Website shut down for selling instructions on how to stop paying taxes

A website that sells materials stating that individuals can legally stop paying taxes has been shut on the order of a federal judge.

“The First Amendment does not protect speech that incites imminent lawless action,” Judge Thomas J. McAvoy, a senior judge in the Northern District of New York, said in his Aug. 9 order.

The New York Times reported that McAvoy also ordered that the names, addresses, telephone numbers, e-mail addresses and Social Security numbers of every person who received materials on how to stop paying taxes be turned over to the government.

Judge denies IRS request for Textron work papers

A federal judge in Rhode Island ruled yesterday that the Internal Revenue Service didn't have a right to tax-accrual work papers belonging to aerospace and defense contractor Textron Inc., the Wall Street Journal reported.

The case involves a "sale in, lease out" (SILO) deal Textron made in 2001. In 2004, Congress outlawed future so-called SILOs. The following year, the IRS said it would begin presuming that past SILO transactions violated tax laws.

U.S. District Court Judge Ernest C. Torres wrote that the papers were protected by "work product" privilege, as "the work papers were prepared 'because of' anticipated litigation with the IRS."

Sole proprietors blamed for portion of U.S. tax gap

Nearly two-thirds of U.S. sole proprietors underreported their net business income for the 2001 tax year, according to a recently released report by the General Accounting Office.

The report, "Tax Gap: A Strategy for Reducing the Gap Should Include Options for Addressing Sole Proprietor Ownership," says IRS data also indicate that sole proprietors misreported around 57% of their business income for that year.

The IRS estimates that $68 billion of the $345 billion gross tax gap for 2001 was due to sole proprietors.

Pope will condemn tax evasion, tax havens

Pope Benedict XVI is working on a doctrinal pronouncement that will condemn tax evasion as “socially unjust,” The Times of London reports, citing Vatican sources.

The Times says the pontiff, in his second encyclical, "will denounce the use of 'tax havens' and offshore bank accounts by wealthy individuals, since this reduces tax revenues for the benefit of society as a whole."

The encyclical - the most authoritative statement a pope can issue - will focus on humanity’s social and economic problems in an era of globalization.

IRS releases report on steps to improve voluntary compliance with tax laws

The Internal Revenue Service today released a report that reviews the agency's strategy to improve voluntary compliance with tax laws and help close the "tax gap."

"Reducing the Federal Tax Gap: A Report on Improving Voluntary Compliance" recognizes the importance of having a multi-year research program that will assist in understanding both the scope of noncompliance and the reasons for it.

The gross tax gap was estimated to be $345 billion in 2001. After enforcement effects and late payments, the number was reduced to a net tax gap of approximately $290 billion, the IRS said.

IRS rules youth sports club must withhold taxes from coaches' pay

The Internal Revenue Service has reached an agreement with a Connecticut youth soccer association that requires the league to treat coaches it has hired as employees rather than independent contractors, according to the New York Times.

The Fairfield United Soccer Association pays $2,500 a year to several dozen coaches who have high-level soccer skills. The group now will have to withhold income taxes from those payments. The Fairfield association also agreed to pay $11,600 in back taxes.

The case is seen as having major implications across the country in youth sports where volunteer parent organizations hire skilled coaches for their elite teams.

"For 20 years, all of these coaches have been reported as 1099 employees for everybody," Jay Skelton, the Fairfield group's president, told the Times. "If you talk to 100 clubs, I guarantee almost every one, if not all, would declare these guys as independent contractors."

"Unfortunately, we became the test case," he said.

Big tax break for corporations failed to create promised jobs

President Bush and Congress gave companies a big tax break two years ago, allowing them to repatriate billions of dollars in foreign profits and pay only minimal taxes with the justification that companies then would create more jobs in the U.S.

But the companies didn't create many jobs, reports the New York Times in a front-page article July 24. Instead, drug companies, which were the biggest beneficiaries of the program, have laid off tens of thousands of workers. And they "are once again using complex strategies, many of them demonstrably legal, to shelter billions of dollars in profits in international tax havens, according to their financial statements and independent tax experts," says the Times.

"With a few narrow exceptions, the drug companies are supposed to be paying as much as 35 percent of their worldwide profits in United States federal taxes," says the Times. "In reality they pay much less."

Transfer pricing is one way they can lower their U.S. tax bill, and it is one of the biggest challenges for tax enforcement. "Outsiders have a difficult time determining if companies have properly assessed the value of patents, trademarks and other intangible properties" for transfer pricing, says the Times.