IRS will trade leniency for information

Citizens who voluntarily pay taxes owed on offshore assets could escape criminal prosecution if they provide the Internal Revenue Service with information about the bankers who helped them hide their assets, according to The Wall Street Journal.

"A key part of the program, IRS officials said, is 'developing intelligence' on bankers, lawyers, accountants and others who help the rich hide assets from tax authorities," the Journal reported.

The Journal has posted the IRS guidelines on its website.

IRS tightens reporting requirements on offshore accounts

In another effort to hinder efforts to evade taxes on offshore accounts, the Internal Revenue Service is tightening certain reporting requirements.

The changes include requiring taxpayers to specify on the Foreign Bank Account Report the exact amount in offshore accounts. The Wall Street Journal reports that the IRS also is considering whether to implement changes to its "qualified intermediary" program with foreign banks that would better enable the IRS to ferret out accounts held by U.S. tax evaders.

White House task force formed to examine tax system

The Obama administration is looking for ways to reform the U.S. tax system and to aggressively reduce the tax gap, such as by attacking tax evasion.

Administration officials announced March 25 that a task force headed by former Federal Reserve Chairman Paul Volcker will study options and make recommendations to the President by Dec. 4. Volcker is now head of Obama's new Economic Recovery Advisory Board.

For comments by Office of Management and Budget Director Peter Orszag about the tax reform task force, see Reuters' story, Volcker panel to study tax reform, report to Obama.

Treasury report skeptical of "Son of Boss" settlement impact

Nearly one-fourth of the investors in the "Son of Boss" abusive tax shelter who participated in a settlement with the Internal Revenue Service failed to file their returns on time, paid their taxes late or failed to file returns at all, according to a report by the U.S. Treasury Inspector General for Tax Administration.

Investors in the tax shelter paid $3.8 billion in the settlement to avoid prosecution by the IRS. "Despite the success achieved, the Son of Boss settlement had little effect on investor filing and payment compliance," the report said.

The report, including the IRS response, is available on the U.S. Treasury website.

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."