3) More than 50 but not more than 60, $1,110;
    (4) More than 60 but not more than 70, $2,950;
    (5) More than 70, $3,680;
  • Health savings accounts/high-deductible plan – monthly limitation on deduction for a taxpayer with coverage under a high-deductible plan is the lesser of:
    • 1/12 of the annual deductible or
    • $2,850 for self-only coverage ($5,650 for family coverage)
      “high deductible” health plan has an annual deductible of not less than $1,100 for self-only coverage ($2,200 for family coverage) and out-of-pocket expenses that do not exceed $5,500 for self-only coverage ($11,000 for family coverage).
  • Expatriation. An individual with average annual net income tax more than $136,000 for the 5 tax years ending before the date of the loss of United States citizenship is subject to tax;
  • Foreign earned income exclusion is $85,700.
  • A federal tax lien is not valid against
    • certain purchasers who purchased personal property in a casual sale for less than $1,290, or
    • mechanic’s lienor that repaired or improved certain residential property if the contract price with the owner is not more than $6,450;
  • Maximum value of property exempt from levy
    • fuel, provisions, furniture, and other household personal effects, as well as arms for personal use, livestock, and poultry – $7,720;
    • books and tools necessary for the trade, business, or profession of the taxpayer – $3,860;
  • Attorneys’ fee award limitation is $170 per hour.

The Pension Protection Act of 2006 permits specified individuals to make contributions from their Individual Retirement Accounts (“IRA”) to certain public charities without including the amounts in the contributor’s income 11/16/06

Distributions from IRAs to supporting organizations (§ 509(a)(3)) are not excludable from the IRA holder’s income. In addition, distributions from private foundations to certain supporting organizations are not qualifying distributions and may be taxable expenditures for the private foundation. Announcement 2006-93, I.R.B. 2006-48, November 7, 2006.

Organizations currently classified as § 509(a)(3) supporting organizations may request reclassification under § 509(a)(1) or (2) by submitting a written request to the IRS pursuant to Rev. Proc. 2006-4, including:

  1. A statement requesting reclassification from § 509(a)(3) to another public charity status under § 509(a)(1) or (2); and,
  2. Either
    a. Page 1, the signature page, and pages 2 and 3 (Parts IV and IV-A) of Schedule A from the organization’s most recently filed Form 990 or 990-EZ; or
    b. Form 8734, Support Schedule for Advance Ruling Period

The organization must write at the top of the request”509(a)(3) Pension Protection Act”, and mail or fax the complete request for reclassification to:

  • Mail:
    Attn: Adjustments Unit, Room 4024
    P.O. Box 2508
    Cincinnati, OH 45201
  • Fax:
    Attn: Adjustments Unit, Room 4024
    Fax number: (513) 263-3522

IRS Chief Counsel issued guidance to his field counsel regarding changes to collection due process (CDP) procedures under the Pension Protection Act of 2006 (PPA) 11/16/06

The PPA provides that beginning October 17, 2006 the Tax Court has exclusive jurisdiction over review of all CDP determinations, regardless of the type of underlying tax liability. Chief Counsel addressed procedures, pending court cases and Tax Court litigation. Any appeal filed with the incorrect court will not be entitled to a 30-day refiling grace period. CC-2007-001.

IRS user fees are increased effective January 1, 2007, IR-2006-176: 11/16/06

  • direct debit installment agreements $52 (from $43);
  • other new installment agreements $105 (from $43);
  • to restructure an existing or reinstate a defaulted installment agreement $45 (from $24).

Non accountable plan employee expense reimbursements includable in employee income 11/16/06

If employers routinely pay per diem allowances exceeding federal per diem rates, but do not track the allowances and require the employees either to actually substantiate all the expenses, or require the employees to pay back the excess amounts, and do not include the excess amounts in the employee’s income and wages, then the entire amount of the expense allowances is treated as a non-accountable plan and is subject to income and employment tax. Rev. Rul. 2006-56, I.R.B. 2006-46, 874, IRS News Release IR-2006-175, November 9, 2006.

Employers may use an “accountable plan” to reimburse employees for expenses incurred in carrying out their employment and the reimbursements are not included in the employee’s income and they are not required to substantiate expenses on their return. Employee expenses paid under a non accountable plan can be miscellaneous itemized deductions if substantiated and allowable.To qualify as an accountable plan, the arrangement must meet three requirements:

  1. advances or reimbursements are made only for business expenses paid or incurred by the employee in connection with the performance of his employment;
  2. the employee must substantiate each business expense to the employer within a reasonable period of time; and
  3. the employee must return any funds advanced that exceed substantiated amounts.

The IRS standard mileage reimbursement rate increases effective January 1, 2007 11/10/06

to 48.5¢ for all business mile (44.5¢ for 2006); 20¢ for moving and medical expenses (18¢ for 2006); and the the charitable deduction rate remains at 14¢ (set by statute and not by the IRS). The depreciation component of the business standard mileage rate also rises to 19¢ (17¢ in 2006) for 2007. IR-2006-168, Rev. Proc. 2006-49. After Hurricane Katrina hit, Congress enacted special tax incentives in the Katrina Emergency Tax Relief Act of 2005 (KETRA) including a special standard mileage rate for the cost of operating an automobile for the provision of relief related to Hurricane Katrina at 32¢ for a deduction and 44.5¢ for reimbursements through December 31, 2006. Congress has not extended any special Katrina-related rates into 2007. Alternatively, taxpayers can taxpayers can deduct the entire cost of operating a vehicle for business purposes operating and fixed costs, including depreciation, maintenance and repairs, tires, gasoline, oil, insurance and registration fees.

The IRS has posted a new Fact Sheet, FS-2006-26, to its web site ( highlighting the fundamental requirements of car and truck expense deductions. 11/10/06

The 2007 OASDI wage base rises from $94,200 in 2006 to $97,500 in 2007 a maximum $204.60 more in employment taxes for both employee and employer ($409 for self-employed individuals) 10/26/06

The Medicare portion has no wage base. Monthly Social Security benefits (for January 2007 checks) and Supplemental Security Income (SSI) benefits (beginning December 29, 2006) increase 3.3% in 2007. The maximum monthly Social Security benefit for a worker retiring at full retirement age in 2007 will be $2,116 (average $1,044). For retirees born in 1942, full retirement age is 65 and 10 months. The Domestic Employees coverage threshold (Nanny Tax) is $1,500 for 2007, unchanged from 2006. Amounts paid for domestic services under $1,500 are not subject to FICA taxes. Once the $1,500 Nanny Tax threshold is met, the total amount – and not just the excess – is subject to employment tax.

Transferor of the property exchanged for an annuity is taxed on any appreciation 10/26/06

Under proposed IRS regulations (effective immediately, with limited transition relief) the transferor of the property exchanged for an annuity is taxed on any appreciation in the property as if that transferor had sold the property for cash and then used the proceeds to purchase an annuity contract. Under previous guidance, the transferor recognized the gain evenly over the annuitant’s life expectancy. IRS News Release IR-2006-161 (October 17, 2006).

The Internal Revenue Service announced to that the Appeals arbitration process is no longer a pilot program (IRS Notice 2000-4) but is permanent 10/26/06

In arbitration the IRS and the taxpayer agree to have a third party make a decision about a factual issue that will be binding on both of them. The taxpayer or the IRS can request arbitration and jointly select an Appeals or a non-IRS Arbitrator from any local or national organization that provides a roster of neutrals when a limited number of factual issues remain unresolved during the course of an appeal. The permanent arbitration procedure may be used to resolve issues while a case is in Appeals, after settlement discussions are unsuccessful and, generally, when all other issues are resolved except specific factual issues for which arbitration is being requested. Arbitration is not available for all issues, e.g., legal issues, issues already in any court, issues in a taxpayer’s case designated for litigation, collection cases with certain exceptions, and frivolous issues. IRS News Release IR-2006-163, October 18, 2006.

The IRS issues guidance for appraisal requirements for donations of property over $5,000 10/26/06

effective for appraisals prepared for returns filed after August 17, 2006 and before the date of final regulations (for periods before August 17, 2006, taxpayers should apply the definitions included in existing regulations). Notice 2006-96.

The American Jobs Creation Act of 2004 (2004 Jobs Act), Code Sec. 170(f)(11), requires that taxpayers obtain a qualified appraisal for donated property (excluding publicly-traded securities or inventory.) if the taxpayer claims a deduction exceeding $5,000. In the Pension Protection Act of 2006 (PPA) defined a “qualified appraiser” and a “qualified appraisal”, and imposes a new penalty for excessive valuations that the appraiser knew or should have known would be used on a tax return. A “qualified appraisal” must be conducted by a “qualified appraiser” in accordance with professional standards such as those developed by the Appraisal Standards Board, and must comply with requirements in Reg. § 1.170A-13(c), which spells out the elements of a qualified appraisal and the information that must be included. To be qualified, an appraiser must:

  • Be certified by a professional organization or meet education and experience requirements established by Treasury;
  • Be familiar with evaluating the type of property being donated;
  • Regularly give appraisals for a fee;
  • Comply with any other requirements in Reg. § 1.170A-13(c)(5);
  • Must not have been barred from practice before the IRS in the 3 years preceding the appraisal;
  • Declare that he or she understands that the appraiser may owe a civil penalty under Code Sec. 6695A for an inadequate appraisal, for returns filed after February 16, 2007.

The appraiser can declare that he or she meets the requirements for being a qualified appraiser. Unless inconsistent with the new Tax Code requirements, the donor must attach an appraisal summary to the donor’s tax return and must comply with existing requirements that the donor maintain records that:

  • Identify the recipient of the contribution;
  • Identify the date and location of the contribution; and
  • Describe the property, its value, and if relevant, the property’s basis.

The IRS has issued final regulations on standards for electronic means of making elections under a retirement plan, an employee benefits arrangement or an individual retirement plan 10/26/06

including transmissions via e-mail, web sites and automated telephone systems, effective for notices and elections made after January 1, 2007. T.D. 9294. The regulations set forth 2 methods for providing notices electronically: (1) The consumer consent method, based on the Electronic Signatures in Global and National Commerce Act, and (2) an alternative method based on regulations issued in 2000 (T.D. 8873). Under the T.D. 8873 standard:

  • Participants must be effectively able to access the electronic medium to make the election;
  • The system must be reasonably designed to preclude participation by anyone other than the eligible participant;
  • The system must provide the participant with a reasonable opportunity to review, confirm, modify, or rescind the election; and
  • The individual making an election must receive some confirmation of the election, either on paper or electronically.

The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 imposed this audit requirement on Chapter 7 and Chapter 13 cases filed by individuals and imposed on debtors a statutory duty to comply with requests for information from auditors 10/26/06

Debtors that fail to comply with requests for information from an auditing firm risk civil penalties. The bankruptcy audit is not the same as a tax audit or financial audit conducted in accordance with generally accepted auditing standards because bankruptcy documents are typically not prepared using generally accepted accounting principles, and EOUST has developed bankruptcy auditing standards. At least one out of every 250 individual Chapter 7 and Chapter 13 cases filed in a judicial district will be randomly selected for audit. A case will also be selected for audit if the debtor’s income or expenses reflect greater than average variance from the statistical norm of the district in which the case was filed. The Executive Office for U.S. Trustees (EOUST) announced audits of individual bankruptcy cases began on October 20, 2006. Debtors will be required to supply tax returns, account statements, pay stubs, and other documents. After reviewing the debtor’s information, the auditor will file a report with the bankruptcy court. The auditor will alert the court if he or she finds any material misstatement of income, expenditures or assets. EOUST and the Justice Department may take civil or criminal action against a debtor if a material misstatement is found and not explained.

The New Jersey Supreme Court held that New Jersey may apply its corporation business tax notwithstanding a taxpayer’s lack of a physical presence in the state. 10/26/06

affirming the lower court and holding that the U.S. Supreme Court’s holding in Quill Corp. v. North Dakota, 504 U.S. 298 (1992), should be limited to the area of sales and use tax nexus. Lanco, Inc. v. Director, Division of Taxation, New Jersey Supreme Court, per curiam, No. A-89-05, October 12, 2006

The Pension Protection Act of 2006 (PPA) requires a “record” 10/25/06

(written communication from the charity (including the charity name, date and amount or a bank record such as a cancelled check) of ALL cash donations to charity. Clothing and household items donated after August 17, 2006 must be in “good” used condition or better or no deduction is allowed. The IRS has authority to deny deductions of items with minimal monetary values (e.g., used socks).

The IRS has issued final regulations clarifying when a partner may be treated as bearing the economic risk of loss for a partnership liability as a consequence of owning a partnership interest through a disregarded entity 10/19/06

Payment obligations of a disregarded entity are taken into account only to the extent of the net value of the disregarded entity as of the date on which the partnership determines the partner’s share of partnership liabilities, except to the extent the owner of the disregarded entity otherwise is required to make a payment with respect to such obligation of the disregarded entity. The owner of the disregarded entity must report the entity’s net value to each partnership for which the disregarded entity may have one or more payment obligations, raising confidentiality concerns. T.D. 9289.

The IRS has created an online payment agreement (OPA) application 10/19/06

(pull-down menu under “I need to … ” “Set Up a Payment Plan)” available M-F 6am-12:30am; Sat 6am-10pm; Sun 4pm-midnight (EST) for individual taxpayers (or authorized representative) to self-qualify, apply for a payment agreement and receive immediate notification of approval. Interest and penalties will continue to accrue. To qualify, a taxpayer needs:

  • a balance due statement from the IRS
  • a Social Security number (individual taxpayer ID number) and
  • a personal identification number which can be established online.

Three payment options are available:

  1. Payment in full within 10 days;
  2. Payment in full within 120 days; and
  3. A monthly payment plan (installment agreement) for taxpayers who cannot pay in full ($43 fee). Taxpayers may need additional information about income and expenses (rent or mortgage statements, pay stubs, utility bills, etc.) to determine the monthly payment. In some cases, the OPA will provide a payment calculator to assist in determining an appropriate payment amount. Taxpayer must have filed all required tax returns. IR-2006-159.

The IRS determined that the Conservation Security Program (CSP) is a small watershed program within the scope of § 126(a)(9) 9/28/06

so that cost-share payments received under the CSP are eligible for exclusion from gross income. Rev. Rul. 2006-46, I.R.B. 2006-39, 511, September 25, 2006.

Phase-out of the alternative vehicle credit starts for post-September 30 purchases of Toyota hybrids, IR-2006-145, Notice 2006-78 due to cumulative 2006 sale reaching 60,000 in June. 9/28/06

IRS issued “tie breaking” rules where multiple taxpayers claim same child 9/28/06

The noncustodial parent may claim the child as a qualifying child under § 152(e), Notice 2006-86, I.R.B. 2006-41, September 20, 2006, if:

  1. the child is in the custody of one or both parents for more than one-half of the calendar year;
  2. the child receives over one-half of the child’s support during the calendar year from the child’s parents;
  3. he parents —
    (a) are divorced or separated under a decree of divorce or separate maintenance,
    (b) are separated under a written separation agreement, or
    (c) live apart at all times during the last 6 months of the calendar year; and
  4. the custodial parent releases the claim to the exemption to the noncustodial parent in a written declaration that the noncustodial parent attaches to the noncustodial parent’s tax return.

Section 152 was amended by § 201 of the Working Families Tax Relief Act of 2004 (WFTRA), Pub. L. No. 108-311, 118 Stat. 1169, effective for taxable years beginning after December 31, 2004, establishes a uniform definition of “qualifying child” under (1) head of household filing status under § 2(b), (2) the child and dependent care credit under § 21, (3) the child tax credit under § 24, (4) the earned income credit under § 32, (5) the exclusion for dependent care assistance under § 129 (which incorporates by reference the definition of qualifying child or other qualifying individual under § 21), and (6) the dependency deduction under § 151.

The SST Implementing States and the State and Local Advisory Council (SLAC) also met during the four day session that ran August 28-31, 2006 9/14/06

Continuing unresolved are:

  • the definition of “digital products”. The latest efforts focused on defining 3 specific types of digital products: “audio visual works,” “audio works,” and “book.” Businesses have objected to states taxing other, undefined digital products under the state’s definition of “tangible personal property,” rather than enacting a separate imposition statute.
  • The multiple points of use (MPU) provisions. 2 versions are being discussed.

Amendment to the Agreement:

  • grants purchasers relief from liability for reliance on erroneous state-provided data, similar to relief already accorded sellers and CSPs, effective January 1, 2009. A member state must also relieve a purchaser from penalty (but not tax and interest) for reliance on erroneous data in the taxability matrix each state must complete. A state does not have to provide relief if prohibited by the state constitution (at least Nebraska and Wyoming).
  • authorize the Board to issue (1) interpretive opinions, (2) interpretive rules, and (3) procedural rules. Procedural rules require a simple majority of member states present and voting. Interpretive opinions and interpretive rules have the same force as the Agreement and require a 3/4 vote of the entire Board.
  • defining durable medical equipment” and approving in concept a list categorizing health care items. The SLAC was directed to draft an appropriate interpretive rule to implement this list.

The Board approved that a seller that deregisters in any state within 36 months of its registration under the Agreement is no longer eligible for amnesty in any state, including those states in which it has a physical presence.

The Board directed the SLAC to draft an interpretive rule for Board consideration on application of the existing Agreement definition of “bundled transaction.” The rule will provide that the sales price of the de minimis taxable products in a transaction subject to the definition’s 10% de minimis test will not be taxable, and the sales price of the taxable products that are not the primary portion of a transaction subject to the 50% primary test (applicable to food an medical products) will not be taxable. In both cases, states can deny a resale exemption or require payment of tax on the purchase price.

The Streamlined Sales Tax (SST) Agreement permits member states to identify which of their taxes are covered by (and, thus, must conform to) the Agreement. Several states moved taxation of certain items into new code chapters separate from their general sales and use taxes to continue to tax these items in ways not otherwise be permitted by the Agreement.

Final regulations effective September 6, 2006 reflect § 6502 restrictions pursuant to § 3461 of IRS Reform and Restructuring Act of 1998 (RRA ’98, P.L. 105-206) to IRS’s ability to extend the 10-year collection period, T.D.9284, 9/5/06, amending Reg. § 301.6502-1. The regulations address extension agreements executed on or after January 1, 2000. RRA ’98 limited the IRS and taxpayer ability to mutually agree to extend the 10 year limitations period to: (1) the time an installment agreement is entered into; or (2) prior to release of a levy, if the release occurs after the expiration of the original period of limitations on collection. 9/14/06

The Pension Protection Act of 2006 adds new reporting requirements for 501(c)(3) organizations that report unrelated business income and that control for-profit or nonprofit subsidiaries 9/8/06

Form 990-T, used to report unrelated business income tax, has been designated a public record. Unrelated business income comes from any regularly carried on activity that is not substantially related to the organization’s exempt purpose. The organization’s need for income to conduct its program and further its mission does not affect the tax or the reporting obligations for unrelated business income.

Parent organizations that control subsidiary corporations have new disclosure requirements on IRS Form 990. Subsidiary corporations may be nonprofit or for-profit entities, and the subsidiary often pays interest, annuities, rents, or royalties to the nonprofit parent corporation. These payments to the nonprofit parent corporation by its subsidiaries are generally excluded from unrelated business income tax. Certain facts and circumstances in this parent-subsidiary relationship are subject to complex statutory provisions found in section 512(b)(13) of the Internal Revenue Code. IRC Section 6033(h) reporting requirements: (1) List the amount of any interest, annuities, royalties, or rents received from each controlled entity; (2) List any loans made to each controlled entity; and (3) List any transfer of funds between the controlling organization and each controlled entity. For more information.

Rev. Rul. 2006-42 explains that a superpriority lien argument is not a defense to a levy, and the bank must informally contact the IRS or file a wrongful levy suit 8/31/06

After receiving a levy, a bank’s setoff of a taxpayer’s account does not excuse the bank from honoring the levy. A bank’s liability for honoring a levy is determined as of the time it receives the notice of levy. A subsequent setoff does not eliminate Bank A’s liability to the Service. While a bank priority interest under section 6323(b)(10) does not relieve the bank of its obligation to honor the levy, the Service may release a levy when a bank proves its superpriority interest under section 6323(b)(10). A Bank can contact the Service informally, or timely file a wrongful levy suit in federal district court pursuant to section 7426(a)(1), otherwise, the statute of limitations bars such a suit.

New Mexico Supreme Court reversed the Court of Appeals, and ruled that franchise fees paid by New Mexico franchisees to an out-of-state corporation for the right to operate fast food restaurants in New Mexico were not subject to New Mexico gross receipts tax 8/24/06

because the franchising activities constituted out-of-state sales. Sonic Industries v. State of New Mexico, New Mexico Supreme Court, No. 26,447, August 3, 2006. Legislation was enacted clarifying that receipts from selling property located in New Mexico or licensing property employed in New Mexico are subject to the gross receipts and compensating taxes, effective July 1, 2006.

Missouri Supreme Court held that the Municipal Telecommunications Business License Tax Simplification Act is unconstitutional 8/24/06

In four companion cases decided on the same date, the Missouri Supreme Court held that the Municipal Telecommunications Business License Tax Simplification Act, which was enacted as part of H.B. 209, Laws 2005, is unconstitutional in the manner in which it regulates and prohibits collection by municipalities of Missouri business license taxes on telecommunications companies for wireless service already provided by those companies before the law was enacted. City of Springfield v. Sprint Spectrum, L.P., No. SC87238; City of Wellston v. SBC Communications, Inc., No. SC87207; City of University City v. AT&T Wireless Services, Inc., No. SC87208; City of St. Louis v. Sprint Spectrum, L.P., No. SC87400, Missouri Supreme Court, August 8, 2006.

IRS determined environmental remediation project costs incurred to avoid a fine or penalty were nondeductible fines or penalties 8/24/06

Although the only Tax Code provision that directly addresses the non-deductibility of fines and penalties (Code Sec 162(f)) involves currently deductible ordinary business expenses, the IRS determined in TAM 200629030 on public policy grounds that environmental remediation project costs incurred to avoid a fine or penalty were nondeductible fines or penalties, even though the EPA did not receive any cash.

Comprehensive pension reform is a reality 8/24/06

and many provisions are effective as of August 17, 2006, when President Bush signed the Pension Protection Act of 2006 (P.L. 109-280) into law. The new law not only overhauls the funding of traditional pension plans; it also makes permanent many popular retirement tax incentives, tightens the rules for deducting charitable donations (clothing and household items) and increases government oversight of charitable organizations. Also included is: exclusive jurisdiction of Tax Court over collection due process (CDP) cases for determinations made after 61 days after August 17, 2006; provisions relating to substantial and gross overstatements of valuations – income and gift/estate taxes; modifications to the record keeping requirements for cash contributions (or most calendar year taxpayers, effective for 2007); increase in penalty excise taxes relating to public charities, social welfare organizations and private foundations – taxes on self-dealing and excess benefit transactions.

The IRS has released comprehensive proposed regulations on the capitalization of tangible assets 8/24/06

The lengthy regulations attempt to simplify and clarify rules that touch virtually every business and introduce “exclusive-factors” tests, rules on economic useful life, safe harbors and simplified assumptions. 12-month “bright-line” rule – a taxpayer cannot capitalize amounts paid to acquire or produce a unit of property that has a useful life less than 12 months. A similar rule was adopted in the intangible regulations Taxpayers can elect not to apply the 12-month rule. This election is irrevocable. The election can be made for each unit of property acquired or produced by the taxpayer. The rule cannot be used for property that is part of other property produced for sale or resale, for improvements to a unit, and for components of a unit. The proposed regulations do not include a de minimis rule allowing a taxpayer to deduct an amount paid below a certain dollar threshold for the acquisition of tangible personal property. The IRS is considering including such a rule in the final regulations. Amounts paid to improve tangible property must be capitalized if they materially increase the value of property or restore a unit of property, including amounts paid to repair, improve or rehabilitate tangible property. There are five tests for determining if an amount materially increases value:

  1. amounts paid prior to the initial date of service to put property into operating condition;
  2. improvements in the condition of the property;
  3. amounts that fix a defect;
  4. adding a new or different use; and
  5. an increase in capacity.

There are four rules for determining when an amount substantially prolongs useful life:

  1. if it extends useful life more than one year;
  2. replaces a major component;
  3. restores to a like-new condition; or
  4. represents a casualty loss deduction.

The issue of the appropriate unit of property affects whether an amount materially increases the property’s value, the smaller the unit, the more likely that amounts will materially increase the value and will have to be capitalized.

The IRS released legal guidance August 23, 2006 outlining the protections in place for the new private debt collection program 8/24/06

A taxpayer may request in writing to work with the IRS instead of with a PCA to resolve the outstanding debt. When the IRS refers an unpaid tax debt to a PCA it will mail the taxpayer a letter with the PCA’s name, address, and telephone number, telephone numbers to contact the IRS office overseeing the PCA or the Taxpayer Advocate Service (TAS), and enclosing the new IRS publication, “What You Can Expect When the IRS Assigns Your Account to a Private Collection Agency.”

The IRS will only assign cases to the private firms in which the taxpayer has not disputed the liability. Private firms are not authorized to take enforcement actions such as filing liens, or making levies or property seizures (and can not suggest that they can), or to work on technical issues such as offers in compromise, bankruptcies, hardship issues or litigation. The private firms will contact taxpayers to make payment arrangements. During evaluation of payment arrangements, the PCA may request taxpayer financial information that will be forwarded to the IRS. Although the IRS retains the right to approve or reject any installment agreement, PCAs must obtain specific IRS approval of any installment agreement involving payment of more than $25,000 or covering a period of more than 36 months. PCAs are not authorized to negotiate installment agreements for periods exceeding 60 months or that provide for less than full payment of the taxpayer’s liability. In such cases, PCAs will serve only to gather financial information for transmittal to the IRS.

  • Subject to certain limited exceptions, PCAs are restricted from contacting third parties. PCAs may access non-IRS computer databases or web sites to locate or obtain financial information about a taxpayer. PCA employees are not permitted to call or write any third party, such as the taxpayer’s employer, bank, or neighbors, to ask about the taxpayer’s financial condition. PCA employees may speak to intermediaries, such as a taxpayer’s spouse, or leave a message on an answering machine, for purposes of trying to contact the taxpayer by phone. Once the PCA knows how to reach a taxpayer directly, a PCA employee may not contact third parties in an effort to reach the taxpayer at a different
    temporary location.
  • PCAs and their employees must observe all of the Internal Revenue Code’s (“IRC”) protections for taxpayer rights in the collection process to the same extent as IRS employees, § 6306(b)(2);
  • PCAs may be sued by the taxpayer and may be liable for damages if they fail to observe all of the IRC’s protections for taxpayer rights in the collection process, § 7433A;
  • PCAs and their employees must obey all other federal and state restrictions that apply to private debt collectors, § 6306(e) and 15 U.S.C. § section 1692n. PCAs enjoy no special immunity from being sued while working for the IRS, § 7433A(b)(3);
  • PCAs are specifically obligated to comply with the provisions of the Fair Debt Collection Practices Act, except when inconsistent with § 6306(e);
  • A PCA’s employees may not contact the taxpayer at any unusual time or place, or at a time or place that the PCA should know to be inconvenient, without a taxpayer’s prior consent. Generally, no contacts will be made earlier than 8 a.m. or later than 9 p.m. local time at the taxpayer’s location, § 6304(a);
  • PCA employees may not suggest or imply that the taxpayer’s failure to pay the tax debt may affect the taxpayer’s credit rating or that the unpaid tax debt may be reported to a credit bureau, § § 6103 and 15 U.S.C. section 1692e; and
  • If the taxpayer proposes an installment agreement to the PCA and the IRS rejects the proposed installment agreement, the taxpayer may appeal the rejection to the IRS.

Announcement 2006-63, IR-2006-131, Aug. 23, 2006

The IRS reported simple steps can prevent tax scams as private debt collection begins in IR-2006-132, Aug. 23, 2006 8/24/06

If in doubt, check or call the IRS at 800-829-1040 for more information. All taxpayers who will be part of the private debt collection effort will know they are in the program before they are contacted by a private collection agency. If you haven’t previously heard that you’re in the program, be wary of any bill collectors saying they are working on behalf of the IRS. When paying a collection agency on behalf of the IRS, remember that the check will be made out to the U.S. Treasury – not to an individual or firm. Taxpayers should keep in mind the IRS does not use e-mail and never asks people for the PIN numbers, passwords or similar secret access information for their credit card, bank or other financial accounts.

President Bush signed legislation on August 3, 2006 limiting state taxation of retirement income 8/24/06

H.R. 4019 passed the House on July 17 and the Senate a short time later clarifies that state taxation of retirement income to a retired employee or a retired partner is limited to the state where the retiree resides.

The Florida annual intangible personal property tax is repealed effective January 1, 2007 8/24/06

except as it relates to qualifying government leasehold interests. No substantive change is made to the 2-mill, non-recurring tax imposed on obligations secured by liens on Florida property. All intangibles taxes due and owing for calendar years through 2006 must be paid, assessed, and audited.

The IRS released guidelines for its Attributed Tip Income Program (ATIP) 8/3/06

a 3 year pilot program targeting tip reporting in the food and beverage industry. Employers who participate in ATIP report tip income of their employees based on a formula that uses a percentage of gross receipts, which are generally attributed among employees based on employer practices. Participation in ATIP is entirely voluntary for both employers and employees. An employer may participate in ATIP if, in the year prior to enrollment, at least 20 percent of the employer’s gross receipts from food and beverage sales are charge receipts showing charged tips and at least 75 percent of the employer’s tip-earning employees agree to participate. This test is done for each of the employer’s establishments that seek to enroll in ATIP. To enroll in ATIP, an eligible employer checks the designated box on its Form 8027, Employer’s Annual Information Return of Tip Income and Allocated Tips. For employers participating in ATIP, the IRS will not initiate employer-only Code Sec. 3121(q) examinations and tip income reporting requirements will be reduced. Participating employees will not need to keep a daily tip log and the IRS will not initiate an employee tip examination during ATIP participation. Rev Proc. 2006-30 (July 31, 2006).

The Tax Court held it did not have jurisdiction to decide the appeal of denial of innocent spouse relief in the case of a “non deficiency stand-alone” petition 8/3/06

“non deficiency” because the IRS accepted his amended return as filed and asserted no deficiency against him, and “stand-alone” because his claim for innocent spouse relief was made under section 6015 and not as part of a deficiency action or in response to an IRS decision to begin collecting his tax debt through liens or levies. Petitioner’s wife did not report embezzlement income on their joint 1999 return. After she was caught, Petitioner and his wife filed an amended tax return that reported the embezzlement income. Petitioner then applied for relief from joint and several liability under IRC sec. 6015(f). Billings v. Commissioner, Dkt. No. 6148-03, 127 TC –, No. 2, July 25, 2006, CCH Dec. 56,572. The Tax Court will no longer adhere to its prior holding that sec. 6015(e) gives us jurisdiction over such non deficiency stand-alone petitions. Ewing v. Commissioner, 118 T.C. 494 (2002), rev’d 439 F.3d 1009 (9th Cir. 2006).

The IRS has announced the launch of the Online Payment Agreement (OPA) application 8/3/06

a new system that will enable many individuals with delinquent federal tax liabilities to apply online for an installment agreement. The IRS expects OPA to provide an easier way for taxpayers to voluntarily resolve their tax liabilities. The OPA application is presently being implemented through national partnerships with tax professionals, who are using the system to apply for payment agreements for their clients without the need to write or call the IRS. Taxpayers will be able to use OPA on their own once the application becomes available to the general public later this year. IRS News Release IR-2006-119 (July 31, 2006).

Missouri sales tax holiday 7/27/06

From August 4-6, 2006, Missouri retail sales of the following are exempt from state sales tax:

  • clothing and footwear (excluding certain accessories) costing $100 or less
  • school supplies costing $50 or less
  • computer software with a taxable value of $350 or less, and
  • personal computers and computer peripheral devices sold for $3,500 or less.

H.R. 1956 (Related Bills: H.RES.939, S.2721), Business Activity Tax (BAT) nexus legislation, was approved by the House Judiciary Committee on June 28, 2006 7/27/06

The bill was referred to the House Calendar on July 24, 2006 (H.RES.939) with rules providing 1 hour general debate. The bill is closed to amendments. The office of Rep. Boehner (House Majority Leader) has apparently indicated that the bill was removed from the schedule and no decision made as to when it might come up again, with the result that there may be no BAT nexus legislation during this Congress.

The bill would create a uniform and nationwide nexus standard, and expands the protections of P.L. 86-272 (applicable only to income tax and sales of tangible personal property) to all business activity taxes and solicitations for sales of services and intangibles, and prohibits a state from imposing a business activity tax on an entity unless that entity has a physical presence in the state (specified business activities in the state on more than 21 aggregate days during a taxable year; a single day of certain activities; other specified activities would be excluded from the time limit). The CBO expects that all states and some local governments would see an immediate loss of revenue because they are currently collecting taxes from firms that would be exempt under H.R. 1956, but that federal revenue would increase by $106 million in 2007, $1.2 billion from 2007-2011, and $3.1 billion from 2007-2016 due to smaller federal tax deductions for state and local tax payments by affected corporations.

Wage reports containing W-2s must be filed electronically 7/27/06

Beginning with tax year 2006 (for W-2s due to the Social Security Administration (SSA) in calendar year 2007) wage reports containing W-2s must be filed electronically using the SSA’s Business Services Online function. SSA will discontinue mailing the paper version of the Magnetic Media Reporting and Electronic Filing (MMREF) document after 2006, and magnetic tapes, cartridges and diskettes as acceptable media for submitting W-2 reports after 2005.

Offer in compromise requires 20% non-refundable deposit 7/12/06

Effective July 16, 2006, the Tax Increase Prevention and Reconciliation Act of 2005 (H.R. 4297) requires that a non-refundable 20% of the offer deposit accompany submission of lump-sum offers in compromise (IRC section 7809(b) and Treasury Regulation 301.7122-1(h)), and the first installment accompany submission of periodic payment offers. Taxpayers must specify in writing when submitting their offers how to apply the payments to the tax, penalty and interest due. Otherwise, the IRS will apply the payments in the best interest of the government (IRC section 7122(c)(2)(A)). Taxpayers qualifying for the low-income exemption or filing a doubt-as-to- liability offer only are not liable for paying the application fee, or the payments imposed by TIPRA section 509.

Streamlined Sales Tax (SST) collection obligation of volunteer sellers 6/8/06

The Streamlined Sales Tax (SST) Governing Board Executive Committee found that adequate certified service provider (CSP) and certified automated system (CAS) services will be available as of June 1, 2006, triggering the collection obligation of volunteer sellers using either model, which has been held in suspense until the 1st day of the month after 60 days notice that adequate services are available, on August 1, 2006.

Opponents of the IRS’s plan to partially privatize some tax debt collection are again trying to pass anti-privatization legislation in Congress 6/8/06

Rep. Steven Rothman, D-N.J., indicated he will offer an amendment to the pending Treasury-Transportation appropriations bill for FY 2007 barring the IRS from hiring private debt collectors.

The Treasury and the IRS recently issued comprehensive final regulations (T.D.9263) on the deduction for manufacturing production activities enacted in the American Jobs Creation Act of 2004 6/8/06

The deduction is 3% of qualified production activities income (or taxable income, if lower) for 2005 and 2006, 6% for 2007-2009, and 9% after 2009, with a 50 percent related-W-2 wages limitation in all years.

New procedure effective requires trustees or bankruptcy debtors in possession representing the bankruptcy estate to obtain prompt determination of unpaid tax liabilities 6/8/06

The IRS has issued Rev. Proc. 2006-24 setting out the new procedure effective for bankruptcy cases filed after October 17, 2005 that trustees or debtors in possession representing the bankruptcy estate must follow to obtain prompt determination of unpaid tax liabilities of the estate incurred during administration of the case. The procedure follows through on the right of the trustee, the estate, the debtor and any successor to the debtor to obtain such prompt discharge under the Bankruptcy Abuse Protection and Consumer Protection Act of 2005 (2005 Act). The trustee must file a written request, in duplicate, with the Centralized Insolvency Operation, that must include:

  • A statement that it is a request for prompt determination of a tax liability and specifying the return type and tax period for each related return;
  • The name of the debtor and debtor’s social security number, taxpayer identification number and/or entity identification number;
  • The type of the bankruptcy estate, bankruptcy case number; and court where the bankruptcy case is pending.
  • An exact copy of related returns signed under penalty of perjury to be valid; and
  • The name and location of the office where the return was filed.

The IRS will notify the trustee within 60 days from the date a “complete” (including all documents and valid return) request is received if the return is being selected for examination or accepted as filed. If selected for examination, the IRS will notify the trustee of any tax due within 180 days after the request is received or within additional time permitted by the bankruptcy court.

For cases after October 17, 2005, If a trustee files a proper determination request, the trustee, the estate, the debtor, and any successors to the debtor are discharged from any liabilities shown on a return if the taxes due are properly paid (but not for cases before October 17, 2005).

Texas H.B. 3 enacts a revision of the franchise tax 6/1/06

imposed on each taxable entity (partnership, corporation, banking corporation, savings and loan association, limited liability company, business trust, professional association, business association, joint venture, joint stock company, holding company, or other legal entity, excluding sole proprietorships; a general partnership, the direct ownership of which is entirely composed of natural persons; a passive entity, or entities exempt from the current franchise tax,) doing business in Texas, or chartered or organized in Texas, applicable to reports originally due on or after January 1, 2008, at a rate of 1% per year of privilege period of taxable margin. The rate will be 0.5% per year of privilege period taxable margin for those taxable entities primarily engaged in retail or wholesale trade. Certain entities will be required to file an information report under the revised franchise tax provisions enacted by H.B. 3 as if the provisions were in effect on January 1, 2006.

The Comprehensive Immigration Reform Act (S. 2611, the House version contrasts sharply) passed the Senate on May 25: 6/1/06

  • requires immigrants seeking legal status to pay all outstanding tax liabilities
  • disallows refunds
  • restricts use of the earned income tax credit

The kiddie tax taxes a child’s unearned income (but not earned income) at the parent’s tax rate 6/1/06

which will almost always be a higher rate, and its increase under the Tax Increase Prevention and Reconciliation Act (TIPRA), and is one of the revenue raisers in TIPRA. “Unearned income” (e.g., dividends and capital gains) that would have been taxed at the child’s rate if the child was under age 14 under prior law will now be taxed at the parent’s rate for children ages 14 to 17 when overall income exceeds $1,700. There is no opportunity to “undo” the sale of a 14-17 year old’s stock in early 2006.

President Bush is set to sign on May 17 the $70MM tax cut package, H.R. 4297, Tax Increase Prevention and Reconciliation Act. Included are: 5/18/06

  • A 2 year extension of the dividend and capital gains tax rate cuts, with a new 5% rate for taxpayers in the 10% and 15% brackets and dropping to 0% in 2008;
  • Removal of the income ceiling for Roth IRA conversions for tax years after 2009, and allowing averaging of conversion income over 2 years for conversions in 2010;
  • Increasing AMT exemption levels to $42,500 for single taxpayers and $62,500 for married couples filing jointly, and allowing Taxpayers to use the non refundable personal tax credits to offset regular and AMT liability;
  • A 2 year extension of enhanced small business expensing;
  • The “kiddie” tax now applies if the child is under age 18 (vs. 14), the child also must have net unearned income over $1,700, and the parent can claim the child as a dependent, effective for the 2006 tax year [the strategy behind many “college-savings” portfolios needs immediate re-evaluation];
  • Changes to the new manufacturing deduction.

Not included are: the state and local sales tax deduction, tuition deduction, some employment tax credits, teacher’s classroom expense deduction, limited charitable deduction for non-itemizers, and other incentives. Other extenders may be attached to other pending legislation. This is apparently a result of keeping the bill’s cost below $70MM so it would have “reconciliation protection” and not require 60 votes in the senate to pass.

Revenue raisers in H.R. 4297 include higher amounts for taxpayers submitting an offer-in-compromise made after July 16, 2006. Old rules contain no requirement of a non refundable partial payment and no deadline on which the IRS must act on a request.

In TAM 200619021 the IRS determined that a series of loans to a married couple’s S corp from their controlled partnership would not create basis 5/18/06

in indebtedness under Code Sec. 1366. The loans amounted to offsetting bookkeeping entries and did not represent a significant change in the parties’ economic positions and did not put the taxpayers’ money at risk because they were not the main obligors on the loan.

On May 15, IRS Commissioner Mark Everson announced the revocation of exempt status of 41 credit counseling services as a result of a series of 41 audits indicating widespread abuse. The results were simultaneously released in IR-2006-80. 5/18/06

The Eighth Circuit affirmed the judgment of the bankruptcy appellate panel finding that taxpayer’s tax liabilities for 5 tax years were dischargeable in bankruptcy 5/18/06

because he filed returns for those years more than 2 years before filing his bankruptcy case, although after the IRS had prepared substitute returns, issued notices of deficiency, and assessed taxes, interest and penalties. The filer’s subjective intent and timeliness were determined to be irrelevant. Colsen, CA-8, 2006-1 USTC ¶50,300, affirming a BAP-8 decision, 2005-1 USTC ¶50,240. The United States asserted that a 1040 form filed by taxpayer after the IRS has gone to the trouble and expense of preparing substitute returns and assessing the relevant tax liability serves no purpose under the tax laws and thus cannot have been an “honest and genuine endeavor” to satisfy the tax laws as required by Beard, CCH Dec. 41,237, 82 T.C. 766, 774-79 (1984), aff’d 86-2 USTC ¶9496, 793 F.2d 139 (6th Cir. 1986) ( per curiam). The Sixth Circuit has ruled for the government in a similar situation in Hindenlang v. United States (In re Hindenlang), 99-1 USTC ¶50,214, 164 F.3d 1029, 1034-35 (6th Cir. 1999), cert. denied, 528 U.S. 810 (1999). the Fourth Circuit held that a debtor’s tardiness is relevant to the question of whether a 1040 form should be considered an honest and genuine attempt to comply with the tax laws, and decided that a purported return filed by a nonchalantly noncompliant debtor after the IRS estimated his tax liability did not meet the requirements of Beard. Moroney v. United States (In re Moroney), 2004-1 USTC ¶50,141, 352 F.3d 902, 906 (4th Cir. 2003). The Seventh Circuit has also refused to recognize a post-assessment filing as a return. Payne, 2006-1 USTC ¶50,106, 431 F.3d at 1057. The Supreme Court has observed that even admittedly fraudulent returns can be returns under the tax laws, if they “appeared on their faces to constitute endeavors to satisfy the law.” Badaracco v. Commissioner, 84-1 USTC ¶9150, 464 U.S. 386, 397 (1984).

The Eighth Circuit noted Mr. Colsen’s 1040 forms contained data that allowed the IRS to calculate his tax obligation more accurately, resulting in thousands of dollars of abatements of tax and interest, in contrast to the situation in Hindenlang, 99-1 USTC ¶50,214, 164 F.3d at 1031, where the taxpayer’s forms contained essentially the same information as the substitute forms that the IRS prepared and the calculation of tax did not change substantially.

S. 2721 was introduced on May 4, 2006 and referred to the Finance Committee, and is intended to establish a “bright-line” physical presence standard for state business activity taxes (BAT) 5/18/06

S. 2721 was introduced on May 4, 2006 and referred to the Finance Committee, and is intended to establish a “bright-line” physical presence standard for state business activity taxes (BAT) and extend the protections of P.L. 86-272 to all business activity taxes (not just net income taxes) has been introduced in the U.S. Senate. Similar legislation (H.R. 1956) introduced in the U.S. House of Representatives in 2005 was subsequently incorporated into H.R. 4845, introduced on March 2, 2006.

New, stream-lined IRS technical advice memoranda (TAM) process 5/11/06

IRS Chief Counsel announced a new, stream-lined technical advice memoranda (TAM) process with accelerated 120 day deadline (currently loosely 180 days), plus “Case-specific” strategic advice (case-specific legal advice memorandum) and Industry“generic” advice (generic legal advice memorandum). Taxpayers may be allowed to participate but mandatory conferences as a matter of right. Taxpayers will have 10 days instead of 21 days to respond to additional information requests. CC-2006-13. The next annual TAM procedure is expected to be published in January 2007 as Rev. Proc. 2007-2, but the process may be adopted immediately.

The Streamlined Sales and Use Tax (SST) Agreement Board Governing met April 18-19, 2006 5/4/06

An Ohio proposal permitting sellers to source intrastate sales on an origin basis and sales into the state from out-of-state locations on a destination basis or at a single statewide rate, and Buyer refund process if single rate exceeded the local rate, and a Texas proposal to permit use of intrastate origin basis without the single rate and refund options were both defeated. The Board approved contract terms for companies approved as a certified service providers (CSPs). Compensation to CSPs for “volunteer” sellers is from the taxes collected based on a formula and is the only compensation the CSPs can receive. Volunteer sellers are those that register through the SST site and does not have a legal requirement to register. The board also approved a number of interpretations to SST provisions. Pending is a definition of “digital goods”. The Governing Board will meet August 28-31, 2006, in Bismarck, North Dakota.

Series of like kind exchanges between related parties not qualified for non recognition treatment under IRC § 1031 5/4/06

IRS private ruling 200616005 clarifies that a series of like kind exchanges between related parties using a qualified intermediary (QI) will qualify for non recognition treatment under IRC § 1031 if the parties do not dispose of the exchanged property for two years.

IRS may levy against the assets of a “spendthrift trust” 4/13/06

In CCA 200614006, maintaining a position first set forth more than 50 years ago, Chief Counsel has reiterated that the IRS may levy against the assets of a “spendthrift trust” in which the taxpayer is both an income beneficiary and a future beneficiary in the principal of the trust. If a taxpayer is entitled to property or rights to property under a trust, the fact that the trust is a spendthrift trust does not defeat a levy. Where distributions from the income of a trust are mandatory as opposed to discretionary, the distributions and the rights to receive them are considered property. taxpayer/beneficiary also is considered to have property which can be levied if: 1) The taxpayer/beneficiary is entitled to future distributions of principal from a trust if the distributions are mandatory; 2)The right to receive the distributions is fully vested and not subject to divestiture; and 3) The only discretionary issue regarding the distributions is that of timing. A trustee who distributes the assets in the trust knowing of the IRS lien can be held liable for tortuous conversion of a federal tax lien.

The US Supreme Court permits citing unpublished opinions in the federal circuit courts 4/13/06

The new rule does not dictate the precedential value that circuits can assign. Federal Rule of Appellate Procedure 32.1 approved on April 12, 2006

Special tax relief for Missouri taxpayers in the Presidential Disaster Area 4/12/06

On March 22, 2006 (updated 3/24/06 to add 27 counties, and 4/6/06 to add 1 county), the IRS announced special tax relief for Missouri taxpayers in the Presidential Disaster Area that was struck by severe storms, tornadoes and flooding March 11, 2006 through March 13, 2006. The disaster area consists of 37 counties: Bates, Benton, Boone, Carroll, Cass, Cedar, Christian, Cooper, Crawford, Greene, Henry, Hickory, Howard, Iron, Jefferson, Johnson, Lawrence, Lincoln, Mississippi, Monroe, Montgomery, Morgan, New Madrid, Newton, Perry, Pettis, Phelps, Putnam, Randolph, Saline, Scott, St. Clair, Ste. Genevieve, Taney, Vernon, Webster and Wright. Deadlines for affected taxpayers to file returns, pay taxes and perform other time-sensitive acts falling on or after March 11, 2006, and on or before May 15, 2006, have been postponed to May 15, 2006. The IRS will waive the failure to deposit penalty for employment and excise deposits due on or after March 11, 2006, and on or before April 2, 2006, as long as the deposits were made by April 2, 2006. Affected taxpayers will need to identify themselves to the IRS as victims by writing (“Severe Storms, Tornadoes and Floods – MO”) in red ink at the top of their tax forms or any other documents filed with the IRS. Taxpayers eligible include individuals who live, and businesses whose principal place of business is located, in the covered disaster area, and taxpayers not in the covered disaster area, but whose books, records, or tax professionals’ offices are in the covered disaster area, are also entitled to relief. In addition, all relief workers affiliated with a recognized government or philanthropic organization assisting in the relief activities in the covered disaster area are eligible for relief.

The Federal Trade Commission (“FTC”) announced a Business Opportunity Rule Notice of Proposed Rulemaking on April 5, 2006. A press release and copy of the Notice. 4/5/06

Single-member LLC deemed employer liable for filing returns and payment of taxes 3/30/06

IRS regulations reverse the previous IRS position and provide that a single-member LLC is deemed to be the employer liable for filing returns and payment of taxes and not the owner/member. Reg. § 301.7701-2.

Contracts were awarded to 3 firms to participate in the first phase of IRS private debt collection initiative, IR-2006-42, March 9, 2006: 3/16/06

  • The CBE Group Inc., Waterloo, Iowa;
  • Linebarger Goggan Blair & Sampson, LLP, Austin, Texas; and
  • Pioneer Credit Recovery, Inc., Arcade, N.Y.

SST Governing Board Executive Committee Recommends CSP Compensation Amounts of tax remitted per seller for all states and the applicable rates: 3/16/06

  • less than or equal to $250,000; 8%;
  • greater than $250,000 and less than or equal to $1 million; 7%;
  • greater than $1 million and less than or equal to $2.5 million; 6%;
  • greater than $2.5 million and less than or equal to $5 million; 5%;
  • greater than $5 million and less than or equal to $10 million; 4%;
  • greater than $10 million and less than or equal to $25 million; 3%; and
  • greater than $25 million; 2%.

No compensation is payable to non-volunteer sellers.

The IRS plans to discontinue acceptance of EDI and Proprietary formats electronically filed Forms 940 (FUTA) and Forms 941 3/16/06

The IRS will continue to support the Extensible Markup Language (XML) file format for electronically filed Forms 940 and 941.

Eighth Circuit holds Tax Court should not have applied de novo review to an IRS collection due process (CDP) hearing 3/16/06

where taxpayer challenged his underlying tax liability after the IRS found taxpayer in default of an offer-in-compromise for failing to file a 1998 return after acceptance of the offer and taxpayer claimed the return was mailed. Robinette v. Comm, No. 04-3600 (8th Cir 3/8/06).