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."

Offshore tax havens investigated as part of Madoff case

Government investigators are looking into the role that offshore tax havens may have played in the Ponzi scheme that Bernard L. Madoff is suspected of orchestrating, the New York Times reported today.

"Of particular interest is whether Mr. Madoff and some of his investors used funds based in offshore tax havens to evade American taxes, according to a person briefed on the investigation," the Times said.

"Also under scrutiny is whether certain charities invested with Mr. Madoff had improperly allowed their donors to shift money offshore, and whether foreign banks had withheld American taxes on Madoff accounts, as required by the Internal Revenue Service, according to this person, who was given anonymity because of the delicate nature of the investigation."

See "Madoff Spotlight Turns to Role of Offshore Funds."

Former Bechtel tax manager acquitted

A federal jury acquitted a former global tax manager for Bechtel of charges that he had caused the company to file a false tax return, The Recorder reports.

Prosecutors said the tax manager, Mark Muntean, knew the tax credit was improper, but Muntean's lawyer said his client relied on subordinates, who failed to give him all necessary information.

See "Ex-Bechtel lawyer acquitted in tax-credit prosecution."

IRS enforcement shift seen after KPMG case

CFO.com says the outcome of the KPMG tax shelter case could mean "the direction of government tax-shelter enforcement in both personal and corporate cases may change."

One tax attorney said, "We've been dealing with these personal shelters for a decade now, and the new wave appears to be through foreign bank accounts, where major financial institutions have potentially facilitated the sheltering."

See "KPMG tax-shelter case is mixed-win for U.S."

Jury finds three guilty in KPMG tax shelter case

A federal jury has found two former KPMG executives and a tax lawyer guilty of multiple accounts of tax evasion and acquitted a former KPMG partner in a case involving the creation and sale of tax shelters to wealthy Americans.

The government's high-profile case suffered many setbacks, including the judge's decision in 2006 to throw out charges against 13 other defendants because the government had applied pressure to KPMG to stop paying their legal bills.

KPMG settled with the government for $456 million in 2005.

See "Former KPMG executives convicted of tax evasion."