How Lehman Sold Plan To Sidestep Tax Man

"Wall Street firms have long sought to use financial alchemy to save clients a bundle on their tax bills. Now, one of the Street's cleverest strategies is coming under scrutiny.

The strategy arose a few years ago, a time when lots of U.S. companies were paying fat dividends. Wall Street sensed a golden business opportunity: sell their hedge-fund clients on ways to make those dividends even fatter by avoiding taxes on them.

Bankers at Lehman Brothers Holdings Inc. pitched an enticing product. By using a complex financial tool called derivatives, hedge funds with offshore operations could reap the benefits of owning big-dividend U.S. stocks without actually owning them. The result: no dividend-tax bite. Different versions of the strategy cropped up all over Wall Street.

Hedge funds were thrilled. The Internal Revenue Service apparently wasn't. Federal tax authorities are seeking information about the trades from Lehman and Citigroup Inc., The Wall Street Journal reported in July, and other firms are btracing for similar inquiries."

Complete article can be found here:
http://online.wsj.com/article/SB118998876153829237.html

Taxpayers showing losses on Schedule C are in the spotlight

The Treasury Inspector General for Tax Administration (TIGTA) has issued a report presenting the results of a review to determine what actions the Internal Revenue Service is taking to address noncompliant, high-income Small Business/Self-Employed (SB/SE) Division taxpayers who claim business losses using a U.S. Individual Income Tax Return (Form 1040) Profit or Loss From Business (Schedule C) for activities considered to be not-for-profit. This audit was part of the Treasury Inspector General for Tax Administration's Fiscal Year 2007 audit plan.

Complete article can be hound here:
http://www.accountingweb.com/cgi-bin/item.cgi?id=104021

IRS Resources: Business Entertainment Expenses

The IRS is pretty clear in explaining rules to avoid a tax audit when dealing with entertainment expenses. See complete article for list of IRS publications.

Complete article can be found here:
http://activerain.com/blogsview/199592/IRS-Resources-Business-Entertainment

Look out for tax hit after home loss

"In a package of proposals aimed at easing foreclosure worries for homeowners having trouble making their mortgage payments, President Bush called last week on Congress to temporarily make some borrowers exempt from a little-known tax that kicks debtors when they're down.
The provision, which assesses income tax on canceled or "forgiven" debts, can be triggered when a lender forecloses on a home or agrees to accept the proceeds of a property sale for less than the balance on the loan."

Complete article can be found here:
http://www.latimes.com/business/investing/la-fi-perfin2sep02,1,1737597.column?coll=la-utilities-business-money

Surviving the IRS Audit

"Most of us manage to get through every tax season relatively unscathed, but others are not so lucky. Nothing strikes fear and panic in a taxpayer's heart like the prospect of a tax audit . What would you do if the IRS picked your tax return for an audit? Here we look at what you can do to prepare for an audit and what kind of penalties you can expect if you've underpaid on your taxes. We also answer the question every taxpayer ponders at least once in his or her lifetime: what are the odds that you'll get singled out for an audit?"

Complete Article can be found here:
http://www.ibtimes.com/articles/20070830/irs-audit.htm

Closing the Gap: Why the IRS Wants to Practice Random Acts of Audit

"Bottom Line:
• According to IRS estimates, there is a $345 billion gross "tax gap" for 2001. The tax gap is the difference between taxes the IRS thinks should have been paid and taxes that actually were paid.
• To better understand the tax gap and non-compliance with tax codes, the IRS is resurrecting random audits of tax returns.
• Some 13,000 taxpayers will be chosen for random audits of 2006 returns.
• The IRS will continue random audits for tax years 2007 and 2008."

Complete Article can be found here:
http://knowledge.asu.edu/blog/index.php/2007/08/24/closing_the_gap_why_the_irs_wants_to_pra

IRS turns to computers to choose who gets audited and who doesn't

"Taxpayers audited by the IRS aren’t selected randomly by humans any longer. They’re chosen methodically by computers looking, line by line, for irregularities in tax returns. An Internal Revenue Service (IRS) audit can make even an honest and thorough taxpayer worried. In fact though, an IRS audit is simply a review of your tax return to determine how accurate it is."

Complete article can be found here:
http://www.arcamax.com/consumernews/s-215471-609045