MERRY CHRISTMAS!

 

CLICK ON THE PICTURE

TAXPRO BUZZ

+ A question from the IRS - “What California city do you suggest for an IRS Nationwide Tax Forum?”.  I suggested San Francisco.  (oops - once I took the survey the link was no good - sorry)

+ The CCH weekday headline email reminds us that “Tax Preparers Need to File Form 8867 with All Earned Income Tax Credit Claims (IR-2011-122)”.

+ Did you know that “Unclaimed Employee Paychecks Must be Returned to Your State”?  Dr Jean Murry tells us so at ABOUT.COM-US BUSINESS LAW/TAXES.

“If you are sitting on unclaimed paychecks, as an employer you are legally bound by state law to return any uncashed paychecks to the state where the person last worked. You can be fined or penalized if you don't return the check, even if the person can't be found.”

So pass this info along to your payroll clients. 

And this is another reason to advise your clients to do an “Unclaimed Property” search.

+ CCH has published a special report on “2011-Tax Year In Review”.

“2011 had been predicted to be a quiet year in federal tax news – as it landed between major tax legislation in 2010 and expected tax reform in 2012 – but the year brought many signifi cant tax developments from the Obama Administration, Congress, the Treasury Department, the IRS, and the courts.”

+ The JOURNAL OF ACCOUNTANCY announces that “IRS PTIN Application System to Go Down for Maintenance”.

“The IRS announced on its website that it will not be accepting new applications for preparer tax identification numbers (PTINs) from 5 p.m. EST Friday, Dec. 23, until approximately 6 a.m. EST on Monday, Jan. 9. The IRS PTIN system will be available for renewals during that time.”

+ The New York Department of Taxation and Finance has released the Personal Income Tax: Withholding Rates for 2012.  Click here.

+ For those of you who are interested you can click here to download the 600+ page “Back in Black” report from Oklahoma Republican Tom Coburn.

Merry Christmas to all – except the idiots in Congress!

RDF

FINE WHINE

While I freely admit that my mind tends to wander during the required 2 hour “ethics” sermon we must sit through at least once each year during continuing education sessions, I do listen in on the discussion every now and then.  Hearing all the rules and requirements enacted in the name of privacy and security it is obvious that regulation has gone overboard.  Much of what the instructor discusses is, to be perfectly honest, totally ridiculous.

Say I was talking to a friend, who was also a client, in a public place and another client, let’s call him George, who my friend coincidently also knows, happened along, saying hello to us in passing.  If my friend asked me, “How do you know George,” I would normally think nothing of replying, “I have been doing his taxes for years”.

But by doing so, I am told, I would be seriously violating “privacy” rules! 

Obviously I am not allowed to discuss the details of George’s Form 1040, or any other financial or personal information I was told in confidence in the course of preparing his return, with my friend.  But not being able to simply mention that he is also a client is pure nonsense.

And, while it is not my responsibility as a tax preparer to personally verify every single on a client’s 1040, the IRS basically wants me to do so when it comes to the Earned Income Credit.  A tax preparer can be substantially penalized for not going through extra hoops when it comes to this credit – even if the credit itself turns out to be legitimate and the amount claimed correct.

As I wrote in an earlier post in a series on my obligations as a tax preparer -

“Although I am not obligated or required to personally verify all numbers entered on the 1040 (or 1040A), I am required to do what is called ‘due diligence’ when it comes to information provided by the client. What this means is that I must –

• evaluate information received from clients,

• apply a consistency and reasonableness standard to the information, and

• ask additional questions if the information appears incorrect, inconsistent or incomplete.

Obviously, if a client says or indicates something that does not make sense, or does not seem reasonable, I must ask questions.

But if what a client tells me, or indicates on a worksheet, appears to me to be reasonable considering the individual facts and circumstances than I do not need to go any further.

When it comes to the Earned Income Credit I am required to be a bit more ‘due’ in my ‘diligence’. As a side comment, I do not think it is fair for the IRS to require tax preparers to determine if an individual is eligible for federal welfare (which, after all, is what the EIC is).”

I am a tax preparer – not a Social Worker!  The Earned Income Credit has no place being in the Tax Code in the first place.

If I had not been doing this for 40 years now without incident, and I was considering a career as a paid preparer, I seriously think I would be scared away from the profession by all of this. 

I am in a very unique situation.  I do not accept, or want, any new 1040 clients – period.  I am actually looking to “thin the herd”. 

I certainly believe that you can teach an old dog new tricks – but some new tricks come with too much agita that they are not worth learning.  It is easier for me to say, “I will never have a client that this would apply to”, or, “If this applies to a client I will just send him/her elsewhere” then to put up with the added agita.

There have been times during the last few years when I have seriously considered retiring in December of 2013, so I would not have to put up with all the new aggravation, including the new paid preparer regulation regime (which I do, for the most part, support).  42 years would be a good run.  And waiting till the end of 2013 would give me time to look into more opportunities for income from writing on taxes and other topics, so I would still be able to eat.

But what about my 300+ clients?  It would be very easy to say good-bye to some – but a great many have relied on me for so many years that it would be difficult to tell them I could no longer prepare their returns.  Hey, if I won the lottery it would be one thing.  But not to voluntarily just walk away.

So I guess I will hang in there until the idiots in Congress or the IRS go too far.  Maybe, as I hope and pray, the current Tax Code will be totally shredded and a more simpler one written in the next two years.

RDF

IT AIN’T NECESSARILY SO!

At one point during the first day of the recent NATP year-end tax update workshops someone asked – “What would happen under a flat tax?”

In response an audience member called out, “We would all be out of business!”

This is not true!  I have said it before and I will say it again – a simpler tax return will not in any way hurt my business.  Nor should it substantially affect your tax practices.

I would make more money, have fewer expenses, and experience much less agita, if I spent 12 hours each day of the tax season doing nothing but 1040As!

The main reason most of my clients use a paid tax preparer, regardless of the complexity of their returns, is for convenience.  They just don’t want to be bothered keeping up with tax law and preparing the return themselves.  

And let’s face it – regardless of who is in the White House we will never have a true, pure “flat tax”.  We will never see the ridiculous, but frequently proposed, “post card tax return”.  There will always be some “tax expenditures” in the Code – even if, hopefully, only a very few.  Even my tax reform proposals include some.

And even with a pure flat tax you still need to determine “income”.  There will always be a need for some form of Schedules C, D, E and F, and therefore there will always be a need for a paid tax preparer.

I am curious to hear what my fellow tax pros think.

While I have your attention I just want to mention something else that we learned during the first session - 

This is apparently the last year that NATP will be offering the TAXPRO Symposium package in its current format.  Beginning next year the package will be three days only – the first day will cover the topic of “Representation”, and days two and three will be the normal “  and “ offerings.  Personally I have no interest in Representation, so it will be only two days of workshops for me in the winter of 2012.  I will be attending the Annual Conference in Baltimore in July – so I will accumulate many. many more than the newly required 15 hours of CPE.  

RDF

ENROLLED AGENTS SIGN UP FOR RTRP COMPETENCE TEST

I recently attended three of the four days of NATP’s annual TAXPRO Symposium in Atlantic City (see my TWTP posts).

While it had nothing to do with the topic of discussion, during the first session we were told that many current Enrolled Agents, although exempt from the competency test component of the new tax preparer regulation regime, will be taking the test.  Our symposium instructor is one such EA.

Why?  Because they want to be able to acquire the initials RTRP. 

The reason is the continued public confusion with the Enrolled Agent designation.  Our instructor gave an example -

A taxpayer looking to engage a paid preparer asks why he should choose her.  She explains, “Because I am an EA.”  The next question is, “What is an EA”, to which she answers, “An Enrolled Agent.”  The prospective client then says, “Oh, so you work for the IRS.”

Next the taxpayer shopping for a preparer asks a previously unenrolled tax pro the same initial question.  The answer given is, “Because I am an RTRP.”  When asked what an RTRP is the answer comes back, “A Registered Tax Return Preparer.”  Who do you think the taxpayer will select.

The question I ask is whether an EA, upon passing the test, will be granted the RTRP designation by the IRS.

One prominent veteran tax professional, an Enrolled Agent, told me -

“CPAs, Attorneys and EAs can become RTRPs but they must test and pass and meet other qualifications.  I want the initials to first, preserve what the EA credential means and second to get the advertising that RTRPs will get.  I believe with 400,000 RTRPs of the future with only 50,000 EAs that RTRPs will be the designation for return preparers.”

It sounds like a good idea.  I believe that CPAs and attorneys should also be allowed to have the credentials RTRP to identify their tax knowledge and currency – but not by voluntarily taking the test.  CPAs and attorneys who want to prepare 1040s should be required to take the test and maintain the CPE in federal taxation. 

EAs are a different issue.  They have already passed a much more comprehensive test and must maintain more CPE in federal taxation than RTRPs.  I can see that EAs who have voluntarily taken the test to be granted the RTRP designation, and now “advertise” as Jane Q Taxpayer, EA, RTRP, could hurt the credibility of the “plain” EA. 

Perhaps the IRS should automatically issue all EAs (but NOT CPAs or attorneys) the additional designation of RTRP because they have, in effect, already qualified by means of the EA Exam and maintain at least the minimum 15 hours of annual CPE in federal taxation.  Or the EA designation could be changed to ERTRP (Enrolled Registered Tax Return Preparer), or ETRP (Enrolled Tax Return Preparer).

What do my EA readers think?

While we were on the subject, the instructor also told us that Prometric, the outside firm hired by the IRS to conduct the competency tests, is an extremely intimidating proctor.  We were told to equate Prometric with the TSA. 

There will be metal detectors and pat downs, we will not be able to take anything into the test with us, if we have to leave the room to use the jake during the test we will be personally escorted to and from by a Prometric employee.  While it was mentioned that the test would be somewhat “open book” there will be no print copy of Publication 17 to be found in the test room – one must search an online version of the Pub.

This is just one more reason why I will wait until the spring of 2013 to sit for the test.  Maybe the testing will cause the IRS enough agita by then they will rethink their position on grandfathering.

RDF

TAX PRO BUZZ

Just thought I’d let you know that I received my PTIN confirmation from the IRS in the mail – stating, “We’ve accepted your 2012 renewal for your Preparer Tax Identification Number (PTIN).”  So I guess I am good for another year.

+ The JOURNAL OF ACCOUNTANCY has a detailed article on “Advising Clients in Same-Sex Relationships”.

+ Have you seen Prometric’s “IRS Registered Tax Return Preparer Sample Test” yet?

+ I recently did a piece at MainStreet.com on 10 tax breaks that are scheduled to expire in 2011, concentrating on items that appear on the 1040 (not yet up).

Charles Rubin (of the RUBIN ON TAX blog) has compiled a list of 35 “Items Slated to Be Eliminated or Materially Reduced After 2011 (Not Comprehensive)” that includes many obscure business tax benefits.

+ John Ams offers some advice to “previously unenrolled” tax preparers in “The IRS Preparer Competency Exam –Now What?” in his blog at NSA MemberConnect.

+ The 2011 IRS Publication 17 (Your Federal Income Tax for Individuals) is now available to download.

+ And the IRS has issued a new Fact Sheet on “Information for U.S. Citizens or Dual Citizens Residing Outside the U.S.”.

+ MISSOURI TAX GUY Bruce McFarland discusses in detail “Mileage Tracking with BizMile Tracker”.

“If you receive an audit notice from the IRS, you will need to produce the relevant documentary proof to validate the deductions being audited.

BizMile Tracker is your answer. This online program is the best mileage log assist I have seen.”

In case you are skeptical Bruce points out Bruce’s motivation in writing the post –

“This post is unsolicited and I will not or have not been compensated in any way for any information I have shared here. I use this product and I believe in this product.”

FYI – I am off to Atlantic City for the annual year-end tax update workshops offered by NATP.  This year I will also be taking the association’s Taxpro Symposium classes in Social Security and Railroad Retirement Benefits and Beneficiary Reporting. 

RDF

NEW NATP EDUCATION OFFERING

Below is information on a new education offering from the National Association of Tax Professionals.

If you are not already a member of NATP you should be!  To receive membership information email me at rdftaxpro@yahoo.com (with NATP Membership Info in the “subject line”).

“You've mastered the basics. You're ready for a challenge. NATP's Tax Intermediate Training is exactly what you need! We're offering a package of intermediate level self-study courses to help you expand your knowledge of services you offer your clients. Plus, you can earn up to 40 CPE credits* while you learn.

This self-study course is intended for tax professionals who've mastered preparing 1040 tax returns and are looking to expand their knowledge to include other areas of taxation including: businesses, estates, gifts & trusts and more advanced individual tax issues. NATP has bundled the key courses and is offering them to you at hundreds of dollars less than it would cost to take them individually.

All materials are available electronically, including textbooks which can be printed at your convenience if you choose. The following modules are included in this special program (click on the modules below for descriptions, objectives and CPE information):

• Individual Tax Topics
• Small Business Tax Topics
• Estates, Gifts & Trusts Tax Topics
• Like-Kind Exchanges
• Introduction to LLCs
• Introduction to Schedule F

This course costs $250 for members and $400 for nonmembers.”

RDF

WHAT SOME OF YOU WOULD KEEP

A while back in “What Would You Keep?” I discussed how I would rewrite the Tax Code, and asked my fellow tax professionals to identify “What current ‘tax expenditures’ would you want to see remain in a new, simpler Tax Code?”.  

I heard from only two tax pros – disappointing.  Their responses were published as comments to the original post.  However,  as comments are rarely overlooked, I thought I would report on, and respond to, these guys in a post.

Here is what my two colleagues had to say –

(1) Bruce McFarland, the MISSOURI TAX GUY:

“I would disagree with the SS income.  This should remain leveled as a lot of SS recipients don’t get receive much and truly would be more desolate by the burden of losing 15% to our crooked government.  { What I had said was “I would tax Social Security and Railroad Retirement benefits the same way that other retirement income is taxed, amortizing employee contributions over the recipient’s assumed lifetime”.  My tax code could have a generous personal exemption to wipe out much of the tax for the elderly living on Social Security – rdf} 

USA – “Universal Savings Account”. This is a great idea.  {Not my idea – actually I think Dubya had proposed it – rdf}

A fair tax solution would need to take COLA into effect/thought by geography. Currently like you mention it does not. I don’t believe it would be that hard to solve this as this country is divided really well geographically. Our US Postal code Zip code does this for us. The idea of using homeowners’ mortgage interest is decent enough, but I fear is not a plausible solution. The amount of one’s house payment is the same, month after month, generally, yet on a fifteen year loan, the interest paid reduces considerably year to year. Thus in your proposed plan would raise the taxpayers AGI, (I am assuming that your “acquisition debt” mortgage interest paid on a residence, is above the line). {Yes – there would be no more “line”.  Determining some kind of geographical adjustment by Zip Code still appears to me to be too complicated and would not necessarily accomplish the same result.  The deduction for state and local taxes, including real estate taxes, would help to “equalize” the geographical differences more than the mortgage interest deduction. – rdf}

The one thing I would rid ourselves of is the financial assistance program our tax code offers those who have nothing better to do with their time then have babies. EIC is a good program but we need to get our children out of the equation and make it more of a program that helps low-income taxpayers. If not do away with it all together. {Do away with it altogether – at least in the Tax Code. – rdf}”

(2) dbltall -

“Foreign Earned Income Credit or Foreign Tax Credit. People working outside the US shouldn't have to pay taxes twice to two different governments on the same income.  {I do not support any kind of double-taxation, so I would agree with the inclusion of some kind of foreign earned income adjustment. – rdf}

As to Bruce's comment about EITC, NO REFUNDABLE CREDITS!

Seriously. No refundable credits of any kind to anyone. No getting back more than you paid in. It's an invitation to fraud. If Congress wants to give money to people they can find another mechanism than the income tax return.  {Right on, dbltall!  NO REFUNDABLE CREDITS!  That would be non-negotiable. – rdf}”  

I am still interested in hearing more on this subject from my fellow tax professionals.  So once again I ask - What current ‘tax expenditures’ would you want to see remain in a new, simpler Tax Code?

RDF

TAXPRO BUZZ

A belated word of thanks - I am thankful that I live in a country where I can publicly identify the members of Congress as the idiots they are without fear of being thrown into prison.

+ My friend Bruce McFarland, the MISSOURI TAX GUY, often writes about QuickBooks issues at his blog.  He recently explained “When To Use Classes or Types in QuickBooks”.

When visiting the MISSOURI TAX GUY be sure to check out his Products Page and Free Downloads Page.

+ Trish McIntire has a few posts on 1099 issues at OUR TAXING TIMES – “New 1099 Checkboxes” and “Actually Reporting 1099K Income”.

+ Trish also discusses the new IRS Refund Cycle Chart, something that would concern those who efile (but not me – as I cannot), in “Still Batching”.

+ TAX GIRL Kelly Phillips Erb discusses a tax pro who wrote back to the IRS regarding the Notice 4809 recently sent to 21,000 tax preparers in “Dear IRS: A Tax Pro Fires Back” at FORBES.COM.

Before publishing the tax pro’s response Kelly talks about who received the letter and why -

“Tax return preparers who received one of the more than 21,000 letters which were sent out were targeted because they ‘complete large volumes of tax returns’ which have ‘a high percentage of attributes associated with returns typically containing inaccuracies and misinterpretations of tax law’.

So, that means foreign tax credits? EITC? AMT? What are those confusing attributes?

Why, the popular schedules A, C and E, of course. Schedule A is for itemized deductions. Schedule C is for the self-employed or business owners. Schedule E is for landlords. Clearly, dangerously confusing.”

+ CCH has published a guide to the “Three Percent Withholding Repeal and Job Creation Act”, signed into law by BO on November 21^st.  Click here to download.

+ We have been told that the “IRS Moves to Next Phase of Return Preparer Initiative: New Competency Test to Begin”

“The fee for the competency test is $116, which includes the IRS portion of the fee and the fee for Prometric Inc., a third-party test vendor. The test covers preparation of the Form 1040 and its related schedules. Test scheduling begins next week. Initial test takers won’t receive their test scores for two to six weeks to allow the IRS to validate the exam and determine the pass/fail cutoff. Once validation is complete, around mid-January, those taking the computer-based test will receive their scores at the test center immediately upon completing the test.

Prometric will eventually administer the test at more than 260 centers nationally, but the test is not available at all locations currently. Test sites will be added daily and international locations may be added in the future.

Over 750,000 tax return preparers have obtained PTINs. The IRS estimates that approximately 350,000 people may be initially subject to the Registered Tax Return Preparer test requirement.”

Kelly Phillips Erb shares my skepticism about the initial test in her post “IRS Begins Competency Test Scheduling” –

“It’s clear that there are some kinks to be worked out. I know a lot of tax pros have concerns about how smoothly the testing will go – especially after the fiasco that was the initial PTIN registration. It has to be better this time, right?”

As I have said before, since I have until 12/31/13 to pass the test I will wait until at least the fall of 2012 before I sit for it.  Who knows - maybe the IRS will change its mind and provide “grandfathering” by then and I will be off the hook.

RDF

HAPPY THANKSGIVING!

PRACTIVE VS REPRESENT CONTINUED

As a belated follow up to my post “Practice Vs Represent” Enrolled Agent Hal Leahy has sent me the following email -

It took a while to find it but here is the IRS's justification for including tax preparation under representation {highlight is mine – rdf}

"The IRS believes that increased oversight of paid tax return preparers does not require additional legislation. As discussed more fully below, the IRS’ intention is to require paid tax return preparers to register with the IRS through the issuance of regulations under section 6109 of the Internal Revenue Code. Further, the IRS considers the preparation of a tax return for compensation as a form of representation before the agency. Thus, the IRS intends to amend the regulations under 31 U.S.C. 330 to clarify that any person preparing a tax return for compensation is practicing before the agency and, therefore, must demonstrate good character, good reputation, and the necessary qualifications and competency to advise and assist other persons in the preparation of their federal tax returns."

IRS Return Preparer Review, Publication 4832 (Rev. 12-2009) Catalog Number 54419P, Department of the Treasury Internal Revenue Service, page 33.

Once a regulation is final, Congress can overturn it. The regulations related to the Return Preparer Initiative (RPI) were finalized in several IRS regulations and Circular 230. Congress held hearings on the RPI and did not overturn any of them. Therefore the regulations are law.

It would take a federal court case to overturn them. That is unlikely given the Supreme Court's Chevron or Administrative Deference Doctrine.

See Wikipedia Chevon ...

http://en.wikipedia.org/wiki/Chevron_U.S.A.,_Inc._v._Natural_Resources_Defense_Council,_Inc.

So tax preparation is practice before the IRS, unless a federal court states otherwise. The latter outcome is unlikely.

Hal Leahy EA

My response to Hal – The DFBs (clean version = damned fool bureaucrats).

RDF

THE REPORT OF THE INTERNAL REVENUE SERVICE ADVISORY COUNCIL

The IRS recently released the GENERAL REPORT OF THE INTERNAL REVENUE SERVICEADVISORY COUNCIL.

“The purpose of the IRSAC is to provide an organized forum for discussion of relevant tax administration issues between Internal Revenue Service (IRS) officials and representatives of the public.  Advisory council members convey the public’s perception of professional standards and best practices for tax professionals and IRS activities, offer constructive observations regarding current or proposed IRS policies, programs, and procedures, and suggest improvements to IRS operations.”

IRSAC draws its members from the tax professional community and members of academia.

Below are some of the recommendations in the report.  Any highlights are mine.

According to the report, the Council feels “The IRS must receive adequate funding commensurate with its ever-increasing responsibilities and workload to remain effective. The IRSAC is concerned that both taxpayers and the tax system will suffer without consistent and adequate levels of funding”, and recommends -

“Congress should appropriately fund the IRS to assure continued success in service, compliance and enforcement. Without adequate funding, both taxpayers and the tax system will continue to suffer. IRS personnel must receive the appropriate tools and technology to perform effectively. Advances in private sector technology are outpacing a resource challenged IRS at a time when it is most important for the IRS to continue to improve its technology (and increase its full-time staff) if it is to operate effectively. The IRS will continue to face difficult decisions with respect to allocating limited resources between the compliance, enforcement and service functions. While IRSAC recognizes the extreme importance of service to taxpayers, we also recognize that increased compliance and enforcement efforts are critical to the proper functioning of our voluntary tax system and cannot be ignored due to budgetary constraints.

The IRSAC recommends that resource allocation decisions focus on ensuring that the service, compliance and enforcement efforts of the IRS are properly balanced. Inappropriately allocated limited service or enforcement resources may serve only to foster future noncompliance. Encouraging future compliance is of parallel importance to punishing prior non-compliance. Tax administration is a constantly evolving process that must be able to react quickly, efficiently and effectively.”

Regarding the new Schedule D procedures, with the new Form 8949, the Council recommends -

“Encourage the brokerage houses providing substitute Forms 1099-B to be consistent in reporting with the format of Form 8949. This will aid the taxpayer and preparer in uploading multiple transactions in a standard spreadsheet or other electronic format, thereby making reporting as error free as possible.”

I am pleased that the Council made the following recommendation concerning the Form 1098-T issued by educational institutions -

“Require that Form 1098-T report payments received during the year. With the change to only payments received being reported, the IRS will need transition rules so that amounts billed in the prior year do not get counted twice as amounts billed would be payments received in the subsequent year.”

As I have said in the past - the Form 1098-T as currently issued by most colleges is basically “tits on a bull”.  For the most part the Form 1098-Ts that I get from clients are totally useless.  The form tells how much was billed – but not how much was actually paid.  Who cares how much was “billed” - I need to know how much was paid!  

The report also made this suggestion -

“Require eligible educational institutions to distribute two Forms 1098-T to any student that is both an undergraduate and graduate student in the same calendar year. Alternatively, the 1098-T could be redesigned to provide a box for undergraduate payments received and a box for graduate payments received, along with applicable checkboxes.”

RDF

PTIN UPDATE

Just thought I would let you know.

Yesterday (Tuesday) morning I mailed out my Form W-12, with a check, to renew my PTIN, having waited a month for the promised notice from the IRS explaining how to renew online.

Yesterday afternoon after jury duty I went to my mail drop to look for checks (none were there).  Included in my mail was the notice from the IRS telling me how to submit my application online.

FYI - New York State is now accepting renewal applications for its annual $100.00 tax preparer extortion fee online.  Click here to log-on. 

RDF

FYI

(1)  It has been a while since the IRS opened up online renewal of PTINs.  However, as I manually “refreshed” my PTIN last year, via Form W-12, I could not just go to the website and renew.  I was told that I would need to wait for a letter in the mail with some kind of code before I could renew online.

Guess what?  I have still not received any letter or notice from the IRS regarding PTIN renewal.  So I printed out and completed a Form W-12 to renew my PTIN for another year.  It will go in the mail, with a check, later this morning.

Who wants to bet me that the letter from the IRS will arrive in today’s mail?

(2)  Rather than print the same post on both blogs – I just want to bring your attention to today’s post at THE WANDERING PRO titled “A Discussion on Reforming the Tax Code”.

The topic concerns re-writing the Tax Code and should be of interest to tax professionals.

I welcome your comments on the discussion.

RDF

TAXPRO BUZZ

+ There was apparently a problem with my “settings”.  When I set up THE TAX PROFESSIONAL blog I failed to indicate that comments would be accepted from anybody.  As a result my TWTP follower Tom could not submit a comment at TTP.

Tom, instead, submitted the comment to my TWTP blog, and here it is –

Since your comment part isn't working on the other site for some reason I'll post my comment here - "Wonderful suggestions and I'm printing them out just to remind myself of these basics of life and work".

Thanks, Tom!

FYI – I have fixed the problem and now all comments should be accepted.  So if you tried to submit a comment on an earlier post and were unable to do so please try again – I welcome and encourage the comments of my fellow tax professionals. 

Remember, this blog is meant to be a kind of forum for discussion of issues relating to the business of preparing federal individual income tax returns.

+ We all know what a great resource the IRS website can be.

Trish McIntire reviews two methods of getting answers to tax questions at the IRS website in “Interactive IRS” at OUR TAXING TIMES.

+ Have you checked out my collection of “Tax Pro Forms, Schedules and Worksheets” yet?  You certainly can’t beat the price.

+ Kay Bell, the yellow rose of taxes, publishes a “Tax Carnival” at least once a month.

What is a “Blog Carnival”?  According to blogcarnival.com -

“Blog Carnivals typically collect together links pointing to blog articles on a particular topic. A Blog Carnival is like a magazine. It has a title, a topic, editors, contributors, and an audience. Editions of the carnival typically come out on a regular basis (e.g. every Monday, or on the first of the month). Each edition is a special blog article that consists of links to all the contributions that have been submitted, often with the editors opinions or remarks.”

Kay describes her carnival as –

“A continuing compendium of tax-related postings, ranging from tax news to commentary on taxes (and the politics and politicos who create them) to filing tips and tax-saving strategies.”

“Tax Carnival #92: Tax Standard Time” is Kay’s latest offering.

If you write a tax blog you should consider submitting a post for inclusion in Kay’s Tax Carnival.

+ Russ Fox discusses Linzy v. Commissioner, T.C. Memo. 2011-264 to remind us that “The Tax Court Expects a Tax Preparer to Know How to Substantiate Deductions” at TAXABLE TALK.

His bottom line –

“All tax professionals are held to a high standard if you end up at Tax Court: We are supposed to know the rules of substantiation. If we don’t, the Court isn’t going to be sympathetic at all.”

Along the way he mentions –

“There are some good unenrolled preparers (Robert Flach, for example), so being unenrolled isn’t necessarily a bad thing.”

Thanks, Russ!

+ ACCOUNTING TODAY talks about the IRS’s online EITC Due Diligence training module, and explains the increased penalties for failing to exercise due diligence, in “IRS Offers Practitioner Training to Avoid EITC Penalty”.

+ The post “The New York State Task Force on Regulation of Tax Return Preparers” at my NJ TAX PRACTICE BLOG discusses proposed requirements for tax pros who want to prepare NYS income tax returns.

 

+ For those of you who are interested – 2011 W-2 and 1099-MISC forms (dot matrix compatible and software compatible) are now available at Staples – earlier than usual.  FYI – I spend Christmas Eve and New Year’s Eve each year typing my clients’ (and my own) W-2s and 1099s.  

+ No surprise here – TAX GIRL Kelly Phillips Erb tells us “New W-2 Reporting Requirements for Health Care Confusing Taxpayers (Already)”, which provides a reminder for all of us who will soon be preparing W-2s.

“It is true that for the calendar and tax year 2011 employers must report employer-provided health care benefits for employees. The amount of benefits paid on your behalf will appear on your W-2 in 2012 as a report. It will not affect your taxable income for the calendar and tax year 2011.”

+ One of the many benefits of membership in NATP is its weekly email newsletter TAXPRO WEEKLY.

This week’s edition announced a new member benefit –

“New – NATP White Papers

Each day members call us with their toughest tax questions and we get them the answers they need. We often see a pattern of specific topics that tax pros would like to have a little more in-depth information on. For this reason, we have created white papers – a FREE member benefit. Our library has just begun and we are starting it off with these two documents:

•IRA and Qualified Plan Distributions to Trusts

•Small Employer Health Insurance Tax Credit

To access these white papers, go to the Media Center at Member to Member.”

If you are not already a member of NATP send me an email at rdftaxpro@yahoo.com (with NATP Membership in the subject line) and I will send you membership information.

+ A “tweet” (I am @rdftaxpro) led me to IRS Headliner Volume 315, which announced that “IRS Live Presents Updates from the Office of Professional Responsibilityand the Return Preparer Office”.

“The Internal Revenue Service presents an IRS Live webinar, Dec. 14 at 2 p.m. E.T. featuring updates from the IRS Office of Professional Responsibility and IRS Return Preparer Office.”

RDF

WHAT YOU TALKIN' 'BOUT, DOUGLAS?

I would like to take exception to some of the “Prepared Remarks of IRS Commissioner Doug Shulman at the AICPA Fall Meeting in Washington, D.C., onNov. 8, 2011”.

“From the beginning, we planned to exempt CPAs, attorneys, and enrolled agents from the testing and continuing education requirements as you already have more stringent testing and education requirements.”

This is very misleading – if not an outright lie.   The CPA exam and the bar exam are obviously more “stringent” tests, and CPAs, and I expect attorneys, have more stringent CPE requirements in terms of actual hours.  But only EAs are tested on federal taxation and are required to maintain CPE in federal taxation.  The CPA and bar exams may have a few tax questions, but these are, again I expect, questions on business taxation and not on 1040 issues.  This is like saying that Architects, Medical Doctors and Engineers should be exempt from the RTRP exam because they have already been subject to stringent testing. 

There is nothing in the CPA or bar exam that comes anywhere close to the RTRP competency test when it comes to preparing 1040s.  If the IRS will eventually require different tests for corporate and partnership tax preparation I would very likely support exempting CPAs from this separate test.

The only possible reason for even considering exempting CPAs and attorneys from testing and CPE has been mentioned, and discounted, in my earlier post on “Practice Vs Represent”.  Shulman’s above-quoted comment is just arse-kissing horse puckey! 

“But we received valuable input from stakeholders, including the AICPA, that helped us create what I think is a better overall final product. Let me highlight a few examples.

First, is the creation of a “supervised preparer” category which makes a lot of common sense to us …and to you. We refined the rules that we initially proposed to provide greater flexibility for people who work in a professional firm and prepare returns under the supervision of an accountant, enrolled agent or attorney.

These supervised preparers must obtain a PTIN and renew it each year, but they will be exempt from competency testing and continuing education requirements. You’ve been helpful to us in determining how to define the supervised preparer category… how to program our online system regarding it …and how we should notify the supervisors.”

The exemption of “supervised preparers” makes even less sense than the exemption of CPAs and attorneys.  From my experience, albeit many years ago, the actual “supervision” by CPAs is minimal, if there is any true “supervision” of the actual 1040 preparation.  The “non-CPA” employee is the person who actually prepares the 1040, with the CPA merely signing off on the return. 

When I was an employee of one of the at the time “big eight” firms I came across a tax return that was prepared by a “non-CPA”, and signed-off by a supervisor CPA, a CPA from the firm’s Tax Department, and the CPA “partner-in-charge” of the department.  The return was prepared incorrectly.

The “supervised” employees have no required formal training or education in 1040 preparation, and their competence is not validated by any testing or CPE requirements.

“Second, while we want to ensure a minimum level of competency in the preparer community, we do not want newly-registered return preparers to oversell what this means. Therefore, we created a disclaimer statement for individuals who will be future Registered Tax Return Preparers. This was to ensure that registration with the IRS is not viewed as an endorsement by the IRS.

And so, Registered Tax Return Preparers will need to include a clear statement on any paid advertising involving print, television or radio that ‘the IRS does not endorse any particular individual tax return preparer’, and that more information is available about this on IRS.gov.”

I agree that the IRS should not “endorse” the fact that an RTRP is automatically competent or ethical by virtue of being endowed with the initials, just as I believe that the IRS should not in any way “endorse” the CPA or JD credentials as being a guarantee of competence, currency or ethical conduct. 

But I do not want this “disclaimer” to in any way continue the “urban tax myth” that a person with the initials CPA is automatically a tax expert.

A person receiving the initials RTRP, like one designated an EA, has proven basic competence and currency in 1040 preparation, while a person with the initials CPA or JD has not.  This should be included in the disclaimer.

To be fair, I applaud the Commissioner’s statement (the highlight is mine) –

“And fourth, we have received input on the recent background check and fingerprinting proposals. While we all share the same goal of ensuring that there is adequate due diligence on people entering this field, the AICPA and others have made a number of important points that we need to think through regarding how best to do this.

And so we’ve decided to hold off on fingerprinting as we consider the issues that have been raised, and have further discussions with interested parties.”

I trust that Shulman refers to the fingerprinting of all registered tax preparers, and not just CPAs and attorneys.

He also speaks of –

“Therefore, we have a comprehensive strategy to focus on preparer enforcement and compliance. This year, we are focusing on two categories of preparers. First, are those preparers whose clients’ returns send out a warning signal of serious problems with accuracy and errors. We are also focusing on those preparers who are not signing returns and identifying themselves with a PTIN, also known as “ghost preparers.”

Shulman talks about of sending letters to and investigating preparers “who have been identified as ‘high risk’” and “whose clients’ returns contain traits commonly associated with highly questionable Earned Income Tax Credit claims”.  And he promises “in-person visits focused on return preparers we’ve identified as ‘egregious’ with high error rates”.  This is fine, but it only one area or approach.

He talks about “ratcheting up our efforts to identify ‘ghost preparers’”.  But what about the letters to taxpayers with complicated or questionable “self-prepared” returns to verify that these individuals did not engage “ghost preparers” who did not sign the return, as promised by Dave Williams at the NATP Conference in Austin? Taxpayers who use unregistered preparers should be penalized and fined for so doing.

RDF