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

CHOICES

Our current Tax Code often provides taxpayers with choices on how to treat a certain situation or transaction.

For example:

+ Married Filing Joint or Married Filing Separate.

+ Claiming a personal exemption for a dependent student or allowing the student to claim an education tax credit on his/her own return.

+ Claiming an “above-the-line” adjustment to income for tuition and fees, an itemized deduction as an “employee business expense” if applicable, or an education tax credit.

+ Depreciating a new business asset or claiming a Section 179 deduction.

+ Itemizing your deductions or claiming the standard deduction.

+ Deducting state and local income tax paid or state and local sales tax paid.

+ Deducting state and local sales tax paid from the Optional Sales Tax Tables or claiming the total actual sales tax paid for the year.

As tax preparers we should review each option and do separate tax calculations to see which one will result in the lowest tax.  Reviewing choices is one of the best ways we can serve our clients.

As a general rule tax preparers will automatically prepare joint returns for married clients, because more often than not it is “more better” for a couple to file joint federal returns.  You should instead be doing comparisons of joint vs separate.  You may be surprised to find that the client will save by filing separately – and they will get to charge for two returns instead of one!   

Tax pros must also consider how the federal option will affect resident and non-resident state and local tax returns. Choosing an option may save $50.00 in federal taxes but cost $100.00 in state income taxes.

In New Jersey where I practice it is often better for married couples to file separately. However, you usually must use the same filing status on your NJ-1040 as you do on your federal return.  I have found that in many cases a couple will save more in NJ state tax then the resulting additional federal tax cost by filing separately. 

To be fair, when determining if there is a savings from separate filings you should consider the additional fee you will charge.

And we should look at long-term considerations.  Depreciating instead of expensing a business asset purchase will result in a higher tax up front – but may save the client money in the long run.    

The goal is to choose the options that will allow your client to pay the absolute least amount of combined overall federal, state and local income taxes.

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!

USING A BLOG TO PROMOTE YOUR TAX PRACTICE

The internet is alive with the words of “bloggers”!

According to Netlingo, the Internet Dictionary, a weblog, or “blog” is “A Web site (or section of a Web site) where users can post a chronological, up-to-date e-journal entry of their thoughts”.  It is “an open forum communication tool that, depending on the Web site, is either very individualistic or performs a crucial function for an organization or company. There are three basic varieties of blogs: those that post links to other sources, those that compile news and articles, and those that provide a forum for opinions and commentary.

There are hundreds, perhaps thousands, of weblogs in the category of “personal finance”.  These blogs cover a wide variety of areas, from investing and saving to getting out of debt to living frugally to real estate to retirement to budgeting to taxes.  Some cover all of the above in varying degrees, while others specialize in a particular area – such as the “tax blog”.

Over the years the “blogosphere” has had a Tax Man, a Tax Lady and Your Tax Lady, a Tax Girl, a Tax Mama (is there a Tax Papa?), Missouri and a Tennessee Tax Guys, a Tax Playa, a Tax Prof, a Tax Guru, a Tax Dog (not about taxes) and Tax Dogs (about local tax) and a Tax Monkey.  I am known as “The Wandering Tax Pro” (http://wanderingtaxpro.blogspot.com). 

There are generally three types of tax blogs.  First is the tax law blog, written by university law professors.  The most prominent of these is the “Tax Prof Blog” (http://taxprof.typepad.com/taxprof_blog) by Paul L. Caron, Associate Dean of Faculty and Charles Hartsock Professor of Law at the University of Cincinnati College of Law.  Paul’s blog is an extensive and comprehensive “source of resources, news, and information of interest to law school tax professors in their scholarship and teaching”.  I expect it is also of great benefit to law students.  It is not written for the average taxpayer.  Even I find it a bit “intimidating” at times.

Other tax law blogs offer scholarly commentary on current federal, and sometimes local, tax policy issues, such as –

·   “Mauled Again” (http://www.mauledagain.blogspot.com) by Professor James E. Maule of Villanova University School of Law,

·   “A Taxing Matter” (http://ataxingmatter.blogs.com/tax) by Professor Linda Beale of Wayne State University Law School, and  

·   “Bed Buffaloes In Your Tax Code” (http://bedbuffalos.blogspot.com) by Professor Mary O’Keefee, while not technically a tax law professor, is a public policy economist who teaches Income Tax Policy and Practice at Union College in Schenectady, New York and coordinates the college’s Volunteer Income Tax Assistance (VITA) program. 

The second, and largest, category of tax blogs is written by practicing tax professionals, CPAs, Enrolled Agents, lawyers, and just plain tax preparers like me, to provide up-to-the-minute advice, information, resources, and commentary on federal and state income taxes.  “The Wandering Tax Pro” falls in this category. 

This type of tax blog provides the most benefit to the “great unwashed masses” of American taxpayers.  Most of these blogs are written in connection with the website of the writer’s tax practice and are used to promote that tax practice.  While these blogs concentrate mainly on federal income taxes, they often also cover local state tax issues, as I do with New Jersey.

Some days I report on pending and enacted tax legislation, some days I provide information on a specific tax deduction or credit, and some days I discuss tax-planning strategies.  I have also published advice on getting ready to prepare your return, what you need to provide to your tax professional at tax time, and choosing a tax preparer.  On occasion I leave the world of taxes behind and post about my travels, or review Broadway, off-Broadway and local plays and musicals I have seen – what I like to refer to as “other interesting stuff”. 

Kelly Phillips Erb of “Tax Girl” (http://blogs.forbes.com/kellyphillipserb)a practicing tax attorney, lets readers ASK THE TAX GIRL often makes each Friday FIX THE TAX CODE FRIDAY, asking readers for their comments on specific tax issue questions, such as “Are Offers in Compromise good tax policy? Or are they unfair to taxpayers who regularly pay their obligations?”.  She also did a regular feature of GETTING TO KNOW YOU TUESDAYs in which she interviewed fellow tax bloggers (like me) and tax practitioners.

Others in this category include -

* Peter J Reilly of PASSIVE ACTIVITIES (http://blogs.forbes.com/peterjreilly),

* Joe Arsenault of CAFE TAX (http://www.cafetax.com), and

* Bruce McFarland, the MISSOURI TAX GUY (http://themotaxguy.com).

There is a kind of camaraderie between the more popular bloggers in this category.  We frequently “comment” on each other’s postings (each blog posting allows for readers to submit comments and questions on and responses to the post, which, if accepted, are published in a special section of the post) and refer and link to each other’s bloggings in our posts.  

The third category is blogs of mostly commentary by “non-practicing” (i.e. they do not prepare tax returns for a living) tax writers and scholars.  At the top of this list is Kay Bell of Texas, as knowledgeable about taxes as any tax pro (and probably more than some), who writes “Don’t Mess With Taxes” (http://dontmesswithtaxes.typepad.com).  Non-Profit educational organizations like the Tax Foundation, with “Tax Policy Blog” (http://www.taxfoundation.org/blog), the Tax Policy Center, with “Tax Vox” (http://taxvox.taxpolicycenter.org/blog), and Citizens for Tax Justice, with “Talking Taxes” (http://www.ctj.org/blog) also fall into this category.

I first learned about “blogging” at a presentation on “The Future of Easy Web Site Design” by Internet Consultant Lenny Charnoff at the NATP National Conference in New Orleans on July 13, 2001.  My first blog posting was published on Sunday, July 22, 2001.

I had decided to write a blog to provide year-round advice and information to my existing clients and to promote my tax preparation and accounting services.  Back then I was still soliciting new clients.  Currently I do not solicit or accept any new 1040 clients, nor do I accept any corporate or partnership clients.  

I continue to blog to provide a source of updated federal and state tax information for my 1040 clients, to attempt to market my various special reports and newsletters, to provide easily accessible samples of my writing for potential publishers, and, quite frankly, because I just enjoy it.  Now that I am no longer looking for new clients I frequently receive emails from individuals who have visited “The Wandering Tax Pro” inquiring about my services.

Trish McIntire, an Enrolled Agent from Kansas, writes the blog “Our Taxing Times” (http://trishmc.typepad.com).  Trish started blogging in 2004.  “Besides my tax practice I was doing a little bit of web design and took a class in Blogging for that.  I found that I liked blogging.  It gave me a way to express my opinions on taxes, the tax business and owning a business. I have always seen my audience as small business owners and taxpayers like myself.”

“Our Taxing Times has evolved since I started”, Trish continues.  “I am more interested in writing about the business of preparing taxes and my take on laws and the tax business. I don't see OTT as a mission to educate or build a business. It is my chance to express my opinion. I have a one person office in a small Kansas town, but through the blog I can be heard across the country. And if someone learns something about taxes that is icing.”

Has it helped build or expand her practice?  “I don't know. No one has come in saying that reading my blog was the reason they brought me their business. However, more people are using the internet to check out services and people. Our Taxing Times, and my website, give potential clients the chance to learn about me and my business.”

Joe Kristan is a CPA with Roth and Company, PC of Des Moines, Iowa.  He writes the firm’s TAX UPDATE BLOG (http://www.rothcpa.com/taxupdates.php).  According to Joe -

“I blog because I enjoy it, and because I think it is good for me professionally.  I have long started my day reading the tax news, so it wasn't a big leap to start commenting about it.  I think it helps keep me sharp, and it helps me stay current on the ideas and issues out there.  And, of course, there's the glamour, fan adulation and women.  Well, ok, none of those things, but there should be.”

Kelly Phillips Erb, started her TAX GIRL blog, mentioned above, “because I am that much of a tax geek.  I just wanted to write about tax.  I also wanted to make it accessible to people who think tax is boring - that's simply not true.  Tax is fascinating and it touches everything.”

Kelly has found that her blog has “increased my profile among other tax professionals, which I've found invaluable”.

Writing in his FORBES.COM blog entrepreneur engineer Dan Reich lists “9 Reasons You Should Blog” (http://www.forbes.com/sites/danreich/2011/10/15/9-reasons-you-should-blog).

Think blogging might be for you?  Then you will need to find a host.  Don’t worry, in most cases you can create and main your blog for free.  I use Blogger.com as my “host”.  It has been called “A great starting site to get a taste of blogging, very easy to use.”  Other options include Blogs.com, Blogster.com, Bravenet.com, and Typepad.com, to name a few.  Each will give you step-by-step instructions for getting started.  Blogger.com, for instance, can help you create a blog in three easy steps:

·   Create an account,

·   Name your blog, and

·   Choose a template.

Soliciting new clients is not the only way you can earn money from a tax blog.  Another way is to join an “affiliate program”.  According to Wikipedia, “Affiliate marketing is a method of promoting web businesses (merchants/advertisers) in which an affiliate (publisher) is rewarded for every visitor, subscriber, customer, and/or sale provided through his/her efforts”.

A merchant’s affiliate program will use your blog to drive traffic to its website.  As an affiliate you place a banner or text ad for the merchant on your blog.  When a reader clicks on the ad he/she is automatically taken to the merchant’s site.  If the reader makes a purchase from the merchant you will receive a commission.  Your site can display a general ad for the site or avertise a specific book or product.  A tax blog that becomes an Amazon.com affiliate can display an ad for a particular book on a tax topic (i.e. “Taxes for Dummies”).  Those who click on the ad will be taken to the page on Amazon.com that describes that particular book.   

Some affiliate programs will “pay-per-click”.  You will get a small fee (usually pennies) each time someone clicks on the ad or link appearing on your blog.

Associate Programs (http://www.associateprograms.com) offers a directory of thousands of affiliate programs, plus useful tips, articles, researched recommendations, and a helpful affiliate forum.  Affiliate Match (http://www.affiliatematch.com) also offers a directory of affiliate programs.  You can join an “affiliate network”, such as Linkshare (http://www.linkshare.com) which represents many individual affiliate programs. 

I prefer using affiliate programs for earning money from a blog to “pay-per-click” programs like Google Adsense.  I can select affiliate programs for websites that are reputable and appropriate for my audience, and can advertise specific products which I have researched in advance or that I have actually used myself and can truly recommend without reservation.

Google Adsense will place random links on your blog that, while relevant to your general audience and blog content, may not be reliable, reputable or appropriate.  From what I understand you cannot select the individual links that are placed by Adsense.  I do not want to jeopardize my reputation by sending a reader or client to an “unappropriate” site.

A tax professional can use a blog to keep current clients up-to-date on changes and developments in the tax law, solicit new business, create national exposure and enhance his/her reputation, and earn some extra money.  And it can be fun in the process.

RDF

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

MY OBLIGATIONS AS A TAX PREPARER – PART V

What if, while reviewing a prior year’s return, I discover an error made by the client of another tax preparer – either in favor of the client or in favor of the government? Or if, after preparing a tax return myself, I discover an error or omission, either on my part or made by my client?  What are my legal and ethical obligations, responsibilities and requirements in such a situation?

If I discover an error on a return, regardless of who prepared the return, I am obligated to report the error to the client and advise him/her that he/she should file an amended return. That is the extent of my legal and ethical obligation. I am under no obligation to prepare or file an amended return, nor am I under any obligation to notify the IRS or state tax authority of the existence of the error. All I must do is inform the client that the error exists and that an amended return should be filed to correct the error.

If the client asks me to prepare an amended return I will gladly do so. If the client does absolutely nothing that is not my problem.

Let me quote from IRS Publication 470 –

“Any unenrolled preparer who knows that the client has not complied with the revenue law, or that the client has made an error in or omission from any return, document, affidavit, or other paper that the client is required by law to execute in connection with any matter administered by the {Internal Revenue} Service, shall advise the client promptly of the fact of the noncompliance, error, or omission.”

If I discover “after-the-fact” that I have made an error on a client’s tax return I will automatically prepare and send to the client an amended return free of charge. Whether or not the client actually submits the amended return is of no concern of mine. If there is a balance due on the amended return and the client submits the return with the additional tax – that is fine. But if the client simply files the return away, or tosses it, and does not pay the additional tax due – that is also fine. It is his/her choice.

If, while attending a continuing education class, or after reading a blog post or article, I discover that I did not claim a deduction or credit to which a client was entitled on a return I prepared, I will automatically prepare an amended return and send it to the client. If I had to prepare an additional form or schedule that was not filed with the original return to claim the deduction or credit I will bill the client for the additional amount I would have charged if I had filed the additional form or schedule with the original return.

If, as occasionally happens, Congress passes a tax law change, or the Tax Court issues a decision, or the IRS has a change in heart, that is retroactive to “all open years”, and this change would generate an additional refund for a client, I will automatically prepare amended returns for all applicable “open” years and bill the client the normal fee for an amended return and appropriate additional forms or schedules.

RDF

MY OBLIGATIONS AS A TAX PREPARER – PART IV

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. And if a new client comes in who drives the latest model Mercedes Benz, is wearing a $500 suit and a $5,000 Rolex, and lives in a $1 Million + house, but claims only $50,000 in income for the year, I must dig deeper.

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 must sign all returns that I have prepared for a fee.

I cannot endorse or negotiate a client’s refund check.

I must not charge an “unconscionable” fee (are CPAs and H+R Block aware of this?).

If I take a position on a tax return that is excessively controversial, one that may be contrary to regulation, I must attach to the return a schedule or statement disclosing the controversial position taken.

As a “financial professional” it appears I am also required to disclose to clients my “Privacy Policy”, which is –

“I collect nonpublic personal information about you from (1) information I receive from you on work-sheets and other documents that I use in preparing your tax return, and (2) information about your transactions with me or with others.

I do not disclose any nonpublic personal information about you to anyone, except as permitted by law.

If you decide to close your account or become an inactive client, I will adhere to the privacy policy as described in this notice.

I am the only person with access to your personal and account information. I maintain physical, electronic and procedural safeguards that comply with federal standards to guard your information.”

Finally, as a member of the National Association of Tax Professionals I am obligated to comply with the Association’s “Standards of Professional Conduct”. The purpose of these standards is to establish a threefold responsibility of members –

“Our first responsibility is to our clients. Members should make every effort to protect the interests of the client and advise the client when the client is taking the wrong course of conduct. The client is responsible for any decisions made when the tax return is prepared. When the client signs the tax return, it has the force of an affidavit.

The second responsibility is to the member himself. Members should conduct their practice so that it will not jeopardize their professional reputation or self-respect. The member should not be unreasonable in requiring proof of statements made by the taxpayer.

The third responsibility is to the government. In this respect, a member should always bear in mind the member is governed by the law, regulations, and decisions that make up their field of tax practice.”

The document goes on to list specific examples of standards of ethical conduct, similar to those imposed by the Internal Revenue Service.

What about the client?

A 1040 client also has obligations, responsibilities and requirements regarding the return. In the letter that I give to clients with their finished returns I state –

“There returns are subject to review and examination by the IRS and appropriate state tax agencies. We accept responsibility for the clerical and mathematical accuracy of all returns I have prepared. However, the burden of proving the facts reported on your tax return rests with you. You are responsible for keeping all of the necessary documentation of the income and deductions claimed on these returns for at least three (3) years.”

This letter also says –

“Please examine these returns carefully to be sure all items of income and deductions have been accounted for properly. You are responsible for all the information reported on the returns. If you find anything that is not in order, or that you do not understand, contact us immediately. It is extremely important that you verify the accuracy of all Social Security numbers on the returns before mailing.”

As the NATP Standards of Professional Conduct quoted above says – “The client is responsible for any decisions made when the tax return is prepared. When the client signs the tax return, it has the force of an affidavit.”

A client should not take the finished returns from me and just sign and mail without actually looking at them. The client should carefully review all the forms and schedules that make up the returns before you sign and send.

RDF