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Tuesday, November 1, 2005

Non-Tax Reform Panel Tax News

Tax_news_roundup_18Wall Street Journal:

A move by the Supreme Court means that many telecommuters could ultimately face higher income-tax bills. The nation's highest court yesterday declined to hear an appeal by a Tennessee man who telecommuted to New York and was charged by that state for taxes on all his income. Because the Supreme Court won't review his appeal, New York's decision stands. Many telecommuters could face higher state income-tax bills if other states are emboldened by New York's success and enact similar rules that tax out-of-state telecommuters. Some members of Congress already have introduced legislation to protect telecommuters from such taxes.

  • Jim Maule has much more here.

In April, all taxpayers could go to the IRS Free File program to file their return online without a fee. Not anymore. Starting next year, the Free File program will be limited to taxpayers earning about $50,000 or less a year in adjusted gross income -- or 70% of filers each year, the IRS announced last week. That means about 93 million taxpayers will be eligible, still "a large population," says Bert DuMars, the IRS's director of electronic-tax administration. The IRS announced the rules as part of a new four-year agreement with the Free File Alliance, a group of about 20 for-profit tax-preparation companies, including Intuit Inc.'s TurboTax, with whom the IRS has collaborated to offer online filing free in an effort to get more people to file electronically. The agreement doesn't affect taxpayers who use a professional tax preparer.

A federal judge granted preliminary approval to a proposed $225 million class-action settlement by Big Four accounting firm KPMG LLP and the Sidley Austin Brown & Wood LLP law firm over questionable tax shelters that KPMG sold to hundreds of wealthy individuals. Under the accord, KPMG would pay about 80% of the settlement, while Sidley Austin would pay about 20%. The pact, expected to cover about 275 former KPMG tax-shelter clients, was reached with the class-action law firm Milberg Weiss Bershad & Schulman LLP, which stands to earn as much as $30 million in fees. A former Sidley Austin partner had written legal opinions supporting many of the shelters.

So, just how long is the U.S. tax code? Long enough that it's hard to answer that question. These columns have recently used two different numbers -- nine million and 2.8 million words -- in two different editorials, prompting alert readers to ask which number is correct. The answer is both, and therein lies a story. The latter number comes from John Walker, who runs the Web site www.fourmilab.ch, where he has created a cross-referenced and searchable database of Title 26 of the U.S. Code -- the section of federal law that deals with taxes. Since we published that number in August, Mr. Walker has updated his site and now puts the number of words at 3.4 million.

The nine-million-word figure is arrived at by combining Title 26 with all the regulations that have been written to implement the law. The regulations are estimated to run to nearly six million words, giving us the oft-quoted nine million total. Last year, the White House noted conservatively that the tax code ran to "over one million words." Mr. Walker arrives at a figure of approximately 1.3 million words if one excludes "all the auxiliary and supplementary material (lists of amendments, cross-references, transitional rules, etc.)," which is close to the White House figure.

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