Saturday, October 30, 2010


I wanted to update the saga of my PTIN application.

I just received, via email attachment, a 2-page “Welcome Letter” from the IRS that stated –

We’ve accepted your application for a Preparer Tax Identification Number (PTIN).”

The letter indicated that my “assigned PTIN” was the same as the one that I have been using for the past few years.

The letter also identifies the “Next Steps” -

1) Pass a competency test

Many return preparers will need to take a competency test given by the IRS to retain their PTINs. This test will be available soon after June 1, 2011. We will provide you with more instructions at that time. (In certain limited situations, a tax return preparer may not be required to take a test. We will provide specific guidance before testing begins.)

You will have until December 31, 2013, to complete and pass the test. After you pass the test, you will be an IRS Registered Tax Return Preparer.

If you do not pass the test by December 31, 2013, your PTIN will no longer be valid. This will affect your status as a tax practitioner as well as your ability to prepare returns.

Complete annual continuing education

We will also be implementing a continuing education requirement. We will notify you when the requirement begins and to whom it will apply. At that time, we'll also provide additional guidance, including how to find approved education sponsors.

Keep your PTIN account current

You'll need to renew your PTIN within one year of the date of this letter. Please be sure to also update your account any time your information changes. You can make these updates online at using your User ID and password. You can also visit your account online to check your PTIN renewal date, or find other relevant information

It also stated –

You indicated on your application that you're currently in compliance with your federal tax obligations. To ensure that you maintain compliance in the future, the IRS will conduct periodic tax compliance checks.

The IRS may also conduct a background check, and you may need to provide fingerprints. Having a felony conviction on your record could affect your status as a tax practitioner as well as your ability to prepare tax returns. For more information, see Treasury Department Circular 230 § 10.51

I have some objections to providing my fingerprints (not that I am trying to hide any felony convictions) – and certainly hope it does not come to that.

I am pleased, and relieved, that my PTIN application process has been completed. I already take more than 15 hours of CPE per year - so there is nothing extra I have to do there. The next step is having to take a test to prove that I know what I have been doing successfully and without incident for the past 39 years – but I have three years to worry about that. Not that I will wait till the last minute to take the test – I will probably take it in the summer of 2012.


* Check out my post “No Surprise Here” at the NJ TAX PRACTICE BLOG. Once again NJ is among the bottom of the barrel.

* Speaking of the subject of my “No Surprise Here” post – apparently NJ moved up the list. It was #50 – with the worst business tax climate of all the 50 states – last year. So Janet Novack of FORBES.COM tells us “N.J. Up, Washington At Risk, In Business Tax Climate Ranking”.

New Jersey got off the bottom, says Tax Foundation economist Kail M. Padgitt, the study’s author, after Christie vetoed an attempt by the legislature to extend for 2010 a temporary 10.75% individual income tax rate the state had adopted on income over $1 million during 2009. Instead, the top rate fell to 8.97% on income over $500,000 for 2010.”

So getting rid of the incumbent politician – in this case the governor - in NJ did some good.

* LOOKING FIT provides the word that “First Tan Tax Payment Almost Due”.

The first quarterly installment of the new 10 percent tax on UV tanning services is due November 1”.

This is the tax that was made famous by the blabbering of professional slut “Skanky” or “Spookie” or “Snookey” (or whatever) from the piece of excrement known as THE JERSEY SHORE.

* I just couldn’t resist the title of this post from TAX PROF Paul Caron - “I Don't Know Any Tax Lawyer Who Does Their Own Tax Returns”.

The complete quote - "I don't even do my tax returns anymore," he said. "I don't know any tax lawyer who does their own tax returns. The forms are Greek even to us."

* The blog of attorney Douglas Cook has a graphic comparison of “The Federal Estate Tax: 2001 – 2011

* MO’ TAX GUY (Missouri, not more) Bruce teaches a class in “Living Trusts 101”.

* I love taxes – but because I prepare tax returns for a living. I don’t love paying taxes, I just love the tax profession. That is a bit different from the philosphy behind a new tax-related blog titled “I Love Taxes” that I discovered thanks to TAX PROF Paul Caron.

According to blog creator/author Vanessa S. Williamson—a graduate student in government and social policy -

We know that taxes do great things, like build roads and schools, pay our firefighters, and keep our air clean and our water safe.”

This blog is a part of the “patriotic pro-tax movement”.

* Although there is no federal estate tax for 2010, thankfully the “step-up” of basis on inherited property, the only reason to keep the estate tax at all, continues to some extent – enough so that all of my clients will be covered. Joe Kristan provides us with “A Peek at the Post-Estate Tax Estate Tax Form” at the ROTH AND COMPANY TAX UPDATE BLOG.

The form is Form 8939: Allocation of Increase in Basis for Property Received from a Decedent. Actually the property is not received from a decedent, but from the estate of the decedent.

* Trish McIntire lets us know the good news that the RAL, or “refund anticipation loan”, is “Dying a Slow Death” at OUR TAXING TIMES.

I can accept Trish’s contention that most of the individual tax preparers who offered RALs in the past were honest and ethical and not trying to screw their clients (unlike the fast food chains – who were/are not and were/are) – I certainly believe that Trish, who offered RALs despite a dislike of the product, is honest and ethical. But I sincerely believe that the RAL is a bad product and should not be offered by anyone. And especially not by tax preparers. We are tax professionals and not loan sharks.

Let us hope the death of the RAL happens a lot quicker.

* Megan McArdle makes a case for “Why We Should Eliminate the Corporate Income Tax” at THEATLANTIC.COM.

She has some good arguments. I have been using some of them for touting a “dividends paid deduction” for corporations.

* The Tax Foundation’s TAX POLICY BLOG shows us how a “Comedian Uses Halloween to Teach Kids About Taxes”.

* I would hope that when you go to the polls to vote next week you embrace the philosophy of GRIP – Get Rid of Incumbent Politicians.


Friday, October 29, 2010


I had set out to “fabreze” my existing PTIN, as required under the new tax return preparer regulation regime, online at the IRS website once the process become available.

My initial attempts to submit my application online were unsuccessful. Apparently from what I have read in my online “wanderings” other tax pros also had problems with the online process. I discussed these attempts in the post “What a Mucking Fess”.

As a result of my difficulties registering online I filed a paper application on Form W-12 on October 4th. I was concerned when I checked the other day to find that my check for payment of the $64.25 fee had not yet been cashed.

I have been told that while the IRS has resolved most of the initial issues it encountered at the start-up of the online process, there are still problems with “authentication”. This is because of slight differences between the way tax preparers have entered their addresses in the application and what appears on their last tax return, mostly in terms of punctuation and abbreviations.

I was not alone in abandoning the online registration and turning to a paper application. This has created a backlog in processing W-12s, with which the IRS is trying to figure out how to deal. I have been assured that the IRS is working through the issues – and I do believe the assurances.

So if you gave up on the online system and filed a W-12, and have not heard back from the IRS yet (or your check also remains uncashed) do not worry. Have patience.


It appears that two items of tax importance happened during my recent GDE “hiatus” about which I did not comment.

1) The IRS has decided not to send out 1040 or 1040A packages (instructions and forms) to any taxpayers anymore. Period.

In the beginning every taxpayer who filed a tax return in the previous year would get in the mail in January a tax form and instruction booklet based on what forms and schedules they filed in the prior year. The booklet would be addressed for mailing via a “peel and stick” label that contained the taxpayer(s)’s name(s) and Social Security number(s). This label would be attached to the top of the paper 1040 or 1040A that was filed.

As a point of information, I believed that certain historical information was “buried” somewhere in code on this label – and would not use the IRS label on the taxpayer’s return if the taxpayer, or spouse, had experienced problems with the IRS in the past.

At some point in time the IRS realized that it was not a good idea to include the taxpayer(s)’s Social Security numbers on the address label for the whole world to see and steal – so these numbers were removed from the label. And eventually the label was placed inside the booklet and not used as the actual address for mailing.

And many years ago now, I forget when, the IRS decided to stop sending 1040 and 1040A booklets to taxpayers who had used a paid tax preparer in the previous tax year – or at least for those taxpayers whose prior year return was signed by a paid preparer. It was now up to me, as preparer, to acquire the necessary forms and schedules. By this time computer generated returns were becoming more the “norm” for professional tax preparers (except for me and my mentor) – and the software package would generate the appropriate forms. However, taxpayers who “self-prepared” continued to receive the appropriate booklet in the mail each year.

At the beginning of my career, when I was a true “apprentice” (in the early 1970s), my boss would send me with an empty suitcase to a government warehouse in Newark that was chock-a-block full of all tax forms and schedules and I would return to the office with a full suitcase.

Once I went out on my own, while I did rely on the forms and schedules in the booklets received by clients, I would also make frequent runs to the local IRS office to grab handfuls of forms and schedules (when the IRS clerks were not looking) and also stock up on 1040s, 1040As, and Schedule A/Bs from what was left out for the public at local Post Offices. I have continued to make my IRS and PO runs frequently during each tax season – and hope I will be able to do so again in the upcoming tax filing season.

I sincerely hope that the new IRS policy of not sending out tax form and instruction booklets to individual “self-filing” taxpayers does not carry over to affect the policy of making forms available at Post Offices and IRS offices.

2) The IRS has “issued final regulations under a law change that will require reporting of basis and other information by stock brokers and mutual fund companies for most stock purchased in 2011 and all stock purchased in 2012 and later years. The reporting will be to investors and the IRS.” (note – the highlights are mine)

Beginning with the 2011 Form 1099-B, which will be mailed to taxpayers during the first three months of 2012, will indicate the date of purchase and cost basis on all investment sales.

This is a wonderful new rule – one that will eventually save a lot of time for tax professionals during the filing season, when time is most precious.

Unfortunately it will take many years before the 1099-B will truly be able to report the cost basis information for all investment sales for the year. The law requires tax basis information to be stored and recorded beginning with 2011 purchases. So if a taxpayer sells a stock he purchased in 2009, or 1983, on his 2012, or 2020, Schedule D the information will very probably not be included on the 1099B, and the brokerage house will not have the information in its system.

Currently, and thankfully, many brokerage houses already provide a profit and loss analysis in the Consolidated Form 1099 reporting package – although this information is currently not sent to the IRS. For the most part, this information is only complete if the purchase was made through the reporting brokerage house, and will not include purchases made while the taxpayer was a client of a different house – unless the broker has brought the client with him from his former employer to his new one and has provided the information to the new employer.

And what about cost basis for inherited or gifted stock – which the taxpayer did not actually purchase?

As I have only 10 years left before I retire (the current plan) I expect that I will still need to chase down cost basis for some sales as long as I am in business.


Thursday, October 28, 2010


The IRS has announced the cost of living adjustments affecting dollar limitations for pension plans and items for tax year 2011. According to the IRS there is no inflation, for, in general, the limits either remain unchanged, or the inflation adjustments for 2011 are small

The annual contribution limits for retirement plans for 2011 are:

• $16,500 (plus an additional $5,500 if age 50 or older at the end of 2011) for 401(k) and 403(b) plans – unchanged.

• $16,500 (plus an additional $5,500 if age 50 or older at the end of 2011) for 457 Plans (Deferred Compensation for state and local government employees) – unchanged.

• $11,500 (plus an additional $2,500 if age 50 or older at the end of 2011) for SIMPLE plans – unchanged.

• $49,000 for Defined Contribution KEOGH plans – unchanged.

• $49,000 for Self-Employed SEP plans - unchanged (allowable contribution equal to 25% of net earnings of up to $245,000, which translates to 20% multiplied by the total of "net earnings from self-employment" from Schedule C, Schedule C-EZ or Form K-1 less the deduction for 50% of self-employment tax).

• The compensation limit for participation in a SEP is $550.00 - unchanged.

In addition, according to the IRS notice -

The deduction for taxpayers making contributions to a traditional IRA is phased out for singles and heads of household who are active participants in an employer-sponsored retirement plan and have modified adjusted gross incomes (AGI) between $56,000 and $66,000, unchanged from 2010. For married couples filing jointly, in which the spouse who makes the IRA contribution is an active participant in an employer-sponsored retirement plan, the income phase-out range is $90,000 to $110,000, up from $89,000 to $109,000. For an IRA contributor who is not an active participant in an employer-sponsored retirement plan and is married to someone who is an active participant, the deduction is phased out if the couple’s income is between $169,000 and $179,000, up from $167,000 and $177,000.

The AGI phase-out range for taxpayers making contributions to a Roth IRA is $169,000 to 179,000 for married couples filing jointly, up from $167,000 to $177,000 in 2010. For singles and heads of household, the income phase-out range is $107,000 to $122,000, up from $105,000 to $120,000. For a married individual filing a separate return who is an active participant in an employer-sponsored retirement plan, the phase-out range remains $0 to $10,000.

The AGI limit for the saver’s credit (also known as the retirement savings contributions credit) for low-and moderate-income workers is $56,500 for married couples filing jointly, up from $55,500 in 2010; $42,375 for heads of household, up from $41,625; and $28,250 for married individuals filing separately and for singles, up from $27,750
Some non-pension adjustments were also announced. For example:

• The 2011 limitations on the deduction of long-term care insurance premiums based on age (some small increases from the 2010 amounts) –

Age 40 or less = $340

Age 41 – 50 = $640

Age 51 – 60 = $1,270

Age 61 – 70 = $3,390

Over age 70 = $4,240

• The foreign earned income exclusion for 2011 is $92,900 – up from $91,500 for tax year 2010.

• The annual gift exclusion if $13,000 – unchanged.

No announcement has been made yet regarding the tax rate tables, Standard Deductions, Personal Exemption, and other inflation-adjusted items usually announced at this time. The IRS tells us “those items will be addressed in future guidance”.


In the keynote presentation made at the AICPA Fall Tax Meeting in Washington DC, IRS Commissioner Douglas Shulman announced –

“. . . we are creating a Return Preparer Office inside of the IRS that will be led by David R. Williams, who is familiar to many of you for his work on the return preparer initiative. He will report directly to Steve Miller, Deputy Commissioner for Services and Enforcement.”

Shulman went on to explain -

This new office will have broad responsibility for the return preparer initiative. It will manage all of our activities related to continuing education and testing of all professionals under IRS jurisdiction. It will also manage the registration system and process, as well as coordinate resource planning for IRS efforts across the organization related to return preparers. If you have any insights, concerns and suggestions as we proceed on implementing the return preparer initiative, please feel free to contact David.”

I applaud the choice of David Williams to head this new Office. He made the rounds of the tax conferences and conventions this summer discussing the new regulation regime, and also covered the issue at the IRS Nationwide Tax Forums. I was very impressed with his presentation - and frankly wondered what someone of his caliber was doing at the IRS.

As I pointed out to David, I expect his “prowess” is a result of his tenure as a student of fellow tax blogger Mary O’Keefe of BED BUFALLOES IN YOUR TAX CODE. He has acknowledged - “and I do owe it all to Mary. :-)

I have had several email "conversations" with David on the regulation regime and the e-file mandate, some of which I have blogged about here at TWTP, and have found him to be sympathetic to the individual previously unenrolled tax preparer.

As I said in my post “You Could Have Knocked Me Over With a Feather” -

Who would have imagined - a prompt, and substantive, direct response from a high-level IRS official – or any government official or employee on any level!

I still have not received a response to my letter to Commissioner Shulman many months ago.

Here are some other quotes of interest from Shulman’s address –

* “Our starting point is a given: our tax system is constantly changing. With its evolutions and revolutions, it’s anything but static. The dizzying pace of change continues to accelerate with no signs of slowing down. And it’s one hard stretch of road ahead full of dangerous curves, speed bumps and unexpected hazards.
For example, the sheer girth and complexity of the tax code continue to grow, in spite of efforts to simplify it. There have been an astonishing 4,400 legislative changes to the Code from 2000 to September of this year

Everyone involved with the preparation and administration of federal income taxes agrees that the current Tax Code is a mucking fess of complexity – but nobody seems to be able to get the cafones in Congress to do anything about it.

* “Congress has also expanded the IRS’ portfolio of duties as we are increasingly asked to administer the tax portion of new social and economic programs, such as the Economic Stimulus, the Recovery Act, the HIRE Act, the Small Business Act …and now, the tax provisions of the Affordable Care Act.

The simple fact is that our job is getting harder…much harder…with no let up in sight

Shulman acknowledges that Congress continues to add welfare and other social programs to be administered via the Tax Code – but stops short of offering any opinion on whether this is a bad idea – as his processor recently did (see the WEB CPA article “Former Commissioner Blasts IRS’s Social Mission”). My readers are well aware that I am strongly against running such programs thru the 1040.

* “We are also still refining our rules for people who work in a professional firm, like an accounting firm, who prepare all, or substantially all of a return under the supervision of an accountant, enrolled agent or lawyer. While this is a tricky area, and I can’t give you definitive guidance until we publish our final guidance later this year, I will tell you that I am sympathetic to the argument that the rules should be flexible for people who have met a higher professional standard. Therefore, it is highly likely that as we implement the new rules and procedures there will be some relief for testing and continuing education requirements for people who do not sign a return and work in a professional firm under the supervision of an accountant, enrolled agent or lawyer.”

Shulman seems to be caving into the “suggestions” of the AICPA that the “lower-level” employees of CPA firms, who actually prepare the 1040s, should not be required to exhibit competence and remain current due to the “supervision” of the signing CPA.

Some 30+ years ago I was one of those lower-level employees preparing 1040s at a then “big eight” CPA firm – and believe me I got absolutely no “supervision” from the signing CPA, or any CPA in the chain, or received any tax training from the firm. Luckily I was experienced in tax preparation before they hired me (actually the staff CPAs would come to me with their tax questions).

The CPAs themselves do not have to show any competence or currency in 1040 preparation, as we previously “unenrolled” preparers must do. It appears that the AICPA wants all employees and partners of CPA firms to be exempt from the reason for implementing a registration regime in the first place.

Let’s hope that any relief from testing and continuing education requirements is the most minimal.

* “We are also still working on a start date for testing, and an effective date for the 15 hours of continuing education. Some of those commenting encouraged us to slow down or delay these important parts of the program. While we are moving forward to put in place continuing education, we recognize the need for a staged transition to reduce burden and uncertainty. Therefore, during the first year of implementation, we intend to waive the requirement for continuing education. This will give us time to work through the many issues regarding CE, including working with third parties who already certify CE courses to attempt to leverage their infrastructure.”

It seems that it will take some time before the CPE and testing components of the RTRP designation will be phased-in.

Shulman ended his presentation –

So here we are … an IRS that is working smarter and evolving to meet today’s and tomorrow’s changes and challenges. To do so, we must be open and welcoming of new ideas and forge new relationships with taxpayers and other stakeholders. We must look for opportunities to make the best use of resources, including leveraging the enormous reservoir of expertise and experience that is infused throughout the professional tax community. And we must be willing to innovate as we seek continuous improvement and work on some of the country’s most difficult and interesting problems.”


Wednesday, October 27, 2010


* Check out my post "The DFBs!" about the New York Department of Taxation and Finance over at the NJ TAX PRACTICE BLOG. And my article "Tax Day Gets 2011 Change" at MAINSTREET.COM.
* Here is something I never thought of. Hey, if they can have drive-thru wedding chapels why not drive-thru tax preparation offices? Check out “Drive-Thru Tax Advice?” from TAX PROF Paul Caron.

* Paul quotes from a Wall Street Journal piece to report that “GOP to Target IRS Funding to Starve Health Care Law” –

Funding for the IRS could become a battleground in the next Congress as Republicans seek to halt implementation of the new health-care law.

GOP candidates are running on a pledge to repeal that law. But some repeal advocates say a strategy of choking off funding to the IRS and federal health agencies is more politically viable

Reduced IRS funding could mean less audits – but also less taxpayer service and less upgrades for its computer systems. This is not the way to combat the health care “reform” bill.

* As I usually do in each Wednesday BUZZ installment, I suggest you visit Sunday’s “Week in Perspective” post by MISSOURI TAX GUY Bruce.

Be sure to check out the entry “What is a DRIP?” about a good investment option for the small investor.

* And Bruce talks about the issue of business vs hobby in “Are You Enjoying a Hobby – or Running a Business?” Hey – you could be enjoying running a business.

* ACCOUNTING WEB tells us that “Report Indicates Big Increase in State Sales Taxes”.

State governments have boosted sales tax rates to the highest levels in 28 years, according to a new report by Vertex, an enterprise tax software company.”

* Jean Murray gives some good advice in her post “LLC or S Corporation - Too Complex To Call” at JEAN’S BUSINESS LAW/TAXES: US BLOG (the highlight is mine) -

Before you select a business type, be sure you consider all the consequences of your decision and talk with many people; it's more complex than you might think.”

This is especially important when you are considering either organizing as or being taxed as a corporate entity. It is vital that you become aware of what will happen if you need to end the business and sell its assets. Like a marriage, a corporation may be cheap to form but very expensive to end.

And, while I certainly do not mean to imply that all professionals act and advise out of a solely selfish motivation, when soliciting advice from many people in different disciplines be aware that some may indeed have a hidden reason – usually the generation of more or higher fees – for recommending certain options and actions.

* TAX GIRL Kelly Phillips Erb continues her series of interviews with political candidates with “Tax Talk 2010: Carly Fiorina” and follows with “Tax Talk 2010: Randy Hultgren”. Ms Fiorina is a Republican candidate for the Senate from California and Randy Hultgren is the Republican candidate for Congress in the 14th Congressional District of Illinois.

* Kay Bell reports that “IRS Gives North Carolina Storm Victims More Time to File, Pay Taxes” at DON’T MESS WITH TAXES.


Monday, October 25, 2010


My fellow tax bloggers and I are constantly reporting on emails allegedly from the IRS that are in reality “phishing” scams, and reminding you that the IRS will NEVER initiate contact with a taxpayer via email.

But those are not the only emails you need to worry about. I am often forwarded tax-related emails that clients have themselves been forwarded, often from friends or family, with the question, “Is this true?”.

I would say that 99.9% of the time the email is pure reality tv (i.e. excrement).

My advice to clients is – Never believe what you read in an email about taxes unless the email comes from me! Similarly, you should never take an email about taxes seriously unless it comes from your own tax professional.

This is along the same lines as what I have identified as my best tax advice – DON’T ACCEPT TAX ADVICE FROM ANYONE OTHER THAN A PROFESSIONAL TAX PREPARER.

Often the person sending of forwarding the email to you is well meaning, and doing so with the best of intentions. They are just ignorant of the true facts. However, occasionally the email will purposely contain incorrect or misleading information for purely political reasons.

Here is an email that a client recently forwarded to me with the usual question. Please note that the part highlighted in red is my highlight, and not that of the author, the reason for which will appear clear later -

2011 W-2 Tax Forms

Should you want to verify this, go to, enter "HR 3590" in the search box and look for "CRS Summaries." This is what you'll find.

Title IX Revenue Provisions—Subtitle A: Revenue Offset

‘(Sec. 9002) Requires employers to include in the W-2 form of each employee the aggregate cost of applicable employer-sponsored group health coverage that is excludable from the employee's gross income (excluding the value of contributions to flexible spending arrangements).’

Starting in 2011—next year—the W-2 tax form sent by your employer will be increased to show the value of whatever health insurance you are provided.

It doesn't matter if you're retired. Your gross income WILL go up by the amount of insurance your employer paid for. So you’ll be required to pay taxes on a larger sum of money that you actually received. Take the tax form you just finished for 2009 and see what $15,000.00 or $20,000.00 additional gross income does to your tax debt. That's what you'll pay next year. For many it puts you into a much higher bracket. This is how the government is going to buy insurance for fifteen (15) percent that don't have insurance and it's only part of the tax increases, but it's not really a "tax increase" as such, it a redefinition of your taxable income.

Also, go to Kiplinger's and read about the thirteen (13) tax changes for 2010 that could affect you.

Why am I sending you this? The same reason I hope you forward this to every single person in your address book. People have the right to know the truth because an election is coming in November. So vote intelligently, based on your values.

But also adjust your tax withholding, or increase your savings, so that you aren't surprised and put in a jam when your federal income taxes are due on April 15, 2012


The reporting of the value of employer-provided health insurance benefits on the W-2 is for information purposes only – it is to provide evidence that the employee has health insurance coverage. This amount will NOT be added to the federal taxable wages reported in Box 1 of the W-2. You will NOT be taxed on this amount.

If you read the section I highlighted in red you will see that it clearly identifies this amount as the “cost of applicable employer-sponsored group health coverage
that is excludable from the employee's gross income

As pointed out in

Section 9002 of PPACA, the patient Protection and Affordable Care Act (H.R. 3590), requires that all employers, beginning in 2011, report the aggregate cost of employer-sponsored health benefits they provide to employees on those employees’ W-2 forms. However, the monetary values so reported will neither be counted as gross income nor will they be taxed; they will be included for informational purposes only. (Section 106A of the Internal Revenue Code states that, in general, employer-provided health coverage is not taxable to the employee.)

What is true, again according to (the hightlight is mine) –

In general, beginning in 2018 (not 2011), the PPACA imposes a 40% excise tax on the value of employer-sponsored medical insurance that exceeds a given threshold (initially $27,500 annually). This excise tax would be paid by the insurance company, not the employee, and is initially expected to affect fewer than 10% of families covered by health insurance.”

You can read more about this excise tax on “Cadillac” health plans at

As a point of information, according to the IRS website (again the highlight is mine) –

Starting in tax year 2011, the Affordable Care Act requires employers to report the value of the health insurance coverage they provide employees on each employee's annual Form W-2 However, to provide employers the time they need to make changes to their payroll systems or procedures in preparation for compliance with this requirement, the IRS will defer the reporting requirement for 2011, making that reporting by employers optional in 2011.”

And that is the truth!


Saturday, October 23, 2010


* Some excellent news – according to the IRS, the deadline for filing the 2010 Form 1040 (and 1040A) is Monday, April 18, 2011!

I am somewhat confused. I am looking at a 2011 calendar and April 15th falls on a Friday, not on the week-end. So why April 18th? Does it have something to do with a holiday observed in several states?

Actually I am not looking a gift horse in the mouth - I will gladly take the three extra days! So for me the tax filing season will end on Sunday, April 17th (I no longer do 1040s on April 15th – or whatever the last day is).

* Great minds think alike! Roger Russell tells us at WEBCPA that “Former Commissioner Blasts IRS’s Social Mission”.

It seems Mortimer Caplin, the IRS Commissioner during the terms of Presidents Kennedy and Johnson, “believes the Internal Revenue Service is currently facing a tougher task than it did back when he was commissioner as a result of the additional roles handed it by Congress through the enactment of new social programs”.

Russell writes –

However, IRS responsibilities today revolve not only around tax collecting, but also include policing social and economic policies with limited resources. The passage of the health care bill add exponentially to an already packed list of administering homebuyer credits, economic stimulus disbursements, and work pay credits, among others, he noted.”

Caplin, correctly, points out –

Even the Earned Income Tax Credit could have been handled by Health and Human Services. What has happened is that there are a tremendous amount of fraud and deficiencies associated with the program. This has produced a great loss of revenue, because the Service has to focus attention on the wrong returns. Rather than looking at high-income returns, with, say, foreign investments, they have to examine the EITC. Their mission has been watered down.”

Most important -

And instead of having an annual appropriation, which gets examined yearly, the programs get into the Tax Code but never get out. ‘Congress has to be more selective,’ said Caplin. ‘They’re leaning more on giving credits than on appropriations’.

And adding credits to the Tax Code is like getting trapped in a roach motel — you can check in, but you can’t check out.

‘It’s more difficult to amend the Internal Revenue Code than cut an appropriation,’ he observed. ‘Congress should not be in the habit of just automatically adding another credit to the code.’

Amen! I have been saying this for years now.

*Here is some more good news. The NY State Society of CPAs’ CPA BLOG reports that “H&R Block Sues HSBC Over RALs”.

H&R Block would be unable to offer RALs and refund anticipation checks for the 2011 tax season if the bank fails to carry out its contractual obligations within the next two months, the filing said.”

If Henry and Richard won’t be able to offer RALs then thousands of lower-income individuals will avoid being screwed! Unfortunately they will probably find some other greedy preparer willing to offer a RAL at usurious rates.

I found this item through the CPA POLICY DAILY NEWS, a digest of online items of interest to accountants, which I discovered via a “tweet”.

* Kay Bell discusses “10 Ways Uncle Sam Can Cut Spending” over at DON’T MESS WITH TAXES.

Unfortunately raising taxes and fees is always the first answer to a government budget shortfall – never cutting expenses. Politicians are afraid of losing entitlements or offending a generous lobby. Ultimately the items that get cut are usually in the area of essential services where there is minimum pork involved.

The cost-saving measures suggested by CNBC that Kay talks about are just ways of being more efficient. But you know that government, and politicians, hate efficiency. If there is a more expensive way to get something done they always seem to find it.

* And as we are counting the days until the election is over so we can see what, if anything, the cafones in Congress will do to extend the expired tax benefits for 2010 and the “Bush” tax breaks for 2011, check out “How Expiring Bush Tax Cuts Will Affect You”, a “slide show” by Kay Bell at BANKRATE.COM.

* Janet Novack brings the disturbing news that “Retirement Plan Participation Falls To 16-Year Low” in her TAXING MATTERS blog as

The share of employees participating in retirement plans at work fell to 39.6% in 2009, its lowest level since 1993.”

Janet goes on to explain -

But let’s not blame short-sighted or cash-strapped workers for this one. Fewer workers are participating because fewer workers are being offered retirement plans. And we’re not just talking about defined benefit plans where the employer guarantees a fixed monthly pension. Those are mostly toast. (Even such big employers as IBM, Verizon, Motorola and DuPont have fully or partially frozen their defined benefit plans.) We’re talking about employers not even sponsoring plans that allow employees to save their own money in 401(k)s, with the employer maybe kicking in a match of 3% of salary. The share of full-time, full-year workers whose employers even sponsored a plan fell from 69.1% in 1999, to 61.8% in 2009.”

* Jean Murray reminds us in “Higher Section 179 Limits - Don't Count on Your State To Agree” that cash-strapped states may very likely “decouple” from the new higher Section 179 limitations, as they have done in the past.

* The Tax Foundation’s TAX POLICY BLOG tells us that “Voters to Consider Hundreds of Tax-Related Ballot Initiatives” when they go to the polls next month.

The post lists some of the key initiatives - including Denver Initiative 300, which “would set up a UFO study commission, but no tax dollars would be used”.

* Jean Murray has begun a series of “10 for '10 - 10 Ways to Save on Business Taxes in 2010” at JEAN’S BUSINESS LAW/TAXES: US BLOG.

Over the next 10 weeks, I'll give you a tax-saving tip each week. 10 tips in 10 weeks for 2010.”

This week – Fund a Retirement Plan.

*Kelly Phillips Erb brings us “up to speed” on the status of the movement to repeal the federal Estate Tax in “Permanent Federal Estate Tax Repeal: Making a Comeback?” at TAXGIRL.

* And Kelly kicks off in her “Tax Talk 2010” series of interviews with local political candidates, in which she asks 6 tax-related questions, with Jon Runyan, the Republican candidate for New Jersey’s Third Congressional District.

* From the “WTF? Department” – the title of Joe Kristan’s post “Esogetic Colorpuncture: A Deductible Expense for Mortgage Brokers” at the ROTH AND COMPANY TAX UPDATE BLOG certainly piqued my curiosity. See Joe’s post if you are as curious as I was.

* Speaking of Joe – he presented a minimal response to my Final Words – Really on tax return preparer registration and regulation in “The Flach Defense of Preparer Regulation”. Be sure to read the comments to his post.

* Daniel Stoica from Illinois, a fellow twit, has a series of basic informative posts on the subject of the LLC at his blog. It starts out, appropriately, with “What is a Limited Liability Company (LLC)?”.

Thanks, Daniel, for spreading the word about my TWTP posts via “retweets”!

* The National Association of Tax Professionals’ TAXPRO WEEKLY email newsletter reports-

IRS Announces New Deputy Commissioner -
The IRS announced today that Beth Tucker will be the new deputy commissioner for Operations Support. Mark Ernst will be leaving the IRS later this year to return to the private sector

As I recently commented in a post – I always wondered WTF a former CEO of Henry and Richard was doing at the IRS.

* The daily “News and Tip of the Day” offering for Friday, October 22nd at SMALL BUSINESS TAXES AND MANAGEMENT correctly tells us – “If you're an employee and could have been reimbursed for a business expense but did not seek reimbursement, you can't deduct the expense on your individual tax return as an unreimbursed business expense” – and cites a related Court case.


Friday, October 22, 2010


Congress – shame on you!

I recently did a post titled “Are We Being Run By Arseholes?” – talking about a bit from John Stewart’s THE DAILY SHOW about the inability of Congress to do something simple. While the term “arseholes” may be a bit much – there is much evidence lately to suggest that the members of Congress are idiots!

The inaction by Congress regarding the “extenders”, the Alternative Minimum Tax (AMT) patch, and the status of the federal Estate Tax is inexcusable. We are not talking about extending these items for 2011, we are talking about tax year 2010 – which has less than 2½ months left!

It is obvious that we will have to wait until after the election before the Congress will even think about doing anything – God forbid voting on a bill should affect a Congresscritter’s (as Joe Kristan likes to call the bastards) chance of re-election.

This unnecessary and inexcusable delay is bad for the economy, bad tax policy, and causes all kinds of agita for the IRS, which usually likes to “go to press” with tax forms and instructions in October. Undoubtedly there will once again be delays to the beginning of the upcoming tax filing season (this is not the first time Congress had acted stupidly in this area).

I will be attending the annual year-end tax update class given by the National Association of Tax Professionals each year (in Atlantic City) in early November. The class will be incomplete and will not be able to present a true and certain picture of everything that will be in effect for the 2010 returns we will file during the 2011 tax filing season, or provide sufficient information on taxes for 2011.

Wait - who is to say that the fools will actually be able to pass the necessary extender legislation in the short time left before they leave Washington for the rest of the year?

Correct me if I am wrong, but it seems to me that lately Congress is more dangerously partisan than ever before. With only the most minimal of exceptions, Republicans will only vote for bills introduced by Republicans, and Democrats will only support legislation introduced by their party. A Republican could introduce a bill that would guarantee world peace, and the Democrats would vote against it because it was not introduced by a Democrat.

As a result virtually nothing gets done easily, if at all. Even issues, like the ending of Don’t Ask-Don’t Tell and relief for infected 9/11 first responders, which were actually supported by a majority of both parties either couldn’t get passed or took forever to so do (as discussed in the DAILY SHOW bit) because of partisan games.

I have not done a study of the problem, but I don’t recall this being the case during my earlier years. I can remember a time when Congress at least put on the act of thinking about the good of the country and its citizens. When did it begin? It was certainly present during Dubya’s term, but has become more prominent and hazardous during BO’s tenure.

Another example that Congress is full of idiots concerns the new rules for 1099 reporting. The cafones passed, as part of the Health Care “reform” bill, a requirement for businesses to report payments for goods as well as services to all entities, including corporations. Since it was passed Congress has been trying to repeal or revise it.

I doubt if those who drafted the provision took even one minute to consider the consequences of the actual application of this requirement, and the excessive burden it would place on small business. They needed some quick income-generating offsets, and that sounded good. And I doubt if those voting for the bill read through all of the provisions of the legislation before saying yea or nay.

Since the passage of the bill various small business organizations, and tax bloggers, have brought the stupidity of this provision to the attention of the public and Congress – and now the cafones are all “mea culpa” and want to take it back. But, as per the ridiculous partisanship, they have not been able to do so yet.

{As an aside - I am certainly not against expanding the reporting of fees paid for services (not the purchase of goods) to include corporations – but that is as far as it should go.}

All of the above gives me serious doubts that the members of Congress are “smarter than a fifth grader”!

I recently considered writing a letter to be sent to every member of Congress. It would begin with “Shame on you!” and include the following advice –

1) Get off your arse and vote on the 2010 and 2011 “extenders” ASAP.

2) Make serious and substantial tax reform/simplification a top priority when you (or your successors) return to Washington in January.

3) When drafting a bill, seriously investigate and consider the burdens its provisions will place on those who are being required to comply.

4) Actually read in entirely each piece of legislation you vote on before voting.

5) Base your votes on the content of the legislation and not on which party introduced it.

6) Stop making quick-fix knee-jerk reactions to serious problems – and actually seriously respond to the problem. And

7) While nothing we can do will ever remove getting re-elected as your number one priority, at least make the intelligent and effective administration of the government your number two.

Would you like to add anything?


Thursday, October 21, 2010


In his last entry in our “series”, SUPPLY, DEMAND, Joe uses economic theory to explain why regulation will make the cost of tax preparation rise.

If the supply of something goes down without a corresponding reduction in demand, prices go up. That is the way of the world.”

While it has been over 3 decades since I took Economics 101, Joe is perfectly correct. But he assumes a significant reduction in the supply of tax preparers.

I do not see tons of currently unenrolled tax preparers who make a living preparing 1040s suddenly going out of business because they have to spend an additional $64.25 per year, and add perhaps an hour or two at most to their annual workload, to register with the IRS! This is all we are talking about - as I have said time and again serious “professional” tax preparers should already be taking at least 15 hours of CPE in federal taxation per year.

In a comment to my “I Wish They Would Explain” post, and at his blog TICK MARKS, (the blog has nothing to do with lyme disease - sorry I couldn't resist) Dan Meyer says -

Some realistic examples of people who will be hurt by the TPIN: women with tax skills and more than one preschooler who might prefer to stay home and prepare a dozen or three tax returns for fun money and retirees who may want to do a few dozen tax returns to supplement Social Security. For those preparing a small number of returns, the fees and paperwork is a significantly greater aggravation than it is for tax preparers (whether EAs, CPAs or previously unregistered) who prepare hundreds of tax returns per year--and the ‘small-timers’ may still be keeping up with CPE and changes in tax law.”

As I have said before, I can see how the additional costs may force some of the more casual preparers “out of business”. But I have also said that this may not be a bad thing. The more “casual” the preparer the less competent he/she will be, and the greater the likelihood of incorrect returns. Would you go to a “casual” doctor or lawyer or any other kind of professional. To use the example brought up by a member of the IRS advisory panel – would you even go to a “casual” barber for a haircut.

However, the cost of 15 hours of CPE, where any real additional cost lies, is not prohibitive. The National Association of Tax Professionals provides a 2-day offering at various convenient locations throughout the 50 states each year-end consisting of “The Essential 1040” on day one and “Beyond the 1040” on day two. This provides 16 hours of CPE, including the required update and ethics coverage, for $349.00 for members and $433.00 for non-members (clearly it pays to become a member – for a variety of reasons). If the “casual” preparer is already keeping up to date via some CPE another day is not that expensive.

If these casual preparers are not already taking any CPE the additional annual cost, including the registration fee, would be about $500.00 – causing the “casual” preparer to add $14.00 to $21.00 to what is probably a lower-end fee (they have virtually no other overhead) to begin with.

I have also suggested that perhaps the new licensure will cause them to become less “casual” and look for more clients as long as they have to incur the expense. And as 1040 preparation will now be a “recognized” profession more individuals may decide to join the ranks.

If regulation causes the “pool” of tax preparers to be reduced by a few hundred, or even 1000, “casual” preparers out of about 1 Million total that is certainly no great reduction of supply.

Along these lines there is also talk of losing “seasonal” preparers. Hey, I am basically a “seasonal” preparer. 1040 preparation is a “seasonal” business. But I work at least 12 hours a day 7 days a week during the “tax season” (mine is defined as 2/1 – 4/14). While there are GDEs and IRS and state correspondence to deal with during the rest of the year, the time involved is minimal compared to the actual “season”.

While I have argued, I believe successfully, that the added costs of the regulation regime, even if passed along to clients, are not sufficient to materially increase the cost of preparing tax returns, I do see why Joe says that a new “licensed profession” – specifically new initials (RTRP) after one’s name – will “allow” the newly enrolled to charge higher prices.

I have always said that having initials after one’s name, as with a CPA, can cause one to charge “twice as much for half the service”. However, I feel that this applies more when there is an “uninitialled” alternative. CPAs, and perhaps EAs, charged more to prepare a tax return than an “unenrolled” preparer because they had initials and the unenrolled did not. Under the new regime ALL tax return preparers will have initials. Eventually only RTRPs, EAs, CPAs, amd JDs will be allowed to prepare tax returns for a fee.

I still do believe that the majority of previously unenrolled preparers, like myself, are fair and ethical and will not, or only slightly, raise fees in response to regulation. To be honest, regulation will actually cut marketing costs for the previously unenrolled by reducing the need for these preparers to advertise aggressively – as the promised IRS publicity campaign regarding the new regime will provide a great deal of “free advertising” to newly endowed RTRPs.

Even if newly enrolled preparers slightly increase their fees to reflect their new status, I do believe that the fact that these preparers are now “recognized” as being knowledgeable, experienced, and current in 1040 preparation will dispel the “urban tax myth” that CPAs are tax experts and actually cause certified ones to reduce their fees for 1040 preparation to remain competitive.

My largest business/1040 client has a substantial interest in a manufacturing company in California. He uses a CA-based CPA firm for the corporate work and to prepare his California state personal income tax return (to which I have no objection – one less state to have to learn and keep current on). The CPA at the firm with whom he deals has told him that they charge lower fees for 1040 preparation than they charge for corporate tax and other accounting work, because of the “market”. In order to compete successfully with EAs and unenrolled preparers like me, who have a much more reasonable and appropriate fee structure, they have to charge less than they would like.

Joe also mentions that the previously unenrolled preparers will “eventually be losers to the benefit of the nationwide franchised preparation outfits”. Henry and Richard and their ilk have been vocal supporters of the new regulation regime. And, coincidentally or not, one of the two top level IRS persons initially put in charge of the review of regulation was a former H+R Block CEO.

{As an aside – I can’t for the life of me understand why the IRS would want to hire anyone from Henry and Richard, or a similar fast food chain, in a high-level position, especially Mark Ernst. FYI, as reported by WebCPA, Ernst, currently the IRS Deputy Commissioner for Operations Support, was “chief operating officer of H+R Block between 1998 and 2000. He was named CEO of Block in January 2001 and became chairman the following year. In November 2007 he was ousted by hedge fund manager and former SEC Chairman Richard Breeden, now chairman of the company, who criticized Block for moving away from its core tax preparation business into areas such as subprime mortgages". So he was a contributing factor to the mucking fess that our economy became, and is still feeling the effects of. And, I also can’t understand why a former corporate CEO would reduce his lifestyle so as to be able to live within the context of the salary of a government employee, however high on the GS level the position might be.}

H+R, et al are already overpriced, considering the quality and quantity of services provided. I have no doubt that these guys will raise fees to take advantage of the new initials that will appear after their casual/seasonal employees names. They may have to, because I expect that once they become “initialed” Henry and Richard will have to pay their employees more. As I have posted several times before, I do believe that the smallest component of H+R Block’s expenses is the cost of the actual tax preparer employee.

I do hope that regulation will cause potential victims of the fast-food tax preparation chains (fast food service for gourmet restaurant prices) to shop around and discover that they will get a better “bang for their buck” by using an independent RTRP. I can think of no reason why any taxpayer should use the services of H+R or their ilk, either in the past or under the new regulations.

As with just about anything, there are pros and cons to the regulation of tax return preparers. Joe Kristan has done a good job of outlining the potential disadvantages of the regime. However, I hope that I have shown that the disadvantages are truly few and that they are greatly overshadowed by the advantages.

And that’s all I have to say on the subject!

I look forward to Joe’s final words – as well as the words of other tax preparers and bloggers and of taxpayers.


Wednesday, October 20, 2010


CPA Joe Kristan, author of THE ROTH AND COMPANY TAX UPDATE BLOG, and I have been involved in an ongoing friendly but serious debate on the issue of regulating tax return preparers.

To recap - my entries in the debate have included –




Joe’s return volleys were –





In addition, we both referred to THE IRS AND THE LATEST LICENSING OUTRAGE by Dan Alban.

I would like to provide my final (and I mean it) words on the subject, in response to the arguments put forth by Joe Kristan and others.

Joe’s case against the current regulation regime, which is shared by Dan Alban and others, is basically 2-fold:

(1) Tax return preparers are already regulated; and

(2) Regulation will create a seriously increased cost and workload burden on tax return preparers, causing many to leave the business, and result in a substantial increase in the cost of preparing 1040s.

Today I will respond to the first issue, and tomorrow I will finish by dealing with the second.

Joe rightfully states that there are already in place criminal and civil penalties for tax preparers who encourage or commit tax fraud and who encourage or take “frivilous” tax positions.

Just about any activity, enterprise, industry, or profession, whether regulated or not, is subject to criminal and civil penalty when fraud, or other “inappropriate” action, is involved. It is true that under current law and regulation a tax preparer, “enrolled” or not, can be penalized for attempting to defraud the government, just as an individual taxpayer can.

But the reason for regulating tax preparers, as with regulating any profession or industry, is not to be able to penalize members for bad behavior. The main purpose of regulation is consumer protection by establishing minimum standards of competence and currency.

The purpose of regulating tax preparers is to assure the general taxpaying public that a person who hangs out a shingle as a “professional tax preparer” actually knows his arse from a hole in the ground when it come to preparing 1040s, and remains current on the multiple annual changes to the Tax Code.

Professor Jim Maule of MAULED AGAIN has written an excellent and, as usual, scholarly post on the topic of tax return preparer regulation, mainly in response to Dan Alban’s commentary (referenced above).

While “Tax Return Preparer Regulation: What About Attorneys and CPAs?” is mostly concerned with the current exemption from testing and required CPE in federal taxation for CPAs and attorneys, in agreement with both Dan Alban and myself, he does touch on Dan’s, and Joe’s, argument that regulation is unnecessary because tax return preparers are already regulated.

Tax return preparation is no different from any other industry whose participants have the power to help or hurt its clients or customers. Existing penalties are not preventing the unethical behavior of a few “bad” preparers whose actions end up tainting the entire industry’s reputation. Some taxpayers have been ill served by their tax return preparers, and “some” is too much. When one considers the various industries that are properly regulated, in every instance clients and customers are better off than they were before regulation, and when one considers the various industries that are not regulated or that are inadequately regulated, clients and customers end up on the short end of the deal. Aside from the ethical issues raised by preparers who file fraudulent returns, steal refund checks, or otherwise cheat their customers, the bigger issue is one of competence.”

Jim suggests that that the goal of regulating tax return preparers is “to produce more accurate returns, and thus improve revenue and compliance across the board, as it ought to be”. He rightfully points out that “Congress has created a tax law that rivals quantum physics in terms of difficulty, which surely makes attaining competence just that much more elusive, but that does not diminish the need for tax competence by all preparers”.

I encourage all to read Jim’s entire post. And I hope that David Williams of the IRS, an admitted TWTP visitor, is “listening”.

In one of his posts Joe Kristan suggests that – “If a preparer is incompetent, clients will inflict punishment by walking away long before the IRS has any idea what is going on.” But, as a result of what Jim Maule correctly identifies as “Congressional mismanagement of the tax law”, how does the average taxpayer know if a preparer is incompetent? They use the services of a tax preparer mostly because they themselves do not know the Tax Code, and don’t want to be bothered reading through the instructions or doing research. The preparer’s incompetence is generally only discovered if there is an audit, or if the taxpayer chooses to use a different, and more competent, preparer upon the retirement or death of the previous one or due to a move.

How many times have I seen returns from potential new clients where the previous preparer claimed a ridiculous, and totally unallowable, deduction - which the preparer himself/herself may have genuinely believed to be deductible, and which the taxpayer had no reason to believe was not allowable?

To repeat what I have said in earlier posts - we all agree that regulation, in any industry, does not prevent fraud. But regulation does help to prevent incompetence.

to be continued . . .


Tuesday, October 19, 2010


As promised yesterday – here is a special Tuesday edition of the BUZZ to bring you only a few of the many online items of interest that appeared during my recent GDE hiatus. The BUZZ will return Saturday, and then continue on with weekly Wednesday and Saturday installments.

* Let me lead off the return of the BUZZ with what Donald Marron of TAXVOX, the blog of the TAX POLICY CENTER, thinks is “The Biggest Tax Policy Mistake of the Year” (and I agree) -

With little time left on the legislative clock, policymakers will be hard-pressed to top the tax policy blunders they’ve already made this year. Most notable is their failure to decide what this year’s tax law should be. While politicians, analysts and the media endlessly debate how expiring tax cuts might affect taxpayers in 2011, the real disgrace is that we still don’t know what the tax law is in 2010.”

Donald was “right on” when he observes -

"Such retroactive policymaking is an embarrassment. In a well-functioning democracy, policymakers should establish the laws of the land in advance so that families and businesses can knowledgeably plan their activities. Surprises may sometimes necessitate mid-course corrections. An economic downturn may justify mid-year tax cuts, or a sudden crisis may require mid-year tax increases. But persistent retroactive lawmaking undermines the core idea that ours is a nation of law."

As Donald pointed out, the inexcusable action, of inaction, of the cafones in Congress “undermines the IRS’s ability to implement the tax system. In 2007, for example, Congress fiddled until just before Christmas before deciding to enact that year’s AMT patch. Because of that delay, affected taxpayers couldn’t begin filing their returns until February 15, when IRS computers finally reflected the new law.”

* Mary BUD BFFALOES IN YOUR TAX CODE O’Keefe considers how the folly of Congress will affect her VITA volunteer preparers in “VITA Volunteers Will Be Waiting on Tenterhooks Again”.

* Over at CNN.MONEY Chris Isidore brought up a “stimulus” proposal that I have been touting for years – the “payroll tax holiday” – in “A Tax Cut Both Parties Should Love -- But Don't”.

Chris told us that –

The nonpartisan Congressional Budget Office estimated earlier this year that eliminating payroll taxes was roughly two to four times more effective in spurring economic activity than a reduction in income taxes, the policy option that's getting most of the attention in Congress.”


Many economists say the employer portion of the payroll tax discourages hiring by making it expensive. So dropping the tax might free up cash that employers could use to add workers -- an idea that Republicans could likely sink their teeth into.”

I do believe that a payroll tax holiday was proposed by then Senator Jon Corzine years ago, before he lost both brains and backbone (or should I say "balls") during his tenure as NJ governor.

And BO’s Making Work Pay credit was slightly based on the concept – in that the tax reduction was calculated as 6.2% of the first $6,451 ($12,903 for a married couple) of wages – but his mistake was in making it a reduction of income tax and totally FU-ing the federal income tax withholding tables to implement it (which ultimately caused more problems than it was worth).

* William Perez reported that “California to Delay Tax Refunds, Again” over at WILLIAMS’S TAX PLANNING BLOG.

The state of California will be delaying tax refunds along with other payments, effective for California tax returns that are processed by the state on or after October 7, 2010.”

Apparently, to quote the California State Controller's Office, “There is not enough money in the treasury to meet all of the State's current payment obligations".

* Trish McIntire of OUR TAXING TIMES weighed in on one aspect of the tax preparer registration debate by talking about the AICPA’s recent focus on student interns/employees and how this will be a big issue for the students and with the suggestion to “Expand the Signature Section”.

As for student interns/employees she says –

Since these are the future accountants and CPAs, I think they would welcome being licensing as an advantage in the job market. I can't see why they should be excluded because who hired them.”
And her recommendation -
My idea is to add a special page to follow the signature page which lists everyone who did anything on the return, their job title, what they did, how much time they spend on the return and what percentage is that of the total preparation time.”

While I do not think I would support a whole page added to the process, I do think that the names of the individuals who actually worked on and prepared the return should be on the return – and not just the name of the “CPA of record” – who probably spent the least amount of time of all involved in the actual preparation of the return. It would also show the taxpayer/client who actually prepared the return.

* Joe Arsenault of CAFÉ TAX and ROTH IRA FACT has prepared “A Guide To Roth Conversions” worth reading if you are considering making a conversion before year end.

* TWTP fan Susan Kilroy, from CRIMINAL JUSTICE DEGREES GUIDE, thought my readers who attend law school would be interested in the article “10 Blogs to Help You Through Law School”.

* Bruce, the MISSOURI TAX GUY, provided great BUZZ withdrawal relief with his weekly Sunday BUZZ-LIKE “Week In Perspective”, which, as usual, includes interesting entries from personal finance blogs that I do not regularly visit in my “wanderings”.

* Professor Annette Nellen hoped to initiate a conversation on “Trends and the Tax System - The Home Mortgage Interest Deduction” at 21st CENTURY TAXATION.

Personally I would hate to see the deduction for acquisition indebtedness go away – many of my clients benefit greatly from this deduction. As Riles mentioned in his comment – “The home mortgage interest deduction is something of a sacred cow”.

However, I would not be against doing away with the “home equity” component of the deduction – making only true home-related mortgage deductible. But to do this properly would require placing more detailed reporting by banks and other mortgage providers.

I have missed original tax-related posts from Stacie Clifford Kitts and Monica Lawver. Hopefully now that October 15th is gone they will provide us with some good and thoughtful reading.


Monday, October 18, 2010


I’m back!

The tax filing season is finally “officially” over with the passing of the October 15th deadline for 1040 GDEs.

But it seems to never end. I just got information on Oct 16th needed to finish a 2009 Form 1040, and at my mail drop on Sunday morning was a package with a client’s 2009 “stuff”. If these taxpayers owe their “uncle(s)” they will now owe penalties for filing late as well as paying late.

I apologize for not posting during the past week – and realize that I missed reporting on some important tax-related information. Let me use this post to tell you about what happened during my posting hiatus.

1) As I mentioned above, Friday, October 15th was the final deadline for filing extended 2009 Form 1040s.

As Trish McIntire has pointed out in a previous post at OUR TAXING TIMES – October 15th is not April 15th. If you could not get your return done by April 15th you could always extend and avoid a great deal of potential penalty. But if you are not done by October 15th there is no more extension.

One used to initially file for an automatic extension to August 15th, and if more time was needed one could request (you needed IRS approval) an additional extension to October 15th. But, wisely, the IRS decided to do away with the 2-tiered extension process a few years back – so now you get one automatic extension until October 15th.

The penalty for paying late is .5% (.005) per month on the balance due - but the penalty for filing late is 5% (.05) per month!

October 15th was also the deadline for “recharacterizing” an IRA contribution. As Kay Bell put it in a post on Oct 15th deadlines at DON’T MESS WITH TAXES, recharacterizing is “for folks who converted a traditional IRA to a Roth account, paid taxes on the converted funds and then watched the value of their IRA sink. If that happened to you, {Oct. 15 was} your last chance to redo your retirement account and recoup that money.”

And October 15th was the deadline for small nonprofit organizations that didn't file a Form 990 for the 2007, 2008 and 2009 tax years to get those returns in the mail or risk losing their tax-exempt status.

Finally, October 15th was the deadline for filing extended calendar year 2009 NJ CBT-100 returns for corporations.

So, if you fell into any of the above situations, I hope you got your return(s) in the mail on Friday.

2) For the second year in a row there is no COLA increase for Social Security benefits. Social Security beneficiaries will get the same monthly check in 2011 that they got in 2010, and 2009.

According to the Social Security Administration press release

The Social Security Act provides for an automatic increase in Social Security and SSI benefits if there is an increase in the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) from the third quarter of the last year a cost-of-living adjustment (COLA) was determined to the third quarter of the current year. As determined by the Bureau of Labor Statistics, there is no increase in the CPI-W from the third quarter of 2008, the last year a COLA was determined, to the third quarter of 2010, therefore, under existing law, there can be no COLA in 2011.”
Kay Bell told us that a currently pending bill would provide Social Security beneficiaries with a special $250.00 payment (like the “ERP” of 2009) –

The Seniors Protection Act of 2010 (H.R. 5987) would give those who get Social Security benefits a one-time $250 payment.

The money would go to retirees and disabled individuals, both civilian and veterans, who get government checks.”

3) Many tax blogs reported on a new “phishing scam” that concerned alleged payments made through the federal Electronic Federal Tax Payment System (EFTPS).

Trish McIntire told the tale in her post “New Phishing” -

In my in-box this morning were 3 emails telling me that my recent payment through EFTPS (Electronic Funds Transfer Payment System) has been rejected. They were bogus. But they were better than most phishing e-mails. They sounded "official" and it took me a moment to realize that if there were problems with my company id as suggested, then I wouldn't have been allowed to make the payment in the first place. I had to double check the respond URL they gave because it is so close to to actual EFTPS URL. The timing is right. Businesses are making 3rd quarter tax deposits now. And their warning:

Your tax payment is due regardless of EFTPS on-line availability. In case of an emergency, you can always make your tax payment by calling the EFTPS.

Very much sounds like something the IRS would write.

I use EFTPS regularly for clients, and these emails made me think. I can see them being a concern to taxpayers who only use the system a few times a year. So:

These emails are a scam. If there is a problem with your company id, you wouldn't have made it into the system to make a payment. If you are concerned about the possibility of this being true, don't use the link but log in to EFTPS directly and check your payment history.”

Kelly Phillips Erb provided some additional information in “Another EFTPS Scam Update” –

According to, the scam is part of the Zeus family. The links in the email take you to what is a real web site but along the way, a version of Zeus may be installed on your computer in order to intercept your online banking transaction data.”

4) Congress passed, and BO signed into law, the Plain Writing Act of 2010, which requires that all federal agencies write their forms clearly in “plain language” – "Writing that is clear, concise, well-organized, and follows other best practices appropriate to the subject or field and intended audience." The law appoints a "plain writing" official to oversee implementation of the measure.

As Rob Teuber puts it in his post “The IRS Must Now Write In English” at his TAX LAW FORUM BLOG -

Is this law necessary? - Yes.

Should it be necessary? - No. Its a bit ridiculous that writing in plain ‘English’ should have to be mandated by law. But sadly, in many instances, it is necessary.”
Now if only Congress would learn to write laws in "plain English".
5) And finally, as reported in WEB CPA

At the request of the Federal Trade Commission, a federal judge has halted the business operations of American Tax Relief, a company that heavily advertised its ability to help taxpayers who were in trouble with the IRS and allegedly bilked consumers out of more than $60 million by falsely claiming it could reduce their tax debts.

The company’s California state business license was suspended last year for not paying its own taxes, the FTC noted. The FTC is seeking to make the defendants pay restitution to victims.”

I have been telling you for years not to pay attention to tv ads from companies that promise they can settle your IRS debts for “pennies on the dollar”.

Tomorrow a special Tuesday edition of the BUZZ. And Wednesday my final word in the debate on tax preparer regulation!


Monday, October 11, 2010


Joe Kristan’s preliminary response to my last post on the subject of tax preparer regulation, which tells us that he must, quite understandably, wait until after the October 15th GDE filing deadline to properly “return volley”, refers us in the mean time to another critic of regulation.

In “Institute for Justice Speaks Out On IRS Power Grab” at THE ROTH AND COMPANY TAX UPDATE BLOG he refers to statements by Dan Alban, a staff attorney at the Institute for Justice in Arlington, Virginia who has filed comments with the IRS on behalf of the Institute opposing the proposed licensing requirements.

In “The IRS and the Latest Licensing Outrage” at DAILY CALLER Alban says-

This scheme will disproportionately hurt small tax-return preparation businesses and independent preparers, many of whom may be forced out of business.”

Why do those opposed to tax pro registration continue to say the costs of the new regime will be prohibitive and hurt small tax return preparation businesses and independent preparers, forcing many out of business? And that the regime will increase the cost of tax return preparation services? I wish they would explain.

You don’t get any smaller or more independent than me and my practice. As I have said over and over again the costs are minimal – and hardly worth passing along to clients. $64.25 per year ain’t going to break me – nor will a nominal one-time $100-$200 for the test.
{As an aside, the only thing that would possibly force me out of business is being required to submit all my returns electronically using the current system of expensive and flawed tax preparation software.}
Speaking from my specific individual situation – I would, to be honest, not be upset if there were no regulation of tax preparers. I have been operating profitably and happily for 39 years without regulation, and would just assume continue that way for my last 11 years. If regulation had not been proposed by the IRS I certainly would not be campaigning for its institution. But if it is to become a fact of business life I can see how it does have merit and provide benefits to preparers, taxpayers, and the IRS.

Now that it is in place, my only real complaints are about having to take a test after 39 years of practice without incident to show that I know what I am doing, and having to sit through 2 hours of “ethics” each year. Having to take the initial competency test is a PITA, and 2 hours of redundant ethics “education” annually is a waste of time – but it is nothing I cannot handle. Many CPE offerings had been including 2 hours of ethics for a few years now – so I have already been wasting my money.

Truth be told, regulation does not affect my practice one way or another – other than as a minor inconvenience. I am not looking to increase or expand my 1040 preparation business – on the contrary I am looking to “thin the herd”. And if I did need more clients I could easily get them by telling my existing ones I was accepting new work. I already attend more than 15 hours per year in CPE classes in federal taxation. And I am honest and ethical.

Joe’s post gives us a taste of what he will cover in his next volley. He promises to address “the ‘do you oppose regulation for doctors, lawyers and engineers, too?’ red herring”. Red herring? An interesting comment. I look forward to his post, but have plenty to do while I am waiting.


Thursday, October 7, 2010


My sparring partner Joe Kristan of THE ROTH AND COMPANY TAX UPDATE BLOG and I have continued, or rather restated, our debate on the new tax return preparer regulation regime.

Joe stated in a recent post “Regulation Doesn't Work. Let's Regulate Some More” -

It doesn't prevent fraud, it doesn't prevent incompetence, all while imposing costs on the honest and competent at least as much as on the unscrupulous and inept.

So tell me again why all this new IRS preparer regulation is such a great idea?

I responded as a comment on the post -

While regulation does not prevent fraud it does, to some degree, reduce incompetence.

Fraud requires knowledge of the Tax Code and willing participants on both ends (preparer and taxpayer).

Incompetence results from poor education and experience in the Tax Code, despite the best of intentions for preparing an honest return.

Taking some of the more ‘casual’ tax preparers out of the business with the new testing and CPE requirements, and corresponding costs, and requiring others to maintain CPE, will reduce incompetence.

I still say the additional costs imposed on honest and competent preparers are not at all significant, and have not been shown otherwise

Joe replied, also as a comment -

Robert, I think the burden of proof needs to be that additional regulation DOES help in a cost effective way -- rather than saying that it hasn't been proven that they are not cost-effective.

You have (with some justification) pointed out that there are lots of inept CPAs and lawyers around. They are regulated by more agencies in more (though different) ways than preparers, but there are still incompetent ones. We know that preparer regulation will impose increasing costs, but we haven't seen any explanation why this will work better than the CPA and attorney rules. I anticipate that you will say that this is tax-specific, unlike CPA and attorney CPE; I doubt that the nominal CPE and testing that to be required of unregistered preparers can possibly make much of a difference, as long as we have an impossibly difficult tax law

Joe and I agree that –

(1) Regulation of tax preparers will not prevent tax fraud. Regulation of CPAs and attorneys has not prevented tax fraud by CPAs and attorneys, and, for that matter, regulation of doctors has not prevented Medicare fraud.

(2) Any regulation bureaucracy has the potential for occasionally causing agita and inconvenience to those being regulated. The problem that I, and other tax professionals, encountered in attempting to register online is certainly proof of this.

(3) Regulation of tax preparers via testing and CPE requirements, and the costs associated with maintaining one’s registration, will force many of the more “casual” tax preparers to stop preparing taxes for a fee. I, however, further believe that for the most part this will be no great loss. The preparation of 1040s is a profession and there is no room for “casual” professionals.

(4) Perhaps most important, the best way to reduce tax fraud, incompetently prepared tax returns, and the Tax Gap is to simplify the Tax Code

Here is where we part.

I believe, and Joe disagrees with me, that –

(1) The costs that tax preparers will need to incur to comply with the new regulation are not substantial, material or prohibitive. Serious tax professionals should already be attending CPE classes in federal taxation. The 15 hour requirement represents two days of classes – barely enough to remain current. I attend more than 15 hours per year in federal taxation, and I am sure so does Joe. So there is really no additional cost involved with this component. There will be a one-time cost of $100-$200 to take the test and an annual registration fee of $64.25. Certainly not a hardship, considering that these expenses are fully tax deductible as ordinary and necessary business expenses and therefore partially “reimbursed” through tax savings. Even if these costs are passed along to the client the increase in fees will not be substantial, material or prohibitive.
(2) While regulation will not prevent tax fraud it will help to reduce incompetence, as I have discussed above.
(3) The administrative cost to the IRS will be covered by the $50.00 component of the annual registration fee, or so we have been told. $50.00 multiplied by 1 Million plus tax preparers is a substantial amount of money. The federal budget, and therefore the mounting deficit, should not be increased by this system. And I do believe that the tax preparer gets a value worth at least what will end up being more like $45.00 out of pocket per year from the regime. This seems cost effective to me.
I trust I have been accurate in identifying Joe's positions.
I further believe that -

(1) The taxpayer consumer receives a definite benefit from regulation. He/she will now know that a person with the initials RTRP after his/her name at least has a minimal competency in 1040 preparation and remains current through required CPE. Prior to regulation, as I have pointed out time and again, any cafone could “hang out a shingle” as a “professional” tax preparer, and the taxpayer consumer has no way, other than the initials EA, to know if that person knows his/her arse from a hole in the ground about federal individual income taxes.

(2) The serious and truly professional previously “unenrolled” preparer, like me, will receive respect and recognition as a professional. The “urban tax myth” that a CPA is automatically a 1040 expert will finally be done away with. With the promised public education campaign on the regulation regime by the IRS the ability to use the initials "RTRP" in advertising will benefit the previously unenrolled tax pro.

(3) The IRS, and tax administration, benefits by way of a having a central registry of all tax preparers.

It looks to me like everyone benefits at a reasonable financial cost.

One of the comments made by a member of the IRS civilian oversight board, which helped to start the initial review by the IRS, does make some sense. He observed that his barber is required to have a license, but a person who prepares federal income tax returns is not.

My question to Joe is this - Since regulation does not work would you prefer that CPAs, attorneys, stock brokers, architects, engineers, doctors, etc not be regulated?