Tuesday, April 23, 2013


I have been recommending direct deposit to my 1040 clients for years now.  I tell clients –
Uncle Sam gives you the option of having your federal income tax refund directly deposited into a checking or savings account.
By choosing direct deposit you should receive your refund about 10 DAYS EARLIER than by mail.  PLUS you avoid any problems or delays caused by the US Postal Service
You will NOT receive a special acknowledgement from your bank that the money has been received.  You must check your bank balance or statement to verify receipt.”
I have never used Form 8880 for a client, but with this form you can “directly deposit your tax refund to either two or three of your accounts at a bank or other financial institution (such as a mutual fund, brokerage firm, or credit union) in the United States”. 
You can have your refund directly deposited to a checking account, savings account, IRA, Coverdell Education Savings Account, or a Treasury Direct account to use the money to buy US Savings Bonds.
Over the years I have never heard from a client of any problems with a direct deposit, other than taking longer than expected for the refund to be deposited – until now.
So far two clients have contacted me to report an issue – one with a 2011 refund and one with a 2012 refund.  In both cases the refund was not directly deposited to the requested account.  Instead it was applied to the subsequent year’s estimated tax.  It was as if the taxpayer, or I, had entered the full amount of the refund on Line 75, although we clearly did not.
In both cases the client discovered this FU when it called the IRS directly after checking the status of the refund using the Service’s “Where’s My Refund” tool.  In both cases the IRS eventually directly deposited the refund to the requested account, after being told to do so by the taxpayer.
I am curious – have any other tax professionals come across this problem with 2011 or 2012 returns?  Is this a systemic problem that needs to be brought to the attention of the IRS?

Monday, April 22, 2013


During the second half of the recent tax season I received an email from my editor at NATP asking if I wanted to contribute to an article for the TAXPRO JOURNAL on what causes the most agita for tax pros during tax time.  Since during the tax season, especially toward the end, I barely have time to relieve myself, let along work on anything other than current 1040s, I passed on the opportunity.
But now that the tax season is over I can take the time to muse about the topic.
I used to say that the biggest time waster during the tax filing season was having to track down cost basis info for investment sales made by clients.  But lately more brokerage houses have been including supplemental gain and loss reports in their Consolidated Year End Tax Statements.  With the new requirements for cost basis reporting things are getting even better.  And over the years I have built up relationships with the brokers of most of my clients and have usually been able to get any missing information from them.  Of course I continually attempt to train clients to keep records of stock and mutual fund purchases, and have been more and more successful.
There are still occasions where I must do detective work – such as when a client sells an investment that was inherited years ago, or in the case of mergers and spin-offs. 
However since the mid-2000s, when the new category of “qualified dividends” was created, the biggest source of tax season agita has been the fact that brokerage houses now have until February 15th to send out the Consolidated Year End Tax Statements, and in almost every situation at least one “corrected” report is issued as late as mid-March. 
As a result, clients who would have normally sent me their “stuff” in early to mid-February now do not do so until mid-March, at the height of the season.  Instead of being able to work on these returns, which are usually more involved, during February, when I have more time, I must wait until almost the tail end of the season, when time is especially tight.  The bottom line is I end up with more GD extensions. 
Of course those damned K-1s have always been a true PITA, and nothing has changed.  If I were still accepting new clients I would add to my list of returns I would not accept, in addition to returns with Earned Income Credit claims, returns of taxpayers who have limited partnership investments that issue K-1s. 
The amount of work required to properly report the information from these damned K-1s, for a minimal if any effect on the bottom line of the actual tax return, is truly a waste of valuable time (see my post “The K-1 Blues”).  And, of course, these damned things usually don’t arrive until sometimes April.  If I never saw another K-1 during my last eight tax seasons I would truly be a happy man.
I have no idea if these things are actually good investments.  Methinks the brokers get a higher commission for selling them. 
If corporations were allowed to claim a “dividends paid” deduction, and all the industry-specific loopholes were closed, I would not have to deal with these problems.
So, fellow tax pros, what causes the most agita for you during tax season?