My January 2008 mailing to clients included a special memo to warn them about the delays in processing 2007 federal tax returns -
“The irresponsibility of Congress will cause a serious delay in processing 2007 federal tax returns and, as a result, will cause the mailing of your federal refund checks to be delayed.
It will take the IRS from 7 to 10 weeks to adapt its computer systems for the AMT fix. This is because there are at least 15 forms, 6 publications, and 9 credits that are affected by the AMT. The IRS will be unable to begin processing 2007 income tax returns until at least the middle of February.
So if you do not receive your 2007 federal refund check within the normal 4 to 6 weeks do not call or email me and ask ‘Where’s my check?’.”
To be honest I did not encounter any problems with processing or refund delays during the tax season. In looking back I also do not recall any special “trends” this season.
Last year’s tax gimmick was the Telephone Excise Tax Refund, which was claimed as a refundable credit on the 2006 federal income tax return. Individuals entitled to the refund who would not normally file a tax return could file a special 1040EZ-T to claim the refund. This year it was the Economic “Stimulus” Rebate. The 2001 rebate checks were such a “success” (I josh, of course) that Congress had to try them again.
Non-taxpayers as well as taxpayers were able to claim a rebate check – as long as they received Social Security, Railroad Retirement or Veterans benefits in 2007. Individuals entitled to the rebate who would not normally file a tax return had to file a 2007 Form 1040A to get their rebate check. I filed about twenty (20) 2007 Form 1040A returns for taxpayers who did not otherwise have to file.
The Government Accountability Office (GAO) issued a report on June 19th that reported (the emphasis is mine) - “The costs for implementing the economic stimulus legislation may be up to $862 million. IRS received a supplemental appropriation of $202 million for implementing the economic stimulus legislation. The Social Security Administration received a supplemental of $31 million and the Financial Management Service received a supplemental of $64 million. The reallocation of hundreds of IRS collections staff to answering taxpayer telephone calls will also result in up to $565 million in foregone enforcement revenue, according to IRS estimates.”
As Key Bell of “Don’t Mess With Taxes” put it in a post on this subject, “administering the stimulus payments is likely to cost the agency, and the U.S. Treasury, much more than all our spending of the checks will recoup.”
At the September 2008 annual meeting of the New Jersey chapter of NATP the head of the NJ office of the IRS Taxpayer Advocate Service told us that the economic “stimulus” rebate check program had “overwhelmed every aspect of the IRS”. He reported that 30,000 cases had already been submitted to the Taxpayer Advocate Service regarding the economic “stimulus” payment (“ESP” as it was referred to by the IRS), and pointed out that because of the rebate checks everything that would normally have taken 60 days would now take 120 days.
As proof of this - just about every inquiry I sent to the IRS in 2008 regarding a client return or issue received as the first response, on average 2 months later, a form letter stating that the IRS needed more time to research the issue and that they would get back to me in 45 days. When the 45 days had passed a second letter arrived saying exactly the same thing!
As I wrote in my guest post “That Was The Economic Stimulus That Was” at the taxguy blog, “I can guarantee that after all is said and done when I write about the affect of the 2008 economic ‘stimulus’ checks I will be once again saying, ‘These checks cost the IRS a fortune, created tons of confusion, and resulted in millions of errors on 2008 tax returns! And it is doubtful that they did anything to stimulate the economy.’”
According to the Tax Foundation, April 23rd was “Tax Freedom Day” 2008. On average Americans had to work 113 days (Leap Day February 29th - not counted) to earn enough money to pay for all federal, state and local taxes. It was three (3) days earlier than the past two years, when Tax Freedom day was April 26th, but the same as 2005. The earlier date was due to a slowdown in the economy and the “stimulus” package passed in early 2008 that included the rebate checks.
2008 was a presidential election year – and both parties presented distinctive tax platforms (see my post “Dueling Tax Planks”). From my point of view as a professional tax preparer the Republicans had the more better proposals.
Although Obama won the election it is difficult to predict what tax law changes will be made in 2009 because of the current economic situation.
The economy started out shaky in 2008 to say the least - hence the assumed need for “stimulus” in the form of rebate checks. By the fall it had become a real mucking fess, with banks and brokerages failing left and right and bankruptcy threatening the big three automakers. There were calls for a second “stimulus” package, which Obama is expected to take up as one of his priorities upon taking office next year.
Congress was busy, passing five (5) tax Acts in 2008 –
· Economic Stimulus Act of 2008 (H.R. 5140)
· Food, Conservation, and Energy Act of 2008 (AKA The Farm Bill)
· Heroes Earnings Assistance and Relief Tax Act of 2008 (H.R. 6081)
· Housing Assistance Tax Act of 2008 (H.R. 3221)
· Emergency Economic Stabilization Act of 2008 (H.R. 1424)
The “Emergency Economic Stabilization Act of 2008”, aka the “Don’t Call It A Bailout Bill”, contained everything but the kitchen sink – with many weird items thrown in to win the votes of specific Congress persons. Luckily for taxpayers, tax preparers, and the IRS the Act included the extension of popular expiring tax breaks and the annual one-year Alternative Minimum Tax (AMT) “patch”, and was passed before the IRS had to “go to press” with the 2008 tax forms and instructions.
Another tax season undercover operation, this time conducted by the office of the Treasury Inspector General for Tax Administration, found gross errors on tax returns done by “professional” preparers. Auditors posed as taxpayers in a large metropolitan area and paid to have 28 tax returns prepared at 12 commercial chains and 16 small, independently owned tax return preparation offices. Preparers made substantial errors when completing tax returns and correctly prepared (i.e., the tax returns showed the correct amount of taxes owed or refunds due) only 11 (39 percent) of the 28 tax returns.
Despite the results of the operation there was no further action taken on the issue of registration and regulation (licensure) of all tax return preparers (including “unenrolled preparers” like me). In its latest update on the issue NATP reported that considering the mucking fess that our economy is in “Congress has a lot on its mind” – no cracks about “what mind” – and it appears this does not include the licensing of tax preparers. NATP said, “In view of these problems we feel that registration or licensure efforts are at a standstill from a federal standpoint”.
It is different on the state level. According to NATP, “States are alive and well when it comes to regulating paid preparers”. They reported that, “Regulation of tax professionals was on the agenda in nine states. Maryland actually passed a bill requiring the licensure of all who prepare individual tax returns. Similar or related legislation was entertained in Colorado, Georgia, Hawaii, Minnesota, New Jersey, New York, Oklahoma and South Carolina. We expect there will be more activity at the state level in 2009 than there will be at the federal level.”
Nothing to report of any consequence on the New Jersey tax front. NJ residents continue to vote in the same crooks each year, and they continue to line their pockets at our expense. All the annual reports once again showed that the Garden State is among, if not the, most highly taxed and expensive of the 50 states, and not at all “welcoming” to small business. The only exception is our state gas tax – while the price of a gallon did top $4.00 here in 2008, NJ gas prices were consistently way below the national average. Just be sure to stay away from that Exxon station in Summit.
As for my practice, I ended the season with about the same number of GD extensions as last year. For the first time in 35+ years I did not head off for my annual post-season recuperative trip right away – I worked through the end of April on GD extensions. However it seems that manana disease got the best of me this year. As of this writing there are still a few GD extensions to be completed! I vow that this will not be the case in 2009!
Such was the tax year in review. Did I forget anything important?
I will comment on what we have to look forward to “taxwise” in 2009 in early January.