Friday, December 28, 2012


It is time for my annual tax year in review post.
The tax filing season went relatively smoothly.  Due to the idiots in Congress’ inability to think or act there was nothing new in actual tax law – what is taxable and what is deductible – and no unnecessary processing delays for 2011 returns (except for early returns filed electronically – which did not affect me).  The expiring Bush Tax cuts, the usual extenders, and BO’s American Opportunity Credit had all been extended through at least the end of 2011 in a relatively timely manner.  

I had been concerned before the season officially began (for me February 1st) that the major tax forms (1040, 1040A, Schedules A + B) were no longer available at local Post Offices – but soon discovered that the forms were now available (although in a bit less “bulk) at local libraries.  As a pleasant surprise I found that, while the libraries did not have NJ-1040 forms, they did have New York IT-201s and IT-203s!

The major issue of this tax season involved the new requirements for cost basis reporting, and the resulting new Form 8949 and the revised Schedule D.  For tax year 2011 brokers were required to report to client taxpayers, and to the IRS, the cost basis of most stocks, including foreign stocks, acquired on or after January 1, 2011 (“covered” securities) on Form 1099-B.

The Form 8949 was used to report the individual short-term and long-term transactions in three separate categories – sales where the cost basis was reported to the IRS on Form 1099-B, sales where the cost basis was not reported to the IRS on Form 1099-B, and sales that were not reported on a Form 1099-B.  A separate Form 8949 was required for each of the three categories.  The Schedule D served as a summary of the 8949s.

The various brokerage and mutual fund houses all responded to the new reporting requirements differently, some excellently and a few poorly.  This new system required some additional time, but only a few cases generated additional agita. 

The also new requirement of credit and debit card merchants and third-party payers like PayPal to report transactions to the IRS, and to the recipient, turned out, despite initial concerns, to be a non-issue, as taxpayers did not have to separately report this income on 2011 Schedules C, E, F and entity returns.

The only other major reporting change was in the format of Page 1 of the Schedule E (rental and royalty income and deductions).  This was a PITA at first (I really saw no need for the revisions), but I soon got used to it.

There were no major problems within my own practice during the season.  My new, faster, laptop, its cable access, and my copy machine ran smoothly throughout the 2½ months.  The printer, while deciding it would only print colored pages in pink, and the black printing being less than perfect, did not slow down operations.  There were no issues with my car or any personal concerns to distract and take time away from the job at hand.  And there were no individual client issues.

The Internal Revenue Service lost two of the major architects of the current tax return preparer regime in 2012 via resignation.  David R. Williams, first head of the Return Preparer Office, resigned at the end of August, replaced by Carol A. Campbell.  And Commissioner Doug Shulman stepped down on November 9th.  IRS Deputy Commissioner for Services and Enforcement Steven Miller, a 25-year veteran of the agency, took over as Acting Commissioner

David will certainly be missed.  While he and I disagreed on some of the details of the regulation regime, specifically exempting CPAs, attorneys, and “supervised employees” from the same requirements as other PTIN-holders and a grandfathering exemption from the test for experienced preparers, he did a good job as the face of tax pro regulation.

2012 was the first year that non-exempt PTIN-holders were required to take at least 15 hours of CPE in federal taxation, including 3 hours of updates and 2 hours of ethics.  As David predicted, many new CPE providers jumped on the bandwagon.  A number of tax preparer “quasi-membership” organizations sprang up during the year, most of them solely for the purpose of promoting for-profit companies’ CPE classes.  My email in-box has been chock-a-block with CPE offerings for the past few months.  I had considered becoming a CPE provider, but decided against it for now.

I have always taken more than the required 15 credits each year, most, if not all, being classes offered by the National Association of Tax Professionals.  2012 was no different – I ended the year with 24 credits of federal CPE (and 8 more of state tax CPE).

The constitutionality of “Obamacare” had been in question since its passage.  In June of this year the Supreme Court upheld the law. The Supreme Court’s decision, combined with President Obama’s re-election, ensured that Obamacare is here to stay, at least for a while, and its tax hikes will kick in next year.

The biggest tax story for 2012, once again (the 3rd year in a row this has been the biggest tax story!), was the continued inability of the idiots in Congress to accomplish anything.  The popular package of “extenders”, including the temporary AMT patch, expired on December 31, 2011, and the various Bush and Obama tax cuts and benefits are scheduled to expire on December 31, 2012.  As of this writing nothing has been done by the idiots in Washington to extend anything.  The result - the start of the upcoming tax filing season, and the processing of refunds, will be delayed, and the country faces what has been called “Taxmagedden” on January 1, 2013, as it tumbles over the “fiscal cliff”.  

Having done nothing all year, the idiots should have just extended everything expired and expiring through 2013 (similar to what they did in 2011) after the election and begin 2013 with serious work on serious tax reform.  At the very least they should have extended the AMT patch through the end of 2012.  But then again – they are idiots!

Over the past years the members of Congress have proven that they are incompetent and ineffective dolts with no concern for the American public, and are incapable of compromise or of independent thought.  The current Congress has one of the lowest approval ratings in history, although despite this fact most incumbents who ran in November were re-elected.  As I said earlier, I guess the thinking was the incompetent idiot you know is better than the incompetent idiot you don’t.   

And, according to the NBC report “Congress to Make History -- But for the Wrong Reason” (highlight is mine) -

By passing just 196 bills into law so far, it is in the running to become the least productive Congress since the 1940s.

In fact, that amount is 710 fewer public laws than was produced by the 80th Congress (from 1947-48), which first earned the moniker ‘Do-Nothing’ Congress.”

Christopher Bergin of THE TAX ANALYSTS BLOG read the minds of the idiots in Congress and quoted their Christmas message to America in his recent post “Tin Ear Tinhorns” –

Merry Christmas from Washington, D.C. Here’s your bag of coal.

It’s chilly here in Washington. We don’t care how it is where you are. We don’t care about your 401k plan. We don’t care about whether you have to pay the Alternative Minimum Tax for this year. We don’t care if you don’t get your tax refund on time or if you have to wait to file your tax return until July. We just don’t care.

In Washington, all we see is ourselves. We drive around in our self-important haze, yapping on our cell phones and cutting people off on I-66 because what we are doing is all that matters and is certainly more important than anything you’re doing.”

The 2011 Tax Offender of the Year Award, presented each year by Russ Fox of TAXABLE TALK, was Congress.  The criteria for the award – “it really needs to be a Bozo-like action or actions”.  Chances are very good that the idiots in Congress will be the recipient of this designation again for 2012.

There is nothing to indicate that the new Congress to be seated in January of 2013 will be any less incompetent or ineffective, or will have any more concern for the American public, than the current, retiring one.

And let us not forget that 2012 was a Presidential election year – which only further motivated the inaction of the idiots in Congress.  While the two-year campaign did highlight the need for tax reform, the result was a blow to the hopes for a substantive rewriting of the Code.  BO’s tax plank called for more complexity and confusion and continued misuse of the Code.  

At the end of my 2011 tax year in review post I predicted –

As 2012 is an election year it is expected that nothing of any consequence will be accomplished in the tax arena (or any other arena).  Next February the idiots in Congress will probably extend the payroll tax cut for the rest of the year, and, as I suggested above, next December they will pass the usual year-end extenders bill and also continue the ‘Bush’ tax cuts for another year or two.”

I was almost 100% on the money, except for the idiots extending everything in December. 

Let us hope that 2013 will see the passage of real tax reform – although I won’t hold my breath!

So, as I ask each year at the end of the post, did I forget anything?


1 comment:

Anonymous said...

The most bothersome item to this reader is the Alternative Minimum Income Tax for tax year 2012 and the AMT exemption patch that has not been passed. Even if Congress would simply use the same one from 2011, millions of families would be spared the dreaded tax. (I'm aware there is a Bill out there with an inflation adjusted new amount for 2012 but I'll be satisfied with just keeping the one from 2011.)

Simply put -- the difference between the $45,000 exemption amount (now current law) for MFJ and the $74,450 amount for the tax year 2011 leaves a difference of $29,450 multiplied by 26% (for AMTI income up to $175K) or a maximum additional amount of tax of $7,657 as the effect of not passing a patch at least equal to the one for tax year 2011. Any MFJ family's additional tax would obviously be dependent on the amount of itemized deductions. In my family's case, high New York property taxes plus high New York income taxes would not be allowed and our additional tax bill would be several thousand dollars more if no patch is passed. (Also dependent upon size of income, some families MFJ who take the standard deduction might be affected as well.)

I have done my citizen's best by writing and calling my 2 Senators' offices and also Congressional Representative's office numerous times over the past 6 months. On December 26, I called Harry Reid's office to complain as well. I sent an E-mail to the White House also. I left messages stating I blamed both sides as well as President Obama for the mess we are in. Perhaps more of us should pick up the phone, call and let the politicians hear our disgust!!!!!!

P.S. --- I have also been sitting at my computer running different scenarios --- pay the property taxes in 2012 (now) or postpone to January 2013 (with no knowledge of what the tax rates will be) but using assorted guestimate rates.

Will Congress retroactively patch the AMT in 2013 or 2012? If I as an individual am stymied by Congress' inaction, how will businesses figure out what the best course of action for their companies will be for 2013?