THE ANNUAL 2-HOUR ETHICS REQUIREMENT IS COUNTER-PRODUCTIVE!

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.    

RDF

MORE MONEY

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!

 

RDF

TITS ON A BULL

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 also “all 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?

 

RDF

SO LONG, FAREWELL, AUF WIEDERSEHEN, GOOD NIGHT!

Joy to the world - tax season’s here.

I’ll soon be flush with cash!

Let every client be organized,

and give me all I need, and give me all I need,

and give me all I need to prepare their returns!

My 41st tax season will officially begin tomorrow - let the deluge begin!

As is my custom, due to the demands of the filing season I will be taking my annual “tax season hiatus” from posting to THE WANDERING TAX PRO, the NJ TAX PRACTICE BLOG, and THE TAX PROFESSIONAL.

Between now and April 16th I will barely have time to relieve myself let alone blog! I will NOT be answering emails from non-clients, nor will I have time to respond to comments. If a comment requires a response I will do so after April 17th.

I realize that I am abandoning you at a time when you may need me the most – but I need to make a living!

I find it a bit amusing that the period of time when TWTP gets the most “hits” is during the tax filing season when I am not posting.

“Talk” to you when it is all over!

RDF

BTW – be sure to check out THE WANDERING TAX PRO tomorrow for the annual posting of my TWELVE DAYS OF TAX SEASON!

FYI

I suggest you read my NJ TAX PRATICE BLOG post “Everybody Wants To Get Into The Act” - about a proposed NJ state tax preparer regulation regime.

RDF

TAXPRO BUZZ

+ NJ tax pros might want to check out my “review” of the annual NJ-NATP “Famous State Tax Seminar” here and here.

+ Professor Annette Nellen gives us some “Due Diligence Reminders for the 2012 Filing Season” in a piece at the AICPA STORE.

+ Joe Kristan tells us “IRS Issues Cents-Per-Mile Maximum Value for Employee Cars” at the ROTH AND COMPANY TAX UPDATE BLOG.

“The IRS has ruled (Rev. Proc. 2012-13) that you can't use cents-per-mile for cars costing more than $15,900, or trucks and vans costing more than $16,700.”

+ California tax pros might be interested in attending a conference on “Tax Reform: Status, Needs & Realities” sponsored by San Jose State University at Techmart in Santa Clara.  Click here for info.

+ TAX PREPARER CONNECTIONS has an “Early Tax Season 1040 Client Letter” for use by tax pros.

“Here is a sample of a letter you can send out to clients early in tax season. It is specific to tax changes for the tax year 2011, so you want to it out soon.

This is a great way to remind people of their tax appointment with you.”

+ David Williams, the IRS tax preparer regulation czar, sends words of greetings and update in “Happy New Year, Everyone”.

+ Veteran tax pro Eva Rosenberg, aka TAX MAMA (is there a TAX PAPA?), writes about her experiences in “Running a Tax Practice – Easy or Hard” at ACCOUNTING WEB.COM.

Pay special attention to Lessons 4 and 5 (I, too, speak from experience) -

“Lesson 4: People who haggle over your initial fee will never value you. Turn them away as clients. This is reported to me often by other tax professionals. Those who start out trying to push down your fees are the same ones who insist on calling you daily, with just a 'quick question' and never want to pay for the time you’ve tracked. Either dump them, or quote a high fee, requiring a retainer, that is always replenished BEFORE you take their calls or do their work.

Lesson 5: Get everything from your clients in writing. Do not accept information verbally. They will deny they ever said 'it', if 'it' turns out to be inconvenient for them. This only happened to me once. A doctor’s wife gave me some numbers on the phone. I prepared the tax return. The balance due shocked her. She decided to reduce their income amount, saying that she never told me their income was that high – that I made up the number. I kicked the client out – and never accepted anything verbally since. Your clients can provide information via letter, fax, or email. Save the document.”

+ The 2012 IRS Publication 15 (aka Circular E) – “Employer’s Tax Guide” is now available.  Click here to download.

RDF

AND THE BEAT GOES ON – FOLLOW UP TO MEASURING THE SUCCESS OF TAX PREPARER REGULATION

Joe Kristan replied to my post “Measuring the Success of Tax Preparer Regulation” in a post at the ROTH AND COMPANY TAX UPDATE BLOG titled “Preparer Regulation: Justified by its 'Mere Existence'?”

“A regulatory regime needs to meet a standard beyond its mere existence. To show that preparer regulation is worthwhile, the IRS should be able to demonstrate a significantly reduced error rate, improved tax compliance, and/or reduced fraud. If it can't demonstrate such benefits, it can't justify the $63 per preparer cost, the busy-work burden of the new IRS preparer-regulation bureaucracy, or the increased cost of preparation that the program will impose on the taxpaying public.”

While I would hope that the regulation regime, regardless of who manages it, does accomplish the goals Joe mentions, I still say it is worth it just to provide a credential to the previously unenrolled.  And as for justifying the $63.00 registration – whether or not there is any additional regulation or requirements, the IRS still does need a centralized registry of preparers. 

However, as, I believe, applying for a PTIN was free in the past, I don’t see the need for such a large fee just to get a number. 

I asked Joe what he thought of my suggestion for an independent industry-based organization to “manage” the RTRP credential, a AIRTRP similar to the AICPA.

“I'm perfectly happy with an independent accreditation agency, but not on the condition of it being the gatekeeper for a government-enforced credential for tax preparation. I actually think a private self-enforcing accreditation function would be a more credible credential.”

If done right the RTRP credential under an AIRTRP would be no more “government-enforced” than the CPA designation is under the AICPA.

Jason Dinesen, whose original post “Six Tax Predictions for 2012” started the discussion in the first place, initially submitted a comment to my post -  

“1. We all now have PTINs. That alone should make it easier (theoretically) to see who the unethical preparers are. They can be weeded out by barring their PTIN.

2. I don't think that passing the RTRP exam proves ‘competency’. It's an open-book exam and Publication 17 is the open-book reference guide, for crying out loud! It is a barrier to entry that will scare off many casual preparers, which is good. But I think mandatory PTINs alone would scare the casual preparer off. 

I agree that all the IRS really needs is a central registry of preparers – which is accomplished by the requirement to register and receive a PTIN.  The IRS really has no need to manage the “Registered Tax Return Preparer” credential via testing and checking CPE requirements.

It is true that an open book test does not prove competence beyond doubt.  Yet we do indeed prepare 1040s with an “open book”.  The test should not be about memorizing current law, since it changes so often.  If there is to be a test It should be about 1040 concepts.  I personally think the annual CPE requirements in federal taxation are a better way to insure currency and competence. 

Jason promised to post further on the subject at his DINESEN TAX TIMES blog, and has done so in “Thoughts on Preparer Regulation”.   Here Jason seems to be siding with Joe Kristan. 

He makes some good points, but he does not comment on my suggestion for an independent industry-managed RTRP designation.   

Trish McIntire of OUR TAXING TIMES also submitted a comment to my post -

“An outside agency to regulate tax preparers?  Okay. How do you create one? I can’t think of any organizations that regulate their industry and are independent of the government. ABA, AMA, labor unions may do a little regulation for self-protection but for the most part they’re advocates for their members. Congress could set one up. But do you really want Congress messing with this? Take a look at all the tax preparer regulation bills that they created and could never get into law. They’re not a good choice. We could look at the states but that could mean dealing with different regulations and testing for each state. Sorry, but the IRS is the logical choice for a national program.

How much of the ire with the IRS doing the regulating is coming from tax pros who hate the IRS, don’t like the Commissioner, or disagree with aspects of the new rules? Or they point to the new crackdown on EITC due diligence or those ‘mistake’ letters which went out a few months ago. The big bad IRS is in charge. 

The PTIN regulations just went into effect a year ago. Most of the other regulations are still getting phased in. There have been set backs and changes but that’s to be expected with a new program. In fact, I’d rather they be flexible and make changes to get a better program.

I’m going to give the IRS the chance to do what they set out to do. Now, that doesn’t mean I won’t gripe and blog about issues with the program and when they don’t keep their promises. (When are the letters to taxpayers who filed self-prepared returns but they really look like a tax preparer did them coming out?) But I know that the IRS has a lot of eyes looking over their shoulders at the licensing program (TIGTA, TAS, NATP, NAEA, AICPA, ASA, tax bloggers…) so I’m going to let them finish implementing the program.” 

The government does not manage the CPA or bar exams, nor does it issue the CPA or JD credential.  I do believe that the AICPA and the ABA are truly independent of government.  The only credential that the IRS manages is EA (Enrolled Agent).  The IRS can prevent a CPA or JD from preparing taxes, or practicing before the IRS, if “bad behavior” is proven, but I do not believe they can take away a CPA or JD designation.  The AIRTRP would be no different from the AICPA, the ABA, or, for that matter, the AIA for architects or the AMA for physicians.   

Providing a recognized set of initials for “unenrolled” tax return preparers is not a new idea.  There have been many attempts in the past at a privately-maintained tax preparer credential.

Many years ago the National Society of Tax Professionals tried to establish a tax preparer designation - I think it was Certified Tax Preparer or something like that - through a subsidiary accreditation organization. 

The National Society of Accountants set up a credential program through The Accreditation Council for Accountancy and Taxation® (ACAT) which offered the designations Accredited Tax Advisor (ATA) and Accredited Tax Preparer (ATP). 

And there is currently an American Institute of Certified Tax Coaches which issues a Certified Tax Coach (CTC) designation.

Other organizations and businesses have offered the Professional Tax Preparer (PTP), Certified Tax Specialist (CTS), and Chartered Tax Professional (CTP) designations.

All these credentialing attempts failed because they were initiated and maintained by one organization or profit-making business and did not have industry-wide representation or support.  To be successful the AIRTRP must be independent and sponsored by all representatives (i.e. non-profit membership organizations) of the tax-preparation community.

So, my fellow tax professionals, what do you think of an independent industry-related regulatory organization to replace the IRS in managing the RTRP credential?  Let’s keep the discussion going.

RDF