No federal contracts for delinquent taxpayers under U.S. bill

A bill has been introduced in Congress that would prohibit companies from getting federal contracts if they were delinquent in paying taxes.

"Studies by the Government Accountability Office have repeatedly shown that thousands of federal contractors owe over a billion dollars in unpaid taxes," says a press release issued by one of the bill's sponsors, Rep. Brad Ellsworth (D-IN). Under current law, applications for government contracts aren't affected by whether the applicant has failed to pay taxes.

The other sponsor of the bill is Sen. Claire McCaskill (D-MO). President Barack Obama c0-sponsored a similar bill last year in the Senate.

See Ellsworth's press release and the text of H.R. 572, the Contracting and Tax Accountability Act of 2009.

IRS willing to bend with hard economic times

The IRS announced this week that it is willing to allow some leniency for people who are facing major economic problems and are unable to pay taxes they owe.

For instance, the IRS said in its announcement:

• "IRS employees will have greater authority to suspend collection actions in certain hardship cases where taxpayers are unable to pay. This includes instances when the taxpayer has recently lost a job, is relying solely on Social Security or welfare income or is facing devastating illness or significant medical bills."

• "The IRS is allowing more flexibility for previously compliant individuals in existing Installment Agreements who have difficulty making payments because of a job loss or other financial hardship."

For more information, see the IRS press release: "IRS Begins Tax Season 2009 with Steps to Help Financially Distressed Taxpayers; Promotes Credits, e-File Options."

Ponzi scheme victims have tax options

The New York Times today explores tax options for those who lost money in Bernard Madoff's investment fund that is suspected to have been a Ponzi scheme:

• File amended returns and seek tax refunds. However, taxpayers generally can amend tax returns only for the three years prior to discovering a fraud, so this wouldn't do help long-term investors very much.
  
• Claim a theft-loss deduction equal to the amount of their original investment, plus any phantom interest or income obtained over all the years. This deduction can be used to offset ordinary income in the current year, or carried back three years or forward 20 years.
• If they do not have enough ordinary income to offset the deduction, they might be able to claim a refund, without interest, of the taxes paid on phantom income. But the IRS often contests those claims, The Wall Street Journal said.

See "For Victims of Schemes, the I.R.S. Can Be Flexible."