The Hindu Business Line : Don't hoodwink grandmothers even if they are dead

WHEN a 93-year old lady dies leaving behind a fortune for the benefit of her three children, and a granddaughter steps in as a trustee to manage the granny's estate, you would normally assume things are properly taken care of. But to make the grandmother turn in her grave, AccountingWEB reports the case of how a former Internal Revenue Service employee has admitted to abusing her position as trustee of her grandmother's estate to divert funds to herself.

Punishment awarded was 33 months in prison and three years supervised release after she pleaded guilty to six counts of mail fraud, five counts of wire fraud and four counts of tax evasion; also, she has to pay $605,203 in restitution, for abusing her position as trustee and transferring most of the estate's more than $500,000 to herself from 1997 to 2000. Funds were used by the granddaughter for buying real estate, start a business and pay her bills. Who says grandmother is not watching!

Cost of errors

IN THE UK, the Inland Revenue has paid out over £7 million to compensate customers for errors over the last three years, reports Accountancy. There, they have something called "Putting Things Right Code of Practice", according to which the taxman reimburses customers, including reimbursement of professional fees. No compensation is paid by the Inland Revenue to accountants and other professional advisers. In the last three years, such compensation has added to about £7 million. One hopes there were no errors again when putting things right.

Culture blocks in IRS

THE Internal Revenue Service of the US "needs a culture change to succeed at Business Systems Modernisation (BSM)," according to its Chief Information Officer. The New York Society of CPAs observes that the IRS has to stop setting overly ambitious and impractical time periods for delivering projects that end up repeatedly delayed and overpriced. Management and performance weaknesses continue to plague modernisation moves at the tax agency. It appears they do not face a hurdle we are only too familiar with: political intervention.

Six billion more by not taxing

WHEN it comes to taxing overseas profits, the US taxman is seriously inept, according to a story that The Wall Street Journal carried recently. The regime is "so riddled with loopholes and credits that the government would collect $6 billion more each year if it stopped trying to tax those profits altogether". This estimate comes when there is already an increased scrutiny by the IRS of US companies with massive foreign operations, with suspicions of evading taxes.

Many such companies use the numerous tax breaks and credits to mitigate their tax liability. But the Joint Committee on Taxation, the non-partisan scorekeeper on taxes for Congress, has noted that the US tax code gives those global companies more in tax breaks for foreign operations than it collects in revenues." An example of how to boost revenue by not taxing!

Avoiding avoidance tag

EVER since the UK's Inland Revenue announced how it was going to clampdown on tax avoidance, "the accountancy profession is playing its cards close to its chest," notes Accountancy. There has been little public reaction from the profession, observes the magazine.

In the absence of working rules and detailed guidance, "prudent accountants are going to disclose far more than is really necessary to avoid any prospect of non-compliance." Such erring on the right side can swamp the taxman's new Avoidance Intelligence Unit "being completely overwhelmed." Would a needle in the haystack exercise become inevitable then, with predictable results?

Errors in tax crunching

ONE in ten dividend tax forms sent out by major Wall Street firms could be wrong, states a report in AccountingWEB. The Securities and Industry Association has observed that the new tax law created difficulties in reporting the corporate-dividends tax rate correctly this year. "Under the 2003 Jobs and Growth Tax Relief Reconciliation Act, the rate was reduced from a high of 38.6 per cent to 15 per cent. For dividends to qualify for the reduced 15 per cent rate, an investor had to hold the shares for more than 60 days during the 120-day period that surrounds the ex-dividend date. That's the day on which a share no longer carries the right to receive the most recently declared dividend. The 15 per cent tax rate does not apply to interest payments from bonds or dividends from borrowed shares." If that is tough to understand, you can pat yourself for having got a grasp of why errors occur.

Will network tax work?

FLORIDA is poised to become the first state in the nation to impose a communications tax on computer networks, states NYSCPA.org, to shock IT-lovers. "The tax is contained in a 1985 statute intended to make sure companies that build their own communication systems rather than rely on commercial providers are paying their fair share of communication services taxes," reports The Tampa Tribune. With advancements in technology in the recent past, "most multi-user computer systems, particularly local area networks known as LANs, meet the definition of a Substitute Communications System." You can't blame tax as lacking in farsightedness.

IT hit by I-T

HERE is one more jolt to IT from I-T. The US taxman, IRS has initiated a reduction in force action that targets information technology employees, according to the New York Society of CPAs. Job cut memos were issued at the beginning of this month and about 1,500 of the affected work in the two groups: "End User Equipment and Services and Enterprise Operations Services, both within the tax agency's Modernisation and Information Technology Services organisation."

The IRS argues that IT staff reductions are necessary "to improve internal technical support without asking Congress for more money." And one thought IT kids were the blue-eyed ones in any organisation.

Tailpiece

"Do you know what's VAT?"

"What?"

Detaxification@TheHindu.co.in

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