AN RTRP RESPONDS

Atlanta-based RTRP David Kempe responded to my last two posts on the RTRP competency test requirement.  See the comments section of these posts (click here and here)

Thank you, David, for taking the time to comment on my RTRP exam posts and for sharing your “story” – which is indeed similar in ways to mine.

I am pleased that you have verified that I should have no problem passing the test – as I expect, despite my sincere hopes, I will have to eventually sit for it.

Let me in turn respond to David’s comments -

·   I am at the end of my career.  I hope to be able to last 9 more tax seasons so I can say I have done it for 50 years.  It appears that you are barely in the middle of your career.  If I had 25 more years in the business ahead of me I would very seriously consider using flawed and expensive tax preparation software.

·   I do not have to submit the 1040s I prepare electronically because I do not “file” the returns under the IRS definition.  All my clients sign a statement that says –

“My tax return preparer Robert  Flach has informed me that he may be required to electronically file my 20-- federal individual income tax return if he files it with the IRS on my behalf.

I do not want to file my return electronically and choose to file my return on paper forms.  My preparer will not file my return with the IRS.  I will file my paper return with the IRS myself.

I was not influenced by Robert D Flach to sign this statement.”

·   I believe that the registration of previously unenrolled preparers and the issuance of a RTRP designation - NOT the initial competency test – is long overdue.

·   I certainly agree that many of our competitors are little more than data entry workers – especially those who work for the overpriced fast-food commercial preparation chains.

·   Exempting all CPAs and attorneys from having to take the test smacks of much more dangerous favoritism then grandfathering long-time preparers who have proven they have remained current via extensive annual CPE.

·   I do agree that required annual CPE is a small price to pay for “less gross incompetence in the tax field and a better, more knowledgeable field of tax professionals” – but will never change my mind about the test.

Thanks again David!

RDF

MORE ON THE COMPETENCY EXAM

TAXPRO TODAY took a look at the RTRP initial competency exam that I do not want to be forced to take in “Takers of the RTRP Exam Discuss Their Experience”.

The article pointed up another reason why I do not want to take it -

Part of the test anxiety may stem from regulations at test centers. "When you go into the testing office, you're nervous. They check everything in your pockets”, said Ramon. "They don't want you to carry even a handkerchief in there," added Weinberg. Tests are given in cubicles, with regimented start and countdown times. Weinberg recalled thinking, "'What happens if this computer just slows down?' There were also more questions than I expected on IRS procedures."

Another indignity – being treated like a schoolchild.  I had heard a few stories of the ridiculous procedures for taking the test at a CPE class last year.

I am not worried about the actual test itself.  It is not a question of worrying that I will not pass.  The article explains –

Those who've already taken the 120-question test generally agree that it can be passed with proper study by those with solid tax-prep experience.

The article also indicated that I should do better on the test than most preparers (highlight is mine) –

. . . an Enrolled Agent of 19 year's tax-prep experience wrote, "The more you relied on tax software in the past for preparing returns, the harder this exam will be to pass”.

The EA went on to say -

“Don't let the open-book thing fool you. Many preparers that have taken the test tell me that you don't have time to look these answers up," this reader added, citing test questions on moving expenses, income and assets, IRAs, "a lot of things that are not being addressed regularly."

I am interested In hearing from readers who have sat for the test, as well as from those who agree there should be grandfathering.

RDF

SPECIAL SUMMER SAVINGS FOR TAX PROS

To celebrate the beginning of summer I want to make a very special offer to tax professionals.

As you probably know, I have been preparing 1040s since 1972. Over the years I have developed a collection of forms, schedules and worksheets that have proven very helpful in my practice. 

Some of my “homemade” forms are given to clients to help them provide me with the information I need to properly prepare their returns. Some are used as “memos” to the client’s copy and my office file copy to back-up items reported on the returns. Others are used as attachments to the returns.

I generally offer this compilation for $6.00.  As a special summer offer you can have this forms package for only $3.00 if your order is postmarked by July 31, 2012!

The package will be sent as a “word document” email attachment, so you may edit and revise them as you see fit to personalize them to your firm, customize them be more relevant to your particular practice or clients or specific professions, or update them for annual COLAs or tax law changes.

Here is a listing of what is included in the package.

SCHEDULE A –

1. Supplement to Schedule A

2. Medical Expense Worksheet

3. Medical Expenses – Out of Pocket Anaylsis

4. Charitable Contribution Listing – for non-cash contributions

5. Charitable Contribution Record – for cash contributions (2 pages)

6. Charitable Mileage Record

7. Contribution Worksheet

8. Employee Business Expenses – generic format, can be customized 

9. Employee Business Expenses – Police Officer – example of customized

10. Conventions, Conference and Education

11. Miscellaneous Expenses #1

12. Miscellaneous Expenses #2

13. Summary of Casino Gambling Activity Log

SCHEDULE C – (some of these forms can also be used for employee expenses)

1. Allocation of Expenses

2. Automobile Expense Worksheet

3. Auto Mileage Log

4. Business Expenses of a Freelance Writer

5. Business Travel Record

6. Computer Use Log

7. Election to Deduct Organization Expenses 

8. Employee Expense Report

9. Employee Time Card

10. Home Office Deduction Worksheet

11. Cell Phone Log - in “landscape” format - sent separately.

SCHEDULE D – 1. Cost Basis Worksheet

SCHEDULE E –

1. Owner-Occupied Multi-Unit Rental Property Expense 

2. Statement of Rental Income and 

3. Statement of Rental Income and Expenses – Vacation Property

4. Multi Family Building

GENERAL –

1. Alternative Minimum Tax Worksheet

2. Does Not Have To File

3. Statement of Dividend Income

4. Statement of Pension Income – in “landscape” format- sent separately

Please be aware that these forms, schedules, and worksheets are copyrighted material, and are for your internal use only – and cannot be “shared” with other tax pros or firms.

Send your check or money order, payable to TAXPRO SERVICES CORPORATION, for $3.00 and your email address to –

TAXPRO FORMS

TAXPRO SERVICES CORPORATION

PMB 304

72 VAN REIPEN AVENUE

JERSEY CITY NJ 07306-2806

Hey, for $3.00 you can’t go wrong!

TTFN

I JUST DON'T WANT TO DO IT!

I just don’t want to have to take the new RTRP initial competency test.

I have been preparing 1040s for compensation since February of 1972 – and just completed my 41^st tax filing season.

I can count on the fingers of both hands the total number of face-to-face, sit down IRS audits I have had to attend – out of the probably 10,000+ federal individual income tax returns I have prepared over the years.  And more than half ended in “no change”.

I have never been charged a preparer penalty, nor have I ever been reviewed, warned, visited, or “chastised” by the IRS.

I never had an income tax course in college, and have no “formal” training in 1040 preparation.  I learned how to prepare 1040s the best way possible, by actually preparing 1040s (and 1040As) by hand.  On my first day of work back in 1972 my employer gave me a copy of a client’s prior year’s return and a briefcase with the current year’s “stuff” and told me to “jump in and swim”. 

I did take and pass a “correspondence course” on 1040 preparation in the mid-1970s, from I think the National Tax Training School, solely to establish an educational qualification.

Each and every year for the past 25+ years I have averaged at least 24 “hours” (1 hour = 50 minutes) of continuing professional education in federal and state income taxation.  Actually the average is probably more like 32 hours.

In 41 tax seasons I have never used flawed and expensive tax preparation software to prepare a federal income tax return.  Each year I do about 400 sets of returns the “old fashioned way” – by hand. 

As a result, when I identified myself at a CPE class several years ago as the only person in the room of tax pros who still did returns by hand the seminar leader, former IRS Director of National Public Liaison, and at the time Executive Director of the National Society of Tax Professionals, Beanna J. Whitlock shook my hand and announced that I was the only one in the room who really knew how to prepare tax returns.

Why should I, after 41 seasons of preparing 1040s for a fee without incident, have to take a test to prove that I know what I have been doing all these years?

Having to take such a test is even more distasteful when CPAs and attorneys, who may have never even looked at a 1040 other then their own (and then only to sign it), get a free pass.  No test requirement and no need to take CPE in taxation.  A CPA who just become certified last week does not have to prove competency in taxation to prepare 1040s for compensation, but after 40+ years of experience I do.

I am not perfect.  Like anyone I make mistakes, and occasionally I make mistakes on 1040s.  In the history of the US Tax Code there has NEVER been a paid preparer who has NEVER made a mistake.  The complexity of the Code and the workload demands of the limited filing season make it literally impossible for a paid preparer to complete a perfect tax return every time.

And I am not writing this to say, “Look at me – I am the best tax preparer in the country.  I, alone, should be exempt from taking a competency test”. 

There are many, many, many, many long-time “previously unenrolled” paid tax preparers out there with a similar story who should not be made to “prove themselves” in this way.

I am not saying years in the business automatically equals competency (just as having the initials CPA does not automatically mean the person knows his/her arse from a hole in the ground about preparing 1040s).  There are preparers who have been around for 3 or 4 decades who are not sufficiently competent and current in today’s tax law.  My formula for “grandfathering” is years of experience + proof of extensive ongoing professional education. 

I would exempt from the initial competency test all paid return preparers who have consistently been preparing 1040s full time (I mean during the tax season – not 40 hours a week all year round) for at least 5 full years (60 months), and who have earned a minimum of 50 hours of CPE in federal income taxation topics during the 3 years (36 months) prior to initial registration.

Now honestly – do you think I should be forced to take the IRS initial competency test to continue to make a living in my chosen profession?

RDF

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