IS SILENCE GOLDEN?

The final topic covered by the “Panel Discussion” at the August NATP National Conference in Washington DC – the last session on the last day – was that of “remaining silent” with respect to the question of full-year health insurance coverage on the Form 1040, or 1040A. 

 

As you know, in the past the IRS rejected returns during processing when the taxpayer didn’t provide information related to health coverage – i.e. they were “silent” and did not check the box to indicate that they had “full-year coverage”, did not identify an exemption, and did not calculate and include the penalty. However, during the tax filing season the IRS announced it would accept both electronically filed and paper filed 2016 returns that were silent with regard to health care coverage.  If you submitted a return that was silent regarding coverage and requested a refund the return was timely processed and the refund issued.

 

I have a problem with the “self-assessment” of IRS penalties. I especially oppose requiring a taxpayer to pay a preparer to assess them a penalty.  The client is getting no value or benefit for the fee paid to a tax professional to calculate a penalty.  If the IRS chooses to calculate and assess a penalty that is their right, but forcing a taxpayer to pay someone to do this upfront is wrong, and adding insult to injury.  I also believe the concept of protection from “self-incrimination” may be involved.

 

For example, I will never, under any circumstance, prepare a Form 2210 to calculate a penalty for underpayment of estimated tax as part of the filing of any tax return. If the IRS does calculate and assess a penalty I have no problem charging a taxpayer a fee to assist in reducing, removing, or abating it – because the client is getting real benefit and value for the fee paid in that situation.

 

I feel the same way about the “Shared Responsibility” penalty, especially considering –

 

• the IRS announcement that remaining silent about health coverage will not delay the processing of the tax return or the issuance of a requested refund,

 

• collection of the Shared Responsibility Penalty is not subject to criminal or civil penalties under the Tax Code, and interest does not accrue for failure to pay such assessments in a timely manner. The only way the IRS can collect an unpaid penalty is by offsetting a current or future refund, and

 

• Donald T Rump had signed an executive order directing the Secretary of Health and Human Services and other department and agency heads to exercise all available authority and discretion to “waive, defer, grant exemptions from, or delay the implementation of any provision or requirement of the Act that would impose a fiscal burden on any State or a cost, fee, tax, penalty, or regulatory burden on individuals, families, healthcare providers, health insurers, patients, recipients of healthcare services, purchasers of health insurance, or makers of medical devices, products, or medications.”

 

It is different with calculating the 10% for premature withdrawal from a pension account.  I believe this is in reality an additional tax and not a penalty assessment.  There is no additional form actually required for adding this to the tax liability calculation, and I do not charge any additional fee for simply multiplying the distribution by 10%.  I will charge a fee if I prepare a Form 5329 to reduce or eliminate the assessment.

 

The official NATP position, and that of some preparers, seems to be that it is unethical not to calculate the Shared Responsibility penalty when preparing the return, as we are allegedly not preparing a “complete and accurate” tax return.  I disagree.  Assessing the penalty has nothing to do with completely and accurately determining the client’s tax liability.  I believe it may perhaps be unethical to assess the penalty upfront.

 

I do believe that tax preparers must reconcile any Advance Premium Credit and calculate and report on the tax return any required payback.  This is an actual tax credit, and the reconciliation is truly part of completely and accurately determining the client’s tax liability.

 

So, my fellow tax pros, what do you have to say about this issue?

 

FYI 

 

The above item first appeared in the September 2017 issue of my e-newsletter ROBERT D FLACH’S THE TAX PRO.

 

I have decided to give up on this e-newsletter.  The response from tax professionals was not particularly overwhelming.  While I truly enjoy creating and writing email and print newsletters on tax topics I do not have the resources or knowledge to properly market or promote them.  And I am trying to simplify my life as I approach the beginning of my 65^th year.

 

Over the years I have tried in several venues to encourage and promote thought and discussion among tax pros on topics of interest that affect our profession.  I have not received the response to these attempts that I had hoped.  I would like to think that I have at least, on some occasions, caused fellow tax pros to think, if not share their thoughts with me in public discussion, about the issues I have raised.  I will continue with these attempts in hopes that I am doing some service for the profession.

 

I will keep writing this THE TAX PROFESSIONAL blog, and will in future posts include items that would have appeared in the newsletter.  For example, I will continue the MEET AND GREET series as blog posts on Wednesdays.  This coming Wednesday I will post the discussion with NATP President Gerard Cannito that appeared in the September issue of THE TAX PRO. 

 

TAFN

 

 

 

 

ANOTHER DISCUSSION CONTINUES

I do believe that comments to blog posts are not provided the same “attention” as the original post.  Rarely will I return to a post I read yesterday or a few days ago or last month, however interested I was in the subject, to check out the comments.  Therefore when I do receive a comment, or comments, of value I like to feature it, or them, in a separate post.

I received one such comment in response to my discussion of tax preparer “privacy” rules from Enrolled Agent Diane Offutt, Enrolled Agent of Woodstock, Georgia.  Here is what Diane had to say –

“I just came across this very informative Blog and will promise to visit more often.

My comment is on the issue of we EAs are NOT allowed to say "so and so is a client of mine" when running into people we know.

At first when I heard this from one of the instructors at NATP I thought forget that, if asked how I know so and so I will just say so and so has been a client for years. However, I started really thinking about it and I can see a reason. We are professionals and like lawyers or doctors, they also would not just come out and say "oh I know so and so for they are a client". It could lead to trouble. What if it is a divorce lawyer...or a GYN doctor...or a cancer specialist? Just a few examples.

In our case, an EA...well, maybe they do not want a family member to know who the tax professional is for some reason. Or maybe they have an ex that is trying to snoop around for personal information (not that we would ever indulge it).

Bottom line, I figure since we EAs ARE professionals, like doctors and lawyers, then in the event I am asked "how do I know so and so" my answer will be simple - "I have known so and so for years and consider him/her a great acquaintance/friend". If I am questioned further as to HOW I know the person I will just counter the question WITH a question " WHY do you ask?" Hopefully THAT will shut the person up.”  

Here is my response to Diane -

Thank you for your comment.

First of all – FYI, I am NOT an Enrolled Agent.  I am a member of the “previously unenrolled”, who will, by the end of next year, be a RTRP.

Obviously the context of the question and the person asking it is an important factor.  

If a friend or fellow client asks the question in casual conversation I do not see a problem.  If a stranger comes up to me out of the blue and asks if and how I know a client I will be on my guard and, as you suggest, ask why they want to know.  And if a stranger, to me, or only a casual acquaintance, comes up to the two of us and asks how we know each other I will let the client with me respond first and take my lead from him/her.

As “professionals” we (well not me any more) have “waiting rooms”, which are often crowded during the tax season.  We do not segregate individual clients in individual waiting areas so they do not see each other, or ask them to wear masks while sitting in the waiting room.  Often in the past I had a client enter my waiting area and be surprised to see a friend or co-worker sitting there.  Nobody ever ran out of the office in fear because they were seen there.   

It is different with a doctor, whose specialty may “betray” personal medical information that the client does not want known.  And perhaps, for the same reason, with certain lawyers, such as the divorce attorney you use as an example.  But there is nothing revealing in the mere fact that a person uses a professional to prepare his/her tax return, other than the intelligence of the person.   

The issue of privacy applies to what the client tells us about their personal finances, and not the fact that they are clients or friends.

I hope you will continue to visit THE TAX PROFESSIONAL, and continue to comment on my posts.

Does anyone want to add to this discussion?

RDF

THE NATP ANNUAL YEAR-END TAX UPDATE SEMINAR

Earlier this week I attended the NATP’s annual year-end tax update seminar, as I have been doing for more than 20 years.  It used to be “famous”, but now it is “essential” - and is therefore titled “The Essential 1040”.  I attended one of the several offerings located in New Jersey.

I talked about the items of interest to 1040 filers over at THE WANDERING TAX PRO.

One of the items of special interest to tax professionals was the new expanded Form 8867 “Paid Preparer’s Earned Income Credit Checklist”.

I just posted about the fact “that the IRS is getting more out of hand with its ‘due diligence’ requirements for tax preparers who are claiming the Earned Income Tax Credit for clients” here in “WE ARE NOW NOT ONLY TAX PREPARERS, BUT SOCIAL WORKERS AS WELL!”, which was a response to Trish McIntire’s post “EITC Checklist Expanded” at OUR TAXING TIMES.

At the seminar we reviewed in detail the new Part IV “Due Dilligence Requirements” on Pages 3 and 4 of the form.  In my opinion the new hoops that we are required to jump through are TOTALLY RIDICULOUS!

Here we go again!

As I have said time and again, we must call a spade a shovel.  The Earned Income Credit is a federal welfare program.  Period.  In terms of dollars distributed it is, I believe, the largest federal welfare program.

At this point in the discussion I must always make the following statements of personal beliefs -

(1)  There is nothing wrong with the concept of the government providing “welfare” to qualified, “deserving” citizens.  And there is nothing wrong with the government providing encouragements or “rewards” to the working poor with dependent children.

(2)  The government has the fiduciary responsibility to make sure that those who are receiving public assistance, benefits, or “encouragements” are truly “deserving” and meet the requirements established for receiving such benefits.  

Using the Tax Code to distribute welfare, or other government assistance, benefits, or “encouragements, is not good tax policy and not good fiscal policy.

And forcing tax preparers to be Social Workers and do the government’s job of verifying that an individual qualifies for welfare benefits is a bad idea.  It is a job we tax professionals should not accept.

The following are excerpts from my series on MY OBLIGATIONS posted here at TTP in November of 2011, which discussed what I consider to be my obligations to my clients, my practice, and the Internal Revenue Service as a professional tax preparer.  I have highlighted certain statements -

When a client “engages” me to prepare his/her individual income tax returns he/she is basically asking me to assist him/her in preparing a government report.

When preparing tax returns I assume that, unless I have direct personal knowledge to the contrary, the client is telling me the truth.

If a client tells me or indicates on a worksheet that the gross income from a part-time sideline business was $3,525, or that the total medical expenses for the year were $6,257, or that he/she drove 4,206 miles for business I will believe this to be true (again, unless I have direct personal knowledge to the contrary). It is not my responsibility to personally verify all the numbers or statements given to me by a client. I have no obligation, legal or ethical, to audit your return. This is up to the IRS, if they so choose. I am simply preparing the return, to the best of my ability, “based on information supplied by the client”.

It is my obligation, and responsibility, to tell clients about the IRS standards and requirements for documenting income, deductions and credits. But that is where it ends.

Due diligence requires me to ask questions of the client if there is something about which I am unsure, or which appears to be “questionable”, and to make sure that I have all the facts necessary in order to determine whether a deduction, exclusion, or credit is allowable or appropriate.  It also requires me to, as quoted above, tell clients about the IRS standards and requirements for documenting income, deductions and credits.  It DOES NOT require me to personally verify each and every item of income, deduction, or credit claimed on the return.   

The benefit provided by the Earned Income Credit should NOT be distributed via the Tax Code.  It should be distributed the same way as other forms of welfare, with the same safeguards and regulations that are administered by the federal or state employees who administer these other forms of welfare.

Considering the ridiculous new “hoop jumps” required by the IRS, if I were still accepting new 1040 clients I would must definitely refuse any returns that included an Earned Income Tax claim.  As it is, I will not prepare the 2012 Form 1040 (or 1040A) for an existing client who appears to qualify for, and wants to claim, the EIC.  There is too much work, and agita, involved, and too much potential for substantial penalties.

While the NATP and other membership organizations do a good job of speaking on behalf of tax preparers before the federal government and its agencies and representatives, what tax pros of all designations need is an organization whose sole purpose is to actively and aggressively campaign against such abusive and inappropriate rules and regulations like the excessive EIC due diligence requirements (and for a grandfathering exemption from the RTRP test for experienced tax pros).

If the Earned Income Credit must continue to exist in the Tax Code, the very most that tax preparers should be required to do is have taxpayers claiming the credit personally fill out Part I and Part II or Part III of the Form 8867 and sign it under penalty of perjury.  The signed form would be attached to the 1040 (or 1040A).

The seminar also wasted 2 hours that could have been devoted to more important and beneficial federal tax information on the topic of ethics.  Unfortunately this must be done at this seminar to cover the IRS demand that EAs and RTRPs (and potential RTRPs) sit through 2 hours of ethics each year as part of the annual 15 hour CPE requirement.

Regardless of how well the topic was presented by the instructor, the ethics component was truly redundant.  I have sat through the same presentation time and time again.  And I am no more, or less, ethical than I was five years ago.

One item that is covered in this presentation is totally ridiculous and makes absolutely no sense to me.

I am at a local store or restaurant and I run into longtime client Joe.  While we are smoozing Jim, another client of mine, enters and sees us.  Jim knows Joe, but was not aware that I also know Joe.  Jim shows surprise and asks how we two know each other.  From what the instructor said, I am not allowed to say, “Joe has been a client for years”. 

As long as I do not reveal personal and confidential financial or tax information about Joe to Jim, and vice versa, which I would not do, who gives a flying sex act if I happen to tell Joe that Jim is also a client?  Regardless of what the instructor said, in such a situation, unless Joe specifically asks me not to tell Jim, I am certainly going to say, “Joe has been a client for years”.  The IRS be damned!

I would like someone to give me a good reason why I should hide the fact that Joe is a client from Jim.

 

Your comments on both, or either, issue are solicited.

As usual the NATP seminar was a good, and except for the ethics component, productive one.  I do believe that NATP is the best provider of federal tax CPE.    

RDF 

WE ARE NOW NOT ONLY TAX PREPARERS, BUT SOCIAL WORKERS AS WELL!

In her post “EITC Checklist Expanded” Trish McIntire, thankfully back to blogging at OUR TAXING TIMES after taking some time off, explains that the IRS is getting more out of hand with its “due diligence” requirements for tax preparers who are claiming the Earned Income Tax Credit for clients.

“The current form 8867 not only acts like a check list for each EITC qualification but now asks about what documentation was provided and what follow up questions the tax preparer asked. For example, one new question ask if the tiebreaker rules were explained when the qualifying child could be claimed by more than one taxpayer. The new page wants to know what documentation, if any, the preparer saw to verify EITC issues like residency, business income and child disability.”

Trish correctly points out that “Preparers have always been told that we aren’t responsible to audit the records taxpayers bring in to us.”  But this is apparently not the case with the EITC.

Here is the story.  The EITC is a welfare program – the largest federal welfare program.  Because this particular form of welfare is “distributed” via the Tax Code, and it often “refundable”, allowing a taxpayer to actually make a profit by filing a tax return (and distorting the federal budget and creating a big part of the “47%”), it is, as Trish properly identifies, “a fraud magnet”.  Various reports over the years have suggested that as much as 30% or more of all EITC claims are erroneous, resulting in billions of dollars of fraudulent payments.

And because it is “distributed” via the Tax Code, and the resulting huge amount of fraud involved, the tax professional has been forced to become a “social worker” and do the government’s work in verifying that the claimant is truly entitled to the welfare benefit – more so than for any other tax deduction or credit.

Is this fair or proper?  Certainly not!

In my specific tax practice it is not too much of a problem.  I no longer accept new clients, so I do not have to deal with any new EITC claimants.  And most of my existing clients are older with grown children, so I have very few EITC claims to deal with, and with those very few I am well aware of the claimants’ situation as I have been preparing their returns for years.

But if I were still “open to the public” and soliciting new clients I honestly believe that I would refuse accepting any EITC returns.  It would not be worth the potential agita or the potential penalty liability.

Trish believes the “EITC is a good program and helps a lot of families”.  But in reality it is NOT a good program.  The idea of providing financial assistance to the working poor with dependent children is a good one – but doing it via the Tax Code is definitely not.

Clearly the idiots in Congress must deal with this problem when they decide to seriously address the need for substantive tax reform, hopefully early in 2013.

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