WASHINGTON — Search warrants were carried out in seven cities this week by special agents from the Internal Revenue Service. According to affidavits filed in federal court, the IRS is seeking evidence from tax-preparation businesses suspected of preparing returns on behalf of clients requesting egregious amounts involving this year’s special telephone excise tax refund.

IRS criminal investigators served search warrants at tax preparation businesses in Atlanta, Ga.; Dallas, Tyler and Athens, Texas; Riverside, Calif.; Miami, Fla.; and New Orleans, La. Special agents temporarily closed the businesses, seizing computers and documents to use in their investigations.

“We want everyone who is eligible for the telephone tax refund to claim it but not to inflate the amount requested,” said IRS Commissioner Mark W. Everson. “We have seen limited but serious instances of abuse, and we’ve sent in criminal investigators to pursue the matter accordingly.”

Along with the IRS enforcement action in seven cities, other tax preparers across the nation who are preparing questionable telephone tax refund requests are receiving visits from IRS revenue agents (auditors) and special agents. The agency began conducting the visits last week. The IRS advised taxpayers to stay away from unscrupulous promoters and tax preparers who make false claims about the telephone tax refund and suggest that many, if not most, phone customers can get hundreds of dollars or more back under this program.

At the same time, the IRS urged taxpayers now filling out their 2006 returns not to overlook the telephone tax refund. Out of early filers, nearly one in three are failing to request this special refund, and although some of them may not be eligible, others may qualify and not know it. The vast majority of those who are requesting it are doing so correctly.

The government stopped collecting the long-distance excise tax last August after several federal court decisions held that the tax does not apply to long-distance service as it is billed today. Officials also authorized a one-time refund of the federal excise tax paid on service billed during the previous 41 months, stretching from the beginning of March 2003 to the end of July 2006. The tax continues to apply to local-only phone service.

The IRS has monitored telephone excise tax refund requests for potential problems since the tax-filing season opened in early January. The agency has seen some problems with returns from tax preparers that may indicate criminal intent.

Some tax-return preparers are requesting thousands of dollars of refunds for their clients in instances where clients are entitled to only a tiny fraction of that amount. In some cases, taxpayers requested a refund in the thousands of dollars, suggesting that the taxpayer paid more for telephone service than they received in income. In several instances, taxpayers requested a refund of $30,000 — hundreds of times of what could be reasonably expected. Some refund requests appear to be for the entire amount of the taxpayer’s phone bill, rather than just the three-percent long-distance tax.

Taxpayers who request more of a refund than they are entitled to receive will have their refunds held and be subject to an audit.

To make the refund easier to figure, the government established a standard refund amount, based on personal exemptions, ranging from $30 to $60. If taxpayers have phone bills and other records, they can request the actual amount of excise tax paid. Though using the standard amount is optional, it is easy to figure and approximates the eligible amount for most individual taxpayers. Taxpayers only have to fill out one line on their return, and they don’t need to present proof to the IRS.

To avoid mistakes and get a refund quickly, the IRS encourages taxpayers to file their tax return electronically and electronically deposit their refund directly into a checking or savings account. Electronic-filing software helps taxpayers figure tax breaks, such as the telephone tax refund, accurately and report them properly. Free e-file services are available to low and moderate-income taxpayers (incomes of $52,000 or less) through the Free File link on this Web site.

The best and most reliable information on this unique refund can be found in the Telephone Excise Tax Refund section of this Web site. Here, taxpayers can download forms, find answers to frequently-asked questions and link to participating private-sector Free File partners offering free electronic-filing services.

WASHINGTON – Steven Merkes, a former Department of Defense (DOD) employee, pleaded guilty to accepting illegal gratuities while serving as an operational support planner in the Future Operations Division of the U.S. Army Headquarters, Special Operations Command–Europe (HQSOCEUR), Assistant Attorney General Alice S. Fisher of the Criminal Division announced today.

According to plea documents filed in federal court, Merkes served in the U.S. Air Force until January 2005, when he left active duty and began work as a DOD civilian employee. In both the Air Force and in his civilian DOD employment, Merkes served as a logistical planner for the HQSOCEUR in Stuttgart, Germany. In both positions, Merkes’ official duties consisted of planning military exercises for U.S. Special Operations forces in the European theater of operations.

In April 2005, Merkes took official acts to benefit Philip Bloom, a U.S. citizen who operated and controlled construction and service companies in Romania and Iraq that did business with the U.S. government. Shortly thereafter, Merkes accepted a job offer and $24,000 from Bloom, knowing that the job and the money were for official acts he had agreed to perform for Bloom.

Merkes pleaded guilty to accepting illegal gratuities which carries a maximum penalty of two years in prison and a fine of $250,000. Sentencing has been set for June 1, 2007.

On March 10, 2006, Bloom, pleaded guilty to unrelated charges of conspiracy, bribery and money laundering. Bloom was sentenced earlier today to 46 months in prison.

This case is being prosecuted by trial attorneys James A. Crowell IV and John P. Pearson of the Public Integrity Section, headed by Acting Section Chief Edward C. Nucci, and trial attorney Patrick Murphy of the Asset Forfeiture and Money Laundering Section, headed by Section Chief Richard Weber, of the Criminal Division.

These cases are being investigated by the Special Inspector General for Iraq Reconstruction, the Internal Revenue Service (IRS) Criminal Investigation, the U.S. Immigration and Customs Enforcement at the Department of Homeland Security (ICE), U.S. Army Criminal Investigation Division, the U.S. Department of State Office of Inspector General, and the FBI Washington Field Office in support of the Justice Department’s National Procurement Fraud Task Force and the International Contract Corruption Initiative. The investigation has received substantial assistance from the ICE Cybercrimes Division.

The National Procurement Fraud Initiative was announced by Deputy Attorney General Paul J. McNulty in October 2006, and is designed to promote the early detection, identification, prevention and prosecution of procurement fraud associated with the increase in contracting activity for national security and other government programs. As part of this initiative, the Deputy Attorney General has created the National Procurement Fraud Task Force, which is chaired by Assistant Attorney General Fisher.

Hanson Bridgett Marcus Vlahos & Rudy LLP said the former lawyer for the San Francisco 49ers has joined the firm.

Ed Goines spent five years with the football team as vice president and general counsel, He directed the legal and business contractual matters of 49ers' sponsorship and broadcast media contracts, player and coaching contracts and front office employment agreements. Goines also acted as a liaison to governmental officials.

Goines left the team in May 2006 and started a solo practice focusing on sports and entertainment law.

Goines decided to bring his practice to San Francisco-based Hanson Bridgett in order to offer his clients more services. Goines' sports and entertainment practice, Sui Generis P.C., will operate from Hanson Bridgett's San Francisco office. Goines and Hanson Bridgett share some clients, including Russell Baze, thoroughbred racing's winningest jockey.

North and South Korea have wasted no time in building on the nuclear deal agreed to by six nations here in the Chinese capital. Following consultations in the North Korean border city of Kaesong, South Korean Assistant Unification Minister Lee Kwan-se said Thursday that suspended inter-Korean talks would resume.

He says there is willingness to improve the inter-Korean relationship, so the two Koreas will hold minister-level meetings in Pyongyang from February 27 to March 2.

South Korean Unification Minister Lee Jae-joung, who will represent Seoul at the talks, has made no secret of South Korea's interest in resuming emergency food and fertilizer assistance to the severely impoverished North.

Seoul halted regular shipments last July, after North Korea test-fired a series of missiles despite warnings from South Korea and the international community. The North responded by suspending inter-Korean talks and scheduled reunions between family members separated by the Korean divide.

South Korea kept its food embargo in place after North Korea tested its first nuclear weapon in October. Seoul also backed United Nations punitive sanctions against Pyongyang.

South Korea, the United States, China, Russia, Japan, and North Korea agreed Tuesday on a list of preliminary steps aimed at ending the North's nuclear weapons programs. Now the two Koreas are expected to devote special attention to resuming food aid and restarting a host of inter-Korean projects such as family reunions and cross-border railways.

The deal agreed to here in Beijing exchanges a shutdown of North Korea's main nuclear facility at Yongbyon for delivery of 50,000 tons of heavy fuel oil within 60 days. Far more ambitious targets toward scrapping the North's weapons are to be set out in future phases of the agreement.

Ryoo Kihl-jae, Dean of Seoul's Kyungnam Graduate School of North Korean studies, says South Korea views it as a matter of strategic importance to ensure that severe economic deprivation does not destabilize North Korea. However, he says South Korean patience for subsidizing the North does have its limits.

He says if there is trouble in implementing the current North Korean nuclear deal, South Korean political support for engagement with the North may suffer.

South Korea's main opposition party, whose candidates enjoy a wide lead in early polling for this December's presidential election, says the upcoming North-South ministerial should focus primarily on ensuring North Korea adheres to the terms of the Beijing nuclear deal.

Opposition politicians are concerned that South Korean President Roh Moo-hyun may gain political support by hosting an early summit with the North.

WASHINGTON —The IRS announced today that it had entered into an agreement that resolves several disputed tax issues with Merck & Co., Inc. and its subsidiaries. The agreement will result in a payment to the government of approximately $2.3 billion in federal tax, net interest and penalties, and resolves all issues that had been in dispute between the parties for the tax years 1993-2001. The resolution is one of the largest achieved in recent years by the Service and a taxpayer through the examination process.

Both the IRS and Merck acknowledge that reaching an agreement of this magnitude was the result of cooperation by both parties. To facilitate this agreement, the IRS and the taxpayer used various issue management strategies, including the Fast Track Settlement Program.

Among the significant issues resolved were three issues that resulted from Merck’s use of minority equity interest financing transactions. The execution of these agreements should facilitate the ability of the IRS and the taxpayer to move forward and effectively address tax issues arising in subsequent examination years.

WASHINGTON - The United States filed has filed suit seeking to permanently bar Richard E. Almy and his company, REA Associates, Inc., from preparing federal tax returns, the Justice Department announced today. According to the complaint, filed in the Middle District of Florida, Almy and his company prepared tax returns that claimed overstated, duplicated, and fabricated deductions on their clients’ tax returns. An examination by the Internal Revenue Service of 175 tax returns prepared by Almy and his company during 2003 found that all of them required audit adjustments that increased the tax owed.

The government alleges that the defendants’ scheme involved knowingly ignoring or modifying information provided by their clients on summary sheets containing their income and expenses for the applicable tax year. The government estimates in the complaint that this alleged fraudulent tax preparation scheme by Almy and his company has resulted in an understatement of their customers’ federal income tax liabilities of more than $16 million for tax years 2001 through 2003 alone.

The complaint also seeks an order requiring Almy and his company to provide the Justice Department with the names, addresses, social security or taxpayer identification numbers, as well as e-mail addresses and telephone numbers of their customers.

Since 2001, the Justice Department has obtained more than 220 injunctions to stop the promotion of tax fraud schemes and the preparation of fraudulent returns. More information about the Justice Department’s Tax Division can be found at http://www.usdoj.gov/tax.