Friday, May 30, 2014


Be yourself; everyone else is already taken.”
Oscar Wilde

* Who would have guessed that I would agree with a group of CPAs?  We are told by ACCOUNTING TODAY that “NCCPAP Opposes Plan for IRS Private Debt Collection”.

The National Conference of CPA Practitioners joins many other voices in the know, including mine, to oppose using private collection agencies to collect unpaid tax debts on behalf of the IRS.

NCCPAP Tax Policy Committee chair Steven Mankowski has rightfully stated that –

Only federal employees, who have been screened and vetted through the Internal Revenue Service, should be permitted to represent the federal government in matters pertaining to individual taxes.”

* JK Lasser’s ASK JK feature provides a reader with the correct answer, but probably not the one the poser is hoping for, to a good question.

I inherited an annuity from my cousin. He paid $100,000 but it was worth $109,000 when he died. Is this taxable to me?

Sorry about your personal loss. The inheritance isn’t taxable, but receiving funds from the annuity is because your cousin never paid tax on this income. Sounds confusing, but it’s the same thing when inheriting an IRA—receiving the inheritance isn’t taxable but when distributions from the account are taken, the distributions become taxable. Unlike property that gets a stepped-up basis when the owner dies so that appreciation is never taxed, there is no similar rule for ordinary income; it remains taxable to heirs and beneficiaries.”

Distributions from these kinds of inherited investments, including IRAs, are taxed to the beneficiary the same way they would have been taxed to the deceased if they had been taken prior to passing.

* I can understand being frustrated and angry with an IRS auditor – but do not do what this guy did.  ACCOUNTING TODAY reports “Man Convicted of Threatening to Kill IRS Agent and His Family”.

Here is the story -

In April 2013, while continuing to work on the audit, the IRS revenue agent requested that Calcione and his ex-wife sign a consent form to extend the time to assess their taxes. Calcione signed the form, but his ex-wife did not. On July 12, 2013, the revenue agent left a voice mail message for Andrew Calcione asking about the status of the executed form.

Three days later, the revenue agent received two voice mail messages from Calcione. In the first message, Calcione allegedly threatened that if the agent called him again, he would show up at the agent’s home and torture him, rape and kill his wife and injure his daughter while the agent watched, before killing the agent. A second message left by Calcione requested the agent to disregard the first message, which Calcione said was left in error.

Knowingly and intentionally threaten to assault and murder an IRS revenue agent with intent to interfere with the official in the performance of official duties, and knowingly and intentionally threaten to assault and murder a member of the immediate family of an IRS revenue agent are each punishable by statutory penalties of up to 10 years in federal prison and a fine of up to $250,000.”

* ONLINE ACCOUNTING DEGREE PROGRAMS has an “infographic” on “Taxes Around the World” with some interesting “info”.

* Roger Wohlner, THE CHICAGO FINANCIAL PLANNER, lists “Six 401(k) Investing Mistakes to Avoid”.

I always thought TDF stood for Theatre Development Fund.

* ABOUT.COM’s William Perez wants to know if you have “Received Form 5498 in the Mail?”

Form 5498 is an information form only.  It is not a correction of previously reported information - and it is not late.  You do not have to file an amended return, or necessarily mail it to your tax pro.

* The following statement appears on the NJ Division of Taxation website on the “homepage” for the Homestead Benefit Program (the internal highlight is mine) –

2012 Homestead Benefit. The filing deadline for 2012 Homestead Benefit Applications was January 31, 2014. Eligibility requirements and benefit amounts for 2012 will not be finalized until the completion of the State Budget for FY 2015, which must be adopted by July 1, 2014. Homestead benefits for 2012 are expected to be applied to May 2015 property tax bills. Additional information on the 2012 homestead benefit will be posted when it becomes available.”

* And while we are talking about NJ property tax relief programs –

Gov. Chris Christie is expanding access to tax relief for New Jersey residents by extending the filing deadline for applications to the Senior Freeze (Property Tax Reimbursement Program) to Sept. 15, 2014.” 

Click here to read the press release.

Each year the initial deadline for the PTR applications is announced as June 1st (or, as was the case this year, June 2nd).  And each year the cafones in Trenton eventually extend the deadline to October 15 or 31.  Why don’t the idiots just make the original deadline October 15?

I expect the reason is so that the governor can look like a hero by deciding to extend the deadline so no senior or disabled homeowners miss out on the reimbursement.

* Before leaving New Jersey – the NJ chapter of the National Association of Tax Professionals has released its schedule of CPE for tax preparers for the rest of the year.  Click here to view the offerings.

NJNATP, of which I was a founding member, is celebrating its 25th “birthday” in 2014 – and will hold a special “Night to Remember” on the evening before its October 2nd Annual Conference.

The chapter’s annual “Famous State Tax Seminar” will be held on January 10, 2015.  This is a “must-attend” seminar for all tax pros who prepare NJ state payroll and income tax returns.

* Over at GETTING YOUR FINANCIAL DUCKS IN A ROW, Jim Blankenship continues his series on “Mechanics of 401(k) Plans” with a post on “Distribution”.

* KIPLINGER.COM provides an excellent article by Susan B Garland highlighting the importance of proper tax planning when deciding where and when to take money from various tax-deferred, tax-exempt, and current, or “taxable”, accounts during retirement, reminding retirees to “Tap Your Portfolio With Taxes in Mind”.

* FORBES.COM’s TaxGirl Kelly Phillips Erb brings us the word that the "Supreme Court Agrees To Hear Landmark Case On Whether States May Tax Income Earned In Other States”.

As Kelly tells us, the case asks the question -

Does the United States Constitution prohibit a state from taxing all the income of its residents — wherever earned — by mandating a credit for taxes paid on income earned in other states?

* According to Jason Dinesen, and similar to the case with many NJ state tax returns for married couples but perhaps more so, it is “more better” for two income spouses to file separate Iowa state income tax returns. 

However there are specific rules for claiming deductions that do not follow the federal return, as he explains in “From the Archives: Filing Separately on Your Iowa Return? Don’t Forget to Allocate Deductions” at DINESEN TAX TIMES.

A question for Jason – does Iowa tell separate filers how to allocate dependent children?    


Thursday, May 29, 2014


Click here to read NAEA President Lonnie Gary, EA’s May 23rd letter to IRS Commissioner Koskinen about the IRS proposed voluntary annual return preparer certificate program.

It appears that the main objection of NAEA to the current IRS proposal is the replacement of the original initial competency test used in the pre-Loving mandatory RTRP program with a “50-question ‘knowledge based comprehension test’ to be created by individual CE providers”.

It goes on to say -

CE by itself, even in combination with a ‘knowledge based comprehension test’, fails to provide a taxpayer with any assurance that the person preparing his or her return is even minimally competent to do so.”

Unlike the AICPA, the NAEA apparently does support a voluntary designation program.  The letter suggests –

In the alternative, IRS should consider a voluntary RTRP program. That program has been vetted thoroughly and has industry buy-in and the minimum level of rigor necessary to pass muster.”

In my opinion, required CE “by itself” does not fail to provide a taxpayer with assurance as to a preparer’s competence.  I believe that the annual CPE requirement is of more value than any initial competency test. Taking mandatory CPE in taxation suggests that the preparer remains current with the constant changes to the Tax Code.  Considering these constant changes, the initial competency test an applicant passes today may be at least partially obsolete a few years down the road.

The original “initial competency test” given under the mandatory RTRP licensing program was considered by many to be too easy – especially since it was “open book”.  

I agree that if there is going to be an initial competency test it should be "meaty".  My proposal for a two-tiered voluntary designation program, combining an RTRP and an EA component (see “What the IRS Should Do About the RTRP"), would call for a more extensive initial test, with a grandfather exception for experienced preparers who have taken CPE continually over the years.  The current Special Enrollment Exam for Enrolled Agents would be cut in two – with RTRP-level candidates (tier one) required to pass the portion of the SEE that applies to general 1040 preparation, and the EA-level candidates (tier two) required to pass the portions of the SEE dealing with more involved 1040 issues, entity taxes, and client representation.

What do you think?


Wednesday, May 28, 2014


I previously posted a series on how my clients were screwed by the US Tax Code during the tax filing season.  I now begin a series of posts on items, most good for my clients, that came up this year during the tax filing season and on GDEs.

Let’s start with a state tax issue.

The IRS, per IRS Field Service Advice FSA 200236001, permits parents with a dependent child in college, but whose AGI is too high to be able to claim the American Opportunity Credit (AOC) on their Form 1040, to elect not to claim the student as a dependent, and thus allow the dependent student to claim a non-refundable AOC on his/her tax return to wipe out any federal income tax liability. 

Here is how it works –

James Q Taxpayer, the son of John Q and Jane Q, was an unmarried full-time college student who had net taxable income for the year. John and Jane were entitled to claim James as a dependent.

During the year, James incurred expenses that qualified for the AOC. However, John and Jane's Adjusted Gross Income (AGI) was in excess of the maximum AGI threshold, and could not claim the credit.

James' tax liability, before any credits, was more than the amount of combined federal and state tax savings John and Jane would have realized by claiming James as a dependent.

John and Jane, although entitled to, did not claim James as a dependent on their 1040. James filed a tax return, but did not claim an exemption for himself. James did, however, claim the AOC on his return, which brought his tax liability to “0”.  None of the credit claimed on James’ return was refundable.

The original IRS proclamation involved the HOPE education credit – but, as the AOC has replaced the HOPE credit, it applies to the AOC as well.  And I also expect it applies to the Lifetime Learning Credit.

What about the corresponding state returns?  Since John and Jane did not claim James as a dependent on their Form 1040 can they claim him as one on their state returns?

In my practice I deal mostly with NJ state returns, and occasionally with NY state returns.  This year I had a client in this situation who worked in NY but lived in NJ, so the answer was needed for both NJ and NY returns.  FYI, my clients were victims of the dreaded Alternative Minimum Tax (AMT), so they would receive no tax benefit from claiming their college student son as a dependent.

The instructions for the NY state non-resident and part-year resident return, Form IT-203 (and I expect also for the IT-201 resident return), tells us (highlight is mine) -

Also enter the required information for any dependent for whom you were entitled to claim an exemption on your federal return but chose not to (see Example below). If you did not have to file a federal return, enter the required information for each dependent for whom an exemption would be allowed for federal income tax purposes.

Example: You were entitled to claim your daughter as a dependent on your federal return but chose not to in order to allow her to claim a federal education credit on her federal tax return; you may still claim her as a dependent on your New York State return.”

So my clients could claim their son as a dependent on their 2013 Form IT-203.  The clients were also able to claim $10,000 in tuition and fees (the maximum) as an additional state itemized deduction on the IT-203, as their son was an undergraduate (the deduction is not available for graduate school tuition).

What about New Jersey?

Here is what the instructions for the NJ-1040 say (again, highlight is mine) –

You may claim an exemption for each dependent child who qualifies as your dependent for Federal income tax purposes”.

While the NJ instructions do not specifically address the situation, as the NY instructions do, one can imply that my clients’ son can be claimed as a dependent on their NJ-1040 because he “qualifies as {their} dependent for Federal income tax purposes”.  The instructions do not say he has to actually be claimed as a dependent - just that he qualifies - which he does.

Good news for my clients!

I do not know has other states treat this issue – but I would think most do the same as NY and NJ. 

I would appreciate hearing from tax pros in other states on how their state treats this issue.


Tuesday, May 27, 2014


I take exception to the above comic strip that I came across in Saturday’s paper!

Due to the holiday week-end today’s BUZZ is lean.

* And the beat goes on.  Jason Dinesen bring us the latest on the ridiculous new regulations for EROs “IRS Clarifies New E-file Rules” - 

This IRS this afternoon confirmed to me and other practitioners who had been making the IRS’s lives miserable the last few days that: the new e-file rules apply only to electronically signed e-file authorizations. And ‘electronically signed’ means signed by some means other than pen-to-paper.

So for most prepares, included me, the new rules don’t apply because most of us aren’t using electronic signatures.”

Regardless of who or why – requiring tax preparers to do background and credit checks on clients remains utterly ridiculous, and, as Jason has previously pointed out, probably illegal and harmful to the clients being checked.  EROs should join together and write to the IRS en masse stating that they refuse to comply with this new regulation.

* ACCOUNTING TODAY tells us that the IRS Oversight Board joins the growing list of those (including me and NTA Nina Olsen) who opposing using outside collection agencies to collect alleged outstanding tax delinquencies in “IRS Oversight Board Opposes Private Debt Collectors” (highlight is mine) -

’The concept has already failed twice,’ said IRS Oversight Board chairman Paul Cherecwich, Jr., in a letter Tuesday to the leaders of the House Ways and Means Committee and the Senate Finance Committee. ‘When direct administrative costs are included, which the Joint Committee on Taxation failed to do, the program costs more to administer than the revenue retained. We concur with the NTA in that outsourcing federal debt collection is a bad idea and it makes little sense to resurrect.’

* I recently noticed the below statement on the home page of the NJ Division of Taxation -

Taxpayers that made a final payment with their 2013 New Jersey Tax Return may have received a notice of underpayment from the Division of Taxation. We are correcting all of the accounts and will process refunds expeditiously to those who may have overpaid.  If you would like to confirm your account balance, please contact us at 609-292-6400.”  

The statement addresses the perennial problem (happens every few years) of applying current year manual balance due payments to the prior year’s tax account.  It looks like (I assume from the wording of the statement) this time NJDOT will automatically refund the overpayment – instead of keeping mum and hoping that the affected taxpayers do not discover the FU as had been the policy.  In the past I had to separately request a refund for each affected client.

This is a good sign.  But the NJDOT needs to go further and send a letter explaining and apologizing for the FU to each taxpayer who received an erroneous billing notice – for this FU and the other FUs that have recently been discovered.

* FORBES.COM’s TaxGirl Kelly Phillips Erb deals with a timely topic in “12 Tax Tips To Consider When Buying A Shore Or Vacation Property This Summer”.


Friday, May 23, 2014


There was enough important BUZZ since Wednesday to do a normal Friday installment.
* One of my posts on how the US Tax Code screws taxpayers was included in the weekly ACCOUNTING TODAY BUZZ-like “In the Blogs” series titled “Back to the Grind”.

* NJ seniors, disabled, and lower-income homeowners - don’t expect to get a NJ Homestead Benefit credit on your 3rd Quarter 2014 real estate tax bill.  USA TODAY reports - “Cash-Strapped N.J. to Delay $400M in Tax Relief” -

State Treasurer Andrew Sidamon-Eristoff announced Wednesday that nearly $400 million in property tax relief to residents will be delayed by up to nine months in an effort to help close an $807 million budget shortfall. That money was scheduled to be disbursed in the first quarter of fiscal year 2015, which will begin July 1. Instead, the state now has until June 2015 to give the money back to residents.

But the state will maintain the option of lapsing the payments into fiscal year 2016, which will begin on July 1, 2015.”

New Jersey, which revealed a massive budget shortfall this week, is far from alone in feeling the pinch of lower income tax revenues in the key month of April, a Reuters analysis shows.

Personal income tax collections plunged last month from a year earlier in 27 of 32 states for which Reuters was able to collect data. That's most of the 43 states that levy income taxes, and drops were as high as 50 percent.

* Continuing the discussion on the recently published ridiculous IRS regulations for Electronic Return Originators (ERO) that tells tax pro to do a credit check on clients to verify their identity, Jason Dinesen list some “Questions to Ponder About New IRS E-file Requirements” at DINESEN TAX TIMES.

Here is an interesting one -

Question Four: Does the IRS understand that people’s credit might get dinged from pulling credit reports?

My attorney pointed out that typically, a person’s credit score gets dinged every time a credit report is pulled. Has the IRS contemplated this potentially negative consequence?

* The NATP TAXPRO Weekly e-letter told us about “IRS Direct Pay”.

IRS Direct Pay is a free online service that gives taxpayers the ability to pay their tax bills or make estimated tax payments directly from their checking or savings accounts without having to pre-register. With IRS Direct Pay, taxpayers receive instant confirmation that the payment has been submitted. The IRS will not retain bank account information once it receives payment. The steps include providing your tax information, verifying your identity, entering your payment information, providing an electronic signature, and reviewing and recording your online confirmation.”

* POLITICO PRO reveals “Lawmakers Have Bigger Tax Woes than IRS Workers” –

The IRS, which has a 0.9 percent tax delinquency rate, has come under fire in recent weeks when an agency watchdog found that it had paid $1 million worth of performance awards to about 1,100 IRS employees with tax-compliance problems.”

But -

About 4.9 percent of all House employees, including lawmakers, have an unpaid tax liability. Those 486 employees owe Uncle Sam about $5.8 million.

Across the Rotunda, Senate staff and legislators have a 3.2 percent delinquency rate, with 228 employees owing $2.7 million in taxes.”

* USA TODAY brings us similar news via “Federal Employees Owe $3.3B in Back Taxes” –

Federal employees owe a total of $3.3 billion in back taxes to the federal government, according to Internal Revenue Service data released Thursday.

In all, 318,462 federal employees owed back taxes as of last Sept. 30 — an increase of 2.6% from the previous year. That puts the average tax bill at $10,391, according to IRS data obtained by USA TODAY under the Freedom of Information Act.”

* A “tweet” from the NATIONAL SOCIETY OF TAX PROFESSIONALS led me to an “RTRP Program Update” (highlight is mine) -

May 22, 2014 – Carol Campbell, Director of the Return Preparer Office (RPO) announced today in a National Public Liaison (NPL) conference call that the RTRP program is officially dead, that the RTRP credential no longer exists and cannot be used by those who had qualified earlier.

The IRS is working on a voluntary certification program which may include those who had taken and passed the RTRP exam.”


Thursday, May 22, 2014


The BUZZ is particularly meaty already – so I decided not to wait until Friday.

* For once I agree with a lawyer – specifically Daniel M. Berman, a principal in McGladrey LLP’s international tax practice and adjunct professor at Boston University School of Law, who JOURNAL OF ACCOUNTANCY quotes in “Tax Lawyer: Code Reform Stymied by Dysfunctional Congress” (highlight is mine) -

Consequently, Berman said, despite recent congressional committee hearings and several pending proposals to reform the Internal Revenue Code, ‘There’s just no productive legislating going on, and that means there aren’t going to be any major developments in the tax law passed until something major changes in the way Congress operates. That’s not happening in the next few years.’
Did I tell you that the current members of Congress are idiots?

* It seems that May 19th was National Accounting Day.  News to me.  To celebrate YAHOO FINANCE republished “25 Jokes That Only Accountants Will Find Funny” from Business Insider.

Here are a few -

What does CPA stand for? Can't Pass Again.”  I always thought CPA stood for Constant Pain in the Arse.

A fine is a tax for doing wrong. A tax is a fine for doing well.”

Why did the accountant cross the road? Because she looked in the files and did what they did last year.”

What's the difference between an accountant and a lawyer? The accountant knows he's boring.”

In a sole proprietorship, the proprietor is free to take money out of the business at any time, of course. People often refer to this informally as ‘taking a salary’. But it’s not really a salary. In tax terminology, it’s called taking a ‘draw’.

For tax purposes, draws are a ‘nothing’, meaning they are not accounted for on the tax return at all.”

* Jean Murray answers the question “What is the Benefit of Electing S Corporation Status?” at ABOUT.COM: US BUSINESS LAW/TAXES.

An LLC, which provides similar liability protection to incorporating, with two or more members can elect to file as a sub-S corporation (actually it elects to file as a corporation and then applies for sub-S status).  But filing as a partnership, the default entity, can provide more flexibility in allocating profits and losses.

* A reminder from the CCH week-day daily Federal Tax Headlines – “IRS Taxpayer Advocate Criticizes Proposal for Private Debt Collectors”.  

Nina Olsen and I are not the only ones who are strongly opposed to using outside collection agencies to collect tax debt.

The proposal has also drawn fire from consumer groups and civil rights organizations such as the NAACP, the National Council of La Raza, the Consumer Federation of America and the National Consumer Law Center. These groups cite ongoing problems with overaggressive private debt collectors used to rein in unpaid student loan debt. Their letter to lawmakers can be found at -

IRS Commissioner John Koskinen recently testified before a House Ways and Means Oversight Subcommittee hearing that the Service would have difficulty monitoring conversations between taxpayers and PCAs. IRS employees are held personally accountable, but PCAs present a more complicated oversight problem, he told lawmakers.’

I refuse to deal with outside collection agencies when it comes to federal or state income tax issues.  I tell the collection agency I will only deal directly with the IRS or appropriate state Department of Taxation or Revenue.

* Over at PROCEDURALLY TAXING, a new (to me) tax blog I just discovered via Joe Kristan’s daily tax round-up post, Keith Fogg adds his voice to Nina’s and mine in opposing  Private Debt Collection – An Idea Whose Time Will Never Come”.

* In looking at recent posts at PROCEDURALLY TAXING I came across a very detailed guest post from my twitter buddy, and lawyer for the successful plaintiffs in Loving v IRS, Dan Alban that tells us “Loving Victory is Final And Why That Is a Good Result For Taxpayers and Preparers”.

The post also tells us why a voluntary RTRP program is a good thing.

Fellow bloggers Joe Kristan (CPA) and Jason Dinesen (EA) feel a voluntary RTRP designation will result in “destroying whatever is left of the Enrolled Agent brand”.  But it does not have to if the IRS follows my advice from “What the IRS Should Do About the RTRP” and makes the RTRP credential part of a two-tiered program in conjunction with a newly named EA designation, and provides proper public education on the differences in the two tiers.

Of course better than the IRS offering a voluntary RTRP is what I suggested in “It’s Time for Independent Certification for Tax Preparers”.  But an IRS-sponsored voluntary RTRP program would be easier and faster to get up and running.

* The other NSA, of which I am a member, provides a “Tax Prep Fee National Averages [Infographic]

* Jim Blankenship provides help with GETTING YOUR FINANCIAL DUCKS IN A ROW by identifying the “Types of Rollovers Not Subject to the Once-Per-Year Rule”.

* It takes a big man.  "I Was Wrong: We SHOULD Be Outraged About the New IRS E-File Requirements,” says Jason Dinesen of DINESEN TAX TIMES.

Check out the letter he sent to the IRS, which includes –

In addition, I talked to my attorney and he’s not sure it’s even legal in Iowa to pull credit reports on people except for purposes of verifying their creditworthiness.

I would also like to tell you what my attorney said regarding these new requirements. He said, quote, ‘That’s just dumb.’ I agree. One could insert many different adjectives and expletives in place of ‘dumb’ to describe these requirements.”

Dumb is a good description.
See also Joe Kristan's Tax Roundup commentary on this nonsense.

As I have continually said, thank the Lord this does not affect me.  Another reason why I will continue to prepare all my federal income tax returns manually.



Tuesday, May 20, 2014


* It seems that the “AICPA Opposes IRS Voluntary Tax Preparer Certification”.  So says ACCOUNTING TODAY.

I do believe the AICPA was in favor of mandatory licensing/regulation of tax preparers (which exempt CPAs), as per their own article “AICPA Supports IRS Tax Return Preparer Program at Congressional Hearing” from September of 2011 -

The American Institute of Certified Public Accountants supports the Internal Revenue Service’s program, as it is currently structured, to regulate tax return preparers, Patricia Thompson, chair of the AICPA Tax Executive Committee, told members of the House Ways and Means Oversight Subcommittee at a hearing on July 28.”

If a mandatory program with testing and required CPE in taxation is a good idea because it would identify competent tax preparers, why would the same program with the same requirements for certification offered on a voluntary basis not also be a good idea, since it would still identify competent tax preparers?

Clearly the AICPA is afraid, and rightfully so, that a voluntary RTRP certification would take 1040 business away from its members – because the designation would identify individuals who have proven competence specifically in 1040 preparation.  Currently the taxpayer public erroneously thinks that the initials CPA are an indication of a person’s competence in 1040 preparation, which is simply not true. 

I believe that the voluntary RTRP program should be open to CPAs who prepare 1040s, as a way to identify CPAs who are competent and current in 1040 preparation. 

* Peter J Reilly of FORBES.COM wonders “How Much Of Alimony Tax Gap Is From Gaming The System?”.

He is concerned, and rightfully so, about the findings of a recent TIGTA report –

According to the TIGTA report there were 567,887 Forms 1040 for 2010 that had alimony deductions.  The total claimed was $10 Billion.  When they compared the corresponding returns that should have recorded the income, there were discrepancies on 266,190 returns including 122,870 returns that had no alimony income at all reported.  There were nearly 25,000 returns where the income recognized was greater than the deduction claimed which produced a bit of an offset ($75 million).  On net, deductions exceeded income by $2.3 billion.”

Peter rightfully ponders –

If you don’t report interest income that you get a 1099 for, there is a pretty good chance you will get a notice from the IRS, so why doesn’t the same thing happen with alimony?

I am surprised to learn of this problem.  Several years ago I had a client who correctly deducted alimony paid, which was not reported as income on the recipient’s return.  The discrepancy occurred because of poor wording in the divorce agreement.  The IRS identified the discrepancy in its matching program, added-back the alimony deduction, and billed my client for additional tax, penalty, and interest.  It took a long time, and the eventual involvement of the Taxpayer Advocate Service, to get the issue resolved and the alimony deduction upheld.

There are reasons why alimony deducted on one return may not be reported on the recipient’s return.  While called alimony in the divorce agreement payments may really be disguised child support (payment ends not on the remarriage or death of the ex-spouse, but when a child turns age 18, or graduates from college).

There is obviously a problem that the IRS should address as a priority.

* FORBES/COM’s TaxGirl Kelly Phillips Erb brings us an update on the status of the “extenders” in “Tax Extenders Bill Stalled In Senate”.

It appears nothing has changed – the idiots in Congress remain unable to compromise, and therefore unable to do anything.

Kelly reports “chatter suggests that we won’t hear about it again until after the elections”.  So once again we will have to wait until the end of the year to find out if these tax breaks have been extended.  What idiots! 

* Apparently “Deadlines for Us, But Not for Them (Part 2)”, the “them” being the IRS, according to Russ Fox at TAXABLE TALK.

Russ speaks of a specific situation where an initial IRS notice was incorrect, more often than not the case, and Russ, as the return’s preparer, wrote to the Service to explain their error.  It is taking forever for the IRS to actually read the letter and deal with the issue.

Luckily I have not had a similar situation in my IRS dealings.  This has been my experience –

The first response to literally every letter I send to the IRS on behalf of a client is a form letter sent to the client, about a month or two after I mailed out my correspondence, stating “we need 45 more days to review the issue”.  45 or so days later a second letter is sent to the client saying, “we need another 45 days to review the issue”.  45 or so days later a third letter is received that usually tells the client that the issue has been resolved and no additional tax is due. 

So it takes about 5 months for the IRS to read, review, and act on a letter.  But during this 5 months, at least in my experience, there is no further collection activity.

I do sympathize with Russ’s frustration.  The IRS expects taxpayers to respond to IRS notices promptly, but they take forever to properly respond to taxpayer correspondence.

* The TAX POLICY CENTER proposes for discussion 4 “Updated Options to Reform the Deduction for Home Mortgage Interest” and the deduction for real estate taxes.

I do not support any of the 4 options.  I would keep the current deductions for mortgage interest on acquisition debt on your primary principal residence only (no itemized deduction for second or vacation properties or home equity debt on borrowings not used to buy, build, or substantially improve) and real estate taxes on your primary principal residence only.

What do you think? 

* ACCOUNTING TODAY announces “Tax Relief Available for Storm Victims in Florida”.

The IRS is offering tax relief to victims of severe storm, winds and flooding that affected parts of Florida in late April.

Following official disaster declarations by FEMA, the IRS announced that tax relief would be available to affected taxpayers in Escambia and Santa Rosa Counties, and later added Okaloosa and Walton Counties.

The IRS has postponed many deadlines that would normally fall between April 28 and October 15 to October 15, including the June 16 and September 15 deadlines for making quarterly estimated tax payments, as well as a variety of business tax deadlines.

* An extended “tweet” from @URTaxlady, aka Kathy Bylkas ‏with the word on 2014 depreciation limits for “luxury” autos -

The IRS has published depreciation limits for business vehicles first placed in service this year.

50% bonus depreciation is no longer allowed for business equipment purchases, including vehicles. Here's a quick review of the adjustments for 2014.

For business cars first placed in service this year, the first-year depreciation limit is $3,160. After year one, the limits are $5,100 in year two, $3,050 in year three, and $1,875 in all following years.

The 2014 first-year depreciation limit for light trucks and vans is $3,460. Limits for year two are $5,500, in year three $3,350, and in each succeeding year $1,975.”

* Nothing really to do with taxes – more of an FYI.  NJ.COM tells us “N.J. Community Earns Top Honors on 'Richest in America' List”.

New Jersey is home to the wealthiest zip code in the United States, according to a report on

The report, citing data from the U.S. Census Bureau and presented by FindTheBest, found that Short Hills is the richest community in America.

Just over 69 percent of households in the Essex County zip code, which has a population of approximately 13,000, make more than $150,000 annually, the report found.”

I am very familiar with Short Hills, having worked for decades in neighbor Summit NJ.  I currently have one client in this zip code, unfortunately not among the 69%.


Monday, May 19, 2014


The DFBs (clean version = damned fool bureaucrats). 

We are told (highlight is mine) -

New Jersey wrongly notified about 2,000 taxpayers that they underpaid their 2013 taxes, but the state won’t notify them about the error unless the taxpayer asks, possibly causing taxpayers to send the state money that wasn’t owed.”

And –

The state confirmed it isn’t sending notifications to the affected taxpayers to tell them the amounts are not owed. Instead, Perone {Dept of Treasury spokesperson – rdf} said, the state explains the problem when someone calls and asks.”

This is not the problem I thought it was when I first saw the headline.  This problem concerns errors in processing 2013 state estimated tax problems.

Another frequent problem that has raised its head again this year involves taxpayers making payments by check using pre-printed 1040-V payment vouchers.  I encountered this systemic FU on two separate occasions in the past for clients whose NJ-1040 I submitted via NJWebFile.  Already I have heard from one client this year, whose balance due return I submitted via NJWebFile, who received an erroneous balance due notice from NJDOT.

What happens is the payment is incorrectly applied to the previous year’s tax account – which would result in an overpayment for that year.  However, unlike the IRS, NJDOT does not notify the taxpayer of the overpayment.

I have always said NJDOT does this purposefully – hoping the taxpayer does not discover the error, pays the tax again when erroneously billed, and allows the state to keep the double-payment to waste on entitlements and pork.  This article verifies that this is true.

NJDOT is quick to notify a taxpayer if it thinks that he/she made a mistake and underpaid their taxes.  It has a fiduciary and ethical responsibility to notify taxpayers when it, NJDOT, makes an error or receives an overpayment.

The Director of NJDOT should send a letter to each person who received the erroneous notice explaining the error and apologizing for the error. If a taxpayer sends a payment in response to the erroneous notice the payment should be automatically and immediately returned with a letter of apology.

Please write to Governor Christie to tell him this despicable practice by NJDOT is not acceptable. 

If you receive a balance due notice from a state tax agency, or the IRS, give it to your tax preparer immediately.  If you prepared the return yourself consult a tax pro.

NEVER, NEVER just automatically pay a balance due notice without first checking it out thoroughly and carefully.  More often than not it is wrong.


Friday, May 16, 2014


Here is one reason how I know I live in “the country” – the What to Do column in the local newspaper tells me there will be a “Manure Management Workshop” this week-end.  And it has nothing to do with political public relations issues.

* Check out my latest article at MAINSTREET.COM - “Now That the Tax-Filing Season Is Over, Be Sure Of This Checklist”.

The issue has come to its final conclusion when the IRS “declined to file a petition seeking review from the U.S. Supreme Court. The lapse of the deadline marks the conclusion of a two-year battle over whether the IRS had the authority under the ‘Horse Act’ of 1884—a statute passed to govern compensation claims for dead horses brought on behalf of Civil War veterans—to impose a nationwide licensing scheme on tax preparers.”

The release quotes my twitter buddy Dan Alban, lead attorney for the plaintiffs in Loving v IRS -

This brings finality to a major victory for independent tax preparers—and taxpayers—nationwide.  Four federal judges sitting on two different courts have all agreed that Congress never gave the IRS the power to license tax preparers, and an agency cannot just give itself such licensing authority. By not filing a petition for certiorari, the IRS has wisely chosen not to ride this horse law any further.

This doesn’t mean the IRS has given up.  It has asked Congress to give it the authority to license tax preparers.  But I doubt it will succeed in this attempt either.

The new Commissioner had talked about creating a voluntary RTRP program, which I suggested in a letter to him on his confirmation, but has done nothing to move this idea along.

* In her article on this subject for the SAN FRANCISCO CHRONICLE, titled “IRS Misses Deadline to Appeal Tax Preparer Rules Rejection”, Kathleen Pender mentions the possibility of a voluntary RTRP program and quotes Bob Kerr, senior director of government relations with the National Association of Enrolled Agents (NAEA) - 

The enrolled agents association would oppose it, Kerr said. ‘The public will be confused and think that ... is some sort of assurance that folks know what they are doing. We don't think that's the case.’"

As Dan Alban, lawyer for the Institute for Justice, tweeted – “Huh?”. 

If a tax preparer is required to pass a competency test and maintain annual CPE in taxation then this is an “assurance that the folks know what they are doing” (NAEA supports a mandatory RTRP licensing scheme).  But if a tax preparer voluntarily chooses to pass the same competency test and maintain the same annual CPE in taxation this is not an “assurance that the folks know what they are doing”???

The NAEA is worried that a voluntary RTRP program will “dilute” the value of the EA designation in the eyes of the taxpayer public.  Perhaps.  But if the IRS structured it as a two-tiered designation program in conjunction with the existing EA program (with a better name for the EA), as I have proposed (see “What the IRS Should Do About the RTRP”) this would not happen.

* The title of this item from TAX PRO TODAY should come as no surprise, at least to me – “IRS Made Improper EITC Payments of $13.3-$15.6 Billion”.  I actually expect the number is higher.

We are told –

The Internal Revenue Service allowed an estimated $13.3 billion to $15.6 billion to be paid in improper claims for the Earned Income Tax Credit last fiscal year, or about 22 to 26 percent of all EITC payments, according to a new government report, which found the IRS continuing to be noncompliant with a 2010 law that sought to limit improper payments.

The IRS continues to make little progress in reducing improper EITC payments, according to the report, which was publicly released Tuesday by the Treasury Inspector General for Tax Administration.”

Refundable credits are a magnet for tax fraud and do not belong on the Form 1040!
* Jason Dinesen begins what appears to be a series of posts at DINESEN TAX TIMES on “Things Tax Preparers Say” on the subject of “S-Corporation Compensation”. 

It is very true that “the topic of S-corporations and the salary that needs drawn by the owner(s) of the S-corp” is indeed a controversial one, and many so-called tax professionals give bad, or flawed, advice on the topic – as the CPA did in this example.

You will, of course, notice that the false information was provided by a CPA.

When it comes to tax advice, individual, partnership, trust and estate or corporate, when you have a choice of listening to a CPA or an EA you should pick the EA every time.

* Jim Blankenship, the “go-to” blogger when it comes to Social Security issues, discusses “Social Security Spousal Benefits After a Divorce” at GETTING YOUR FINANCIAL DUCKS IN A ROW.

* National Taxpayer Advocate Nina Olsen joins me in my opposition to the use of outside collection agencies by the IRS.  She lists her concerns with the Private Debt Collection (PDC) program in a letter to the Senate Finance Committee.  Click here to download. 

Her concerns include -

·   The government’s objective of maximizing long-term compliance without causing financial hardship for taxpayers is fundamentally different from the profit-maximizing objective of a private collection agency.”

·   The Internal Revenue Code contains strict confidentiality rules to ensure that taxpayer data is shielded from disclosure. Providing taxpayer identifying information to private companies creates risks that this data will be misused.”

·   Congress has imposed strict penalties on IRS collection employees who are abusive to taxpayers, but these penalties do not apply to PCA employees who are abusive to taxpayers.”

·   IRS employees are instructed to be straightforward in dealing with taxpayers and the IRS publishes its instructions to staff in the Internal Revenue Manual. By contrast, the PCAs instructed their employees to use “psychological” techniques to pressure taxpayers to agree to payments and attempted to shield those instructions from disclosure.”

Let us hope the idiots in Congress listens to Nina on this issue.

* Professor Annette Nellen celebrated the “7th Anniversary of 21st Century Taxation Blog”.  Happy Anniversary!

* An important reminder from MISSOURI TAXGUY Bruce MacFarland –NO! The IRS Did Not Call You First”.

Just as the IRS will never initiate contact with a taxpayer via email, Bruce correctly tells us (highlight is his) –

The IRS will never initiate an audit contact by phone. Never – Ever.