Tuesday, May 29, 2012


I have said it many times before, and will continue to say it many times again – requiring registered tax professionals to sit through 2 hours of “ethics” preaching each and every year in order to maintain their PTIN is a waste of time.

If I am a crooked tax preparer sitting through 2 hours of ethics preaching ain’t going to turn me honest!

At most there should be a requirement of perhaps 2 hours in the first year a person registers and receives a PTIN, and 1 hour of updates every other year (with the first year specifically identified – so that “every other year” is the same for all registered tax pros).

I do not have a continuing education budget.  If a topic, or the combination of topic and location, interests me I will attend the conference, workshop or seminar.  However many small firms, as well as firms with multiple employees, do have a continuing education budget.  Because the IRS requires 15 hours per year, the budget is 15 hours per year per employee.

For a firm with a continuing education budget of 15 hours per person, forcing everyone to take 2 hours of ethics every year cuts down on the actual continuing tax education available to a tax preparer.  The 2 hours could be better spent learning more about a specific area of the Tax Code with which the preparer is unfamiliar or unsure, or reinforcing and updating knowledge about an area that is common among the firm’s clients, or upgrading one's knowledge to partnership or corporate return preparation issues.

Another side detriment to the 2-hour annual requirement is that almost every 1 or 2-day seminar or workshop, regardless of the main purpose or topic(s) of the event, includes 2-hours of ethics.  I have been told by some education providers that they must include the 2-hours in order to maintain a profitable level of attendance.  So, as is true in my case, a tax pro is often forced to sit through 4 or even 6 hours of ethics preaching in a year – a total waste of time and money! 

The ultimate loser is, of course, the taxpayer client.    


Tuesday, May 15, 2012


This past tax season the following sentence appeared in almost all of my comment memos that accompanied finished returns to identify or explain items of interest or concern on the tax returns –
For 2011 and 2012 BO’s Making Work Pay Credit was replaced by a 2% reduction in employee Social Security tax withholding.”
In most cases I went on to say that the client did “more better” under the 2% reduction – ending up with more money “in pocket”.  Quite a few clients ended up with two or three times as much “in pocket” under the 2% reduction. 
In several cases clients who did not get any MWP credit in 2009 and 2010 due to their level of income ended up with $4,000+ “in pocket” via increased take home pay in 2011. 
I do believe that a large number of my clients were surprised at the amount of tax savings the 2% reduction provided.
I also pointed out that in many cases their 2011 tax refund was less than that for 2010 because the savings did not show up on the tax return.
This seems to be borne out in the statistics discussed by Kay Bell, the yellow rose of taxes, in her post “Tax Refunds Smaller in 2012”.

The average tax refund amount through the end of April was $2,716.
That's $106 less than the average refund amount issued at around the same time last year, according to the latest Internal Refund Service 2012 tax filing season data.”
So, while the average refund was slightly smaller, I expect the average actual tax reduction was greater.
The 2% reduction in employee Social Security tax withholding came as a surprise to me.  BO had said he did not want any tax reduction for those with “high income” – considered to be $250,000 or more regardless of geographic location.  Yet the reduction put $4,272.00 in the pockets of couples where each member earned at least the maximum Social Security wages (combined $213,600).  And those at the lower end of the wage spectrum actually received less with the 2% reduction than the Making Work Pay Credit had provided.
To be honest, I was happy that my clients put more money in their pockets, and was pleased that my workload was somewhat reduced by not having to prepare a Schedule M.  

The 2% reduction is an “evolution” of Dubya’s original tax rebate checks – which produced more agita than they were actually worth, especially to the IRS – as was the Making Work Pay Credit.  This new method is an improvement on the rebate checks to be sure, but still not a solution.

Rather than fool around with politically beneficial gimmicks the idiots in Congress should just rewrite the Tax Code!

Monday, May 14, 2012


This post originally appeared at THE WANDERING TAX PRO - but I thought the topic appropriate for my return to posting here at TTP.

This past tax season has once again proven that IRS information return 1098-T, which is supposed to provide information for claiming the various education tax benefits, is as useful as tits on a bull.
Box 1 of the 1098-T is for payments received “from any source” for qualified tuition and related expenses.  This is the information I need.  However in the years that this form has been in use I have only seen an entry in this box once – and it was incorrect.  It showed only the payments received directly from the student (actually the student’s parents).
Box 2 is for amounts billed for qualified tuition and related expenses.  This is the box that is always filled in.  To be honest, I don’t care a rat’s hind quarters how much was “billed”.  My clients are cash-basis taxpayers – I need to know what was paid during the calendar year, not what was billed.
Colleges will generally bill students for the semester beginning in January of the following year at the end of the current year.  So the amount in Box 2 usually includes this amount.  But parents or students do not always pay this amount until the following year.
In my instructions to clients I ask for not only the Form 1098-T, but alsoall the ‘Bursar’s Reports’ for the year”.  Often a student can access his/her financial account history online, and I ask parents to provide me with a print-out of this report.
Thankfully some colleges and universities will provide a supplement to the Form 1098-T mailing that itemizes the various charges and payments made for the year by date, which is extremely helpful.  But unfortunately not all.
This past tax season I received a Form 1098-T for a student who had graduated in 2011.  Box 1 and Box 2 were both empty, but there was an amount for scholarships and grants in Box 5.  Upon questioning the taxpayer I discovered that there were indeed payments made for qualified tuition and fees in calendar year 2011.  These payments had been billed in 2010, and were included in Box 2 of the 2010 Form 1098-T. 
I further learned that the student did not receive any scholarships or grants from anyone in 2010 or 2011.  The amount reported by the school in Box 5 was a payment for tuition and fees made via a student loan.  The school really FU-ed – the amount reported in Box 5 should have been reported in Box 1!  As a result I was able to claim one of the tuition tax benefits.  If I had relied on the Form 1098-T I would have claimed nothing.
If the IRS is going to have a Form 1098-T with a Box 1 asking for payments made from all sources for the calendar year then it should require educational institutions issuing the form to include an entry in Box 1.  Why have this box on the form if it is not required to be used?  And, based on the above experience, perhaps the schools should be required to identify the amounts reported in Box 5 by source somewhere on the return. 
Of course I do believe that there should be no tuition tax benefits on the Form 1040.  These benefits should be distributed as direct student financial aid and administered via the FAFSA.
Thank you for allowing me to rant.  Do other tax preparers feel as I do about the Form 1098-T?